Research › Search › Judgment

Madhya Pradesh High Court · body

2024 DIGILAW 355 (MP)

Santosh Patidar (Shri) v. Ayodhyabai

2024-04-15

SUBODH ABHYANKAR

body2024
ORDER 1. This application under section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act of 1996) has been filed by the applicant for appointment of Arbitrator to adjudicate the dispute between the parties. 2. In brief, the case of the applicant is that he had entered into an exchange agreement dated 15.10.2021, with 8 persons (assign numbers??) namely 1.Smt. Ayodhyabai W/o Late Shri Gopalji Balai, 2.Madanlal S/o Late Shri Gopalji Balai, Savita D/o Late Shri Gopalji Balai, Rekha D/o Late Shri Gopalji Balai, Krishnabai W/o Manohalji Balai, Kundan S/o Manoharji Balai, Priya D/o Manoharji Balai and Khushi D/o Manoharji Balai. 3. The said agreement was for the exchange of land, and admittedly out of the aforesaid 8 persons as party of the first part, only 5 persons have signed the agreement, and Savina, Priya and Khushi have not signed the same, and Clause 3 of the terms and conditions of the said agreement also provides for reference of dispute to Arbitrator. 4. Learned counsel for the applicant has submitted now that a dispute has arisen between the parties, though the aforesaid 3 persons namely Savina, Priya and Khushi have not signed the agreement as they were not available at that time, and on their behalf, their mother Ayodhyabai and other family members have signed the documents and thus, the Arbitrator may be appointed. 5. On the other hand, learned counsel for the respondents has vehemently opposed the prayer and it is submitted that the said agreement dated 15.10.2021 itself is a forged document and on the basis of the aforesaid forged document, no Arbitrator can be appointed. It is submitted that the document can be demonstrated to be forged, as a civil suit has been filed against the present respondents by one Badrilal S/o Mangilal in respect of the disputed land in the Civil Court at Dewas, wherein a photo copy of the aforesaid document (exchange agreement) has also been produced by him, however, a perusal of the aforesaid photocopy of the agreement would clearly reveal that in Clause No.3, there is no arbitration clause appended, as in the case of the present case. Thus, it is submitted that the arbitration clause has been subsequently added in the agreement and thus, the document being forged, cannot be relied upon. 6. Thus, it is submitted that the arbitration clause has been subsequently added in the agreement and thus, the document being forged, cannot be relied upon. 6. It is also submitted that three persons who are also the parties to the agreement have admittedly not signed the same, and other nonapplicants whose signatures are appended to the document are forged, and they have also not accepted any amount from the applicant. Counsel has also submitted that as per the details of payment, the applicant has paid an amount of Rs.70 Lakhs in cash to the respondents, which in itself is incomprehensible, and apart from that, a cheque of Rs.5 Lakh dated 20.10.2021 is said to have been given whereas the agreement itself is allegedly executed on 15.10.2021. Thus, it is submitted that no case for appointment of Arbitrator is made out. In support of his submissions, counsel for the respondent has relied upon the decisions rendered by Karnataka High Court in the case of M/s MVR Constructions v. M/s VMR Constructions and others passed in W.P. No.4604 of 2018 dated 21.2.2024 and order dated 3.4.2017 passed by this Court in A.C. No.15 of 2015 in the case of M/s BNR Enterprises v. Smt. Laxmidevi and order dated 07/07/2023 passed in M.A No.5201 of 2022 in the case of Nitesh v. Mohan and others. 7. In rebuttal, Shri Nilesh Agrawal, counsel for the applicant has submitted that admittedly the agreement has been signed by 5 of the family members and so far as the payment of Rs.70 Lakhs in cash is concerned, the applicant has asserted that the aforesaid amount has been given in cash and it is for the Arbitrator to decide if the amount has been paid or not, and regarding the cheque of Rs.5 Lakh, it is submitted that it was a post dated cheque and thereafter Rs.4 Lakhs have also been transferred in the account of Rekha who is also a signatory of the agreement. In support of his submission, counsel for the applicant has relied upon para 165 of the decision of the Constitution Bench of Supreme Court in the case of Cox and Kings Ltd. v. SAP India Pvt. Ltd. and another passed in AP(C) No.38 of 2020 dated 6.12.2023. 8. Heard learned counsel for the parties and perused the record. 9. In support of his submission, counsel for the applicant has relied upon para 165 of the decision of the Constitution Bench of Supreme Court in the case of Cox and Kings Ltd. v. SAP India Pvt. Ltd. and another passed in AP(C) No.38 of 2020 dated 6.12.2023. 8. Heard learned counsel for the parties and perused the record. 9. So far as the arbitration agreement is concerned, which is provided in Clause No.3 of the agreement and reads as under:- **3- ;g fd mijksDr laifŸk;ksa ls lacaf/kr leLr VsDlsl] nkf;Ro vkfn tks Hkh ns; gksxk mls Hkqxrku djus dh tokcnkjh bl ijLij varj.k ys[k iath;u fnukad rd varj.kdrkZ i{k dh jgsxhA rFkk Hkfo"; esa mRiUu gksus okys VsDlsl] ;k ns; jdeksa dk Hkqxrku izkIrdrkZ i{k djrs tkosaxsA dksbZ Hkh fookn gksus ij e/;LFkk vf/kfu;e ds rgr e/;LFk fu;qDr dj gy fd;k tkosxkA** 10. It is an admitted fact that in the aforesaid arbitration agreement, respondent No.3 Savita, respondent No.7 Priya and respondent No.8 Shukhi have not signed, who are also the daughter of respondent No.1 Ayodhyabai. Thus, the question is that whether these nonsignatories are bound by the arbitration agreement as aforesaid. 11. In the case of Cox & King (supra), the Constitutional Bench of the Supreme Court was dealing with an issue relating to the Group of Companies doctrine which provides that an arbitration agreement which is entered into by a company within a group of companies may bind non-signatory affiliates, if the circumstances are such as to demonstrate the mutual intention of the parties to bind both signatories and non-signatories. The leading judgment is rendered by Hon’ble the Chief Justice, Chandrachud J. who has concluded the issue as under:- “172. The leading judgment is rendered by Hon’ble the Chief Justice, Chandrachud J. who has concluded the issue as under:- “172. In view of the discussion above, we arrive at the following conclusions: a. The definition of “parties” under section 2(1)(h) read with section 7 of the Arbitration Act includes both the signatory as well as non-signatory parties; b. Conduct of the non-signatory parties could be an indicator of their consent to be bound by the arbitration agreement; c. The requirement of a written arbitration agreement under section 7 does not exclude the possibility of binding non-signatory parties; d. Under the Arbitration Act, the concept of a “party” is distinct and different from the concept of “persons claiming through or under” a party to the arbitration agreement; e. The underlying basis for the application of the group of companies doctrine rests on maintaining the corporate separateness of the group companies while determining the common intention of the parties to bind the nonsignatory party to the arbitration agreement; f. The principle of alter ego or piercing the corporate veil cannot be the basis for the application of the group of companies doctrine; g. The group of companies doctrine has an independent existence as a principle of law which stems from a harmonious reading of section 2(1)(h) along with Section 7 of the Arbitration Act; h. To apply the group of companies doctrine, the Courts or tribunals, as the case may be, have to consider all the cumulative factors laid down in Discovery Enterprises (supra). Resultantly, the principle of single economic unit cannot be the sole basis for invoking the group of companies doctrine; i. The persons “claiming through or under” can only assert a right in a derivative capacity; j. The approach of this Court in Chloro Controls (supra) to the extent that it traced the group of companies doctrine to the phrase “claiming through or under” is erroneous and against the wellestablished principles of contract law and corporate law; k. The group of companies doctrine should be retained in the Indian arbitration jurisprudence considering its utility in determining the intention of the parties in the context of complex transactions involving multiple parties and multiple agreements; l. At the referral stage, the referral Court should leave it for the arbitral tribunal to decide whether the non-signatory is bound by the arbitration agreement; and m. In the course of this judgment, any authoritative determination given by this Court pertaining to the group of companies doctrine should not be interpreted to exclude the application of other doctrines and principles for binding nonsignatories to the arbitration agreement.” (Emphasis supplied) 12. Whereas, in the concurrent minority view P.S.Nasimha J. has opined as under:- “223. Finally, in ONGC v. Discovery Enterprises Pvt Ltd., while the decision on whether the non-signatory was a party was remitted to the arbitral tribunal, the Court undertook a comprehensive review of the academic literature and judicial pronouncements on the issue. The Court compendiously concluded the following: “40. In deciding whether a company within a group of companies which is not a signatory to arbitration agreement would nonetheless be bound by it, the law considers the following factors: (i) The mutual intent of the parties; (ii) The relationship of a non-signatory to a party which is a signatory to the agreement; (iii) The commonality of the subject-matter; (iv) The composite nature of the transaction; and (v) The performance of the contract. 41. Consent and party autonomy are undergirded in section 7 of the 1996 Act. However, a non-signatory may be held to be bound on a consensual theory, founded on agency and assignment or on a non-consensual basis such as estoppel or alter ego…” xxxxxxx 231. 41. Consent and party autonomy are undergirded in section 7 of the 1996 Act. However, a non-signatory may be held to be bound on a consensual theory, founded on agency and assignment or on a non-consensual basis such as estoppel or alter ego…” xxxxxxx 231. In view of the above, while concurring with the judgment of the learned Chief Justice, my conclusions are as follows: I. An agreement to refer disputes to arbitration must be in a written form, as against an oral agreement, but need not be signed by the parties. Under Section 7(4)(b), a court or arbitral tribunal will determine whether a non-signatory is a party to an arbitration agreement by interpreting the express language employed by the parties in the record of agreement, coupled with surrounding circumstances of the formation, performance, and discharge of the contract. While interpreting and constructing the contract, courts or tribunals may adopt well-established principles, which aid and assist proper adjudication and determination. The Group of Companies doctrine is one such principle. II. The Group of Companies doctrine is also premised on ascertaining the intention of the non-signatory to be party to an arbitration agreement. The doctrine requires the intention to be gathered from additional factors such as direct relationship with the signatory parties, commonality of subject-matter, composite nature of the transaction, and performance of the contract. III. Since the purpose of inquiry by a court or arbitral tribunal under section 7(4)(b) and the Group of Companies doctrine is the same, the doctrine can be subsumed within section 7(4)(b) to enable a court or arbitral tribunal to determine the true intention and consent of the non-signatory parties to refer the matter to arbitration. The doctrine is subsumed within the statutory regime of section 7(4)(b) for the purpose of certainty and systematic development of law. IV. The expression “claiming through or under” in sections 8 and 45 is intended to provide a derivative right; and it does not enable a non-signatory to become a party to the arbitration agreement. The decision in Chloro Controls (supra) tracing the Group of Companies doctrine through the phrase “claiming through or under” in sections 8 and 45 is erroneous. The expression ‘party’ in section 2(1)(h) and section 7 is distinct from “persons claiming through or under them”. This answers the remaining questions referred to the Constitution Bench.” (Emphasis supplied) 13. The decision in Chloro Controls (supra) tracing the Group of Companies doctrine through the phrase “claiming through or under” in sections 8 and 45 is erroneous. The expression ‘party’ in section 2(1)(h) and section 7 is distinct from “persons claiming through or under them”. This answers the remaining questions referred to the Constitution Bench.” (Emphasis supplied) 13. A perusal of the aforesaid decision of the Supreme Court in the case of Cox & King (supra), makes it is clear that it has been held categorically by the Supreme Court that a party who is not a signatory to arbitration agreement is also amenable to arbitration agreement, and its defence is liable to be decided by the Arbitrator only, as in the present case, admittedly the non-signatories, the respondent No.3 Savita, respondent No.7 Priya and respondent No.8 Shukhi are also the close family members of the other signatories/respondents. In such circumstances, this Court is of the considered opinion that the applicant has made out a case for appointment of Arbitrator, and all the objections raised by the respondents/signatories/non-signatories can very well be decided by the Arbitrator only in the light of the decision rendered by the Supreme Court in the case of Cox & King (supra). 14. Accordingly, arbitration case stands allowed, and I propose to appoint Hon’ble Shri Justice A.M. Naik, former Judge of this High Court to be the Arbitrator for resolving the dispute between the parties. 15. Let the declaration in terms of section 11(8) and 12(1) of the amended Arbitration Act in the prescribed form as contained in the 6th Schedule of the Act be obtained from the proposed Arbitrator by the Principal Registrar of this Court before the next date of hearing. Let the matter be listed on 7.5.2024.