2026 – Nautiliyaa Legal

1 Feb

There is No Mandatory Prerequisite for Issuance of a Section 21 Notice for each Claim Prior to the Commencement Of Arbitration: SC

In a recent judgment pronounced by the Hon’ble Supreme Court in M/s Bhagheeratha Engineering Ltd. v. State of Kerala [Civil Appeal No. 39 of 2026], bench of Justices JB Pardiwala and KV Viswanathan has held that Section 21 is concerned only with determining the commencement of the dispute for the purpose of reckoning limitation. There is no mandatory prerequisite for issuance of a Section 21 notice prior to the commencement of Arbitration. Issuance of a Section 21 notice may come to the aid of parties and the arbitrator in determining the limitation for the claim. Failure to issue a Section 21 notice would not be fatal to a party in Arbitration if the claim is otherwise valid and the disputes arbitrable.

The dispute arose with respect to four Road Maintenance Contracts for development of roads in Kerala with World Bank assistance. The dispute resolution clause incorporated a three-tier mechanism where the disputes were first to be referred to the Engineer, then to an Adjudicator and finally to Arbitration. Contractor raised four issues relating to (1) value of work to be considered for determining price adjustment for bitumen and POL, (2) release of escalation during extended periods, (3) price of bitumen for escalation purposes, and (4) interest for delayed payments out of which two were decided in favour of contractor. The Adjudicator, by his decision ruled dispute Nos.1 and 3 in favour of the appellant and ruled against the appellant on dispute Nos. 2 and 4. The respondent did not settle the bill on the ground that the finding of the Adjudicator qua dispute No.1 was unacceptable to the respondent. The respondent particularly wrote that “we write to inform you that the award of the Adjudication for Dispute No. 1 is not acceptable and we intent to refer the matter for an arbitration”.

Arbitral Tribunal was constituted. Appellant filed its claim. The respondent filed an application to treat the entire decision of the Adjudicator as null and void on the ground that it was contrary to Clause 24.1 of the GCC. The respondent objected to the appellant being allowed to file the claim petition with regard to all the issues which, according to the respondent, was beyond jurisdiction. The Arbitral Tribunal answered all four issues in favour of the appellant reasoning that arbitration agreement is comprehensive enough to cover any dispute arising out of or in connection with the agreement and further that prayer of the respondent to declare the decision of the adjudicator null and void virtually indicated their intention to open the 4 disputes that are brought before the Arbitral Tribunal.

When the arbitral award was challenged under section 34, the Ld. District Judge allowed respondent’s Section 34 petition and set aside the arbitral award to restore the decision of Adjudicator. Aggrieved, the appellant filed an appeal under Section 37 of the A&C Act. The Division Bench, by the order impugned, clearly found that on the ground that the appellant never sought reference of the dispute by issuing any notice under Section 21 of the A&C Act and only the respondent had issued such a notice on one issue, it found the award to be invalid. However, the order restoring the decision of the Adjudicator was not disturbed.

The specific issue for determination before the Hon’ble Supreme Court was : Whether an arbitral tribunal lacks the jurisdiction to decide disputes beyond a specific issue referred to it and that a party cannot raise additional disputes without issuing a separate notice under Section 21 of the Arbitration and Conciliation Act, 1996?

The Court held that “there is no mandatory prerequisite for issuance of a Section 21 notice prior to the commencement of Arbitration. Issuance of a Section 21 notice may come to the aid of parties and the arbitrator in determining the limitation for the claim. Failure to issue a Section 21 notice would not be fatal to a party in Arbitration if the claim is otherwise valid and the disputes are arbitrable”. The Court reasoned that like claims, the counterclaims are equally permissible and capable of amendment.

The Court further observed that “once the Arbitral Tribunal is constituted, claims, defence and counterclaims are filed. The party which normally files the claim first is, for convenience, referred to as the ‘claimant’ and the party which responds is called the ‘respondent’. The said respondent is also along with the defence statement entitled to file its counter claim. Hence, to contend that the appellant cannot be referred to as a claimant because no notice under Section 21 has been issued is completely untenable”. The Court, thus finding error in the impugned judgment delivered by the High Court that the arbitral tribunal lacked jurisdiction to entertain disputes beyond those mentioned in the initial notice, set it aside and held that such a view was contrary to the statutory framework and settled jurisprudence governing arbitral proceedings.

3 Jan

Explanation To Section 2(1)(d), Which Excludes Self-Employment Activities From “Commercial Purpose” Cannot Be Extended to Corporate Entities Purchasing Goods or Services to Streamline or Automate Business Operations

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Consumer

In the matter of M/s Poly Medicure Ltd. vs. M/s Brillio Technologies Pvt. Ltd., [Civil Appeal No. 6349 of 2024arising out SLP (C) No. 14306 of 2020], the division bench of Hon’ble Supreme Court consisting of Justice J. B. Pardiwala and Justice Manoj Misra has recently held that although it stands settled that an incorporated company is not per se excluded from the ambit of a “consumer” and may fall within the meaning of Section 2(1)(d) read with Section 2(1)(m) of the Consumer Protection Act, 1986 (“the Act”), the explanation to Section 2(1)(d), which excludes self-employment activities from “commercial purpose”, cannot be extended to corporate entities purchasing goods or services to streamline or automate business operations.

Facts:

The Appellant, a company registered under the Companies Act, 1956, filed a complaint before SCDRC claiming that it is engaged in the business of import and export of medical devices and equipment. To install and implement an export–import documentation system for its manufacturing facility, the Appellant purchased a software licence for “Brillio Opti Suite” from the Respondent and paid consideration towards licence fees and additional development costs. The Appellant alleged that the software did not function as promised and that there was deficiency in service, the Appellant filed a consumer complaint before the State Consumer Disputes Redressal Commission (SCDRC), Delhi seeking refund along with interest.

The SCDRC dismissed the complaint holding it to be not maintainable on the ground that the appellant was not a “Consumer” within the meaning of Section 2(1)(d) of the Act, as the software had been purchased for a commercial purpose. The said order was upheld by the National Consumer Disputes Redressal Commission (NCDRC) as well. Aggrieved by the order of NCDRC, the appellant approached the Supreme Court for relief.

Central Issue involved in the matter:

The question before the Court was whether in respect software which was utilised for internal business processes can be said to be for commercial purpose and whether the appellant would qualify as a “consumer” as defined in Section 2(1)(d) of the 1986 Act.

Submissions by the Parties:

The Appellant contended that the software was purchased for self-use as an end user, without any intention of resale or transfer for profit. The software was utilised for internal business processes and does not amount to a commercial purpose. It was also argued that since the software was not directly linked to generation of profit, the transaction cannot be considered as one for a commercial purpose so as to disqualify the appellant from being a “consumer”. Reliance was placed on Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers to argue that the dominant purpose test must be applied and that identity of the purchaser or value of the transaction is not determinative. It was further argued, relying on Sunil Kohli v. Purearth Infrastructure Ltd., that goods or services used for self-utilisation to earn a livelihood should fall within the definition of “consumer”. Therefore, the view taken by the SCDRC followed by the NCDRC is contrary against the law and liable to be set aside.

The Respondent contested that the software was specifically designed to support and automate the Appellant’s core business activities, including export documentation, duty drawback, forex management, and regulatory compliance and arguing that the software had a direct nexus with profit-generating activities of the Appellant. The Act contemplates business-to-consumer disputes, not business-to-business commercial transactions. Reliance was placed on Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers and Ors and National Insurance Co. Ltd. v. Harsolia Motors.

Analysis and finding:

The Court, relying upon the Judgment of Supreme Court in the matter of Karnataka Power Transmission Corp. and Anr v. Ashok Iron Works Private Ltd., observed that the definition of “person” in Section 2(1)(m) of the Act is inclusive and not exhaustive. Accordingly, it stands settled that an incorporated company is not per se excluded from the ambit of a “consumer” and may fall within the meaning of Section 2(1)(d) read with Section 2(1)(m) of the Act. However, the decisive factor is whether the goods purchased or services availed are for a commercial purpose.

The Court relied extensively on Lilavati Kirtilal Mehta Medical Trust v. Unique Shanti Developers and Ors, wherein the Court has observed that there is no straight forward formula to determine a “commercial purpose” and that the dominant intention or dominant purpose test must be applied. Ordinarily, business-to-business transactions having a close and direct nexus with profit generation constitute a commercial purpose. The Court drew a clear distinction between a self-employed individual purchasing goods/services to earn livelihood, and an established commercial entitiy purchasing goods/services to enhance efficiency, reduce costs, or maximise profits. Court observed that the explanation to Section 2(1)(d), which excludes self-employment activities from “commercial purpose”, cannot be extended to corporate entities purchasing goods or services to streamline or automate business operations. The Court further clarified that decisions in Harsolia Motors are related to insurance being indemnificatory and not profit-generating, and cannot be applied to cases where the transaction directly facilitates commercial operations.

The Court found that the software was purchased to automate export–import processes integral to the Appellant’s business. Automation of such processes is inherently aimed at cost efficiency and profit maximisation. Consequently, the transaction bore a direct nexus with commercial activity and profit generation. The Court held that the Appellant had purchased the software licence for a commercial purpose, and therefore did not qualify as a “consumer” under Section 2(1)(d) of the Consumer Protection Act, 1986 and the orders passed by the SCDRC and NCDRC were affirmed. The appeal was accordingly dismissed.

1 Jan

An Arbitral Tribunal’s Power to Grant Pendente Lite Interest Can Be Curtailed Only by an Express or Necessary Implied Prohibition in the Contract

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Arbitration

In the matter of Oil and Natural Gas Corporation Ltd. vs. G & T Beckfield Drilling Services Pvt. Ltd. [2025 INSC 1066], the Hon’ble Apex Court held that post-award interest, being statutorily provided under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 (“1996 Act“), cannot be contracted out of by the parties and further even if there is a clause excluding interest, simpliciter, on delayed or disputed payments, it does not, by itself, bar the arbitral tribunal from awarding pendente lite interest. The statutory power of arbitral tribunal to grant pendente lite interest can be curtailed only by an express necessary implied prohibition in the contract.

When the disputes were referred to arbitration, a three-member arbitral tribunal passed an award in favour of the respondent, directing ONGC to pay, inter alia, the principal amount along with interest at 12% per annum from 12^th December 1998 i.e. from the date of filing of the statement of claim till recovery. Aggrieved, ONGC filed an objection under Section 34 of the Act before the Ld. District Judge, Sivasagar, seeking to set aside the award inter alia on the grounds that the arbitral tribunal had not properly addressed its jurisdictional objection under Section 16(2) of the Act. The District Judge set aside the award. The respondent preferred an appeal under Section 37 before the Hon’ble Gauhati High Court, where the arbitral award was restored. ONGC challenged this decision before the Supreme Court. The limited ground of challenge was whether the arbitral tribunal was justified in awarding interest at 12% per annum despite clause 18.1 of the agreement prohibiting interest on delayed or disputed payments.

The Supreme Court confined its analysis to the question of interest and the scope of Section 31(7) of the 1996 Act. It observed by the Court that Section 31(7) empowers the arbitral tribunal to award interest for separately for pre-reference, pendente lite, and post-award period. While the power to grant pre-reference and pendente lite interest is subject to the agreement between the parties, the post-award interest is statutory and cannot be contracted out of.

The Supreme Court noted that in the instant case, the tribunal had awarded interest at 12% per annum not from the date of the cause of action but from the date of affirmation of the statement of claim before the tribunal, and thus the 12% interest amounted to pendente lite interest.

Clause 18.1 stated that “no interest shall be payable by ONGC on any delayed payment/disputed claim.” The Supreme Court interpreted this clause in light of established precedents in Irrigation Deptt. vs. G.C. Roy [(1992) 1 SCC 508], Union of India vs. Ambica Construction[(2016) 6 SCC 36], Reliance Cellulose Products Ltd. vs. ONGC [(2018) 9 SCC 266], Sayeed Ahmed & Co. vs. State of U.P. [(2009) 12 SCC 26], and THDC vs. Jaiprakash Associates Ltd.[(2012) 12 SCC 10] wherein it has been held that only an express or necessarily implied bar can restrict the arbitrator’s power to grant pendente lite interest. Such a restriction must be an absolute prohibition like those in Sayeed Ahmed & Co. or THDC, where interest was explicitly barred in the contract by using the expression “in any respect whatsoever“. Clause 18.1, in the present case on the other hand, merely provided that ONGC would not pay interest on delayed or disputed payments. Therefore, clause 18.1 could not be construed as barring the arbitral tribunal’s authority to award pendente lite interest. The Supreme Court further found the rate of 12% awarded as reasonable, being lower than the statutory post-award rate of 18% prescribed under Section 31(7)(b) at the time.

Accordingly, the SLP was dismissed.