2001 (4) TMI 833 - HC - Companies Law

Summary

Issues Involved:
1. Whether the writ petitioners, who are not parties to the arbitration agreement, can be directed to be impleaded as parties in the arbitration proceedings.
2. Whether the learned single Judge committed a jurisdictional error in passing the impugned order.
3. The applicability and interpretation of the Arbitration & Conciliation Act, 1996, particularly sections 7 and 11.

Issue-wise Detailed Analysis:

1. Impleading Non-Parties to Arbitration Agreement:
The primary issue in this case revolves around whether the writ petitioners, who are not parties to the arbitration agreement, can be directed to be impleaded as parties in the arbitration proceedings. The court noted that the writ petitioners are merely sponsors/promoters and not parties to the agreement containing the arbitration clause. The arbitration agreement, as per Article IX of the Subscription Agreement, is binding only on the parties to the agreement. The court emphasized that an arbitration agreement must be in writing and must revolve around a definite legal relationship, which is absent in this case for the writ petitioners.

2. Jurisdictional Error by the Learned Single Judge:
The court observed that the learned single Judge did not determine whether there existed any binding arbitration agreement between the appellants and the 1st respondent. The court held that the learned single Judge committed a jurisdictional error by directing the writ petitioners to be impleaded in the arbitration proceedings without establishing the existence of any disputes and differences involving the petitioners. The court cited various precedents to highlight that an error of law includes the application of wrong legal tests and taking irrelevant considerations into account, which was evident in the impugned order.

3. Applicability and Interpretation of the Arbitration & Conciliation Act, 1996:
The court delved into the definitions provided under Section 2(1)(a), (b), and (d) of the Arbitration & Conciliation Act, 1996, which define 'arbitration,' 'arbitration agreement,' and 'arbitral tribunal.' Section 7 of the Act specifies that an arbitration agreement must be in writing and may be in the form of an arbitration clause in a contract or a separate agreement. The court noted that the arbitration agreement in this case is in writing, thus attracting Section 7(2) and Section 7(4)(a). The court further explained that the existence of an arbitration agreement is a sine qua non for exercising jurisdiction under Section 11(6) of the Act. The court concluded that the conditions precedent for invoking Section 11(6) were not met, as there was no valid arbitration agreement involving the writ petitioners.

Conclusion:
The court set aside the impugned order of the learned single Judge, holding that the writ petitioners, who are not parties to the arbitration agreement, cannot be directed to be impleaded in the arbitration proceedings. The court allowed the writ petition, emphasizing that the existence of an arbitration agreement is crucial for exercising jurisdiction under the Arbitration & Conciliation Act, 1996. The court made the rule nisi absolute without any order as to costs.