Fraud Regarding Internal Management Of Company Doesn't Go To Root Of Contract, Dispute Is Arbitrable: Delhi High Court

The bench held that the Court while deciding a petition under Section 11 of the Arbitration and Conciliation Act, 1996 is only required to see the existence of an Arbitration Clause.

Brief Facts:

The Petitioner approached the Delhi High Court filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), seeking the appointment of an arbitrator to resolve disputes arising from Binding Term Sheets. The Binding Term Sheet, constituting the alleged contract between the Petitioner and Mr. Manjiv Singh, the chairman of the Respondent company, concerned the supply of medical equipment and oxygen concentrators. The dispute arose as when it came to the notice that Mr. Singh lacked the authority to enter into such a binding term sheet on behalf of the Respondent company. Additionally, the exchanged emails suggested that the supplied equipment went to another company, M/s Deckmount Electronics Pvt. Ltd., rather than the Respondent company.

The Respondent argued that due to alleged fraud committed by Mr. Singh, a complaint was filed against him and the Petitioner company, leading to the issuance of an order under Section 156(3) Cr.P.C. directing the registration of an FIR. Given the fraud allegations and the absence of a valid arbitration agreement between the parties, the Respondent argued that the arbitration proceedings were not tenable.

Observations by the High Court:

The High Court noted that the binding term sheet, forming the basis of the dispute, lacked execution on the letterhead or stamp of the Respondent company. The Respondent acknowledged in its reply that Mr. Singh had an honorary appointment with the company, though clarifying that it was purely honorary and did not grant him the authority to take actions on behalf of the company.

The High Court held that the question of Mr. Singh's role and authority to bind the Respondent company was an internal matter that fell within the purview of the arbitrator. While the Respondent admitted to Mr. Singh's honorary position, the High Court held that the issue of authority should be determined by the arbitrator based on the evidence presented during the arbitration proceedings. Addressing the fraud allegations raised by the Respondent, the High Court distinguished the case from the precedent A. Ayyasamy (supra). It emphasized that the alleged fraud pertained to internal management issues and does not strike at the root of the contract.

Consequently, the High Court appointed Mr. Anant Palli, Sr. Adv., as the Sole Arbitrator to adjudicate the disputes between the parties.

Case Title: Indigrid Technology Pvt. Ltd Vs Genestore India Pvt. Ltd

Citation: 2024 LiveLaw (Del) 292

Case Number: ARB.P. 234/2022.

Advocate for the Petitioner: Mr. Uttam Datt, Ms. Sonakshi Singh, Mr. Kumar Bhaskar and Mr. Aman Sanjeev Sharma, Advs.

Advocate for the Respondent: Mr. Aman Nandrajog, Ms. Shreya Singh and Mr. Ujjawal Malhotra, Advs.

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