Section 11 – Scope of Powers of Referral Court & Arbitrator
The appellant – technology based wellness venture providing life style consultancy services – had executed Master Service Agreement with the respondent is an entity of digital marketing services and subsidiary of Dentsu International Limited to manage its digital advertising campaigns.
In September, 2022, there were certain media reports alleged mal-practices in the advertising industry. The appellant came to know EoW Mumbai had lodged complaint against parent company of the respondent.
The appellant engaged an auditor on the activities of the respondent for April 2021 to 31.12.2022.
On 22.2.2023, the respondent served demand notice under Section 8 IBC on the appellant for Rs.6,25,67,060/- for outstanding invoices. The appellant rejected the demanded citing audit findings and invoked arbitration clause 18.12 of the MSA. The appellant also filed counter claim for refund of Rs.5,53,26,690/- with interest and additional Rs.6 crores as damages for alleged misrepresentations by the respondent.
The appellant filed the arbitration petition for appointment of Arbitrator.
In the meanwhile, on 5.10.2023, the respondent filed company petition under Section 9 of the IBC before NCLT for CIRP of the appellant.
The High Court had undertaken detailed examination of the factual matrix and dismissed the arbitration petition on the ground that it was based on non-existent disputes.
Whether the High Court must reach prima facie satisfaction that a genuine dispute exists between the parties.
The question whether there exists a valid dispute to be referred to arbitration can be addressed by the Arbitral Tribunal as a preliminary issue.
Frivolity in litigation too is an aspect which the referral court should not decide at the stage of Section 11 as the arbitrator is equally, if not more, competent to adjudicate the same.
Para 20 We must clarify that the limited jurisdiction of the referral court under Section 11 must not be misused by parties to force other parties to participate in time-consuming and arbitration process. This is possible in instances where the claimant cavasses the adjudication of non-existent and mala fide claims through arbitration. With a view balance the interests of the parties, the Arbitral Tribunal may direct that the costs shall be borne by the party which the Tribunal ultimately finds to have abused the process of law and caused unnecessary harassment to the other party.
Judgment dated 7.11.2024 of the Supreme Court of India in Civil Appeal No.12234 of 2024 of Goqii Technologies Private Limited Vs. Sokrati Technologies Private Limited
