GOQII TECHNOLOGIES PRIVATE LIMITEDversusSOKRATI TECHNOLOGIES PRIVATE LIMITED

                 [2024] 11 S.C.R. 530 : 2024 INSC 853

                 Goqii Technologies Private Limited
                                 v.
                Sokrati Technologies Private Limited
                      (Civil Appeal No. 12234 of 2024)
                              07 November 2024
      [Dr Dhananjaya Y Chandrachud, CJI, J.B. Pardiwala*
                    and Manoj Misra, JJ.]

                            Issue for Consideration
       Issue arose, as to the correctness of the order passed by the High
       Court dismissing the appellant’s application u/s.11 of the Act, 1996,
       seeking appointment of an arbitrator to adjudicate disputes and
       claims in terms of Clause 18.12 of the Master Services Agreement
       executed between the parties.

                                  Headnotes†
       Arbitration and Conciliation Act, 1996 – s.11 – Scope of
       inquiry under – Standard of judicial scrutiny – Master Services
       Agreement between the appellant and the respondent –
       Dispute between parties – Application by the appellant
       u/s.11 of the Act, seeking appointment of an arbitrator to
       adjudicate disputes and claims in terms of Clause 18.12 of
       the Master Services Agreement – Rejected by the High Court
       holding that although the audit report highlighted poor returns
       on investment and inconsistent metrics, yet it did not support
       the assertions made by the appellant regarding fraudulent
       practices of the respondent – Correctness:
       Held: Scope of inquiry u/s.11 is limited to ascertaining the prima
       facie existence of an arbitration agreement – On facts, the High
       Court exceeded this limited scope by undertaking a detailed
       examination of the factual matrix – High Court erroneously
       proceeded to assess the auditor’s report in detail and dismissed
       the arbitration application – Such an approach does not give
       effect to the legislative intent behind the 2015 amendment to
       the 1996 Act, which limited the judicial scrutiny at the stage of
       s.11 – Frivolity in litigation too is an aspect which the referral


* Author
[2024] 11 S.C.R.                                                            531

                     Goqii Technologies Private Limited v.
                     Sokrati Technologies Private Limited

     court should not decide at the stage of s.11 as the arbitrator is
     equally, if not more, competent to adjudicate the same – Limited
     jurisdiction of the referral Courts u/s.11 must not be misused by
     parties in order to force other parties to the arbitration agreement
     to participate in a time-consuming and costly arbitration process –
     Existence of the arbitration agreement in Clause 18.12 of the MSA
     not disputed by the respondent – Question whether there exists a
     valid dispute to be referred to arbitration can be addressed by
     the Arbitral Tribunal as a preliminary issue – Order passed by the
     High Court set aside. [Paras 18-21]

                               Case Law Cited
     Indian Oil Corporation v. NCC Ltd. [2022] 13 SCR 660 : (2023)
     2 SCC 539; B & T AG v. Ministry of Defence [2023] 7 SCR 599 :
     2023 SCC OnLine SC 657; Sushma Shiv Kumar Daga & Anr. v.
     Madhur Kumar Ramkrishnaji Bajaj & Ors [2023] 15 SCR 909 :
     2023 SCC OnLine SC 1683; In Re: Interplay between Arbitration
     Agreements under the Arbitration and Conciliation Act 1996 and
     the Indian Stamp Act 1899 [2023] 15 SCR 1081 : 2023 INSC
     1066; SBI General Insurance Co. Ltd. v. Krish Spinning [2024]
     7 SCR 840 : 2024 INSC 532 – referred to.

                                 List of Acts
     Arbitration and Conciliation Act, 1996; Stamp Act, 1899; Insolvency
     and Bankruptcy Code, 2016.

                              List of Keywords
     Scope of inquiry u/s.11 of the Arbitration and Conciliation
     Act, 1996; Standard of judicial scrutiny; Master Services
     Agreement; Appointment of arbitrator; Fraudulent practices; Prima
     facie existence of arbitration agreement; Arbitration application;
     Frivolity in litigation; Limited jurisdiction of the referral Courts;
     Arbitration agreement; Time-consuming and costly arbitration
     process; Judicial interference; Referral Courts; Arbitral Tribunal.

                              Case Arising From
     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 12234 of 2024
     From the Judgment and Order dated 30.04.2024 of the High Court
     of Judicature at Bombay in CAA No. 6 of 2024
532                                                        [2024] 11 S.C.R.

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                          Appearances for Parties
       H.D. Thanvi, Nikhil Kumar Singh, Achal Singh Bule, Rishi Matoliya,
       Advs. for the Appellant.
       Ms. Shweta Bharti, Jyoti Kumar Chaudhary, Nicholas Choudhury,
       Jatin Chaddha, Vineet Dwivedi, Advs. for the Respondent.
                 Judgment / Order of the Supreme Court
                                 Judgment
       J.B. Pardiwala, J.
1.     Leave granted.
2.     This appeal arises from the final judgment and order dated
       30.04.2024 (“impugned judgment”) passed by the High Court of
       Judicature at Bombay in Commercial Arbitration Application No. 6 of
       2024. The High Court dismissed the application preferred by Goqii
       Technologies Private Limited (“the appellant”) under Section 11 of
       the Arbitration and Conciliation Act, 1996 (“the Act, 1996”) seeking
       appointment of an arbitrator to adjudicate disputes and claims in
       terms of Clause 18.12 of the Master Services Agreement (“MSA”)
       executed between the appellant and Sokrati Technologies Private
       Limited (“the respondent”).
       A.   FACTUAL MATRIX
3.     The appellant, a technology-based wellness venture inter alia
       providing life style consultancy services, executed the MSA with
       the respondent, an entity engaged in digital marketing services, and
       a subsidiary of Dentsu International Limited, to manage its digital
       advertising campaigns. The MSA was subsequently extended on
       29.04.2022 for a period of three years, with certain amendments.
4.     Between August 2021 and April 2022, the appellant paid a sum of
       Rs 5,53,26,690/- to the respondent for the services rendered by it.
       It is the case of the appellant that for the subsequent 10 invoices
       raised between 12.05.2022 and 07.10.2022, the appellant was in the
       process of initiating and making payments when, in September 2022,
       certain media reports alleged malpractices in the advertising industry
       implicating major players. It was later discovered by the appellant
       that the Economic Offences Wing, Mumbai had lodged a complaint
[2024] 11 S.C.R.                                                        533

                     Goqii Technologies Private Limited v.
                     Sokrati Technologies Private Limited

     (EOW CR No. 08 of 2022) against Dentsu International Limited, the
     parent company of the respondent, and its senior officials alleging
     serious irregularities and malpractices in their service.
5.   In light of the aforesaid developments, the appellant engaged an
     independent auditor in November 2022 to prepare a report on the
     activities of the respondent from April 2021 to 31.12.2022. The auditor
     submitted its report in February 2023. The conclusion given by the
     auditor is extracted hereinbelow:
          “CONCLUSION
          The average ROI for the campaigns analyzed has been
          abysmally low at 0.35x compared to industry benchmark
          of 3x to 4x. We estimate an overcharge of ₹4,48,53,580.
          The audit identified significant areas of concern within the
          media plan, including but not limited to:
          •     Media buying cost of inventory, from different
                publishers at various points during the engagements
                have been found to be significantly more than the
                industry benchmarks.
          •     Traffic was poor and exposed to the wrong audience.
          •     Number of times the ad was shown (Frequency) has
                been increased as the reach numbers were being
                achieved, this only shows that the targeting of the
                customer/audience has been poor.
          •     The clicks generated were fraudulent.
          •     The leads garnered were junk.
          •     Cost of acquisition was higher than the category
                competition.
          We also recommend further detailed investigation across
          all the media campaigns by Sokrati.”
6.   On 22.02.2023, the respondent served a demand notice on the
     appellant under Section 8 of the Insolvency and Bankruptcy
     Code, 2016 (“IBC”) seeking Rs 6,25,67,060/- towards the outstanding
     invoices. In response, on 04.03.2023, the appellant rejected the
     demand, citing the audit findings, and invoked arbitration under
534                                                           [2024] 11 S.C.R.

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       Clause 18.12 of the MSA. The appellant also filed a counter claim,
       demanding a refund of Rs 5,53,26,690/- with 18% interest per annum
       and an additional Rs 6 crore by way of damages towards the alleged
       misrepresentations by the respondent.
7.     Subsequently, upon failure of the respondent to comply with the
       arbitration notice, the appellant filed Commercial Arbitration Application
       No. 06 of 2024 before the High Court, seeking appointment of a sole
       arbitrator to adjudicate the disputes between the parties. However,
       on 05.10.2023, while the application was pending, the respondent
       filed Company Petition (IB) No. 27 of 2024 under Section 9 of the
       IBC before the National Company Law Tribunal, Mumbai (NCLT,
       Mumbai) for initiating the corporate insolvency resolution process
       of the appellant.
8.     The High Court vide the impugned judgment, dismissed the application
       seeking the appointment of an arbitrator, observing that it lacked in
       merit and substance. The High Court noted that the independent
       audit report revealed significant concerns regarding the performance
       of the digital marketing campaigns executed by the respondent.
       The High Court was of the view that although the report highlighted
       poor returns on investment and inconsistent metrics, yet it did not
       support the assertions made by the appellant regarding fraudulent
       practices of the respondent. Further, the High Court observed that
       the appellant failed to demonstrate any substantial discrepancies
       in the report that would justify withholding payment for the invoices
       raised. It observed that while further investigation was suggested
       in the report, the appellant’s attempt to invoke arbitration based on
       non-existent disputes constituted a manifestly dishonest claim and
       therefore dismissed the application. The relevant observations from
       the impugned judgment are extracted hereinbelow:
            “19. It can be well understood that upon the further
            investigation, being directed to be carried out as indicated
            in the report, if it is concluded that the services were not
            rendered at all or they were deficient and the invoices do
            not deserve to be cleared, the demand of the money due
            and payable could have been resisted, but without any
            justification, by projecting the report of the independent
            auditor to be its shield to avoid the payment, the attempt on
            part of the applicant can only be described as ‘dishonest’.
[2024] 11 S.C.R.                                                           535

                     Goqii Technologies Private Limited v.
                     Sokrati Technologies Private Limited

          A manifestly dishonest claim or a contest, which is sought
          to be raised to a lawful demand of the money due and
          payable under the MSA, particularly, when, while availing
          the services, at no point of time, any deficiency in services
          is pointed out, but only by way of defence to the invoices
          raised, an independent agency’s report is being projected,
          as a support to canvass the deficiency in service, by
          attributing fraudulent acts to the respondent which, in fact,
          is not the finding of the independent auditor.
          Nonetheless, it is open for the applicant to follow the pursuit
          of detail investigation across all the media campaigns
          by Sokrati, as suggested in the report, however, without
          doing so, in order to avoid its liability for the claims under
          the invoices, the assertion of an arbitrable dispute, is an
          attempt to defeat the proceedings, which may be instituted
          on behalf of Sokrati before the Company Law Tribunal
          under the IBC.
          Drawing guidance from the observations of the Apex
          Court in case of NTPC Ltd (supra) that the limited
          scrutiny through the eye of the needle is necessary and
          compelling, as it is the duty of the referral code to protect
          the parties from being forced to arbitrate, when the matter
          is demonstrably non- arbitrable. I am convinced that an
          attempt is made to create a dispute when there exist none
          at this stage. It is not just for the sake of invoking the
          arbitration clause, because the agreement between the
          parties provide so, the parties shall resort to arbitration,
          premised on the basis of a purported dispute, which
          infact, do not exist.
          For the aforesaid reason, I am not inclined to consider the
          request of appointing an Arbitrator in exercise of power
          conferred on this Court, merely because the arbitration
          has been invoked by the applicant and it intend to take a
          non-existent dispute for arbitration. Being unconvinced with
          the submissions of Mr. Kanade, the application seeking
          appointment of Arbitrator is dismissed being found without
          any merit and substance.”
536                                                        [2024] 11 S.C.R.

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9.     Aggrieved by the aforesaid order refusing to appoint an arbitrator
       for adjudicating the disputes between the parties, the appellant has
       come up before this Court with the present appeal.
       B.   SUBMISSION ON BEHALF OF THE APPELLANT
10. Mr. H.D. Thanvi, the learned counsel appearing for the appellant,
    submitted that the scope of interference by a referral court acting
    in exercise of its jurisdiction under Section 11 of the Act, 1996 is
    limited. At this stage, the court is required to conduct a preliminary
    inquiry for the purpose of ascertaining whether a prima facie case
    exists for referring the dispute to arbitration. Contrary to this narrow
    scope, in the present case the High Court proceeded to erroneously
    undertake a full review of the contested facts, thereby exceeding in
    its jurisdiction at this stage.
11. He further submitted that the High Court failed to take into account
    the nature of the services rendered by the respondent, along with
    the technical details contained in the Audit Report, which require
    subject-matter expertise for accurate determination of the disputes.
    Given the technical complexity of the issues involved, the High Court
    ought to have referred the parties to arbitration.
12. He submitted that the finding of the High Court as regards the alleged
    dishonesty of the appellant rests on the erroneous assumption
    that the appellant had not raised any dispute prior to issuing
    the demand notice dated 22.02.2023. It was contended that this
    finding overlooks the sequence of events and also the undisputed
    fact that the Audit Report was provided to the appellant only in
    February 2023, i.e., the same month in which the Demand Notice
    was issued. Consequently, the appellant had no prior opportunity
    to raise the disputes, as they only came to light upon receiving
    the Audit Report in February 2023. The appellant argued that even
    otherwise, it had sent multiple emails to the respondent raising
    various objections regarding the invoices issued to the appellant
    prior to the issuance of the Audit Report.
       C.   SUBMISSION ON BEHALF OF THE RESPONDENT
13. Ms. Shweta Bharti, the learned counsel appearing for the respondent,
    on the other hand, submitted that it is settled law that before referring
    the parties to arbitration, the High Court must reach to a prima
    facie satisfaction that a genuine dispute exists between the parties.
[2024] 11 S.C.R.                                                        537

                      Goqii Technologies Private Limited v.
                      Sokrati Technologies Private Limited

     Furthermore, the mere inclusion of an arbitration clause in a contract
     or agreement does not render a matter automatically arbitrable and
     a prima facie case establishing the existence of a dispute must first
     be made. The Court must apply a prima facie test to weed out and
     dismiss claims that are ex facie meritless, frivolous, or dishonest. She
     submitted that seen thus the dispute raised in the present petition
     is nothing more than an afterthought.The counsel placed reliance
     on the decision of this Court in Indian Oil Corporation vs. NCC
     Ltd.,1 B&T AG v. Ministry of Defence,2 and Sushma Shiv Kumar
     Daga & Anr. vs. Madhur Kumar Ramkrishnaji Bajaj & Ors3 to
     fortify her submission.
14. She further submitted that the appellant is not entitled to any damages
    or refund for the alleged overcharges on the services rendered by the
    respondent as the appellant had previously not raised any concerns
    or identified deficiencies while utilizing these services. Furthermore,
    the claim now raised by the appellant is unfounded, vague, and lacks
    supporting documentation.
15. She submitted that the appellant has filed the present petition with
    a mala fide intent and has approached this Court with unclean
    hands, being fully aware of the ongoing legal proceedings before the
    NCLT, Mumbai. The petition of the appellant is an attempt to create
    duplicative legal proceedings aimed at evading liability for admitted
    dues and disrupting the CIRP process.
     D.     ANALYSIS
16. Having heard the learned counsels appearing for the parties and
    having gone through the materials on record, the short question
    that falls for our consideration is whether the High Court committed
    any error in dismissing the appellant’s application under Section 11
    of the Act, 1996.
17. In a recent pronouncement, relying on the Constitution Bench judgment
    of this Court in In Re: Interplay between Arbitration Agreements
    under the Arbitration and Conciliation Act 1996 and the Indian



1   [2022] 13 SCR 660 : (2023) 2 SCC 539
2   [2023] 7 SCR 599 : 2023 SCC OnLine SC 657
3   [2023] 15 SCR 909 : 2023 SCC OnLine SC 1683
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       Stamp Act 1899,4 this Court in SBI General Insurance Co. Ltd. vs.
       Krish Spinning reported in 2024 INSC 532, summarised the law on
       the scope and standard of judicial scrutiny that an application under
       Section 11(6) of the Act, 1996 can be subjected to. The relevant
       parts are produced herein below:
            “114. In view of the observations made by this Court
            in In Re: Interplay (supra), it is clear that the scope of
            enquiry at the stage of appointment of arbitrator is limited
            to the scrutiny of prima facie existence of the arbitration
            agreement, and nothing else. For this reason, we find it
            difficult to hold that the observations made in Vidya Drolia
            (supra) and adopted in NTPC v. SPML (supra) that the
            jurisdiction of the referral court when dealing with the issue
            of “accord and satisfaction” under Section 11 extends to
            weeding out ex-facie non-arbitrable and frivolous disputes
            would continue to apply despite the subsequent decision
            in In Re: Interplay (supra).
                                           xxx xxx xxx
            125. We are also of the view that ex-facie frivolity and
            dishonesty in litigation is an aspect which the arbitral
            tribunal is equally, if not more, capable to decide upon
            the appreciation of the evidence adduced by the parties.
            We say so because the arbitral tribunal has the benefit
            of going through all the relevant evidence and pleadings
            in much more detail than the referral court. If the referral
            court is able to see the frivolity in the litigation on the basis
            of bare minimum pleadings, then it would be incorrect
            to doubt that the arbitral tribunal would not be able to
            arrive at the same inference, most likely in the first few
            hearings itself, with the benefit of extensive pleadings and
            evidentiary material.”
18. The scope of inquiry under Section 11 of the Act, 1996 is limited to
    ascertaining the prima facie existence of an arbitration agreement.
    In the present case, the High Court exceeded this limited scope
    by undertaking a detailed examination of the factual matrix. The


4   [2023] 15 SCR 1081 : 2023 INSC 1066.
[2024] 11 S.C.R.                                                          539

                     Goqii Technologies Private Limited v.
                     Sokrati Technologies Private Limited

      High Court erroneously proceeded to assess the auditor’s report in
      detail and dismissed the arbitration application. In our view, such
      an approach does not give effect to the legislative intent behind the
      2015 amendment to the Act, 1996 which limited the judicial scrutiny
      at the stage of Section 11 solely to the prima facie determination of
      the existence of an arbitration agreement.
19. As observed in Krish Spinning (supra), frivolity in litigation too is
    an aspect which the referral court should not decide at the stage
    of Section 11 as the arbitrator is equally, if not more, competent to
    adjudicate the same.
20.     Before we conclude, we must clarify that the limited jurisdiction
      of the referral Courts under Section 11 must not be misused by
      parties in order to force other parties to the arbitration agreement
      to participate in a time-consuming and costly arbitration process.
      This is possible in instances, including but not limited to, where the
      claimant canvasses the adjudication of non-existent and mala fide
      claims through arbitration. With a view to balance the limited scope
      of judicial interference of the referral Courts with the interests of the
      parties who might be constrained to participate in the arbitration
      proceedings, the Arbitral Tribunal may direct that the costs of the
      arbitration shall be borne by the party which the Tribunal ultimately
      finds to have abused the process of law and caused unnecessary
      harassment to the other party to the arbitration. Having said that, it is
      clarified that the aforesaid is not to be construed as a determination
      of the merits of the matter before us, which the Arbitral Tribunal will
      rightfully be equipped to determine.
      E.   CONCLUSION
21. The existence of the arbitration agreement in Clause 18.12 of the MSA
    has not been disputed by the respondent. The question whether there
    exists a valid dispute to be referred to arbitration can be addressed
    by the Arbitral Tribunal as a preliminary issue.
22. As a result, the appeal filed by the appellant is allowed and the
    impugned order passed by the High Court of Bombay is hereby set
    aside.
23. We appoint Mr. S.J. Vazifdar, former Chief Justice of the Punjab &
    Haryana High Court, as the sole arbitrator to adjudicate the disputes
    between the parties.
540                                                       [2024] 11 S.C.R.

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24. All legal contentions, including objections, if any, available to the
    respondent, are kept open to be taken up before the learned Arbitrator.
25. Pending application(s), if any, shall stand disposed of.

       Result of the case: Appeal allowed.



       †
           Headnotes prepared by: Nidhi Jain