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Court explains "chalk & cheese" situation leading to non-arbitrability of an agreement

In Hero Electric Vehicles (P) Ltd. v. Lectro E-Mobility (P) Ltd., the applicant had filed application before the Delhi High Court seeking a decree of permanent injunction on a trade mark issue while the defendants filed application seeking reference of the disputes, forming subject matter of the suit, to arbitration.

The Delhi High Court referred to the judgement of the Supreme Court in Vidya Drolia v. Durga Trading Corpn., wherein it was held inter-alia that the scope of examination by the Court exercising jurisdiction under Section 8 or under Section 11, is prima facie in nature. The Court is not to enter into the merits of the case between the parties. It is only to examine whether the dispute is prima facie arbitrable under a valid arbitration agreement. This prima facie examination is intended to weed out manifestly and ex facie non-existent or invalid arbitration agreements or non- arbitrable disputes, thereby cutting the deadwood and trimming off the side branches, in cases where the litigation cannot be permitted to proceed.The proceedings are preliminary and summary in nature and should not result in a mini-trial. Unless there is a clear case of non-existence of a valid arbitration agreement, or of the dispute being ex facie non-arbitrable, tested on the above parameters, the court should leave these aspects to be decided by a competently constituted arbitral tribunal. Relegation to arbitration should be regarded as a rule, and resolution by the civil court, where a valid arbitration agreement exists and is sought to be invoked by one of the parties, as an exception.

It is only, therefore, where the Court finds the case to be “chalk and cheese” situation or a black and white situation without shades of grey, and where referring the matter to the arbitral process would be opposed to public interest or public policy, and a futility ex facie, that the Court should  nip the request for referring the dispute to arbitration in the bud. Else, the authority of the Arbitral Tribunal to adjudicate on these aspects is required to be respected, given the raison d’ etre, and fundamental philosophy, of the 1996 Act. “When in doubt,” says Ramana, J., in his concurring opinion, “refer”. (Having said that, the “doubt”, in my view, has to be real and substantial, and not merely an escape route to avoid examining the issue in perspective.)


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