2022 (11) TMI 284 - SC - Indian Laws

Refusal to appoint an arbitrator and refer the dispute to the arbitrator - Section 11(6) of the Arbitration and Conciliation Act, 1996 - HELD THAT - Considering the fact that Share Subscription and Shareholders Agreement dated 27.04.2016 entered into between the appellants and the respondent contains the arbitration clause in case of dispute between the parties arising out of the said agreement, we are of the opinion that the High Court ought to have allowed the application under Section 11(6) of the Act, 1996 and ought to have left the issue on arbitrability of dispute between the parties to the arbitrator. The High Court has refused to appoint an arbitrator, interalia, on the ground that at the time when the application was filed there were already arbitral proceedings pending between the parties and the award was passed and also on the ground that the proceedings were pending before the NCLT at the instance of the respondent on the allegation of mismanagement and oppression which was filed by the respondent as minority shareholder. Refusal to refer the dispute between the parties and appoint an arbitrator, namely that the proceedings at the instance of the respondent as minority shareholder for oppression and mismanagement is pending before the NCLT - HELD THAT - On the pendency of such proceedings the application under Section 11(6) of the Act, 1996 cannot be dismissed. It should be left to the arbitrator to consider the entire aspect. The dispute is with respect to the Share Subscription and Shareholders Agreement which is altogether different from the allegations of mismanagement and oppression at the instance of minority shareholder initiated by the respondent. The High Court has erred in dismissing the application under Section 11(6) of the Act, 1996 and has erred in refusing to appoint an arbitrator with respect to the dispute between the parties with respect to the Share Subscription and Shareholders Agreement dated 27.04.2016. The impugned judgment and order passed by the High Court is set aside - Appeal allowed.

Summary

Issues involved:
- Dismissal of application under Section 11(6) of the Arbitration and Conciliation Act, 1996 by the High Court.
- Refusal to appoint an arbitrator and refer the dispute to the arbitrator.
- Interlinking of multiple agreements and its impact on the arbitrability of the dispute.
- Pendency of proceedings before the National Company Law Tribunal (NCLT) for oppression and mismanagement as a minority shareholder.

Analysis:

1. Dismissal of Application under Section 11(6):
The appellant appealed against the High Court's decision to dismiss the application under Section 11(6) of the Arbitration and Conciliation Act, 1996. The High Court's reasoning was based on the existence of prior arbitral proceedings and the pending NCLT proceedings initiated by the respondent. The appellant argued that the dispute pertained to a separate shareholders agreement and was not part of the earlier arbitral proceedings. The Supreme Court found that the High Court erred in dismissing the application and should have appointed an arbitrator to resolve the dispute.

2. Interlinking of Agreements and Arbitrability:
The respondent contended that all three agreements were interlinked, and therefore, the dispute under the third agreement should not be maintainable due to an earlier award related to the other two agreements. However, the Supreme Court emphasized that unless it is evident that the dispute is not arbitrable, the issue of arbitrability should be left to the arbitrator. Citing the case of Vidya Drolia, the Court highlighted the importance of allowing the arbitrator to determine the scope of the dispute.

3. Pendency of NCLT Proceedings:
The High Court also cited the pending NCLT proceedings initiated by the respondent as a reason for not appointing an arbitrator. The Supreme Court disagreed with this reasoning, stating that the dispute under the Share Subscription and Shareholders Agreement was distinct from the allegations of mismanagement and oppression raised by the respondent as a minority shareholder. The Court held that the pendency of NCLT proceedings should not preclude the appointment of an arbitrator to resolve the specific dispute related to the agreement.

4. Final Decision and Appointment of Arbitrator:
In conclusion, the Supreme Court set aside the High Court's judgment and ordered the appointment of an arbitrator to resolve the dispute arising from the Share Subscription and Shareholders Agreement dated 27.04.2016. Justice K. Ravichandrabaabu, a former Judge of the Madras High Court, was appointed as the arbitrator. The Court left the issue of arbitrability to be decided by the arbitrator and directed the parties to agree on the arbitrator's fees as per the Act, 1996. The appeal was allowed accordingly, overturning the High Court's decision.