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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.