Referral Court Has Limited Role U/S 11 Of Arbitration Act To Verify Existence Of Arbitration Agreement: Rajasthan High Court

Brief Facts

Applicant has filed instant arbitration application under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter for short "the A&C Act, 1996"), seeking appointment of a sole Arbitrator for resolution of its claims qua non-applicant Company, in terms of the purchase agreement dated 28.07.2014, whereunder Clause 16(B) provides an arbitration agreement between the parties for resolution of dispute through Arbitrator, if the dispute has not been resolved amicably.

Under the purchase agreement dated 28.07.2014, copper was agreed to be supplied by the non-applicant-Company to the applicant-Company and the claim of applicant-Company is that against purchase of copper having worth of Rs.1,96,76,27,937/-, some excessive payment to the tune of Rs.2,05,05,96,649/- was made, hence the applicant-Company is entitled for refund/ repayment of the excessive amount with interest from the non-applicant-Company.

Contentions

The applicant submitted that since such dispute of claiming refund/ repayment could not be resolved amicably, despite serving legal notices dated 08.12.2021 and 12.01.2022, the instant arbitration application has to be filed on 20th January,, seeking appointment of a sole Arbitrator for resolution of such dispute.

Per contra, the respondent submitted that since the non applicant company has gone through the CIRP process under the IBC and has been overtaken by the SRA therefore all claims of the applicant are extinguished in view of section 31 of the IBC. There is no matter left to be referred to arbitration.Reliance has been placed on a judgment of the Hon'ble Supreme Court in case of Ghanashyam Mishra & Sons (P) Ltd. Vs. Edelweiss Asset Reconstruction Co. Ltd. [(2021).

Court's Analysis

The court noted that the scope of arbitration application, in view of Section 11(6A) of the A&C Act, 1996 is confined and limited to the extent of examining the existence of arbitration agreement between the parties for resolution of dispute.

The court noted that the Supreme Court in Duro Felguera, S.A. Vs. Gangavaram Port Limited (2017) and Mayavati Trading Private Limited Vs. Pradyuat Deb Burman (2019] has held that the legislature confined the scope of reference under Section 11(6A) to the examination of existence of an arbitration agreement. It has been held that the referral Court only need to consider one aspect to determine the existence of an arbitration agreement- whether underlying contract contains arbitration agreement which provides for arbitration pertaining to the dispute which has arisen between parties to the agreement.

The court also observed that an impression has been created that section 11(6A) has been omitted through Amendment Act of 2019. However, that part has not been notified yet therefore it is still in operation as observed by the Supreme Court in In Re: Interplay Between Arbitration Agreements Under The Arbitration and Conciliation Act 1996 And the Indian Stamp Act, 1989 (2024)

The court further noted that as far as contention of the learned counsel for non-applicant that the claim of applicant has extinguished on account of approval of the CIRP plan by the NCLT, Jaipur vide judgment and order dated 31.03.2023 and the claim does not survive at all, it was observed that such contention touches to merits of the claim, which can be considered and examined by the Arbitrator.

The court further noted that this Court being a referral Court, in exercise of its jurisdiction under Section 11 of the A&C Act, 1996, would refrain to enter into merits/ demerits of the claim.

The court concluded that undeniably the dispute between the parties has not been resolved amicably and the arbitration clause contained in Clause 16(B) of the purchase agreement comes in play. Accordingly, the present application was allowed and the arbitrator was appointed.

Case Title: PME Power Solutions (India) Ltd.Versus Airen Metals Pvt. Ltd

Case Reference: S.B. Arbitration Application No. 21/2022

Judgment Date: 8/11/2024

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