Judicial Authority Under Section 45 of the A&C Act Must Send Parties to Arbitration Unless the Agreement Is Invalid, Not Active, or Cannot Be Carried Out: Delhi High Court.
The Delhi High Court stated that when looking at an application under Section 45 of the Arbitration & Conciliation Act, a court must refer the parties to arbitration if either party requests it, unless the court finds that the agreement is clearly ‘null’ and ‘void’, ‘inoperative’, or ‘impossible to perform’. The first Defendant asked the High Court to dismiss the suit and send the disputes to arbitration in Benin, based on the arbitration agreement in Article 11 of the Buyer Seller Agreement between the Plaintiff and the Defendant. Justice Dinesh Kumar Sharma from the Single-Judge Bench explained, “Section 45, found in Part II of the Arbitration Act, requires courts to send parties to arbitration if there is an agreement. The only exceptions are if the court believes the agreement is (a) null and void; (b) inoperative; or (c) impossible to perform.”
The Defendant approached the Plaintiff with a business proposal to produce and sell Cottonseed Cakes (Product) in Benin. The first to third Defendants, numbered 1 to 3, are part of a group of companies owned by Tropical General Investments Ltd., Nigeria (TGI, Nigeria). The Plaintiff and Defendant No. 1 signed an Agreement. During the COVID-19 pandemic, the first defendant began suggesting the removal of the plaintiff’s exclusive rights. The first defendant was permitted to sell to others, as long as they prioritized the Plaintiff’s orders. However, the first defendant later reduced supplies to the Plaintiff, claiming external issues, even though there was enough stock available. This led to disputes over product supply and financial responsibilities, prompting the plaintiff to issue a termination notice. Due to the defendants’ actions, which included criminal breach of trust, conspiracy, fraud, and cheating, the Plaintiff filed a First Information Report (FIR) under various sections of the Indian Penal Code, 1860 against the Defendants.
Defendant No. 1 started an arbitration in Benin, following the arbitration clause that asked the plaintiff to choose an arbitrator. The plaintiff went to the High Court to get a permanent order stopping defendant No. 1 from continuing with the arbitration in Benin. The plaintiff argued that the arbitration was troublesome since the arbitration clause in the sales agreements stated that India was the place for arbitration. The plaintiff claimed these agreements were part of the main agreements, the BSA and Addendum, which should not be considered as they are separate agreements between different parties.
After reviewing the arbitration clauses of the BSA and Addendum, the Bench found that both the plaintiff and defendant No. 1 had willingly chosen Benin as the arbitration location. The Bench stated that arbitration would be the way to resolve any disputes between the parties involved in the BSA and Addendum. It was noted that the agreements between defendants No. 2 and 3 and the plaintiff were distinct from the BSA and Addendum. The Bench referred to Section 45, which requires courts to send parties to arbitration if there is an agreement. The Bench concluded that all conditions of Section 45 were met in this case. The plaintiff’s main claim was that the arbitration would be troublesome, unfair, and unjust, but the Bench pointed out that these reasons were not applicable under Section 45.
The Bench noted that the principle of minimal judicial interference found in Article 5 of the UNCITRAL Model Law is reflected in Section 5 of the A&C Act. It stated, “When one party initiates arbitration due to an existing arbitration agreement, Section 5 of the A&C Act, as a non-obstante clause, clearly indicates that there should be no judicial intervention at that point that would disrupt the arbitration process. This section prevents judicial review of procedural choices made by the arbitral tribunal during ongoing arbitration. However, it does not completely eliminate the possibility of judicial intervention in arbitration matters.” The High Court determined that the disputes should be resolved according to the chosen forum of the parties, specifically under Article 11 of the BSA and its arbitration clause. Additionally, the Agreements were not invalid, void, or incapable of being executed, as the Plaintiff did not challenge the validity of the BSA and Addendum.
The Bench emphasized the factors the court must consider when reviewing an application under Section 45. It stated, “When evaluating an application under Section 45 of the A&C Act, a judicial authority must refer the parties to arbitration if requested by either party, unless it finds that the agreement is clearly null, void, or incapable of being performed.” The Bench clarified that the BSA and Addendum between the plaintiff and defendant no. 1 are distinct agreements related to the same transactions, and confirmed that the arbitration clauses are valid, enforceable, and accepted by both parties.
The court accepted the defendant’s request and rejected the plaintiff’s case. The Bench stated, “This Court believes that disputes from transactions linked to the BSA and its addendum are covered by these agreements and should be settled using the dispute resolution methods outlined in them. Since the HSSAs and sales contracts are separate transactions, arbitration cannot occur under the terms in the HSSAs and sales agreements.” Since the award had already been issued, the Bench allowed the plaintiff to seek appropriate remedies as per the Buyer Seller Agreement and Addendum according to the law.
Cause Title: Balaji Steel Trade v. Fludor Benin S.A. & Ors. Neutral Citation: 2024:DHC:8711]
