M/s. EMAAR INDIA LTD. VERSUS TARUN AGGARWAL PROJECTS LLP & ANR.

M/s. EMAAR INDIA LTD.  VERSUS TARUN AGGARWAL PROJECTS LLP & ANR.

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले



REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.  6774 OF 2022
M/s. EMAAR INDIA LTD.            ...APPELLANT(S)
VERSUS
TARUN AGGARWAL PROJECTS LLP & ANR.   …RESPONDENT(S)
J U D G M E N T
M.R. SHAH, J.
1. Feeling   aggrieved   and   dissatisfied   with   the   impugned
judgment and order dated 24.12.2021 passed by the High
Court of Delhi at New Delhi in Arbitration Petition No. 637
of 2021, by which, the High Court in exercise of powers
under Section 11(6) of the Arbitration and Conciliation Act,
1996 (hereinafter referred to as the Arbitration Act) has
appointed arbitrators to resolve the dispute between the
parties,   the   original   respondent   –   M/s   EMMAR   India
Limited has preferred the present appeal.
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2. That the original petitioners – respondents herein entered
into   a   Collaboration   Agreement   dated   07.05.2009   for
development of a residential colony in Sector 62 and 65,
Gurugram.   That   thereafter,   a   further   Addendum
Agreement dated 19.04.2011 was executed between the
parties. The dispute arose between the parties and it was
the case on behalf of the original applicants – respondents
herein that the appellant herein did not comply with the
obligations   under   the   Addendum   Agreement   dated
19.04.2011.   The   respondents   –   original
applicants/petitioners   issued   a   legal   notice   dated
20.11.2019 raising demand for physical possession of 5
plots measuring 2160 sq. yds. and claiming a sum of Rs.
10 crores for the losses/damages suffered by them. As
according to the original petitioners – respondents herein
the   dispute   between   the   parties   were   arbitrable,   the
original petitioners appointed a former judge of the High
Court   as   their   arbitrator.   The   appellant   herein   denied
appointment of the arbitrator. Therefore, the respondents
herein approached the High Court for appointment of the
arbitrators   in   terms   of   Clause   37   of   the   Addendum
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Agreement   by   submitting   an   application   under   Section
11(5) & (6) of the Arbitration Act seeking appointment of
arbitrators by the Court.
2.1 The said arbitration petition was opposed by the appellant
herein by raising various grounds including one of the
grounds   that   the   dispute  falls   under   Clause   36   of   the
Addendum   Agreement   and   not   under   Clause   37   which
incorporates arbitration clause. 
2.2 Despite having noted that the Clause 36 of the Addendum
Agreement stipulates that in the event of any dispute with
regard to Clauses 3, 6 and 9, other party shall have a right
to   get   the   agreement   specifically   enforced   through
appropriate court of law, the High Court has appointed the
arbitrators   in   terms   of   Clause   37   of   the   Addendum
Agreement by observing that conjoint reading of Clauses
36 and 37 makes it clear that a party does have a right to
seek enforcement of agreement before the Court of law but
it does not bar settlement of disputes through Arbitration
and   Conciliation   Act,   1996.   By   observing   so,   the   High
Court has allowed the application under Section 11(5) &
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(6) and has appointed the arbitrators, who shall appoint
the third arbitrator in terms of Clause 37. 
2.3 Feeling   aggrieved   and   dissatisfied   with   the   impugned
judgment and order passed by the High Court allowing the
application under Section 11(5) & (6) of the Arbitration Act
and appointing the arbitrators with respect to the dispute
between the parties, the original opponent – respondent
has preferred the present appeal.      
3. Shri Dhanesh Relan, learned counsel appearing on behalf
of   the   appellant   has   vehemently   submitted   that   while
allowing  the   application   under  Section   11(5)   &  (6)  and
appointing the arbitrators, the High Court has not at all
considered that according to the appellant the dispute falls
within Clause 36 of the Agreement and not under Clause
37. It is submitted that as per Clause 36 in case of any
conflict or difference arising between the parties or in case
the either party refuses or neglects to perform its part of
the obligations under Addendum Collaboration Agreement,
inter­alia, as mentioned in Clauses 3, 6 and 9, then the
other party shall have every right to get the agreement
specifically enforced through the appropriate court of law.
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It is submitted that as per Clause 37, save and except
Clause 36 or any dispute arising out of or touching upon
or in relation to the terms of the addendum agreement……
shall   be   settled   through   under   the   provisions   of   the
Arbitration and Conciliation Act, 1996. It is submitted that
therefore any dispute with regard to the Clauses 3, 6, 9
shall have to be resolved through the appropriate court of
law   and   such   dispute   is   not   arbitrable   at   all.   It   is
submitted that despite the High Court has noted Clauses
36 & 37, without deciding whether the dispute falls within
Clause 36 the High Court appointed the arbitrators.
3.1 Learned   counsel   appearing   on   behalf   of   the   appellant
submitted that as observed and held by this Court in the
case of Uttarakhand Purv Sainik Kalyan Nigam Limited
Vs. Northern Coal Field Limited; (2020) 2 SCC 455, the
appointment   of   an   arbitrator   may   be   refused   if   the
arbitration agreement is not in writing, or the dispute is
beyond the arbitration agreement.
3.2 Learned counsel appearing on behalf of the appellant has
further submitted that as observed and held by this Court
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in the case of Vidya Drolia and Ors. Vs. Durga Trading
Corporation; (2021) 2 SCC 1, the Court may interfere at
Section 8 or 11 stage when it is manifestly and ex facie
certain   that   the   arbitration   agreement   is   non­existent,
invalid   or   the   disputes   are   non­arbitrable,   though   the
nature   and   facet   of   non­arbitrability   would,   to   some
extent, determine the level and nature of judicial scrutiny.
It is further submitted that in the said decision it is also
observed   that   such   restricted   and   limited   review   is   to
check and protect parties from being forced to arbitrate
when the matter is demonstrably “non­arbitrable” and to
cut off the deadwood.
3.3 Learned counsel appearing on behalf of the appellant has
also relied upon the recent decision of this Court in the
case of Indian Oil Corporation Limited Vs. NCC Limited;
2022   SCC   OnLine   SC   896   (Civil   Appeal   No.   341   of
2022, decided on 20.07.2022), in which after considering
the decision of this Court in the case of  Vidya   Drolia
(supra), this Court after taking into consideration other
decisions   has   observed   and   held   that   at   the   stage   of
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Section 11 of the Arbitration Act, a preliminary inquiry is
permissible if the dispute is raised with respect to the
arbitrability.
3.4 Relying   upon   the   above   decisions,   it   is   vehemently
submitted by learned counsel appearing on behalf of the
appellant that in the facts and circumstances of the case,
the   High   Court   has   virtually   ignored   Clause   36   of   the
Agreement.   It   is   submitted   that   the   High   Court   was
required   to   hold   a   preliminary   inquiry   on   whether
considering   Clause   36   of   the   Agreement,   the   dispute
between the parties falls within Clause 36 or not. It is
submitted that if in preliminary inquiry it is found that the
dispute falls within Clause 36 in that case such a dispute
is not arbitrable at all. It is, therefore, prayed to allow the
present appeal and quash and set aside the judgment and
order passed by the High Court.      
4. While   opposing   the   present   appeal   Shri   Siddharth
Bhatnagar, learned Senior Advocate appearing on behalf of
the respondents has vehemently submitted that even as
observed   and  held   by   this  Court   in  the   case  of  Vidya
Drolia (supra) whether the dispute is arbitrable or not, it
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should be best left to the arbitrator in an application under
Section 16 of the Arbitration Act and it is for the arbitrator
to decide the arbitrability of the dispute.
4.1 It is submitted that on conjoint reading of Clauses 36 and
37 of the Agreement and the intention of the parties to
resolve   the   dispute   through   arbitration   under   the
Arbitration Act, no error has been committed by the High
Court in appointing the arbitrators.
5. We have heard learned counsel appearing on behalf of the
respective parties at length. 
6. The short question which is posed for consideration of this
Court is whether in the facts and circumstances of the
case,   the   High   Court   is   justified   in   appointing   the
arbitrators in an application under Section 11(5) and (6) of
the Arbitration Act without holding any preliminary inquiry
or inquiry on whether the dispute is arbitrable or not?
6.1 While   considering   the   aforesaid   question/issue,   the
relevant provisions of the Agreement, namely, Clauses 36
and 37, are required to be referred to, which are as under:
­
“Dispute Resolution & Jurisdiction
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36. In   case   of   any   conflict   or   difference   arising
between the parties or in case the either party refused
or neglects to perform its part of the obligations under
this Addendum Collaboration Agreement, inter­alia as
mentioned in Clauses 3, 6 & 9 hereinabove, then the
other party shall have every right to get this agreement
specifically enforced through the appropriate court of
law. 
37. Save & except clause 36 hereinabove mentioned,
all or any dispute arising out of or touching upon or in
relation to the terms of this Agreement including the
interpretation and validity thereof, and the respective
rights and obligations of the parties, shall be settled
through   under   the   provisions   of   Arbitration   &
Conciliation Act, 1996 wherein both the parties shall
be   entitled   to   appoint   one   Arbitrator   each   and   the
Arbitrators so appoint shall appoint a third Arbitrator
or   rank   of   Retired   Judge   of   any   High   Court.   The
arbitration   proceedings   shall   be   governed   by   the
provisions of Arbitration and Conciliation Act, 1996 or
any   statutory   amendments/modification   thereto   for
the time being in force. The arbitration proceedings
shall be held at Delhi.”   
On a bare reading of Clause 36 of the Agreement, it
clearly   stipulates   that   in   the   event   of   any   dispute   as
mentioned in Clauses 3, 6 and 9, other party shall have a
right to get the Agreement specifically enforced through the
appropriate   court   of   law.   As   per   Clause   37,   save   and
except   Clause   36,   all   or   any   dispute   arising   out   of   or
touching upon or in relation to the terms of the addendum
agreement…….   shall   be   settled   through   under   the
provisions of Arbitration and Conciliation Act, 1996. Thus,
with respect to any dispute as mentioned in Clauses 3, 6 &
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9, such disputes are not arbitrable at all. It cannot be
disputed   that   both   the   parties   are   governed   by   the
Addendum Agreement dated 19.04.2011.  
6.2 In the case of Oriental Insurance Co Ltd. Vs. Narbheram
Power   and   Steel   (P)   Ltd., (2018)   6   SCC   534,   it   is
observed and held by this Court that the parties are bound
by the Clauses enumerated in the policy and the Court
does not transplant any equity to the same by rewriting a
clause. It is further observed and held that an arbitration
clause is required to be strictly construed. Any expression
in  the clause must unequivocally express the intent  of
arbitration.   It   can   also   lay   the   postulate   in   which
situations the arbitration clause cannot be given effect to.
It is further observed that if a clause stipulates that under
certain circumstances there can be no arbitration and they
are demonstrably clear then the controversy pertaining to
appointment of Arbitrator has to be put to rest (Paras 10­
23).
6.3 In the case of Rajasthan  State   Industrial  Development
and   Investment   Corporation Vs. Diamond   and   Gem
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Development Corporation Ltd.; (2013) 5 SCC 470, it is
observed and held by this Court that a party cannot claim
anything more than what is covered by the terms of the
contract, for the reason that the contract is a transaction
between two parties and has been entered into with open
eyes and by understanding the nature of contract. It is
further observed that thus the contract being a creature of
an   agreement   between   two   or   more   parties   has   to   be
interpreted giving literal meanings unless there is some
ambiguity therein. The contract is to be interpreted giving
the actual meaning to the words contained in the contract
and it is not permissible for the Court to make a new
contract, however reasonable, if the parties have not made
it themselves. It is further observed that the terms of the
contract have to be construed strictly without altering the
nature of a contract as it may affect the interest of either of
the parties adversely (Para 23).
6.4 In the case of  Harsha  Construction  Vs.  Union  of  India
and Ors.;  (2014) 9 SCC 246, it is observed and held by
this Court in paragraphs 18 and 19 as under: ­
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“18.   Arbitration   arises   from   a   contract   and   unless
there is a specific written contract, a contract with
regard to arbitration cannot be presumed. Section 7(3)
of   the   Act   clearly   specifies   that   the   contract   with
regard to arbitration must be in writing. Thus, so far
as the disputes which have been referred to in Clause
39 of the contract are concerned, it was not open to
the Arbitrator to arbitrate upon the said disputes as
there was a specific clause whereby the said disputes
had   been   “excepted”.   Moreover,   when   the   law
specifically makes a provision with regard to formation
of a contract in a particular manner, there cannot be
any   presumption   with   regard   to   a   contract   if   the
contract is not entered into by the mode prescribed
under the Act.
19.   If   a   non­arbitrable   dispute   is   referred   to   an
Arbitrator   and   even   if   an   issue   is   framed   by   the
Arbitrator in relation to such a dispute, in our opinion,
there cannot be a presumption or a conclusion to the
effect that the parties had agreed to refer the issue to
the   Arbitrator.   In   the   instant   case,   the   respondent
authorities   had   raised   an   objection   relating   to   the
arbitrability   of   the   aforestated   issue   before   the
Arbitrator   and   yet   the   Arbitrator   had   rendered   his
decision   on   the   said   “excepted”   dispute.   In   our
opinion, the Arbitrator could not have decided the said
“excepted” dispute. We, therefore, hold that it was not
open to the Arbitrator to decide the issues which were
not arbitrable and the award, so far as it relates to
disputes   regarding   non­arbitrable   disputes   is
concerned, is bad in law and is hereby quashed.”
6.5 In the recent decision in the case of Vidya Drolia (supra),
which, as such, is post­insertion of Section 11(6­A) of the
Arbitration Act, it is observed and held that the issue of
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non­arbitrability of a dispute is basic for arbitration as it
relates to the very jurisdiction of the Arbitral Tribunal. An
Arbitral Tribunal may lack jurisdiction for several reasons
and   non­arbitrability   has   multiple   meanings.   After
referring   to   another   decision   of   this   Court   in   the   case
of Booz   Allen   &   Hamiltan   Inc. Vs. SBI   Home   Finance
Ltd. [(2011) 5 SCC 532 (Para 34)], it is observed and held
that there are facets of non­arbitrability, namely
“(i) Whether the disputes are capable of adjudication
and settlement by arbitration? That is, whether the disputes,
having regard to their nature, could be resolved by a private
forum   chosen   by   the   parties   (the   Arbitral   Tribunal)   or
whether they would exclusively fall within the domain of
public fora (courts).
(ii) Whether the disputes are covered by the arbitration
agreement? That is, whether the disputes are enumerated or
described   in   the   arbitration   agreement   as   matters   to   be
decided by arbitration or whether the disputes fall under the
“excepted   matters”   excluded   from   the   purview   of   the
arbitration agreement.
(iii) Whether the parties have referred the disputes to
arbitration? That   is,   whether   the   disputes   fall   under   the
scope of the submission to the Arbitral Tribunal, or whether
they do not arise out of the statement of claim and the
counterclaim filed before the Arbitral Tribunal. A dispute,
even   if  it  is   capable   of  being  decided  by  arbitration  and
falling within the scope of an arbitration agreement, will not
be “arbitrable” if it is not enumerated in the joint list of
disputes referred to arbitration, or in the absence of such a
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joint list of disputes, does not form part of the disputes
raised in the pleadings before the Arbitral Tribunal.”
6.6 After  referring  to   and   considering   in   detail   the   earlier
decisions on the point, more particularly, with respect to
non­arbitrability and the ‘excepted matters’, it is ultimately
concluded in para 76 as under:
“76. In view of the above discussion, we would like to
propound a four­fold test for determining when the subject
matter   of   a   dispute   in   an   arbitration   agreement   is   not
arbitrable:
76.1.(1) When cause of action and subject­matter of the
dispute relates to actions in rem, that do not pertain to
subordinate  rights  in  personam that  arise from  rights in
rem.
76.2.(2) When cause of action and subject­matter of the
dispute   affects   third­party   rights;   have erga   omnes effect;
require  centralized   adjudication,   and   mutual  adjudication
would not be appropriate and enforceable;
76.3.(3) When cause of action and subject­matter of the
dispute relates to inalienable sovereign and public interest
functions of the State and hence mutual adjudication would
be unenforceable;
76.4   (4)   When   the   subject­matter   of   the   dispute   is
expressly or by necessary implication non­arbitrable as per
mandatory statute(s).
76.5 These tests are not watertight compartments; they
dovetail  and  overlap,  albeit   when  applied  holistically and
pragmatically   will   help   and   assist   in   determining   and
ascertaining with great degree of certainty when as per law
in India, a dispute or subject matter is non­arbitrable. Only
when the answer is affirmative that the subject matter of the
dispute would be non­arbitrable.
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76.6   However,   the   aforesaid   principles   have   to   be
applied   with   care   and   caution   as   observed   in Olympus
Superstructures   (P)   Ltd.   Vs.   Meena   Vijay   Khetan   and
Ors.; (1999) 5 SCC 651: (SCC p. 669, para 35)
“35. …Reference is made there to certain disputes like
criminal offences of a public nature, disputes arising out of
illegal agreements and disputes relating to status, such as
divorce,   which   cannot   be   referred   to   arbitration.   It   has,
however, been held that if in respect of facts relating to a
criminal matter, say, physical injury, if there is a right to
damages for personal injury, then such a dispute can be
referred to arbitration (Keir v. Leeman). Similarly, it has been
held that a husband and a wife may refer to arbitration the
terms on which they shall separate, because they can make
a   valid   agreement   between   themselves   on   that   matter
(Soilleux v. Herbst, Wilson v. Wilson and Cahill v. Cahill).”
6.7 On the question, who decides on non­arbitrability of the
dispute,   after   referring   to   and   considering   the   earlier
decisions on the point, more particularly, the decisions in
the cases of Garware Wall Ropes Ltd. Vs. Coastal Marine
Constructions & Engg.; (2019) 9 SCC 209; United India
Insurance  Co.  Ltd. Vs. Hyundai   Engg.  &  Construction
Co.  Ltd.;   (2018)  17  SCC  607, and Narbheram  Power &
Steel   (P)   Ltd. (supra), it is observed and held that the
question   of   non­arbitrability   relating   to   the   inquiry,
whether   the   dispute   was   governed   by   the   arbitration
clause, can be examined by the Courts at the reference
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stage   itself   and   may   not   be   left   unanswered,   to   be
examined and decided by the Arbitral Tribunal. Thereafter,
in para 153, it is observed and held that the expression,
“existence of arbitration agreement” in Section 11 of the
Arbitration   Act,   would   include   aspect   of   validity   of   an
arbitration   agreement, albeit the   Court   at   the   reference
stage   would   apply   the prima   facie test.   It   is   further
observed that in cases of debatable and disputable facts
and, good reasonably arguable case etc., the Court would
force the parties to abide by the arbitration Agreement as
the   Arbitral   Tribunal   has   the   primary   jurisdiction   and
authority to decide the disputes including the question of
jurisdiction and non­arbitrability. Ultimately in para 154,
the proposition of law is crystallized as under:
“154.   Discussion   under   the   heading   ‘Who   decides
Arbitrability?’ can be crystallized as under:
154.1. Ratio of the decision in Patel Engineering Ltd. on
the scope of judicial review by the court while deciding an
application under Sections 8 or 11 of the Arbitration Act,
post the amendments by Act 3 of 2016 (with retrospective
effect from 23­10­2015) and even post the amendments vide
Act  33  of 2019  (with  effect  from  9­8­2019), is  no longer
applicable.
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154.2. Scope of judicial review and jurisdiction of the
court   under   Section   8   and   11   of   the   Arbitration   Act   is
identical but extremely limited and restricted.
154.3. The general rule and principle, in view of the
legislative mandate clear from Act 3 of 2016 and Act 33 of
2019,   and   the   principle   of   severability   and   competencecompetence, is that the arbitral tribunal is the preferred first
authority   to   determine   and   decide   all   questions   of   nonarbitrability. The court has been conferred power of “second
look” on aspects of non­arbitrability post the award in terms
of sub­clauses (i), (ii) or (iv) of Section 34(2)(a) or sub­clause
(i) of Section 34(2)(b) of the Arbitration Act.
154.3. Rarely as a demurrer the court may interfere at
the Section 8 or 11 stage when it is manifestly and ex facie
certain   that   the   arbitration   agreement   is   non­existent,
invalid or the disputes are non­arbitrable, though the nature
and   facet   of   non­arbitrability   would,   to   some   extent,
determine   the   level   and   nature   of   judicial   scrutiny.   The
restricted and limited review is to check and protect parties
from   being   forced   to   arbitrate   when   the   matter   is
demonstrably “non­arbitrable” and to cut off the deadwood.
The   court   by   default   would   refer   the   matter   when
contentions relating to non­arbitrability are plainly arguable;
when   consideration   in   summary   proceedings   would   be
insufficient   and   inconclusive;   when   facts   are   contested;
when the party opposing arbitration adopts delaying tactics
or impairs conduct of arbitration proceedings. This is not the
stage for the court to enter into a mini trial or elaborate
review so as to usurp the jurisdiction of the arbitral tribunal
but to affirm and uphold integrity and efficacy of arbitration
as an alternative dispute resolution mechanism.”
6.8 In   the   case   of  Vidya   Drolia  (supra),   it   is   specifically
observed and held by this Court that rarely as a demurrer,
the Court may interfere at Section 8 or 11 stage when it is
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manifestly   and   ex   facie   certain   that   “the   arbitration
agreement is non­existent, invalid or the disputes are
non­arbitrable”,   though   the   nature   and   facet   of   nonarbitrability would, to some extent, determine the level and
nature of judicial scrutiny. It is further observed that the
restricted   and   limited   review   is   to   check   and   protect
parties from being forced to arbitrate when the matter is
demonstrably   “non­arbitrable   and   to   cut   off   the
deadwood.”   It   is   further   observed   that   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. 
7. Applying the law laid down by this Court in the aforesaid
decisions   and   considering   Clauses   36   and   37   of   the
Agreement and when a specific plea was taken that the
dispute falls within Clause 36 and not under Clause 37
and therefore, the dispute is not arbitrable, the High Court
was at least required to hold a primary inquiry/review and
prima facie come to conclusion on whether the dispute
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falls under Clause 36 or not and whether the dispute is
arbitrable or not.   Without holding such primary inquiry
and despite having observed that a party does have a right
to seek enforcement of agreement before the Court of law
as per Clause 36, thereafter, has appointed the arbitrators
by solely observing that the same does not bar settlement
of disputes through Arbitration and Conciliation Act, 1996.
However,   the   High   Court   has   not   appreciated   and
considered the fact that in case of dispute as mentioned in
Clauses 3, 6 and 9 for enforcement of the Agreement, the
dispute is not arbitrable at all. In that view of the matter,
the  impugned judgment and order passed by the High
Court appointing the arbitrators is unsustainable and the
same deserves to be quashed and set aside. However, at
the   same   time,   as   the   High   Court   has   not   held   any
preliminary inquiry on whether the dispute is arbitrable or
not and/or whether the dispute falls under Clause 36 or
not, we deem it proper to remit the matter to the High
Court to hold a preliminary inquiry on the aforesaid in
light of the observations made by this Court in the case of
Vidya   Drolia  (supra)   and   in   the   case   of  Indian   Oil
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Corporation  Limited  (supra) and the observations made
hereinabove and thereafter, pass an appropriate order.
8. In view of the above and for the reasons stated above the
present   appeal   succeeds.   The   impugned   judgment   and
order passed by the High Court appointing the arbitrators
in terms of Clause 37 of the Addendum Agreement dated
19.04.2011 is hereby quashed and set aside. The matter is
remitted to the High Court to decide the application under
Section 11(5) and (6) of the Arbitration Act afresh and to
pass   an   appropriate   order   after   holding   a   preliminary
inquiry/review on whether the dispute is arbitrable or not
and/or whether the dispute falls within Clause 36 of the
Addendum   Agreement   or   not.   The   present   appeal   is
accordingly allowed. No costs.  
………………………………….J.
 [M.R. SHAH]
NEW DELHI; ………………………………….J.
SEPTEMBER 30, 2022 [KRISHNA MURARI]
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