2014 (1) TMI 735 - SC - Companies Law

Arbitration Clause Upheld: Parties Directed to Arbitrate Disputes per Agreement

The Supreme Court held that the arbitration clause in the agreement dated January 12, 2002, remained valid and enforceable. The suit seeking an injunction ... Arbitration agreement - Transfer of shares - CLB held to transfer of Respondent's rights to Appellant - High Court held that no transfer of right to be taken place - Can the Arbitration clause under clause 15 of the letter of Agreement dated 12th January, 2002 be invoked by the appellants and whether Clause 7.5 of the subsequent Agreement dated 8th March, 2002 invoking the exclusive jurisdiction of the courts of Calcutta nullify the scope of arbitration as mentioned in the previous agreement dated 12th January, 2002 - Held that:- It is nowhere mentioned in the letter dated 8th March, 2002 that transfer of shares to CPIL instead of CPMC extinguishes the old agreement dated 12th January, 2002 to nullity. In fact, in the letter dated 8th March, 2002, CPMC has been constantly mentioned as a guarantor. It is only to this extent the nature of agreement has changed. CPIL is an affiliate of CPMC. This is to say, that by means of the letter dated 8th March,2002 CPMC becomes a guarantor whereas CPIL becomes the borrower. Therefore, the same does not change the rights and responsibilities of the parties under the agreement dated 12th January, 2002 - agreement dated 12th January, 2002 remains the principal agreement while agreement dated 8th March 2002 remains a supplementary agreement which was meant for restructuring of HPL on urgency - clauses of the subsequent Agreements dated 8th March, 2002 and 30th July, 2004 go to show that there has been no alteration in the nature of rights and responsibilities of the parties involved in the contract. Consequently, there has been no novation of the contract - The phrase ‘this agreement’ means the Agreement dated 8th March, 2002 which is essentially a supplementary Agreement and does not, by any mean, make the Principal Agreement dated 12th January, 2002 subject to the jurisdiction of the Court. Agreements dated 8th March 2002 and 30th July, 2004, read with section 5 of the A&C Act, we are inclined to observe that the Arbitration clause in the Principal Agreement continued to be valid in view of clause no. 6 of the Agreement dated 30th July, 2004 and also by virtue of its mention in different parts of both the supplementary agreements dated 8th March, 2002 and 30th July, 2004. Therefore, the arbitration clause mentioned in Clause 15 of the Arbitration agreement dated January 12, 2002 is valid and the appellant is entitled to invoke the arbitration clause for settling their disputes. Principal Agreement dated 12th January, 2002 continues to be in force with its arbitration clause in place. We have also mentioned, while answering point no. 1, that section 5 of the A&C act will be applicable to Part II of the Act as well. The Agreement dated 12th January, 2002 remains valid and the arbitration clause, with all fours, will be applicable to the parties concerned to get their disputes arbitrated and resolved in the Arbitration as per the Rules of ICC - The respondent no.1 has filed a suit seeking two remedies against the appellants: firstly, that the Arbitration Agreement contained in Clause 15 of the Agreement dated January 12, 2002 is void and/or unenforceable and/or has become inoperative and/or incapable of being performed, and secondly, the respondent no.1 sought permanent injunction restraining the appellant herein from initiating and/ or continuing with the impugned Arbitration proceedings bearing case no. 18582/ARP pursuant to the Impugned Arbitration Agreement contained in clause 15 of the Agreement dated January 12, 2002 and the Request for Arbitration dated March 21, 2012 and the communication dated April 02, 2012 issued by defendant no. 8 in the Arbitration proceedings connected therewith and incidental thereto. Since, we have already held that the arbitration clause is valid, suit filed by the respondent no.1 for declaration and permanent injunction is unsustainable in law and the suit is liable to be dismissed - Decided partly in favour of appellant. Issues Involved:1. Validity and enforceability of the arbitration clause under clause 15 of the agreement dated January 12, 2002.2. Maintainability of the suit filed by the respondents seeking an injunction against arbitration.3. Appropriate order to resolve the dispute.Issue-wise Detailed Analysis:1. Validity and Enforceability of the Arbitration Clause:The primary issue was whether the arbitration clause under clause 15 of the agreement dated January 12, 2002, could be invoked by the appellants, despite clause 7.5 of a subsequent agreement dated March 8, 2002, which invoked the exclusive jurisdiction of the courts of Calcutta.- The court rejected the respondents' argument that the transfer of shares to CPIL instead of CPMC substantially changed the legal rights and responsibilities, resulting in a novation of the contract.- It was noted that the letter dated March 8, 2002, did not state that the transfer of shares to CPIL extinguished the old agreement. Instead, CPMC was mentioned as a guarantor, indicating no change in the rights and responsibilities under the January 12, 2002 agreement.- The court referenced the supplementary agreement dated July 30, 2004, which confirmed that all terms and conditions of the January 12, 2002 agreement remained binding and enforceable.- The court concluded that there was no novation of the contract and that the arbitration clause in the January 12, 2002 agreement remained valid.2. Maintainability of the Suit Seeking Injunction Against Arbitration:The second issue was whether the suit filed by the respondents seeking an injunction against arbitration was maintainable.- The respondents argued that the suit was filed under section 9 of CPC and not section 45 of the A&C Act, relying on the inherent right to bring a suit of a civil nature unless barred by statute.- The court rejected this contention, emphasizing that the arbitration clause in the January 12, 2002 agreement was valid and enforceable, and section 5 of the A&C Act, which limits judicial intervention, applied.- The court also referenced the decision in Chloro Controls India Pvt. Ltd., which allowed for the arbitration of disputes involving non-signatory parties if they were directly affected by the principal agreement.- Consequently, the court held that the suit for injunction against arbitration was unsustainable in law and liable to be dismissed.3. Appropriate Order:The court directed the parties to resolve their disputes through arbitration as per clause 15 of the January 12, 2002 agreement, in accordance with the Rules of ICC.- The court noted that the appellants had already initiated arbitration proceedings and directed the parties to continue with the arbitration process.- The impugned judgment and final order of the High Court of Calcutta were set aside, and the appeal was allowed with no costs.Conclusion:The Supreme Court concluded that the arbitration clause in the agreement dated January 12, 2002, remained valid and enforceable. The suit filed by the respondents seeking an injunction against arbitration was dismissed, and the parties were directed to resolve their disputes through arbitration as per the agreement. The appeal was allowed, setting aside the High Court's judgment.