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2024 DIGILAW 593 (TS)

Asian Agri Genetics Limited v. Bandla Sridevi

2024-08-23

ALOK ARADHE

body2024
ORDER : Alok Aradhe, C.J. Ms. Rubaina S.Khatoon, learned counsel for the applicant. Mr. Pranav Munigela, learned counsel for the respondents. 2. In these applications filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’), the applicant seeks appointment of a sole arbitrator for adjudication of disputes between the applicant and the respondents which have arisen under the Cotton Crop Organizer Agreement dated 04.04.2023. For the facility of reference, facts of the Arbitration Application No.139 of 2024 are being referred. 3. The applicant is a company registered under the Companies Act, 1956 and is engaged in the development of proprietary hybrids or varieties of various crops including cotton through its research and development efforts and seed production of such hybrids or varieties and sale of seeds through its dealers and distributors network to the farmers. The applicant entered into a Cotton Crop Organizer Agreement dated 04.04.2023 with respondent No.1, wherein respondent No.1 was hired as Crop Organizer for the applicant. As per the agreement, respondent No.1 is responsible for the activities including but not limited to liaising with the Growers, assisting and supervising agricultural operations, post-harvest activities/services and in ensuring timely delivery of produced seeds collected from growers strictly to the applicant. It is the case of the applicant that even though the agreement is entered with respondent No.1, yet her husband, namely respondent No.2 has been interacting and negotiating the terms of the agreement and business on behalf of respondent No.1 with the applicant. 4. The dispute had arisen between the parties and therefore, the applicant sent demand notice dated 24.12.2023 and requested the respondents to hand over balance 5,012 kgs of seeds within seven days from the date of receipt of the said notice. The applicant thereupon has filed this petition. 5. Learned counsel for the applicant submitted that a dispute had arisen between the parties under the Cotton Crop Organizer Agreement dated 04.04.2023 and the same requires resolution in the manner agreed to by the parties. It is further submitted that even though respondent No.2 is a non-signatory to the agreement, yet respondent No.2, who is the husband of respondent No.1 has been interacting and negotiating the terms of agreement and therefore is a proper party to the lis. It is further submitted that even though respondent No.2 is a non-signatory to the agreement, yet respondent No.2, who is the husband of respondent No.1 has been interacting and negotiating the terms of agreement and therefore is a proper party to the lis. Attention of this Court has also been invited to the hand-written letter dated 27.01.2024 addressed by the husband of respondent No.1, namely respondent No.2. It is contended that only a bare allegation with regard to coercion and duress has been made and no material in support of the averment that the hand-written letter dated 27.01.2024 has been written under coercion and duress has been adduced. In support of her submissions, learned counsel has placed reliance on the judgments of the Supreme Court in New India Assurance Company Limited v. Genus Power Infrastructure Limited (2015) 2 SCC 424 and Cox and Kings Limited v. Sap India Private Limited (2024) 4 SCC 1 . 6. On the other hand, learned counsel for the respondents at the outset fairly submitted that the dispute between the applicant and respondent No.1 has arisen which requires resolution in the manner agreed to by the parties in the agreement. However, the application has been opposed only insofar as respondent No.2 is concerned on the ground that respondent No.2 is not a signatory to the agreement. 7. I have considered the rival submissions made on both sides and have perused the record. 8. The solitary issue which arises for consideration is whether respondent No.2 is a proper party to this application and whether an order of appointment of an arbitrator can be passed qua respondent No.2 also. In Cox and Kings Limited (supra), the Supreme Court has dealt with the doctrine of binding non-signatories to the arbitration agreement. The relevant paragraphs of the judgment are extracted below for the facility of reference: “70. The general method to figure out the parties to an arbitration agreement is to look for the entities who are named in the recitals and have signed the agreement. The signature of a party on the agreement is the most profound expression of the consent of a person or entity to submit to the jurisdiction of an Arbitral Tribunal. However, the corollary that persons or entities who have not signed the agreement are not bound by it may not always be correct. The signature of a party on the agreement is the most profound expression of the consent of a person or entity to submit to the jurisdiction of an Arbitral Tribunal. However, the corollary that persons or entities who have not signed the agreement are not bound by it may not always be correct. A written contract does not necessarily require that parties put their signatures to the document embodying the terms of the agreement. Therefore, the term “non-signatories”, instead of the traditional “third parties”, seems the most suitable to describe situations where consent to arbitration is expressed through means other than signature. A non-signatory is a person or entity that is implicated in a dispute which is the subject-matter of an arbitration, although it has not formally entered into an arbitration agreement. The important determination is whether such a non-signatory intended to effect legal relations with the signatory parties and be bound by the arbitration agreement. There may arise situations where persons or entities who have not formally signed the arbitration agreement or the underlying contract containing the arbitration agreement may intend to be bound by the terms of the agreement. In other words, the issue of who is a “party” to an arbitration agreement is primarily an issue of consent. 83. There may arise situations where persons or entities who have not formally signed the arbitration agreement or the underlying contract containing the arbitration agreement may intend to be bound by the terms of the agreement. In other words, the issue of who is a “party” to an arbitration agreement is primarily an issue of consent. 83. Reading Section 7 of the Arbitration Act in view of the above discussion gives rise to the following conclusions : first, arbitration agreements arise out of a legal relationship between or among persons or entities which may be contractual or otherwise; second, in situations where the legal relationship is contractual in nature, the nature of relationship can be determined on the basis of general contract law principles; third, it is not necessary for the persons or entities to be signatories to the arbitration agreement to be bound by it; fourth, in case of non-signatory parties, the important determination for the Courts is whether the persons or entities intended or consented to be bound by the arbitration agreement or the underlying contract containing the arbitration agreement through their acts or conduct; fifth, the requirement of a written arbitration agreement has to be adhered to strictly, but the form in which such agreement is recorded is irrelevant; sixth, the requirement of a written arbitration agreement does not exclude the possibility of binding non-signatory parties if there is a defined legal relationship between the signatory and non-signatory parties; and seventh, once the validity of an arbitration agreement is established, the Court or tribunal can determine the issue of which parties are bound by such agreement. 84. It is presumed that the formal signatories to an arbitration agreement are parties who will be bound by it. However, in exceptional cases persons or entities who have not signed or formally assented to a written arbitration agreement or the underlying contract containing the arbitration agreement may be held to be bound by such agreement. As mentioned in the preceding paragraphs, the doctrine of privity limits the imposition of rights and liabilities on third parties to a contract. Generally, only the parties to an arbitration agreement can be subject to the full effects of the agreement in terms of the reliefs and remedies because they consented to be bound by the arbitration agreement. As mentioned in the preceding paragraphs, the doctrine of privity limits the imposition of rights and liabilities on third parties to a contract. Generally, only the parties to an arbitration agreement can be subject to the full effects of the agreement in terms of the reliefs and remedies because they consented to be bound by the arbitration agreement. Therefore, the decisive question before the Courts or tribunals is whether a non-signatory consented to be bound by the arbitration agreement. To determine whether a non-signatory is bound by an arbitration agreement, the Courts and tribunals apply typical principles of contract law and corporate law. The legal doctrines provide a framework for evaluating the specific contractual language and the factual settings to determine the intentions of the parties to be bound by the arbitration agreement. 117. Section 7 of the Arbitration Act broadly talks about an agreement by the parties in respect of a defined legal relationship, whether contractual or not. Such a legal relationship must give rise to legal obligations and duties. In a corporate group, a company may have various related companies. The legal relationship must be analysed in the context of the underlying contract containing the arbitration agreement. The nature of the contractual relationship can either be formally encrusted in the underlying contract, or it can also be inferred from the conduct of the signatory and non-signatory parties with respect to such contract. However, we clarify that mere presence of a commercial relationship between the signatory and non-signatory parties is not sufficient to infer “legal relationship” between and among the parties. If this factor is applied solely, any related entity or company may be impleaded even when it does not have any rights or obligations under the underlying contract and did not take part in the performance of the contract. The Group of Companies doctrine cannot be applied to abrogate party consent and autonomy. The doctrine, properly conceptualised and applied, gives effect to mutual intent and autonomy. 123. The participation of the non-signatory in the performance of the underlying contract is the most important factor to be considered by the Courts and tribunals. The conduct of the nonsignatory parties is an indicator of the intention of the non-signatory to be bound by the arbitration agreement. 123. The participation of the non-signatory in the performance of the underlying contract is the most important factor to be considered by the Courts and tribunals. The conduct of the nonsignatory parties is an indicator of the intention of the non-signatory to be bound by the arbitration agreement. The intention of the parties to be bound by an arbitration agreement can be gauged from the circumstances that surround the participation of the non-signatory party in the negotiation, performance, and termination of the underlying contract containing such agreement. The UNIDROIT Principle of International Commercial Contract, 2016 provides that the subjective intention of the parties could be ascertained by having regard to the following circumstances: (a) preliminary negotiations between the parties; (b) practices which the parties have established between themselves; (c) the conduct of the parties subsequent to the conclusion of the contract; (d) the nature and purpose of the contract; (e) the meaning commonly given to terms and expressions in the trade concerned; and (f) usages. 127. In Cox & Kings, Surya Kant, J. observed that Reckitt Benckiser fixed a higher threshold of evidence for the application of the Group of Companies doctrine as compared to earlier decisions of this Court. This Court’s approach is Reckitt Benckiser is indicative of the fact that the mere presence of a group of companies is not the sole or determinative factor to bind a non-signatory to an arbitration agreement. Rather, the Courts or tribunals should closely evaluate the overall conduct and involvement of the non-signatory party in the performance of the contract. The nature or standard of involvement of the nonsignatory in the performance of the contract should be such that the non-signatory has actively assumed obligations or performance upon itself under the contract. In other words, the test is to determine whether the non-signatory has a positive, direct, and substantial involvement in the negotiation, performance, or termination of the contract. Mere incidental involvement in the negotiation or performance of the contract is not sufficient to infer the consent of the non-signatory to be bound by the underlying contract or its arbitration agreement. The burden is on the party seeking joinder of the non-signatory to the arbitration agreement to prove a conscious and deliberate conduct of involvement of the nonsignatory based on objective evidence. 154. The burden is on the party seeking joinder of the non-signatory to the arbitration agreement to prove a conscious and deliberate conduct of involvement of the nonsignatory based on objective evidence. 154. Although the issue before us largely concerns the application of the Group of Companies doctrine in the Indian context, this Court cannot be oblivious to the changing currents in the international arbitration jurisprudence. In deciding the contours of the Group of Companies doctrine, we have reiterated the general legal proposition that non-signatory persons or entities can also be bound by an arbitration agreement. The basis for such joinder stems from the harmonious reading of Section 2(1) (h) along with Section 7 of the Arbitration Act. Since the scope of this judgment was limited to the Group of Companies doctrine, any authoritative determination given by this Court in the course of this judgment should not be interpreted to exclude the application of other doctrines and principles for binding non-signatories to arbitration agreements. However, we also need to be mindful of the fact that the Indian courts and tribunals should not adopt an overzealous approach to extending the jurisdiction of the Arbitral Tribunals to nonsignatory parties merely on the ground that they are part of a corporate group. 170. In view of the discussion above, we arrive at the following conclusions: 170.1. The definition of “parties” under Section 2(1)(h) read with Section 7 of the Arbitration Act includes both the signatory as well as nonsignatory parties; 170.2. Conduct of the non-signatory parties could be an indicator of their consent to be bound by the arbitration agreement; 170.3. The requirement of a written arbitration agreement under Section 7 does not exclude the possibility of binding non-signatory parties; 170.4. 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; 170.5. 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 non-signatory party to the arbitration agreement; 170.6. The principle of alter ego or piercing the corporate veil cannot be the basis for the application of the Group of Companies doctrine; 170.7. The principle of alter ego or piercing the corporate veil cannot be the basis for the application of the Group of Companies doctrine; 170.7. 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; 170.8. 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. Resultantly, the principle of single economic unit cannot be the sole basis for invoking the Group of Companies doctrine; 170.9. The persons “claiming through or under” can only assert a right in a derivative capacity; 170.10. The approach of this Court in Chloro Controls to the extent that it traced the Group of Companies doctrine to the phrase “claiming through or under” is erroneous and against the well-established principles of contract law and corporate law; 170.11. 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; 170.12. 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 170.13. 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 non-signatories to the arbitration agreement.” 9. Thus, from the aforesaid enunciation of law, it is evident that the definition of “parties” under Section 2(1)(h) read with Section 7 of the Act includes the signatory as well as non-signatory parties. The conduct of nonsignatory party could be an indicator of consent to be bound by the arbitration agreement. It has also been stated that at the referral stage, the referral court should leave it for the arbitral Tribunal to decide whether non-signatory party is bound by the arbitration agreement or not. 10. In the backdrop of the aforesaid well-settled legal propositions, we may advert to the facts of the case in hand. 11. Admittedly, respondent No.2 is the husband of respondent No.1. 10. In the backdrop of the aforesaid well-settled legal propositions, we may advert to the facts of the case in hand. 11. Admittedly, respondent No.2 is the husband of respondent No.1. It is the case of the applicant that respondent No.2 has been interacting and negotiating the terms of the agreement and business on behalf of respondent No.1 with the applicant. The communication dated 27.01.2024 sent by respondent No.2 to the applicant is extracted below for the facility of reference: “Date:- 27.01.2024 To Sri M.Prabhakar Rao Sir Managing Director, Nuziveedu Seeds Sir, I, B.Rajasekhar Reddy husband of B.Sreedevi, resident of Gadwal, do hereby submit that 1) I submit that during the kharif season for the year 2023-2024 I had supplied 22319 kgs, apart from this I will supply 12,000 kgs to 15,000 kgs till 20.02.2024, since I did not received the material from the farmers I could not supply the required bulk material to you. 2) I submit that during the year 2023 many of the farmers did not re-sow since weather was not supportive and at many places PLD was done to the lands because of which we could procure the material. 3) I could not procure the bulk material from the farmers and also at the same time I could not paid the arrears to the farmers because of which I could not procure the bulk material and supply the same to you. Therefore, through this representation I request you to kindly understand my situation and solve the problem amicably. Thanking you, Yours faithfully, Sd/- (B.Rajasekhar Reddy) H/o. B.Sreedevi // TRUE TRANSLATION //” 12. Thus prima facie respondent No.2 seems to be involved with the applicant company and prima facie seems to be bound by the arbitration agreement. The contention that the communication dated 27.01.2024 was written by respondent No.2 under the coercion and duress does not deserve acceptance as no material is placed on record to draw such an inference. The assertion of respondent No.2 is vague and bald and therefore the same does not deserve acceptance. Thus, it is evident that the dispute has arisen between the parties which requires resolution in the manner agreed to by the parties in the agreement. 13. Therefore, a former Judge of this Court Mr. The assertion of respondent No.2 is vague and bald and therefore the same does not deserve acceptance. Thus, it is evident that the dispute has arisen between the parties which requires resolution in the manner agreed to by the parties in the agreement. 13. Therefore, a former Judge of this Court Mr. Justice Challa Kodanda Ram (resident of Plot No.68, Road No.71, Phase III, Jubilee Hills, Hyderabad-34; Mobile No.8331010695) is appointed as sole arbitrator to adjudicate the dispute between the parties. 14. The parties undertake to appear before the sole arbitrator on 14.09.2024 at 11:00 a.m. along with a copy of this order. 15. Thereupon, the sole arbitrator shall proceed with the arbitral proceedings in accordance with law. 16. However, it is clarified that the observations with regard to respondent No.2 being a proper party to the lis has been made only for the purpose of deciding this petition under Section 11(6) of the Act. Needless to state that respondent No.2 shall be at liberty to raise an objection before the arbitral Tribunal that he is a nonsignatory to the agreement and is therefore not bound by the arbitration agreement. In case such a contention is raised before the arbitral Tribunal, the same shall be dealt with by the arbitral Tribunal. 17. Accordingly, the Arbitration Applications are disposed of. As a sequel, miscellaneous petitions, pending if any, stand closed. There shall be no order as to costs.