While Court's Jurisdiction Is Limited At The Time Of Making A Reference, It Is Not Expected To Mechanically Refer Dispute To Arbitration: Delhi High Court

The Court also held that once a party has chosen to file a civil suit to get the disputes resolved, it cannot be permitted to invoke arbitration when the suit fails. The Court also held that arbitration clause in an earlier agreement cannot be invoked if the subsequent agreement does not refer to the previous agreement.

Facts

The parties entered into an agreement dated 10.06.2020 (MOU) and a reconstituted partnership deed dated 11.12.2020, under which the petitioner and respondent no.5 became partners in the firm M/s FALCON.

Thereafter a reconstituted partnership deed dated 13.01.2022 was executed, wherein the petitoner retired and reinstated respondents no.1 and 2 as partners. Admittedly, there was no arbitration clause in the reconstituted deed.

The petitioner filed an FIR and a civil suit challenging the validity of the reconstituted partnership deed dated 13.01.2022. The suit and the consequent appeal was dismissed. Thereafter, the petitioner invoked the arbitration clause in the MOU.

Submissions of the Parties

The petitioner made the following submissions:

• Reconstituted partnership deeds dated 28.06.2021 and 13.01.2022 were invalid and did not supersede the earlier agreements.
• The arbitration clause in the MOU dated 10.06.2020 remained enforceable, as it was not explicitly revoked or modified in the subsequent deeds.
• Disputes fell within the ambit of the arbitration clause and should be resolved through arbitration.

The respondent made the following counter-arguments:

• The petitioner had filed civil suits in respect of the same dispute and only upon failing therein, the petitioner has invoked arbitration. The initiation of civil suit precludes the petitioner from invoking arbitration.
• Civil suits filed by the petitioner and respondent no.5 had chosen a forum for dispute resolution, precluding the invocation of the arbitration clause
• Civil suits filed by the petitioner and respondent no.5 had chosen a forum for dispute resolution, precluding the invocation of the arbitration clause.

Analysis by the Court

The Court considered whether the disputes were arbitrable and if the arbitration agreement was validly incorporated into the subsequent partnership deeds. It observed that the later partnership deeds did not explicitly refer to the arbitration clause in the MOU. Further, the reconstituted partnership deeds dated 28.06.2021, 01.10.2021, and 13.01.2022 did not contain an arbitration clause.

The Court relied upon the judgment to the Supreme Court in NBCC Limited v. Zillin Infraprojects^[1] to hold that for an arbitration clause to be enforceable, there must be explicit reference and intention to include it in the agreement.

The Court also observed that the petitioner's conduct, including filing of the FIR and the civil suit, as indicative of an intention to litigate rather than arbitrate the disputes. The Court relied upon the judgment of the Court in Raj & Associates v. Videsh Sanchar Nigam Ltd^[2] wherein the Court held that once a party opts to file a suit, it no longer can seek recourse to arbitration. Accordingly, the Court held that petitioner's attempt to invoke arbitration after resorting to civil suits is an abuse of process.

The Court relied upon the judgment to the Apex Court in Magic Eye Developers Pvt. Ltd. vs. M/s Green Edge Infrastructure Pvt. Ltd. SLP No.18339-42 of 2021 to hold that while the court's jurisdiction is limited at the time of making a reference, it is not expected to mechanically refer the dispute to arbitration. Accordingly, the Court dismissed the petition.

Case Title: Pankaj Singh V. Bashir Ahmed Haroon

Citation: 2024 LiveLaw (Del) 477

Date: 05.04.2024

Counsel for the Petitioner: Mr. Umesh Kumar Burnwal and Ms.Parul Sagar, advts. with Mr.Ram Bhawan Singh, SPA

Counsel for the Respondent: Mr.Sanjiv Bahl, Mr.Eklavya Bahl, Ms.Apoorva Bahl and Mr.Pawas Agarwal, Advts. for respondents no.1, 2 and 4. Mr.Raj Bahadur Singh and Mr.Vikas Yadav, advts. for respondents no.3, 5 and 6.