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TMI Blog2023 (5) TMI 179X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of application of Section 8. The words a matter indicate that the entire subject-matter of the suit should be subject to arbitration agreement. As explained by this Court in Ameet Lalchand Shah [ 2018 (5) TMI 680 - SUPREME COURT ], the amendment to Section 8 after the aforesaid decision in Sukanya Holdings could be seen in the background of the recommendations of 246th Law Commission Report in which, inter alia, it was observed that as per the proposed amendment, judicial authority would not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, it would refer the dispute to arbitration and leave the existence of arbitration agreement to be finally determined by the Arbitral Tribunal. All the relevant aspects of the matter came up for fuller exposition by a 3-Judge Bench of this Court in the case of Vidya Drolia [ 2020 (12) TMI 1227 - SUPREME COURT ]. In the said case, basically, the reference came to be made to the bench of three judges when the ratio expressed in the case of Himangi Enterprises v. K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e laid down by this Court. On the facts and in the circumstances of the present case and in the nature of transactions as also the nature of reliefs claimed in the suit, the view taken by the Commercial Court and the High Court in declining the prayer of the appellant for reference to arbitration cannot be faulted - Appeal dismissed. - CIVIL APPEAL NO.3259 OF 2023 (ARISING OUT OF SLP (CIVIL) NO. 16932 OF 2018) WITH CIVIL APPEAL NO. 3260 OF 2023 (ARISING OUT OF SLP (CIVIL) NO. 18074 OF 2018) - - - Dated:- 1-5-2023 - DINESH MAHESHWARI And SUDHANSHU DHULIA , JJ. For the Appellant : Mr. Nikhil Goel, AOR Ms. Naveen Goel, Adv. Mr. Adhitya Koshy Roy, Adv. For the Respondent : Mr. Baiju Mattam, Adv. Mr. Prakash Kumar, Adv. Mr. S S Bandyopadhyay, Adv. Mr. Satish Kumar, AOR Mr. Rohan Sharma, Adv. Mr. Pradhuman Gohil, Adv. Mrs. Taruna Singh Gohil, AOR Ms. Ranu Purohit, Adv. Mr. Alapati Sahithya Krishna, Adv. Ms. Nidhi Mittal, Adv. Mr. Dushyant Parashar, AOR Mr. Bhaskar Sharma, Adv. Mr. Dinesh Pandey, Adv. Mr. Manu Parashar, Adv. JUDGMENT DINESH MAHESHWARI, J. Leave granted. 2. These appeals have been preferred against the common judgment and order dated 23. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... production and manufacturing facilities after completion of the necessary inspection and the compilation of inventories as stipulated herein. The said takeover would be fully and duly evidenced by acknowledgement of both the parties in writing, and will constitute a pan of this Licence Agreement. *** *** *** 8. LICENSEE shall pay quarterly licence fee of Rs.1,00,000 (Rupees One lakh only) per quarter towards the use of land and building including office building and Rs.4,00,000 (Rupees Four lakhs only) per quarter towards the use of factory machinery equipments. The Licence fee shall, be paid within 21 days of end of the quarter. *** *** *** 12. LICENSEE shall not be entitled to mortgage, assign, licence or sublet the said Unit. However, LICENSEE shall be at liberty to mortgage/ charge, Raw Material stock, Finished Goods book debts and equipment brought in and belonging to LICENSEE under this arrangement which shall be kept separately identified and insured. *** *** *** 15. The LICENSOR will be entitled to a Bonus, in addition to licence fee payable under Clause 8, in consideration of the use of its manufacturing facilities, licence, brand good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erly instalments commencing from the 90th day of payment of the ad hoc advance out of the licence fee and bonus under clauses 8 and 15 of the main agreement. A few relevant clauses of the supplementary agreement dated 07.04.2005 could also be usefully reproduced as under: - NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth herein, and also in the main License Agreement dated 7th April 2005 and for other good and valuable considerations, the parties hereto hereby agrees as follows: 1. The LICENSOR requested the LICENSEE for some financial assistance to arrive at an amicable settlement with the creditors; employees and statutory authorities for discharging of their dues. 2. The LICENSEE, in consideration of facilitating the smooth operation of the main agreement dated 7th April 2005 between LICENSOR and CONFIRMING PARTY and main agreement dated 7th April 2005 between LICENSOR and LICENSEE including smooth operation of A. C. Pipes, A. C. Sheets and Cement Units, have agreed to advance a sum of Rs. 5,30,00,000 (Rupees Five Crores Thirty Lakhs only) to the LICENSOR fetching interest at 10% per annum to be calculated at monthly rests aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reduced by the amount of License fee payable as per Clause-8 of the Agreement. However, in the event of loss, the LICENSOR shall be liable to reimburse 43% of the total loss to LICENSEE on a quarter-to-quarter basis. ii) Computation of the Profit Loss and its distribution shall be provisionally based on the annual audited accounts. iii) Profit/Losses for this purpose means profits/losses earned, after deducting interest on working capital and depreciation on the assets added by the LICENSEE but before changing the license fee specified in Clause No. 8. The profit/loss shall be worked out on the basis of accepted accounting principles. 3.4. Thereafter, on 06.07.2006, a tripartite agreement was executed by and amongst the appellant, respondent No. 1 and respondent No. 2 (Bank of Baroda Hereinafter also referred to as the bank ) upon sanctioning of a loan to the tune of Rs. 500 lakh to respondent No. 1. The appellant agreed to create first charge on fixed assets, which was to be released only with the consent of respondent No. 1. However, it was also stipulated that if payment of corporate loan was made directly by the appellant to the bank, the first charge co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon the appellant to extend the term of the licence agreement by a further period of 84 months. This extension was sought because appellant was unable to pay certain dues owed to respondent No. 1 and sought time to arrange for payment. In response to this representation, the appellant, through letter dated 29.02.2012, denied the proposal of respondent No. 1 to extend the term of licence agreement as also the projected outstanding dues. Later, on 06.04.2012, which was the date of completion of tenure of the original licence agreement, respondent No. 1 did not hand over possession and instead, declared its intention to continue with possession. Between April 2012 and March 2015, according to the appellant, certain attempts were made to resolve the dispute, but to no avail. It is also a part of the case of respondent No. 1 that certain parcels of land were transferred to respondent Nos. 3 to 5 in January 2015. 3.7. Then, on 07.04.2015, the appellant issued notice to respondent No. 1 claiming recovery of possession of the manufacturing units as well as certain monetary dues. In the notice, the appellant stated that the licence had expired by efflux of time without any extension, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble Court may be pleased to permanently restrain the defendant Nos.1, 3, 4 and 5 or their agent, executors, or administrators from disturbing or obstructing the plaintiffs occupation possession of the suit property till the discharged; (D) This Hon'ble Court may be pleased to direct the defendant No.2 Bank not to release original title papers and other relevant documents in favour of defendant Nos.1, 3 and/or 4; (E) This Hon ble Court may be pleased to hold and declare that the Conveyance Deed dated 23rd January, 2015 entered into between the defendant No. 1 and defendant No. 3 to 5 as null and void; (F) This Hon ble Court may be pleased to direct the defendant No. 2 to take over all the current assets of the plaintiff pertaining to or in connection with the operation of A.C. Sheet and Cement. Manufacturing unit under license agreement at their book value and make payment to the plaintiff for the current assets available at the time of handing over of the possession, if required. 3.9. An application was preferred by the appellant under Section 8 of the Act of 1996 in the said commercial civil suit bearing No. 90 of 2017 for reference of the dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se applications in view of the fact that the prayer of the appellant in terms of Section 8 of the Act had been rejected by the Commercial Court on 13.12.2017 but, with liberty to the appellant to file afresh under Section 11 of the Act after decision on the challenge to the order so passed by the Commercial Court. Be that as it may, this aspect is not as such relevant for the present purpose and could be left at that. 4. The Commercial Court at Ahmedabad, in the order dated 13.12.2017, rejected the application of the appellant under Section 8 of the Act of 1996. It was held that there was no arbitration clause in the tripartite agreement and no reference had been made to the original or supplementary licence agreement to give effect or consider the arbitration clause as a part and parcel of the tripartite agreement. While referring to clause 32 of the Licence Agreement dated 07.04.2005, the Court observed that it was explicitly clear that the arbitration clause was applicable to the appellant and respondent No. 1, specifically in reference to the original licence agreement and supplementary licence agreement but the same could not be extended to apply to subsequent transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and signed by the parties and also in exchange of statement defence in which the existence of the agreement is alleged by one party and not denied by the other party. 19. Thus, considering the facts of the case on hand while applying the provisions of Section 7 of the Arbitration Act, the powers of the Court to refer the parties to arbitration are subject to fulfilment of the required conditions i.e. there should be an arbitration agreement and if the Court finds that no valid arbitration agreement exists between the parties, then to invoke the powers under Section 8 and the issue thereof does not arise. 20. Hence, on the aforesaid account and as discussed in the foregoing paragraphs, the clause of arbitration so inserted is between the plaintiff and defendant No.1 as inserted in the Licence Agreement and the same cannot be applied to the subsequent transactions and with the persons who are not the parties to the arbitration agreement who cannot be compelled to or referred to arbitration. Hence, in view of the aforesaid, the arbitration clause, the binding effect applies to the plaintiff and defendant No.1 only and cannot be extended to the rest, admittedly who are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Commercial Court was upheld by the High Court, after extensively taking note of the material aspects of the pleadings in plaint and the rival submissions as also the principles enunciated in the cited decisions, with the finding that it would not be proper to bifurcate the disputes in terms of arbitrable and non-arbitrable disputes. 5.1. As regards the suit in respect of a matter which falls partly within and partly outside the arbitration agreement, and also involves nonparties as well as parties, it was held that Section 8 of the Act of 1996 would not be attracted, in reference to several decisions of this Court. The High Court observed that the licence agreements were only executed between the appellant and respondent No. 1 and respondent Nos. 2 to 5 were not party to the agreement. There was a tripartite agreement between the appellant, respondent No. 1 and the bank, however, it was an admitted position that no arbitration agreement existed in that regard. Further, the tripartite agreement was an independent agreement for mortgage by deposit of title deeds. It was further observed by the High Court, as had also been observed by the Commercial Court, that the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aroda 3. Real Home Corporation - a partnership firm 4. M/s. Raj Corporation (Confirming Party) - partnership firm 5. RJD Buildcon Ltd. The suit is filed for recovery of legitimate dues, cancellation of sale deed and for permanent injunction. In the suit the plaintiff has prayed for the following reliefs. (A) This Hon'ble Court may be pleased to direct the defendant No.1 to pay to the Plaintiff herein a sum of Rs.32.66 Crores with interest @ 14% per annum from the date of suit till realization herein under this decree and any further orders to be passed by this Hon'ble Court; (B) This Hon'ble Court may be pleased to hold and declare that the Deeds of Conveyance dated 23rd January, 2015 registered vide registration no. 742 and 750 executed by defendant No.1 in favour of defendant Nos.3 and 5, as null and void; (C) This Hon'ble Court may be pleased to permanently restrain the defendant Nos.1, 3, 4 and 5 or their agent, executors, or administrators from disturbing or obstructing the plaintiffs occupation possession of the suit property till the plaintiff claim made in para (a) and (b) above is fully discharged; (D) This H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t No. 1; behind the back of the plaintiff, entered into Conveyance Deed with defendant No. 3 and defendant No. 5. 5. The defendant No. 1 even did not part with the sale consideration with the plaintiff which it has received from defendant No. 3 and defendant No. 5 for conveying the suit property to defendant No. 3 and defendant No. 5. 6. That the cause of action for filing the suit has arisen also as defendant No. 1 had defaulted in repayment to Punjab National Bank and hence was not in a position to get any loan whatsoever in its own capacity from any financial institution, and as it was in need of financial assistance, defendant No. 1 requested the plaintiff for financial help, because of which plaintiff obtained corporate loan of Rs. 05.00 Crores on its name from defendant No. 2 and advanced the same to defendant No. 1. 7. Even during the currency of the license agreement, plaintiff has paid other amounts also for and on behalf of the defendant No. 1 towards wages to the workers, revenue taxes, electricity bills, excise duty, etc. 8. The cause of action has arisen because in lieu of all these financial help from plaintiff, defendant No. 1 entered into tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cense agreement as well as they have purchased the said property surreptitiously. The prayer in terms of paras 33(D) and 33(F) can be said to be against the original defendant No.2 Bank of Baroda who admittedly is not a party to the arbitration agreement. All these reliefs are interconnected and the reliefs sought in the plaint are on the basis of multiple cause of actions and multiple reliefs against the defendants and it is not possible to bifurcate the dispute in the suit between the plaintiff and the original defendant No.1 (parties to the arbitration agreement) and the original plaintiff and the original defendant Nos.2 to 5 (nonparties to the arbitration agreement). Therefore, applying the law laid down by the Hon ble Supreme Court in the case of Sukanya Holdings (P) Ltd. (Supra) and other decisions referred to herein above, it cannot be said that the learned Commercial Court has committed any error in rejecting section 8 application and refusing to refer the matter / dispute in the suit for arbitration. *** *** *** [8.13] Considering the facts and circumstances of the case narrated herein above and the law laid down by the Hon ble Supreme Court in the case of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Learned counsel would submit that now, the law pertaining to Section 8 of the Act of 1996 is solely interpreted keeping in view the amendment to it. With reference to the case of Vidya Drolia (supra) learned counsel has submitted that two major principles have been laid down therein: one, that only those cases that are deadwood should not be referred to arbitration; and second, that whenever there is doubt, the correct course is to refer to arbitration. Further placing reliance on ONGC Ltd. v. Discovery Enterprises: (2022) 8 SCC 42 and Intercontinental Hotels v. Waterline Hotels: (2022) 7 SCC 662 he has submitted that unless the issue before the Court patently indicates existence of deadwood, Courts should ensure that arbitration is carried on. Learned counsel would submit that the High Court has adopted a rather restrictive interpretation of the Act of 1996 in the order impugned, which deserves to be set aside. 6.3. Learned counsel for appellant has also submitted that the mandate of Act of 1996 would have ensured the completion of proceedings within a year, with a reduced scope of interference in the possible Section 34 proceedings at the instance of either party, but the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and causes of action arising therefrom goes beyond the arbitration agreement. 7.3. Learned Counsel has further submitted that the supplementary agreement dated 07.04.2005 is ancillary to original agreement dated 07.04.2005 executed between the appellant and respondent No. 1 but, the said tripartite agreement does not have any ancillary relationship with the main agreement and the tripartite agreement having Bank of Baroda as a party is independent of the original agreement. 7.4. Learned counsel also highlighted the amendment in the Act of 2015, wherein Section 8 was amended envisaging that if the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. However, if the judicial authority concludes that the agreement does not exist, then the conclusion will be final and not prima facie. The amendment also envisages that there shall be a conclusive determination as to whether the arbitration agreement is null and void. 7.5. Learned counsel has also placed reliance on S.N. Prasad v. Monnet Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation unless it finds that prima facie no valid arbitration agreement exists. (2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof: Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court. (3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made. 10. In the case of Sukanya Holdings (supra), while dealing with the question of applicability of Section 8 of the Act, as then existing, this Court underscored the requirements of correlation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the parties have agreed to refer and which comes within the ambit of arbitration agreement. Where, however, a suit is commenced as to a matter which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, there is no question of application of Section 8. The words a matter indicate that the entire subject-matter of the suit should be subject to arbitration agreement. 16. The next question which requires consideration is even if there is no provision for partly referring the dispute to arbitration, whether such a course is possible under Section 8 of the Act. In our view, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action, that is to say, the subject-matter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act. If bifurcation of the subject-matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course. Since there is no such in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the decision in Sukanya Holdings (supra) was also taken into consideration. In that regard and with reference to the reliance placed by learned counsel for the respective parties, we may refer to the following observations and enunciations of the Court, in the lead judgment as also in the concurring opinion in the following passages:- 28. Another facet, not highlighted earlier, arises from the dictum in Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya [(2003) 5 SCC 531], a decision upholding rejection of an application under Section 8, on the ground that there is no provision in the Arbitration Act to bifurcate and divide the causes or parties, that is, the subject-matter of the suit/judicial proceedings, and parties to the arbitration agreement. The suit should be in respect of a matter which the parties have agreed to refer and which comes within the ambit of the arbitration agreement. The words a matter , it was interpreted, would indicate that the entire subject-matter of the suit should be subject to arbitration agreement. Bifurcation of subject-matter or causes of action in the suit is not permissible and contemplated. Similarly, the parties to the suit should be bound ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 3 of 2016 and Act 33 of 2019, and the principle of severability and competence-competence, is that the Arbitral Tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. The court has been conferred power of second look on aspects of non-arbitrability post the award in terms of sub-clauses (i), (ii) or (iv) of Section 34(2)(a) or sub-clause (i) of Section 34(2)(b) of the Arbitration Act. 154.4. Rarely as a demurrer the court may interfere at Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably nonarbitrable and to cut off the deadwood. The court by default would refer the matter when contentions relating to non-arbitrability are plainly arguable; when consideration in summary proceedings would be insufficient and inconclusive; when facts are contested; when the party opposing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to arbitration or to appoint an arbitrator, as the case may be, unless a party has established a prima facie (summary findings) case of nonexistence of valid arbitration agreement, by summarily portraying a strong case that he is entitled to such a finding. 244.4. The court should refer a matter if the validity of the arbitration agreement cannot be determined on a prima facie basis, as laid down above i.e. when in doubt, do refer . 244.5. The scope of the court to examine the prima facie validity of an arbitration agreement includes only: 244.5.1. Whether the arbitration agreement was in writing? or 244.5.2. Whether the arbitration agreement was contained in exchange of letters, telecommunication, etc.? 244.5.3. Whether the core contractual ingredients qua the arbitration agreement were fulfilled? 244.5.4. On rare occasions, whether the subject-matter of dispute is arbitrable? 13. In the case of Oil and Natural Gas Corporation (supra), another 3-Judge Bench of this Court essentially dealt with the group companies doctrine and application of alter ego principle in arbitration making a party not assenting to a contract containing arbitra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m claiming rights under a contract but, at the same time, disavowing the obligation to arbitrate in the same contract. * * * By contrast, the intertwined estoppel theory looks not to whether any benefit was received by the non-signatory, but rather at the nature of the dispute between the signatory and the non-signatory, and, in particular whether the issues the non-signatory is seeking to resolve in arbitration are intertwined with the agreement that the estoppel [signatory party] has signed .the intertwined estoppel theory has as its central aim the perseveration of the efficacy of the arbitration process is clear when one looks at the typical fact pattern of an intertwined estoppel case. [John Fellas, Compelling Signatories to Arbitrate with Non-Signatories , New York Law Journal (28-3-2022)] (emphasis supplied) 40. In deciding whether a company within a group of companies which is not a signatory to arbitration agreement would nonetheless be bound by it, the law considers the following factors: (i) The mutual intent of the parties; (ii) The relationship of a non-signatory to a party which is a signatory to the agreement; (iii) The co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. 23.01.2008 Petitioner and Respondent No. 1 and 2. Petitioner agrees that the title Deeds of the Land will not be transferred to any other party during the pendency of License Agreements executed between M/s A Infrastructure and M/s Gujarat Composite Ltd. Contains No Arbitration Clause. 5. 23.01.2015 Petitioner and Respondent No. 3 Conveyance deed between Petitioner and Respondent No. 3 Contains No Arbitration Clause. 6. 23.01.2015 Petitioner and Respondent No. 4 and 5. Conveyance deed between Petitioner and Respondent No. 4 and 5 Contains No Arbitration Clause. 17. Thus, except the principal agreement dated 07.04.2005, none of the other agreements contained any arbitration clause, even if they related to the same property and also involved the appellant and the respondent No. 1. The later transactions involved other parties too like the tripartite agreement dated 06.07.2006 whereby t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the subject-matter of the suit without reference to the terms of tripartite agreement and without involving the bank- respondent No. 2. This is apart from the fact that the other elements of dispute pertaining to the subsequent purchasers too cannot be resolved in any forum without reference to the tripartite agreement and its amended clause, which did not provide for arbitration. Thus, the ancestry of the tripartite agreement, in the facts of the present case, does not lead to the result desired by the appellant. 18.1. Therefore, even on the principles enunciated in Vidya Drolia (supra), the prayer of the present appellant for reference to arbitration under Section 8 cannot be granted. 19. So far as the propositions based on the memos before the Commercial Court dated 06.12.2017, as filed by the respondent Nos. 3 to 5 (subsequent purchasers) and by the appellant are concerned, the submissions made on that basis do not take the case of the appellant any further. As noticed, in the said memos, the respondent Nos. 3 to 5 purportedly stated that if dispute concerning them was resolved by arbitration proceedings, they were not having any objection thereto. The appellant, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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