MEDISPROUTS INDIA PVT LIMITED CIN U93020KL2012PTC030297 A COMPANY REGISTERED UNDER THE COMPANIES ACT & ORS.  Vs M/S SILVER MAPLE HEALTHCARE SERVICES (P) LTD CIN U85100DL2010PTC200694 A COMPANY INCORPORATED UNDER COMPANIES ACT

O.M.P. (T) (COMM.) 88/2020 Page 1 of 11 $~11
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Judgment: 08th January , 202 1
+ O.M.P. (T) (COMM.) 88/2020
MEDISPROUTS INDIA PVT LIMITED CIN
U93020KL2012PTC030297 A COMPANY
REGISTERED UNDER THE COMPANIES
ACT & ORS. ….. Petitioner s
Through Mr Shinu J. Pillai, Advocate.
versus
M/S SILVER MAPLE HEALTHCARE
SERVICES (P) LTD CIN U85100DL2010PTC200694
A COMPANY INCORPORATED UNDER
COMPANIES ACT ….. Respondent

Through

CORAM:
HON’BLE MR. JUSTICE VIBHU BAKHRU

[Hearing held through videoconferencing]
VIBHU BAKHRU, J . (ORAL)
1. The petitioners have fi led the present petition under S ection
32(2)(c) of the Arbitration and Conciliation Act, 1996 (here inafter ‗the
Act‘), inter alia , impugning an order dated 27.11.2020, whereby an
application filed by the petitioners seeking termination of arbitral
proceedings in terms of Section 32(2)(c) of the Act was rejected along
with costs of ₹20,000/ -. The petitioners also pray that or ders be passed
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O.M.P. (T) (COMM.) 88/2020 Page 2 of 11 terminating the a rbitral proceedings.
2. The disputes between the parties arose in connection with a
Sub-Franchise Agreement dated 24.0 1.2012 entered into betwee n
petitioner no. 1 and the respondent. In terms of the said agreement, the
respondent had granted petitioner no. 1 non -transferable and non –
assignable license to use the trademarks (DHI trademarks) for
specified products and for hair transplantation servic es, in the State of
Kerala.
3. Petitioner no. 1 is a company and petitioner nos. 2 and 3 are its
directors.
4. The petitioners claim that petitioner no. 1 terminated the said
Sub-Franchise Agreement vide a letter dated 06.03.2019. The
respondent claims that it terminated the Sub -Franchise Agreement by
a letter dated 16.05.2019 , citing various reasons including lapses in
health and safety standards.
5. By a letter dated 04.06.2019, the respondent invoked the
Arbitration Agreement contained in the said Sub -Franchise Agreement
for adjudicating the disputes that had arisen between the parties. The
respondent also suggested name s of two former judges of this C ourt to
be appointed as Arbitrators. The said proposal was declined by the
petitioners but subsequently, the part ies constituted the Arbitral
Tribunal by the petitioner no.1 nominating Mr . MKS Menon,
Advocate and the respondent nominating Mr . Amit Bansal, Advocate
as arbitrators. Justice Indermeet Kochhar was appointed as the
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O.M.P. (T) (COMM.) 88/2020 Page 3 of 11 presiding arbitrator.
6. The respon dent f iled a Statement of Claim claiming a sum
aggregating ₹6,31,81,795/ – along with interest from the petitioners.
The petitioners filed their response and petitioner nos. 1 and 2 made a
counter -claim aggregating ₹19,97,75,452.72 along with interest.
7. The petiti oners state that the respondent filed a criminal
complaint before the Safdarjung Police Station resulting in registration
of FIR No. 340/19. The petitioners have challenged the registration of
the said FIR in Crl. MC No. 516 of 2020 , which is pending before this
Court. The petitioners also filed a criminal complaint which led to the
registration of FIR No. 107/2020 with the Ernakulam Town South
Police Station, Kerala.
8. Thereafter, on 06.11.2020, the petitioners filed an application
before the Arbitral T ribunal praying that the arbitral proceedings b e
terminated under Section 32(2)(c) of the Act. The said application was
dismissed by an impugned order dated 27.11.2020 .
9. The petitioner s claim that the respondent had entered into the
Sub-Franchise Agreem ent by falsely representing to it that the
respondent was a franchise of DHI trademarks under the Master
Franchise Agreement d ated 26.05.2010. The petitioners claim that the
CEO of the respondent company had falsely represented that the
respondent had sufficient authority to deal with the brand ‗DHI‘,
which was owned by entities based in Cyprus . The petitioners further
claim that the disputes have become un -arbitrable in view of
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O.M.P. (T) (COMM.) 88/2020 Page 4 of 11 subsequent developments inc luding registration of FIRs and
consequent investigations. The petitioners claim that disputes relating
to Intellectual Property Rights are not arbitrable.
10. It is further stated that both the parties – petitioner no.1 as well
as the respondent – had also f iled criminal complaints against each
other and consequentially, FIRs have also been registered on the basis
of the said complaint s.
11. The learned counsel appearing for the petitioner submits that
since the respondent did not have any right to sub -license or deal with
the brand ‗DHI‘, the Sub -Franchise Agreement was a consequence of
fraud perpetuated on it. He submits that in view of the above, the
disputes raised by the respondents are not arbitrable and therefore, the
Arbitral Tribunal has no mandate to de al with the said disputes. He
submits that in the given circumstances, the Arbitral Tribunal was
obliged to terminate the arbitral proceedings under Section 32(2)(c) of
the Act. He referred to the recent decision of the Supreme Court in
Vidya Drolia v. Du rga Trading Corporation : C.A. No. 2402 of 2019
decided on 14.12.2020 . He also referred to the decision of the
Supreme Court in Lalitkumar V. Sanghavi Thr LRs & Anr. v.
Dharam das V. Sanghavi & Ors. : (2014 ) 7 SCC 255 , in support of his
contention that the disputes regarding termination of arbitral
proceedings under Section 32(2)(c) of the Act could be agitated by
filing a petition under Section 14 of the Act.
12. It is not necessary for this Court to examine the contention
whether the disputes raised before the Arbitral Tribunal are arbitrable
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O.M.P. (T) (COMM.) 88/2020 Page 5 of 11 or not. The question whether the disputes are arbitrable relate to the
jurisdiction of the Arbitral Tribunal. The doctrine of Kompetenz –
Kompetenz is applicable to arbitral proceedings and the arbitra l
tribunal has the jurisdiction to rule as to the extent of its own
competence on the issues before it.
13. It is relevant to refer to S ection 16 of the Act, which is set out
below:
―16. Competence of arbitral tribunal to rule on its
jurisdiction .— (1) The arbitral tribunal may rule on its
own jurisdiction, including ruling on an y objections with
respect to the existence or validity of the arbitration
agreement, and for that purpose, —
(a) an arbitration clause which forms part of a contract
shall be treated as an agreement independent of the other
terms of the contract; and
(b) a decision by the arbitral tribunal that the contract is
null and void shall not entail ipso jure the invalidity of
the arbitration clause.
(2) A plea that th e arbitral tribunal does not have
jurisdiction shall be raised not later than the submission
of the statement of defence; however, a party shall not be
precluded from raising such a plea merely because that he
has appointed, or participated in the appointm ent of, an
arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope
of its authority shall be raised as soon as the matter
alleged to be beyond the scope of its authority is raised
during the arbitral proceedings.
(4) The arbitral tribunal may, in either of the cases
referred to in sub -section (2) or sub -section (3), admit a
later plea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to
in sub -section (2) or sub -section (3) and, where the
arbitra l tribunal takes a decision rejecting the plea,
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O.M.P. (T) (COMM.) 88/2020 Page 6 of 11 continue with the arbitral proceedings and make an
arbitral award.
(6) A party aggrieved by such an arbitral award may
make an application for setting aside such an arbitral
award in accordance with Section 3 4.‖

14. It is apparent from the above that any challenge to the
jurisdiction of an Arbitral Tribunal necessarily has to be decided by
the Arbitral Tribunal itself in the first instance. Thus, t he question
whether the disputes are arbitrable or not cannot be made the subject
matter of proceedings under Section 14 of the Act.
15. Plainly, if the Arbitral Tribunal agrees with the contention that
the disputes are not arbitrable, arbitral proceedings would require to be
terminated and the a ggrieved party would have its remedies against
the said order /decision . How ever, if the Arbitral Tribunal rejects the
contention that it does not have jurisdiction to decide the claims , the
Arbitral Tribunal would proceed to render an award . In the given
circumstances , the Arbitral T ribunal may adjudicate the dispute
regarding the question of jurisdiction and such decision may be
construed as an award (See : Indian Farmers Fertilizer Cooperat ive
Limited v. Bhadra Products: (2018) 2 SCC 534 ). In such
circumst ances, the aggrieved party would have a right to apply for
setting aside of the said award provided that the grounds as set out
under Section 34 of the Act are made out. In either event, recourse to
Section 14 of the Act is not available to challenge the decision of the
Arbitral Tribunal regarding any question of arbitrability/jurisdiction ,
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O.M.P. (T) (COMM.) 88/2020 Page 7 of 11 unless the issue relates to the ineligibility of an arbitrator to act , such
as in terms of Section 12(5) of the Act.
16. The decision in the case of Vidy a Drolia (supra ) is of little
assistance to the petitioner. In that case, the Supreme Court has
authoritatively held as under:
―69. Issue of non -arbitrability can be raised at
three stages. First , before the court on an
application for reference under Section 11 or for
stay of pending judicial proceedings and reference
under Section 8 of the Arbitration Act; secondly ,
before the arbitral tribunal during the course of
the arbitration proceedings; or thirdly , before the
court at the stage of the challenge to the award or
its enforcement. ‖
17. It is, thus, clear that the question whether the disputes are
arbitrable is to be examined by the Arbitral Tribunal in the first
instance and by the court while examining the award at the stage of
challenge under Section 34 of the Act .
18. In Vidya Drolia (supra ), the Supreme Court also explained that
the issue of non -arbitrability is a facet of the jurisdiction of the
Arbitral Tribunal and can be examined by the Arbitral Tribunal under
Section 16(1) of the Act . And, the remedy of the unsuccessful party
raising the objection to the issue of arbitrability is the recourse under
Section 34 of the Act. The relevan t extract of the said decision is set
out below:
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O.M.P. (T) (COMM.) 88/2020 Page 8 of 11 ―119. Section 16(1) of the Arbitration Act accepts
and empowers the arbitral tribunal to rule on its own
jurisdiction including a ruling on the objections,
with respect to all aspects of non -arbitrability
including validity of the arbitration agreement. A
party opposing arbitration, as per sub -section (2),
should raise the objection to jurisdiction of the
tribunal before the arbitral tribunal, not later than the
submission of statement of defence. However,
participation in the appointment procedure or
appointing an arbitrator would not preclude and
prejudice a ny party from raising an objection to the
jurisdiction. Obviously, the intent is to curtail delay
and expedite appointment of the arbitral tribunal.
The clause also indirectly accepts that appointment
of an arbitrator is different from the issue and
questi on of jurisdiction and non -arbitrability. As per
sub-section (3), any objection that the arbitral
tribunal is exceeding the scope of its authority
should be raised as soon as the matter arises.
However, the arbitral tribunal, as per sub -section (4),
is emp owered to admit a plea regarding lack of
jurisdiction beyond the periods specified in sub –
section (2) and (3) if it considers that the delay is
justified. As per the mandate of sub -section (5) when
objections to the jurisdiction under sub -sections (2)
and (3) are rejected, the arbitral tribunal can
continue with the proceedings and pass the
arbitration award. A party aggrieved is at liberty to
file an application for setting aside such arbitral
award under Section 34 of the Arbitration Act. Sub –
section (3) to Section 8 in specific terms permits an
arbitral tribunal to continue with the arbitration
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O.M.P. (T) (COMM.) 88/2020 Page 9 of 11 proceeding and make an award, even when an
application under sub -section (1) to Section 8 is
pending consideration of the court/forum. Therefore,
pendency of the j udicial proceedings even before the
court is not by itself a bar for the arbitral tribunal to
proceed and make an award. Whether the court
should stay arbitral proceedings or appropriate
deference by the arbitral tribunal are distinctly
different aspects a nd not for us to elaborate in the
present reference.
120. Section 34 of the Act is applicable at the third
stage post the award when an application is filed for
setting aside the award. Under Section 34, an award
can be set aside – (i) if the arbitration agreement is
not valid as per law to which the party is subject; (ii)
if the award deals with the disputes not
contemplated by or not falling within the submission
to arbitration, or contains a decision on the matter
beyond the scope of submission to arbit ration; and
(iii) when the subject matter of the dispute is not
capable of settlement by arbitration under the law
for the time being in force. Thus, the competence –
competence principle, in its negative effect, leaves
the door open for the parties to cha llenge the
findings of the arbitral tribunal on the three issues.
The negative effect does not provide absolute
authority, but only a priority to the arbitral tribunal
to rule the jurisdiction on the three issues. The courts
have a ‗second look‘ on the thr ee aspects under
Section 34 of the Arbitration Act. ‖
19. At this stage, it is also relevant to refer to Section 14 of the Act
and the same is set out below:
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O.M.P. (T) (COMM.) 88/2020 Page 10 of 11 ―14. Failure or impossibility to act. —(1) 29[The
mandate of an arbitrator shall terminate and he shall
be substituted by another arbitrator, if] —
(a) he becomes de jure or de facto unable to perform
his functions or for other reasons fails to act without
undue delay; and
(b) he withdraws from his office or the parties agree
to the termination of his mandate.
(2) If a controversy remains concerning any of the
grounds referred to in clause (a) of sub -section (1), a
party may, unless otherwise agreed by the parties,
apply to the Court to decide on the termination of
the mandate.
(3) If, under this section or sub -section (3) of
Section 13, an arbitrator withdraws from his office
or a party agrees to the ter mination of the mandate
of an arbitrator, it shall not imply acceptance of the
validity of any ground referred to in this section or
sub-section (3) of Section 12. ‖
20. A plain reading of Section 14 of the Act indicates that it applies
only in cases where the Arbitrator becomes de jure or de facto unable
to perform his functions or for other reasons fails to act without delay.
In terms of C lause (b) of Section 14(1) of the Act, it also applies
where the Arbitrator withdraws from his office or his mandate is
terminated by the parties. It is obvious from the plain language of
Section 14(1) of the Act that it has no application in cases where the
Arbitral Tribunal is proceeding with the reference and the mandate of
the Arbitrators is not terminated by the parties.
21. Reliance o n the case of Lalitkumar (supra ) is also misplaced.
In the said case, the Arbitral Tribunal had terminated the arbitral
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O.M.P. (T) (COMM.) 88/2020 Page 11 of 11 proceedings as the concerned party had f ailed to pay the arbitration
fees. The Supreme Court held that such termination would fall within
the ambit of Section 32(2)(c) of the Act , that is, on the Arbitral
Tribunal ‘s finding that continuation of arbitral proceedings has
become unnecessary or impossible. It is in that context that the
Supreme Cou rt held that ― the question whether the mandate of the
arbitrator stood legally terminated or not can be examined by the
court as provided u nder Section 14(2) ‖. This decision would have
little relevance in cases where the arbitral proceedings have not been
terminated; the arbitrators are able to perform their function; and they
have neither withdrawn their mandate nor has the same been
termina ted by the parties.
22. As noticed above, the question whether the disputes are
arbitrable or not is a matter effecting the jurisdiction of the Arbitral
Tribunal and the same is not a subject matter of Section 32(2)(c) of the
Act.
23. The present petition is, th us, misconceived. The same is,
accordingly, dismissed.

VIBHU BAKHRU, J
JANUARY 8, 2021
pkv
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