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TMI Blog2024 (11) TMI 392X X X X Extracts X X X X X X X X Extracts X X X X ..... to decide upon the appreciation of the evidence adduced by the parties. We say so because the arbitral tribunal has the benefit of going through all the relevant evidence and pleadings in much more detail than the referral court. If the referral court is able to see the frivolity in the litigation on the basis of bare minimum pleadings, then it would be incorrect to doubt that the arbitral tribunal would not be able to arrive at the same inference, most likely in the first few hearings itself, with the benefit of extensive pleadings and evidentiary material.' The scope of inquiry under Section 11 of the Act, 1996 is limited to ascertaining the prima facie existence of an arbitration agreement. In the present case, the High Court exceeded this limited scope by undertaking a detailed examination of the factual matrix. The High Court erroneously proceeded to assess the auditor s report in detail and dismissed the arbitration application. In our view, such an approach does not give effect to the legislative intent behind the 2015 amendment to the Act, 1996 which limited the judicial scrutiny at the stage of Section 11 solely to the prima facie determination of the existence of an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omic Offences Wing, Mumbai had lodged a complaint (EOW CR No. 08 of 2022) against Dentsu International Limited, the parent company of the respondent, and its senior officials alleging serious irregularities and malpractices in their service. 5. In light of the aforesaid developments, the appellant engaged an independent auditor in November 2022 to prepare a report on the activities of the respondent from April 2021 to 31.12.2022. The auditor submitted its report in February 2023. The conclusion given by the auditor is extracted hereinbelow: CONCLUSION The average ROI for the campaigns analyzed has been abysmally low at 0.35x compared to industry benchmark of 3x to 4x. We estimate an overcharge of ₹4,48,53,580. The audit identified significant areas of concern within the media plan, including but not limited to: Media buying cost of inventory, from different publishers at various points during the engagements have been found to be significantly more than the industry benchmarks. Traffic was poor and exposed to the wrong audience. Number of times the ad was shown (Frequency) has been increased as the reach numbers were being achieved, this only shows that the targeting of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt are extracted hereinbelow: 19. It can be well understood that upon the further investigation, being directed to be carried out as indicated in the report, if it is concluded that the services were not rendered at all or they were deficient and the invoices do not deserve to be cleared, the demand of the money due and payable could have been resisted, but without any justification, by projecting the report of the independent auditor to be its shield to avoid the payment, the attempt on part of the applicant can only be described as 'dishonest'. A manifestly dishonest claim or a contest, which is sought to be raised to a lawful demand of the money due and payable under the MSA, particularly, when, while availing the services, at no point of time, any deficiency in services is pointed out, but only by way of defence to the invoices raised, an independent agency's report is being projected, as a support to canvass the deficiency in service, by attributing fraudulent acts to the respondent which, in fact, is not the finding of the independent auditor. Nonetheless, it is open for the applicant to follow the pursuit of detail investigation across all the media campaigns by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubject-matter expertise for accurate determination of the disputes. Given the technical complexity of the issues involved, the High Court ought to have referred the parties to arbitration. 12. He submitted that the finding of the High Court as regards the alleged dishonesty of the appellant rests on the erroneous assumption that the appellant had not raised any dispute prior to issuing the demand notice dated 22.02.2023. It was contended that this finding overlooks the sequence of events and also the undisputed fact that the Audit Report was provided to the appellant only in February 2023, i.e., the same month in which the Demand Notice was issued. Consequently, the appellant had no prior opportunity to raise the disputes, as they only came to light upon receiving the Audit Report in February 2023. The appellant argued that even otherwise, it had sent multiple emails to the respondent raising various objections regarding the invoices issued to the appellant prior to the issuance of the Audit Report. C. SUBMISSION ON BEHALF OF THE RESPONDENT 13. Ms. Shweta Bharti, the learned counsel appearing for the respondent, on the other hand, submitted that it is settled law that before referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjected to. The relevant parts are produced herein below: 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 (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). xxx xxx xxx 125. We are also of the view that ex-facie frivolity and dishonesty in litigation is an aspect which the arbitral tribunal is equally, if not more, capable to decide upon the appreciation of the evidence adduced by the parties. We say so because the arbitral tribunal has the benefit of going through all the relevant evidence and pleadings in much more detail than the referral court. If the referral court is able to see the frivolity in the litigation on the bas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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