A Single Bench of the Calcutta High Court in the case of Lindsay International Private Limited v. Laxmi Niwas Mittal, [C.S. No. 2 of 2017, decided on December 22, 2021] has held that the decision of the Supreme Court in the case of Sukanya Holdings (P) Limited v. Jayesh H. Pandya, [(2003) 5 SCC 531] (“Sukanya Holdings”), is no longer a relevant factor for courts to consider at the stage of reference in an application under section 8 of the Arbitration and Conciliation Act, 1996 (“the Act”).

Issue:

The issue before the Court was whether the dictum of the Supreme Court in Sukanya Holdings, which enumerated that, bifurcation of subject-matter or causes of action in the suit is non-permissible; should be considered by a court in an application under section 8 of the Act, as amended in 2016?

Decision of the Court:

The Court answered the aforesaid issue in the following manner:

1. Legislative intent behind the amendment of section 8 of the Act

The Calcutta High Court noted that section 8 of the Act creates an unambiguous mandate on the court to refer the parties to arbitration, regardless of any judgment, decree or order of the Supreme Court or any other court and the only exception to the same being, that it is prima-facie established that no valid arbitration agreement exists. The onus of establishing that the valid arbitration clause does not exist rests squarely on the party who seeks to resist the reference.

In this regard, the Court while reiterating the ratio of the decision of the Supreme Court in the case of Vidya Drolia v. Durga Trading Corporation, [(2021) 2 SCC 1] (“Vidya Drolia”), noted that:

“16…..In the later part of the judgment, the Court concluded that judicial interference at the reference stage, post-amendment, has substantially been curtailed and the structure of the Act was changed to bring it in tune with the ‘pro-arbitration approach’. In the last paragraph of the judgment (para 244 of the SCC Report), the succinct advice on the prima facie evaluation of the validity of the arbitration agreement is “when in doubt, do refer”."

The Court further observed that:

“18…Paragraph 28 of Vidya Drolia refers to the dictum in Sukanya Holdings and instances where such dictum would apply but does not say that Sukanya Holdings is still good law and would cover all instances where a party applies for reference of the dispute to arbitration. This would be clear from para 154 -court not to enter into a mini trial so as to usurp the jurisdiction of the arbitral tribunal and para 159 where the Supreme Court leaves the issue of arbitrability to be decided by the arbirtal tribunal. Vidya Drolia hence cannot be cited only for the proposition that a centralized adjudication is the preferred route in all cases."(emphasis supplied)

Therefore, the Court opined that, Vidya Drolia needs to be seen against other pronouncements of the Supreme Court in the cases of, Emaar MGF Land Limited v. Aftab Singh, [(2019) 12 SCC 751], and N.N. Global Mercantile v. Indo Unique Flame Limited, [(2021) 4 SCC 379] ("N.N. Global"), which has reinforced the legislative intention of minimizing judicial interference in matters of reference.

The Calcutta High Court thus, held that:

“19. The only conclusion which emerges from the above interpretations and decisions is this: a Court must keep a hands-off approach – as opposed to a face-off with the arbitration process − and give a decisive push to the arbitral process once the court is satisfied, prima facie, that a valid arbitration agreement exists in a matter which is arbitrable. The Court’s enquiry is limited only to this and no more."

Further, the Calcutta High Court also opined that, none of the decisions cited before it, including Vidya Drolia, have held that an application under section 8 of the Act will only succeed if the entire suit is capable of being referred to arbitration.

2. Is Sukanya Holdings relevant at the stage of reference to arbitration, post amendment?

The Calcutta High Court noted that, the dictum in Sukanya Holdings that bifurcation of causes of action and parties cannot be permitted in adjudicating of an application under section 8 of the Act, has been rejected in N.N. Global. Further, Vidya Drolia also cannot be used as a proposition to support the plaintiffs’ argument that the entire cause of action in the suit must be capable of being referred to arbitration in a section 8 application since paragraph 225 of Vidya Drolia recognizes that judicial interference at the reference stage has been substantially curtailed and the 2015 amendment has altered the structure of the Act to make it pro-arbitration. Further, according to the Court, paragraph 154.3 of Vidya Drolia reinforces the principle of severability, competence-competence and that the arbitral tribunal is the preferred first authority to determine all questions of non-arbitrability.

Therefore, the Court held that:

“32. The conclusion, without a doubt, is that Sukanya Holdings is no longer a relevant factor for the Court to consider at the stage of reference in an application under section 8 of the Act. The Court is not even under a mandate, post amendment, to adjudicate on the bifurcability of the causes of action or the presence of parties who are necessary parties to the action but not to the arbitration. The only brake in the momentum of reference is the court finding, prima facie, that no valid arbitration agreement exists." (emphasis supplied)

However, the Court, has also clarified that the dictum in Sukanya Holdings still holds true for deciding applications under section 8 of the Act filed prior to the amendment of 2016 but not where the suit or application is filed after October 23, 2015 i.e. when the amendment came into force.

Please find a copy of the judgment.

This update has been contributed by Arka Majumdar (Partner) and Kunal Dey (Associate).

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