Delhi High Court: MSMED Council Not Issuing Communication Accepting Withdrawal Of Arbitration Request Doesn't Bar Section 11 Application

The Delhi High Court has held that the absence of correspondence from the Micro, Small and Medium Enterprises Development (MSMED) Council accepting the withdrawal of artibration request is not a bar on approaching the High Court for appointment of an Arbitrator under Section 11.

The Court was considering an Arbitration Petition under Section 11(6) of the Arbitration & Conciliation Act for the appointment of an Arbitrator.

The Bench of Justice Subramonium Prasad observed, "Admittedly, the Petitioner had approached the MSMED Council but the Petitioner has withdrawn from the MSMED Council vide Letter dated 18.07.2024 and the fact that there is no correspondence from the MSMED Council accepting the withdrawal does not mean that the Petitioner cannot approach this Court under Section 11 of the Arbitration & Conciliation Act."

The Petitioner was represented by Advocate Sachin Dhamija while the Respondent was represented by Advocate Aditya Vardhan Sharma.

Facts of the Case

Petitioner, a Private Limited Company, running a business of providing digital education services and software entered into an agreement with Respondent No.2 and 3 to take software on lease. It was stated that after making the Petitioner spend a substantial amount of money in developing the software, the Respondent did not abide by their portion of the agreement. Resultantly, a notice was issued and the said legal notice was followed by another notice invoking arbitration in terms of Clause 11.2.2 of the agreement which was replied by the Respondent. The Petitioner had approached the MSMED Council for redressal of its grievance. However, the said application was later withdrawn.

Counsel for the Respondent contended that there is no clear and binding intention between the Petitioner and Respondent No.1 to refer the disputes to arbitration and the phrase only signifies that the parties contemplated a possibility to go into arbitration, which in itself is non-binding. Reliance was placed on the Supreme Court's judgement in Jagdish Chander v. Ramesh Chander & Ors. (2007) to further contend that if merely there is a possibility of the parties to agree to arbitration, there is no valid or legal arbitration agreement.

Inter-alia, he argued that the Petition is also not maintainable due to a pending reference under the MSMED Act, 2006 as there was no communication from the MSMED Council granting leave to withdraw and granting liberty to file afresh.

Reasoning By Court

The Court noted that Clause 11.2.2 of the agreement contains an Arbitration Clause which provides that the seat of arbitration shall be at New Delhi as the Respondent chose to deny its liability and therefore there is no question of making any attempt to settle the disputes amicably.

It held that no response from the MSMED Council accepting the withdrawal of the application was no bar to approaching the Court for the appointment of an Arbitrator.

"The decisions relied on by the Respondent does not apply to the facts of the present case. In view of the unambiguous arbitration clause as stated by the Respondent and the conduct of the Respondent in categorically denying the claim of the Petitioner and in fact the Respondent not being prepared to go for any amicably solution, this Court is inclined to appoint an Arbitrator to adjudicate the disputes between the parties," the Court observed.

The Application was accordingly allowed.

Cause Title: M/s Smartschool Education Private Limited vs. Baba Business Pvt. Ltd. and Ors.

Appearances:

Petitioner- Advocate Sachin Dhamija, Advocate Ashmeet Kaur

Respondents- Advocate Aditya Vardhan Sharma, Advocate Yash Singhal

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