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2021 (4) TMI 319 - SC - Indian LawsTransfer of shares - pre-emptive right to purchase of shares - consideration of agreements which contains arbitration clause - HELD THAT - It is obvious that whether the MoU has been novated by the SHA dated 12.04.1996 requires a detailed consideration of the clauses of the two Agreements, together with the 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 - Detailed arguments on whether an agreement which contains an arbitration clause has or has not been novated cannot possibly be decided in exercise of a limited prima facie review as to whether an arbitration agreement exists between the parties. Also, this case does not fall within the category of cases which ousts arbitration altogether, such as matters which are in rem proceedings or cases which, without doubt, concern minors, lunatics or other persons incompetent to contract. There is nothing vexatious or frivolous in the plea taken by the Appellant. Apart from going into a detailed consideration of the MoU and the SHA, which is exclusively within the jurisdiction of the arbitral tribunal, the learned Single Judge, while considering clause 28 of the SHA to arrive at the finding that any kind of agreement as detailed in clause 28.2 between the parties shall stand superseded, does not even refer to clause 28.1. No consideration has been given to the separate and distinct subject matter of the MoU and the SHA. The judgment of the High Court is set aside and matter referred to the parties to the arbitration of a sole arbitrator, being Justice Aftab Alam (retired Judge of this Court), who will decide the dispute between the parties without reference to any observations made by this Court, which are only prima facie in nature - appeal disposed off.
Issues Involved:
1. Existence and validity of the arbitration agreement. 2. Novation of the Memorandum of Understanding (MoU) by the Shareholders' Agreement (SHA). 3. Applicability of the doctrine of kompetenz-kompetenz. 4. Jurisdiction of the court under Section 11 of the Arbitration and Conciliation Act, 1996. Detailed Analysis: 1. Existence and Validity of the Arbitration Agreement: The primary issue was whether the arbitration agreement in the MoU continued to exist or was superseded by the SHA. The appellant argued that the MoU, which contained an arbitration clause, was a family settlement that should be enforced. The respondents contended that the SHA, which also included an arbitration clause, superseded the MoU, rendering the MoU and its arbitration clause void. 2. Novation of the MoU by the SHA: The court examined whether the SHA, which was entered into with Reuters, novated the MoU between the Prakash Family members. The SHA contained a clause (Clause 28) stating that it constituted the entire agreement between the parties and superseded all prior agreements. The respondents argued that this clause novated the MoU. The appellant countered that the MoU was a separate family arrangement and was not intended to be superseded by the SHA, which dealt with the relationship between the Prakash Family and Reuters. 3. Applicability of the Doctrine of Kompetenz-Kompetenz: The doctrine of kompetenz-kompetenz, which allows an arbitral tribunal to rule on its own jurisdiction, was considered. The court emphasized that detailed questions of novation and the validity of the arbitration agreement should be decided by the arbitral tribunal rather than the court at the stage of appointing an arbitrator. This principle was reinforced by recent judgments, which limited the court's role to a prima facie examination of the existence of an arbitration agreement. 4. Jurisdiction of the Court Under Section 11 of the Arbitration and Conciliation Act, 1996: The court discussed the scope of its jurisdiction under Section 11, which was narrowed by the 2015 Amendment Act to only determining whether an arbitration agreement exists. The court concluded that the issue of whether the MoU was novated by the SHA involved complex questions of fact and law that should be decided by the arbitral tribunal. The court's role was limited to a prima facie review, and it should refer the matter to arbitration if the existence of the arbitration agreement was arguable. Conclusion: The Supreme Court set aside the judgment of the Delhi High Court, which had dismissed the appellant's petition for the appointment of an arbitrator. The court referred the parties to arbitration, appointing Justice Aftab Alam (retired) as the sole arbitrator. The court clarified that the arbitrator would decide the dispute without reference to the court's observations, which were prima facie. The court also maintained the interim order deferring certain agenda items in the company's board meeting until the arbitrator's further orders.
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