Passerine Wealth Solution Pvt. Ltd. v. Gurdev Singh Bhatia

1. The present petition has been filed under Section 11 of the Arbitration and Conciliation Act, 1996 (AC Act) by the petitioner, seeking appointment of an Arbitrator, to adjudicate upon the disputes that have arisen between the parties under the Hotel Management Agreement (in short “MHA”) dated 01.04.2023 and subsequent Memorandum of Understanding dated 01.12.2024.

2. Heard.

3. Notice.

4. Mr. Arjun Mukherjee, learned counsel for the respondent accepts notice.

5. As claimed by the plaintiff, certain renovation work was to be undertaken by the respondent and the parties raised grievance against each other. Various notices/communications were exchanged and hence, the dispute has arisen to adjudicate the same by way of arbitrator. However, it is also claimed by learned counsel for the respondent that the agreement got terminated.

6. The Court takes note of the Clause No.35 of the said MHA, which reads as under:- “ln the event of any dispute or difference arising between the Parties concerning or relating to the interpretation of this present agreement or the interpretation or effect of any provisions of this agreement or relating to liability or obligation on the part of the any of the parties hereto, the same shall be referred to arbitration of a sole arbitrator appointed by mutual consent of the parties. In case the parties are unable to mutually appoint an arbitrator, the parties shall refer the dispute to DIAC, Delhi for appointment of sole arbitrator who shall adjudicate the disputes. The award so passed is binding on both the parties. The arbitration shall be in New Delhi and in accordance with and subject to then provisions of the Arbitration' and Conciliation Act, 1996 or any statutory modification or re-enactments thereof further time being in force. The Agreement shall be subject to the jurisdiction of New Delhi..”

7. The law with respect to the scope and standard of judicial scrutiny under Section 11(6) of the 1996 Act has been fairly well settled. This Court as well in the order dated 24.04.2025 in case of ARB.P. 145/2025 titled as Pradhaan Air Express Pvt Ltd v. Air Works India Engineering Pvt Ltd has extensively dealt with the scope of interference at the stage of Section 11. The Court held as under:-

9. The law with respect to the scope and standard of judicial scrutiny under Section 11(6) of the 1996 Act has been fairly well settled. The Supreme Court in the case of SBI General Insurance Co. Ltd. v. Krish Spinning, while considering all earlier pronouncements including the Constitutional Bench decision of seven judges in the case of Interplay between Arbitration Agreements under the Arbitration & Conciliation Act, 1996 & the Indian Stamp Act, 1899, In re has held that scope of inquiry at the stage of appointment of an Arbitrator is limited to the extent of prima facie existence of the arbitration agreement and nothing else.

10. It has unequivocally been held in paragraph no.114 in the case of SBI General Insurance Co. Ltd that observations made in Vidya Drolia v. Durga Trading Corpn., and adopted in NTPC Ltd. v. SPML Infra Ltd., that the jurisdiction of the referral court when dealing with the issue of “accord and satisfaction” under Section 11 extends to weeding out ex-facie non-arbitrable and frivolous disputes would not apply after the decision of Re: Interplay. The abovenoted paragraph no.114 in the case of SBI General Insurance Co. Ltd reads as under:-

11. Ex-facie frivolity and dishonesty are the issues, which have been held to be within the scope of the Arbitral Tribunal which is equally capable of deciding upon the appreciation of evidence adduced by the parties. While considering the aforesaid pronouncements of the Supreme Court, the Supreme Court in the case of Goqii Technologies (P) Ltd. v. Sokrati Technologies (P) Ltd., however, has held that the referral Courts under Section 11 must not be misused by one party in order to force other parties to the arbitration agreement to participate in a time-consuming and costly arbitration process. Few instances have been delineated such as, the adjudication of a non-existent and malafide claim through arbitration. The Court, however, in order to balance the limited scope of judicial interference of the referral Court with the interest of the parties who might be constrained to participate in the arbitration proceedings, has held that the Arbitral Tribunal eventually may direct that the costs of the arbitration shall be borne by the party which the Arbitral Tribunal finds to have abused the process of law and caused unnecessary harassment to the other parties to the arbitration.

12. It is thus seen that the Supreme Court has deferred the adjudication of aspects relating to frivolous, non-existent and malafide claims from the referral stage till the arbitration proceedings eventually come to an end. The relevant extracts of Goqii Technologies (P) Ltd. reads as under:-

13. In view of the aforesaid, the scope at the stage of Section 11 proceedings is akin to the eye of the needle test and is limited to the extent of finding a prima facie existence of the arbitration agreement and nothing beyond it. The jurisdictional contours of the referral Court, as meticulously delineated under the 1996 Act and further crystallised through a consistent line of authoritative pronouncements by the Supreme Court, are unequivocally confined to a prima facie examination of the existence of an arbitration agreement. These boundaries are not merely procedural safeguards but fundamental to upholding the autonomy of the arbitral process. Any transgression beyond this limited judicial threshold would not only contravene the legislative intent enshrined in Section 8 and Section 11 of the 1996 Act but also risk undermining the sanctity and efficiency of arbitration as a preferred mode of dispute resolution. The referral Court must, therefore, exercise restraint and refrain from venturing into the merits of the dispute or adjudicating issues that fall squarely within the jurisdictional domain of the arbitral tribunal. It is thus seen that the scope of enquiry at the referral stage is conservative in nature. A similar view has also been expressed by the Supreme Court in the case of Ajay Madhusudan Patel v. Jyotrindra S. Patel.

8. In view of the fact that disputes have arisen between the parties and there is an arbitration clause in the contract, this Court is inclined to appoint an Arbitrator to adjudicate upon the disputes between the parties.