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2024 DIGILAW 595 (TS)

Ronak Gupta v. Kanishk Gupta

2024-08-23

ALOK ARADHE

body2024
ORDER : Alok Aradhe, C.J. 1. Mr. S.Ravi, learned Senior Counsel appears through video conference. Mr. Rohan Aloor, learned counsel appears for M/s. R.S.Associates for the applicant. Ms. D.Neeharika Reddy, learned counsel for respondent No.1. 2. In this petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (briefly 'the A&C Act' hereinafter), the petitioner seeks appointment of an arbitrator to adjudicate the dispute between the parties. 3. Facts giving rise to filing of this petition briefly stated are that the applicant is one of the shareholders in M/s. Clarion Agro Products Private Limited i.e., respondent No.4 (hereinafter referred to as 'the company'). The said company was incorporated in the year 2008 by one late Mr. Vinod Gupta and respondent No.1. The company is a family owned unit and its affairs are being managed on the basis of mutual trust. Over the years, financial health of the company deteriorated. 4. According to the applicant, it has stepped into the shoes of the management in the year 2022 with a view to revive the company. Clause 63 of the Articles of Association reads as under: "Whether any difference or disputes arise between the company on one hand and any of the members or either their heirs, executors, administrators assigns on the other hand, or between the members interest touching the true intent or construction of the incidents or consequences of these presents or touching anything when or thereafter done, executed, omitted referred in pursuance of these presents or touching any breach, or otherwise relating to the premises of these presents affecting the company or to any of the officers of the company every such difference or dispute shall be referred to the decision of an arbitrator to be appointed by the parties, to the dispute or in difference or if they cannot agree upon a single arbitrator to the decision of two arbitrators or whom one shall be appointed by each of the parties to the dispute or difference. The laws will govern such arbitration for the time being in force in that behalf." 5. The dispute has arisen between the shareholders of the company. Therefore, the applicant served notice dated 16.02.2024 under Section 21 of the A&C Act on the respondents. Respondent No.1 filed a reply to the same, on 02.03.2024, opposing the prayer made on behalf of the applicant. Hence, this application. 6. The dispute has arisen between the shareholders of the company. Therefore, the applicant served notice dated 16.02.2024 under Section 21 of the A&C Act on the respondents. Respondent No.1 filed a reply to the same, on 02.03.2024, opposing the prayer made on behalf of the applicant. Hence, this application. 6. Learned counsel for the applicant, while inviting the attention of this Court to Article 63 of the Articles of Association, submits that the dispute has arisen between the shareholders and therefore, the same has to be referred to arbitrator. It is further submitted that this Court, in a proceeding under Section 11(6) of the A&C Act, cannot enter into a mini trial or elaborate review of the facts and law, which would usurp the jurisdiction of the arbitral tribunal. It is further submitted that the issue with regard to inadequacy of notice under Section 21 of the A&C Act can be urged by respondents before the arbitral tribunal. In support of the aforesaid submission, reliance has been placed on a decision of the Supreme Court in Sanjiv Prakash v. Seema Kukreja (2021) 9 SCC 732 as well as the order dated 14.08.2024, passed by the Supreme Court in SLP.(c) No.28392-28393 of 2023 (M/s. Systematic Power Developers v. M/s. GVPR Engineers Ltd.) 7. On the other hand, learned counsel for respondent No.1 submitted that the dispute pertaining to oppression, mismanagement and winding up of the affairs of the company are disputes in rem, which cannot be adjudicated by the arbitrator. It is further submitted that in the notice under Section 21 of the A&C Act, reference was only made to the sole arbitrator to which respondent No.1 did not agree. Thereafter, no notice was sent by the petitioner informing of its nominee arbitrator. Therefore, the instant application is not maintainable. 8. We have considered the rival submissions made on both sides and have perused the record. 9. The legislature confined the scope of reference under Section 11(6A) to the examination of existence of an arbitration agreement. The use of the term "examination" in itself connotes that the scope of the power is limited to a prima facie determination. Since the A&C Act is a self-contained code, the requirement of "existence" of an arbitration agreement draws effect from Section 7 of the A&C Act. The use of the term "examination" in itself connotes that the scope of the power is limited to a prima facie determination. Since the A&C Act is a self-contained code, the requirement of "existence" of an arbitration agreement draws effect from Section 7 of the A&C Act. In Duro Felguera, S.A. v. Gangavaram Port Ltd. (2017) 9 SCC 729 , this Court held that the referral courts only need to consider one aspect to determine the existence of an arbitration agreement - whether the underlying contract contains an arbitration agreement, which provides for arbitration pertaining to the disputes, which have arisen between the parties to the agreement. Therefore, the scope of examination under Section 11(6A) of the A&C Act should be confined to the existence of an arbitration agreement on the basis of Section 7 thereof. Similarly, the validity of an arbitration agreement, in view of Section 7 of the A&C Act, should be restricted to the requirement of formal validity such as the requirement that the agreement be in writing. This interpretation also gives true effect to the doctrine of competence-competence by leaving the issue of substantive existence and validity of an arbitration agreement to be decided by arbitral tribunal under Section 16 of the A&C Act (see In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899). 10. In the instant case, from a perusal of the arbitration clause as well as the notice dated 16.02.2024 issued by the applicant under Section 21 of the A&C Act, it is evident that the dispute between the shareholders has arisen. The aforesaid dispute is prima facie arbitrable by the sole arbitrator. Even the issue with regard to inadequacy of the notice dated 16.02.2024 issued by the applicant under Section 21 of the A&C Act can be urged by the respondents in the proceeding before the arbitral tribunal (M/s. Systematic Power Developers v. M/s. GVPR Engineers Ltd.). 11. Thus, the dispute has arisen between the parties, which requires resolution in the manner agreed to by the parties. 12. Therefore, Mr. Justice P. Naveen Rao, a former Judge of this Court (resident of Block No.9, Nyayavihar, Road No.78, Narne Road, Jubilee Hills, Hyderabad, Mobile No.8374012311) is appointed as sole arbitrator to adjudicate the dispute between the parties. 13. 11. Thus, the dispute has arisen between the parties, which requires resolution in the manner agreed to by the parties. 12. Therefore, Mr. Justice P. Naveen Rao, a former Judge of this Court (resident of Block No.9, Nyayavihar, Road No.78, Narne Road, Jubilee Hills, Hyderabad, Mobile No.8374012311) is appointed as sole arbitrator to adjudicate the dispute between the parties. 13. The parties undertake to appear before the sole arbitrator on 14.09.2024 at 11:00 a.m., along with a copy of this order. 14. Thereupon, the sole arbitrator shall proceed with the arbitral proceedings in accordance with law. 15. Accordingly, the Arbitration Application is disposed of. No costs.