Supreme Court Upholds Bombay HC Order Referring Kirloskar Family Dispute To Arbitration

The Supreme Court has upheld the Bombay High Court's decision to refer to arbitration a dispute between Kirloskar Brothers Limited and members of the Kirloskar family arising from a Deed of Family Settlement dated September 11, 2009 (DFS).

The DFS sought to formalise the separation of businesses and group companies among different branches of the family with Clause 20 containing an arbitration agreement.

A bench comprising Chief Justice Surya Kant and Justices Joymalya Bagchi and V. Mohana observed the High Court committed no error in leaving these issues open for determination under Section 16 of the Arbitration and Conciliation Act, 1996.

"We are, therefore, of the view that the High Court committed no error in declining to render a final finding on these questions at the Section 8 stage and in leaving them open for determination by the Arbitral Tribunal under Section 16 of the 1996 Act. In such circumstances, we find no ground warranting interference with the impugned judgment. The instant appeals are accordingly disposed of.", the Court said.

The Court appointed Justice Nitin Madhukar Jamdar, former Chief Justice of the Kerala High Court and Justice K.R. Shriram, former Chief Justice of the Madras and Rajasthan High Courts, as nominee arbitrators. They were directed to appoint a presiding arbitrator within four weeks and Pune was fixed as the seat of arbitration.

A Deed of Family Settlement (DFS) dated September 11, 2009, was executed among members of the Kirloskar family to formalise the separation of businesses and group companies. Clause 20 contained an arbitration agreement covering issues arising from the interpretation of the DFS.

The dispute arose after an allegation that Kirloskar Oil Engines Ltd breached the non-compete understanding under Clause 15 by acquiring La-Gajjar Machineries Pvt. Ltd.

The parties had unsuccessfully attempted mediation from June 2017 to May 2018. In June 2018, a suit was filed before the Pune Civil Court seeking specific performance of the DFS, damages, injunction against the competing business and consequential reliefs.

The Civil Judge rejected a Section 8 application seeking reference to arbitration on December 7, 2020 but the Bombay High Court on May 3, 2021 allowed the appeal and referred the dispute to arbitration.

The Supreme Court reiterated that at the Section 8 stage, the court's inquiry is confined to a prima facie determination of the existence and coverage of the arbitration agreement and does not require a mini-trial.

Reference can be declined only where the claim is manifestly non arbitrable or the arbitration agreement is non-existent, invalid or prima facie does not cover the dispute.

"The scope of examination at the stage of a reference under Section 8 is confined to a prima facie determination of the existence of an arbitration agreement and its coverage of the dispute. The referral court is not required to conduct a mini-trial on contested questions of fact or law at that stage. Reference is to be declined only where the claim is manifestly and ex facie non- arbitrable, or the arbitration agreement is non-existent, invalid, or prima facie does not cover the dispute.", it said.

The Court further held that whether Clause 20 Deed of Family Settlement covers the reliefs of specific performance, damages and injunction, and whether non-signatories who consented to arbitration are bound, involve intertwined questions of fact and law.

These issues arising from the construction of the DFS, conduct of the parties and affidavits were therefore left to the arbitral tribunal.

Accordingly, the Court constituted a three member tribunal, appointing former Chief Justices Nitin Madhukar Jamdar and K.R. Shriram as nominee arbitrators who would jointly appoint the presiding arbitrator.

Pune was fixed as the seat of arbitration with all arbitrability issues to be decided as preliminary issues before the merits.

The Court clarified that arbitrability issues including the scope of Clause 20 and the binding effect on non parties would be decided by the tribunal as preliminary issues, uninfluenced by the High Court's observations.

For Petitioners: Aarohi Bhalla, C. Aryaman Sundaram, Sr. Advocates, Advocates Ujjwal A. Rana, Saurabh Sinha, Himanshu Mehta, Gagrat And Co, AOR, Tushar Ajinkya, Abhishek Gupta, Pratiksha Sharma, AOR, Ankit Acharya, Sukanya Sehgal, Ritu Chaudhary, Ayush Jain, Mukesh Kumar

For Respondents: Senior Advocates Balbir Singh, Arohi Bhalla, Advocates Tushar Ajinkya, Abhishek Gupta, Pratiksha Sharma, AOR, Ankit Acharya, Sukanya Sehgal, Ritu Chaudhary, Ayush Jain, Mukesh Kumar, Rohan Phadke, AdMisha Mathlani,