04 April 2022, Monday

2 years ago

Standard to test arbitrability, limitation grounds et al in Section 11 case restated: Delhi High Court

17 February 2022 | Vijay Kumar Munjal v. Pawan Munjal and others | Arb. P. No 975 of 2021 | Delhi High Court | Vibhu Bakhru J | SCC OnLine Del 499

The Delhi High Court has restated the standards to deal with the defences raised in applications for appointment of arbitrators. It notes two reasons for which the referral court could prima facie examine issues of arbitrability and limitation rather than leaving it for the tribunal. One, so that public and private resources are not wasted by referring an ex facie barred dispute. Two, if the existence of arbitration agreement cannot be examined as completely disjunct from the disputes.

However, the court has noted that when examining any issue unless the court is ex facie satisfied that the disputes are not arbitrable or otherwise barred by law, parties would be relegated to arbitration. It cited as the test what another single judge of the Delhi High Court held in NCC Limited v. Indian Oil Corporation Limited 2019 SCC OnLine Del 6964 and was approved in Vidya Drolia (2021) 2 SCC 1: “unless it is in a manner of speech, a chalk and cheese situation or a black and white situation without shades of grey, the court concerned hearing Section 11 petition should follow the more conservative course of allowing parties to have their say before the Arbitral Tribunal”. [per Rajiv Shakdher J)

Examining the arbitrability defence, the court rejected the argument that there was dispute as to proprietary rights in trademark that should go to the persona designata (the Registrar of Trademarks). In the court’s view a dispute, though involving a right to use a trademark, arose from subordinate rights contained in the parties’ agreement. Moreover, the court said, this was not a case where nonarbitrability was established ex facie beyond a vestige of doubt.

Clarifying that its views on all issues were prima facie, the court also other arguments.

The court appointed a three member tribunal because the clause had a named arbitrator (known to the parties and hence ineligible under the new law) and the other two were to be appointed jointly by the four persons. Whilst the named arbitrator was appointed, his appointment was, the court held, bad in law because though the agreement was prior to the 2015 Amendments, the amended law required that an agreement in writing to waive the ineligibility created by law. Further, given the disputes, it was not possible for the parties to collectively agree on two names.

Read the decision here.


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