The Hon’ble SC while hearing the instant petition observed that the “question of novation of contract containing an arbitration clause cannot be taken into consideration by the Hon’ble Court in a petition filed under Section 11 of the Arbitration and Conciliation Act, 2019” (hereinafter referred as “A&C Act, 2019”).
Additionally, the Hon’ble apex court also commented on the comprehensive arguments on whether an agreement that contains an arbitration clause has or has not been novated cannot possibly be decided in the exercise of a limited prima facie review as to whether an arbitration agreement exists between the parties.
The Hon’ble bench while considering the instant appeal against the dismissal of a petition under Section 11 of the A&C Act, 2019 filed before the Hon’ble Delhi HC opined that the memorandum of understanding (hereinafter referred to as “MoU”) [which contained the arbitration clause] ceased to exist on and from the date of the Shareholders’ Agreement which superseded the aforesaid MoU and novated the same.
At the outset, the appellant contended before the Hon’ble Apex Court, that Section 11 of A&C Act, 2019 states that the Hon’ble court would be duty-bound to refer the parties to the arbitration and leave composite questions of fact and the law relating to novation of a contract under Section 62 of the Contract Act, 1872 to be decided by an arbitral tribunal.
Further, the Hon’ble bench while agreeing with the contention made by the appellants stated that “It is obvious that the MoU has been novated by the SHA and requires a full consideration of the clauses of the two Agreements, with the immediate circumstances in which these agreements were entered into, and full consideration of the law on the subject. None of this can be done given the limited jurisdiction of a Hon’ble court under Section 11 of the 1996 Act.”
Furthermore, the Hon’ble bench extensively referred to the observations made in the case of Vidya Drolia versus. Durga Trading Corporation, (2021) 2 SCC 1 and other decisions on this subject. Wherein the Hon’ble court held that when contentions relating to non-arbitrability are arguable, or when facts are contested the Hon’ble court cannot, at this stage, enter into a mini-trial or elaborate review of the facts and law which would take the jurisdiction of the arbitral tribunal.
Moreover, the Hon’ble bench also observed that Arbitration Act, 1940, had a scheme completely different from the scheme contained in Section 16 read with Section 11(6A) of the 1996 Act. “Under the Arbitration and Conciliation (Amendment) Act, 2015 [“2015 Amendment Act”], by which Section 11(6A) was introduced, the earlier position as to the scope of the powers of a court under Section 11, while appointing an arbitrator, is now narrowed to viewing whether an arbitration agreement exists between parties.”, the court added.
Subsequently, the Hon’ble bench referred the parties to the arbitration and appointed Justice Aftab Alam as sole arbitrator.
Case: Sanjiv Prakash versus. Seema Kukreja
Coram: Justices RF Nariman, BR Gavai and Hrishikesh Roy
Counsel: Sr. Adv K.V. Viswanathan, Sr. Adv Mukul Rohatgi, Adv Avishkar Singhvi, Adv Manik Dogra
Citation: LL 2021 SC 198