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M/s Meenakshi Solar Power Pvt. Ltd. vs M/s Abhyudaya Green Economic Zones Pvt. Ltd. & Ors.

Civil Appeal · 2022 INSC 1223Decided 23 Nov 2022
Civil Appeal No. 8818 of 2022
B.R. Gavai · B.V. Nagarathna

Background

The appellant agreed to buy a solar power company from the respondents under a Share Purchase Agreement (2018) worth Rs. 29 crore, which contained an arbitration clause. Later, a Tripartite Agreement (2019) was signed involving a financier (IFCI Venture Capital) and the appellant's affiliate company, followed by an Addendum, to help resolve outstanding loan dues. When disputes arose over the sale, the appellant invoked arbitration under the original Share Purchase Agreement, but the respondents argued that agreement had been "novated" (replaced) by the later Tripartite Agreement, which contained no arbitration clause. The Telangana High Court agreed with the respondents and dismissed the appellant's application to appoint an arbitrator, prompting this appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that under settled law (drawing on National Insurance Co. v. Boghara Polyfab and Vidya Drolia v. Durga Trading), a court hearing a Section 11(6) application for appointing an arbitrator should only decide narrow threshold issues (like whether an arbitration agreement exists) and must leave disputed factual questions, including whether a contract has been "novated" or replaced by a later one, to the Arbitral Tribunal itself, since that goes to the merits of the dispute. The High Court had overstepped by deciding the contested novation issue itself instead of referring it to arbitration. The Supreme Court therefore set aside the High Court's judgment, allowed the appeal, and directly appointed a named former Supreme Court judge as sole arbitrator to decide the dispute, leaving all contentions, including the novation question, open for the parties to argue before the Arbitral Tribunal.

Lesson Learnt

When deciding whether to appoint an arbitrator, courts must not decide contested factual issues that go to the merits of the dispute (such as whether an earlier contract was replaced by a later one): such questions belong to the arbitrator, and a party cannot be denied arbitration merely because the other side disputes whether the arbitration agreement still survives.

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

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