A referral court under Section 11 of the Arbitration Act should only ascertain the prima facie existence of an arbitration agreement, not assess the merits of the dispute.

Digitally signed by SANJAY KUMAR Date: 2024.11.07 Reason:

Signature Not Verified 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:

“ CONCLUSION 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 ₹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 respon