M/S. EMAAR INDIA LTD. versus TARUN AGGARWAL PROJECTS LLP & ANR. on 30 September 2022

1. Feeling aggrieved and dissatisfied with the impugned judgmentHand order dated 24.12.2021 passed by the High Court of Delhi at New Delhi in Arbitration Petition No. 637 of 2021, by which, the High Courtin exercise of powers under Section 11(6) of the Arbitration andConciliation Act, 1996 (hereinafter referred to as the Arbitration Act)has appointed arbitrators to resolve the dispute between the parties, theoriginal respondent – M/s EMMAR India Limited has preferred thepresent appeal.

2. That the original petitioners –respondents herein entered into aCollaboration Agreement dated 07.05.2009 for development of aresidential colony in Sector 62 and 65, Gurugram. That thereafter, afurther Addendum Agreement dated 19.04.2011 was executed betweenthe parties. The dispute arose between the parties and it was the caseon behalf of the original applicants – respondents herein that the appellantherein did not comply with the obligations under the AddendumAgreement dated 19.04.2011. The respondents – original applicants/petitioners issued a legal notice dated 20.11.2019 raising demand forphysical possession of 5 plots measuring 2160 sq. yds. and claiming asum of Rs. 10 crores for the losses/damages suffered by them. Asaccording to the original petitioners – respondents herein the disputebetween the parties were arbitrable, the original petitioners appointed aformer judge of the High Court as their arbitrator. The appellant hereindenied appointment of the arbitrator. Therefore, the respondents hereinapproached the High Court for appointment of the arbitrators in termsof Clause 37 of the Addendum Agreement by submitting an applicationunder Section 11(5) & (6) of the Arbitration Act seeking appointment ofarbitrators by the Court.

2.1 The said arbitration petition was opposed by the appellantherein by raising various grounds including one of the grounds that thedispute falls under Clause 36 of the Addendum Agreement and not underClause 37 which incorporates arbitration clause.

2.2 Despite having noted that the Clause 36 of the AddendumAgreement stipulates that in the event of any dispute with regard toClauses 3, 6 and 9, other party shall have a right to get the agreementspecifically enforced through appropriate court of law, the High Courthas appointed the arbitrators in terms of Clause 37 of the AddendumAgreement by observing that conjoint reading of Clauses36 and 37 makesit clear that a party does have a right to seek enforcement of agreementbefore the Court of law but it does not bar settlement of disputes throughArbitration and Conciliation Act, 1996. By observing so, the High Court A

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Ahas allowed the application under Section 11(5) & (6) and has appointedthe arbitrators, who shall appoint the third arbitrator in terms of Clause37.

2.3 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court allowing the application under SectionB11(5) & (6) of the Arbitration Act and appointing the arbitrators withrespect to the dispute between the parties, the original opponent –respondent has preferred the present appeal.

3. Shri Dhanesh Relan, learned counsel appearing on behalf ofthe appellant has vehemently submitted that while allowing the applicationCunder Section 11(5) & (6) and appointing the arbitrators, the High Courthas not at all considered that according to the appellant the dispute fallswithin Clause 36 of the Agreement and not under Clause 37. It is submittedthat as per Clause 36 in case of any conflict or difference arising betweenthe parties or in case the either party refuses or neglects to perform itspart of the obligations under Addendum Collaboration Agreement, inter-Dalia, as mentioned in Clauses 3, 6 and 9, then the other party shall haveevery right to get the agreement specifically enforced through theappropriate court of law. It is submitted that as per Clause 37, save andexcept Clause 36 or any dispute arising out of or touching upon or inrelation to the terms of the addendum agreement…… shall be settledEthrough under the provisions of the Arbitration and Conciliation Act, 1996.It is submitted that therefore any dispute with regard to the Clauses 3, 6,9 shall have to be resolved through the appropriate court of law andsuch dispute is not arbitrable at all. It is submitted that despite the HighCourt has noted Clauses 36 & 37, without deciding whether the disputefalls within Clause 36 the High Court appointed the arbitrators.F

3.1 Learned counsel appearing on behalf of the appellant submittedthat as observed and held by this Court in the case of UttarakhandPurv Sainik Kalyan Nigam Limited Vs. Northern Coal FieldLimited; (2020) 2 SCC 455, the appointment of an arbitrator may berefused if the arbitration agreement is not in writing, or the dispute isGbeyond the arbitration agreement.

3.2 Learned counsel appearing on behalf of the appellant hasfurther submitted that as observed and held by this Court in the case ofVidya Drolia and Ors. Vs. Durga Trading Corporation; (2021) 2SCC 1, the Court may interfere at Section 8 or 11 stage when it isH

manifestly and ex facie certain that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable, though the nature andfacet of non-arbitrability would, to some extent, determine the level andnature of judicial scrutiny. It is further submitted that in the said decisionit is also observed that such restricted and limited review is to check andprotect parties from being forced to arbitrate when the matter isdemonstrably “non-arbitrable” and to cut off the deadwood.

3.3 Learned counsel appearing on behalf of the appellant has alsorelied upon the recent decision of this Court in the case of Indian OilCorporation Limited Vs. NCC Limited; 2022 SCC OnLine SC896 (Civil Appeal No. 341 of 2022, decided on 20.07.2022), inwhich after considering the decision of this Court in the case of VidyaDrolia (supra), this Court after taking into consideration other decisionshas observed and held that at the stage of Section 11 of the ArbitrationAct, a preliminary inquiry is permissible if the dispute is raised with respectto the arbitrability.

3.4 Relying upon the above decisions, it is vehemently submittedby learned counsel appearing on behalf of the appellant that in the factsand circumstances of the case, the High Court has virtually ignoredClause 36 of the Agreement. It is submitted that the High Court wasrequired to hold a preliminary inquiry on whether considering Clause 36of the Agreement, the dispute between the parties falls within Clause 36or not. It is submitted that if in preliminary inquiry it is found that thedispute falls within Clause 36 in that case such a dispute is not arbitrableat all. It is, therefore, prayed to allow the present appeal and quash andset aside the judgment and order passed by the High Court.

4. While opposing the present appeal Shri Siddharth Bhatnagar,learned Senior Advocate appearing on behalf of the respondents hasvehemently submitted that even as observed and held by this Court inthe case of Vidya Drolia (supra) whether the dispute is arbitrable ornot, it should be best left to the arbitrator in an application under Section16 of the Arbitration Act and it is for the arbitrator to decide thearbitrability of the dispute.

4.1 It is submitted that on conjoint reading of Clauses 36 and 37 ofthe Agreement and the intention of the parties to resolve the disputethrough arbitration under the Arbitration Act, no error has been committedby the High Court in appointing the arbitrators.

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A5. We have heard learned counsel appearing on behalf of therespective parties at length.

6. The short question which is posed for consideration of thisCourt is whether in the facts and circumstances of the case, the HighCourt is justified in appointing the arbitrators in an application underBSection 11(5) and (6) of the Arbitration Act without holding anypreliminary inquiry or inquiry on whether the dispute is arbitrable or not?

6.1 While considering the aforesaid question/issue, the relevantprovisions of the Agreement, namely, Clauses 36 and 37, are required tobe referred to, which are as under: - C“Dispute Resolution & Jurisdiction

36. In case of any conflict or difference arising between the partiesor in case the either party refused or neglects to perform its partof the obligations under this Addendum Collaboration Agreement,inter-alia as mentioned in Clauses 3, 6 & 9 hereinabove, then theDother party shall have every right to get this agreement specificallyenforced through the appropriate court of law.

37. Save & except clause 36 hereinabove mentioned, all or anydispute arising out of or touching upon or in relation to the termsof this Agreement including the interpretation and validity thereof,Eand the respective rights and obligations of the parties, shall besettled through under the provisions of Arbitration & ConciliationAct, 1996 wherein both the parties shall be entitled to appoint oneArbitrator each and the Arbitrators so appoint shall appoint a thirdArbitrator or rank of Retired Judge of any High Court. TheFarbitration proceedings shall be governed by the provisions ofArbitration and Conciliation Act, 1996 or any statutory amendments/modification thereto for the time being in force. The arbitrationproceedings shall be held at Delhi.”

On a bare reading of Clause 36 of the Agreement, it clearlystipulates that in the event of any dispute as mentioned in Clauses 3, 6Gand 9, other party shall have a right to get the Agreement specificallyenforced through the appropriate court of law. As per Clause 37, saveand except Clause 36, all or any dispute arising out of or touching uponor in relation to the terms of the addendum agreement……. shall besettled through under the provisions of Arbitration and Conciliation Act,H1996. Thus, with respect to any dispute as mentioned in Clauses 3, 6 &

9, such disputes are not arbitrable at all. It cannot be disputed that boththe parties are governed by the Addendum Agreement dated 19.04.2011.

6.2 In the case of Oriental Insurance Co Ltd. Vs. NarbheramPower and Steel (P) Ltd., (2018) 6 SCC 534, it is observed and heldby this Court that the parties are bound by the Clauses enumerated inthe policy and the Court does not transplant any equity to the same byrewriting a clause. It is further observed and held that an arbitrationclause is required to be strictly construed. Any expression in the clausemust unequivocally express the intent of arbitration. It can also lay thepostulate in which situations the arbitration clause cannot be given effectto. It is further observed that if a clause stipulates that under certaincircumstances there can be no arbitration and they are demonstrablyclear then the controversy pertaining to appointment of Arbitrator has tobe put to rest (Paras 10-23).

6.3 In the case of Rajasthan State Industrial Developmentand Investment Corporation Vs. Diamond and Gem DevelopmentCorporation Ltd.; (2013) 5 SCC 470, it is observed and held by thisCourt that a party cannot claim anything more than what is covered bythe terms of the contract, for the reason that the contract is a transactionbetween two parties and has been entered into with open eyes and byunderstanding the nature of contract. It is further observed that thus thecontract being a creature of an agreement between two or more partieshas to be interpreted giving literal meanings unless there is some ambiguitytherein. The contract is to be interpreted giving the actual meaning tothe words contained in the contract and it is not permissible for theCourt to make a new contract, however reasonable, if the parties havenot made it themselves. It is further observed that the terms of the contracthave to be construed strictly without altering the nature of a contract asit may affect the interest of either of the parties adversely (Para 23).

6.4 In the case of Harsha Construction Vs. Union of Indiaand Ors.; (2014) 9 SCC 246, it is observed and held by this Court inparagraphs 18 and 19 as under: - “18. Arbitration arises from a contract and unless there is a specificwritten contract, a contract with regard to arbitration cannot bepresumed. Section 7(3) of the Act clearly specifies that the contractwith regard to arbitration must be in writing. Thus, so far as thedisputes which have been referred to in Clause 39 of the contractare concerned, it was not open to the Arbitrator to arbitrate upon A

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the said disputes as there was a specific clause whereby the saiddisputes had been “excepted”. Moreover, when the law specificallymakes a provision with regard to formation of a contract in aparticular manner, there cannot be any presumption with regardto a contract if the contract is not entered into by the modeprescribed under the Act.

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19. If a non-arbitrable dispute is referred to an Arbitrator andeven if an issue is framed by the Arbitrator in relation to such adispute, in our opinion, there cannot be a presumption or aconclusion to the effect that the parties had agreed to refer theissue to the Arbitrator. In the instant case, the respondentauthorities had raised an objection relating to the arbitrability ofthe aforestated issue before the Arbitrator and yet the Arbitratorhad rendered his decision on the said “excepted” dispute. In ouropinion, the Arbitrator could not have decided the said “excepted”dispute. We, therefore, hold that it was not open to the Arbitratorto decide the issues which were not arbitrable and the award, sofar as it relates to disputes regarding non-arbitrable disputes isconcerned, is bad in law and is hereby quashed.”

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6.5 In the recent decision in the case of Vidya Drolia (supra),which, as such, is post-insertion of Section 11(6-A) of the ArbitrationEAct, it is observed and held that the issue of non-arbitrability of a disputeis basic for arbitration as it relates to the very jurisdiction of the ArbitralTribunal. An Arbitral Tribunal may lack jurisdiction for several reasonsand non-arbitrability has multiple meanings. After referring to anotherdecision of this Court in the case of Booz Allen & HamiltanInc. Vs. SBI Home Finance Ltd. [(2011) 5 SCC 532 (Para 34)], itFis observed and held that there are facets of non-arbitrability, namely “(i) Whether the disputes are capable of adjudication andsettlement by arbitration? That is, whether the disputes, havingregard to their nature, could be resolved by a private forum chosenby the parties (the Arbitral Tribunal) or whether they wouldexclusively fall within the domain of public fora (courts).

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(ii) Whether the disputes are covered by the arbitrationagreement? That is, whether the disputes are enumerated ordescribed in the arbitration agreement as matters to be decidedby arbitration or whether the disputes fall under the “exceptedmatters” excluded from the purview of the arbitration agreement.

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(iii) Whether the parties have referred the disputes toarbitration? That is, whether the disputes fall under the scope ofthe submission to the Arbitral Tribunal, or whether they do notarise out of the statement of claim and the counterclaim filedbefore the Arbitral Tribunal. A dispute, even if it is capable ofbeing decided by arbitration and falling within the scope of anarbitration agreement, will not be “arbitrable” if it is not enumeratedin the joint list of disputes referred to arbitration, or in the absenceof such a joint list of disputes, does not form part of the disputesraised in the pleadings before the Arbitral Tribunal.”

6.6 After referring to and considering in detail the earlier decisionson the point, more particularly, with respect to non-arbitrability and the‘excepted matters’, it is ultimately concluded in para 76 as under:

“76. In view of the above discussion, we would like topropound a four-fold test for determining when the subject matterof a dispute in an arbitration agreement is not arbitrable:

76.1. (1) When cause of action and subject-matter of thedispute relates to actions in rem, that do not pertain to subordinaterights in personam that arise from rights in rem.

76.2. (2) When cause of action and subject-matter of thedispute affects third-party rights; have erga omnes effect; requirecentralized adjudication, and mutual adjudication would not beappropriate and enforceable; 76.3.(3) When cause of action and subject-matter of thedispute relates to inalienable sovereign and public interest functionsof the State and hence mutual adjudication would beunenforceable; 76.4 (4) When the subject-matter of the dispute is expresslyor by necessary implication non-arbitrable as per mandatorystatute(s).

76.5 These tests are not watertight compartments; theydovetail and overlap, albeit when applied holistically andpragmatically will help and assist in determining and ascertainingwith great degree of certainty when as per law in India, a disputeor subject matter is non-arbitrable. Only when the answer isaffirmative that the subject matter of the dispute would be non-arbitrable.

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A76.6 However, the aforesaid principles have to be appliedwith care and caution as observed in Olympus Superstructures(P) Ltd. Vs. Meena Vijay Khetan and Ors.; (1999) 5 SCC651: (SCC p. 669, para 35)

“35. …Reference is made there to certain disputes likeBcriminal offences of a public nature, disputes arising out of illegalagreements and disputes relating to status, such as divorce, whichcannot be referred to arbitration. It has, however, been held thatif in respect of facts relating to a criminal matter, say, physicalinjury, if there is a right to damages for personal injury, then suchCa dispute can be referred to arbitration (Keir v. Leeman). Similarly,it has been held that a husband and a wife may refer to arbitrationthe terms on which they shall separate, because they can make avalid agreement between themselves on that matter(Soilleux v. Herbst, Wilson v. Wilson and Cahill v. Cahill).”

D6.7 On the question, who decides on non-arbitrability of the dispute,after referring to and considering the earlier decisions on the point, moreparticularly, the decisions in the cases of Garware Wall RopesLtd. Vs. Coastal Marine Constructions & Engg.; (2019) 9 SCC209; United India Insurance Co. Ltd. Vs. Hyundai Engg. &Construction Co. Ltd.; (2018) 17 SCC 607, and Narbheram PowerE& Steel (P) Ltd. (supra), it is observed and held that the question ofnon-arbitrability relating to the inquiry, whether the dispute was governedby the arbitration clause, can be examined by the Courts at the referencestage itself and may not be left unanswered, to be examined and decidedby the Arbitral Tribunal. Thereafter, in para 153, it is observed and heldFthat the expression, “existence of arbitration agreement” in Section 11of the Arbitration Act, would include aspect of validity of an arbitrationagreement, albeit the Court at the reference stage would apply the primafacie test. It is further observed that in cases of debatable and disputablefacts and, good reasonably arguable case etc., the Court would forcethe parties to abide by the arbitration Agreement as the Arbitral TribunalGhas the primary jurisdiction and authority to decide the disputes includingthe question of jurisdiction and non-arbitrability. Ultimately in para 154,the proposition of law is crystallized as under:

“154. Discussion under the heading ‘Who decidesArbitrability?’ can be crystallized as under:H

154.1. Ratio of the decision in Patel Engineering Ltd. onthe scope of judicial review by the court while deciding anapplication under Sections 8 or 11 of the Arbitration Act, post theamendments by Act 3 of 2016 (with retrospective effect from 23-10-2015) and even post the amendments vide Act 33 of 2019(with effect from 9-8-2019), is no longer applicable.

154.2. Scope of judicial review and jurisdiction of the courtunder Section 8 and 11 of the Arbitration Act is identical butextremely limited and restricted.

154.3. The general rule and principle, in view of the legislativemandate clear from Act 3 of 2016 and Act 33 of 2019, and theprinciple of severability and competence-competence, is that thearbitral tribunal is the preferred first authority to determine anddecide all questions of non-arbitrability. The court has beenconferred power of “second look” on aspects of non-arbitrabilitypost the award in terms of sub-clauses (i), (ii) or (iv) of Section34(2)(a) or sub-clause (i) of Section 34(2)(b) of the ArbitrationAct.

154.3. Rarely as a demurrer the court may interfere at theSection 8 or 11 stage when it is manifestly and ex facie certainthat the arbitration agreement is non-existent, invalid or the disputesare non-arbitrable, though the nature and facet of non-arbitrabilitywould, to some extent, determine the level and nature of judicialscrutiny. The restricted and limited review is to check and protectparties from being forced to arbitrate when the matter isdemonstrably “non-arbitrable” and to cut off the deadwood. Thecourt by default would refer the matter when contentions relatingto non-arbitrability are plainly arguable; when consideration insummary proceedings would be insufficient and inconclusive; whenfacts are contested; when the party opposing arbitration adoptsdelaying tactics or impairs conduct of arbitration proceedings. Thisis not the stage for the court to enter into a mini trial or elaboratereview so as to usurp the jurisdiction of the arbitral tribunal but toaffirm and uphold integrity and efficacy of arbitration as analternative dispute resolution mechanism.”

6.8 In the case of Vidya Drolia (supra), it is specifically observedand held by this Court that rarely as a demurrer, the Court may interfere A

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Aat Section 8 or 11 stage when it is manifestly and ex facie certain that“the arbitration agreement is non-existent, invalid or the disputesare non-arbitrable”, though the nature and facet of non-arbitrabilitywould, to some extent, determine the level and nature of judicial scrutiny.It is further observed that the restricted and limited review is to checkand protect parties from being forced to arbitrate when the matter isBdemonstrably “non-arbitrable and to cut off the deadwood.”It is furtherobserved that the prima facie review at the reference stage is to cut thedeadwood and trim off the side branches in straightforward cases wheredismissal is barefaced and pellucid and when on the facts and law thelitigation must stop at the first stage.C7. Applying the law laid down by this Court in the aforesaiddecisions and considering Clauses36 and 37 of the Agreement and whena specific plea was taken that the dispute falls within Clause 36 and notunder Clause 37 and therefore, the dispute is not arbitrable, the HighCourt was at least required to hold a primary inquiry/review and primaDfacie come to conclusion on whether the dispute falls under Clause 36or not and whether the dispute is arbitrable or not. Without holding suchprimary inquiry and despite having observed that a party does have aright to seek enforcement of agreement before the Court of law as perClause 36, thereafter, has appointed the arbitrators by solely observingthat the same does not bar settlement of disputes through ArbitrationEand Conciliation Act, 1996.However, the High Court has not appreciatedand considered the fact that in case of dispute as mentioned in Clauses3, 6 and 9 for enforcement of the Agreement, the dispute is not arbitrableat all. In that view of the matter, the impugned judgment and order passedby the High Court appointing the arbitrators is unsustainable and theFsame deserves to be quashed and set aside. However, at the same time,as the High Court has not held any preliminary inquiry on whether thedispute is arbitrable or not and/or whether the dispute falls under Clause36 or not, we deem it proper to remit the matter to the High Court to holda preliminary inquiry on the aforesaid in light of the observations madeGby this Court in the case of Vidya Drolia (supra) and in the case ofIndian Oil Corporation Limited (supra) and the observations madehereinabove and thereafter, pass an appropriate order.

8. In view of the above and for the reasons stated above thepresent appeal succeeds. The impugned judgment and order passed bythe High Court appointing the arbitrators in terms of Clause 37 of theH

M/S. EMAAR INDIA LTD. v. TARUN AGGARWAL PROJECTSLLP & ANR. [M. R. SHAH, J.]

Addendum Agreement dated 19.04.2011 is hereby quashed and set aside.The matter is remitted to the High Court to decide the application underSection 11(5) and (6) of the Arbitration Act afresh and to pass anappropriate order after holding a preliminary inquiry/review on whetherthe dispute is arbitrable or not and/or whether the dispute falls withinClause 36 of the Addendum Agreement or not. The present appeal isaccordingly allowed. No costs.

Devika Gujral(Assisted by : Deepak Panwar, LCRA)

Appeal allowed.

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