The Supreme Court has allowed an appeal filed by M/s Bhagheeratha Engineering Ltd., holding that an arbitral tribunal is competent to adjudicate all disputes arising out of or connected with the contract, and non-issuance of a separate notice under Section 21 of the Arbitration and Conciliation Act, 1996, for each claim is not fatal.
A Bench comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan set aside the Kerala High Court’s decision, and held that “Section 21 is concerned only with determining the commencement of the dispute for the purpose of reckoning limitation. There is no mandatory prerequisite for issuance of a Section 21 notice prior to the commencement of Arbitration. Issuance of a Section 21 notice may come to the aid of parties and the arbitrator in determining the limitation for the claim. Failure to issue a Section 21 notice would not be fatal to a party in Arbitration if the claim is otherwise valid and the disputes arbitrable.”
The dispute arose out of multiple Road Maintenance Contracts awarded to the appellant under the Kerala State Transport Project, where disagreements relating to price adjustment, escalation, interest, and delayed payments were first placed before an Adjudicator and later taken to arbitration.
Although the Arbitrator ruled in favour of the Appellant on all four disputes, the District Court set aside the award on the ground that the claims were raised beyond the 28-day period stipulated in the contract. On appeal, the High Court held that the 28-day contractual time-limit was void under Section 28(b) of the Contract Act, but nevertheless upheld the setting aside of the award on the ground that arbitration had been validly invoked under Section 21 of the Arbitration and Conciliation Act only in respect of one dispute. However, the High Court did not disturb the District Court’s order restoring the Adjudicator’s decision. All this led to an appeal before the Supreme Court.
Allowing the appeal, the Supreme Court held that the High Court had erroneously narrowed the scope of arbitration, despite the arbitration clause being widely worded and covering any dispute arising out of or connected with the agreement. The Court observed that the respondent’s conduct showed waiver, inconsistency, and obstruction; it could not later insist on strict procedural compliance to defeat arbitration.
Referring to M.K. Shah Engineers & Contractors vs. State of M.P, (1999) 2 SCC 594, the Court held that a party at fault cannot be permitted to take advantage of its own conduct to challenge the arbitral process, and rejected the respondent’s objection that the procedure for appointment of the arbitrator had not been complied with, noting that the arbitration clause was of wide amplitude.
The Bench clarified that Section 21 serves a procedural purpose, primarily to determine the commencement of arbitration for limitation, and does not restrict the tribunal’s jurisdiction to only those disputes mentioned in the notice. Referring to ASF Buildtech Private Limited vs. Shapoorji Pallonji & Company Private Limited, (2025) 9 SCC 76, and Adavya Projects Private Limited v. Vishal Structurals Private Limited and others, (2025) 9 SCC 686, the Court reiterated that once an arbitral tribunal is validly constituted, parties are entitled to raise all arbitrable claims and counterclaims falling within the arbitration agreement.
The Court held that the arbitration clause, being widely worded, empowered the arbitral tribunal to adjudicate all disputes arising out of the contract and could not be artificially confined to a single issue merely because the Section 21 notice referred to one dispute. “The claimant is not bound to restrict his statement of claim to the claims raised by him in the notice issued,” the court held.
Accordingly, the Supreme Court set aside the High Court’s judgment and restored the arbitral award dated June 29, 2006, in its entirety, holding that the tribunal had acted within its jurisdiction.
Appearances
Petitioner- Mr. Rajiv Shakdher, Sr. Adv. Mr. George Thomas, Adv. Mr. Dhiraj Abraham Philip, AOR Mr. Febin Mathew Varghese, Adv. Mr. Sunny George, Adv. Ms. Lija Merin John, Adv. Ms. Soyarchon Khangrah, Adv.
Respondent- Mr. Naveen R Nath, Sr. Adv. Mr. Nishe Rajen Shonker, AOR Mrs. Anu K Joy, Adv. Mr. Alim Anvar, Adv. Mrs. Devika A.l., Adv. Mr. Santhosh K, Adv. Ms. Disha Gupta, Adv. Mr. Aditya Nath, Adv. Mr. Sai Vaishnav, Adv.
