Arbitration Dispute: Supreme Court Refers Meenakshi Solar and Abhyudaya Green Case to Arbitrator

The Supreme Court of India recently decided a significant arbitration dispute in the case of M/s. Meenakshi Solar Power Pvt. Ltd. vs. M/s. Abhyudaya Green Economic Zones Pvt. Ltd. & Ors. The core issue revolved around the enforceability of an arbitration clause under a Share Purchase Agreement and whether it was superseded by a subsequent Tripartite Agreement.

The Supreme Court overruled the Telangana High Court’s decision, which had dismissed Meenakshi Solar’s plea for arbitration, and referred the matter to an arbitrator. The Court emphasized that determining whether an agreement was novated should be left to the arbitral tribunal rather than being decided by the courts at the referral stage.

Background of the Case

The dispute arose over the sale of a 4.128 MW Solar PV Power Project in Telangana, owned by Abhyudaya Green Economic Zones Pvt. Ltd. and its promoters. The key agreements in the case included:

• A Share Purchase Agreement (SPA) dated 24.09.2018, under which Meenakshi Solar Power Pvt. Ltd. agreed to purchase 100% ownership of the project for Rs. 29 crores.
• A Tripartite Agreement dated 03.04.2019 involving IFCI Venture Capital, Abhyudaya Green, and an affiliate of Meenakshi Solar to facilitate debt repayment.
• An Addendum to the SPA dated 10.04.2019 that outlined additional financial arrangements between the parties.

Arguments by the Parties

Appellant (Meenakshi Solar Power Pvt. Ltd.)

• Argued that the arbitration clause in the SPA was still valid and disputes should be resolved through arbitration.
• Claimed that the Tripartite Agreement was merely a financial restructuring mechanism and did not replace the SPA.
• Maintained that the High Court exceeded its jurisdiction under Section 11 of the Arbitration and Conciliation Act by deciding on contract novation instead of referring the matter to arbitration.

Respondents (Abhyudaya Green Economic Zones Pvt. Ltd. & Ors.)

• Contended that the SPA had lapsed due to non-fulfillment of payment obligations and was replaced by the Tripartite Agreement.
• Argued that the Tripartite Agreement did not contain an arbitration clause, thereby rendering arbitration proceedings void.
• Claimed that the SPA was no longer applicable as its terms had been superseded.

Observations by the Supreme Court

The Supreme Court analyzed the issues and held that:

• The High Court erred in dismissing the arbitration application based on an interpretation of contract novation.
• Whether the SPA was novated by the Tripartite Agreement is a question that should be decided by an arbitral tribunal, not the courts.
• The arbitration clause remains operative unless explicitly rescinded or replaced, which was not conclusively established.

The Court quoted:

“The High Court was not right in dismissing the petition under Section 11(6) of the Act of 1996 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.”

Final Verdict

The Supreme Court allowed the appeal and:

• Quashed the Telangana High Court’s judgment.
• Appointed Hon. Justice R. Subhash Reddy, Former Supreme Court Judge, as the sole arbitrator.
• Directed the parties to resolve their disputes through arbitration.

Conclusion

This ruling reinforces the principle that courts should not interfere with arbitration agreements and that any claims of contract novation should be adjudicated by arbitral tribunals. It strengthens the pro-arbitration stance of Indian jurisprudence and provides clarity on how disputes over contractual modifications should be handled.

Read also: https://judgmentlibrary.com/supreme-court-rules-on-contractual-dispute-arbitration-and-legal-rights-of-assignees/

Petitioner Name: M/s. Meenakshi Solar Power Pvt. Ltd..
Respondent Name: M/s. Abhyudaya Green Economic Zones Pvt. Ltd. & Ors..
Judgment By: Justice B.R. Gavai, Justice B.V. Nagarathna.
Place Of Incident: Telangana, India.
Judgment Date: 23-11-2022.

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