A Reference To Arbitration Can Be Declined By The Court If The Dispute Is A Deadwood: Bombay High Court

The Single Bench of Justice N.J. Jamadar reiterated that the scope of enquiry under Section 11(6) of the Arbitration and Conciliation Act, 1996 (A&C Act) is extremely limited and that the arbitrability of the dispute is required to be determined by the Arbitral Tribunal.

The Petitioner Company D.K. Infrastructure Pvt. Ltd. and its Director Mr. Sandip Hirani, along with Mr. Suresh Hirani, held 100% shares of the JJBP Company. The Sellers, i.e., the Petitioner Company, Mr. Sandip Hirani and Mr. Suresh Hirani, entered into a Share Purchase Agreement with the Respondent No. 1 Kishore Agarwal and the Respondent No. 2 Yogita Kishore Agarwal for selling the entire equity shares of JJBP Company.

In addition to purchasing the shares of JJBP Company, the Respondents/Purchasers agreed to discharge the specified liabilities of the JJBP Company.

After the Respondents failed to clear the entire liability in terms of the Share Purchase Agreement, the Petitioner Company invoked the Arbitration Clause contained in the Share Purchase Agreement. The Petitioner Company filed an application under Section 11(6) of the A&C Act before the Bombay High Court to appoint an Arbitrator.

The Respondents submitted before the Bombay High Court that there was no arbitrable dispute between the parties. The Respondent No.1 Kishore Agarwal averred that since it had paid the entire consideration for the equity shares purchased by it, the share purchase transaction was concluded. Thus, the Respondent No. 1 averred that there was no subsisting dispute between the Petitioner Company and the Respondent No.1.

The Respondent No. 2 Yogita Kishore Agarwal averred that since she had purchased the shares of the JJBP Company from the other sellers, i.e., Mr. Sandip Hirani and Mr. Suresh Hirani, and not from the Petitioner Company, no claim could be raised against her by the Petitioner Company.

The Court noted that the relevant clause of the Share Purchase Agreement had provided that the JJBP Company and the Sellers had agreed to discharge all the liabilities of the JJBP Company, other than certain specified outstanding liabilities.

The Court observed that from a conjoint reading of the various clauses contained in the Share Purchase Agreement, it was clear that the Respondents/Purchasers were required to discharge the said specified outstanding liabilities of the JJBP Company, in addition to paying the Sale Price of the shares.

The Court noted that the Respondents had not completely discharged the said outstanding liabilities of the JJBP Company, as was agreed to by them under the Share Purchase Agreement.

Thus, the Court held that the liability of the Respondents had not come to an end with the payment of the Sale Price of the shares.

The Court refuted the contentions of the Respondent No. 2 that there was no subsisting dispute between the Petitioner Company and the Respondent No.2 since there was no privity of contract between them.

The Court ruled that in light of the decision of the Supreme Court in the case of DLF Home Developers Limited versus Rajapura Homes Pvt. Ltd. and Anr. (2021), the scope of enquiry under Section 11(6) of the A&C Act is extremely limited and the Court is required to examine the existence of the arbitration agreement.

The Court held that the Court can decline to make a reference to arbitration only when it is satisfied that the dispute is non-existent and has become a deadwood.

The Court ruled that the dispute raised by the Petitioner had its genesis in the Share Purchase Agreement.

The Court added that the said dispute between the parties, relating to the alleged failure of the Respondents to discharge the specified outstanding liabilities of the JJBP Company, corelated with the Share Purchase Agreement.

The Court noted that the arbitration agreement between the parties was worded in the widest possible terms and that it subsumed within its fold all the disputes which might arise in relation to the Share Purchase Agreement.

The Court observed that the Supreme Court in the case of Renusagar Power Co. Ltd. versus General Electric Company and Anr. (1984), had held that the expressions 'arising out of', 'in respect of' or 'in relation to' are of the widest amplitude, and that they include questions as to the existence, validity and the effect or scope of the arbitration agreement.

Thus, the Court held that the dispute raised by the Petitioner arose out of and related to the Share Purchase Agreement. The Court reiterated that the arbitrability of the dispute is required to be determined by the Arbitral Tribunal.

The Court thus allowed the application and appointed a Sole Arbitrator.

Case Title: D.K. Infrastructure Pvt. Ltd versus Kishore Agarwal and Anr.

Citation: 2022 LiveLaw (Bom) 209

Dated: 02.05.2022 (Bombay High Court)

Counsel for the Petitioner: Mr. Ammanullah Khan with Mr. Jehangir Khan

Counsel for the Respondent: Mr. Naushad Engineer with Mr. Devendra Tiwari, Mr. Aman Anand, Mr. Harish Agarwal i/by Law Chamber of Siddharth Murarka

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