Summary
A contested claim that a family memorandum had been novated by a later shareholders’ agreement required detailed contractual and factual examination beyond the section 11 referral inquiry. The Supreme Court set aside refusal to appoint an arbitrator and referred the dispute to a sole arbitrator. Its observations did not finally determine novation, enforceability or the parties’ share rights. Deferral of the disputed board agenda continued subject to arbitral interim orders or the final award.
Issues
- Whether the section 11 court could finally decide the disputed novation objection through detailed examination of the two agreements.
Provisions considered
- Section 11(6A), Arbitration and Conciliation Act, 1996The limited prima facie referral inquiry did not permit final adjudication of the arguable novation defence here. (¶ 6-10)
- Section 16, Arbitration and Conciliation Act, 1996The tribunal’s primary competence to decide jurisdiction and validity objections required the detailed dispute to be left to arbitration. (¶¶ 6-7, 9-11)
- Section 17, Arbitration and Conciliation Act, 1996The sole arbitrator could make interim orders varying the continuing deferral of the disputed board agenda. (¶ 12)
Held
- Referral scrutiny under the post-amendment scheme is limited and prima facie. Manifestly non-existent or invalid agreements and clearly non-arbitrable disputes can be screened out, but contested facts and reasonably arguable objections requiring detailed review ordinarily belong to the tribunal. This is not an absolute prohibition on judicial scrutiny. (¶ 6-9)
- Whether the family MoU had been superseded by the shareholders’ agreement required consideration of both agreements, their subject matter, surrounding circumstances and applicable law. The appellant’s position was neither frivolous nor vexatious; the High Court exceeded the referral inquiry by finally resolving it. (¶ 9-10)
- The High Court relied on the supersession clause without addressing its related subject-matter limitation and failed to consider the distinct purposes of the agreements. Older novation decisions under the 1940 Act could not displace the allocation of authority under sections 16 and 11(6A) of the 1996 Act. These observations remained prima facie. (¶ 10-11)
- Justice Aftab Alam was appointed sole arbitrator to decide independently of the Court’s prima facie observations. Agenda items 4 and 8 remained deferred until varied by arbitral interim orders or a final award, as specified. (¶ 11-12)
Result
Civil Appeal 975 of 2021 allowed; High Court judgment set aside and parties referred to the appointed sole arbitrator, with continued interim deferral of the specified agenda items. Connected Civil Appeal 976 of 2021 disposed of accordingly.