Plea Of Waiving Arbitration Clause Cannot Be Examined By Referral Court U/S Of 8 A&C Act, Falls Within Domain Of Tribunal: Delhi High Court

Facts

The instant application had been filed under Section 8, ACA seeking to refer the parties to the already instituted arbitration. The Plaintiff, Porto Emporios Shipping Inc, is registered in the Republic of Liberia, Indian Oil Corporation is Defendant No.1 and Indian Council of Arbitration is Defendant No.2

On 05.08.2020, a Charterparty agreement was entered into between the Plaintiff and Defendant No.1 pursuant to which the Plaintiff agreed to charter carriage of 273,317 MT of crude oil from Mina Al-Ahmadi, Kuwait, to Paradip, India. En route, on 03.09.2020, an explosion occurred in the engine room, causing a fire on the charter vessel.

On 14.10.2020, the Plaintiff notified Defendant No.1 that the Charterparty was frustrated due to the vessel being badly damaged. Consequently, on 29.12.2020, Defendant No.1 filed a lawsuit in Panama seeking USD 78 million. During the pendency of the said suit, the Defendant No. 1 also sought for an interim injunction from the First Maritime Court and on 30.12.2020, an interim injunction was granted restraining the sale, transfer, cancellation and encumbrances over the vessel.

Thereafter on 12.02.2021, the Plaintiff sent a notice to Defendant No.1 stating that by filing a lawsuit before the First Maritime Court, the Plaintiff had repudiated the arbitration clause in the Charterparty agreement and by virtue of the said notice, the Plaintiff stated to have accepted the repudiatory breach of the Charterparty agreement. Various court actions continued, including the constitution of a limitation fund. On 20.09.2021, the Defendant No.2 issued an email to the Plaintiff intimating that Defendant No.1 had registered arbitration proceedings.

Thereafter, on 20.10.2021, the Plaintiff replied to an email issued by the Defendant no. 2, opposing the continuation of the arbitration proceedings, stating that the arbitration agreement was inoperative. Following this, the present suit for declaration and perpetual injunction was filed by the Plaintiff. On 27.10.2021, summons were directed to be issued in the suit and an interim order was passed. Thereafter, instant application under Section 8, ACA was preferred by the Defendant No. 1 to refer the parties to the arbitration.

Contentions

The Counsel for the Defendant No.1 submitted that the arbitration clause, which was mutually agreed upon, could not be waived by virtue of certain proceedings which have been undertaken in a foreign country. He gave a comprehensive demonstration of the proceedings and then contended that even in some of the proceedings, the Plaintiff himself had conceded to the applicability of arbitration proceedings under ACA. He further submitted, that the plea of waiver of the arbitration clause did not fall within the ambit of prima facie examination under Section 8, ACA.

Per contra, the Counsel for the Plaintiff, opposed the submissions made by the Defendant. He argued that the instant application was not maintainable as the dispute is not arbitrable and in any event, the arbitration agreement stood waived and terminated.

In the Rejoinder, the Counsel for Defendant No.1 submitted that the plea relating to waiver of the arbitration agreement and non-arbitrability of the disputes pertains to the jurisdiction of the Arbitral Tribunal, which under Section 16, ACA is exclusively empowered to rule on such issues.

He also contended that the scope of judicial scrutiny under Section 8, ACA is limited to a prima facie examination of the formal validity and existence of the arbitration agreement as per Section 7 and the earlier observations in Vidya Drolia v Durga Trading Corporation (2021) 2 SCC 1 permitting a deeper inquiry into non-arbitrability no longer hold the field.

Observations

The Court held that the solitary issue for consideration before it was whether under the limited periphery of the scope and extent of enquiry envisaged under Section 8, ACA, the plea of waiver of the arbitration clause could be meticulously examined by the referral court in the present case.

After a detailed analysis of the scheme of ACA, the Court concluded that the legislative scheme couched in Sections 5,8,11,16,34 and 37 of ACA would emphatically underscore that the interjection to arbitral proceedings at the inception is an exception to the general rule.

The Court observed that Plaintiff has contended that the reliefs sought in the instant civil suit are not capable of being granted in arbitration proceedings for which the Court would be required to examine the scope and extent of the relief prayed in the instant civil suit. The Court highlighted that the fundamental relief prayed in the instant civil suit is non-operability of Clause 29 of the Charterparty Agreement which contains the arbitration clause.

Thus, in sum and substance the Plaintiff's case rests on the fulcrum of the inoperability of the arbitration clause under the Charterparty agreement, rendering the same clause as redundant and consequent declaration of the same inoperable in the instant civil suit. A plea of the arbitration agreement being non-existent is taken and in the absence of an existing clause, it is contended that the disputes are non-arbitrable. The Court observed that if the waiver of Clause 29 of the Charterparty Agreement is tested on the anvil of the judicial dictum laid down in Booz Allen and Hamilton Inc v SBI Home Finance Ltd (2011) 5 SCC 532 (“Booz Allen”), it is clear that it is not covered under the well recognized examples of non-arbitrable disputes.

The Court observed that a waiver does not operate against the world at large but is confined to the rights and obligations inter se the parties involved in the lis. The doctrine of waiver, in this context, is inherently personal and pertains solely to the contractual relationship between the disputing parties. Therefore, applying the principles enunciated by the Supreme Court in Booz Allen, the plaintiff's fundamental grievance in the present case i.e. the alleged waiver of the arbitration clause, concerns a right in personam. Consequently, the determination of such a plea properly falls within the jurisdictional domain of the Arbitral Tribunal itself.

The Court held, that in the present case, there exists no dispute as to the existence of a valid and binding arbitration agreement between the parties. In such a scenario, the mandate under Section 8, ACA is unequivocal. It is only when the dispute is manifestly and demonstrably non-arbitrable can a Court decline referral to arbitration.

In view of the aforesaid, the parties herein were referred to the Arbitral Tribunal as the Court does not find that no valid arbitration exists between the parties.

Case Title – Porto Emporios Shipping Inc v Indian Oil Corporation Limited

Citation: 2025 LiveLaw (Del) 616

Case No. – CS (OS) 549/2021, I.A. 13976/2021, I.A. 15279/2021 and I.A.15281/2021

Appearance-

For Plaintiff - Mr. Sandeep Sethi, Sr. Advocate with Mr. Arvind Kumar Gupta, Mr.Aditya, Mr.Ajay, Mr. Omkar Pradhan and Mr. Arun Bhattacharya, Advocates

For Defendants - Mr. Ashish Dholakia, Sr. Advocate with Mr. Tarang Gupta, Mr. Shrikant Hathi, Mr. Kartikeya Sharma, Mr. Pavitra Kaur, Ms. Meghna Tandon, Mr. Shiven Asthana, Advocates

Date – 09.05.2025

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