In the Absence of Formal Notice, Arbitration Cannot be Invoked: Andhra Pradesh High Court

In a significant ruling on the procedural requisites for initiating arbitration, the High Court of Andhra Pradesh dismissed an arbitration application due to non-compliance with the formal notice requirements stipulated under the Arbitration and Conciliation Act, 1996.

Legal Point: The court’s decision centered on the application under Section 11(6) of the Arbitration and Conciliation Act, emphasizing the necessity of fulfilling contractual obligations for notice before arbitration can be rightfully invoked.

Facts and Issues: M/s Shree Swaminarayan Travels sought to resolve disputes arising from a transportation services contract with Oil Natural Gas Corporation Limited (ONGC), claiming dues amounting to over 65 lakh rupees. The applicant argued that despite reaching out for dispute resolution through an Outside Expert Committee, no formal arbitration notice was issued as per the contractual agreement following the 60-day dispute notice period, leading to their application for appointing an independent arbitrator.

Contractual Compliance: Justice Dhiraj Singh Thakur emphasized the contractual requirement that an arbitration clause can only be invoked after issuing a formal notice upon the expiry of the 60-day dispute period as per the agreement. “The conditions of the agreement clearly necessitated a formal notice for invoking arbitration which was unfortunately overlooked,” observed the Chief Justice.

Procedural Integrity: The court highlighted that adherence to the agreed dispute resolution mechanism is paramount. “Parties are bound by the terms they have agreed upon, and courts expect strict compliance before judicial intervention is considered,” Justice Thakur added.

Legal Precedents: Referencing the case of Bharat Sanchar Nigam Ltd v. M/S Nortel Networks India Pvt. Ltd., the court reiterated that the application under Section 11 can only proceed once it is established that the arbitration notice has been properly served and there was a failure in appointment as per the arbitration clause.

Decision: The High Court dismissed the application for the appointment of an arbitrator, citing the absence of a formal notice as fatal to the applicant’s plea. The applicant was granted liberty to re-apply following the correct procedural format as outlined in their contract.

Date of Decision: May 10, 2024

M/s Shree Swaminarayan Travels vs. M/s Oil Natural Gas Corporation Limited