TMI Blog2021 (4) TMI 319X X X X Extracts X X X X X X X X Extracts X X X X ..... lant. Apart from going into a detailed consideration of the MoU and the SHA, which is exclusively within the jurisdiction of the arbitral tribunal, the learned Single Judge, while considering clause 28 of the SHA to arrive at the finding that any kind of agreement as detailed in clause 28.2 between the parties shall stand superseded, does not even refer to clause 28.1. No consideration has been given to the separate and distinct subject matter of the MoU and the SHA. The judgment of the High Court is set aside and matter referred to the parties to the arbitration of a sole arbitrator, being Justice Aftab Alam (retired Judge of this Court), who will decide the dispute between the parties without reference to any observations made by this Court, which are only prima facie in nature - appeal disposed off. - CIVIL APPEAL NO. 975 OF 2021 CIVIL APPEAL NO. 976 OF 2021 - - - Dated:- 6-4-2021 - JUSTICE ROHINTON FALI NARIMAN , JUSTICE B.R. GAVAI And JUSTICE HRISHIKESH ROY For the Appellant : Mr. E. C. Agrawala, AOR For the Respondent : Ms. Sonali Jaitley Bakhshi, Adv. Mr. Jaiyesh Bakhshi, Adv. Mr. Manik Dogra, Adv. Mr. Pallav Pandey, Adv. Ms. Rini Badoni, Adv. Mr. Gaura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 100.00% The Prakash Family was to divest 49% of this shareholding in favour of Reuters or its affiliates, subject to necessary permission of the authorities, as follows: And whereas ANI for the past many years has been doing considerable business with Reuters Television (Reuters). The relationship between them has been close and cordial. In order to strengthen the relationship and make optimum use of the tremendous growth potential in the TV media sector, including to cater to the ever expanding news video demands of Reuters in its satellite transmissions to subscribers worldwide, it has been found expedient by the existing members of the company to divest 49% of their shareholding in favour of Reuters or its affiliates subject to necessary permission of authorities. This would cement the relationship built over the years between Reuters and the company. The MoU went on to record: 1. The Prakash family will divest its 49% shareholding as under: Prem Prakash 1372 Daya Prakash 1176 Sanjiv Prakash 1470 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to sell and or bequeath his/her equity shares, the same shall be offered/bequeathed only to S.P. or his heirs and successors. Similarly, in the event of S.K. or her heirs/successors desire to sell their shares, the same shall be sold only to S.P. or his successors. The consideration paid shall be the net worth of shares on the last balance sheet date determined by the auditors of the company. xxx xxx xxx 11. This MoU embodies the entire understanding of the parties as to its subject matter and shall not be amended except in writing executed all the parties to the MoU. 12. All disputes, questions or differences etc., arising in connection with this MoU shall be referred to a single arbitrator in accordance with and subject to the provisions of the Arbitration Act, 1940, or any other enactment or statutory modification thereof for the time being in force. 2.4. A Shareholders Agreement dated 12.04.1996 [ SHA ] was then executed between the Prakash Family and Reuters. So far as is relevant, the SHA referred to the Appellant and the Respondents collectively as the Prakash Family Shareholders , and individually as a Prakash Family Shareholder . It then set ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest; Reuters Directors was defined as follows: Reuters Directors means the directors of the Company from time to time appointed by Reuters in accordance with the Articles; Reuters Group was defined as follows: Reuters Group means Reuters, its Holding Company and such Holding Company s Subsidiaries for the time being; Transfer of shares and pre-emption was dealt with in clause 4 read with clauses 11, 12, and 14 and schedule 1 of the SHA. Clause 7.2 is important and states as follows: 7.2 Unless otherwise agreed by the Shareholders, the number of Directors shall be seven (7) of whom, for so long as the Percentage Interest of the Prakash Family Shareholders is in aggregate equal to or greater than fifty point zero one per cent. (50.01%), four (4) shall be Prakash Family Directors and three (3) shall be Reuters Directors in accordance with the Articles. If the Percentage Interest of the Prakash Family Shareholders falls below such level, the number of Prakash Family Directors and Reuters Directors shall be determined in accordance with the Articles. The quorum for holding meetings was then set out in clause 7.12, and matters requiring spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... save for the preceding provisions of this clause 12. The termination clause was set out as follows: 14.1 This Agreement shall continue in full force and effect for so long as both (i) any of the Prakash Family Shareholders and (ii) any member of the Reuters Group hold any Shares. If, as a result of any sale or disposal made in accordance with this Agreement, either (i) none of the Prakash Family shareholders or (ii) no member of the Reuters Group holds any Shares, then this Agreement shall terminate and cease to be of any effect, save that this shall not: (a) relieve any Shareholder from any liability or obligation in respect of any matters, undertakings or conditions which shall not have been done, observed or performed by any such Shareholder prior to such termination; (b) save for clause 14.2, affect the terms of any agreement entered into between any Prakash Family Shareholders and Reuters or any successor of either of them holding Shares, to replace this Agreement; or (c) affect the terms of clause 15 (confidentiality) of this Agreement. The arbitration clause was set out in clause 16 which reads as follows: LEGAL DISPUTES 16.1 In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and the Share Purchase Agreement. Clause 31 deals with governing law and jurisdiction and states as follows: 31. This Agreement (save for clause 16.2, which shall be governed by and construed in accordance with the laws of England) is governed by and shall be construed in accordance with the laws of India. 2.5. On the same day, a Share Purchase Agreement dated 12.04.1996 [ SPA ] was entered into between the Prakash Family and Reuters. The SPA also contained an arbitration clause similar to that contained in clause 16 of the SHA, and also contained an entire agreement clause in clause 11, which is similar to clause 28 of the SHA. On the same date, various ancillary agreements were also entered into between the parties, referred to in the SHA. These ancillary agreements are as follows: (i) Agreement for the Assignment of Copyright dated 12.04.1996 between Prem Prakash, Asian Films Laboratories Pvt. Ltd., and Reuters Television Mauritius Ltd. (ii) Trade Clarification Agreement dated 12.04.1996 between Asian Films Laboratories Pvt. Ltd., Reuters Television Mauritius Ltd., and the partners of Ved Co. (i.e., Prem Prakash, Daya Prakash, Sanjiv Prakash, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (the other Prakash Family Shareholders). The remaining votes attributable to Shares hold by Prakash Family Shareholders shall be divided equally between the other Prakash Family shareholders; and (ii) The provisions of Article 16(b)(i) shall cease to be valid and effective upon the occurrence of any of the events in relation to SP. We are informed that this position continued up to the year 2012 after which, by mutual agreement, the Articles of Association were again amended so that the amendments incorporated in 1996 no longer continued. 2.7. Divestment of 49% of the share capital took place as was set out in the MoU as well as the SPA and the SHA, consequent upon which Daya Prakash resigned as the Managing Director and Sanjiv Prakash took over as the Managing Director of the company in 1996 itself. 2.8. Disputes between the parties arose when Prem Prakash decided to transfer his shareholding to be held jointly between Sanjiv Prakash and himself, and Daya Prakash did likewise to transfer her shareholding to be held jointly between Seema Kukreja and herself. A notice invoking the arbitration clause contained in the MoU was then served by Sanjiv Prakash on 23.11.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh Family Members and Reuters act as blocks , which does not mean that SHA does not recognise Prakash Family Shareholders in their individual capacity. More so, as per the opening paragraph, the term parties envisages Prakash Family Shareholders both individually as well as collectively. xxx xxx xxx 90. A conjoint reading of the Clause 28.2 with the opening paragraph of SHA therefore necessarily means that any kind of agreement as detailed in Clause 28.2, between the parties shall stand superseded as per Clause 28.2. So, it follows the shareholders of Prakash Family having being individually recognised under the SHA as parties, the MoU, an agreement, as relied upon by the petitioner which governs the inter-se rights and obligations of the Prakash Family stands superseded. It is not the case of the Ld. Counsel for the petitioner that the SHA does not deal with inter-se rights of the members / shareholders of the Prakash Family. The plea of Mr. Nayar that MoU was entered by Prakash Family to define their family arrangement before the Reuters came in by purchasing the shares and hence cannot be overridden by the SHA is not appealing. Nothing precluded the members of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ram Power and Steel Pvt. Ltd., (2018) 6 SCC 534], Vodafone [Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613], Uttarakhand Purv Sainik [Uttarakhand Purv Sainik Kalyan Nigam Limited v. Northern Coal Field Ltd., (2020) 2 SCC 455], Russell [Russell v. Northern Bank Development Corpn. Ltd., (1992) B.C.C. 578] and Anderson [Catherine Anderson v. Ashwani Bhatia, (2019) 11 SCC 299], and the same are not applicable to the case in hand. 3. Shri K.V. Viswanathan, learned Senior Advocate appearing on behalf of the Appellant, relied strongly upon the MoU between the Prakash Family and stressed the fact that it was a family settlement or arrangement which raised a special equity between the parties and could not be treated as a mere contractual arrangement, having to be enforced in accordance with several judgments of this Court. For this purpose, he relied strongly upon the observations contained in paragraph 9 of Kale v. Deputy Director of Consolidation, (1976) 3 SCC 119 [ Kale ], as followed in Reliance Natural Resources Ltd. v. Reliance Industries Ltd., (2010) 7 SCC 1 (at paragraphs 49 and 50). In particular, he relied upon the fact that it was the Appellant who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement clauses are to be construed strictly, the idea being to obviate having to refer to negotiations that had taken place between the parties pertaining to the subject matter of the agreement before the agreement was formally entered into. He then assailed the learned Single Judge s judgment dated 22.10.2020, arguing that the impugned judgment, instead of following Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729 [ Duro Felguera ] and Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman, (2019) 8 SCC 714 [ Mayavati Trading ], was in the teeth of the principles laid down in the aforesaid two judgments. He also argued that whether or not novation had taken place is, at the very least, an arguable point of considerable complexity which would depend upon a finding based upon various clauses of the MoU and the SHA, when construed in accordance with the surrounding circumstances. He also argued that what was missed by the learned Single Judge was the fact that a family settlement had been acted upon, resulting in an amendment of the Articles of Association of the company soon after the MoU was entered into. He also relied upon three recent judgments of this Court, which made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken in evidence. It is only as an afterthought that clause 8 of the MoU was then relied upon. Both the learned counsel strongly relied upon clause 11.2 of the SHA which made it clear beyond doubt that the MoU stood superseded. They then relied upon the judgments in Kishorilal Gupta (supra) (at paragraph 9), Damodar Valley Corporation (supra) (at paragraphs 7 and 8), Young Achievers (supra) (at paragraphs 5 and 8), Sasan Power Ltd. v. North American Coal Corpn. (India) (P) Ltd., (2016) 10 SCC 813 (at paragraph 23), and Larsen Toubro Ltd. v. Mohan Lal Harbans Lal Bhayana, (2015) 2 SCC 461 (at paragraph 15) in favour of the proposition that the MoU stood novated as a result of the SHA. They also relied upon V.B. Rangaraj v. V.B. Gopalakrishnan, (1992) 1 SCC 160 (at paragraphs 1, 2, 7 and 8) and Pushpa Katoch v. Manu Maharani Hotels Ltd., 2005 SCC OnLine Del 702 : (2005) 83 DRJ 246 (at paragraphs 5, 7 and 8), for the proposition that the MoU would be unenforceable in law as any restriction on transfer of shares of a private company, without incorporating the aforesaid in its Articles, would be invalid as a result of which the Articles of Association alone would have to be looked a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry condition for its operation; it perishes with the contract; (3) the contract may be non est in the sense that it never came legally into existence or it was void ab initio; (4) though the contract was validly executed, the parties may put an end to it as if it had never existed and substitute a new contract for it solely governing their rights and liabilities thereunder; (5) in the former case, if the original contract has no legal existence, the arbitration clause also cannot operate, for along with the original contract, it is also void; in the latter case, as the original contract is extinguished by the substituted one, the arbitration clause of the original contract perishes with it; and (6) between the two falls many categories of disputes in connection with a contract, such as the question of repudiation, frustration, breach, etc. In those cases it is the performance of the contract that has come to an end, but the contract is still in existence for certain purposes in respect of disputes arising under it or in connection with it. As the contract subsists for certain purposes, the arbitration clause operates in respect of these purposes. In those cases, as we have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is, the Arbitration Act. 130. Section 16(1) of the Arbitration Act accepts and empowers the Arbitral Tribunal to rule on its own jurisdiction including a ruling on the objections, with respect to all aspects of nonarbitrability including validity of the arbitration agreement. A party opposing arbitration, as per sub-section (2), should raise the objection to jurisdiction of the tribunal before the Arbitral Tribunal, not later than the submission of statement of defence. However, participation in the appointment procedure or appointing an arbitrator would not preclude and prejudice any party from raising an objection to the jurisdiction. Obviously, the intent is to curtail delay and expedite appointment of the Arbitral Tribunal. The clause also indirectly accepts that appointment of an arbitrator is different from the issue and question of jurisdiction and non-arbitrability. As per sub-section (3), any objection that the Arbitral Tribunal is exceeding the scope of its authority should be raised as soon as the matter arises. However, the Arbitral Tribunal, as per sub-section (4), is empowered to admit a plea regarding lack of jurisdiction beyond the periods specified in sub-se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act is held to be valid, it would require the arbitrator to resolve the issues that have arisen. (emphasis supplied) 7. A recent judgment, Pravin Electricals Pvt. Ltd. v. Galaxy Infra and Engineering Pvt. Ltd., 2021 SCC OnLine SC 190, referred in detail to Vidya Drolia (supra) in paragraphs 15 to 18 as follows: 15. Dealing with prima facie examination under Section 8, as amended, the Court then held [Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1]: 134. Prima facie examination is not full review but a primary first review to weed out manifestly and ex facie non-existent and invalid arbitration agreements and non-arbitrable disputes. The prima facie review at the reference stage is to cut the deadwood and trim off the side branches in straightforward cases where dismissal is barefaced and pellucid and when on the facts and law the litigation must stop at the first stage. Only when the court is certain that no valid arbitration agreement exists or the disputes/subject-matter are not arbitrable, the application under Section 8 would be rejected. At this stage, the court should not get lost in thickets and decide debatable questions of facts. Referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resources, can exercise judicial discretion to conduct an intense yet summary prima facie review while remaining conscious that it is to assist the arbitration procedure and not usurp jurisdiction of the Arbitral Tribunal. Undertaking a detailed full review or a long-drawn review at the referral stage would obstruct and cause delay undermining the integrity and efficacy of arbitration as a dispute resolution mechanism. Conversely, if the court becomes too reluctant to intervene, it may undermine effectiveness of both the arbitration and the court. There are certain cases where the prima facie examination may require a deeper consideration. The court's challenge is to find the right amount of and the context when it would examine the prima facie case or exercise restraint. The legal order needs a right balance between avoiding arbitration obstructing tactics at referral stage and protecting parties from being forced to arbitrate when the matter is clearly nonarbitrable. [Ozlem Susler, The English Approach to Competence-Competence Pepperdine Dispute Resolution Law Journal, 2013, Vol. 13.] 140. Accordingly, when it appears that prima facie review would be inconclusive, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unenforceable understanding is no agreement to do anything. Existence of an arbitration agreement means an arbitration agreement that meets and satisfies the statutory requirements of both the Arbitration Act and the Contract Act and when it is enforceable in law. 147. We would proceed to elaborate and give further reasons: 147.1. In Garware Wall Ropes Ltd. [Garware Wall Ropes Ltd. v. Coastal Marine Constructions Engg. Ltd., (2019) 9 SCC 209 : (2019) 4 SCC (Civ) 324], this Court had examined the question of stamp duty in an underlying contract with an arbitration clause and in the context had drawn a distinction between the first and second part of Section 7(2) of the Arbitration Act, albeit the observations made and quoted above with reference to existence and validity of the arbitration agreement being apposite and extremely important, we would repeat the same by reproducing para 29 thereof: (SCC p. 238) 29. This judgment in Hyundai Engg. Case [United India Insurance Co. Ltd. v. Hyundai Engg. Construction Co. Ltd., (2018) 17 SCC 607 : (2019) 2 SCC (Civ) 530] is important in that what was specifically under consideration was an arbitration clause which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on non-arbitrability aspects at the referral stage. 147.5. Sections 8 and 11 of the Arbitration Act are complementary provisions as was held in Patel Engg. Ltd. [SBP Co. v. Patel Engg. Ltd., (2005) 8 SCC 618]. The object and purpose behind the two provisions is identical to compel and force parties to abide by their contractual understanding. This being so, the two provisions should be read as laying down similar standard and not as laying down different and separate parameters. Section 11 does not prescribe any standard of judicial review by the court for determining whether an arbitration agreement is in existence. Section 8 states that the judicial review at the stage of reference is prima facie and not final. Prima facie standard equally applies when the power of judicial review is exercised by the court under Section 11 of the Arbitration Act. Therefore, we can read the mandate of valid arbitration agreement in Section 8 into mandate of Section 11, that is, existence of an arbitration agreement . 147.6. Exercise of power of prima facie judicial review of existence as including validity is justified as a court is the first forum that examines and decides the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, had referred to Section 7(5) and thereafter in para 53 referred to a judgment of this Court in M.R. Engineers Contractors (P) Ltd. v. Som Datt Builders Ltd. [M.R. Engineers Contractors (P) Ltd. v. Som Datt Builders Ltd., (2009) 7 SCC 696 : (2009) 3 SCC (Civ) 271] to observe that the analysis in the said case supports the final conclusion that the memorandum of understanding in the said case did not incorporate an arbitration clause. Thereafter, reference was specifically made to Patel Engg. Ltd. [SBP Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] and Boghara Polyfab (P) Ltd. [National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117] to observe that the legislative policy is essential to minimise court s interference at the prearbitral stage and this was the intention of sub-section (6) to Section 11 of the Arbitration Act. Para 48 in Duro Felguera [Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC (Civ) 764] specifically states that the resolution has to exist in the arbitration agreement, and it is for the court to see if the agreement contains a clause which provides for arbitration of disputes which have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isputes on merits. The court as the judicial forum of the first instance can exercise prima facie test jurisdiction to screen and knock down ex facie meritless, frivolous and dishonest litigation. Limited jurisdiction of the courts ensures expeditious, alacritous and efficient disposal when required at the referral stage. 18. The Bench finally concluded: 153. Accordingly, we hold that the expression existence of an arbitration agreement in Section 11 of the Arbitration Act, would include aspect of validity of an arbitration agreement, albeit the court at the referral stage would apply the prima facie test on the basis of principles set out in this judgment. In cases of debatable and disputable facts, and good reasonable arguable case, etc., the court would force the parties to abide by the arbitration agreement as the Arbitral Tribunal has primary jurisdiction and authority to decide the disputes including the question of jurisdiction and non-arbitrability. 154. Discussion under the heading Who Decides Arbitrability? can be crystallised as under: 154.1. Ratio of the decision in Patel Engg. Ltd. [SBP Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] on the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ft to an arbitrator, who is to examine the documentary and oral evidence and then arrive at a conclusion. 8. Likewise, in Bharat Sanchar Nigam Ltd. v. Nortel Networks India Pvt. Ltd., 2021 SCC OnLine SC 207, another Division Bench of this Court referred to Vidya Drolia (supra) and concluded: 39. The upshot of the judgment in Vidya Drolia [Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1] is affirmation of the position of law expounded in Duro Felguera [Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729] and Mayavati Trading [Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman, (2019) 8 SCC 714], which continue to hold the field. It must be understood clearly that Vidya Drolia [Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1] has not resurrected the pre-amendment position on the scope of power as held in SBP Co. v. Patel Engineering [SBP Co. v. Patel Engg. Ltd., (2005) 8 SCC 618]. It is only in the very limited category of cases, where there is not even a vestige of doubt that the claim is ex facie timebarred, or that the dispute is non-arbitrable, that the court may decline to make the reference. However, if there is even the slightest d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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