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SUPREME COURT OF INDIA
M.R. SHAH, KRISHNA MURARI, JJ.
M/s. Emaar India Ltd. - Appellant
Versus
Tarun Aggarwal Projects LLP & Anr. - Respondents
Civil Appeal No. 6774 of 2022
Decided On : 30-09-2022
Arbitration and Conciliation Act, 1996 – Section 11(6) – Appointment of Arbitrator – Dispute emanating from Addendum Agreement – Issue of non-arbitrability of dispute is basic for arbitration as it relates to very jurisdiction of Arbitral Tribunal – Arbitral Tribunal may lack jurisdiction for several reasons and non-arbitrability has multiple meanings – If a clause stipulates that under certain circumstances there can be no arbitration and they are demonstrably clear then controversy pertaining to appointment of Arbitrator has to be put to rest – Both parties are governed by Addendum Agreement – Question of non-arbitrability relating to inquiry, whether dispute was governed by arbitration clause, can be examined by Courts at reference stage itself and may not be left unanswered, to be examined and decided by Arbitral Tribunal – High Court has not appreciated and considered the fact that in case of dispute as mentioned in Clauses 3, 6 and 9 for enforcement of Agreement, dispute is not arbitrable at all – Impugned judgment and order passed by High Court appointing Arbitrators is unsustainable and same quashed and set aside and matter remitted to High Court to hold preliminary inquiry. (Paras 6.1, 6.2, 6.5, 6.7 and 7)
Facts of the case:
Feeling aggrieved and dissatisfied with the impugned judgment and order dated 24.12.2021 passed by the High Court of Delhi at New Delhi in Arbitration Petition No. 637 of 2021, by which, the High Court in exercise of powers under Section 11(6) of the Arbitration and Conciliation Act, 1996 has appointed arbitrators to resolve the dispute between parties, original respondent – M/s EMMAR India Limited has preferred the present appeal. Despite having noted that the Clause 36 of the Addendum Agreement stipulates that in the event of any dispute with regard to Clauses 3, 6 and 9, other party shall have a right to get the agreement specifically enforced through appropriate court of law, the High Court has appointed arbitrators in terms of Clause 37 of the Addendum Agreement - Short question which is posed for consideration of this Court is whether in the facts and circumstances of case, High Court is justified in appointing Arbitrators in an application under Section 11(5) and (6) of Arbitration Act without holding any preliminary inquiry.
Findings of Court:
The matter is remitted to the High Court to decide the application under Section 11(5) and (6) of the Arbitration Act afresh and to pass an appropriate order after holding a preliminary inquiry/review on whether the dispute is arbitrable or not and/or whether the dispute falls within Clause 36 of Addendum Agreement or not.
Result : Appeal allowed.
Certainly. Based on the provided legal document, here are the key points:
The core issue pertains to the appointment of an arbitrator and whether the dispute is arbitrable under the terms of the agreement, specifically focusing on the jurisdiction of the arbitral tribunal (!) .
The agreement contains specific clauses—Clause 36 and Clause 37—that delineate the dispute resolution process. Clause 36 allows for the dispute to be enforced through a court of law in certain circumstances, particularly for disputes related to specific clauses (Clauses 3, 6, and 9). Clause 37 specifies that other disputes should be settled through arbitration (!) (!) .
When a dispute arises that falls under Clause 36, it is not arbitrable and must be addressed through appropriate court proceedings. Conversely, disputes falling outside of Clause 36 are subject to arbitration (!) .
The court's role at the initial stage of arbitration proceedings, particularly under Section 11 of the Arbitration and Conciliation Act, is limited. It is primarily responsible for determining whether the dispute is arbitrable and whether the dispute falls within the scope of the arbitration agreement. This involves a preliminary inquiry into the nature of the dispute and the relevant contractual clauses (!) (!) .
The court must scrutinize whether the dispute is capable of being arbitrated and whether it falls within the scope of the arbitration agreement, especially considering any ‘excepted matters’ explicitly excluded from arbitration by the agreement or law (!) (!) .
The decision on arbitrability is a jurisdictional issue and may be decided by the court or, in certain circumstances, by the arbitral tribunal itself. The court's review should be limited to manifest and clear cases where the dispute is clearly non-arbitrable or where the arbitration agreement is invalid (!) .
The court emphasized the importance of holding a preliminary inquiry when there is a specific plea that the dispute falls under an exception (such as Clause 36). Without such inquiry, appointment of arbitrators may be premature and legally unsustainable (!) .
The court's authority to appoint arbitrators without first examining whether the dispute is arbitrable is limited. If it is found that the dispute falls within an exception or is non-arbitrable, the appointment is invalid. The matter should be remanded for a proper preliminary review (!) (!) .
The judgment underscores that the primary responsibility for determining non-arbitrability lies with the court at the initial stage, and this determination should be made after a proper review of the contractual clauses and the nature of the dispute (!) (!) .
Ultimately, if the court fails to conduct this preliminary inquiry, its order appointing arbitrators can be set aside, and the matter should be reconsidered after such an inquiry. This ensures that arbitration is not enforced in cases where disputes are non-arbitrable by law or contract (!) .
These points collectively highlight the importance of a preliminary judicial review to determine whether a dispute is arbitrable, especially when specific contractual clauses exclude certain disputes from arbitration.
JUDGMENT :
M.R. Shah, J.
1. Feeling aggrieved and dissatisfied with the impugned judgment and order dated 24.12.2021 passed by the High Court of Delhi at New Delhi in Arbitration Petition No. 637 of 2021, by which, the High Court in exercise of powers under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Arbitration Act) has appointed arbitrators to resolve the dispute between the parties, the original respondent – M/s EMMAR India Limited has preferred the present appeal.
2. That the original petitioners – respondents herein entered into a Collaboration Agreement dated 07.05.2009 for development of a residential colony in Sector 62 and 65, Gurugram. That thereafter, a further Addendum Agreement dated 19.04.2011 was executed between the parties. The dispute arose between the parties and it was the case on behalf of the original applicants – respondents herein that the appellant herein did not comply with the obligations under the Addendum Agreement dated 19.04.2011. The respondents – original applicants/petitioners issued a legal notice dated 20.11.2019 raising demand for physical possession of 5 plots measuring 2160 sq. yds. and claiming a sum of Rs. 10 crores for the losses/damages suffered by them. As according to the original petitioners – respondents herein the dispute between the parties were arbitrable, the original petitioners appointed a former judge of the High Court as their arbitrator. The appellant herein denied appointment of the arbitrator. Therefore, the respondents herein approached the High Court for appointment of the arbitrators in terms of Clause 37 of the Addendum Agreement by submitting an application under Section 11(5) & (6) of the Arbitration Act seeking appointment of arbitrators by the Court.
2.1 The said arbitration petition was opposed by the appellant herein by raising various grounds including one of the grounds that the dispute falls under Clause 36 of the Addendum Agreement and not under Clause 37 which incorporates arbitration clause.
2.2 Despite having noted that the Clause 36 of the Addendum Agreement stipulates that in the event of any dispute with regard to Clauses 3, 6 and 9, other party shall have a right to get the agreement specifically enforced through appropriate court of law, the High Court has appointed the arbitrators in terms of Clause 37 of the Addendum Agreement by observing that conjoint reading of Clauses 36 and 37 makes it clear that a party does have a right to seek enforcement of agreement before the Court of law but it does not bar settlement of disputes through Arbitration and Conciliation Act, 1996. By observing so, the High Court has allowed the application under Section 11(5) & (6) and has appointed the arbitrators, who shall appoint the third arbitrator in terms of Clause 37.
2.3 Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the High Court allowing the application under Section 11(5) & (6) of the Arbitration Act and appointing the arbitrators with respect to the dispute between the parties, the original opponent – respondent has preferred the present appeal.
3. Shri Dhanesh Relan, learned counsel appearing on behalf of the appellant has vehemently submitted that while allowing the application under Section 11(5) & (6) and appointing the arbitrators, the High Court has not at all considered that according to the appellant the dispute falls within Clause 36 of the Agreement and not under Clause 37. It is submitted that as per Clause 36 in case of any conflict or difference arising between the parties or in case the either party refuses or neglects to perform its part of the obligations under Addendum Collaboration Agreement, inter-alia, as mentioned in Clauses 3, 6 and 9, then the other party shall have every right to get the agreement specifically enforced through the appropriate court of law. It is submitted that as per Clause 37, save and except Clause 36 or any dispute arising out of or touchi
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