Judicial Authority U/S. 45 A&C Act Should Refer Parties To Arbitration Unless Agreement Is Null & Void, Inoperative Or Incapable of Being Performed: Delhi HC

The first Defendant had approached the High Court seeking dismissal of the 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 entered into between the Plaintiff and the Defendant.

The Single-Judge Bench of Justice Dinesh Kumar Sharma clarified, “Section 45, which is contained in Part II 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.”

Advocate Tejas Karia represented the Plaintiff while Advocate Abhijnan Jha represented the Defendants.

The Defendant had approached the Plaintiff with a business idea for the manufacturing and sale of Cottonseed Cakes (Product) in Benin. The first to third Defendant Nos. 1 to 3 are stated to be part of the group of companies owned and controlled by Tropical General Investments Ltd., Nigeria (TGI, Nigeria). The Plaintiff and the Defendant No. 1 entered into an Agreement. During COVID-19, the first defendant started proposing to eliminate the plaintiff's exclusive rights. The first defendant was allowed to sell to third parties, provided they prioritized Plaintiff's orders. Thereafter, the first defendant reduced supplies to Plaintiff, citing external factors, despite having enough stock. Thereafter, certain disputes arose between the plaintiff and defendant with respect to the supply of the product and financial liabilities, leading to the plaintiff issuing a termination notice. On account of the actions of the defendants that amounted to criminal breach of trust, criminal conspiracy, fraud and cheating, the Plaintiff lodged an FIR under Sections 405/406/415/417/419/420/506 and 120-B of the Indian Penal Code, 1860 against the Defendants.

In the meanwhile, the defendant No. 1 initiated a CAMEC-administered arbitration in Benin, as per the arbitration clause requesting the plaintiff to appoint its nominee arbitrator. The plaintiff approached the High Court seeking a permanent injunction against defendant No. 1 from proceeding and continuing with the Benin Arbitration.

The Plaintiff raised a contention that the arbitration before the Benin Court is vexatious given that India is the place of arbitration in the arbitration clause of the subsequent sales agreements and HSSAs, which as per the plaintiff form part of the main agreements i.e., BSA and Addendum which cannot be accepted as both are independent agreements between different parties.

After pursuing the arbitration clauses of BSA and Addendum, the Bench noticed that the plaintiff and defendant no. 1 had, out of their own will, chosen the preferred place of arbitration to be in Benin. “Therefore, Arbitration would be the method of resolving any disagreement that might emerge between the parties to the BSA and addendum. Therefore, it is clear that the agreements entered into between defendants no 2 & 3 and the plaintiff are separate from the BSA and addendum”, it added.

Reference was made to Section 45 which casts a statutory mandate on Courts to refer parties to an arbitration agreement to arbitration. As per the Bench, in the present case, all ingredients of Section 45 were satisfied. The Plaintiff's only allegation in the Suit was that the said proceedings would be vexatious, inconvenient, unconscionable, oppressive, initiated by fraud and/or would cause demonstrable injustice to Plaintiff. “None of these grounds are relevant under Section 45”, the Bench added.

Further observing that the principle of minimal judicial interference enshrined in Article 5 of the UNCITRAL Model Law has been implemented in the A&C Act in Section 5, the Bench said, “ When arbitration proceedings are triggered by one of the parties because of the existence of an arbitration agreement between them, Section 5 of the A&C Act, being a non-obstante clause, provides a clear message that there should not be any judicial intervention at that stage scuttling the arbitration proceedings. This provision prohibits judicial oversight of procedural decisions made by the arbitral tribunal in the course of an ongoing arbitration. However, it does not envisage a complete bar to judicial intervention in arbitral proceedings.”

The High Court held that the disputes were to be adjudicated as per the Parties’ chosen adjudicatory forum, i.e., under Article 11 of the BSA and the arbitration clause provided under Article 11 of the BSA. Moreover, the Agreements were not null, void, inoperative or incapable of being performed as the Plaintiff never questioned the validity of BSA and Addendum.

Highlighting the requisites to be considered by the court while deciding an application filed under section 45, the Bench said, “At the time of considering an application under Section 45 of the A&C Act, a judicial authority shall, at the request of either 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."

Noting that the BSA and Addendum entered between plaintiff and defendant no 1 are separate agreements as the BSA and Addendum are agreements of the same transactions, the Bench also made it clear that the arbitration clauses are valid, enforceable and have been agreed to by both parties, i.e., plaintiff and defendant no. 1.

Thus, allowing the defendant's application and dismissing plaintiff’s suit, the Bench held, “This Court holds that disputes arising from transactions related to the BSA and its addendum fall within the scope of these agreements and should be resolved pursuant to the dispute resolution mechanisms stipulated therein. Given that the HSSAs and sales contracts constitute distinct transactions, arbitration cannot proceed under the clauses set forth in the HSSAs and sales agreements.”

Considering the fact that the award had already been passed, the Bench gave the option to the plaintiff to avail appropriate remedies in accordance with the Buyer Seller Agreement and Addendum as provided under law.

Cause Title: Balaji Steel Trade v. Fludor Benin S.A. & Ors. Neutral Citation: 2024:DHC:8711]

Appearance:

Plaintiff: Advocates Tejas Karia, Shruti Sabharwal, Nishant Doshi, Nitin Sharma, Ankit Juneja, Abhinav Mathur, Nitesh Srivastava, Manish Parmor

Defendants: Advocates Abhijnan Jha, Urvashi Misra, Arnab Ray, Susshil Daga, Chitransh Mathur, Parul Singhal & Ashish Sharma

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