# SANJIV PRAKASH v. SEEMA KUKREJA AND ORS

- **Citation:** [2021] 4 S.C.R. 44
- **Court:** Supreme Court of India
- **Decided:** 2021-04-06
- **Case number:** Civil Appeal No. 975 of 2021
- **Bench:** R.F. Nariman, B.R. Gavai, Hrishikesh Roy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sanjiv-prakash-v-seema-kukreja-and-ors-35232
- **Pages:** 37

## Headnote

Arbitration and Conciliation Act, 1996: s. 11 - Power of court
u/s. 11 - Scope of - Novation of contract - Plea of - On facts,
father formed a private company from his personal funds and
distributed the shares among his family members without any
consideration - Foreign company approached the father for longterm equity investment and collaboration - Pursuant thereto, family
members-appellant and respondents entered into Memorandum of
Understanding(MoU), wherein disputes arising in connection
thereto were to be referred to an arbitrator - Thereafter, a
Shareholders' Agreement (SHA) and Share Purchase Agreement (SPA)
entered into between the family members and the foreign Company,
and both SHA and SPA contained an arbitration clause - Dispute
between the parties over transfer of shareholding - Notice by
appellant-son, invoking arbitration clause contained in the MoU
against the respondents - However, reply by the respondents that
the MoU ceased to exist on and from the date of the SHA, which
superseded and novated the same - Petition u/s. 11 by the appellant
- Dismissed by the Single Judge, holding that an arbitration clause
of the MoU having perished the MoU owing to novation, invocation
of arbitration under the MoU not justified - On appeal, held:
Whether the MoU has been novated by the SHA requires a detailed
consideration of the clauses of the two Agreements, together with
the surrounding circumstances in which these Agreements were
entered into, and a full consideration of the law on the subject - It
cannot be done, given the limited jurisdiction of a court u/s. 11 -
Detailed arguments whether an agreement which contains an
arbitration clause has or has not been novated cannot possibly be
decided in exercise of a limited prima facie review as to whether an
arbitration agreement exists between the parties - Section 11 - court
would refer the matter when contentions relating to non-arbitrability
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are plainly arguable, or when facts are contested - Instant case
does not fall within the category of cases which oust arbitration
altogether - More so, the Court at this stage is not empowered to
determine by way of a mini-trial, the validity of the arbitration
agreement - It would usurp the jurisdiction of the arbitral tribunal
- Thus, the judgment of the High Court set aside - Matter referred
to the sole arbitrator to decide the dispute between the parties -
Contract Act, 1872 - s. 62.
Allowing Civil Appeal No. 975 of 2021 and disposing of Civil
Appeal No. 976 of 2021, the Court
HELD: 1.1 By virtue of the Arbitration and Conciliation
(Amendment) Act, 2015 by which Section 11(6A) was introduced,
the earlier position as to the scope of the powers of a court under
Section 11, while appointing an arbitrator, are now narrowed to
viewing whether an arbitration agreement exists between parties.
[Para 6][65-B-C]
1.2 It is obvious that whether the Memorandum of
Understanding has been novated by the Shareholder's Agreement
dated 12.04.1996 requires a detailed consideration of the clauses
of the two Agreements, together with the surrounding
circumstances in which these Agreements were entered into, and
a full consideration of the law on the subject. None of this can be
done given the limited jurisdiction of a court under Section 11 of
the Arbitration and Conciliation Act, 1996. [Para 9][79-B-C]
1.3 Detailed arguments on whether an agreement which
contains an arbitration clause has or has not been novated cannot
possibly be decided in exercise of a limited prima facie review as
to whether an arbitration agreement exists between the parties.
Also, this case does not fall within the category of cases which
ousts arbitration altogether, such as matters which are in rem
proceedings or cases which, without doubt, concern minors,
lunatics or other persons incompetent to contract. There is
nothing vexatious or frivolous in the plea taken by the Appellant.
On the contrary, a Section 11 court would refer the matter when
contentions

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SUPREME COURT REPORTS
[2021] 4 S.C.R.
 [2021] 4 S.C.R. 44
44
SANJIV PRAKASH
v.
SEEMA KUKREJA AND ORS.
(Civil Appeal No. 975 of 2021)
APRIL 06, 2021
[R.F. NARIMAN, B.R. GAVAI AND HRISHIKESH ROY, JJ. ]
Arbitration and Conciliation Act, 1996: s. 11 - Power of court
u/s. 11 - Scope of - Novation of contract - Plea of - On facts,
father formed a private company from his personal funds and
distributed the shares among his family members without any
consideration - Foreign company approached the father for longterm equity investment and collaboration - Pursuant thereto, family
members-appellant and respondents entered into Memorandum of
Understanding(MoU), wherein disputes arising in connection
thereto were to be referred to an arbitrator - Thereafter, a
Shareholders' Agreement (SHA) and Share Purchase Agreement (SPA)
entered into between the family members and the foreign Company,
and both SHA and SPA contained an arbitration clause - Dispute
between the parties over transfer of shareholding - Notice by
appellant-son, invoking arbitration clause contained in the MoU
against the respondents - However, reply by the respondents that
the MoU ceased to exist on and from the date of the SHA, which
superseded and novated the same - Petition u/s. 11 by the appellant
- Dismissed by the Single Judge, holding that an arbitration clause
of the MoU having perished the MoU owing to novation, invocation
of arbitration under the MoU not justified - On appeal, held:
Whether the MoU has been novated by the SHA requires a detailed
consideration of the clauses of the two Agreements, together with
the surrounding circumstances in which these Agreements were
entered into, and a full consideration of the law on the subject - It
cannot be done, given the limited jurisdiction of a court u/s. 11 -
Detailed arguments whether an agreement which contains an
arbitration clause has or has not been novated cannot possibly be
decided in exercise of a limited prima facie review as to whether an
arbitration agreement exists between the parties - Section 11 - court
would refer the matter when contentions relating to non-arbitrability
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are plainly arguable, or when facts are contested - Instant case
does not fall within the category of cases which oust arbitration
altogether - More so, the Court at this stage is not empowered to
determine by way of a mini-trial, the validity of the arbitration
agreement - It would usurp the jurisdiction of the arbitral tribunal
- Thus, the judgment of the High Court set aside - Matter referred
to the sole arbitrator to decide the dispute between the parties -
Contract Act, 1872 - s. 62.
Allowing Civil Appeal No. 975 of 2021 and disposing of Civil
Appeal No. 976 of 2021, the Court
HELD: 1.1 By virtue of the Arbitration and Conciliation
(Amendment) Act, 2015 by which Section 11(6A) was introduced,
the earlier position as to the scope of the powers of a court under
Section 11, while appointing an arbitrator, are now narrowed to
viewing whether an arbitration agreement exists between parties.
[Para 6][65-B-C]
1.2 It is obvious that whether the Memorandum of
Understanding has been novated by the Shareholder's Agreement
dated 12.04.1996 requires a detailed consideration of the clauses
of the two Agreements, together with the surrounding
circumstances in which these Agreements were entered into, and
a full consideration of the law on the subject. None of this can be
done given the limited jurisdiction of a court under Section 11 of
the Arbitration and Conciliation Act, 1996. [Para 9][79-B-C]
1.3 Detailed arguments on whether an agreement which
contains an arbitration clause has or has not been novated cannot
possibly be decided in exercise of a limited prima facie review as
to whether an arbitration agreement exists between the parties.
Also, this case does not fall within the category of cases which
ousts arbitration altogether, such as matters which are in rem
proceedings or cases which, without doubt, concern minors,
lunatics or other persons incompetent to contract. There is
nothing vexatious or frivolous in the plea taken by the Appellant.
On the contrary, a Section 11 court would refer the matter when
contentions relating to non-arbitrability are plainly arguable, or
when facts are contested. The court cannot, at this stage, enter
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS.
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SUPREME COURT REPORTS
[2021] 4 S.C.R.
into a mini trial or elaborate review of the facts and law which
would usurp the jurisdiction of the arbitral tribunal. [Para 9]
[79-D-F]
Vidya Drolia v. Durga Trading Corporation (2021) 2
SCC 1 - relied on
1.4 The impugned judgment was wholly incorrect in deciding
that the plea of doctrine of kompetenz-kompetenz and reliance on
Section 11(6A) of the 1996 Act, as expounded in Duro Felguera's
case and Mayavati Trading's case were not applicable to the case
in hand. Apart from going into a detailed consideration of the
MoU and the SHA, which is exclusively within the jurisdiction of
the arbitral tribunal, the Single Judge, while considering clause
28 of the SHA to arrive at the finding that any kind of agreement
as detailed in clause 28.2 between the parties shall stand
superseded, does not even refer to clause 28.1. No consideration
has been given to the separate and distinct subject matter of the
MoU and the SHA. [Para 10][79-F-H]
1.5 The judgment of the High Court is set aside and the
parties are referred to the arbitration of a sole arbitrator, being
Justice Aftab Alam (retired Judge of this Court), who would decide
the dispute between the parties without reference to any
observations made by this Court, which are only prima facie in
nature. [Para 11][80-B]
Union of India v. Kishorilal Gupta & Bros. [1960] 1
SCR 493; Damodar Valley Corporation v. K.K. Kar
(1974) 1 SCC 141 : [1974] 2 SCR 240; Young
Achievers v. IMS Learning Resources (P) Ltd. (2013)
10 SCC 535 : [2013] 2 SCR 252; Kale v. Deputy
Director of Consolidation (1976) 3 SCC 119 : [1976]
3 SCR 202; Reliance Natural Resources Ltd. v. Reliance
Industries Ltd. (2010) 7 SCC 1 : [2010] 5 SCR 704;
Duro Felguera, S.A. v. Gangavaram Port Ltd. (2017) 9
SCC 729 : [2017] 10 SCR 285; Mayavati Trading (P)
Ltd. v. Pradyuat Deb Burman (2019) 8 SCC 714
: [2019] 12 SCR 123; Ravinder Kaur Grewal v. Manjit
Kaur (2020) 9 SCC 706; Sasan Power Ltd. v. North
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American Coal Corpn. (India) (P) Ltd. (2016) 10 SCC
813 : [2016] 6 SCR 809; Larsen & Toubro Ltd. v. Mohan
Lal Harbans Lal Bhayana (2015) 2 SCC 461 : [2014]
3 SCR 162; V.B. Rangaraj v. V.B. Gopalakrishnan
(1992) 1 SCC 160 : [1991] 3 Suppl. SCR 1; Pushpa
Katoch v. Manu Maharani Hotels Ltd. 2005 SCC
OnLine Del 702 : (2005) 83 DRJ 246; Pravin
Electricals Pvt. Ltd. v. Galaxy Infra and Engineering
Pvt. Ltd. 2021 SCC OnLine SC 190; Bharat Sanchar
Nigam Ltd. v. Nortel Networks India Pvt. Ltd. 2021 SCC
OnLine SC 207 - referred to
Barclays Bank Plc v. Unicredit Bank Ag and Anor, [2014]
EWCA Civ 302; The Federal Republic of Nigeria v. JP
Morgan Chase Bank, NA, [2019] EWHC 347 (Comm);
Kinsella and Anor v. Emasan AG and Anor, [2019]
EWHC 3196 (Ch) - referred to
Case Law Reference
[1960] 1 SCR 493
referred to
Para 2
[1974] 2 SCR 240
referred to
Para 2
[2013] 2 SCR 252
referred to
Para 2
[1976] 3 SCR 202
referred to
Para 3
[2010] 5 SCR 704
referred to
Para 3
[2017] 10 SCR 285
referred to
Para 3
[2019] 12 SCR 123
referred to
Para 3
(2020) 9 SCC 706
referred to
Para 4
[2016] 6 SCR 809
referred to
Para 5
[2014] 3 SCR 162
referred to
Para 5
[1991] 3 Suppl. SCR 1
referred to
Para 5
(2005) 83 DRJ 246
referred to
Para 5
(2021) 2 SCC 1
referred to
Para 6
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS.
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CIVIL APPELLATE JURISDICTION : Civil Appeal No. 975 of
2021.
From the Judgment and Order dated 22.10.2020 of the High Court
of Delhi at New Delhi in Arb. P. No. 4 of 2020.
With
Civil Appeal No. 976 OF 2021.
K.V. Vishwanathan, Kathpalia, Sr. Advs., Mahesh Agarwal,
Abhimanyu Mahajan, Swapnil Gupta, Ujjal Banerjee, Shaishir Divatia,
Ms. Anubha Goel, Akash Khurana, Mayank Joshi, E.C. Agrawala, Advs.
for the Appellant.
Mukul Rohtagi, Sr. Adv., Abhinav Agrawal, Manik Dogra, Avishkar
Singhvi, Ms. Sonali Jaitley Bakhshi, Pallav Pandey, Ms. Rini Badoni,
Ms. Radhika Malik, P.V. Yogeswaran, Advs. for the Respondents.
The Judgment of the Court was delivered by
R. F. NARIMAN, J.
Civil Appeal No. 975 of 2021
1. This appeal arises out of the dismissal of a petition under Section
11 of the Arbitration and Conciliation Act, 1996 ["1996 Act"] filed before
the High Court of Delhi.The Appellant, Sanjiv Prakash, is a member of
a family which also consists of his sister, Seema Kukreja (Respondent
No.1 herein), his mother, Daya Prakash (Respondent No.2 herein), and
his father, Prem Prakash (Respondent No.3 herein). The Appellant and
Respondents are hereinafter collectively referred to as the "Prakash
Family".
2. The facts, briefly stated, are as follows:
2.1. A private company was incorporated on 09.12.1971 under
the name and style of Asian Films Laboratories Private Limited ["the
company"] by Prem Prakash, the entire amount of the paid-up capital
being paid for by him from his personal funds. He then distributed shares
to his family members without receiving any consideration for the same.
On 06.03.1997, the name of the company was altered to its present
name - ANI Media Private Limited.
2.2. Owing to the extensive efforts of Sanjiv Prakash at a global
level, Reuters Television Mauritius Limited (now Thomson Reuters
Corporation), a company incorporated in Mauritius ["Reuters"],
approached him for a long-term equity investment and collaboration with
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the company on the condition that he would play an active role in the
management of the company.
2.3. Pursuant to this understanding, a Memorandum of
Understanding ["MoU"]was entered into sometime in 1996 between
the four members of the Prakash Family. The MoU recorded that Sanjiv
Prakash, supported by the guidance and vision of Prem Prakash, had
been responsible for the tremendous growth of the company. The paidup share capital of the company was held as follows:
Rupees
Percentage held
Prem Prakash
2,80,000
27.99%
Daya Prakash
2,40,000
24.01%
Sanjiv Prakash
3,00,000
30.00%
Seema Kukreja
1,80,000
18.00%
-------
-------
10,00,000
100.00%
The Prakash Family was to divest 49% of this shareholding in
favour of Reuters or its affiliates, subject to necessary permission of the
authorities, as follows:
"And whereas ANI for the past many years has been doing
considerable business with Reuters Television (Reuters). The
relationship between them has been close and cordial. In order to
strengthen the relationship and make optimum use of the
tremendous growth potential in the TV media sector, including to
cater to the ever expanding news video demands of Reuters in its
satellite transmissions to subscribers worldwide, it has been found
expedient by the existing members of the company to divest 49%
of their shareholding in favour of Reuters or its affiliates subject
to necessary permission of authorities. This would cement the
relationship built over the years between Reuters and the
company."
The MoU went on to record:
"1. The Prakash family will divest its 49% shareholding as under:
Prem Prakash
1372
Daya Prakash
1176
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS.
[R. F. NARIMAN, J.]
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Sanjiv Prakash
1470
Seema Kukreja
882
________
4900
2. That Prakash family recognises the leadership provided by S.P.
and the role he has played in steering the company to new heights
with the name ANI which is respected internationally.
3. D.P. has been the Managing Director of the company from the
beginning and Prakash family recognises her role in bringing the
company to a very sound financial base as a result of very ably
handling the accounts and finances of the company. She would
continue to be Managing Director after Reuters' participation in
equity.
4. The Prakash family would continue to own 51% shareholding
in the company after Reuters becomes a 49% shareholder. As
they would continue to have the controlling interest it is the intention
and desire of the Prakash family members that their actions and
voting must be in a manner so as to act in consensus and as one
block.
5. S.P. would after divesting his about 15% share, continue to
hold 15% equity in the company. Reuters has made it clear that
they would like the management control of the company to vest
with S.P.
6. In view of the fact that S.P. has been able to get Reuters to
participate in Asian Films Laboratories Pvt. Ltd. The other
shareholders of the Prakash family namely P.P., D.P. and S.K.
agree to vote on all resolutions both in the directors and
shareholders meeting in the manner instructed by S.P. To this
effect, they are agreeable to cooperate and vote for amendment
in the Articles to reflect the following:
(a) Any resolution in Board to have either affirmative vote of
S.P. or his consent in writing to approve the same.
(b) Disproportionate voting rights irrespective of the number
of the shares held by them as under:
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Prem Prakash
1 vote
Daya Prakash
1 vote
Seema Kukreja
1 vote
Sanjiv Prakash
5097 votes
Reuters Television
Mauritius Limited
4900 votes.
7.This MoU shall be binding on all the heirs, successors and assigns
of P.P., D.P., S.P. and S.K. and they would act in the manner
stated in this MoU.
8.That in the event P.P. or D.P. desire to sell and or bequeath his/
her equity shares, the same shall be offered/bequeathed only to
S.P. or his heirs and successors. Similarly, in the event of S.K. or
her heirs/successors desire to sell their shares, the same shall be
sold only to S.P. or his successors. The consideration paid shall be
the net worth of shares on the last balance sheet date determined
by the auditors of the company.
xxx xxx xxx
11. This MoU embodies the entire understanding of the parties as
to its subject matter and shall not be amended except in writing
executed all the parties to the MoU.
12.All disputes, questions or differences etc., arising in connection
with this MoU shall be referred to a single arbitrator in accordance
with and subject to the provisions of the Arbitration Act, 1940, or
any other enactment or statutory modification thereof for the time
being in force."
2.4. A Shareholders' Agreement dated 12.04.1996 ["SHA"] was
then executed between the Prakash Family and Reuters. So far as is
relevant, the SHA referred to the Appellant and the Respondents
collectively as the "Prakash Family Shareholders", and individually as a
"Prakash Family Shareholder". It then set out the reason for entering
into the SHA as follows:
"WHEREAS
(A) Pursuant to a share purchase agreement dated today between
the Prakash Family Shareholders and Reuters (the Share Purchase
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS.
[R. F. NARIMAN, J.]
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Agreement), Reuters has agreed to purchase 4,900 Shares (as
defined below) representing 49% of the issued share capital of
Asian Films Laboratories (Pvt.) Ltd. (the Company). Following
completion of the Share Purchase Agreement, each of the Prakash
Family Shareholders will hold the numbers of Shares set opposite
his or her name in schedule 3 hereto, with the aggregate number
of Shares so held by the Prakash Family Shareholders
representing 51% of the issued share capital of the Company.
(B) The Shareholders (as defined below) are entering into the
Agreement to set out the terms governing their relationship as
shareholders in the Company."
In the definition section,"Artificial Deadlock" and "Management
Deadlock" were defined as follows:
"Artificial Deadlock means a Management Deadlock caused
by virtue of the Prakash Family Shareholders or Reuters (or
any appointee on the Board) voting against an issue or proposal
in circumstances where the approval of the same is required
to enable the Company to carry on the Business properly and
effectively in accordance with the then current approved
Business Plan and Budget;"
xxx xxx xxx
"Management Deadlock means a material management
dispute (not being an Artificial Deadlock) between any or all
of the Prakash Family Directors on the one hand and the
Reuters directors on the other hand relating to the affairs of
the Company which is not resolved within sixty (60) days of
such dispute being referred for settlement to the Reuters
Managing Director (as defined in clause 16.1) and the
Chairman;"
The expression "Prakash Family Directors" was defined as follows:
"Prakash Family Directors means the directors of the
Company from time to time appointed by the Prakash Family
Shareholders in accordance with the Articles;"
The expression "Prakash Family Members or Interests"was
defined as follows:
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"Prakash Family Members or Interests means each of
the Prakash Family Shareholders and each of their respective
fathers, mothers, sons, daughters, brothers and sisters (the
Prakash Family Relatives) and any company in which any such
relation or any Prakash Family Shareholder has a controlling
interest;"
"Reuters Directors" was defined as follows:
"Reuters Directors means the directors of the Company from
time to time appointed by Reuters in accordance with the
Articles;"
"Reuters Group" was defined as follows:
"Reuters Group means Reuters, its Holding Company and
such Holding Company's Subsidiaries for the time being;"
Transfer of shares and pre-emption was dealt with in clause 4
read with clauses 11, 12, and 14 and schedule 1 of the SHA.
Clause 7.2 is important and states as follows:
"7.2 Unless otherwise agreed by the Shareholders, the number
of Directors shall be seven (7) of whom, for so long as the
Percentage Interest of the Prakash Family Shareholders is in
aggregate equal to or greater than fifty point zero one per cent.
(50.01%), four (4) shall be Prakash Family Directors and three
(3) shall be Reuters Directors in accordance with the Articles. If
the Percentage Interest of the Prakash Family Shareholders falls
below such level, the number of Prakash Family Directors and
Reuters Directors shall be determined in accordance with the
Articles."
The quorum for holding meetings was then set out in clause 7.12,
and matters requiring special majority were set out in clause 8.1.
Default events were set out in clause 11. Clause 11.2 is important
and states as follows:
"11.2 If a Default Event exists in relation to any of the
Shareholders (the Defaulting Shareholder), then the other
Shareholder(s) comprising, in the case of a Default Event existing
in relation to a Prakash Family Shareholder, Reuters and, in the
case of a Default Event existing in relation to Reuters, the Prakash
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS.
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Family Shareholders (each of Reuters in the first case and the
Prakash Family Shareholders in the second case being the NonDefaulting Shareholder(s)) shall have the right, subject to the
prior right of the Defaulting Shareholder to transfer its Shares as
contemplated in paragraph 8 of Schedule 1 (all as provided in
clause 11.3), to purchase or procure the purchase by a nominee
or by a third party of all (but not some only) of the Shares held by
the Defaulting Shareholder, provided that, in the case of a Default
Event comprising a material breach of the kind contemplated by
clause 11.1(c)(ii), the relevant breach has not been either cured
to the reasonable satisfaction of the Non-Defaulting
Shareholder(s) or waived by it or, as the case may be, others."
Clause 12.1, under the heading "Changes in Circumstances:
Illegality"then provided as follows:
"12.1 Where the introduction, imposition or variation of any law
or any change in the interpretation or application of any law makes
it unlawful or impractical without breaching such law for Reuters
to continue to hold upto at least forty nine per cent. (49%) of the
issued ordinary share capital of the Company or to carry out all or
any of its obligations under this Agreement, upon Reuters notifying
the other Shareholders:
(a) Reuters shall be entitled to require the other Shareholders to
purchase its holding of Shares at a price determined in accordance
with clause 11.4, which shall apply mutatis mutandis, and any such
purchase shall be made by the other Shareholders in the proportions
agreed between them or otherwise in the proportion each such
other Shareholders holding of Shares bears to the aggregate
number of Shares held by all of such Shareholders;
(b) Any amounts loaned or made available to the Company shall
forthwith be repaid to Reuters; and
(c) Reuters shall upon the service of such notice cease to be
bound by the provisions hereof save for the preceding provisions
of this clause 12."
The termination clause was set out as follows:
"14.1 This Agreement shall continue in full force and effect for
so long as both (i) any of the Prakash Family Shareholders and
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(ii) any member of the Reuters Group hold any Shares. If, as a
result of any sale or disposal made in accordance with this
Agreement, either (i) none of the Prakash Family shareholders or
(ii) no member of the Reuters Group holds any Shares, then this
Agreement shall terminate and cease to be of any effect, save
that this shall not:
(a) relieve any Shareholder from any liability or obligation in respect
of any matters, undertakings or conditions which shall not have
been done, observed or performed by any such Shareholder prior
to such termination;
(b) save for clause 14.2, affect the terms of any agreement entered
into between any Prakash Family Shareholders and Reuters or
any successor of either of them holding Shares, to replace this
Agreement; or
(c) affect the terms of clause 15 (confidentiality) of this
Agreement."
The arbitration clause was set out in clause 16 which reads as
follows:
"LEGAL DISPUTES
16.1 In the event of any dispute between the Shareholders arising
in connection with this Agreement (a legal dispute), they shall use
all reasonable endeavours to resolve the matter on an amicable
basis. If any Shareholder serves formal written notice on any
other Shareholder that a legal dispute has arisen and the relevant
Shareholders are unable to resolve the dispute within a period of
thirty (30) days from the service of such notice, then the dispute
shall be referred to the managing director of the senior
management company identified by Reuters as having responsibility
for India (the Reuters Managing Director) and the Chairman of
the Company. No recourse to arbitration under this Agreement
shall take place unless and until such procedure has been followed.
ARBITRATION
16.2 If the Reuters Managing Director and the Chairman of the
Company shall have been unable to resolve any legal dispute
referred to them under clause 16.1 within thirty (30) days, that
dispute shall, at the request of any Shareholder, be referred to and
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS.
[R. F. NARIMAN, J.]
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finally settled by arbitration under and in accordance with the
Rules of the London Court of International Arbitration by one or
more arbitrators appointed in accordance with those Rules. The
place of arbitration shall be London and the terms of this clause
16.2 shall be governed by and construed in accordance with English
law. The language of the arbitration proceedings shall be English."
Clause 28, upon which a large part of the argument of both sides
hinges, is set out as follows:
"ENTIRE AGREEMENT
28.1 This Agreement, the Ancillary Agreements, and the Share
Purchase Agreement constitute the entire agreement and
understanding of the parties with respect to the subject matter
thereof and none of the parties has entered into this agreement in
reliance upon any representation, warranty or undertaking by or
on behalf of the other parties which is not expressly set out herein
or therein.
28.2 Without prejudice to the generality of clause 28.1, the parties
hereby agree that this Agreement supersedes any or all prior
agreements, understanding, arrangements, promises,
representations, warranties and/or contracts of any form or nature
whatsoever, whether oral or in writing and whether explicit or
implicit, which may have been entered into prior to the date hereof
between the parties, other than the Ancillary Agreements and the
Share Purchase Agreement."
Clause 31 deals with governing law and jurisdiction and states as
follows:
"31. This Agreement (save for clause 16.2, which shall be
governed by and construed in accordance with the laws of England)
is governed by and shall be construed in accordance with the
laws of India."
2.5. On the same day, a Share Purchase Agreement dated
12.04.1996 ["SPA"] was entered into between the Prakash Family and
Reuters. The SPA also contained an arbitration clause similar to that
contained in clause 16 of the SHA, and also contained an "entire
agreement clause"in clause 11, which is similar to clause 28 of the SHA.
On the same date, various ancillary agreements were also entered into
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between the parties, referred to in the SHA. These ancillary agreements
are as follows:
(i)
Agreement for the Assignment of Copyright dated
12.04.1996 between Prem Prakash, Asian Films
Laboratories Pvt. Ltd., and Reuters Television Mauritius
Ltd.
(ii)
Trade Clarification Agreement dated 12.04.1996 between
Asian Films Laboratories Pvt. Ltd., Reuters Television
Mauritius Ltd., and the partners of Ved & Co. (i.e., Prem
Prakash, Daya Prakash, Sanjiv Prakash, and Seema
Kukreja)
(iii)
PIB Accreditation Agreement dated 12.04.1996 between
Asian Films Laboratories Pvt. Ltd., Reuters Television
Mauritius Ltd., and the partners of Ved & Co. (i.e., Prem
Prakash, Daya Prakash, Sanjiv Prakash, and Seema
Kukreja)
(iv)
Facilities and Marketing Agreement dated 12.04.1996
between Asian Films Laboratories Pvt. Ltd. and Reuters
Television (England) Ltd.
(v)
Service Agreement dated 12.04.1996 between Asian Films
Laboratories Pvt. Ltd. and Sanjiv Prakash
(vi)
Deed of Tax Indemnity dated 12.04.1996 between Prem
Prakash, Daya Prakash, Sanjiv Prakash, Seema Kukreja,
Asian Films Laboratories Pvt. Ltd., and Reuters Television
Mauritius Ltd.
2.6. The Articles of Association of the company were amended
on 14.05.1996 to reflect certain decisions that were taken in the MoU.
Thus, clause 11(f) was amended so as to read as follows:
"11. Transfer of Shares
xxx xxx xxx
(f) If the Continuing Shareholder(s) comprise Prakash Family
Shareholders and purchases are to be made by them under Article
11(e), SP Shall have the right (but not the obligation) to purchase
all (but not some only) of the Seller's Shares. If SP shall fail to
purchase all of the Seller's Shares within the time period set out
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS.
[R. F. NARIMAN, J.]
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[2021] 4 S.C.R.
in Article 11(e) the Shares subject to such Purchases shall be
acquired by each Prakash Family Shareholder in the proportion
such Shareholder's holding of Shares bears to the aggregate
number of Shares held by all of the Prakash Family Shareholders
who have become bound to make such purchases."
Likewise, clause 11(i)(i) was inserted, in which it was stated:
"11. Transfer of Shares
xxx xxx xxx
(i) xxx xxx xxx
(i) SP shall have the right (but not the obligation) upon serving
notice in writing to each remaining Prakash Family Shareholder
to purchase all (but not some only) of such Shares in preference
to any other Prakash Family shareholder;"
Clause 16(b) of the Articles of Association also incorporated clause
6(b) of the MoU as follows:
"16. xxx xxx xxx
(b) If a poll is demanded in accordance with the provisions of
section 179 of the Companies Act 1956:
(i) SP shall so long as he holds Shares be able to vote such
number of Shares as is equal to the number of Shares held by
all the Prakash Family Shareholders less the numbers of
Prakash Family Shareholders other than SP (the other
Prakash Family Shareholders). The remaining votes
attributable to Shares hold by Prakash Family Shareholders
shall be divided equally between the other Prakash Family
shareholders; and
(ii) The provisions of Article 16(b)(i) shall cease to be valid
and effective upon the occurrence of any of the events in
relation to SP."
We are informed that this position continued upto the year 2012
after which, by mutual agreement, the Articles of Association were again
amended so that the amendments incorporated in 1996 no longer
continued.
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2.7. Divestment of 49% of the share capital took place as was set
out in the MoU as well as the SPA and the SHA, consequent upon
which Daya Prakash resigned as the Managing Director and Sanjiv
Prakash took over as the Managing Director of the company in 1996
itself.
2.8. Disputes between the parties arose when Prem Prakash
decided to transfer his shareholding to be held jointly between Sanjiv
Prakash and himself, and Daya Prakash did likewise to transfer her
shareholding to be held jointly between Seema Kukreja and herself. A
notice invoking the arbitration clause contained in the MoU was then
served by Sanjiv Prakash on 23.11.2019 upon the three Respondents,
alleging that his pre-emptive right to purchase Daya Prakash's shares,
as was set out in clause 8 of the MoU, had been breached, as a result of
which disputes had arisen between the parties and Justice Deepak Verma
(retired Judge of this Court), was nominated to be the sole arbitrator.
The reply filed by Seema Kukreja and Daya Prakash, dated 20.12.2019,
pointed out that the MoU ceased to exist on and from the date of the
SHA, i.e. 12.04.1996, which superseded the aforesaid MoU and novated
the same in view of clause 28.2 thereof. Therefore, they denied that
there was any arbitration clause between the parties as the MoU itself
had been superseded and did not exist after 12.04.1996. In view of this,
Sanjiv Prakash moved the Delhi High Court under Section 11 of the
1996 Act by a petition dated 06.01.2020. In the said petition, an interim
order was passed on 09.01.2020 as follows:
"All the parties agree to defer Agenda Nos.4 and 8 circulated in
the notice dated 31st December, 2019 in the Board Meeting
scheduled to be held on 15th January, 2020 for a date beyond the
next date of hearing fixed in this matter."
2.9. By the impugned judgment dated 22.10.2020, the Delhi High
Court set out what according to it was the issue that had to be decided in
paragraph 79 follows:
"79. In this petition, I am of the view, the initial issue which arises
for consideration is, whether at the stage of considering the request
of the petitioner for the appointment of an Arbitrator, it is only the
existence of an Arbitration Agreement that needs to be seen,
leaving it to the Arbitrator to decide the issue of validity of the
Agreement, including the plea of novation of MoU."
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS.
[R. F. NARIMAN, J.]
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After referring to both the MoU and the SHA, the learned Single
Judge of the Delhi High Court held:
"88. In so far as Clause 1.1 is concerned, the same defines
'artificial deadlock' as a management deadlock caused by virtue
of the Prakash Family Shareholders or Reuters voting against an
issue or proposal in circumstances where the approval of the same
is required for the functioning of the Company as per approved
plans. No doubt, Mr. Kathpalia, Mr. Nayar and Mr. Sethi may be
right in contending that there exist a contemplation of groups viz.
Prakash Family Members and Reuters under the SHA, but the
same is in a particular fact situation of deadlock then the Prakash
Family Members and Reuters act as 'blocks', which does not
mean that SHA does not recognise Prakash Family Shareholders
in their individual capacity. More so, as per the opening paragraph,
the term 'parties' envisages Prakash Family Shareholders both
individually as well as collectively."
xxx xxx xxx
"90. A conjoint reading of the Clause 28.2 with the opening
paragraph of SHA therefore necessarily means that any kind of
agreement as detailed in Clause 28.2, 'between the parties' shall
stand superseded as per Clause 28.2. So, it follows the shareholders
of Prakash Family having being individually recognised under the
SHA as parties, the MoU, an agreement, as relied upon by the
petitioner which governs the inter-se rights and obligations of the
Prakash Family stands superseded. It is not the case of the Ld.
Counsel for the petitioner that the SHA does not deal with interse rights of the members / shareholders of the Prakash Family.
The plea of Mr. Nayar that MoU was entered by Prakash Family
to define their family arrangement before the Reuters came in by
purchasing the shares and hence cannot be overridden by the
SHA is not appealing. Nothing precluded the members of the
Prakash Family to include a stipulation in the SHA, that the SHA,
shall not supersede the MoU, as has been specially stated in Clause
28.2 with regard to ancillary agreements and share purchase
agreement. The plea of Mr. Nayar, that the present dispute
between the parties being in respect of shares in an Indian
company to be resolved by London Court of International
Arbitration as per English law, contracting out of Indian Law is
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opposed to public policy is also not appealing as such an issue
doesn't arise in these proceedings which have been filed by
invoking the MoU. Nor such a plea would revive the MoU, which
stands novated by the SHA."
After then setting out Section 62 of the Indian Contract Act, 1872
["Contract Act"] and this Court's judgments in Union of India v.
Kishorilal Gupta & Bros., (1960) 1 SCR 493 ["Kishorilal Gupta"],
Damodar Valley Corporation v. K.K. Kar, (1974) 1 SCC 141
["Damodar Valley Corporation"], and Young Achievers v. IMS
Learning Resources (P) Ltd., (2013) 10 SCC 535 ["Young
Achievers"], the learned Single Judge then concluded:
"98. It is clear from a reading of the above judgments 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 the contract is superseded by
another, 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. Hence, the arbitration clause of the MoU, being
Clause 12, having perished with the MoU, owing to novation, the
invocation of arbitration under the MoU is belied/not justified.
99. In view of my conclusion above, the plea of doctrine of
'kompetenz-kompetenz' and the reliance placed on Section
11(6A) of the Act are untenable. I have also considered the
judgments relied upon by the counsels for the petitioners viz. Duro
Felguera S.A. [Duro Felguera, S.A. v. Gangavaram Port Ltd.,
(2017) 9 SCC 729], Mayavati Trading Pvt. Ltd. [Mayavati
Trading (P) Ltd. v. Pradyuat Deb Burman, (2019) 8 SCC 714],
Zostel Hospitality [Zostel Hospitality Pvt. Ltd. v. Oravel Stays
Pvt. Ltd., Arb. Pet. 28/2018], Oriental Insurance Company
Ltd.[Oriental Insurance Company Ltd. v. Narbheram Power and
Steel Pvt. Ltd., (2018) 6 SCC 534], Vodafone [Vodafone
International Holdings BV v. Union of India, (2012) 6 SCC 613],
Uttarakhand Purv Sainik [Uttarakhand Purv Sainik Kalyan
Nigam Limited v. Northern Coal Field Ltd., (2020) 2 SCC 455],
Russell [Russell v. Northern Bank Development Corpn. Ltd.,
(1992) B.C.C. 578] and Anderson [Catherine Anderson v. Ashwani
SANJIV PRAKASH v. SEEMA KUKREJA AND ORS.
[R. F. NARIMAN, J.]
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Bhatia, (2019) 11 SCC 299], and the same are not applicable to
the case in hand."
3. Shri K.V. Viswanathan, learned Senior Advocate appearing on
behalf of the Appellant, relied strongly upon the MoU between the Prakash
Family and stressed the fact that it was a family settlement or arrangement
which raised a special equity between the parties and could not be treated
as a mere contractual arrangement, having to be enforced in accordance
with several judgments of this Court. For this purpose, he relied strongly
upon the observations contained in paragraph 9 of Kale v. Deputy
Director of Consolidation, (1976) 3 SCC 119 ["Kale"], as followed
in Reliance Natural Resources Ltd. v. Reliance Industries Ltd.,
(2010) 7 SCC 1 (at paragraphs 49 and 50). In particular, he relied upon
the fact that it was the Appellant who was responsible for the tremendous
growth of the company, and it is by his efforts that Reuters infused a
huge amount of capital by purchasing 49% of the share capital of the
company. It is for this reason that the MoU made it clear vide clause 8
that in case any of the three Respondents wished to sell or bequeath
their equity shares in the company, their shares may be offered/sold/
bequeathed only to the Appellant or to his heirs and successors. The
arbitration clause contained in the MoU would therefore be applicable,
the 1996 Act being the Act under which the arbitration would have to be
effected. He then read out various clauses of the SHA and relied strongly
upon clause 12.1(a), in which it was agreed that if Reuters would have
to divest any part of its shares in the company, it shall be entitled to
require the other shareholders to purchase its holding of shares in such
proportions as was "agreed between them or otherwise", thereby making
it clear that the MoU between the Prakash Family was expressly referred
to and preserved by the aforesaid clause. He also stressed upon the
absurdity of disputes arising between members of a family residing and
working only in India to have to be referred to arbitration in accordance
with the rules of the London Court of International Arbitration, which
would be the result if the SHA were to supersede the MoU. He was
also at pains to point out that clause 28 of the SHA has to be read as a
whole, and clause 28.1 made it clear that the entire agreement and
understanding between the parties which was contained in the SHA, the
SPA, and the ancillary agreements was only "with respect to the subject
matter thereof", the subject matter of these Agreements being the
relationship between the Prakash Family and Reuters, which was
completely different from the subject matter of the MoU, which was
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only between the members of the Prakash Family, Reuters not being a
party thereto. For this purpose, he relied strongly upon the judgments
contained in Barclays Bank Plc v. Unicredit Bank Ag and Anor,
[2014] EWCA Civ 302 (at paragraphs 27 and 28), The Federal
Republic of Nigeria v. JP Morgan Chase Bank, NA, [2019] EWHC
347 (Comm) (at paragraph 37), and Kinsella and Anor v. Emasan AG
and Anor, [2019] EWHC 3196 (Ch) (at paragraphs 64 to 71). A reading
of these judgments would, according to the learned Senior Advocate,
show that "entire agreement" clauses are to be construed strictly, the
idea being to obviate having to refer to negotiations that had taken place
between the parties pertaining to the subject matter of the agreement
before the agreement was formally entered into. He then assailed the
learned Single Judge's judgment dated 22.10.2020, arguing that the
impugned judgment, instead of following Duro Felguera, S.A. v.
Gangavaram Port Ltd., (2017) 9 SCC 729 ["Duro Felguera"] and
Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman, (2019) 8 SCC
714 ["Mayavati Trading"], was in the teeth of the principles laid down
in the aforesaid two judgments.