Right To File Section 14 Petition Absolute And Untrammeled By Any Other Considerations: Delhi High Court

The Delhi High Court bench of Justice C. Hari Shankar, while hearing a petition challenging the jurisdiction of the tribunal, has held that the right of a party to file a Section 14 petition seeking to terminate the mandate of the tribunal is not curtailed because the party had previously filed a Section 16 application before the tribunal and lost.

Facts:

The petitioner, Yves Saint Laurent (YSL), had entered into a Franchise Agreement (FA) with Respondent 2 Beverly Luxury Brands Ltd (Beverly). The FA conferred exclusive jurisdiction to the commercial courts in Paris to adjudicate any dispute arising between the parties. Respondent 1 Brompton Lifestyle Brands Pvt Ltd (Brompton) entered into a Sub-Franchise Agreement (SFA) with Beverly on 2 July 2019 without the petitioner’s consent, and the petitioner was also not a signatory to it. The petitioner terminated the FA on 8 August 2021, and subsequently, Beverly terminated the SFA. Brompton addressed a notice dated 22 February 2022 to Beverly and the petitioner under Section 21 of the Arbitration Act, invoking an arbitration clause in the SFA and proposing to refer disputes that arose between Brompton on one hand and petitioner and Beverly on the other to arbitration.

The arbitrator vide order dated 23 July 2022 communicated to the parties he had entered on reference. The petitioner wrote to Beverly on 28 September 2022, stating that the petitioner was unaware of the SFA before receiving the Section 21 notice. The petitioner pointed out that the SFA was executed in breach of FA and that the petitioner was not a to the SFA and was wrongly joined in the proceedings.

The petitioner filed a Section 16 application on 26 November 2022, contending that the arbitrator was coram non-judice and that the petitioner has no arbitration agreement with Brompton. The tribunal, vide order dated 8 April 2023, dismissed the Section 16 application. It was noted that the petitioner did not deny the receipt of the Section 21 notice, and the pleadings were sent to the petitioner via email dated 25 April 2022, which also had a link for the petitioner to participate in the proceedings. The arbitrator also held that Section 16 did not empower the tribunal to set aside orders passed against a party ex parte.

This petition has been filed under Section 14, read with Section `12(5) of the Arbitration Act, and the petitioner only seeks termination of the arbitrator’s mandate.

Submissions by the Parties:

The respondent made the following submissions:

• Once the Section 16 application moved by the petitioner was dismissed, the only option available to the petitioner was to wait for the final award to be passed by the learned arbitrator and challenge it under Section 34.

The petitioner made the following submissions in rejoinder:

• The Section 16 application was not considered on merits. It was rejected because a combined application challenging the tribunal’s jurisdiction to adjudicate the dispute and setting aside previous orders passed by the arbitrator against the petitioner ex parte could not be maintained. As there was no decision on merits, the petitioner has no option but to move a Section 14 application.

Analysis of the Court:

The Bench observed the Arbitration Act does not take away the right of a party to the arbitral proceedings to seek termination of the arbitrator’s mandate under Section 14 simply because it had already moved a Section 16 application before the Arbitral Tribunal and lost.

The Bench further observed that the reliance on para 7 of SBP & Co v. Patel Engineering Ltd is misplaced. The Supreme Court in SBP simply says that if a party has moved a Section 16 application questioning the jurisdiction of the tribunal, and the application has been dismissed, if the party wants to challenge the dismissal, it can only challenge it once the final award is passed. This was obvious from the next sentence in the paragraph, which envisages an exact opposite situation in which the tribunal accepts the Section 16 application. This decision of the tribunal can straight away be challenged under Section 37 because Section 37(2)(a) allows an appeal against an order accepting an application under Section 16(2) or Section 16(3) but not an appeal rejecting the Section 16 application. What has been held by the Supreme Court in para 7 of SBP is that if a party moves a Section 16(2) or Section 16(3) application, and the same is accepted, the opposite party has a statutory right to appeal under Section 37(2)(a). If the application is dismissed, the applying party has no right to challenge the tribunal’s order under Section 37 and has to wait for the final award to be passed under Section 34. The Supreme Court, in para 7 of SBP, has not curtailed the right of a party to seek termination of the arbitral tribunal’s mandate under Section 14.

Case Title: Yves Saint Laurent v. Brompton Lifestyle Brands Private Limited & Anr.