MAGIC EYE DEVELOPERS PVT. LTD. versus M/S. GREEN EDGE INFRASTRUCTURE PVT. LTD. & ORS. ETC.
[2023] 5 S.C.R. 401, Supreme Court of India, 2023
Outcome: Appeal(s) allowed (Granted)
Segment: Issues
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MAGIC EYE DEVELOPERS PVT. LTD.
v.
M/S. GREEN EDGE INFRASTRUCTURE PVT. LTD. & ORS.
ETC.
(Civil Appeal Nos. 3634-37 of 2023)
MAY 12, 2023
[M. R. SHAH AND C. T. RAVIKUMAR, JJ.]
Arbitration and Conciliation Act, 1996 – Arbitration and
Conciliation Amendment Act, 2015 – s.11(6) – Pre-referral
jurisdiction – Before the High Court, appellant raised objection
with regard to the existence of an arbitration agreement – High
Court/referral court held that the issue of arbitrability of the dispute
can be addressed by Arbitral Tribunal – Thereafter, High Court
referred the disputes for arbitration and appointed a arbitrator –
On appeal, held: Pre-referral jurisdiction of the court u/s. 11(6) of
the Arbitration Act is very narrow and inheres two inquiries – The
primary inquiry is about the existence and the validity of an
arbitration agreement and the Secondary inquiry is with respect to
the non-arbitrability of the dispute – The issue of existence and the
validity of an arbitration agreement has to be to conclusively and
finally decided by the referral court at the referral stage itself and
the same should not be left to be determined by the Arbitral Tribunal
as it goes to the root of the matter – Furthermore, it is the duty of the
referral court to decide the said issue first conclusively to protect
the parties from being forced to arbitrate when there does not exist
any arbitration agreement and/or when there is no valid arbitration
agreement at all – In the instant
case, the referral court (High Court)
has not decided the said issue conclusively and finally, which ought
to have been done by it and Court has left it to be decided by the
Arbitral Tribunal – Judgment of High Court quashed and set aside
– Matter remitted back to the High Court.
Allowing the appeals, the Court
HELD: 1. As per the settled position of law, pre-referral
jurisdiction of the court under Section 11(6) of the Arbitration
Act is very narrow and inheres two inquiries. The primary inquiry
is about the existence and the validity of an arbitration agreement,
[2023] 5 S.C.R. 401
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SUPREME COURT REPORTS
[2023] 5 S.C.R.
which also includes an inquiry as to the parties to the agreement
and the applicant’s privity to the said agreement. The said matter
requires a thorough examination by the referral court. The
Secondary inquiry that may arise at the reference stage itself is
with respect to the non-arbitrability of the dispute. Both are
different and distinct. So far as the first issue with respect to the
existence and the validity of an arbitration agreement is
concerned, as the same goes to the root of the matter, the same
has to be to conclusively decided by the referral court at the
referral stage itself. Now, so far as the non-arbitrability of the
dispute is concerned, even as per the law laid-down by this Court
in the case of Vidya Drolia, the court at prereferral stage and
while examining the jurisdiction under Section 11(6) of the Act
may even consider prima facie examining the arbitrability of
claims. As observed, the prima facie review at the reference stage
is to cut the deadwood and trim off the side branches in
straightforward cases where dismissal is barefaced and pellucid
and when on the facts and law the litigation must stop at the first
stage. However, so far as the dispute with respect to the existence
and validity of an arbitration agreement is concerned and when
the same is raised at pre-referral stage, the referral court has to
decide the said issue conclusively and finally and should not leave
the said issue to be
determined by the arbitral tribunal. The reason
is that the issue with respect to the existence and validity of an
arbitration agreement goes to the root of the matter. If the dispute/
issue with respect to the existence and validity of an arbitration
agreement is not conclusively and finally decided by the referral
court while exercising the pre-referral jurisdiction under Section
11(6) and it is left to the arbitral tribunal, it will be contrary to
Section 11(6A) of the Arbitration Act. It is the duty of the referral
court to decide the said issue first conclusively to protect the
parties from being forced to arbitrate when there does not exist
any arbitration agreement and/or when there is no valid arbitration
agreement at all. [Para 5.3][407-C-H; 408-B-C]
2. The referral court has not decided the said issue
conclusively and finally and referral court has left it to be decided
by the arbitral tribunal. The submission on behalf of the contesting
respondent relying upon some observations made in paragraph
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22 of the impugned order that the referral court has in fact opined
that the four agreements are indisputably interconnected is
concerned, it is required to be noted that the observations made
in paragraph 22 are to be read along with the prayer of the
appellant to appoint different arbitrator(s). However, in paragraph
13, it is specifically observed by the referral court that “this Court
cannot finally pronounce one way or the other on this aspect.” In
paragraph 14 also, it is specifically observed that the arbitrability
of the dispute raised viz-a-viz the arbitration clause 27.3 of SHA-
1, is an involved issue, can be addressed by the learned arbitral
tribunal. Thus, the referral court has not pronounced anything
finally on the existence and validity of the arbitration agreement
which ought to have been done by the referral court. [Para 6]
Vidya Drolia and Ors. Vs. Durga Trading Corporation
(2021) 2 SCC 1; N.N. Global Mercantile Private Limited
Vs. Indo Unique Flame Ltd. and Ors. 2023 SCC Online
SC 495; NTPC Ltd. Vs. SPML Infra Ltd. 2023 SCC
Online SC 389; Chloro Controls India Private Limited
Vs. Severn Trent Water Purification Inc. and Ors. (2013)
1 SCC 641 : [2012] 13 SCR 402; Olympus
Superstructures (P) Ltd. Vs. Meena Vijay Khetan (1999)
5 SCC 651 : [1999] 3 SCR 490 – referred to.
Case Law Reference
(2021) 2 SCC 1
referred to
Para 2.2
[2012] 13 SCR 402
referred to
Para 4.2
[1999] 3 SCR 490
referred to
Para 4.2
CIVIL APPELLATE JURISDICTION: Civil
Appeal Nos. 3634-3637
of 2023
From the Judgment and Order dated 25.03.2021 of the High Court
of Delhi at New Delhi in ARB. P Nos. 347 of 2019, 753 of 2020 and
OMP (I) (COMM) Nos. 26 of 2019, 114 of 2020.
Preetesh Kapur, Neeraj Kishan Kaul, Sr. Advs., Shaunak Kashyap,
Nishtha Gupta, M/s. Mitter & Mitter Co., Abhimanyu Bhandari, Aarush
Bhatia, Ms. Rooh-e-hina Dua, Shubhankar Sengupta, Advs. for the
appearing parties.
MAGIC EYE DEVELOPERS PVT. LTD. v. M/S. GREEN EDGE
INFRASTRUCTURE PVT. LTD.
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The Judgment of the Court was delivered by
M. R. SHAH, J.
1. Feeling aggrieved and dissatisfied with the impugned common
judgment and order passed by the High Court of Delhi at New Delhi in
respective Arbitration Petitions, by which, the High Court has referred
the disputes for arbitration and has appointed the sole arbitrator, the
original opponent – Magic Eye Developers Pvt. Ltd. has preferred the
present appeals.
2. The issue involved in the present appeals is as such in a very
narrow compass, namely, pre-referral jurisdiction of the Court under
Section 11(6) of the Arbitration and Conciliation Amendment Act, 2015.
2.1 At the outset, it is required to be noted that before the High
Court the appellant herein specifically raised an objection with regard to
the existence of an arbitration agreement/clause. It was the case on
behalf of the appellant that the dispute revolves entirely around MOU-2
which does not contain the arbitration clause. However, on the other
hand, it was the case on behalf of the contesting respondent herein –
original applicant that other agreement(s) i.e., SHA-1, SHA-2 and MOU-
1 are interlinked/interconnected with the MOU-2 which contained the
arbitration clause/agreement and therefore, all the aforesaid agreements
are required to be read along with MOU-2.
2.2 By the impugned common judgment and order and relying
upon the decision of this Court in the case of Vidya Drolia and Ors.
Vs. Durga
Trading Corporation, (2021) 2 SCC 1 and by observing
that the arbitrability of the dispute raised, viz-a-viz the arbitration clause
27.3 of SHA-1, is an involved issue and the said issue can be addressed
by the learned Arbitral Tribunal, given the complexity of the transaction
involved, the High Court has referred the disputes for arbitration and
has appointed the arbitrator.
3. Shri Preetesh Kapur, leanred Senior Advocate has appeared
on behalf of the appellant and Shri Neeraj Kishan Kaul, learned Senior
Advocate has appeared on behalf of the contesting respondent – original
applicant.
3.1 Shri Preetesh Kapur, learned Senior Advocate appearing on
behalf of the appellant has taken us to Section 11(6A) of the Arbitration
Act and has submitted that post- Arbitration and Conciliation Amendment
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Act, 2015 by which sub-section (6A) has been added to Section 11 of
the Arbitration Act, while deciding the application under Section 11(6) of
the Act and while exercising the pre-referral jurisdiction, the Court has
to consider and examine the existence of an arbitration agreement and it
should not be left to the Arbitral Tribunal.
3.2 It is vehemently submitted that there is a difference and
distinction between the existence and validity of an arbitration clause
and non-arbitrability of the dispute. It is submitted that so far as the issue
with respect to the existence and validity of an arbitration agreement at
the stage of pre-referral jurisdiction under Section 11(6) of the Act, the
Court has to give a specific finding finally on such issue and such an
issue should not be left to the Arbitral Tribunal. It is submitted that
therefore, the High Court has misapplied and/or misread the decision of
this Court in the case of Vidya Drolia (supra).
3.3 It is vehemently submitted by Shri Kapur, learned Senior
Advocate appearing on behalf of the appellant that as such it is the duty
cast upon the referral court to protect the parties from being forced to
arbitrate when the matter is demonstrably non-arbitrable. It is submitted
that the dispute with respect to the existence and validity of an arbitration
agreement/clause goes to the root of the matter and has to be decided
first by the referral court. It is submitted that if ultimately it is held that
there is
no existence of an arbitration agreement and/or there is no valid
arbitration agreement and the said issue is left to be decided by the
arbitral tribunal in that case the entire exercise by the arbitral tribunal
will be futile. It is submitted that therefore in order to prevent wastage
of public and private resources and taking into consideration Section
11(6A) of the Act, the referral court has to finally conclude the issue
with respect to the existence and validity of the arbitration agreement.
Reliance is placed upon the recent decision of the Constitution Bench of
this Court in the case of N.N. Global Mercantile Private Limited
Vs. Indo Unique Flame Ltd. and Ors., 2023 SCC Online SC 495.
It is submitted that in the said decision it is observed and held by this
Court that Sans an agreement, there cannot be a reference to arbitration.
It is submitted that it is further held that an arbitration agreement must
satisfy the requirements of Section 7(1). It is submitted that it is further
observed and held that the true intention behind the insertion of Section
11(6A) in the Act was to confine the Court, acting under Section 11, to
examine and ascertain about the existence of an arbitration agreement.
MAGIC EYE DEVELOPERS PVT. LTD. v. M/S. GREEN EDGE
INFRASTRUCTURE PVT. LTD. [M. R. SHAH, J.]
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3.4 Shri Kapur, learned Senior Advocate appearing on behalf of
the appellant has also relied upon the recent decision of this Court in the
case of NTPC Ltd. Vs. SPML Infra Ltd., 2023 SCC Online SC
389 (paragraphs 19, 25 and 28).
4. While opposing the present appeals, Shri Neeraj Kishan Kaul,
learned Senior Advocate appearing on behalf of the original applicant
has vehemently submitted that in the facts and circumstances of the
case, the High Court has rightly followed the decision of this Court in the
case of Vidya Drolia (supra) and has rightly referred the disputes
between the parties to the arbitration.
4.1 It is vehemently submitted by Shri Kaul, learned Senior
Advocate appearing on behalf of the original applicant that in the present
case all the agreements, namely, SHA-1, SHA-2 and MOU-1 are required
to be read along with MOU-2. It is submitted that the agreements other
than MOU-2 do contain the arbitration clause, more particularly, clause
27.3 in SHA-1. It is submitted that the High Court in paragraph 22 has
specifically observed and opined that the four agreements are indisputably
interconnected. It is submitted that once there is a specific finding given
that all the agreements are interconnected, the agreement in which there
is an arbitration clause has to be read along with MOU-2 and therefore,
the High Court has rightly referred the disputes to the arbitration.
4.2 Shri Kaul, learned Senior Advocate
appearing on behalf of
the original applicant has heavily relied upon the decision of this Court in
the case of Chloro Controls India Private Limited Vs. Severn Trent
Water Purification Inc. and Ors., (2013) 1 SCC 641 as well as the
decision of this Court in the case of Olympus Superstructures (P)
Ltd. Vs. Meena Vijay Khetan, (1999) 5 SCC 651 in support of his
submission that all the four agreements are interconnected and therefore,
are required to be read altogether.
5. Heard. The short question which is posed for the consideration
of this Court is, the jurisdiction of the referral court at pre-referral stage
when the issue with respect to the existence and validity of an arbitration
agreement is raised.
5.1 While considering the aforesaid issue Section 11(6A) of the
Arbitration Act which has been added through Arbitration and Conciliation
Amendment Act, 2015 is required to be read which reads as follows: -
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“(6-A) The Supreme Court or, as the case may be, the High
Court, while considering any application under subsection
(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.”
5.2 Thus, post-Arbitration and Conciliation Amendment Act, 2015,
the jurisdiction of the court under Section 11(6) of the Act is limited to
examining whether an arbitration agreement exists between the parties
– “nothing more, nothing less”. Thus, as per the Section 11(6A) of the
Act, it is the duty cast upon the referral court to consider the dispute/
issue with respect to the existence of an arbitration agreement.
5.3 At this stage, it is required to be noted that as per the settled
position of law, pre-referral jurisdiction of the court under Section 11(6)
of the Arbitration Act is very narrow and inheres two inquiries. The
primary inquiry is about the existence and the validity of an arbitration
agreement, which also includes an inquiry as to the parties to the
agreement and the applicant’s privity to the said agreement. The said
matter requires a thorough examination by the referral court. [paragraph
25 of the decision in the case of NTPC Ltd. (supra)]. The Secondary
inquiry that may arise at the reference stage itself is with respect to the
non-arbitrability of the dispute. Both are different and distinct. So far as
the first issue with respect to the
existence and the validity of an arbitration
agreement is concerned, as the same goes to the root of the matter, the
same has to be to conclusively decided by the referral court at the referral
stage itself. Now, so far as the non-arbitrability of the dispute is concerned,
even as per the law laid-down by this Court in the case of Vidya Drolia
(supra), the court at pre-referral stage and while examining the
jurisdiction under Section 11(6) of the Act may even consider prima
facie examining the arbitrability of claims. As observed, the prima facie
review at the reference stage is to cut the deadwood and trim off the
side branches in straightforward cases where dismissal is barefaced
and pellucid and when on the facts and law the litigation must stop at the
first stage. However, so far as the dispute with respect to the existence
and validity of an arbitration agreement is concerned and when the same
is raised at pre-referral stage, the referral court has to decide the said
issue conclusively and finally and should not leave the said issue to be
determined by the arbitral tribunal. The reason is that the issue with
respect to the existence and validity of an arbitration agreement goes to
MAGIC EYE DEVELOPERS PVT. LTD. v. M/S. GREEN EDGE
INFRASTRUCTURE PVT. LTD. [M. R. SHAH, J.]
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the root of the matter. As observed by the Constitution Bench in the
case of N.N. Global Mercantile Pvt. Ltd. (supra) Sans an agreement,
there cannot be any reference to the arbitration. In the said decision this
Court has also specifically observed and held that the intention behind
the insertion of Section 11(6A) in the Act was to confine the Court,
acting under Section 11, to examine and ascertain about the existence of
an arbitration agreement. We are of the opinion that therefore, if the
dispute/issue with respect to the existence and validity of an arbitration
agreement is not conclusively and finally decided by the referral court
while exercising the pre-referral jurisdiction under Section 11(6) and it is
left to the arbitral tribunal, it will be contrary to Section 11(6A) of the
Arbitration Act. It is the duty of the referral court to decide the said
issue first conclusively to protect the parties from being forced to arbitrate
when there does not exist any arbitration agreement and/or when there
is no valid arbitration agreement at all.
6. From the impugned common order passed by the referral court,
it appears from the observations made in paragraphs 11 to 13 that the
referral court has not decided the said issue conclusively and finally and
referral court has left it to be decided by the arbitral tribunal. The
submission on behalf of the contesting respondent relying upon some
observations made in paragraph
22 of the impugned order that the referral
court has in fact opined that the four agreements are indisputably
interconnected is concerned, it is required to be noted that the observations
made in paragraph 22 are to be read along with the prayer of the appellant
to appoint different arbitrator(s). However, in paragraph 13, it is
specifically observed by the referral court that “this Court cannot finally
pronounce one way or the other on this aspect.” In paragraph 14 also, it
is specifically observed that the arbitrability of the dispute raised viz-a-
viz the arbitration clause 27.3 of SHA-1, is an involved issue, can be
addressed by the learned arbitral tribunal. Thus, the referral court has
not pronounced anything finally on the existence and validity of the
arbitration agreement which ought to have been done by the referral
court.
7. Now, so far as the submission made by Shri Kaul, learned
Senior Advocate that all the agreements being interlinked and
interconnected and reliance placed on the decision of this Court in the
cases of Chloro Controls India Pvt. Ltd. (supra) and Olympus
Superstructures (P) Ltd. (supra), we do not propose to go into the
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merits as the same has to be considered by the referral court. We have
not even permitted learned counsel appearing on behalf of the appellant
to make submission on merits.
8. In view of the above and for the reasons stated above, the
impugned common judgment and order passed by the High Court in
respective Arbitration Petitions, referring the disputes to arbitration is
hereby quashed and set aside. The matter is remitted back to the High
Court/referral court to decide the respective arbitration petitions afresh
and in light of the observations made hereinabove and to decide the
issue conclusively and finally with respect to the existence and validity
of the arbitration agreement. The aforesaid exercise to be completed
within a period of three months from the date of receipt of the present
order. However, it is observed that we have not expressed anything on
merits on the existence and validity of the arbitration agreement and on
the four agreements being interconnected/interlinked. It is ultimately for
the High Court/referral court to take an appropriate decision in accordance
with law and on its own merits. Present appeals are accordingly allowed to
the aforesaid extent. In the facts and circumstances of the case, there shall
be no order as to costs.
Ankit Gyan
Appeals allowed.
(Assisted by : Abhishek Agnihotri and Aarsh Choudhary, LCRAs)
MAGIC EYE DEVELOPERS PVT. LTD. v. M/S. GREEN EDGE
INFRASTRUCTURE PVT. LTD. [M. R. SHAH, J.]