2021 (3) TMI 382 - SC - Indian Laws

Supreme Court sets aside Delhi High Court ruling, upholds appointment of Sole Arbitrator to determine arbitration agreement existence.

PRAVIN ELECTRICALS PVT. LTD. Versus GALAXY INFRA AND ENGINEERING PVT. LTD.

PRAVIN ELECTRICALS PVT. LTD. Versus GALAXY INFRA AND ENGINEERING PVT. LTD. - TMI Issues Involved:1. Existence of a valid arbitration agreement.2. Jurisdiction of the court to refer the matter to arbitration.3. Prima facie review of the arbitration agreement.4. Validity of the Consultancy Agreement dated 7th July, 2014.5. The role of the CFSL report in determining the authenticity of the signatures.6. The procedural aspects of appointing an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996.Issue-wise Detailed Analysis:1. Existence of a valid arbitration agreement:The primary issue was whether a valid arbitration agreement existed between the parties. The Respondent claimed that a Consultancy Agreement dated 7th July, 2014, which included an arbitration clause, was executed. The Appellant disputed this, arguing that the agreement was concocted and that no such agreement was ever finalized. The court examined the correspondence and documents exchanged between the parties, including emails and invoices, to determine if an arbitration agreement was indeed in place.2. Jurisdiction of the court to refer the matter to arbitration:The court's jurisdiction to refer the matter to arbitration under Section 11(6) of the Arbitration and Conciliation Act, 1996, was scrutinized. The court noted that its role was limited to examining the existence of an arbitration agreement and not delving into the merits of the case. The court highlighted the legislative intent behind the amendments to Sections 8 and 11, which aimed to minimize judicial intervention at the pre-arbitral stage and ensure that arbitration agreements are upheld.3. Prima facie review of the arbitration agreement:The court emphasized the need for a prima facie review to determine the existence of an arbitration agreement. This review is intended to weed out manifestly non-existent or invalid arbitration agreements. The court referred to the recent Three-Judge Bench judgment in Vidya Drolia v. Durga Trading Corporation, which clarified that the court should conduct a prima facie review to ascertain the existence of an arbitration agreement and leave detailed examination to the arbitrator.4. Validity of the Consultancy Agreement dated 7th July, 2014:The court examined the validity of the Consultancy Agreement dated 7th July, 2014. The Appellant argued that the agreement was fabricated, pointing out inconsistencies such as the notarization of the agreement in Faridabad, Haryana, despite the parties being based in Mumbai and Bihar, and the notary's license having expired. The court found that the negotiations and draft agreements exchanged after 7th July, 2014, cast doubt on the existence of a finalized agreement on that date.5. The role of the CFSL report in determining the authenticity of the signatures:The CFSL report dated 29th September, 2019, was inconclusive regarding the authenticity of the signatures on the Consultancy Agreement. The court noted that this inconclusiveness necessitated a deeper examination of the agreement's authenticity, which could only be achieved through a detailed inquiry involving cross-examination of witnesses and documentary evidence.6. The procedural aspects of appointing an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996:The court upheld the appointment of Justice G.S. Sistani, a retired Delhi High Court Judge, as the Sole Arbitrator. The arbitrator was tasked with first determining whether an arbitration agreement existed between the parties as a preliminary issue. Only if the arbitrator found that such an agreement existed would he proceed to decide the merits of the case. The court clarified that its observations were prima facie and should not influence the arbitrator's determination.Conclusion:The Supreme Court set aside the Delhi High Court's judgment to the extent that it conclusively found an arbitration agreement between the parties. However, it upheld the appointment of Justice G.S. Sistani as the Sole Arbitrator, directing him to first determine the existence of an arbitration agreement as a preliminary issue. The appeal was allowed in these terms, ensuring that the arbitrator would conduct a detailed examination of the evidence and witness testimonies to resolve the matter.