The Supreme Court has set aside a judgment of the Kerala High Court, ruling that the non-issuance of a notice under Section 21 of the Arbitration and Conciliation Act, 1996 (A&C Act) for specific disputes is not fatal to a party’s right to raise claims before an Arbitral Tribunal. The Court held that once an Arbitral Tribunal is constituted, the scope of reference is determined by the arbitration agreement and Section 23 of the Act, not solely by the initial notice of invocation, especially when the arbitration clause is widely worded.
A Bench comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan observed that Section 21 serves the limited purpose of determining the commencement of proceedings for limitation and does not restrict the Tribunal’s jurisdiction.
Brief Summary
The Supreme Court allowed the appeal filed by M/s Bhagheeratha Engineering Ltd. against the State of Kerala. The core legal issue was whether an Arbitral Tribunal, appointed pursuant to the Respondent’s request to adjudicate a specific dispute, could legally adjudicate additional disputes raised by the Appellant without a separate Section 21 notice. The Kerala High Court had invalidated the award on the ground that the Tribunal exceeded its jurisdiction by deciding disputes (Nos. 2 to 4) which were not referred to it by the State. The Supreme Court reversed this, restoring the Arbitral Award dated June 29, 2006.
Background of the Case
The Appellant, M/s Bhagheeratha Engineering Ltd., was awarded four packages of Road Maintenance Contracts under the Kerala State Transport Project (KSTP), funded by the World Bank. The General Conditions of Contract (GCC) provided a multi-tier dispute resolution mechanism:
- Reference to an Adjudicator within 14 days of the Engineer’s decision.
- The Adjudicator to decide within 28 days.
- Either party could refer the Adjudicator’s decision to an Arbitrator within 28 days.
- If not referred within 28 days, the Adjudicator’s decision would become final and binding.
Disputes arose regarding payments and price adjustments. The Adjudicator decided four disputes on August 14, 2004: finding in favour of the Appellant on Dispute Nos. 1 and 3, and against them on Dispute Nos. 2 and 4.
On October 1, 2004—after the expiry of the 28-day limitation period—the Respondent (State) informed the Appellant that the Adjudicator’s award on Dispute No. 1 was unacceptable and they intended to refer “the matter” to arbitration. The Appellant subsequently agreed to the constitution of the Tribunal but reserved its right to raise all four disputes.
The Arbitral Tribunal, constituted on January 11, 2005, ruled in favour of the Appellant on all four issues. The District Judge set aside this award under Section 34, holding the reference was time-barred. On appeal, the Division Bench of the Kerala High Court upheld the setting aside of the award but on different grounds: that the Tribunal was appointed only for Dispute No. 1 and the Appellant had failed to issue a Section 21 notice for the remaining disputes.
Arguments of the Parties
The Appellant’s Arguments: Learned Senior Advocate Mr. Rajiv Shakdher, appearing for the Appellant, argued that the arbitration clause was exhaustive, covering “any dispute or difference.” He contended that the agreement was not limited to the specific dispute referred by the Adjudicator. It was submitted that Section 21 opens with “Unless otherwise agreed by the parties,” and the contract here provided a specific mechanism. He further argued that the Respondent’s conduct amounted to a waiver of procedural objections and that requiring a separate Section 21 notice for every claim would lead to multiple arbitrations.
The Respondent’s Arguments: Learned Senior Advocate Mr. Naveen R. Nath, appearing for the State, contended that the dispute resolution mechanism involved escalatory measures of statutory significance. He argued that the Tribunal was appointed specifically for Dispute No. 1 based on the State’s request. It was submitted that the Appellant could not be a “claimant” for disputes it never formally invoked via a Section 21 notice, and that the Tribunal could not travel beyond the specific reference.
Court’s Analysis
The Supreme Court rejected the High Court’s reasoning, focusing on the conduct of the parties and the statutory interpretation of the A&C Act.
1. Conduct of the Respondent Precludes Procedural Objections The Court observed that the Respondent itself had violated the contractual timelines, referring the matter to arbitration 56 days after the Adjudicator’s decision, despite the 28-day limit. The Court noted that the Respondent had sought to declare the entire decision of the Adjudicator “null and void” before the Tribunal, thereby opening all disputes.
Quoting M.K. Shah Engineers & Contractors vs. State of M.P. (1999), the Court held:
“The plea of bar, if any, created by the earlier part of clause 3.3.29 cannot be permitted to be set up by a party which itself has been responsible for frustrating the operation thereof. It will be a travesty of justice if the appellants for the fault of the respondents are denied the right to have recourse to the remedy of arbitration.”
2. Object of Section 21 of the A&C Act The Court clarified that Section 21 is primarily for reckoning limitation and is not a jurisdictional fetter preventing the raising of additional claims once the Tribunal is constituted.
Referring to ASF Buildtech Private Limited vs. Shapoorji Pallonji & Company Private Limited (2025), the Court noted:
“The term ‘particular dispute’, does not mean all disputes, nor does it confine the jurisdiction of the Arbitral Tribunal… to only those disputes mentioned in the notice of invocation… Section 21 is procedural rather than jurisdictional it does not serve to create or validate the arbitration agreement itself…”
The Court also relied on Adavya Projects Private Limited v. Vishal Structurals Private Limited (2025), stating that “non-inclusion of certain disputes in the Section 21 notice does not preclude a claimant from raising them during the arbitration, as long as they are covered under the arbitration agreement.”
3. Scope of Reference and Section 23 The Bench highlighted that Clause 25.3 of the contract was widely worded to include “any dispute or difference.” Citing State of Goa v. Praveen Enterprises (2012), the Court explained that unless the arbitration agreement specifically restricts the Arbitrator to decided only referred disputes, parties are entitled to file claims and counter-claims under Section 23 without a preceding notice for every new claim.
“In the present case, we have already held that the rigors of clause 24, 24.1 and 25 have not been followed by the parties and by their conduct the entire dispute have been thrown at large before the Arbitral Tribunal.”
Decision
The Supreme Court held that the High Court erred in setting aside the award. The Bench concluded that the Arbitral Tribunal had not exceeded its jurisdiction.
“For the reasons stated above, we set aside the judgment of the High Court of Kerala at Ernakulam dated 07.01.2025 in Arbitration Appeal No. 56/2012. The consequence will be that the award of the arbitrator dated 29.06.2006 is upheld in its entirety.”
The appeal was allowed with no order as to costs.
Case Details:
- Case Title: M/s Bhagheeratha Engineering Ltd. vs. State of Kerala
- Case No: Civil Appeal No. 39 of 2026 (@ SLP (Civil) No. 7338 of 2025)
- Coram: Justice J.B. Pardiwala and Justice K.V. Viswanathan
