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Section 21 of the Arbitration and Conciliation Act 1996: Mandatory or Directory?
One of the important aspects of arbitration is the commencement of arbitral proceedings, which determines the date from which the arbitration process begins. The commencement of arbitral proceedings has implications for various issues such as limitation, jurisdiction, interim measures, etc. Therefore, it is essential to understand the legal provisions and case laws related to the commencement of arbitral proceedings in India.
Section 21 of the Arbitration and Conciliation Act, 1996 (the Act) deals with the commencement of arbitral proceedings and provides as follows:
"Commencement of arbitral proceedings.— Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent."
According to this section, unless there is a contrary agreement between the parties, the arbitral proceedings commence on the date on which the respondent receives a request from the claimant to refer the dispute to arbitration. This request is also known as a notice of arbitration or a notice invoking arbitration. The section does not prescribe any specific form or content for such a request, but it must be unequivocal in expressing the intention of the claimant to initiate arbitration and identify the dispute and the arbitration agreement.
The question that arises is whether compliance with Section 21 of the Act is mandatory or not. In other words, can the parties agree to commence arbitration in any other manner or at any other time than prescribed by Section 21? The answer to this question depends on the interpretation of the word "unless" in Section 21.
There are two possible interpretations of the word "unless" in Section 21:
- The first interpretation is that Section 21 is mandatory and cannot be derogated by the parties. This means that even if the parties have agreed to commence arbitration in a different manner or at a different time, such an agreement would be invalid and ineffective. The only way to commence arbitration would be by sending and receiving a request as per Section 21.
- The second interpretation is that Section 21 is a directory and can be modified by the parties. This means that if the parties have agreed to commence arbitration in a different manner or at a different time, such an agreement would be valid and effective. The parties can commence arbitration by any means or at any time as agreed by them.
The Supreme Court of India has adopted the second interpretation and held that Section 21 is not mandatory but a directory. In M/S D.P. Construction v. M/S Vishvaraj Environment Pvt. Ltd., (2021) SCC OnLine SC 1029, the Supreme Court observed that:
"Section 21 uses 'unless otherwise agreed by parties' which indicates that it is open for parties to agree upon any other date as date of commencement of arbitral proceedings."
The Supreme Court further held that:
"The object behind providing the date of commencement of arbitral proceedings under Section 21 is only for determining limitation for making an application under sub-section (2) or sub-section (3) of Section 11 or under sub-section (4) or sub-section (5) or sub-section (6) of Section 9."
Therefore, according to the Supreme Court, Section 21 is only meant to provide a default rule for determining limitations for certain applications under Sections 9 and 11 of
the Act, which can be overridden by an agreement between
the parties.
The Supreme Court also relied on its earlier decision in West Bengal Power Development Corporation Limited v. Sical Mining Limited, (2023) SCC OnLine SC 1028, where it held that:
"Section 21 does not lay down any mandatory requirement regarding commencement of arbitral proceedings but only provides for determination thereof unless otherwise agreed by parties."
The Supreme Court further held that:
"The expression 'unless otherwise agreed by parties' appearing in Section 21 indicates that it is open for parties to agree upon any other date as date of commencement of arbitral proceedings."
Therefore, according to these decisions, compliance with Section 21 of
the Act is not mandatory but directory and can be modified by an agreement between
the parties.
However, it must be noted that such an agreement must be clear and unambiguous and must not create any confusion or uncertainty as to the date of commencement of arbitral proceedings. In Alupro Buildings System Pvt Ltd v. Ozone Overseas Pvt. Ltd., (2017) SCC OnLine Del 12516, the Delhi High Court held that:
"The parties can agree to a different date for commencement of arbitration proceedings than the one provided under Section 21 of the Act, but such an agreement must be clear and certain and must not leave any room for doubt or ambiguity."
The Delhi High Court further held that:
"If the parties have not agreed to a different date for commencement of arbitration proceedings than the one provided under Section 21 of the Act, then the date of receipt of the request for arbitration by the respondent would be the date of commencement of arbitration proceedings."
Therefore, in the absence of a clear and certain agreement to the contrary, the date of receipt of the request for arbitration by the respondent would be the date of commencement of arbitral proceedings as per Section 21 of the Act.
Conclusion
In conclusion, it can be said that compliance with Section 21 of the Act is not mandatory but a directory and can be modified by an agreement between the parties. However, such an agreement must be clear and certain and not create any confusion or uncertainty as to the commencement date of arbitral proceedings. In the absence of such an agreement, the date of receipt of the request for arbitration by the respondent would be the date of commencement of arbitral proceedings as per Section 21 of the Act.
- Section 21 of the Arbitration and Conciliation Act 1996 specifies the commencement of arbitral proceedings
- The Supreme Court of India has held that compliance with section 21 is mandatory and non-compliance would render the arbitration invalid
- However, some High Courts have taken a different view and held that section 21 is only directory and not mandatory
