REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. OF 2023

(@SLP (C) Nos. 18339-42/2021)

Magic Eye Developers Pvt. Ltd. …Appellant(s)

Versus

M/s. Green Edge Infrastructure

Pvt. Ltd. & Ors. Etc. …Respondent(s)

J U D G M E N T

M.R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the

impugned common judgment and order

passed by the High Court of Delhi at New

Delhi in respective Arbitration Petitions, by

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which, the High Court has referred the

disputes for arbitration and has appointed

the sole arbitrator, the original opponent –

Magic Eye Developers Pvt. Ltd. has preferred

the present appeals.

2. The issue involved in the present appeals is

as such in a very narrow compass, namely,

pre-referral jurisdiction of the Court under

Section 11(6) of the Arbitration and

Conciliation Amendment Act, 2015.

2.1At the outset, it is required to be noted that

before the High Court the appellant herein

specifically raised an objection with regard to

the existence of an arbitration

agreement/clause. It was the case on behalf

of the appellant that the dispute revolves

entirely around MOU-2 which does not

contain the arbitration clause. However, on

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the other hand, it was the case on behalf of

the contesting respondent herein – original

applicant that other agreement(s) i.e., SHA-1,

SHA-2 and MOU-1 are

interlinked/interconnected with the MOU-2

which contained the arbitration

clause/agreement and therefore, all the

aforesaid agreements are required to be read

along with MOU-2.

2.2By the impugned common judgment and

order and relying upon the decision of this

Court in the case of Vidya Drolia and Ors.

Vs. Durga Trading Corporation, (2021) 2

SCC 1 and by observing that the arbitrability

of the dispute raised, viz-a-viz the arbitration

clause 27.3 of SHA-1, is an involved issue

and the said issue can be addressed by the

learned Arbitral Tribunal, given the

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complexity of the transaction involved, the

High Court has referred the disputes for

arbitration and has appointed the arbitrator.

3. Shri Preetesh Kapur, leanred Senior Advocate

has appeared on behalf of the appellant and

Shri Neeraj Kishan Kaul, learned Senior

Advocate has appeared on behalf of the

contesting respondent – original applicant.

3.1Shri Preetesh Kapur, learned Senior Advocate

appearing on behalf of the appellant has

taken us to Section 11(6A) of the Arbitration

Act and has submitted that post- Arbitration

and Conciliation Amendment Act, 2015 by

which sub-section (6A) has been added to

Section 11 of the Arbitration Act, while

deciding the application under Section 11(6)

of the Act and while exercising the pre-

referral jurisdiction, the Court has to

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consider and examine the existence of an

arbitration agreement and it should not be

left to the Arbitral Tribunal.

3.2It is vehemently submitted that there is a

difference and distinction between the

existence and validity of an arbitration clause

and non-arbitrability of the dispute. It is

submitted that so far as the issue with

respect to the existence and validity of an

arbitration agreement at the stage of pre-

referral jurisdiction under Section 11(6) of the

Act, the Court has to give a specific finding

finally on such issue and such an issue

should not be left to the Arbitral Tribunal. It

is submitted that therefore, the High Court

has misapplied and/or misread the decision

of this Court in the case of Vidya Drolia

(supra).

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3.3It is vehemently submitted by Shri Kapur,

learned Senior Advocate appearing on behalf

of the appellant that as such it is the duty

cast upon the referral court to protect the

parties from being forced to arbitrate when

the matter is demonstrably non-arbitrable. It

is submitted that the dispute with respect to

the existence and validity of an arbitration

agreement/clause goes to the root of the

matter and has to be decided first by the

referral court. It is submitted that if

ultimately it is held that there is no existence

of an arbitration agreement and/or there is

no valid arbitration agreement and the said

issue is left to be decided by the arbitral

tribunal in that case the entire exercise by

the arbitral tribunal will be futile. It is

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submitted that therefore in order to prevent

wastage of public and private resources and

taking into consideration Section 11(6A) of

the Act, the referral court has to finally

conclude the issue with respect to the

existence and validity of the arbitration

agreement. Reliance is placed upon the recent

decision of the Constitution Bench of this

Court in the case of N.N. Global Mercantile

Private Limited Vs. Indo Unique Flame Ltd.

and Ors., 2023 SCC Online SC 495 . It is

submitted that in the said decision it is

observed and held by this Court that Sans an

agreement, there cannot be a reference to

arbitration. It is submitted that it is further

held that an arbitration agreement must

satisfy the requirements of Section 7(1). It is

submitted that it is further observed and held

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that the true intention behind the insertion of

Section 11(6A) in the Act was to confine the

Court, acting under Section 11, to examine

and ascertain about the existence of an

arbitration agreement.

3.4Shri Kapur, learned Senior Advocate

appearing on behalf of the appellant has also

relied upon the recent decision of this Court

in the case of NTPC Ltd. Vs. SPML Infra

Ltd., 2023 SCC Online SC 389 (paragraphs

19, 25 and 28).

4. While opposing the present appeals, Shri

Neeraj Kishan Kaul, learned Senior Advocate

appearing on behalf of the original applicant

has vehemently submitted that in the facts

and circumstances of the case, the High

Court has rightly followed the decision of this

Court in the case of Vidya Drolia (supra) and

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has rightly referred the disputes between the

parties to the arbitration.

4.1It is vehemently submitted by Shri Kaul,

learned Senior Advocate appearing on behalf

of the original applicant that in the present

case all the agreements, namely, SHA-1,

SHA-2 and MOU-1 are required to be read

along with MOU-2. It is submitted that the

agreements other than MOU-2 do contain the

arbitration clause, more particularly, clause

27.3 in SHA-1. It is submitted that the High

Court in paragraph 22 has specifically

observed and opined that the four agreements

are indisputably interconnected. It is

submitted that once there is a specific finding

given that all the agreements are

interconnected, the agreement in which there

is an arbitration clause has to be read along

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with MOU-2 and therefore, the High Court

has rightly referred the disputes to the

arbitration.

4.2Shri Kaul, learned Senior Advocate appearing

on behalf of the original applicant has heavily

relied upon the decision of this Court in the

case of Chloro Controls India Private

Limited Vs. Severn Trent Water

Purification Inc. and Ors., (2013) 1 SCC

641 as well as the decision of this Court in

the case of Olympus Superstructures (P)

Ltd. Vs. Meena Vijay Khetan, (1999) 5 SCC

651 in support of his submission that all the

four agreements are interconnected and

therefore, are required to be read altogether.

5. Heard. The short question which is posed for

the consideration of this Court is, the

jurisdiction of the referral court at pre-referral

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stage when the issue with respect to the

existence and validity of an arbitration

agreement is raised.

5.1While considering the aforesaid issue Section

11(6A) of the Arbitration Act which has been

added through Arbitration and Conciliation

Amendment Act, 2015 is required to be read

which reads as follows: -

“(6-A) The Supreme Court or, as the

case may be, the High Court, while

considering any application under

subsection (4) or sub-section (5) or

sub-section (6), shall,

notwithstanding any judgment,

decree or order of any court, confine

to the examination of the existence of

an arbitration agreement.”

5.2Thus, post-Arbitration and Conciliation

Amendment Act, 2015, the jurisdiction of the

court under Section 11(6) of the Act is limited

to examining whether an arbitration

agreement exists between the parties –

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“nothing more, nothing less”. Thus, as per the

Section 11(6A) of the Act, it is the duty cast

upon the referral court to consider the

dispute/issue with respect to the existence of

an arbitration agreement.

5.3At this stage, it is required to be noted that as

per the settled position of law, pre-referral

jurisdiction of the court under Section 11(6)

of the Arbitration Act is very narrow and

inheres two inquiries. The primary inquiry is

about the existence and the validity of an

arbitration agreement, which also includes an

inquiry as to the parties to the agreement and

the applicant’s privity to the said agreement.

The said matter requires a thorough

examination by the referral court. [paragraph

25 of the decision in the case of NTPC Ltd.

(supra)]. The Secondary inquiry that may

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arise at the reference stage itself is with

respect to the non-arbitrability of the dispute.

Both are different and distinct. So far as the

first issue with respect to the existence and

the validity of an arbitration agreement is

concerned, as the same goes to the root of the

matter, the same has to be to conclusively

decided by the referral court at the referral

stage itself. Now, so far as the non-

arbitrability of the dispute is concerned, even

as per the law laid-down by this Court in the

case of Vidya Drolia (supra), the court at pre-

referral stage and while examining the

jurisdiction under Section 11(6) of the Act

may even consider prima facie examining the

arbitrability of claims. As observed, the prima

facie review at the reference stage is to cut the

deadwood and trim off the side branches in

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straightforward cases where dismissal is

barefaced and pellucid and when on the facts

and law the litigation must stop at the first

stage. However, so far as the dispute with

respect to the existence and validity of an

arbitration agreement is concerned and when

the same is raised at pre-referral stage, the

referral court has to decide the said issue

conclusively and finally and should not leave

the said issue to be determined by the

arbitral tribunal. The reason is that the issue

with respect to the existence and validity of

an arbitration agreement goes to the root of

the matter. As observed by the Constitution

Bench in the case of N.N. Global Mercantile

Pvt. Ltd. (supra) Sans an agreement, there

cannot be any reference to the arbitration. In

the said decision this Court has also

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specifically observed and held that the

intention behind the insertion of Section

11(6A) in the Act was to confine the Court,

acting under Section 11, to examine and

ascertain about the existence of an

arbitration agreement. We are of the opinion

that therefore, if the dispute/issue with

respect to the existence and validity of an

arbitration agreement is not conclusively and

finally decided by the referral court while

exercising the pre-referral jurisdiction under

Section 11(6) and it is left to the arbitral

tribunal, it will be contrary to Section 11(6A)

of the Arbitration Act. It is the duty of the

referral court to decide the said issue first

conclusively to protect the parties from being

forced to arbitrate when there does not exist

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any arbitration agreement and/or when there

is no valid arbitration agreement at all.

6. From the impugned common order passed by

the referral court, it appears from the

observations made in paragraphs 11 to 13

that the referral court has not decided the

said issue conclusively and finally and

referral court has left it to be decided by the

arbitral tribunal. The submission on behalf of

the contesting respondent relying upon some

observations made in paragraph 22 of the

impugned order that the referral court has in

fact opined that the four agreements are

indisputably interconnected is concerned, it is

required to be noted that the observations

made in paragraph 22 are to be read along

with the prayer of the appellant to appoint

different arbitrator(s). However, in paragraph

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13, it is specifically observed by the referral

court that “this Court cannot finally

pronounce one way or the other on this

aspect.” In paragraph 14 also, it is specifically

observed that the arbitrability of the dispute

raised viz-a-viz the arbitration clause 27.3 of

SHA-1, is an involved issue, can be addressed

by the learned arbitral tribunal. Thus, the

referral court has not pronounced anything

finally on the existence and validity of the

arbitration agreement which ought to have

been done by the referral court.

7. Now, so far as the submission made by Shri

Kaul, learned Senior Advocate that all the

agreements being interlinked and

interconnected and reliance placed on the

decision of this Court in the cases of Chloro

Controls India Pvt. Ltd. (supra) and

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Olympus Superstructures (P) Ltd. (supra) ,

we do not propose to go into the merits as the

same has to be considered by the referral

court. We have not even permitted learned

counsel appearing on behalf of the appellant

to make submission on merits.

8. In view of the above and for the reasons

stated above, the impugned common

judgment and order passed by the High Court

in respective Arbitration Petitions, referring

the disputes to arbitration is hereby quashed

and set aside. The matter is remitted back to

the High Court/referral court to decide the

respective arbitration petitions afresh and in

light of the observations made hereinabove

and to decide the issue conclusively and

finally with respect to the existence and

validity of the arbitration agreement. The

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aforesaid exercise to be completed within a

period of three months from the date of

receipt of the present order. However, it is

observed that we have not expressed anything

on merits on the existence and validity of the

arbitration agreement and on the four

agreements being interconnected/interlinked.

It is ultimately for the High Court/referral

court to take an appropriate decision in

accordance with law and on its own merits.

Present appeals are accordingly allowed to the

aforesaid extent. In the facts and

circumstances of the case, there shall be no

order as to costs.

………………………………….J.

[M.R. SHAH]

………………………………….J.

NEW DELHI; [C.T. RAVIKUMAR]

MAY12, 2023

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