2023 (7) TMI 1108 - SC - Indian Laws

Scope of the arbitration agreement / MOU - MOU entered into by the brothers to conduct business - Section 8 of the Arbitration and Conciliation Act Act - - HELD THAT - The narration of facts indicates that the MoU dated 14 September 2010 is between the appellant and the first respondent. The appellant instituted two suits. In the first suit, the first respondent has been impleaded as the first defendant while Sachdeva and Sons Industries Private Limited is impleaded as the second respondent. Admittedly, Sachdeva and Sons Industries Private Limited is not a party to the MoU which is executed solely between the appellant and the first respondent. In the second suit, apart from the two defendants who are parties to the first suit, relief has been sought against Canara Bank - it is evident that there are several parties to the suit who are not parties to the arbitration agreement. The MoU which is executed between the parties indicates that the Sachdeva family comprising of both the appellant and the first respondent was carrying on business in several companies, partnership firms and proprietorship under the joint ownership of the Sachdeva family. The MoU contains a description of the respective family units and their concerns. The MoU indicates that there are certain non-family shareholdings. Since the MoU was executed exclusively between the appellant and the first respondent, the reference to arbitration under Section 8 of the trial Judge was patently in error. Neither Canara Bank nor the company are parties to the arbitration agreement. The MoU has been executed between the appellant and the first respondent. The non-family shareholdings, in any event, cannot be bound by the terms of the MoU since they are not parties to the document. The impugned judgment and order of the Single Judge of the High Court is set aside - appeal allowed.

Summary

Issues involved:
The judgment deals with appeals arising from a Single Judge's decision in CR Nos 2819 and 2820 of 2017 regarding jurisdiction under Article 227 of the Constitution, arising from orders passed by the Civil Judge (Junior Division), Amritsar, involving applications under Section 8 of the Arbitration and Conciliation Act 1996.

Summary:

Issue 1: Jurisdiction under Article 227 of the Constitution and reference to arbitration

The appellant and the first respondent, who are brothers conducting business together, entered into a Memorandum of Understanding (MoU) in 2010 containing an arbitration agreement. The appellant filed two suits seeking injunctions against the first respondent and others. The first respondent moved applications under Section 8 of the 1996 Act for arbitration, which were initially dismissed by the trial court but later allowed by the High Court. The Supreme Court found that parties not part of the arbitration agreement, such as Canara Bank and a company, were involved in the suits. As the MoU was only between the appellant and the first respondent, the reference to arbitration was deemed erroneous. The Court set aside the High Court's decision, dismissing the applications under Section 8 of the 1996 Act.

Issue 2: Parties involved and non-family shareholdings

The MoU was exclusively between the appellant and the first respondent, who were part of the Sachdeva family conducting business in various entities. The suits involved parties not covered by the arbitration agreement, like Canara Bank and a company. The Court emphasized that non-family shareholdings could not be bound by the terms of the MoU, as they were not parties to the document. Consequently, the applications under Section 8 of the 1996 Act were dismissed, and the consequential orders passed by the trial Judge were invalidated.

Conclusion:
The Supreme Court allowed the appeals, setting aside the High Court's decision and dismissing the applications under Section 8 of the 1996 Act. The consequential orders passed by the trial Judge were no longer valid. Any pending application was disposed of accordingly.