Issue Whether The Dispute Pertains To The Agreement Containing Arbitration Clause Or Not, To Be Decided By Arbitrator: Delhi High Court

The Delhi High Court has ruled that the issue whether the disputes between the parties have arisen under the Memorandum of Understanding (MoU) containing an arbitration clause, or the subsequent work orders issued to the party, which are devoid of any arbitration clause, or whether they are related to both, can be looked into by the Arbitrator who can rule on his own jurisdiction in terms of Section 16 of the Arbitration and Conciliation Act, 1996 (A&C Act). While reckoning that the existence of the arbitration clause between the parties was not disputed, the Court referred the parties to arbitration, noting that it has limited jurisdiction under Section 11 of the A&C Act. The bench of Justice V. Kameswar Rao observed that as per the Apex Court’s decision in Sanjiv Prakash vs. Seema Kukreja & Ors. (2021), the Court, at the stage of considering a Section 11 petition, cannot enter into a mini trial or into an elaborate review of facts and law which would usurp the jurisdiction of the arbitral tribunal. The petitioner, Newton Engineering and Chemicals Ltd, entered into a Memorandum of Understanding (MoU) with the respondent, UEM India Pvt Ltd, for execution of a Project under a Tender granted to the petitioner by the Oil and Natural Gas Corporation (ONGC). The petitioner alleged that the respondent failed to execute the work as per the Contract, and as a result, the ONGC terminated the Contract with the petitioner. The petitioner, Newton Engineering and Chemicals, invoked the arbitration clause contained in the MoU, contending that the respondent was liable to refund the amounts paid to it as well as the losses incurred by the petitioner. The petitioner thus filed a petition under Section 11 of the A&C Act before the Delhi High Court seeking appointment of an Arbitrator. The respondent, UEM India, raised a preliminary objection before the High Court contending that the MoU, containing the arbitration clause, was only entered for the purpose of submitting bids towards the Tender floated by ONGC. It pleaded that after the Contract was awarded by ONGC to the petitioner, the petitioner issued multiple letters of intent (LOIs) / work orders, seeking services of the respondent with respect to the Project under the Tender. However, such LOIs were independently issued by the petitioner and therefore should be construed as independent agreements or contracts, which do not contain an arbitration clause, it averred. Thus, it contended that since the disputes sought to be referred for arbitration emanated from the LOIs and not from the MoU, the disputes cannot be referred to arbitration as there is no arbitration clause governing the same. To this, the petitioner, Newton Engineering and Chemicals, argued that the role of the respondent under the MoU was not merely limited to the submission of bids by the petitioner, but it was well beyond the same. It added that as per the relevant clause contained in the MoU, the respondent was to specifically participate in the Project under the said Tender as a technical collaborator and provide certain services. It argued that the LOIs sent by the petitioner to the respondent were never meant to be independent agreements/contracts. Each of the LOIs were well knit and interlinked with each other and also with the governing MoU, it contended. The Court observed that the issue, whether the disputes between the parties have arisen under the MoU or under the LOIs or whether they are related to both, can be looked into by the Arbitrator as the Arbitrator can decide his own jurisdiction in terms of Section 16 of the A&C Act. The Court observed that in Sanjiv Prakash vs. Seema Kukreja & Ors. (2021), the Supreme Court had held that a Section 11 court would refer the matter to arbitration when contentions relating to non-arbitrability are plainly arguable, or when the facts are contested. The Court cannot, at the stage of considering a Section 11 application, enter into a mini trial or into an elaborate review of the facts and law which would usurp the jurisdiction of the arbitral tribunal, the Apex Court had ruled. While dealing with the contention advanced by the respondent, UEM India, that the dispute related to the LOIs and not the MoU, the Court remarked, “If the plea of Mr. Uppal that the disputes relate to the LoIs, which do not contain the arbitration clause is not substantiated then the dispute with regard to LoIs are necessarily to be decided through the process of arbitration. It can be a position that MoU and LoIs are two separate contracts, then also the arbitration Clause in MoU need to be given effect to whatever is its effect.” Noting that the existence of the arbitration clause between the parties was not disputed, the Court allowed the petition and appointed a Sole Arbitrator. “Accordingly, this petition is disposed of by appointing Justice R.K. Gauba, a former Judge...

Issue Whether The Dispute Pertains To The Agreement Containing Arbitration Clause Or Not, To Be Decided By Arbitrator: Delhi High Court

Parina Katyal

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