Pre-Arbitration Mutual Discussion Clauses Are Directory, Not Mandatory: Delhi High Court

The Delhi High Court on 7 May held that failure to engage in pre-arbitral mutual discussions cannot bar invocation of an arbitration clause or appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, since clauses requiring parties to first attempt amicable settlement are directory and not mandatory.

Justice Mini Pushkarna appointed Advocate Isha Bhalla as sole arbitrator to adjudicate disputes between Orix Corporation India Ltd. and Peters Surgical India Pvt. Ltd. arising out of a Master Lease Agreement dated 23 December 2023 relating to a Range Rover Velar. The Single-Judge Bench observed:

“As regards the contention of the respondent with regard to mutual discussion not having taken place between the parties, it is no more res integra that such provisions, for the purposes of mutual discussion, which are pre-arbitral mechanisms, are only directory in nature, and such covenant in a clause of an agreement is not mandatory in nature. Therefore, merely because mutual discussion between the parties has not taken place, it shall not be an impediment for the purposes of invoking the Arbitration Clause or for appointment of an Arbitrator.”

Orix Corporation India Ltd. (formerly known as Orix Auto Infrastructure Services Ltd.) had leased a Range Rover Velar to Peters Surgical India Pvt. Ltd. under the agreement. Peters Surgical was required to pay monthly rental of Rs. 1,21,606 along with fleet management fees.

On 12 August 2024, the vehicle met with an accident, following which Orix received Rs. 81,98,000 from the insurer. The lease agreement was thereafter prematurely terminated.

According to Orix, Peters Surgical failed to clear amounts allegedly payable upon termination of the agreement, resulting in disputes concerning an outstanding claim of Rs. 25,22,753. Orix subsequently issued an arbitration invocation notice dated 19 August 2025 under Clause 15 of the agreement.

After Peters Surgical allegedly failed to respond to the notice, Orix approached the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 seeking appointment of an arbitrator.

Peters Surgical opposed the petition on the ground that the agreement had originally been executed with Orix Auto Infrastructure Services Ltd., whereas the petition had been filed by Orix Corporation India Ltd. without initially placing proof of the change in name on record. It also contended that the Section 21 notice had not been properly served and that the pre-arbitration mutual discussion requirement under Article 15 had not been complied with.

In response, Orix relied upon a Ministry of Corporate Affairs certificate showing that only the company's name had changed while its corporate identity and management remained the same. It also placed on record board resolutions and email correspondence to show service of the arbitration notice on 25 September 2025.

Rejecting the objections, the High Court held that a mere change in a company's name does not extinguish its contractual rights or liabilities. It observed:

“Mere change in the name of the petitioner company will not have the effect of diluting the Lease Agreement between the petitioner and the respondent.”

The Court also found that the arbitration notice had been validly served through email, particularly since Peters Surgical admitted that the email address belonged to it.

On the issue of pre-arbitration negotiations, the Court reiterated that clauses requiring mutual discussions before arbitration are directory in nature and cannot prevent a party from invoking arbitration.

Accordingly, the High Court allowed the petition and appointed Advocate Isha Bhalla as sole arbitrator under the aegis of the Delhi International Arbitration Centre. It clarified that all claims, counterclaims and objections would remain open before the arbitral tribunal.

Appearances for petitioner (Orix Corporation India Ltd.): Advocates Shankar Sen, Kush Gupta.

Appearances for respondent (Peters Surgical India Pvt. Ltd.): Advocate Amit Chahal.