Allowed

Ms Moneywise Financial Services Pvt. Ltd. v. Alethia Infotel Private Limited and Ors. & Ors.

Delhi HC15 May 2025ARB.P./4/2025

Case brief

AI extract

What is this about?

In an arbitration petition under Section 11 of the 1996 Act, the High Court appointed a sole arbitrator for a loan dispute after noting the parties failed to mutually appoint one. The Court applied the eye-of-the-needle test, limiting judicial inquiry to the prima facie existence of the arbitration agreement while keeping merits open.

What did the court decide?

Appointment of Ms. Mitakshara Goyal as the sole Arbitrator to hear the dispute under the terms of the DIAC rules.

Ms Moneywise Financial Services Pvt. Ltd. Vs Alethia Infotel… — Arbitration | Delhi HC (2025)

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IN THE HIGH COURT OF DELHI AT NEW DELHI

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- ARB.P. 4/2025

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Date of Decision : 15.05.2025

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IN THE MATTER OF:

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MS MONEYWISE FINANCIAL SERVICES PVT. LTD.

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.....Petitioner Through: Ms. Preeti Kumar and Mr. Ranjeet Kumar, Advs.

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versus

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ALETHIA INFOTEL PRIVATE LIMITED AND ORS & ORS. .....Respondent Through: Mr. Rajan Malhotra, Adv.

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CORAM:

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HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV JUDGEMENT

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PURUSHAINDRA KUMAR KAURAV, J. (ORAL)

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The present petition has been filed under Section 11 of the Arbitration and Conciliation Act, 1996 (the 1996 Act) by the petitioner, seeking appointment of an Arbitrator, to adjudicate upon the disputes that have arisen between the parties under the Loan Agreement dated 30.06.2023.

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Heard learned counsel for the parties.

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The only objection raised by the respondent is that the petition at this stage is not maintainable as the parties have not resorted to the first step which is required under Clause 8.2 of the Loan Agreement dated 30.06.2023 for mutual appointment of the arbitrator.

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During the course of hearing, the Court requested learned counsel for

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Signed By:PRIYA Signing Date:21.05.2025 16:24:01

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Signed By:PURUSHAINDRA KUMAR KA URAV

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the respondent to suggest the name. He suggested one name, however, the same is not agreeable to the petitioner.

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It is, thus, seen that the parties have failed to arrive at an agreement on the appointment of an arbitrator that can deal with the dispute. 6. The facts of the instant case would indicate that respondent No.1Company approached the petitioner through its director respondent No.2, who jointly/severally applied for a loan in their respective capacities as Borrower, Co-Borrower, and Guarantor, for expansion of the business of respondent No.1-Company. Thereafter, the petitioner sanctioned a loan amounting to of Rs.37,05,891/- vide Loan Agreement dated 30.06.2023.

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It is the case of the petitioner that the respondents in breach of the Loan Agreement willfully neglected their repayment obligations. Consequently, as per the petition, the petitioner was constrained to issue a Loan Recall/Termination Notice dated 08.04.2024 formally calling upon the respondents to fulfill their contractual obligations. On 07.10.2024, the petitioner issued a notice under Section 21 of the 1996 Act invoking arbitration for the resolution of the dispute.

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The Court has perused the Arbitration Clause 8.2 of the Loan Agreement, which reads as under:

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“8.2. Arbitration: Any disputes, differences, controversies and questions directly or indirectly arising at any time hereafter between the Parties or their respective representatives or assigns, arising out of or in connection with this Agreement (or the subject matter of this Agreement), including, without limitation, any question regarding its existence, validity, interpretation, construction, performance, enforcement, rights and liabilities of the Parties, or termination ("Dispute") thereof shall be finally settled by arbitration in accordance with the Arbitration and Conciliation Act, 1996, amended (" Arbitration Act "). The Dispute shall be referred to a sole arbitrator duly appointed the Parties with mutual consent failing which the sole arbitrator shall be appointed in accordance with the Arbitration Act. The language of the arbitration shall be English. The seat

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Signed By:PURUSHAINDRA KUMAR KA URAV

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Signed By:PRIYA Signing Date:21.05.2025 16:24:01

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of the arbitration shall be at Delhi and the language of proceedings shall be English. The award rendered shall be in \Titing and shall set out the reasons for the arbitrator's decision. The costs and expenses of the arbitration shall be borne equally by each Party, with each Party paying for its own fees and costs including attorney fees, except as may be determined by the arbitration tribunal. Any award by the arbitration tribunal shall be final and binding.”

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The law with respect to the scope and standard of judicial scrutiny under Section 11(6) of the 1996 Act has been fairly well settled. This Court as well in the order dated 24.04.2025 in case of ARB.P. 145/2025 titled as Pradhaan Air Express Pvt Ltd v. Air Works India Engineering Pvt Ltd has extensively dealt with the scope of interference at the stage of Section 11. The Court held as under:-

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“9. The law with respect to the scope and standard of judicial scrutiny under Section 11(6) of the 1996 Act has been fairly well settled. The Supreme Court in the case of SBI General Insurance Co. Ltd. v. Krish Spinning, while considering all earlier pronouncements including the Constitutional Bench decision of seven judges in the case of Interplay between Arbitration Agreements under the Arbitration & Conciliation Act, 1996 & the Indian Stamp Act, 1899 , In re has held that scope of inquiry at the stage of appointment of an Arbitrator is limited to the extent of prima facie existence of the arbitration agreement and nothing else.

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10. It has unequivocally been held in paragraph no.114 in the case of SBI General Insurance Co. Ltd that observations made in Vidya Drolia v. Durga Trading Corpn., and adopted in NTPC Ltd. v. SPML Infra Ltd. that the jurisdiction of the referral court when dealing with the issue of “accord and satisfaction” under Section 11 extends to weeding out exfacie non-arbitrable and frivolous disputes would not apply after the decision of Re: Interplay . The abovenoted paragraph no.114 in the case of SBI General Insurance Co. Ltd reads as under:-

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“114. In view of the observations made by this Court in In Re: Interplay (supra), it is clear that the scope of enquiry at the stage of appointment of arbitrator is limited to the scrutiny of prima facie existence of the arbitration agreement, and nothing else. For this reason, we find it difficult to hold that the observations made in Vidya Drolia

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Signed By:PURUSHAINDRA KUMAR KA URAV

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Signed By:PRIYA Signing Date:21.05.2025 16:24:01

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(supra) and adopted in NTPC v. SPML (supra) that the jurisdiction of the referral court when dealing with the issue of “accord and satisfaction” under Section 11 extends to weeding out ex-facie non-arbitrable and frivolous disputes would continue to apply despite the subsequent decision in In Re: Interplay (supra).”

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11. Ex-facie frivolity and dishonesty are the issues, which have been held to be within the scope of the Arbitral Tribunal which is equally capable of deciding upon the appreciation of evidence adduced by the parties. While considering the aforesaid pronouncements of the Supreme Court, the Supreme Court in the case of Goqii Technologies (P) Ltd. v. Sokrati Technologies (P) Ltd., however, has held that the referral Courts under Section 11 must not be misused by one party in order to force other parties to the arbitration agreement to participate in a timeconsuming and costly arbitration process. Few instances have been delineated such as, the adjudication of a non-existent and malafide claim through arbitration. The Court, however, in order to balance the limited scope of judicial interference of the referral Court with the interest of the parties who might be constrained to participate in the arbitration proceedings, has held that the Arbitral Tribunal eventually may direct that the costs of the arbitration shall be borne by the party which the Arbitral Tribunal finds to have abused the process of law and caused unnecessary harassment to the other parties to the arbitration.

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12. It is thus seen that the Supreme Court has deferred the adjudication of aspects relating to frivolous, non-existent and malafide claims from the referral stage till the arbitration proceedings eventually come to an end. The relevant extracts of Goqii Technologies (P) Ltd. reads as under:-

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“20. As observed in Krish Spg. [SBI General Insurance Co. Ltd. v. Krish Spg., (2024) 12 SCC 1 : 2024 SCC OnLine SC 1754 : 2024 INSC 532] , frivolity in litigation too is an aspect which the referral court should not decide at the stage of Section 11 as the arbitrator is equally, if not more, competent to adjudicate the same.

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21. Before we conclude, we must clarify that the limited jurisdiction of the referral courts under Section 11 must not be misused by parties in order to force other parties to the arbitration agreement to participate in a time consuming and costly arbitration process. This is possible in instances, including but not limited to, where the claimant canvasses the adjudication of non-existent and mala fide claims through arbitration.

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Signed By:PURUSHAINDRA KUMAR KA URAV

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Signed By:PRIYA Signing Date:21.05.2025 16:24:01

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22. With a view to balance the limited scope of judicial interference of the referral courts with the interests of the parties who might be constrained to participate in the arbitration proceedings, the Arbitral Tribunal may direct that the costs of the arbitration shall be borne by the party which the Tribunal ultimately finds to have abused the process of law and caused unnecessary harassment to the other party to the arbitration. Having said that, it is clarified that the aforesaid is not to be construed as a determination of the merits of the matter before us, which the Arbitral Tribunal will rightfully be equipped to determine.”

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13. In view of the aforesaid, the scope at the stage of Section 11 proceedings is akin to the eye of the needle test and is limited to the extent of finding a prima facie existence of the arbitration agreement and nothing beyond it. The jurisdictional contours of the referral Court, as meticulously delineated under the 1996 Act and further crystallised through a consistent line of authoritative pronouncements by the Supreme Court, are unequivocally confined to a prima facie examination of the existence of an arbitration agreement. These boundaries are not merely procedural safeguards but fundamental to upholding the autonomy of the arbitral process. Any transgression beyond this limited judicial threshold would not only contravene the legislative intent enshrined in Section 8 and Section 11 of the 1996 Act but also risk undermining the sanctity and efficiency of arbitration as a preferred mode of dispute resolution. The referral Court must, therefore, exercise restraint and refrain from venturing into the merits of the dispute or adjudicating issues that fall squarely within the jurisdictional domain of the arbitral tribunal. It is thus seen that the scope of enquiry at the referral stage is conservative in nature. A similar view has also been expressed by the Supreme Court in the case of Ajay Madhusudan Patel v. Jyotrindra S. Patel” .

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In view of the fact that disputes have arisen between the parties and there is an arbitration clause in the contract, Ms. Mitakshara Goyal (Mobile No.-9958966077, e-mail id: [email protected]) is appointed as the sole Arbitrator.

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The arbitration would take place under the aegis of the Delhi International Arbitration Centre (DIAC) and would abide by its rules and

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Signed By:PRIYA Signing Date:21.05.2025 16:24:01

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Signed By:PURUSHAINDRA KUMAR KA URAV

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regulations. The learned Arbitrator shall be entitled to fees as per the Schedule of Fees maintained by the DIAC.

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The learned arbitrator is also requested to file the requisite disclosure under Section 12 (2) of the Act within a week of entering on reference. 13. The registry is directed to send a receipt of this order to the learned arbitrator through all permissible modes, including through e-mail. 14. All rights and contentions of the parties in relation to the claims/counter-claims are kept open, to be decided by the learned Arbitrator on their merits, in accordance with law.

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