Author: Muskaan Bangani, 4th Year student at Mody University of Science and Technology.
Date of decision: 8th February, 2021
Bench: Prathiba M. Singh
Original copy: N/A
- The petitioner , Jeph Bev Private Limited & Ors and the respondent no 3. Barista Coffee Company Limited (BCCL) had entered into an agreement that on 17th January, 2017 that any dispute arising from the agreement to be referred to the Delhi International Arbitration Center at the High Court of Delhi, as per the Delhi International Arbitration Centre (Arbitration Proceedings) Rules, 2018 according to an Arbitration clause “U” of the said agreement.
- On 18th September, 2018, the petitioner withdrew the agreement due to the dispute between the parties. Thereafter, the respondent filed its claim before the DIAC and initiated arbitration proceedings for the adjudication of the disputes.
- Subsequently, the petitioner challenged the application filed by the respondent by arguing that they have approached the Micro & Small Enterprises Facilitation Council (MSEFC) under the Micro, Small and Medium Enterprises Development Act, 2006 as the invocation of Arbitration is premature as it little or no jurisdiction of DIAC under Section 18(1), Section 18(4) and Section 24 of the MSMED Act.
- After observing the disputing statement, the DIAC Co-ordinator had communicated the petitioner that its objections have been rejected on the ground that the petitioner cannot claim the benefits under the MSMED Act.
- Mr. Vivek Chib,. counsel for the petitioners submitted that the DAIC Coordinator had himself decided the objections raised by the petitioners. Thus, in his submission, it is contrary to the 2018 Rules. Furthermore, he submits that the statement given by the Coordinator shows that the matter had not been placed before the Chairperson. The submission of the coordinator that the jurisdiction of the DIAC had been invoked is contrary to the scheme of the MSMED Act.
- Mr. Mahendru, counsel appearing for the respondent No. 3, submitted that MSMED Act is not applicable, as the Claimant had not registered in Micro, Small or Medium Enterprise under the said Act. Further, the counsel submitted that the intention of the petitioners is to deliberately delay the arbitration proceedings.
- Mr. Jayant Mehta, counsel appearing for the DIAC had produced its argument, and submitted that the Chairperson had approved the communication issued by the Coordinator and it was only after that the order No. DAC/2601/20-19, as well as the communication dated 16th February 2020 and 19th January 2021, had been sent to the petitioners.
Whether Rule 20 of the Delhi International Arbitration Centre (Arbitration Proceedings) Rules, 2018 can be equated with Section 16 of the Arbitration and Conciliation Act, 1996?
The high court of delhi
- Rule 20 of the 2018 Rules had been incorporated as part of the institutional arbitral mechanism in the DIAC to ensure that cases which prima facie do not fall within the scope of the Agreement, can be terminated at that stage itself. There are some commentaries of the opinion that an Arbitral Institution’s examination of jurisdiction, if present in the rules, prior to the constitution of the Tribunal, is at beginning stage, then the rejection of the objection does not even require a reasoned decision. The determination by the arbitral institution is not on the substantive dispute as to jurisdiction.
- In International Commercial Arbitration: An Asia-Pacific Perspective, the authors, while examining the provisions of examination of jurisdictional claimed by Arbitral Institutions, before the formation of Arbitral Tribunals, have opined that:
‘’The rules of some arbitral institutions expressly permit the institution to examine the prima facie existence of an arbitration agreement before the arbitral tribunal does so. If there is clearly no arbitration agreement, the case is dismissed. Conversely, if the institution finds prima facie that jurisdiction exits, then the arbitral tribunal may decide jurisdiction after hearing full argument on the issue’’
- The DIAC, when exercising its authority under Rule 20.1, firstly, should see whether it has been chosen by the parties as the arbitral institution for adjudication of disputes or not. The rule deals with `competence of the DIAC’ which is to administer and not to adjudicate. Additionally, DIAC had to present the challenges that were discussed with the DIAC Chairperson. In accordance with the Arbitration and Conciliation Act, 1996, the chairperson is not required to make a determination of jurisdiction in the circumstances described. The Chairperson has to simply examine the concerns presented, and adopt a prima facie opinion in the case. As long as the final decision is authorised by the Chairperson, it is acceptable for the Coordinator of the centre to have already received the objections, answers, and put a note for the Chairperson’s approval. Rule 20.1 does not contemplate a detailed adjudication of the objection as to jurisdiction. Section 16 of the Arbitration and Conciliation Act, 1996 will henceforth be replaced by Rule 20 of the 2018 Rules of the DIAC.
- Therefore, the court is of the opinion that there is no infirmity in the decision and the communications made by DIAC to the party. Accordingly, the present petition is dismissed. The DIAC may further proceed and constitute the Tribunal in accordance with the 2018 Rules.
- In this case, Even though the contract’s arbitration clause states that the disputes are to be referred to the DIAC and the arbitration is to be conducted as per the DIAC rules, there is no question that the disputes will be brought before the DIAC and the arbitration will be carried out in accordance with DIAC rules.
- To bring concerns related before jurisdiction to the Arbitral Tribunal after it is formed and have the case judged under law, such objections should be made beforehand. The Chairperson’s view on Rule 20.1 will have no impact on the jurisdictional concerns, which are decided solely by the Arbitral Tribunal.