Fresh Notice Mandatory for Second Arbitration Proceedings: Kerala High Court Rules

In a significant ruling clarifying the procedural requirements under the Arbitration and Conciliation Act, 1996 , the High Court of Kerala has held that parties must issue a fresh notice under Section 21 of the Act to initiate a second round of arbitration if a previous award has been set aside by a court.

Justice S. Manu, presiding over the matter involving M/s. Agro Indus Credits Limited and its respondents, emphasized that the statutory architecture of the Act provides for a specific, non-perpetual framework for dispute resolution.

The Backdrop: A Failed First Attempt

The dispute originated from two loan agreements entered into by the non-banking finance company and its borrowers. After the borrowers allegedly defaulted, the company invoked the arbitration clause and obtained an award. However, the Commercial Court, Ernakulam, invalidated these awards, declaring the entire proceedings a "nullity" because the arbitrator had been appointed unilaterally.

Seeking to restart the process, the company filed new arbitration requests before the High Court, skipping the issuance of a fresh Section 21 notice and arguing that the original, albeit invalidated, notice remained legally operative.

The Core Legal Conflict

The primary question before the court was whether the commencement of initial arbitration—which resulted in a void award—rendered the subsequent issuance of a Section 21 notice redundant.

The appellant argued that the initial notice served its purpose by alerting the respondent to the existence of a dispute; therefore, no further notification was required. However, the respondents contended that under Section 32 of the Act, the passing of an award—even one later set aside—effectively terminates the arbitral proceedings, requiring a new invocation of the arbitration process.

The Court’s Reasoning

The High Court rejected the appellant's reliance on a previous Bombay High Court judgment ( Kirloskar Pneumatic Company Ltd. v. Kataria Sales Corporation ), noting that the statutory scheme provided in Sections 32 and 43(4) of the Act had not been adequately considered in that instance.

Justice S. Manu underscored that the Act is a "complete code." Once an award is passed, the arbitrator becomes functus officio , and the mandate is terminated, leaving the tribunal with only the most limited powers (such as correction of mathematical errors). Consequently, any de novo proceedings must follow the strict procedural milestones established by the law.

Key Observations

The judgment clarifies that the "reference" under the Act is not a perpetual journey. The court stated:

• "The arbitral proceedings get terminated by passing of the final arbitral award in view of Section 32 (1) of the Act."
• "This reference however, is singular, not perpetual. It ordains one arbitral process, not an indefinite series of retry attempts."
• "Passing of the award by the Arbitral Tribunal is the vital aspect. Hence, the arbitral proceedings, as far as these cases are concerned, were undoubtedly terminated with the passing of awards."
• "Conjoint appraisal and analysis... shows that issuing a fresh notice/making another request is indispensable to initiate fresh arbitral proceedings, once an award is set aside by the court."

Implications of the Verdict

By rejecting the current arbitration requests as premature, the Kerala High Court has reaffirmed the necessity of strict procedural compliance. For financial institutions and claimants, this underscores that "resetting" an arbitration after a judicial setback requires re-initiating the clock through a formal Section 21 request. Failure to do so renders any subsequent appointment of an arbitrator legally unsustainable. The door remains open for the appellant, however, to initiate the process correctly by serving the required notice.