Arbitrator Decides Validity Of Arbitration Agreement, Telangana High Court Applies Prima Facie Approach To Allow S. 11 Application

Brief Facts:

The matter pertained to a lease agreement between Sri Gourishetty Srinivas (“Applicant), who was the owner of a certain property in Malkajigiri District of Telangana, and the M/s Karvy Data Management Services (“Respondent”). This agreement stipulated the terms for the lease of the property for nine years. The Respondent failed to fulfil its obligation to pay rent, with defaults beginning from 01.01.2020. In response to the default in payment, the Applicant issued a notice, demanding payment of Rs. 29,52,108/- towards arrears of rent and requesting the Respondent to vacate the property. The Respondent allegedly failed to comply with these demands, leading the Applicant to terminate the lease agreement. The Applicant now claimed that the Respondent owed them Rs. 51,37,050/- for the period from January 2020 to September 2021.

Furthermore, an arbitration notice was issued to the Respondent by the Applicant, as per Clause 20 of the lease agreement, which stipulated that any dispute arising from the agreement shall be settled through arbitration under the provisions of the Indian Arbitration and Conciliation Act, 1996 (“Arbitration Act”). The notice nominated Mr. Chalapathi Rao as the arbitrator on behalf of the Applicants. However, no response was received from the Respondent. Feeling aggrieved, the Applicant filed an application under Section 11 of the Arbitration Act in Telangana High Court (“High Court”) for the appointment of a sole arbitrator to resolve the disputes.

The said clause is extracted below:

“20) This agreement will be governed by Indian Law. Any dispute between the parties with regard to this agreement or the subject matter thereof, including existence and validity of the agreement will be settled by arbitrators under the provisions of Indian Arbitration and Conciliation Act 1996. The arbitration will be conducted in the city of Hyderabad and each party will be entitled to one arbitrator each. The two arbitrators will choose an umpire for the arbitration proceeding. The proceedings shall be conducted in English. The arbitration award is final and binding on both the parties.”

Observations by the High Court:

The High Court, after referring to the arbitration clause and the existence of a dispute regarding rent payment between the parties, observed that an arbitration clause was indeed present in the agreement. Referring to the decision of the Supreme Court in Vidya Drolia v. Durga Trading Corporation [(2021) 2 SCC 1], where the Supreme Court laid down principles for exercising power under Section 11 of the Arbitration and Conciliation Act, 1996. The High Court emphasised the court's role in referring matters to arbitration unless a party could establish a prima facie case of the non-existence of a valid arbitration agreement.

The High Court held that since the parties had explicitly agreed to resolve their disputes through arbitration by incorporating Clause 20 in their agreement, it was appropriate to refer the current dispute to arbitration. Further, the High Court held that in cases where doubt arises regarding the validity of the arbitration agreement, the matter should be referred to arbitration.

Consequently, the High Court allowed the application and appointed Justice Ramesh Ranganathan, former Chief Justice of the High Court of Uttarakhand, as the sole arbitrator to resolve the disputes between the parties.

Case Title: Sri Gourishetty Srinivas vs M/s Karvy Data Management Services

Case Number: Arbitration Application No.156 of 2021

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