2023 (5) TMI 179 - SC - Indian Laws

Court rules arbitration clause can't extend to new parties, emphasizing need for valid agreements.

GUJARAT COMPOSITE LIMITED Versus A INFRASTRUCTURE LIMITED & ORS.

The Supreme Court upheld the decisions of the Commercial Court and High Court, dismissing the application under Section 8 of the Arbitration and ... Rejection of applications under Section 8 of the Arbitration and Conciliation Act, 1996 - reference of dispute to arbitration of a Sole Arbitrator if mutually agreed - tripartite agreement - dispute beyond the scope of agreement - whether the parties were required to be referred to arbitration by allowing the applications moved by the appellant under Section 8 of the Act of 1996? - HELD THAT:- In the case of Sukanya Holdings [2003 (4) TMI 435 - SUPREME COURT], while dealing with the question of applicability of Section 8 of the Act, as then existing, this Court underscored the requirements of correlation of subject-matter of the suit and subject-matter of the arbitration agreement and, inter alia, held that the suit should be in respect of “a matter” which 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. 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. Kamaljeet Singh Ahluwalia [2017 (10) TMI 566 - SUPREME COURT], to the effect that landlord-tenant disputes governed by the provisions of the Transfer of Property Act, 1882 were not arbitrable, was doubted. In the case of Oil and Natural Gas Corporation [2022 (4) TMI 1350 - SUPREME COURT], 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 arbitration clause to be nevertheless bound by the clause if that party is ‘alter ego’ of an entity who is a party to the arbitration agreement. In the case of Intercontinental Hotels Group [2020 (12) TMI 1227 - SUPREME COURT], the Court has essentially proceeded on the enunciation in Vidya Drolia (supra) even while accepting the requirement of constituting larger bench to settle the jurisprudence of the implication of non-stamping or under-stamping on the arbitration agreement. This Court, however, provided that until decision by the larger bench, the matters at pre-appointment stage be not kept pending. Not much of dilation is required in that regard. The submissions made by the appellant with reference to the amendment of Section 8 of the Act of 1996 and the later decisions of this Court in interpretation of the amended Section 8 do not inure to the benefit of the appellant. This is for the simple reason that no such conjunction can be provided to the original licence agreement dated 07.04.2005 and the tripartite agreement involving the Bank dated 06.07.2006 and 23.01.2008, whereby the arbitration clause could be held applicable to the tripartite agreement too. This is apart from the fact that in the frame of the suit and various other reliefs claimed, involving subsequent purchasers too and the allegations of fraud, the dispute cannot be said to be arbitrable at all. The present one cannot be said to be a case involving any “doubt” about non-existence of arbitration agreement in relation to the dispute in question. There being no doubt about non-existence of arbitration agreement in relation to the entire subject-matter of the suit, and when the substantive reliefs claimed in the suits fall outside the arbitration clause in the original licence agreement, the view taken by the High Court does not appear to be suffering from any infirmity or against any principle 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. Issues Involved:1. Arbitrability of the dispute under Section 8 of the Arbitration and Conciliation Act, 1996.2. Validity of the arbitration agreement in the context of multiple related transactions and parties.3. Applicability of the amended Section 8 of the Arbitration and Conciliation Act, 1996.Summary:Issue 1: Arbitrability of the DisputeThe Supreme Court upheld the decisions of the Commercial Court and the High Court, which rejected the application under Section 8 of the Arbitration and Conciliation Act, 1996, to refer the dispute to arbitration. The courts found that the arbitration clause in the original licence agreement dated 07.04.2005 could not be extended to subsequent transactions and agreements involving different parties, including a tripartite agreement with a bank and conveyance deeds with third parties.Issue 2: Validity of the Arbitration AgreementThe courts held that there was no valid arbitration agreement applicable to the entire subject matter of the dispute. The original licence agreement contained an arbitration clause, but the subsequent tripartite agreement and conveyance deeds did not. The courts emphasized that the arbitration agreement could not bind parties who were not signatories to it, and the disputes involving non-parties to the arbitration agreement could not be arbitrated.Issue 3: Applicability of the Amended Section 8The appellant argued that the amended Section 8 of the Arbitration and Conciliation Act, 1996, mandated referral to arbitration unless prima facie no valid arbitration agreement existed. However, the courts found that the dispute involved multiple agreements and parties, some of which did not contain an arbitration clause. The courts concluded that the amendment did not change the requirement that all parties to the dispute must be bound by the arbitration agreement for the matter to be referred to arbitration.ConclusionThe Supreme Court dismissed the appeals, affirming that the disputes in question could not be referred to arbitration due to the lack of a comprehensive arbitration agreement covering all parties and transactions involved. The courts emphasized the necessity of a valid arbitration agreement and the impracticality of bifurcating the dispute for arbitration and judicial resolution.