Arbitration In IndiaThe Arbitrability of the Dispute to be determined by the Arbitrator

The Supreme Court in the case of VGP Marine Kingdom Pvt Ltd & Anr. v. Kay Ellen Arnold [CIVIL APPEAL NO. 6679 OF 2022 decided on 04.11.2022], held that unless the dispute is prima facie non-arbitrable, the arbitrability of the dispute would be determined by the Arbitrator.

FACTS

The VGP Marine Private Limited & Another (hereinafter referred to as the “Appellants”) and Kay Ellen Arnold (hereinafter referred to as the “Respondent”) had entered into a Share Subscription and Shareholders Agreement (hereinafter referred to as the “Agreement”) at Chennai on 27.04.2016.  Due to disputes between the parties, the Appellants approached the Madras High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the “A&C Act”) for appointment of an Arbitrator in terms of clause 17.1.2 of the Agreement.

The Madras High Court dismissed the application vide order dated 05.08.2021 (hereinafter referred to as the “Impugned Order”) stating that when the application under Section 11(6) of the A&C Act was filed, the dispute pertaining to the Agreement, subsequent Amendment Agreement dated 06.12.2017 and Addendum Agreement dated 28.05.2018 was already referred to the Arbitral Tribunal. Moreover, the proceedings were pending before the National Company Law Tribunal (hereinafter referred to as the “NCLT”) initiated by the Respondent for oppression and mismanagement as a minority shareholder.

The Appellants aggrieved by the Impugned Order, have preferred an Appeal before this Court.

ISSUES

1. Whether an Application under Section 11(6) of the A&C Act is maintainable for one Agreement if the Arbitral Award is passed for an interlinked Agreement?
2. Whether an Application under Section 11(6) of the A&C Act is maintainable during the pendency of NCLT proceedings for oppression and mismanagement?

CONTENTIONS

The Appellants contended that the Arbitration Clause is envisaged in the Agreement. Moreover, the notice was issued for termination of the Second Shareholders Agreement. It was further submitted that the Arbitration Clause was invoked by the Appellants. But, due to failure on the part of the Respondent to nominate an Arbitrator, the Appellant had approached the Madras High Court under Section 11(6) of the A&C Act.

It was argued that the Appellants were not a party to the Arbitral Proceedings that had already commenced, as the dispute was regarding a separate Shareholders Agreement.  It was further contended that the pendency of proceedings before NCLT is not a ground for not referring the dispute to Arbitration.

The Respondent contended that the three Agreements dated 27.04.2016, 06.12.2017, and 28.05.2018 were interlinked. Hence, as the Arbitral Award with respect to two Agreements is already passed and hence, the invocation of the Arbitration Clause for the third Agreement is not maintainable.

DECISIONS AND FINDINGS

The Supreme Court analysed the Arbitration Clause in the Agreement and relied on the Vidya Drolia and Ors. v. Durga Trading Corporation [(2021) 2 SCC 1] and observed that unless the dispute is prima facie not arbitrable, the arbitrability of the dispute shall be decided by the Arbitrator.

The Court opined that the pendency of proceedings before NCLT for oppression and mismanagement does not bar the application under Section 11 (6) of the A&C Act, and the Arbitrator would decide the arbitrability of the dispute. Moreover, the dispute under the Agreement and proceedings before NCLT are different.

The Supreme Court set aside the Impugned Order and appointed an Arbitrator under Section 11(6) of the A&C Act and held that the Arbitrator would decide upon the arbitrability of the dispute.

AMLEGALS REMARKS

The Supreme Court has upheld the concept of party autonomy and the intent of the legislature. The Court has empowered the Arbitrator to decide the arbitrability of the dispute if prima facie the dispute is of arbitrable nature. Moreover, the Court has also held that during the pendency of proceedings before NCLT for oppression and mismanagement, the Arbitration Clause can be invoked as the disputes in both proceedings differ.

The Supreme Court has limited the scope of judicial intervention for determining the arbitrability of the dispute. The Court has to determine the prima facie arbitrability of the dispute, the further would be determined by the Arbitrator. This would limit the judicial intervention in disputes where the Arbitration Clause is envisaged in the Agreement.

– Team AMLEGALS assisted by Mr. Niloy Ghosh (Intern)

For any queries or feedback, please feel free to get in touch with rohit.lalwani@amlegals.com or himanshi.patwa@amlegals.com.