The division judge bench of Justice M.R. Shah and Justice Krishna Murari of the supreme court of India in the case of M/S Emaar India Ltd V. Tarun Aggarwal Projects LLP & Anr held that the without holding a primary inquiry and despite having observed that a party does have a right to seek enforcement of agreement before the Court of law as per Clause 36, thereafter, has appointed the arbitrators by solely observing that the same does not bar settlement of disputes through Arbitration and Conciliation Act, 1996.
BRIEF FACTS
The factual matrix of the case is that the original petitioners entered into a collaboration agreement for the development of the residential colony. Thereafter, the dispute arose between the parties and it was alleged that the appellant didn’t comply with the obligations under the Addendum agreement. Then, the legal notice was issued by the original petitioners demanding physical possession. The original petitioners, who are now the respondents, in this case, appointed a former High Court judge to serve as their arbitrator because they believed that the dispute between the parties could be resolved through arbitration. The arbitrator's appointment was rejected by the appellant in this case. As a result, the respondents, in this case, submitted an application under Sections 11(5) and (6) of the Arbitration Act to the High Court asking for the appointment of arbitrators in accordance with Clause 37 of the Addendum Agreement. However, the arbitration petition was challenged by the appellant on the ground that the dispute falls under Clause 36 of the Addendum Agreement and not under Clause 37 which incorporates the arbitration clause.
The learned counsel appearing on behalf of the appellant has contended that while allowing the application the high court hadn’t considered that according to the appellant the dispute falls under clause 36 of the agreement, not in clause 37. It was further submitted that any dispute with regard to Clauses 3, 6, 9 shall have to be resolved through the appropriate court of law, and such dispute is not arbitrable at all. It is submitted that despite the High Court having noted Clauses 36 & 37, without deciding whether the dispute falls within Clause 36 the High Court appointed the arbitrators.
The learned counsel further relied upon the judgments titled Uttarakhand Purv Sainik Kalyan Nigam Limited Vs. Northern Coal Field Limited, Vidya Drolia, and Ors. Vs. Durga Trading Corporation, and Indian Oil Corporation Limited Vs. NCC Limited.
The learned senior counsel appearing on behalf of the respondent has contended that there was no error made by the High Court in appointing the arbitrators, according to a joint reading of Clauses 36 and 37 of the Agreement and the parties intention to settle the dispute through arbitration in accordance with the Arbitration Act.
QUESTION BEFORE THE HON’BLE COURT
The short question which is posed for consideration of this Court is whether in the facts and circumstances of the case, the High Court is justified in appointing the arbitrators in an application under Section 11(5) and (6) of the Arbitration Act without holding any preliminary inquiry or inquiry on whether the dispute is arbitrable or not?
COURT’S OBSERVATION
The hon’ble court held that applying the law laid down by this Court in the aforesaid decisions and considering Clauses 36 and 37 of the Agreement and when a specific plea was taken that the dispute falls within Clause 36 and not under Clause 37 and therefore, the dispute is not arbitrable, the High Court was at least required to hold primary inquiry/review and prima facie come to conclusion on whether the dispute falls under Clause 36 or not and whether the dispute is arbitrable or not. Without holding such primary inquiry and despite having observed that a party does have a right to seek enforcement of agreement before the Court of law as per Clause 36, thereafter, has appointed the arbitrators by solely observing that the same does not bar settlement of disputes through Arbitration and Conciliation Act, 1996. However, the High Court has not appreciated and considered the fact that in case of dispute as mentioned in Clauses 3, 6 and 9 for enforcement of the Agreement, the dispute is not arbitrable at all. In that view of the matter, the impugned judgment and order passed by the High Court appointing the arbitrators is unsustainable and the same deserves to be quashed and set aside. However, at the same time, as the High Court has not held any preliminary inquiry on whether the dispute is arbitrable or not and/or whether the dispute falls under Clause 36 or not, we deem it proper to remit the matter to the High Court to hold a preliminary inquiry on the aforesaid in light of the observations made by this Court in the case of Vidya Drolia (supra) and in the case of Indian Oil Corporation Limited (supra) and the observations made hereinabove and thereafter, pass an appropriate order.
In view of the above and for the reasons stated above the present appeal succeeds. The impugned judgment and order passed by the High Court appointing the arbitrators in terms of Clause 37 of the Addendum Agreement are hereby quashed and set aside. The matter is remitted to the High Court to decide the application under Section 11(5) and (6) of the Arbitration Act afresh and to pass an appropriate order after holding a preliminary inquiry/review on whether the dispute is arbitrable or not and/or whether the dispute falls within Clause 36 of the Addendum Agreement or not. The present appeal is accordingly allowed.
CASE NAME- M/S Emaar India Ltd V. Tarun Aggarwal Projects LLP & Anr
CORUM- Justice M.R. Shah and Justice Krishna Murari
CITATION- CIVIL APPEAL NO. 6774 OF 2022
DATE- 30/09/22
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