Arbitration and Conciliation Act, 1996: s. 11 – Power of court u/s. 11 – Scope of – Novation of contract – Plea of – On facts, father formed a private company from his personal funds and distributed the shares among his family members without any consideration – Foreign company approached the father for longterm equity investment and collaboration – Pursuant thereto, family members-appellant and respondents entered into Memorandum of Understanding(MoU), wherein disputes arising in connection thereto were to be referred to an arbitrator – Thereafter, a Shareholders’ Agreement (SHA) and Share Purchase Agreement (SPA) entered into between the family members and the foreign Company, and both SHA and SPA contained an arbitration clause – Dispute between the parties over transfer of shareholding – Notice by appellant-son, invoking arbitration clause contained in the MoU against the respondents – However, reply by the respondents that the MoU ceased to exist on and from the date of the SHA, which superseded and novated the same – Petition u/s. 11 by the appellant – Dismissed by the Single Judge, holding that an arbitration clause of the MoU having perished the MoU owing to novation, invocation of arbitration under the MoU not justified – On appeal, held: Whether the MoU has been novated by the SHA requires a detailed consideration of the clauses of the two Agreements, together with the surrounding circumstances in which these Agreements were entered into, and a full consideration of the law on the subject – It cannot be done, given the limited jurisdiction of a court u/s. 11 – Detailed arguments whether an agreement which contains an arbitration clause has or has not been novated cannot possibly be decided in exercise of a limited prima facie review as to whether an arbitration agreement exists between the parties – Section 11 – court would refer the matter when contentions relating to non-arbitrability are plainly arguable, or when facts are contested – Instant case does not fall within the category of cases which oust arbitration altogether – More so, the Court at this stage is not empowered to determine by way of a mini-trial, the validity of the arbitration agreement – It would usurp the jurisdiction of the arbitral tribunal – Thus, the judgment of the High Court set aside – Matter referred to the sole arbitrator to decide the dispute between the parties – Contract Act, 1872 – s. 62.
Allowing Civil Appeal No. 975 of 2021 and disposing of Civil Appeal No. 976 of 2021, the Court
HELD: 1.1 By virtue of the Arbitration and Conciliation (Amendment) Act, 2015 by which Section 11(6A) was introduced, the earlier position as to the scope of the powers of a court under Section 11, while appointing an arbitrator, are now narrowed to viewing whether an arbitration agreement exists between parties. [Para 6][65-B-C]
1.2 It is obvious that whether the Memorandum of Understanding has been novated by the Shareholder’s Agreement dated 12.04.1996 requires a detailed consideration of the clauses of the two Agreements, together with the surrounding circumstances in which these Agreements were entered into, and a full consideration of the law on the subject. None of this can be done given the limited jurisdiction of a court under Section 11 of the Arbitration and Conciliation Act, 1996. [Para 9][79-B-C]
1.3 Detailed arguments on whether an agreement which contains an arbitration clause has or has not been novated cannot possibly be decided in exercise of a limited prima facie review as to whether an arbitration agreement exists between the parties. Also, this case does not fall within the category of cases which ousts arbitration altogether, such as matters which are in rem proceedings or cases which, without doubt, concern minors, lunatics or other persons incompetent to contract. There is nothing vexatious or frivolous in the plea taken by the Appellant. On the contrary, a Section 11 court would refer the matter when contentions relating to non-arbitrability are plainly arguable, or when facts are contested. The court cannot, at this stage, enter into a mini trial or elaborate review of the facts and law which would usurp the jurisdiction of the arbitral tribunal. [Para 9] [79-D-F]
Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1 – relied on
1.4 The impugned judgment was wholly incorrect in deciding that the plea of doctrine of kompetenz-kompetenz and reliance on Section 11(6A) of the 1996 Act, as expounded in Duro Felguera’s case and Mayavati Trading’s case were not applicable to the case in hand. Apart from going into a detailed consideration of the MoU and the SHA, which is exclusively within the jurisdiction of the arbitral tribunal, the Single Judge, while considering clause
28 of the SHA to arrive at the finding that any kind of agreement as detailed in clause 28.2 between the parties shall stand superseded, does not even refer to clause 28.1. No consideration has been given to the separate and distinct subject matter of the MoU and the SHA. [Para 10][79-F-H]
1.5 The judgment of the High Court is set aside and the parties are referred to the arbitration of a sole arbitrator, being Justice Aftab Alam (retired Judge of this Court), who would decide the dispute between the parties without reference to any observations made by this Court, which are only prima facie in nature. [Para 11][80-B]
Union of India v. Kishorilal Gupta & Bros. [1960] 1 SCR 493; Damodar Valley Corporation v. K.K. Kar (1974) 1 SCC 141 : [1974] 2 SCR 240; Young
Achievers v. IMS Learning Resources (P) Ltd. (2013)
10 SCC 535 : [2013] 2 SCR 252; Kale v. Deputy Director of Consolidation (1976) 3 SCC 119 : [1976]
3 SCR 202; Reliance Natural Resources Ltd. v. Reliance Industries Ltd. (2010) 7 SCC 1 : [2010] 5 SCR 704; Duro Felguera, S.A. v. Gangavaram Port Ltd. (2017) 9 SCC 729 : [2017] 10 SCR 285; Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman (2019) 8 SCC 714
: [2019] 12 SCR 123; Ravinder Kaur Grewal v. Manjit Kaur (2020) 9 SCC 706; Sasan Power Ltd. v. North American Coal Corpn. (India) (P) Ltd. (2016) 10 SCC
813 : [2016] 6 SCR 809; Larsen & Toubro Ltd. v. Mohan Lal Harbans Lal Bhayana (2015) 2 SCC 461 : [2014]
3 SCR 162; V.B. Rangaraj v. V.B. Gopalakrishnan (1992) 1 SCC 160 : [1991] 3 Suppl. SCR 1; Pushpa Katoch v. Manu Maharani Hotels Ltd. 2005 SCC
OnLine Del 702 : (2005) 83 DRJ 246; Pravin
Electricals Pvt. Ltd. v. Galaxy Infra and Engineering Pvt. Ltd. 2021 SCC OnLine SC 190; Bharat Sanchar Nigam Ltd. v. Nortel Networks India Pvt. Ltd. 2021 SCC OnLine SC 207 – referred to
Barclays Bank Plc v. Unicredit Bank Ag and Anor, [2014] EWCA Civ 302; The Federal Republic of Nigeria v. JP Morgan Chase Bank, NA, [2019] EWHC 347 (Comm); Kinsella and Anor v. Emasan AG and Anor, [2019] EWHC 3196 (Ch) – referred to
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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