2023 (3) TMI 1482 - HC - Indian Laws

Appointment of Ld. Sole Arbitrator for adjudication of the disputes and differences between the Petitioner and the respondent Nos. 1, 2, 3 and 4 - award of costs of this Petition as per Section 31(A) of the Act be paid by the respondents in favour of the petitioner - seeking deposit of (or security for) the amount due and outstanding i.e., Rs 1,34,00,00,000/- to the petitioner from the respondents - also restraint has been sought particularly against respondent No. 1 from making any further payments and/or transferring any assets to respondent No. 2, prior to making payments to the petitioner. Whether arbitration clauses are not applicable as the petitioner has a remedy available under the RDDBFI Act and the SARFAESI Act? - HELD THAT - A perusal of Clause 33 of the Facility Agreement reveals that it is in the eventuality that the lender (petitioner herein) does not have the benefit of the RDDBFI and SARFESI Acts, then, the parties will have a right to refer any dispute arising out or in connection with the Facility Agreement, to the arbitration. The Supreme Court in M.D. FROZEN FOODS EXPORTS PVT. LTD. ORS. VERSUS HERO FINCORP LTD. 2017 (9) TMI 1266 - SUPREME COURT on which reliance has been placed by Mr. Rao has held, the remedy under SARFAESI Act is in addition and not in derogation to the RDDBFI Act, which is an alternative remedy available to the lender for recovery of money. The Supreme Court also held that the remedy for recovery of money and the remedy under the SARFAESI Act can proceed simultaneously. Hence this submission of Mr. Chidambaram is liable to be rejected. Whether all the parties including respondent Nos. 2 and 3 are required to be referred to arbitration when admittedly the respondent Nos. 2 and 3 are not the signatories to the CAL and Facility Agreement? - HELD THAT - In MAHANAGAR TELEPHONE NIGAM LTD. VERSUS CANARA BANK ORS. 2019 (8) TMI 576 - SUPREME COURT , the Supreme Court had applied the Doctrine of Group of Companies and held that the CANFINA (a non-signatory party therein) was undoubtedly a necessary and proper party in the arbitration proceedings. Whether respondent Nos. 2 and 3 can be referred to arbitration along with petitioner and respondent No. 1? - HELD THAT - The plaintiffs suit was specifically for non-payment of those dues under the main agreement by the defendant No. 1 and also for non-payment of the dues by defendant No. 3 under the personal guarantee. Whereas, the case of the defendants was that the main agreement between plaintiff and defendant No. 1 for supply of goods contained the arbitration clause and thus main claim of the plaintiff arising out of that agreement is covered by the arbitration agreement, thus, the parties must be referred to arbitration under Section 8 of the Act of 1996. The Court after hearing the submissions of both the sides, negated the plea on behalf of the defendants by holding that the arbitration clause being entered into only between the creditor and the principal debtor and not with the guarantors, all the parties including the guarantors thus cannot be referred to arbitration. This Court appoints Justice L. Nageswara Rao, a Former Judge of Supreme Court of India (Mob. No. 9810035984), as the sole Arbitrator, who shall adjudicate the disputes between the parties, through claims and counter claims, if any. He shall give his disclosure under Section 12 of the Act of 1996. The learned Arbitrator can fix the fee to conduct arbitration proceedings in consultation with the counsel for the parties. Petition disposed off.

Summary

Issues Involved:
1. Condonation of delay in filing replies and written submissions.
2. Appointment of a sole arbitrator for adjudication of disputes.
3. Whether the Group of Companies doctrine applies to bind non-signatories to arbitration.
4. Whether the letters issued by respondents are letters of guarantee or letters of comfort.
5. Maintainability of the petition seeking interim reliefs under Section 9 of the Arbitration and Conciliation Act, 1996.

Detailed Analysis:

1. Condonation of Delay in Filing Replies and Written Submissions:
The court allowed the condonation of delays for both the petitioner and respondent No. 2 in filing their respective replies and written submissions. The delays of 6 days and 3 days were condoned, and the replies were taken on record.

2. Appointment of Sole Arbitrator for Adjudication of Disputes:
The court decided to appoint a sole arbitrator to adjudicate the disputes arising from the same agreement between the parties. The petitioner sought the appointment of a sole arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, for disputes related to a term loan of Rs. 150,00,00,000 extended to respondent No. 1. The court appointed Justice L. Nageswara Rao, a former Judge of the Supreme Court of India, as the sole arbitrator to adjudicate the disputes between the parties.

3. Applicability of Group of Companies Doctrine:
The court examined whether the Group of Companies doctrine could bind non-signatories (respondents No. 2 and 3) to the arbitration agreement. The court referred to the judgments in Chloro Controls India (P) Ltd. and other subsequent judgments, which allow non-signatories to be bound by an arbitration agreement under exceptional circumstances. The court found that respondent Nos. 1, 2, and 3 were part of the Essel Group of Companies, indicating a single economic entity and a direct relationship between them. The court held that the mutual intent of the parties, the composite nature of the transaction, and the performance of the contract indicated that the Group of Companies doctrine applied, and thus, respondent Nos. 2 and 3 could be referred to arbitration.

4. Nature of Letters Issued by Respondents:
The court analyzed whether the letters issued by respondents No. 2 and 3 were letters of guarantee or letters of comfort. The court found that the letters did not meet the requirements of Section 126 of the Indian Contract Act, 1872, as they did not contain a promise to discharge the liability of a third person in case of default. The letters merely assured that respondent No. 1 would repay the facility, thus qualifying as letters of comfort rather than letters of guarantee.

5. Maintainability of Petition Seeking Interim Reliefs:
The court addressed the maintainability of the petition seeking interim reliefs under Section 9 of the Arbitration and Conciliation Act, 1996. The petitioner sought various interim reliefs, including the deposit of the overdue principal amount, restraining respondent No. 1 from making payments to respondent No. 2, and disclosure of assets. The court noted that the principles governing the exercise of analogous powers under Order XXXIX Rule 1 and 2 and Order XXXVIII Rule 5 of the CPC must be satisfied. The court found that the petitioner had not established that respondent No. 1 was attempting to dispose of its assets with the intention of defeating any decree or award. The court directed that the petition under Section 9 be treated as an application under Section 17 to be decided by the appointed arbitrator. The interim orders passed by the court, including the deposit of amounts by respondent No. 1, were to continue until the arbitrator's decision.

The court disposed of the petitions, appointing an arbitrator and directing the continuation of interim orders until the arbitrator's decision.