Supreme Court Holds Section 21 Notice Is Procedural and Upholds Arbitration Award Where Employer's Conduct Waived Time Bar

A bench of Justices J. B. Pardiwala and K. V. Viswanathan heard an appeal challenging the Kerala High Court’s January 7, 2025 judgment which had upheld the District Judge’s order setting aside an arbitral award and restoring an adjudicator’s decision. The limited issue before the Supreme Court was whether the arbitral tribunal was properly constituted to decide all four disputes between the parties and whether the contractor’s failure to issue a notice under Section 21 of the Arbitration and Conciliation Act, 1996 was fatal to its claims.

The Court allowed the appeal, set aside the High Court judgment and upheld the arbitral award dated June 29, 2006 in its entirety. The Court found that the High Court “totally erred” in holding that the tribunal was appointed only to adjudicate dispute No.1 and that the absence of a Section 21 notice in respect of other issues barred the contractor from pursuing those claims. The Court emphasised that the employer’s own conduct — including initiating arbitration after delay, disputing the adjudicator’s recommendations and treating the matters as unsettled — precluded it from pleading procedural non-compliance. The Court, in its reasoning, observed: “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. 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 judgment relied on earlier authorities including M.K. Shah Engineers, State of Goa v. Praveen Enterprises and ASF Buildtech to hold that Section 21 is procedural and that parties cannot “be permitted to take advantage of one's own wrong.”

Background The dispute arose under four Road Maintenance Contracts (RMC‑01, RMC‑03, RMC‑08 and RMC‑12) awarded to the contractor under the Kerala State Transport Project. The contract’s General Conditions provided a stepped dispute resolution mechanism: (i) reference to the Engineer, (ii) adjudication by an Adjudicator (Clause 24–25), and (iii) arbitration under Clause 25.3 where either party could refer the adjudicator’s decision to arbitration within 28 days. The contractor referred several payment and escalation claims to the Adjudicator on April 15, 2004. The Adjudicator issued a decision on August 14, 2004, favouring the contractor on two disputes and the State on two others.

The State wrote on October 1, 2004 that it would refer Dispute No.1 to arbitration and appointed its arbitrator; the contractor replied that the State’s letter was time‑barred and that the Adjudicator’s decision had become final and binding. Correspondence thereafter showed both parties treating the matter as unresolved: the State insisted that appointment of an arbitral tribunal was necessary and asked the contractor to nominate a co‑arbitrator; the contractor eventually proposed a co‑arbitrator and proceeded to file claims before the tribunal. The arbitral tribunal decided under Section 16 that it had jurisdiction and, by award dated June 29, 2006, ruled on all four disputed issues in the contractor’s favour, awarding approximately Rs. 1.99 crore plus interest.

The State challenged the award under Section 34 before the District Judge who set aside the award and restored the Adjudicator’s decision on the ground that the contractor had missed the contractual time limits and the tribunal had exceeded its mandate. The Kerala High Court upheld that outcome on the additional basis that only the State had invoked arbitration and the contractor had not given a Section 21 notice for disputes 2–4. The Supreme Court reversed: it held that the State’s conduct and the widely worded arbitration clause defeated reliance on procedural time bars, and reiterated that Section 21’s notice serves the limited function of fixing the date for limitation and is not a jurisdictional prerequisite to adjudication of arbitrable disputes. The appeal was allowed and the arbitral award was restored; no costs were ordered.

Case Details: Case No.: CIVIL APPEAL NO. 39 OF 2026 (@ SLP (C) NO. 7338 OF 2025) (2026 INSC 4) Case Title: M/s Bhagheeratha Engineering Ltd. v. State of Kerala Appearances: For the Petitioner(s): Mr. Rajiv Shakdher, Senior Advocate For the Respondent(s): Mr. Naveen R. Nath, Senior Advocate