Case Number: Civil Appeal No. 6679 OF 2022

Judges Name: Hon’ble Judges M.R. Shah J, M.M. Sundresh J.

Order dated: 04.11.2022

Facts of the Case:

1. In the present case, the Appellant feeling aggrieved and dissatisfied with the impugned judgment and order dated 05.08.2021 passed by the High Court of Judicature at Madras, by which, the High Court has dismissed the said application under Section 11(6) of the Arbitration and Conciliation Act, 1996 and has refused to appoint an arbitrator and refer the dispute to the Arbitrator, original applicant has preferred the present appeal.
2. The Appellants herein approached the High Court under Section 11(6) of the Act, 1996 to appoint an arbitrator so that the arbitral tribunal can be constituted in terms of clause 17.1.2 of the Share Subscription and Shareholders Agreement. By the impugned judgment and order, the High Court has dismissed the said application and refused to appoint an arbitrator mainly on the grounds that at the time when the application under Section 11(6) of the Act, 1996 was filed in the year 2019, the matter was already referred to the arbitral tribunal with respect to agreement dated 27.04.2016, subsequent amendment agreement dated 06.12.2017 and addendum agreement dated 28.05.2018 and also on the ground that the proceedings were pending before the National Company Law Tribunal (NCLT) initiated by the respondent for various acts of oppression and mismanagement as a minority shareholder.

Supreme Court held:

• After taking submissions of both sides into consideration, the Hon’ble Supreme Court observed that the Share Subscription and Shareholders Agreement dated 27.04.2016 entered into between the appellants and the respondent contains the arbitration clause in case of dispute between the parties arising out of the said agreement, and therefore the High Court ought to have allowed the application under Section 11(6) of the Act, 1996 and ought to have left the issue on arbitrability of dispute between the parties to the arbitrator.
• After referring to Clause 17 of the Agreement it was observed that as per the decision of this Court in the case of Vidya Drolia and Ors. Vs. Durga Trading Corporation; unless on the facet it is found that the dispute is not arbitrable and if it requires further/deeper consideration, the dispute with respect to the arbitrability should be left to the arbitrator.  The decision of this Court in the case of Vidya Drolia (supra) is a three judge bench subsequent decision in which the entire law on the scope and ambit of the Court at the stage of application under Section 11(6) of the Act, 1996 has been dealt with and considered by the Court.
• Further, it was observed that the second ground on which the High Court has refused to refer the dispute between the parties and appoint an arbitrator, namely that the proceedings at the instance of the respondent as minority shareholder for oppression and mismanagement is pending before the NCLT is concerned, on the pendency of such proceedings the application under Section 11(6) of the Act, 1996 cannot be dismissed. It should be left to the arbitrator to consider the entire aspect. The dispute is with respect to the Share Subscription and Shareholders Agreement which is altogether different from the allegations of mismanagement and oppression at the instance of minority shareholder initiated by the respondent.
• On basis of the above, the appeals were allowed and the issue with respect to the arbitrability of the dispute was left to be decided by the learned Arbitrator. The fees of the Arbitrator shall be decided by the learned Arbitrator with the consent of the respective parties as per the Schedule to the Act, 1996 as amended from time to time.