Summary
A power company agreed in 2018 to buy all the shares of a company owning a solar plant in Telangana, under a share purchase agreement containing an arbitration clause. A tripartite agreement with the financier and an addendum followed in 2019. When disputes arose, the buyer invoked arbitration and applied under Section 11(6) of the Arbitration Act. The Telangana High Court dismissed the application, holding that the tripartite agreement had novated the share purchase agreement, so the arbitration clause perished with it. The Supreme Court set this aside. Following Boghara Polyfab and Vidya Drolia, a plea of novation is usually intertwined with the merits and disputed facts, and so is for the arbitral tribunal. The referral court should not have decided it. The Court appointed a former Supreme Court judge as sole arbitrator and left all contentions open.
Issues
- Whether, on an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, the referral court should decide a plea that the contract containing the arbitration clause was novated by a later agreement.
Provisions considered
- Section 11(6), Arbitration and Conciliation Act, 1996The referral court must decide whether an arbitration agreement exists, but disputed questions such as novation, accord and satisfaction or limitation that bear on the merits are ordinarily for the arbitral tribunal (Boghara Polyfab, Vidya Drolia). (¶¶ 14, 15, 16, 17, 19)
Held
- Issues are of three kinds: those the court must decide (appropriate court, existence of an arbitration agreement, party to it), those it may decide or leave to the tribunal, and those exclusively for the tribunal; a plea of novation, like disputed 'no-claim' or accord-and-satisfaction defences, is ordinarily for the tribunal. (¶¶ 14, 15, 16, 17)
- An arbitration clause perishes with the contract only if the contract is void or substituted by a new one (Damodar Valley Corporation); whether the share purchase agreement was so novated bears on the merits, and the High Court erred in deciding it at the referral stage. (¶¶ 18, 19)
Result
Civil Appeal No. 8818 of 2022 allowed; the Telangana High Court judgment dated 12.02.2021 in Arbitration Application No. 55 of 2020 set aside, Justice R. Subhash Reddy (former Judge, Supreme Court) appointed sole arbitrator, and all contentions left open before the tribunal.