Principle Of Judicial Non-Interference Is Fundamental To Both Domestic & International Arbitral Proceedings: Delhi High Court

Brief Facts

An agreement to sell and purchase was executed between Rajesh Kumar Gupta (petitioner) and Rajender (respondents) on November 24, 2005. Subsequently, a dispute arose for the petitioner approached the court under section 11(5) of the arbitration and conciliation act. It was claimed by the petitioner that agreement transferred ownership of the plot situated at Khera Kalan, Delhi. All other documents like General Power of Attorney, Deeds of Wills, an affidavit, a receipt and a possession letter which were executed on the same date were also transferred.

This plot was first was allotted to the respondents on May 6, 2005 thereafter it was sold to the petitioner on November24, 2005. Original plot allotted to the respondents was withdrawn on December 10, 2007 and a different plot was allotted. Later, it was discovered by the petitioner on August 10,2020 that someone else was in the possession of the plot allotted who did not disclose their identity. It was alleged by the petitioner that new occupant was allotted the plot after withdrawing it from the respondents. Consequently, petitioner demanded compensation for making the loss good via a legal notice sent on August 27, 2020. However, the respondents denied any such agreement executed between the petitioner and the respondents. Thereafter, a petition under section 11(5) of the arbitration act was filed seeking appointment of a sole arbitrator.

Contentions

The petitioner contended that dispute has arisen as per the agreement of which clause 9 provided for dispute to be resolved through arbitration. It was further argued that major relief that is being sought in the arbitration is the refund of consideration amount and not any relief against a third party in occupation of the plot. It was further submitted that the court's role at this stage is to see whether there is an arbitration agreement and not to go deeper into other substantive issues which could be decided by the arbitrator.

Per contra, the respondents submitted that the claim was time barred as the arbitration was sought in 2020 for an agreement executed in 2005. It was further contended that the dispute was non arbitrable as the dispute involved a third party in possession of the plot who fell outside the arbitration agreement. They relied on the Supreme Court judgment in Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1 and judgment of the Delhi High Court in Pure Diets India Limited v. Lokmangal Agro Industries Ltd., 2023 SCC OnLine Del 4486 to submit that dispute involving third party rights are not amenable to arbitration. It was further submitted that they did not execute the agreement therefore clause for arbitration in the agreement was not binding on them.

High Court's Analysis

The High Court observed that there was prima facie an arbitration agreement which provided for the dispute to be resolved through arbitration. The court further referred to the Supreme Court Judgment in SBI General Insurance Co. Ltd. v. Krish Spinning and observed that its role at this stage was to determine as to whether an arbitration agreement existed or not and if such an agreement existed, it is the bounden duty of the court to refer the parties for arbitration. The court further noted that judicial interference at this stage should be minimal and matters like limitation question and third party rights should be left to be decided by the arbitrator. It was held as under:

“It is well settled that the principle of judicial non-interference in arbitral proceedings is fundamental to both domestic as well as international commercial arbitration and that the Arbitration Act is itself contained code.

The Supreme Court in SBI General Insurance Co. Ltd. v. Krish Spinning, 2024 SCC OnLine SC 1754 has observed as under:

“Once an arbitration agreement exists between parties, then the option of approaching the civil court becomes unavailable to them. In such a scenario, if the parties seek to raise a dispute, they necessarily have to do so before the arbitral tribunal. The arbitral tribunal, in turn, can only be constituted as per the procedure agreed upon between the parties. However, if there is a failure of the agreed upon procedure, then the duty of appointing the arbitral tribunal falls upon the referral court under Section 11 of the Act, 1996. If the referral court, at this stage, goes beyond the scope of enquiry as provided under the section and examines the issue of “accord and satisfaction”, then it would amount to usurpation of the power which the parties had intended to be exercisable by the arbitral tribunal alone and not by the national courts. Such a scenario would impeach arbitral autonomy and would not fit well with the scheme of the Act, 1996. Thus, the position after the decisions in Mayavati Trading (supra) and Vidya Drolia (supra) is that ordinarily, the Court while acting in exercise of its powers under Section 11 of the Act, 1996, will only look into the existence of the arbitration agreement and would refuse arbitration only as a demurrer when the claims are ex-facie frivolous and nonarbitrable.”

The court further held that questions related to limitation and non-arbitrabilty of the dispute could be raised before the arbitrator which is a competent authority to hear and decide such questions. The court further observed that proceedings before the arbitrator will give ample opportunity to both parties to present their case. It was held as under:

“The issue regarding limitation etc. can be decided by the Arbitrator on the basis of the material produced before the Arbitrator as to whether there was any acknowledgment in writing by the Respondents during the period of limitation or not. If the Arbitrator finds that the claim of the Petitioner per se is not maintainable and the same is woefully barred by limitation, the Arbitrator has the power to impose costs on the claimant for raising a frivolous claim and direct the claimant to pay the entire costs of arbitration”.

The court finally held that:

“In view of the above, this Court is inclined to appoint Mr. Shobhit Chaudhary as a Sole Arbitrator to adjudicate on the disputes between the Parties.The arbitration would take place under the aegis of the Delhi International Arbitration Centre (DIAC) and would abide by its rules and regulations. The learned Arbitrator shall be entitled to fees as per the Schedule of Fees maintained by the DIAC”.

Conclusion

The court concluded that arbitration agreement existed and the parties should raise their questions related to limitation and non arbitrability before the arbitrator. The court is not an appropriate forum to decide such questions. Accordingly, the present petition was allowed.

Case Title: Rajesh Kumar Gupta v. Rajender and Others

Court:High Court, New Delhi

Case Reference: Arb.P. 1261/2024

Judgment Date: 07/10/2024

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