Plea Of Waiving Arbitration Clause Cannot Be Examined By Referral Court U/S Of 8 A&C Act, Falls Within Domain Of Tribunal: Delhi High Court

The Delhi High Court bench of Justice Purushaindra Kumar Kaurav while allowing an application under Section 8, Arbitration and Conciliation Act, 1996 (“ACA”) has observed that the plea of waiver of arbitration clause is a plea concerning rights in personam and does not render the dispute to be manifestly non-arbitrable. Consequently, the determination of such a plea properly falls within the jurisdictional domain of the Arbitral Tribunal itself. Facts The instant application had been filed under Section 8, ACA seeking to refer the parties to the already instituted arbitration. The Plaintiff, Porto Emporios Shipping Inc, is registered in the Republic of Liberia, Indian Oil Corporation is Defendant No.1 and Indian Council of Arbitration is Defendant No.2 On 05.08.2020, a Charterparty agreement was entered into between the Plaintiff and Defendant No.1 pursuant to which the Plaintiff agreed to charter carriage of 273,317 MT of crude oil from Mina Al-Ahmadi, Kuwait, to Paradip, India. En route, on 03.09.2020, an explosion occurred in the engine room, causing a fire on the charter vessel. On 14.10.2020, the Plaintiff notified Defendant No.1 that the Charterparty was frustrated due to the vessel being badly damaged. Consequently, on 29.12.2020, Defendant No.1 filed a lawsuit in Panama seeking USD 78 million. During the pendency of the said suit, the Defendant No. 1 also sought for an interim injunction from the First Maritime Court and on 30.12.2020, an interim injunction was granted restraining the sale, transfer, cancellation and encumbrances over the vessel. Thereafter on 12.02.2021, the Plaintiff sent a notice to Defendant No.1 stating that by filing a lawsuit before the First Maritime Court, the Plaintiff had repudiated the arbitration clause in the Charterparty agreement and by virtue of the said notice, the Plaintiff stated to have accepted the repudiatory breach of the Charterparty agreement. Various court actions continued, including the constitution of a limitation fund. On 20.09.2021, the Defendant No.2 issued an email to the Plaintiff intimating that Defendant No.1 had registered arbitration proceedings. Thereafter, on 20.10.2021, the Plaintiff replied to an email issued by the Defendant no. 2, opposing the continuation of the arbitration proceedings, stating that the arbitration agreement was inoperative. Following this, the present suit for declaration and perpetual injunction was filed by the Plaintiff. On 27.10.2021, summons were directed to be issued in the suit and an interim order was passed. Thereafter, instant application under Section 8, ACA was preferred by the Defendant No. 1 to refer the parties to the arbitration. Contentions The Counsel for the Defendant No.1 submitted that the arbitration clause, which was mutually agreed upon, could not be waived by virtue of certain proceedings which have been undertaken in a foreign country. He gave a comprehensive demonstration of the proceedings and then contended that even in some of the proceedings, the Plaintiff himself had conceded to the applicability of arbitration proceedings under ACA. He further submitted, that the plea of waiver of the arbitration clause did not fall within the ambit of prima facie examination under Section 8, ACA. Per contra, the Counsel for the Plaintiff, opposed the submissions made by the Defendant. He argued that the instant application was not maintainable as the dispute is not arbitrable and in any event, the arbitration agreement stood waived and terminated. In the Rejoinder, the Counsel for Defendant No.1 submitted that the plea relating to waiver of the arbitration agreement and non-arbitrability of the disputes pertains to the jurisdiction of the Arbitral Tribunal, which under Section 16, ACA is exclusively empowered to rule on such issues. He also contended that the scope of judicial scrutiny under Section 8, ACA is limited to a prima facie examination of the formal validity and existence of the arbitration agreement as per Section 7 and the earlier observations in Vidya Drolia v Durga Trading Corporation (2021) 2 SCC 1 permitting a deeper inquiry into non-arbitrability no longer hold the field. Observations The Court held that the solitary issue for consideration before it was whether under the limited periphery of the scope and extent of enquiry envisaged under Section 8, ACA, the plea of waiver of the arbitration clause could be meticulously examined by the referral court in the present case. After a detailed analysis of the scheme of ACA, the Court concluded that the legislative scheme couched in Sections 5,8,11,16,34 and 37 of ACA would emphatically underscore that the interjection to arbitral proceedings at the inception is an exception to the general rule. The Court observed that Plaintiff has contended that the reliefs sought in the instant civil suit are not capable of being granted in...

Plea Of Waiving Arbitration Clause Cannot Be Examined By Referral Court U/S Of 8 A&C Act, Falls Within Domain Of Tribunal: Delhi High Court

Arpita Pande

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