A non-signatory or third party could be subjected to arbitration without their prior consent, but this would only be in exceptional cases
| Case Name: | Ameet Lalchand Shah And Others V/s Rishabh Enterprises And Another |
| Case Number: | Civil Appeal No. 4690 Of 2018 |
| Court: | The Supreme Court Of India |
| Bench: | Ranjan Gogoi J. R. Banumathi J. |
| Decided On: | May 03, 2018 |
| Relevant Act/Sections: | The Arbitration And Conciliation Act, 1996 |
- BRIEF FACTS AND PROCEDURAL HISTORY:
- On 01.02.2012, the first respondent – Rishabh Enterprises (the ‘Rishabh’), the sole proprietorship concern of the second respondent – Dr. A.M. Singhvi entered into two agreements with M/s Juwi India Renewable Energies Pvt. Ltd. (Juwi India) namely:- (i) Equipment and Material Supply Contract for purchase of power generating equipments to the tune of Rs.8,89,80,730/-; and (ii) Engineering, Installation and Commissioning Contract for installation and commissioning of the Solar Plant for Rs.2,20,19,270/-. Both these agreements contain arbitration clause.
- The first respondent – Rishabh entered into Sale and Purchase Agreement dated 05.03.2012 with the second appellant company – Astonfield Renewables Private Limited (Astonfield) for purchasing CIS Photovoltaic products to be leased to appellant No.3 – Dante Energy Pvt. Ltd. (Dante Energy) to be installed at the Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh.
- Dispute arose between the parties when respondents alleged that appellant No. 3 – Dante Energy has defaulted in payment of rent and that Astonfield committed fraud by inducing the Rishabh to purchase the Photovoltaic products by investing huge amount. The respondents have also filed a criminal complaint before the Economic Offences Wing at Delhi against the appellants. The appellants have filed writ petition bearing CWP No.619 of 2016 before the High Court of Delhi seeking quashing of the said FIR which is sub judice.
- Owing to the dispute between the parties, appellant No.3 – Dante Energy issued notice dated 13.02.2016 invoking arbitration clause and nominated Justice Sujata Manohar, former Judge, Supreme Court of India as the Arbitrator. The respondents namely the Rishabh and its sole proprietor preferred a Civil Suit (Commercial) No.195 of 2016 before the High Court on 11.03.2016 against all the appellants levelling various allegations including fraud and misrepresentation.
- On receipt of notice and summons in the suit, the appellants/defendants preferred application I.A. No.4158 of 2016 under Section 8 of the Act seeking for reference of the dispute between the parties to arbitration pertaining to all the four agreements. The appellants sought for reference to arbitration of all the four agreements by contending that the Sale and Purchase Agreement (05.03.2012) is the main agreement and that other three agreements are inter-connected as they are executed between the same parties and the obligations and the performance of the terms of the agreements are inter-connected viz. commissioning of the Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, U.P.
- The learned Single Judge by order dated 15.03.2017 dismissed the application filed under Section 8 of the Act holding that the Equipment Lease Agreement (14.03.2012) between Rishabh and Dante Energy cannot be treated as the mother/principal agreement and the agreements between the respondents and Astonfield and Juwi India cannot be said to be ancillary agreements to the same. The learned Single Judge further held that not only the respondents accuse the appellants of fraud but appellants also accuse the respondents of fraud, concealment and suppression of material facts and that there was also a registration of a criminal case based on the complaint filed by the respondents and when there are such serious issues between the parties, they cannot be referred to arbitration.
- Being aggrieved by the dismissal of the application, the appellants preferred appeal before the Division Bench which came to be dismissed. The Division Bench pointed out the difference in the language between Section 8 and Section 45 of the Act and after referring to Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. and others (2013) 1 SCC 641, observed that Sukanya Holdings was not overruled. The Division Bench further pointed out that in spite of amendment brought in under Section 8, since the main/principal agreement–Sale and Purchase Agreement (05.03.2012) does not contain an arbitration clause, the matter cannot be referred to arbitration. After referring to A. Ayyasamy v. A. Paramasivam and others (2016) 10 SCC 386, the Division Bench held that in view of serious allegations of fraud, arbitration of such dispute is excluded.
- Thus, the appellants preferred a Special Leave Petition before the Supreme Court
- ISSUE BEFORE THE COURT:
- Whether all four agreements were sufficiently interconnected in a manner so as to allow for parties to be referred to arbitration, even though there was no arbitration clause in Agreement 3?
- Whether the allegations of fraud raised against the appellants would be a ground to refuse reference to arbitration, or should the court view the agreements as commercial undertakings ‘with a sense of business efficacy’ per the Ayyasamy case?
- RATIO OF THE COURT
- The court opined that The averments in the plaint also prima facie indicate that all the four agreements are inter-connected and that appellant No.1 – Ameet Lalchand Shah is stated to be the promoter and controlling man of both Astonfield as well as Dante Energy. Though there are two agreements, individual parties to the Sale and Purchase Agreement and the Equipment Lease Agreement (Dante Energy) are one and the same,. Though Juwi India is not the defendant, Equipment and Material Supply Contract and Engineering, Installation and Commissioning Contract with Juwi India itself were for the purpose of commissioning Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh.
- In Chloro Controls, this Court was dealing with the scope and interpretation of Section 45 of the Act – Part-II of the Act and in that context, discussed the scope of relevant principles on the basis of which a non-signatory party also could be bound by the arbitration agreement. Under Section 45 of the Act, an applicant seeking reference of disputes to arbitration can either be a party to the arbitration agreement or any person claiming through or under such party. Section 45 uses the expression “….at the request of one of the parties or any person claiming through or under him…..” includes non-signatory parties who can be referred to arbitration provided they satisfy the requirements of Sections 44 and 45 read with Schedule I of the Act. In para (73) of Chloro Controls, this Court held as under:-
“73. 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 ofjustice. 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.”
- 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. Even though, the Sale and Purchase Agreement 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.
- Principally four amendments to Section 8(1) have been introduced by the 2015 Amendments – (i) the relevant “party” that is entitled to apply seeking reference to arbitration has been clarified/amplified to include persons claiming “through or under” such a party to the arbitration agreement; (ii) scope of examination by the judicial authority is restricted to a finding whether “no valid arbitration agreement exists” and the nature of examination by the judicial authority is clarified to be on a “prima facie” basis; (iii) the cut-off date by which an application under Section 8 is to be presented has been defined to mean “the date of” submitting the first statement on the substance of the dispute; and (iv) the amendments are expressed to apply notwithstanding any prior judicial precedent. The proviso to Section 8(2) has been added to allow a party that does not possess the original or certified copy of the arbitration agreement on account of it being retained by the other party, to nevertheless apply under Section 8 seeking reference, and call upon the other party to produce the same.” (Ref: Justice R.S. Bachawat’s Law of Arbitration and Conciliation, Sixth Edition, Vol. I (Sections 1 to 34) at page 695 published by LexisNexis).
- The language of amendment to Section 8 of the Act is clear that the amendment to Section 8(1) of the Act would apply notwithstanding any prayer, judgment, decree or order of the Supreme Court or any other Court.
- DECISION HELD BY COURT:
- The impugned order of the High Court was to set aside and the appeal was allowed.
- All the aforesaid four agreements and the parties thereon are referred to arbitration.