The High Court · 2025

conciliation Act, 1996 praying that in the circumstances stated in accompanying affidavit this Hon'ble Court miy be pleased to appoint an Arbitrator, under Section 11 (6) of Arbitration and conciliation Act, 1996, read with para 3 (1) (d) of Scheme of Appointment of Arbitrators, 1996, as framed by the Hon'ble High court of Telangana,foradiudicatingthedispute,betweentheApplicantandthe Respondent herein. ARBITRATION AP PLICAT ION NO: 199 OF 2024 Between: I\I/s-shriram Lif-e lnsurance Company Limited,, Ramky. Selenium, Beside Andhra 'Disirict, Gachibowli'- Hvderabad, Telangana-32 i;;;k i'.3ril;'a"ntre,-f inan"ial Rep.by Sri.E. Sridhar, General Manager Legal. ...Applicant AND Mr Sahil kharr. \erw House no. 9121206, Old House No. 35g, IVlalrajani Tola, Rel<ab G_ani :ar; erbad. Uttar praAesn ZZ+Obf f,'rfoO. ZOSZOO::SS1 e;;aif ;,i'ir hdfcslic@redrlfnr I I com. ... Respondent ... Arbitrerti'.rn Apprication Under section 'r'1 (6) the ,\rbitration and ^ conciliation Aot 1{) )5 praying that in the circumstances statild ir accompanying affidavit this H cr 'brr, court may be preased to appoint an nrr,iira oi uls Tiirii Arbitratiirn anc (.:onciliation. A-ct, .1996, read wiih para i (1 ) (d. of Scheme ot " Appointment oi.F\rbi.rators,^19_96, gs framed by Hon ble High CJu't ;f i;";;;r, under clause r'rcr5 14 Esops -13 scheme, for adjudicatirig te crLpute tetireen the applicant arrd tt-e Respondent herein counsel for the /\pFricants in both ARBAPPLS :sRr NIZAMpuR CHANDRA SEKHAR Counsel for the Fle,spondents in both ARBAppLS: SRI SAI S,ANJ,\y SURANENT The Court made tho foilowing: COMMON ORDER a HON'BLE SRIJUSTICE K. LAKSHMAN ARBITRATION PLICATION NOs.182 AND 199 0F 2024 COMMON ORDE Both the plications arise from a common set of facts.Therefore, bo the Applications were heard together and disposed ofby way f this common order:-

2. I{eard Sri izampur Chandrasekhar, leamed counsel for the Applicant and S i Sai Sanjay Suraneni, leamed counsel for the respondents.

3. These Arb tion Applications are filed under Section 11 of the Arbitration d Concitiation Act, 1996 (hereinafter 'the Act, 1996') lor appoin ent of a sole arbitrator to adjudicate the disputes between th parties under the ESOPS- 13 Scheme Facts of the case:

4. The Appl cant in both the applications is Shriram Life Insurance Compan Y Limited. The two applications pertain to disputes with two former employees, i.e., Mr. Arvind Shivhare (respondent in Ar Appln. No. 182 of 2024) and Sahil Khan (respondent in Ar Appln.No. 199 of 2024). Both respondents 2 -: were pre\ ic'r r:;lr- employed with the Applicant c,f,mpany and were allotted lllirlrP shares under rhe ESOPS_13 S< hen e. dated 23.06.2i)11, t; a recognition of their services. '.i 5 \r: :,:rding ro rhe Applicanr, rhe ESOpI;_ I 3 Scheme mandat(,s lhat any employee who resigns and wishe; to sell their ESOP sharer; lnust first offer them to the Trust at the r:xer:ise price plus 69ir I Il F!, as specified under Clause 1 :i. F[orvr ,ver, the respondonts al egedly sold their shares without ofl,ering th,:m to the Trust, ra'hrctr rhe Applicant contends is a gross violaticn of the Scheme. I lpc rL discovering the unauthorized sale, tirc l,.pplicant issued leg:Ll n rtices to both respondents on 17.0g...L021, de nanding re-transfi:r :1' Jre shares to the Trust. Despite receiving rep ies from the respcnrlerir; denying the allegations, the Applicant invrked the arbitration cli rrse on 26.10.ZO2I, appointing Sri p.\2.V. Gopala Krishna lv,lr.rn1 1,, as the sole arbitrator.

6. f l'e rr.bitration proceedings were terminated by the sole arbitrator, liri P.V.V. Gopala Krishna Murthy, on rJ9.02.2C23. The termination oc:urred due to non_cooperation from the resp ondents and conc:r,rs r:garding the arbitrator,s impartiality, parl icularly I J after the respondents raised objections on the grounds of bias and lack of neutrality.

7. The Appticant herein contends that the unilateral transfer of shares without offering them to the Trust violates the terms of the ESOPS-[3 Scheme. The ESOPS-I3 clause establishes pre- emptive rights for the Trust, aimed at preventing dilution of ownership before the company's shares are listed on a recognized stock exchange. Further, the Applicant asserts that the respondents' act of selling shares to third parties, without honouring the right of first refusal, undermines the core objective of the Scheme.

8. The Applicant contends that after the appointment of the arbitrator, the respondents challenged the appointment on the grounds of bias and impartiality. Consequently, the arbitrator terminated the arbitral proceedings on 09.02.2023, citing non- cooperation and concems over maintaining impartiality. The Applicant submits that this termination did not address the substantive dispute, leaving the matter unresolved, and hence seeks the appointment ofa substitute arbitrator under Section 1l(6) ofthe Act. .1 ._-- --- .1 '). Ih: respondent in Arb. Appln. No. lgll of 2)2|contends that tht:r,: r s no valid arbitration agreement in respec t of the reliefs sought. ,rs the claimant trust is not a party to .he rbitration agreement. f he respondents assert that the Applicant d:mand for the trarrster if shares to the Trust falls outside the purt, ew of the arbitratio I (t iruse. Additionalty, the respondents also cor tends that the Applicarrt did not adhere to the proper proc:dur: for the appointm':r.t ,f a substitute arbitrator as mandated lndr r Section 15(2) oi'tlre.\ct. 1,1. In a.rb. Appln. No. 199 of 2024, the respondenr conrends that the arbi,ration application is not maintainable z s the dispute pertains to t.t: transfer of shares to third parlies u,ho rtre r ot bound by the a.bitration agreement. The respondents furrher conrends that after term na t on of proceedings by the leamed arbitr ator, the Applica,t sl,< ,rrld have issued a fresh notice under trre a',bitration clause br:frtre r seeking intervention of Court. 1 L l''ro n the contentions of the parties it is ,:lear. tha . there is a disput. reri;uding the sale of shares and about r.iotation of the ESOPS-13 Scleme. The question whether dispuLe is ourside the -!"'a!E!5t? - - ---+**--__ ,i' -, 5 purvlew of the arbitration clause can only be decided by the arbitrator. It is pertinent to note that the Supreme Court in SBI General lnsurance Co. Ltd' v' Krish Spinningr' has held that while deciding an application to appoint an arbitrator' the only test is to see whether a prima facie arbitration agreement exists' The relevant paragraph is extracted below:

114. In view of the observati ons made bv this Court in In Re: Inter,pla v (su pra). it is clear that the sco e of enq uiry at the stage of aooointment of arbitra tor is limited to the scrutin Y of prima facie existence of the arbitra tion aqreement. and nothins else. For this reason, we find it difficult to hold that the observations made in Vidya Drolia (supra)and adopted in NTPC v ' SPIZ (supra) that the jurisdiction of the relerral court when dealing with thc issuc of "accord and satisfaction" under Section l1 extends to weeding out ex- facie non-atbitrable and frivolous- disputes would continue to apply despite the subsequent decision in In Re : InterPlaY (suPra)' r2024 SCC OnLine sc 1754 ,:,i;.v;'&-,;L-.-i:; 6 I L - 'irerefore, the contention of the r.r:sponder Lt that the disputr: t)llr outside the purview of arbitration and con:ems third parties is tc !e adjudicated by the arbirrator. l3 .i:u.coming to the other contention of the r espondent that the a rgri i,:ant ought to have filed an applicalion r-rnd :r Section 15 (2) anc .rot Section 1l As stated above:, tl e r:spondent contenderl tl z:t the earlier arbitrator had recused alrcl vithdrawn himself f,.on the proceedings, therefore, a suirstitrte arbitrator under S,:ctiorr 15 (2) ought to be appointed. The said c)ntention cannot be ,Lc::pted

14. lt is r.rite law that a substitute arbitrator is to bc a opointed in the samr: nl,)de and manner as the earlier arbitrator. F.owever, where a r a1t tointment of the earlier arbitr alor u as tnder a defective a "bi r ation clause or where such an appotntm,:nt was under an _rn lav,tul procedure, a new arbitrator under Se:tiorL I 1 can be appointe:i. Ir such cases, Section l2 (5) cannot be irLv.ok:d. The facts of the nrt: n)nt case make the position much clearer r.-, -ia.t.,ir'.::; it a:j_..r .; ..:i .t-. . ., , ,:.. : J '7 i l5.Inthepresentcase,theearlierarbitrator'i'e''SriP'V'V' Gopala Krishna MurthY was arbitration clause (Clause 15' 14): appointed under the following All disputes arising out ofor in crtnnection with the Scheme or the right may be referred ro Arbitation to a single arbitrator Io Un oppointnd by Shriram Life Insurance Company' Arbitration proceedings shall be in accordance with the provisions of the Arbitration ond ConciLiation Act 1996 And the place of arbitralion shall be Hyderabad' India' 16. As can be seen above' the clause provides for unilateral appointment of arbitrator' In Perkins Eastman Architects DPC v' HSCC (India) Ltd2, the Supreme Court had hetd that unilateral impermissible' Therefore' such appointment of arbitrators ts clauses cannot be enforced' In the present case, the earlier arbitrator was unilateratly appointed under Clause 15'14' Therefore, such appointment' irrespective of the subsequent withdrawal by the arbitrator' was illegal'

17. As the earlier appointment of the arbitrator was under an unlawful clause, the procedure under the said clause cannot be reinvoked to appoint a substitute arbitrator' In other words' where '?2019 scc onLine sc 1517 I I I 8 \ the earlier rbitrator was appointed under an urrlaw lul/illegal procedlrc, the said-same procedure cannot be irrroked under Section 1 ' (l ) to appoint a subsequent arbitrator.

18. Trrugh Section 15 (2) ofthe Act, cannot b: inr oked in a case sur:h as Jtis, the intention to arbitrate still remains cn orceable. Therefore, p,iven Clause 15.14 and the disputes between tlLe pafties, this Courr oeerns it appropriate to appoint a sole arl itrator to adjudicatl th: claims of the parties 1'), l- r:refore, the present Arbitration Apt,lica ions are allowed. '$ri K.Sudharshan, Retired District JudElc, I I.No.8-7- 97185/P-lll';4" Agriculture Colon5 Has thin apuram, Hyderabad-;00079, Mobile No.9866415720, is app,rinrt d as sole Arbitratcr tc adjudicate the disputes between the par-ies. The parties :,rc at libefi to take all the defences before th,: lca med sole Arbitrat,rr Corrse.r prently, miscellaneous petitions, pendinlr if rny. shall stand cllrs.:d. //TRUE COPYII n SI)/. B. SATYAVATHI "OINT REGISTRAR \ i TSEC ION OFFICER To, 1- Sri K.Suchi;,rs;f ran, Retired District Judge, H.No.8-7-9718[ tlP-llt74, Agriculture Colony, Fla:;hinapuram, Hyderabad-500079, l\4obrl3 1.,,1o.9866415720 (By Speed Por;t) (Along with a Copy of affidavit and m;rteri;rl papers)

2. One CC tc S.i N irzampur Chandra Sekhar, Advocate [OPUO] 3. One CC tc -q.i Sari San 4. Two CD Cop iq,s jay Suraneni, Advocate IOPUCI HIGH COUIR'r DATED:0910$t2025 COMMON ORDER ARBAPPL..NIIs.182 and 199 ot 2024 .4 THE s 14 / l tu[ 20?5 z, / t ..:- ti -. ,i(-' il.,' \\..' 'r...:t \i.... a" I ALLOWING rHE BOTH ARBAppLs o )