In an appeal filed under Section 37(1)(a) of the Arbitration and Conciliation Act, 1996 (A&C Act), read with Section 13(1-A) of the Commercial Courts Act, 2015, to challenge an order dated 28-08-2024 by the District Judge (Commercial Court-02), South West District, Dwarka, New Delhi, whereby the application filed under Section 8 of the A&C Act was dismissed, a Division Bench of Justice C. Hari Shankar and Justice Om Prakash Shukla set aside the impugned order and referred the parties to arbitration while dismissing the pending civil suit for being barred by law.
The appellant claimed to be a family partnership firm, as per a deed dated 12-12-2022, with its office in Karol Bagh, New Delhi. They have been in the restaurant business since 18-10-2023 under the trade name ‘Pind Balluchi’. Whereas the respondent is a company incorporated under the Companies Act, 1956, with its office in Rohini, Delhi. The respondent claimed to be in the hospitality business, with various restaurants under multiple brands, and to be the registered proprietor of the trade mark ‘Pind Balluchi’.
The respondent contended that on 18-07-2024, they noticed a restaurant operating under the name ‘Pind Balluchi’ and received an invoice bearing the appellant’s name and details upon availing its services. They asserted that the appellant was neither licensed nor authorised to use the said trade name, and that such use not only caused financial loss to the respondent company but also diluted its reputation.
Thus, the respondent filed a civil suit, in which the Trial Court granted an ad interim ex parte injunction restraining the appellant from using the said trade mark. Thereafter, the appellant filed two applications: one seeking vacation of the interim order and another under Section 8 of the A&C Act, along with a Memorandum of Understanding (MoU) to invoke the court’s power to refer the parties to arbitration.
To this, the respondent asserted that no MoU had been signed and that the said document was fabricated. Thus, the Trial Court dismissed the appellant’s application and refused to refer the parties to arbitration. Aggrieved, the appellant preferred the present appeal.
The Court noted that the core issue requiring consideration was whether the Trial Court was justified in rendering the matter non-arbitrable on the ground of forgery of the arbitration agreement. The Court scrutinized Section 37, which governs appeals and the scope of interference of the referral court under Section 8 of the A&C Act, and said that the same had a very limited scope.
The Court referred to judgments by the Supreme Court and found it clear that while exercising jurisdiction under Section 8, the referral court has the authority to determine the prima facie existence of an arbitration agreement and its validity. However, it was said that such authority is limited to cases where reference to arbitration is ex facie frivolous, and it is certain that the disputes are non-arbitrable.
Further, the Court perused the impugned order and stated that the analogy drawn by the Trial Court that since the respondent denied signing the MoU, the parties could not be referred to arbitration, was fallacious. The Court stated that Section 7 of the A&C Act requires only that an arbitration agreement be in writing and does not mandate that it be signed or stamped by the parties. Reference was made to Glencore International AG v. Shree Ganesh Metals & Anr 2025 SCC OnLine SC 1815, where the Supreme Court clarified that the mere absence of a signature on an arbitration clause does not invalidate the agreement.
The Court found that a jural relationship existed between the parties, as apparent from the MoU dated 22-06-2022, the earlier partnership agreement dated 28-06-2021, and the reconstituted partnership dated 18-08-2022. It was stated that an interpretation of these documents is a sine qua non for determining rights and consequences, which could not be decided at the prima facie stage, as was done by the Trial Court. Hence, the Court held that the proper forum for such examination would fall within the adjudication of the arbitral authority under Section 16 of the A&C Act.
Further, the Court found that the need for extensive evidence by the parties could not be a ground for declining reference to arbitration, and that treating such a requirement as a basis to refuse reference was a misnomer. The Court stated that superior courts have held time and again that the A&C Act is a complete Act in itself, which has ample power to take extensive evidence and decide complex commercial, contractual, and civil matters alike.
The Court applied the law laid down in Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1, and Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act, 1899 2023 SCC OnLine SC 1666, and found that instead of examining formal validity of the arbitration agreement, the Trial Court had ventured into determining its substantive validity, which is impermissible by law while deciding an application under Section 8. The Court also found the practice of entering into the merits of the dispute at the referral stage to be against the doctrine of kompetenz kompetenz as well as Section 16 of the A&C Act.
It was stated that, because of the pre-existing commercial relationship and agreement, the present case could not be rendered ex facie frivolous or non-arbitrable, and it was held that the threshold of formal validity was met.
Thus, the Court held the impugned order to be unsustainable and set the same aside. The application filed under Section 8 was allowed, and the parties were referred to arbitration, while the pending civil suit was dismissed for being non-maintainable and barred by law. Lastly, the parties were directed to appoint the arbitral tribunal in accordance with the scheme of the A&C Act.
Appearances:
For Appellant – Dr. Amit George, Mr. Rajiv Kumar, Mr. Rupam Jha, Mr. Adhishwar Suri, Ms. Ibamsara Syiemlieh, Mr. Dushyant Kaul, Ms. Medhavi Bhatia
For Respondent – Mr. J. Sai Deepak, Mr. Vikas Tomar
