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2022 Supreme(Online)(SC) 822
SUPREME COURT
R. Subhash Reddy, J
M/s. Meenakshi Solar Power Pvt. Ltd. – Appellant
Versus
M/s. Abhyudaya Green Economic Zones Pvt. Ltd. – Respondent
Civil Appeal|Arbitration Application No. 55 of 2020
For the Appellants/Petitioners: Ms. Meenakshi Arora
For the Respondents: Sri D. Narendra Naik
The court ruled that disputes on novation of agreements, impacting arbitration clauses, should be exclusively referred to arbitration and not adjudicated by the High Court.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Section 11(6) - Application under the Act dismissed by the High Court volitionally deciding on novation - Court highlights judicial restraint in issues of novation meant for arbitration - Evident that the High Court erred in addressing factual complexities irrelevant to arbitration agreement - Issues related to the nature and intent of commercial agreements to be arbitrated. (Paras 3, 4, 19)
(B) Novation - Definition and Application - The need for clear evidence of intent to novate any existing agreements - Court affirms distinct roles of parties in contractual obligations conditional upon adherence to timely and explicit terms. (Paras 11.1, 11.2)
Facts of the case:
Disputes arose from a Share Purchase Agreement pertaining to a power project between parties, where the respondent faced financial challenges leading to attempted sale and subsequent complications in agreements, invoking arbitration claims which the High Court dismissed.
Findings of Court:
High Court's dismissal reverses the right for arbitration; this appellate body reinforces judicial review should focus on procedural propriety rather than factual determinations - Ensuing appointments of arbitrators affirmed as necessary.
Issues: The principal matters revolve around the existence and validity of novation in the context of the Share Purchase Agreement and the enforceability of the arbitration clause.
Ratio Decidendi: The court emphasizes that complex factual questions surrounding the novation must be reserved for an Arbitral Tribunal rather than adjudicated by judiciary at the referral stage per legislative intent in the Arbitration Act.
Result: The appeal is allowed; High Court's judgment is quashed, and an Arbitrator is appointed.
| Table of Content |
|---|
| 1. summary of facts involving the share purchase agreement and financial dealings. (Para 2 , 3 , 4 , 5 , 6) |
| 2. arguments presented regarding novation and its implications for arbitration. (Para 11 , 12) |
| 3. court's final directives regarding arbitration and reversing high court's decision. (Para 19 , 20) |
1. Leave granted.
2. This Civil Appeal has been filed by assailing the impugned judgment and order dated 12. 02. 2021 passed by the High Court of Judicature for the State of Telangana at Hyderabad in Arbitration Application No. 55 of 2020 whereby the High Court dismissed the application filed under S.11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'Act of 1996', for the sake of convenience) filed by the appellant herein.
3. The appellant herein - M/s. Meenakshi Solar Power Pvt. Ltd. is engaged in the business of producing power through running and operating thermal / solar / hydro power plants. The respondent No. 1 - M/s. Abhyudaya Green Economic Zones Pvt. Ltd. is the owner of 4. 128 MW Solar PV Power Project located in 20 acres at Kummera Village, Chevella Mandal, Ranga Reddy District, Telangana. Respondent Nos. 2 and 3 are promoters and 100% shareholders of respondent No. 1 Company. Respondent No. 4 - M/s. Meenakshi Power Pvt. Ltd. is an affiliate of the appellant herein and is a proforma respondent in the present case while the other three respondents are the contesting respondents.
4. Succinctly stated, the facts of the case are that the power project of respondent No. 1 herein is generating power and has a twenty - year Power Purchase Agreement with Telangana State Southern Power Distribution Company Limited. The power project was partly financed by Corporation Bank, Film Nagar Branch, Hyderabad in the form of a Term Loan vide Account No. 560821000017646 and partly financed by M/s. IFCI Venture Capital Funds Limited (hereinafter referred to as 'IFCI Venture Capital') in the form of 14, 68, 000 Optionally Convertible Debentures of Rs. 100/- each at par aggregating to Rs. 14, 68, 00, 000/- (Rupees Fourteen Crore Sixty - Eight Lakhs Only) under a Venture Capital Fund for Schedule Castes. Since it was difficult for respondent No. 1 to service the debt availed from the financial institutions, respondent Nos. 2 and 3 its promoters, decided to sell the said power project. The appellant herein showed interest in buying the said power project and therefore entered into a Share Purchase Agreement dated 24. 09. 2018 with respondent Nos. 1 to 3 wherein respondent Nos. 2 and 3 agreed to sell 100% ownership of respondent No. 1 Company comprising all of its assets including land, buildings, plant, equipment along with continuity of the Power Purchase Agreement signed with Telangana State Southern Power Distribution Company Limited as a going business entity, for an irrevocably frozen Purchase Price of Rs. 29 Crores (Rupees Twenty - Nine Crores). The appellant herein agreed to purchase 100% Equity Shares and 100% Preference Shares of respondent No. 1 Company by way of taking over the loans of respondent No. 1 Company and paying the balance amount to the sellers i.e., respondent Nos. 2 and 3 towards net equity value.
5. Subsequently, a Tripartite Agreement was entered into by the appellant herein through its affiliate i.e., respondent No. 4 (party of the third part) with respondent Nos. 2 and 3 (party of the second part) and IFCI Venture Capital (party of the first part) on 03. 04. 2019 recording the execution of the Share Purchase Agreement dated 24. 09. 2018 and payment of Rs. 50 lakhs (Rupees Fifty Lakhs) to respondent Nos. 2 and 3 in terms of the said Share Purchase Agreement.
6. Thereafter, an addendum to the Share Purchase Agreement was signed on 10. 04. 2019 between respondent Nos. 1 to 3 and respondent No. 4 wherein the latter agreed to remit an amount of Rs. 1. 65 Crores to respondent Nos. 1 to 3 to regularize the loan with the Corporation Bank and facilitate the transfer of the project
