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2011 (3) TMI 1496 - SC - Companies LawWhether the appellant could be made a party to the arbitration even though the appellant was not a party to the arbitration agreement contained in clause (7) of the construction agreement dated 21.2.2008? Held that - Appeal allowed. 18. In view of the above we allow this appeal and set aside the order dated 12.4.2010 of the designate of the Chief Justice in part in so far as the appellant is concerned. We make it clear that the appointment of arbitrator under the impugned order shall remain undisturbed in so far as the disputes between first respondent and the second respondent (developer) are concerned. We further make it clear that this order will not come in the way of first respondent making any claim or raising a dispute against the appellant or appellant making any claim or raising a dispute against the first respondent and either of them seeking recourse to arbitration in regard to such disputes. If there had been an arbitration clause in the tripartite agreement among the first respondent developer and the appellant and if the first respondent had made claims or raised disputes against both the developer and the appellant with reference to such tripartite agreement the position would have been different. But that is not so. The petition under section 11 of the Act against the appellant was therefore misconceived as the appellant was not a party to the construction agreement dated 21.2.2008.
Issues Involved:
1. Whether the appellant could be made a party to the arbitration, even though the appellant was not a party to the arbitration agreement contained in clause (7) of the construction agreement dated 21.2.2008. Detailed Analysis: Issue 1: Inclusion of Appellant in Arbitration The primary issue was whether the appellant, not being a party to the arbitration agreement in the construction agreement dated 21.2.2008, could be involved in the arbitration proceedings. 1. Background and Agreements: - The first respondent entered into a development agreement with landowners and a developer to purchase an apartment. The agreement dated 16.10.2006 included an arbitration clause. - The first respondent secured a housing loan from the appellant, with a loan agreement dated 21.12.2006, which also contained an arbitration clause. - A construction agreement dated 21.2.2008 was executed between the first respondent and the developer, containing an arbitration clause in clause (7). 2. Disputes and Arbitration Invocation: - The first respondent alleged delays by the developer and sought compensation, invoking the arbitration clause in the construction agreement. - The first respondent filed a petition under section 11 of the Arbitration and Conciliation Act, 1996, in the Andhra Pradesh High Court, including the appellant as a respondent, alleging collusion and breach of trust. 3. Appellant's Contentions: - The appellant argued that it was not a party to the construction agreement and thus could not be involved in the arbitration. - The appellant claimed that the inclusion in the petition was an attempt to avoid EMI payments. 4. High Court's Decision: - The designate of the Chief Justice appointed an arbitrator without addressing the appellant's contention of not being a party to the arbitration agreement. 5. Supreme Court's Analysis: - The Supreme Court reiterated that an arbitration agreement must exist between the parties for arbitration to proceed. - Citing precedents (Jagdish Chander vs. Ramesh Chander, Yogi Agarwal vs. Inspiration Clothes & U, and S. N. Prasad vs. Monnet Finance Ltd), the Court emphasized that arbitration can only involve parties to the arbitration agreement. - The Court clarified that while the first respondent and the developer had an arbitration agreement, the appellant was not a party to it. - The disputes between the first respondent and the developer could not include the appellant, as the appellant was not bound by the arbitration clause in the construction agreement. 6. Conclusion: - The Supreme Court allowed the appeal, setting aside the High Court's order in part concerning the appellant. - The appointment of the arbitrator remained valid for disputes between the first respondent and the developer. - The Court clarified that this decision does not prevent future claims or disputes between the first respondent and the appellant, which could be resolved through arbitration under the loan agreement's arbitration clause. Summary: The Supreme Court ruled that the appellant, not being a party to the construction agreement containing the arbitration clause, could not be included in the arbitration proceedings initiated by the first respondent against the developer. The Court upheld the principle that arbitration can only involve parties to the arbitration agreement. The decision of the High Court to appoint an arbitrator was upheld only concerning the disputes between the first respondent and the developer. The appeal was allowed in part, excluding the appellant from the arbitration proceedings.
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