Section 21 is Procedure in Arbitration, Not a Jurisdictional Bar: Supreme Court in Bhagheeratha Engineering

A division bench of the Supreme Court of India (the “Supreme Court”), on 5^th January 2026, reversed a decision of the High Court of Kerala (the ”High Court”) on the question whether the failure to issue a notice under Section 21 of the Arbitration and Conciliation Act, 1996 (the “Act”) by a party precludes the party from claiming a dispute before an arbitral tribunal.

The High Court in its decision had held that an arbitral tribunal constituted under the Act could only adjudicate on the disputes presented before it by the claimant, which in this case was the State of Kerala (the “State”), for the reason that the non-issuance of a notice by M/s Bhagheeratha Engineering Ltd. (“Bhagheeratha”), the other party in the dispute bars it from raising any disputes before the arbitral tribunal. The High Court, in furtherance of its decision, had set aside the arbitral award that was originally in favour of Bhagheeratha.[i]

After analysing the issues between the State and Bhagheeratha, the Supreme Court restored the arbitral award in favour of Bhagheeratha.[ii]

Facts of the case:

Bhagheeratha was awarded four road maintenance contracts under the Kerala State Transport Project by the State. Four disputes arose in relation to (i) price adjustment for bitumen and POL, (ii) release of escalation for the extended period of contract, (iii) the rate of bitumen for price adjustment, and (iv) interest on delayed payments. In terms of Clause 25 of the Conditions of Contract, Bhagheeratha referred the disputes to the Engineer, who failed to deliver a decision, and thereafter to the Adjudicator. The Adjudicator rendered a decision allowing Bhagheeratha’s claims related to disputes (i) and (iii) while rejecting the claims related to disputes (ii) and (iv).

When the matter was being referred for arbitration by the State, Bhagheeratha contended that the Adjudicator’s decision had attained finality for want of invocation by the State within the agreed period in which the matter could be referred to arbitration. However, the State firmly expressed its intention to refer the matter to arbitration and appointed its nominee arbitrator, after the expiry of contractually-agreed period for arbitration. Despite reserving its objection with respect to the limitation period as per the contract, Bhagheeratha accepted the reference to arbitration. The arbitral tribunal was constituted, and after deciding the jurisdictional objections under Section 16 of the Act, the tribunal adjudicated the disputes and passed an award in favour of Bhagheeratha.

Aggrieved by the award, the State preferred an application under Section 34 of the Act before the district court seeking to set aside the award. The district court allowed the application and set aside the arbitral award, effectively restoring the position emerging from the Adjudicator’s decision.

Bhagheeratha thereafter filed an appeal under Section 37 of the Act before the High Court. The High Court, while differing in its reasoning from that of the district court, ultimately upheld the setting aside of the arbitral award. The High Court held that the arbitral tribunal had exceeded its jurisdiction in entertaining disputes beyond dispute number (i), as only that dispute had been specifically invoked for arbitration by the State claimant and no notice had been issued by Bhageeratha to the State covering disputes (ii), (iii) and (iv). Consequently, the High Court confirmed the order setting aside the award, leading to the appeal before the Supreme Court.

The present question arose from the fact that the State, initially after the original decision by the Adjudicator on dispute nos. (i), (ii), (iii) and (iv), proceeded to issue a letter to Bhagheeratha, and eventually refer the matter for arbitration, in connection to dispute (i) alone, after the expiry of the time limit provided in the contract for such initiation of proceedings, as they expressed rejection of the decision of the Adjudicator with respect to dispute (i). Although Bhagheeratha had raised the objection regarding the State’s reference of the dispute for arbitration beyond the time limit mentioned in the contract, the State replied by stating that time limit provided in the contract is merely for reference of the dispute to a constituted arbitral tribunal. As in this event, there was no such constituted arbitral tribunal, the time limit cannot start. That they are hence, eligible to refer the matter to arbitration.

Further, Bhagheeratha, while reserving its objection regarding the contractually agreed limitation period, agreed to constitute the arbitral tribunal in coordination with the State.

The State further argued that the constitution of the arbitral tribunal is in furtherance of an escalation based dispute resolution system provided in the contract and therefore does not merit the adjudication of disputes not referred to the arbitral tribunal by either of the parties. As per the contract between the parties, the Engineer was to initially decide on any dispute. If either of the parties are aggrieved by the decision of the Engineer, they may approach the Adjudicator. Further, if either of the parties are aggrieved by the decision of the Adjudicator, they may seek the constitution of an arbitral tribunal for adjudication of the dispute. As the State issued the notice for referring the matter to arbitration with respect to dispute (i) only, it was their contention that the arbitral tribunal’s jurisdiction is also limited to that dispute.

Supreme Court’s Decision:

1) Re. Object and intent of Section 21:

When the matter came before the Supreme Court, the Court opined that Section 21 of the Act is only for the purpose of determining the commencement of the arbitral proceedings to further reckon the relevant time limits. The absence of a separate Section 21 notice was understood by the Court to be non-fatal in this case. The Court held that Section 21 is procedural in its principal function and does not, by itself, confine jurisdiction to the exact contents of the notice of invocation.

The Court reasoned their opinion based on observations in the following precedents:

The Court observed the decision in ASF Buildtech Private Limited v. Shapoorji Pallonji & Company Private Limited[iii] (“ASF”) wherein it was held that (a) limiting the arbitrable disputes to the dispute raised in the notice under Section 21 would tantamount to reading a restriction into the jurisdiction of the arbitral tribunal to the bounds of the notice of invocation instead of the arbitration agreement, and (b) that Section 21 is procedural, rather than jurisdictional, in nature.

The single bench in ASF also went on to observe the difference between the term “particular dispute” under Section 21, and “claim” under Section 23 (which talks about the statement of claim wherein a claimant may state their claims, points at issue and relief sought). The single bench in ASF had also noted that it was legislative intent to keep the two terms different and assign procedural objective to Section 21 and substantive function in Section 23. Therefore Section 21, unlike Section 23, does not require a party to articulate the relief sought from the arbitral tribunal.

The Supreme Court further relied on Adavya Projects Private Limited v. Vishal Structurals Private Limited and others[iv] wherein it was held that “merely because a respondent did not issue a notice raising counterclaims, he is not precluded from raising the same before the Arbitral Tribunal, as long as such counterclaims fall within the scope of the arbitration agreement”.

2) Re. the wording of the Arbitration Agreement:

The Supreme Court further observed that in the matter in question, the arbitration agreement is widely worded to include all disputes arising out of or in connection with the agreement.

Here, the Court also relied on State of Goa v. Praveen Enterprises[v] wherein it was held that a claimant is not bound to restrict his statement of claim to the claims already raised by him in the notice, unless it was agreed to by the parties to the arbitration agreement. The Court noted that this is important to the extent that it allows the parties to agree beforehand the procedural and jurisdictional aspects of the arbitration by providing greater party autonomy, which is ultimately, the essence of arbitration.

3) Re. the Conduct of Parties:

The Supreme Court also noted that the State itself sought to reopen the Adjudicator’s decision in relation to one (1) of the four (4) disputes, the arbitral process was thereafter constituted with participation from both sides. The arbitral tribunal framed the issues broadly to cover all four (4) disputes arising in connection with the contract. Reading in that context, the Court rejected the approach of the High Court of upholding the claims of the State that the absence of a separate Section 21 notice from Bhagheeratha in connection with the remaining three (3) disputes are fatal.

For this evaluation, the Court also relied on M.K. Shah Engineers & Contractors v. State of M.P.[vi] on a party not being allowed to take advantage of its own wrong.

Conclusion

The decision of the Supreme Court in Bhagheeratha v. State is significant as it clarifies that the issuance of a notice under Section 21 of the Arbitration and Conciliation Act, 1996 is primarily procedural and intended only to determine the commencement of arbitral proceedings for the purpose of contractual time limitation.

The Supreme Court’s ruling reinforces that the jurisdiction of an arbitral tribunal flows from the arbitration agreement itself, rather than from the scope or wording of the notice invoking arbitration. Consequently, the failure to issue a dispute-specific notice under Section 21 does not bar a party from raising additional claims before the tribunal, provided such claims fall within the ambit of the arbitration agreement. The judgment asserts that technical procedural objections under Section 21 of the Act cannot be employed to defeat the substantive adjudication of disputes that otherwise fall within the scope of the arbitration agreement.

Although the dispute in the present case dates back to 2004 and the matter had been subjected to multiple layers of judicial scrutiny, which is contrary to the fundamental objective of arbitration as an efficient and minimally court-intervened dispute resolution mechanism, the decision of the Supreme Court in restoring the arbitral award in favour of Bhagheeratha ultimately reaffirms the principle of party autonomy and minimal judicial intervention in arbitral proceedings.

Contributed by: Aditi Verma Thakur and Akash Sajan

[i] [2025:Ker:337]

[ii] Civil Appeal No. 39 of 2026 @ SLP (Civil) No. 7338 of 2025

[iii] (2025) 9 SCC 76

[iv] (2025) 9 SCC 686

[v] (2012) 12 SCC 581

[vi] AIR 1999 SC 950; 1999 (2) SCC 594