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High Court to hold a preliminary inquiry on whether dispute arbitrable: SC

– Report by Mahija Sinha

The Supreme Court in the case of  M/S. Emmar India Ltd. V. Tarun Aggarwal Projects LLP & Anr.  has stated that the HC must perform a preliminary inquiry to determine if the dispute is arbitrable to justify the appointment of arbitrators in an application under Sections 11(5) and (6) of the Arbitration Act.

FACTS

The appellants challenged the Delhi High Court’s decision and ruling in the Arbitration Petition in a civil appeal. Both parties had entered into a Collaboration Agreement and a subsequent Addendum Agreement for building a residential colony in Gurugram’s Sector 62 and 65. The parties got into a dispute, and the respondents, in this case, claimed that the appellant had broken the Addendum Agreement’s responsibilities. The respondents sent a legal notice demanding actual control of five plots totalling 2160 square yards and alleging losses of Rs. 10 crores. The disagreement was arbitrable, according to the respondents in this case, and an ex-High Court judge was chosen as the arbitrator. However, the appellants, in this case, reject the arbitrator’s appointment. As a result, the respondents, in this case, submitted an application under Sections 11(5) and (6) of the Arbitration Act asking the Court to select the arbitrators in accordance with Clause 37 of the Addendum Agreement. The appellants made a number of arguments in opposition to the aforementioned arbitration petition. The High Court granted the application under sections 11(5) and (6) of the Arbitration Act and appointed the arbitrator while keeping in mind clauses 36 and 37 of the Addendum clause. This infuriated the appellants, who then brought the current appeal.

APPELLANT’S CONTENTION

The legal representatives for the appellant argued that the High Court completely overlooked the fact that, in the appellant’s opinion, the issue occurs under Clause 36 of the Agreement and not Clause 37 while granting the application under Sections 11(5) and (6) and selecting the arbitrators. They referred to the cases Vidya Drolia and Ors. v. Durga Trading Corporation and Indian Oil Corporation Limited v. NCC Limited, where the Court noted “that at the stage of Section 11 of the Arbitration Act, a preliminary” injunction must be filed, and Uttarakhand Purv Sainik Kalyan Nigam Limited v. Northern Coal Field Limited, where it was held that the appointment of an arbitrator could be refused if the arbitration agreement is not in writing. As a result, it was finally argued that the High Court must conduct a preliminary investigation to determine whether the disagreement between the parties is covered by Clause 36 of the Agreement

RESPONDENT’S CONTENTION

Referring to Vidya Drolia and Others v. Durga Trading Corporation, the legal representatives for respondents argued that it would be best to leave the decision of whether or not the dispute is arbitrable to the arbitrator in a request made under Section 16 of the Arbitration Act, as it is the arbitrator’s job to make that determination. He continued by saying that the High Court’s selection of the arbitrators was correct, given a combined reading of Clauses 36 and 37 of the Agreement and the parties’ determination to settle their dispute through arbitration in accordance with the Arbitration Act.

COURT’S DECISION

 The bench of Justice M.R. Shah and Justice Krishna Murari observed 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 a primary inquiry/review, and prima facie come to a conclusion on whether the dispute is arbitrable. Without conducting this preliminary investigation and despite knowing the fact that a party does have the right to seek enforcement of an agreement before a court of law as per Clause 36, the arbitrators were only appointed after it was noted that the 1996 Arbitration and Conciliation Act does not preclude the resolution of disputes through arbitration.”

The Court stated that the High Court, however, did not recognize or consider that a dispute involving the enforcement of the Agreement as described in Clauses 3, 6, and 9 is not subject to arbitration at all. According to this interpretation, the High Court’s contested judgment and order appointing the arbitrators is invalid and should be repealed and overturned.

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