Issuance Of Notice Under Section 21 Of The A&C Act, 1996: Mandatory Or Merely A Procedural Formality?

Introduction

‘Alternative Dispute Resolution’ (ADR) mechanisms are adopted by parties for speedy and cost-efficient resolution of dispute. ‘Arbitration’ is one of the ADR mechanisms, which is based on the principle of ‘Party Autonomy’, a well-recognized principle by ‘The Arbitration and Conciliation Act, 1996’, (‘the 1996 Act’). Arbitration mechanism has a distinct feature that the dispute between party is being resolved through a mechanism agreed upon and adopted by the party, which strengthen the principle of party autonomy. However, if parties agree to resolve their dispute through Arbitration, but fails to adopt any mechanism, Section 21 of the 1996 Act provides the mechanism to kick start the arbitral proceeding. Section 21 of the 1996 Act provides as follows:

“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.”

Section 21 of the 1996 Act provides the commencement date/initiation of arbitration proceeding, which is also significant to determine whether any dispute is barred by limitation or not. Therefore, unless the parties have adopted any mechanism to initiate the arbitration proceeding, the issuance of notice invoking arbitration under Section 21 of the 1996 Act is important. However, the question arise is that whether non-issuance of any notice under Section 21 of the 1996 Act is mandatory for determining the disputes between parties. On 05.01.2026, the Hon’ble Supreme Court in Bhagheeratha Engineering Ltd. V. State of Kerala¹,  has held that there is no mandatory prerequisite for issuance of a Section 21 notice prior to the commencement of arbitration and non-issuance of such notice would not be fatal to a party in arbitration if the dispute is arbitrable. This article analyses the said judgment and its alignment with the object and purpose of the 1996 Act.

Factual Background

Bhaghareetha Engineering Ltd (hereinafter referred as “BEL”) was awarded “Road Maintenance” Contract in four packages as part of the Kerela State Transport Project (hereinafter referred as “KSTP”) for development of roads in Kerela. Clause 24.1 of the General Condition of the Contract (hereinafter referred as “GCC”) mentioned that if the contractor believes the decisions of the Engineer are beyond his authority, or where such decision is erroneous, the disputes can be referred to adjudicator within 14 days of the notification of the Engineer’s decision. Clause 25 of the GCC provides that the Adjudicator has to decide the dispute within 28 days of the notification of dispute. Further, if the parties are not satisfied with the Adjudicator’s decision, they may refer the decision of the Adjudicator to the Arbitrator within 28 days of the Adjudicator’s decision. Failing to refer the dispute to the Arbitration within 28 days, the Adjudicator’s decision shall be final and binding.

Dispute between parties arose regarding payment of due amount and BEL approached the Adjudicator for the resolution of four disputes. Subsequently, on 14.08.2004, the Adjudicator ruled Dispute No. 1 and 3 in favour of and Dispute No.  2 and 4 against the BEL. KSTP did not accept the finding of the Adjudicator qua Dispute No. 1 and vide letter dated 01.10.2004 shown its intention to refer the matter for arbitration. BEL vide letter dated 14.10.2004 stated that the decision of the adjudicator is final as the appeal was to file within 28 days of decision of the Adjudicator i.e., by 11.09.2004. After back-and-forth communication, on 11.01.2005, the Arbitral Tribunal was constituted.

KSTP sought to declare the Adjudicator’s decision as null and void. Further, BEL shown their intention to reopen all the four disputes, which was before the Adjudicator and the same was not objected by KSTP. The Arbitral Tribunal vide award dated 29.06.2006, allowed all the four Disputes in the BEL’s favour and Awarded Rs. 1,99,90,777 along with post award interest of 18% p.a. Award dated 29.06.2006 was challenged and the same was set aside by the District Judge on the ground that 28-day time-limit to refer the matter to arbitration was contrary to Section 28(b) of the Contract Act, 1872 and the Article 137 of the Limitation Act, 1963. The High Court further held that BEL did not refer the dispute to arbitration by issuing any notice under Section 21 of the 1996 Act, and only KSTP had issued such a notice that too only for Dispute No.1. Therefore, the High Court held that award dated 29.06.2006 adjudicating all four disputes to be invalid and restored the decision of the Adjudicator. Subsequently, BEL challenged the order of High Court before the Supreme Court.

Issues Before the Hon’ble Supreme Court

The Hon’ble Supreme Court determined following issues to be assessed:

1. “Whether the High Court was justified in holding that the Arbitral Tribunal was appointed at the request of the State to adjudicate dispute 1 only.
2. Was the non-issuance of a notice under Section 21 of the A&C Act by the appellant fatal for it to pursue its claim before the Arbitrator?”

Finding of the Hon’ble Supreme Court

On the above issues, the Hon’ble Supreme Court Held that

1. The non-issuance of notice under Section 21 of the 1996 Act by the BEL does not restrict them to pursuing its claim before the arbitrator as the objective of issuing notice under Section 21 of the 1996 Act, is not a mandatory prerequisite and only requires commencing arbitration. Failing not to issue notice under Section 21 of the 1996 Act will not fatal if the disputes raised before the arbitral tribunal are otherwise arbitrable.
2. The High Court erred in setting aside the arbitral award on the basis that the Arbitral Tribunal was appointed only to adjudicate Dispute No. 1 and cannot adjudicate all the four disputes before the Adjudicator as once the arbitral tribunal is constituted parties can file claims, defense and counter claims before the Arbitral Tribunal and the Arbitral Tribunal is not restricted to adjudicate the claims mentioned in the notice.

Analysis

The Hon’ble supreme Court rejected the KSTP’s contention that Clause 24 and 25 of the GCC was contrary to Section 28(b) of the Contract Act, 1872 and the Article 137 of the Limitation Act, 1963 as the same is contradictory to their own conducts. The Hon’ble Supreme Court applied the well settled law that a man cannot be allowed to take undue/unfair advantage of his own wrong². In this case the, Adjudicator did not pass the order within 28 days of the reference and the same was not objected by KSTP. KSTP never treated the decision of the adjudicator as final and binding and referred Dispute No.1 to arbitration after 28-day time limit stating that the issue of delay can also be referred to the arbitrator. KSTP further denied paying any money to BEL under other Disputes decided in favour of BEL citing that the Dispute No.1 was pending before the Arbitral Tribunal. Further, KSTP requested the Arbitral Tribunal to vacate the order of the Adjudicator and BEL shown their intention to reopen all the four disputes, which was before the Adjudicator and the same was not objected by KSTP, which opened all issues decided by the Adjudicator. KSTP’s conduct clearly shows that KSTP itself does not follow the 28 days mandate and waived the prerequisite under GCC. When the Arbitral Tribunal decided the issues in favour of BEL, KSTP challenged the same and tried to take benefit of its own wrong. Further, in a similar Case of M.K. Shah Engineers & Contractors v. State of M.P.³, the Hon’ble Supreme Court held that “…The steps preceding the coming into operation of the arbitration clause though essential are capable of being waived and if one party has by its own conduct or the conduct of its officials, disabled such preceding steps being taken, it will be deemed that the procedural prerequisites were waived. The party at fault cannot be permitted to set up the bar of non-performance of prerequisite obligation so as to exclude the applicability and operation of the arbitration clause.”.

The decision of the Hon’ble Supreme Court further strengthens the doctrine of Approbate and Reprobate which provides that a person is not allowed to blow both hot and cold at the same time. In Para 10 of R.N. Gosain v. Yashpal Dhir⁴, the Hon’ble Supreme Court has observed that, “10. Law does not permit a person to both approbate and reprobate. This principle is based on the doctrine of election which postulates that no party can accept and reject the same instrument and that ‘a person cannot say at one time that a transaction is valid and thereby obtain some advantage, to which he could only be entitled on the footing that it is valid, and then turn round and say it is void for the purpose of securing some other advantage.” KSTP itself waiving the mandate of GCC for its own benefit subsequently cannot rely on it to read against the BEL.

The Hon’ble Supreme Court settled that issuance of notice under Section 21 of the 1996 Act is not a mandatory prerequisite and its only relevance is the commencement of the arbitration proceedings⁵ and for determination of limitation period⁶. In Adavya Projects Pvt. Ltd. Vs. Vishal Structurals Pvt. Ltd. and Ors⁷. Held that “It is clear that by fixing the date of commencement of arbitral proceedings by anchoring the same to a notice invoking arbitration, Section 21 of the ACA fulfils various objects that are time-related. The receipt of such notice is determinative of the limitation period for substantive disputes as well as the Section 11 application, and also the law applicable to the arbitration proceedings”. Therefore, non-issuance of notice under Section 21 of the 1996 Act is not fatal to the parties, if the claims are arbitrable.

Further, regarding whether the arbitration proceeding would be limited to disputes raised in the notice invoking arbitration, the Hon’ble Supreme Court held that the term “particular dispute” in under Section 21 of the 1996 Act, does not confine the jurisdiction of the Arbitral Tribunal constituted in furtherance of the notice to only those disputes mentioned in the notice of invocation. The interpretation is correct as if that would be the case, it would restrict the jurisdiction of the Arbitral Tribunal to the bounds of the notice under Section 21 of the 1996 Act instead of the arbitration agreement.

Further, Section 23 along with Section 2(9) of the 1996 Act makes it evident that once the Arbitral Tribunal is constituted, the claimant files the statement of claim and “unless the parties have otherwise agreed”, a respondent is entitled to raise a counterclaim⁸ and any refusal to consider the counter claim on the ground that the same was not in notice invoking arbitration would be erroneous as the occasion to make a counter-claim could only arise after the order of reference⁹. Therefore, by applying the above reasoning, the claimant can also amend or supplement the claims mentioned in notice under Section 21 of the 1996 Act in the statement of claim unless the arbitration agreement requires the arbitrator to decide only the specifically referred disputes.

The aforesaid finding of the Hon’ble supreme Court is in line with the principle of party autonomy that clearly suggest that if parties agreed party to refer specific disputes to arbitration, then the arbitrator will have the jurisdiction to decide only the disputes so referred. In the absence of same, the arbitrator has jurisdiction to decide all the disputes arising out of the arbitration agreement.

Conclusion

It can be concluded from the above discussion that, issuance of notice under Section 21 of the 1996 Act is  not a mandatory prerequisite and its only relevance is the commencement of the arbitration proceedings and for determination of limitation period and non-issuance of notice under Section 21 of the 1996 Act is not fatal to the parties if the claims are arbitrable. Further,   Section 23 along with Section 2(9) of the 1996 Act makes it evident the parties can add, amend or supplement the claims mentioned in notice under Section 21 of the 1996 Act in the statement of claim or can file statement of defence with counter claim unless the arbitration agreement requires the arbitrator to decide only the specifically referred disputes, which in in harmony with the principle of party autonomy.

Footnotes

^{1 Bhagheeratha Engineering Ltd. V. State of Kerala, 2026 SCC OnLine SC 5.}

^{2 Kusheshwar Prasad Singh vs. State of Bihar, (2007) 11 SCC 447.}

^{3 M.K. Shah Engineers & Contractors v. State of M.P, (1999) 2 SCC 594.}

^{4 R.N. Gosain v. Yashpal Dhir, (1992) 4 SCC 683.}

^{5 ASF Buildtech Pvt. Ltd. V. Shapoorji Pallonji and Company Pvt. Ltd., (2025) 9 SCC 76.}

^{6 State of Goa v. Praveen Enterprises, (2012) 12 SCC 581.}

^{7  Adavya Projects Pvt. Ltd. Vs. Vishal Structurals Pvt. Ltd. and Ors., (2025) 9 SCC 686.}

^{8 State of Goa v. Praveen Enterprises, (2012) 12 SCC 581.}

^{9 Indian Oil Corporation Ltd. v. Amritsar Gas Service, (1991) 1 SCC 533.}

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