MAGIC EYE DEVELOPERS PVT. LTD. versus M/S. GREEN EDGE INFRASTRUCTURE PVT. LTD. & ORS. ETC. on 12 May 2023

[2023] 5 S.C.R. 401

MAGIC EYE DEVELOPERS PVT. LTD.

v.

M/S. GREEN EDGE INFRASTRUCTURE PVT. LTD. & ORS.ETC.

(Civil Appeal Nos. 3634-37 of 2023)

MAY 12, 2023

[M. R. SHAH AND C. T. RAVIKUMAR, JJ.]

Arbitration and Conciliation Act, 1996 – Arbitration andConciliation Amendment Act, 2015 – s.11(6) – Pre-referraljurisdiction – Before the High Court, appellant raised objectionwith regard to the existence of an arbitration agreement – HighCourt/referral court held that the issue of arbitrability of the disputecan be addressed by Arbitral Tribunal – Thereafter, High Courtreferred the disputes for arbitration and appointed a arbitrator –On appeal, held: Pre-referral jurisdiction of the court u/s. 11(6) ofthe Arbitration Act is very narrow and inheres two inquiries – Theprimary inquiry is about the existence and the validity of anarbitration agreement and the Secondary inquiry is with respect tothe non-arbitrability of the dispute – The issue of existence and thevalidity of an arbitration agreement has to be to conclusively andfinally decided by the referral court at the referral stage itself andthe same should not be left to be determined by the Arbitral Tribunalas it goes to the root of the matter – Furthermore, it is the duty of thereferral court to decide the said issue first conclusively to protectthe parties from being forced to arbitrate when there does not existany arbitration agreement and/or when there is no valid arbitrationagreement at all – In the instant case, the referral court (High Court)has not decided the said issue conclusively and finally, which oughtto have been done by it and Court has left it to be decided by theArbitral Tribunal – Judgment of High Court quashed and set aside– Matter remitted back to the High Court.

Allowing the appeals, the Court

HELD: 1. As per the settled position of law, pre-referraljurisdiction of the court under Section 11(6) of the ArbitrationAct is very narrow and inheres two inquiries. The primary inquiryis about the existence and the validity of an arbitration agreement,

401

A

B

CDEFG

H

Conclusion

Awhich also includes an inquiry as to the parties to the agreementand the applicant’s privity to the said agreement. The said matterrequires a thorough examination by the referral court. TheSecondary inquiry that may arise at the reference stage itself iswith respect to the non-arbitrability of the dispute. Both aredifferent and distinct. So far as the first issue with respect to theBexistence and the validity of an arbitration agreement isconcerned, as the same goes to the root of the matter, the samehas to be to conclusively decided by the referral court at thereferral stage itself. Now, so far as the non-arbitrability of thedispute is concerned, even as per the law laid-down by this CourtCin the case of Vidya Drolia, the court at prereferral stage andwhile examining the jurisdiction under Section 11(6) of the Actmay even consider prima facie examining the arbitrability ofclaims. As observed, the prima facie review at the reference stageis to cut the deadwood and trim off the side branches instraightforward cases where dismissal is barefaced and pellucidDand when on the facts and law the litigation must stop at the firststage. However, so far as the dispute with respect to the existenceand validity of an arbitration agreement is concerned and whenthe same is raised at pre-referral stage, the referral court has todecide the said issue conclusively and finally and should not leaveEthe said issue to be determined by the arbitral tribunal. The reasonis that the issue with respect to the existence and validity of anarbitration agreement goes to the root of the matter. If the dispute/issue with respect to the existence and validity of an arbitrationagreement is not conclusively and finally decided by the referralcourt while exercising the pre-referral jurisdiction under SectionF11(6) and it is left to the arbitral tribunal, it will be contrary toSection 11(6A) of the Arbitration Act. It is the duty of the referralcourt to decide the said issue first conclusively to protect theparties from being forced to arbitrate when there does not existany arbitration agreement and/or when there is no valid arbitrationGagreement at all. [Para 5.3][407-C-H; 408-B-C]

2. The referral court has not decided the said issueconclusively and finally and referral court has left it to be decidedby the arbitral tribunal. The submission on behalf of the contestingrespondent relying upon some observations made in paragraph H

22 of the impugned order that the referral court has in fact opinedthat the four agreements are indisputably interconnected isconcerned, it is required to be noted that the observations madein paragraph 22 are to be read along with the prayer of theappellant to appoint different arbitrator(s). However, in paragraph13, it is specifically observed by the referral court that “this Courtcannot finally pronounce one way or the other on this aspect.” Inparagraph 14 also, it is specifically observed that the arbitrabilityof the dispute raised viz-a-viz the arbitration clause 27.3 of SHA-1, is an involved issue, can be addressed by the learned arbitraltribunal. Thus, the referral court has not pronounced anythingfinally on the existence and validity of the arbitration agreementwhich ought to have been done by the referral court. [Para 6]

Vidya Drolia and Ors. Vs. Durga Trading Corporation(2021) 2 SCC 1; N.N. Global Mercantile Private LimitedVs. Indo Unique Flame Ltd. and Ors. 2023 SCC OnlineSC 495; NTPC Ltd. Vs. SPML Infra Ltd. 2023 SCCOnline SC 389; Chloro Controls India Private LimitedVs. Severn Trent Water Purification Inc. and Ors. (2013)1 SCC 641 : [2012] 13 SCR 402; OlympusSuperstructures (P) Ltd. Vs. Meena Vijay Khetan (1999)5 SCC 651 : [1999] 3 SCR 490 – referred to.

From the Judgment and Order dated 25.03.2021 of the High Courtof Delhi at New Delhi in ARB. P Nos. 347 of 2019, 753 of 2020 andOMP (I) (COMM) Nos. 26 of 2019, 114 of 2020.

Preetesh Kapur, Neeraj Kishan Kaul, Sr. Advs., Shaunak Kashyap,Nishtha Gupta, M/s. Mitter & Mitter Co., Abhimanyu Bhandari, AarushBhatia, Ms. Rooh-e-hina Dua, Shubhankar Sengupta, Advs. for theappearing parties.

A

B

C

D

E

F

G

H

AThe Judgment of the Court was delivered by

M. R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned commonjudgment and order passed by the High Court of Delhi at New Delhi inrespective Arbitration Petitions, by which, the High Court has referredBthe disputes for arbitration and has appointed the sole arbitrator, theoriginal opponent – Magic Eye Developers Pvt. Ltd. has preferred thepresent appeals.

2. The issue involved in the present appeals is as such in a verynarrow compass, namely, pre-referral jurisdiction of the Court underCSection 11(6) of the Arbitration and Conciliation Amendment Act, 2015.

2.1 At the outset, it is required to be noted that before the HighCourt the appellant herein specifically raised an objection with regard tothe existence of an arbitration agreement/clause. It was the case onbehalf of the appellant that the dispute revolves entirely around MOU-2Dwhich does not contain the arbitration clause. However, on the otherhand, it was the case on behalf of the contesting respondent herein –original applicant that other agreement(s) i.e., SHA-1, SHA-2 and MOU-1 are interlinked/interconnected with the MOU-2 which contained thearbitration clause/agreement and therefore, all the aforesaid agreementsEare required to be read along with MOU-2.

2.2 By the impugned common judgment and order and relyingupon the decision of this Court in the case of Vidya Drolia and Ors.Vs. Durga Trading Corporation, (2021) 2 SCC 1 and by observingthat the arbitrability of the dispute raised, viz-a-viz the arbitration clauseF27.3 of SHA-1, is an involved issue and the said issue can be addressedby the learned Arbitral Tribunal, given the complexity of the transactioninvolved, the High Court has referred the disputes for arbitration andhas appointed the arbitrator.

3. Shri Preetesh Kapur, leanred Senior Advocate has appearedGon behalf of the appellant and Shri Neeraj Kishan Kaul, learned SeniorAdvocate has appeared on behalf of the contesting respondent – originalapplicant.

3.1 Shri Preetesh Kapur, learned Senior Advocate appearing onbehalf of the appellant has taken us to Section 11(6A) of the ArbitrationHAct and has submitted that post- Arbitration and Conciliation Amendment Act, 2015 by which sub-section (6A) has been added to Section 11 ofthe Arbitration Act, while deciding the application under Section 11(6) ofthe Act and while exercising the pre-referral jurisdiction, the Court hasto consider and examine the existence of an arbitration agreement and itshould not be left to the Arbitral Tribunal.

3.2 It is vehemently submitted that there is a difference anddistinction between the existence and validity of an arbitration clauseand non-arbitrability of the dispute. It is submitted that so far as the issuewith respect to the existence and validity of an arbitration agreement atthe stage of pre-referral jurisdiction under Section 11(6) of the Act, theCourt has to give a specific finding finally on such issue and such anissue should not be left to the Arbitral Tribunal. It is submitted thattherefore, the High Court has misapplied and/or misread the decision ofthis Court in the case of Vidya Drolia (supra).

3.3 It is vehemently submitted by Shri Kapur, learned SeniorAdvocate appearing on behalf of the appellant that as such it is the dutycast upon the referral court to protect the parties from being forced toarbitrate when the matter is demonstrably non-arbitrable. It is submittedthat the dispute with respect to the existence and validity of an arbitrationagreement/clause goes to the root of the matter and has to be decidedfirst by the referral court. It is submitted that if ultimately it is held thatthere is no existence of an arbitration agreement and/or there is no validarbitration agreement and the said issue is left to be decided by thearbitral tribunal in that case the entire exercise by the arbitral tribunalwill be futile. It is submitted that therefore in order to prevent wastageof public and private resources and taking into consideration Section11(6A) of the Act, the referral court has to finally conclude the issuewith respect to the existence and validity of the arbitration agreement.Reliance is placed upon the recent decision of the Constitution Bench ofthis Court in the case of N.N. Global Mercantile Private LimitedVs. Indo Unique Flame Ltd. and Ors., 2023 SCC Online SC 495.It is submitted that in the said decision it is observed and held by thisCourt that Sans an agreement, there cannot be a reference to arbitration.It is submitted that it is further held that an arbitration agreement mustsatisfy the requirements of Section 7(1). It is submitted that it is furtherobserved and held that the true intention behind the insertion of Section11(6A) in the Act was to confine the Court, acting under Section 11, toexamine and ascertain about the existence of an arbitration agreement.

A

B

C

D

E

F

G

H

A

3.4 Shri Kapur, learned Senior Advocate appearing on behalf ofthe appellant has also relied upon the recent decision of this Court in thecase of NTPC Ltd. Vs. SPML Infra Ltd., 2023 SCC Online SC389 (paragraphs 19, 25 and 28).

4. While opposing the present appeals, Shri Neeraj Kishan Kaul,Blearned Senior Advocate appearing on behalf of the original applicanthas vehemently submitted that in the facts and circumstances of thecase, the High Court has rightly followed the decision of this Court in thecase of Vidya Drolia (supra) and has rightly referred the disputesbetween the parties to the arbitration.

C

4.1 It is vehemently submitted by Shri Kaul, learned SeniorAdvocate appearing on behalf of the original applicant that in the presentcase all the agreements, namely, SHA-1, SHA-2 and MOU-1 are requiredto be read along with MOU-2. It is submitted that the agreements otherthan MOU-2 do contain the arbitration clause, more particularly, clauseD27.3 in SHA-1. It is submitted that the High Court in paragraph 22 hasspecifically observed and opined that the four agreements are indisputablyinterconnected. It is submitted that once there is a specific finding giventhat all the agreements are interconnected, the agreement in which thereis an arbitration clause has to be read along with MOU-2 and therefore,the High Court has rightly referred the disputes to the arbitration.E

4.2 Shri Kaul, learned Senior Advocate appearing on behalf ofthe original applicant has heavily relied upon the decision of this Court inthe case of Chloro Controls India Private Limited Vs. Severn TrentWater Purification Inc. and Ors., (2013) 1 SCC 641 as well as thedecision of this Court in the case of Olympus Superstructures (P)FLtd. Vs. Meena Vijay Khetan, (1999) 5 SCC 651 in support of hissubmission that all the four agreements are interconnected and therefore,are required to be read altogether.

5. Heard. The short question which is posed for the considerationof this Court is, the jurisdiction of the referral court at pre-referral stageGwhen the issue with respect to the existence and validity of an arbitrationagreement is raised.

5.1 While considering the aforesaid issue Section 11(6A) of theArbitration Act which has been added through Arbitration and ConciliationAmendment Act, 2015 is required to be read which reads as follows: -H

“(6-A) The Supreme Court or, as the case may be, the HighCourt, while considering any application under subsection(4) or sub-section (5) or sub-section (6), shall, notwithstandingany judgment, decree or order of any court, confine to theexamination of the existence of an arbitration agreement.”

5.2 Thus, post-Arbitration and Conciliation Amendment Act, 2015,the jurisdiction of the court under Section 11(6) of the Act is limited toexamining whether an arbitration agreement exists between the parties– “nothing more, nothing less”. Thus, as per the Section 11(6A) of theAct, it is the duty cast upon the referral court to consider the dispute/issue with respect to the existence of an arbitration agreement.

5.3 At this stage, it is required to be noted that as per the settledposition of law, pre-referral jurisdiction of the court under Section 11(6)of the Arbitration Act is very narrow and inheres two inquiries. Theprimary inquiry is about the existence and the validity of an arbitrationagreement, which also includes an inquiry as to the parties to theagreement and the applicant’s privity to the said agreement. The saidmatter requires a thorough examination by the referral court. [paragraph25 of the decision in the case of NTPC Ltd. (supra)]. The Secondaryinquiry that may arise at the reference stage itself is with respect to thenon-arbitrability of the dispute. Both are different and distinct. So far asthe first issue with respect to the existence and the validity of an arbitrationagreement is concerned, as the same goes to the root of the matter, thesame has to be to conclusively decided by the referral court at the referralstage itself. Now, so far as the non-arbitrability of the dispute is concerned,even as per the law laid-down by this Court in the case of Vidya Drolia(supra), the court at pre-referral stage and while examining thejurisdiction under Section 11(6) of the Act may even consider primafacie examining the arbitrability of claims. As observed, the prima faciereview at the reference stage is to cut the deadwood and trim off theside branches in straightforward cases where dismissal is barefacedand pellucid and when on the facts and law the litigation must stop at thefirst stage. However, so far as the dispute with respect to the existenceand validity of an arbitration agreement is concerned and when the sameis raised at pre-referral stage, the referral court has to decide the saidissue conclusively and finally and should not leave the said issue to bedetermined by the arbitral tribunal. The reason is that the issue withrespect to the existence and validity of an arbitration agreement goes to A

B

C

D

E

F

G

H

A

B

C

D

E

F

G

H

Athe root of the matter. As observed by the Constitution Bench in thecase of N.N. Global Mercantile Pvt. Ltd. (supra) Sans an agreement,there cannot be any reference to the arbitration. In the said decision thisCourt has also specifically observed and held that the intention behindthe insertion of Section 11(6A) in the Act was to confine the Court,acting under Section 11, to examine and ascertain about the existence ofBan arbitration agreement. We are of the opinion that therefore, if thedispute/issue with respect to the existence and validity of an arbitrationagreement is not conclusively and finally decided by the referral courtwhile exercising the pre-referral jurisdiction under Section 11(6) and it isleft to the arbitral tribunal, it will be contrary to Section 11(6A) of theCArbitration Act. It is the duty of the referral court to decide the saidissue first conclusively to protect the parties from being forced to arbitratewhen there does not exist any arbitration agreement and/or when thereis no valid arbitration agreement at all.

6. From the impugned common order passed by the referral court,Dit appears from the observations made in paragraphs 11 to 13 that thereferral court has not decided the said issue conclusively and finally andreferral court has left it to be decided by the arbitral tribunal. Thesubmission on behalf of the contesting respondent relying upon someobservations made in paragraph 22 of the impugned order that the referralcourt has in fact opined that the four agreements are indisputablyEinterconnected is concerned, it is required to be noted that the observationsmade in paragraph 22 are to be read along with the prayer of the appellantto appoint different arbitrator(s). However, in paragraph 13, it isspecifically observed by the referral court that “this Court cannot finallypronounce one way or the other on this aspect.” In paragraph 14 also, itFis specifically observed that the arbitrability of the dispute raised viz-a-viz the arbitration clause 27.3 of SHA-1, is an involved issue, can beaddressed by the learned arbitral tribunal. Thus, the referral court hasnot pronounced anything finally on the existence and validity of thearbitration agreement which ought to have been done by the referralcourt.G

7. Now, so far as the submission made by Shri Kaul, learnedSenior Advocate that all the agreements being interlinked andinterconnected and reliance placed on the decision of this Court in thecases of Chloro Controls India Pvt. Ltd. (supra) and OlympusSuperstructures (P) Ltd. (supra), we do not propose to go into theH

merits as the same has to be considered by the referral court. We havenot even permitted learned counsel appearing on behalf of the appellantto make submission on merits.

8. In view of the above and for the reasons stated above, theimpugned common judgment and order passed by the High Court inrespective Arbitration Petitions, referring the disputes to arbitration ishereby quashed and set aside. The matter is remitted back to the HighCourt/referral court to decide the respective arbitration petitions afreshand in light of the observations made hereinabove and to decide theissue conclusively and finally with respect to the existence and validityof the arbitration agreement. The aforesaid exercise to be completedwithin a period of three months from the date of receipt of the presentorder. However, it is observed that we have not expressed anything onmerits on the existence and validity of the arbitration agreement and onthe four agreements being interconnected/interlinked. It is ultimately forthe High Court/referral court to take an appropriate decision in accordancewith law and on its own merits. Present appeals are accordingly allowed tothe aforesaid extent. In the facts and circumstances of the case, there shallbe no order as to costs.

Ankit Gyan

Appeals allowed.

(Assisted by : Abhishek Agnihotri and Aarsh Choudhary, LCRAs)

A

B

C

D

E

F

G

H