The Delhi High Court has re-iterated that Section 21 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “Arbitration Act”) is a mandatory provision. The Court further remarked that for arbitration proceedings to commence, it is mandatory that a notice is sent and received as per Section 21.
Brief Facts:
The Parties entered into a Development Agreement wherein the Petitioner No.1 agreed to develop the land into a Group Housing Scheme. The Petitioner No.1 was responsible for the development and marketing of the said project and was entitled to a 65% share of the total built-up area that was to be transferred by the Respondents. Thereafter, the Group Housing Project was developed namely, ‘Emerald Bay’. The dispute arose between the parties as it is contended that while the Petitioner No.1 has discharged all obligations, the Respondents have failed to do so.
To resolve the disputes, the Petitioner No.1 invoked arbitration by sending notice several times and suggesting names of the retired judges as Arbitrators. Since, the Respondent neither agreed to any of the suggested names nor proposed any names, the present petition for seeking the appointment of an arbitrator under Section 11(6) of the Arbitration Act is preferred.
Contentions of the Petitioner:
It was contended that the ownership rights on the land were retained by the Respondents and that the license issued by the Haryana Development and Regulation of Urban Areas Act, 1975 was issued in the name of both the Petitioner No.1 and the Respondents. It was argued that as per the agreement Petitioner No.1 had the authority to assign its rights to another company and pursuant to this, the Petitioner No.1 transferred the development rights to Petitioner No.2 and informed the Respondents about the same. In crux, the Petitioner No.1 has argued for the invocation of the group of companies’ doctrine as it was alleged that the case deals with a composite transaction with rights and obligations of Petitioners No.1 and 2 and Respondents No.1 and 2. Therefore, for proper adjudication of disputes, it is important to include all the parties in the arbitration proceedings.
Contentions of the Respondents:
It was argued that the Respondents were not aware until now of the transaction between the Petitioners No.1 and 2. It was contended that the Petitioner No.2 had filed for impleadment vide application under Order I Rule 10 of the Code of Civil Procedure, 1908 but failed to comply with the statutory mandate as per Section 21 of the Arbitration Act. Therefore, the proceedings would be termed illegal and void. Simply put, the Respondents have argued that since they did not receive any request from the Petitioner No.2 requesting for arbitration, arbitration cannot be initiated between the parties. It was further alleged that the Respondents were under the impression that they are in contract with a single legal entity i.e., Petitioner No.2, and not two separate legal entities.
Observations of the Court:
The High Court observed that since there was no agreement concerning the transfer of rights and obligation in favor of Petitioner No.2 by Petitioner No.1, it would be difficult to ascertain whether any right exists in favour of the Petitioner No.1 to raise contentions against the Respondents. Since the agreement could not be found, the Court held that all the rights and obligations are only in favour of the Petitioner No.2 transferred by the Respondents and therefore, it is only the Petitioner No.2 who can initiate the arbitration proceedings.
Moving on, the Delhi High Court opined that Section 21 of the Arbitration Act mandates the serving of notice to the other party. No arbitration proceedings can commence unless the notice is issued. Therefore, if notice is not issued, the requirement under Section 11(4) of the Arbitration Act cannot be fulfilled and as a result, the Court cannot exercise its powers under Section 11(6) of the Act.
The decision of the Court:
Since in the present case, the right to initiate the arbitration proceedings was only in favour of the Petitioner No.2 and no notice as per Section 21 was sent, the Court dismissed the present petition.
Case Title: Florentine Estates of India Ltd & Anr v. Lokesh Dahiya & Anr.
Coram: Hon’ble Mr. Justice V. Kameswar Rao
Case No.: ARB.P. 861/2021
Advocates for Petitioner: Advocates – Mr. Pravin Bahadur, Mr. Vishnu Kant, and Mr. Rahul Meena
Advocates for Respondents: Advocate – Mr. Mukesh Vatsa
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