MANU/TN/4774/2019

IN THE HIGH COURT OF MADRAS

O.P. No. 226 of 2019
Decided On: 22.08.2019
Globe Detective Agencies Pvt. Ltd. and Ors. Vs. Gammon India Ltd.
Hon'ble Judges/Coram:
Pushpa Sathyanarayana, J.
Counsels:
For Appellant/Petitioner/Plaintiff: C.A. Diwakar
For Respondents/Defendant: P.J. Rishikesh
Case Note:
Arbitration - Arbitrator - Appointment of - Section 11 of Arbitration and
Conciliation Act, 1996 - Present petition filed under Section 11 of Arbitration
Act filed to seek appointment of arbitrator to adjudicate dispute between
petitioner and respondents with regard to Contract Agreement between them
- Whether facts and circumstances of present case merits appointment of
arbitrator - Held, agreement provides that parties shall refer all disputes or
differences to arbitration - Same shall be adjudicated by single arbitrator
appointed by respondent - Respondent failed to refer matter to arbitration by
nominating/appointing sole arbitrator - Arbitrator appointed - Petition
ordered. [14]
ORDER
Pushpa Sathyanarayana, J.
1. This Original Petition is filed seeking for appointment of an Arbitrator to arbitrate the
dispute between the petitioners and the respondent based on agreements dated
01.01.2014, 01.01.2015 and 01.04.2015.
2. The petitioners are engaged in the business of security services agencies and other
allied services. The respondent availed its services in their project work of construction
of Chennai Metro Rail stations to protect its men, machineries, materials and the site, by
entering into an "Agreement with Security Agency" dated 01.01.2014 (in short, "the
Agreement") for a period of one year till 31.12.2014. It was extended for three months
followed by one year, i.e., till 31.03.2016. The petitioner deputed requisitioned number
of Security Guards at the rates specified in the agreement. The petitioners claimed that
in terms of Clause 4 of the Agreement, the respondent has to make payments within 30
days of raising the bill to enable them to disburse the wages on or before 10th of every
month. Since there was a delay in payment of the bills at every month by the
respondent, the petitioner decided to withdraw the security guards. However, based on
the assurance of the respondent, they continued to adhere to its obligations under the
Agreement.
3. The petitioner claimed that the respondent has to pay a sum of Rs. 47,49,852/- as on
11.12.2015, but paid Rs. 13,88,593/- on different dates till 15.10.2016. The respondent
cited their pending dispute with the principal, i.e., CMRL, for non-payment of the dues

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to the petitioners. The petitioners filed a suit for recovery of the outstanding money
with interest in C.S. No. 176 of 2017 along with A. No. 1602 of 2017 seeking an order
of attachment. In the suit, the respondent filed an application in A. No. 3127 of 2017
under Section 8 of the Arbitration and Conciliation Act, 1996 (in short, "A & C Act")
praying to refer the dispute to arbitration. In the said circumstances, the petitioners are
before this Court under Section 11 of the A & C Act seeking appointment of an
Arbitrator.
4. Resisting the prayer of the petitioners, the respondent filed a counter-affidavit dated
28.06.2019. It is stated that since the petitioners failed to fulfill their obligations of
providing requisite number of trained and skilled personnel, they were constrained to
withhold certain amounts in order to adjust the same in the subsequent bills and
excepting that there is no other due, as claimed by the petitioners and as such, there is
no arbitrable dispute at all prevailing between the parties. It is also claimed that when
Clause 27 of the Agreement provides for arbitration of disputes, without invoking the
same, the petitioners filed a suit before this Court for recovery of money.
5 . Heard the learned counsels on either side and perused the materials placed before
this Court.
6 . The existence of the Agreement dated 01.01.2014 is admitted by both sides. The
existence of arbitration clause for resolution of the disputes under Clause 27 of the
Agreement is also admitted. There are also two more agreements with the petitioners
dated 01.01.2015 and 01.04.2015, both of which also contain the arbitration clause for
resolution of the disputes. The petitioners had to provide requisitioned the number of
security guards at the rates specified at various Chennai Metro Rail Sites. The
petitioners have also submitted their bills on monthly basis, which were admitted and
accepted by the respondents. However, according to the petitioners, the respondents
were not very regular in respect of payment of bills and delayed in settling the
petitioners the dues in full, citing various reasons, like delayed payments from the
CMRL etc. Many a times, the petitioners were forced to withdraw their security guards,
due to non-payment of bills. As the outstanding amounts were salaries and wages paid
to the petitioners' security guards payable at various sites, the non-payment or the
delayed payment was causing loss to the petitioners.
7. The question that now arises for consideration is whether the preliminary objection
of the respondent that the instant petition filed as such is not maintainable for want of
notice under Section 21 of the A & C Act, 1996 is sustainable?
8. Before the same is discussed, it would be useful to deal with some more facts in this
case. The petitioners also had filed a suit against the respondent in C.S. No. 176 of
2016 before this Court. After service of notice, the respondent/defendant in the suit,
had entered appearance and filed an application in A. No. 3127 of 2017 under Section 8
of the A & C Act. In the affidavit filed in support of the said application, the respondent
herein had vehemently disputed the claim of the plaintiffs/petitioners. The respondent
also had pointed out that Clause 27 of the Security Agency Agreement provided for a
dispute resolution by getting the dispute adjudicated by a Single Arbitrator appointed by
the parties. As the agreement has already provided for a dispute resolution by
appointing an Arbitrator, the said application under Section 8 of the A & C Act was filed
for referring the dispute to arbitration and it is stated that the said application is still
pending. In the very same application, the applicant, who is the respondent herein, had
contended that the liability due to the petitioner herein was admitted and there is a
dispute only with respect to the quantum to be paid. From the act of the parties and

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also emails exchanged between the parties, it is clear that there has been a dispute if
not on the liability, at least, on the quantum payable.
9. In the above conspectus, learned counsel for the respondent raised an objection that
the petitioner cannot maintain this petition without issuing a notice under Section 21 of
the A & C Act. The suit was filed by the petitioner herein for recovery of a sum of Rs.
33,61,259/- with interest. It is the respondent, who had pointed out that there is an
arbitration clause provided in the agreement and filed the application under Section 8 of
the A & C Act. Whether the notice under Section 21 of the A & C Act is mandatory or
not, when the respondent itself has already filed an application under Section 8 of the A
& C Act seeking to refer the dispute to arbitration.
10. Section 21 of the A & C Act reads as follows:
"21. 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."
A reading of Section 21 makes it crystal clear that except where the parties have agreed
to the contrary, the date of commencement of the arbitration proceedings, as per the
said provision, would be the date on which the notice was received by the respondent.
The intention of the Legislature for including such a notice is only for the party to the
arbitration agreement, against whom the claim is made, to know what are the claims
are. Secondly, the parties having agreed on a procedure for appointment of an
arbitrator, there should be a notice invoking the same. Therefore, Section 21 assumes
importance for the purpose of facilitating a consensus on the appointment of an
Arbitrator.
11. Further, the petition is filed under Section 11(6) of the A & C Act, which says that a
person, including an institution, after agreeing upon to a procedure for appointment,
fails to perform any function entrusted to him or it under that procedure, then the party
may request the Court to take necessary measure for appointment of an Arbitrator.
While so, if the notice under Section 21 is not issued, then the occasion contemplated
under Section 11(6)(c) will not arise. In other words, a party seeking appointment of an
Arbitrator will not be able to put forth his case before the Court that there was failure
on the part of the respondent to act as per the Agreement.
12. In the light of the above discussion, learned counsel for the respondent pressed
into service the judgment of the Delhi High Court in Alupro Building Systems Pvt. Ltd.
V. Ozone Overseas Pvt. Ltd., MANU/DE/0495/2017. A learned Single Judge of the Delhi
High Court in the said decision has held as follows:
"25. A plain reading of the above provision indicates that except where the
parties have agreed to the contrary, the date of commencement of arbitration
proceedings would be the date on which the recipient of the notice (the
Petitioner herein) receives from the claimant a request for referring the dispute
to arbitration. The object behind the provision is not difficult to discern. The
party to the arbitration agreement against whom a claim is made, should know
what the claims are. It is possible that in response to the notice, the recipient
of the notice may accept some of the claims either wholly or in part, and the
disputes between the parties may thus get narrowed down. That is one aspect
of the matter. The other is that such a notice provides an opportunity to the

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 recipient of the notice to point out if some of the claims are time barred, or
barred by any law or untenable in fact and/or that there are counter-claims and
so on.
26. Thirdly, and importantly, where the parties have agreed on a procedure for
the appointment of an arbitrator, unless there is such a notice invoking the
arbitration clause, it will not be possible to know whether the procedure as
envisaged in the arbitration clause has been followed. Invariably, arbitration
clauses do not contemplate the unilateral appointment of an arbitrator by one of
the parties. There has to be a consensus. The notice under Section 21 serves an
important purpose of facilitating a consensus on the appointment of an
arbitrator.
2 7 . Fourthly, even assuming that the clause permits one of the parties to
choose the arbitrator, even then it is necessary for the party making such
appointment to let the other party know in advance the name of the person it
proposes to appoint. It is quite possible that such person may be 'disqualified'
to act an arbitrator for various reasons. On receiving such notice, the recipient
of the notice may be able to point out this defect and the claimant may be
persuaded to appoint a qualified person. This will avoid needless wastage of
time in arbitration proceedings being conducted by a person not qualified to do
so. The second, third and fourth reasons outlined above are consistent with the
requirements of natural justice which, in any event, govern arbitral
proceedings.
2 8 . Lastly, for the purposes of Section 11(6) of the Act, without the notice
under Section 21 of the Act, a party seeking reference of disputes to arbitration
will be unable to demonstrate that there was a failure by one party to adhere to
the procedure and accede to the request for the appointment of an arbitrator.
The trigger for the Court's jurisdiction under Section 11 of the Act is such
failure by one party to respond."
12.1. In the very same decision, it was observed that the waiver of notice also has
been discussed in the following manner:
"29. of course, as noticed earlier, parties may agree to waive the requirement
of such notice under Section 21. However, in the absence of such express
waiver, the provision must be given full effect to. The legislature should not be
presumed to have inserted a provision that serves a limited purpose of only
determining, for the purposes of limitation, when arbitration proceedings
commenced. For a moment, even assuming that the provision serves only that
purpose viz. fixing the date of commencement of arbitration proceedings for the
purpose of Section 43(1) of the Act, how is such date of commencement to be
fixed if the notice under Section 21 is not issued? The provision talks of the
'Respondent' receiving a notice containing a request for the dispute "to be
referred to arbitration". Those words have been carefully chosen. They indicate
an event that is yet to happen viz. the reference of the disputes to arbitration.
By overlooking this important step, and straightaway filing claims before an
arbitrator appointed by it, a party would be violating the requirement of Section
21, thus frustrating an important element of the parties consenting to the
appointment of an arbitrator.
30. Considering that the running theme of the Act is the consent or agreement

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 between the parties at every stage, Section 21 performs an important function
of forging such consensus on several aspects viz. the scope of the disputes, the
determination of which disputes remain unresolved; of which disputes are time-
barred; of identification of the claims and counter-claims and most importantly,
on the choice of arbitrator. Thus, the inescapable conclusion on a proper
interpretation of Section 21 of the Act is that in the absence of an agreement to
the contrary, the notice under Section 21 of the Act by the claimant invoking
the arbitration clause, preceding the reference of disputes to arbitration, is
mandatory. In other words, without such notice, the arbitration proceedings
that are commenced would be unsustainable in law."
12.2. Thus, the above decision cited by the respondent makes a notice under Section
21 of the A & C Act by the claimant invoking the arbitration clause mandatory. The
above decision of the Delhi High Court arrived at its conclusion to hold that Section 21
notice is mandatory for the following reasons:
(i). To make the other party know what the claims are.
(ii). Whether the claims made in the notice are within the purview of limitation
or barred by any law.
(iii). The notice facilitates the parties to arrive at consensus for appointing an
Arbitrator.
(iv). It enables the parties to know whether the proposed arbitrator named by
one party is acceptable for the other or he is otherwise qualified or disqualified.
(v). Unless the notice is issued, the application under Section 11(6) of the Act
cannot be filed.
13. While this Court is of the view that there is no second opinion with respect to the
above reasoning, it is to be stated that the said decision was rendered in a petition filed
under Section 34 of the A & A Act, whereas, in the case on hand, the petition is filed
under Section 11 and the respondent herein had filed an application under Section 8 of
the A & C Act in the suit for recovery pointing out that there is a clause which provides
for referring the disputes to arbitration.
14. As outlined by the Delhi High Court in the case of Alupro Building Systems Pvt. Ltd.
(supra), if the intention of the notice under Section 21 of the Act is only for the above
said purposes to enable the other party to take certain defences including that of the
question of limitation, then in the present case, such a situation does not arise, as the
stand of the parties are very clear in A. No. 3127 of 2017 itself. Even clause 27 of the
Agreement provides that the parties shall refer all the disputes or differences to
arbitration and the same shall be adjudicated by a single Arbitrator appointed by the
respondent. As the respondent had failed to refer the matter to arbitration by
nominating/appointing a sole Arbitrator, the petitioner has invoked Section 11(6) of the
A & C Act. In fact, the respondent had stoutly disputed the claim of the petitioners and
also had stated that the entire monies were not paid to them and they were deliberately
withheld by them for settlement of some other issue. Thus, by appointing an Arbitrator
in accordance with Section 11, the procedure as to the claim, counter-claim, defence,
etc. will be governed by Section 23 of the A & C Act. Therefore, the objection raised by
the respondent that Section 21 notice is mandatory and non-issuance of the same would
disentitle the petitioners in maintaining the petition under Section 11(6) of the Act has
no legs to stand in the facts and circumstances of the present case and the same is

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rejected.
15. Considering the submissions of the learned counsels for the parties, so also the
stand taken by the respondent in A. No. 3127 of 2017 in C.S. No. 176 of 2015, this
Court appoints Mr. V. Vijayshankar, Advocate, having office at No. 67, Law Chambers,
High Court Buildings, Chennai-600104 (Phone No. 044-25342014) as the Sole Arbitrator
to enter upon reference and adjudicate the disputes inter se the parties. The learned
Arbitrator may, after issuing notice to the parties and upon hearing them, pass an award
as expeditiously as possible, preferably within a period of six months from the date of
receipt of the order. The learned Arbitrator is at liberty to fix his remuneration and other
incidental expenses. The proceedings shall be conducted preferably in the Madras High
Court Arbitration Centre and in accordance with the Madras High Court Arbitration
Rules.
16. The Original Petition is ordered accordingly, leaving the parties to bear their own
costs.
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