Initiation of Criminal Action Against Each Other Indicates Lack of Intention to Resort to Resolution: Delhi High Court

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Facts of the case

The Respondent- MSD Telematics Pvt. Ltd (hereinafter MSD) did not file a reply till 8th April 2021 and asked for further time in this regard, later filing their reply on 19th April 2021. After listening to the arguments of both the side, the Court had proceeded to decide the case. However, on closely analyzing the facts this matter was listed for another hearing on 27th April 2021, on account of an impounding MoU which was entered into on 1st January 2020 containing an arbitration clause. 

Submission by the Counsel appearing for the Petitioner 

IMZ contended that MSD committed various illegal methods which violated the terms of the Memorandum of Understanding (hereinafter MoU), after a failed buyout agreement between the directors of both IMZ and MSD. It was contended that their servers were tampered with. This led them to their database and records which were misused. The Counsel for IMZ also stated that MSD further made fake allegations against the directors and employees of IMZ. Thus, IMZ invoked arbitration through a notice dated 4th July 2020. 

Submission by the Counsel appearing for the Respondent 

MSD argued that the petition was not maintainable as it had been filed prematurely. The Counsel for MSD further contended that the MoU in question was disputed because it had been forged, permeating the entire MoU. Thus, the agreement was void. It was also argued that MoU’s authenticity was in question and the gravity of the offences rendered the dispute non-arbitrable. The Counsel for MSD also stated that IMZ also did not comply with the pre-arbitration procedure. It was further stated that the MoU was an unstamped document thus not enforceable by law.

The decision by the Court

The Petition was allowed and accordingly, Mr Shashank Garg was appointed as the Sole Arbitrator to adjudicate the disputes between both the parties under the MoU dated 01st January 2020.

Analysis

The Judge noted that even though MSD contended that there was fraud, forgery and fabrication on IMZ’s part, they did not deny having signed the MoU. Referring to Vidya Drolia & Ors. V. Durga Trading Corporation, it was observed that judicial enquiry was not based on the allegation of fraud but only when ex-facie. Adding to that, it was further said that even though the authenticity of the MoU was under question, it was not enough to hold that document fraudulent.

Addressing the contention of non-compliance of the pre-arbitration procedure, the Court said that it had no merit as the fact that both the parties initiated a criminal proceeding against each other indicated that parties did not intend to come to any kind of resolution which was why negotiation as a precondition should not come in way of the dispute resolution process agreed upon by the parties.

Next, the issue of insufficiency of stamp duty was taken up, which was dismissed by the Court in light of the judgment in N.N Global Mercantile Pvt. Ltd v. Indo Unique Flame Ltd. The Court also found no merit concerning the objections raised by MSD regarding non-arbitrable offences. Finally, it was established that contingencies provided under section 11(6) of the AC Act had been met.

Click here for the official copy of Judgment


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