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A-ID Systems (I) Pvt. Ltd., Chennai v/s M/s. Aartha Technologies Services, A Registered Firm, Represented by its partners, Chennai & Others

    Arb. O.P. (Com.Div.) No. 323 of 2021
    Decided On, 07 September 2022
    At, High Court of Judicature at Madras
    For the Petitioner: C. Kaveen, Advocate. For the Respondents: R1, R2, R3 & R5, Ramasubramaniam Raja, Advocate, R4 - No Appearance.

Judgment Text
(Prayer: Arbitration Original Petition filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 praying to appoint a sole Arbitrator to adjudicate upon the disputes between the petitioner and the respondents arising out of the Memorandum of Understanding dated 19.05.2016.)

1. The petitioner entered into a Memorandum of Understanding [MOU] dated 19.05.2016 with the first respondent herein, which is a registered partnership firm.

2. Under the MOU, the petitioner was required to supply products to the first respondent and payment terms were also specified therein. Pursuant thereto, the petitioner issued an invoice for a sum of Rs.66,41,250/- and a dispute arose between the parties in view of nonpayment thereof in full.

3. Therefore, the petitioner issued a notice dated 23.04.2021 demanding payment and informing the respondents that the said notice should be construed as a notice of arbitration if the demand is not satisfied.

4. Learned counsel for the petitioner states that respondents admitted liability vide email dated 08.08.2017 and, thereafter, failed to pay their dues or respond to the notice dated 23.04.2021.

5. This petition is opposed by the respondents primarily on the ground that the petition was not preceded by a notice under Section 21 of The Arbitration and Conciliation Act, 1996 (Act 26 of 1996) [Arbitration Act]. By drawing reference to notice dated 23.04.2021, learned counsel for the respondents contends that the petitioner did not nominate an arbitrator under this notice and, therefore, the notice does not satisfy the requirements of Section 21 of the Arbitration Act. In support of this contention, learned counsel refers to a judgment of the Delhi High Court in Alupro Building Systems Pvt. Ltd., vs. Ozone Overseas Pvt. Ltd., 2017 SCC Online Del 7228. In particular, paragraph Nos.23, 27 and 28 thereof were relied on for the proposition that a notice under Section 21 of the Arbitration Act is mandatory and that such notice serves multiple purposes, including of letting the counter party know the name of the person proposed to be appointed as an arbitrator. Learned counsel also relies upon an order of this Court dated 23.04.2019 in O.P.No.154 of 2016, wherein the judgment of the Delhi High Court was referred to and reproduced in relevant part.

6. It is the settled legal position that a notice under Section 21 of the Arbitration Act is mandatory inasmuch as the date of receipt thereof is the date of commencement of arbitral proceedings. Such date, consequently, is critical for determining limitation. In this case, there is no disputation that clause 13 of the MOU provides for resolution of disputes through arbitration. By notice dated 23.04.2021, the petitioner called upon the respondents to pay a sum of Rs.36,41,250/- and also put the respondents on notice that the said notice should be construed as the notice of arbitration under clause 13 if the demand made in the notice is not complied with. The admitted position is that the notice was not replied to and that, eventually, the petitioner was constrained to present this petition in December 2021.

7. The principal object of Section 21 of the Arbitration Act is to put the counter party on notice that the dispute resolution clause under the contract has been invoked so as to enable the process of constitution of the arbitral tribunal to be set in motion. As stated earlier, it also serves the purpose of determining the date of commencement of arbitral proceedings, which would function as the end date for limitation purposes. In my view, the notice dated 23.04.2021 qualifies as a notice under Section 21 of the Arbitration Act. This is not a case where the respondents replied to such notice and proposed a sole arbitrator to resolve disputes. If the petitioner had rushed to Court without endeavouring to constitute the arbitral tribunal as per contract it could have been concluded that the petition is premature. In this case, the petitioner was constrained to approach this Court after the lapse of almost 7 months because the respondents did

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not respond. 8. For the reasons set out above, this petition is liable to be allowed. Accordingly, Ms.Chitra Narayan, Advocate (Mobile No:90940 31934), is appointed as the sole Arbitrator to adjudicate the disputes. The sole Arbitrator is directed to enter upon reference and adjudicate the disputes in accordance with law. It is open to the learned sole Arbitrator to fix the fees and expenses in relation to the arbitration proceedings.