On 23rd November 2022, the Supreme Court in a Division Bench comprising of Justice B.R. Gavai and Justice B.V. Nagarathna observed that court at the referral stage can interfere only when it is manifest that the claims are ex facie time-barred and dead, or there is no subsisting dispute.(M/s. Meenakshi Solar Power Pvt. Ltd. Vs. M/s. Abhyudaya Green Economic Zones Pvt. Ltd. and Ors.)
Facts of the Case:
The power project of respondent No.1 herein is generating power and has a twenty-year Power Purchase Agreement with Telangana State Southern Power Distribution Company Limited. It was difficult for respondent No.1 to service debt availed from the financial institutions, respondent Nos. 2 and 3 its promoters, decided to sell the said power project.
The appellant herein showed interest in buying the said power project and therefore entered into Share Purchase Agreement with respondent Nos.1 to 3 wherein respondent Nos.2 and 3 agreed to sell 100% ownership of respondent No.1 Company comprising all of its assets including land, buildings, plant, equipment along with continuity of the Power Purchase Agreement signed with Telangana State Southern Power Distribution Company for an irrevocably frozen Purchase Price of Rs. 29 Crores. Tripartite Agreement was entered, recording execution of the Share Purchase Agreement and payment of Rs. 50 lakhs to respondent Nos. 2 and 3 in terms of the said Share Purchase Agreement.
An addendum to the Share Purchase Agreement was signed on 10.04.2019 between respondent Nos.1 to 3 and respondent No.4 wherein the latter agreed to remit an amount of Rs. 1.65 Crores to respondent Nos. 1 to 3 to regularize the loan with the Corporation Bank and facilitate the transfer of the project company. Dispute arose between appellant and the respondent and the appellant filed application before the Commercial Court u/s 9 seeking to restrain the respondents from alienating their shares in the Company and an ad-interim injunction was granted. The appellant after receiving no response for appointing an arbitrator for the dispute resolution, an application was filed u/s 11(6) which was dismissed by the HC giving rise to present appeal.
Contentions of the Appellant:
The counsel for the appellant submitted that “HC erred in giving a finding of implied/deemed novation while adjudicating on an application under Section 11 of the Act of 1996 and failed to comprehend the nature of limited judicial intervention under the said provision. HC failed to examine the ingredients for novation and has given an erroneous finding and also filed to comprehend that the Tripartite Agreement was entered into with the sole purpose and intent to act as a recovery mechanism for IFCI Venture Capital and cannot by any stretch of imagination be called as an act to substitute and novate the Share Purchase Agreement.
The HC also failed to consider that the Tripartite Agreement and the Addendum to the Share Purchase Agreement was for a limited purpose of satisfying IFCI Venture Capital as regards the dues payable and the same cannot be said to have substituted the Share Purchase Agreement. Both the Tripartite Agreement and the Addendum make no mention to novate or substitute the Share Purchase Agreement.”
Contentions of the Respondents:
The counsel for the respondents submitted that “the appellant failed in making complete payment of the purchase of shares from respondent Nos. 2 and 3 and in fulfilling its obligation before the expiry of the Share Purchase Agreement i.e., as on 10.11.2018, when the Share lapsed and stood terminated by operation of clause 8 of the agreement. Pursuant to the Tripartite Agreement, an Addendum was entered into between the parties wherein it was agreed that the consideration for sale of the power project shall be remitted within timelines stipulated under the terms and conditions of the Tripartite Agreement.
The Addendum makes no mention of the compliance with any term of the Share Purchase Agreement. The Tripartite Agreement has superseded the Share Purchase Agreement. The substantial shift from terms, conditions and timelines in the Share Purchase Agreement show that the parties departed from the same to the Tripartite Agreement and the Share Purchase Agreement stood novated.
The HC has acted completely within its jurisdiction under Section 11 of the Act of 1996 and has not stepped into the role of an Arbitral Tribunal.” Cases of Union of India vs. Kishorilal Gupta and Bros., Young Achievers vs. IMS Learning Resources Pvt. Ltd. And M.B.S Impex Pvt. Ltd. vs. Minerals and Metals Trading Corporation were referred.
Observations and Judgment of the Court:
The hon’ble court observed that “the question or issues are relating to whether the cause of action relates to action in personam or rem; whether the subject-matter of the dispute affects third-party rights, have erga omnes effect, requires centralised adjudication; whether the subject-matter relates to inalienable sovereign and public interest functions or by necessary implication non-arbitrable as per mandatory statutes. On the other hand, issues relating to contract formation, existence, validity and non-arbitrability would be connected and intertwined with the issues underlying the merits of the respective disputes/claims.
They would be factual and disputed and for the Arbitral Tribunal to decide. Court at the referral stage can interfere only when it is manifest that the claims are ex facie time- barred and dead, or there is no subsisting dispute.
In the context of issue of limitation period, it should be referred to the Arbitral Tribunal for decision on merits. Similar would be the position in case of disputed “no-claim certificate” or defence on the plea of novation and “accord and satisfaction”.
The HC was not right in dismissing the petition under Section 11(6) of the Act of 1996 filed by the appellant herein by giving a finding on novation of the Share Purchase Agreement between the parties as the said aspect would have a bearing on the merits of the controversy between the parties. Therefore, it must be left to the Arbitrator to decide on the said issue also.”
The impugned judgement and order by the HC were quashed and set aside allowing the present appeal.
Case: M/s. Meenakshi Solar Power Pvt. Ltd. Vs. M/s. Abhyudaya Green Economic Zones Pvt. Ltd. and Ors.
Citation: Civil Appeal No. 8818 Of 2022 (Arising Out Of SLP (Civil) No. 11570 Of 2021)
Bench: Justice B.R. Gavai and Justice B.V. Nagarathna
Date: November 23, 2022.
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