Delhi High Court Allows Arbitrator To Rule On Jurisdiction In Dispute Pertains To Existence Of Arbitration Clause Over Mou And Loi

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The case between Newton Engineering and Chemicals Ltd and UEM India Pvt Ltd revolves around the execution of a project tendered by the Oil and Natural Gas Corporation (ONGC), in which the petitioner claimed that the respondent failed to execute the work as per the contract, leading to termination of the contract by ONGC.

The petitioner invoked the arbitration clause in the MoU and filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Delhi High Court seeking appointment of an arbitrator. The respondent raised a preliminary objection, arguing that the disputes sought to be referred for arbitration emanated from the letters of intent (LOIs) and not from the MoU. It contended that the LOIs were independent agreements or contracts, which do not contain an arbitration clause.

The Court noted that the existence of the arbitration clause between the parties was not disputed and referred the parties to arbitration. It observed that the issue of whether the disputes between the parties have arisen under the MoU or under the LOIs or whether they are related to both, can be looked into by the arbitrator as the arbitrator can decide his own jurisdiction in terms of Section 16 of the A&C Act.

The Court referred to the Supreme Court’s decision in Sanjiv Prakash vs. Seema Kukreja & Ors. (2021), which held that a Section 11 court would refer the matter to arbitration when contentions relating to non-arbitrability are plainly arguable, or when the facts are contested. The Court cannot, at the stage of considering a Section 11 application, enter into a mini trial or into an elaborate review of the facts and law which would usurp the jurisdiction of the arbitral tribunal.

The Court also remarked that even if the LOIs and MoU are two separate contracts, the arbitration clause in the MoU needs to be given effect to whatever its effect is. Therefore, the disputes need to be decided through the process of arbitration.

The Court appointed Justice R.K. Gauba, a former Judge of the Delhi High Court, as a sole arbitrator to adjudicate the disputes between the parties through claims and counterclaims, if any.