Supreme Court of India
SANJIV PRAKASHversusSEEMA KUKREJA AND ORS.
- Citation
- 2021 INSC 229
- Decided
- 6 April 2021
- Disposal
- Disposed off
- Bench
- R F NARIMAN
Holding
A Section 11 court’s jurisdiction is limited to a prima‑facie test of the existence of an arbitration agreement; questions of novation and the validity of the agreement must be decided by the arbitral tribunal.
Summary
The appellant, Sanjiv Prakash, invoked an arbitration clause in a 1996 Memorandum of Understanding (MoU) among family members after a dispute over share transfers with his sister and mother. The respondents argued that the MoU was superseded and novated by a later Shareholders' Agreement (SHA) dated 12‑04‑1996, which they claimed extinguished the MoU’s arbitration clause. The Delhi High Court dismissed the Section 11 petition, holding the arbitration agreement had perished. The Supreme Court held that, after the 2015 amendment, a Section 11 court can only make a prima‑facie determination of whether an arbitration agreement exists and cannot decide complex issues such as novation; such questions must be left to the arbitral tribunal. Consequently, the High Court’s dismissal was set aside and the parties were referred to a sole arbitrator. The appeal was allowed and the parallel appeal was disposed.
Issues considered
- The MoU was novated by the Shareholders' Agreement, thereby extinguishing its arbitration clause.
- Whether a Section 11 court can decide the existence and validity of an arbitration agreement, including issues of novation, after the 2015 amendment.
- The scope of Section 11(6A) of the Arbitration and Conciliation Act, 1996, in relation to competence‑competence and prima‑facie review.
Legislation cited
- Arbitration and Conciliation Act, 1996s. 11, s. 11(6A), s. 16, s. 34, s. 43, s. 45, s. 62, s. 8
- Indian Contract Act, 1872s. 62
Subjects
ArbitrationSection 11NovationArbitration agreementCompetence‑competencePrima facie reviewContract lawShareholders' AgreementMemorandum of UnderstandingArbitral tribunal jurisdiction
Judgment
44 [2021]
SUPREME COURT 4 S.C.R. 44
REPORTS [2021] 4 S.C.R.
A SANJIV PRAKASH
v.
SEEMA KUKREJA AND ORS.
(Civil Appeal No. 975 of 2021)
B APRIL 06, 2021
[R.F. NARIMAN, B.R. GAVAI AND HRISHIKESH ROY, JJ. ]
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
C
distributed the shares among his family members without any
consideration – Foreign company approached the father for long-
term equity investment and collaboration – Pursuant thereto, family
members-appellant and respondents entered into Memorandum of
Understanding(MoU), wherein disputes arising in connection
D 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
E
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
F 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 –
G
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
H
44
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS. 45
are plainly arguable, or when facts are contested – Instant case A
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
B
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 C
(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]
D
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 E
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 F
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 G
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
H
46 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 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
B 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
C 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
D 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
E 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
F 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;
G 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
H
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS. 47
American Coal Corpn. (India) (P) Ltd. (2016) 10 SCC A
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
B
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] C
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
Case Law Reference D
[1960] 1 SCR 493 referred to Para 2
[1974] 2 SCR 240 referred to Para 2
[2013] 2 SCR 252 referred to Para 2
E
[1976] 3 SCR 202 referred to Para 3
[2010] 5 SCR 704 referred to Para 3
[2017] 10 SCR 285 referred to Para 3
[2019] 12 SCR 123 referred to Para 3
F
(2020) 9 SCC 706 referred to Para 4
[2016] 6 SCR 809 referred to Para 5
[2014] 3 SCR 162 referred to Para 5
[1991] 3 Suppl. SCR 1 referred to Para 5
G
(2005) 83 DRJ 246 referred to Para 5
(2021) 2 SCC 1 referred to Para 6
H
48 SUPREME COURT REPORTS [2021] 4 S.C.R.
A CIVIL APPELLATE JURISDICTION : Civil Appeal No. 975 of
2021.
From the Judgment and Order dated 22.10.2020 of the High Court
of Delhi at New Delhi in Arb. P. No. 4 of 2020.
With
B Civil Appeal No. 976 OF 2021.
K.V. Vishwanathan, Kathpalia, Sr. Advs., Mahesh Agarwal,
Abhimanyu Mahajan, Swapnil Gupta, Ujjal Banerjee, Shaishir Divatia,
Ms. Anubha Goel, Akash Khurana, Mayank Joshi, E.C. Agrawala, Advs.
for the Appellant.
C Mukul Rohtagi, Sr. Adv., Abhinav Agrawal, Manik Dogra, Avishkar
Singhvi, Ms. Sonali Jaitley Bakhshi, Pallav Pandey, Ms. Rini Badoni,
Ms. Radhika Malik, P.V. Yogeswaran, Advs. for the Respondents.
The Judgment of the Court was delivered by
R. F. NARIMAN, J.
D Civil Appeal No. 975 of 2021
1. This appeal arises out of the dismissal of a petition under Section
11 of the Arbitration and Conciliation Act, 1996 [“1996 Act”] filed before
the High Court of Delhi.The Appellant, Sanjiv Prakash, is a member of
a family which also consists of his sister, Seema Kukreja (Respondent
E No.1 herein), his mother, Daya Prakash (Respondent No.2 herein), and
his father, Prem Prakash (Respondent No.3 herein). The Appellant and
Respondents are hereinafter collectively referred to as the “Prakash
Family”.
2. The facts, briefly stated, are as follows:
F 2.1. A private company was incorporated on 09.12.1971 under
the name and style of Asian Films Laboratories Private Limited [“the
company”] by Prem Prakash, the entire amount of the paid-up capital
being paid for by him from his personal funds. He then distributed shares
to his family members without receiving any consideration for the same.
On 06.03.1997, the name of the company was altered to its present
G name – ANI Media Private Limited.
2.2. Owing to the extensive efforts of Sanjiv Prakash at a global
level, Reuters Television Mauritius Limited (now Thomson Reuters
Corporation), a company incorporated in Mauritius [“Reuters”],
approached him for a long-term equity investment and collaboration with
H
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS. 49
[R. F. NARIMAN, J.]
the company on the condition that he would play an active role in the A
management of the company.
2.3. Pursuant to this understanding, a Memorandum of
Understanding [“MoU”]was entered into sometime in 1996 between
the four members of the Prakash Family. The MoU recorded that Sanjiv
Prakash, supported by the guidance and vision of Prem Prakash, had B
been responsible for the tremendous growth of the company. The paid-
up share capital of the company was held as follows:
Rupees Percentage held
Prem Prakash 2,80,000 27.99%
C
Daya Prakash 2,40,000 24.01%
Sanjiv Prakash 3,00,000 30.00%
Seema Kukreja 1,80,000 18.00%
——————— ———————
D
10,00,000 100.00%
The Prakash Family was to divest 49% of this shareholding in
favour of Reuters or its affiliates, subject to necessary permission of the
authorities, as follows:
“And whereas ANI for the past many years has been doing E
considerable business with Reuters Television (Reuters). The
relationship between them has been close and cordial. In order to
strengthen the relationship and make optimum use of the
tremendous growth potential in the TV media sector, including to
cater to the ever expanding news video demands of Reuters in its
satellite transmissions to subscribers worldwide, it has been found F
expedient by the existing members of the company to divest 49%
of their shareholding in favour of Reuters or its affiliates subject
to necessary permission of authorities. This would cement the
relationship built over the years between Reuters and the
company.” G
The MoU went on to record:
“1. The Prakash family will divest its 49% shareholding as under:
Prem Prakash 1372
Daya Prakash 1176 H
50 SUPREME COURT REPORTS [2021] 4 S.C.R.
A Sanjiv Prakash 1470
Seema Kukreja 882
________
4900
B 2. That Prakash family recognises the leadership provided by S.P.
and the role he has played in steering the company to new heights
with the name ANI which is respected internationally.
3. D.P. has been the Managing Director of the company from the
beginning and Prakash family recognises her role in bringing the
C company to a very sound financial base as a result of very ably
handling the accounts and finances of the company. She would
continue to be Managing Director after Reuters’ participation in
equity.
4. The Prakash family would continue to own 51% shareholding
D in the company after Reuters becomes a 49% shareholder. As
they would continue to have the controlling interest it is the intention
and desire of the Prakash family members that their actions and
voting must be in a manner so as to act in consensus and as one
block.
E 5. S.P. would after divesting his about 15% share, continue to
hold 15% equity in the company. Reuters has made it clear that
they would like the management control of the company to vest
with S.P.
6. In view of the fact that S.P. has been able to get Reuters to
F participate in Asian Films Laboratories Pvt. Ltd. The other
shareholders of the Prakash family namely P.P., D.P. and S.K.
agree to vote on all resolutions both in the directors and
shareholders meeting in the manner instructed by S.P. To this
effect, they are agreeable to cooperate and vote for amendment
in the Articles to reflect the following:
G
(a) Any resolution in Board to have either affirmative vote of
S.P. or his consent in writing to approve the same.
(b) Disproportionate voting rights irrespective of the number
of the shares held by them as under:
H
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS. 51
[R. F. NARIMAN, J.]
Prem Prakash 1 vote A
Daya Prakash 1 vote
Seema Kukreja 1 vote
Sanjiv Prakash 5097 votes
Reuters Television B
Mauritius Limited 4900 votes.
7.This MoU shall be binding on all the heirs, successors and assigns
of P.P., D.P., S.P. and S.K. and they would act in the manner
stated in this MoU.
C
8.That in the event P.P. or D.P. desire to sell and or bequeath his/
her equity shares, the same shall be offered/bequeathed only to
S.P. or his heirs and successors. Similarly, in the event of S.K. or
her heirs/successors desire to sell their shares, the same shall be
sold only to S.P. or his successors. The consideration paid shall be
D
the net worth of shares on the last balance sheet date determined
by the auditors of the company.
xxx xxx xxx
11. This MoU embodies the entire understanding of the parties as
to its subject matter and shall not be amended except in writing E
executed all the parties to the MoU.
12.All disputes, questions or differences etc., arising in connection
with this MoU shall be referred to a single arbitrator in accordance
with and subject to the provisions of the Arbitration Act, 1940, or
any other enactment or statutory modification thereof for the time F
being in force.”
2.4. A Shareholders’ Agreement dated 12.04.1996 [“SHA”] was
then executed between the Prakash Family and Reuters. So far as is
relevant, the SHA referred to the Appellant and the Respondents
collectively as the “Prakash Family Shareholders”, and individually as a G
“Prakash Family Shareholder”. It then set out the reason for entering
into the SHA as follows:
“WHEREAS
(A) Pursuant to a share purchase agreement dated today between
the Prakash Family Shareholders and Reuters (the Share Purchase H
52 SUPREME COURT REPORTS [2021] 4 S.C.R.
A Agreement), Reuters has agreed to purchase 4,900 Shares (as
defined below) representing 49% of the issued share capital of
Asian Films Laboratories (Pvt.) Ltd. (the Company). Following
completion of the Share Purchase Agreement, each of the Prakash
Family Shareholders will hold the numbers of Shares set opposite
his or her name in schedule 3 hereto, with the aggregate number
B
of Shares so held by the Prakash Family Shareholders
representing 51% of the issued share capital of the Company.
(B) The Shareholders (as defined below) are entering into the
Agreement to set out the terms governing their relationship as
shareholders in the Company.”
C
In the definition section,”Artificial Deadlock” and “Management
Deadlock” were defined as follows:
“Artificial Deadlock means a Management Deadlock caused
by virtue of the Prakash Family Shareholders or Reuters (or
D any appointee on the Board) voting against an issue or proposal
in circumstances where the approval of the same is required
to enable the Company to carry on the Business properly and
effectively in accordance with the then current approved
Business Plan and Budget;”
E xxx xxx xxx
“Management Deadlock means a material management
dispute (not being an Artificial Deadlock) between any or all
of the Prakash Family Directors on the one hand and the
Reuters directors on the other hand relating to the affairs of
F the Company which is not resolved within sixty (60) days of
such dispute being referred for settlement to the Reuters
Managing Director (as defined in clause 16.1) and the
Chairman;”
The expression “Prakash Family Directors” was defined as follows:
G “Prakash Family Directors means the directors of the
Company from time to time appointed by the Prakash Family
Shareholders in accordance with the Articles;”
The expression “Prakash Family Members or Interests”was
defined as follows:
H
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS. 53
[R. F. NARIMAN, J.]
“Prakash Family Members or Interests means each of A
the Prakash Family Shareholders and each of their respective
fathers, mothers, sons, daughters, brothers and sisters (the
Prakash Family Relatives) and any company in which any such
relation or any Prakash Family Shareholder has a controlling
interest;”
B
“Reuters Directors” was defined as follows:
“Reuters Directors means the directors of the Company from
time to time appointed by Reuters in accordance with the
Articles;”
“Reuters Group” was defined as follows: C
“Reuters Group means Reuters, its Holding Company and
such Holding Company’s Subsidiaries for the time being;”
Transfer of shares and pre-emption was dealt with in clause 4
read with clauses 11, 12, and 14 and schedule 1 of the SHA. D
Clause 7.2 is important and states as follows:
“7.2 Unless otherwise agreed by the Shareholders, the number
of Directors shall be seven (7) of whom, for so long as the
Percentage Interest of the Prakash Family Shareholders is in
aggregate equal to or greater than fifty point zero one per cent. E
(50.01%), four (4) shall be Prakash Family Directors and three
(3) shall be Reuters Directors in accordance with the Articles. If
the Percentage Interest of the Prakash Family Shareholders falls
below such level, the number of Prakash Family Directors and
Reuters Directors shall be determined in accordance with the
F
Articles.”
The quorum for holding meetings was then set out in clause 7.12,
and matters requiring special majority were set out in clause 8.1.
Default events were set out in clause 11. Clause 11.2 is important
and states as follows: G
“11.2 If a Default Event exists in relation to any of the
Shareholders (the Defaulting Shareholder), then the other
Shareholder(s) comprising, in the case of a Default Event existing
in relation to a Prakash Family Shareholder, Reuters and, in the
case of a Default Event existing in relation to Reuters, the Prakash H
54 SUPREME COURT REPORTS [2021] 4 S.C.R.
A Family Shareholders (each of Reuters in the first case and the
Prakash Family Shareholders in the second case being the Non-
Defaulting Shareholder(s)) shall have the right, subject to the
prior right of the Defaulting Shareholder to transfer its Shares as
contemplated in paragraph 8 of Schedule 1 (all as provided in
clause 11.3), to purchase or procure the purchase by a nominee
B
or by a third party of all (but not some only) of the Shares held by
the Defaulting Shareholder, provided that, in the case of a Default
Event comprising a material breach of the kind contemplated by
clause 11.1(c)(ii), the relevant breach has not been either cured
to the reasonable satisfaction of the Non-Defaulting
C Shareholder(s) or waived by it or, as the case may be, others.”
Clause 12.1, under the heading “Changes in Circumstances:
Illegality”then provided as follows:
“12.1 Where the introduction, imposition or variation of any law
or any change in the interpretation or application of any law makes
D it unlawful or impractical without breaching such law for Reuters
to continue to hold upto at least forty nine per cent. (49%) of the
issued ordinary share capital of the Company or to carry out all or
any of its obligations under this Agreement, upon Reuters notifying
the other Shareholders:
E (a) Reuters shall be entitled to require the other Shareholders to
purchase its holding of Shares at a price determined in accordance
with clause 11.4, which shall apply mutatis mutandis, and any such
purchase shall be made by the other Shareholders in the proportions
agreed between them or otherwise in the proportion each such
F other Shareholders holding of Shares bears to the aggregate
number of Shares held by all of such Shareholders;
(b) Any amounts loaned or made available to the Company shall
forthwith be repaid to Reuters; and
(c) Reuters shall upon the service of such notice cease to be
G bound by the provisions hereof save for the preceding provisions
of this clause 12.”
The termination clause was set out as follows:
“14.1 This Agreement shall continue in full force and effect for
so long as both (i) any of the Prakash Family Shareholders and
H
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS. 55
[R. F. NARIMAN, J.]
(ii) any member of the Reuters Group hold any Shares. If, as a A
result of any sale or disposal made in accordance with this
Agreement, either (i) none of the Prakash Family shareholders or
(ii) no member of the Reuters Group holds any Shares, then this
Agreement shall terminate and cease to be of any effect, save
that this shall not:
B
(a) relieve any Shareholder from any liability or obligation in respect
of any matters, undertakings or conditions which shall not have
been done, observed or performed by any such Shareholder prior
to such termination;
(b) save for clause 14.2, affect the terms of any agreement entered C
into between any Prakash Family Shareholders and Reuters or
any successor of either of them holding Shares, to replace this
Agreement; or
(c) affect the terms of clause 15 (confidentiality) of this
Agreement.” D
The arbitration clause was set out in clause 16 which reads as
follows:
“LEGAL DISPUTES
16.1 In the event of any dispute between the Shareholders arising
E
in connection with this Agreement (a legal dispute), they shall use
all reasonable endeavours to resolve the matter on an amicable
basis. If any Shareholder serves formal written notice on any
other Shareholder that a legal dispute has arisen and the relevant
Shareholders are unable to resolve the dispute within a period of
thirty (30) days from the service of such notice, then the dispute F
shall be referred to the managing director of the senior
management company identified by Reuters as having responsibility
for India (the Reuters Managing Director) and the Chairman of
the Company. No recourse to arbitration under this Agreement
shall take place unless and until such procedure has been followed.
G
ARBITRATION
16.2 If the Reuters Managing Director and the Chairman of the
Company shall have been unable to resolve any legal dispute
referred to them under clause 16.1 within thirty (30) days, that
dispute shall, at the request of any Shareholder, be referred to and H
56 SUPREME COURT REPORTS [2021] 4 S.C.R.
A finally settled by arbitration under and in accordance with the
Rules of the London Court of International Arbitration by one or
more arbitrators appointed in accordance with those Rules. The
place of arbitration shall be London and the terms of this clause
16.2 shall be governed by and construed in accordance with English
law. The language of the arbitration proceedings shall be English.”
B
Clause 28, upon which a large part of the argument of both sides
hinges, is set out as follows:
“ENTIRE AGREEMENT
28.1 This Agreement, the Ancillary Agreements, and the Share
C Purchase Agreement constitute the entire agreement and
understanding of the parties with respect to the subject matter
thereof and none of the parties has entered into this agreement in
reliance upon any representation, warranty or undertaking by or
on behalf of the other parties which is not expressly set out herein
D or therein.
28.2 Without prejudice to the generality of clause 28.1, the parties
hereby agree that this Agreement supersedes any or all prior
agreements, understanding, arrangements, promises,
representations, warranties and/or contracts of any form or nature
E whatsoever, whether oral or in writing and whether explicit or
implicit, which may have been entered into prior to the date hereof
between the parties, other than the Ancillary Agreements and the
Share Purchase Agreement.”
Clause 31 deals with governing law and jurisdiction and states as
F follows:
“31. This Agreement (save for clause 16.2, which shall be
governed by and construed in accordance with the laws of England)
is governed by and shall be construed in accordance with the
laws of India.”
G 2.5. On the same day, a Share Purchase Agreement dated
12.04.1996 [“SPA”] was entered into between the Prakash Family and
Reuters. The SPA also contained an arbitration clause similar to that
contained in clause 16 of the SHA, and also contained an “entire
agreement clause”in clause 11, which is similar to clause 28 of the SHA.
On the same date, various ancillary agreements were also entered into
H
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS. 57
[R. F. NARIMAN, J.]
between the parties, referred to in the SHA. These ancillary agreements A
are as follows:
(i) Agreement for the Assignment of Copyright dated
12.04.1996 between Prem Prakash, Asian Films
Laboratories Pvt. Ltd., and Reuters Television Mauritius
Ltd. B
(ii) Trade Clarification Agreement dated 12.04.1996 between
Asian Films Laboratories Pvt. Ltd., Reuters Television
Mauritius Ltd., and the partners of Ved & Co. (i.e., Prem
Prakash, Daya Prakash, Sanjiv Prakash, and Seema
Kukreja) C
(iii) PIB Accreditation Agreement dated 12.04.1996 between
Asian Films Laboratories Pvt. Ltd., Reuters Television
Mauritius Ltd., and the partners of Ved & Co. (i.e., Prem
Prakash, Daya Prakash, Sanjiv Prakash, and Seema
Kukreja) D
(iv) Facilities and Marketing Agreement dated 12.04.1996
between Asian Films Laboratories Pvt. Ltd. and Reuters
Television (England) Ltd.
(v) Service Agreement dated 12.04.1996 between Asian Films
Laboratories Pvt. Ltd. and Sanjiv Prakash E
(vi) Deed of Tax Indemnity dated 12.04.1996 between Prem
Prakash, Daya Prakash, Sanjiv Prakash, Seema Kukreja,
Asian Films Laboratories Pvt. Ltd., and Reuters Television
Mauritius Ltd.
F
2.6. The Articles of Association of the company were amended
on 14.05.1996 to reflect certain decisions that were taken in the MoU.
Thus, clause 11(f) was amended so as to read as follows:
“11. Transfer of Shares
xxx xxx xxx G
(f) If the Continuing Shareholder(s) comprise Prakash Family
Shareholders and purchases are to be made by them under Article
11(e), SP Shall have the right (but not the obligation) to purchase
all (but not some only) of the Seller’s Shares. If SP shall fail to
purchase all of the Seller’s Shares within the time period set out H
58 SUPREME COURT REPORTS [2021] 4 S.C.R.
A in Article 11(e) the Shares subject to such Purchases shall be
acquired by each Prakash Family Shareholder in the proportion
such Shareholder’s holding of Shares bears to the aggregate
number of Shares held by all of the Prakash Family Shareholders
who have become bound to make such purchases.”
B Likewise, clause 11(i)(i) was inserted, in which it was stated:
“11. Transfer of Shares
xxx xxx xxx
(i) xxx xxx xxx
C (i) SP shall have the right (but not the obligation) upon serving
notice in writing to each remaining Prakash Family Shareholder
to purchase all (but not some only) of such Shares in preference
to any other Prakash Family shareholder;”
Clause 16(b) of the Articles of Association also incorporated clause
D 6(b) of the MoU as follows:
“16. xxx xxx xxx
(b) If a poll is demanded in accordance with the provisions of
section 179 of the Companies Act 1956:
E (i) SP shall so long as he holds Shares be able to vote such
number of Shares as is equal to the number of Shares held by
all the Prakash Family Shareholders less the numbers of
Prakash Family Shareholders other than SP (the other
Prakash Family Shareholders). The remaining votes
attributable to Shares hold by Prakash Family Shareholders
F shall be divided equally between the other Prakash Family
shareholders; and
(ii) The provisions of Article 16(b)(i) shall cease to be valid
and effective upon the occurrence of any of the events in
relation to SP.”
G
We are informed that this position continued upto the year 2012
after which, by mutual agreement, the Articles of Association were again
amended so that the amendments incorporated in 1996 no longer
continued.
H
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS. 59
[R. F. NARIMAN, J.]
2.7. Divestment of 49% of the share capital took place as was set A
out in the MoU as well as the SPA and the SHA, consequent upon
which Daya Prakash resigned as the Managing Director and Sanjiv
Prakash took over as the Managing Director of the company in 1996
itself.
2.8. Disputes between the parties arose when Prem Prakash B
decided to transfer his shareholding to be held jointly between Sanjiv
Prakash and himself, and Daya Prakash did likewise to transfer her
shareholding to be held jointly between Seema Kukreja and herself. A
notice invoking the arbitration clause contained in the MoU was then
served by Sanjiv Prakash on 23.11.2019 upon the three Respondents,
alleging that his pre-emptive right to purchase Daya Prakash’s shares, C
as was set out in clause 8 of the MoU, had been breached, as a result of
which disputes had arisen between the parties and Justice Deepak Verma
(retired Judge of this Court), was nominated to be the sole arbitrator.
The reply filed by Seema Kukreja and Daya Prakash, dated 20.12.2019,
pointed out that the MoU ceased to exist on and from the date of the D
SHA, i.e. 12.04.1996, which superseded the aforesaid MoU and novated
the same in view of clause 28.2 thereof. Therefore, they denied that
there was any arbitration clause between the parties as the MoU itself
had been superseded and did not exist after 12.04.1996. In view of this,
Sanjiv Prakash moved the Delhi High Court under Section 11 of the
1996 Act by a petition dated 06.01.2020. In the said petition, an interim E
order was passed on 09.01.2020 as follows:
“All the parties agree to defer Agenda Nos.4 and 8 circulated in
the notice dated 31st December, 2019 in the Board Meeting
scheduled to be held on 15th January, 2020 for a date beyond the
next date of hearing fixed in this matter.” F
2.9. By the impugned judgment dated 22.10.2020, the Delhi High
Court set out what according to it was the issue that had to be decided in
paragraph 79 follows:
“79. In this petition, I am of the view, the initial issue which arises G
for consideration is, whether at the stage of considering the request
of the petitioner for the appointment of an Arbitrator, it is only the
existence of an Arbitration Agreement that needs to be seen,
leaving it to the Arbitrator to decide the issue of validity of the
Agreement, including the plea of novation of MoU.”
H
60 SUPREME COURT REPORTS [2021] 4 S.C.R.
A After referring to both the MoU and the SHA, the learned Single
Judge of the Delhi High Court held:
“88. In so far as Clause 1.1 is concerned, the same defines
‘artificial deadlock’ as a management deadlock caused by virtue
of the Prakash Family Shareholders or Reuters voting against an
B issue or proposal in circumstances where the approval of the same
is required for the functioning of the Company as per approved
plans. No doubt, Mr. Kathpalia, Mr. Nayar and Mr. Sethi may be
right in contending that there exist a contemplation of groups viz.
Prakash Family Members and Reuters under the SHA, but the
same is in a particular fact situation of deadlock then the Prakash
C Family Members and Reuters act as ‘blocks’, which does not
mean that SHA does not recognise Prakash Family Shareholders
in their individual capacity. More so, as per the opening paragraph,
the term ‘parties’ envisages Prakash Family Shareholders both
individually as well as collectively.”
D xxx xxx xxx
“90. A conjoint reading of the Clause 28.2 with the opening
paragraph of SHA therefore necessarily means that any kind of
agreement as detailed in Clause 28.2, ‘between the parties’ shall
stand superseded as per Clause 28.2. So, it follows the shareholders
E of Prakash Family having being individually recognised under the
SHA as parties, the MoU, an agreement, as relied upon by the
petitioner which governs the inter-se rights and obligations of the
Prakash Family stands superseded. It is not the case of the Ld.
Counsel for the petitioner that the SHA does not deal with inter-
F se rights of the members / shareholders of the Prakash Family.
The plea of Mr. Nayar that MoU was entered by Prakash Family
to define their family arrangement before the Reuters came in by
purchasing the shares and hence cannot be overridden by the
SHA is not appealing. Nothing precluded the members of the
Prakash Family to include a stipulation in the SHA, that the SHA,
G shall not supersede the MoU, as has been specially stated in Clause
28.2 with regard to ancillary agreements and share purchase
agreement. The plea of Mr. Nayar, that the present dispute
between the parties being in respect of shares in an Indian
company to be resolved by London Court of International
H Arbitration as per English law, contracting out of Indian Law is
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS. 61
[R. F. NARIMAN, J.]
opposed to public policy is also not appealing as such an issue A
doesn’t arise in these proceedings which have been filed by
invoking the MoU. Nor such a plea would revive the MoU, which
stands novated by the SHA.”
After then setting out Section 62 of the Indian Contract Act, 1872
[“Contract Act”] and this Court’s judgments in Union of India v. B
Kishorilal Gupta & Bros., (1960) 1 SCR 493 [“Kishorilal Gupta”],
Damodar Valley Corporation v. K.K. Kar, (1974) 1 SCC 141
[“Damodar Valley Corporation”], and Young Achievers v. IMS
Learning Resources (P) Ltd., (2013) 10 SCC 535 [“Young
Achievers”], the learned Single Judge then concluded:
C
“98. It is clear from a reading of the above judgments that the
law relating to the effect of novation of contract containing an
arbitration agreement/clause is well-settled. An arbitration
agreement being a creation of an agreement may be destroyed
by agreement. That is to say, if the contract is superseded by
another, the arbitration clause, being a component/part of the earlier D
contract, falls with it or if the original contract in entirety is put to
an end, the arbitration clause, which is a part of it, also perishes
along with it. Hence, the arbitration clause of the MoU, being
Clause 12, having perished with the MoU, owing to novation, the
invocation of arbitration under the MoU is belied/not justified. E
99. In view of my conclusion above, the plea of doctrine of
‘kompetenz-kompetenz’ and the reliance placed on Section
11(6A) of the Act are untenable. I have also considered the
judgments relied upon by the counsels for the petitioners viz. Duro
Felguera S.A. [Duro Felguera, S.A. v. Gangavaram Port Ltd., F
(2017) 9 SCC 729], Mayavati Trading Pvt. Ltd. [Mayavati
Trading (P) Ltd. v. Pradyuat Deb Burman, (2019) 8 SCC 714],
Zostel Hospitality [Zostel Hospitality Pvt. Ltd. v. Oravel Stays
Pvt. Ltd., Arb. Pet. 28/2018], Oriental Insurance Company
Ltd.[Oriental Insurance Company Ltd. v. Narbheram Power and
Steel Pvt. Ltd., (2018) 6 SCC 534], Vodafone [Vodafone G
International Holdings BV v. Union of India, (2012) 6 SCC 613],
Uttarakhand Purv Sainik [Uttarakhand Purv Sainik Kalyan
Nigam Limited v. Northern Coal Field Ltd., (2020) 2 SCC 455],
Russell [Russell v. Northern Bank Development Corpn. Ltd.,
(1992) B.C.C. 578] and Anderson [Catherine Anderson v. Ashwani H
62 SUPREME COURT REPORTS [2021] 4 S.C.R.
A Bhatia, (2019) 11 SCC 299], and the same are not applicable to
the case in hand.”
3. Shri K.V. Viswanathan, learned Senior Advocate appearing on
behalf of the Appellant, relied strongly upon the MoU between the Prakash
Family and stressed the fact that it was a family settlement or arrangement
B which raised a special equity between the parties and could not be treated
as a mere contractual arrangement, having to be enforced in accordance
with several judgments of this Court. For this purpose, he relied strongly
upon the observations contained in paragraph 9 of Kale v. Deputy
Director of Consolidation, (1976) 3 SCC 119 [“Kale”], as followed
in Reliance Natural Resources Ltd. v. Reliance Industries Ltd.,
C (2010) 7 SCC 1 (at paragraphs 49 and 50). In particular, he relied upon
the fact that it was the Appellant who was responsible for the tremendous
growth of the company, and it is by his efforts that Reuters infused a
huge amount of capital by purchasing 49% of the share capital of the
company. It is for this reason that the MoU made it clear vide clause 8
D that in case any of the three Respondents wished to sell or bequeath
their equity shares in the company, their shares may be offered/sold/
bequeathed only to the Appellant or to his heirs and successors. The
arbitration clause contained in the MoU would therefore be applicable,
the 1996 Act being the Act under which the arbitration would have to be
effected. He then read out various clauses of the SHA and relied strongly
E upon clause 12.1(a), in which it was agreed that if Reuters would have
to divest any part of its shares in the company, it shall be entitled to
require the other shareholders to purchase its holding of shares in such
proportions as was “agreed between them or otherwise”, thereby making
it clear that the MoU between the Prakash Family was expressly referred
F to and preserved by the aforesaid clause. He also stressed upon the
absurdity of disputes arising between members of a family residing and
working only in India to have to be referred to arbitration in accordance
with the rules of the London Court of International Arbitration, which
would be the result if the SHA were to supersede the MoU. He was
also at pains to point out that clause 28 of the SHA has to be read as a
G whole, and clause 28.1 made it clear that the entire agreement and
understanding between the parties which was contained in the SHA, the
SPA, and the ancillary agreements was only “with respect to the subject
matter thereof”, the subject matter of these Agreements being the
relationship between the Prakash Family and Reuters, which was
H completely different from the subject matter of the MoU, which was
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS. 63
[R. F. NARIMAN, J.]
only between the members of the Prakash Family, Reuters not being a A
party thereto. For this purpose, he relied strongly upon the judgments
contained in Barclays Bank Plc v. Unicredit Bank Ag and Anor,
[2014] EWCA Civ 302 (at paragraphs 27 and 28), The Federal
Republic of Nigeria v. JP Morgan Chase Bank, NA, [2019] EWHC
347 (Comm) (at paragraph 37), and Kinsella and Anor v. Emasan AG
B
and Anor, [2019] EWHC 3196 (Ch) (at paragraphs 64 to 71). A reading
of these judgments would, according to the learned Senior Advocate,
show that “entire agreement” clauses are to be construed strictly, the
idea being to obviate having to refer to negotiations that had taken place
between the parties pertaining to the subject matter of the agreement
before the agreement was formally entered into. He then assailed the C
learned Single Judge’s judgment dated 22.10.2020, arguing that the
impugned judgment, instead of following Duro Felguera, S.A. v.
Gangavaram Port Ltd., (2017) 9 SCC 729 [“Duro Felguera”] and
Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman, (2019) 8 SCC
714 [“Mayavati Trading”], was in the teeth of the principles laid down
D
in the aforesaid two judgments. He also argued that whether or not
novation had taken place is, at the very least, an arguable point of
considerable complexity which would depend upon a finding based upon
various clauses of the MoU and the SHA, when construed in accordance
with the surrounding circumstances. He also argued that what was missed
by the learned Single Judge was the fact that a family settlement had E
been acted upon,resulting in an amendment of the Articles of Association
of the company soon after the MoU was entered into. He also relied
upon three recent judgments of this Court, which made it clear that
unless an ex facie case had been made out that no arbitration agreement
existed between the parties, a Section 11 court would be duty-bound to
F
refer the parties to arbitration and leave complex questions of fact and
law relating to novation of a contract under Section 62 of the Contract
Act to be decided by an arbitral tribunal.
4. Shri Mukul Rohatgi, learned Senior Advocate appearing on
behalf of Respondent No.3, supported the arguments of Shri Viswanathan.
He referred us to the MoU, the SPA, and the SHA, and strongly relied G
upon the observations in Kale(supra) which werefollowed in Ravinder
Kaur Grewal v. Manjit Kaur, (2020) 9 SCC 706(at paragraphs 25 to
28). He argued that not only were the parties to the MoU different from
those to the SHA, but that the MoU itself contemplated that the Prakash
Family would enter into a separate agreement with Reuters so as to H
64 SUPREME COURT REPORTS [2021] 4 S.C.R.
A effectuate the purchase of 49% shareholding in the company by Reuters,
showing thereby that the MoU and the Agreements entered into with
Reuters were separate contracts.
5. Shri Avishkar Singhvi and Shri Manik Dogra, learned counsel
appearing on behalf of Respondents No. 1 and 2, relied heavily on the
B fact that the MoU was superseded immediately, inasmuch as it no longer
existed after some of its material clauses were put into the Articles of
Association of the company on 14.05.1996. They also argued that the
MoU was never given effect to as Daya Prakash, who was the Managing
Director of the company, did not continue as such but handed over the
management to Sanjiv Prakash, who then became the Managing Director
C of the company soon after the SHA was entered into. They then pointed
out that, in any case, after 2012, even this did not remain as the Articles
of Association were then amended with the consent of Sanjiv Prakash
to no longer incorporate what had earlier been contained in the Articles
post the amendment of 1996. They also pointed out that on the same
D day, i.e. on 05.10.2019, just as Prem Prakash sought to divest his
shareholding in the company to be jointly held by Sanjiv Prakash and
himself, Daya Prakash did likewise, and sought to divest her shareholding
in the company to be jointly held by Seema Kukreja and herself. The
first reaction of Sanjiv Prakash then was not to rely upon a novated
MoU, but to take up the plea that the document being unstamped, ought
E not to be taken in evidence. It is only as an afterthought that clause 8 of
the MoU was then relied upon. Both the learned counsel strongly relied
upon clause 11.2 of the SHA which made it clear beyond doubt that the
MoU stood superseded. They then relied upon the judgments in
Kishorilal Gupta (supra) (at paragraph 9), Damodar Valley
F Corporation (supra) (at paragraphs 7 and 8), Young Achievers (supra)
(at paragraphs 5 and 8), Sasan Power Ltd. v. North American Coal
Corpn. (India) (P) Ltd., (2016) 10 SCC 813 (at paragraph 23), and
Larsen & Toubro Ltd. v. Mohan Lal Harbans Lal Bhayana, (2015)
2 SCC 461 (at paragraph 15) in favour of the proposition that the MoU
stood novated as a result of the SHA.They also relied upon V.B. Rangaraj
G v. V.B. Gopalakrishnan, (1992) 1 SCC 160 (at paragraphs 1, 2, 7 and
8) and Pushpa Katoch v. Manu Maharani Hotels Ltd., 2005 SCC
OnLine Del 702 : (2005) 83 DRJ 246 (at paragraphs 5, 7 and 8), for the
proposition that the MoU would be unenforceable in law as any restriction
on transfer of shares of a private company, without incorporating the
H aforesaid in its Articles, would be invalid as a result of which the Articles
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS. 65
[R. F. NARIMAN, J.]
of Association alone would have to be looked at. This being the case, the A
arbitration clause contained in an agreement which is void obviously
cannot be looked at. They then referred to certain recent judgments of
this Court for the proposition that the present case being an open and
shut one,the learned Singe Judge of the Delhi High Court was right in
dismissing the Section 11 petition filed by the Appellant.
B
6. By virtue of theArbitration and Conciliation (Amendment) Act,
2015 [“2015 Amendment Act”], 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. In a
gradual evolution of the law on the subject, the judgments in Duro C
Felguera (supra) and Mayavati Trading (supra) were explained in
some detail in a three-Judge Bench decision in Vidya Drolia v. Durga
Trading Corporation, (2021) 2 SCC 1 [“Vidya Drolia”].So far as the
facts of the present case are concerned, it is important to extract
paragraphs 127 to 130 of Vidya Drolia (supra), which deal with the D
judgments in Kishorilal Gupta (supra) and Damodar Valley
Corporation(supra), both of which have been heavily relied upon by
the learned Single Judge in the impugned judgment, as follows:
“127. An interesting and relevant exposition, when assertions
claiming repudiation, rescission or “accord and satisfaction” are E
made by a party opposing reference, is to be found in Damodar
Valley Corpn. v. K.K. Kar [Damodar Valley Corpn. v. K.K. Kar,
(1974) 1 SCC 141], which had referred to an earlier judgment of
this Court in Union of India v. Kishorilal Gupta & Bros. [Union
of India v. Kishorilal Gupta & Bros., AIR 1959 SC 1362] to
observe: (Damodar Valley Corpn. case [Damodar Valley F
Corpn. v. K.K. Kar, (1974) 1 SCC 141] , SCC pp. 147-48, para
11)
“11. After a review of the relevant case law, Subba Rao, J., as
he then was, speaking for the majority enunciated the following
principles: (Kishorilal Gupta & Bros. case [Union of G
India v. Kishorilal Gupta & Bros., AIR 1959 SC 1362], AIR
p. 1370, para 10)
‘(1) An arbitration clause is a collateral term of a contract
as distinguished from its substantive terms; but nonetheless
H
66 SUPREME COURT REPORTS [2021] 4 S.C.R.
A it is an integral part of it; (2) however comprehensive the
terms of an arbitration clause may be, the existence of the
contract is a necessary condition for its operation; it perishes
with the contract; (3) the contract may be non est in the
sense that it never came legally into existence or it was
void ab initio; (4) though the contract was validly executed,
B
the parties may put an end to it as if it had never existed
and substitute a new contract for it solely governing their
rights and liabilities thereunder; (5) in the former case, if
the original contract has no legal existence, the arbitration
clause also cannot operate, for along with the original
C contract, it is also void; in the latter case, as the original
contract is extinguished by the substituted one, the arbitration
clause of the original contract perishes with it; and (6)
between the two falls many categories “of disputes in
connection with a contract, such as the question of
repudiation, frustration, breach, etc. In those cases it is the
D
performance of the contract that has come to an end, but
the contract is still in existence for certain purposes in respect
of disputes arising under it or in connection with it. As the
contract subsists for certain purposes, the arbitration clause
operates in respect of these purposes.’
E In those cases, as we have stated earlier, it is the
performance of the contract that has come to an end but
the contract is still in existence for certain purposes in respect
of disputes arising under it or in connection with it. We
think as the contract subsists for certain purposes, the
F arbitration clause operates in respect of these purposes.”
128. Reference in Damodar Valley Corpn. case [Damodar
Valley Corpn. v. K.K. Kar, (1974) 1 SCC 141] was also made to
the minority judgment of Sarkar, J. in Kishorilal Gupta & Bros.
[Union of India v. Kishorilal Gupta & Bros., AIR 1959 SC
G 1362] to observe that he had only disagreed with the majority on
the effect of settlement on the arbitration clause, as he had held
that arbitration clause did survive to settle the dispute as to whether
there was or was not an “accord and satisfaction”. It was further
observed that this principle laid down by Sarkar, J. that “accord
and satisfaction” does not put an end to the arbitration clause,
H
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS. 67
[R. F. NARIMAN, J.]
was not disagreed to by the majority. On the other hand, proposition A
(6) seems to be laying the weight on to the views of Sarkar, J.
These decisions were under the Arbitration Act, 1940. The
Arbitration Act specifically incorporates principles of separation
and competence-competence and empowers the Arbitral Tribunal
to rule on its own jurisdiction.
B
129. Principles of competence-competence have positive and
negative connotations. As a positive implication, the Arbitral
Tribunals are declared competent and authorised by law to rule
as to their jurisdiction and decide non-arbitrability questions. In
case of expressed negative effect, the statute would govern and
should be followed. Implied negative effect curtails and constrains C
interference by the court at the referral stage by necessary
implication in order to allow the Arbitral Tribunal to rule as to their
jurisdiction and decide non-arbitrability questions. As per the
negative effect, courts at the referral stage are not to decide on
merits, except when permitted by the legislation either expressly D
or by necessary implication, such questions of non-arbitrability.
Such prioritisation of the Arbitral Tribunal over the courts can be
partial and limited when the legislation provides for some or
restricted scrutiny at the “first look” referral stage. We would,
therefore, examine the principles of competence-competence with
reference to the legislation, that is, the Arbitration Act. E
130. Section 16(1) of the Arbitration Act accepts and empowers
the Arbitral Tribunal to rule on its own jurisdiction including a ruling
on the objections, with respect to all aspects of non-arbitrability
including validity of the arbitration agreement. A party opposing
arbitration, as per sub-section (2), should raise the objection to F
jurisdiction of the tribunal before the Arbitral Tribunal, not later
than the submission of statement of defence. However,
participation in the appointment procedure or appointing an
arbitrator would not preclude and prejudice any party from raising
an objection to the jurisdiction. Obviously, the intent is to curtail G
delay and expedite appointment of the Arbitral Tribunal. The clause
also indirectly accepts that appointment of an arbitrator is different
from the issue and question of jurisdiction and non-arbitrability.
As per sub-section (3), any objection that the Arbitral Tribunal is
exceeding the scope of its authority should be raised as soon as
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68 SUPREME COURT REPORTS [2021] 4 S.C.R.
A the matter arises. However, the Arbitral Tribunal, as per sub-section
(4), is empowered to admit a plea regarding lack of jurisdiction
beyond the periods specified in sub-sections (2) and (3) if it
considers that the delay is justified. As per the mandate of sub-
section (5) when objections to the jurisdiction under sub-sections
(2) and (3) are rejected, the Arbitral Tribunal can continue with
B
the proceedings and pass the arbitration award. A party aggrieved
is at liberty to file an application for setting aside such arbitral
award under Section 34 of the Arbitration Act. Sub-section (3) to
Section 8 in specific terms permits an Arbitral Tribunal to continue
with the arbitration proceeding and make an award, even when
C an application under sub-section (1) to Section 8 is pending
consideration of the court/forum. Therefore, pendency of the
judicial proceedings even before the court is not by itself a bar for
the Arbitral Tribunal to proceed and make an award. Whether the
court should stay arbitral proceedings or appropriate deference
by the Arbitral Tribunal are distinctly different aspects and not for
D
us to elaborate in the present reference.”
Again,insofar as the facts of the present case are concerned,
paragraph 148 of the aforesaid judgment is apposite and states as follows:
“148. Section 43(1) of the Arbitration Act states that the Limitation
E Act, 1963 shall apply to arbitrations as it applies to court
proceedings. Sub-section (2) states that for the purposes of the
Arbitration Act and Limitation Act, arbitration shall be deemed to
have commenced on the date referred to in Section 21. Limitation
law is procedural and normally disputes, being factual, would be
for the arbitrator to decide guided by the facts found and the law
F applicable. The court at the referral stage can interfere only when
it is manifest that the claims are ex facie time-barred and dead, or
there is no subsisting dispute. All other cases should be referred
to the Arbitral Tribunal for decision on merits. Similar would be
the position in case of disputed “no-claim certificate” or defence
G on the plea of novation and “accord and satisfaction”. As observed
in Premium Nafta Products Ltd. [Fili Shipping Co. Ltd.
v. Premium Nafta Products Ltd., 2007 UKHL 40 : 2007 Bus LR
1719 (HL)], it is not to be expected that commercial men while
entering transactions inter se would knowingly create a system
which would require that the court should first decide whether
H
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS. 69
[R. F. NARIMAN, J.]
the contract should be rectified or avoided or rescinded, as the A
case may be, and then if the contract is held to be valid, it would
require the arbitrator to resolve the issues that have arisen.”
(emphasis supplied)
B
7. A recent judgment, Pravin Electricals Pvt. Ltd. v. Galaxy
Infra and Engineering Pvt. Ltd., 2021 SCC OnLine SC 190, referred
in detail to Vidya Drolia (supra) in paragraphs 15 to 18 as follows:
“15. Dealing with “prima facie” examination under Section 8, as
amended, the Court then held [Vidya Drolia v. Durga Trading C
Corporation, (2021) 2 SCC 1]:
“134. Prima facie examination is not full review but a primary
first review to weed out manifestly and ex facie non-existent
and invalid arbitration agreements and non-arbitrable disputes.
The prima facie review at the reference stage is to cut the D
deadwood and trim off the side branches in straightforward
cases where dismissal is barefaced and pellucid and when on
the facts and law the litigation must stop at the first stage.
Only when the court is certain that no valid arbitration
agreement exists or the disputes/subject-matter are not
arbitrable, the application under Section 8 would be rejected. E
At this stage, the court should not get lost in thickets and decide
debatable questions of facts. Referral proceedings are
preliminary and summary and not a mini trial. This necessarily
reflects on the nature of the jurisdiction exercised by the court
and in this context, the observations of B.N. Srikrishna, J. of F
“plainly arguable” case in Shin-Etsu Chemical Co. Ltd. [Shin-
Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC
234] are of importance and relevance. Similar views are
expressed by this Court in Vimal Kishor Shah [Vimal Kishor
Shah v. Jayesh Dinesh Shah, (2016) 8 SCC 788 : (2016) 4
SCC (Civ) 303] wherein the test applied at the pre-arbitration G
stage was whether there is a “good arguable case” for the
existence of an arbitration agreement.
16. The parameters of review under Sections 8 and 11 were then
laid down thus:
H
70 SUPREME COURT REPORTS [2021] 4 S.C.R.
A “138. In the Indian context, we would respectfully adopt the
three categories in Boghara Polyfab (P) Ltd. [National
Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1
SCC 267 : (2009) 1 SCC (Civ) 117] The first category of issues,
namely, whether the party has approached the appropriate High
Court, whether there is an arbitration agreement and whether
B
the party who has applied for reference is party to such
agreement would be subject to more thorough examination in
comparison to the second and third categories/issues which
are presumptively, save in exceptional cases, for the arbitrator
to decide. In the first category, we would add and include the
C question or issue relating to whether the cause of action relates
to action in personam or rem; whether the subject-matter of
the dispute affects third-party rights, have erga omnes effect,
requires centralised adjudication; whether the subject-matter
relates to inalienable sovereign and public interest functions of
the State; and whether the subject-matter of dispute is expressly
D
or by necessary implication non-arbitrable as per mandatory
statute(s). Such questions arise rarely and, when they arise,
are on most occasions questions of law. On the other hand,
issues relating to contract formation, existence, validity and
non-arbitrability would be connected and intertwined with the
E issues underlying the merits of the respective disputes/claims.
They would be factual and disputed and for the Arbitral Tribunal
to decide.
139. We would not like to be too prescriptive, albeit observe
that the court may for legitimate reasons, to prevent wastage
F of public and private resources, can exercise judicial discretion
to conduct an intense yet summary prima facie review while
remaining conscious that it is to assist the arbitration procedure
and not usurp jurisdiction of the Arbitral Tribunal. Undertaking
a detailed full review or a long-drawn review at the referral
stage would obstruct and cause delay undermining the integrity
G and efficacy of arbitration as a dispute resolution mechanism.
Conversely, if the court becomes too reluctant to intervene, it
may undermine effectiveness of both the arbitration and the
court. There are certain cases where the prima facie
examination may require a deeper consideration. The court’s
H
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS. 71
[R. F. NARIMAN, J.]
challenge is to find the right amount of and the context when it A
would examine the prima facie case or exercise restraint. The
legal order needs a right balance between avoiding arbitration
obstructing tactics at referral stage and protecting parties from
being forced to arbitrate when the matter is clearly non-
arbitrable. [Ozlem Susler, “The English Approach to
B
Competence-Competence” Pepperdine Dispute Resolution
Law Journal, 2013, Vol. 13.]
140. Accordingly, when it appears that prima facie review
would be inconclusive, or on consideration inadequate as it
requires detailed examination, the matter should be left for final
determination by the Arbitral Tribunal selected by the parties C
by consent. The underlying rationale being not to delay or defer
and to discourage parties from using referral proceeding as a
ruse to delay and obstruct. In such cases a full review by the
courts at this stage would encroach on the jurisdiction of the
Arbitral Tribunal and violate the legislative scheme allocating D
jurisdiction between the courts and the Arbitral Tribunal.
Centralisation of litigation with the Arbitral Tribunal as the
primary and first adjudicator is beneficent as it helps in quicker
and efficient resolution of disputes.”
17. The Court then examined the meaning of the expression E
“existence” which occurs in Section 11(6A) and summed up its
discussion as follows:
“146. We now proceed to examine the question, whether the
word “existence” in Section 11 merely refers to contract
formation (whether there is an arbitration agreement) and F
excludes the question of enforcement (validity) and therefore
the latter falls outside the jurisdiction of the court at the referral
stage. On jurisprudentially and textualism it is possible to
differentiate between existence of an arbitration agreement
and validity of an arbitration agreement. Such interpretation
can draw support from the plain meaning of the word G
“existence”. However, it is equally possible, jurisprudentially
and on contextualism, to hold that an agreement has no
existence if it is not enforceable and not binding. Existence of
an arbitration agreement presupposes a valid agreement which
would be enforced by the court by relegating the parties to H
72 SUPREME COURT REPORTS [2021] 4 S.C.R.
A arbitration. Legalistic and plain meaning interpretation would
be contrary to the contextual background including the definition
clause and would result in unpalatable consequences. A
reasonable and just interpretation of “existence” requires
understanding the context, the purpose and the relevant legal
norms applicable for a binding and enforceable arbitration
B
agreement. An agreement evidenced in writing has no meaning
unless the parties can be compelled to adhere and abide by the
terms. A party cannot sue and claim rights based on an
unenforceable document. Thus, there are good reasons to hold
that an arbitration agreement exists only when it is valid and
C legal. A void and unenforceable understanding is no agreement
to do anything. Existence of an arbitration agreement means
an arbitration agreement that meets and satisfies the statutory
requirements of both the Arbitration Act and the Contract Act
and when it is enforceable in law.
D 147. We would proceed to elaborate and give further reasons:
147.1. In Garware Wall Ropes Ltd. [Garware Wall Ropes
Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019)
9 SCC 209 : (2019) 4 SCC (Civ) 324], this Court had examined
the question of stamp duty in an underlying contract with an
E arbitration clause and in the context had drawn a distinction
between the first and second part of Section 7(2) of the
Arbitration Act, albeit the observations made and quoted above
with reference to “existence” and “validity” of the arbitration
agreement being apposite and extremely important, we would
repeat the same by reproducing para 29 thereof: (SCC p. 238)
F
“29. This judgment in Hyundai Engg. Case [United India
Insurance Co. Ltd. v. Hyundai Engg. & Construction
Co. Ltd., (2018) 17 SCC 607 : (2019) 2 SCC (Civ) 530] is
important in that what was specifically under consideration
was an arbitration clause which would get activated only if
G an insurer admits or accepts liability. Since on facts it was
found that the insurer repudiated the claim, though an
arbitration clause did “exist”, so to speak, in the policy, it
would not exist in law, as was held in that judgment, when
one important fact is introduced, namely, that the insurer
H has not admitted or accepted liability. Likewise, in the facts
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS. 73
[R. F. NARIMAN, J.]
of the present case, it is clear that the arbitration clause A
that is contained in the sub-contract would not “exist” as a
matter of law until the sub-contract is duly stamped, as has
been held by us above. The argument that Section 11(6-A)
deals with “existence”, as opposed to Section 8, Section 16
and Section 45, which deal with “validity” of an arbitration
B
agreement is answered by this Court’s understanding of
the expression “existence” in Hyundai Engg. case [United
India Insurance Co. Ltd. v. Hyundai Engg. &
Construction Co. Ltd., (2018) 17 SCC 607 : (2019) 2 SCC
(Civ) 530] , as followed by us.”
Existence and validity are intertwined, and arbitration agreement C
does not exist if it is illegal or does not satisfy mandatory legal
requirements. Invalid agreement is no agreement.
147.2. The court at the reference stage exercises judicial powers.
“Examination”, as an ordinary expression in common parlance,
refers to an act of looking or considering something carefully in D
order to discover something (as per Cambridge Dictionary). It
requires the person to inspect closely, to test the condition of, or to
inquire into carefully (as per Merriam-Webster Dictionary). It
would be rather odd for the court to hold and say that the arbitration
agreement exists, though ex facie and manifestly the arbitration E
agreement is invalid in law and the dispute in question is non-
arbitrable. The court is not powerless and would not act beyond
jurisdiction, if it rejects an application for reference, when the
arbitration clause is admittedly or without doubt is with a minor,
lunatic or the only claim seeks a probate of a will.
F
147.3. Most scholars and jurists accept and agree that the
existence and validity of an arbitration agreement are the same.
Even Stavros Brekoulakis accepts that validity, in terms of
substantive and formal validity, are questions of contract and hence
for the court to examine.
G
147.4. Most jurisdictions accept and require prima facie review
by the court on non-arbitrability aspects at the referral stage.
147.5. Sections 8 and 11 of the Arbitration Act are complementary
provisions as was held in Patel Engg. Ltd. [SBP & Co. v. Patel
Engg. Ltd., (2005) 8 SCC 618]. The object and purpose behind
H
74 SUPREME COURT REPORTS [2021] 4 S.C.R.
A the two provisions is identical to compel and force parties to abide
by their contractual understanding. This being so, the two provisions
should be read as laying down similar standard and not as laying
down different and separate parameters. Section 11 does not
prescribe any standard of judicial review by the court for
determining whether an arbitration agreement is in existence.
B
Section 8 states that the judicial review at the stage of reference
is prima facie and not final. Prima facie standard equally applies
when the power of judicial review is exercised by the court under
Section 11 of the Arbitration Act. Therefore, we can read the
mandate of valid arbitration agreement in Section 8 into mandate
C of Section 11, that is, “existence of an arbitration agreement”.
147.6. Exercise of power of prima facie judicial review of
existence as including validity is justified as a court is the first
forum that examines and decides the request for the referral.
Absolute “hands off” approach would be counterproductive and
D harm arbitration, as an alternative dispute resolution mechanism.
Limited, yet effective intervention is acceptable as it does not
obstruct but effectuates arbitration.
147.7. Exercise of the limited prima facie review does not in any
way interfere with the principle of competence-competence and
E separation as to obstruct arbitration proceedings but ensures that
vexatious and frivolous matters get over at the initial stage.
147.8. Exercise of prima facie power of judicial review as to the
validity of the arbitration agreement would save costs and check
harassment of objecting parties when there is clearly no justification
F and a good reason not to accept plea of non-arbitrability. In Subrata
Roy Sahara v. Union of India [Subrata Roy Sahara v. Union
of India, (2014) 8 SCC 470 : (2014) 4 SCC (Civ) 424 : (2014) 3
SCC (Cri) 712] , this Court has observed: (SCC p. 642, para 191)
“191. The Indian judicial system is grossly afflicted with
G frivolous litigation. Ways and means need to be evolved to
deter litigants from their compulsive obsession towards
senseless and ill-considered claims. One needs to keep in mind
that in the process of litigation, there is an innocent sufferer on
the other side of every irresponsible and senseless claim. He
suffers long-drawn anxious periods of nervousness and
H
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS. 75
[R. F. NARIMAN, J.]
restlessness, whilst the litigation is pending without any fault A
on his part. He pays for the litigation from out of his savings
(or out of his borrowings) worrying that the other side may
trick him into defeat for no fault of his. He spends invaluable
time briefing counsel and preparing them for his claim. Time
which he should have spent at work, or with his family, is lost,
B
for no fault of his. Should a litigant not be compensated for
what he has lost for no fault? The suggestion to the legislature
is that a litigant who has succeeded must be compensated by
the one who has lost. The suggestion to the legislature is to
formulate a mechanism that anyone who initiates and continues
a litigation senselessly pays for the same. It is suggested that C
the legislature should consider the introduction of a “Code of
Compulsory Costs”.”
147.9. Even in Duro Felguera [Duro Felguera, S.A. v.
Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC (Civ)
764], Kurian Joseph, J., in para 52, had referred to Section 7(5) D
and thereafter in para 53 referred to a judgment of this Court in
M.R. Engineers & Contractors (P) Ltd. v. Som Datt Builders
Ltd. [M.R. Engineers & Contractors (P) Ltd. v. Som Datt
Builders Ltd., (2009) 7 SCC 696 : (2009) 3 SCC (Civ) 271] to
observe that the analysis in the said case supports the final
conclusion that the memorandum of understanding in the said case E
did not incorporate an arbitration clause. Thereafter, reference
was specifically made to Patel Engg. Ltd. [SBP & Co. v. Patel
Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab (P) Ltd.
[National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd.,
(2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117] to observe that the F
legislative policy is essential to minimise court’s interference at
the pre-arbitral stage and this was the intention of sub-section (6)
to Section 11 of the Arbitration Act. Para 48 in Duro
Felguera [Duro Felguera, S.A. v. Gangavaram Port Ltd.,
(2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764] specifically states
that the resolution has to exist in the arbitration agreement, and it G
is for the court to see if the agreement contains a clause which
provides for arbitration of disputes which have arisen between
the parties. Para 59 is more restrictive and requires the court to
see whether an arbitration agreement exists — nothing more,
nothing less. Read with the other findings, it would be appropriate H
76 SUPREME COURT REPORTS [2021] 4 S.C.R.
A to read the two paragraphs as laying down the legal ratio that the
court is required to see if the underlying contract contains an
arbitration clause for arbitration of the disputes which have arisen
between the parties — nothing more, nothing less. Reference to
decisions in Patel Engg. Ltd.[SBP & Co.v. Patel Engg. Ltd.,
(2005) 8 SCC 618] and Boghara Polyfab (P) Ltd. [National
B
Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC
267 : (2009) 1 SCC (Civ) 117] was to highlight that at the reference
stage, post the amendments vide Act 3 of 2016, the court would
not go into and finally decide different aspects that were highlighted
in the two decisions.
C 147.10. In addition to Garware Wall Ropes Ltd. case [Garware
Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd.,
(2019) 9 SCC 209 : (2019) 4 SCC (Civ) 324] , this Court
in Narbheram Power & Steel (P) Ltd. [Oriental Insurance Co.
Ltd. v. Narbheram Power & Steel (P) Ltd., (2018) 6 SCC 534 :
D (2018) 3 SCC (Civ) 484] and Hyundai Engg. & Construction
Co. Ltd. [United India Insurance Co. Ltd. v. Hyundai Engg.
& Construction Co. Ltd., (2018) 17 SCC 607 : (2019) 2 SCC
(Civ) 530] , both decisions of three Judges, has rejected the
application for reference in the insurance contracts holding that
the claim was beyond and not covered by the arbitration agreement.
E The Court felt that the legal position was beyond doubt as the
scope of the arbitration clause was fully covered by the dictum
in Vulcan Insurance Co. Ltd. [Vulcan Insurance Co.
Ltd. v. Maharaj Singh, (1976) 1 SCC 943] Similarly, in PSA
Mumbai Investments Pte. Ltd. [PSA Mumbai Investments Pte.
F Ltd. v. Jawaharlal Nehru Port Trust, (2018) 10 SCC 525 : (2019)
1 SCC (Civ) 1] , this Court at the referral stage came to the
conclusion that the arbitration clause would not be applicable and
govern the disputes. Accordingly, the reference to the Arbitral
Tribunal was set aside leaving the respondent to pursue its claim
before an appropriate forum.
G
147.11. The interpretation appropriately balances the allocation
of the decision-making authority between the court at the referral
stage and the arbitrators’ primary jurisdiction to decide disputes
on merits. The court as the judicial forum of the first instance can
exercise prima facie test jurisdiction to screen and knock down
H
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS. 77
[R. F. NARIMAN, J.]
ex facie meritless, frivolous and dishonest litigation. Limited A
jurisdiction of the courts ensures expeditious, alacritous and
efficient disposal when required at the referral stage.”
18. The Bench finally concluded:
“153. Accordingly, we hold that the expression “existence of an
arbitration agreement” in Section 11 of the Arbitration Act, would B
include aspect of validity of an arbitration agreement, albeit the
court at the referral stage would apply the prima facie test on the
basis of principles set out in this judgment. In cases of debatable
and disputable facts, and good reasonable arguable case, etc., the
court would force the parties to abide by the arbitration agreement C
as the Arbitral Tribunal has primary jurisdiction and authority to
decide the disputes including the question of jurisdiction and non-
arbitrability.
154. Discussion under the heading ”Who Decides
Arbitrability?” can be crystallised as under: D
154.1. Ratio of the decision in Patel Engg. Ltd. [SBP &
Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] on the scope of judicial
review by the court while deciding an application under Sections
8 or 11 of the Arbitration Act, post the amendments by Act 3 of
2016 (with retrospective effect from 23-10-2015) and even post E
the amendments vide Act 33 of 2019 (with effect from 9-8-2019),
is no longer applicable.
154.2. Scope of judicial review and jurisdiction of the court under
Sections 8 and 11 of the Arbitration Act is identical but extremely
limited and restricted. F
154.3. The general rule and principle, in view of the legislative
mandate clear from Act 3 of 2016 and Act 33 of 2019, and the
principle of severability and competence-competence, is that the
Arbitral Tribunal is the preferred first authority to determine and
decide all questions of non-arbitrability. The court has been
G
conferred power of “second look” on aspects of non-arbitrability
post the award in terms of sub-clauses (i), (ii) or (iv) of Section
34(2)(a) or sub-clause (i) of Section 34(2)(b) of the Arbitration
Act.
H
78 SUPREME COURT REPORTS [2021] 4 S.C.R.
A 154.4. Rarely as a demurrer the court may interfere at Section 8
or 11 stage when it is manifestly and ex facie certain that the
arbitration agreement is non-existent, invalid or the disputes are
non-arbitrable, though the nature and facet of non-arbitrability
would, to some extent, determine the level and nature of judicial
scrutiny. The restricted and limited review is to check and protect
B
parties from being forced to arbitrate when the matter is
demonstrably “non-arbitrable” and to cut off the deadwood. The
court by default would refer the matter when contentions relating
to non-arbitrability are plainly arguable; when consideration in
summary proceedings would be insufficient and inconclusive; when
C facts are contested; when the party opposing arbitration adopts
delaying tactics or impairs conduct of arbitration proceedings. This
is not the stage for the court to enter into a mini trial or elaborate
review so as to usurp the jurisdiction of the Arbitral Tribunal but
to affirm and uphold integrity and efficacy of arbitration as an
alternative dispute resolution mechanism.
D
155. Reference is, accordingly, answered.”
The Court then concluded, on the facts of that case, that it would
be unsafe to conclude one way or the other that an arbitration agreement
exists between the parties on a prima facie review of facts of that
E case,and that a deeper consideration must be left to an arbitrator, whois
toexamine the documentary and oral evidence and then arrive at a
conclusion.
8. Likewise, in Bharat Sanchar Nigam Ltd. v. Nortel Networks
India Pvt. Ltd., 2021 SCC OnLine SC 207, another Division Bench of
F this Court referred to Vidya Drolia (supra) and concluded:
“39. The upshot of the judgment in Vidya Drolia [Vidya Drolia
v. Durga Trading Corporation, (2021) 2 SCC 1] is affirmation
of the position of law expounded in Duro Felguera [Duro
Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729]
G and Mayavati Trading [Mayavati Trading (P) Ltd. v. Pradyuat
Deb Burman, (2019) 8 SCC 714], which continue to hold the
field. It must be understood clearly that Vidya Drolia [Vidya
Drolia v. Durga Trading Corporation, (2021) 2 SCC 1] has not
resurrected the pre-amendment position on the scope of power
as held in SBP& Co. v. Patel Engineering [SBP & Co. v. Patel
H Engg. Ltd., (2005) 8 SCC 618].
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS. 79
[R. F. NARIMAN, J.]
It is only in the very limited category of cases, where there is not A
even a vestige of doubt that the claim is ex facie time-barred, or
that the dispute is non-arbitrable, that the court may decline to
make the reference. However, if there is even the slightest doubt,
the rule is to refer the disputes to arbitration, otherwise it would
encroach upon what is essentially a matter to be determined by
B
the tribunal.”
9. Judged by the aforesaid tests, it is obvious that whether the
MoU has been novated by the SHA 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 C
be done given the limited jurisdiction of a court under Section 11 of the
1996 Act. As has been held in paragraph 148 of Vidya Drolia (supra),
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 D
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 E
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.
10. The impugned judgment was wholly incorrect in deciding that
the plea of doctrine of kompetenz-kompetenz and reliance on Section F
11(6A) of the 1996 Act, as expounded in Duro Felguera (supra) and
Mayavati Trading(supra) 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 learned
Single Judge, while considering clause 28 of the SHA to arrive at the G
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. Also, Kishorilal Gupta (supra) and
Damodar Valley Corporation (supra) are judgments which deal with
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80 SUPREME COURT REPORTS [2021] 4 S.C.R.
A novation in the context of the Arbitration Act, 1940, which had a scheme
completely different from the scheme contained in Section 16 read with
Section 11(6A)of the 1996 Act.
11. For all these reasons, we set aside the judgment of the High
Court and refer the parties to the arbitration of a sole arbitrator, being
B Justice Aftab Alam (retired Judge of this Court), who will decide the
dispute between the parties without reference to any observations made
by this Court, which are only prima facie in nature.
12. It is made clear that Agenda Nos. 4 and 8, circulated in the
notice dated 31.12.2019,for the Board Meeting scheduled to be held on
C 15.01.2020, will continue to remain deferred until the learned sole
arbitrator passes interim orders varying or setting aside this order, or
until a final Award is delivered, depending upon whether a party applies
under Section 17 of 1996 Act. Civil Appeal No. 975 of 2021is allowed in
the aforesaid terms.
D Civil Appeal No. 976 of 2021
13. Consequently, in light of the directions in paragraphs 11and 12
hereinabove, Civil Appeal No. 976 of 2021 is accordingly disposed of.
Nidhi Jain Appeals disposed of.
E
F
G
H
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