Whether Arbitration award can be enforced against non signatory to arbitration agreement?

The present case relates to a post award situation. The enforcement of the arbitral award has been sought against the Appellant on the basis that it claims under KCP and is bound by the award. Section 35 of the Arbitration and Conciliation Act 1996 postulates that an arbitral award "shall be final and binding on the parties and persons claiming under them respectively". The expression 'claiming under', in its ordinary meaning, directs attention to the source of the right. The expression includes cases of devolution and assignment of interest (Advanced Law Lexicon by P. Ramanatha Aiyar15 ). The expression "persons claiming under them" in Section 35 widens the net of those whom the arbitral award binds. It does so by reaching out not only to the parties but to those who claim under them, as well. The expression "persons claiming under them" is a legislative recognition of the doctrine that besides the parties, an arbitral award binds every person whose capacity or position is derived from and is the same as a party to the proceedings. Having derived its capacity from a party and being in the same position as a party to the proceedings binds a person who claims under it. The issue in every such a case is whether the person against whom the arbitral award is sought to be enforced is one who claims under a party to the agreement.

22. The submission which was urged on behalf of the Appellant, proceeds on the basis that since the Appellant was not impleaded as a party to the arbitral proceedings, proceedings for the enforcement of the award will not lie against it. This line of submissions clearly misses the central facet of Section 35, which is that a person who claims under a party is bound by the award. The fact that the Appellant was not a party to the arbitral proceedings will not conclude the question as to whether the award can be enforced against it on the ground that it claims under a party. Essentially, the Court is called upon to consider whether the test embodied in Section 35 is fulfilled in the present case, so as to bind the Appellant.

IN THE SUPREME COURT OF INDIA

Civil Appeal Nos. 10025-10026 of 2017

Decided On: 24.04.2018

Cheran Properties Limited  Vs.  Kasturi and Sons Limited and Ors.

Hon'ble Judges/Coram:

Dipak Misra, C.J.I., A.M. Khanwilkar and Dr. D.Y. Chandrachud, JJ.

Citation: (2018) 16 SCC 413

Print Page

Whether there can be valid assignment of arbitration agreement?

This Court in the case of Bestech India Private Ltd. v. MGF Developments Ltd.(2009) 161 DLT 282, held that if a Contract is assignable, an Arbitration Clause will follow the Assignment of the Contract. This judgment was followed by the Bombay High Court in DLF Power Limited v. Mangalore Refinery & Petrochemicals Limited 2016 SCC OnLine Bom 5069.

17. Rajasthan High Court in Aerens Goldsouk International Co. Ltd. v. Samit Kavdia2009 (1) R.A.J. 128 (Raj), relying upon Russell on Arbitration held that an Arbitration Agreement will bind not only the actual parties to it, but also an assignee of a Contract containing it.

22. In view of the above, in my opinion, the Assignment Deed transferred all rights, including the right to seek Arbitration, from respondent no. 3 to the petitioner and the Sole Arbitrator has failed to exercise the jurisdiction vested in him under the Arbitration Agreement. The Impugned Award is, therefore, liable to be set aside.

In the High Court of Delhi at New Delhi

(Before Navin Chawla, J.)

Kotak Mahindra Bank v. Mr. S. Nagabhushan 

OMP (COMM) 341/2017

Decided on January 24, 2018,

Citation: 2018 SCC OnLine Del 6832

Print Page

Whether court refer dispute of interconnected agreements to arbitration if arbitration clause is in principal agreement?

A non-signatory or third party could be subjected to arbitration without their prior consent, but this would only be in exceptional cases. The court will examine these exceptions from the touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject-matter and the agreement between the parties being a composite transaction. The transaction should be of a composite nature where performance of the mother agreement may not be feasible without aid, execution and performance of the supplementary or ancillary agreements, for achieving the common object and collectively having bearing on the dispute. Besides all this, the court would have to examine whether a composite reference of such parties would 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.

21. In a case like the present one, though there are different agreements involving several parties, as discussed above, it is a single commercial project namely operating a 2 MWp Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh. Commissioning of the Solar Plant, which is the commercial understanding between the parties and it has been effected through several agreements. The agreement-Equipment Lease Agreement (14.03.2012) for commissioning of the Solar Plant is the principal/main agreement. The two agreements of Rishabh with Juwi India:(i) Equipment and Material Supply Contract (01.02.2012); and (ii) Engineering, Installation and Commissioning Contract (01.02.2012) and the Rishabh's Sale and Purchase Agreement with Astonfield (05.03.2012) are ancillary agreements which led to the main purpose of commissioning the Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh by Dante Energy (Lessee). Even though, the Sale and Purchase Agreement (05.03.2012) between Rishabh and Astonfield does not contain arbitration clause, it is integrally connected with the commissioning of the Solar Plant at Dongri, Raksa, District Jhansi, U.P. by Dante Energy. Juwi India, even though, not a party to the suit and even though, Astonfield and Appellant No. 1-Ameet Lalchand Shah are not signatories to the main agreement viz. Equipment Lease Agreement (14.03.2012), it is a commercial transaction integrally connected with commissioning of Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, U.P. Be it noted, as per clause(v) of Article 4, parties have agreed that the entire risk, cost of the delivery and installation shall be at the cost of the Rishabh (Lessor). Here again, we may recapitulate that engineering and installation is to be done by Juwi India. What is evident from the facts and intention of the parties is to facilitate procurement of equipments, sale and purchase of equipments, installation and leasing out the equipments to Dante Energy. The dispute between the parties to various agreements could be resolved only by referring all the four agreements and the parties thereon to arbitration.

22. Parties to the agreements namely Rishabh and Juwi India:(i) Equipment and Material Supply Agreement; and (ii) Engineering, Installation and Commissioning Contract and the parties to Sale and Purchase Agreement between Rishabh and Astonfield are one and the same as that of the parties in the main agreement namely Equipment Lease Agreement (14.03.2012). All the four agreements are interconnected. This is a case where several parties are involved in a single commercial project (Solar Plant at Dongri) executed through several agreements/contracts. In such a case, all the parties can be covered by the arbitration Clause in the main agreement i.e. Equipment Lease Agreement (14.03.2012).

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 4690 of 2018 (Arising out of SLP (C) No. 16789 of 2017)

Decided On: 03.05.2018

 Ameet Lalchand Shah Vs. Rishabh Enterprises

Hon'ble Judges/Coram:

Ranjan Gogoi and R. Banumathi, JJ.

Citation: (2018) 15 SCC 678

Print Page

Whether court can refer dispute to arbitration even if non signatory to arbitration agreement is party to suit?

The next contention raised by learned counsel for Respondent Nos. 1 and 2 is about the CIDCO, i.e. Respondent No. 3 herein, not being party to the 'Arbitration Agreement'. Again this contention was not raised before the Trial Court, but then, in order to resolve the dispute, even if this contention is taken up at this stage, as both the parties have argued thereon, the perusal of the plaint clearly goes to show that, Respondent No. 3 - CIDCO is merely a formal party. Only a consequential relief of injunction is claimed against the CIDCO, it being the owner of the said plot.

25. It is pertinent to note that, in the similar facts of the case, in Special Civil Suit No. 252 of 2008, the Trial Court has allowed the 'Reference', under Section 8 of the Arbitration Act, to the 'Arbitrator' and when the said 'Reference' was challenged before this Court in the case of Narayan Shankar Thakur v. Sitabai Sitaram Thakur (Since Deceased), through Legal Heirs, in Writ Petition No. 1882 of 2010, dated 1st August 2013, on the ground that, the CIDCO was a party to the Suit, but was not party to the 'Agreement', it was held by this Court that, as the CIDCO is the owner of the property, it has been joined as necessary and proper party in the Suit. As the specific performance of the 'Agreement of Sale' is sought after obtaining allotment from the CIDCO, it was necessary to include CIDCO as party to the Suit, but as no relief was claimed against the CIDCO and there was specific averment in the plaint that Plaintiff has no claim against it, reference made to the 'Arbitrator' by the Trial Court cannot be set aside. Though the said order of this Court was challenged in Special Leave Petition No. 27231 of 2013, the said Special Leave Petition came to be dismissed.

26. Here in the case, though it is true that, a relief is claimed against the CIDCO, it is merely of an ancillary or of a consequential nature. Such relief can be granted or refused, depending on whether Plaintiff's Suit for specific performance can be decreed or not. As held by another Single Bench of this Court in the case of M/s. Fiza Construction v. Smt. Parvati K. Thakur and Ors., in Writ Petition No. 943 of 2010, dated 10th February 2010, CIDCO being a Statutory Authority, would be required to consent to the transfer, once the Suit is decreed. It is, therefore, a formal party and would abide by the decision of the 'Arbitrator' and the decision of the 'Court'. Like in the said Suit, the main dispute in this case is also between the Petitioner and Respondent No. 1.

IN THE HIGH COURT OF BOMBAY

Civil Writ Petition (Stamp) No. 35221 of 2017

Decided On: 20.03.2018

 Suman Baburao Thapa Vs.  Jigar K. Mehta and Ors.

Print Page

Whether dispute between non-signatory to arbitration agreement can be referred to arbitration in domestic arbitration?

Under the Act, an arbitration agreement means an agreement which is enforceable in law and the jurisdiction of the arbitrator is on the basis of an arbitration Clause contained in the arbitration agreement. However, in a case where the parties alleged that the arbitration agreement is vitiated on account of fraud, the Court may refuse to refer the parties to arbitration. In Ayyasamy case, this Court held that mere allegation of fraud is not a ground to nullify the effect of arbitration agreement between the parties and arbitration Clause need not be avoided and parties can be relegated to arbitration where merely simple allegations of fraud touched upon internal affairs of parties is levelled. Justice A.K. Sikri observed that it is only in those cases where the Court finds that there are serious allegations of fraud which make a virtual case of criminal offence and where there are complicated allegations of fraud then it becomes necessary that such complex issues can be decided only by the civil court on the appreciation of evidence that needs to be produced. In para (25) of Ayyasamy case, Justice Sikri held as under:

25......Therefore, the inquiry of the Court, while dealing with an application Under Section 8 of the Act, should be on the aforesaid aspect viz. whether the nature of dispute is such that it cannot be referred to arbitration, even if there is an arbitration agreement between the parties. When the case of fraud is set up by one of the parties and on that basis that party wants to wriggle out of that arbitration agreement, a strict and meticulous inquiry into the allegations of fraud is needed and only when the Court is satisfied that the allegations are of serious and complicated nature that it would be more appropriate for the Court to deal with the subject-matter rather than relegating the parties to arbitration, then alone such an application Under Section 8 should be rejected.

32. While concurring with Justice Sikri, Justice D.Y. Chandrachud pointed out that the duty of the Court is to impart "sense of business efficacy" to the commercial transactions pointing out that mere allegations of fraud were not sufficient to decline to refer the parties to arbitration. In para (48) of Ayyasamy case, Justice D.Y. Chandrachud held as under:

48. The basic principle which must guide judicial decision-making is that arbitration is essentially a voluntary assumption of an obligation by contracting parties to resolve their disputes through a private tribunal. The intent of the parties is expressed in the terms of their agreement. Where commercial entities and persons of business enter into such dealings, they do so with a knowledge of the efficacy of the arbitral process. The commercial understanding is reflected in the terms of the agreement between the parties. The duty of the court is to impart to that commercial understanding a sense of business efficacy.

(Underlining added)

33. When we apply the aforesaid principles to the facts of the present case, as discussed earlier, both parties have consciously proceeded with the commercial transactions to commission the Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, U.P. The first Respondent has proceeded to procure the materials, entered into agreement with Juwi India for engineering, installation and commissioning and the sale and purchase agreement with Astonfield, were all the conscious steps taken in the commercial understanding to commission the Solar Plant at Dongri, Raksa, District Jhansi, U.P. Even though Juwi India and Astonfield are not parties to the main agreement-Equipment Lease Agreement (14.03.2012), all the agreements/contracts contain clauses referring to the main agreement. It is the duty of the Court to impart the commercial understanding with a "sense of business efficacy" and not by the mere averments made in the plaint. The High Court was not right in refusing to refer the parties on the ground of the allegations of fraud levelled in the plaint.

34. It is only where serious questions of fraud are involved, the arbitration can be refused. In this case, as contended by the Appellants there were no serious allegations of fraud; the allegations levelled against Astonfield is that Appellant No. 1-Ameet Lalchand Shah misrepresented by inducing the Respondents to pay higher price for the purchase of the equipments. There is, of course, a criminal case registered against the Appellants in FIR No. 30 of 2015 dated 05.03.2015 before the Economic Offences Wing, Delhi. The Appellant No. 1-Ameet Lalchand Shah has filed Criminal Writ Petition No. 619 of 2016 before the High Court of Delhi for quashing the said FIR. The said writ petition is stated to be pending and therefore, we do not propose to express any views in this regard, lest, it would prejudice the parties. Suffice to say that the allegations cannot be said to be so serious to refuse to refer the parties to arbitration. In any event, the Arbitrator appointed can very well examine the allegations regarding fraud.

35. Main agreement-Equipment Lease Agreement (14.03.2012) for leasing and commissioning of Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh contains arbitration Clause (Clause 29). As discussed earlier, other three agreements-two agreements between Rishabh and Juwi India (01.02.2012) and Sale and Purchase Agreement (05.03.2012) between Rishabh and Astonfield are integrally connected with the commercial understanding of commissioning the Solar Project at Dongri, Raksa, District Jhansi, Uttar Pradesh and to resolve the dispute between the parties, they are to be referred to arbitration. The order of the High Court declining to refer the parties to arbitration cannot be sustained and is liable to be set aside. The four agreements namely:(i) Equipment and Material Supply Contract (01.02.2012) between Rishabh and Juwi India; (ii) Engineering, Installation and Commissioning Contract (01.02.2012) between Rishabh and Juwi India; (iii) Sale and Purchase Agreement (05.03.2012) between Rishabh and Astonfield; and (iv) Equipment Lease Agreement (14.03.2012) between Rishabh and Dante Energy and the parties thereon are referred to arbitration.

IN THE SUPREME COURT OF INDIA

Civil Appeal No. 4690 of 2018 (Arising out of SLP (C) No. 16789 of 2017)

Decided On: 03.05.2018

 Ameet Lalchand Shah and Ors. Vs. Rishabh Enterprises and Ors.

Hon'ble Judges/Coram:

Ranjan Gogoi and R. Banumathi, JJ.

Print Page

Whether dispute against non parties to arbitration agreement can be referred to arbitration?

As per the Deed of Partnership dated 1.4.2010, the applicants and the non-applicant Nos. 1 and 2 agreed to refer any dispute amongst the partners with regard to interpretation of the said deed or any other matter connected with the business of partnership to the sole arbitrator. In this context, if the plaint is perused, it can be seen that it is the case of the plaintiffs that defendant Nos. 2 to 6 by acting inappropriately had deleted the names of the plaintiffs from the revenue record pertaining to the suit property and had thereafter with the aid of defendant No. 10, had sold the suit properties to defendant Nos. 7 to 9. The relief sought was cancellation of these sale deeds executed in favour of defendant Nos. 7 to 9 dated 16.3.2016. Defendants No. 7 to 10 are not partners of the partnership firm nor are they signatories to any agreement by which any dispute amongst them could be referred for arbitration. The relief sought with regard to the cancellation of sale deeds executed in favour of defendant Nos. 7 to 9 who were strangers to the Deed of Partnership was thus non-arbitrable.

9. For the purposes of applicability of Section 8 of the said Act, it is well-settled that such agreement containing the arbitration clause should be between parties to the dispute and that such agreement should relate to or be applicable to the dispute - Yogi Agrawal (supra). Similarly, the words "a matter" appearing in Section 8 of the said Act would mean the entire subject-matter of the suit which should be the subject of arbitration. The suit cannot be bifurcated into two parts so as to refer some part to the arbitrator for adjudication and the other part to be decided by the civil court" - Sukanya Holdings (P) Ltd. (supra).

10. In the light of aforesaid law, on considering the plaint as a whole along with clause 15 of the Deed of Partnership dated 1.4.2010, I do not find that the trial Court committed any error when it rejected the application moved by the defendant Nos. 1 to 6 under Section 8 of the said Act. Considering the reliefs sought in the plaint, the ratio of the decisions in the case of Hindustan Petroleum Corpn. Ltd. and Ravi Prakash Goel (supra) cannot be made applicable to the case in hand. Though in Agri Gold Exims Ltd. (supra), it has been held that the expression "any dispute" in Section 8 of the said Act are of wide amplitude, it cannot be construed in such a matter so as to cover a dispute even against non-parties to the arbitration agreement. 
IN THE HIGH COURT OF BOMBAY (NAGPUR BENCH)

Civil Revision Application No. 99 of 2016

Decided On: 16.02.2017

Ramdeobaba Padmavati Developers & Builders and Ors.
Vs.
 Ganesh Vitthaldas Chandak and Ors.

Hon'ble Judges/Coram:
A.S. Chandurkar, J.
Citation: 2017(5) MHLJ 357 Bom

Print Page

Whether arbitration award can be enforced against non-signatory to arbitration agreement?

 Similarly, the Supreme Court of British Colombia in C.E. International Resources Holdings (supra) held that a party to an arbitration agreement would include a person claiming through or under a party and non-signatories were held to be bound by arbitration agreement in various ways which include piercing the corporate veil.

From the aforesaid, it can be gathered that in the State of Delaware while conducting the arbitration proceedings in accordance with the Rules of the American Arbitration Association, it was permissible for the Arbitrator to decide the issue of substantive arbitrability and while doing so it was permissible to bind non-signatories to an arbitration agreement in various ways including piercing the corporate veil or invoking the alter ego doctrine.

Further, while Section 48 (1) (a) refers to parties to the agreement referred to in Section 44 of the said Act, Section 48 (1) (b) of the said Act makes reference to a party against whom the award is invoked. The distinction between a party to an agreement and a party against whom the award is invoked is relevant inasmuch as while the provisions of Section 48 (1) (a) are relatable to signatories to the arbitration agreement, the object of Section 48 (1) (b) is to take within its compass parties against whom the award is sought to be invoked which may include non-signatories to the arbitration agreement. In other words, a non-signatory to the agreement could also be a party against whom the award is sought to be invoked. Thus, enforcement of a foreign award against a party who is a non-signatory to the agreement but a party to the award is also statutorily recognized. The distinction though subtle in nature, the same appears to have been deliberately made to indicate the areas intended to be covered by said provisions.

20. Thus, if the provisions of Section 48 (1) (b) of the said Act are construed to include a party against whom the award is sought to be invoked in contrast with parties to an agreement as referred to in Section 48 (1) (a) of the said Act, we find that Section 48 (1) (b) contemplates an award being passed against a non-signatory party. If that be so, the International Arbitral Tribunal in a given case would have the jurisdiction to pass an award against a non-signatory party by applying the 'alter ego' doctrine. In that context, therefore, the International Arbitral Tribunal would have the necessary authority to decide the question of its jurisdiction including the question of existence and validity of an arbitration agreement. To hold otherwise would result in curtailing the scope of the provisions of Section 48 (1) (b) of the said Act.

IN THE HIGH COURT OF BOMBAY (NAGPUR BENCH)

Arbitration Appeal No. 3 of 2016 in Misc. Civil Application No. 1319 of 2015

Decided On: 04.01.2017

 Integrated Sales Services Limited

Vs.

Arun Dev and Ors.

Hon'ble Judges/Coram:

B.P. Dharmadhikari and A.S. Chandurkar, JJ.

Citation: AIR 2017(NOC) 522 Bom

Print Page

When non signatory to arbitration agreement can be held bound by arbitration agreement?

 In Chloro Controls India Private Limited v. Severn Trent Water
Purifications Inc. & Others: 2013(1) SCC 641, the Supreme Court had
explained the above principle in the following words:
"Various legal basis may be applied to bind a nonsignatory
to an arbitration agreement. The first theory is
that of implied consent, third party beneficiaries,
guarantors, assignment and other transfer mechanisms of
contractual rights. This theory relies on the discernible
intentions of the parties and, to a large extent, on good
faith principle. They apply to private as well as public
legal entities. The second theory 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."

IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment delivered on:16.05.2017
 O.M.P. (COMM) 22/2016
SUDHIR GOPI V INDIRA GANDHI NATIONAL OPEN
UNIVERSITY AND ANR.
CORAM
HON’BLE MR JUSTICE VIBHU BAKHRU

Print Page

Supreme court held that non-signatory parties to arbitration agreement can be subject to arbitration,

This landmark judgement will completely change the way in which international commercial arbitrations would now function. The Supreme Court of India was called upon to answer and interpret ‘the expression ‘person claiming through or under’ as provided under section 45² of the Arbitration and Conciliation Act, 1996 (“Act”).

The brief facts of the case is that there was a joint venture agreement (“the principal agreement”) between an American company (Capital Controls (Delaware) Company Inc.), an Indian company (Chloro Controls India Pvt. Ltd.) and the director of the Indian company (Mr. M.B. Kocha). The principal agreement also provided for several ancillary agreements required to be entered into between the Indian company, the group of companies to which the American Company belonged (the Severn Trent Group) and the director of the Indian company, amongst others. While the principal agreement contained an arbitration clause, a few of the ancillary agreements did not. Further, not all the Respondents in the original suit were parties to the arbitration agreement.

Print Page