The single judge of the Delhi High Court in the case of M/s IMZ Corporate Pvt Ltd vs MSD Telematics Pvt Ltd1 held that if there is no intention to negotiate before referring the disputes to arbitration, then it is not mandatory to do so even if such negotiation is pre-requisite for initiating arbitration proceedings.
Facts of the case:
The Petitioner and the Respondent entered into a Memorandum of Understanding on 01st January 2020 ("MOU") intending to promote their respective business interests and profitability. It contained an arbitration clause that required negotiation to be conducted before commencement of the arbitration. The said arbitration clause read as follows:
All disputes and differences, arising out of or in connection with this Agreement shall be attempted to be resolved mutually through negotiations between the Parties failing which the same shall be referred and decided by a sole Arbitrator to be appointed by the Parties. The decision of the Arbitrator shall be final and binding on the parties. The provisions of Arbitration and Reconciliation Act 1996 shall be applicable to such arbitration proceedings.
A dispute regarding soliciting employees of each other arose, the Petitioner invoked the arbitration clause on 04th July 2020 and requested Delhi International Arbitration Centre ("DIAC") to appoint an arbitrator. It is pertinent to note that the subject matter of the dispute was an integral part of the contract. DIAC sent a notice regarding the same to the Respondents but received no reply. In light of the same, the Petitioner filed the said petition. The Respondent resisted the petition on the following grounds :
- The Petitioner failed to plead or establish the contingencies as enumerated in clause (a), (b) and (c) under Section 11(6) of the Arbitration and Conciliation Act, 1996 ("the Act").
- The MOU in question was a forged and fabricated document and the existence thereof is disputed. Various criminal proceedings are initiated which permeate the entire MOU rendering it void.
- The subject matter of dispute was unsuitable to be adjudicated by arbitration since grave and unsubstantiated criminal allegations were made by the Petitioner.
- The Petitioner has not complied with the pre-arbitration procedure.
- The MoU in question was unstamped. Non-payment of stamp duty on a commercial contract would invalidate the arbitration agreement and render it non-existent and unenforceable in law. The instrument should be impounded by the court and only after payment of sufficient stamp duty that the petition could be further entertained.
- The Petitioner had alleged oppression and mismanagement in the Respondent Company and initiated proceedings in NCLT, by virtue of Section 2(3) of the Act, the issue is not arbitrable.
The court rejected the objections raised by the Respondent and held that the petition is maintainable on the following reasons/grounds:
- While examining jurisdiction under Section 11, the court only has to examine if there exists any arbitration agreement and whether there exist any arbitrable disputes. The Court cannot venture into deciding the disputes arising between the parties. The Court held that any dispute with regards to the existence of an arbitration agreement should be made before the arbitral tribunal in accordance with the law.
- With respect to the issue on the objection raised regarding non-compliance of the pre-arbitration procedure, the court was of the opinion that it was highly inconsistent on behalf of the Respondent to raise this argument. On one hand, they claim that the arbitration agreement does not subsist and on the other hand, it wants to enforce negotiation. The court stated that since directors of both the Petitioners and the Respondents had initiated criminal action against each other, it indicated that none of the parties intended to solve the dispute amicably. In such circumstances, the court held that negotiation as a pre-condition to arbitration should not get in the way of the dispute resolution process agreed upon between the parties.
- With regards to the objection of insufficient stamp duty, the court referred to the decisions of the Supreme Court in the case of N.N. Global Mercantile vs Indo Unique Flame2 and specifically citing paragraph 6.4 in the said judgement held that the agreement being unstamped did not prevent the court in appointing an arbitrator while exercising jurisdiction under section 11 of the Act.
- With regards to the issue of non-arbitrability, the court was of the opinion that the issue which was referred to arbitration was completely different than the one placed before NCLT and hence, the question of whether the subject matter is arbitrable does not arise. The court stated that a petition was filed before NCLT for oppression and mismanagement while arbitration was invoked for a contractual dispute namely soliciting employees of the Petitioner, tampering with the computer servers, gaining unauthorised access to computer database, etc. which was covered under clause 2.1 and 2.2 of the MoU executed between both the parties.
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