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.

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

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) &

(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.

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

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

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

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

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 &

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

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:

“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

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

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.

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

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.

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

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

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

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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