The Apex Court, in the case of Sanjiv Prakash v. Seema Kukreja, it was held that according to Section 11 of the Arbitration and Conciliation Act, 1996, the Court does not have the power to decide upon the question of facts and law that are related to novation of contract containing a clause of arbitration and should be referred to an arbitral tribunal. The Court also stated that the Court could not decide ’ complex’ questions without referring to an arbitral tribunal.
The facts of the case are that Prem Prakash started a private company with the paid-up capital from his funds. He later shared the shares of the company with his family members.
A company named Thomas Reuters Corporation talked to Sanjiv Prakash, son of Prem Prakash, for long-term investment and collaboration with the company. He wanted to play an active role in the company. Later on, an MoU was entered into between the company and the other four family members and was executed.
The dispute arose when Prem Prakash showed his willingness to transfer his shareholdings which were held jointly. Similarly, Daya Prakash wanted to share her shareholdings with Seema Kukreja. They were issued a notice stating that according to the arbitration clause mentioned in the MoU and it would lead to a breach of MoU if they transfer their shareholdings. In the arbitral proceedings, Seema Kukreja and Daya Prakash said that the MoU ceased to exist after 12.04.1996. Therefore, there did not exist any arbitration clause between the parties.
The Delhi High Court stated that “… the law relating to the effect of novation of contract containing an arbitration agreement/clause is well-settled. An arbitration agreement being a creation of an agreement may be destroyed by agreement. That is to say, if another supersedes the contract, the arbitration clause, being a component/part of the earlier contract, falls with it, or if the original contract in entirety is put to an end, the arbitration clause, which is a part of it, also perishes along with it.”
The Supreme Court referred to the case of Vidya Drolia v. Durga Trading Corporation, in which it was held that the Court does not have the right to determine whether an arbitration agreement exists or not.
The Apex Court in the said case stated that “A Section 11 court would refer the matter when contentions relating to non-arbitrability are arguable, or when facts are contested. The court cannot, at this stage, enter into a mini-trial or detailed review of the facts and law which would usurp the jurisdiction of the arbitral tribunal.”
 2021 SCC OnLine SC 282.
 (2021) 2 SCC 1.
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