Issue of arbitrability to be decided by the arbitrator

The Hon’ble Supreme Court vide its judgment dated 04.11.2022 in “VGP Marine Kingdom Pvt. Ltd. & Anr. v. Kay Ellen Arnold” had the occasion of dealing with whether courts should delve into the question of arbitrability while dealing with a petition under Section 11(6) of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as the Act).

Factual Matrix:

The Appellant herein had filed an application under Section 11(6) of the Act before the Madras High Court for appointment of an arbitrator in terms of the arbitration clause of the share subscription & shareholders agreement entered into between the Appellants & the Respondent.

The Hon’ble Madras High Court dismissed the Petition on the ground that at the time of filing of the Petition, the arbitral tribunal had already been set up and award had been passed with regard to two agreements that were linked with the third and the present agreement and hence, referring the present dispute to arbitration would have led to undoing the award already passed. Additionally, the dispute with regard to share subscription and shareholder was already pending before the NCLT and hence, appointment of an arbitrator would not have been maintainable.

Analysis of the Judgment:

The Hon’ble Supreme Court vide its judgment dated 04.11.2022 allowed the appeal filed by the appellant and appointed an arbitrator under Section 11(6) of the Act.

The Hon’ble Supreme Court while relying on “Vidya Drolia and Ors. v. Durga Trading Corporation; (2021) 2 SCC 1” held that if a dispute whether it is arbitrable or not requires a deep consideration by the Courts, then the question with regard to the arbitrability of the dispute should be left for the arbitrator to decide.

In the present case, a deep consideration was required as to whether the present dispute is arbitrable or not as the Appellant was claiming that the present agreement which contained the arbitration clause was a different and separate agreement to the other two agreements for which arbitral tribunals had been set up and awards had already been passed whereas the Respondent was claiming that the present agreement was interlinked with the other two agreements and hence the present dispute could not be referred to arbitration.

The Hon’ble Supreme Court also held that the pendency of the dispute before the NCLT was also no ground to dismiss the petition under Section 11(6) of the act. It is for the arbitrator to consider the entire aspect as a whole and then decide whether the dispute is arbitrable or not.