SANJIV PRAKASH versus SEEMA KUKREJA AND ORS.

[2021] 4 S.C.R. 44

[2021] 4 S.C.R.

SANJIV PRAKASH

SEEMA KUKREJA AND ORS.

(Civil Appeal No. 975 of 2021)

APRIL 06, 2021

[R.F. NARIMAN, B.R. GAVAI AND HRISHIKESH ROY, JJ. ]

Arbitration and Conciliation Act, 1996: s. 11 – Power of courtu/s. 11 – Scope of – Novation of contract – Plea of – On facts,father formed private company from his personal funds andCdistributed the shares among his family members without anyconsideration – Foreign company approached the father for long-term equity investment and collaboration – Pursuant thereto, familymembers-appellant and respondents entered into Memorandum ofUnderstanding(MoU), wherein disputes arising in connectionDthereto were to be referred to an arbitrator – Thereafter, aShareholders’ 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 – Disputebetween the parties over transfer of shareholding – Notice byappellant-son, invoking arbitration clause contained in the MoUEagainst the respondents – However, reply by the respondents thatthe MoU ceased to exist on and from the date of the SHA, whichsuperseded and novated the same – Petition u/s. 11 by the appellant– Dismissed by the Single Judge, holding that an arbitration clauseof the MoU having perished the MoU owing to novation, invocationFof arbitration under the MoU not justified – On appeal, held:Whether the MoU has been novated by the SHA requires detailedconsideration of the clauses of the two Agreements, together withthe surrounding circumstances in which these Agreements wereentered into, and full consideration of the law on the subject – Itcannot be done, given the limited jurisdiction of court u/s. 11 –GDetailed arguments whether an agreement which contains anarbitration clause has or has not been novated cannot possibly bedecided in exercise of limited prima facie review as to whether anarbitration agreement exists between the parties – Section 11 – courtwould refer the matter when contentions relating to non-arbitrabilityH

are plainly arguable, or when facts are contested – Instant casedoes not fall within the category of cases which oust arbitrationaltogether – More so, the Court at this stage is not empowered todetermine by way of mini-trial, the validity of the arbitrationagreement – It would usurp the jurisdiction of the arbitral tribunal– Thus, the judgment of the High Court set aside – Matter referredto 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 CivilAppeal 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 court underSection 11, while appointing an arbitrator, are now narrowed toviewing whether an arbitration agreement exists between parties.[Para 6][65-B-C]

1.2 It is obvious that whether the Memorandum ofUnderstanding has been novated by the Shareholder’s Agreementdated 12.04.1996 requires detailed consideration of the clausesof the two Agreements, together with the surroundingcircumstances in which these Agreements were entered into, anda full consideration of the law on the subject. None of this can bedone given the limited jurisdiction of court under Section 11 ofthe Arbitration and Conciliation Act, 1996. [Para 9][79-B-C]

1.3 Detailed arguments on whether an agreement whichcontains an arbitration clause has or has not been novated cannotpossibly be decided in exercise of limited prima facie review asto whether an arbitration agreement exists between the parties.Also, this case does not fall within the category of cases whichousts arbitration altogether, such as matters which are in remproceedings or cases which, without doubt, concern minors,lunatics or other persons incompetent to contract. There isnothing vexatious or frivolous in the plea taken by the Appellant.On the contrary, Section 11 court would refer the matter whencontentions relating to non-arbitrability are plainly arguable, orwhen facts are contested. The court cannot, at this stage, enter

Ainto mini trial or elaborate review of the facts and law whichwould usurp the jurisdiction of the arbitral tribunal. [Para 9][79-D-F]

Vidya Drolia v. Durga Trading Corporation (2021) 2SCC 1 – relied on

1.4 The impugned judgment was wholly incorrect in decidingthat the plea of doctrine of kompetenz-kompetenz and reliance onSection 11(6A) of the 1996 Act, as expounded in Duro Felguera’scase and Mayavati Trading’s case were not applicable to the casein hand. Apart from going into detailed consideration of theCMoU and the SHA, which is exclusively within the jurisdiction ofthe arbitral tribunal, the Single Judge, while considering clause28 of the SHA to arrive at the finding that any kind of agreementas detailed in clause 28.2 between the parties shall standsuperseded, does not even refer to clause 28.1. No considerationhas been given to the separate and distinct subject matter of theDMoU and the SHA. [Para 10][79-F-H]

1.5 The judgment of the High Court is set aside and theparties are referred to the arbitration of sole arbitrator, beingJustice Aftab Alam (retired Judge of this Court), who would decidethe dispute between the parties without reference to anyEobservations made by this Court, which are only prima facie innature. [Para 11][80-B]

Union of India v. Kishorilal Gupta & Bros. [1960] 1SCR 493; Damodar Valley Corporation v. K.K. Kar(1974) 1 SCC 141 : [1974] 2 SCR 240; YoungFAchievers v. IMS Learning Resources (P) Ltd. (2013)10 SCC 535 : [2013] 2 SCR 252; Kale v. DeputyDirector of Consolidation (1976) 3 SCC 119 : [1976]3 SCR 202; Reliance Natural Resources Ltd. v. RelianceIndustries Ltd. (2010) 7 SCC 1 : [2010] 5 SCR 704;GDuro Felguera, S.A. v. Gangavaram Port Ltd. (2017) 9SCC 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. ManjitKaur (2020) 9 SCC 706; Sasan Power Ltd. v. North

SANJIV PRAKASH v. SEEMA KUKREJA AND ORS.

American Coal Corpn. (India) (P) Ltd. (2016) 10 SCC813 : [2016] 6 SCR 809; Larsen & Toubro Ltd. v. MohanLal 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; PushpaKatoch v. Manu Maharani Hotels Ltd. 2005 SCCOnLine Del 702 : (2005) 83 DRJ 246; PravinElectricals Pvt. Ltd. v. Galaxy Infra and EngineeringPvt. Ltd. 2021 SCC OnLine SC 190; Bharat SancharNigam Ltd. v. Nortel Networks India Pvt. Ltd. 2021 SCCOnLine SC 207 – referred to

Barclays Bank Plc v. Unicredit Bank Ag and Anor, [2014]EWCA Civ 302; The Federal Republic of Nigeria v. JPMorgan Chase Bank, NA, [2019] EWHC 347 (Comm);Kinsella and Anor v. Emasan AG and Anor, [2019]EWHC 3196 (Ch) – referred to

ACIVIL APPELLATE JURISDICTION : Civil Appeal No. 975 of2021.

From the Judgment and Order dated 22.10.2020 of the High Courtof Delhi at New Delhi in Arb. P. No. 4 of 2020.

WithBCivil 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.CMukul Rohtagi, Sr. Adv., Abhinav Agrawal, Manik Dogra, AvishkarSinghvi, 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.DCivil Appeal No. 975 of 2021

1. This appeal arises out of the dismissal of petition under Section11 of the Arbitration and Conciliation Act, 1996 [“1996 Act”] filed beforethe High Court of Delhi.The Appellant, Sanjiv Prakash, is member ofa family which also consists of his sister, Seema Kukreja (RespondentENo.1 herein), his mother, Daya Prakash (Respondent No.2 herein), andhis father, Prem Prakash (Respondent No.3 herein). The Appellant andRespondents are hereinafter collectively referred to as the “PrakashFamily”.

2. The facts, briefly stated, are as follows:

F2.1. private company was incorporated on 09.12.1971 underthe name and style of Asian Films Laboratories Private Limited [“thecompany”] by Prem Prakash, the entire amount of the paid-up capitalbeing paid for by him from his personal funds. He then distributed sharesto his family members without receiving any consideration for the same.On 06.03.1997, the name of the company was altered to its presentGname – ANI Media Private Limited.

2.2. Owing to the extensive efforts of Sanjiv Prakash at globallevel, Reuters Television Mauritius Limited (now Thomson ReutersCorporation), company incorporated in Mauritius [“Reuters”],approached him for long-term equity investment and collaboration withH

the company on the condition that he would play an active role in themanagement of the company.

2.3. Pursuant to this understanding, Memorandum ofUnderstanding [“MoU”]was entered into sometime in 1996 betweenthe four members of the Prakash Family. The MoU recorded that SanjivPrakash, supported by the guidance and vision of Prem Prakash, hadbeen responsible for the tremendous growth of the company. The paid-up share capital of the company was held as follows:

The Prakash Family was to divest 49% of this shareholding infavour of Reuters or its affiliates, subject to necessary permission of theauthorities, as follows:

“And whereas ANI for the past many years has been doingconsiderable business with Reuters Television (Reuters). Therelationship between them has been close and cordial. In order tostrengthen the relationship and make optimum use of thetremendous growth potential in the TV media sector, including tocater to the ever expanding news video demands of Reuters in itssatellite transmissions to subscribers worldwide, it has been foundexpedient by the existing members of the company to divest 49%of their shareholding in favour of Reuters or its affiliates subjectto necessary permission of authorities. This would cement therelationship built over the years between Reuters and thecompany.”

The MoU went on to record:

“1. The Prakash family will divest its 49% shareholding as under:

Prem Prakash1372Daya Prakash1176

________4900

2. That Prakash family recognises the leadership provided by S.P.and the role he has played in steering the company to new heightswith the name ANI which is respected internationally.

3. D.P. has been the Managing Director of the company from thebeginning and Prakash family recognises her role in bringing thecompany to very sound financial base as result of very ablyhandling the accounts and finances of the company. She wouldcontinue to be Managing Director after Reuters’ participation inequity.

4. The Prakash family would continue to own 51% shareholdingin the company after Reuters becomes 49% shareholder. Asthey would continue to have the controlling interest it is the intentionand desire of the Prakash family members that their actions andvoting must be in manner so as to act in consensus and as oneblock.

5. S.P. would after divesting his about 15% share, continue tohold 15% equity in the company. Reuters has made it clear thatthey would like the management control of the company to vestwith S.P.

6. In view of the fact that S.P. has been able to get Reuters toparticipate in Asian Films Laboratories Pvt. Ltd. The othershareholders of the Prakash family namely P.P., D.P. and S.K.agree to vote on all resolutions both in the directors andshareholders meeting in the manner instructed by S.P. To thiseffect, they are agreeable to cooperate and vote for amendmentin the Articles to reflect the following:

(a) Any resolution in Board to have either affirmative vote ofS.P. or his consent in writing to approve the same.

(b) Disproportionate voting rights irrespective of the numberof the shares held by them as under:

7.This MoU shall be binding on all the heirs, successors and assignsof P.P., D.P., S.P. and S.K. and they would act in the mannerstated in this MoU.

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 toS.P. or his heirs and successors. Similarly, in the event of S.K. orher heirs/successors desire to sell their shares, the same shall besold only to S.P. or his successors. The consideration paid shall beDthe net worth of shares on the last balance sheet date determinedby the auditors of the company.

xxx xxx xxx

11. This MoU embodies the entire understanding of the parties asto its subject matter and shall not be amended except in writingexecuted all the parties to the MoU.

12.All disputes, questions or differences etc., arising in connectionwith this MoU shall be referred to single arbitrator in accordancewith and subject to the provisions of the Arbitration Act, 1940, orany other enactment or statutory modification thereof for the timebeing in force.”

2.4. Shareholders’ Agreement dated 12.04.1996 [“SHA”] wasthen executed between the Prakash Family and Reuters. So far as isrelevant, the SHA referred to the Appellant and the Respondentscollectively as the “Prakash Family Shareholders”, and individually as a“Prakash Family Shareholder”. It then set out the reason for enteringinto the SHA as follows:

“WHEREAS

(A) Pursuant to share purchase agreement dated today betweenthe Prakash Family Shareholders and Reuters (the Share Purchase

Agreement), Reuters has agreed to purchase 4,900 Shares (asdefined below) representing 49% of the issued share capital ofAsian Films Laboratories (Pvt.) Ltd. (the Company). Followingcompletion of the Share Purchase Agreement, each of the PrakashFamily Shareholders will hold the numbers of Shares set oppositehis or her name in schedule 3 hereto, with the aggregate numberof Shares so held by the Prakash Family Shareholdersrepresenting 51% of the issued share capital of the Company.

(B) The Shareholders (as defined below) are entering into theAgreement to set out the terms governing their relationship asshareholders in the Company.”

In the definition section,”Artificial Deadlock” and “ManagementDeadlock” were defined as follows:

“Artificial Deadlock means Management Deadlock causedby virtue of the Prakash Family Shareholders or Reuters (orany appointee on the Board) voting against an issue or proposalin circumstances where the approval of the same is requiredto enable the Company to carry on the Business properly andeffectively in accordance with the then current approvedBusiness Plan and Budget;”

Exxx xxx xxx

“Management Deadlock means material managementdispute (not being an Artificial Deadlock) between any or allof the Prakash Family Directors on the one hand and theReuters directors on the other hand relating to the affairs ofthe Company which is not resolved within sixty (60) days ofsuch dispute being referred for settlement to the ReutersManaging Director (as defined in clause 16.1) and theChairman;”

The expression “Prakash Family Directors” was defined as follows:

“Prakash Family Directors means the directors of theCompany from time to time appointed by the Prakash FamilyShareholders in accordance with the Articles;”

The expression “Prakash Family Members or Interests”wasdefined as follows:

“Prakash Family Members or Interests means each ofthe Prakash Family Shareholders and each of their respectivefathers, mothers, sons, daughters, brothers and sisters (thePrakash Family Relatives) and any company in which any suchrelation or any Prakash Family Shareholder has controllinginterest;”

“Reuters Directors” was defined as follows:

“Reuters Directors means the directors of the Company fromtime to time appointed by Reuters in accordance with theArticles;”

“Reuters Group” was defined as follows:

“Reuters Group means Reuters, its Holding Company andsuch Holding Company’s Subsidiaries for the time being;”

Transfer of shares and pre-emption was dealt with in clause 4read with clauses 11, 12, and 14 and schedule 1 of the SHA.

Clause 7.2 is important and states as follows:

“7.2 Unless otherwise agreed by the Shareholders, the numberof Directors shall be seven (7) of whom, for so long as thePercentage Interest of the Prakash Family Shareholders is inaggregate equal to or greater than fifty point zero one per cent.(50.01%), four (4) shall be Prakash Family Directors and three(3) shall be Reuters Directors in accordance with the Articles. Ifthe Percentage Interest of the Prakash Family Shareholders fallsbelow such level, the number of Prakash Family Directors andReuters Directors shall be determined in accordance with theArticles.”

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 importantand states as follows:

“11.2 If Default Event exists in relation to any of theShareholders (the Defaulting Shareholder), then the otherShareholder(s) comprising, in the case of Default Event existingin relation to Prakash Family Shareholder, Reuters and, in thecase of Default Event existing in relation to Reuters, the Prakash

AFamily Shareholders (each of Reuters in the first case and thePrakash Family Shareholders in the second case being the Non-Defaulting Shareholder(s)) shall have the right, subject to theprior right of the Defaulting Shareholder to transfer its Shares ascontemplated in paragraph 8 of Schedule 1 (all as provided inclause 11.3), to purchase or procure the purchase by nomineeBor by third party of all (but not some only) of the Shares held bythe Defaulting Shareholder, provided that, in the case of DefaultEvent comprising material breach of the kind contemplated byclause 11.1(c)(ii), the relevant breach has not been either curedto the reasonable satisfaction of the Non-DefaultingCShareholder(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 lawor any change in the interpretation or application of any law makesDit unlawful or impractical without breaching such law for Reutersto continue to hold upto at least forty nine per cent. (49%) of theissued ordinary share capital of the Company or to carry out all orany of its obligations under this Agreement, upon Reuters notifyingthe other Shareholders:

(a) Reuters shall be entitled to require the other Shareholders topurchase its holding of Shares at price determined in accordancewith clause 11.4, which shall apply mutatis mutandis, and any suchpurchase shall be made by the other Shareholders in the proportionsagreed between them or otherwise in the proportion each suchFother Shareholders holding of Shares bears to the aggregatenumber of Shares held by all of such Shareholders;

(b) Any amounts loaned or made available to the Company shallforthwith be repaid to Reuters; and

(c) Reuters shall upon the service of such notice cease to beGbound by the provisions hereof save for the preceding provisionsof this clause 12.”

The termination clause was set out as follows:

“14.1 This Agreement shall continue in full force and effect forso long as both (i) any of the Prakash Family Shareholders and

(ii) any member of the Reuters Group hold any Shares. If, as aresult of any sale or disposal made in accordance with thisAgreement, either (i) none of the Prakash Family shareholders or(ii) no member of the Reuters Group holds any Shares, then thisAgreement shall terminate and cease to be of any effect, savethat this shall not:

(a) relieve any Shareholder from any liability or obligation in respectof any matters, undertakings or conditions which shall not havebeen done, observed or performed by any such Shareholder priorto such termination;

(b) save for clause 14.2, affect the terms of any agreement enteredinto between any Prakash Family Shareholders and Reuters orany successor of either of them holding Shares, to replace thisAgreement; or

(c) affect the terms of clause 15 (confidentiality) of thisAgreement.”

The arbitration clause was set out in clause 16 which reads asfollows:

“LEGAL DISPUTES

16.1 In the event of any dispute between the Shareholders arisingin connection with this Agreement (a legal dispute), they shall useall reasonable endeavours to resolve the matter on an amicablebasis. If any Shareholder serves formal written notice on anyother Shareholder that legal dispute has arisen and the relevantShareholders are unable to resolve the dispute within period ofthirty (30) days from the service of such notice, then the disputeshall be referred to the managing director of the seniormanagement company identified by Reuters as having responsibilityfor India (the Reuters Managing Director) and the Chairman ofthe Company. No recourse to arbitration under this Agreementshall take place unless and until such procedure has been followed.

ARBITRATION

16.2 If the Reuters Managing Director and the Chairman of theCompany shall have been unable to resolve any legal disputereferred to them under clause 16.1 within thirty (30) days, thatdispute shall, at the request of any Shareholder, be referred to and

Afinally settled by arbitration under and in accordance with theRules of the London Court of International Arbitration by one ormore arbitrators appointed in accordance with those Rules. Theplace of arbitration shall be London and the terms of this clause16.2 shall be governed by and construed in accordance with Englishlaw. The language of the arbitration proceedings shall be English.”B

Clause 28, upon which large part of the argument of both sideshinges, is set out as follows:

“ENTIRE AGREEMENT

28.1 This Agreement, the Ancillary Agreements, and the ShareCPurchase Agreement constitute the entire agreement andunderstanding of the parties with respect to the subject matterthereof and none of the parties has entered into this agreement inreliance upon any representation, warranty or undertaking by oron behalf of the other parties which is not expressly set out hereinor therein.D

28.2 Without prejudice to the generality of clause 28.1, the partieshereby agree that this Agreement supersedes any or all prioragreements, understanding, arrangements, promises,representations, warranties and/or contracts of any form or natureEwhatsoever, whether oral or in writing and whether explicit orimplicit, which may have been entered into prior to the date hereofbetween the parties, other than the Ancillary Agreements and theShare Purchase Agreement.”

Clause 31 deals with governing law and jurisdiction and states asfollows:F

“31. This Agreement (save for clause 16.2, which shall begoverned by and construed in accordance with the laws of England)is governed by and shall be construed in accordance with thelaws of India.”

G2.5. On the same day, Share Purchase Agreement dated12.04.1996 [“SPA”] was entered into between the Prakash Family andReuters. The SPA also contained an arbitration clause similar to thatcontained in clause 16 of the SHA, and also contained an “entireagreement clause”in clause 11, which is similar to clause 28 of the SHA.On the same date, various ancillary agreements were also entered intoH

between the parties, referred to in the SHA. These ancillary agreementsare as follows:

(i)Agreement for the Assignment of Copyright dated12.04.1996 between Prem Prakash, Asian FilmsLaboratories Pvt. Ltd., and Reuters Television MauritiusLtd.B

(ii)Trade Clarification Agreement dated 12.04.1996 betweenAsian Films Laboratories Pvt. Ltd., Reuters TelevisionMauritius Ltd., and the partners of Ved & Co. (i.e., PremPrakash, Daya Prakash, Sanjiv Prakash, and SeemaKukreja)

(iii)PIB Accreditation Agreement dated 12.04.1996 betweenAsian Films Laboratories Pvt. Ltd., Reuters TelevisionMauritius Ltd., and the partners of Ved & Co. (i.e., PremPrakash, Daya Prakash, Sanjiv Prakash, and SeemaKukreja)

(iv)Facilities and Marketing Agreement dated 12.04.1996between Asian Films Laboratories Pvt. Ltd. and ReutersTelevision (England) Ltd.

(v)Service Agreement dated 12.04.1996 between Asian FilmsLaboratories Pvt. Ltd. and Sanjiv Prakash

(vi)Deed of Tax Indemnity dated 12.04.1996 between PremPrakash, Daya Prakash, Sanjiv Prakash, Seema Kukreja,Asian Films Laboratories Pvt. Ltd., and Reuters TelevisionMauritius Ltd.

2.6. The Articles of Association of the company were amendedon 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

(f) If the Continuing Shareholder(s) comprise Prakash FamilyShareholders and purchases are to be made by them under Article11(e), SP Shall have the right (but not the obligation) to purchaseall (but not some only) of the Seller’s Shares. If SP shall fail topurchase all of the Seller’s Shares within the time period set out

in Article 11(e) the Shares subject to such Purchases shall beacquired by each Prakash Family Shareholder in the proportionsuch Shareholder’s holding of Shares bears to the aggregatenumber of Shares held by all of the Prakash Family Shareholderswho have become bound to make such purchases.”

Likewise, clause 11(i)(i) was inserted, in which it was stated:

“11. Transfer of Shares

xxx xxx xxx

(i) xxx xxx xxx

(i) SP shall have the right (but not the obligation) upon servingnotice in writing to each remaining Prakash Family Shareholderto purchase all (but not some only) of such Shares in preferenceto any other Prakash Family shareholder;”

Clause 16(b) of the Articles of Association also incorporated clauseD6(b) of the MoU as follows:

“16. xxx xxx xxx

(b) If poll is demanded in accordance with the provisions ofsection 179 of the Companies Act 1956:

(i) SP shall so long as he holds Shares be able to vote suchnumber of Shares as is equal to the number of Shares held byall the Prakash Family Shareholders less the numbers ofPrakash Family Shareholders other than SP (the otherPrakash Family Shareholders). The remaining votesattributable to Shares hold by Prakash Family Shareholdersshall be divided equally between the other Prakash Familyshareholders; and

(ii) The provisions of Article 16(b)(i) shall cease to be validand effective upon the occurrence of any of the events inrelation to SP.”

We are informed that this position continued upto the year 2012after which, by mutual agreement, the Articles of Association were againamended so that the amendments incorporated in 1996 no longercontinued.

2.7. Divestment of 49% of the share capital took place as was setout in the MoU as well as the SPA and the SHA, consequent uponwhich Daya Prakash resigned as the Managing Director and SanjivPrakash took over as the Managing Director of the company in 1996itself.

2.8. Disputes between the parties arose when Prem Prakashdecided to transfer his shareholding to be held jointly between SanjivPrakash and himself, and Daya Prakash did likewise to transfer hershareholding to be held jointly between Seema Kukreja and herself. Anotice invoking the arbitration clause contained in the MoU was thenserved by Sanjiv Prakash on 23.11.2019 upon the three Respondents,alleging that his pre-emptive right to purchase Daya Prakash’s shares,as was set out in clause 8 of the MoU, had been breached, as result ofwhich 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 theSHA, i.e. 12.04.1996, which superseded the aforesaid MoU and novatedthe same in view of clause 28.2 thereof. Therefore, they denied thatthere was any arbitration clause between the parties as the MoU itselfhad 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 the1996 Act by petition dated 06.01.2020. In the said petition, an interimorder was passed on 09.01.2020 as follows:

“All the parties agree to defer Agenda Nos.4 and 8 circulated inthe notice dated 31[st] December, 2019 in the Board Meetingscheduled to be held on 15[th] January, 2020 for date beyond thenext date of hearing fixed in this matter.”

2.9. By the impugned judgment dated 22.10.2020, the Delhi HighCourt set out what according to it was the issue that had to be decided inparagraph 79 follows:

“79. In this petition, I am of the view, the initial issue which arisesfor consideration is, whether at the stage of considering the requestof the petitioner for the appointment of an Arbitrator, it is only theexistence of an Arbitration Agreement that needs to be seen,leaving it to the Arbitrator to decide the issue of validity of theAgreement, including the plea of novation of MoU.”

After referring to both the MoU and the SHA, the learned SingleJudge of the Delhi High Court held:

“88. In so far as Clause 1.1 is concerned, the same defines‘artificial deadlock’ as management deadlock caused by virtueof the Prakash Family Shareholders or Reuters voting against anissue or proposal in circumstances where the approval of the sameis required for the functioning of the Company as per approvedplans. No doubt, Mr. Kathpalia, Mr. Nayar and Mr. Sethi may beright in contending that there exist contemplation of groups viz.Prakash Family Members and Reuters under the SHA, but thesame is in particular fact situation of deadlock then the PrakashFamily Members and Reuters act as ‘blocks’, which does notmean that SHA does not recognise Prakash Family Shareholdersin their individual capacity. More so, as per the opening paragraph,the term ‘parties’ envisages Prakash Family Shareholders bothindividually as well as collectively.”

xxx xxx xxx

“90. conjoint reading of the Clause 28.2 with the openingparagraph of SHA therefore necessarily means that any kind ofagreement as detailed in Clause 28.2, ‘between the parties’ shallstand superseded as per Clause 28.2. So, it follows the shareholdersof Prakash Family having being individually recognised under theSHA as parties, the MoU, an agreement, as relied upon by thepetitioner which governs the inter-se rights and obligations of thePrakash Family stands superseded. It is not the case of the Ld.Counsel for the petitioner that the SHA does not deal with inter-se rights of the members / shareholders of the Prakash Family.The plea of Mr. Nayar that MoU was entered by Prakash Familyto define their family arrangement before the Reuters came in bypurchasing the shares and hence cannot be overridden by theSHA is not appealing. Nothing precluded the members of thePrakash Family to include stipulation in the SHA, that the SHA,shall not supersede the MoU, as has been specially stated in Clause28.2 with regard to ancillary agreements and share purchaseagreement. The plea of Mr. Nayar, that the present disputebetween the parties being in respect of shares in an Indiancompany to be resolved by London Court of InternationalArbitration as per English law, contracting out of Indian Law is

opposed to public policy is also not appealing as such an issuedoesn’t arise in these proceedings which have been filed byinvoking the MoU. Nor such plea would revive the MoU, whichstands 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.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. IMSLearning Resources (P) Ltd., (2013) 10 SCC 535 [“YoungAchievers”], the learned Single Judge then concluded:

“98. It is clear from reading of the above judgments that thelaw relating to the effect of novation of contract containing anarbitration agreement/clause is well-settled. An arbitrationagreement being creation of an agreement may be destroyedby agreement. That is to say, if the contract is superseded byanother, the arbitration clause, being component/part of the earliercontract, falls with it or if the original contract in entirety is put toan end, the arbitration clause, which is part of it, also perishesalong with it. Hence, the arbitration clause of the MoU, beingClause 12, having perished with the MoU, owing to novation, theinvocation of arbitration under the MoU is belied/not justified.

99. In view of my conclusion above, the plea of doctrine of‘-kompetenzkompetenz’ and the reliance placed on Section11(6A) of the Act are untenable. I have also considered thejudgments relied upon by the counsels for the petitioners viz. DuroFelguera S.A. [Duro Felguera, S.A. v. Gangavaram Port Ltd.,(2017) 9 SCC 729], Mayavati Trading Pvt. Ltd. [MayavatiTrading (P) Ltd. v. Pradyuat Deb Burman, (2019) 8 SCC 714],Zostel Hospitality [Zostel Hospitality Pvt. Ltd. v. Oravel StaysPvt. Ltd., Arb. Pet. 28/2018], Oriental Insurance CompanyLtd.[Oriental Insurance Company Ltd. v. Narbheram Power andSteel Pvt. Ltd., (2018) 6 SCC 534], Vodafone [VodafoneInternational Holdings BV v. Union of India, (2012) 6 SCC 613],Uttarakhand Purv Sainik [Uttarakhand Purv Sainik KalyanNigam 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

[2021] 4 S.C.R.

ABhatia, (2019) 11 SCC 299], and the same are not applicable tothe case in hand.”

3. Shri K.V. Viswanathan, learned Senior Advocate appearing onbehalf of the Appellant, relied strongly upon the MoU between the PrakashFamily and stressed the fact that it was family settlement or arrangementBwhich raised special equity between the parties and could not be treatedas mere contractual arrangement, having to be enforced in accordancewith several judgments of this Court. For this purpose, he relied stronglyupon the observations contained in paragraph 9 of Kale v. DeputyDirector of Consolidation, (1976) 3 SCC 119 [“Kale”], as followedCin Reliance Natural Resources Ltd. v. Reliance Industries Ltd.,(2010) 7 SCC 1 (at paragraphs 49 and 50). In particular, he relied uponthe fact that it was the Appellant who was responsible for the tremendousgrowth of the company, and it is by his efforts that Reuters infused ahuge amount of capital by purchasing 49% of the share capital of thecompany. It is for this reason that the MoU made it clear vide clause 8Dthat in case any of the three Respondents wished to sell or bequeaththeir equity shares in the company, their shares may be offered/sold/bequeathed only to the Appellant or to his heirs and successors. Thearbitration clause contained in the MoU would therefore be applicable,the 1996 Act being the Act under which the arbitration would have to beeffected. He then read out various clauses of the SHA and relied stronglyEupon clause 12.1(a), in which it was agreed that if Reuters would haveto divest any part of its shares in the company, it shall be entitled torequire the other shareholders to purchase its holding of shares in suchproportions as was “agreed between them or otherwise”, thereby makingit clear that the MoU between the Prakash Family was expressly referred

Fto and preserved by the aforesaid clause. He also stressed upon theabsurdity of disputes arising between members of family residing andworking only in India to have to be referred to arbitration in accordancewith the rules of the London Court of International Arbitration, whichwould 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 aGwhole, and clause 28.1 made it clear that the entire agreement andunderstanding between the parties which was contained in the SHA, theSPA, and the ancillary agreements was only “with respect to the subjectmatter thereof”, the subject matter of these Agreements being therelationship between the Prakash Family and Reuters, which wasHcompletely different from the subject matter of the MoU, which was

only between the members of the Prakash Family, Reuters not being aparty thereto. For this purpose, he relied strongly upon the judgmentscontained in Barclays Bank Plc v. Unicredit Bank Ag and Anor,[2014] EWCA Civ 302 (at paragraphs 27 and 28), The FederalRepublic of Nigeria v. JP Morgan Chase Bank, NA, [2019] EWHC347 (Comm) (at paragraph 37), and Kinsella and Anor v. Emasan AGand Anor, [2019] EWHC 3196 (Ch) (at paragraphs 64 to 71). readingof these judgments would, according to the learned Senior Advocate,show that “entire agreement” clauses are to be construed strictly, theidea being to obviate having to refer to negotiations that had taken placebetween the parties pertaining to the subject matter of the agreementbefore the agreement was formally entered into. He then assailed thelearned Single Judge’s judgment dated 22.10.2020, arguing that theimpugned judgment, instead of following Duro Felguera, S.A. v.Gangavaram Port Ltd., (2017) 9 SCC 729 [“Duro Felguera”] andMayavati Trading (P) Ltd. v. Pradyuat Deb Burman, (2019) 8 SCC714 [“Mayavati Trading”], was in the teeth of the principles laid downin the aforesaid two judgments. He also argued that whether or notnovation had taken place is, at the very least, an arguable point ofconsiderable complexity which would depend upon finding based uponvarious clauses of the MoU and the SHA, when construed in accordancewith the surrounding circumstances. He also argued that what was missedby the learned Single Judge was the fact that family settlement hadbeen acted upon,resulting in an amendment of the Articles of Associationof the company soon after the MoU was entered into. He also reliedupon three recent judgments of this Court, which made it clear thatunless an ex facie case had been made out that no arbitration agreementexisted between the parties, Section 11 court would be duty-bound torefer the parties to arbitration and leave complex questions of fact andlaw relating to novation of contract under Section 62 of the ContractAct to be decided by an arbitral tribunal.

4. Shri Mukul Rohatgi, learned Senior Advocate appearing onbehalf of Respondent No.3, supported the arguments of Shri Viswanathan.He referred us to the MoU, the SPA, and the SHA, and strongly reliedupon the observations in Kale(supra) which werefollowed in RavinderKaur Grewal v. Manjit Kaur, (2020) 9 SCC 706(at paragraphs 25 to28). He argued that not only were the parties to the MoU different fromthose to the SHA, but that the MoU itself contemplated that the PrakashFamily would enter into separate agreement with Reuters so as to

Aeffectuate the purchase of 49% shareholding in the company by Reuters,showing thereby that the MoU and the Agreements entered into withReuters were separate contracts.

5. Shri Avishkar Singhvi and Shri Manik Dogra, learned counselappearing on behalf of Respondents No. 1 and 2, relied heavily on theBfact that the MoU was superseded immediately, inasmuch as it no longerexisted after some of its material clauses were put into the Articles ofAssociation of the company on 14.05.1996. They also argued that theMoU was never given effect to as Daya Prakash, who was the ManagingDirector of the company, did not continue as such but handed over themanagement to Sanjiv Prakash, who then became the Managing DirectorCof the company soon after the SHA was entered into. They then pointedout that, in any case, after 2012, even this did not remain as the Articlesof Association were then amended with the consent of Sanjiv Prakashto no longer incorporate what had earlier been contained in the Articlespost the amendment of 1996. They also pointed out that on the sameDday, i.e. on 05.10.2019, just as Prem Prakash sought to divest hisshareholding in the company to be jointly held by Sanjiv Prakash andhimself, Daya Prakash did likewise, and sought to divest her shareholdingin the company to be jointly held by Seema Kukreja and herself. Thefirst reaction of Sanjiv Prakash then was not to rely upon novatedMoU, but to take up the plea that the document being unstamped, oughtEnot to be taken in evidence. It is only as an afterthought that clause 8 ofthe MoU was then relied upon. Both the learned counsel strongly reliedupon clause 11.2 of the SHA which made it clear beyond doubt that theMoU stood superseded. They then relied upon the judgments inKishorilal Gupta (supra) (at paragraph 9), Damodar ValleyFCorporation (supra) (at paragraphs 7 and 8), Young Achievers (supra)(at paragraphs 5 and 8), Sasan Power Ltd. v. North American CoalCorpn. (India) (P) Ltd., (2016) 10 SCC 813 (at paragraph 23), andLarsen & 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 result of the SHA.They also relied upon V.B. RangarajGv. V.B. Gopalakrishnan, (1992) 1 SCC 160 (at paragraphs 1, 2, 7 and8) and Pushpa Katoch v. Manu Maharani Hotels Ltd., 2005 SCCOnLine Del 702 : (2005) 83 DRJ 246 (at paragraphs 5, 7 and 8), for theproposition that the MoU would be unenforceable in law as any restrictionon transfer of shares of private company, without incorporating theHaforesaid in its Articles, would be invalid as result of which the Articles

of Association alone would have to be looked at. This being the case, thearbitration clause contained in an agreement which is void obviouslycannot be looked at. They then referred to certain recent judgments ofthis Court for the proposition that the present case being an open andshut one,the learned Singe Judge of the Delhi High Court was right indismissing the Section 11 petition filed by the Appellant.

6. By virtue of theArbitration and Conciliation (Amendment) Act,2015 [“2015 Amendment Act”], by which Section 11(6A) wasintroduced, the earlier position as to the scope of the powers of courtunder Section 11, while appointing an arbitrator,are now narrowed toviewing whether an arbitration agreement exists between parties. In agradual evolution of the law on the subject, the judgments in DuroFelguera (supra) and Mayavati Trading (supra) were explained insome detail in three-Judge Bench decision in Vidya Drolia v. DurgaTrading Corporation, (2021) 2 SCC 1 [“Vidya Drolia”].So far as thefacts of the present case are concerned, it is important to extractparagraphs 127 to 130 of Vidya Drolia (supra), which deal with thejudgments in Kishorilal Gupta (supra) and Damodar ValleyCorporation(supra), both of which have been heavily relied upon bythe learned Single Judge in the impugned judgment, as follows:“127. An interesting and relevant exposition, when assertionsclaiming repudiation, rescission or “accord and satisfaction” aremade by party opposing reference, is to be found in DamodarValley Corpn. v. K.K. Kar [Damodar Valley Corpn. v. K.K. Kar,(1974) 1 SCC 141], which had referred to an earlier judgment ofthis Court in Union of India v. Kishorilal Gupta & Bros. [Unionof India v. Kishorilal Gupta & Bros., AIR 1959 SC 1362] toobserve: (Damodar Valley Corpn. case [Damodar ValleyCorpn. v. K.K. Kar, (1974) 1 SCC 141] , SCC pp. 147-48, para11)

“11. After review of the relevant case law, Subba Rao, J., ashe then was, speaking for the majority enunciated the followingprinciples: (Kishorilal Gupta & Bros. case [Union ofIndia v. Kishorilal Gupta & Bros., AIR 1959 SC 1362], AIRp. 1370, para 10)

‘(1) An arbitration clause is collateral term of contractas distinguished from its substantive terms; but nonetheless

it is an integral part of it; (2) however comprehensive theterms of an arbitration clause may be, the existence of thecontract is necessary condition for its operation; it perisheswith the contract; (3) the contract may be non est in thesense that it never came legally into existence or it wasvoid ab initio; (4) though the contract was validly executed,the parties may put an end to it as if it had never existedand substitute new contract for it solely governing theirrights and liabilities thereunder; (5) in the former case, ifthe original contract has no legal existence, the arbitrationclause also cannot operate, for along with the originalcontract, it is also void; in the latter case, as the originalcontract is extinguished by the substituted one, the arbitrationclause of the original contract perishes with it; and (6)between the two falls many categories “of disputes inconnection with contract, such as the question ofrepudiation, frustration, breach, etc. In those cases it is theperformance of the contract that has come to an end, butthe contract is still in existence for certain purposes in respectof disputes arising under it or in connection with it. As thecontract subsists for certain purposes, the arbitration clauseoperates in respect of these purposes.’

In those cases, as we have stated earlier, it is theperformance of the contract that has come to an end butthe contract is still in existence for certain purposes in respectof disputes arising under it or in connection with it. Wethink as the contract subsists for certain purposes, the

arbitration clause operates in respect of these purposes.”

128. Reference in Damodar Valley Corpn. case [DamodarValley Corpn. v. K.K. Kar, (1974) 1 SCC 141] was also made tothe minority judgment of Sarkar, J. in Kishorilal Gupta & Bros.[Union of India v. Kishorilal Gupta & Bros., AIR 1959 SC1362] to observe that he had only disagreed with the majority onthe effect of settlement on the arbitration clause, as he had heldthat arbitration clause did survive to settle the dispute as to whetherthere was or was not an “accord and satisfaction”. It was furtherobserved that this principle laid down by Sarkar, J. that “accordand satisfaction” does not put an end to the arbitration clause,

was not disagreed to by the majority. On the other hand, proposition(6) seems to be laying the weight on to the views of Sarkar, J.These decisions were under the Arbitration Act, 1940. TheArbitration Act specifically incorporates principles of separationand competence-competence and empowers the Arbitral Tribunalto rule on its own jurisdiction.

129. Principles of competence-competence have positive andnegative connotations. As positive implication, the ArbitralTribunals are declared competent and authorised by law to ruleas to their jurisdiction and decide non-arbitrability questions. Incase of expressed negative effect, the statute would govern andshould be followed. Implied negative effect curtails and constrainsinterference by the court at the referral stage by necessaryimplication in order to allow the Arbitral Tribunal to rule as to theirjurisdiction and decide non-arbitrability questions. As per thenegative effect, courts at the referral stage are not to decide onmerits, except when permitted by the legislation either expresslyor by necessary implication, such questions of non-arbitrability.Such prioritisation of the Arbitral Tribunal over the courts can bepartial and limited when the legislation provides for some orrestricted scrutiny at the “first look” referral stage. We would,therefore, examine the principles of competence-competence withreference to the legislation, that is, the Arbitration Act.

130. Section 16(1) of the Arbitration Act accepts and empowersthe Arbitral Tribunal to rule on its own jurisdiction including rulingon the objections, with respect to all aspects of non-arbitrabilityincluding validity of the arbitration agreement. party opposingarbitration, as per sub-section (2), should raise the objection tojurisdiction of the tribunal before the Arbitral Tribunal, not laterthan the submission of statement of defence. However,participation in the appointment procedure or appointing anarbitrator would not preclude and prejudice any party from raisingan objection to the jurisdiction. Obviously, the intent is to curtaildelay and expedite appointment of the Arbitral Tribunal. The clausealso indirectly accepts that appointment of an arbitrator is differentfrom the issue and question of jurisdiction and non-arbitrability.As per sub-section (3), any objection that the Arbitral Tribunal isexceeding the scope of its authority should be raised as soon as

Athe matter arises. However, the Arbitral Tribunal, as per sub-section(4), is empowered to admit plea regarding lack of jurisdictionbeyond the periods specified in sub-sections (2) and (3) if itconsiders 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 withBthe proceedings and pass the arbitration award. party aggrievedis at liberty to file an application for setting aside such arbitralaward under Section 34 of the Arbitration Act. Sub-section (3) toSection 8 in specific terms permits an Arbitral Tribunal to continuewith the arbitration proceeding and make an award, even whenCan application under sub-section (1) to Section 8 is pendingconsideration of the court/forum. Therefore, pendency of thejudicial proceedings even before the court is not by itself bar forthe Arbitral Tribunal to proceed and make an award. Whether thecourt should stay arbitral proceedings or appropriate deferenceby the Arbitral Tribunal are distinctly different aspects and not forDus 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 LimitationEAct, 1963 shall apply to arbitrations as it applies to courtproceedings. Sub-section (2) states that for the purposes of theArbitration Act and Limitation Act, arbitration shall be deemed tohave commenced on the date referred to in Section 21. Limitationlaw is procedural and normally disputes, being factual, would befor the arbitrator to decide guided by the facts found and the lawFapplicable. The court at the referral stage can interfere only whenit is manifest that the claims are ex facie time-barred and dead, orthere is no subsisting dispute. All other cases should be referredto the Arbitral Tribunal for decision on merits. Similar would bethe position in case of disputed “no-claim certificate” or defenceGon the plea of novation and “accord and satisfaction”. As observedin Premium Nafta Products Ltd. [Fili Shipping Co. Ltd.v. Premium Nafta Products Ltd., 2007 UKHL 40 : 2007 Bus LR1719 (HL)], it is not to be expected that commercial men whileentering transactions inter se would knowingly create systemwhich would require that the court should first decide whether

the contract should be rectified or avoided or rescinded, as thecase may be, and then if the contract is held to be valid, it wouldrequire the arbitrator to resolve the issues that have arisen.”

(emphasis supplied)

7. recent judgment, Pravin Electricals Pvt. Ltd. v. GalaxyInfra and Engineering Pvt. Ltd., 2021 SCC OnLine SC 190, referredin detail to Vidya Drolia (supra) in paragraphs 15 to 18 as follows:

“15. Dealing with “prima facie” examination under Section 8, asamended, the Court then held [Vidya Drolia v. Durga TradingCorporation, (2021) 2 SCC 1]:

“134. Prima facie examination is not full review but primaryfirst review to weed out manifestly and ex facie non-existentand invalid arbitration agreements and non-arbitrable disputes.The prima facie review at the reference stage is to cut thedeadwood and trim off the side branches in straightforwardcases where dismissal is barefaced and pellucid and when onthe facts and law the litigation must stop at the first stage.Only when the court is certain that no valid arbitrationagreement exists or the disputes/subject-matter are notarbitrable, the application under Section 8 would be rejected.At this stage, the court should not get lost in thickets and decidedebatable questions of facts. Referral proceedings arepreliminary and summary and not mini trial. This necessarilyreflects on the nature of the jurisdiction exercised by the courtand in this context, the observations of B.N. Srikrishna, J. of“plainly arguable” case in Shin-Etsu Chemical Co. Ltd. [Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC234] are of importance and relevance. Similar views areexpressed by this Court in Vimal Kishor Shah [Vimal KishorShah v. Jayesh Dinesh Shah, (2016) 8 SCC 788 : (2016) 4SCC (Civ) 303] wherein the test applied at the pre-arbitrationstage was whether there is “good arguable case” for theexistence of an arbitration agreement.

16. The parameters of review under Sections 8 and 11 were thenlaid down thus:

DEF

“138. In the Indian context, we would respectfully adopt thethree categories in Boghara Polyfab (P) Ltd. [NationalInsurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1SCC 267 : (2009) 1 SCC (Civ) 117] The first category of issues,namely, whether the party has approached the appropriate HighCourt, whether there is an arbitration agreement and whetherthe party who has applied for reference is party to suchagreement would be subject to more thorough examination incomparison to the second and third categories/issues whichare presumptively, save in exceptional cases, for the arbitratorto decide. In the first category, we would add and include thequestion or issue relating to whether the cause of action relatesto action in personam or rem; whether the subject-matter ofthe dispute affects third-party rights, have erga omnes effect,requires centralised adjudication; whether the subject-matterrelates to inalienable sovereign and public interest functions ofthe State; and whether the subject-matter of dispute is expresslyor by necessary implication non-arbitrable as per mandatorystatute(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 andnon-arbitrability would be connected and intertwined with theissues underlying the merits of the respective disputes/claims.They would be factual and disputed and for the Arbitral Tribunalto decide.

139. We would not like to be too prescriptive, albeit observethat the court may for legitimate reasons, to prevent wastageof public and private resources, can exercise judicial discretionto conduct an intense yet summary prima facie review whileremaining conscious that it is to assist the arbitration procedureand not usurp jurisdiction of the Arbitral Tribunal. Undertakinga detailed full review or long-drawn review at the referralstage would obstruct and cause delay undermining the integrityand efficacy of arbitration as dispute resolution mechanism.Conversely, if the court becomes too reluctant to intervene, itmay undermine effectiveness of both the arbitration and thecourt. There are certain cases where the prima facieexamination may require deeper consideration. The court’s

challenge is to find the right amount of and the context when itwould examine the prima facie case or exercise restraint. Thelegal order needs right balance between avoiding arbitrationobstructing tactics at referral stage and protecting parties frombeing forced to arbitrate when the matter is clearly non-arbitrable. [Ozlem Susler, “The English Approach toCompetence-Competence” Pepperdine Dispute ResolutionLaw Journal, 2013, Vol. 13.]

140. Accordingly, when it appears that prima facie reviewwould be inconclusive, or on consideration inadequate as itrequires detailed examination, the matter should be left for finaldetermination by the Arbitral Tribunal selected by the partiesby consent. The underlying rationale being not to delay or deferand to discourage parties from using referral proceeding as aruse to delay and obstruct. In such cases full review by thecourts at this stage would encroach on the jurisdiction of theArbitral Tribunal and violate the legislative scheme allocatingjurisdiction between the courts and the Arbitral Tribunal.Centralisation of litigation with the Arbitral Tribunal as theprimary and first adjudicator is beneficent as it helps in quickerand efficient resolution of disputes.”

17. The Court then examined the meaning of the expression“existence” which occurs in Section 11(6A) and summed up itsdiscussion as follows:

“146. We now proceed to examine the question, whether theword “existence” in Section 11 merely refers to contractformation (whether there is an arbitration agreement) andexcludes the question of enforcement (validity) and thereforethe latter falls outside the jurisdiction of the court at the referralstage. On jurisprudentially and textualism it is possible todifferentiate between existence of an arbitration agreementand validity of an arbitration agreement. Such interpretationcan draw support from the plain meaning of the word“existence”. However, it is equally possible, jurisprudentiallyand on contextualism, to hold that an agreement has noexistence if it is not enforceable and not binding. Existence ofan arbitration agreement presupposes valid agreement whichwould be enforced by the court by relegating the parties to

ABC

arbitration. Legalistic and plain meaning interpretation wouldbe contrary to the contextual background including the definitionclause and would result in unpalatable consequences. Areasonable and just interpretation of “existence” requiresunderstanding the context, the purpose and the relevant legalnorms applicable for binding and enforceable arbitrationagreement. An agreement evidenced in writing has no meaningunless the parties can be compelled to adhere and abide by theterms. party cannot sue and claim rights based on anunenforceable document. Thus, there are good reasons to holdthat an arbitration agreement exists only when it is valid andlegal. void and unenforceable understanding is no agreementto do anything. Existence of an arbitration agreement meansan arbitration agreement that meets and satisfies the statutoryrequirements of both the Arbitration Act and the Contract Actand when it is enforceable in law.

147. We would proceed to elaborate and give further reasons:

147.1. In Garware Wall Ropes Ltd. [Garware Wall RopesLtd. v. Coastal Marine Constructions & Engg. Ltd., (2019)9 SCC 209 : (2019) 4 SCC (Civ) 324], this Court had examinedthe question of stamp duty in an underlying contract with anarbitration clause and in the context had drawn distinctionbetween the first and second part of Section 7(2) of theArbitration Act, albeit the observations made and quoted abovewith reference to “existence” and “validity” of the arbitrationagreement being apposite and extremely important, we wouldrepeat the same by reproducing para 29 thereof: (SCC p. 238)

“29. This judgment in Hyundai Engg. Case [United IndiaInsurance Co. Ltd. v. Hyundai Engg. & ConstructionCo. Ltd., (2018) 17 SCC 607 : (2019) 2 SCC (Civ) 530] isimportant in that what was specifically under considerationwas an arbitration clause which would get activated only ifan insurer admits or accepts liability. Since on facts it wasfound that the insurer repudiated the claim, though anarbitration clause did “exist”, so to speak, in the policy, itwould not exist in law, as was held in that judgment, whenone important fact is introduced, namely, that the insurerhas not admitted or accepted liability. Likewise, in the facts

of the present case, it is clear that the arbitration clausethat is contained in the sub-contract would not “exist” as amatter of law until the sub-contract is duly stamped, as hasbeen held by us above. The argument that Section 11(6-A)deals with “existence”, as opposed to Section 8, Section 16and Section 45, which deal with “validity” of an arbitrationagreement is answered by this Court’s understanding ofthe expression “existence” in Hyundai Engg. case [UnitedIndia 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 agreementdoes not exist if it is illegal or does not satisfy mandatory legalrequirements. 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 inorder to discover something (as per Cambridge Dictionary). Itrequires the person to inspect closely, to test the condition of, or toinquire into carefully (as per Merriam-Webster Dictionary). Itwould be rather odd for the court to hold and say that the arbitrationagreement exists, though ex facie and manifestly the arbitrationagreement is invalid in law and the dispute in question is non-arbitrable. The court is not powerless and would not act beyondjurisdiction, if it rejects an application for reference, when thearbitration clause is admittedly or without doubt is with minor,lunatic or the only claim seeks probate of will.

147.3. Most scholars and jurists accept and agree that theexistence and validity of an arbitration agreement are the same.Even Stavros Brekoulakis accepts that validity, in terms ofsubstantive and formal validity, are questions of contract and hencefor the court to examine.

147.4. Most jurisdictions accept and require prima facie reviewby the court on non-arbitrability aspects at the referral stage.

147.5. Sections 8 and 11 of the Arbitration Act are complementaryprovisions as was held in Patel Engg. Ltd. [SBP & Co. v. PatelEngg. Ltd., (2005) 8 SCC 618]. The object and purpose behind

the two provisions is identical to compel and force parties to abideby their contractual understanding. This being so, the two provisionsshould be read as laying down similar standard and not as layingdown different and separate parameters. Section 11 does notprescribe any standard of judicial review by the court fordetermining whether an arbitration agreement is in existence.Section 8 states that the judicial review at the stage of referenceis prima facie and not final. Prima facie standard equally applieswhen the power of judicial review is exercised by the court underSection 11 of the Arbitration Act. Therefore, we can read themandate of valid arbitration agreement in Section 8 into mandateof Section 11, that is, “existence of an arbitration agreement”.

147.6. Exercise of power of prima facie judicial review ofexistence as including validity is justified as court is the firstforum that examines and decides the request for the referral.Absolute “hands off” approach would be counterproductive andharm arbitration, as an alternative dispute resolution mechanism.Limited, yet effective intervention is acceptable as it does notobstruct but effectuates arbitration.

147.7. Exercise of the limited prima facie review does not in anyway interfere with the principle of competence-competence andseparation as to obstruct arbitration proceedings but ensures thatvexatious and frivolous matters get over at the initial stage.

147.8. Exercise of prima facie power of judicial review as to thevalidity of the arbitration agreement would save costs and checkharassment of objecting parties when there is clearly no justificationand good reason not to accept plea of non-arbitrability. In SubrataRoy Sahara v. Union of India [Subrata Roy Sahara v. Unionof India, (2014) 8 SCC 470 : (2014) 4 SCC (Civ) 424 : (2014) 3SCC (Cri) 712] , this Court has observed: (SCC p. 642, para 191)

“191. The Indian judicial system is grossly afflicted withfrivolous litigation. Ways and means need to be evolved todeter litigants from their compulsive obsession towardssenseless and ill-considered claims. One needs to keep in mindthat in the process of litigation, there is an innocent sufferer onthe other side of every irresponsible and senseless claim. Hesuffers long-drawn anxious periods of nervousness and

restlessness, whilst the litigation is pending without any faulton his part. He pays for the litigation from out of his savings(or out of his borrowings) worrying that the other side maytrick him into defeat for no fault of his. He spends invaluabletime briefing counsel and preparing them for his claim. Timewhich he should have spent at work, or with his family, is lost,for no fault of his. Should litigant not be compensated forwhat he has lost for no fault? The suggestion to the legislatureis that litigant who has succeeded must be compensated bythe one who has lost. The suggestion to the legislature is toformulate mechanism that anyone who initiates and continuesa litigation senselessly pays for the same. It is suggested thatthe legislature should consider the introduction of “Code ofCompulsory 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)and thereafter in para 53 referred to judgment of this Court inM.R. Engineers & Contractors (P) Ltd. v. Som Datt BuildersLtd. [M.R. Engineers & Contractors (P) Ltd. v. Som DattBuilders Ltd., (2009) 7 SCC 696 : (2009) 3 SCC (Civ) 271] toobserve that the analysis in the said case supports the finalconclusion that the memorandum of understanding in the said casedid not incorporate an arbitration clause. Thereafter, referencewas specifically made to Patel Engg. Ltd. [SBP & Co. v. PatelEngg. 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 thelegislative policy is essential to minimise court’s interference atthe pre-arbitral stage and this was the intention of sub-section (6)to Section 11 of the Arbitration Act. Para 48 in DuroFelguera [Duro Felguera, S.A. v. Gangavaram Port Ltd.,(2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764] specifically statesthat the resolution has to exist in the arbitration agreement, and itis for the court to see if the agreement contains clause whichprovides for arbitration of disputes which have arisen betweenthe parties. Para 59 is more restrictive and requires the court tosee whether an arbitration agreement exists — nothing more,nothing less. Read with the other findings, it would be appropriate

ABC

to read the two paragraphs as laying down the legal ratio that thecourt is required to see if the underlying contract contains anarbitration clause for arbitration of the disputes which have arisenbetween the parties — nothing more, nothing less. Reference todecisions in Patel Engg. Ltd.[SBP & Co.v. Patel Engg. Ltd.,(2005) 8 SCC 618] and Boghara Polyfab (P) Ltd. [NationalInsurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC267 : (2009) 1 SCC (Civ) 117] was to highlight that at the referencestage, post the amendments vide Act 3 of 2016, the court wouldnot go into and finally decide different aspects that were highlightedin the two decisions.147.10. In addition to Garware Wall Ropes Ltd. case [GarwareWall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd.,(2019) 9 SCC 209 : (2019) 4 SCC (Civ) 324] , this Courtin Narbheram Power & Steel (P) Ltd. [Oriental Insurance Co.Ltd. v. Narbheram Power & Steel (P) Ltd., (2018) 6 SCC 534 :(2018) 3 SCC (Civ) 484] and Hyundai Engg. & ConstructionCo. 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 theapplication for reference in the insurance contracts holding thatthe claim was beyond and not covered by the arbitration agreement.The Court felt that the legal position was beyond doubt as thescope of the arbitration clause was fully covered by the dictumin Vulcan Insurance Co. Ltd. [Vulcan Insurance Co.Ltd. v. Maharaj Singh, (1976) 1 SCC 943] Similarly, in PSAMumbai Investments Pte. Ltd. [PSA Mumbai Investments Pte.Ltd. v. Jawaharlal Nehru Port Trust, (2018) 10 SCC 525 : (2019)1 SCC (Civ) 1] , this Court at the referral stage came to theconclusion that the arbitration clause would not be applicable andgovern the disputes. Accordingly, the reference to the ArbitralTribunal was set aside leaving the respondent to pursue its claimbefore an appropriate forum.

147.11. The interpretation appropriately balances the allocationof the decision-making authority between the court at the referralstage and the arbitrators’ primary jurisdiction to decide disputeson merits. The court as the judicial forum of the first instance canexercise prima facie test jurisdiction to screen and knock down

ex facie meritless, frivolous and dishonest litigation. Limitedjurisdiction of the courts ensures expeditious, alacritous andefficient disposal when required at the referral stage.”

18. The Bench finally concluded:

“153. Accordingly, we hold that the expression “existence of anarbitration agreement” in Section 11 of the Arbitration Act, wouldinclude aspect of validity of an arbitration agreement, albeit thecourt at the referral stage would apply the prima facie test on thebasis of principles set out in this judgment. In cases of debatableand disputable facts, and good reasonable arguable case, etc., thecourt would force the parties to abide by the arbitration agreementas the Arbitral Tribunal has primary jurisdiction and authority todecide the disputes including the question of jurisdiction and non-arbitrability.

154. Discussion under the heading ”Who DecidesArbitrability?” can be crystallised as under:

154.1. Ratio of the decision in Patel Engg. Ltd. [SBP &Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] on the scope of judicialreview by the court while deciding an application under Sections8 or 11 of the Arbitration Act, post the amendments by Act 3 of2016 (with retrospective effect from 23-10-2015) and even postthe 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 underSections 8 and 11 of the Arbitration Act is identical but extremelylimited and restricted.

154.3. The general rule and principle, in view of the legislativemandate clear from Act 3 of 2016 and Act 33 of 2019, and theprinciple of severability and competence-competence, is that theArbitral Tribunal is the preferred first authority to determine anddecide all questions of non-arbitrability. The court has beenconferred power of “second look” on aspects of non-arbitrabilitypost the award in terms of sub-clauses (i), (ii) or (iv) of Section34(2)(a) or sub-clause (i) of Section 34(2)(b) of the ArbitrationAct.

A154.4. Rarely as demurrer the court may interfere at Section 8or 11 stage when it is manifestly and ex facie certain that thearbitration agreement is non-existent, invalid or the disputes arenon-arbitrable, though the nature and facet of non-arbitrabilitywould, to some extent, determine the level and nature of judicialscrutiny. The restricted and limited review is to check and protectBparties from being forced to arbitrate when the matter isdemonstrably “non-arbitrable” and to cut off the deadwood. Thecourt by default would refer the matter when contentions relatingto non-arbitrability are plainly arguable; when consideration insummary proceedings would be insufficient and inconclusive; whenCfacts are contested; when the party opposing arbitration adoptsdelaying tactics or impairs conduct of arbitration proceedings. Thisis not the stage for the court to enter into mini trial or elaboratereview so as to usurp the jurisdiction of the Arbitral Tribunal butto affirm and uphold integrity and efficacy of arbitration as analternative dispute resolution mechanism.D

155. Reference is, accordingly, answered.”

The Court then concluded, on the facts of that case, that it wouldbe unsafe to conclude one way or the other that an arbitration agreementexists between the parties on prima facie review of facts of thatEcase,and that deeper consideration must be left to an arbitrator, whoistoexamine the documentary and oral evidence and then arrive at aconclusion.

8. Likewise, in Bharat Sanchar Nigam Ltd. v. Nortel NetworksIndia Pvt. Ltd., 2021 SCC OnLine SC 207, another Division Bench ofFthis Court referred to Vidya Drolia (supra) and concluded:

“39. The upshot of the judgment in Vidya Drolia [Vidya Droliav. Durga Trading Corporation, (2021) 2 SCC 1] is affirmationof the position of law expounded in Duro Felguera [DuroFelguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729]Gand Mayavati Trading [Mayavati Trading (P) Ltd. v. PradyuatDeb Burman, (2019) 8 SCC 714], which continue to hold thefield. It must be understood clearly that Vidya Drolia [VidyaDrolia v. Durga Trading Corporation, (2021) 2 SCC 1] has notresurrected the pre-amendment position on the scope of poweras held in SBP& Co. v. Patel Engineering [SBP & Co. v. PatelHEngg. Ltd., (2005) 8 SCC 618].

It is only in the very limited category of cases, where there is noteven vestige of doubt that the claim is ex facie time-barred, orthat the dispute is non-arbitrable, that the court may decline tomake the reference. However, if there is even the slightest doubt,the rule is to refer the disputes to arbitration, otherwise it wouldencroach upon what is essentially matter to be determined bythe tribunal.”

9. Judged by the aforesaid tests, it is obvious that whether theMoU has been novated by the SHA dated 12.04.1996 requires detailedconsideration of the clauses of the two Agreements, together with thesurrounding circumstances in which these Agreements were enteredinto, and full consideration of the law on the subject. None of this canbe done given the limited jurisdiction of court under Section 11 of the1996 Act. As has been held in paragraph 148 of Vidya Drolia (supra),detailed arguments on whether an agreement which contains anarbitration clause has or has not been novated cannot possibly be decidedin exercise of limited prima facie review as to whether an arbitrationagreement exists between the parties. Also, this case does not fall withinthe category of cases which ousts arbitration altogether, such as matterswhich are in rem proceedings or cases which, without doubt, concernminors, lunatics or other persons incompetent to contract. There is nothingvexatious or frivolous in the plea taken by the Appellant. On the contrary,a Section 11 court would refer the matter when contentions relating tonon-arbitrability are plainly arguable, or when facts are contested. Thecourt cannot, at this stage,enter into mini trial or elaborate review ofthe facts and law which would usurp the jurisdiction of the arbitral tribunal.10. The impugned judgment was wholly incorrect in deciding thatthe plea of doctrine of kompetenz-kompetenz and reliance on Section11(6A) of the 1996 Act, as expounded in Duro Felguera (supra) andMayavati Trading(supra) were not applicable to the case in hand. Apartfrom going into detailed consideration of the MoU and the SHA,whichis exclusively within the jurisdiction of the arbitral tribunal, the learnedSingle Judge, while considering clause 28 of the SHA to arrive at thefinding that any kind of agreement as detailed in clause 28.2 betweenthe parties shall stand superseded, does not even refer to clause 28.1.No consideration has been given to the separate and distinct subjectmatter of the MoU and the SHA. Also, Kishorilal Gupta (supra) andDamodar Valley Corporation (supra) are judgments which deal with

Anovation in the context of the Arbitration Act, 1940, which had schemecompletely different from the scheme contained in Section 16 read withSection 11(6A)of the 1996 Act.

11. For all these reasons, we set aside the judgment of the HighCourt and refer the parties to the arbitration of sole arbitrator, beingBJustice Aftab Alam (retired Judge of this Court), who will decide thedispute between the parties without reference to any observations madeby this Court, which are only prima facie in nature.

12. It is made clear that Agenda Nos. 4 and 8, circulated in thenotice dated 31.12.2019,for the Board Meeting scheduled to be held onC15.01.2020, will continue to remain deferred until the learned solearbitrator passes interim orders varying or setting aside this order, oruntil final Award is delivered, depending upon whether party appliesunder Section 17 of 1996 Act. Civil Appeal No. 975 of 2021is allowed inthe aforesaid terms.

DCivil Appeal No. 976 of 2021

13. Consequently, in light of the directions in paragraphs 11and 12hereinabove, Civil Appeal No. 976 of 2021 is accordingly disposed of.

Nidhi Jain

Appeals disposed of.