Recently, the Karnataka High Court was approached in a dispute stemming from a long-standing Joint Development Agreement, where the contractual promise of arbitration turned into a fresh source of conflict. What began as an attempt by one party to initiate amicable settlement soon escalated into a jurisdictional tussle over the very process of appointing an arbitrator. With notices exchanged, deadlines debated, and questions raised about who could legally be drawn into the arbitral fold, the matter arrived before the Court seeking clarity on the commencement of arbitration and the proper parties to be involved.
Brief Facts:
The case arose from a Joint Development Agreement executed between the Petitioner and a development company, which contained a detailed arbitration clause requiring disputes to be referred to a sole arbitrator seated in Bengaluru. After disagreements surfaced, the petitioner issued a letter calling for amicable settlement, but no resolution followed. Subsequently, the petitioner invoked the arbitration clause and nominated a sole arbitrator through a notice issued under Section 21 of the Arbitration and Conciliation Act, 1996. The respondents replied seeking additional time, but before the expiry of the statutory 30-day period for concurrence, the petitioner approached the High Court under Section 11(6) seeking appointment of an arbitrator. A further reply from the respondents raised objections regarding arbitrability and the maintainability of the petition. The dispute also involved two directors who were named as respondents, although they were not parties to the JDA; one director had merely signed the agreement on behalf of the company.
Contentions of the Petitioner:
The counsel for the Petitioner contended that the JDA contains a binding arbitration clause and that all disputes arising under it must be resolved through arbitration. It was argued that the petitioner had duly followed the contractual procedure by first attempting amicable settlement and thereafter issuing a valid notice invoking arbitration. Even though the Section 11 petition was filed before the completion of 30 days from the notice, the respondents ultimately failed to concur with the nomination of the arbitrator, making the petition maintainable. The Petitioner further asserted that the directors of the company should also be subjected to the arbitral process because they were involved in the execution and control of the project, and because the corporate entity allegedly lacked sufficient assets to satisfy any potential award.
Contentions of the Respondents:
The counsel for the Respondents contended that the individual directors cannot be forced into arbitration because they were not parties to the Joint Development Agreement, and merely signing on behalf of the company does not bind them personally. The counsel argued that the petition was premature, as the arbitration notice had not exhausted the mandatory 30-day period before the filing of the petition. The Respondent further submitted that their subsequent reply raised substantial objections regarding the absence of an arbitrable dispute, asserting that there was no valid basis for triggering the arbitration clause. According to them, the procedural lapses by the petitioner undermined the maintainability of the request for the appointment of an arbitrator.
Observation of the Court:
The Court observed that although the petition was filed before expiry of the 30-day response period under Section 21, such premature filing does not automatically invalidate the proceedings. What matters is whether the respondents ultimately concurred with the arbitrator’s appointment. Since they did not, the Court held that the petition could still be considered. “Though the petition is premature, I am of the considered opinion that on technicalities the said petition may not be dismissed, but taking into consideration the reply which had been addressed by respondents, an order on merits could be passed.”
It further clarified that the statutory scheme mandates granting the noticee 30 clear days to respond, but early filing does not always defeat the petition. The objective is to prevent delays, not create procedural hurdles. “Once a notice under Section 21 has been issued, the noticee is required to be provided 30 clear days… If the proceedings are filed before the expiry of 30 days, in all cases, the same would not be required to be dismissed.”
On the issue of parties to arbitration, the Court held firmly that the individual directors cannot be forced into arbitration because they were not contracting parties to the Joint Development Agreement. Signing on behalf of a company does not make a director personally bound. “Respondent No.1 is neither a signatory nor a party to the said agreement; suffice it to say that respondent No.2 is only a signatory to the agreement and not a party to it.”
The Court rejected the argument that the company being a shell entity allowed piercing the corporate veil for arbitration purposes. It reaffirmed the principle of corporate separateness and ruled that arbitration must be confined strictly to those who agreed to it.“A Director and Shareholder is distinct from a corporate entity… they cannot be brought on par… Arbitration could be only between parties to the Arbitration Agreement.”
The decision of the Court:
The High Court allowed the petition and referred the matter first to mediation, directing the Karnataka Mediation Centre to attempt settlement between the parties. In case mediation fails, the Court appointed a former Judge as the sole arbitrator to conduct the arbitration under the Arbitration Centre attached to the High Court. The Court also clarified that only the Petitioner and the company would be parties to the arbitration, and not the individual directors.
Case Title: Lubna Shah v. B. M. Jayeshankar & Others
Case No.: Civil Misc. Petition No. 155 of 2025
Coram: Hon’ble Mr Justice Suraj Govindaraj
Counsel for the Petitioner: Adv. Samarth Shreedhar
Counsel for the Respondent: Adv. Rakshith Pai
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