Privity of Contract Established, Arbitrator Appointed

The court found privity of contract between the petitioners and the respondent, dismissed the argument regarding compliance with the Companies Act, 1956 by the foreign petitioner company, and directed the appointment of an arbitrator under the Arbitration and Conciliation Act, 1996 to resolve disputes and counter-claims.

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Issues Involved:
1. Privity of contract between the petitioners and the respondent.
2. Compliance with the Companies Act, 1956 by the foreign petitioner company.
3. Appointment of an arbitrator under the Arbitration and Conciliation Act, 1996.

Detailed Analysis:

1. Privity of Contract:
The petitioner No. 1, a wholly owned subsidiary of petitioner No. 2, claims that the respondent failed to perform under the agreement dated 7-1-1999. The respondent objected, stating there was no privity of contract with petitioner No. 1 as the agreement was executed between the respondent and petitioner No. 2. However, the court found that the agreement and subsequent communications indicated that the respondent had dealt with both petitioners. The agreement explicitly mentioned the involvement of petitioner No. 1, and the respondent had received payments through petitioner No. 1's Chartered Accountant. Thus, the court concluded that there was indeed privity of contract between the petitioners and the respondent.

2. Compliance with the Companies Act, 1956:
The respondent argued that petitioner No. 2, being a foreign company, had an established place of business in India through its attorney, Mr. Kuldip Nar, and had not complied with Part II of the Companies Act, 1956, specifically section 599, which restricts unregistered foreign companies from suing. The court clarified that merely appointing a constituted attorney does not imply having an established place of business. The court referred to sections 591 and 592, emphasizing that an established place of business means a permanent and specific location where the company habitually conducts business. Since petitioner No. 2 did not have such a place at the time of signing the contract, it was not required to comply with Part II of the Companies Act.

3. Appointment of an Arbitrator:
The petitioners sought the appointment of an arbitrator due to the respondent's failure to appoint one despite notice. Clause 15 of the agreement mandated arbitration under the Arbitration and Conciliation Act, 1996. The court noted that the arbitration clause covered disputes related to the agreement, and the respondent's failure to appoint an arbitrator justified the petition. The court also referenced Supreme Court decisions in Nimet Resources Inc. v. Essar Steels Ltd. and Konkan Railway Corporation Ltd. v. Mehul Construction Co., which supported the arbitrator's authority to rule on its jurisdiction and the existence of the arbitration agreement.

Conclusion:
The court allowed the petition, finding that there was privity of contract between the petitioners and the respondent, and that petitioner No. 2 was not required to comply with Part II of the Companies Act as it had no established place of business in India at the time of signing the contract. The court directed the appointment of an arbitrator to adjudicate the disputes and counter-claims raised by both parties.

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