Issues About Party's Capacity To Invoke Arbitration And Maintainability Issues Fall Within Tribunal's Domain : Supreme Court

The Supreme Court on Wednesday (December 17) reiterated that the questions related to whether an individual is a veritable party to an arbitration agreement, eligible to invoke the arbitration clause, shall be referred for the Arbitral Tribunal's consideration.

A Bench comprising Justice P.S. Narasimha and Justice Atul S. Chandurkar declined to interfere with the Telangana High Court's decision referring the dispute to arbitration and rejected the appellant's objection that Respondent No. 1 was ineligible to invoke the arbitration clause despite not being a party to the consortium with which the arbitration agreement existed.

“Once the High Court was satisfied that an arbitration agreement prima facie existed, an aspect neither seriously disputed nor refutable at this stage, its decision to constitute the AT cannot be faulted.”, the court said, pointing out that Courts at the referral stage are confined to a prima facie examination of the existence of an arbitration agreement, and must refrain from conducting a detailed inquiry into contentious issues such as authority, capacity, maintainability, or merits of claims.

The controversy arose from an EPC contract related to works at APGENCO's Rayalaseema Thermal Power Plant. APGENCO had floated a tender inviting bids from a consortium of companies, which was eventually awarded to a consortium comprising Tecpro Systems Ltd. (lead member initially), VA Tech Wabag Ltd., and Gammon India Ltd. The tender documents incorporated the General Conditions of Contract (GCC) containing an arbitration clause.

Following financial distress faced by Tecpro Systems and delays in execution, disputes arose between the parties. In December 2017 and April 2018, Tecpro Systems issued notices alleging breaches by APGENCO and invoked the arbitration clause in its individual capacity. APGENCO objected, contending that arbitration could be invoked only by the consortium as a collective entity and not by an individual member, particularly after Tecpro ceased to be the lead member and entered insolvency proceedings.

When APGENCO failed to constitute the arbitral tribunal, Tecpro approached the Telangana High Court under Section 11(6) of the Act. The High Court allowed the application, prompting APGENCO and VA Tech Wabag to challenge the order before the Supreme Court.

Affirming the High Court's decision, the bench relied on Cox and Kings Ltd. v. SAP India Pvt. Ltd, to hold that where complex questions arise as to the status of a party invoking arbitration, the referral court should leave such determinations to the tribunal.

“Whether first respondent has validly invoked arbitration individually, whether the Consortium continues to exist, whether consent of other Consortium partners was necessary, and whether claims are maintainable after commencement of liquidation, are all matters which may legitimately be raised, contested and determined before the AT under Section 16.”, the court observed, cautioning that “entertaining these questions here would amount to conducting a mini trial at the Section 11 stage, contrary to the settled principles of minimal judicial intervention and kompetenz-kompetenz.”

Accordingly, the appeal was dismissed.

Cause Title: M/S ANDHRA PRADESH POWER GENERATION CORPORATION LIMITED (APGENCO) VERSUS M/S TECPRO SYSTEMS LIMITED & ORS.

Citation : 2025 LiveLaw (SC) 1217

Click here to download judgment

Appearance:

For Petitioner(s) :Mr. Guru Krishnakumar, Sr. Adv. (arguing counsel) Mr. Venkita Subramoniam T.r, AOR Mr. Neeraj Kumar, Adv. Mr. Meenakshi Jha, Adv. Mr. N. Venkataraman, A.S.G.(arguing counsel) Ms. Prerna Singh, Adv. Mr. Guntur Pramod Kumar, AOR

For Respondent(s) :Mr. Anirudh Krishnan, Adv.(arguing counsel) Mr. K. Shiva, Adv. Mr. Anuraag Rajagopalan, Adv. Mr. Pranay Prakash, Adv. Mr. Varun Venkatesan, Adv. Mr. Sasank Iyer, Adv. Mr. Balaji Srinivasan, AOR M/S. Dharmaprabhas Law Associates, AOR Mr. Guntur Pramod Kumar, AOR