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The Supreme Court has ruled that once a prima facie case for the existence of an arbitration agreement is made out, a referral court must appoint an arbitrator and refer the parties to arbitration, rejecting a South Korean company's attempt to shift disputes under a joint venture and a memorandum of understanding to arbitration in Seoul under Korean law.
A bench comprising Chief Justice Surya Kant, Justice Joymalya Bagchi, and Justice V. Mohana appointed former Chief Justice Justice Ramesh Deokinandan Dhanuka as the to adjudicate disputes arising from a Joint Venture Agreement (JVA) and a Memorandum of Understanding (MoU) entered into between Indian firm (SEPL) and South Korea's (RWCL).
The dispute traces back to a Technical Collaboration Licence Agreement under which RWCL granted SEPL a licence for wastewater treatment technology. In the parties executed a JVA creating a joint venture company, , to carry on sewage-treatment business in India. A subsequent MoU in governed services SEPL was to provide for a project with and the . Both the JVA and the MoU contained arbitration clauses providing for arbitration in Mumbai under Indian law.
After SEPL alleged that RWCL had incorporated a wholly owned subsidiary, (RBIPL), in breach of the JVA's , and claimed approximately ₹4.24 crore in costs incurred under the MoU plus ₹20 crore in business losses, SEPL issued termination notices and invoked arbitration under the JVA and MoU. RWCL countered that all disputes were intrinsically connected to the Licence Agreement, which provides for arbitration in Seoul under Korean law, and that its arbitration clause should override the JVA and MoU provisions. RWCL also argued that RBIPL, a , was not bound by the arbitration agreements and that the petitioners had not followed the required .
Court Rejects ' ' Argument
The examined the scope of each agreement and concluded that they operate in different fields. The Licence Agreement deals with granting technology licences; the JVA creates and governs the joint venture; and the MoU covers liaison and logistic services for a specific project. Crucially, and each state that the agreement constitutes the between the parties on its subject matter and supersedes all prior agreements concerning that subject matter.
"In light of the above, the Licence Agreement, JVA and MoU
operate in different fields and the disputes arising exclusively under the JVA and MoU are amenable to the dispute resolution clauses engrafted therein and not the clause in the Licence Agreement,"
the bench observed.
The court reaffirmed the principle of
at the referral stage, citing
.
"Once the
existence of an
is adduced before the
, it ought to appoint an arbitrator and refer the parties to arbitration,"
Justice Bagchi, who authored the order, noted.
Rejecting RWCL's submission that the disputes overlapped with claims under the Licence Agreement and therefore could not be adjudicated separately, the court held that the question of the scope and extent of disputes referable to arbitration falls within the and cannot be a ground to refuse a reference at the threshold.
Issue Left to Arbitrator
On the objection that RBIPL is a
to the JVA and MoU, the court noted that RBIPL is a wholly owned subsidiary of RWCL, a signatory, and is alleged to have been incorporated in derogation of the JVA.
"Given this situation, such issue needs to be relegated to the arbitrator for appropriate adjudication,"
the bench ruled.
The court also noted that mediation had been attempted but was unsuccessful. Both petitions were allowed, and Justice Dhanuka was appointed as with the liberty to fix his own remuneration. No costs were awarded.
