Unsafe to conclude one way or the other that an arbitration agreement exists between the parties on a limited prima facie review of facts: Supreme Court of India

The determination whether the MoU had been novated by the Share Holders Agreement would require a detailed consideration of the Agreements, and surrounding circumstances. Such a determination could not be made at the Section 11 stage, given the narrow scope of jurisdiction. This was said in the case of  Sanjiv Prakash V Seema Kukreja And Ors[CIVIL APPEAL NO. 976 OF 2021] by Justices R.F. Nariman, B.R. Gavai and Hrishikesh Roy in Supreme Court of India.

The facts of the case date back to the time when the High Court of Delhi pronounced that once the MoU was superseded by the Share Holders Agreement, the arbitration clause contained in the MoU also falls with it. Assailing the dismissal of a petition under Section 11 of the Arbitration and Conciliation Act, 1996 the appellant filed an appeal in the Supreme Court.

The appellants stressed the fact that it was a family settlement or arrangement which raised a special equity between the parties and could not be treated as a mere contractual arrangement, having to be enforced in accordance with several judgments of this Court. Secondly, they contended that it was the Appellant who was responsible for the tremendous growth of the company, and it is by his efforts that Reuters infused a huge amount of capital by purchasing 49% of the share capital of the company. It is for this reason 18 that the MoU made it clear vide clause 8 that in case any of the three Respondents wished to sell or bequeath their equity shares in the company, their shares may be offered/sold/bequeathed only to the Appellant or to his heirs and successors.

The appellants contended that not only were the parties to the MoU different from those to the SHA, but that the MoU itself contemplated that the Prakash Family would enter into a 21 separate agreement with Reuters so as to effectuate the purchase of 49% shareholding in the company by Reuters, showing thereby that the MoU and the Agreements entered into with Reuters were separate contracts.

The Court traced the evolution of the scope of power exercised by the Courts at the Section 11 stage in the post 2015 regime. It referred to the case of Vidya Drolia v. Durga Trading Corporation [(2021)2  SCC1] wherein it was held that “at the pre-reference stage, the Court can only interfere when it is manifest that the claims are ex facie time-barred and dead, or there is no subsisting dispute. All other cases should be referred to the arbitral tribunal for decision on merits. This would also be the position in cases where a plea of novation is raised”.

After analyzing the facts of the case in the background of the opinion laid in the above case, the Court opined that “it would be unsafe to conclude one way or the other that an arbitration agreement exists between the parties on a prima facie review of facts of that case, and that a deeper consideration must be left to an arbitrator, who is to examine the documentary and oral evidence and then arrive at a conclusion”. Hence, the Court allowed the Civil Appeal, and appointed (Retd.) Justice Aftab Alam to adjudicate the disputes between the parties.

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