Reference To Wrong Agreement in Arbitration Notice, Not Invalid If Agreement Otherwise Exists: Delhi High Court

The bench of Justice Navin Chawla was dealing with a petition filed under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act), which was resisted on the ground that the claimant had wrongly invoked the arbitration clause contained in an agreement which was not binding on the parties.

The Court remarked that since there was no dispute regarding the existence of an arbitration clause in the document executed between the parties, which was admittedly binding on them, merely because the claimant had referred to the wrong Agreement, the same will not invalidate the arbitration notice issued under Section 21 of A&C Act.

The respondent no. 1, Ashish Khare, is a former employee of the petitioner, M/s FIITJEE Ltd.

Alleging that the respondent, after leaving the services of the petitioner, co-founded a competitor academy- Venkateshwara Academy, in violation of the ‘Service Rules for the Employees of M/s FIITJEE Ltd’ (Service Rules), M/s USA Univquest, which was a group entity of FIITJEE, invoked the arbitration clause contained in the Service Rules.

Since the Arbitration Agreement granted a right to the petitioner to appoint the Sole Arbitrator, a Sole Arbitrator was appointed by the petitioner. In an application filed by the respondent under Section 14 of the A&C Act seeking termination of the mandate of the Sole Arbitrator, the District Court held that the Arbitrator was de-jure ineligible to act as an Arbitrator and thus, terminated his mandate. The petitioner, thereafter, filed a petition under Section 11 of the A&C Act before the Delhi High Court, seeking appointment of an Arbitrator.

The respondent, Ashish Khare, submitted before the High Court that the Service Rules, containing the Arbitration Agreement invoked against it, were applicable only when the respondent was in employment with the petitioner, FIITJEE.

It averred that since, before leaving the services of the petitioner, it joined another entity, M/s USA Univquest, it was governed by the “Corrigendum and Addendum” executed between him and the said company (USA Univquest). It added that the said Corrigendum contained a separate Arbitration Agreement, which has not been invoked by USA Univquest.

Arguing that a notice under Section 21 of the A&C Act is a sine qua non for initiating proceedings under Section 11, the respondent contended that since the same had not been properly issued, the Section 11 petition was not maintainable.

It pleaded that, even though M/s USA Univquest subsequently amalgamated with the petitioner, a non-signatory cannot be bound by an Arbitration Agreement even though it is a group company.

To this, the petitioner, FIITJEE, submitted before the Court that the respondent never left the services of the petitioner and that he was merely transferred to M/s USA Univquest.

On such transfer, even in terms of the Corrigendum, the respondent remained bound to the Service Rules of the petitioner, it pleaded.

The Court noted that as per the Corrigendum executed between the parties, the respondent shall remain bound by all the terms and conditions of the Service Rules Manual and Code of Conduct signed by him at the time of joining the petitioner, FIITJEE. The said Corrigendum also contained the Arbitration Agreement, which was pari materia to the Arbitration Clause contained in the Service Rules, it took note.

The bench observed that M/s USA Univquest invoked the Arbitration Agreement contained in the Service Rules, which was signed by the respondent at the time of joining FIITJEE.

The Court said that, even assuming that the respondent was governed only by the Arbitration Agreement contained in the Corrigendum, it is a settled law that mere reference to a wrong provision or term of the Agreement cannot invalidate the arbitration notice, if otherwise such power or provision exists in the document executed between the parties.

Therefore, even assuming that the arbitration clause contained in the Service Rules was not applicable to the parties, since there was no dispute regarding the existence of the Arbitration Agreement in the Corrigendum, it cannot be said that invocation of arbitration by M/s USA Univquest cannot be acted upon, the bench held.

The bench also rejected the contention raised by the respondent that since the arbitration notice was issued by M/s USA Univquest, the Section 11 petition cannot be filed by the petitioner- FIITJEE.

“It is not disputed that M/s USA UNIVQUEST has amalgamated with the petitioner company on 03.04.2019. Therefore, the petitioner shall be entitled to maintain the present petition,” said the Court.

The respondent, Ashish Khare, further argued before the Court that in terms of Section 14 of the A&C Act, the Court which terminates the mandate of the earlier Arbitrator is to appoint a substitute Arbitrator. Thus, the petitioner cannot invoke the provisions of Section 11, after failing to seek appointment of a substitute Arbitrator before the District Judge who had terminated the mandate of the Sole Arbitrator, it contended.

Dismissing the arguments of the respondent, the bench reckoned that in terms of Section 15(2) of the A&C Act, where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed in accordance to the rules that were applicable to the appointment of the arbitrator being replaced.

“In the present case, as the Arbitration Agreement provides for appointment of a Sole Arbitrator by the petitioner, the said Arbitrator could not have been appointed in view of the judgment of the Supreme Court in Perkins Eastman Architects DPC and Another vs. HSCC (Limited), (2020) 20 SCC 760. The petitioner has, therefore, rightfully approached this Court for appointment of an Arbitrator,” the Court said.

The Court thus allowed the petition and appointed a Sole Arbitrator.

Case Title: FIITJEE Ltd vs. Ashish Khare & Anr.

Citation: 2023 LiveLaw (Del) 195

Counsel for the Petitioner: Ms. Revati Gulati, Ms. Diksha Narula, Advs.

Counsel for the Respondents: Mr. Apoorva Bhumesh and Ms. Madhavi Khare, Advs.

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