The Delhi High Court has ruled that any contention regarding the applicability or relevance of an arbitration agreement must be decided by the arbitrator and not during the hearing of a petition under Section 11 of the Arbitration and Conciliation Act, 1996.
This decision was delivered by Justice Sachin Datta in the case Indraprastha Gas Limited v. M/S Chintamani Food and Snacks (ARB.P. 355/2024), where the petitioner sought constitution of an Arbitral Tribunal over disputes related to a Gas Supply Agreement (GSA).
The GSA dated 05.03.2018 had a specific arbitration clause under Article 23, which clearly outlined the process for resolving disputes. The petitioner alleged that the respondent, who was shifted from a post-paid to a prepaid gas supply model in October 2020, was undercharged due to an outdated tariff rate not updated by AIUT Technologies LLP, the petitioner’s service agency. This caused an outstanding amount of ₹3,50,638.33 for the period of July to December 2022. After the respondent denied the liability, the arbitration clause was invoked.
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"The execution of the Gas Supply Agreement is not denied by the respondent and the agreement admittedly contains an arbitration clause. The issue of its applicability involves interpretation and adjudication best left to the Arbitral Tribunal." – Delhi High Court
The Court further rejected the respondent's claim that the arbitration clause had become inapplicable once they became a prepaid customer. Justice Datta noted that such arguments are deeply connected to the contract’s interpretation, which should be decided by the arbitrator, not the court at the Section 11 stage.
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The High Court relied on key Supreme Court decisions including In Re: Interplay between Arbitration Agreements and Indian Stamp Act, 2023 and SBI General Insurance Co. Ltd. v. Krish Spinning, 2024 INSC 532, both of which emphasized that courts under Section 11 must only ascertain the prima facie existence of an arbitration agreement and not delve into its validity or applicability.
"The referral court is only required to examine the existence of an arbitration agreement. Any challenge to its validity must be ruled upon by the arbitral tribunal." – Supreme Court (In Re: Interplay, 2023)
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Although the GSA allowed the petitioner to nominate arbitrators, the court declared this procedure invalid post the Supreme Court’s judgment in Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV), 2024, stating the necessity of an independent appointment by the court.
Accordingly, the Court appointed Mr. Anant Vijay Palli, Senior Advocate, as the sole arbitrator to adjudicate the dispute. It also clarified that the respondent is free to raise jurisdictional objections before the arbitrator, and those contentions will be considered on merits.
"The respondent is at liberty to raise objections regarding jurisdiction or arbitrability before the learned Sole Arbitrator. All rights and contentions are reserved." – Delhi High Court
The arbitration will proceed under the rules of the Delhi International Arbitration Centre (DIAC), and the petition was disposed of in these terms.
Case Title: INDRAPRASTHA GAS LIMITED versus M/S CHINTAMANI FOOD AND SNACKS
Case Number: ARB.P. 355/2024
Counsel for the Petitioner: Mr. Abhishek Gupta and Mr. Udit K. Thakur, Advocates.
Counsel for the Respondent: Ms. Srishti Sharma and Mr. Adnan Saifi, Advocates
