A valid arbitration agreement exists even if the underlying contract's enforceability is disputed, and courts must limit their inquiries to the existence of such agreements before appointing arbitrators.

JUDGMENT :

1. The petitioners have filed the present petition under Sections 11 (4) and 11(6) of the Arbitration and Conciliation Act, 1996 (“Act”), seeking the appointment of an Arbitrator due to the respondent's failure to nominate their Arbitrator within the prescribed 30-day period from the notice dated 18.07.2024.

FACTUAL BACKGROUND

2. Petitioner No. 1 - Neosky India Limited (“Neosky”), is a public limited company and subsidiary of Rattan India Enterprises Ltd., while petitioner No. 2 - Throttle Aerospace Systems Private Limited (“TAS”) is a private limited company in the space of civil drones in which petitioner No. 1 has invested and in which respondent Nos. 1– 4 were employed, and respondent Nos. 1– 4 together have 40% shareholding.

3. On 25.05.2022, the petitioners entered into a Share Subscription and Shareholders Agreement (“SSHA”), a Non-Compete Agreement (“NCA”), and Employment Agreements with respondent No. 1 – Mr. Nagendran Kandasamy, respondent No. 2 – Ms. Nischita Madhu, respondent No. 3 – Mr. Shashi Kumar R, respondent no. 4 – Mr. Gunjur Munianjappa Girish Reddy, and respondent No. 5 – Pinkin Consultancy Private Limited. The transaction involved a proposed fund infusion of Rs. 40 crores, pursuant to which petitioner No. 1 was to acquire a 60% equity stake in petitioner No. 2 company. As per the SSHA, Rs. 20 crores were infused upfront by petitioner No. 1, and the balance Rs. 20 crores were to be infused after a period of 18 months.

4. Under Clause 13.7 of the SSHA, respondent Nos. 1-5 were required to serve for five years and were restrained from engaging in competing businesses. Similarly, the NCA explicitly prohibited the above respondents from engaging in any of the competing businesses for a period of three years and further restricted them from soliciting any employees, clients, contractors, or similar parties during the term of the agreement and for up to one year following its expiry.

5. However, respondent Nos. 1, 2 and 3 resigned on 03.07.2023 and allegedly incorporated respondent No. 6, Zulu Defence Systems Pvt. Ltd., on 06.10.2023 to operate a competing drone venture, in violation of the non-compete clause contained in SSHA and Employment Agreements and appointed respondent Nos. 7 and 8 as the Directors of respondent No. 6.

6. On 27.05.2024, a petition bearing O.M.P(I)(COMM.) 183/2024 under Section 9 of the Act was filed before this Court, wherein the respondent Nos. 1 - 4 were restricted from competing with or disclosing information related to the petitioners vide an order dated 31.05.2024. Additionally, the petitioners also filed a contempt petition alleging wilful disobedience of the interim order dated 31.05.2024 passed in OMP(I)(COMM.) 183/2024. The contempt petition was primarily based on the respondent Nos. 1 – 4‟s alleged continued engagement in competing business activities and violation of the non-compete obligations despite the subsisting restraint order.

7. Subsequently, on 18.07.2024, the petitioners issued a notice invoking arbitration under Clause 16.2 of SSHA and Clause 9(c) of NCA. Despite receiving the notice, the respondents failed to appoint an Arbitrator within the stipulated time of 30 days. Hence, the present petition was filed. SUBMISSIONS On behalf of the petitioners

8. Mr. Tanmaya Mehta, learned counsel for the petitioners, submits that the present dispute arises from breaches committed by respondent Nos.1-5 under the SSHA, NCA, and the respective Employment Agreements, all dated 25.05.2022.

9. He submits that respondent Nos. 1 - 3 abruptly resigned from their respective positions on 03.07.2023 and subsequently, on 06.10.2023, respondent No. 1 incorporated a private limited company, under the name and style – „Zulu Defense Systems Pvt. Limited‟/ respondent No. 6, operating in a directly competing business of drone manufacturing, in direct breach of (a) Clause 13.7 of the SSHA, (b) Clauses 3.2, 3.5, 5.4, 6.1 and 6.2 of the Employment Agreements, and (c) Clauses 1.1 and 6.1 of the N