1. Family shareholding arrangement via MoU — Subsequent Shareholders' Agreement with third party — Dispute over pre-emptive rights — Petition under Section 11, Arbitration and Conciliation Act, 1996. (Para 1 , 2 )
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2021 Supreme(SC) 196
SUPREME COURT OF INDIA
ROHINTON FALI NARIMAN, B.R. GAVAI, HRISHIKESH ROY, JJ.
Sanjiv Prakash - Appellant
Versus
Seema Kukreja And Ors. - Respondent
Civil Appeal No. 975, 976 of 2021
Decided On : 06-04-2021
Important Points
IMPORTANT POINT
Court has limited jurisdiction under Section 11 of Arbitration and Conciliation Act, 1996.
Court has limited jurisdiction under Section 11 of Arbitration and Conciliation Act, 1996.
Subject
Arbitration Law - Appointment of Arbitrator
Act Referred
Headnote
Arbitration and Conciliation Act, 1996 – Section 11 – Appointment of Arbitrator – Dispute emanating from Shareholders’ Agreement owing to transfer of shareholding by Respondent No.3 – Whether MoU has been novated by SHA requires a detailed consideration of clauses of two Agreements, together with surrounding circumstances in which these Agreements were entered into, and a full consideration of law on the subject – None of this can be done given limited jurisdiction of a court under Section 11 of 1996 Act – Whether MoU has been novated by SHA dated 12.04.1996 requires a detailed consideration of clauses of two Agreements, together with surrounding circumstances in which these Agreements were entered into and a full consideration of law on the subject – None of this can be done given limited jurisdiction of a court under Section 11 of 1996 Act – No consideration has been given to separate and distinct subject matter of MoU and SHA – Judgment of High Court set aside and parties referred to arbitration of a sole Arbitrator, a retired Judge of this Court. (Paras 9, 10 and 11)
Facts of the case:
Instant appeal arises out of the dismissal of a petition under Section 11 of Arbitration and Conciliation Act, 1996 filed before High Court of Delhi. Appellant, Sanjiv Prakash, is a member of a family which also consists of his sister, Seema Kukreja (Respondent No.1 herein), his mother, Daya Prakash (Respondent No.2 herein), and his father, Prem Prakash (Respondent No.3 herein).
Findings of Court:
Whether MoU has been novated by the SHA dated 12.04.1996 requires a detailed consideration of the clauses of the two Agreements, together with surrounding circumstances in which these Agreements were entered into and a full consideration of the law on the subject. None of this can be done given the limited jurisdiction of a court under Section 11 of the 1996 Act.
Result : Appeal allowed.
Legal Category Hierarchy
- practice and procedure
- civil law
Advocates:
Advocate Appeared:
For the Appellant : Mr. E. C. Agrawala, AOR
For the Respondent: Ms. Sonali Jaitley Bakhshi, Adv. Mr. Jaiyesh Bakhshi, Adv. Mr. Manik Dogra, Adv. Mr. Pallav Pandey, Adv. Ms. Rini Badoni, Adv. Mr. Gaurav Mishra, Adv. Mr. Ankit Tyagi, Adv. Mr. P. V. Yogeswaran, AOR Mr. Abhinav Agrawal, AOR
Advocate Appeared:
For the Appellant : Mr. E. C. Agrawala, AOR
For the Respondent: Ms. Sonali Jaitley Bakhshi, Adv. Mr. Jaiyesh Bakhshi, Adv. Mr. Manik Dogra, Adv. Mr. Pallav Pandey, Adv. Ms. Rini Badoni, Adv. Mr. Gaurav Mishra, Adv. Mr. Ankit Tyagi, Adv. Mr. P. V. Yogeswaran, AOR Mr. Abhinav Agrawal, AOR
Table of Contents
2. Whether a family settlement MoU was novated by a subsequent Shareholders' Agreement containing an entire agreement clause — Whether novation is a complex issue for arbitral determination. (Para 3 , 4 , 5 )
3. The court's jurisdiction under Section 11 is limited to a prima facie review; complex questions of novation and contract validity are for the arbitral tribunal's determination. (Para 6 , 7 , 8 , 9 , 10 )
4. A Section 11 court must refer parties to arbitration unless the arbitration agreement is manifestly non-existent or invalid, leaving debatable issues of novation to the tribunal. (Para 9 , 10 )
5. High Court judgment set aside — Parties referred to a sole arbitrator to resolve the dispute. (Para 11 , 12 , 13 )
6. What is the scope of a court's examination under Section 11(6A) of the Arbitration and Conciliation Act, 1996?
The court performs a limited prima facie review to weed out manifestly non-existent or invalid arbitration agreements. It should not conduct a mini-trial or resolve debatable questions of fact and law, leaving such issues to the arbitral tribunal. (Para 6 , 7 , 9 )
7. Should a plea of novation of a contract be decided by the court at the Section 11 referral stage?
No, unless the claim is ex facie dead. Issues relating to novation under Section 62 of the Contract Act are generally factual and disputed, requiring detailed examination by the arbitral tribunal rather than a summary review by the court. (Para 6 , 9 , 10 )
8. Does the expression existence of an arbitration agreement under Section 11 include its validity?
Yes, existence includes validity. An agreement does not exist in law if it is illegal or fails to satisfy mandatory legal requirements. However, the court applies a prima facie test to determine this at the referral stage. (Para 7 )
9. How does the doctrine of kompetenz-kompetenz apply to the appointment of an arbitrator?
The doctrine empowers the arbitral tribunal to rule on its own jurisdiction, including objections regarding the validity of the arbitration agreement. Courts should avoid usurping this jurisdiction unless the agreement is demonstrably non-existent. (Para 6 , 7 , 9 , 10 )
JUDGMENT :
R.F. NARIMAN, J.
Civil Appeal No. 975 of 2021
1. This appeal arises out of the dismissal of a petition under Section 11 of the Arbitration and Conciliation Act, 1996 [“1996 Act”] filed before the High Court of Delhi. The Appellant, Sanjiv Prakash, is a member of a family which also consists of his sister, Seema Kukreja (Respondent No.1 herein), his mother, Daya Prakash (Respondent No.2 herein), and his father, Prem Prakash (Respondent No.3 herein). The Appellant and Respondents are hereinafter collectively referred to as the “Prakash Family”.
2. The facts, briefly stated, are as follows:
2.1. A private company was incorporated on 09.12.1971 under the name and style of Asian Films Laboratories Private Limited [“the company”] by Prem Prakash, the entire amount of the paid-up capital being paid for by him from his personal funds. He then distributed shares to his family members without receiving any consideration for the same. On 06.03.1997, the name of the company was altered to its present name – ANI Media Private Limited.
2.2. Owing to the extensive efforts of Sanjiv Prakash at a global level, Reuters Television Mauritius Limited (now Thomson Reuters Corporation), a company incorporated in Mauritius [“Reuters”], approached him for a long-term equity investment and collaboration with the company on the condition that he would play an active role in the management of the company.
2.3. Pursuant to this understanding, a Memorandum of Understanding [“MoU”] was entered into sometime in 1996 between the four members of the Prakash Family. The MoU recorded that Sanjiv Prakash, supported by the guidance and vision of Prem Prakash, had been responsible for the tremendous growth of the company. The paid-up share capital of the company was held as follows:
| Rupees | Percentage held | |
| Prem Prakash | 2,80,000 | 27.99% |
| Daya Prakash | 2,40,000 | 24.01% |
| Sanjiv Prakash | 3,00,000 | 30.00% |
| Seema Kukreja | 1,80,000 | 18.00% |
| --------------- | -------------- | |
| 10,00,000 | 100.00% |
The Prakash Family was to divest 49% of this shareholding in favour of Reuters or its affiliates, subject to necessary permission of the authorities, as follows:
“And whereas ANI for the past many years has been doing considerable business with Reuters Television (Reuters). The relationship between them has been close and cordial. In order to strengthen the relationship and make optimum use of the tremendous growth potential in the TV media sector, including to cater to the ever expanding news video demands of Reuters in its satellite transmissions to subscribers worldwide, it has been found expedient by the existing members of the company to divest 49% of their shareholding in favour of Reuters or its affiliates subject to necessary permission of authorities. This would cement the relationship built over the years between Reuters and the company.”
The MoU went on to record:
“1. The Prakash family will divest its 49% shareholding as under:
| Prem Prakash | 1372 |
| Daya Prakash | 1176 |
| Sanjiv Prakash | 1470 |
| Seema Kukreja | 882 |
| 4900 |
2. That Prakash family recognises the leadership provided by S.P. and the role he has played in steering the company to new heights with the name ANI which is respected internationally.
3. D.P. has been the Managing Director of the company from the beginning and Prakash family recognises her role in bringing the company to a very sound financial base as a result of very ably handling the accounts and finances of the company. She would continue to be Managing Director after Reuters’ participation in equity.
4. The Prakash family would continue to own 51% shareholding in the company after Reuters becomes a 49% shareholder. As they would continue to have the controlling interest it is the intention and desire of the Prakash family members that their actions and voting must be in a manner so as to act in consensus and as one block.
5. S.P. would after divesting his about 15% share, con
