Isabella Mariam

In a recent judgement, the Delhi High Court Single Bench of Justice Subramonium Prasad, appointed an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996. The court stated, “this Court is inclined to appoint an Arbitrator to adjudicate the disputes between the parties.” The appointment follows a petition brought by a digital education service provider, arising out of an agreement involving software leasing. The court, while addressing the submissions made by both sides, recorded that there was an unambiguous arbitration clause in the agreement and that the respondents had categorically denied the petitioner’s claim.

The petitioner, a private limited company engaged in providing digital education services and software, entered into an agreement dated 28 May 2022 with the respondent company. The respondent’s directors approached the petitioner to lease software, pursuant to which the petitioner undertook significant development work and incurred costs.

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The petitioner alleged that after availing the services and development efforts, the respondents failed to fulfil their obligations under the agreement. A legal notice dated 2 March 2023 was issued, asserting non-compliance by the respondents. Subsequently, on 30 May 2024, the petitioner invoked Clause 11.2.2 of the agreement and served a notice to commence arbitration proceedings. The respondents replied to this notice on 10 July 2024.

Prior to approaching the Court, the petitioner had filed a complaint before the Micro, Small and Medium Enterprises Development (MSMED) Council. However, this complaint was withdrawn via letter dated 18 July 2024, citing lack of maintainability before the MSMED Council.

The petitioner then filed the present petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator as per the arbitration clause contained in Clause 11 of the agreement. Clause 11.2.2 expressly provides that disputes shall be resolved by arbitration with the seat of arbitration being New Delhi.

The respondents objected to the maintainability of the petition on multiple grounds. It was contended that Clause 11.2.1 was not a binding arbitration agreement as it merely indicated a possibility of arbitration and did not reflect a clear intention to arbitrate. It was further argued that the petitioner failed to follow the pre-arbitral procedure of attempting amicable discussions before invoking arbitration.

The respondents also relied on multiple judgments, including Jagdish Chander v. Ramesh Chander & Ors., 2007 (5) SCC 719, to contend that a clause which merely suggests the possibility of arbitration cannot be construed as a binding arbitration agreement. Additionally, the respondents asserted that a reference under the MSMED Act, 2006, remained pending and that the petitioner lacked liberty from the MSMED Council to initiate arbitration.

In response, the petitioner submitted that no amicable settlement could be reached due to the respondent’s unequivocal denial of liability, and therefore the arbitration clause stood invoked correctly. The petitioner also submitted that respondents 2 to 4 were not signatories to the agreement and agreed to delete them from the array of parties while reserving the right to implead them if necessary.

The Court examined the terms of Clause 11 of the agreement and found that the arbitration clause was clear and enforceable. Justice Prasad recorded: “This Court is of the opinion that Clause 11.2.2 of the agreement contains an arbitration clause which provides that the seat of arbitration shall be at New Delhi.”

The Court further recorded: “The Petitioner issued notice dated 02.03.2023 followed by another notice dated 30.05.2024 invoking arbitration. The Respondent has chosen to deny its liability and therefore there is no question of making any attempt to settle the disputes amicably.”

On the respondent’s submission regarding the pending reference under the MSMED Act, the Court stated: “The Petitioner has withdrawn from the MSMED Council vide Letter dated 18.07.2024 and the fact that there is no correspondence from the MSMED Council accepting the withdrawal does not mean that the Petitioner cannot approach this Court under Section 11 of the Arbitration & Conciliation Act.”

Justice Prasad further recorded that the judgments cited by the respondent were not applicable to the present case in view of the unambiguous wording of Clause 11.2.2 and the conduct of the parties.

The Court noted: “In view of the unambiguous arbitration clause as stated by the Respondent and the conduct of the Respondent in categorically denying the claim of the Petitioner and in fact the Respondent not being prepared to go for any amicable solution, this Court is inclined to appoint an Arbitrator to adjudicate the disputes between the parties.”

The Delhi High Court appointed Mr. R. Sudhinder as the sole arbitrator to adjudicate the disputes. The arbitration proceedings are to be conducted under the aegis of the DIAC, with fees as per its schedule.

The Court directed: “The learned Arbitrator is also requested to file the requisite disclosure under Section 12(2) of the Arbitration & Conciliation Act within a week of entering on reference.”

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It was further recorded: “All rights and contentions of the parties in relation to the claims/counter-claims are kept open, to be decided by the learned Arbitrator on their merits, in accordance with law.”

The Court concluded: “Nothing in this order shall be construed as an expression of this Court on the merits of the contentions of the parties.” The petition was disposed of in these terms along with pending applications, if any.

Advocate representing the parties:

For the Petitioner: Mr. Sachin Dhamija and Ms. Ashmeet Kaur, Advocates

For the Respondents: Mr. Aditya Vardhan Sharma and Mr. Yash Singhal, Advocates for Respondent Nos. 1, 3, and 4

Case Title: M/s SmartSchool Education Private Limited versus M/s Bada Business Pvt. Ltd and Others
Case Number: ARB.P. 1178/2024
Bench: Justice Subramonium Prasad

[Read/Download order]