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2022 Supreme(Online)(SC) 893
SUPREME COURT
Hon. Sri 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 High Court erred by deciding arbitration agreement novation instead of leaving it for arbitration, emphasizing the judicial limits in such contexts.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Section 11(6) - Dismissal of application seeking arbitration - High Court's error in determining implied novation of Share Purchase Agreement without proper basis - The issue of novation should have been left for the Arbitral Tribunal to decide. (Paras 2, 19, 20)
(B) The High Court improperly assessed complex factual issues, effectively acting as an Arbitral Tribunal which is beyond its jurisdiction under Section 11 of the Act - The appellate court found that the arbitration clause survives, and thus the appeal is allowed and High Court's order is set aside. (Paras 19, 20)
Facts of the case:
Disputes arose from a Share Purchase Agreement involving a solar power project. The appellant sought arbitration after disputes regarding performance obligations and implications of competing agreements arose.
Findings of Court:
The court held that the High Court's dismissal was unwarranted as the issue of novation needed to be adjudicated by an arbitrator, not the court.
Issues: The primary issue addressed was whether the appeal warranted intervention concerning the High Court's findings on novation and arbitration agreements.
Ratio Decidendi: The reasoning revolved around the distinction between judicial review and arbitration procedures, emphasizing that the High Court exceeded its jurisdiction by ruling on substantive issues pertinent to the arbitration clause and the underlying agreement.
Result: Appeal allowed and the judgment of the High Court set aside.
| Table of Content |
|---|
| 1. introduction to case background and procedural history. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9) |
| 2. arguments presented by both parties regarding application dismissal. (Para 10 , 11 , 12) |
| 3. court's observations on judicial limits and arbitration. (Para 13 , 14 , 15 , 16 , 17 , 18) |
| 4. court's decision on the high court's ruling and novation. (Para 19) |
| 5. final judgment and appointment of arbitrator. (Para 20 , 21 , 22 , 23) |
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
