Re-issuance of Section 21 Notice Is Not Mandatory for Intertwined Disputes Arising From Settlement Agreements

The Petitioners and Respondent formed a Joint Venture (JV) in 2017 to execute three construction projects for NHAI and the Government of Gujarat.

Petitioner No. 1 provided Bank Guarantees (BGs) for these projects.

Following execution disputes, the parties entered a Settlement Agreement on December 21, 2021, later incorporated into a Consent Arbitral Award on February 23, 2022.

To secure the Petitioners’ BGs, the Respondent executed a Mortgage Deed for plant and machinery worth Rs. 50 Crores.

Alleging that the Respondent failed to complete the Gujarat projects, leading the authority to invoke a "risk and cost" clause that threatened Petitioners' BGs, the Petitioners sought interim measures under Section 9 and a fresh appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.

The Respondent countered that the Petitioners breached the agreement by failing to provide Retention BGs and argued that no Section 21 notice was served for the new disputes.

1. Whether a fresh notice under Section 21 of the Arbitration Act is a mandatory prerequisite for the appointment of an arbitrator when the disputes arise from a settlement agreement related to earlier proceedings.

2. Whether the disputes arising out of the Settlement Agreement, Consent Award, and subsequent Mortgage Deed are intertwined and should be referred to a consolidated arbitral tribunal.

3. Whether the court should grant interim protection for the Bank Guarantees under Section 9 of the Act.

The court applied Section 11 (appointment of arbitrators), Section 9 (interim measures), and Section 21 (commencement of arbitral proceedings) of the Arbitration and Conciliation Act, 1996.

The court relied on Sriram Cables Pvt. Ltd. v. Union of India, which established that the Act does not envisage repeated Section 21 notices for the same subject matter.

The court further cited Bhagheeratha Engineering Ltd. v. State of Kerala, holding that a Section 21 notice is not a mandatory prerequisite in all contexts, as its primary purpose is determining limitation.

The Court found that a fresh Section 21 notice was unnecessary because a formal notice had been issued for the original proceedings in 2020, and a subsequent legal notice on December 19, 2025, sufficiently covered the essential elements of a Section 21 notice.

Regarding the merits, the Court observed that the Petitioners faced "imminent risk" of BG invocation as the Gujarat Authority had already triggered the "Risk and Cost" mechanism.

The Court noted that the Mortgage Deed (securing Rs. 50 Crores) was insufficient to cover the live BGs amounting to Rs. 106.71 Crores, especially since the assets were depreciating.

It determined that the disputes under the JV Agreements, Settlement Agreement, Consent Award, and the 2022 Mortgage Deed were "intertwined" and formed part of a larger settlement.

Despite the Respondent's reservations about the previous arbitrator, the Court exercised its discretion to appoint a new neutral sole arbitrator to maintain party confidence.

It held that Section 21 notice requirements were met or were not fatal to the claim.

The Section 9 petition was referred to the learned Arbitrator to be treated as an application under Section 17 for interim relief.

The parties were directed to approach the Arbitrator within two weeks, with all rights and contentions on merits and arbitrability left open.