Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. OF 2023
(@SLP (C) Nos. 18339-42/2021)
Magic Eye Developers Pvt. Ltd. …Appellant(s)
Versus
M/s. Green Edge Infrastructure
Pvt. Ltd. & Ors. Etc. …Respondent(s)
J U D G M E N T
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
Signature Not Verified
Delhi in respective Arbitration Petitions, by
Digitally signed by
Neetu Sachdeva
Date: 2023.05.12
15:47:40 IST
Reason:
Page 1 of 20
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
Page 2 of 20
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
Page 3 of 20
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 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
Page 4 of 20
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).
Page 5 of 20
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
Page 6 of 20
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
Page 7 of 20
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.
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 and
Vidya Drolia (supra)
Page 8 of 20
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
Page 9 of 20
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
in support of his submission that all the
651
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
Page 10 of 20
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: -
“(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 –
Page 11 of 20
“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
Page 12 of 20
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
Page 13 of 20
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. 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
Page 14 of 20
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
Page 15 of 20
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
Page 16 of 20
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
Page 17 of 20
Olympus Superstructures (P) Ltd. (supra) ,
we do not propose to go into the 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
Page 18 of 20
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.
………………………………….J.
[M.R. SHAH]
………………………………….J.
NEW DELHI; [C.T. RAVIKUMAR]
MAY 12, 2023
Page 19 of 20
Page 20 of 20