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M/s. Emaar India Ltd. vs Tarun Aggarwal Projects LLP

Civil Appeal · 2022 INSC 1049Decided 30 Sept 2022
Civil Appeal No. 6774 of 2022
M.R. Shah · Krishna Murari

Background

The parties had a Collaboration Agreement and later Addendum Agreement for developing a residential colony in Gurugram. A dispute arose over alleged non-compliance by Emaar, and the original applicants (Tarun Aggarwal Projects LLP) sought appointment of an arbitrator. Emaar opposed, arguing the dispute actually fell under a separate clause (Clause 36) of the agreement that required court enforcement, not arbitration under Clause 37. The Delhi High Court nevertheless appointed arbitrators without first deciding whether the dispute fell under Clause 36, and Emaar appealed to the Supreme Court.

Decision Breakdown

The Court held that where a party specifically pleads that the dispute is covered by a carve-out clause making it non-arbitrable, the referral court must hold at least a preliminary/prima facie inquiry into that question before appointing arbitrators. It cannot simply appoint arbitrators without examining whether the dispute is arbitrable at all. Relying on its earlier rulings (including Vidya Drolia) on who decides arbitrability, the Court found the High Court had skipped this necessary preliminary inquiry. It therefore set aside the High Court's order appointing arbitrators and sent the matter back to the High Court to conduct that preliminary inquiry and decide afresh.

Lesson Learnt

Before parties can be sent to arbitration, a court asked to appoint an arbitrator must first satisfy itself, even on a limited prima facie basis, that the dispute is actually arbitrable under the contract: simply pointing to a general arbitration clause is not enough if the contract also carves out certain disputes for the regular courts.

Official source (sci.gov.in)View Judgment (PDF)

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