Gujarat High Court
Hiral Nitinkumar Undavia vs Fenil Shah on 11 September, 2025
Author: Sunita Agarwal
Bench: Sunita Agarwal
NEUTRAL CITATION
C/SCA/17690/2024 CAV JUDGMENT DATED: 11/09/2025
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Reserved On : 07/08/2025
Pronounced On : 11/09/2025
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 17690 of 2024
With
R/SPECIAL CIVIL APPLICATION NO. 17691 of 2024
FOR APPROVAL AND SIGNATURE:
HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE SUNITA AGARWAL
and
HONOURABLE MR.JUSTICE D.N.RAY
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Approved for Reporting Yes No
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HIRAL NITINKUMAR UNDAVIA
Versus
FENIL SHAH & ANR.
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Appearance:
MR PARV S GUPTA(11850) for the Petitioner(s) No. 1
MR SP MAJMUDAR(3456) for the Petitioner(s) No. 1
ANSHUL N SHAH(8540) for the Respondent(s) No. 1
NOTICE SERVED BY DS for the Respondent(s) No. 2
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CORAM:HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE
SUNITA AGARWAL
and
HONOURABLE MR.JUSTICE D.N.RAY
CAV JUDGMENT
(PER : HONOURABLE MR.JUSTICE D.N.RAY)
1. Heard Mr. S.P. Majmudar, learned advocate with Mr. Parv S. Gupta, learned advocate for the petitioner and Mr. Anshul N. Shah, learned advocate for the respondent no. 1.
2. Two petitions involving similar facts and prayers have been filed. For the sake of convenience, Special Civil Page 1 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025 NEUTRAL CITATION C/SCA/17690/2024 CAV JUDGMENT DATED: 11/09/2025 undefined Application No. 17691 of 2024 is treated as the lead matter. The decision rendered in this petition shall govern the outcome of the connected petition as well.
3. The petitioners have filed the present petition, invoking the supervisory jurisdiction of this Court, with the following prayers:-
"(A) YOUR LORDSHIPS may be pleased to issue an appropriate writ, order or directions quashing and setting aside the (i) impugned order dated 15.12.2023 passed by the learned 26th Additional Senior Civil Judge, Vadodara below applications Exh.21, 24 and 25 in Special Civil Suit No. 24 of 2019 (Annexure E to the present petition) as well as (ii) impugned judgment and order dated 10.10.2024 passed by learned 4th Additional District Judge, (Commercial Court) Vadodara in Civil Misc. Appeal No.7 of 2024 (Annexure G to the present petition) and YOUR LORDSHIPS may be pleased to allow the prayers made by the petitioner below application Exh.24 under Section 8 Arbitration & of the Conciliation Act preferred by the petitioners to refer the dispute for arbitration, in the interest of justice;
(B) During the pendency and final disposal of the present petition, YOUR LORDSHIPS may be pleased to stay the operation, execution and implementation of the (i) impugned order dated 15.12.2023 passed by the learned 26th Additional Senior Civil Judge, Vadodara below applications Exh.21, 24 and 25 in Special Civil Suit No.24 of 2019 (Annexure E to the present petition) as well as (ii) impugned judgment and order dated 10.10.2024 passed by learned 4th Additional District Judge, (Commercial Court) Vadodara in Civil Misc. Appeal No.7 of 2024 (Annexure G to the present petition) as well as stay further proceedings of Special Civil Suit No.24 of 2019 pending before the learned 26th Additional Senior Civil Judge, Vadodara, in the interest of justice;
(C) Pass any such other and/or further orders that may be thought just and proper, in the facts and circumstances of the Page 2 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025 NEUTRAL CITATION C/SCA/17690/2024 CAV JUDGMENT DATED: 11/09/2025 undefined present case."
4. The facts of the case, as apparent from a perusal of the records, indicate that the respondent No.1 had filed a suit being Special Civil Suit No.24 of 2019 against the appellants and the respondent No.2 (original defendant No.3). The prayers in the said Civil Suit are reproduced hereinbelow for ready reference :-
"a. To declare that the Plaintiff is the sole proprietor of Authentic HR Services and the Defendants have no right, share or interest in the business or the property of the firm.
b. To restrain the Defendant no. 1 to claim as a partner of Authentic HR Services c. To order that the Defendants and/or their heirs, assigns, successors, agents, etc. are restrained permanently form interfering in the business of the Plaintiff's firm Authentic HR Services.
d. To order the Defendants to deliver up the Indenture of Partnership dt. 29/09/2014 and the Admission Cum Retirement Partnership Deed dt. 05/10/2016 and to further order cancelling the same.
e. To order the Defendants jointly and severally to refund the amount of Rs. 18,37,395/- to the Plaintiff.
f. To order the Defendants to pay interest @ 12% from the date of transfer of the amount illegally till the date of repayment.
g. To order the cost of the present suit.
h. To pass any other order as deemed fit in the interest of justice in favour of the Plaintiff and against the Defendants."Page 3 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025
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5. Thus, it would be seen that the subject matter of the suit pertains to the activities of "Authentic HR Services" as well as the Indenture of partnership dated 29.09.2014 and the Admisssion cum Retirement Partnership Deed dated 05.10.2016. From the indenture of partnership dated 29.09.2014, we find the following recitals :-
"This INDENTURE OF PARTNERSHIP made at Vadodara on this, Twenty Nineday ol September, in the year Two Thousand of Fourteenth by and between,
1. Mr. Fenil Shah, a Hindu Adult, having Income Tax PAN No.: ATCPS5391R and residing at "Mamu" Daliya Pole, Wadi, Vadodara - 390017 hereinafter referred to as the party of the First part to this deed and,
2. Mrs. Nimisha Suthar, a Hindu Adult, having Income Tax PAN No.: EEPPS4395P and residing at B-44, Nageshwar Society Part 2, Nr. Amit Nagar Circle, VIP Road Vadodara 390018, this partnership on the terms and conditions hereinafter mentioned.
Name and Place ot the business:
WHEREAS aforesaid first and second part to this deed are desirous for carryin running, processing and maintaining the Payroll for client's stafing as Partnership Venture to begin with, under the name and style of "Authentic HR Services"
AND the business shall be located at 502, 5th Floor, Kalash Complex, Near Muktanand Circle Karelibaug, Vadodara-390 018 which is solely an ownership property of First Part (Mr. Fenil Shah)."
6. Thus, the Indenture of Partnership categorically refers to "Authentic HR Services" where the original plaintiff and defendant No.2 are parties. It would also be noted that Clause Page 4 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025 NEUTRAL CITATION C/SCA/17690/2024 CAV JUDGMENT DATED: 11/09/2025 undefined 'E' at page No. '59' of the paper-book contains the Arbitration Clause which reads as under :-
"E if any dispute or difference shall arise between the parties hereto with regards the matters to the business of the firm or interpretation of any provision hereto or otherwise howsoever relating to the firms and its business, the same shall be referred to arbitratice of a common arbiter if agreed upon, falling which to two arbitrators one to be appointed by each party to the dispute and the arbitration shall be governed by the Arbitration an Conciliation Act, 1996. "
7. Now, coming to the Admisssion cum Retirement Partnership Deed dated 05.10.2016, we find that it contains the following recitals:-
"This 'ADMISSION CUM RETIREMENT DEED OF PARTNERSHIP' is made at Vadodara on this 05th day of October, 2016. This deed is a first supplementary deed to the original deed (which was made on dated 29th Day of September, 2014 wide stamp paper no. C 523734 purchased on dated 29th Day of September, 2014 of the Value of Rs.500/-).
According to the original deed following are the partners of the firm "AUTHETNIC HR SERVICES" (hereinafter known as Firm) NOW IT IS AGREED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS :-
CONTINUING PARTNER (1) Fenil S. Shah, Son of Shirishbhai Shah aged about 35 years, residing at Mamu, Daliya Pole, Wadi, Vadodara-
390017, (hereinafter called "Party of First part"); AND (2) Ayushi Nitin Undavia, daughter of Nitin Undavia about 20 years, residing at 44, Sangam Society, Harni Road, Vadodara 390006. (hereinafter called "Party of Third part"); Page 5 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025
NEUTRAL CITATION C/SCA/17690/2024 CAV JUDGMENT DATED: 11/09/2025 undefined The words/expression "Parties of the First part to Third Part"
which include their heirs, successors, administrators, assignees, and executors.
For brevity, all the above parties jointly referred to as "partners" of "the firm", AND WHEREAS to avoid possible confusion in future the parties to the deed desire to put in writing all the clauses of the partnership and execute a written deed of partnership on this 01st day of October, 2016.
NOW therefore this deed witnesses as under incorporating following terms and conditions as mutually agreed by the partners:
1) THAT with effect from 01st day of October, 2016 the firm shall be constituted with two partners Viz. Party of the First part and Party of the Third Part to this Deed.
2) THAT the business of the firm shall be carried on as heretofore under the name and style of "M/S AUTHENTIC HR SERVICES at 502, 5th Floor, Kalash Complex, Muktanand, Karelibaug, Vadodara 390018, and such other place or places as mutually decided by partners from time to time. Party of the third part has no right or lien on the property of the first part located at 502, 5th floor, Kalash Complex, Muktanand Circle, Kareli baug, Vadodara 390018."
8. Thus, the subsequent deed of 2016 involves the original plaintiff, the defendant No.1 and the defendant No.2. The said deed of 2016 also contains an Arbitration Clause which reads as under :
"28) THAT in case of any dispute the partners of the firm shall resolve the matter by agreement and that in case it cannot be so resolved the matter shall be referred to the arbitration, consisting of two professionals likes Lawyers, Chartered Accountants etc. and like as agreed upon by all the disputed parties falling which the matter may bę referred to the court of laws."Page 6 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025
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9. Thus, it will be seen that the plaintiff and the defendant Nos. 1 and 2 are bound by agreements which contain Arbitration clauses.
10. The record reflects that defendant No.1 (petitioner No.1 herein) preferred an application vide Exh.24 invoking Section 8 of the Arbitration and Conciliation Act, 1996 ("the Act"), praying for reference of the subject matter of the suit to arbitration. Identical applications invoking Section 8 of the Act were also tendered by defendant Nos.2 and 3, which are on record at Exh.21 and Exh.25; respectively. 10.1 However, by a common order dated 15.12.2023, the learned 26th Additional Senior Civil Judge, Vadodara, dismissed the aforesaid applications (Exhs. 21, 24 and 25) in Special Civil Suit No. 24 of 2019. The primary ground assigned for such rejection was that defendant No.3 was not a signatory to the Partnership Deed containing the arbitration clause, and therefore, the matter was held to be non- arbitrable.
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NEUTRAL CITATION C/SCA/17690/2024 CAV JUDGMENT DATED: 11/09/2025 undefined 10.2. Aggrieved by the said order, the petitioners preferred Civil Misc. Appeal No.7 of 2024 before the learned Principal District and Sessions Court, Vadodara, under Section 37 of the Act. During the pendency of the said appeal, the learned 4th Additional District Judge, Vadodara, was pleased to pass an interim order dated 13.03.2024, whereby further proceedings in Special Civil Suit No.24 of 2019 were directed to remain stayed till the final disposal of the appeal. 10.3 Subsequently, by judgment and order dated 10.10.2024, the learned 4th Additional District Judge (Commercial Court), Vadodara, dismissed the Civil Misc. Appeal No.7 of 2024. Being aggrieved by and dissatisfied with:
(i) the impugned order dated 15.12.2023 passed by the learned 26th Additional Senior Civil Judge, Vadodara, below Exhs. 24, 21 and 25 in Special Civil Suit No.24 of 2019; and
(ii) the impugned judgment and order dated 10.10.2024 rendered by the learned 4th Additional District Judge (Commercial Court), Vadodara, in Civil Misc. Appeal No.7 of 2024, the petitioners have approached this Court by invoking its supervisory jurisdiction under Article 227 of the Page 8 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025 NEUTRAL CITATION C/SCA/17690/2024 CAV JUDGMENT DATED: 11/09/2025 undefined Constitution of India.
11. It is the categorical submission of Mr. Anshul N.Shah, learned advocate for the respondent No.1-original plaintiff that the defendant No.3 is a stranger to the aforesaid agreement and that there is no arbitration clause which binds the original plaintiff and the defendant No.3, therefore, the learned Courts below have correctly rejected the applications of the defendant under Section 8 of the Act. It is the categorical submission of Mr. Shah that it is impossible to bifurcate the roles of the defendants for the sake of the prayers in the suit and therefore, the instant case cannot be said to be Arbitrable qua all the parties to the suit.
12. Mr. Shah in particular referred to the decision of the Hon'ble Apex Court in the case of Gujarat Composite Limited Vs. A Infrastructure Limited and others reported in 2023 SCC OnLine SC 540, wherein, after taking this Court through the facts of the said case, Mr. Shah submitted that the present case is identical and therefore, following the principles ennuciated in Vidya Drolia and Ors. v. Durga Trading Corporation reported in (2021) 2 SCC 1 and as Page 9 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025 NEUTRAL CITATION C/SCA/17690/2024 CAV JUDGMENT DATED: 11/09/2025 undefined held by the Hon'ble Apex Court in paragraph No.46 of Gujarat Composite (Supra), the present Special Civil Application deserves to be dismissed. Paragraph No.46 of the Gujarat Composite (Supra) reads as under :-
"46. Therefore, even on the principles enunciated in Vidya Drolia (supra), the prayer of the present appellant for reference to arbitration under Section 8 cannot be granted."
13. Mr. Sharvil Majmudar, learned advocate appearing with Mr. Parv S. Gupta, learned advocate for the petitioners, on the other hand, referred to in the pleadings in the suit particularly paragraph No.2 and 3 thereof, as to be found at page '73' of the paper-book. The aforesaid paragraph No.2 and 3 are quoted hereinbelow for ready reference .
"2. The Defendant no. 3 was working as HR Manager with the Company and was in charge of ensuring compliance of the services rendered by the Plaintiff and other vendors. The Defendant no. 3 was the sole face of the Company so far as the Plaintiff was concerned qua his business with the Company. During the course of providing services to the Company, the Defendant no. 3 had started harassing the Plaintiff without any valid or justifiable reasons, taking undue advantage of his position and control in the Company. Later the Plaintiff realized that the unwarranted harassment by the Defendant no. 3 was to coerce the Plaintiff to forge a business relationship with him. The Defendant no. 3 informed the Plaintiff that unless the Plaintiff agreed to his demand of forging a business relationship with him, not only would the contract awarded to the Plaintiff not go through smoothly despite its compliance to the fullest satisfaction by the Plaintiff but also that the Plaintiff would not get any contract from the Company in future. The Plaintiff initially refused to accept such demand and thought of bringing the Page 10 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025 NEUTRAL CITATION C/SCA/17690/2024 CAV JUDGMENT DATED: 11/09/2025 undefined abovementioned facts to the notice of the higher management, but the Defendant no. 3 could successfully manage to ensure that the higher management did not prefer to meet the Plaintiff. The clout of the Defendant no. 3 with the higher management of the Company was so much that he even managed to award a contract to Authentic HR Services in which the Defendant no.1 was made a partner despite the fact that Authentic HR Services was not a registered vendor at the relevant time and the services to the Company were being provided by Authentic Staffing Agency, of which the Plaintiff was the proprietor. The Plaintiff succumbed to the pressure of the Defendant no. 3 and agreed to forge a business relationship with him that was bringing him unjust enrichment, albeit without causing any prejudice to the Company to which the Plaintiff provided all the services diligently and as per the contract.
3. Since the Defendant no. 3 was in the employment of the Company, he unduly influenced the Plaintiff to enter into a partnership with one of his relatives/acquaintances, the Defendant no. 2, which was coupled with coercion. An Indenture of Partnership dt. 29/09/2014 was executed by and between the Plaintiff and the Defendant no. 2, a copy whereof is annexed herewith as Annexure A. Thereafter, the Defendant no. 3 transferred the contract of payroll activities from Authentic Staffing Agency to Authentic HR Services in which the Defendant no. 2 was made a partner under the coercion of the Defendant no. 3 and a Letter of Intent no. CLRA/AHS/01 dt. 30/09/2014 was issued. A copy of the said LOI is annexed herewith as Annexure - B. It is pertinent to note that the LOI was issued by the Defendant no. 3 on the very next date of executing the Indenture of Partnership. As per the terms of the contract, the Plaintiff was required to handle payroll, provident fund contribution, background verification, etc. of contract employees, against a fixed amount to be paid by the Company to the Plaintiff. The Plaintiff later on came to know that though the Defendant no. 2 in the partnership deed had mentioned that she is experienced in operating and managing staff payroll and has thorough knowledge of compliance with statutory liabilities related to manpower supply contracts, the Defendant no. 2 actually has no knowledge or experience in the field of business of the firm and thus gave false information to the Plaintiff and thereby cheated him."Page 11 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025
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14. Referring to the aforesaid pleadings in the suit, Mr. Majmudar submitted that the subject matter and the parties to the suit are so intrinsically linked that it would be impossible to say that the suit would still be the exclusive remedy although there are arbitration clauses between three of the four parties and the fourth party namely defendant No.3 is stated to be intrinsically connected with the subject matter of the suit, as evident from the pleadings at Para No.2 and 3 referred to hereinabove.
15. FINDINGS :-
15.1 Upon perusal of the decision of the Hon'ble Apex Court in the case of Gujarat Composite (Supra), we find that after discussing the facts of the case, the Hon'ble Apex Court has rendered three important findings. In Paragraph No.22 of the said judgment, it has been held as under :-
"22. In appeal, the decision of the Commercial Court was upheld by the High Court, after extensively taking note of the material aspects of the pleadings in plaint and the rival submissions as also the principles enunciated in the cited decisions, with the finding that it would not be proper to bifurcate the disputes in terms of arbitrable and non- arbitrable disputes."
15.2 Thus, the ratio that follows the paragraph No.22 quoted hereinabove is that "it would not be proper to Page 12 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025 NEUTRAL CITATION C/SCA/17690/2024 CAV JUDGMENT DATED: 11/09/2025 undefined bifurcate the disputes in terms of arbitrable and non- arbitrable issues". Further in paragraph No.44, the Hon' ble Apex Court has recorded as under :-
"44. There being no doubt about non-existence of arbitration agreement in relation to the entire subject-matter of the suit, and when the substantive reliefs claimed in the suits fall outside the arbitration clause in the original licence agreement, the view taken by the High Court does not appear to be suffering from any infirmity or against any principle laid down by this Court."
15.3 Thus, on the facts of the said case, there was "no doubt about non-existence of arbitration agreement in relation to the entire subject matter of the suit .... ". As noted elsewhere, hereinabove, that is the fundamental point of difference between the facts of the present case and those which were presented before the Hon'ble Apex Court in the case of Composite (Supra).
15.4 Lastly in paragraph 46 of Composite (Supra), the Hon'ble Apex Court has noted as under :-
"46. Therefore, even on the principles enunciated in Vidya Drolia, the prayer of the present appellant for reference to arbitration under Section 8 cannot be granted."
15.5 The Hon'ble Supreme Court in the case of Ajay Page 13 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025 NEUTRAL CITATION C/SCA/17690/2024 CAV JUDGMENT DATED: 11/09/2025 undefined Madhusudan Patel and Others v. Jyotindra S. Patel and Others reported in (2025) 2 SCC 147, has held as under:-
"66. Once again, a three-judge bench of this Court in Vidya Drolia and Ors. v. Durga Trading Corporation reported in (2021) 2 SCC 1 held that Sections 8 and 11 respectively must be read as laying down a similar standard on the scope of the referral court's powers. It was stated that the questions as regards the existence and validity being intertwined, an arbitration agreement does not exist if it is illegal or does not satisfy mandatory legal requirements. The decision endorsed the application of a prima facie test in examining the existence and validity of an arbitration agreement both under Sections 8 and 11. This prima facie examination was not a full review but a primary first review to weed out manifest and ex-facie non-existent and invalid arbitration agreements and non-arbitrable disputes.
However, it was clarified that the Court should not get lost in thickets and decide debatable questions of fact.
67. The relevant extract is reproduced hereinbelow:
"153. Accordingly, we hold that the expression "existence of an arbitration agreement" in Section 11 of the Arbitration Act, would include aspect of validity of an arbitration agreement, albeit the court at the referral stage would apply the prima facie test on the basis of principles set out in this judgment. In cases of debatable and disputable facts, and good reasonable arguable case, etc., the court would force the parties to abide by the arbitration agreement as the Arbitral Tribunal has primary jurisdiction and authority to decide the disputes including the question of jurisdiction and non-arbitrability."
(Emphasis Supplied)
68. Vidya Drolia (supra) while speaking in the context of Section 8 also pointed out that jurisdictional issues like whether certain parties are bound by the arbitration agreement must be left to the arbitral tribunal since they involve complicated factual questions and observed as thus:
"239. Jurisdictional issues concerning whether certain Page 14 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025 NEUTRAL CITATION C/SCA/17690/2024 CAV JUDGMENT DATED: 11/09/2025 undefined parties are bound by a particular arbitration, under group- company doctrine or good faith, etc., in a multi- party arbitration raises complicated factual questions, which are best left for the tribunal to handle."
(Emphasis supplied)
69. A Constitution Bench of this Court in In Re: Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899 reported in (2024) 6 SCC 1, stated that an arbitration agreement contained in an unstamped or insufficiently stamped contract would not be non-existent in law as stated in Garware Wall Ropes (supra). It also clarified the position taken in Vidya Drolia (supra) and stated that the parameters for judicial review under Sections 8 and 11 respectively were different. The scope of examination under Section 11(6) should be confined to the "existence of the arbitration agreement"
under Section 7 of the Act, 1996. Similarly, the "validity of an arbitration agreement" must be restricted to the requirement of formal validity such as the requirement that the agreement be in writing. Substantive objections pertaining to existence and validity on the basis of evidence must therefore be left to the arbitral tribunal. Moreover, it was stated that the expression "examination" under Section 11 does not connote or imply a laborious or contested inquiry. On the other hand, Section 16 provides that the arbitral tribunal can "rule" on its jurisdiction, including the existence and validity of an arbitration agreement. It was also stated that any prima facie opinion rendered by the Court under Section 11 need not bind the arbitral tribunal.
70. The relevant observations are extracted hereinbelow:
"164. The 2015 Amendment Act has laid down different parameters for judicial review under Section 8 and Section 11. Where Section 8 requires the Referral Court to look into the prima facie existence of a valid arbitration agreement, Section 11 confines the Court's jurisdiction to the examination of the existence of an arbitration agreement. Although the object and purpose behind both Sections 8 and 11 is to compel parties to abide by their contractual understanding, the scope of power of the Referral Courts under the said provisions is intended to be different. The same is also evident from the fact that Section 37 of the Arbitration Act allows an appeal from the order of an Arbitral Tribunal refusing to refer the parties to arbitration under Page 15 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025 NEUTRAL CITATION C/SCA/17690/2024 CAV JUDGMENT DATED: 11/09/2025 undefined Section 8, but not from Section 11. Thus, the 2015 Amendment Act has legislatively overruled the dictum of Patel Engg. where it was held that Section 8 and Section 11 are complementary in nature. Accordingly, the two provisions cannot be read as laying down a similar standard.
165. The legislature confined the scope of reference under Section 11(6-A) to the examination of the existence of an arbitration agreement. The use of the term "examination" in itself connotes that the scope of the power is limited to a prima facie determination. Since the Arbitration Act is a self-contained code, the requirement of "existence" of an arbitration agreement draws effect from Section 7 of the Arbitration Act. In Duro Felguera, this Court held that the Referral Courts only need to consider one aspect to determine the existence of an arbitration agreement -- whether the underlying contract contains an arbitration agreement which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement. Therefore, the scope of examination under Section 11(6-A) should be confined to the existence of an arbitration agreement on the basis of Section 7. Similarly, the validity of an arbitration agreement, in view of Section 7, should be restricted to the requirement of formal validity such as the requirement that the agreement be in writing. This interpretation also gives true effect to the doctrine of competence- competence by leaving the issue of substantive existence and validity of an arbitration agreement to be decided by Arbitral Tribunal under Section 16. We accordingly clarify the position of law laid down in Vidya Drolia in the context of Section 8 and Section 11 of the Arbitration Act.
166. The burden of proving the existence of arbitration agreement generally lies on the party seeking to rely on such agreement. In jurisdictions such as India, which accept the doctrine of competence-competence, only prima facie proof of the existence of an arbitration agreement must be adduced before the Referral Court. The Referral Court is not the appropriate forum to conduct a mini-trial by allowing the parties to adduce the evidence in regard to the existence or validity of an arbitration agreement. The determination of the existence and validity of an arbitration agreement on Page 16 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025 NEUTRAL CITATION C/SCA/17690/2024 CAV JUDGMENT DATED: 11/09/2025 undefined the basis of evidence ought to be left to the Arbitral Tribunal. This position of law can also be gauged from the plain language of the statute.
167. Section 11(6-A) uses the expression "examination of the existence of an arbitration agreement". The purport of using the word "examination" connotes that the legislature intends that the Referral Court has to inspect or scrutinise the dealings between the parties for the existence of an arbitration agreement. Moreover, the expression "examination" does not connote or imply a laborious or contested inquiry. On the other hand, Section 16 provides that the Arbitral Tribunal can "rule" on its jurisdiction, including the existence and validity of an arbitration agreement. A "ruling" connotes adjudication of disputes after admitting evidence from the parties. Therefore, it is evident that the Referral Court is only required to examine the existence of arbitration agreements, whereas the Arbitral Tribunal ought to rule on its jurisdiction, including the issues pertaining to the existence and validity of an arbitration agreement.
xxx xxx xxx
169. When the Referral Court renders a prima facie opinion, neither the Arbitral Tribunal, nor the Court enforcing the arbitral award will be bound by such a prima facie view. If a prima facie view as to the existence of an arbitration agreement is taken by the Referral Court, it still allows the Arbitral Tribunal to examine the issue in depth. Such a legal approach will help the Referral Court in weeding out prima facie non- existent arbitration agreements. It will also protect the jurisdictional competence of the Arbitral Tribunals to decide on issues pertaining to the existence and validity of an arbitration agreement."
(Emphasis in original and supplied)
71. This very Bench in SBI General Insurance Co. Ltd. v. Krish Spinning reported in (2024) SCC OnLine SC 1754 Page 17 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025 NEUTRAL CITATION C/SCA/17690/2024 CAV JUDGMENT DATED: 11/09/2025 undefined dealt with the scope and standard of judicial scrutiny in an application made under Section 11(6) of the Act, 1996 specifically when a plea of "accord and satisfaction" is taken by the defendant. It was observed that in a scenario where the Courts delve into the domain of the arbitral tribunal at the Section 11 stage and reject the application, there is a risk of leaving the claimant forum-less for the adjudication of its claims. It was stated that a detailed examination at this stage would also be counterproductive to the objective of expediency in deciding a Section 11 application and simplification of pleadings. It was also stated that even if ex- facie frivolity is made out by the referral court, the arbitral tribunal has the benefit of extensive pleadings and evidentiary material and therefore, it would be incorrect to doubt that the arbitral tribunal would not be able to arrive at a similar conclusion.
72. The relevant observations are reproduced hereinbelow:
"126. The power available to the referral courts has to be construed in the light of the fact that no right to appeal is available against any order passed by the referral court under Section 11 for either appointing or refusing to appoint an arbitrator. Thus, by delving into the domain of the arbitral tribunal at the nascent stage of Section 11, the referral courts also run the risk of leaving the claimant in a situation wherein it does not have any forum to approach for the adjudication of its claims, if it Section 11 application is rejected.
127. Section 11 also envisages a time-bound and expeditious disposal of the application for appointment of arbitrator. One of the reasons for this is also the fact that unlike Section 8, once an application under Section 11 is filed, arbitration cannot commence until the arbitral tribunal is constituted by the referral court. This Court, on various occasions, has given directions to the High Courts for expeditious disposal of pending Section 11 applications. It has also directed the litigating parties to refrain from filing bulky pleadings in matters pertaining to Section 11. Seen thus, if the referral courts go into the details of issues pertaining to "accord and satisfaction" and the like, then it would become rather difficult to achieve the objective of expediency and simplification of pleadings.Page 18 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025
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128. We are also of the view that ex-facie frivolity and dishonesty in litigation is an aspect which the arbitral tribunal is equally, if not more, capable to decide upon the appreciation of the evidence adduced by the parties. We say so because the arbitral tribunal has the benefit of going through all the relevant evidence and pleadings in much more detail than the referral court. If the referral court is able to see the frivolity in the litigation on the basis of bare minimum pleadings, then it would be incorrect to doubt that the arbitral tribunal would not be able to arrive at the same inference, most likely in the first few hearings itself, with the benefit of extensive pleadings and evidentiary material."
(Emphasis supplied)
73. The recent Constitution Bench decision of this Court in Cox and Kings Limited v. SAP India Private Limited and Another reported in (2024) 4 SCC 1, specifically dealt with the question of impleading a non-signatory as a party in the arbitration proceedings and the corresponding scope of enquiry at the referral stage. It was held therein that Section 16 is an inclusive provision which comprehends all preliminary issues touching upon the jurisdiction of the arbitral tribunal and the issue of determining parties to an arbitration agreement goes to the very root of the jurisdictional competence of the arbitral tribunal.
74. The relevant observations are reproduced hereinbelow:
"163. Section 16 of the Arbitration Act enshrines the principle of competence-competence in Indian arbitration law. The provision empowers the Arbitral Tribunal to rule on its own jurisdiction, including any ruling on any objections with respect to the existence or validity of arbitration agreement. Section 16 is an inclusive provision which comprehends all preliminary issues touching upon the jurisdiction of the Arbitral Tribunal. [Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd., (2020) 2 SCC 455 : (2020) 1 SCC (Civ) 570] The doctrine of competence- competence is intended to minimise judicial intervention at the threshold stage. The issue of determining parties to an arbitration agreement goes to the very root of the jurisdictional competence of the Page 19 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025 NEUTRAL CITATION C/SCA/17690/2024 CAV JUDGMENT DATED: 11/09/2025 undefined Arbitral Tribunal.
xxx xxx xxx
169. In case of joinder of non-signatory parties to an arbitration agreement, the following two scenarios will prominently emerge : first, where a signatory party to an arbitration agreement seeks joinder of a non- signatory party to the arbitration agreement; and second, where a non- signatory party itself seeks invocation of an arbitration agreement. In both the scenarios, the referral court will be required to prima facie rule on the existence of the arbitration agreement and whether the non-signatory is a veritable party to the arbitration agreement. In view of the complexity of such a determination, the referral court should leave it for the Arbitral Tribunal to decide whether the non- signatory party is indeed a party to the arbitration agreement on the basis of the factual evidence and application of legal doctrine. The Tribunal can delve into the factual, circumstantial, and legal aspects of the matter to decide whether its jurisdiction extends to the non-signatory party. In the process, the Tribunal should comply with the requirements of principles of natural justice such as giving opportunity to the non-signatory to raise objections with regard to the jurisdiction of the Arbitral Tribunal. This interpretation also gives true effect to the doctrine of competence-competence by leaving the issue of determination of true parties to an arbitration agreement to be decided by the Arbitral Tribunal under Section 16.
xxx xxx xxx
170. In view of the discussion above, we arrive at the following conclusions:
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(170.12) At the referral stage, the referral court should leave it for the Arbitral Tribunal to decide whether the non- signatory is bound by the arbitration agreement"
(Emphasis supplied)
75. Therefore, on the pivotal issue whether the non- signatories can be referred to arbitration, this Court took the view that the referral court is required to prima facie rule on the existence of the arbitration agreement and whether the non-signatory party is a veritable party to the arbitration agreement. However, recognising the complexity of such a determination, the arbitral tribunal was considered the proper forum since it can decide whether the non-signatory is a party to the arbitration agreement on the basis of factual evidence and application of legal doctrine. In this process, the non- signatory must also be given an opportunity to raise objections regarding the jurisdiction of the arbitral tribunal in accordance with the principles of natural justice.
76. The position of law that emerges from the aforesaid discussion can be summarized as follows:
76.1 SBP & Co. (supra) expanded the scope of the Court's power under Section 11 while empowering the referral courts to decide several preliminary issues. Boghara Polyfab (supra) went to the extent of identifying three categories of preliminary issues that may arise for consideration in an application under Section 11. Of these, in the first category which had to be mandatorily decided by the referral Court, the question whether there was an arbitration agreement and whether the party who has applied under Section 11 of the Act, 1996 is a party to such an agreement, was also included.
76.2 The insertion of Section 11(6A) through the 2015 Amendment to the Act, 1996 stipulated that the Courts under Section 11 shall confine their examination to the 'existence' of an arbitration agreement. It legislatively overruled the decisions in SBP & Co. (supra) and Boghara Polyfab (supra) by virtue of its non-obstante clause.
76.3 Duro Felguera (supra), in clear terms, clarified the effect of the change brought in by Section 11(6A) and stated Page 21 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025 NEUTRAL CITATION C/SCA/17690/2024 CAV JUDGMENT DATED: 11/09/2025 undefined that all that the Courts need to see is whether an arbitration agreement exists - nothing more, nothing less. 76.4 Vidya Drolia (supra) endorsed the prima facie test in examining the existence and validity of an arbitration agreement both under Sections 8 and 11 respectively. However, it was clarified that in cases of debatable and disputable facts and reasonably good arguable case, etc. the Court may refer the parties to arbitration since the arbitral tribunal has the authority to decide disputes including the question of jurisdiction. It was further stated that jurisdictional issues concerning whether certain parties are bound by a particular arbitration under the group-company doctrine etc. in a multi-party arbitration raise complicated questions of fact which are best left to the tribunal to decide. 76.5 In In Re: Interplay (supra) the position taken in Vidya Drolia (supra) was clarified to state that the scope of examination under Section 11(6) should be confined to the "existence of the arbitration agreement" under Section 7 of the Act, 1996 and the "validity of an arbitration agreement"
must be restricted to the requirement of formal validity such as the requirement that the agreement be in writing. Therefore, substantive objections pertaining to existence and validity on the basis of evidence must be left to the arbitral tribunal since it can "rule" on its own jurisdiction.
76.6 Krish Spinning (supra) cautioned that the Courts delving into the domain of the arbitral tribunal at the Section 11 stage run the risk of leaving the claimant remediless if the Section 11 application is rejected. Further, it was stated that a detailed examination by the courts at the Section 11 stage would be counterproductive to the objective of expeditious disposal of Section 11 application and simplification of pleadings at that stage.
76.7 Cox and Kings (supra) specifically dealt with the scope of inquiry under Section 11 when it comes to impleading the non-signatories in the arbitration proceedings. While saying that the referral court would be required to prima facie rule on the existence of the arbitration agreement and whether the non-signatory party is a veritable party to the arbitration agreement, it also said that in view of the complexity in such Page 22 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025 NEUTRAL CITATION C/SCA/17690/2024 CAV JUDGMENT DATED: 11/09/2025 undefined a determination, the arbitral tribunal would be the proper forum. It was further stated that the issue of determining parties to an arbitration agreement goes to the very root of the jurisdictional competence of the arbitral tribunal and can be decided under its jurisdiction under Section 16."
16. Thus, we find that the larger Benches of the Hon'ble Apex Court in subsequent decisions have interpreted and explained Vidya Drolia (Supra) to hold that the scope of examination by the Court in an application under Section 8 of the Act is limited only to the existence and validity of the Arbitration Agreement and in debatable and disputable facts, the Court may refer the parties to arbitration since the Arbitral Tribunal has the authority to decide such contentious issues including the question of jurisdiction.
17. At the cost of repetition, only to emphasise the point, reference is made once again to Para 76.4 of Ajay Madhusudan Patel (Supra) which reads as under :-
76.4 Vidya Drolia (supra) endorsed the prima facie test in examining the existence and validity of an arbitration agreement both under Sections 8 and 11 respectively.
However, it was clarified that in cases of debatable and disputable facts and reasonably good arguable case, etc. the Court may refer the parties to arbitration since the arbitral tribunal has the authority to decide disputes including the question of jurisdiction. It was further stated that jurisdictional issues concerning whether certain parties are bound by a particular arbitration under the group-company Page 23 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025 NEUTRAL CITATION C/SCA/17690/2024 CAV JUDGMENT DATED: 11/09/2025 undefined doctrine etc. in a multi-party arbitration raise complicated questions of fact which are best left to the tribunal to decide.
18. Therefore, the findings of the Hon'ble Apex Court in Paragraph 46 of the Gujarat Composite (Supra) are clearly not in tune with the latest exposition of law and explanation of Vidya Droliya (Supra) as held by the Hon'ble Apex Court in Ajay Madhusudan (Supra) .
19. In such view of the matter, we have no hesitation in holding that the decision of the Gujarat Composite (Supra) does not impel us to arrive at a conclusion that the disputes presented in the suit-in-question are not arbitrable. Accordingly, respecfully following the decision of the Hon'ble Apex Court in Ajay Madhusudan (Supra), we quash and set aside the impugned judgment dated 10.10.2024 passed by the learned 4th Additional District Judge, (Commercial Court), Vadodara in Civil Misc. Application No. 7 of 2024 as well as the impugned order dated 15.12.2023 passed by the learend 26th Additional Senior Civil Judge, Vadodara in Special Civil Suit No. 24 of 2019.
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20. We, hereby allow the applications below Exh. 21, 24 and 25 in Special Civil Suit No.24 of 2019 filed under Section 8 of the Act. The Special Civil Suit No. 24 of 2019 is disposed of, relegating the parties thereto, especially the plaintiff therein to invoke the arbitration clause for redressal of the disputes raised in the said suit. It is made clear that all issues raised in these petitions are kept open. The present petition thus stands allowed in the aforesaid terms. No order as to costs.
(SUNITA AGARWAL, CJ ) (D.N.RAY,J) FURTHER ORDER After pronouncement of this judgment, a request is made on behalf of the learned advocate for the respondent, seeking a stay of this judgment for a period of four weeks. In the facts and circumstances, such request is denied.
(SUNITA AGARWAL, CJ ) (D.N.RAY,J) BINA SHAH Page 25 of 25 Uploaded by BINA SHAH(HC00353) on Fri Sep 12 2025 Downloaded on : Sat Sep 13 05:48:59 IST 2025