Delhi HC Upholds ₹1.29-Crore Award Against Tractor Dealer, Says 2002 Deal Covered Earlier Dues In Arbitration

The parties entered into a Dealership Agreement dated 1 January 2002, following an earlier Letter of Intent (LOI) dated 23 September 1998, stated to be valid until 23 March 1999.

The respondent claimed outstanding sums for supplies made to the petitioners, including amounts relating to dealings between 24 March 1999 and 31 December 2001.

The respondent invoked the arbitration clause and appointed a sole arbitrator on 1 June 2004. The arbitrator awarded the respondent Rs.1,29,68,643 with interest at 12% per annum from 1 August 2004 until payment.

The petitioners challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, principally alleging invalid unilateral appointment, absence of a Section 21 notice, and lack of arbitral jurisdiction over claims arising before the 2002 Agreement

Section 12(5), read with the Seventh Schedule to the Arbitration and Conciliation Act, 1996, was introduced by the 2015 Amendment and came into force on 23 October 2015; the Court applied the principle that it does not retrospectively invalidate appointments made before that date.

Under the pre-amendment regime, the parties’ agreed appointment procedure was to be respected, although a pre-amendment appointment could still be challenged for a distinct statutory infirmity or established lack of independence or impartiality.

Dharma Prathishthanam v. Madhok Construction (P) Ltd. establishes that a party cannot appoint an arbitrator contrary to the procedure in the arbitration agreement.

Section 21 principally determines commencement of arbitral proceedings, including for limitation purposes; its non-compliance does not, by itself, invalidate an otherwise arbitrable claim. Section 7 requires a written arbitration agreement. Under Section 34, the Court does not substitute its interpretation for a plausible view of the evidence and contract adopted by the arbitrator.

The arbitrator was appointed in 2004 under Clause 25, which expressly authorised the respondent’s Managing Director to appoint a retired judge. Because Section 12(5) was not then in force, and the petitioners identified no separate circumstance establishing a lack of independence or impartiality, the appointment was not invalidated by the later amendment

The absence of a separate Section 21 notice was also insufficient to set aside the award: the petitioners alleged neither limitation nor procedural prejudice

As to the earlier-period claims, the arbitrator’s finding that the parties’ commercial dealings continued after the LOI’s stated validity was supported by continued supplies, acceptance, payments and account treatment. Clause 1.4 of the 2002 Agreement preserved accrued financial liabilities under the earlier arrangement, while Clause 25 supplied the dispute-resolution mechanism for liabilities falling within its scope. Read together, those clauses supported the arbitrator’s conclusion that the preserved financial liabilities could be arbitrated. The Court treated that conclusion as a plausible contractual interpretation and declined to interfere under Section 34

dismissed the petition, upheld the award dated 9 January 2006, and made no order as to costs