The Court Can Conduct A Preliminary Inquiry Under Section 45 Of The A&C Act To Decide The Issue Of Non-Arbitrability: Delhi High Court

The High Court of Delhi has held that while exercising powers under Section 45 of the A&C Act, the Court can conduct a preliminary inquiry to decide whether the dispute in question is arbitrable or not and to decide whether it falls within the scope of the agreement. The bench of Justice Amit Bansal held that a dispute falling within the 'excepted matters' cannot be referred to arbitration as the intention of parties in keeping certain disputes outside the scope of arbitration must be given effect to. The Court held that two commercial entities entering into an agreement and providing for different method of dispute resolution for different disputes may result in an anomalous situation where two disputes arising out of the same agreement would be decided by different forums, however, the choice of the parties is to be given supremacy and only disputes contemplated under the arbitration clause can be referred to arbitration and no other. Facts The parties entered into a Sole Distribution Agreement dated 01.07.2017 wherein the defendant/applicant placed a purchase order on the plaintiff/respondent. A dispute arose between the parties related to non-payment of dues by the defendant/applicant. Clause 15 provided for resolution of dispute. Sub-clause (2)(a) provided for reference to arbitration in case of dispute arising in respect of termination of the agreement or any connected relief for compensation. Sub-clause (2)(b) stipulated for remedy before the Court of Law for all other reliefs. Accordingly, the plaintiff/respondent filed a suit under Order XXXVII of CPC for recovery of USD 3,08,203.45/- along with pendente lite and future interest. Thereafter, the defendant/applicant filed an application under Section 45 of the A&C Act for referring the dispute to arbitration. Contention of the Parties The applicant sought reference to arbitration on the following grounds: The present dispute relates to claims for compensation and non-extension of the agreement, therefore, squarely covered by Clause 15(2)(a). Clause 15(2)(a) provides for reference to arbitration, accordingly, the dispute should be referred to arbitration and the suit must be dismissed. Clause 15(2)(b) also confers exclusive jurisdiction on the Courts at Milan, and the only exception carved out is when injunctive relief is sought. However, the present suit is filed for recovery of money, thus, does not fall within the exception, therefore, the suit is non-maintainable. The applicant/defendant also has a counter-claim against the plaintiff/respondent for which it already has issued a notice of arbitration, therefore, the present dispute must also be referred to the same arbitration otherwise an absurd situation would arise whereby the claims arising out of the same agreement would be decided by two different forums which may be contradictory to each other and the uniformity would be disturbed. The plaintiff/respondent countered the submissions on the following grounds: Clause 15(2)(a) only deals with claims arising out of termination of the agreement and matters connected or incidental thereto, however, the claims of the plaintiff/respondent are for the recovery of money due to the defendant, therefore, it falls outside the scope of arbitration clause. Clause 15(2)(b) also confers the choice on the plaintiff to file a suit in any court of law, therefore, the objection regarding the jurisdiction of the Court is liable to be rejected. The defendant is at liberty to invoke arbitration for its claims, however, the subject matter of the suit is beyond the arbitration clause. Analysis by the Court The Court held that in view of the judgments of the Hon'ble Supreme Court in Vidya Drolia, (2021), Indian Oil Corporation Limited v. NCC Limited (2022) and Emaar India Ltd v. Tarun Aggarwal Projects. (2022), it is permissible for the Court to do a preliminary inquiry to decide the issue as to whether the dispute falls within the scope of arbitration clause or whether it falls within the 'excepted matters' category. The Court held that a dispute falling within the 'excepted matters' cannot be referred to arbitration as the intention of parties in keeping certain disputes outside the scope of arbitration must be given effect to. The Court examined Clause 15 and held that only disputes pertaining to termination of the agreement or any relief of compensation incidental or connected thereto is to be referred to arbitration and all other claims/disputes must be decided by the Court of law. It held that the subject matter of the suit is recovery of money for the invoices issued by the plaintiff on the defendant and it does not related to the termination of the agreement, hence, it is outside the purview of the arbitration clause, thus, the parties cannot be referred to arbitration. Next, the Court considered the objection...

The Court Can Conduct A Preliminary Inquiry Under Section 45 Of The A&C Act To Decide The Issue Of Non-Arbitrability: Delhi High Court

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