Court Can Not Mechanically Send Dispute To Arbitral Tribunal, Must Consider Fundamental Issues u/s 11(6A): Delhi High Court

The bench held that:

“Since it is a well-settled law that the jurisdiction of this Court at the stage for making reference is very limited and the referral court cannot enter into the roving enquiry. However, at the same time court is not expected to act in a mechanical fashion and refer the disputes at the mere request. The matter can only be referred if the petitioner has shown existence of some artriable dispute between two parties. The purpose of notice under Section 21 is also to apprise the other party about the disputes between the parties. Strangely, the petitioner neither in the petition nor in the notice has enumerated such disputes.”

Brief Facts:

The Petitioner, in a Tripartite Agreement dated 03.10.2020, engaged M/s Ramesh Chandra Deepak Kumar as the buyer, Saraswathi Supari Processing Unit as the seller, and Nangia World Class Hospitality Private Limited as the commission agent for the sale, purchase, and delivery of 1500 metric tonnes of Areca Nut to the petitioner's location. According to the agreement, the Respondents were obligated to safely and punctually deliver the specified quantity of Areca Nut within four months from the agreement's date. The Petitioner was to make a 25% advance payment with the remaining 75% due upon delivery.

The Petitioner alleged that although the Respondents delivered an initial batch of 150 metric tonnes of Areca Nut, the quality was unsatisfactory and defective. It requested the replacement of the sub-standard goods. Subsequently, a settlement agreement was reached between the parties to resolve the dispute. However, the Respondents initiated legal action under Section 138 of the Negotiable Instruments Act, 1881, alleging non-payment, despite the petitioner providing post-dated cheques to settle the dispute. In response, invoking the arbitration clause in the Tripartite Agreement, the Petitioner initiated arbitration proceedings.

In response to the arbitration notice, the Petitioner nominated three arbitrators, but the Respondent did not respond. Therefore, the Petitioner approached the Delhi High Court (“High Court”) for the appointment of the arbitrator. Respondent no.1 contested the maintainability of the petition, arguing that there was no valid arbitration agreement between the petitioner and Respondent no.1. It argued that the arbitration clause in the Tripartite Agreement did not meet the requirements of Section 7 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), stating that the mere mention of an arbitration clause does not constitute an arbitration agreement.

The Petitioner refuted these claims in a rejoinder, presenting evidence of the Tripartite Agreement's execution, including E-way bills and tax invoices issued by Respondent no.1 for product delivery. He argued that the arbitration clause was properly invoked and that the disputes were arbitrable.

Observations by the High Court:

The High Court referred to the decision of the Supreme Court in DLF Home Developers Limited v. Rajapura Homes Private Limited & Anr where it held that neither SC nor a High Court should mechanically thrust the purported disputes presented by an applicant onto the doorstep of the chosen Arbitrator. Rather, the Court(s) are duty-bound to delve into the core preliminary issues within the framework delineated by Section 11(6-A) of the Arbitration Act. This review process, the High Court held, aims not to encroach upon the jurisdiction of the Arbitral Tribunal but rather to streamline the arbitration process. Consequently, even in the presence of an arbitration agreement, the Court retains the discretion to decline a prayer for reference if the dispute in question does not align with said agreement.

Hence, it held that it is incumbent upon the Court not to adhere to a mechanistic approach but rather to scrutinize the fundamental issues within the statutory parameters. Notably, the High Court noted that the Petitioner's submission under Section 11(6) lacked substantive detail, save for a mention in paragraph 7.3 regarding the purportedly poor and defective quality of goods. Additionally, paragraph 7.4 alluded to a settlement agreement for inter-party disputes, along with assertions of certain claims against the Respondent. However, the petition remained conspicuously silent regarding the nature of these "certain claims."

Given the well-settled jurisprudence delineating the limited jurisdiction of the High Court at the reference stage and the prohibition against engaging in a roving enquiry, the High Court held that it was incumbent upon the Petitioner to demonstrate the existence of an arbitrable dispute. The purpose of the notice under Section 21 extends to apprise the other party of the disputes between the parties. However, regrettably, the High Court held that the Petitioner failed to enumerate such disputes either in the petition or in the notice.

Therefore, the application was dismissed.

Case Title: Deepak Maurya Vs Saraswathi Supari Processing Unit & Ors.

Citation: 2024 LiveLaw (Del) 595

Case Number: ARB.P. 420/2023

Advocate for the Petitioner: Mr. Pranav Sarthi, Advocate.

Advocate for the Respondent: Mr. Vaibhav Sabharwal, Advocate.

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