Facts of the Case

M/s Singer India Limited, the petitioner, entered into an agreement dated 13 October 2015 with M/s Planman HR Private Limited for providing qualified, competent, reliable and experienced personnel to perform different assignments. The agreement was initially for a period of three years and was subsequently extended on 14 September 2018 for a further period of three years.

According to the petitioner, it had been making timely payments against invoices raised by the respondent company. On 15 April 2019, the respondent company sent an email requesting an extra amount/financial assistance for payment of salaries to certain employees, stating that its account had been lien-marked and that it was unable to release payments to those employees.

Acting upon the respondent company’s request, the petitioner made payments aggregating to ₹4,07,526. The order records that:

  • ₹3,70,123 was paid on 5 April 2019;
  • ₹14,000 was paid on 11 April 2019; and
  • ₹23,403 was paid on 26 June 2019.

These amounts were transferred to the accounts of employees at the request of the respondent company. The petitioner thereafter followed up with the respondent company for reimbursement/payment of ₹4,07,526, but according to the petitioner, the request remained unaddressed.

The petitioner treated the transaction as commercial in nature and claimed ₹4,07,526 along with interest at 18%. A legal notice dated 30 October 2019 was issued demanding payment. Upon non-payment, the petitioner invoked the arbitration clause on 20 December 2019.

The petitioner also submitted that it had paid GST on the transaction as claimed by the concerned authority and asserted entitlement to recover the amount paid to the GST authorities.

Issues Involved

The principal issues arising before the Delhi High Court were:

  1. Whether the dispute concerning recovery of ₹4,07,526 together with claimed interest at 18% was covered by the arbitration clause contained in the agreement dated 13 October 2015.
  2. Whether the dispute between Singer India Limited and Planman HR Private Limited should be referred to arbitration.
  3. Whether the arbitration clause could be invoked against individual persons shown as directors/officials of the respondent company, particularly Dinesh Kumar Raghav, Gurudas Mallik Thakur and Varun Khanna.
  4. Whether former directors or a former CEO could be subjected to arbitration where the contractual relationship and privity of contract existed between the petitioner and the respondent company.
  5. Whether the arbitral process should proceed under the aegis of DIAC, with an arbitrator appointed from its panel.
  6. Whether the petitioner’s claim relating to the amount allegedly paid toward GST could form part of its monetary claim arising from the transaction.

Petitioner’s Arguments

The petitioner contended that it had a valid contractual relationship with M/s Planman HR Private Limited under the agreement dated 13 October 2015, subsequently extended on 14 September 2018.

It was argued that the petitioner had regularly and timely discharged payments against invoices raised by the respondent company. When the respondent company sought financial assistance because its account had allegedly been lien-marked and it was unable to pay certain employees, the petitioner transferred an aggregate amount of ₹4,07,526 to the employees’ accounts at the respondent company’s request.

The petitioner submitted that despite repeated follow-up, the respondent company failed to reimburse the said amount. Since the transaction was commercial in nature, the petitioner claimed the principal amount of ₹4,07,526 together with interest at 18%.

The petitioner further relied upon the legal notice dated 30 October 2019 and stated that, following non-payment, the arbitration clause was invoked on 20 December 2019.

Reliance was placed upon Clause 17 – “Alternate Dispute Resolution” of the agreement, which contemplated resolution of disputes or controversies arising out of or in connection with the agreement through arbitration in accordance with the Arbitration and Conciliation Act, 1996, with the venue of arbitration at Delhi and the arbitrator’s decision being final and binding.

The petitioner additionally submitted that GST had been paid on the transaction as claimed by the concerned authority and asserted entitlement to the corresponding amount paid to the GST authorities.

Respondent’s Arguments

The respondent company, M/s Planman HR Private Limited, did not appear or remain represented despite service as recorded by the Court.

However, counsel appearing for Dinesh Kumar Raghav, Gurudas Mallik Thakur and Varun Khanna submitted that the privity of contract existed between the petitioner and M/s Planman HR Private Limited, and not between the petitioner and the individual directors or officials.

It was specifically submitted that:

  • Dinesh Kumar Raghav and Gurudas Mallik Thakur had resigned in the year 2020;
  • Varun Khanna was stated to have been only the CEO of the company and had resigned in 2019; and
  • the arbitration clause could not be invoked against these individual persons.

The petitioner’s counsel also conceded the position recorded by the Court that the concerned individuals had resigned or, in the case of Varun Khanna, had been an employee of the company.

Court Order / Findings

The Delhi High Court agreed with the submissions made on behalf of Dinesh Kumar Raghav, Gurudas Mallik Thakur and Varun Khanna.

The Court recognised that the relevant dispute had arisen between the petitioner, M/s Singer India Limited, and the respondent company, M/s Planman HR Private Limited.

Accordingly, the Court directed that the parties be relegated to the process of arbitration under the aegis of DIAC.

The Court further ordered that:

  • DIAC shall appoint an Arbitrator from its panel;
  • the appointment of the learned Arbitrator shall be in accordance with the Rules framed by DIAC;
  • the arbitration petition stood disposed of; and
  • a copy of the order was directed to be sent to the Coordinator, DIAC.

Thus, the Court facilitated institutional arbitration of the dispute between the contracting parties while accepting the objection that the arbitration clause could not, on the facts recorded in this order, be invoked against the individual former directors/CEO who were not parties to the underlying contractual arrangement.

Important Clarification

1. Arbitration Was Directed Between the Contracting Parties

The most important clarification emerging from the order is that the Court treated the substantive dispute as one between:

M/s Singer India Limited
vs
M/s Planman HR Private Limited

The underlying agreement containing the arbitration clause was between these contracting entities.

2. Former Directors/CEO Were Not Automatically Bound by the Arbitration Clause

The Court accepted the submission that the contractual privity was between the petitioner and the respondent company, and not against the individual persons.

Therefore, merely describing or impleading individuals as directors, former directors, employees or CEO did not, on the facts recorded in the order, make the arbitration clause automatically enforceable against them personally.

3. Corporate Personality and Individual Liability Must Be Distinguished

The order highlights an important arbitration principle: the existence of an arbitration agreement with a company does not by itself establish that every director, former director, CEO or employee is personally bound by that arbitration agreement.

Any attempt to bind a non-signatory individual requires a legally sustainable basis. In the present order, the Court accepted the individuals’ objection based on absence of contractual privity.

4. The Respondent Company’s Non-Appearance Did Not Prevent Reference to Arbitration

Despite service, the respondent company was not present or represented. The Court nevertheless examined the record, found that a dispute had arisen between the petitioner and the respondent company, and referred the parties to arbitration under DIAC.

5. GST Component Was Mentioned as Part of the Petitioner’s Claim

The petitioner specifically stated that it had paid GST on the transaction as claimed by the concerned authority and asserted entitlement to recover the amount paid to the GST authorities. However, the order did not finally adjudicate the merits or quantum of the GST-related claim. The dispute itself was referred to arbitration.

6. No Final Adjudication of the Monetary Claim on Merits

The Delhi High Court did not finally hold in this order that the petitioner was substantively entitled to recover ₹4,07,526, interest at 18%, or the claimed GST amount. The Court’s operative determination was to send the contractual dispute to arbitration under the aegis of DIAC.

This distinction is significant: reference to arbitration is not equivalent to a final decree or award on the underlying monetary claim.

Section Involved

·         Section 11 of the Arbitration and Conciliation Act, 1996 – Appointment of Arbitrator

·         Clause 17 of the Agreement – Alternate Dispute Resolution

Link to download the order -

https://www.mytaxexpert.co.in/uploads/1783419084_1452compressed.pdf

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