2025 Supreme(Online)(Del) 9596

IN THE HIGH COURT OF DELHI AT NEW DELHI
C. Hari Shankar, Om Prakash Shukla, JJ
Triom Hospitality – Appellant
Versus
J.S. Hospitality Services Pvt. Ltd. – Respondent
FAO (COMM) 174/2024

A referral court's authority at the initial stage is limited to a prima facie examination of the formal validity of an arbitration agreement. Allegations of forgery or fraud do not automatically render a dispute non-arbitrable, as such issues should be determined by the arbitral tribunal.

Headnote:(A) Arbitration and Conciliation Act, 1996 - Sections 8, 16, and 37 - Commercial Courts Act, 2015 - Section 13(1-A) - Arbitration agreement - Referral Court - Scope of judicial review at the referral stage - Allegations of forgery and fraud - Allegations of forgery in an arbitration agreement do not automatically render a dispute non-arbitrable - Referral court is restricted to a prima facie review of the existence and formal validity of the arbitration agreement - It must not conduct a mini-trial or delve into substantive validity, which is the jurisdiction of the arbitral tribunal under the principle of competence-competence - Unless a claim is ex facie frivolous, the matter must be referred to arbitration - The court should leave disputed factual issues, including the authentication of signatures, for the arbitral tribunal to resolve. (Paras 47-51, 63-65, 72-73)

(B) Arbitration and Conciliation Act, 1996 - Section 7 - Existence of arbitration agreement - Formal validity - Signature on an arbitration agreement is not a mandatory requirement under the Act - Where the underlying commercial relationship is admitted and parties show an evident intention to arbitrate, the lack of a physical signature or disputes regarding document authenticity do not preclude a reference to arbitration. (Paras 58, 69-71)

Facts of the case:
A commercial suit for permanent injunction and infringement of trade rights was filed, alleging that the defendant was using a contested trademark without authorization. The defendant filed an application under Section 8 of the Act, invoking an arbitration clause within a memorandum of understanding. The plaintiff contested the existence of the agreement, labelling the document a forgery and asserting that the signatory had not executed it. The trial court declined to refer the parties to arbitration, concluding that the dispute was non-arbitrable due to serious allegations of forgery requiring forensic examination.

Findings of Court:
The Appellate Court held that the lower court exceeded its jurisdiction by conducting a detailed examination of the evidence akin to a mini-trial. As the parties had a pre-existing commercial relationship, the court reasoned that the threshold for prima facie existence and formal validity was met. It concluded that disputes concerning the genuineness of signatures or the substantive validity of the agreement must be determined by the arbitral tribunal under its power to rule on its own jurisdiction.

Issues: The main issues were whether a dispute becomes non-arbitrable when allegations of forgery are raised concerning the document containing the arbitration clause, and whether the trial court correctly exercised its prima facie review power under Section 8 of the Act.

Ratio Decidendi: The referral court’s power is limited to verifying the formal validity and prima facie existence of the arbitration agreement. Merely alleging fraud or forgery does not divest an arbitral tribunal of its jurisdiction. Procedural or substantive disputes must be adjudicated by the arbitral tribunal, not the referral court, to ensure the effectiveness of the arbitration mechanism and prevent the summary disposal of complex commercial disputes.

Result: The appeal was allowed, the lower court’s order was set aside, and the parties were referred to arbitration.