Delhi High Court Orders Reference to Arbitration, Appoints Sole Arbitrator in Distributor Payment Dispute

A single-judge bench of Justice Jasmeet Singh heard a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 for appointment of a sole arbitrator after parties failed to mutually appoint an arbitrator under a Distribution Agreement dated 01.08.2014 and subsequent settlement agreements. The petitioner sought arbitration to recover an outstanding sum claimed to be due under the Distribution Agreement and related settlement arrangements.

The Court allowed the petition and appointed Mr. Varun Kumar Chopra as Sole Arbitrator to adjudicate the disputes under the aegis and rules of the Delhi International Arbitration Centre (DIAC). The High Court held that its role at the pre-reference stage was limited to a prima facie examination of the existence of an arbitration agreement and that contested questions of novation or supersession required detailed adjudication by the arbitrator. The Court noted that "the referral Court, at the pre-reference stage, is required to undertake only a prima facie examination with respect to the existence of a valid arbitration agreement" and emphasised that "where even the slightest doubt exists, the rule is to refer the disputes to arbitration, otherwise it would encroach upon what is essentially a matter to be determined by the tribunal." The Court, in its reasoning, observed: "It is well settled in law that questions relating to novation or substitution of an earlier agreement by any subsequent agreement(s) ordinarily involve disputed questions of fact and mixed questions of fact and law. Such issues are intrinsically connected with the merits of the dispute and require appreciation of evidence, examination of contractual intent of the parties, and consideration of surrounding circumstances. These are matters which fall squarely within the domain of the Arbitrator in view of the doctrine of kompetenz-kompetenz. The referral Court, while exercising powers under Section 11 of the 1996 Act, cannot embark upon a detailed enquiry akin to a trial or conduct what would effectively amount to a 'mini trial' on the question whether the original contract stands novated or extinguished. To do so would be to transgress the limited jurisdiction conferred at the pre-reference stage." The Court further clarified that "all the rights and contentions of the parties, including as to the arbitrability of any of the claim, any other preliminary objection, as well as claims/counter-claims and merits of the dispute ... are left open for adjudication by the Arbitrator."

Background

The petitioner, a subsidiary of the Benetton Group engaged in manufacture and distribution of apparel in India, appointed the respondent as distributor under a Distribution Agreement (DA) dated 01.08.2014. The petitioner alleged non-payment of invoices and claimed arrears under the DA, following which the parties executed three Settlement Agreements on 29.06.2016, 01.10.2019 and 29.12.2020 to restructure payment obligations. Despite those arrangements, a balance of Rs. 96,21,454/- remained unpaid, said the petitioner, which invoked arbitration by notice dated 14.03.2024 and requested mutual appointment of an arbitrator under Clause 10(j) of the DA.

The respondent contended that the subsequent Settlement Agreements were independent contracts that did not incorporate the DA’s arbitration clause and that the DA stood novated or superseded, citing exclusive jurisdiction clauses in the SAs and authorities on novation. It argued that Section 11(6A) of the 1996 Act and Supreme Court precedent confined the Court to determining the existence of an arbitration agreement and that no such subsisting clause governed the present dispute.

After hearing counsel for both sides and reviewing authorities including Sanjiv Prakash v. Seema Kukreja, Vidya Drolia v. Durga Trading and Duro Felguera S.A. v. Gangavaram Port Ltd., the Court found that a prima facie arbitration agreement existed in Clause 10(j) of the DA and that questions of novation and the effect of the SAs raised mixed issues of fact and law requiring fuller adjudication by the Arbitrator. The petition was allowed; the Court directed compliance with DIAC rules, asked the appointed arbitrator to furnish a Section 12 declaration before taking up the reference, and left all substantive objections and contentions to be decided by the Arbitrator. The parties were directed to approach the Arbitrator within two weeks.

Case Details: Case No.: ARB. P. 1035/2024 Case Title: BENETTON INDIA PVT LTD v. GINI AND JONY LTD Appearances: For the Petitioner(s): Mr. Vinam Gupta, Ms. Pragya Narayan, Ms. Nabam Yama, Advocates For the Respondent(s): Ms. Renuka Sahu, Mr. Shivam Singh, Advocates