Delhi High Court: Merit-Based Issues To Be Raised Before Arbitrator, Not In Section 11 Proceedings

Delhi High Court: Merit-Based Issues To Be Raised Before Arbitrator, Not In Section 11 Proceedings

Justice Neena Bansal Krishna of the Delhi High Court has ruled that objections concerning inadequate service are deemed to be substantive and should thus be raised before the arbitrator.

Delhivery Limited, the petitioner, and Far Left Retail Private Limited, the respondent, initially engaged in a service agreement that later became the subject of a dispute. Delhivery Limited asserted that Far Left Retail Private Limited failed to fulfill payment obligations for invoices as per the Service Agreement terms and conditions. Despite several email correspondences from Delhivery Limited spanning from November 10, 2022, to January 24, 2023, acknowledging the outstanding arrears, Far Left Retail Private Limited did not settle the dues. In response, Delhivery Limited issued a demand notice to Far Left Retail Private Limited, which failed to amicably resolve the dispute and neglected to remit the outstanding sum of ₹ 8,69,743.78, inclusive of delay interest per Clause 5.3 of the Service Agreement.

In adherence to Section 21 of the Arbitration and Conciliation Act, 1996 (Arbitration Act), and Clause 19 of the Service Agreement, the petitioner issued a notice to the respondent, invoking arbitration. Despite this notification, the respondent neither replied nor made the requisite payments. Subsequently, the petitioner sought recourse by approaching the Delhi High Court (High Court) and filing an application under Section 11(5) of the Arbitration Act for the appointment of an arbitrator.

The petitioner received a preliminary response along with a request for condonation of delay from the respondent, albeit not formally filed. This communication outlined two primary objections from the respondent: firstly, that the petitioner purportedly failed to initiate an amicable settlement as mandated by the arbitration clause; and secondly, that the services rendered by the petitioner were unsatisfactory.

The High Court observed that the petitioner exhibited evident efforts to pursue an amicable settlement before resorting to arbitration proceedings. Hence, there was satisfactory adherence to the arbitration clause.

Moreover, the High Court observed that the respondent's second objection, related to the purported insufficiency of service, touched upon the substance of the case. The High Court determined that such objections are appropriate for consideration by the designated arbitrator. This decision permits the respondent's grievances to be thoroughly reviewed and resolved within the arbitration framework.

Acknowledging the presence of a legitimate arbitration agreement between the involved parties, the High Court instructed the Coordinator of the Delhi International Arbitration Centre to designate an arbitrator in accordance with the stipulations outlined in the Arbitration Act.