Delhi High Court
M/S Moneywise Financial Services … vs Lakshya Polytex Private Limited … on 18 December, 2024
Author: Sachin Datta
Bench: Sachin Datta
$~8
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision: 18.12.2024
+ ARB.P. 1235/2024
M/S MONEYWISE
FINANCIAL SERVICES PRIVATE LIMITED .....Petitioner
Through: Ms. Mehvish Khan, Advocate.
versus
LAKSHYA POLYTEX PRIVATE LIMITED
THROUGH ITS DIRECTORS (FORMERLY KNOWN
AS LAKSH POLYTEX PRIVATE LIMITED) AND OTHERS
.....Respondents
Through: None for respondent no(s). 1 and 2.
Mr. Mukul Katyal, Advocate for
respondent no(s). 3 & 4.
CORAM:
HON'BLE MR. JUSTICE SACHIN DATTA
SACHIN DATTA, J. (ORAL)
1. The present petition under Section 11 of the Arbitration and
Conciliation Act, 1996 (hereinafter ‘the A&C Act’) seeks constitution of an
arbitral tribunal to adjudicate the disputes between the parties in the context
of a Loan Agreement dated 20.10.2018 (hereinafter ‘the Agreement’).
2. The respondent no.1 i.e. Lakshya Polytex Private Limited is the
principal borrower under the said Agreement whereas the respondent no(s) 2
to 4 are the co-borrowers. A perusal of the Agreement which is filed as
document no.2 alongwith the present petition, reveals, prima facie, that the
same was duly executed. The same also contains an arbitration clause which
reads as under:-
“ARBITRATION
10.1 Any disputes, differences, controversies and questions directly orSignature Not Verified ARB.P. 1235/2024 Page 1 of 5
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KUMAR PATEL
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indirectly arising at any time hereafter between the Parties or their
respective representatives or assigns, arising out of or in connection
with this Agreement (or the subject matter of this Agreement),
including, without limitation, any question regarding its existence,
validity, interpretation, construction, performance, enforcement,
rights and liabilities of the Parties, or termination (“Dispute”), shall
be referred to a sole arbitrator duly appointed by the Lender. The
language of the arbitration shall be English. The seat of the
arbitration shall be at New Delhi and the language of proceedings
shall he English. The award rendered shall be in writing and shall set
out the reasons for the arbitrator’s decision. The costs and expenses of
the arbitration· shall be borne equally by each Party, with each Party
paying for its own fees and costs including attorney fees, except as
may be determined by the arbitration tribunal. Any award by the
arbitration tribunal shall be final and binding.”
3. None appears for the respondent no(s). 1 and 2 despite notice.
4. Learned counsel for respondent no(s). 3 and 4 submits that although
the respondent no. 3 was initially a director of the respondent no.1/company,
he had resigned from the said post and thereafter his father had joined as the
director of the respondent company. He submits that the respondent no(s). 3
and 4 never agreed to be co-borrower/s nor had they signed the Agreement
in question.
5. On a prima facie conspectus, this Court is satisfied that the
Agreement was executed. It is undisputed that pursuant to the Agreement,
loan amount was also disbursed by the petitioner to the respondent no.1. In
Fujifilm India Pvt. Ltd. vs Rahul Lumba Proprieter of M/S Rahul
Enterprises, ARB. P 769/2024 where one of the parties to the agreement
sought to deny it signatures on the agreement, it was held by Coordinate
Bench of this Court as under:
“5. The scope of adjudication under Section 11 of the Act is very
limited. As far as the existence of an arbitration agreement is concerned,
the recent judgment of the Supreme Court in SBI General Insurance Co.
Ltd. v. Krish Spinning [2024 SCC OnLine SC 1754], makes it clear that a
prima facie determination is to be made by the referral Court, leaving aSignature Not Verified ARB.P. 1235/2024 Page 2 of 5
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KUMAR PATEL
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final adjudication, even on this question, to the arbitral tribunal. The
relevant observations of the Court are as follows:
“110. The scope of examination under Section 11(6-A) is confined
to the existence of an arbitration agreement on the basis of Section
7.The examination of validity of the arbitration agreement is also
limited to the requirement of formal validity such as the
requirement that the agreement should be in writing.
111. The use of the term ‘examination’ under Section 11(6-A) as
distinguished from the use of the term ‘rule’ under Section 16
implies that the scope of enquiry under section 11(6-A) is limited to
a prima facie scrutiny of the existence of the arbitration
agreement, and does not include a contested or laborious enquiry,
which is left for the arbitral tribunal to ‘rule’ under Section 16.
The prima facie view on existence of the arbitration agreement
taken by the referral court does not bind either the arbitral
tribunal or the court enforcing the arbitral award.
112. The aforesaid approach serves a two-fold purpose – firstly, it
allows the referral court to weed out non-existent arbitration
agreements, and secondly, it protects the jurisdictional competence
of the arbitral tribunal to rule on the issue of existence of the
arbitration agreement in depth.”
[Emphasis supplied.]
6. In the present case, Document No.2 annexed to the petition is stated to
be a copy of the Distributorship Agreement. It purportedly bears the
stamp and signature of the respondent on each page, as also at the end of
the Agreement. The disputes raised by the respondent, as to the veracity
of the document, would require evidence to be led and a factual
determination to be returned. This task must be left to the arbitrator as,
prima facie, there appears to be an agreement between the parties
providing for resolution of disputes by arbitration.”
6. The contention of the respondent no(s). 3 that the said respondent
cannot be fastened with any liability on the basis that he resigned as director
of the respondent company even prior to the Agreement being entered into,
is also an aspect which can be considered by a duly constituted arbitral
tribunal. Even the issue as to whether the claim/s sought to be raised in the
arbitral tribunal are barred by limitation or not (as contended by the learned
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KUMAR PATEL
Signing Date:24.12.2024
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counsel for respondent no.3), is an aspect that can be adjudicated by a duly
constituted arbitral tribunal. In Interplay between Arbitration Agreements
under the Arbitration & Conciliation Act, 1996 & the Indian Stamp Act,
1899, In re, 2023 SCC OnLine SC 1666, the Supreme Court has held as
under: –
“163. The burden of proving the existence of arbitration agreement
generally lies on the party seeking to rely on such agreement. In
jurisdictions such as India, which accept the doctrine of competence
competence, only prima facie proof of the existence of an arbitration
agreement must be adduced before the referral court. The referral
court is not the appropriate forum to conduct a mini-trial by allowing
the parties to adduce the evidence in regard to the existence or validity
of an ARB.P. 1535/2024 &O.M.P.(I) (COMM.) 251/2024 Page 10 of 13
arbitration agreement. The determination of the existence and validity
of an arbitration agreement on the basis of evidence ought to be left to
the arbitral tribunal. This position of law can also be gauged from the
plain language of the statute. 164. Section 11(6A) uses the expression
“examination of the existence of an arbitration agreement.” The
purport of using the word “examination” connotes that the legislature
intends that the referral court has to inspect or scrutinize the dealings
between the parties for the existence of an arbitration agreement.
Moreover, the expression “examination” does not connote or imply a
laborious or contested inquiry. On the other hand, Section 16 provides
that the arbitral tribunal can “rule” on its jurisdiction, including the
existence and validity of an arbitration agreement. A “ruling” connotes
adjudication of disputes after admitting evidence from the parties.
Therefore, it is evident that the referral court is only required to
examine the existence of arbitration agreements, whereas the arbitral
tribunal ought to rule on its jurisdiction, including the issues pertaining
to the existence and validity of an arbitration agreement. A similar view
was adopted by this Court in Shin-Etsu Chemical Co. Ltd. v. Aksh
Optifibre Ltd.”
7. Furthermore, in terms of the judgment in Perkins Eastman Architects
DPC v. HSCC (India) Ltd (2020) 20 SCC 760, TRF Limited v. Energo
Engineering Projects Ltd, (2017) 8 SCC 377 and Bharat Broadband
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Network Limited v. United Telecoms Limited, 2019 SCC OnLine SC 547, it
is incumbent on this Court to appoint an independent sole arbitrator to
adjudicate the disputes between the parties.
8. Accordingly, Mr. Shashank Dewan, Advocate (Mob. No.: +91
9999130505) is appointed as the Sole Arbitrator to adjudicate the disputes
between the parties.
9. Needless to say, the respondents including respondent no(s). 3 and 4
shall be entitled to raise appropriate objections as regards
arbitrability/jurisdiction before the learned arbitrator which shall be
considered by the learned sole arbitrator in accordance with law. The
learned sole arbitration shall make an endeavour to decide the said objection
at the very outset.
10. The respondents shall be at liberty to raise counter-claims, if any, in
the arbitral proceedings, to be decided by the learned Sole Arbitrator on their
merits, in accordance with law.
11. The learned Sole Arbitrator may proceed with the arbitration
proceedings subject to furnishing to the parties the requisite disclosure as
required under Section 12 of the A&C Act.
12. At request of respective counsel, it is directed that the arbitration shall
take place under the aegis of and as per the rules of the Delhi International
Arbitration Centre (DIAC).
13. Needless to say, nothing in this order shall be construed as an
expression of opinion of this Court on the merits of the case.
14. The present petition stands disposed of in the above terms.
DECEMBER 18, 2024/at SACHIN DATTA, J Signature Not Verified ARB.P. 1235/2024 Page 5 of 5 Digitally Signed By:ROHIT KUMAR PATEL Signing Date:24.12.2024 09:40:03