Supreme Court Clarifies Duty Of Referral Court To Examine Existence Of Arbitration Agreement

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Introduction

The Supreme Court of India has recently issued a judgment in the matter of Magic Eye Developers Pvt. Ltd. v. M/s. Green Edge Infrastructure Pvt. Ltd. & Ors., in which it has clarified the duty of the referral court to examine the existence of an arbitration agreement.

Facts of the Case

In the present case, the appellant, Magic Eye Developers Pvt. Ltd. (Magic Eye), entered into a Shareholder Agreement (SHA-1) and a Shareholders Agreement (SHA-2) with the respondent, Green Edge Infrastructure Pvt. Ltd. (Green Edge). The SHA-1 and SHA-2 contained an arbitration clause.
A dispute arose between the parties, and Magic Eye filed a suit in the Delhi High Court seeking a declaration that the arbitration agreement was invalid. Green Edge filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (the “Act”), seeking a reference of the dispute to arbitration.
The High Court held that the arbitration agreement was valid and referred the dispute to arbitration. Magic Eye appealed the High Court’s order to the Supreme Court.

Judgment of the Supreme Court

The Supreme Court held that the High Court had erred in referring the dispute to arbitration without first examining the existence of the arbitration agreement. The Court held that the referral court has a duty to examine the existence of the arbitration agreement at the pre-referral stage.

The Supreme Court held that the existence of an arbitration agreement is a jurisdictional issue, and that the referral court cannot refer a dispute to arbitration if there is no arbitration agreement. The Supreme Court held that the referral court must give a specific finding on the existence of the arbitration agreement before referring the dispute to arbitration.

Conclusion

The judgment of the Supreme Court in Magic Eye Developers Pvt. Ltd. v. M/s. Green Edge Infrastructure Pvt. Ltd. & Ors. is a significant development in Indian arbitration law. The judgment clarifies the duty of the referral court to examine the existence of an arbitration agreement. This judgment will help to ensure that disputes are referred to arbitration only when there is a valid arbitration agreement in place.

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