Delhi High Court Appoints Arbitrator In ₹91 Lakh Benetton–Gini and Jony Payment Dispute

The Delhi High Court has appointed a sole arbitrator to adjudicate a Rs. 91,21,454 dispute between global fashion brand Benetton India Pvt Ltd and children's apparel company Gini and Jony Ltd arising out of unpaid dues under a 2014 Distribution Agreement.

The Court held that whether subsequent settlement agreements superseded the original contract and extinguished the arbitration clause must be decided by the arbitral tribunal and not at the stage of appointment.

Justice Jasmeet Singh ruled that at the pre-reference stage under Section 11 of the Arbitration and Conciliation Act, 1996, the court is confined to a prima facie examination of the existence of an arbitration agreement. It cannot conduct what would amount to a “mini trial” on disputed questions such as novation.

“The referral Court, at the pre-reference stage, is required to undertake only a prima facie examination with respect to the existence of an arbitration agreement,” the Court held.

Benetton India Private Limited, a subsidiary of the Italy-based Benetton Group, had entered into a Distribution Agreement dated August 1, 2014, appointing Gini and Jony Ltd as its distributor for sale and distribution of its products. The agreement contained an arbitration clause providing for resolution of disputes in New Delhi.

According to Benetton, Gini and Jony failed to clear invoice dues under the agreement. The parties subsequently executed three settlement agreements dated June 29, 2016, October 1, 2019 and December 29, 2020. These agreements dealt with restructuring of the payment obligations.

A sum of Rs 96,21,454 remained due as per the record. After a payment of Rs 5,00,000 made on April 19, 2024, Rs 91,21,454 continued to remain unpaid.

Benetton first issued a demand notice on February 9, 2024, seeking payment of the outstanding dues. It invoked arbitration on March 14, 2024. When the parties were unable to agree on the appointment of an arbitrator, the company moved the High Court under Section 11(6) of the Act.

Benetton maintained that the settlement agreements merely reorganised the payment timelines and did not replace or extinguish the original Distribution Agreement. It argued that the issue of novation raised disputed questions of fact and law that should be examined by the arbitral tribunal in line with the doctrine of kompetenz-kompetenz.

Gini and Jony opposed the petition. It submitted that the settlement agreements were fresh and independent contracts containing exclusive civil court jurisdiction clauses. According to the respondent, the execution of these agreements amounted to novation under Section 62 of the Indian Contract Act, thereby extinguishing the earlier arbitration clause.

Rejecting the objection at the referral stage, the Court observed that “questions relating to novation or substitution of an earlier agreement by any subsequent agreement(s) ordinarily involve disputed questions of fact and mixed questions of fact and law.” It added that the referral court “cannot embark upon a detailed enquiry akin to a trial or conduct what would effectively amount to a 'mini trial'.”

The court held that once a prima facie arbitration agreement is shown to exist, adjudication on the merits, including whether the settlement agreements superseded the original Distribution Agreement, falls within the domain of the arbitrator.

Finding that Clause 10(j) of the Distribution Agreement contained an undisputed arbitration clause, the court allowed the petition and appointed Advocate Varun Kumar Chopra as the sole arbitrator.

The arbitration will be conducted under the aegis and rules of the Delhi International Arbitration Centre. All rights and contentions of the parties, including the issue whether the arbitration clause stood superseded by the settlement agreements, were left open for decision by the arbitrator.

Appearances for Petitioner (Benetton India Pvt Ltd): Advocates Vinam Gupta, Pragya Narayan, Nabam Yama.

Appearances for Respondent (Gini and Jony Ltd): Advocates Renuka Sahu, Shivam Singh.