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SUPREME COURT OF INDIA
DR. DHANANJAYA Y. CHANDRACHUD, CJI., J.B. PARDIWALA, MANOJ MISRA, JJ.
Goqii Technologies Private Limited – Appellant
Versus
Sokrati Technologies Private Limited – Respondent
Civil Appeal No. 12234 Of 2024 (Arising Out of SLP (C) No. 15562 of 2024)
Decided On : 07-11-2024
Arbitration and Conciliation Act, 1996 – Section 11 – Appointment of Arbitrator – Disputes and claims arising from Master Services Agreement (“MSA”) – Scope of enquiry at stage of appointment of Arbitrator is limited to scrutiny of prima facie existence of arbitration agreement – In present case, High Court exceeded this limited scope by undertaking a detailed examination of factual matrix – High Court erroneously proceeded to assess auditor’s report in detail and dismissed arbitration application – Such approach does not give effect to legislative intent behind 2015 Amendment to the Act, 1996 which limited judicial scrutiny at stage of Section 11 solely to prima facie determination of existence of an arbitration agreement – Frivolity in litigation is an aspect which Referral Court should not decide at stage of Section 11 as Arbitrator is equally competent to adjudicate the same – With a view to balance limited scope of judicial interference of Referral Courts with interests of parties who might be constrained to participate in arbitration proceedings, Arbitral Tribunal may direct that costs of arbitration shall be borne by party which Tribunal ultimately finds to have abused process of law and caused unnecessary harassment to other party to arbitration – Impugned order passed by High Court set aside – Former Chief Justice of Punjab & Haryana High Court, appointed as sole Arbitrator to adjudicate disputes between parties. (Paras 18, 19, 20, 21, 22 and 23)
Facts of the case:
Present appeal arises from final judgment and order dated 30.04.2024 passed by High Court of Judicature at Bombay in Commercial Arbitration Application No. 6 of 2024. High Court dismissed application preferred by appellant under Section 11 of Arbitration and Conciliation Act, 1996 seeking appointment of Arbitrator to adjudicate disputes and claims in terms of Clause 18.12 of Master Services Agreement (“MSA”) executed between appellant and respondent.
Short question that falls for consideration is whether High Court committed any error in dismissing appellant’s application under Section 11 of the Act, 1996.
Findings of Court:
Existence of arbitration agreement in Clause 18.12 of the MSA has not been disputed by respondent. Question whether there exists a valid dispute to be referred to arbitration can be addressed by Arbitral Tribunal as a preliminary issue.
Result : Appeal allowed.
JUDGMENT :
(J.B. Pardiwala, J.)
1. Leave granted.
2. This appeal arises from the final judgment and order dated 30.04.2024 (“impugned judgment”) passed by the High Court of Judicature at Bombay in Commercial Arbitration Application No. 6 of 2024. The High Court dismissed the application preferred by Goqii Technologies Private Limited (“the appellant”) under Section 11 of the Arbitration and Conciliation Act, 1996 (“the Act, 1996”) seeking appointment of an arbitrator to adjudicate disputes and claims in terms of Clause 18.12 of the Master Services Agreement (“MSA”) executed between the appellant and Sokrati Technologies Private 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 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:
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 Rs.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 customer/audience has been poor.
- The clicks generated were fraudulent.
- The leads garnered were junk.
- Cost of acquisition was higher than the category competition.
We also recommend further detailed investigation across all the media campaigns by Sokrati.”
6. On 22.02.2023, the respondent served a demand notice on the appellant under Section 8 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) seeking Rs 6,25,67,060/- towards the outstanding invoices. In response, on 04.03.2023, the appellant rejected the demand, citing the audit findings, and invoked arbitration under Clause 18.12 of the MSA. The appellant also filed a counter claim, demanding a refund of Rs 5,53,26,690/- with 18% interest per annum and an additional Rs. 6 crore by way of damages towards the alleged misrepresentations by the respondent.
7. Subsequently, upon failure of the respondent to comply with the arbitration notice, the appellant filed Commercial Arbitration Application No. 06 of 2024 before the High Court, seeking appointment of a sole arbitrator to adjudicate the disputes between the parties. However, on 05.10.2023, while the application was pending, the respondent filed Company Petition (IB) No. 27 of 2024 under Section 9 of the IBC before the Natio
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