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2021 (12) TMI 968 - HC - Companies LawSeeking appointment of a Sole Arbitrator for adjudication of disputes pertaining to the Facility Agreement - HELD THAT - Respondent No. 1, which an LLP, has signed the Facility Agreement through its partner Mr. Ajay Yadav. The constitution of Respondent as a limited liability partnership is not in dispute. Mr. Ajay Yadav also does not deny his signatures or the fact that he is a partner of Respondent No. 1. Thus, the execution of the Facility Agreement, his authority being implied, would prima facie bind Respondent No. 1. Respondent No. 1 and 3 cannot wriggle out of the arbitration agreement contained in the Facility Agreement by merely claiming that her partner Mr. Ajay Yadav has acted without consent or concurrence, particularly when the receipt of the sum of ₹ 1,46,00,00,000/- by Respondent No. l has not been denied by any of the Respondents. Further, mere absence of signature of Respondent No. 3 cannot render the agreement ex-facie invalid, since Respondent No. 1 is a limited liability partnership. Reference against her is based on her being a partner of Respondent No. 1 firm, which is not denied - the controversy regarding invalidity of the agreement, as raised by the Respondents can, at the highest, only cast a doubt in the mind of the Court. It is only in rare circumstances, where, the Court is of the opinion that an agreement is ex-facie invalid or non-est, should the Court decline referring the parties to the arbitration. This is certainly not such a case. Prima facie test regarding the existence of the arbitration agreement is met in the instant case. This brings the Court to the question of referring Respondent No. 4 who is undoubtedly a non-signatory to the Facility Agreement. There is no dispute on the proposition that the scope of an arbitration agreement is limited to the parties who entered into it and that those claiming under or through them. However, under exceptional circumstances, a non-signatory or third party can also be subjected to arbitration. Thus, the short question is whether the Petitioner is able to discharge this heavy onus for seeking reference against Respondent No. 4. The obligations under this Agreement also pertain to Respondent No. 4 and to the operation of its business and contractual commitments. The terms of the Facility Agreement, the conduct of the parties, the background leading to execution of the Facility Agreement all spell out the true intention of the parties, i.e., the successful implementation of the resolution plan which resulted in Respondent No. 1 acquiring Respondent No. 4. Undoubtedly, the performance of Facility Agreement is intrinsically interlinked with the assets of Respondent No. 4 and may not be feasible without its direct involvement. Pertinently, any order/ proceedings relating to the execution of the Facility Agreement would surely and directly impact Respondent No. 4, and therefore the adjudication of any disputes arising thereunder would necessarily require its presence. This Court is also guided by the group of companies doctrine as expounded in the case of MAHANAGAR TELEPHONE NIGAM LTD. VERSUS CANARA BANK ORS. 2019 (8) TMI 576 - SUPREME COURT , where the group company of Canara Bank, being a non-signatory to the arbitration agreement, was also referred to arbitration after considering the composite nature of transaction, the commonality of subject matter, and the fact that final resolution of the disputes would not be feasible without joining of such party. There is no impediment for this Court to allow the petition qua all the Respondents - Petition allowed.
Issues Involved:
1. Validity of the Facility Agreement 2. Authority of signatories to the Facility Agreement 3. Binding nature of the Facility Agreement on non-signatory partners and entities 4. Existence of an arbitration agreement 5. Reference of disputes to arbitration Issue-wise Detailed Analysis: 1. Validity of the Facility Agreement: The respondents argued that the Facility Agreement was invalid due to the absence of signatures from all partners and alleged fraud in obtaining signatures. They contended that the agreement was a rough draft and not authorized by the majority partner. The petitioner countered that the agreement was validly executed by a partner of the LLP, and the receipt of funds by the respondents confirmed the agreement's validity. The court found that the absence of a partner's signature did not invalidate the agreement and that such disputes should be resolved by the Arbitral Tribunal. 2. Authority of Signatories to the Facility Agreement: Respondents claimed that Mr. Ajay Yadav, who signed the agreement, lacked authority as the signing was not backed by a resolution from the LLP and was done without the majority partner's consent. They also alleged that the signatures were obtained by fraud. The petitioner argued that Mr. Yadav's authority was implied as he was a partner, and the LLP received the funds. The court held that Mr. Yadav's execution of the agreement prima facie bound the LLP, and issues regarding authority and fraud should be examined by the Arbitral Tribunal. 3. Binding Nature of the Facility Agreement on Non-signatory Partners and Entities: Respondents contended that the agreement was not binding on non-signatory partners and entities, including Respondent No. 4, who was under insolvency proceedings and not involved in the agreement. The petitioner argued that all respondents were necessary parties to the arbitration due to their roles and the direct benefit received by Respondent No. 4 from the facility. The court found that Respondent No. 4, being an alter ego of Respondent No. 1 and a direct beneficiary, should be referred to arbitration under the 'group of companies doctrine.' 4. Existence of an Arbitration Agreement: Respondents argued that the arbitration agreement's existence was doubtful due to the alleged invalidity and unauthorized signing of the Facility Agreement. The petitioner maintained that an arbitration agreement existed as per the terms of the Facility Agreement. The court held that the prima facie test for the existence of an arbitration agreement was met, and disputes regarding its validity should be resolved by the Arbitral Tribunal. 5. Reference of Disputes to Arbitration: The court considered whether the disputes should be referred to arbitration, given the objections raised. It concluded that the disputes, including those involving non-signatory Respondent No. 4, should be referred to arbitration due to the interconnected nature of the transactions and the direct involvement of Respondent No. 4's assets. The court appointed a Sole Arbitrator to adjudicate the disputes, emphasizing that the observations made were for the purpose of deciding the petition and would not affect the Arbitrator's independent adjudication. Conclusion: The petition was allowed, and Hon'ble Mr. Justice D. K. Jain (Retd.) was appointed as the Sole Arbitrator to adjudicate the disputes under the Facility Agreement. The parties were directed to appear before the Arbitrator, who would be paid fees as per Schedule IV of the Act. The respondents were given the liberty to raise all objections before the Arbitrator, and the court's observations were not to influence the Arbitrator's independent adjudication.
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