Case Note & Summary
The petitioner, Aslam Ismail Khan Deshmukh, a Non-Resident Indian with expertise in the drilling fluid industry, filed two petitions under Section 11(6) read with Section 11(12)(a) of the Arbitration and Conciliation Act, 1996, seeking appointment of an arbitrator for disputes arising from a Shareholders Agreement dated 25.07.2011. The petitioner was allotted 4,00,000 equity shares in respondent no.1, ASAP Fluids Pvt. Ltd., and was also appointed as a Director under a Service Agreement dated 18.10.2011. A Commercial Expertise Agreement of the same date provided for transfer of his expertise in exchange for shares. The petitioner alleged that the respondents failed to pay remuneration and benefits, and that his shares were held by respondent no.2 without his consent. He resigned in 2014 and claimed that the respondents refused to transfer his shares or pay their value. The respondents contended that the disputes related to the Service Agreement and Commercial Expertise Agreement, which lacked arbitration clauses, and that the Shareholders Agreement had been terminated. The Supreme Court examined the arbitration clause in Clause 13.10 of the Shareholders Agreement, which covered disputes arising out of or relating to the agreement. The court held that the disputes regarding shareholding, including the lock-in period and transfer restrictions, were arbitrable under the Shareholders Agreement. The court applied the doctrine of separability, noting that the arbitration agreement survives termination of the main contract. The court also invoked the principle of Kompetenz-Kompetenz, leaving the scope of the arbitration clause to the arbitral tribunal. Consequently, the court appointed a sole arbitrator to adjudicate the disputes.
Headnote
A) Arbitration Law - Appointment of Arbitrator - Section 11(6) read with Section 11(12)(a) of the Arbitration and Conciliation Act, 1996 - Existence of Arbitration Agreement - The court examined whether the disputes raised by the petitioner fell within the ambit of the arbitration clause contained in Clause 13.10 of the Shareholders Agreement dated 25.07.2011. The respondents contended that the disputes related to the Service Agreement and Commercial Expertise Agreement, which did not contain arbitration clauses, and that the Shareholders Agreement had been terminated. The court held that the arbitration clause in the Shareholders Agreement survived termination and that the disputes were arbitrable, as the claims pertained to shareholding rights under the Shareholders Agreement. (Paras 1-30) B) Arbitration Law - Doctrine of Separability - Section 16 of the Arbitration and Conciliation Act, 1996 - The court reiterated that the arbitration agreement is independent of the underlying contract and survives termination of the main agreement. The respondents' argument that the Shareholders Agreement stood terminated due to the petitioner's resignation was rejected, as the arbitration clause remained valid and enforceable. (Paras 20-25) C) Arbitration Law - Kompetenz-Kompetenz - Section 16 of the Arbitration and Conciliation Act, 1996 - The court held that the issue of arbitrability of the disputes, including whether the claims fall within the scope of the arbitration clause, should be decided by the arbitral tribunal. The court's role under Section 11 is limited to examining the existence of an arbitration agreement. (Paras 26-30)
Issue of Consideration
Whether the disputes raised by the petitioner are arbitrable under the Shareholders Agreement dated 25.07.2011, and whether the arbitrator should be appointed under Section 11(6) of the Arbitration and Conciliation Act, 1996.
Final Decision
The Supreme Court allowed the arbitration petitions and appointed a sole arbitrator to adjudicate the disputes between the parties.
Law Points
- Section 11(6) read with Section 11(12)(a) of the Arbitration and Conciliation Act
- 1996
- Arbitrability of disputes
- Existence of arbitration agreement
- Termination of underlying contract
- Doctrine of separability
- Kompetenz-Kompetenz
