235.3. An objection as to stamping does not fall
for determination under Sections 8 or 11 of the
Arbitration Act. The Court concerned must
examine whether the arbitration agreement prima
facie exists;
14. The next issue i.e., whether the MoU and the agreement of
Respondents. It is trite law that an arbitration clause is a separate
agreement in itself. The termination of the substantive contract will
not automatically terminate the arbitration agreement. The issue
can be adjudicated by the arbitral tribunal. In this regard, reference
Co. Ltd. v. Krish Spinning 11:
50. The doctrine of separability was not part of
the legislative scheme under the Arbitration Act,
2024 SCC OnLine SC 1754.
1940. However, with the enactment of the Act,
1996, the doctrine was expressly incorporated. This
Court in National Agricultural Coop. Marketing
Federation India Ltd. v. Gains Trading Ltd.reported
in (2007) 5 SCC 692, while interpreting Section 16
of the Act, 1996, held that even if the underlying
contract comes to an end, the arbitration
agreement contained in such a contract survives
for the purpose of resolution of disputes between
the parties.
51. The fundamental premise governing the
doctrine of separability is that the arbitration
agreement is incorporated by the parties to a
contract with the mutual intention to settle any
disputes that may arise under or in respect of or
with regard to the underlying substantive contract,
and thus by its inherent nature is independent of
the substantive contract.
15. At this stage, it is relevant to note that the scope of inquiry
under Section 11 of the Act, 1996 is limited. The referral court only
has to see whether a prima facie arbitration agreement exists. The
issues whether the agreement stood terminated and consequently,
whether the arbitration clause stood terminated is a question to be
decided by the arbitral tribunal. In Krish Spinning (supra), a 03-
Judge Bench of the Supreme Court exhaustively discussed the
evolution of the law on Section 11 of the Act, 1996. It concluded that
the Courts while deciding an application to appoint an arbitrator
cannot go into the issues of non-arbitrability or termination of the
agreement. The only test is to see whether a prima facie arbitration
agreement exists. The relevant paragraphs are extracted below:
114. In view of the observations made by this
Court in In Re : Interplay (supra), it is clear that
the scope of enquiry at the stage of appointment of
arbitrator is limited to the scrutiny of prima facie
existence of the arbitration agreement, and nothing
else. For this reason, we find it difficult to hold that
the observations made in Vidya Drolia (supra) and
adopted in NTPC v. SPML (supra) that the jurisdiction
of the referral court when dealing with the issue of
"accord and satisfaction" under Section 11 extends to
weeding out ex-facie non-arbitrable and frivolous
disputes would continue to apply despite the
subsequent decision in In Re : Interplay (supra).
XXX
118. Tests like the "eye of the needle" and "ex-
facie meritless", although try to minimise the extent of
judicial interference, yet they require the referral court
to examine contested facts and appreciate prima facie
evidence (however limited the scope of enquiry may
be) and thus are not in conformity with the principles
of modern arbitration which place arbitral autonomy
and judicial non-interference on the highest pedestal.
119. Appointment of an arbitral tribunal at the
stage of Section 11 petition also does not mean that
the referral courts forego any scope of judicial review
of the adjudication done by the arbitral tribunal. The
Act, 1996 clearly vests the national courts with the
power of subsequent review by which the award
passed by an arbitrator may be subjected to challenge
by any of the parties to the arbitration.
XXX
125. 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.
16. Therefore, this Court holds thatprima facie,an arbitration
agreement exists between the parties. The issue of termination of the
MoU and the agreement of sale by efflux of time cannot be decided by
this Court and is left open for the arbitrator to decide. Further, the
effect and interpretation of the Indemnity Bond dated 13.01.2023 is
also open for the parties to raise before the arbitral tribunal.
17. At this stage, this Court, would like to address the
submission of the Respondents regarding the usage of the word 'may'
in the arbitration clause of the agreement to sale. Where intention to
arbitrate is unclear and where there is no definite arbitration clause,
the parties cannot be referred to the arbitral process. However, where
the intention to arbitrate is clear, the courts are duty bound to enforce
such an intention. In the present case, the intention to arbitrate is quite
clear when both the MoU and the agreement of sale dated 01.07.2020
are read together. In fact, this Court holds that they are supposed to be
read together. Both the agreements were entered into for the same
purpose of development of a real estate project. Further, the subject
land in both the agreements is the same. It can also be seen that the
agreement of sale refers to the MoU and stipulates that part of the sale
consideration (Rs. 2 crore) had to be paid on the date of the MoU.
Both the agreements form part of the same transaction. Therefore, in
case of interconnected agreements, where the mother agreement
clearly and unequivocally refers the disputes to arbitration, mere use
of 'may' in the arbitration clause of one of the ancillary agreements
will not defeat the intention to arbitrate.
18. In this regard, it is relevant to note that the Supreme Court
in Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan12,
held that where interconnected agreements are involved and the
clauses in the agreements are distinct, the courts shall follow the
clause in the main agreement. In the present case, the MoU is the main
agreement and the agreement of sale is an ancillary agreement. The
same forms part of the 'transaction documents' to be executed under
the MoU. The relevant paragraph of Olympus (supra) is extracted
below:
30. If there is a situation where there are disputes and
differences in connection with the main agreement and
also disputes in regard to "other matters" "connected"
with the subject-matter of the main agreement then in
such a situation, in our view, we are governed by the
general arbitration clause 39 of the main agreement
under which disputes under the main agreement and
(1999) 5 SCC 651
disputes connected therewith can be referred to the
same arbitral tribunal. This clause 39 no doubt does
not refer to any named arbitrators. So far as clause 5
of the Interior Design Agreement is concerned, it
refers to disputes and differences arising from that
agreement which can be referred to named arbitrators
and the said clause 5, in our opinion, comes into play
only in a situation where there are no disputes and
differences in relation to the main agreement and the
disputes and differences are solely confined to the
Interior Design Agreement. That, in our view, is the
true intention of the parties and that is the only way by
which the general arbitration provision in clause 39 of
the main agreement and the arbitration provision for a
named arbitrator contained in clause 5 of the Interior
Design Agreement can be harmonised or reconciled.
Therefore, in a case like the present where the
disputes and differences cover the main agreement
as well as the Interior Design Agreement, -- (that
there are disputes arising under the main
agreement and the Interior Design Agreement is
not in dispute) -- it is the general arbitration
clause 39 in the main agreement that governs
because the questions arise also in regard to
disputes relating to the overlapping items in the
schedule to the main agreement and the Interior
Design Agreement, as detailed earlier. There cannot
be conflicting awards in regard to items which overlap
in the two agreements. Such a situation was never
contemplated by the parties. The intention of the
parties when they incorporated clause 39 in the main
agreement and clause 5 in the Interior Design
Agreement was that the former clause was to apply to
situations when there were disputes arising under both
agreements and the latter was to apply to a situation
where there were no disputes or differences arising
under the main contract but the disputes and
differences were confined only to the Interior Design
Agreement. A case containing two agreements with
arbitration clauses arose before this Court in Agarwal
Engg. Co. v. Technoimpex Hungarian Machine
Industries Foreign Trade Co. [(1977) 4 SCC 367 :
AIR 1977 SC 2122] There were arbitration clauses in
two contracts, one for sale of two machines to the
appellant and the other appointing the appellant as
sales representative. On the facts of the case, it was
held that both the clauses operated separately and this
conclusion was based on the specific clause in the sale
contract that it was the "sole repository" of the sale
transaction of the two machines. Krishna Iyer, J. held
that if that were so, then there was no jurisdiction for
travelling beyond the sale contract. The language of
the other agreement appointing the appellant as sales
representative was prospective and related to a sales
agency and "later purchases", other than the purchases
of these two machines. There was therefore no
overlapping. The case before us and the above case
exemplify contrary situations. In one case the disputes
are connected and in the other they are distinct and not
connected. Thus, in the present case, clause 39 of the
main agreement applies. Points 1 and 2 are decided
accordingly in favour of the respondents.
19. In light of the aforesaid discussion, this Court holds that a
valid arbitration agreement exists between the parties.
20. In result, the present arbitration application is allowed.
Sri Justice V. V. S. Rao, Former Judge of the erstwhile High Court
of Andhra Pradesh, appointed as the sole arbitrator to adjudicate the
claims of the parties. The parties are at liberty to raise all the issues
before the arbitral tribunal.
As a sequel thereto, miscellaneous applications, if any, pending
in the Arbitration Application shall stand closed.
_________________
K. LAKSHMAN, J
Date:09th June,2025
Note: L.R.Copy to be marked.
B/o. Vvr.
