Delhi High Court: Failure to Respond to Amicable Settlement Notices Invalidates Pre-Arbitral Steps

In a recent ruling by Justice Prathiba M. Singh of the Delhi High Court, it was determined that certain steps to resolve disputes before arbitration lose their significance when a party fails to respond to notices seeking amicable settlement. The case, titled Akhil Gupta v. Hindustan Unilever Ltd, revolved around a Redistribution Stockist Agreement dated July 14, 2021, where the petitioner was appointed as a Stockist for the respondent. The agreement included a multi-tier dispute resolution clause, stating that parties must first try to resolve disputes amicably, then involve an ombudsman, and only after that resort to arbitration if needed.

The conflict arose when the respondent terminated the agreement on February 22, 2022, leading to a dispute over dues. The petitioner issued a notice of arbitration, but received no response from the respondent, who instead filed a suit in the Gurgaon District Court. Consequently, the petitioner filed an application under Section 11(6) of the A&C Act, seeking the appointment of an arbitrator.

During the proceedings, the respondent objected to the petition's validity on two grounds: first, citing the multi-tier dispute resolution clause in the agreement, and second, arguing that the petition was premature as pre-arbitral steps were not completed.

In response, the Court examined the agreement, noting that it indeed outlined a process for resolving disputes before arbitration. However, it emphasized that the respondent's failure to respond to the petitioner's notice of dispute rendered the pre-arbitral steps irrelevant. The Court maintained that when a party neglects to reply to such notices seeking amicable settlement, insisting on fulfilling pre-arbitral steps becomes unreasonable.

Consequently, the Court dismissed the respondent's objection and proceeded to appoint an arbitrator to resolve the dispute.