ALTERNATIVE DISPUTE RESOLUTION

TOPIC- M/S Emaar India Ltd. vs. Tarun Aggarwal Projects LLP & Anr.

ASSIGNMENT – 1

SUBMITTED BY- RIA SINGH

NAME OF SUBJECT TEACHER- MRS. SIMMI KAUR

ENROLLMENT NUMBER- 01825503521

5TH SEMESTER
 ACKNOWLEDGEMNT

We would like to thank Mrs. Simmi kaur, our Professor-in-charge and our
HOD, School Of Law, A. K. Tyagi sir for their support and guidance in
completing our project on analytical study of a case law cited during 5 years ,
M/S Emaar India Ltd. vs. Tarun Aggarwal Projects LLP & Anr. It was a great
learning experience.

RIA SINGH
 M/S Emaar India Ltd.
vs.
Tarun Aggarwal Projects LLP & Anr.

Brief

Citation: CIVIL APPEAL NO. 6774 OF 2022

Date of judgement: 30th September, 2022

Bench: Honourable Justices M.R. Shah and Krishna Murari

Parties: Petitioner – EMAAR INDIA LTD

Respondent – TARUN AGGARWAL PROJECTS LLP

Overview

In the case of M/S Emaar India Ltd. vs. Tarun Aggarwal Projects LLP & Anr., the division bench
of Justice M.R. Shah and Justice Krishna Murari of the Supreme Court of India held that the
appointment of the arbitrators was made without conducting a preliminary investigation and despite
the fact that it was noted that a party does have the right to seek enforcement of an agreement before a
court of law pursuant to Clause 36.

RELEVANT PROVISIONS

Section 11: Appointment of arbitrators

Section 16: Competence of arbitral tribunal to rule on its jurisdiction

FACTS OF THE CASE

The case of Emaar India v. Tarun Aggarwal revolves around a dispute between a real estate
developer, Emaar India, and a homebuyer, Tarun Aggarwal. The parties had entered into an
agreement containing an arbitration clause to resolve any disputes arising between them. However,
when a disagreement arose concerning certain matters, Tarun Aggarwal approached the High Court
seeking the appointment of an arbitrator to adjudicate the dispute.

At this juncture, the High Court faced a crucial question: should it undertake a preliminary inquiry to
determine whether the subject matter of the dispute fell within the 'excepted matters' explicitly
mentioned in the arbitration agreement? The 'excepted matters' refer to issues that are specifically
excluded from the purview of arbitration and must be adjudicated by a court of law. This conundrum
led the High Court to refer the matter to the Supreme Court for a definitive ruling.

ISSUES RAISED

Whether the High Court was justified in appointing the arbitrators under Section 11 of the act without
conducting a preliminary inquiry?

ARGUMENTS BY THE RESPONDENTS

The respondents (original petitioners) contended that the appellants had not complied with the
obligations of the addendum agreement. Subsequently, a dispute between the parties and the
respondents appointed a retired Judge on the High Court as an arbitrator. However, the appointment
was denied by the appellants. Consequently, the respondents approached the Delhi High Court for the
appointment of the arbitrators by virtue of Clause 36 of the Addendum Agreement. The respondents
contended that it is the arbitrator under Section 16 of the Act who will determine whether the dispute
is arbitrable or not.

ARGUMENTS BY THE APPELLANTS

The primary contention raised by the appellants was that the concerned dispute fell under Clause 36
of the Addendum Agreement and not Clause 37. The appellants pleaded that Clause 36 of Addendum
Agreement provided that if any dispute arose with respect to Clauses 3, 6 and 9, the other party would
have the right to get the agreement enforced through a court of law. However, the High Court
appointed the arbitrators under Clause 37 by holding that Clause 36 read with Clause 37 envisaged
that while the parties had the right to get the agreement enforced through a court of law, they were not
barred from getting the dispute settled by appointment of arbitrators under Section 11 the Act. It was
the case of the appellants that since the dispute was with respect to Clauses 3, 6 and 9, it fell within
the ambit of Clause 36 and not Clause 37 and hence, was not arbitrable. The appellants further
submitted that where the arbitration agreement is not in writing or where the dispute is beyond the
scope of the agreement, the appointment of arbitrators can be refused. The appellants relied on the
case of Uttarakhand PurvSainik Kalyan Nigam Limited Vs. Northern Coal Field Limited; (2020) 2
SCC 455 in support of their argument. The appellants relied on the case of Vidya Drolia and Ors. Vs.
Durga Trading Corporation; (2021) 2 SCC 1 and contended that the Court can interfere under Section
11 only where it is ex-facie certain that the arbitration agreement did not exist or is invalid and the
disputes are unarbitrable. The parties cannot be forced to arbitrate when the dispute is "demonstrably
non-arbitrable".

Ruling of the Court

In a unanimous decision, the Supreme Court pronounced that High Courts indeed have the authority
to undertake a preliminary inquiry to ascertain whether the dispute falls within the 'excepted matters'
outlined in the arbitration agreement. This means that before appointing an arbitrator, the High Court
can examine the scope of the arbitration clause to determine if certain disputes should be excluded
from arbitration and instead be resolved through traditional court proceedings.

The court further emphasized that the introduction of sub-section 11(6A) in the Arbitration and
Conciliation Act, 1996, does not preclude the High Court from conducting such a preliminary inquiry.
Sub-section 11(6A) was inserted to expedite the process of appointing an arbitrator, mandating the
court to confine its examination to the existence of an arbitration agreement. However, the Supreme
Court clarified that this amendment does not restrict the Court's power to delve into the issue of non-
arbitrability during the preliminary inquiry.

Key points from the court's ruling:

High Courts can conduct a preliminary inquiry to ascertain whether the dispute falls within the
'excepted matters' outlined in the arbitration agreement.

The insertion of sub-section 11(6A) does not hinder the Court from undertaking such an inquiry.
The scope of the preliminary inquiry is limited to determining the arbitrability of the dispute, not
delving into the merits of the case.

OBSERVATION OF THE COURT

The Apex Court placed reliance upon Vidya Drolia and Ors. Vs. Durga Trading Corporation;
and Indian Oil Corporation Limited Vs. NCC Limited while allowing the appeal.

The Apex Court in the judgment of Vidya Drolia clarified that the court, with a view to prevent
wastage of public and private resources, may conduct prima facie review at the stage of reference to
weed out any frivolous or vexatious claims. In the said judgment, the Court observed that rarely as a
demurrer, the court may interfere at Section 8 or 11 stage when it is manifestly and ex facie certain
that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable, though the
nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial
scrutiny. The Court considered Vidya Drolia, in the matter of Indian Oil Corporation and observed
that at Section 11 stage, a preliminary inquiry is permissible if the dispute is raised with respect to the
arbitrability.

Such judgments may raise concerns as to: -

(i) how could a court go into the merits of the case at the reference stage; (ii) arbitrator can adjudicate
upon its own jurisdiction in a Section 16 application and that the courts should not usurp such powers;
and

(iii) whether such a preliminary inquiry was mandatory or directory in nature.

The Apex Court in the matter of DLF Home Developers Ltd. Vs Rajapura Homes Private Limited &
Anr. has analyzed the scope and ambit of judicial scrutiny in a Section 11 application and inter
alia observed that the courts are not expected to act mechanically merely to deliver a purported
dispute raised by an applicant at the doors of the chosen Arbitrator. On the contrary, the court(s) are
obliged to apply their mind to the core preliminary issues, albeit, within the framework of Section
11(6-A) of the Act. Such a review, as already clarified by the Apex Court, is not intended to usurp the
jurisdiction of the Arbitral Tribunal but is aimed at streamlining the process of arbitration. Therefore,
even when an arbitration agreement exists, it would not prevent the court to decline a prayer for
reference if the dispute in question does not correlate to the said agreement.
In light of the above analysis, the Apex Court observed that the Delhi High Court has not held any
preliminary enquiry as to whether the dispute raised by the Org. Petitioner was arbitrable or not and
whether it falls within the ambit of clause 36 or clause 37 of the Collaboration Agreement. As such,
the Apex Court remitted the matter back to the Delhi High Court to hold a preliminary inquiry and
decide the application.

IMPLICATIONS AND SIGNIFICANCE

The ruling in Emaar India v. Tarun Aggarwal holds tremendous significance and will likely have
broad-ranging implications on the landscape of arbitration law in India. Some of the noteworthy
implications are as follows:

1. Enhanced Clarity: By empowering High Courts to conduct preliminary inquiries into the 'excepted
matters,' the judgment brings much-needed clarity to the process of appointing arbitrators. This
enables the courts to discern which disputes are eligible for arbitration and which must be adjudicated
through traditional court proceedings.

2. Efficiency in Arbitration Proceedings: The Court's decision provides a mechanism to avoid

potential delays and disputes that may arise during arbitration proceedings when parties contest the
arbitrability of specific issues. By resolving this matter at the preliminary stage, the overall efficiency
of arbitration is likely to improve.

3. Protection of Party Autonomy: The judgment upholds the principle of party autonomy in
arbitration. It recognizes that parties, through their agreement, can determine the scope of disputes
they wish to submit to arbitration and those they want to exclude. This reinforces the significance of
carefully drafted arbitration clauses and encourages parties to be explicit in outlining the scope of
arbitrable matters.

4. Minimization of Judicial Interference: By empowering High Courts to decide on non-arbitrability

issues at the outset, the judgment limits unnecessary judicial interference in arbitration proceedings.
This is essential to maintain the confidentiality and autonomy of arbitration as a preferred method of
dispute resolution.
5. Consistency in Approach: The ruling is expected to bring about consistency in the approach of
High Courts across the country when dealing with preliminary inquiries in appointing arbitrators. This
is likely to lead to more predictable outcomes and greater confidence in the Indian arbitration regime.

6. Encouragement to Arbitration: The judgment's emphasis on resolving arbitrability issues through a

preliminary inquiry is likely to instill greater confidence in arbitration as a viable dispute resolution
mechanism. Parties may feel reassured that their disputes will be heard by competent arbitrators,
thereby promoting the use of arbitration in commercial contracts.

CONCLUSION
As the Apex Court has observed in series of judgments that a restricted and limited review by the
courts, before appointing an arbitrator, is a must to check and protect the parties from being forced to
arbitrate, when the matter is “non-arbitrable” and “to cut of the deadwood”. While the amendments
brought into the Act aims at minimum interference by courts in the arbitral proceedings, a preliminary
inquiry in cases where it is manifest and ex facie certain that the arbitration agreement is non-existent,
invalid or that the disputes are non-arbitrable, the courts are required to undertake a preliminary
enquiry.