Judicial Update -
Delhi High Court - Under section 21 of the Arbitration and Conciliation Act, 1996, notice is mandatory pre-requisite for invoking jurisdiction.
In the case of Amit Guglani v. L&T Housing Finance [ARB.P. 1317/2022], Respondent No. 1 is a financial company, while Respondent No. 2 is a real estate developer. The Petitioner sought to book a unit in Respondent No. 2's project and obtained a loan from Respondent No. 1. A Tripartite Agreement was executed between the parties, including an arbitration clause with Delhi as the designated jurisdiction.
However, separately from this agreement, the Petitioner and Respondent No. 1 entered into a loan agreement containing a distinct arbitration clause with Calcutta as the designated jurisdiction. Although Respondent No. 1 initially approved the loan, they subsequently increased the Basic Prime Lending Rate ("BPLR"), leading to a dispute between the parties. The Petitioner protested against this rate increase, but Respondent No. 1 responded by sending a legal notice and a demand letter.
Subsequently, the Petitioner filed a complaint before the Ombudsman and attempted reconciliation, but the dispute remained unresolved. Feeling aggrieved by Respondent No. 1's actions, the Petitioner invoked the arbitration clause and approached the Court seeking the appointment of an Arbitrator.
The Court observed that the Tripartite Agreement is the central agreement, and it's closely connected to the Loan Agreement. Both agreements are interdependent, and the payment of pre-EMIs/EMIs and the liabilities of the Petitioner and the Respondent No.2 are tied to the Tripartite Agreement.
It was also observed that the core dispute in this case revolves around the increase in BPLR. The Tripartite Agreement clearly links the loan interest rate to the lender's BPLR, and since the Respondent No.2 had to pay pre-EMIs during the subvention period, these two issues are interconnected. Further, the Court observed that the scope of both the agreements was overlapping that they are interconnected and inextricably linked to each other with the tripartite agreement being the main agreement.
Further, it was held that when disputes under two connected agreements had different Arbitration Clauses, the disputes should be resolved under the main or umbrella agreement and the arbitration clause contained therein should be given primacy over that contained in the connected agreement.
Next, the Court dealt with the objection regarding the absence of notice under Section 21 of the Arbitration and Conciliation Act, 1996 (“Act”). It held that Section 21 of the Act, notice is a mandatory pre-requisite for invoking jurisdiction. The Court held that a petition under Section 11 of the Act can only be filed when the parties fail to appoint the arbitrator in terms of the procedure agreed upon by the parties and Section 21 of the Act is an important element of this procedure as it provides for the request to be made to the other party for reference of the dispute to Arbitration, therefore, without a request there cannot be a failure which a sine qua non for Section 11(6) of the Act to come into play.
The Court further clarified that even when the agreement provides for unilateral appointment of the arbitrator, it doesn't exempt a party from adhering to the notice requirement stated in Section 21 of the Act. It also rejected the petitioner’s argument that the email sent by it wherein it had stated about the need for third-party assistance to resolve the dispute would tantamount to a notice under Section 21 of the Act. The Court held that for a communication to constitute a Section 21 of the Act, it must at the very least, refer to the clause in the contract which envisages reference of the dispute to arbitration.
Hence, the Delhi High Court dismissed the Petition.