TaxTMI 
TaxTMI 
2024 (9) TMI 688
X X X X Extracts X X X X
X X X X Extracts X X X X
....agrat And Co, AOR JUDGMENT J. B. PARDIWALA, J.: 1. Cox & Kings Ltd. (hereinafter referred to as the "petitioner") has filed the present petition in terms of Section 11(6) read with Section 11(12)(a) of the Arbitration & Conciliation Act, 1996 (for short "the Act, 1996"), seeking appointment of an arbitrator for the adjudication of disputes and claims in terms of clause 15.7 of the Services General Terms and Conditions Agreement dated 30.10.2015 entered into between the Petitioner and SAP India Pvt. Ltd. (hereinafter referred to as the "respondent no. 1") A. FACTUAL MATRIX 2. The petitioner is a company registered under the Companies Act, 1956 and is engaged in the business of providing tourism packages and hospitality services to its customers. 3. Respondent no. 1 is also a company registered under the Companies Act, 1956 and is engaged in the business of providing business software solution services. It is a wholly-owned subsidiary of SAP SE GMBH (Germany) (hereinafter referred to as the "respondent no. 2"), a company incorporated under the laws of Germany. 4. The petitioner and respondent no. 1 entered into a SAP Software End User License Agreement & SAP Enterprise Sup....
X X X X Extracts X X X X
X X X X Extracts X X X X
....have a similar underlying commercial purpose. 8. It is pertinent to note that in terms of Clause 15.7 of the GTC agreement, in the event of any dispute, the parties agreed to resolve their disputes through arbitration. Clause 15.7 of GTC agreement reads as under: "15.7 Dispute Resolution: In the event of any dispute or difference arising out of the subject matter of this Agreement, the Parties shall undertake to resolve such disputes amicably. If disputes and differences cannot be settled amicably then such disputes shall be referred to bench of three arbitrators, where each party will nominate one arbitrator and the two arbitrators shall appoint a third arbitrator. Arbitration award shall be binding on both parties. The arbitration shall be held in Mumbai and each party will bear the expenses of their appointed arbitrator. The expense of the third arbitrator shall be shared by the parties. The arbitration process will be governed by the Arbitration & Conciliation Act, 1996." 9. Certain issues arose between the parties regarding the timely completion and implementation of the SAP Hybris Software. After several queries from the petitioner, respondent no. 1 vide e-mail dated 24.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... GTC agreement for the alleged wrongful termination of the contract between the parties and non-payment of Rs. 17 Crore. Upon failure of the petitioner to nominate an arbitrator in response to the aforesaid notice, a Section 11(6) petition was instituted by respondent no. 1 before the Bombay High Court. The said petition came to be allowed vide order dated 30.11.2018 and an arbitral tribunal was constituted to adjudicate the disputes between the parties. The petitioner filed its Statement of Defence and counterclaims on 31.07.2019 for an amount of Rs. 45,99,71,098/-. 15. It may not be out of place to state at this stage that respondent no. 2 was not made a party to the aforesaid arbitration proceedings. In the course of the said proceedings, the petitioner filed an application under Section 16 of the Act, 1996 before the arbitral tribunal, contending that the four agreements entered into between the parties were part of a composite transaction and for this reason the agreements should be made a part of a singular proceeding. 16. During the pendency of the aforesaid application, on 22.10.2019, the NCLT, Mumbai admitted an application filed under Section 7 of the Insolvency and Ban....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... i. Whether the phrase "claiming through or under" in Sections 8 and 11 respectively of the Act, 1996 could be interpreted to include the Group of Companies doctrine; and ii. Whether the Group of Companies doctrine as expounded by Chloro Controls (supra) and subsequent judgments is valid in law? 19. Justice Surya Kant, in a separate opinion, observed that the decisions of this Court before Chloro Controls (supra) adopted a restrictive approach by placing undue emphasis on formal consent. Justice Surya Kant traced the evolution of the Group of Companies doctrine to observe that it had gained a firm footing in Indian jurisprudence. However, he opined that this Court has adopted inconsistent approaches while applying the doctrine in India, which needed to be clarified by a larger bench. Accordingly, he highlighted the following questions of law for determination by the larger Bench: i. Whether the Group of Companies Doctrine should be read into Section 8 of the Act, 1996 or whether it can exist in Indian jurisprudence independent of any statutory provision; ii. Whether the Group of Companies Doctrine should continue to be invoked on the basis of the principle of 'single econom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g to the involvement of the non-signatory to the arbitral tribunal. D. SUBMISSIONS ON BEHALF OF THE RESPONDENTS 25. Mr. Ritin Rai, the learned senior counsel appearing on behalf of the respondents made the following submissions which can be broadly divided into four categories: i. Contentions and claims sought to be raised by the petitioner are pending adjudication before another arbitral tribunal constituted under the same dispute resolution clause * The same contentions and claims as sought to be advanced in the present petition have already been raised and are pending adjudication before an arbitral tribunal constituted under the GTC Agreement. In the said proceedings, the Bombay High Court appointed an arbitrator and the same was affirmed by this Court. * The claims of the petitioner pertaining to the GTC agreement read with Order Form no. 1 (collectively referred to as the "Service Agreement") are already sub-judice and cannot be permitted to be reagitated. The petitioner has already filed its counterclaims for an amount of Rs. 45,99,71,098/- before the arbitral tribunal presided by Justice Madan B. Lokur (Retd.). * Allowing parallel arbitration proceedings emanatin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dent no. 2. No part of the License Agreement between the petitioner and respondent no. 1 was to be performed by respondent no. 2 and it is only in such circumstances that the parties chose not to make respondent no. 2 a party thereto. The references to respondent no. 2 in the License Agreement are standard references used by global software licensing companies. These references cannot bind a foreign owner of such licenses. Any finding to the contrary would completely upset the well-established commercial practice in this sector and would set a dangerous precedent. iii. Claims raised by the petitioners are beyond the ambit of Clause 15.7 of the GTC agreement * There exists no commonality between the four agreements entered into between the petitioner and respondent no. 1. The contention of the petitioner that the four agreements form part of a "single composite transaction" is incorrect as the License Agreement and Order Form no. 3 bear no significance to the implementation of the software, which is covered by the Services Agreement comprising of the GTC agreement and Order Form no. 1. Implementation is an exercise de hors the purchase of the license of the software. * The cla....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es - the first option requires the arbitration agreement to be in the form of a clause in a contract or a separate agreement, both of which must be in writing; the second option is silent on the requirement of a written agreement and thus the contract law applicable in a specific jurisdiction remains available for the determination of the level of consent necessary for a party to become bound by an arbitration agreement allegedly made by reference. Section 7 of the Act, 1996 is similar to (but not the same as) the first option. ii. As per the Constitution Bench decision in Cox and Kings (supra), the court, at the referral stage, is not bound to go into the merits of the case to decide if the non-signatory is bound by the arbitration agreement. On the contrary, the referral court should leave it to the arbitral tribunal to decide such an issue. F. ANALYSIS 27. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the short question that falls for our consideration is whether the application of the petitioner for the appointment of an arbitrator deserves to be allowed. 28. On the scope of powers of the referral court at the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he questions of arbitrability and jurisdiction, and the courts at the referral stage should not venture into contested questions involving complex facts. A few relevant paragraphs of the said decision are extracted hereinbelow: "98. What follows from the negative facet of arbitral autonomy when applied in the context of Section 16 is that the national courts are prohibited from interfering in matters pertaining to the jurisdiction of the arbitral tribunal, as exclusive jurisdiction on those aspects vests with the arbitral tribunal. The legislative mandate of prima facie determination at the stage of Sections 8 and 11 respectively ensures that the referral courts do not end up venturing into what is intended by the legislature to be the exclusive domain of the arbitral tribunal. xxx xxx xxx 114. In view of the observations made by this Court in In Re: Interplay (supra), it is clear that the scope of enquiry at the stage of appointment of arbitrator is limited to the scrutiny of prima facie existence of the arbitration agreement, and nothing else. [...] xxx xxx xxx 125. We are also of the view that ex-facie frivolity and dishonesty in litigation is an aspect which the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....istence of a valid arbitration agreement was referred to be decided by the Arbitral Tribunal after conducting a detailed examination of documentary evidence and cross-examination of witnesses. 161. The above position of law leads us to the inevitable conclusion that at the referral stage, the Court only has to determine the prima facie existence of an arbitration agreement. If the referral court cannot decide the issue, it should leave it to be decided by the Arbitral Tribunal. The referral court should not unnecessarily interfere with arbitration proceedings, and rather allow the Arbitral Tribunal to exercise its primary jurisdiction. In Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd. [Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234], this Court observed that there are distinct advantages to leaving the final determination on matters pertaining to the validity of an arbitration agreement to the Tribunal : (Shin- Etsu Chemical Co. case [Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234] , SCC p. 267, para 74) "74. ... Even if the Court takes the view that the arbitral agreement is not vitiated or that it is not valid, inoperative or ....