Court U/S 45 Of Arbitration Act Must Refer Parties To Arbitration Unless Agreement Is Void Or Inoperative: Delhi High Court

The Delhi High Court bench of Justice Dinesh Kumar Sharma affirmed that Section 45 of the Arbitration Act casts a statutory mandate on Courts to refer parties to an arbitration agreement to arbitration. The only limited exception carved in Section 45 is if the Court is of the prima facie opinion that the arbitration agreement is (a) null and void; or (b) in-operative; or (c) incapable of being performed. Unless such grounds are made out, the Court has no discretion but to refer the parties to arbitration. Brief Facts By way of the present application filed under Section 45 of the Arbitration and Conciliation Act, 1996 (hereinafter, „the Act‟), Defendant no. 1 seeks dismissal of the instant suit along with reference of disputes to arbitration seated in Benin in light of the arbitration agreement contained in Article 11 of the Buyer Seller Agreement (hereinafter, „BSA‟) dated 06.06.2019 and Article 5 of Addendum dated 09.01.2021. Clause 20 of the Collaboration Agreement provided the dispute resolution mechanism i.e., disputes would be resolved through arbitration and the arbitration will take place in Benin and shall be administered by the Center of Arbitration, Mediation and Conciliation, Benin. Pursuant to the Collaboration Agreement, at the request of Defendant No.1, Plaintiff executed a Buyer-Seller Agreement dated 06.06.2019 (“BSA”) for a period of the next 5 years, which is stated to have superseded the collaboration agreement. After executing the BSA, Defendant No. 1 assigned its obligations to Defendants No. 2 & 3. Subsequently, most transactions were made through Defendants No. 2 & 3. Defendants No. 2 and 3 entered into High Sea Sale Agreements (HSSAs) with plaintiff, all including arbitration clauses under the Indian Arbitration Act, with New Delhi as the arbitration location. Thereafter, the plaintiff issued a notice dated 13.07.2023 under Section 21 of the A&C Act, 1996, for referring the disputes between the parties to arbitration because, as per the plaintiff‟s understanding, the conspectus of all the agreements executed between the parties suggests that seat of arbitration was India. It was also submitted that the said notice was addressed to defendants nos. 1 to 3 because they always represented themselves to be alter egos of each other. The plaintiff apprehended precipitative actions by the defendants. Therefore, the plaintiff approached this Court seeking a permanent injunction against defendant No. 1 from proceeding and continuing with the Benin Arbitration. While the matter rested thus, the application bearing I.A. No. 16015/2023 was filed by defendant No. 1 under section 45 of the A&C Act on 16.08.2023, seeking rejection and dismissal of the present Suit filed by plaintiff, and also seeking reference of the plaintiff and defendant No. 1 to the pending arbitration proceedings in the Republic of Benin. Contentions The Defendant No. 1 submitted that Section 45 of the A&C Act provides that a judicial authority, when seized of an action in a matter wherein the parties have made an agreement referred to in Section 44, shall at the request of one of the parties refer the parties to arbitration unless it prima facie finds that the said agreement is null and void, inoperative or incapable of being performed. That Section 45, which is contained in Part II of the A&C Act, casts a statutory mandate on courts to refer parties to arbitration agreements to arbitration. That defendant no.1, in terms of the arbitration agreement contained in Article 11 of the BSA, initiated Benin Arbitration proceedings on 31.05.2023 by issuing the Fludor NOA. The plaintiff and the applicant are both parties to the Benin Arbitration proceedings. Defendants No. 2 and 3 submitted that defendant No. 2 is neither a party to the Fludor-Balaji Contracts nor any other agreement to which the plaintiff and defendant No. 1 are parties and that defendants No. 2 & 3 do not have any role to play in the dispute between the plaintiff and Defendant No. 1. Therefore, the plaintiff has no cause of action against the defendant No. 2, and it ought to be removed as a party to the present suit. Per contra, the plaintiff submitted that defendant No. 1 has wrongly conferred the seat of arbitration to be Benin, as the BSA does not find mention of the seat of arbitration but only states that the arbitration “will take place in Benin”. That considering the settled position, Benin cannot be considered a seat of arbitration, as it is just a venue/place for conducting the arbitral proceedings and that the intention of the parties as to the seat of arbitration should be determined from other clauses in the agreement and the conduct of the parties. That defendant No. 1 had conferred the seat of arbitration to a wrong jurisdiction by completely disregarding subsequent arbitration agreements contained in the Sales Contracts and HSSAs executed by...

Court U/S 45 Of Arbitration Act Must Refer Parties To Arbitration Unless Agreement Is Void Or Inoperative: Delhi High Court

Mohd Malik Chauhan

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