Samrat Restaurant vs Brewcrafts Microbrewing Pvt Ltd
- Court
- Bombay High Court
CNR No : HCBM020343372026
2026:BHC-OS:23737
carapl34336-2026-J.doc
AGK
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
COMM ARBITRATION APPLICATION (L) NO.34336 OF 2026
Samrat Restaurant, through its
Managing Partner
… Applicant
Vs.
Brewcrafts Microbrewing Pvt. Ltd.
… Respondent
ATUL
GANESH
KULKARNI
Mr. Pradeep Thorat i/by Ms. Aditi Naikare for the
Applicant.
Digitally signed by
ATUL GANESH
KULKARNI
Date: 2026.11.03
11:32:23 +0530
Mr. Rohan Rajadhyaksha with Mr. Pulkit Dhawan, Ms.
Shagun Singh and Ms. Nidhi Shah i/by Anoma Law
Group LLP for the Respondent.
CORAM : AMIT BORKAR, J.
RESERVED ON : OCTOBER 29, 2026.
PRONOUNCED ON : NOVEMBER 3, 2026
JUDGMENT:
1. The Applicant has filed this Application under Section 11 of
the Arbitration and Conciliation Act, 1996, asking this Court to
appoint a Sole Arbitrator to decide the disputes between the
parties arising out of the registered Leave and Licence Agreement
dated 4 May 2017. The Respondent has opposed the Application.
Its main case is that the Applicant has not followed the procedure
for appointment of Arbitrators which was agreed by the parties in
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Clause XXXVIII of the Agreement. The Respondent has raised
objections about limitation, the amount and nature of the claim
and the effect of the earlier proceedings before the National
Company Law Tribunal and the National Company Law Appellate
Tribunal.
2. The Applicant is Samrat Restaurant. The Respondent is
Brewcrafts Microbrewing Private Limited. Under the registered
Leave and Licence Agreement dated 4 May 2017, the Applicant
gave the premises situated at 10/A, Raj Kutir, Plot E854, 3rd Road,
Khar (West), Mumbai, to the Respondent for use on leave and
licence basis. The premises consisted of 218 square metres on the
ground floor, 115 square metres on the first floor and a terrace of
126 square metres. The licence period was from 15 June 2017 to
30 April 2022. The Respondent was required to deposit
Rs.39,65,000/- as an interest-free security deposit. The monthly
licence fee was fixed for each year and was to increase as agreed
between the parties. During the last year, that is, from 1 May 2021
to 30 April 2022, the monthly licence fee was Rs.14,30,131/-.
These facts and the conditions for payment are found in the
Application and the Agreement. The Applicant's case is that the
Respondent failed to pay the monthly licence fee regularly and
thereby committed defaults. The Applicant issued a demand notice
dated 16 November 2018, claiming Rs.99,85,540. Thereafter,
another notice dated 6 February 2019 was issued, demanding
Rs.1,04,06,031/-. The Applicant is relying upon an undertaking
dated 29 August 2021. According to the Applicant, by giving this
undertaking, the Respondent accepted that the amount claimed
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was payable by it. Thereafter, the Applicant filed Company Petition
No.483/MB/2023 before the National Company Law Tribunal,
Mumbai Bench, under Section 9 of the Insolvency and Bankruptcy
Code, 2016, claiming Rs.5,22,95,571/-.
3. By order dated 22 May 2024, the National Company Law
Tribunal dismissed the Company Petition. The reason was that the
amount of default was below the then prescribed limit of Rs.1
crore. The Applicant relies upon the observation of the Tribunal
that dismissal of the Company Petition would not stop it from
proving its outstanding dues, including utility expenses and
interest, before any other forum. The Applicant thereafter
challenged that order before the Supreme Court in Civil Appeal
No.14031 of 2024. The Supreme Court dismissed the Appeal by
order dated 3 January 2025. However, it recorded that dismissal of
the Appeal would not affect the other remedies available to the
Applicant under law. The Applicant now claims that
Rs.3,56,39,549/- is due and payable by the Respondent, along
with interest at the rate of 18% per annum. According to the
Applicant, the dispute relates to the duties and obligations of the
parties under the Agreement and falls within the arbitration
clause. It is submitted that the Respondent has not denied the
execution of the Agreement or the existence of the arbitration
clause. On this basis, the Applicant says that the disputes are
required to be referred to arbitration.
4. Earlier, the Applicant had issued a notice dated 4 June 2025,
calling upon the Respondent to agree to appointment of a Sole
Arbitrator. However, that notice was returned with the remark
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“Left”. Another notice sent to one of the Directors was returned
with the remark “Unclaimed-Intimation Posted”. The Applicant
thereafter filed Commercial Arbitration Application No.118 of
2026. When that Application came up for hearing, the Respondent
objected that the notice invoking arbitration had not been properly
served. By order dated 29 April 2026, this Court permitted the
Applicant to withdraw that Application, with liberty to file a fresh
Application after serving notice under Section 21 of the Arbitration
and Conciliation Act, 1996. Thereafter, the Applicant issued
another notice dated 9 May 2026 at the address of the
Respondent, namely, First Brewhouse, The Corinthians Club,
Mohammadwadi, Pune. That notice came back with the remark
“Left”. The Applicant says that it thereafter made enquiries and
came to know of the present address of the Respondent.
Accordingly, another notice dated 11 July 2026 was issued. This
time, the notice was received by the Respondent. By reply dated 23
July 2026, the Respondent refused to give consent for appointment
of Advocate, as the Sole Arbitrator. Both the notice and the reply
have been placed on record.
5. The Respondent has denied that Rs.3,56,39,549/-, or for that
matter any other amount, is payable to the Applicant. It has
pointed out that the notice dated 11 July 2026 does not hold how
the amount of Rs.3,56,39,549/- has been arrived at. According to
the Respondent, no statement of account, ledger, month-wise
calculation or supporting documents were supplied along with the
notice. The Respondent has asked the Applicant to provide details
of the licence fee charged for each month, the period for which the
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amount is claimed, the payments made and the manner in which
the security deposit of Rs.39,65,000/- has been adjusted. The
Respondent has stated that the Agreement ended on 30 April
2022. Therefore, according to it, no amount can be claimed under
the Agreement for any period after that date. It has disputed that
claims based on the undertaking dated 29 August 2021, or claims
which do not arise from the terms and conditions of the
Agreement, can be referred to arbitration under Clause XXXVIII.
6. The Respondent has raised the objection of limitation. For
this purpose, it relies upon Clause VI(D) of the Agreement. Under
this clause, the monthly licence fee was required to be paid by the
Licensee to the Licensor in advance, on or before the seventh day
of every month. According to the Respondent, each monthly
instalment gave a separate right to claim payment on the date
when it became due. It submits that even after excluding the
period from 15 March 2020 to 28 February 2022, as directed by
the Supreme Court while extending limitation during the COVID-
19 period, the last instalment for April 2022 became due on 7
April 2022. Therefore, according to the Respondent, the period of
three years ended in April 2025. The Respondent has referred to
the letters dated 29 August 2021 and 10 March 2023. Its
submission is that the National Company Law Appellate Tribunal,
in its judgment dated 25 September 2024, held that these letters
did not amount to a one-time settlement. According to the
Respondent, the date of default could not be changed on the basis
of these letters and the payment conditions continued to be
governed by the Leave and Licence Agreement. It submits that
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even if the letter dated 10 March 2023 is taken as the relevant
date, limitation came to an end in March 2026. The Respondent
says that it never received the earlier notice dated 4 June 2025
and that the earlier Application was withdrawn because proper
service had not taken place. It has disputed the Applicant's claim
for exclusion of time under Section 14 of the Limitation Act, 1963,
for the period spent in the insolvency proceedings.
7. The Respondent has stated that the amount claimed by the
Applicant is much more than what is payable. According to it, a
total amount of Rs.6,92,46,223/- has been paid to the Applicant.
The Respondent says that during the earlier insolvency
proceedings, the licence fee was recalculated after taking into
account the revised rates agreed between the parties during the
COVID-19 period. It submits that the claim of Rs.47,01,629/-
towards “other expenses reimbursement” was rejected by the
National Company Law Tribunal and the National Company Law
Appellate Tribunal because it was arbitrary and was not supported
by material. The Respondent has questioned the manner in which
the Applicant has calculated interest. These are the objections
raised by the Respondent about the amount claimed and the
earlier proceedings.
8. The main objection of the Respondent is about the procedure
for appointment of Arbitrators. The Respondent has relied upon
Clause XXXVIII of the Agreement. According to it, this clause
provides that each party will appoint one Arbitrator and the
Licensor will appoint the third Arbitrator if there is a deadlock in
resolving any issue. The Respondent says that the Applicant has
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neither appointed its own Arbitrator nor called upon the
Respondent to appoint its Arbitrator. Instead, the Applicant directly
asked the Respondent to agree to appointment of a Sole Arbitrator.
According to the Respondent, this was not the procedure agreed
between the parties. Therefore, it submits that there has been no
failure of the agreed procedure which would permit the Applicant
to approach this Court under Section 11(6) of the Act.
9. The Respondent has objected to the power given to the
Licensor to appoint the third Arbitrator. According to the
Respondent, such a power cannot be exercised by the Licensor
alone, as it would give the Applicant control over two out of the
three Arbitrators. The Respondent submits that the arrangement of
each party appointing one Arbitrator may be followed. However, if
a third Arbitrator becomes necessary, the appointment should be
made by the two Arbitrators or through the Court, as permitted by
law. On this basis, the Respondent says that the present
Application for appointment of a Sole Arbitrator is not in
accordance with the Agreement. In support of its arguments, the
Respondent has relied upon Indian Oil Corporation Limited v. Raja
Transport Private Limited, (2009) 8 SCC 520. It has relied upon
Adavya Projects Private Limited v. Vishal Structurals Private
Limited, (2025) 9 SCC 686, Union of India v. Parmar Construction
Company, (2019) 15 SCC 682, and Narayan Prasad Lohiya v.
Nikunj Kumar Lohiya, (2002) 3 SCC 572.
REASONS AND FINDINGS:
10. I have considered the pleadings, the documents placed on
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record and the arguments made on behalf of both sides. There is
no dispute that the parties entered into the registered Leave and
Licence Agreement dated 4 May 2017. There is no serious dispute
that the Agreement contains Clause XXXVIII, under which disputes
between the parties can be referred to arbitration. The Respondent
has not denied the Agreement or the existence of the arbitration
clause. Therefore, the existence of an arbitration agreement
between the parties is not in dispute.
11. The first question which arises is how much this Court is
required to examine while deciding an Application under Section
11 of the Act. This question has to be considered because the
Respondent has raised several objections about the amount
claimed, limitation and the nature of disputes which can be
referred under the arbitration clause.
12. In Ajay Madhusudan Patel v. Jyotrindra S. Patel, (2025) 2
SCC 147, the Supreme Court has held how the law relating to the
powers of the Court under Section 11 has developed. Paragraph 76
of that judgment gives a summary of the legal position. Paragraphs
76.1 to 76.3 hold that after insertion of Section 11(6-A), the
examination by the Court at the stage of referring the parties to
arbitration became limited. Paragraph 76.2 states:
“The insertion of Section 11(6-A) through the 2015
Amendment to the 1996 Act stipulated that the courts under
Section 11 shall confine their examination to the “existence”
of an arbitration agreement. It legislatively overruled the
decisions in SBP & Co. [SBP & Co. v. Patel Engg. Ltd., (2005)
8 SCC 618 : (2005) 128 Comp Cas 465] and Boghara Polyfab
[National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd.,
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(2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117] by virtue of its
non obstante clause.”
13. Paragraph 76.3 holds that Duro Felguera, S.A. v.
Gangavaram Port Limited , (2017) 9 SCC 729, clarified the effect of
Section 11(6-A) and held that:
“all that the courts need to see is whether an arbitration
agreement exists — nothing more, nothing less.”
14. The Supreme Court has held that the existence and validity
of an arbitration agreement have to be examined at the first look,
on a prima facie basis. Paragraph 76.4 of Ajay Madhusudan Patel
refers to Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC
1. It holds that where the facts are disputed and both sides have a
case which can be considered, the Court may refer the parties to
arbitration. This is because the Arbitral Tribunal has the power to
decide questions relating to its jurisdiction.
15. Paragraph 76.5 of Ajay Madhusudan Patel refers to the
judgment in Interplay Between Arbitration Agreements under the
A&C Act, 1996 and the Stamp Act, 1899, In re, (2024) 6 SCC 1.
The Supreme Court has held that while considering an Application
under Section 11(6), the Court has to see whether an arbitration
agreement exists under Section 7 and whether it fulfils the formal
requirement of validity. It has stated that:
“the scope of examination under Section 11(6) should be
confined to the “existence of the arbitration agreement”
under Section 7 of the 1996 Act and the “validity of an
arbitration agreement” must be restricted to the requirement
of formal validity such as the requirement that the
agreement be in writing. Therefore, substantive objections
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pertaining to existence and validity on the basis of evidence
must be left to the Arbitral Tribunal since it can “rule” on its
own jurisdiction.”
16. Paragraph 76.6 of Ajay Madhusudan Patel refers to SBI
General Insurance Company Limited v. Krish Spinning, (2024) 12
SCC 1. The Supreme Court has held that if the Court at the stage
of reference starts deciding matters which are required to be
decided by the Arbitral Tribunal, the person making the claim may
be left without any forum to decide the dispute. It has observed
that detailed examination at the Section 11 stage would go against
the purpose of deciding such Applications without delay. Paragraph
76.7 deals with cases where persons who have not signed the
arbitration agreement are sought to be made parties to arbitration.
Such a question does not arise here because both parties are
relying upon the registered Agreement executed between them.
17. From the above judgments, it is clear that this Court is not
required to decide at this stage whether the Applicant is entitled to
receive Rs.3,56,39,549/-, whether the calculation made by it is
correct, whether all payments made by the Respondent have been
taken into account or whether the security deposit has been
properly adjusted. These questions require examination of
accounts and other evidence. They can be decided by the Arbitral
Tribunal. This Court has to see whether an arbitration agreement
exists and whether the requirements under Section 11 for
appointment of an Arbitrator are fulfilled. But the limited
examination under Section 11 does not mean that the Court can
overlook the appointment procedure agreed between the parties. It
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is necessary to see whether that procedure has failed before an
Application under Section 11(6) can be entertained.
18. I shall first deal with the objection regarding the notice
under Section 21 of the Act. The Respondent has questioned the
manner in which arbitration was invoked. In Bhagheeratha
Engineering Limited v. State of Kerala, (2026) 5 SCC 758, the
Supreme Court has held the purpose of Section 21. Paragraph 39
reads as follows:
“39. Secondly, the object of Section 21 of the A&C Act, is
only for the purpose of commencement of arbitral
proceedings is well settled. Section 21 is concerned only with
determining the commencement of the dispute for the
purpose of reckoning limitation. There is no mandatory
prerequisite for issuance of a Section 21 notice prior to the
commencement of arbitration. Issuance of a Section 21
notice may come to the aid of parties and the arbitrator in
determining the limitation for the claim. Failure to issue a
Section 21 notice would not be fatal to a party in arbitration
if the claim is otherwise valid and the disputes arbitrable.”
19. Thus, Section 21 serves a procedural purpose. Mainly, it
helps to identify the date from which the arbitral proceedings are
treated as having started, particularly for calculating limitation. It
does not create the arbitration agreement or give jurisdiction to
the Arbitral Tribunal. However, where the parties have agreed
upon a particular method for appointment of Arbitrators, a notice
asking the other party to follow some different method cannot
show that the agreed procedure has failed. Both matters have to be
looked at separately. One relates to the starting of arbitration. The
other relates to whether the Court can be asked to assist in
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appointment of the Arbitral Tribunal. In paragraph 40 of
Bhagheeratha Engineering , the Supreme Court relied upon ASF
Buildtech Private Limited v. Shapoorji Pallonji and Company
Private Limited, (2025) 9 SCC 76, and reproduced paragraphs
163, 165 and 169 of that judgment. Paragraph 163 holds the
purpose of Section 21 in the following words:
“It indicates that the provision is concerned only with
determining when arbitration is deemed to have commenced
for the specific dispute mentioned in the notice. The
language in which the said provision is couched is neither
prohibitive or exhaustive insofar as reference of any other
disputes which although not specified in the notice of
invocation yet, nonetheless falls within the scope of the
arbitration agreement. The term “particular dispute”, does
not mean all disputes, nor does it confine the jurisdiction of
the Arbitral Tribunal which is said to be one emanating from
the “arbitration agreement” to only those disputes mentioned
in the notice of invocation, as it would tantamount to
reading a restriction into the jurisdiction of the Arbitral
Tribunal to the bounds of the notice of invocation instead of
the arbitration agreement. Thus, there is no inhibition under
Section 21 of the 1996 Act for raising any other dispute or
claim which is covered under the arbitration agreement in
the absence of any such notice. Section 21 is procedural
rather than jurisdictional — it does not serve to create or
validate the arbitration agreement, nor is it a precondition
for the existence of the Tribunal's jurisdiction, but merely
operates as a statutory mechanism to ascertain the date of
initiation for reckoning limitation.”
20. Paragraph 165 of ASF Buildtech holds the difference
between a notice under Section 21 and a statement of claim under
Section 23. The Supreme Court has observed that under Section
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23, the claimant is required to give the facts on which the claim is
based, the matters which are in dispute and the relief which is
being asked for. Such details are not required to be given in a
notice under Section 21. This difference has to be kept in mind. A
notice under Section 21 need not contain the full accounts, all the
evidence or every detail of the claim. Those details have to be
placed before the Arbitral Tribunal along with the statement of
claim.
21. Paragraph 169 of ASF Buildtech states:
“Any restriction on the nature or content of claims,
counterclaims, or set-offs in arbitration must be sourced
solely from the express language of Section 23 and not from
Section 21. Section(s) 21 and 23 of the 1996 Act although
overlap in some aspects with each other in terms of the
claims that would ordinarily be referred to the Tribunal more
often than not tend to coincide, yet they are by no means
tethered together in such a manner that neither of them can
survive without one another. The latter serves only a
procedural function and does not condition or limit the
Tribunal's jurisdiction to adjudicate claims that may not have
been invoked at the threshold stage. To read such a
limitation into the statutory scheme would run contrary to
both the text and the object of the Act.”
22. The same position has again been held in paragraph 41 of
Bhagheeratha Engineering . The Supreme Court there referred to
paragraph 24 of Adavya Projects Private Limited . The relevant part
reads as follows:
“However, non-inclusion of certain disputes in Section 21
notice does not preclude a claimant from raising them during
the arbitration, as long as they are covered under the
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arbitration agreement. Further, merely because a respondent
did not issue a notice raising counterclaims, he is not
precluded from raising the same before the Arbitral Tribunal,
as long as such counterclaims fall within the scope of the
arbitration agreement.”
23. The above legal position answers one part of the
Respondent's objection. The Respondent cannot insist that the
Applicant must give the full calculation of every part of its claim,
along with all invoices and account statements, in the notice under
Section 21. The Applicant has stated the nature of the dispute and
has claimed arrears of licence fee and other dues. The Respondent
has understood the claim and has denied it. It has asked the
Applicant to give the calculation. Therefore, merely because a
month-wise statement was not attached to the notice, the notice
cannot be treated as invalid under Section 21. However, the
Applicant will have to place a proper statement of claim, along
with supporting documents, before the Arbitral Tribunal. The
Respondent will have full opportunity to dispute the calculations
and produce proof of the payments which it says have been made.
24. Paragraph 42 of Bhagheeratha Engineering refers to Indian
Oil Corporation Limited v. Amritsar Gas Service, (1991) 1 SCC
533. The Supreme Court has referred to a counterclaim which
could be raised before the Arbitrator after the disputes were
referred to arbitration. The principle is that a party should not be
prevented from raising a claim or counterclaim only because it was
not mentioned at the earlier stage, provided that it is covered by
the arbitration agreement. Therefore, the Respondent's objection
that the notice does not contain every detail of the claim cannot be
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accepted as a reason to reject the reference to arbitration
altogether.
25. I now consider the objection regarding limitation. The
Respondent has relied upon Clause VI(D) of the Agreement.
According to this clause, every monthly licence fee became payable
in advance on the seventh day of the concerned month. Therefore,
each unpaid monthly instalment gave a separate right to claim
payment. The Respondent has relied upon the order of the
Supreme Court by which the period from 15 March 2020 to 28
February 2022 was excluded while calculating limitation. On that
basis, it submits that even the last instalment, which became due
on 7 April 2022, became barred by April 2025. It says that the first
notice dated 4 June 2025 was not received and that the notice
dated 11 July 2026 was issued much later.
26. The Respondent has relied upon the letters dated 29 August
2021 and 10 March 2023. It says that these letters did not amount
to a one-time settlement or an acknowledgment which could
change the date of default. For this purpose, it has relied upon
paragraphs 55 to 57 of the judgment of the National Company Law
Appellate Tribunal dated 25 September 2024. On the other hand,
the Applicant relies upon the undertaking dated 29 August 2021
and says that the Respondent admitted its liability through that
undertaking. The contents and legal effect of the undertaking and
the later correspondence will have to be considered along with the
accounts and other documents. At present, this Court does not
have the complete account showing the monthly dues, payments
received, adjustment of the security deposit and the exact periods
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for which the Applicant has claimed Rs.3,56,39,549/-.
27. The Supreme Court has held the law on this aspect in Krish
Spinning . It has held that while considering an Application under
Section 11, the Court has to see whether the Application has been
filed within the prescribed period. The Court should not go into a
detailed examination of evidence to decide whether the claims
before the Arbitral Tribunal are barred by limitation. Paragraph
133 of the judgment makes it clear that the question whether the
claims are barred by limitation should ordinarily be left to the
Arbitral Tribunal. The Supreme Court observed that:
“the referral courts, at the stage of deciding an application
for appointment of arbitrator, must not conduct an intricate
evidentiary enquiry into the question whether the claims
raised by the applicant are time barred and should leave that
question for determination by the arbitrator.”
28. In the present case, the notice dated 4 June 2025 was
returned without service. The later notice dated 9 May 2026 was
returned without service. However, the notice dated 11 July 2026
was received by the Respondent and the Respondent gave its reply
on 23 July 2026. The present Application has been filed in the year
2026. On the basis of the notice dated 11 July 2026 and the reply
dated 23 July 2026, there is no material to hold that the present
Application under Section 11 has been filed beyond the period of
three years. The main objection of the Respondent is that the
monetary claims made by the Applicant are themselves barred by
limitation.
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29. The calculation made by the Respondent proceeds on the
basis that the entire claim consists only of monthly instalments
which became payable on the seventh day of each month and that
no later acknowledgment or other event has any effect on
limitation. The Applicant relies upon the undertaking dated 29
August 2021 and refers to the earlier proceedings. The Respondent
disputes the effect of these documents. What amounts have been
claimed, which instalments form part of the claim, what payments
were made, what effect the undertaking has and what is the effect
of the later correspondence are matters which require examination
of the documents. It would not be proper for this Court to conduct
a detailed trial of all these questions while deciding the present
Application. Therefore, I am not accepting the Respondent's
request to reject the entire claim as hopelessly barred by limitation
at this stage. This does not mean that this Court has decided that
the Applicant's claim is within limitation. The Respondent will be
free to raise the objection of limitation before the Arbitral Tribunal.
The Applicant will have to hold and establish how each part of its
claim is within limitation. The Tribunal will decide this objection
after considering the Agreement, the undertaking, the
correspondence, the accounts and the law applicable to the
dispute.
30. The Respondent has submitted that claims for any period
after 30 April 2022 do not arise out of the Agreement and are not
covered by Clause XXXVIII. Even the Applicant's notice states that
the licence period ended on 30 April 2022. Therefore, the
Respondent is right to the extent that the Agreement cannot be
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treated as continuing after that date only because the Applicant
has made a claim. However, the expiry of the Agreement does not
mean that every dispute connected with the Agreement comes to
an end. There may be claims which arose during the licence period
but were demanded or calculated after the Agreement had
expired. Such claims may still have to be decided with reference to
the Agreement. There may be disputes regarding adjustment of the
security deposit, outstanding dues, interest and the effect of the
undertaking dated 29 August 2021.
31. The arbitration clause is not worded in very wide terms. It
covers disputes between the parties “with regard to the terms and
conditions of this Agreement or relating to the interpretation
thereof”. Therefore, a claim which has no connection with the
terms of the Agreement or its interpretation cannot be brought
under the arbitration clause merely by calling it a contractual
claim. But, in the present case, the Applicant describes its claim as
arrears of monthly compensation and other dues under the
Agreement. The exact periods and parts of the claim are disputed
and have not been held in the notice. On the material presently
available, it is not possible to hold that the entire claim is outside
the arbitration clause. The Arbitral Tribunal will have to examine
each claim and decide whether it arises out of the Agreement or
relates to its interpretation. The Respondent will be free to raise its
objection under Section 16 of the Act.
32. The Respondent's objection about the amount claimed needs
consideration. It says that it has paid Rs.6,92,46,223/-. It has
questioned the amount claimed towards other expenses and the
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calculation of interest. In its reply dated 23 July 2026, the
Respondent has asked the Applicant to give a month-wise
statement showing the licence fee charged, the period of the claim,
the payments received and the adjustment of the security deposit
of Rs.39,65,000. The Respondent is entitled to ask for these
details. The Applicant cannot expect the Respondent to accept the
amount of Rs.3,56,39,549/- merely because that figure has been
mentioned in the notice. However, the question before this Court is
not whether the Applicant has proved its monetary claim. The
question is whether the dispute is covered by the arbitration
agreement and whether the procedure agreed for appointment of
Arbitrators has failed. The Respondent's denial of the amount does
not take away the power of the Arbitral Tribunal to decide the
dispute. In the same way, merely because the Applicant has
mentioned a particular amount, it cannot be held that the amount
is payable. Both parties will have to place their accounts and
documents before the Tribunal. After giving them an opportunity
to produce the necessary material and make their submissions, the
Tribunal will decide whether any amount is payable and, if so,
what amount.
33. I now come to the main objection raised by the Respondent
about the procedure for appointment of Arbitrators. Clause
XXXVIII of the Agreement provides as follows:
“XXXVIII. DISPUTE RESOLUTION MECHANISM:
It is hereby agreed by and between the parties hereto that in
case any dispute or differences arise between the parties with
regard to the terms and conditions of this Agreement or
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relating to the interpretation thereof, the same shall be
referred to an Arbitrator appointed by each party and the
Licensor shall appoint a third Arbitrator in case of any
deadlock in resolution of any issues. Such Arbitration shall
be in accordance with the provisions of the Arbitration and
Conciliation Act, 1996, or any statutory modification or re-
enactment thereof for the time being in force.”
34. On reading the above clause, it is clear that the parties had
not agreed to have their disputes decided by one Sole Arbitrator.
Their agreement was that each party would appoint one Arbitrator.
They had stated that a third Arbitrator would be appointed if there
was a deadlock in resolving the disputes. The clause may not have
held every step of the appointment process. But the main
arrangement agreed between the parties is clear. They had agreed
upon a procedure involving more than one Arbitrator. They had
not agreed to appointment of a Sole Arbitrator. The notice dated
11 July 2026 issued by the Applicant does not ask the Respondent
to appoint an Arbitrator of its choice under Clause XXXVIII. It does
not state that the Applicant has appointed its own Arbitrator and
that the Respondent should now appoint the second Arbitrator. On
the contrary, paragraph 8 of the notice asks the Respondent to give
its consent for appointment of Advocate, as the Sole Arbitrator.
The Respondent was asked to give its consent within 14 days. By
reply dated 23 July 2026, the Respondent refused to give such
consent.
35. The Applicant says that the Respondent refused to agree to
appointment of the proposed Sole Arbitrator and, therefore, there
was failure on the part of the Respondent to follow the arbitration
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clause. I am unable to accept this argument. Under Clause XXXVIII,
the Respondent was not required to give consent for appointment
of a Sole Arbitrator. The clause does not provide for appointment
of a Sole Arbitrator at all. Therefore, merely because the
Respondent refused to accept a different procedure suggested by
the Applicant, it cannot be said that the Respondent failed to
follow the procedure agreed between the parties.
36. In Raja Transport Private Limited , the Supreme Court
considered a similar issue. In that case, one party had asked the
other party to agree to appointment of an independent Arbitrator,
even though the arbitration agreement provided for a different
procedure. The Supreme Court held that such a demand could not
be treated as a proper step for invoking arbitration under the
agreed procedure. Paragraph 53 reads as follows:
“53. We may now deal with the notice dated 4-1-2006 by
which the respondent notified the appellant that it was not
willing for appointment of an arbitrator in terms of the
agreement and that both should hold discussions to decide
upon an independent arbitrator. The letter dated 4-1-2006
cannot be construed as a step taken by the respondent for
invoking arbitration in terms of the arbitration agreement, as
it is a demand in violation of the terms of the arbitration
agreement. It required the appellant to agree upon an
arbitrator, contrary to the provisions of the arbitration
agreement.”
37. Paragraph 54 of the same judgment holds:
“54. If the respondent wanted to invoke arbitration in terms
of the arbitration agreement, it ought to have referred the
disputes to the Director (Marketing) in terms of Section 69 of
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the contract agreement for arbitration. Alternatively, the
respondent ought to have at least called upon the appellant,
to refer the dispute to the Director (Marketing) for
arbitration. In the absence of any such demand under Clause
69, it cannot be said that the respondent invoked the
arbitration clause or took necessary steps for invoking
arbitration in terms of the arbitration agreement. If the
respondent had called upon the appellant to act in a manner
contrary to the appointment procedure mentioned in the
arbitration agreement, it cannot be said that the appellant
failed to respond and act as required under the agreed
procedure.”
38. Paragraph 56 of Indian Oil Corporation records:
“56. What is significant is that even subsequent to the order
dated 20-1-2006 passed by the District Court, the respondent
did not refer the disputes to the Director (Marketing) of the
appellant nor called upon the appellant to refer to the
disputes in terms of the arbitration agreement, nor withdraw
its earlier letter dated 4-1-2006 demanding appointment of
an independent arbitrator contrary to the agreed procedure
under the arbitration agreement.”
39. The above observations of the Supreme Court apply to the
present case. Here, the Applicant has asked the Respondent to
agree to appointment of a Sole Arbitrator. But the Agreement
provides that each party shall appoint one Arbitrator. The
Applicant has not asked the Respondent to take the step required
under the Agreement. Instead, it has asked the Respondent to
accept a different method of appointment. If the Respondent
refused to accept that different method, such refusal cannot be
treated as a failure on its part to follow the agreed appointment
procedure.
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40. The same principle is found in paragraph 21 of Adavya
Projects Private Limited . The Supreme Court has held that an
Application under Section 11(6) can be made when the procedure
agreed between the parties for appointment of Arbitrators has
failed. The Court can then take the necessary steps for
appointment of the Arbitral Tribunal. But the Court cannot
ordinarily replace the agreed procedure merely because one party
has suggested another method of appointment.
41. Section 11(6) of the Act provides for the Court to step in
when a party fails to take the step required under the agreed
procedure, when the parties or the two appointed Arbitrators fail
to reach an agreement as required, or when a person or institution
given a particular responsibility fails to perform it. Therefore, there
must first be a failure of the procedure agreed between the parties.
The power of the Court cannot be used to permit one party to
avoid the very procedure which it had agreed to follow. The
Applicant relies upon the notice dated 11 July 2026 and the reply
dated 23 July 2026. According to the Applicant, the Respondent
refused to cooperate and it became necessary to approach this
Court. But the contents of the notice have to be seen. The
Respondent was asked to agree to appointment of a Sole
Arbitrator. It was not asked to appoint one Arbitrator under Clause
XXXVIII. The Respondent's refusal to agree to the proposed Sole
Arbitrator cannot be treated as its refusal to appoint an Arbitrator
under the procedure agreed in the Agreement. Therefore, the
notice and the reply do not show that the procedure under Clause
XXXVIII has failed.
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42. I am unable to accept that the Applicant can rely upon the
limited examination required under Section 11(6-A) of the Act to
get over this difficulty. There is no dispute about the existence of
the arbitration agreement. But the Applicant has filed the present
Application under Section 11(6). For exercising the power under
that provision, this Court has to see whether the agreed procedure
for appointment of Arbitrators has failed. This examination is
necessary. It does not mean that the Court is deciding the actual
monetary claim of the Applicant. It only means that the Court is
examining whether the condition required for appointment of an
Arbitrator by the Court has arisen. The Respondent has objected to
that part of Clause XXXVIII which gives the Licensor the power to
appoint the third Arbitrator in case of a deadlock. According to the
Respondent, this gives the Applicant a one-sided right and goes
against the requirement of equal treatment of parties under
Section 18 of the Act. This argument of the Respondent needs to
be considered.
43. In Central Organisation for Railway Electrification v. M/s ECI
SPIC SMO MCML (JV), 2024 INSC 857, the Supreme Court has
held that both parties must be treated equally at every stage of
arbitration, including the stage of appointment of Arbitrators. A
procedure under which one party gets a one-sided right to appoint
the Sole Arbitrator, or gets control over the appointment process in
such a way that the other party does not get an equal opportunity,
is not consistent with the Act. In paragraph 169, the Supreme
Court has held that equal treatment of the parties is required at
the stage of appointment of Arbitrators.
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44. In the present case, Clause XXXVIII gives each party the right
to appoint one Arbitrator. To that extent, both parties have an
equal say. However, the next part of the clause gives only the
Licensor the power to appoint the third Arbitrator in case of a
deadlock. In the present case, the Licensor is the Applicant. The
Licensee has no similar right to take part in the appointment of the
third Arbitrator. If this part of the clause is followed as it stands,
the Applicant would get the power to appoint two out of the three
Arbitrators. Such an arrangement cannot be accepted in view of
the law laid down by the Constitution Bench in Central
Organisation for Railway Electrification . The appointment process
must treat both parties equally and must ensure that the Arbitral
Tribunal is independent and impartial.
45. This does not mean that the entire arbitration agreement
becomes invalid. The intention of the parties to refer their disputes
to arbitration is clear. Only that part of the appointment procedure
which gives the Licensor a one-sided power to appoint the third
Arbitrator cannot be acted upon in a manner which is against the
requirement of equal treatment. The remaining part of the clause,
which gives each party the right to appoint one Arbitrator, can still
be followed. If the two appointed Arbitrators have to appoint a
third Arbitrator, they must do so in accordance with law. If they are
unable to agree upon the third Arbitrator, the concerned party may
approach the Court under Section 11 of the Act.
46. The decision in Narayan Prasad Lohiya , holds the position
where the parties agree to appoint two Arbitrators and a third
Arbitrator becomes necessary when they differ. Paragraph 17 of the
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judgment states:
“Under Section 11(3) the two arbitrators should then
appoint a third arbitrator who shall act as the presiding
arbitrator. Such an appointment should preferably be made
at the beginning. However, we see no reason, why the two
arbitrators cannot appoint a third arbitrator at a later stage
i.e. if and when they differ.”
47. Therefore, the Respondent is right to the extent that the
Applicant cannot appoint the third Arbitrator under Clause
XXXVIII. But this objection does not help the Applicant in the
present Application. The present Application is not for
appointment of a third Arbitrator after two Arbitrators have been
appointed and have failed to resolve the dispute or agree upon the
third Arbitrator. The Applicant is asking for appointment of a Sole
Arbitrator. Till now, neither party has appointed an Arbitrator
under the first part of Clause XXXVIII. The Applicant has not asked
the Respondent to appoint its Arbitrator. Therefore, at this stage,
there is no occasion for this Court to appoint a third Arbitrator.
48. The Respondent has relied upon Parmar Construction
Company . The Supreme Court has held that when the parties have
agreed upon a particular procedure for appointment of Arbitrators,
that procedure should normally be followed. The Court may make
a different arrangement if the agreed procedure cannot be
followed, if there is a real doubt about the independence or
impartiality of the Arbitrator, or if the Arbitral Tribunal is not
functioning. But before making such a different arrangement, the
Court has to see whether the procedure agreed between the parties
has failed. The Court cannot replace the agreed procedure at the
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first stage without any reason recognised by law.
49. The decision in Raja Transport Private Limited makes it clear
that if one party asks the other party to act contrary to the
appointment procedure in the Agreement, it cannot later complain
that the other party failed to act under the agreed procedure. In
the present case, the Applicant could have appointed its own
Arbitrator and asked the Respondent to appoint its Arbitrator. If
the Respondent had failed to take that step, the Applicant could
have approached this Court under Section 11. If the two
Arbitrators appointed by the parties thereafter failed to agree upon
the third Arbitrator, the parties could take the necessary steps
under Section 11. But the Applicant has not taken the first step
required under the Agreement.
50. The Respondent has relied upon Section 18 of the Act. This
Section requires that both parties must be treated equally. This
requirement applies while appointing Arbitrators. The Respondent
cannot be forced to accept a Sole Arbitrator proposed by the
Applicant when the Agreement provides for a different procedure.
At the same time, the Applicant cannot be allowed to appoint the
third Arbitrator in a manner which gives it an unequal position.
The appointment procedure has to be followed in a way which is
consistent with the Act.
51. In view of the above discussion, I find that the Respondent
has raised a valid objection regarding failure to follow the agreed
procedure for appointment of Arbitrators. The notice dated 11 July
2026 shows that the Applicant wanted to refer its monetary
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disputes to arbitration. But, through that notice, the Applicant did
not ask the Respondent to appoint its Arbitrator under Clause
XXXVIII. The Respondent's refusal to agree to appointment of a
Sole Arbitrator cannot be treated as failure of the agreed
procedure. Therefore, the necessary condition for exercising power
under Section 11(6) has not arisen.
52. After considering the material placed before this Court and
the submissions made by both sides, I am of the view that the
Applicant has not followed the procedure under Clause XXXVIII of
the Agreement. The Applicant asked the Respondent to agree to
appointment of a Sole Arbitrator, even though the Agreement
provides for appointment of one Arbitrator by each party and
thereafter appointment of a third Arbitrator in the situation
mentioned in the clause. The Respondent was entitled to refuse
consent for appointment of a Sole Arbitrator. Such refusal cannot
be treated as failure on its part to follow the agreed procedure.
Therefore, the present Application cannot be allowed.
53. It is made clear that this finding will not prevent the
Applicant from invoking the arbitration agreement again by
following the appointment procedure in accordance with law. The
Applicant may appoint its own Arbitrator and call upon the
Respondent to appoint its Arbitrator under Clause XXXVIII. If the
Respondent fails to take the required step, or if a situation arises
where the two appointed Arbitrators are unable to agree upon the
third Arbitrator, the parties will be free to take appropriate steps
under Section 11 of the Act. Any appointment of the third
Arbitrator will have to be made by keeping in mind the
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requirement of equal treatment and independence of the Arbitral
Tribunal.
54. All objections regarding limitation, calculation of dues,
payments made, adjustment of the security deposit, interest,
claims after 30 April 2022 and the effect of the earlier proceedings
before the NCLT, NCLAT and Supreme Court are kept open. These
objections may be considered by the Arbitral Tribunal, if and when
it is constituted and subject to its jurisdiction.
55. The Application is accordingly dismissed as premature, as
the Applicant has failed to show that the appointment procedure
agreed between the parties has failed. There shall be no order as to
costs.
(AMIT BORKAR, J.)
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