Delhi High Court
Hero Moto Corp Ltd vs Upper India Trading Co Delhi Pvt ... on 25 March, 2022
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Reserved on: March 11, 2022
Decided on: March 25, 2022
+ ARB.P. 783/2021
HERO MOTO CORP LTD. ..... Petitioner
Represented by: Ms. Sangeeta Sondhi, Ms. Ruchi
Gour Narula & Mr. Gorang Goyal,
Advocates.
versus
UPPER INDIA TRADING CO. (DELHI) PVT LTD & ORS.
..... Respondent
Represented by: Mr. Jaswinder Singh, Advocate.
CORAM:
HON'BLE MS. JUSTICE MUKTA GUPTA
1. By this petition under Section 11(6) of the Arbitration and
Conciliation Act, 1996 (in short, the Act), petitioner seeks appointment of a
Sole Arbitrator in terms of Clause 23.16 of the Dealership Agreement dated
15th February 2018.
2. According to the petitioner, the petitioner is a manufacturer of two-
wheelers/spares and entered into a dealership arrangement with respondent
No. 1 which sells two wheelers on retail basis and services the same, vide
agreement dated 17th February 2003. The said authorized dealership
agreement was renewed on 15th February 2018. The respondent Nos. 2 and
3 being the Directors of respondent No. 1 stood as guarantors to the
dealership arrangement vide the Guarantee Deeds dated 31st December
2005. The respondents defaulted in payments for goods purchased by the
respondent No. 1 and despite initiation of negotiations and discussions to
Signed By:JUSTICE MUKTA
GUPTA
Signing Date:25.03.2022
18:38:34
amicably resort the disputes, the disputes could not be resolved and despite
assurances, including expressly assuring repayments inter alia vide their
letters dated 29th May 2019, 13th March 2020 and email dated 17th July 2020
and the balance confirmation letter dated 1st October 2020, the respondents
failed to make the payments. Further, to the petitioner's knowledge, some of
the properties of the respondents were sold/attached as dues of other parties
were not satisfied by the respondents. The petitioner thus invoked
arbitration as per the agreement vide its notice dated 12th October 2020 to
which the respondents replied vide letter dated 17th November 2020.
3. In the reply dated 17th November 2020, the plea taken by the
respondents was that the notice invoking arbitration was contrary to the
arbitration clause, premature and in contravention of Clause 23.16(a) of the
agreement as the petitioner sought arbitration without resorting to the
process of negotiation/consultation. It was also stated that the amount of
₹3.24 Crores claimed from the respondents was totally imaginary and
denied. It was claimed that though the respondents purchased vehicles from
the petitioner but often, there were delays in the supplies resulting in
financial losses to the respondents and the respondents were in the process
of making an assessment of the losses occasioned due to the acts and
omissions and will quantify the same and shall send a separate notice to the
petitioner in this regard. However, till date, no notice has been sent by the
respondents to the petitioner.
4. The three grounds urged for dismissal of the petition before this Court
by learned counsel for the respondent were; (1) the respondent Nos. 2 and 3
are not signatories to the dealership agreement dated 15 th February 2018; (2)
Signed By:JUSTICE MUKTA
GUPTA
Signing Date:25.03.2022
18:38:34
no liability on the respondent Nos. 2 and 3 can be enforced in terms of the
deed of Guarantee dated 31st December 2005 as the same was time barred;
and (3) the notice invoking arbitration dated 12 th October 2020 was
premature, therefore, no cause of action arises against the respondents.
5. Learned counsel for the respondents further states that in case, this
Court holds that an Arbitrator is required to be appointed in terms of the
Arbitration Agreement between the parties, then, he has instructions to state
that instead of three member arbitration panel, a Sole Arbitrator be appointed
as prayed for by the petitioner.
6. Admittedly, the agreement dated 17th February 2003 was entered into
with the petitioner by the respondent No. 1 as the dealer through its
authorized representative and the respondent Nos. 2 and 3 are the Directors
of the respondent No. 1. Article XXVI of the Agreement dated 17th
February 2003 reads as under:-
"ARTICLE - XXVI (Arbitration)
All disputes, controversies or differences arising out of or in
relation to or in connection with this Agreement or any breach
hereof, including interpretation hereof, shall be referred for
arbitration to the PHD Chamber of Commerce & Industry whose
decision shall be final and binding upon the parties hereto".
7. Pursuant to the dealership agreement dated 17th February, 2003, the
respondent Nos. 2 and 3 executed the deeds of Guarantee on 31st December
2005 which are not disputed by learned counsel for the respondent Nos. 2
and 3. It is also not disputed that the agreement dated 17th February 2003
was renewed and lastly, the authorized dealership agreement was executed
on 15th February 2018. Clause 23.16 of the dealership agreement dated 15th
Signed By:JUSTICE MUKTA
GUPTA
Signing Date:25.03.2022
18:38:34
February, 2018 which is now sought to be enforced by the petitioner reads
as under:-
"23.16 Arbitration and Dispute Resolution
a) Any dispute or difference between the Parties arising
out of or in connection with this Agreement, including any
question regarding its interpretation, existence,
performance, validity, or termination, either during the
term of the Agreement or at anytime thereafter, will be
settled between the Parties through friendly consultations
and negotiations.
b) If no settlement can be reached through friendly
consultations and negotiations as discussed in Article
23.16(a) of this Agreement within thirty (30) days of one
Party delivering a notice of the dispute or difference to the
other Party, then such dispute will be finally settled by
arbitration in accordance with the provisions of this
Article 23.16.
c) The arbitration proceedings will be conducted in
accordance with the provisions of the Arbitration and
Conciliation Act, 1996 ("Arbitration Act").
d) The dispute or difference will be referred to a panel of
three (3) arbitrators, one arbitrator to be appointed by
each Party and the third arbitrator to be appointed by the
two arbitrators appointed by the Parties. In the event that
either Party fails to appoint its arbitrator within fifteen
(15) days from one Party submitting a request for
appointment of such arbitrators to the other Party or the
two arbitrators appointed by the Parties fail appoint the
third arbitrator within fifteen (15) days from the date of
appointment of the second arbitrator, the single arbitrator
or the third arbitrator will he appointed in accordance
with the provisions of the Arbitration Act.
e) The arbitration proceedings will be held at New Delhi
and the language to be used in the arbitral proceedings
will be English.
f) The prevailing Party in the arbitration proceedings will
be awarded reasonable attorney's fees, if any, and all
Signed By:JUSTICE MUKTA
GUPTA
Signing Date:25.03.2022
18:38:34
other costs and expenses in relation to the arbitration
proceedings unless the arbitrators for good cause
determine otherwise".
8. It may be noted that the authorized dealership agreement dated 15th
February 2018 does not provide for reference of disputes through arbitration
to the PHD Chamber of Commerce & Industry as provided under the
agreement dated 17th February, 2003 but firstly by settlement through
friendly consultations and negotiations and if no settlement is arrived at in
terms of Article 23.16(a) of the Agreement within thirty days of one party
delivering a notice of the disputes or differences to the other party, then the
disputes are to be resolved by arbitration in accordance with the provisions
of Article 23.16.
9. Article 23.16 of the Agreement dated 15th February 2018 as noted
above, provides for a panel of three arbitrators, one arbitrator to be
appointed by each party and the third arbitrator to be appointed by the two
arbitrators and in case, either party fails to appoint its arbitrator within
fifteen days from one party submitting a request for appointment of such
arbitrators to the other party or the two arbitrators appointed by the parties
fail to appoint the third arbitrator within fifteen days of the date of
appointment of the second arbitrator, the single arbitrator or the third
arbitrator will be appointed in accordance with the provisions of the
Arbitration Act. The seat of arbitration is provided at New Delhi and thus, a
valid arbitration agreement exists between the parties and hence, this Court
has jurisdiction to entertain the present petition.
10. As regards the contention of the learned counsel for the respondents
that no negotiations have been made, the petitioner has placed on record
Signed By:JUSTICE MUKTA
GUPTA
Signing Date:25.03.2022
18:38:34
emails asking the respondents to clear the entire outstanding amounts and
that the petitioner's representative is trying to speak to the respondents,
however, no response is being received. A perusal of the emails exchanged
between the parties would reveal that repeatedly, the petitioner raised the
issue of balance payment. Though there is no admission of the liability by
the respondent, however, the communications and discussions between the
parties have not fructified leading to petitioner issuing notice invoking
arbitration. Hence, it cannot be said that the notice invoking arbitration dated
12th October 2020 is premature and the petition is liable to be dismissed on
this count.
11. The Three Judge Bench of the Hon'ble Supreme Court in a reference
to the Larger Bench reported as 2021(2) SCC 1 Vidya Drolia & Ors. vs.
Durga Trading Corporation & Ors. held that the ambit of Court's
jurisdiction at the reference stage was restricted to prima facie finding that
there exists an arbitration agreement that is not null and void, inoperative or
incapable being performed. The key rationale for holding that the Courts'
review of the arbitration agreement should be limited to a prima facie
standard is the principle of competence-competence.
12. The second plea taken by the learned counsel for the respondents is
that the respondent Nos. 2 and 3 were not signatories to the arbitration
agreement. As noted above, the first dealership agreement was entered into
between the petitioner and the respondent No. 1 on 17th February 2003
which was lastly renewed vide the dealership agreement dated 15th February
2018. Pursuant to the dealership agreement dated 17 th February 2003, the
respondent Nos. 2 and 3 executed their respective deeds of Guarantee dated
31st December 2005 for which the claim of the petitioner is that the same
Signed By:JUSTICE MUKTA
GUPTA
Signing Date:25.03.2022
18:38:34
subsists as on today which is denied by the learned counsel for the
respondents. Whether the deeds of Guarantee subsist or not, making the
respondent Nos. 2 and 3 personally liable or not, is an issue which has to be
gone into by the Arbitrator and cannot be decided in the present petition.
The period of limitation and subsistence of the deeds of guarantee in this
case would be a mixed question of fact and law to be decided by the learned
Arbitrator.
13. In view of the discussion above, this Court finds that the petitioner
has made out a case for appointment of a Sole Arbitrator in terms of Clause
23.16 of the Authorized Dealership Agreement dated 15 th February 2018.
14. Consequently, Justice S.P.Garg, a former Judge of this Court is
requested to arbitrate the disputes arising between the parties.
15. The learned Arbitrator would be entitled to charge fees as per the
Schedule IV of the Act or as agreed by the learned Arbitrator pursuant to the
consent of the learned counsels for the parties.
16. The learned Arbitrator will furnish the requisite disclosure under
Section 12(2) of the Act within one week of entering the reference.
17. The right of the respondents to file counter-claims and objections
before the learned Arbitrator in accordance with law is reserved.
18. Petition is disposed of.
19. Order be uploaded on the website of this Court.
(MUKTA GUPTA)
JUDGE
MARCH 25, 2022/akb
Signed By:JUSTICE MUKTA
GUPTA
Signing Date:25.03.2022
18:38:34
