TaxTMI 
TaxTMI 
2014 (1) TMI 830
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....liation Act, 1996 (for short 'the 1996 Act')? (2) Whether the principles enunciated in the case of Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya [(2003) 5 SCC 531], is the correct exposition of law? (3) Whether in a case where multiple agreements are signed between different parties and where some contain an arbitration clause and others don't and further the parties are not identically common in proceedings before the Court (in a suit) and the arbitration agreement, a reference of disputes as a whole or in part can be made to the arbitral tribunal, more particularly, where the parties to an action are claiming under or through a party to the arbitration agreement? (4) Whether bifurcation or splitting of parties or causes of action would be permissible, in absence of any specific provision for the same, in the 1996 Act? 3. Chloro Controls (India) Private Ltd., the appellant herein, filed a suit on the original side of the High Court of Bombay being Suit No.233 of 2004, for declaration that the joint venture agreements and supplementary collaboration agreement entered into between some of the parties are valid, subsisting and binding. It also sought a direction that the....
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....n taken out by the plaintiff in the suit. 4. Notice of Motion No.778 of 2004 was dismissed by another learned Single Judge of the High Court of Bombay, declining the reference of the suit to an arbitral tribunal vide order dated 8th April, 2004. This order was again assailed in appeal by the defendants in the suit and another Division Bench of the Bombay High Court, vide its judgment dated 4th March, 2010, allowed the Notice of Motion No.778 of 2004 and made reference to arbitration under Section 45 of the 1996 Act. 5. The judgments of the Division Benches, dated 4th March, 2010 and 28th July, 2011, respectively, have been assailed by the respective parties before this Court in the present Special Leave Petitions, being SLP(C) No.8950/2010 and SLP(C) No.26514-15/2011, respectively. Thus, both these appeals shall be disposed of by this common judgment. 6. Before we notice in detail the factual matrix giving rise to the present appeals and the contentions raised, it would be appropriate to illustrate the corporate structure of the companies and the scope of the agreements that were executed between the parties to these proceedings. Corporate Structure of the Companies who....
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.... name and style of Capital Control (India) Pvt. Ltd., with 1,50,000 equity shares of Rs. 10 each and 50 per cent shareholding with each party. These agreements being prior to the merger of Capital Control (Delaware) Co. Inc. with Capital Control Co. Inc. and also prior to the change of name of Capital Control Co. Inc. to Severn Trent Water Purification Inc., 50 per cent of the shares allotted to the foreign collaborators were to be equally divided between Capital Control (Delaware) Co. Inc. and Capital Control Co. Inc. These joint venture agreements were executed between the parties on 16th November, 1995, as already noticed. However, the joint venture company had been incorporated on 14th November, 1995 itself. 10. In the year 1998, Excel Technologies International Corporation came to be acquired by Severn Trent Services (Delaware) Inc. This company was dealing in the manufacture of "Omnipure" and "Sanilec", distinct brands of chlorination products. Later, Excel Technologies entered into a joint venture agreement with De Nora North America Inc. and floated another joint venture company, Severn Trent De Nora LLC in September, 2001 for dealing in the products "Omnipure", "Sanilec....
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....egistered User License Agreement 1. Capital Controls Company Inc., (Colmar) now Severn Trent Water Purification Inc. (Respondent No.1) 2. Capital Controls (India) Private Ltd. (Respondent No.5) No 7. August 1997 Supplementary Collaboration Agreement 1. Capital Controls Company Inc., (Colmar) now Severn Trent Water Purification Inc. (Respondent No.1) 2. Capital Controls (India) Private Ltd. (Respondent No.5) Facts 12. Prior to the formation of the joint venture company, the Chloro Controls Group carried on the business of manufacture and sale of gas chlorination equipments and from 1980 onwards, it developed and commenced the manufacturing of electro-chlorination equipment also. The business was done in the name of "Chloro Controls Equipments Company", a sole proprietary concern of Respondent No.9, Mr. M.B. Kocha and it was the distributor in India for the products of the Capital Controls group for more than a decade prior to the formation of the joint venture. On 1st December, 1988, a letter of intent and a letter of understanding were executed between Capital Controls Company Inc., Colmar, Pennsylvania....
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....lorination equipments. Respondent No.3 is a company incorporated under the Companies Act and engaged in the business of manufacture and marketing of electro-chlorination equipment. In or about the year 1989-90, the said Respondent no.3 was floated as a joint venture in technical and financial collaboration with the De Nora group of Italy which held 51% of the equity share capital of the said respondent. Respondent No.4 is a Private Limited Company incorporated under the Companies Act and carried on business in electro-chlorination equipments. It had a tie-up with an American Company called "Excel Technologies International Inc." which was engaged in the business of electrolytic disinfection equipment. 15. Respondent No.5, i.e., Capital Controls (India) Private Ltd. is a Company incorporated under the Companies Act pursuant to the joint venture agreements dated 16th November, 1995 executed between the appellant and respondent no.9 on the one hand and the respondent nos.1 and 2 on the other. 50 per cent of the share capital of Respondent No.5 is held by the appellant and balance of 50 per cent is held by Respondent No.2. Thus, the appellant and Respondent No.2 are the joint ventur....
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....of that agreement. 19. Now we shall proceed to discuss each of these agreements. Share Holders Agreement 20. The Shareholders Agreement dated 16th November, 1995 was entered into and executed between the Capital Control (Delaware) Co. Inc., respondent No. 2, on the one hand and Chloro Controls (India) Private Ltd., the appellant company run by the Kocha/ Capital Controls group and Mr. M.B. Kocha, respondent No. 9, on the other. As is apparent from the pleadings on record, these two groups had negotiated for starting a joint venture company in India and for this purpose they had entered into the Shareholders Agreement. The main object of this agreement was to float a joint venture company which would be responsible for manufacture, sale and services of the products as defined in the Financial & Technical Know-How License Agreement, in terms of clause 1 of the Agreement. The Agreement was subject to obtaining all necessary approvals, licenses and authorization from the Government of India, as the joint venture company under the name and style of Capital Control India Pvt. Ltd. was to be registered as a company with its office located in India at Bombay and to carry on its bu....
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....undertaken by Chloro Controls under different agreements would cease with immediate effect. In such an eventuality, even the name of the joint venture company was required to be changed and the word 'Capital', either individually or in combination with other words, was to be removed. 21. Two other very material clauses of this Agreement, which require the attention of this Court, are clauses 4 and 30. In terms of clause 4.5, the Kocha Group and their company Chloro Controls were bound not to engage themselves, directly or indirectly, or even have financial interest in the manufacture, sale or distribution of chlorination equipment which were similar to those manufactured by the joint venture company during the term of the Agreement. In terms of clause 30, all or any disputes or differences arising under or in connection with the Agreement between the parties were liable to be settled by arbitration, in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce (for short, the 'ICC'), by three arbitrators designated in conformity with those Rules. The arbitration proceedings were to be held in London, England and were to be governed by and ....
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..... It also provided for the terms of payment. Distributor's orders of products were subject to acceptance by the seller at its offices and the seller reserved his right, at any time, to cease manufacture as well as offering for sale any product and to change the design of product. 24. This distributorship right was non-assignable and was exclusively between the distributor and the seller. The relationship between the parties was agreed to be that of a seller and purchaser. Clause 11 of the Agreement then clearly postulated that the distributor was an independent contractor and not joint venture or partner with an agent or employee of the seller. Clause 13 provided that the Agreement contained the entire understanding between the parties with respect to that subject matter and superseded all negotiations, discussions, promises or agreements, prior to or contemporaneous with this Agreement. 25. Further, this Agreement contained the confidentiality clause as well as the non-competition clause being clauses 16 and 18, respectively. The latter specified that the distributor shall not, directly or indirectly, sell, manufacture or supply products similar to any of the products or eng....
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....nted Mr. Kocha as the Managing Director of the Company for three years commencing from 1st April, 1996. This Managing Directors Agreement spelt out the powers which the Managing Director could exercise and more specifically, under Clause 3, the powers which the Managing Director could exercise only with the prior approval of the Board of Directors of the Joint Venture Company. For instance, under Clause 3 (k), the Managing Director was not entitled to undertake any new business or substantially expand the business contemplated thereunder except with the approval of the Board of Directors. Further, clause 6 contained a non-compete clause requiring Mr. Kocha not to run any similar business for two years after the date of termination of the Agreement. 30. This Agreement also did not contain any arbitration agreement and provided no terms which were not within the contemplation of clause 8.7 of the Shareholders Agreement. Export Sales Agreement 31. Export Sales Agreement was again singed between the Chloro Control India Pvt. Ltd. and Capital Control Co. Inc., the foreign partner to the joint venture. This Agreement, on its bare reading, presupposes the existence and working of....
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.... been entered into and executed between Capital Control Co. Inc. on the one hand and the joint venture company on the other. 33. Under clause 14 of the Shareholders Agreement, it was required of the parties to cause the joint venture company to enter into the Financial and Technical Know-How License Agreement with the Capital Controls under which the latter was to grant the joint venture company the right and license to manufacture the products in India in accordance with the Technical Know-How and other technical information possessed by Capital Controls. Clause 18 of the Principal Agreement also referred to this agreement and postulated that if the Government of India did not grant permission for the terms of foreign collaboration contained in this agreement, even the Principal Agreement, i.e. the Shareholder's Agreement would be liable to be terminated without giving rise to any claim for damages. Both these clauses provided that this Agreement was attached to the Principal Agreement itself and had been referred to as the 'License Agreement', for short. 34. We may refer to certain terms of this agreement which would indicate that the terms and conditions of the Principal A....
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....inding upon the parties unless made in writing and duly executed by both the parties. Appendix I to this agreement recorded the products which the joint venture company was to manufacture. In the event of dispute, the parties were expected to settle it by friendly negotiations, failing which it was to be referred to the ICC, by three Arbitrators designated in conformity with the relevant Rules. Clause 26, the Arbitration clause, read as under:- "Any dispute or difference arising under or in connection with this Agreement, or any breach thereof, which cannot be settled by friendly negotiation and agreement between the parties shall be finally settled by arbitration conducted in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three arbitrators designated in conformity with those Rules. The Arbitration proceedings shall be held in London, England and shall be governed by and subject to English Law. Judgment upon the award rendered may be entered in any court of competent jurisdiction." 37. Clauses 15.1 and 15.2 of the Principal Agreement referred to the Trademark Re....
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....nt venture company to the licensor company. This agreement was terminable on the conditions stipulated in clause 16, which again were similar to the termination clause provided in other agreements. This Agreement did not contain an arbitration clause. Supplementary Collaboration Agreement 39. The last of the documents in this series which requires to be mentioned by the Court is the Supplementary Collaboration Agreement. Any joint venture agreement in India which is in collaboration with a foreign partner can be commenced only after obtaining the permission of the Government of India. The parties herein had already executed a joint venture agreement dated 16th November, 1995. The company obtained the permission of the Government of India vide its letter No. FC-II 830(96)245(96) dated 11th October, 1996 amended on 21st April, 1997. The company then commenced the operation and business of the joint venture company with effect from 1st April, 1997. 40. In the letter by the Government of India dated 11th October, 1996, besides noticing the items of manufacture activity covered by the foreign collaboration agreement, foreign equity participation being 50% and other conditions w....
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.... 43. As we have already noticed under the head 'Corporate Structure', the name of Respondent No. 1, Capital Control Co. Inc. was changed to Severn Trent Water Purification Inc. with effect from 1st April, 2002. Later on, respondent no.2, Capital Control (Delaware) Co. Inc. was merged with the respondent no.1 on 31st March, 2003. Thus, for all purposes and intents, in fact and in law, interest of respondent no.1 and 2 was controlled and given effect to by Severn Trent. 44. On this issue, version of the respondents had been disputed in the earlier round of litigation between the parties where respondent No. 1, Severn Trent Water Purification Co. Inc., USA, had filed a petition for winding up respondent No. 5-Chloro Controls India Pvt. Ltd., the joint venture company, on just and equitable ground under Section 433(j) of the Companies Act. In this petition, specific issue was raised that merger of Capital Controls (Delaware) Co. with Severn Trent was not intimated to the respondent No. 5 company prior to the filing of the arbitration petition by Severn Trent under Section 9 of the 1996 Act as well as that Severn Trent was not a shareholder of the joint venture company and thus had ....
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....tion agreement are valid, subsisting and binding and that the scope of business of the joint venture company included the manufacture, sale, distribution and service of entire range of chlorination equipments including electro- chlorination equipment. An order of injunction was also obtained restraining respondent Nos. 1 and 2 from interfering in any way and/or preventing respondent No.5 from conducting its business of sale of chlorination equipments including electro-chlorination equipment and that they be not permitted to sell their products in India save and except through the joint venture company, in compliance of clause 2.5 of the Financial and Technical Know-How License Agreement read with the Supplementary Collaboration Agreement. Besides this, certain other reliefs have also been prayed for. 48. After the institution of the suit, as already noticed, the respondent Nos.1 and 2 had terminated the joint-venture agreements vide notices dated 23rd January, 2004 and 21st July, 2004. Resultantly, in the amended plaint, specific prayer was made that both these notices were wrong, illegal and invalid; in breach of the joint venture agreements and of no effect; and the joint vent....
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....f the CPC, struck out the name of these parties as being improperly joined, the decision of the High Court would be vitiated in law as these parties admittedly were not parties to the arbitration agreement. 3. On its plain terms, Section 45 of the 1996 Act provides that a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration. The expression 'party' refers to parties to the action or suit. The request for arbitration, thus, has to come from one of the parties to the suit or action or any person claiming through or under him. The Court then can refer those parties to arbitration. The expression 'parties' used under Section 45 would necessarily mean all the parties and not some or any one of them. If the expression 'parties' is not construed to mean all parties to the action and the agreement, it will result in multiplicity of proceedings, frustration of the intended one-stop remedy and may cause further mischief. Judgment of t....
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.... in the present case, out of all the agreements signed between different parties, four agreements, i.e., Managing Director Agreement, International Distributor Agreement, Trademark Registered User Agreement and the Supplementary Collaboration Agreement, have no arbitration clause. Furthermore, different agreements have been signed by different parties and respondent No.9 is not a party to some of the agreements containing/not containing an arbitration clause. In any case, respondent Nos.3 and 4 are not party to any of the Agreements and the cause of action of the appellant against them is limited to the scope of International Distributor Agreement vis-à-vis the products covered under the joint-venture agreement. On these contentions, it is submitted that the judgment of the High Court is liable to be set aside and no reference to arbitral tribunal is possible. Also, the submission is that, within the ambit and scope of Section 45 of the 1996 Act, multiple agreements, where some contain an arbitration clause and others don't, a composite reference to arbitration is not permissible. There has to be clear intention of the parties to refer the dispute to arbitration. 50. M....
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....ing a judgment relatable to Part 1 (Section 8) of the 1996 Act, would not be applicable to the facts of the present case which exclusively is covered under Part II of the 1996 Act. vi) The 1996 Act does not contain any restriction or limitation on reference to arbitration as contained under Section 34 of the 1940 Act and therefore, the Court would be competent to pass any orders as it may deem fit and proper, in the circumstances of a given case particularly with the aid of Section 151 of the CPC. vii) A bare reading of the provisions of Section 3 of the 1961 Act on the one hand and Section 45 of the 1996 Act on the other clearly suggests that change has been brought in the structure and not in the substance of the provisions. Section 3 of the 1961 Act, of course, primarily relates to stay of proceedings but demonstrates that the plaintiff claiming through or under any other person who is a party to the arbitration agreement would be subject to the applications under the arbitration agreement. Thus, the absence of equivalent words in Section 45 of 1996 Act would not make much difference. Under Section 45, the applicant seeking reference can either be a party to the arbitratio....
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....red in any of the specified modes. Subject to the exceptions stated therein, the reference shall be made. 55. The language of Section 45 read with Schedule I of the 1996 Act is worded in favour of making a reference to arbitration when a party or any person claiming through or under him approaches the Court and the Court is satisfied that the agreement is valid, enforceable and operative. Because of the legislative intent, the mandate and purpose of the provisions of Section 45 being in favour of arbitration, the relevant provisions would have to be construed liberally to achieve that object. The question that immediately follows is as to what are the aspects which the Court should consider while dealing with an application for reference to arbitration under this provision. 56. The 1996 Act makes it abundantly clear that Part I of the Act has been amended to bring these provisions completely in line with the UNCITRAL Model Law on International Commercial Arbitration (for short, the 'UNCITRAL Mode Law'), while Chapter I of Part II is meant to encourage international commercial arbitration by incorporating in India, the provisions of the New York Convention. Further, the protoc....
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....art II. 60. Amongst the initial steps, the Court is required to enquire whether the dispute at issue is covered by the arbitration agreement. Stress has normally been placed upon three characteristics of arbitrations which are as follows - (1) arbitration is consensual. It is based on the parties' agreement; (2) arbitration leads to a final and binding resolution of the dispute; and (3) arbitration is regarded as substitute for the court litigation and results in the passing of an binding award. 61. Mr. Nariman, learned senior counsel appearing on behalf of the appellant, contended that in terms of Section 45 of the 1996 Act, parties to the agreement shall essentially be the parties to the suit. A stranger or a third party cannot ask for arbitration. They have to be essentially the same. Further, the parties should have a clear intention, at the time of the contract, to submit any disputes or differences as may arise, to arbitration and then alone the reference contemplated under Section 45 can be enforced. 62. To the contra,....
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....arbitration agreement as well as the substantive contract underlining that agreement. But, it does occasionally happen that the claim is made against or by someone who is not originally named as a party. These may create some difficult situations, but certainly, they are not absolute obstructions to law/the arbitration agreement. Arbitration, thus, could be possible between a signatory to an arbitration agreement and a third party. Of course, heavy onus lies on that party to show that, in fact and in law, it is claiming 'through' or 'under' the signatory party as contemplated under Section 45 of the 1996 Act. Just to deal with such situations illustratively, reference can be made to the following examples in Law and Practice of Commercial Arbitration in England (Second Edn.) by Sir Michael J. Mustill: "1. The claimant was in reality always a party to the contract, although not named in it. 2. The claimant has succeeded by operation of law to the rights of the named party. 3. The claimant has become a part to the contract in substitution for the named p....
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....ould serve the ends of justice. Once this exercise is completed and the Court answers the same in the affirmative, the reference of even non-signatory parties would fall within the exception afore-discussed. 69. In a case like the present one, where origin and end of all is with the Mother or the Principal Agreement, the fact that a party was non-signatory to one or other agreement may not be of much significance. The performance of any one of such agreements may be quite irrelevant without the performance and fulfillment of the Principal or the Mother Agreement. Besides designing the corporate management to successfully complete the joint ventures, where the parties execute different agreements but all with one primary object in mind, the Court would normally hold the parties to the bargain of arbitration and not encourage its avoidance. In cases involving execution of such multiple agreements, two essential features exist; firstly, all ancillary agreements are relatable to the mother agreement and secondly, performance of one is so intrinsically inter- linked with the other agreements that they are incapable of being beneficially performed without performance of the others or ....
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....ay be possible and permissible to construe the arbitration agreement with the aid and principle of 'incorporation by reference'. Though the New York Convention is silent on this matter, in common practice, the main contractual document may refer to standard terms and conditions or other standard forms and documents which may contain an arbitration clause and, therefore, these terms would become part of the contract between the parties by reference. The solution to such issue should be case-specific. The relevant considerations to determine incorporation would be the status of parties, usages within the specific industry, etc. Cases where the main documents explicitly refer to arbitration clause included in standard terms and conditions would be more easily found in compliance with the formal requirements set out in the Article II of the New York Convention than those cases in which the main contract simply refers to the application of standard forms without any express reference to the arbitration clause. For instance, under the American Law, where standard terms and conditions referred to in a purchase order provided that the standard terms would have been attached to or form part....
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....o give meaning to the incorporation clause and to give effect to the same and not to invalidate or frustrate it giving a literal, pedantic and technical reading of the clause. If on a construction of the arbitration clause of the Charter Party Agreement as incorporated in the Bill of Lading it does not lead to inconsistency or insensibility or absurdity then effect should be given to the intention of the parties and the arbitration clause as agreed should be made binding on parties to the Bill of Lading. If the parties to the Bill of Lading being aware of the arbitration clause in the Charter Party Agreement have specifically incorporated the same in the conditions of the Bill of Lading then the intention of the parties to abide by the arbitration clause is clear. Whether a particular dispute arising between the parties comes within the purview of the arbitration clause as incorporated in the Bill of Lading is a matter to be decided by the arbitrator or the court. But that does not mean that despite incorporation of the arbitration clause in the Bill of Lading by specific reference the parties had not intended that the disputes arising on the Bill of Lading should be resolved by an....
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....h the general arbitration provision in clause 39 of the main agreement and the arbitration provision for a named arbitrator contained in clause 5 of the Interior Design Agreement can be harmonised or reconciled. Therefore, in a case like the present where the disputes and differences cover the main agreement as well as the Interior Design Agreement, - (that there are disputes arising under the main agreement and the Interior Design Agreement is not in dispute) - it is the general arbitration clause 39 in the main agreement that governs because the questions arise also in regard to disputes relating to the overlapping items in the schedule to the main agreement and the Interior Design Agreement, as detailed earlier. There cannot be conflicting awards in regard to items which overlap in the two agreements. Such a situation was never contemplated by the parties. The intention of the parties when they incorporated clause 39 in the main agreement and clause 5 in the Interior Design Agreement was that the former clause was to apply to situations when there were disputes arising under both agreements and the latter was to apply to a situation where there were no disputes or differences ar....
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....tive or incapable of being performed. These expressions have to be construed somewhat strictly so as to ensure that the Court returns a finding with certainty and on the correct premise of law and fact as it has the effect of depriving the party of its right of reference to arbitration. But once the Court finds that the agreement is valid then it must make the reference, without any further exercise of discretion {refer General Electric Co. v. Renusagar Power Co. [(1987) 4 SCC 137]}. These are the issues which go to the root of the matter and their determination at the threshold would prevent multiplicity of litigation and would even prevent futile exercise of proceedings before the arbitral tribunal. 77. The issue of whether the courts are empowered to review the existence and validity of the arbitration agreement prior to reference is more controversial. A majority of the countries admit to the positive effect of kompetenz kompetenz principle, which requires that the arbitral tribunal must exercise jurisdiction over the dispute under the arbitration agreement. Thus, challenge to the existence or validity of the arbitration agreement will not prevent the arbitral tribunal from ....
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....tral process is based upon the agreement of the parties. 80. Where there is multi-party arbitration, it may be because there are several parties to one contract or it may be because there are several contracts with different parties that have a bearing on the matter in dispute. It is helpful to distinguish between the two. Where there are several parties to one contract, like a joint venture or some other legal relationship of similar kind and the contract contains an arbitration clause, when a dispute arises, the members of the consortium or the joint venture may decide that they would each like to appoint an arbitrator. In distinction thereto, in cases involving several contracts with different parties, a different problem arises. They may have different issues in dispute. Each one of them will be operating under different contracts often with different choice of law and arbitration clauses and yet, any dispute between say the employer and the main contractor is likely to involve or affect one or more of the suppliers or sub-contractors, even under other contracts. What happens when the dispute between an employer and the main contractor is referred to arbitration, and the mai....
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....ounsel appearing for the appellant, that the provisions of Section 45 of the 1996 Act are somewhat similar to Article II(3) of the New York Convention and the expression 'parties' in that Section would mean that 'all parties to the action' before the Court have to be the parties to the arbitration agreement. If some of them are parties to the agreement, while the others are not, Section 45 does not contemplate the applicable procedure and the status of the non-signatories. The consequences of all parties not being common to the action and arbitration proceedings are, as illustrated above, multiplicity of proceedings and frustration of the intended 'one stop action'. The Rule of Mischief would support such interpretation. Even if some unnecessary parties are added to the action, the Court can always strike out such parties and even the cause of action in terms of the provisions of the CPC. However, where such parties cannot be struck off, there the proceedings must continue only before the Court. 84. Thus, the provisions of Section 45 cannot be effectively applied or even invoked. Unlike Section 24 of the 1940 Act, under the 1996 Act the Court has not been given the power to refe....
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....it is not possible to accept the contention of the appellant that all the parties to an action have to be parties to the arbitration agreement as well as the Court proceedings. This would be opposed to the principle that parties should be held to their bargain of arbitration. The Court always has the choice to make appropriate orders in exercise of inherent powers to bifurcate the reference or even stay the proceedings in a suit pending before it till the conclusion of the arbitration proceedings or otherwise. According to Mr. Salve, if the interpretation advanced by Mr. Nariman is accepted, then mischief will be encouraged which would frustrate the arbitration agreement because a party not desirous of going to arbitration would initiate civil proceedings and add non-signatory as well as unnecessary parties to the suit with a view to avoid arbitration. This would completely frustrate the legislative object underlining the 1996 Act. Non-signatory parties can even be deemed to be parties to the arbitration agreement and may successfully pray for referral to arbitration. 88. As noticed above, the legislative intent and essence of the 1996 Act was to bring domestic as well as intern....
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....islative object and the intent of the framers of the statute, i.e., the necessity to encourage arbitration, the Court is required to exercise its jurisdiction in a pending action, to hold the parties to the arbitration clause and not to permit them to avoid their bargain of arbitration by bringing civil action involving multifarious cause of action, parties and prayers. Legal Relationship 92. Now, we should examine the scope of concept of 'legal relationship' as incorporated in Article II(1) of the New York Convention vis-à-vis the expression 'any person claiming through or under him' appearing in Section 45 of the 1996 Act. Article II(1) and (3) have to be read in conjunction with Section 45 of the Act. Both these expressions have to be read in harmony with each other. Once they are so read, it will be evident that the expression "legal relationship" connotes the relationship of the party with the person claiming through or under him. A person may not be signatory to an arbitration agreement, but his cause of action may be directly relatable to that contract and thus, he may be claiming through or under one of those parties. It is also stated in the Law and Practice o....
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....ation of London was not party to the arbitration agreement, but the relevant party is the United Kingdom Government. The fact that in certain circumstances, the State may be responsible under international law for the acts of one of its local authorities, or may have to take steps to redress wrongs committed by one of the local authorities, does not make the local authority a party to the arbitration agreement. 95. Having examined both the above-stated views, we are of the considered opinion that it will be the facts of a given case that would act as precept to the jurisdictional forum as to whether any of the stated principles should be adopted or not. If in the facts of a given case, it is not possible to construe that the person approaching the forum is a party to the arbitration agreement or a person claiming through or under such party, then the case would not fall within the ambit and scope of the provisions of the section and it may not be possible for the Court to permit reference to arbitration at the behest of or against such party. 96. We have already referred to the judgments of various courts, that state that arbitration could be possible between a signatory to a....
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....eory includes the legal doctrines of agent- principal relations, apparent authority, piercing of veil (also called the "alter ego"), joint venture relations, succession and estoppel. They do not rely on the parties' intention but rather on the force of the applicable law. 101. We may also notice the Canadian case of The City of Prince George v. A.L. Sims & Sons Ltd. [YCA XXIII (1998), 223] wherein the Court took the view that an arbitration agreement is neither inoperative nor incapable of being performed if a multi-party dispute arises and not all parties are bound by the arbitration agreement: the parties bound by the arbitration agreement are to be referred to arbitration and court proceedings may continue with respect to the other parties, even if this creates a risk of conflicting decisions. 102. We have already discussed that under the Group of Companies Doctrine, an arbitration agreement entered into by a company within a group of companies can bind its non-signatory affiliates, if the circumstances demonstrate that the mutual intention of the parties was to bind both the signatory as well as the non-signatory parties. 103. The question of formal validity of the arb....
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....ted for its management. If one manages it well, one must know what goods the said company is to produce and with what technical knowhow. Even if these requisites are satisfied, then also one is required to know, how to create market, distribute and export such goods. It is nothing but one single chain consisting of different components. The parties may choose to sign different agreements to effectively implement various aforementioned facets right from managing to making profits in a joint venture company. A party may not be signatory to an agreement but its execution may directly be relatable to the main contract even though he claims through or under one of the main party to the agreement. In such situations, the parties would aim at achieving the object of making their bargain successful, by execution of various agreements, like in the present case. 106. The New York Convention clearly postulates that there should be a defined legal relationship between the parties, whether contractual or not, in relation to the differences that may have arisen concerning the subject matter capable of settlement of arbitration. We have referred to a number of judgments of the various courts t....
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....power of the arbitrator in face of the arbitration agreement. In the case of Taunton-Collins (supra), the Court again expressed the view that it was undesirable that there should be two proceedings before two different tribunals, i.e., the official referee and an Arbitrator, as they may reach inconsistent findings. 110. This Court dealt with the provisions of the 1940 Act, in the case of Anderson Wright Ltd. v. Moran & Company [1955 SCR 862], and described the conditions to be satisfied before a stay can be granted in terms of Section 34 of the 1940 Act. The Court also held that it was within the jurisdiction of the Court to determine a question whether the plaintiff was a party to the contract containing the arbitration clause or not. Still in the case of Sumitomo Corporation (supra), this Court primarily declined the reference to arbitration for the reason that the disputes stated in the petition did not fall within the ambit of the arbitration clause contained in the agreement between the parties and also that the Joint Venture Agreement did not itself contain a specific arbitration clause. An observation was also made in paragraph 20 of the judgment that the 'party' would me....
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....pter dealing with definitions and would have to be construed along with the other relevant provisions of the Act. When we read Section 45 in light of Section 2(h), the interpretation given by the Court in the case of Sumitomo Corporation (supra) does not stand to the test of reasoning. Section 45 in explicit language permits the parties who are claiming through or under a main party to the arbitration agreement to seek reference to arbitration. This is so, by fiction of law, contemplated in the provision of Section 45 of the 1996 Act. 113. We have already discussed above that the language of Section 45 is incapable of being construed narrowly and must be given expanded meaning to achieve the twin objects of arbitration, i.e., firstly, the parties should be held to their bargain of arbitration and secondly, the legislative intent behind incorporating the New York Convention as part of Section 44 of the Act must be protected. Moreover, paragraph 20 of the judgment of Sumitomo Corporation (supra) does not state any principle of law and in any event it records no reasons for arriving at such a conclusion. In fact, that was not even directly the issue before the Court so as to operat....
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....ief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary. We think that adoption of this procedure in the context of the Act would best serve the purpose sought to be achieved by the Act of expediting the process of arbitration, without too many approaches to the court at various stages of the proceedings before the Arbitral Tribunal." 115. This aspect of the arbitration law was explained by a two Judge Bench of this Court in the case of Shree Ram Mills Ltd. v. Utility Premises (P) Ltd. [(2007) 4 SCC 599] wherein, while referring to the judgment in SBP & Co. (supra) particularly the above paragraph, this Court held that the scope of order under Section 11 of the 1996 Act would take in its ambit the issue regarding territorial jurisdiction and the existence of the arbitration agreement. The Court noticed that if these issues are not decided by the Chief Justice or his designate, there would be no question of proceeding with the arbitration. It held as under: "27...Thus, the Chief Justice has to decide about the territ....
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.... the Chief Justice may not decide certain issues finally and upon recording satisfaction that prima facie the issue has not become dead even leave it for the arbitral tribunal to decide. 117. In National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd. [(2009) 1 SCC 267], another equi-bench of this Court after discussing various judgments of this Court, explained SBP & Co. (supra) in relation to scope of powers of the Chief Justice and/or his designate while exercising jurisdiction under Section 11(6), held as follows : "22. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. This Court identified and segregated the preliminary issues that may arise for consideration in an application under Section 11 of the Act into three categories, that is, (i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide. 22.1. The is....
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....ibunal. 119. The above expressions are mere observations of the Court and do not fit into the contours of the principle of ratio decidendi of the judgment. The issues in regard to validity or existence of the arbitration agreement, the application not satisfying the ingredients of Section 11(6) of the 1996 Act and claims being barred by time etc. are the matters which can be adjudicated by the Chief Justice or his designate. Once the parties are heard on such issues and the matter is determined in accordance with law, then such a finding can only be disturbed by the Court of competent jurisdiction and cannot be reopened before the arbitral tribunal. In SBP & Co. (supra), the Seven Judge Bench clearly stated, "the finality given to the order of the Chief Justice on the matters within his competence under Section 11 of the Act are incapable of being reopened before the arbitral tribunal". Certainly the Bench dealing with the case of Shree Ram Mills (supra) did not intend to lay down any law in direct conflict with the Seven Judge Bench judgment in SBP & Co. (supra). In the reasoning given in Shree Ram Mills' case, the Court has clearly stated that matters of existence and binding ....
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....ll be hit by the doctrine of staire decisis. In the case of the Shri Ram Mills (supra) surely the Bench did not intend to lay down the law or state a proposition which is directly in conflict with the judgment of the Constitution Bench of this Court in the case of SBP & Co. (supra). 123. We have no reason to differ with the classification carved out in the case of National Insurance Co. (supra) as it is very much in conformity with the judgment of the Constitution Bench in the case of SBP (supra). The question that follows from the above discussion is as to whether the views recorded by the judicial forum at the threshold would be final and binding on the parties or would they constitute the prima facie view. This again has been a matter of some debate before this Court. A three Judge Bench of this Court in the case of Shin-Etsu Chemical Co. Ltd. v. M/s. Aksh Optifibre Ltd. & Anr. [(2005) 7 SCC 234] was dealing with an application for reference under Section 45 of the 1996 Act and consequently, determination of validity of arbitration agreement which contained the arbitration clause governed by the ICC Rules in Tokyo, Japan. The appellant before this Court had terminated the agr....
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....eliberating upon the approaches of different courts under the English and the American legal systems, stated that both the approaches have their own advantages and disadvantages. The approach whereby the courts finally decide on merits in relation to the issue of existence and validity of the arbitration agreement would result to a large extent in avoiding delay and increased cost. It would not be for the parties to wait for months or years before knowing the final outcome of the disputes regarding jurisdiction alone. Then, he held as follows : "56. I am of the view that the Indian Legislature has consciously adopted a conventional approach so as to save the huge expense involved in international commercial arbitration as compared to domestic arbitration. 57. In view of the aforesaid discussion, I am of the view that under Section 45 of the Act, the determination has to be on merits, final and binding and not prima facie." 125. However, Srikrishna, J. took a somewhat different view and noticing the truth that there is nothing in Section 45 to suggest that a finding as to the nature of the arbitration agreement ha....
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....judgment of this Court in Shin-Etsu Chemical Co. Ltd. (supra) preceded the judgment of this Court in the case of SBP & Co. (supra). Though the Constitution Bench in the latter case referred to this judgment in paragraph 89 of the judgment but did not discuss the merits or otherwise of the case presumably for absence of any conflict. However, as already noticed, the Court clearly took the view that the findings returned by the Chief Justice while exercising his judicial powers under Section 11 relatable to Section 8 are final and not open to be questioned by the arbitral tribunal. Sections 8 and 45 of the 1996 Act are provisions independent of each other. But for the purposes of reference to arbitration, in both cases, the applicant has to pray for a reference before the Chief Justice or his designate in terms of Section 11 of the 1996 Act. We may refer to the exact terminology used by the larger Bench in SBP & Co. (supra) in relation to the finality of such matters, as reflected in para 12 of the judgment which reads as under : "12. Section 16 of the Act only makes explicit what is even otherwise implicit, namely, that the Arbitra....
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.... to say that in spite of the finality conferred by sub-section (7) of Section 11 of the Act, to such a decision of the Chief Justice, the Arbitral Tribunal can still go behind that decision and rule on its own jurisdiction or on the existence of an arbitration clause. It also appears to us to be incongruous to say that after the Chief Justice had appointed an Arbitral Tribunal, the Arbitral Tribunal can turn round and say that the Chief Justice had no jurisdiction or authority to appoint the Tribunal, the very creature brought into existence by the exercise of power by its creator, the Chief Justice. The argument of the learned Senior Counsel, Mr K.K. Venugopal that Section 16 has full play only when an Arbitral Tribunal is constituted without intervention under Section 11(6) of the Act, is one way of reconciling that provision with Section 11 of the Act, especially in the context of sub-section (7) thereof. We are inclined to the view that the decision of the Chief Justice on the issue of jurisdiction and the existence of a valid arbitration agreement would be binding on the parties when the matter goes to the Arbitral Tribunal and at subsequent stages of the proceeding except in ....
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.... Section 45, at the threshold itself. It is expected of the Court to answer the question of validity of the arbitration agreement, if a plea is raised that the agreement containing the arbitration clause or the arbitration clause itself is null and void, inoperative or incapable of being performed. Such determination by the Court in accordance with law would certainly attain finality and would not be open to question by the arbitral tribunal, even as per the principle of prudence. It will prevent multiplicity to litigation and re-agitating of same issues over and over again. The underlining principle of finality in Section 11(7) would be applicable with equal force while dealing with the interpretation of Sections 8 and 45. Further, it may be noted that even the judgment of this Court in SBP & Co. (supra) takes a view in favour of finality of determination by the Court despite the language of Section 16 in Part I of the 1996 Act. Thus, there could hardly be any possibility for the Court to take any other view in relation to an application under Section 45 of the 1996 Act. Since, the categorization referred to by this Court in the case of National Insurance Company Ltd. (supra) is f....
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....the arbitration law in India contained the provision like Section 34 of the 1940 Act which was somewhat similar to Section 4 of the English Arbitration Act, 1889, this Court in the case of Anderson Wright Ltd. (supra) took the view that while dealing with the question of grant or refusal of stay as contemplated under Section 34 of the 1940 Act, it would be incumbent upon the Court to decide first of all whether there is a binding agreement for arbitration between the parties to the suit or not. Applying the analogy thereof will fortify the view that determination of fundamental issues as contemplated under Section 45 of the 1996 Act at the very first instance by the judicial forum is not only appropriate but is also the legislative intent. Even, the language of Section 45 of the 1996 Act suggests that unless the Court finds that an agreement is null and void, inoperative and incapable of being performed, it shall refer the parties to arbitration. Correctness of Law stated in Sukanya 132. Though rival contentions have been raised before us on the correctness of the judgment of this Court in Sukanya Holdings Pvt. Ltd. (supra), Mr. Salve vehemently tried to persuade us to hold t....
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....greement to deal with the manufacture, distribution and sale of gas chlorination equipment and electro- chlorination equipment, "Hypogen Series 3300" etc. On this basis, they had entered into a joint venture agreement which was signed between them. The joint venture agreement contemplated that the business shall be carried on under the name and style of Capital Controls India Ltd. Private Limited. The agreements gave 50 per cent shareholding to the foreign collaborators which were to be equally divided between Capital Control (Del) Company Inc. and Capital Control Company Inc. These joint venture agreements were executed between the parties on 16th November, 1995 but the joint venture company had been incorporated on 14th November, 1995 itself. Severn Trent Services (Del) Inc. is the holding company of the companies which have entered into the joint venture agreement for floating both, the Capital Control India Ltd. as well as Severn Trent De Nora LLC. The disputes had arisen actually between the Kocha Group on the one hand and Severn Trent Water Purification Inc. on the other, and the disputes were mainly with regard to Capital Control (India) Pvt. Ltd. Inc. Now, we must note, eve....
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....orination equipments. The company was to be registered and as is evident, in furtherance to the negotiations, steps for registration of the said company had been taken and finally it came to be incorporated on 14th November, 1995. The main object of the joint venture company was the manufacture, service and sale of the products. In terms of the Principal Agreement, establishment of a plant, management of the company, appointment of Directors, implementation of decisions of the Board of Directors, appointment or re-appointment of the Managing Director, dividend policy, loans, financial information, trademarks, transfer of shares, sale-purchase of chlorination equipment, assets, government approvals, performance of Chloro Controls, trademark, service of notices, modifications, severability and arbitration, settlement of disputes by arbitration etc. were the matters specifically provided for under this agreement. A very significant feature of this contract was that the Kocha Group was put under an injunction to not engage directly or indirectly or be financially interested in the manufacture, sale or distribution of chlorination equipment and related products, which is similar to thos....
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.... agreed terms could only be fulfilled by performance of the ancillary agreements. If one segregates the Principal Agreement from the rest, the subsequent agreements would be rendered ineffective. If the agreed goods were not manufactured in India with the technical know- how of the respondent No. 1 company and the joint venture company was not incorporated, the question of the Distribution Agreement, Managing Director Agreement, Financial and Technical Know-How License Agreement or the Export Sales Agreement would not have even arisen, in any event. Conversely, if the ancillary agreements were not performed in a collective manner, the Principal Agreement would be of no consequence. In other words, it was one composite transaction for attaining the purpose of business of the joint venture company. All these agreements are so intrinsically connected to each other that it is neither possible nor probable to imagine the execution and implementation of one without the collective performance of all the other agreements. The intention of the parties was clear that all these agreements were being executed as integral parts of a composite transaction. It can safely be covered under the prin....
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....face of intention of the parties appearing from the written documents on record. Once the Principal Agreement was signed, all other agreements had to be executed by or in favour of the joint venture company. That is how to all these other agreements the joint venture company i.e. Capital Control India Pvt. Ltd. is a party. It further completely supports the view that non-mentioning of the name of Capital Control India Pvt. Ltd. can hardly affect the findings of the Court. With regard to the management of the joint venture company and implementation of the Principal Agreement, the parties had entered into the Managing Director Agreement dated 16th November, 1995. This agreement was signed by each of the concerned partners i.e. by Capital Control India Pvt. Ltd., respondent No. 5 and the Kocha Group, respondent No. 9. This agreement provided as to how the Managing Directors were to be appointed or reappointed and how the meeting of the Board of Directors of the company were to be conducted in accordance with law and the terms of the Mother Agreement. This agreement came to be signed between the joint venture company and the Kocha Group. 141. Other aspect of performance of the Prin....
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....ion of law that we have indicated above, we will have no hesitation in holding that these companies claim their interest and invoke the terms of the agreement or defend the action in the capacity of a 'party claiming through or under' the parties to the agreement. ARBITRATION 144. When we refer to all the six relevant agreements in relation to the arbitration clause, the Shareholders Agreement, the Financial and Technical Know-How License Agreement and the Export Sales Agreement contained the arbitration clause while the other three agreements, i.e., International Distributor Agreement, the Managing Director's Agreement and the Trademark Registered User License Agreement did not contain any such arbitration clause. The arbitration clause contained in the Principal Agreement in clause 30 has been reproduced above. It requires that any dispute or difference arising under or in connection with that agreement which could not be settled by friendly negotiation and agreement between the parties, would be finally settled by arbitration conducted in accordance with the Rules of ICC. This clause is widely worded. It is comprehensive enough to include the disputes arising 'under and in....
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....s. The interest of Capital Controls Company Inc. and that of the Capital Control India Private Ltd., to the extent of the former's share, were common. Furthermore, this being an integral part of the Principal Agreement would, in our opinion, be squarely covered by the arbitration clause contained in the Mother/Shareholders Agreement. This agreement has been specifically referred in clause 7 of the Mother/Shareholders Agreement. Not only that there is incorporation by reference of International Distribution Agreement in the Mother/Shareholders Agreement but, in fact, it is an integral part thereof. 147. Another aspect of the case is that all these agreements were executed simultaneously on 16th November, 1995 which fact fully supports the view that the parties intended to have all these agreements as a composite transaction. Furthermore, when the parties signed the Supplementary Collaboration Agreement in August 1997, by that time all these agreements had not only been signed and understood by the parties but, in fact, had also been acted upon. 148. In the Supplementary Collaboration Agreement, the parties re- confirmed the existence of the joint venture agreement dated 16th N....
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....urt system. Discussion on this argument may not be greatly relevant in view of the above discussion in this judgment. This being a composite transaction, the parties could opt for any remedy. 152. In the present case, we have already noticed, that some agreements contain the arbitration clause, while others don't. The Shareholders Agreement, Financial and Technical Knowhow Licence Agreement and Export Sales Agreement contain the arbitration clause, while the International Distributor Agreement, Managing Directors Agreement and Trade Mark Registered User Agreement do not contain the arbitration clause. The arbitration clause contained under clause 30 of the Shareholders Agreement and that under clause 26 of the Financial and Technical Knowhow Licence Agreement are identical. They both require the disputes to be referred to arbitration in London as per the ICC Rules. However, the arbitration clause contained in clause 18 of the Export Sales Agreement provides for reference of the disputes to arbitration at Pennsylvania, USA, in accordance with rules of American Arbitration Association. It also provides that the judgment upon the Award rendered could be entered in any court of comp....
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....not only to refer all their disputes arising under the agreement which could not be settled despite friendly negotiations to arbitration, but even the disputes which arose in connection with the shareholder/mother agreement to arbitration. 156. Thus, a composite reference was well within the comprehension of the parties to various agreements which were executed on the same day and for the same purpose. There cannot be any doubt to the contention that in terms of Section 9 of the CPC, the courts in India shall have jurisdiction to try all suits of civil nature. Further, this section gives a right to a person to institute a suit before the court of competent jurisdiction. However, the language of Section 9 itself makes it clear that the civil courts have jurisdiction to try all suits of civil nature except the suits of which taking cognizance is either expressly or impliedly barred. In other words, the jurisdiction of the court and the right to a party emerging from Section 9 of the CPC is not an absolute right, but contains inbuilt restrictions. It is an accepted principle that jurisdiction of the court can be excluded. In the case of Dhulabhai v. State of M.P. and Anr. [AIR 1969....
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.... dispute under the contract and not repugnant to any term thereof. All these three conditions are satisfied in the present case. 160. The terms and conditions of the International Distribution Agreement were an integral part of the Principal Agreement as Appendix II and the Principal Agreement had an arbitration clause which was wide enough to cover disputes in all the ancillary agreements. It is not necessary for us to examine the choice of forum or legal enforceability of legal system in the present case, as we find no repugnancy even where the main contract is governed by law of some other country and the arbitration clause by Indian law. They both could be invoked, neither party having invoked the former will be no bar for invocation of the latter in view of arbitration clause 30 of the mother agreement. 161. Reliance was also placed on the judgment of this Court in the case of Deutsche Post Bank Home Finance Ltd. v. Taduri Sridhar [AIR 2011 SC 1899] where the Court had declined reference of multiple and multi party agreement. That case is of no help to the appellant before us. In that case, there were four parties, the seller of the land, the builder, purchaser of the fl....
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.... for us to deliberate on this issue, because respondent Nos. 3 and 4 had already consented for arbitration. In light of that fact, we do not wish to decide this question on the facts of the present case. 166. Having dealt with all the relevant issues in law, now we would provide answer to the questions framed by us in the beginning of the judgment as follows : Answer 167. Section 45 is a provision falling under Chapter I of Part II of the 1996 Act which is a self-contained Code. The expression 'person claiming through or under' would mean and take within its ambit multiple and multi-party agreements, though in exceptional case. Even non-signatory parties to some of the agreements can pray and be referred to arbitration provided they satisfy the pre-requisites under Sections 44 and 45 read with Schedule I. Reference of non-signatory parties is neither unknown to arbitration jurisprudence nor is it impermissible. 168. In the facts of a given case, the Court is always vested with the power to delete the name of the parties who are neither necessary nor proper to the proceedings before the Court. In the cases of group companies or where various agreements constitute a compo....