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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 ..... te Limited ("the respondent"). A. FACTUAL MATRIX 3. The appellant, a technology-based wellness venture inter alia providing life style consultancy services, executed the MSA with the respondent, an entity engaged in digital marketing services, and a subsidiary of Dentsu International Limited, to manage its digital advertising campaigns. The MSA was subsequently extended on 29.04.2022 for a period of three years, with certain amendments. 4. Between August 2021 and April 2022, the appellant paid a sum of Rs 5,53,26,690/- to the respondent for the services rendered by it. It is the case of the appellant that for the subsequent 10 invoices raised between 12.05.2022 and 07.10.2022, the appellant was in the process of initiating and making payments when, in September 2022, certain media reports alleged malpractices in the advertising industry implicating major players. It was later discovered by the appellant that the Economic 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 afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e application seeking the appointment of an arbitrator, observing that it lacked in merit and substance. The High Court noted that the independent audit report revealed significant concerns regarding the performance of the digital marketing campaigns executed by the respondent. The High Court was of the view that although the report highlighted poor returns on investment and inconsistent metrics, yet it did not support the assertions made by the appellant regarding fraudulent practices of the respondent. Further, the High Court observed that the appellant failed to demonstrate any substantial discrepancies in the report that would justify withholding payment for the invoices raised. It observed that while further investigation was suggested in the report, the appellant's attempt to invoke arbitration based on non-existent disputes constituted a manifestly dishonest claim and therefore dismissed the application. The relevant observations from the impugned judgment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder refusing to appoint an arbitrator for adjudicating the disputes between the parties, the appellant has come up before this Court with the present appeal. B. SUBMISSION ON BEHALF OF THE APPELLANT 10. Mr. H.D. Thanvi, the learned counsel appearing for the appellant, submitted that the scope of interference by a referral court acting in exercise of its jurisdiction under Section 11 of the Act, 1996 is limited. At this stage, the court is required to conduct a preliminary inquiry for the purpose of ascertaining whether a prima facie case exists for referring the dispute to arbitration. Contrary to this narrow scope, in the present case the High Court proceeded to erroneously undertake a full review of the contested facts, thereby exceeding in its jurisdiction at this stage. 11. He further submitted that the High Court failed to take into account the nature of the services rendered by the respondent, along with the technical details contained in the Audit Report, which require subject-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 submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ean hands, being fully aware of the ongoing legal proceedings before the NCLT, Mumbai. The petition of the appellant is an attempt to create duplicative legal proceedings aimed at evading liability for admitted dues and disrupting the CIRP process. D. ANALYSIS 16. Having heard the learned counsels appearing for the parties and having gone through the materials on record, the short question that falls for our consideration is whether the High Court committed any error in dismissing the appellant's application under Section 11 of the Act, 1996. 17. In a recent pronouncement, relying on the Constitution Bench judgment of this Court in In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899, 2023 INSC 1066 this Court in SBI General Insurance Co. Ltd. vs. Krish Spinning reported in 2024 INSC 532, summarised the law on the scope and standard of judicial scrutiny that an application under Section 11(6) of the Act, 1996 can be subjected 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 stag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming 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. 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. E. CONCLUSION 21. The existence of the arbitration agreement in Clause 18.12 of the MSA has not been disputed by the respondent. The question whether there exists a valid dispute to be referred to arbitration can be addressed by the Arbitral Tribunal as a preliminary issue. 22. As a result, the appeal filed by the appellant is allowed and the impugned ord ..... X X X X Extracts X X X X X X X X Extracts X X X X
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