2011 (7) TMI 1309 - HC - Companies Law

Issues Involved:
1. Existence and validity of the Arbitration Clause.
2. Jurisdiction of civil courts regarding arbitration agreements.
3. Applicability of the Arbitration and Conciliation Act, 1996 (A and C Act).
4. Maintainability of civil suits challenging arbitration agreements.
5. Prima facie finding of an arbitration agreement by courts.
6. Remedies available to parties disputing arbitration agreements.

Detailed Analysis:

1. Existence and Validity of the Arbitration Clause:
The central issue was whether the Arbitration Clause in the "Century 21 International Sub Franchise Agreement" applied to the Plaintiff/Appellant. The Appellant argued that the Arbitration Clause was only between Realogy Corporation and DGS Realtors Pvt. Ltd., and not applicable to him personally, despite being the Managing Director of DGS Realtors Pvt. Ltd. The court noted that the Arbitration Clause allowed each party to appoint an arbitrator, but this did not include the Appellant personally. The court concluded that the Plaintiff/Appellant should not be compelled to submit to arbitration as he did not agree to be personally bound by the Arbitration Clause.

2. Jurisdiction of Civil Courts Regarding Arbitration Agreements:
The court examined whether civil courts have jurisdiction to entertain suits challenging the existence or validity of arbitration agreements. The judgment referred to several precedents, including Spentex Industries Ltd. v. Dunvant S.A., Bhatia International v. Bulk Trading S.A., and SBP and Co. v. Patel Engineering, which collectively indicated that civil courts should generally refrain from intervening in arbitration matters except where explicitly permitted by the A and C Act.

3. Applicability of the Arbitration and Conciliation Act, 1996 (A and C Act):
The court discussed the applicability of Part I and Part II of the A and C Act. It was clarified that Section 11 of the A and C Act, which deals with the appointment of arbitrators, applies to both domestic and international arbitrations. The court emphasized that the Act aims to minimize court intervention and expedite the arbitration process.

4. Maintainability of Civil Suits Challenging Arbitration Agreements:
The court analyzed various judgments to determine the maintainability of civil suits challenging arbitration agreements. It was noted that the Supreme Court in Kvaerner Cementation India Ltd. v. Bajranglal Agarwal had ruled that civil courts should not entertain suits challenging arbitration agreements, as the Arbitral Tribunal has the power to rule on its own jurisdiction under Section 16 of the A and C Act. The judgment also referenced the decision in Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., which held that a prima facie finding on the existence of an arbitration agreement is mandatory before referring parties to arbitration.

5. Prima Facie Finding of an Arbitration Agreement by Courts:
The court underscored the necessity for courts to make a prima facie determination regarding the existence of an arbitration agreement before referring parties to arbitration. This requirement ensures that parties are not unjustly compelled to arbitrate disputes they did not agree to arbitrate. The court cited the decision in SBP and Co. v. Patel Engineering, which affirmed that courts must decide on the existence of a valid arbitration agreement before referring disputes to arbitration.

6. Remedies Available to Parties Disputing Arbitration Agreements:
The judgment outlined the remedies available to parties disputing arbitration agreements. It was noted that if a party receives a notice from the Arbitral Tribunal, they can immediately object to its jurisdiction on the grounds that they are not a necessary or proper party to the proceedings. Additionally, parties can argue that the arbitration agreement is null and void, inoperative, or incapable of performance. The court also highlighted that Section 45 of the A and C Act allows courts to refer parties to arbitration unless the agreement is found to be null and void, inoperative, or incapable of being performed.

Conclusion:
The court concluded that the Plaintiff/Appellant was not personally bound by the Arbitration Clause and should not be compelled to submit to arbitration. The judgment emphasized the importance of a prima facie finding on the existence of an arbitration agreement by courts and clarified the limited circumstances under which civil courts can intervene in arbitration matters. The appeals were dismissed, affirming the principle that arbitration agreements should be respected and enforced unless found to be invalid or inapplicable.

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