2024 (9) TMI 1299 - SC - Indian Laws

SC appoints sole arbitrator under Section 11(6) for signatory and non-signatory parties following Cox and Kings precedent

AJAY MADHUSUDAN PATEL & ORS. Versus JYOTRINDRA S. PATEL & ORS.

AJAY MADHUSUDAN PATEL & ORS. Versus JYOTRINDRA S. PATEL & ORS. - 2024 INSC 710 Issues Involved:1. Scope of jurisdiction of the referral court under Section 11(6) of the Arbitration and Conciliation Act, 1996.2. Whether the SRG Group, being a non-signatory to the FAA, can be referred to arbitration.Issue-wise Detailed Analysis:i. Scope of jurisdiction of the referral court under Section 11(6) of the Act, 1996:The court examined the evolution of the scope of jurisdiction of the referral courts under Section 11 of the Arbitration and Conciliation Act, 1996, particularly post the 2015 Amendment. The amendment introduced Section 11(6A), which confined the court's examination to the 'existence of an arbitration agreement.' This legislative change aimed to minimize judicial intervention at the stage of appointing an arbitrator.The court referred to several landmark judgments, including SBP & Co. v. Patel Engg. Ltd., which initially expanded the court's power under Section 11 to decide preliminary issues, and National Insurance Company Limited v. Boghara Polyfab Private Ltd., which categorized preliminary issues into three groups. However, the 2015 Amendment, through Section 11(6A), overruled these decisions by restricting the court's role to determining the existence of an arbitration agreement.The court emphasized that the referral court must conduct a prima facie examination of the existence of an arbitration agreement, without delving into detailed factual disputes, as reiterated in Duro Felguera S.A. v. Gangavaram Port Limited and Vidya Drolia and Ors. v. Durga Trading Corporation. The court also highlighted that the arbitral tribunal has the primary jurisdiction to decide on its own jurisdiction, including issues of the existence and validity of the arbitration agreement, as stated in In Re: Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899.ii. Whether on a prima facie view, the SRG Group being a non-signatory to the FAA, can be referred to arbitration:The court examined whether the SRG Group, a non-signatory to the FAA, could be considered a veritable party to the arbitration agreement. It referred to the decision in Cox and Kings Limited v. SAP India Private Limited and Another, which clarified that non-signatories could be bound by an arbitration agreement if there is a defined legal relationship and mutual intent to be bound by the terms of the agreement.The court noted that the FAA included clauses involving the SRG Group, such as Clauses 2.1.4 and 2.1.6, which required the SRG Group's participation in transactions related to Millenium and Deegee. The court observed that the SRG Group's involvement in the negotiation, performance, and termination of the underlying contract could indicate their intention to be bound by the arbitration agreement.The court identified several contested questions of fact that needed resolution, such as whether the SRG Group was represented during negotiations, whether their silence on certain communications implied consent, and their role in the valuation and due diligence processes. The court concluded that these issues required a detailed examination by the arbitral tribunal, as the referral court's jurisdiction under Section 11(6) was limited to a prima facie determination.Conclusion:The court allowed the petition, appointing Mr. Akil Kureshi (Former Chief Justice, High Court of Rajasthan) as the sole arbitrator. It emphasized that all rights and contentions of the parties were left open for adjudication by the arbitrator, and the tribunal would decide on the veritable party status of the SRG Group based on evidence and legal doctrines.