2020 Supreme(Del) 1332

IN THE HIGH COURT OF DELHI AT NEW DELHI
Jayant Nath, J.
Spentex Industries Ltd. - Appellant
Versus
Quinn Emanuel Urquhart And Sullivan Llp - Respondent
Civil Suit (O S) No. 568 of 2017
Decided On : 12-05-2020

The scope of enquiry under Section 45 of the Arbitration and Conciliation Act, 1996 is confined only to the question whether the arbitration agreement is \"null and void, inoperative or incapable of being performed\" but not the legality and validity of the substantive contract.

Headnote:

ARBITRATION - AGREEMENT - VALIDITY - SUIT FOR DECLARATION THAT LETTER OF ENGAGEMENT AND ARBITRATION CLAUSE IS NULL AND VOID - MAINTAINABILITY - SCOPE OF ENQUIRY - ARBITRATION AGREEMENT - INDEPENDENT CONTRACT - VALIDITY OF SUBSTANTIVE CONTRACT NOT EXAMINABLE - ARBITRATION CLAUSE - WIDE ENOUGH TO BRING DISPUTE WITHIN SCOPE OF ARBITRATION - COURT CANNOT EXAMINE WHETHER DISPUTE IS COVERED BY ARBITRATION AGREEMENT - AGREEMENT TO BE GIVEN LIBERAL CONSTRUCTION - TERM \"COMMERCIAL\" TO BE INTERPRETED BROADLY - CONTINGENCY FEES - NOT BARRED UNDER US LAW - ARBITRATION AGREEMENT NOT NULL AND VOID, INOPERATIVE OR INCAPABLE OF BEING PERFORMED - SUIT DISMISSED.

Fact of the Case:

Plaintiff, a manufacturer of cotton and synthetic yarns, entered into an investment transaction with the Republic of Uzbekistan. Certain disputes arose between the plaintiff and its subsidiary on one hand and the Republic of Uzbekistan on the other. The plaintiff expected a possible submission of disputes for resolution through international arbitration. Accordingly, the plaintiff approached the defendant, a firm of overseas lawyers having its office in Washington DC, United States of America, for its legal services in connection with the aforesaid possible future arbitration proceedings. The defendant issued a detailed common Engagement Letter dated 20.05.2013 in respect of possible arbitration proceedings. The plaintiff and its subsidiary signed the Engagement Letter on 21.05.2013 and returned a copy to the defendant. Arbitration between the subsidiary of the plaintiff and Republic of Uzbekistan commenced on 03.09.2013. The plaintiff claimed that it was not a party to the said arbitration proceedings and that the defendant never acted for the plaintiff in the said proceedings. The defendant raised a demand for arbitration on 25.08.2017 in terms of Article 16 of the Letter of Engagement dated 20.05.2013 under the aegis of JAMS. On 01.09.2017 JAMS gave a notice for commencement of Tripartite Arbitration. The plaintiff filed a suit seeking a declaration that the Letter of Engagement dated 20.05.2013 as well as arbitration clause being Article 16 of the Letter of Engagement dated 20.05.2013 is null and void, inoperative and incapable of being performed and also against the public policy of India.

Finding of the Court:

1. A suit for a declaration that the Letter of Engagement dated 20.05.2013 and the arbitration clause being Article 16 of the Letter of Engagement dated 20.05.2013 is null and void or inoperable or incapable of being performed is maintainable for a limited purpose. A suit may lie for the limited purpose of holding an enquiry as to whether the Arbitration Agreement is null and void, inoperative and incapable of being performed. 2. The scope of enquiry in case such a suit is filed is limited. Usually courts have frowned upon suits filed containing vague, evasive and bald allegations to claim that the Arbitration Agreement is null and void etc. 3. An arbitration agreement is an independent or \"self-contained\" agreement. Arbitration agreement/clause is not that governs rights and obligations arising out of the substantive contract: It only governs the way of settling disputes between the parties. 4. The scope of enquiry (even) under Section 45 of the Arbitration and Conciliation Act, 1996 is confined only to the question whether the arbitration agreement is \"null and void, inoperative or incapable of being performed\" but not the legality and validity of the substantive contract. 5. The policy which is clear is that courts have to be extremely circumspect and reluctant in any manner to interfere in arbitration proceedings. The mandate is to refer parties to arbitration unless the arbitration agreement is on the face of it null and void, inoperative or incapable of being performed. The court is not to examine the legality or validity of the substantive agreement.

Issues: 1. Whether the present suit seeking a declaration that the Letter of Engagement dated 20.05.2013 and the arbitration clause being Article 16 of the Letter of Engagement is null and void or inoperable or incapable of being performed is maintainable? 2. Whether the arbitration agreement is null and void, inoperative or incapable of being performed?

Ratio Decidendi: 1. A suit for a declaration that the Letter of Engagement dated 20.05.2013 and the arbitration clause being Article 16 of the Letter of Engagement dated 20.05.2013 is null and void or inoperable or incapable of being performed is maintainable for a limited purpose. A suit may lie for the limited purpose of holding an enquiry as to whether the Arbitration Agreement is null and void, inoperative and incapable of being performed. 2. The scope of enquiry in case such a suit is filed is limited. Usually courts have frowned upon suits filed containing vague, evasive and bald allegations to claim that the Arbitration Agreement is null and void etc. 3. An arbitration agreement is an independent or \"self-contained\" agreement. Arbitration agreement/clause is not that governs rights and obligations arising out of the substantive contract: It only governs the way of settling disputes between the parties. 4. The scope of enquiry (even) under Section 45 of the Arbitration and Conciliation Act, 1996 is confined only to the question whether the arbitration agreement is \"null and void, inoperative or incapable of being performed\" but not the legality and validity of the substantive contract. 5. The policy which is clear is that courts have to be extremely circumspect and reluctant in any manner to interfere in arbitration proceedings. The mandate is to refer parties to arbitration unless the arbitration agreement is on the face of it null and void, inoperative or incapable of being performed. The court is not to examine the legality or validity of the substantive agreement.

Final Decision: The present suit is without any cause of action and the suit is accordingly dismissed. Pending applications, if any, also stand dismissed.