SMT. MANJU GUPTA & ORS. Vs SHRI VILAS GUPTA & ORS.
ARB.P. 331 /2020 Page 1 of 29
$~25 (original side)
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ARB.P. 331/2020
SMT. MANJU GUPTA & ORS. ….. Petitioner s
Through: Mr. S.D. Singh, Mr.R ahul
Kumar Singh and Mr . Jitender Singh , Advs.
versus
SHRI VILAS GUPTA & ORS. ….. Respondent s
Through: Mr.Yogesh Jagia, Adv. for R -1,
2 and 3
Mr. Ankit Singh, Adv. for R -4, 5 and 6
CORAM:
HON’BLE MR. JUSTICE C.HARI SHANKAR
1. By this petition under Section 11(6) of the Arbitration &
Conciliation Act, 1996 (hereinafter referred to as “the 1996 Act”) , the
petitioners seek reference of disputes that had arisen vis-a-vis the
respondents, to arbitration, in accordance with Clause 3.15 of a
Memorandum of Family Settleme nt (hereinafter referred to as
“MFS”), dated 2 8J U D G M E N T (O R A L)
% 22.01.2021
(Video-Conferencing)
th
April, 2007, executed among the petitioners and
the respondents, being the members of one family.
2. A reading of the MSF reveals that disputes among the
petitioners and the respondents, vis -a-vis certain co rporate entities
being managed by the m, had arisen, resulting in C P 31/2007 being
filed before the Company Law Board, Principal Bench. In order to
2021:DHC:258ARB.P. 331 /2020 Page 2 of 29
settle their disputes and differences amicably, the petitioners and
respondents executed the MFS, agreeing t o be bound by the terms
thereof. The purpose to the MFS w as specifically stated, in Clause
1(i) thereof, as being “to reduce in writing the terms and conditions of settlement of disputes and differences as agreed by and between the
parties to this MFS and further terms and conditions to avoid any
future controversy, disagreement, confusion and misunderstanding”.
The MFS also manifested the decision, of the petitioners and
respondents to seek disposal of CP 31/2007, in terms thereof . It was
further recited, in the MFS that the parties thereto would make a joint
application, recording the terms of the MFS, for withdrawal of Co.
Pet. 31/2007 and vacation of all interim orders passed in the said
petition by the Company Law Board (hereinafter referred to as
“CLB”). Insofar as the shareholdings of the parties to the MFS, in the
companies, relating to which it was executed, were concerned, clause
2(iii) , in the MFS, merits reproduction:
“iii) That notwithstanding the shareholding of the Parties
and their Constituents in the Companies/businesses,
properties and other assets, the parties hereto have agreed to
carry out the division of the joint businesses, undertakings
and properties in two parts in such a manner that one part
shall be owned, controlled and managed by ‘Group – I’ and
the other part shall be owned, controlled and managed by
‘Group – II’. The businesses and properties shall be shared by
two Groups in the ratio of 1:1 and the difference in values
shall be settled by way of transfer of f unds from one G roup to
the other as hereinafter determined.”
3. The MFS, nevertheless, did envisage the possibility of disputes
arising among the parties thereto and , in that regard, provided thus, in
clause s 3.15 and 3.16:
2021:DHC:258ARB.P. 331 /2020 Page 3 of 29
“3.15 That in the event of any differences between the parties
on the implementation and execution of the present MFS or
with regard to any terms thereto, the parties agree to refer the
said matter and issue to joint arbitration of Shri Ramanand
Gupta and S. Devender Singh Kohli. In case of difference of
opinion between the said two arbitrators, the matter shall be
referred to Shri R.K. Gupta Son of Late Shri Munshi Ram
Gupta, Resident of D-13, Naraina Vihar, New Delhi-110028,
whose decision shall be final and binding upon the parties.
3.16 That the right to refer to arbitration any question in
the event of difference or dispute amongst the parties shall be
in addition to and not in derogation of the right of the parties
to approach the Hon’ble Company Law Board, Principal
Bench for giving effect to o r execution of the terms of present
MFS.”
(Emphasis supplied)
4. CA 157/2007 was preferred, before the CLB, as a joint
application among the petitioners and respondents, seeking
withdrawal of CP 31/2007, in terms of the MFS. This application, as
also CP 31/2007 , were disposed of , by the Company Law Board , vide
the following order, passed on 1st
“In view of the family settlement dated 28 /4/07 arrived at
between the parties a copy of which is attached with the joint
application, the petition is di sposed of in terms of settlement.”
May, 2007:
5. Respondent No.1 Shri Vilas Gupta, thereafter, filed CA 42/2008
under Section 634A(2) of the Compa nies Act , 1956, before the CLB ,
for enforcement of the aforesaid order dated 1
st May, 2007, passed by
the CLB, disposing o f CP 31/2007. The said application was disposed
of, by the CLB, vide a detailed order dated 20th August, 2014. The
CLB adopted the view that its earlier order, dated 1st May, 2007 was
“to be construed to be an order permitting withdrawal of the petition
2021:DHC:258ARB.P. 331 /2020 Page 4 of 29
in view of the clear and unambiguous purport of CA 157/2007”. In
view thereof, the CLB held that nothing remained, in the order dated
1st May, 2007, of which enforcement, under Section 634A of the
Companies Act, could be sought. Para 12 of the order date d 20th
“12. The order dated 01.05.2007 is theref ore to be
construed to be an order permitting withdrawal of the petition
in view of the clear and unambiguous purport of CA
157/2007. A clear in tention is reflected in the MFS to seek
unconditional withdrawal of Company Petition No. 3l/2007
and to seek vacation of all interim orders, which is also
indicative of the intention of the parties not to seek any
further intervention of the CLB to pass any order u/s 397 or
398 of the Companies Act, I956 or to retain seisin thereunder.
Therefore, nothing remains in the order dated 1.5.2007 passed
by the Company Law Board which the parties could seek
enforcement of u/s 634-A of the Companies Act, 1956. I,
therefore, decline to exercise jurisdiction u/s 634A of the
Companies Act, 1956.”
August, 2014, which so holds, read thus:
6. Respondent No. 1 has preferred Co. A. (SB) 47/2014,
challenging the aforesaid order dated 20th August, 2014 of the CLB,
which is presently pending before this Court. Notice was issued in the
said appeal on 15th October, 2014, with a direction to the parties to
maintain status quo in respect of the properties and shares covered by
the MFS, as well as order dated 9th
May, 2013 of Hon’ble Mr. Justice
K. Ramamoo rthy (Retd.), who had earlier been appo inted by the CLB,
in CA 333/2008 , as a facilitator to implement the covenants of the
MFS.
7. The petitioners allege that Respondent Nos. 1 to 3 started
violating the covenants of the MFS, especially with respect to
2021:DHC:258ARB.P. 331 /2020 Page 5 of 29
shareholdings, ownership rights , management and control over the
corporate entities constituting subject matter thereof. Detailed
assertions, regarding the infractions of the MFS , as alleged to have
been per petrated by the respondents, are to be found in sub- paras j to x
of para 7 of the present petition. Given the limited scope of examination by this Court, while exercising jurisdiction under Section 11(6) of the 1996 Act, in view of Section 11(6A ) thereof , it is not
necessary to al lude, in detail, to the said allegations. Suffice it to state
that they make out a case of a clear dispute, between the petitioners and the respondents, relatable to the terms of the MFS and due compliance therewith. In fact, it may be noted that the existence of
such disputes is not a matter of contest by any of the parties in the
present petition.
8. The petitioners submit that the aforesaid disputes are arbitrable
in nature.
9. It is an admitted position that, in order to resolve the disputes
between the parties, relating to the MFS, an arbitral tribunal,
consisting o f the arbitrators named in Clause 3.15 of the MFS,
reproduced hereinabove, i.e. Mr. Ramanand Gupta and S. Deve nder
Singh Kohli, was constituted. On 13th
“Raamanand Gupta
D-65,Narai n Vihar
New Delhi- 110028
98-100-35542
Dated: August 13, 2007
August, 2007, the said learned
arbitrators passed the following order :
2021:DHC:258ARB.P. 331 /2020 Page 6 of 29
To,
All parties
1.Mr.G.R. Singhal 11. Mr. Pawan Singhal
2.Mrs.Pista Devi Singhal 12. Mrs. Meenu Singhal
3.Mr. Shri Vilas Gupta 13. Ms. Shreya Singhal
4.Mrs. Sunita Gupta 14. Mt.Shaishav Singhal
5.Mr. Akshit Gupta 15. Mr. R.K. Gupta
6.Mr. Kishan Gupta 16. Mr. Ramesh Chand
Gupta
7.Mrs. Manju Gupta 17. Mr. Ravi Gupta
8.Ms. Kamika Gupta 18. P.K.M.Garg
Through Mr.Ravi Gupta
9.Ms. Vipeksha Gupta
10.Mr.Keshav Gupta (Through Kishan Gupta )
Pleas e refer to the correspondences exchanged between the
parties mentioned above. In terms of clause 3.15 of the
Memorandum Recording family settlemen t dated 28.4.2007,
we have been appointed Arbitrators to resolve differences
between the parties on the implem entation and execution of
the settle ment . From the correspondences exchanged it is
apparent that ther e are differences betwee n the parties. Mr.
G.R.Singhal one of the party to the Agree ment has
specifically sought our intervention and has r equested that we
initiate proceedings in this connection.
In view of the duty cast on us, we propose to hold a m eeting
in connection with the Arbitration on 30.8.2007 at A-73,
Naraina Industrial Area, Phas e-l, New Delhi- 110028 at 1000
hours.
All parties are instructed to file their claim and /or
representation, on or before 21.8.2007 in order that the
Arbitrators could give further appropriate directions to enable
implementation and execution of the Memorandum
Recording Family Settlement.
If any of the parties wishes to file docum ents in support o
their claims and repre sentation they may do so also on or
before 2l.8.2007 at
D-65,Narain Vih ar, New Delhi-l10028 .
2021:DHC:258ARB.P. 331 /2020 Page 7 of 29
Parties may also give their suggestions as to what is the best
possible manner the agreement could be implemented
expeditiously. The same would be considered in the meeting
to be held on 30.8.2007 itself.
Ramanand Gupta S. Devender Singh Kohli
MR.VILAS GUPTA
C-108, ANAND NIKETAN
NEW DELHI-110021
TFN NO. 981002082”
10. Subsequently, however, S. Dev ender Singh Kohli, being one of
the named arbitrators, resigned from the arbitral proceedings on 21st
August, 2007. This resulted in the arbitration clause (clause 3.15 of
the MFS) becoming incapable of enforcement, as it contemplated
arbitration by arbitrators specified by name .
11. On 3rd
March, 2020, the petitioners wrote to the respondents,
invoking Clause 3.15 of the MFS and seeking reference of the
disputes, between them , to arbitration. As there was no response to
the said communication, the petitioners have approached this Court,
invoking the jurisdiction of this Court under Section 11(6) of the 1996 Act, and requesting for reference of the disputes to a sole arbitrator to
be appointed by this Court.
12. Mr. S.D. Singh, learned Counsel appearing for the petit ioners
has relied, for the said purpose, on paras 7.3 to 7.11 of the report in
2021:DHC:258ARB.P. 331 /2020 Page 8 of 29
Uttarakhand P urv Sainik Kalyan Nigam Ltd. v. Northern Coal Field
Ltd.1
“7.3. The 2015 Amendment Act brought about a significant
change in the appointment process under Section 11 : first, the
default power of appointment shifted from the Chief Justice
of the High Court in arbitrations governed by Part I of the
Act, to the High Court; second, the scope of jurisdiction under
sub-section (6-A) of Section 11 was confined to the
examination of the existence of the arbitration agreement at
the pre-reference stage.
, which read thus:
7.4. Prior to the coming into force of the 2015 Amendment
Act, much controversy had surrounded the nature of the
power of appointment by the Chief Justice, or his designate
under Section 11. A seven-Judge Constitution Bench of this
Court in SBP & Co. v. Patel Engg. Ltd.2
7.5. Further, the Chief Justice was required to decide all
threshold issues with respect to jurisdiction, the existence of
the agreement, whether the claim was a dead one; or a time-
barred claim sought to be resurrected; or whether the parties
had concluded the transaction by recording satisfaction of
their mutual rights and obligations, and received the final
payment without objection, under Section 11, at the pre-
reference stage. The decision in Patel Engg ., defined the scope of
power of the Chief Justice under Section 11. The Court held
that the scope of power exercised under Section 11 was to
first decide:
(i) whether there was a valid arbitration agreement;
and
(ii) whether the person who has made the request
under Section 11, was a party to the arbitration
agreement; and
(iii) whether the party making the motion had
approached the appropriate High Court.
2 was followed by
this Court in Boghara Polyfab3, Master Construction4
1 (2020) 2 SCC 455
2 (2005) 8 SCC 618
3 (2009) 1 SCC 267
4 (2011) 12 SCC 349 , and
other decisions.
2021:DHC:258ARB.P. 331 /2020 Page 9 of 29
7.6. The Law Commission in the 246th Report5
5 Amendments to the Arbitration and Conciliation Act, 1996, R eport No. 246, Law
Commission of India (August 2014), p. 20
recommended that:
“33. … the Commission has recommended
amendments to Sections 8 and 11 of the Arbitration
and Conciliation Act, 1996. The scope of the judicial
intervention is only restricted to situations where the
court/judicial authority finds that the arbitration
agreement does not exist or is null and void. Insofar as
the nature of intervention is concerned, it is
recommended that in the event the court/judicial
authority is prima facie satisfied against the argument
challenging the arbitration agreement, it shall appoint
the arbitrator and/or refer the parties to arbitration, as
the case may be. The amendment envisages that the
judicial authority shall not refer the parties to
arbitration only if it finds that there does not exist an
arbitration agreement or that it is null and void. If the
judicial authority is of the opinion that prima facie the
arbitration agreement exists, then it shall refer the
dispute to arbitration, and leave the existence of the
arbitration agreement to be finally determined by the
Arbitral Tribunal.”
7.7. Based on the recommendations of the Law
Commission, Section 11 was substantially amended by the
2015 Amendment Act, to overcome the effect of all previous
judgments rendered on the scope of power by a non obstante
clause, and to reinforce the kompetenz- kompetenz principle
enshrined in Section 16 of the 1996 Act. The 2015
Amendment Act inserted sub-section (6-A) to Section 11
which provides that:
“(6-A) The Supreme Court or, as the case may be, the
High Court, while considering any application under
sub-section (4) or sub -section (5) or sub-section (6),
shall, notwithstanding any judgment, decree or order
of any court, confine to the examination of the
existence of an arbitration agreement.”
(emphasis supplied)
2021:DHC:258ARB.P. 331 /2020 Page 10 of 29
7.8. By virtue of the non obstante clause incorporated in
Section 11(6-A), previous judgments rendered in Patel
Engg.2 and Boghara Polyfab3
7.9. Reliance is placed on the judgment in Duro Felguera
S.A. v. Gangavaram Port Ltd. , were legislatively overruled.
The scope of examination is now confined only to the
existence of the arbitration agreement at the Section 11 stage,
and nothing more.
6
7.11. The doctrine of “kompetenz-kompetenz”, also referred
to as “ compétence-compétence”, or “compétence de la
recognized”, implies that the Arbitral Tribunal is empowered
and has the competence to rule on its own jurisdiction,
including determining all jurisdictional issues, and the
existence or validity of the arbitration agreement. This
doctrine is intended to minimise judicial intervention, so that
the arbitral process is not thwarted at the threshold, when a
preliminary objection is raised by one of the parties. The
doctrine of kompetenz -kompetenz is, however, subject to the
exception i.e. when the arbitration agreement itself is wherein this Court held that:
(SCC p. 759, para 48)
“48. … From a reading of Section 11(6-A), the
intention of the legislature is crystal clear i.e. the court
should and need only look into one aspect—the
existence of an arbitration agreement. What are the
factors for deciding as to whether there is an arbitration
agreement is the next question. The resolution to that is
simple — it needs to be seen if the agreement contains
a clause which provides for arbitration pertaining to
the disputes which have arisen between th e parties to
the agreement.”
(emphasis supplied)
7.10. In view of the legislative mandate contained in Section
11(6-A), the Court is now required only to examine the
existence of the arbitration agreement. All other preliminary
or threshold issues are left to be decided by the arbitrator
under Section 16, which enshrines the kompetenz-kompetenz
principle.
6 (2017) 9 SCC 729
2021:DHC:258ARB.P. 331 /2020 Page 11 of 29
impeached as being procured by fraud or deception. This
exception would also apply to cases where the parties in the
process of negotiation, may have entered into a draft
agreement as an antecedent step prior to executing the final
contract. The draft agreement would be a mere proposal to
arbitrate, and not an unequivocal acceptance of the terms of
the agreement. Section 7 of the Contract Act, 1872 requires
the acceptance of a contract to be absolute and unqualified7
13. Mr. Yogesh Jagia, learned Counsel for Respondent Nos. 1 to 3
opposes the petition. He submits that the order dated 1. If
an arbitration agreement is not valid or non-existent, the
Arbitral Tribunal cannot assume jurisdiction to adjudicate
upon the disputes. Appointment of an arbitrator may be
refused if the arbitration agreement is not in writing, or the
disputes are beyond the scope of the arbitration agreement.
Article V(1)(a) of the New York Convention states that
recognition and enforcement of an award may be refused if
the arbitration agreement “is not valid under the law to which
the parties have subjected it or, failing any indication thereon,
under the law of the country where the award was made”.”
st May, 2007
(supra ), passed by the CLB was, by virtue of Section 634A of the
Companies Act, 1956, an executa ble decree and that the MFS stood
merged in the said order. Once such merger had taken place, and the
order resulting in such merger was executable as a decree, Mr. Jagia submits that no dispute, referable to arbitration under Clause 3.15 of the MFS, coul d be said to survive. In fact, submits, Mr. Jagia, CA
42/2008 was preferred, by Respondent No.1 before the CLB , seeking
execution of the order dated 1
st
7 Dresser Rand S.A. v. Bindal Agro Chem Ltd., (20 06) 1 SCC 751. See also BSNL v.
Telephone Cables Ltd., (2010) 5 SCC 213. Refer to PSA Mumbai Investments Pte. Ltd. v.
Jawaharlal Nehru Port Trust, (2018) 10 SCC 525 May, 2007, whereupon the CLB had
appointed a facilitator, to facilitate the execution of the order and
efforts, at implementing the covenants of the MFS continued for over a period of five years, from 2008 to 2013. Mr. Jagia submits that in
2021:DHC:258ARB.P. 331 /2020 Page 12 of 29
fact, o ver the course of this period, the covenants of the MFS were
implemented to a large extent.
14. Apropos the order dated 20th August, 2014 (supra ), passed by
the CLB, Mr. Jagia submits that, assailing the decision, in the said
order, to treat the earlier order of 1st May, 2007 as one of
unconditional withdrawal of CP 31/2007, Co A (SB) 47/2014 has
been preferred bef ore this Court, which is presently pending. He,
therefore, submits that adjudication of the present petition should either await the outcome of Co A (SB) 47/2014, or that his
submission, that the order dated 1
st May, 2007 (supra ) passed by the
CLB was an executable decree and that, therefore, no scope for referring the disputes between the parties to arbitration under Clause 3.15 of the MFS existed, should be accepted and the present petition
dismissed as not maintainable. He has relied on para 4 of the
judgment of the Supreme Court in Manish Mohan Sharma and
Others v. Ram Bahadur Thakur Ltd. and Others.
8 Mr. Jagia has also
relied on an order dated 23rd May, 2012, passed by the CLB in CP
83(N D)/2009 which, though a cognate dispute between some of the
partie s in this case, involved an interpretation of the order dated 1st
May, 2007 ( supra ) passed by the CLB. Mr. Jagia points out that, in
the said order, the CLB had held that the proper course of action to be
followed by Respondent No. 1 was to seek enforceme nt of the order
dated 1st
8 2006 4 SCC 416 May, 2007 under Section 634A of the Companies Act, and
not by way of the application filed before the CLB, which was under Section 399 thereof. Mr. Jagia also placed reliance on paras 222 and
2021:DHC:258ARB.P. 331 /2020 Page 13 of 29
229 of t he recent judgment of the Supreme Court in Vidya Drolia v.
Durga Trading Corporation9
which read thus:
“222. At first blush, the Court seems to have read the
existence of the arbitration agreement by limiting the
examination to an examination of its factual existence.
However, that is not so, as the existence of arbitration
agreement does not mean anything unless such agreement is
contractually valid. This view is confirmed by the Duro
Felguera case6 (supra) , wherein the reference to the
contractual aspect of arbitration agreement is ingrained under
the Section 7 analysis. A mere agreement is not legally
binding, unless it satisfies the core contractual requirements,
concerning consent, consideration, legal relationship, etc.
In Mayavati Trading Case10
9 2020 SCC OnLine SC 101 8
10 (2019) 8 SCC 714 and Garware Wall Ropes
Ltd. v. Coastal Marine Construction and Engineering
Ltd., (2019) 9 SCC 209, the aforesaid stand has been
confirmed. Therefore, the scope of the Court to examine
the prima facie validity of an arbitration agreement includes
only the determination of the following:
92. Whether the arbitration agreement was in
writing? or
93. Whether the arbitration agreement was
contained in exchange of letters, telecommunication,
etc?
94. Whether the core contractual ingredients qua
the arbitration agreement were fulfilled?
95. On rare occasions, whether the subject- matter of
dispute is arbitrable?
*****
229. Before we part, the conclusions reached, with respect
to question no. 1, are:
a. Sections 8 and 11 of the Act have the same
ambit with respect to judicial interference.
2021:DHC:258ARB.P. 331 /2020 Page 14 of 29
b. Usually, subject matter arbitrability cannot be
decided at the stage of Sections 8 or 11 of the Act,
unless it’s a clear case of deadwood.
c. The Court, under Sections 8 and 11, has to refer
a matter to arbitration or to appoint an arbitrator, as the
case may be, unless a party has established a prima
facie (summary findings) case of non-existence of
valid arbitration agreement, by summarily portraying a
strong case that he is entitled to such a finding.
d. The Court should refer a matter if the validity of
the arbitration agreement cannot be determined on
a prima facie basis, as laid down above, i.e., ‘when in
doubt, do refer’.
e. The scope of the Court to examine the prima
facie validity of an arbitration agreement includes
only:
a. Whether the arbitration agreement was in
writing? or
b. Whether the arbitration agreement was
contained in exchange of letters,
telecommunication etc?
c. Whether the core contractual ingredients
qua the arbitration agreement were fulfilled?
d. On rare occasions, whether the subject-
matter of dispute is arbitrable?”
Mr. Jagia specifically places reliance on the observations, of the
Supreme C ourt, that, on rare occasions, under Section 11(6) of the
1996 Act, Court is entitled to examine whether the subject matter of
the dispute is arbitrable. This, submits Mr. Jagia, marks a departure
from the earlier line of judicial thought, which was to the effect that
arbitrability was a matter outside the ken of a Section 11 Court, to be
left to the arbitral tribunal. He su bmits that, in view of the order dated
1st May, 2007 ( supra ) passed by the CLB , there is no dispute,
referable to arbitration under Clause 3.15 of the MFS. No arbitrable
2021:DHC:258ARB.P. 331 /2020 Page 15 of 29
dispute, therefore, being in existence, Mr. Jagia submits that the
present petition is not maintainable.
15. I have also heard Mr. Ankit Singhal, learned Counsel appearing
for Respondent Nos. 4 to 6. I may observe that Mr. Singhal submitted
that he had no objection to the disputes, forming subject matter of this
petition, being referred for arbitration to an independent arbitrator,
subject to the petitioners and Respondent Nos. 1 to 3 being agreeable. Mr. Jagia, howeve r, submits on instructions that his clients were
adhering to the view that no arbitrable dispute existed, in view of the
order dated 1
st
May, 2007 (supra) , passed by the CLB, which
constituted an executable decree under Section 634A of the Companies Act. As such, the suggestion, by Mr. Singhal, was not
acceptable to Respondent Nos. 1 to 3.
16. Mr. Singhal also placed reliance on t he judgment of a Division
Bench of this Court in Mohd. Amin v. Mohd. Iqbal
11
. Given the view
that I am taking in this matter, it is not necessary to advert to the said
decision.
17. Having heard learned Counsel and considering the submissions
adva nced, in my view, the existence of an arbitrable dispute, amongst
the parties to this litigation, can hardly be gainsaid. Detailed allusion,
to the infractions, alleged to have been committed by the respondents, Analysis
11 2009 SCC OnLine Del 861
2021:DHC:258ARB.P. 331 /2020 Page 16 of 29
with respect to the covenants of the MFS, is to be found in the
petition. These allegations, even by themselves, constitute an
arbitrable dispute between the parties. The allegati ons against the
respondents, as made by the petitioner, needless to say, are not
accepted by the respondents, resulti ng in a dispute. This dispute
cannot be said, for any reason, not to be amenable to adjudication or resolution by an arbitrable process. The submission, of Mr. Jagia, that
no arbitrable dispute exists between the parties is, therefore, clearly misconceive d.
18. Apropos paras 222 and 229 of the judgment of the Supreme
Court in Vidya Drolia
9, a holistic reading of para 229 in fact, makes it
clear that the Supreme Court has, in effect, reiterated the existing legal position that arbitrability of a dispute is not, ordinarily , to be
examined by a Court exercising jurisdiction under Section 11(6) of the 1996 Act . It is only “on rare occasion s”, where “a clear case of
dead wood” is made out, and “a prima facie (summary findings) case
of non- existence of valid arbitra tion agreement, by summarily
portraying a strong case” of entitlement, to a finding regarding non-
existence of a valid arbitration agreement, exists, that a Section 11
Court can enter into the arbitrability of the dispute being sought to be
referred to arb itration. The context in which the Supreme Court has
carved out this rare exception, where a Section 11 Court may examine the arbitrability of the dispute, may be gleaned from the following
passages from Vidya Drolia
9
“115. We would now examine the principles of separability
and competence-competence. Clauses (a) and (b) to sub-
section (1) to Section 16 enact the principle of separation of itself:
2021:DHC:258ARB.P. 331 /2020 Page 17 of 29
the arbitration agreement from the underlying or container
contract. Clause (a), by legal fiction, gives an independent
status to an arbitration clause as if it is a standalone
agreement, even when it is only a clause and an integral part
of the underlying or container contract. Clause (b) formulates
a legal rule that a decision by the arbitral tribunal holding
that the main contract is null and void shall not ipso
jure entail invalidity of the arbitration clause. Successful
challenge to the existence or invalidity or rescission of the
main contract does not necessarily embrace an identical
finding as to the arbitration agreement, provided the court is
satisfied that the arbitration clause had been agreed upon.
The arbitration agreement can be avoided only on the ground
which relates directly to the arbitration agreement.
Notwithstanding the challenge to the underlying or container
contract, the arbitration clause in the underlying or container
contract survives for determining the disputes. The principle
prevents boot-strapping as it is primarily for the arbitral
tribunal and not for the court to decide issues of existence,
validity and rescission of the underlying contract. Principle of
separation authorises an arbitral tribunal to rule and decide
on the existence, validity or rescission of the underlying
contract without an earlier adjudication of the questions by
the referral court.
*****
121. The courts at the referral stage do not perform
ministerial functions. They exercise and perform judicial
functions when they decide objections in terms of Sections 8
and 11 of the Arbitration Act. Section 8 prescribes the courts
to refer the parties to arbitration, if the action brought is the
subject of an arbitration agreement, unless it finds that prima
facie no valid arbitration agreement exists. Examining the
term ‘ prima facie’, in Nirmala J. Jhala v. State of
Gujarat12
“48. A prima facie case does not mean a case proved
to the hilt but a case which can be said to be
established if the evidence which is led in support of
the case were [to be] believed. While determining
whether a prima facie cas e had been made out or not , this Court had noted:
12 (2013) 4 SCC 301
2021:DHC:258ARB.P. 331 /2020 Page 18 of 29
the relevant consideration is whether on the evidence
led it was possible to arrive at the conclusion in
question and not whether that was the only conclusion
which could be arrived at on that evidence.”
122. Prima facie case i n the context of Section 8 is not to be
confused with the merits of the case put up by the parties
which has to be established before the arbitral tribunal. It is
restricted to the subject matter of the suit being prima
facie arbitrable under a valid arbitration agreement. Prima
facie case means that the assertions on these aspects
are bona fide. When read with the principles of separation
and competence-competence and Section 34 of the
Arbitration Act, referral court without getting bogged- down
would compel the parties to abide unless there are good and
substantial reasons to the contrary .
123. 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 deadwood and trim off the side branches in
straight forward 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. 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.
*****
125. The nature and facet of non-arbitrability could also
determine the level and nature of scrutiny by the court at the
referral stage. Stravos Brekoulakis13
13 In his paper titled “ On Arbitrability: Persisting Misconceptions and New Ar ea of Concern”
by Prof. Stavros Brekoulakis has differentiated
between contractual aspects of arbitration agreement which
the court can examine at referral stage and jurisdictional
aspects of arbitration agreement which he feels should be left
2021:DHC:258ARB.P. 331 /2020 Page 19 of 29
to the arbitral tribunal. John J. Barcelo III14, referring to some
American decisions had divided the issue of non-arbitrability
into procedural and substantive objections. The procedurals
are ‘gateway questions’ which would presumptively be for
the arbitrator to decide at least at the first stage. In the Indian
context, we would respectfully adopt the three categories
in Boghara Polyfab Private Limited3
14 In his paper titled ‘Who Decides the Arbitrator’s Jurisdiction? Separability and
Competence- Competence in Transnational Perspective’ . The first category of
issues, namely, whether the party has approached the
appropriate High Court, whether there is an arbitration
agreement and whether 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 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
centralized 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
or by necessary implication non -arbitrable as per mandatory
statue(s). Such ques tions 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
issues underlying the merits of the respective disputes/claims.
They would be factual and disputed and for the arbitral
tribunal to decide. We would not like be too
prescriptive, albeit observe that the court may for legitimate
reasons, to prevent wastage 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 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
2021:DHC:258ARB.P. 331 /2020 Page 20 of 29
facie examination may require a deeper consideration. The
court’s challenge is to find the right amount of and the context
when it 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.
126. 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 by consent. The underlying rationale being not to
delay or defer and to discourage parties from using referral
proceeding as a rue 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 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.
127. The Court would exercise discretion and refer the
disputes to arbitration when it is satisfied that the contest
requires the arbitral tribunal should first decide the disputes
and rule on nonarbitrability. Similarly, discretion should be
exercised when the party opposing arbitration is adopting
delaying tactics and impairing the referral proceedings.”
(Emphasis supplied)
19. The Supreme Court, in the said decision, also quoted, with
approval, the following passage s from the judgement of a learned
Single Judge of this Court in N.C.C. Ltd v. Indian Oil Corporation
Ltd15
:
“107. In my view, the scope of examination as to whether or
not the claims lodged are Notified Claims has narrowed down
considerably in view of the language of Section 11(6A) of the
15 2019 SCC OnLine Del 6964
2021:DHC:258ARB.P. 331 /2020 Page 21 of 29
1996 Act. To my mind, once the Court is persuaded that it
has jurisdiction to entertain a Section 11 petition all that is
required to examine is as to whether or not an arbitration
agreement exists between the parties which is relatable to the
dispute at hand. The latter part of the exercise adverted to
above, which involves correlating the dispute with the
arbitration agreement obtaining between the parties, is an
aspect which is implicitly embedded in sub -section (6A) of
Section 11 of the 1996 Act, which, otherwise, requires the
Court to confine its examination only to the existence of the
arbitration agreement. Therefore, if on a bare perusal of the
agreement it is found that a particular dispute is not relatable
to the arbitration agreement, then, perhaps, the Court may
decline the relief sought for by a party in a Section 11
petition. However, if there is a contestation with regard to the
issue as to whether the dispute falls within the realm of the
arbitration agreement, then, the best course would be to
allow the arbitrator to form a view in the matter.
108. Thus, unless it is in a manner of speech, a chalk and
cheese situation or a black and white situation without shades
of grey, the concerned Court hearing the Section 11 petition
should follow the more conservative course of allowing
parties to have their say before the arbitral tribunal.”
(Emphasis supplied)
20. Tested on this touchstone, it cannot be said by any stretch of
imagination that no arbitrable dispute exists. The Supreme Court has
clearly held, in the afore -extract ed passages from Vidya Drolia9, that,
inasmuch as the arbitration agreement (i.e. the arbitration clause) has a
stand-alone existence, independent of the main agreement between the parties, the arbitration agreement would survive and be capable of
enforcem ent, even if the main contract were found to be invalid or
rescinded. All that is required is that the Court should be satisfied that
the parties had agreed to the arbitration agreement. This approach has commended itself to the Supreme Court as “preventing bootstrapping,
2021:DHC:258ARB.P. 331 /2020 Page 22 of 29
as it is primarily for the arbitral tribunal and not for the court to decide
issues of existence, validity and rescission of the underlying contract”. The principle of separation, emanating from the kompetenz- kompetenz
doctrine, require s the Arbitral Tribunal to be provided the freedom to
determine these issues “without an earlier adjudication of the questions by the referral court”.
21. Qua the existence of the arbitration agreement, as a
consideration to be examined by a Court exercisin g jurisdiction under
Section 11(6), the Supreme Court has held that it is only where the
Court fi nds that “ prima facie no valid arbitration agreement exists”,
the Court can refuse to refer the parties to arbitration. It is in this
context that the Court h as held that the prima facie view, at the
referral stage, is “to cut the deadwood and trim off the side branches in straight forward cases where dismissal is barefaced and pellucid
and when on the facts and law the litigation must stop at first stage ”.
This, in turn, is “only when the court is certain that no valid arbitration
agreement exists or the disputes/subject matter are not arbitrable”.
22. It is in the obvious awareness of this legal position that Mr .
Jagia sought to contend that, in the presen t case, no arbitrable dispute
existed, and that this Court was not precluded from so holding, even in
exercise of the limited jurisdiction conferred by Section 11(6). I find
myself unable to agree. While I would be, immediately hereinafter,
dealing with the submission of Mr . Jagia, advanced in the context of
the order, dated 1st May, 2007, of the learned CLB, and its
ramifications, para 125 of the decision in Vidya Drolia9 is sufficiently
2021:DHC:258ARB.P. 331 /2020 Page 23 of 29
clear and comprehensive, regarding the nature of the issue of
“arbi trability” of the dispute, as a consideration to be borne in mind at
the referral stage under Section 11(6). Cases in which the dispute
could be regarded as “non -arbitrable”, clarifies the Supreme Court, are
those in which the dispute
(i) relates to an action in rem (this is an extremely involved
issue, on which, too, Vidya Drolia9
All scope for doubt is removed by the further clarification, in para 125 of the judgment, that “issues relating to contract formation, existence,
validity and non-arbitrability … would be factual and disputed and for
the arbitral tribunal to decide”. The passage proceeds to sound a note
of caution that, even “while the court may, for legitimate reasons, to
prevent wastage of public and private resources, exercise judicial
discretion to conduct an intense yet summary prima facie review”, i t
has to “remain conscious that it is to assist the arbitration procedure and not usurp jurisdiction of the arbitral tribunal”. This observation, I
may say with respect, undercores the very raison d’etre of the 1996
Act itself. has conclusively cleared the
air, but as no such controversy arises here, I refrain from entering into further discussion thereon),
(ii) affects third party rights,
(iii) has erga omnes effect,
(iv) requires centralized adjudication,
(v) relates to inalienable sovereign and public interest
functions of the State, or
(vi) relates to subject matter which is expressly or by
necessary implication non-arbitrable as per mandatory statute.
2021:DHC:258ARB.P. 331 /2020 Page 24 of 29
23. This Court, exercising jurisdiction in the present case under
Section 11(6) of the 1996 Act, is, in my opinion, not required to enter
into this aspect of the dispute in any greater detail.
24. The submission of Mr. Jagia, which merits deeper
consideration, is, however, his as sertion that, by virtue of the order
dated 1st May, 2007 (supra) , of the CLB , in C A 157/2017, the MFS
stood merged with the said order, which was executable as a decree
under Section 634A of the Companies Act and that, therefore, no
reference to arbitratio n, under Clause 3.15 of the MFS, would be
made.
25. In the first place, the order dated 1st May, 2007 (supra) of the
CLB stood effectively modified by the subsequent order dated 20th
August, 2014, whereby it was held that the earlier order dated 1st May,
2007 should be treated as an order withdrawing CP 31/2007
unconditionally. On this premise, the CLB held the application of
Respondent No. 1, under Section 634A of the Companies Act, not to
be maintainable, as the order dated 1st
26. The order dated 20 May, 2007 could not be treated
as an executable decree, but was required to be treated as an order of
unconditional withdrawal of CP 31/2007. This order continues to
remain in force as on date, not having been disturbed, or even stayed,
by this Court or by any other judicial or der.
th August, 2014 of the CLB is, however,
presently, subject matter of appeal in Co A (SB) 47/2014, pending before this Court. Were the issue of maintainability of the present
2021:DHC:258ARB.P. 331 /2020 Page 25 of 29
petition, under Section 11(6) of the 1996 Act, actual ly to be affected
by the order dated 1st May, 2007 (supra) of the CLB, I may have been
inclined to await the outcome of Co A (SB) 47/2017, despite no stay
having been granted by this Court, of operation of the order dated 20th
August, 2014 of the CLB. In my view, however, the submission, of
Mr. Jagia, that the order dated 1st May, 2007 of the CLB was in the
nature of an executable decree, is completely tangential to the
maintainability of the present petition, seeking reference of the
disputes between the petitioners and the respondents to arbitration
under Clause 3.15 of the MFS. This, in fact, is made manifest even
from Clause 3.16 of the MFS, which clearly states that “the right to
refer to arbitration any question in the event of difference or disputes
amongst the parties shall be in addition to and not in derogation of the right of the parties to approach the Hon’ble Company Law Board, Principal Bench, for giving effect to or execution of the terms of Clause 3.15 of the MFS.” Consequently, even if the order dated 1
st
May, 2007, of the CLB were to be treated as an executable decree,
that would not derogate from the right of the parties, eman ating from
Clause 3.15 of the MFS, to have disputes arising under the MFS
referred to arbitration. The right to s eek recourse to arbitration, which
flows from Clause 3.15 of the MFS is, in my view, not affected by the issue of whether the order dated 1
st
27. The existence of Clause 3.15 of the MFS, cannot, in my view,
be gainsaid in any manner. The clause exists; ergo, it is enforceable. No valid ground, to hold that Clause 3.15 of the MFS cannot be May, 2007, of the CLB is, or is
not, an executable decree .
2021:DHC:258ARB.P. 331 /2020 Page 26 of 29
enforced, has been raised by Mr. Jagia, arguing for Respondent Nos.1
to 3. In fact, as already noted herei nabove, an arbitral tribunal had
been constituted, in accordance with Clause 3.15 of the MFS, to
arbitrate on the disputes between the parties but, owing to the
resignation of one of t he named arbitrators, Clause 3.15 has become
incapable of enforcement in the terms set out in the said clause.
28. The inevitable sequ itur is that, under Section 11(6) of the 1996
Act, the notice invoking arbitration, dated 3rd March, 2020, from the
petitioners to the respondents having failed to invoke any reaction,
this C ourt has to step in and appoint the arbitrator to arbitrate on the
disputes. The reliance, by Mr. Singh, on the afore -extracted paras 7.3
to 7.11 of Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern
Coal Field Ltd 1 is also, in my opinion, apt , in thi s context.
29. Besides, under Section 16(1) of the 1996 Act, the arbitral
tribunal is entirely competent to rule on its own jurisdiction, which
would include the competence to adjudicate on any objections with
respect to existence or validity of the arbitration agreement. For ready reference, Section 16(1) of the 1996 Act is reproduced thus:
“16. Competence of arbitral tribunal to rule on its own
jurisdiction. –
(1) The arbitral tribunal may rule on its own
jurisdiction, including ruling on any objec tions with
respect to the existence or validity of the arbitration
agreement, and for that purpose, —
(a) an arbitration clause which forms part of
a contract shall be treated as an agreement
2021:DHC:258ARB.P. 331 /2020 Page 27 of 29
independent of the other terms of the contract;
and
(b) a decision by the arbitral tribunal that the
contract is null and void shall not entail ipso
jure the invalidity of the arbitration clause.”
30. It is alwa ys open, therefore, to the petitioners as well as the
respondents to raise all contentions, before the arbitral tribunal,
regarding the existence of the arbitration agreement, the validity of the
arbitration agreement as well as the existence of an arbitra ble dispute
between the parties. It cannot be said that the present case is one in
which these issues cannot be examined by the arbitral tribunal.
31. In view thereof, I am of the opinion that, as there exist disputes
between the parties which, prima fac ie, are arbitrable in nature, and
Clause 3.15 of the MFS constitutes a valid arbitration agreement, the present petition under Section 11(6) of the 1996 Act, is maintainable. Owing to the resignation of S. Dev ender Singh Kohli, it is not
possible for the arbitral tribunal to be constituted in the manner
contemplated by Clause 3.15. The notice from the petitioner to the
respondent, to appoint an arbitrator, to arbitrate on the dispute between them, has evoked no response. T he task of appointing the
arbitr ator, therefore, falls on this Court under Section 11(6) of the
1996 Act.
32. Needless to say, it would be open to all parties in the arbitration
to raise all contentions, including the existence and validity of the
arbitration agreement or the existenc e of an arbitrable dispute , before
the learned arbitrator appointed by this judgement . The observations
2021:DHC:258ARB.P. 331 /2020 Page 28 of 29
contained in this order are being rendered within the limited
parameters of the jurisdiction, vested in this Court by Section 11(5) and (6) of the 1996 Act, in view of Section 11(6A) thereof, and are not
intended to be treated as any final expression of opinion either on the existence or validity of the arbitration agreement, or regarding the dispute between the parties being arbitrable in nature. All t hese
aspects are kept open, to be urged before the learned Arbitral Tribunal
which shall adjudicate thereon, as and when these aspects are raised,
uninfluenced by any observations contained in the present judgment. 33. In view of the aforesaid observatio ns, I appoint Hon’ble
Mr.Justice C. M. Nayar, a learned retired Judge of this Court and an
experienced arbitrator, as the arbitrator, to arbitrate on the disputes between the parties. The contact details of the learned Arbitrator are as under:
C-490, Def ence Colony,
New Delhi -110024
Phone No.9811200328
Email ID: cmnayar2009@gmail.com
34. The learned Arbitrator will be entitled to fees in accordance
with the Fourth Schedule to the 1996 Act.
2021:DHC:258ARB.P. 331 /2020 Page 29 of 29
35. The learned Arbitrator would submit the requisite disc losure
under Section 12(2) of the 1996 Act, within a week of entering on the
reference.
36. The parties are directed to contact the learned Arbitrator, within
a week of communication, to them, of a copy of this judgment, by e –
mail by the Registry.
37. With the aforesaid observations, this petition stands disposed
of.
C.HARI SHANKAR, J
JANUARY 22, 2021/ kr
2021:DHC:258