Non-Compliance With Share Purchase Agreement; Arbitrability Of Dispute Must Be Decided By Arbitral Tribunal, Not By Court: Delhi High Court

Brief Facts:

The matter pertained to a dispute which dealt with a Share Purchase Agreement (SPA) which included a provision for resolving disputes through arbitration. Clause 17 of the SPA stipulated that any disputes arising in connection with or relating to the Agreement shall first be attempted to be resolved through mutual consultation. Should these consultations fail to resolve the issue within 30 days, the matter is to be referred to arbitration, conducted by a sole arbitrator under the Indian Arbitration and Conciliation Act, 2013. The clause further specified that the arbitration shall take place in New Delhi, in English, with the award being final and binding, and that the losing party will bear the arbitration costs.

Following the emergence of disputes, Thriving Farm Builders Pvt Ltd and Anr (Petitioners) issued an initial demand notice and subsequently invoked arbitration through a notice as per Section 21 of the Arbitration and Conciliation Act, 1996. Sushil Chaudhary and Anr (Respondents), however, denied any liability and declined the Petitioners' request to refer the disputes to arbitration. Consequently, the Petitioners sought relief from the High Court to enforce the arbitration agreement and refer the disputes to arbitration under Section 11.

The Respondents acknowledged the existence of the arbitration agreement but contested the petition on the grounds that the Petitioners had not fulfilled the pre-arbitration procedural requirements outlined in Clause 17.2. The Respondents argued that the Petitioners had not exhausted the remedy of conciliation prior to seeking arbitration.

The Petitioners counter this argument by highlighting two failed attempts at mediation. These attempts were documented in orders from associated proceedings under Section 138 of the Negotiable Instruments Act. The Petitioners pointed to orders from the Metropolitan Magistrate and the Additional Sessions Judge, which reflected the unsuccessful efforts at mediation through the Delhi High Court Mediation and Conciliation Centre.

Observations by the High Court:

The High Court held that the Petitioners cannot be deemed to have failed in exhausting the pre-arbitration conciliation protocol prior to invoking arbitration.

The High Court noted that the Respondents argued that the dispute is not arbitrable stating non-compliance with clause 2.4.3 of the Share Purchase Agreement (SPA). This clause outlined specific conditions that must be met, including obtaining approvals, delivering notifications, and finalizing the share transfer by a specified date. The clause mandated cooperation and the completion of required procedures for the transaction.

However, the High Court noted that the examination of such aspects falls outside the scope of review under Section 11(6) of the Arbitration Act. The High Court referred to the decision of the Supreme Court in SBI General Insurance Co Ltd v. Krish Spinning which limits the court's role under Section 11(6) to verifying the existence of an arbitration agreement between the parties.

Given that the parties have not reached a consensus on arbitration and considering the nature of the dispute, the High Court decided to refer the matter to arbitration. The High Court appointed Lalit Satija, Advocate, to arbitrate the disputes between the parties.

Case Title: Thriving Farm Builders Pvt Ltd And Anr Vs Sushil Chaudhary And Anr

Citation: 2024 LiveLaw (Del) 995

Case Number: ARB.P. 1067/2024

Advocate for the Petitioner: Ms. Bani Brar, Adv

Advocate for the Respondent: Mr. Niyas Valiyathodi, Adv.

Date of Judgment: 05.09.2024

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