Judicial review at the stage of Section 11 of the A&C Act is only for a preliminary check to see if an arbitration agreement exists, according to the Supreme Court.
The Supreme Court decided that the 2015 change to the Arbitration & Conciliation Act, 1996 restricts judicial review at the Section 11 stage to just checking if an arbitration agreement exists. The Court overturned a decision from the Bombay High Court because it had conducted a thorough review of the facts. The Bench, which included Chief Justice D.Y. Chandrachud, Justice J.B. Pardiwala, and Justice Manoj Misra, emphasized that the limited power of referral Courts under Section 11 should not be exploited by parties to force others into a lengthy and expensive arbitration process. This could happen when a claimant tries to pursue claims that are either non-existent or made in bad faith through arbitration.
The Supreme Court was reviewing an appeal against a Bombay High Court ruling that rejected Goqii Technologies Private Limited’s request under Section 11 of the Arbitration and Conciliation Act, 1996. The request was for the appointment of an arbitrator to resolve disputes related to the Master Services Agreement (MSA) between Goqii and Sokrati Technologies Private Limited. Goqii, a tech-based wellness company offering lifestyle consultancy, had signed the MSA with Sokrati, a subsidiary of Dentsu International Limited, to handle its digital advertising. The MSA was later extended for three years with some changes. Goqii then found out that the Economic Offences Wing in Mumbai had filed a complaint against Dentsu International, accusing it of serious misconduct in its services.
The appellant later hired an independent auditor to review the respondent’s activities. The audit revealed major issues in the media plan, estimating an overcharge of more than Rs 4.48 crore. Based on these findings, the respondent issued a demand notice to the appellant under Section 8 of the Insolvency and Bankruptcy Code, 2016 (IBC), requesting Rs 6,25,67,060 for unpaid invoices. The appellant, citing the audit results, rejected this demand and invoked the arbitration clause in the MSA. Additionally, the appellant filed a counterclaim for a refund of Rs 5,53,26,690 and an extra Rs 6 crore. While this application was pending, the respondent submitted a Company Petition under Section 9 of the IBC to start the corporate insolvency resolution process for the appellant.
Later, when the respondent did not respond to the arbitration notice, the appellant filed a Commercial Arbitration Application in the High Court to appoint a sole arbitrator, but this request was denied. The High Court believed that while the report pointed out poor returns on investment and inconsistent metrics, it did not support the appellant’s claims of fraudulent behavior by the respondent. Upset by this decision, the appellant took the matter to the Top Court. A key issue for the Bench was whether the High Court made a mistake in rejecting the appellant’s application under Section 11 of the Act, 1996. Citing its previous rulings regarding the relationship between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899, as well as SBI General Insurance Co. Ltd. vs. Krish Spinning [2024 INSC 532], the Bench stated, “The inquiry under Section 11 of the Act, 1996 is limited to determining the prima facie existence of an arbitration agreement. In this case, the High Court went beyond this limited scope by conducting a thorough examination of the facts.”
The Bench believed that the High Court mistakenly examined the auditor’s report in detail and rejected the arbitration application. It stated, “This approach does not align with the legislative intent of the 2015 amendment to the Act, 1996, which restricts judicial review at the Section 11 stage to a basic determination of whether an arbitration agreement exists.” The Bench also recommended, “To balance the limited judicial interference by referral Courts with the interests of parties involved in arbitration, the Arbitral Tribunal could decide that the costs of arbitration be paid by the party found to have misused the legal process and caused unnecessary trouble to the other party.” The Bench appointed former Chief Justice of the Punjab & Haryana High Court S.J. Vazifdar as the sole arbitrator to resolve the disputes and allowed the appeal, overturning the Bombay High Court’s order. The Court clarified that the Arbitral Tribunal can address whether a valid dispute exists for arbitration as a preliminary matter.
Cause Title: Goqii Technologies Private Limited vs. Sokrati Technologies Private Limited [Neutral Citation: 2024 INSC 853]
Appearance:
Petitioner: Advocate Rishi Matoliya
Respondent:Advocate Vineet Dwivedi
