Author: Shrijeta Pratik, 1st Year law student at KPMSOL, NMIMS, Mumbai.
Essential details of the case
Citation: 2021 SCC OnLine SC 190
Appellant: Pravin Electricals Pvt. Ltd
Respondent: Galaxy Infra and Engineering Pvt.
Bench: Rohinton Fali Nariman, B.R. Gavai
Date of Judgment: 8 March, 2021
Original copy: N/A
Issues:
- Whether the party has filed a complaint with the proper High Court?
- Whether an arbitration agreement exists for the arbitrator to resolve?
- Whether the party, who has applied for reference and is a party to such agreement, be entitled to a more thorough assessment?
Facts of the case:
- This appeal stems from a petition for the designation of a sole arbitrator for the adjudication of disputes between the parties submitted under Section 11(6) of the Arbitration and Conciliation Act, 1996. Galaxy Infra and Engineering Pvt. Ltd, the Respondent, is a private limited company incorporated under the Companies Act, 1956, with its registered office in Village Ara Gadh, Bihar, and is engaged in the business of rendering consultancy services.
- Pravin Electricals Pvt. Ltd., the Appellant, engages in the important industrial and commercial business shops, providing services such as electrical supplies. On May 26, 2014, the Chief Engineer of South Bihar Power Distribution Company Ltd. issued an online tender for the approval of implementing agencies for the implementation of a scheme, on a turnkey basis, for the reinforcing, improvement, and augmentation of distribution system potentials in 20 Bihar towns.
- On September 22, 2014, the appellant submitted its technical and financial bid. He was declared the winning bidder and was given the task. The respondent contends that, pursuant to a Consultancy Agreement dated July 7, 2014, it made significant efforts to assist the appellant in obtaining the aforementioned contract for which it was authorized to commission. The respondent replied the following day, claiming that some words were unacceptable.
- In fact, the respondent asserted that all of the parties’ disputes were tackled and a Definitive Consultancy Agreement was reached through correspondence between them. The respondent claimed that on September 27, 2014, it issued a payment request of Rs. 28.09 lakhs as an advance for consultancy fees, inclusive of service tax. A demand-cum-legal warning was issued dated March 9, 2018, requesting payment of Rs.5, 54, 14,318/- from the appellant as owed under an asserted Consultancy Agreement dated July 7, 2014.
- The appellant disputed compliance of the agreement and so asserted that the case could not be sent to arbitration. The respondent then requested the appointment of a sole arbitrator under Section 11(6) of the 1996 Act. The respondent was ordered by the Delhi High Court to submit the original of the Consultancy Agreement in a letter.
- The reality that the department communicated information to the respondent regarding the award of the contract to the respondent was also sent to the appellant via email on September 22, 2014, further supports the conclusion that the parties had reached an agreement. The appellant sent the respondent an email on the same day that the department submitted a draught letter of acceptance to the appellant via email dated September 25, 2014.
Judgment:
- The appellant’s materials plainly show that the parties had entered into an Arbitration Agreement, as evidenced by the draught agreement exchanged via email on July 7, 2014. The current instance comes firmly within the scope of the Act’s Section 7(4) (b). As a result, the parties’ conflicts will inevitably be referred to arbitration for resolution.” As a result, former Delhi High Court Judge, Justice G.S. Sistani was chosen as the only arbitrator to resolve the dispute between the parties.
- The court may exert judicial discretion to perform an intensive yet prima facie review for valid reasons, such as preventing waste of public and private resources, while keeping in mind that it is to aid the arbitration procedure and not to usurp jurisdiction of the Arbitral Tribunal. At the referral stage, conducting a comprehensive full review or a lengthy review would hinder and delay the process, undermining the integrity and efficacy of arbitration as a dispute settlement method. On the other hand, if the court becomes too hesitant to act, both the arbitration and the court’s efficacy may suffer. In some circumstances, a preliminary assessment necessitates more investigation.
- When it emerges that a prima facie review would be ambiguous or, on reflection, insufficient because it requires further analysis, the subject should be sent to an Arbitral Tribunal chosen by the parties by consent to make a final decision. The fundamental objective is to avoid unnecessary delays and deferrals, as well as to deter parties from using referral proceedings as a ploy to prolong and obstruct. In such situations, a complete review by the courts at this point would infringe on the Arbitral Tribunal’s jurisdiction and contravene the legislative framework that divides jurisdiction between the courts and the Arbitral Tribunal.
Critical analysis:
- This is the sole case of its sort in which the parties are said to have accepted an officially signed agreement before engaging in negotiations and referring to a draught agreement. The fact that conversations were placed after such an apparent agreement demonstrates that such an alleged agreement did not exist.
- The Commission has suggested changes to Sections 8 and 11 of the Arbitration and Conciliation Act of 1996 in this regard. The scope of judicial involvement is limited to instances in which the court/judicial body determines that the arbitration agreement does not materialize or is invalid.
- In order to specify that the High Court or the Supreme Court shall evaluate the presence of a prima facie arbitration agreement and not other considerations while evaluating any application for designation of arbitrator.