Defendant Cannot Invoke Arbitration Clause After Participating In Trial Without Objection: Delhi HC

The Delhi High Court on 3 June reiterated that a defendant who files a written statement and participates in the trial without seeking reference to arbitration at the appropriate stage cannot later invoke an arbitration clause to challenge the maintainability of the suit.

Justice Neena Bansal Krishna upheld a recovery decree of Rs. 2.91 lakh in favour of Dollar Security & Support Services against Amber Electrotech Ltd., finding that the company had never disputed the outstanding invoice dues and had merely raised technical objections and theft-related claims to resist payment. The Bench held:

“However, here was the case where the Written Statement was duly filed by the Appellant and thereafter, participated in the entire trial. Therefore, it is clearly evident that despite there being an Arbitration Clause, the Appellant had participated and submitted to the jurisdiction of the Civil Court. This objection was also rightly dismissed by the learned District Judge.”

The dispute arose from a security services agreement dated 30 October 2009 under which Dollar Security & Support Services deployed guards at Amber Electrotech's establishments.

According to the security agency, Amber Electrotech failed to clear invoices raised between June and October 2013, resulting in outstanding dues of about Rs. 3.91 lakh. It subsequently initiated recovery proceedings after a cheque for Rs. 2.09 lakh was dishonoured and a legal notice dated 19 October 2013 elicited no response.

By judgment dated 26 June 2020, the trial court decreed recovery of Rs. 2,91,031 in favour of Dollar Security & Support Services along with pendente lite and future interest at 12% per annum. Challenging the decree, Amber Electrotech contended that the suit lacked proper authorisation and contractual privity, was barred by the arbitration clause, and that it was entitled to recover losses allegedly caused by thefts at its premises.

Dollar Security & Support Services, on the other hand, asserted that Raj Kumar Dagar had been duly authorised to institute the proceedings, had succeeded to the business of Shiva Associates, and that Amber Electrotech had never disputed the invoice amounts.

The Court rejected the arbitration objection, noting that Amber Electrotech had filed its written statement and participated in the entire trial without seeking reference of the dispute to arbitration. Having submitted to the jurisdiction of the civil court, it could not subsequently challenge the suit on that ground.

Further, the Bench found that Amber Electrotech had never disputed the outstanding invoice dues and had sought to avoid payment only by raising technical objections and alleging theft-related losses. It observed:

"From the Written Statement, it, therefore, emerges that there was no challenge to the outstanding amount as per the Invoices, but only technical grounds were being taken, which have already been addressed and it is held that there was a privity of contract, as well as, the Suit had been rightly instituted through Mr. Raj Kumar Dagar", the Court observed.

Accordingly, the High Court dismissed the appeal, finding no infirmity in the trial court's judgment and affirmed the recovery decree.

Appearances for appellants (M/s Amber Electrotech Ltd. and Amarjeet Singh): Advocates Sheikh Imran Alam, Rahul Kumar Jain and Arshad Jawed.

Appearances for respondent (M/s Dollar Security & Support Services): Advocates Nagendra Kasana, Sachin Bhati, Anjana Kasana and Neeta Kasana.