2014 (1) TMI 830 - SC - Companies Law

Section 45 Limits Composite Arbitration References to Clear Intent and Strong Party Links Only

Chloro Controls (I) P. Ltd. Versus Severn Trent Water Purification Inc. & Ors.

Chloro Controls (I) P. Ltd. Versus Severn Trent Water Purification Inc. & Ors. - 2013 (1) SCC 641, 2012 (10) JT 187 Issues Involved:1. Ambit and Scope of Section 45 of the Arbitration and Conciliation Act, 1996.2. Correctness of the principles enunciated in Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya.3. Reference to arbitration in cases involving multiple agreements with some containing arbitration clauses and others not.4. Permissibility of bifurcation or splitting of parties or causes of action in the absence of specific provisions in the 1996 Act.Analysis:1. Ambit and Scope of Section 45 of the Arbitration and Conciliation Act, 1996:The Court emphasized that Section 45 should be interpreted liberally to favor arbitration, aligning with the legislative intent to encourage international arbitration. The Court noted that Section 45 allows for the reference to arbitration if the arbitration agreement is valid, enforceable, and operative, even if the request for arbitration comes from a party not originally named in the agreement but claiming through or under a signatory party. The Court stated that the phrase 'any person claiming through or under him' extends the scope of Section 45 beyond the signatories to the arbitration agreement, thus allowing non-signatory parties to be referred to arbitration in certain circumstances.2. Correctness of the principles enunciated in Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya:The Court clarified that the principles laid down in Sukanya Holdings, which dealt with Section 8 of the 1996 Act, do not apply to the present case under Section 45. The Court distinguished the facts and legal context of Sukanya Holdings, which involved a partnership dispute, from the present case involving multiple agreements forming a composite transaction. The Court declined to examine the correctness of Sukanya Holdings further, as it was not directly relevant to the issues at hand.3. Reference to arbitration in cases involving multiple agreements with some containing arbitration clauses and others not:The Court held that in cases involving multiple agreements forming a composite transaction, the arbitration clause in the principal agreement could extend to ancillary agreements, even if they do not contain an arbitration clause. The Court emphasized that the intention of the parties to resolve disputes through arbitration should be respected, and a composite reference to arbitration is permissible. The Court noted that the agreements in question were intrinsically inter-linked and formed part of a single transaction, thus supporting the reference to arbitration.4. Permissibility of bifurcation or splitting of parties or causes of action in the absence of specific provisions in the 1996 Act:The Court stated that bifurcation or splitting of parties or causes of action is permissible in exceptional cases where the agreements are part of a composite transaction. The Court highlighted that the judicial authority has the discretion to refer disputes to arbitration while ensuring that the intention of the parties to resolve disputes through arbitration is upheld. The Court also noted that the inherent powers of the court can be exercised to pass appropriate orders in relation to the legal proceedings before it.Conclusion:The Supreme Court upheld the judgment of the Bombay High Court, directing that all disputes arising in the suit and from the agreements between the parties be referred to arbitration in accordance with the Rules of the International Chamber of Commerce (ICC). The Court dismissed the appeals, emphasizing the importance of respecting the parties' intention to resolve disputes through arbitration and the need for a liberal interpretation of Section 45 to promote international arbitration.