Delhi High Court
Chem Academy Pvt. Ltd vs Praveen Malik on 4 August, 2022
$~3
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 04th August, 2022
+ ARB.P. 656/2022
CHEM ACADEMY PVT. LTD ..... Petitioner
Through: Mr. Murari Tiwari, Mr. Rahul
Kumar & Ms. Sakshi Agrawal,
Advocates.
versus
PRAVEEN MALIK ..... Respondents
Through: Mr. Lakshay Joshi, Advocate.
CORAM:
HON'BLE MR. JUSTICE PRATEEK JALAN
PRATEEK JALAN, J. (ORAL)
%
1. By way of this petition under Section 11 of the Arbitration and
Conciliation Act, 1996 ["the Act"], the petitioner seeks appointment
of an arbitrator to adjudicate the disputes between the parties under the
"Faculty Agreement" dated 08.09.2021 ["the Agreement"]. By way of
the said Agreement, the respondent was appointed as a member of
faculty of the petitioner's institution which offers online and offline
classes to students.
2. Notice of the petition was issued on 27.05.2022. Mr. Lakshay
Joshi, learned counsel, has entered appearance on behalf of the
respondent. Although the respondent has failed to file a reply to the
petition pursuant to the liberty granted by the order dated 27.05.2022,
Mr. Joshi sought to resist the petition on the grounds discussed in
Signature Not Verified Signature Not Verified
Digitally Signed By:SHITU Digitally Signed
NAGPAL
Signing Date:11.08.2022 By:PRATEEK JALAN
detail later in this judgment.
3. Mr. Murari Tiwari, learned counsel for the petitioner, submits
that the respondent was appointed to the faculty of the petitioner-
institute at a salary of approximately ₹2.50 lakhs per month with effect
from 08.09.2021. He draws my attention to clause 1.4 of the aforesaid
Agreement under which the respondent undertook not to leave the
employment of the petitioner for a period of two and a half years [the
initial tenure of the Agreement] i.e. until 08.03.2024, except if his
emoluments were not paid for a period of three months. The
Agreement also includes provisions with regard to Intellectual
Property Rights [Section 4], Confidentiality [Section 5] as well as
Non-Compete and Non-Solicitation provisions [Section 6].
4. Mr. Tiwari also draws my attention to clause 11 of the
Agreement, which contains an arbitration clause in the following
terms:-
"11. ARBITRATION AND DISPUTE RESOLUTION
11.1 In case of any dispute or difference between the
"FIRST PARTY/Company/Employer" and the "SECOND
PARTY/Faculty/Employee" regarding payment or non-
payment of any claim (s), tenure of services, transfer of
"Faculty's, termination of services, compensation and any
other dispute arising out of or relating to the contract
/agreement whether arising during the services or
thereafter shall be referred to the sole arbitrator being
Director, Business and Legal Affairs of "Company". If the
arbitrator to whom the matter is originally referred to is
unable to perform his duties or refused to act for any
reason whatsoever, the "Company" as aforesaid at the
time of such inability to act, shall appoint any other person
to act as an arbitrator in accordance with the terms and
Signature Not Verified Signature Not Verified
Digitally Signed By:SHITU Digitally Signed
NAGPAL
Signing Date:11.08.2022 By:PRATEEK JALAN
conditions of this agreement. Such person shall be entitled
to proceed with the reference from the stage at which it
was left by his predecessor, if both the parties consent to
this effect, failing which the newly appointed Arbitrator
will be entitled to proceed Dinovo.
The proceedings shall be conducted at New Delhi
subject to the provisions of Arbitration & Conciliation Act
1996 and the courts at Delhi only shall have jurisdiction
over the matter.
11.2 The "Faculty" has read and understood the terms &
conditions of the agreement from clause here and above 1
to 10 and has received a copy of the same. The "Faculty"
hereby undertakes to abide by the Salary Terms offered by
the "Company" & the conditions as given in the
agreement, which has been clearly read and understood by
him and has agreed to abide by the same."1
5. According to the petitioner, the respondent resigned from the
services of the company in December, 2021, and also commenced a
rival business. The petitioner, through counsel, addressed a legal
notice dated 29.12.2021 to the respondent. In the legal notice, the
petitioner has made allegation of breach of the terms and conditions of
the Agreement by the respondent, an allegation of defamation of the
petitioner's institute on social media and also alleged breach of the
non-compete and non-solicitation clauses. The petitioner therefore
claimed a sum of ₹2.5 crores from the respondent.
6. As the aforesaid notice failed to elicit a response, the petitioner
served a further legal notice dated 23.02.2022 broadly on the same
terms and also invoked the arbitration clause. The petitioner proposed
the name of the arbitrator and called for the consent of the respondent.
Sic.
Signature Not Verified Signature Not Verified
Digitally Signed By:SHITU Digitally Signed
NAGPAL
Signing Date:11.08.2022 By:PRATEEK JALAN
The respondent, through counsel, addressed a response dated
21.03.2022 to the learned counsel for the petitioner, in which the
respondent took exception to the appointment of an arbitrator
unilaterally by the petitioner. It was also alleged that the invocation of
arbitration is intended only to harass the respondent. The respondent
further declined consent to appointment of the proposed arbitrator.
7. It is in these circumstances that this petition under Section 11 of
the Act has been filed.
8. Mr. Joshi resists the appointment of an arbitrator on the ground
that the relief sought by the petitioner is in respect of defamation
which, he contends, is non-arbitrable. He draws my attention to the
order of the Madras High Court in Srividya Krishna vs. Lakshmi
Mukilan2 in this connection.
9. As far as the scope of jurisdiction under Section 11 of the Act is
concerned, Mr. Joshi submits that, consistent with the judgments of
the Supreme Court in Booz Allen and Hamilton Inc. vs. SBI Home
Finance Limited and Others3 and DLF Home Developers Limited vs.
Rajapura Homes Private Limited and Another4, this Court would
decline to exercise jurisdiction in the event any of the claims is prima
facie non-arbitrable.
10. Having heard learned counsel for the parties, I do not find any
force in Mr. Joshi's contentions as above.
11. A three-judge bench of the Supreme Court has, in Vidya Drolia
Order dated 31.07.2018 in Original Petition No. 279/2018
(2011) 5 SCC 532
2021 SCC OnLine SC 781 [Arbitration Petition (Civil) 17/2020, decided on 22.09.2021]
Signature Not Verified Signature Not Verified
Digitally Signed By:SHITU Digitally Signed
NAGPAL
Signing Date:11.08.2022 By:PRATEEK JALAN
and Others vs. Durga Trading Corporation5, crystallized the scope of
inquiry in applications under Section 11 of the Act. With regard to
questions of arbitrability, the Court has held as follows:-
"154. Discussion under the heading "Who Decides
Arbitrability?" can be crystallised as under:
154.1. Ratio of the decision in Patel Engg. Ltd. [SBP &
Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] on the scope
of judicial review by the court while deciding an
application under Sections 8 or 11 of the Arbitration Act,
post the amendments by Act 3 of 2016 (with retrospective
effect from 23-10-2015) and even post the amendments
vide Act 33 of 2019 (with effect from 9-8-2019), is no
longer applicable.
154.2. Scope of judicial review and jurisdiction of the
court under Sections 8 and 11 of the Arbitration Act is
identical but extremely limited and restricted.
154.3. The general rule and principle, in view of the
legislative mandate clear from Act 3 of 2016 and Act 33
of 2019, and the principle of severability and
competence-competence, is that the Arbitral Tribunal is
the preferred first authority to determine and decide all
questions of non-arbitrability. The court has been
conferred power of "second look" on aspects of non-
arbitrability post the award in terms of sub-clauses (i),
(ii) or (iv) of Section 34(2)(a) or sub-clause (i) of Section
34(2)(b) of the Arbitration Act.
154.4. Rarely as a demurrer the court may interfere at
Section 8 or 11 stage when it is manifestly and ex facie
certain that the arbitration agreement is non-existent,
invalid or the disputes are non-arbitrable, though the
nature and facet of non-arbitrability would, to some
(2021) 2 SCC 1
Signature Not Verified Signature Not Verified
Digitally Signed By:SHITU Digitally Signed
NAGPAL
Signing Date:11.08.2022 By:PRATEEK JALAN
extent, determine the level and nature of judicial scrutiny.
The restricted and limited review is to check and protect
parties from being forced to arbitrate when the matter is
demonstrably "non-arbitrable" and to cut off the
deadwood. The court by default would refer the matter
when contentions relating to non-arbitrability are
plainly arguable; when consideration in summary
proceedings would be insufficient and inconclusive;
when facts are contested; when the party opposing
arbitration adopts delaying tactics or impairs conduct of
arbitration proceedings. This is not the stage for the
court to enter into a mini trial or elaborate review so as
to usurp the jurisdiction of the Arbitral Tribunal but to
affirm and uphold integrity and efficacy of arbitration as
an alternative dispute resolution mechanism."6
The same view has been taken in DLF Home Developers Limited7. In
a concurring opinion, N.V. Ramana, J. formulated the principles
thus8:-
"244. Before we part, the conclusions reached, with
respect to Question 1, are:
244.1. Sections 8 and 11 of the Act have the same
ambit with respect to judicial interference.
244.2. Usually, subject-matter arbitrability cannot be
decided at the stage of Section 8 or 11 of the Act, unless
it is a clear case of deadwood.
244.3. The court, under Sections 8 and 11, has to refer
a matter to arbitration or to appoint an arbitrator, as the
case may be, unless a party has established a prima facie
(summary findings) case of non-existence of valid
Emphasis supplied.
Supra (note 4)
In Vidya Drolia
Signature Not Verified Signature Not Verified
Digitally Signed By:SHITU Digitally Signed
NAGPAL
Signing Date:11.08.2022 By:PRATEEK JALAN
arbitration agreement, by summarily portraying a strong
case that he is entitled to such a finding.
244.4. The court should refer a matter if the validity of
the arbitration agreement cannot be determined on a
prima facie basis, as laid down above i.e. "when in
doubt, do refer".
244.5. The scope of the court to examine the prima
facie validity of an arbitration agreement includes only:
244.5.1. Whether the arbitration agreement was in
writing? or
244.5.2. Whether the arbitration agreement was
contained in exchange of letters, telecommunication,
etc.?
244.5.3. Whether the core contractual ingredients
qua the arbitration agreement were fulfilled?
244.5.4. On rare occasions, whether the subject-
matter of dispute is arbitrable?"9
The aforesaid principles have been reiterated in two decisions
rendered earlier this year - Mohammed Masroor Shaikh vs. Bharat
Bhushan Gupta and Others10 and Indian Oil Corporation Limited vs.
NCC Limited11.
12. The judgment in Booz Allen and Hamilton Inc.12, cited by Mr.
Joshi, also clearly holds13 that in an application under Section 11 of
the Act, questions of arbitrability or appropriateness of adjudication by
a private forum should rarely be gone into once the existence of the
arbitration agreement is established. To this extent, the judgment is, in
Emphasis supplied.
(2022) 4 SCC 156
2022 SCC OnLine SC 896 [Civil Appeal No. 341 of 2022, decided on 20.07.2022]
Supra (note 3)
Paragraph 32
Signature Not Verified Signature Not Verified
Digitally Signed By:SHITU Digitally Signed
NAGPAL
Signing Date:11.08.2022 By:PRATEEK JALAN
fact, against the respondent herein. The discussion in the said
judgment, albeit in context of Section 8 of the Act, also does not deal
specifically with the question raised by Mr. Joshi regarding
arbitrability of a claim arising out of an allegation of defamation.
13. The order of the Madras High Court in Srividya Krishna14 is
also not applicable. Leaving aside the question of whether a claim in
defamation can at all be arbitrable in any circumstances, I find that the
principal claim in the present case arises out of an allegation of breach
of contract, and not in the tortious realm of defamation. Mr. Tiwari
has drawn my attention to the specific clauses of the contract which
deal with tenure, the lock-in period, as well as the non-compete and
non-solicitation clauses. It is of course open to the respondent to resist
the claims on all grounds, including those relating to the validity of
these contractual stipulations. However, that does not per se render the
claims non-arbitrable. Indeed, it indicates the existence of the disputes
which requires reference to arbitration in terms of the mechanisms
specified in the contract itself.
14. As held in the aforesaid judgments, these questions are best left
to the arbitrator to decide except in a situation where on a reading of
the facts of the case, the Court comes to the view that the claim is ex-
facie non-arbitrable. In such circumstances, the Supreme Court has
held that the Court would be entitled to decline appointment of an
arbitrator in an effort to "cut the deadwood". I am unable to accede to
Mr. Joshi's submission that the present case falls within this narrow
category of cases where the claim is ex-facie non-arbitrable or that the
Supra (note 2)
Signature Not Verified Signature Not Verified
Digitally Signed By:SHITU Digitally Signed
NAGPAL
Signing Date:11.08.2022 By:PRATEEK JALAN
appointment of the arbitrator ought to be declined on the grounds
mentioned in the aforesaid judgments of the Supreme Court.
15. For the aforesaid reasons, the petition succeeds and is disposed
of with the following directions:-
a. Mr. Ramesh Singh, Senior Advocate [Tel: 9810071712] is
appointed as the arbitrator to adjudicate the disputes between
the parties under the Agreement dated 08.09.2021.
b. At the suggestion of learned counsel for the parties, it is
directed that the arbitration will be held under the aegis of the
Delhi International Arbitration Centre, Delhi High Court,
Shershah Road, New Delhi-110503.
c. The learned arbitrator is requested to make a declaration in
terms of Section 12 of the Act prior to entering upon the
reference.
d. The remuneration of the learned arbitrator will be computed in
terms of Schedule IV of the Act.
16. It is made clear that the rights and contentions of the parties are
left open, including any plea raised by the respondent as to the
arbitrability of any particular claim made before the learned arbitrator.
PRATEEK JALAN, J
AUGUST 4, 2022
'pv'
[corrected and released on August 11, 2022]
Signature Not Verified Signature Not Verified
Digitally Signed By:SHITU Digitally Signed
NAGPAL
Signing Date:11.08.2022 By:PRATEEK JALAN
