09 August 2024 Arbitration Law >> Business & Commercial Law  

In a recent legal development of M/s. SMC Integrated Facility Management Solutions Ltd. (previously known as Service Master Clean Ltd.) v/s Quantum Naturals India Private Limited, a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, has led to a significant judicial intervention to resolve a dispute between a service provider and a client through arbitration.

Background:

The dispute originated from a Service Provider Agreement dated July 8, 2019, between the petitioner and the respondent. Under this agreement, the petitioner was contracted to deliver specific services to the respondent. The agreement contained an arbitration clause designed to address disputes arising from the contract. The relevant clause stipulated: "13.4 Where the dispute could not be settled by the Parties as per clause 13.3, then such dispute shall be referred to arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996. Parties shall appoint a single arbitrator mutually. The arbitration proceedings shall be conducted in New Delhi, or in such other city as the Parties may mutually agree upon. The arbitration proceedings shall be conducted in the English language. The decision of the arbitrator will be final and binding on the Parties."

The Dispute:

The petitioner claimed that an amount of ?17,78,270 was owed by the respondent and that this issue remained unresolved despite attempts at mutual consultation. Consequently, on June 5, 2023, the petitioner issued a notice under Section 21 of the Arbitration and Conciliation Act, seeking arbitration for the dispute.

Court Proceedings:

The respondent's failure to respond to the notice led the petitioner to approach the court under Section 11(6) of the Arbitration and Conciliation Act, seeking judicial intervention to appoint an arbitrator. Despite a notice being issued on December 7, 2023, the respondent did not provide any reply. The dispute was subsequently referred to mediation at the Delhi High Court Mediation and Conciliation Centre, but mediation efforts did not succeed.

Supreme Court Guidance:

Recent jurisprudence, notably the Supreme Court's decision in SBI General Insurance Co Ltd v. Krish Spinning (2024 SCC OnLine SC 1754), clarifies that a court under Section 11(6) must verify the existence of an arbitration agreement and ensure that the petition is filed within three years of the Section 21 notice. In this case, both conditions were met, prompting the court to refer the dispute to arbitration.

Court's Order:

The court has directed that the dispute be referred to the Delhi International Arbitration Centre (DIAC) for the appointment of a suitable arbitrator. The arbitration process will be conducted according to the DIAC’s rules and regulations, with the arbitrator's fees governed by the DIAC's Schedule of Fees. Additionally, the arbitrator is required to submit the necessary disclosures under Section 12(2) of the Arbitration and Conciliation Act within a week of accepting the reference. In conclusion, the court has allowed the petition for arbitration, with no order as to costs, ensuring that the dispute will be resolved through the established arbitration process.

Arbitration and Conciliation Act, 1996