The Delhi High Court has appointed a Sole Arbitrator to resolve a dispute arising out of two Share Purchase Agreements (SPAs) involving investments in Beanly Beverages Private Limited. While referring the disputes to arbitration, the Court clarified that the question of whether the company, which did not sign the arbitration agreement, can also be bound by it must be decided by the arbitral tribunal and not at the referral stage.
Background of the Case
The petitions were filed by investor Chirag Jain under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator to decide disputes arising from two SPAs executed on April 27, 2024, and later modified through addendums dated May 6, 2024.
Under the agreements, the petitioner purchased 70 equity shares each from Rahul Jain and Samayesh Khanna, who are promoters and directors of Beanly Beverages Private Limited. According to the petitioner, the full sale consideration had been paid, but the sellers failed to complete the transfer of shares. The dispute later intensified after the company allegedly issued fresh shares to third parties and the sellers attempted to reverse the transaction by refunding the purchase amount.
Court's Observation
Justice Mini Pushkarna noted that the existence of the arbitration agreement between the petitioner and the sellers was not in dispute. The only significant objection came from Beanly Beverages Private Limited, which argued that it was never a signatory to the SPAs or the arbitration clause.
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The Court observed that at the stage of deciding an application under Section 11 of the Arbitration Act, its role is limited to examining whether an arbitration agreement exists on a prima facie basis. Questions requiring detailed examination of facts, including whether a non-signatory company is a "veritable party" to the arbitration agreement, should ordinarily be decided by the arbitral tribunal.
Referring to recent Supreme Court precedents, the bench observed that the referral court should avoid conducting a detailed factual inquiry where disputed issues require evidence.
As the judgment states,
“The question whether respondent no. 2 constitutes a veritable party to the Arbitration Agreement would necessitate an expansive enquiry... such detailed exercise is not possible at the stage of adjudicating a petition filed under Section 11 of the Arbitration Act.”
The Court also noted that there were disputed questions regarding whether the company had affixed its common seal on the duplicate copies of the SPAs and whether its conduct indicated consent to the transaction. These issues, the Court said, required evidence and therefore could not be conclusively determined at this preliminary stage.
Decision
Since both sellers had expressed no objection to resolving the dispute through a Sole Arbitrator, the High Court appointed Ms. Veena Ralli, Advocate, as the Sole Arbitrator to adjudicate the disputes arising from both Share Purchase Agreements.
The Court clarified that it had expressed no opinion on the merits of the controversy. It specifically left open all issues, including whether Beanly Beverages Private Limited, despite being a non-signatory, could be treated as bound by the arbitration agreement.
The company has been granted liberty to raise that objection before the arbitral tribunal, which will decide the issue in accordance with law.
The petitions were accordingly disposed of.
