Arbitration In IndiaSpecific Excepted Matters in the Arbitration Clause are Non-Arbitrable in Nature

The Delhi High Court in Sorin Group Italia SRL v. Neeraj Garg [CS(COMM) 92/2020 & IA 2712/2020(O-XXXIX R-1 &2 of CPC), IA 1795/2021(O-XXXVII R-3(5) of CPC) decided on 28.10.2022 held that the parties can keep certain matters out of the purview of the Arbitration Clause which would be non-arbitrable in nature.

FACTS

Sorin Group Italia SRL (hereinafter referred to as the “Plaintiff”) entered into a Sole Distribution Agreement (hereinafter referred to as the “Agreement”) with Mr. Neeraj Garg (hereinafter referred to as the “Defendant”) on 01.07.2017.

The Defendant placed an order for purchase of goods from the Plaintiff. The Plaintiff supplied the goods and raised three invoices against the purchase order. The Defendant failed to make the full payment in terms of the invoices, and consequently, the Plaintiff filed the present suit for recovery of USD 3,08,203.45/- along with pendent lite and future interest under Order XXXVII of the Civil Procedure Code, 1908 (hereinafter referred to as the “CPC”).

The Defendant initially filed an application under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “A&C Act”) seeking leave to defend, which was subsequently withdrawn by the Defendant and further filed an application under Section 45 of the A&C Act.

ISSUE BEFORE THE HIGH COURT

Whether the suit for recovery is maintainable while there already exists an Arbitration Clause in the Agreement?

CONTENTION OF THE PARTIES

The Defendant submitted that the dispute raised in the present suit is squarely covered by the Arbitration Clause of the Agreement, i.e. Clause 15.2 of the Agreement, and hence, the parties shall refer to Arbitration under Section 45 of the A&C Act.  Furthermore,   the suit involved dispute regarding the claims for compensation and non-extension of Agreement and it is squarely covered by the Arbitration Clause of the Agreement.

The Defendant argued that the proviso to Clause 15.2(b)  of the Agreement permits filing of case only when an injunctive relief is claimed and hence, the present suit was not maintainable. According to the Defendant, there was a counter claim against the Plaintiff,  which would also be covered under the Arbitration Clause of the Agreement. Moreover, the Defendant sent a legal notice to the Plaintiff invoking arbitration, which was not replied by the Plaintiff. Thus, the Defendant contended that the suit was not maintainable as the dispute was arbitrable in nature.

The Plaintiff submitted that the Arbitration Clause of the Agreement only included disputes arising out of termination of the contract, grounds for termination, potential claims for indemnifications or compensation, and hence, the present dispute is not covered under the clause.

The Plaintiff argued that  that the present suit was regarding the pending amount payable towards the invoices and hence, it is covered by the proviso Clause 15.2(b).

It was also contended by the Plaintiff that the proviso to Clause 15.2(b)does not restrict itself to injunctive relief, but also is applicable for recovery of money as in the present suit.

Thus, the Plaintiff contended that the Defendant was at the liberty to invoke arbitration, but that would be independent to the on-going suit.

DECISION AND FINDINGS

The Delhi High Court referred to Section 45 of the A&C Act and relied on Vidya Drolia and Ors. v. Durga Trading Corporation [(2021) 2 SCC 1], where the Supreme Court had observed that the Arbitral Tribunal has the authority to decide on arbitrability of a dispute, but a limited power has also been conferred on the Civil Courts for the review to check and protect the parties where the dispute is non-arbitrable.

The High Court further placed reliance on the case of Indian Oil Corporation Limited v. NCC Limited [(2022) SCC OnLine SC 896], where the Supreme Court had held that the parties can provide for the matters in the Arbitration Clause, to be kept out of the purview of the Arbitration as  “excepted matter” and hence, the Arbitration Tribunal will not have the jurisdiction to adjudicate those matters.

Reliance was also placed on  Sancorp Confectionary Pvt. Ltd. & Anr. v. M/s Gumlink A/S [(2012) SCC OnLine Del 5507],  the Delhi High Court had prima facie decided the existence of an Arbitration clause and arbitrability of the disputes.

The High Court observed that only when the disputes regarding termination or grounds of termination (including expiration) would arise, it would be covered under the Arbitration Clause. The High Court also observed that the present dispute was regarding the recovery of amount of the unpaid invoices, and hence, it was not covered under the ambit of the Clause 15.2(a).

The High Court opined that  that the proviso to Clause 15.2(b) clearly stated that the Plaintiff could file recovery and injunction suits before the competent courts in India  and hence, the recovery suit is maintainable.

It was held that it was no more a res integra that the parties choice is supremacy in Arbitration and in the present case,  parties have consciously chosen different mechanisms for different disputes redressal. Thus, the  High Court held that the present dispute of the recovery of amount of unpaid invoices fall under “excepted matters” and hence, is non arbitrable in nature.  and as the the dispute was covered under the proviso to Clause 15.2(b) hence, the suit was maintainable.

AMLEGALS REMARKS

The Delhi High Court has clearly reflected the intent of the Arbitration, which is supremacy of the parties. The arbitrability of the disputes is limited to the scope of the Arbitration Clause of the Agreement, and when the specific matters are kept outside the scope of the Arbitration Clause, they are non-arbitrable in nature. The parties have the liberty to keep certain disputes specifically out of the purview of the Arbitration which are also called “excepted matters”. The Delhi High Court has upheld the party autonomy which forms the basis of Arbitration, where the parties mutually decide the dispute resolution mechanism for different disputes.