Brilltech Engineers Private Limited vs. Shapoorji Pallonji Company Private Limited

Facts

Brilltech Engineers Private Limited (Petitioner) filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of a sole arbitrator. Concurrently, a petition under Section 9 of the Act was filed for the attachment of Rs. 2,58,03,143/- held by Army Welfare Housing Organisation (AWHO), which was owed to the respondent, Shapoorji Pallonji and Company Private Limited. The dispute arose from a work order for electrical works awarded by the respondent to the petitioner for a project by AWHO. The petitioner claimed outstanding payments, including running account bills and security deposit, totaling Rs. 59,76,574/- with interest. The respondent contended that payments were back-to-back from AWHO and raised objections regarding the maintainability of the arbitration petition due to prior proceedings under the Insolvency and Bankruptcy Code and alleged lack of proper notice under Section 21 of the Arbitration Act.

Held

The Court held that the petition under Section 11 of the Arbitration and Conciliation Act, 1996, is maintainable. Regarding the first issue, the Court found that the respondent's agreement to refer disputes to arbitration in the Section 9 proceedings, despite the IBC petition, indicated a willingness to arbitrate. The Court distinguished the IBC proceedings from a definitive rejection of arbitration. On the second issue, the Court held that the Demand Notice, coupled with the respondent's reply and their subsequent agreement to arbitration in the Section 9 proceedings (Order dated 21.10.2020), constituted sufficient compliance with Section 21 of the Act. The objection regarding the lack of a proper Section 21 notice lost significance in light of the parties' conduct. The Court relied on precedents establishing that an application under Section 11 itself can be considered an invocation of arbitration, and non-service of a formal Section 21 notice does not render the Section 11 application non-maintainable. Prima facie, arbitral disputes were found to exist. Consequently, Ms. R. Kiran Nath, District & Sessions Judge (Retd.), was appointed as the sole Arbitrator. The petition under Section 9 was also allowed, directing the respondent to maintain a balance of Rs. 99,87,760/- in its account until the adjudication of disputes.

Key Issues

1. Whether the petition filed under Section 11 of the Arbitration and Conciliation Act, 1996, is maintainable despite the petitioner having initiated proceedings under Section 9 of the Insolvency and Bankruptcy Code, 2016, and whether this action amounts to an express rejection of the arbitration agreement? (Question of law) 2. Whether the Demand Notice dated 19.04.2019 and the subsequent proceedings, including the petition under Section 9 of the Arbitration and Conciliation Act, 1996, constitute sufficient compliance with the requirement of invoking arbitration under Section 21 of the Act? (Question of mixed law and fact) Petitioner's arguments: The petitioner argued that the respondent's contention regarding the IBC proceedings was a preliminary objection and that the respondent's own conduct, including agreeing to arbitration in Section 9 proceedings, demonstrated a willingness to arbitrate. They contended that the notice under Section 21 was sufficiently conveyed through the demand notice and the respondent's reply, and that the application under Section 11 itself serves as an invocation of arbitration. They relied on precedents like State of Goa vs. Praveen Enterprises and Universal Consortium of Engineers Pvt. Ltd. vs. Kanak Mitra. Respondent's arguments: The respondent argued that filing for insolvency under Section 9 of the IBC implies that disputes are non-arbitrable, thus rejecting the arbitration agreement. They also contended that the Demand Notice did not meet the requirements of Section 21 of the Act, making the arbitration petition non-maintainable.