Introduction
The Delhi High Court in this case considered a petition under Sections 11(4) and 11(6) of the Arbitration and Conciliation Act, 1996 ("the Act"), by Neosky India Limited and its subsidiary Throttle Aerospace Systems Pvt. Ltd. (TAS) for the appointment of an Arbitrator under the circumstances of the respondents' (Nagendran Kandasamy & others) inability to nominate an Arbitrator within the stipulated statutory timeframe upon receiving a notice to invoke arbitration. The dispute emanates from alleged violations of a Share Subscription and Shareholders Agreement (SSHA), Non-Compete Agreement (NCA), and Employment Agreements, dated 25 May 2022, entered into between the respondents and petitioners.
Facts
Neosky, which was owned by Rattan India Enterprises Ltd., invested ?40 crores in TAS to take an equity stake of 60%. Respondents Nos. 1–4 were TAS employees and shareholders with 40% stakes in the company. According to the SSHA and NCA, they were subject to non-compete and non-solicitation covenants for certain durations. Respondents Nos. 1–3, however, resigned in July 2023 and purportedly started Zulu Defence Systems Pvt. Ltd. (respondent No. 6) from undertaking a competing drone business against their contractual terms.
The petitioners had previously made a Section 9 petition in which the Court had issued an interim injunction restraining the respondents from competing or revealing confidential information. Subsequently, the petitioners invoked arbitration pursuant to Clause 16.2 of the SSHA and Clause 9(c) of the NCA by notice dated 18 July 2024, but the respondents failed to appoint an Arbitrator, resulting in the current petition.
Court's Analysis
The court observed that the central question was whether there was a valid arbitration agreement between the parties. Drawing on Interplay and SBI General Insurance, the Court reasserted that at the stage of Section 11, judicial examination is confined to establishing the prima facie existence of a valid arbitration agreement, but all other questions, such as validity, enforceability, and inclusion of non-signatories before the Arbitral Tribunal in terms of the kompetenz-kompetenz principle (Section 16) are left behind.
The Court highlighted that, absent an arbitration clause being facially non-existent or unenforceable, courts should refer parties to arbitration to honour party autonomy and limit judicial intervention. The arbitration clauses in the SSHA (Clause 16.2) and NCA (Clause 9(c)) were declared valid and effective, for a three-member tribunal seated in New Delhi.
Decision
The Court held that there were valid and enforceable arbitration agreements between petitioners and respondents Nos. 1–5. It declared that points of law involving the inclusion of non-signatories (respondents Nos. 6–8), the validity of the non-compete clause, and the extent of post-termination restraints were issues to be decided by the Arbitral Tribunal. Consequently, the issue was referred to arbitration under Clause 16.2 of the SSHA and Clause 9(c) of the NCA, reserving for the decision of the Tribunal all questions of jurisdiction, maintainability, and arbitrability.
Held
Prima facie existence of a valid arbitration agreement was established and the disputes were referred to the arbitration.
Case Reference: In the High Court of Delhi at New Delhi (BEFORE JASMEET SINGH, J.) ARB. P. No. 1860 of 2024 & O.M.P.(I) (COMM.) 183/2024 & CCP(O) 57/2024, CCP(O)93/2024, I.A. 42241/2024, I.A. 42243/2024, I.A. 42244/2024, I.A. 42839/2024, I.A. 42847/2024
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