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REPORTABLE 
IN   THE   SUPREME   COURT   OF   INDIA
 CIVIL APPELLATE   JURISDICTION  
CIVIL APPEAL        NO. 8818  OF        2022
(Arising out of SLP (Civil) No. 11570 of 2021)
M/s. Meenakshi Solar Power Pvt. Ltd.                …   APPELLANT
Vs.
M/s. Abhyudaya Green Economic 
Zones Pvt. Ltd. and Ors.                                  ...   RESPONDENT(S)
J       U        D        G        M        E       N        T
NAGARATHNA,        J.
Leave granted.
2. This   Civil   Appeal   has   been   filed   by   assailing   the   impugned
judgment   and   order   dated   12.02.2021   passed   by   the   High   Court   of
Judicature   for   the   State   of   Telangana   at   Hyderabad   in   Arbitration
Application   No.   55   of   2020   whereby   the   High   Court   dismissed   the
application   filed   under   Section   11(6)   of   the   Arbitration   and
Conciliation Act, 1996 (hereinafter referred to as ‘Act of 1996’, for the
sake of convenience) filed by the appellant herein.  

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3. The   appellant   herein­   M/s.   Meenakshi   Solar   Power   Pvt.   Ltd.   is
engaged   in   the   business   of   producing   power   through   running   and
operating   thermal/solar/hydro   power   plants.   The   respondent   No.1   –
M/s.   Abhyudaya   Green   Economic   Zones   Pvt.   Ltd.   is   the   owner   of
4.128   MW   Solar   PV   Power   Project   located   in   20   acres   at   Kummera
Village,   Chevella   Mandal,   Ranga   Reddy   District,   Telangana.
Respondent   Nos.   2   and   3   are   promoters   and   100%   shareholders   of
respondent No.1 Company. Respondent No. 4­ M/s. Meenakshi Power
Pvt.   Ltd.   is   an   affiliate   of   the   appellant   herein   and   is   a   proforma
respondent in the present case while the other three respondents are
the contesting respondents.
4. Succinctly   stated,   the   facts   of   the   case   are   that   the   power
project   of   respondent   No.1   herein   is   generating   power   and   has   a
twenty­year   Power   Purchase   Agreement   with   Telangana   State
Southern   Power   Distribution   Company   Limited.   The   power   project
was   partly   financed   by   Corporation   Bank,   Film   Nagar   Branch,
Hyderabad   in   the   form   of   a   Term   Loan   vide   Account   No.
560821000017646 and partly financed by M/s. IFCI Venture Capital
Funds Limited (hereinafter referred to as ‘IFCI Venture Capital’) in the
form   of   14,68,000   Optionally   Convertible   Debentures   of   Rs.100/­
each at par aggregating to Rs.14,68,00,000/­ (Rupees Fourteen Crore
Sixty­Eight   Lakhs   Only)   under   a   Venture   Capital   Fund   for   Schedule

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Castes.   Since   it   was   difficult  for   respondent  No.1   to   service   the   debt
availed   from   the   financial   institutions,   respondent   Nos.   2   and   3   its
promoters,   decided   to   sell   the   said   power   project.   The   appellant
herein showed interest in buying the said power project and therefore
entered   into   a   Share   Purchase   Agreement   dated   24.09.2018   with
respondent Nos.1 to 3 wherein respondent Nos. 2 and 3 agreed to sell
100%   ownership   of   respondent   No.1   Company   comprising   all   of   its
assets   including   land,   buildings,   plant,   equipment   along   with
continuity   of   the   Power   Purchase   Agreement   signed   with   Telangana
State   Southern   Power   Distribution   Company   Limited   as   a   going
business   entity,   for   an   irrevocably   frozen   Purchase   Price   of   Rs.   29
Crores   (Rupees   Twenty­Nine   Crores).   The   appellant   herein   agreed   to
purchase   100%   Equity   Shares   and   100%   Preference   Shares   of
respondent   No.1   Company   by   way   of   taking   over   the   loans   of
respondent   No.1   Company   and   paying   the   balance   amount   to   the
sellers i.e., respondent Nos. 2 and 3 towards net equity value.
5. Subsequently,   a   Tripartite   Agreement   was   entered   into   by   the
appellant   herein   through   its   affiliate   i.e.,   respondent   No.4   (party   of
the third part) with respondent Nos. 2 and 3 (party of the second part)
and   IFCI   Venture   Capital   (party   of   the   first   part)   on   03.04.2019
recording   the   execution   of   the   Share   Purchase   Agreement   dated
24.09.2018   and   payment   of   Rs.   50   lakhs   (Rupees   Fifty   Lakhs)   to

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respondent   Nos.   2   and   3   in   terms   of   the   said   Share   Purchase
Agreement. 
6. Thereafter, an addendum to the Share Purchase Agreement was
signed on 10.04.2019 between respondent Nos.1 to 3 and respondent
No.4 wherein the latter agreed to remit an amount of Rs. 1.65 Crores
to respondent Nos. 1 to 3 to regularize the loan with the Corporation
Bank and facilitate the transfer of the project company.
7. Disputes arose between the appellant and the respondents and
the appellant herein filed an application before the Commercial Court,
City Civil Court, Hyderabad vide COP No.27 of 2020 under Section 9
of the Act of 1996, seeking to restrain the respondents from alienating
their   shares   in   the   Company.   The   Commercial   Court   was   pleased   to
grant   an   ad­interim   injunction   restraining   the   respondents   from
alienating their shares vide order dated 19.06.2020.
8. The appellant herein sent a letter dated 22.06.2020 invoking the
arbitration clause as a means of dispute resolution in terms of Clause
10 of the Share Purchase Agreement and called upon respondent Nos.
1 to 3 to settle the disputes through arbitration. The appellant herein
appointed   one   Dr.   P.V.   Amarnadha   Prasad,   Engineer   and   Techno
Legal   Consultant,   Hyderabad   as   its   arbitrator   and   vide   such   letter
requested respondent Nos. 1 to 3 to appoint their nominee arbitrator
and to constitute an Arbitral Tribunal of three members to adjudicate

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upon the dispute between the parties. On receiving no response to the
aforesaid   notice,   the   aggrieved   appellant   herein   filed   an   application
under   Section   11(6)   of   the   Act   of   1996   which   came   to   be   dismissed
vide impugned judgment and order passed by the High Court.
9. Aggrieved   by   the   dismissal   of   the   aforesaid   application,   the
appellant has approached this Court by way of the present appeal. 
10. We   have   heard   Ms.   Meenakshi   Arora,   learned   Senior   Counsel
duly   instructed   by   her   instructing   counsel,   appearing   for   the
appellant   herein   and   Sri   D.   Narendra   Naik,   learned   counsel   for   the
respondent Nos.1 to 3 and perused the material on record.
11. Learned   Senior   Counsel   for   the   appellant   stated   that   the   High
Court   has   grossly   erred   in   dismissing   the   application   under   Section
11(6) of the  Act  of  1996 and  that  the  judgment and order  passed  by
the High Court needs consideration by this Court. The submissions of
learned Senior Counsel for the appellant are summarised as under:
11.1 That   the   High   Court   erred   in   giving   a   finding   of
implied/deemed novation while adjudicating on an application
under Section 11 of the Act of 1996 and failed to comprehend
the   nature   of   limited   judicial   intervention   under   the   said
provision.
11.2 That the High Court erred in venturing to examine complicated
questions   of   facts   and   documents   and   has   essentially

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performed   the   function   of   an   Arbitral   Tribunal   before   whom
novation   ought   to   have   been   pleaded   and   proved   as   a
preliminary issue in case the same arose.
11.3 That   the   High   Court   has   failed   to   examine   the   ingredients   for
novation and has given an erroneous finding in that regard by
superficially dealing with the said issue. The High Court failed
to  comprehend that the Tripartite Agreement was entered into
with   the   sole   purpose   and   intent   to   act   as   a   recovery
mechanism for IFCI Venture Capital and cannot by any stretch
of imagination be called as an act to substitute and novate the
Share Purchase Agreement dated 24.09.2018. 
11.4 That   the   High   Court   failed   to   consider   that   the   Tripartite
Agreement   and   the   Addendum   to   the   Share   Purchase
Agreement was for a limited purpose of satisfying IFCI Venture
Capital   as   regards   the   dues   payable   and   the   same   cannot   be
said  to  have  substituted   the  Share   Purchase  Agreement.   Both
the Tripartite Agreement and the Addendum make no mention
to   novate   or   substitute   the   Share   Purchase   Agreement   dated
24.09.2018. There are clauses being substituted or subsequent
modification of clauses between the Share Purchase Agreement
when viewed alongside with the Tripartite Agreement. 

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11.5 It   is   reiterated   that   the   Tripartite   Agreement   with   the   IFCI
Venture Capital was meant only to protect the interests of the
financier   so   that   it  does   not   act   coercively   against   respondent
No.1.   The   Tripartite   Agreement   had   no   clauses   in   it   to   deal
with the inter­se rights and obligations of appellant herein and
its   affiliate   respondent   No.4   and   respondent   Nos.   1   to   3   and
was   therefore   incapable   of   substituting   the   Share   Purchase
Agreement dated 24.09.2018.
11.6 That the  High Court erred in  not attempting  to  appreciate  the
composite   intention   of   both   the   parties,   the   nature   and
purpose   of   the   commercial   transaction,   the   documents   and
material   on   record,   the   conduct   and   correspondence   of   the
parties.
12. Per contra , learned counsel appearing for respondent Nos.1 to 3
supported   the   judgment   and   order   passed   by   the   High   Court   and
contended   that   no   interference   of   this   Court   is   required.   The
submissions  of  the  learned  counsel for the  respondent No.1  to  3 are
epitomized as under:
12.1 That the appellant herein failed miserably in making complete
payment of the purchase of shares from respondent Nos. 2 and
3   and   in   fulfilling   its   obligation   before   the   expiry   of   the   Share
Purchase   Agreement   i.e.,   as   on   10.11.2018,   when   the   Share

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Purchase Agreement lapsed and stood terminated by operation
of Clause 8 of the Share Purchase Agreement.
12.2 That   a   fresh   Tripartite   Agreement   was   entered   into,   after   four
months   from   the   date   when   the   Share   Purchase   Agreement
stood   terminated,   with   an   intention   to   help   the   appellant   to
recover   an   amount   of   Rs.50   lakhs   paid   by   it   to   the
respondents.   Pursuant   to   the   Tripartite   Agreement,   an
Addendum was entered into between the parties wherein it was
agreed that the consideration for sale of the power project shall
be   remitted   within   timelines   stipulated   under   the   terms   and
conditions   of   the   Tripartite   Agreement.   The   Addendum   makes
no   mention   of   the   compliance   with   any   term   of   the   Share
Purchase Agreement dated 24.09.2018 and rightly so since the
Tripartite Agreement executed on 03.04.2019 had novated the
same. 
12.3 That   the   Share   Purchase   Agreement   and   the   Tripartite
Agreement   are   two   distinct   and   independent   agreements
executed   between   completely   different   parties   with   different
terms and conditions, however the subject matter i.e., the sale
consideration   and   the  number   of   shares  being  transferred   are
the same in both the agreements. The Tripartite Agreement has
superseded   the   Share   Purchase   Agreement.   The   substantial

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shift   from   terms,   conditions   and   timelines   in   the   Share
Purchase   Agreement   show   that   the   parties   departed   from   the
same   to   the   Tripartite   Agreement   and   the   Share   Purchase
Agreement stood novated. 
12.4 That   the   High   Court   has   acted   completely   within   its
jurisdiction   under   Section   11   of   the   Act   of   1996   and   has   not
stepped   into   the   role   of   an   Arbitral   Tribunal.     Reference   to
Vidya Drolia vs. Durga Trading Corporation (2021) 2 SCC
1   was   made   in   this   regard.   The   respondents   further   relied   on
Indian Oil Corporation Ltd. vs. NCC Ltd. 2022 SCC OnLine
SC 896  to hold that there is no bar under the Act of 1996 for a
Court   to   look   beyond   the   bare   existence   of   the   arbitration
clause   to   cut   the   deadwood.   The   High   Court   in   the   present
case was well within its jurisdiction in examining the existence
of   the   Arbitration   agreement   and   by   arriving   at   a   conclusion
that   the   Share   Purchase   Agreement   was   novated   and
superseded by the Tripartite Agreement. 
12.5 That   the   arbitration   clause   being   a   part/component   of   Share
Purchase   Agreement   falls   within   it   and   perishes   along   with   it
and   the   Tripartite   Agreement   provides   for   no   provision   for
arbitration. The High Court was right in holding that owing to

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novation,   the   invocation   of   arbitration   under   Share   Purchase
Agreement   was   untenable.   This   Court   has   clearly   set   out   the
principle   that   an   agreement   will   be   novated   with   the
introduction   of   new   parties   by   mutual   agreement.   The
respondents   relied   on   the   case   of   Union   of   India   vs.
Kishorilal   Gupta   and   Bros.   (1960)   1   SCR   493 ,   Young
Achievers   vs.   IMS   Learning   Resources   Pvt.   Ltd.   (2013)   10
SCC   535   and   M.B.S   Impex   Pvt.   Ltd.   vs.   Minerals   and
Metals Trading Corporation (2020) 5 ALD 185 .
12.6 That   the   High   Court   has   rightly   comprehended   the   intention
behind the two agreements and the contention of the appellant
that   the   Tripartite   Agreement   was   a   recovery   mechanism   is
untrue   and   thus   unsustainable.   Moreover,   the   Tripartite
Agreement governing the transaction makes no mention of the
lapsed Share Purchase Agreement intentionally. The appellant
was   replaced   by   respondent   No.4   in   the   Tripartite   Agreement
and   IFCI   Capital   Venture   was   added   as   a   party   and   was   also
given   a   right   to   invoke   the   agreement.   Thus,   the   Tripartite
Agreement   is   a   completely   different   and   new   agreement
between   different   parties   containing   different   terms   and
conditions and does not have an arbitration clause.

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13.   Having  heard  the  learned counsel  appearing  for the  respective
parties, the following points would arise for our consideration:
(a) Whether the judgment and order  of the High Court calls for
any interference or modification by this Court?
(b) What order?  
14. The   plea   taken   by   the   respondent   herein   is   that   owing   to
novation   of   share   purchase   agreement,   the   arbitration   clause   no
longer   existed   so   as   to   resolve   the   dispute   between   the   parties
through  arbitration.   On the  other hand, the  plea of  the appellant  is
that   there   was   no   such   novation   of   the   share   purchase   agreement
and   the   arbitration   clause   was   very   much   available   and   hence,   the
High   Court   ought   to   have   referred   the   matter   to   arbitration.     In   this
regard, it would be useful to refer to the following dicta of this Court: 
a) In   National Insurance Co. Ltd. vs. Boghara Polyfab Pvt.
Ltd. (2009) 1 SCC 267 , a Bench of this Court   elucidating on
SBP   &   Co.   vs.   Patel   Engineering   Ltd.   (2005)   8   SCC   618
has identified and segregated the issues that could be considered
in an application filed under Section 11(6) of the Act of 1996 into
three categories. They are enumerated as under:
(i) issues which the Chief Justice or his designate is bound to
decide; 

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(ii) issues   which   he   can   also   decide,   that   is,   issues   which   he
may   choose  to  decide  or  leave  it to  the  Arbitral   Tribunal   to
decide; and 
(iii)   issues   which   would   be   left   to   the   Arbitral   Tribunal   to
decide, and thereafter had enumerated them as under:
“ 22.1 .   The   issues   (first   category)   which   the
Chief   Justice/his   designate   will   have   to
decide are:
(a) Whether   the   party   making   the
application   has   approached   the
appropriate High Court.
(b) Whether   there   is   an   arbitration
agreement   and   whether   the   party   who
has   applied   under   Section   11   of   the
Act, is a party to such an agreement.
22.2 .   The   issues   (second   category)   which
the Chief Justice/his designate may  choose
to   decide   (or   leave   them   to   the   decision   of
the Arbitral Tribunal) are:
( a )   Whether   the   claim   is   a   dead   (long­
barred) claim or a live claim.
( b )   Whether   the   parties   have   concluded
the   contract/transaction   by   recording
satisfaction   of   their   mutual   rights   and
obligation   or   by   receiving   the   final
payment without objection.
22.3 .   The   issues   (third   category)   which   the
Chief   Justice/his   designate   should   leave
exclusively to the Arbitral Tribunal are:

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( i )   Whether a claim made falls within the
arbitration   clause   (as   for   example,   a
matter   which   is   reserved   for   final
decision   of   a   departmental   authority
and   excepted   or   excluded   from
arbitration).
( ii )   Merits   or   any   claim   involved   in   the
arbitration.”   
15. As   far   as   the   issues   in   the   first   category   are   concerned,   the
Chief Justice or his designate is bound to decide.   With regard to the
issues falling under the second category, when they  are raised in an
application under Section 11 of the Arbitration Act, the Chief Justice
or   his   designate   may   decide   them   or   may   leave   it   open   with   a
direction to the Arbitral Tribunal to decide the same.  But if the Chief
Justice or his designate chooses to examine the issue and decides it,
the Arbitral Tribunal cannot re­examine the same issue. As far as the
issues   which   arise   in   the   third   category   are   concerned,   they   have   to
be dealt with exclusively by the Arbitral Tribunal such as excepted or
excluded matters.   It would also include merits of any claim involved
in arbitration.
16. In   Vidya   Drolia   (supra),   it   has   been   further   observed   in
relation   to   the   aforesaid   three   categories   in   Boghara   Polyfab   Pvt.
Ltd. (supra).     The first category of issues, namely, whether the party
has   approached   the   appropriate   High   Court,   whether   there   is   an

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arbitration   agreement   and   whether   the   party   who   has   applied   for
reference   is   party   to   such   agreement   would   be   subject   to   a   more
thorough   examination   in   comparison   to   the   second   and   third
categories/issues which are presumptively, save in exceptional cases,
for   the   arbitrator   to   decide.   In   the   first   category,   the   question   or
issues are relating to whether the cause of action relates to action   in
personam   or   rem ;   whether   the   subject­matter   of   the   dispute   affects
third­party   rights,   have   erga   omnes   effect,   requires   centralised
adjudication;   whether   the   subject­matter   relates   to   inalienable
sovereign   and   public   interest   functions   or   by   necessary   implication
non­arbitrable as per mandatory statutes. On the other hand, issues
relating to contract formation, existence, validity and non­arbitrability
would   be   connected   and   intertwined   with   the   issues   underlying   the
merits   of   the   respective   disputes/claims.   They   would   be   factual   and
disputed and for the Arbitral Tribunal to decide.
17. Further, this Court observed that   the court at the referral stage
can   interfere   only   when   it   is   manifest   that   the   claims   are   ex   facie
time­barred   and   dead,   or   there   is   no   subsisting   dispute.   In   the
context   of   issue   of   limitation   period,   it   should   be   referred   to   the
Arbitral Tribunal for decision on merits. Similar would be the position
in   case   of   disputed   “no­claim   certificate”   or   defence   on   the   plea   of
novation and “accord and satisfaction”. 

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18. It would be also useful to refer to another decision of this Court
in   Damodar   Valley   Corporation   vs.   K.K.   Kar   (1974)   1   SCC   141
wherein it has been observed as under:
(1) an   arbitration   clause   is   a   collateral   term   of   a   contract   as
distinguished   from   its   substantive   terms;   but   nonetheless   it   is
an integral part of it; 
(2) however   comprehensive   the   terms   of   an   arbitration   clause   may
be, the existence of the contract is a necessary condition for its
operation; it perishes with the contract;   
(3) the   contract   may   be   non   est   in   the   sense   that   it   never   came
legally into existence or it was  void ab initio ; 
(4) though   the   contract   was   validly   executed,   the   parties   may   put
an   end   to   it   as   if   it   had   never   existed   and   substitute   a   new
contract   for   it   solely   governing   their   rights   and   liabilities
thereunder; 
(5) in the former case, if the original contract has no legal existence,
the   arbitration   clause   also   cannot   operate,   for   along   with   the
original contract, it is also void; in the latter case, as the original
contract   is   extinguished   by   the   substituted   one,   the   arbitration
clause of the original contract perishes with it; and 

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(6) between the two falls many categories “of disputes in connection
with a contract, such as the question of repudiation, frustration,
breach, etc. In those cases, it is the performance of the contract
that has come to an end, but the contract is still in existence for
certain   purposes   in   respect   of   disputes   arising   under   it   or   in
connection with it. As the contract subsists for certain purposes,
the arbitration clause operates in respect of these purposes.
Even if   the performance of the contract has come to an end, the
contract   can   still   be   in   existence   for   certain   purposes   in   respect   of
disputes arising under it or in connection with it.
19. In view of the aforesaid discussion, we find that High Court was
not  right  in   dismissing  the  petition  under  Section   11(6)  of  the  Act of
1996  filed  by  the  appellant  herein  by  giving  a  finding  on  novation   of
the Share Purchase Agreement between the parties as the said aspect
would   have   a   bearing   on   the   merits   of   the   controversy   between   the
parties.   Therefore,   it   must   be   left   to   the   Arbitrator   to   decide   on   the
said issue also. Hence, the impugned judgment and order passed by
the High Court has to be set­aside.
20. In the result, the appeal filed by the appellant is allowed and the
impugned   judgment   and   order   passed   by   the   High   Court   is   hereby
quashed and set aside. 

17
21. As   requested   before   this   Court   for   appointment   of   a   sole
Arbitrator,   Hon.   Sri   Justice   R.   Subhash   Reddy,   Former   Judge,
Supreme   Court   of   India,   [email   id   –   rsubhashreddy5157@gmail.com ]
is   appointed   as   the   sole   Arbitrator   to   arbitrate   the   dispute   between
the   parties.     The   Registry   is   directed   to   send   a   copy   of   this   order   to
the learned sole Arbitrator.
22. All   contentions   of   both   sides   are   left   open   to   be   raised   by   the
respective parties before the Arbitral Tribunal in accordance with law.
  
23. Pending   application(s),   if   any,   shall   stand   disposed   of   in   the
above terms.
..………….……………J. 
(B.R. GAVAI) 
 
 
..………….……………J. 
(B.V. NAGARATHNA)  
NEW DELHI;
NOVEMBER 23, 2022.