The Supreme Court has held that once the prima facie existence of an arbitration agreement is established before a referral court, it ought to appoint an arbitrator and refer the parties to arbitration, reiterating that judicial scrutiny at the stage of referring disputes to arbitration is limited.

A bench of Chief Justice of India Surya Kant, Justice Joymalya Bagchi and Justice V. Mohana observed that Section 11(6-A) of the Arbitration and Conciliation Act, 1996, mandates minimal judicial intervention by restricting the court's inquiry to the prima facie existence of an arbitration agreement.

“Once the prima facie existence of an arbitration agreement is adduced before the Referral Court, it ought to appoint an arbitrator and refer the parties to arbitration,” Justice Joymalya Bagchi, who authored the order, observed.

The Court made the observation while allowing two arbitration petitions filed by Shubham Equipment Private Limited (SEPL) and its promoter Sunil Suresh Uplap against Rothwell Water Company Limited (RWCL), a South Korean company, and others. The dispute arose from a joint venture agreement and a memorandum of understanding between the parties.

The Court appointed former Bombay High Court Chief Justice Ramesh Deokinandan Dhanuka as the sole arbitrator to adjudicate the disputes.

Background

SEPL and RWCL entered into a Technical Collaboration Licence Agreement in January 2019, under which RWCL granted SEPL and its affiliates a licence relating to wastewater treatment technology.

In October 2021, the parties' promoters executed a Joint Venture Agreement (JVA), leading to the creation of Rothwell Water (India) Private Limited to undertake business relating to sewage treatment plants and associated equipment.

The JVA contained an arbitration clause providing for arbitration in Mumbai under Indian law. Subsequently, in February 2023, SEPL and RWCL entered into a Memorandum of Understanding (MoU) under which SEPL agreed to provide liaison, logistics and other services to RWCL in connection with a project involving JWIL Infra Limited and the Municipal Corporation of Greater Mumbai. The MoU also contained an arbitration clause providing for arbitration in Mumbai.

Disputes arose after SEPL alleged that RWCL had incorporated another company, Rothwell Business International Private Limited (RBIPL), in breach of the JVA's non-compete covenant. SEPL also claimed that RWCL owed it approximately Rs 4.24 crore towards costs, taxes, liabilities and interest incurred under the MoU. It sought Rs 20 crore towards business losses arising from the alleged breaches of the JVA.

After the parties failed to resolve their differences, SEPL invoked the arbitration clauses in the JVA and MoU in November 2024.

RWCL opposed the petitions, arguing that the disputes were intrinsically connected to the original Licence Agreement, which provided for arbitration in Seoul under the law of the Republic of Korea. It contended that the dispute resolution clause in the Licence Agreement should prevail over those in the JVA and MoU. RWCL had also initiated arbitration proceedings in Korea over alleged breaches of the Licence Agreement's exclusivity clause.

The respondents further argued that RBIPL, being a non-signatory to the JVA and MoU, could not be bound by the arbitration agreements. They also contended that the petitioners had not followed the stipulated procedure for amicable settlement.

Supreme Court's findings

The Court noted that the existence of the arbitration agreements in the JVA and MoU was not disputed. It also referred to provisions in both agreements stating that they constituted the entire agreement between the parties on their respective subject matters and superseded prior agreements concerning those matters.

Examining the agreements, the Court found that they prima facie operated in different fields. While the Licence Agreement concerned the grant of technology licences, the JVA dealt with the creation and operation of the Indian joint venture, and the MoU governed the services to be provided by SEPL to RWCL.

Accordingly, the Court held that disputes arising exclusively under the JVA and MoU were amenable to the arbitration clauses contained in those agreements, rather than the arbitration clause in the Licence Agreement.

The Court rejected the respondents' contention that the disputes under the JVA and MoU overlapped with the claims under the Licence Agreement and, therefore, could not be adjudicated separately.

It held that the question of the scope and extent of disputes referable to arbitration under the JVA and MoU fell within the arbitrator's jurisdiction and could not be a ground to refuse reference at the threshold.

Similarly, on the objection that RBIPL was a non-signatory, the Court observed that the issue was contentious, particularly since RBIPL was a wholly owned subsidiary of RWCL and was alleged to have been incorporated in derogation of the JVA. It held that the issue should be left to the arbitrator for adjudication.

Allowing the petitions, the Court appointed Justice Ramesh Deokinandan Dhanuka as the sole arbitrator to adjudicate the disputes arising under the JVA and MoU.