Supreme Court held for appointing a sole arbitrator to resolve the dispute between Cox & Kings Ltd. and SAP India Pvt. Ltd. while leaving the question of the non-signatory's involvement for the tribunal's consideration.

The Supreme Court Clarifies Scope of Referral Court's Power in Arbitration Cases Involving Non-Signatories In Cox & Kings Ltd Vs Sap India Pvt. Ltd & Anr. The Court addressed the scope of a referral court's power under Section 11(6) of the Arbitration & Conciliation Act, 1996, particularly when determining the arbitrability of disputes involving non-signatory parties. The court reiterated that at the referral stage, the court's examination is limited to a prima facie assessment of the arbitration agreement's existence and should not extend to complex questions of a non-signatory's involvement, leaving those determinations to the arbitral tribunal.

Cox & Kings Ltd. (Petitioner), facing financial difficulties, entered into agreements with SAP India Pvt. Ltd. (Respondent No. 1) for software solutions. Disputes arose, and while an initial arbitration (involving only the Petitioner and Respondent No. 1) was stalled due to the Petitioner's insolvency proceedings, the Petitioner initiated a second arbitration, this time including SAP SE GMBH (Respondent No. 2) which is the German parent company of Respondent No. 1.
The Petitioner argued that all agreements, including a 2010 Licensing Agreement which only named Respondent No. 2 as a licensor, were interconnected and that Respondent No. 2 was intricately involved in the project, justifying its inclusion in the arbitration. Respondent No. 2 contested being bound by the arbitration clause. The key issue before the Supreme Court was whether Respondent No. 2, a non-signatory to the arbitration agreement, could be subjected to arbitration ?.

Respondents, on the other hand, argued that the Petitioner was trying to bring claims related to the 2010 License Agreement under the purview of the arbitration clause, and that the Petitioner is acting in bad faith, using the arbitration to inflate claims and misrepresent their financial position. They also alleged the Petitioner failed to disclose a challenge to the arbitration notice filed with the NCLT, Mumbai., however, the Supreme Court emphasized that a referral court's role under Section 11(6) is limited to a prima facie review of the arbitration agreement's existence. It should not prematurely adjudicate on complex factual and legal questions, particularly those concerning a non-signatory's involvement.

The Court highlighted the principle of competence-competence, empowering the arbitral tribunal to rule on its own jurisdiction, including issues related to the validity of the arbitration agreement and the determination of parties, and the court also acknowledged the complexities in deciding whether a non-signatory is bound by an arbitration agreement. It ruled that such determinations should be made by the arbitral tribunal after a thorough examination of the evidence and legal principles.

The Supreme Court's approach indicates a clear trend towards minimizing judicial intervention in arbitration, particularly on intricate issues like non-signatory involvement. The court's reliance on its recent precedents highlights this shift, emphasizing the arbitral tribunal's expertise in handling such matters.
while referring to objective behind enactment of the Arbitration Act the court refering to its constitution bench judgment in the case Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Stamp Act 1899, and has held that "“81. One of the main objectives behind the enactment of the Arbitration Act was to minimise the supervisory role of Courts in the arbitral process by confining it only to the circumstances stipulated by the legislature. For instance, Section 16 of the Arbitration Act provides that the Arbitral Tribunal may rule on its own jurisdiction “including ruling on any objection with respect to the existence or validity of the arbitration agreement”..."

The Apex Court found that the Petitioner's claim satisfied the basic requirement of a prima facie arbitration agreement, as Respondent No. 2 did not dispute the agreement's existence. And thus, The court appointed Justice Mohit S. Shah, former Chief Justice of the Bombay High Court, as the sole arbitrator, leaving all other matters, including the arbitrator's fees and the objections raised by the respondents, to be decided upon consultation with the parties involved and thus held "At the referral stage, the referral court should leave it for the Arbitral Tribunal to decide whether the non-signatory is bound by the arbitration agreement..”

Coram:Chief Justice Dr. D.Y. Chandrachud, Justice J.B. Pardiwala, and Justice Manoj Misra.
Between:Cox & Kings Ltd Vs Sap India Pvt. Ltd & Anr.
Date of Judgment: 09-09-2024