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Delhi High Court Rejects Claims Over Absence of a Valid Arbitration Agreement

Overview

This case addresses a situation where the very existence of an arbitration agreement was in dispute. The matter came before the Delhi High Court, after an arbitral award had rejected the claims of the petitioner at the initial stage on the ground that no valid agreement existed between the parties.

The main question before the Court was whether the petitioner had actually proved that a binding agreement containing an arbitration clause was ever executed between the parties. The Court also examined whether exchange of emails between the parties led to the creation of a valid contract and whether the arbitrator’s findings could be interfered with under Section 34 of the Arbitration and Conciliation Act 1996.

 

Facts of the Case

Galaxy Infra and Engineering Pvt. Ltd., the petitioner herein, provides consultancy services as to project execution and electrical design. The respondent, Pravin Electricals Pvt. Ltd., is engaged in infrastructure and industrial projects. 

In 2014, a tender was issued by South Bihar Power Distribution Company Ltd. for strengthening the power infrastructure in Patna. The petitioner stated that it was approached by the respondent for consultancy services concerning this project. 

A Consultancy Agreement was executed between the parties on 7 July 2014, which contained an arbitration clause. The agreement led to several doubts being raised to the same. Although both the parties were based in Mumbai and Bihar, the document was notarised in Faridabad, where neither of them had any business presence. Additionally, the notary’s license had expired, and there were also inconsistencies in statements of witnesses regarding the execution of the agreement.

After the project was awarded, a dispute arose between the parties regarding non-payment of the petitioner's final invoice in 2017. Following this, the arbitration proceedings were invoked in 2018. The respondent denied signing the agreement and stated that the signatures were forged.

The matter reached the Supreme Court, which further allowed arbitration to proceed, but directed the arbitrator to first determine whether a valid arbitration agreement existed. 

During the course of arbitration, it was noticed that even after 7 July 2014, there were certain email exchanges between the parties as to draft agreements, which indicated that the contract may not have been finalised on that date. It was eventually held by the arbitrator that the agreement was not proved and the signatures were forged. 

Aggrieved by the same, the petitioner approached the Delhi High Court under Section 34 of the Arbitration and Conciliation Act, 1996 to set aside the findings of the arbitrator.

 

Legal Issues

  1. Whether the petitioner was successful in proving the existence and execution of a valid arbitration agreement dated 7 July 2014.
  2. Whether the alleged Consultancy Agreement was vitiated by forged signatures and therefore invalid.
  3. Whether the email exchanges between the parties could constitute a binding contract.
  4. Whether the arbitral award suffered from patent illegality requiring interference under Section 34 of the Arbitration and Conciliation Act 1996.

 

Decision

The Delhi High Court dismissed the petition and upheld the arbitral award. The Court stated that the petitioner failed to establish the execution of a valid Consultancy Agreement. The inconsistencies as to notarisation along with the absence of proper witness testimony, created doubts as to the authenticity of the document. 

The Court, while relying on the email exchanges between the parties, ruled that no final agreement had been concluded  on 7 July 2014. 

As to the forged signatures, it was held that the burden was on the petitioner to prove the execution of the agreement, which it failed to do so. Once the agreement itself was in question, the arbitration clause could not be enforced.

Finally, the Court reiterated that Section 34 does not permit re-appreciation of the evidence. Since the arbitrator's findings were reasonable, and based on the material on record, no interference was required.

 

Case Reference:- Galaxy Infra and Engineering Pvt. Ltd.(Petitioner) Vs. Pravin Electricals Pvt. Ltd. (Respondent)  O.M.P. (COMM) 463/2023 (SJB, Delivered by Avneesh Jhingan, J.)