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2022 DIGILAW 512 (JK)

Rakesh v. Irshad Hussain Wani & Co.

2022-09-19

RAHUL BHARTI

body2022
JUDGMENT : Heard the learned counsel for the parties. 2. The adjudicatory point in this case is about sustainability of an application, filed under section 9 of the Arbitration and Conciliation Act, 1996 for seeking any of the enlisted directions/measures therein, aimed against a third party which is not a party/privy to the arbitration agreement and/or the subject matter of the contract between the arbitration bound parties. 3. The respondent no.1-M/s Irshad Hussain Wani & Co. and the appellant nos. 1 & 2 are parties to a notarized agreement dated 14.07.2016. In terms of this agreement, as per its clause (10), an arbitration clause stands provided contemplating that any dispute arising between the parties relatable to the contract to be referred to an arbitration for resolution of the dispute. 4. It seems that the respondent no.1- M/s Irshad Hussain Wani & Co., in its own right, as being a business concern was having business dealing with the respondent No.3 –the Ericsson India Private Limited well before making of the agreement dated 14.07.2016 with the appellants. By reference to the business relationship between the respondent no.1 and the respondent no.3–the Ericsson India Private Limited, the appellants and the respondent no.1 had executed the above said agreement for the purpose of working out investments to be made from their respective end for enabling the respondent no.1 to carry out the business engagements of the respondent no.1 with the respondent no.3–the Ericsson India Private Limited. For sure, the respondent no.3-the Ericsson India Private Limited had and has no concern, by any stretch of express or implied reference and relation, with the said agreement dated 14.07.2016 of the appellants with the respondent no.1. In fact, in terms of clause (4) of the said agreement, it is clearly stipulated that the appellants had to have no concern with the respondent no.3–the Ericsson India Private Limited. Thus it was well known to the appellant all along that they were not to relate themselves through said agreement dated 14.07.2016 with the respondent no. 1 to the respondent no. 3-the Ericsson India Private Limited. This agreement dated 14.07.2016 was followed by making of a supplementary agreement dated 22.03.2017 between very same two parties i.e., the appellants on one hand and the respondent no. 1-M/s Irshad Hussain Wani & Co., on other hand. 5. 1 to the respondent no. 3-the Ericsson India Private Limited. This agreement dated 14.07.2016 was followed by making of a supplementary agreement dated 22.03.2017 between very same two parties i.e., the appellants on one hand and the respondent no. 1-M/s Irshad Hussain Wani & Co., on other hand. 5. By reference to some dispute having arisen in their contractual relationship as embodied in the aforesaid agreement, the appellants came to resort to proceedings under Section 9 of the then in force Jammu and Kashmir Arbitration and Conciliation Act, 1997 (in short, the Act of 1997) for the sake of seeking interim relief from the court of learned Principal District Judge, Jammu. 6. In their application under section 9, the appellants came to implead not only the respondent no.1, obviously as being party to the arbitration agreement, but also two other respondents one of them being the Director of the Ericsson India Private Limited, the respondent no. 3 herein, and the direction sought through the said section 9 application was to the effect directing the respondent no.3-Director, Ericsson India Private Limited not to release any payment in favour of the respondent no.1-M/s Irshad Hussain Wani & Co., till the adjudication of the matter to be taken up in arbitration by the arbitrator between the appellants and the respondent no.1. The nature of relief so sought was akin to asking a premature garnishee order. If read between the lines, the actual intent of direction so sought by the appellants through section 9 application was to dictate the independent contractual relationship of the respondent no. 1 with the respondent no. 3, to serve the cause/claim of the appellants. A very plain reading of the said application, in the context of the relief so sought, clearly meant that in fact a rank outsider to the contract governed by arbitration between the appellants and the respondent no. 1 was sought to be subjected to suffer interim direction/relief by mode of operation of application under section 9 as desired by the appellants. 7. Said application of the appellants came to be rejected by the learned Principal District Judge, Jammu vide its order dated 06.12.2017, finding the application being without merit. 1 was sought to be subjected to suffer interim direction/relief by mode of operation of application under section 9 as desired by the appellants. 7. Said application of the appellants came to be rejected by the learned Principal District Judge, Jammu vide its order dated 06.12.2017, finding the application being without merit. The primary point on which the court of Ist Additional District Judge, Jammu found the application of the appellants as misconceived was that the appellants actually intended a temporary injunction against the respondent No.3–the Ericsson India Private Limited by restraining it from making any money payment to the respondent no.1-M/s Irshad Hussain Wani & Co. Thus, the appellants were dislodged from their said application by the order dated 06.12.2017 by the court below. 8. It is against the said order dated 06.12.2017 that the appellants have ventured to test their luck by filing present appeal under Section 37 of the Arbitration & Conciliation Act. The tone and the tenor of the appeal is replica of the text and context of the application so filed by the appellants before the court of Ist Additional District Judge, Jammu. For the purpose of lending a footing to their said application under section 9 against a non party to an arbitration agreement, the appellants in their memo of appeal have spared para 3 to two judgments for the purpose of sailing their attempt to maintain section 9 application against a third party to the said arbitration agreement which in the present case is the respondent No.3–the Ericsson India Private Limited figuring as respondent no.3 in the present appeal. 9. Much reliance has been drawn by the appellants from a Division Bench judgment of the High Court of Madras as reported in 2013 (4) CTC 154 titled “Embassy Property Developments Limited and another vs. Jumbo World Holdings Limited and others” read with judgment of the Hon’ble Supreme Court of India in the case of Chloro Controls (I) P. Ltd. v/s Severn Trent Water Purification Inc. and others reported as 2013 (I) SCC 641 . 10. Before proceeding further, judicial propriety will call upon this court to take due notice of the mandate of the pronouncement of law made by the Hon’ble Supreme Court of India in the case of Chloro Controls (I) P. Ltd. v/s Severn Trent Water Purification Inc. and others reported as 2013 (I) SCC 641 . 10. Before proceeding further, judicial propriety will call upon this court to take due notice of the mandate of the pronouncement of law made by the Hon’ble Supreme Court of India in the case of Chloro Controls (I) P. Ltd. v/s Severn Trent Water Purification Inc. and others ( 2013 (I) SCC 641 ) at first and then examine the case situation in hand. Para 65 to 71 of judgment in Chloro Controls (I) self speak on the subject point and are reproduced as under: “65. Normally, arbitration takes place between the persons who have, from the outset, been parties to both the 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 party by virtue of a statutory or consensual novation. 4. The original party has assigned to the claimant either the underlying contract, together with the agreement to arbitrate which it incorporates, or the benefit of a claim which has already come into existence.” 66. Though the scope of an arbitration agreement is limited to the parties who entered into it and those claiming under or through them, the Courts under the English Law have, in certain cases, also applied the “Group of Companies Doctrine”. Though the scope of an arbitration agreement is limited to the parties who entered into it and those claiming under or through them, the Courts under the English Law have, in certain cases, also applied the “Group of Companies Doctrine”. This doctrine has developed in the international context, whereby an arbitration agreement entered into by a company, being one within a group of companies, can bind its non-signatory affiliates or sister or parent concerns, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates. This theory has been applied in a number of arbitrations so as to justify a tribunal taking jurisdiction over a party who is not a signatory to the contract containing the arbitration agreement. [“Russell on Arbitration” (Twenty Third Edition)]. 67. This evolves the principle that a non-signatory party could be subjected to arbitration provided these transactions were with group of companies and there was a clear intention of the parties to bind both, the signatory as well as the non-signatory parties. In other words, “intention of the parties” is a very significant feature which must be established before the scope of arbitration can be said to include the signatory as well as the non-signatory parties. 68. 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 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. 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. 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 severed from the rest. The intention of the parties to refer all the disputes between all the parties to the arbitral tribunal is one of the determinative factor. 70. We may notice that this doctrine does not have universal acceptance. Some jurisdictions, for example, Switzerland, have refused to recognize the doctrine, while others have been equivocal. The doctrine has found favourable consideration in the United States and French jurisdictions. The US Supreme Court in Ruhrgos AG v Marathon Oil Co. [526 US 574 (1999)] discussed this doctrine at some length and relied on more traditional principles, such as, the non-signatory being an alter ego, estoppel, agency and third party beneficiaries to find jurisdiction over the non-signatories. 71. The Court will have to examine such pleas with greater caution and by definite reference to the language of the contract and intention of the parties. In the case of composite transactions and multiple agreements, it may again be possible to invoke such principle in accepting the pleas of non-signatory parties for reference to arbitration. Where the agreements are consequential and in the nature of a follow-up to the principal or mother agreement, the latter containing the arbitration agreement and such agreements being so intrinsically inter-mingled or inter-dependent that it is their composite performance which shall discharge the parties of their respective mutual obligations and performances, this would be a sufficient indicator of intent of the parties to refer signatory as well as non-signatory parties to arbitration. The principle of “composite performance” would have to be gathered from the conjoint reading of the principal and supplementary agreements on the one hand and the explicit intention of the parties and the attendant circumstances on the other.” 11. The reliance of the learned counsel for the appellants upon the said judgments is totally misplaced on two counts. Firstly, the appellants have bound themselves with the respondent no.1 M/s Irshad Hussain Wani & Co in a written agreement dated 14.07.2016 that they will bear no relation with and reference to the respondent no. 3 In this legal relationship governed and guided by the agreement dated 14.07.2016 in the event of any dispute, the appellants and the respondent no.1 were to seek dispute resolution through the course of arbitration. In doing this, the appellants, or for that matter even the respondent no.1, could not, by any flight of fancy, afford to themselves any cause to drag a non-party to the said agreement to bear and suffer arbitration related section 9 litigation that too of a pre award stage litigation. There can be a possible situation to have a non-party bear directions of nature as provided under section 9 in case there comes an arbitration award in picture wherein and whereby the arbitral tribunal awards/grants a relief inter se the parties to the arbitration agreement, but for procuring that relief to the successful party a direction under section 9, post award scenario, is required to be given to a third party who otherwise was not a party to the arbitration agreement. But if the scenario/situation, as sought to be crafted by the appellants, whereby a non party to an arbitration agreement and also to the arbitration governed dispute between the parties to the arbitration is sought to be dragged into an arbitration dispute is allowed and/or even encouraged to take place then that would be inviting re-scripting the very scheme and sections of the Arbitration and Conciliation Act. 12. Section 7 of the Arbitration and Conciliation Act defines arbitration agreement, which, for facility of reference, is reproduced in its entirety as under:- “7. Arbitration agreement (1) In this part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. Arbitration agreement (1) In this part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in – (a) a document signed by the parties; or (b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or (c) an exchange of statements of claim and defence in which the existence of agreement is alleged by one party and not defined by the other. (5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.” 13. By reference to none of the provisions of Section 7 as contemplated under sub-section (1) to sub-section (5), the appellants ever set up a situation before the court of Ist Additional District Judge, Jammu that the respondent no.3 i.e. Director Ericsson India Private Limited was also a privy to an arbitration agreement involving the appellants and respondent no.1. There is no such document on record to even remotely relate the respondent no.3 i.e. Director, Ericsson India Private Limited to the appellants in any manner whatsoever so as to read a triangular legal defined relationship amongst the appellants, the respondent no.1-M/s Irshad Hussain Wani & Co. and the respondent no.3 i.e. Director Ericsson India Private Limited. In fact, it is only by exploit of clause 6 of the supplementary agreement dated 22.03.2017 again made only between the appellants and the respondent no. 1 in furtherance to the principal agreement dated 14.07.2016 that the appellants read an entitlement in them to subject the respondent no. 3- Director Ericsson India Private Limited to for a direction from the court under section 9 of the Arbitration and Conciliation Act. 1 in furtherance to the principal agreement dated 14.07.2016 that the appellants read an entitlement in them to subject the respondent no. 3- Director Ericsson India Private Limited to for a direction from the court under section 9 of the Arbitration and Conciliation Act. Said clause 6 reads as under: “6) That the remaining amount i.e. Rs.12,98,000/- (Rupees Twelve lac and ninety eight thousand only) shall be paid by the party of the 1st part to the party of the 2nd and 3rd part as soon as the company i.e. Ericsson India Pvt. Ltd. clears the bill of the party of the 1st part (approximately within a period of 45 days from the date of submission of the bills before the company i.e. Ericsson India Pvt. Ltd.)”. This clause exhibits by its very intent that the respondent no. 3 is to have no concern with any dispute between the appellants and the respondent no. 1 with respect to payment of money claims. 14. Indian Contract Act, 1872 is the mother law which provides for conception, creation and carrying of a contract. A contract is an agreement enforceable by law as envisaged by the Indian Contract Act, 1872 in terms of Section 2 (h). An agreement to be a contract has to have elements of promise and a set of promises forming the consideration for each other so as to be an agreement as envisaged by Section 2 (e). A contract can surely be an oral as well as written but in both forms it has to have the elements as defined above. 15. Now, for the purpose of the Arbitration & Conciliation Act, 1996 an agreement envisaged and contemplated in its section 7 cannot be assumed to be not the one as is meant to be an agreement as defined in section 2 (e) of the Indian Contract Act, 1872 . 15. Now, for the purpose of the Arbitration & Conciliation Act, 1996 an agreement envisaged and contemplated in its section 7 cannot be assumed to be not the one as is meant to be an agreement as defined in section 2 (e) of the Indian Contract Act, 1872 . Without even making a whisper of an averment in their entire application under Section 9 as to whether any such agreement containing promise from their end inviting reciprocal promises from the respondent no.3’s end ever came into being and play before enabling them to engage the respondent no.3 in the course of litigation under Section 9 of the Jammu and Kashmir Arbitration and Conciliation Act, the appellants simply dragged the respondent no.3 in the application under Section 9 acting more out of a self serving license to throw tantrum of litigation expecting something out of nothing, and which rightly deserved fate of dismissal from the Principal District Court Jammu wherefrom it was actually conceived and expected to bear fruit out of frivolity of the case. Litigation of levity cannot have free run in the corridors of courts and must get nabbed at an opportunity available for the courts so as to un-choke the dockets bearing the burden of bad litigations which the present litigation has been exhibit of going since December 2017 to get final rest by the judgment being hereby made in October 2022. 16. The appellants cannot, in fact, even afford an attempt to improve the factual position as set out in their own application under section 9 of the Arbitration and Conciliation Act, to fit in the scenarios as contemplated in the judgment of the Hon’ble Supreme Court in Chloro Controls (I) P.Ltd case as and, as such, if section 9 application miserably failed before the court below so has to be the same fate of the present appeal of the appellants. 17. Learned counsel for the respondent no.3 has assisted this court by reference to a judgment passed by the Division Bench of the High Court of Gujarat in a case titled “Vijay Arvind Jariwala v/s Umang Jatin Gandhi”. Dealing with Special Civil Application No. 16131 of 2021, the Division Bench of the Hon’ble High Court dealing directly with the point as to whether a non-party to an arbitration agreement can be roped in a litigation initiated under the Arbitration and Conciliation Act. Dealing with Special Civil Application No. 16131 of 2021, the Division Bench of the Hon’ble High Court dealing directly with the point as to whether a non-party to an arbitration agreement can be roped in a litigation initiated under the Arbitration and Conciliation Act. If a stranger to an arbitration agreement between the two parties can have no locus to invoke the provisions of the Arbitration and Conciliation Act, 1996 so is the inverse situation that a stranger to an arbitration agreement cannot be located as a respondent in a proceeding initiated by one of the parties against another party under the arbitration agreement unless and until the case would fall in the frame as envisaged in the Supreme Court judgment referred above. 18. In the light of this, the appeal is dismissed. However considering the fact that the application of the appellants read with the present appeal failed purely on the point that a non-party to an arbitration agreement has been entangled in the proceeding under Section 9 of the Arbitration and Conciliation Act so in case if any application under Section 9 of the Arbitration and Conciliation Act is opted and/or advised to be filed by the appellants against the respondent no.1-M/s Irshad Hussain Wani & Co., then the dismissal of the earlier application as well as this appeal shall not be meant to be causing any prejudice to any such application of the appellants and also to any defence/objection as may be set up by the respondent no.1 in response to the said new application of the appellants. 19. Disposed of.