Received a Notice Invoking Arbitration in Gurugram? What It Means and How to Respond

A courier or email arrives from a lawyer's office. It refers to an agreement you signed some time ago, a vendor contract, a loan or lease document, a franchise or partnership deed, and says that disputes have arisen and the sender is "invoking arbitration". It may name an arbitrator and ask you to agree within a few days. Many people in Gurugram receive such a notice and are unsure whether it is a court summons, whether they must reply, and what happens if they simply ignore it.

This article explains what a notice invoking arbitration is, why it matters, and the practical steps to consider once you receive one.

What is a notice invoking arbitration?

If your agreement contains an arbitration clause, disputes under it are decided by an arbitrator instead of a regular civil court, under the Arbitration and Conciliation Act, 1996. Under Section 21 of the Act, unless the parties have agreed otherwise, arbitral proceedings begin on the date the other side receives a request to refer the dispute to arbitration. That request is the notice you have received.

So the notice is not a court summons, and it is not an order against you. But it is a legally significant document. It formally starts the arbitration, it fixes the date from which limitation for the sender's claims is generally counted as stopped, and it usually sets off the process of appointing the arbitrator.

What does such a notice usually contain?

• A reference to the agreement and the arbitration clause being relied on;
• a summary of the dispute and the claims, for example unpaid dues, damages or return of a deposit;
• the name of a proposed arbitrator, or a request that you nominate one if the clause provides for a three-member tribunal; and
• a time within which you are asked to respond or agree.

It does not need to set out the full case with evidence. The detailed claim comes later, in the statement of claim filed before the arbitrator.

Step 1: Read the arbitration clause carefully

Before replying, find the agreement and read the dispute resolution clause closely. Check:

• Who appoints the arbitrator: the parties jointly, each party nominating one, an institution, or one party alone.
• How many arbitrators: a sole arbitrator or a tribunal of three.
• The seat or venue: the place named for arbitration, which usually decides which courts will supervise the process.
• Any pre-conditions: some clauses require negotiation or mediation for a period before arbitration can be invoked.
• Whether the dispute is covered at all: the clause may apply only to certain kinds of disputes, or the claim may relate to a different agreement.

Step 2: Do not ignore the notice

Ignoring the notice does not stop the arbitration. If the parties cannot agree on the arbitrator within the period provided, generally 30 days, the sender can apply to the court under Section 11 for appointment of an arbitrator. For a domestic arbitration this application goes to the High Court. The arbitration will then go ahead with or without your participation.

Under Section 25, if a respondent does not file a statement of defence, the tribunal can continue the proceedings, and if a party fails to appear or produce evidence, the tribunal can proceed and make an award on the evidence before it. An award made in your absence can later be enforced against you in the same manner as a decree of a civil court, and the grounds for challenging an award are limited. Staying silent at the start often makes things harder later.

Step 3: Look closely at the proposed arbitrator

An arbitrator must be independent and impartial. Under Section 12, a person approached to act as arbitrator must disclose in writing any circumstances that may give rise to justifiable doubts about their independence or impartiality. Section 12(5), read with the Seventh Schedule, makes certain persons ineligible altogether, for example an employee, consultant or advisor of one of the parties, or a person with a close business relationship with a party. This ineligibility can be waived only by an express written agreement made after the dispute has arisen.

Courts have also scrutinised clauses that let one party alone choose the arbitrator. In November 2024, a Constitution Bench of the Supreme Court held that a clause allowing one party to unilaterally appoint a sole arbitrator is not permissible, as it violates the principle of equal treatment of parties. If the notice simply informs you that the sender has appointed its own chosen arbitrator, this is an important point to examine.

If you have grounds to challenge an arbitrator, Section 13 generally requires the challenge to be raised before the tribunal within 15 days of becoming aware of the tribunal's constitution or of the circumstances giving rise to the objection. Delay can mean losing the objection.

Step 4: Send a considered reply

A written reply within the time given is usually advisable. Depending on the facts, it may:

• deny the claims, briefly and without unnecessary admissions;
• object that the dispute is not covered by the clause, that pre-conditions have not been met, or that the claims are time-barred;
• object to the proposed arbitrator, or the manner of appointment, with reasons;
• propose an alternative arbitrator or nominate your own, if the clause provides for it; and
• reserve your right to raise counter-claims.

The reply becomes part of the record, so its wording matters. Our page on legal notices explains more generally why replies to formal notices should be drafted with care.

Step 5: Know the timelines once the arbitrator is appointed

Pleadings

The claimant files a statement of claim and the respondent files a statement of defence. A respondent can also raise a counter-claim or set-off, if it falls within the scope of the arbitration agreement. Under Section 23(4), the statement of claim and defence are to be completed within six months of the date on which the arbitrator or all the arbitrators receive written notice of their appointment.

Objection to jurisdiction

If you say the tribunal has no jurisdiction, for example because there is no valid arbitration agreement or the dispute is outside it, Section 16 requires the plea to be raised no later than the submission of the statement of defence.

Time for the award

Under Section 29A, for domestic arbitrations, the award is to be made within 12 months from the date of completion of pleadings. The parties may by consent extend this by a further six months, and any extension beyond that requires an application to the court.

Step 6: Consider urgent protection if needed

The respondent, not only the claimant, can seek interim protection. If there is a real risk that the other side will encash a security cheque or bank guarantee, sell disputed goods, or otherwise act to defeat your position, interim relief can be sought from the court under Section 9 or from the tribunal under Section 17. We have explained this in our earlier article on urgent court protection under Section 9.

Step 7: Keep settlement in view

A notice invoking arbitration does not rule out settlement. Parties can settle at any stage, and under the Act, if they settle during the proceedings, the tribunal can record the settlement as an arbitral award on agreed terms, which has the same status as any other award. Arbitration costs, including the arbitrator's fees, can be significant, so a realistic assessment early on is useful to both sides.

Documents to gather

• The full signed agreement, including annexures and any amendments;
• all correspondence with the other side, including emails and messages;
• invoices, ledgers, payment records and bank statements relevant to the dispute;
• any earlier notices, replies or settlement discussions; and
• the envelope or email showing the date on which you received the notice.