Delhi High Court Halts PCA Arbitration Over Arbitrator Appointment Breach

The bench of Justice Anup J. Bhambhani, dealing with a suit seeking anti-arbitration injunction and an application seeking ad-interim injunction, restrained the defendant from proceeding further with the arbitral proceedings in PCA Case No. AA773.

The Court held that consent of the parties is one of the cardinal principles of arbitration, therefore, the agreed procedure for the appointment of the arbitrator must be scrupulously followed.

Facts

The parties entered into an Agency Agreement dated 20.11.2015. Clause 9 of the agreement provided for resolution of disputes through arbitration. It provided that the seat of arbitration shall be India or any other UNCITRAL (Model Law) following country to be mutually decided by the parties. It further provided that the Courts at New Delhi or the courts of capital of the agreed country following UNCITRAL (Model Law) shall have exclusive jurisdiction.

A dispute arose between the parties related to non-payment of agency fees. Accordingly, the defendant sent a notice of arbitration dated 02.09.2019, proposing the governing law to be the Indian Law and a retd. Delhi High Court judge as the sole arbitrator with New Delhi being the seat of Arbitration.

However, contrary to the notice of arbitration, the defendant approached Permanent Court of Arbitration (PCA) for the appointment of the arbitrator under Article 6.2 of the UNCITRAL Rules, 2010.

PCA designated CNICA, Chennai as the appointing authority, which in turn appointed a sole arbitrator at the Asian International Arbitration Centre (AIAC), Kaula Lumpur. The arbitrator entered reference and directed the parties to appear for the case manage conference. The plaintiff absented itself from the conference. Another case management was scheduled and it was provided that if the plaintiff fails to attend it, the tribunal would proceed ex-parte.

Accordingly, the plaintiff filed the suit seeking anti-arbitration injunction along with an application under Order XXXIX Rule 1&2 of CPC.

Submissions

The plaintiff made the following submissions:

• In terms of clause 9 of the agreement, the seat of arbitration is India as there is no agreement, to the contrary, between the parties.
• That the appointment of arbitrator by PCA through designation is contrary to the express terms of the agreement and also in conflict with the defendant's notice of arbitration.
• That the defendant has already filed a suit for recovery of the agency fees before the Commercial Division of the High Court of Malawi, therefore, the reference to arbitration for the same cause of action is not maintainable.
• That the dispute related to agency fees does not fall within the scope of disputes covered under the arbitration agreement.

Analysis by the Court

The Court observed that the arbitration clause provides that India shall be the seat of arbitration, subject to an express agreement to the contrary. It held that there appears to be no such agreement between the parties making any other country as the seat of the arbitration.

The Court held that upon a prima facie examination of the matter, the appointment of the arbitrator by PCA through CNICA, Chennai is contrary to the procedure agreed upon in the arbitration clause contained in Article 9 of the Agency Agreement.

The Court held that consent of the parties is one of the cardinal principles of arbitration, therefore, the agreed procedure for the appointment of the arbitrator must be scrupulously followed.

Accordingly, the Court restrained the defendant from proceeding ahead with the PCA arbitration till the next date of hearing.

Case Title: Techfab International Pvt Ltd v. MIDIMA Holdings Limited

Citation: 2024 LiveLaw (Del) 90

Date: 19.01.2024

Counsel for the Plaintiff: Mr. Nidesh Gupta, Sr. Advocate alongwith Mr. Joby Varghese, Mr. Shreesh Chadha, Mr. Divjot Singh Bhatia and Mr. Aman Singh Bakshi

Counsel for the Defendant: None

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