The Supreme Court clarified the limited scope of judicial scrutiny under Section 11 of the Arbitration and Conciliation Act, 1996, emphasizing that the referral court’s role is confined to determining the prima facie existence of an arbitration agreement.
The Supreme Court Bench of Dr. Dhananjaya Y. Chandrachud, CJI., Justice J.B. Pardiwala and Justice Manoj Misra reviewed an appeal and observed that the High Court erred in exceeding its limited jurisdiction under Section 11 of the Arbitration and Conciliation Act, 1996 by conducting a detailed examination of the factual disputes, which should have been left for the arbitrator to decide, thereby misapplying the scope of judicial scrutiny at the referral stage. The Court held that the existence of the arbitration agreement was not in dispute, and the question of whether a valid dispute existed for arbitration could be determined by the Arbitral Tribunal.
The appeal at hand arises from the final judgment passed by the High Court of Judicature at Bombay in Commercial Arbitration Application No. 6 of 2024, where the High Court dismissed the application filed by Goqii Technologies Private Limited (the appellant) under Section 11 of the Arbitration and Conciliation Act, 1996. The appellant sought the appointment of an arbitrator to resolve disputes arising under Clause 18.12 of the Master Services Agreement (MSA) between the appellant and Sokrati Technologies Private Limited (the respondent). The appellant, engaged in wellness and lifestyle consultancy, had entered into the MSA with the respondent for managing its digital marketing services. However, the appellant raised concerns over the services provided by the respondent, which led to an audit revealing several issues, including fraudulent practices and overcharges. Based on these findings, the appellant rejected the invoices raised by the respondent and invoked arbitration. The respondent, in turn, filed a petition for the initiation of corporate insolvency proceedings against the appellant.
The High Court dismissed the appellant's request for an arbitrator, stating that the audit report did not substantiate claims of fraud or substantial deficiencies in the respondent’s services. The court observed that the appellant's reliance on the audit report was an attempt to avoid payment, as no prior objections had been raised during the period the services were availed. The appellant, however, contended that the report was only provided in February 2023, which was after the demand notice was issued, and that the report revealed the true nature of the dispute.
The Supreme Court, in reviewing the High Court’s decision, emphasized that the scope of judicial review under Section 11 of the Act, 1996 is limited to determining the existence of an arbitration agreement and the prima facie existence of a dispute. The Court held that the High Court had exceeded its jurisdiction by engaging in a detailed examination of the facts and the audit report, which was not the appropriate inquiry at this stage. The Court referred to previous rulings, underscoring that the arbitral tribunal is better equipped to address issues of frivolity and dishonesty in litigation.
Consequently, the Supreme Court allowed the appeal, set aside the High Court’s order, and appointed a sole arbitrator to adjudicate the disputes between the parties. The Court clarified that the appointment of the arbitrator does not preclude the respondent from raising objections or defences during the arbitration process, and all legal contentions remain open to be addressed by the arbitrator.
Mr. H.D. Thanvi, Advocate represented the Appellant.
Ms. Shweta Bharti, Advocate appeared for the Respondent.
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