The court upheld the validity of the arbitration clause in the dealership agreement and clarified that disputes regarding guarantor liabilities must be resolved by arbitration, not by the court.

JUDGMENT

Mukta Gupta, J. By this petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (in short, the Act), petitioner seeks appointment of a Sole Arbitrator in terms of Clause 23.16 of the Dealership Agreement dated 15th February 2018.

2. According to the petitioner, the petitioner is a manufacturer of two-wheelers/spares and entered into a dealership arrangement with respondent No. 1 which sells two wheelers on retail basis and services the same, vide agreement dated 17th February 2003. The said authorized dealership agreement was renewed on 15th February 2018. The respondent Nos. 2 and 3 being the Directors of respondent No. 1 stood as guarantors to the dealership arrangement vide the Guarantee Deeds dated 31st December 2005. The respondents defaulted in payments for goods purchased by the respondent No. 1 and despite initiation of negotiations and discussions to amicably resort the disputes, the disputes could not be resolved and despite assurances, including expressly assuring repayments inter alia vide their letters dated 29th May 2019, 13th March 2020 and email dated 17th July 2020 and the balance confirmation letter dated 1st October 2020, the respondents failed to make the payments. Further, to the petitioner's knowledge, some of the properties of the respondents were sold/attached as dues of other parties were not satisfied by the respondents. The petitioner thus invoked arbitration as per the agreement vide its notice dated 12th October 2020 to which the respondents replied vide letter dated 17th November 2020.

3. In the reply dated 17th November 2020, the plea taken by the respondents was that the notice invoking arbitration was contrary to the arbitration clause, premature and in contravention of Clause 23.16(a) of the agreement as the petitioner sought arbitration without resorting to the process of negotiation/consultation. It was also stated that the amount of Rs.3.24 Crores claimed from the respondents was totally imaginary and denied. It was claimed that though the respondents purchased vehicles from the petitioner but often, there were delays in the supplies resulting in financial losses to the respondents and the respondents were in the process of making an assessment of the losses occasioned due to the acts and omissions and will quantify the same and shall send a separate notice to the petitioner in this regard. However, till date, no notice has been sent by the respondents to the petitioner.

4. The three grounds urged for dismissal of the petition before this Court by learned counsel for the respondent were; (1) the respondent Nos. 2 and 3 are not signatories to the dealership agreement dated 15th February 2018; (2) no liability on the respondent Nos. 2 and 3 can be enforced in terms of the deed of Guarantee dated 31st December 2005 as the same was time barred; and (3) the notice invoking arbitration dated 12th October 2020 was premature, therefore, no cause of action arises against the respondents.

5. Learned counsel for the respondents further states that in case, this Court holds that an Arbitrator is required to be appointed in terms of the Arbitration Agreement between the parties, then, he has instructions to state that instead of three member arbitration panel, a Sole Arbitrator be appointed as prayed for by the petitioner.

6. Admittedly, the agreement dated 17th February 2003 was entered into with the petitioner by the respondent No. 1 as the dealer through its authorized representative and the respondent Nos. 2 and 3 are