Restaurant’s ₹3.56-crore licence-dues arbitration plea dismissed as premature after it sought a sole arbitrator instead of following the agreed process: Bombay HC

Under a registered Leave and Licence Agreement dated 4 May 2017, the Applicant licensed premises to the Respondent for a term ending 30 April 2022.

The Applicant claimed arrears and other dues, ultimately seeking ₹3,56,39,549 with interest; the Respondent disputed liability and raised objections including limitation and the calculation of the claim.

Clause XXXVIII provided for each party to appoint one arbitrator and for the Licensor to appoint a third arbitrator in the event of a deadlock.

After an earlier Section 11 application was withdrawn with liberty to refile following proper service, the Applicant served a notice seeking the Respondent’s consent to appoint a sole arbitrator. The Respondent refused.

The Applicant then applied under Section 11 for appointment of a sole arbitrator; the Respondent objected that the Applicant had not followed the agreed appointment procedure.

Section 11(6) of the Arbitration and Conciliation Act, 1996 permits court intervention when the appointment procedure agreed by the parties has failed; a party’s refusal to accept a different procedure proposed by the other party does not, by itself, establish such failure.

Under Section 11(6-A), referral-court scrutiny is generally confined to the existence of the arbitration agreement and its formal validity, while disputed merits and evidentiary questions are ordinarily left to the tribunal.

A Section 21 notice serves a procedural function, principally identifying commencement for limitation purposes, and need not contain the detailed particulars required in a statement of claim under Section 23.

Section 18 requires equal treatment in the arbitral process, including appointment; a one-sided appointment power that gives one party control over two of three arbitrators cannot be applied inconsistently with that requirement.

The Court relied on Indian Oil Corporation Ltd. v. Raja Transport Pvt. Ltd., (2009) 8 SCC 520, on the need to invoke the agreed appointment procedure; Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV), 2024 INSC 857, on equality in appointments; and Narayan Prasad Lohiya v. Nikunj Kumar Lohiya, (2002) 3 SCC 572, on the two party-appointed arbitrators appointing a presiding arbitrator.

It further applied SBI General Insurance Co. Ltd. v. Krish Spinning, (2024) 12 SCC 1, in leaving detailed limitation disputes for the tribunal.

The Court held that the Section 11 inquiry did not require it to decide the merits of the monetary claim or the Respondent’s detailed limitation and accounting objections.

The notice was not invalid merely because it lacked a month-wise calculation, and the substantive objections were left open for the tribunal.

However, the Applicant’s notice sought consent to a sole arbitrator, whereas Clause XXXVIII contemplated separate party appointments.

The Respondent’s refusal to accept that proposed alternative therefore did not amount to failure to comply with the agreed procedure.

Although the Licensor’s power to appoint the third arbitrator could not be exercised in a way that gave the Applicant control over two of three appointments, that concern did not establish a present basis to appoint a sole arbitrator: neither party had yet appointed its own arbitrator, and the Applicant had not called upon the Respondent to do so.

It clarified that the Applicant could invoke arbitration afresh by appointing its arbitrator and calling upon the Respondent to appoint its arbitrator; any appointment of a third arbitrator must comply with equality and independence requirements.

The objections concerning limitation, the calculation and components of the claim, payments, security-deposit adjustment, interest, post-expiry claims and the effect of earlier proceedings were left open.

No order as to costs was made.