GUJARAT COMPOSITE LIMITED versus A INFRASTRUCTURE LIMITED & ORS. on 1 May 2023

[2023] 5 S.C.R. 103

GUJARAT COMPOSITE LIMITED

v.

A INFRASTRUCTURE LIMITED & ORS.

(Civil Appeal No. 3259 of 2023)

MAY 01, 2023

[DINESH MAHESHWARI AND SUDHANSHU DHULIA, JJ.]

Arbitration and Conciliation Act, 1996 – s.8 – Arbitrabilityof the dispute in question – Held: Except the principal licenceagreement, none of the other agreements contained any arbitrationclause, even if they related to the same property and also involvedthe appellant and the respondent No.1 – Even if the original licenceagreement is said to be the genesis of the contractual relations ofthe appellant and the respondent No.1, that does not ipso facto leadto the availability of the arbitration agreement in relation to thedispute in question emanating from the tripartite agreement andwhich cannot be determined without reference to the said tripartiteagreement and without involving all the parties thereto – Thus, nodispute resolution process, including arbitration, could beundertaken in relation to the subject-matter of the suit withoutreference to the terms of tripartite agreement and without involvingthe bank-respondent No.2 – This is apart from the fact that theother elements of dispute pertaining to the subsequent purchaserstoo cannot be resolved in any forum without reference to the tripartiteagreement and its amended clause, which did not provide forarbitration – Thus, there is no doubt about non-existence ofarbitration agreement in relation to the dispute in question –Substantive reliefs claimed in the suits fall outside the arbitrationclause in the original licence agreement – Therefore, the view takenby the Commercial Court and the High Court in declining the prayerof the appellant for reference to arbitration u/s.8 cannot be faulted– Arbitration and Conciliation (Amendment) Act, 2015.

Dismissing the appeals, the Court

HELD: 1.1 Except the principal agreement dated07.04.2005, none of the other agreements contained anyarbitration clause, even if they related to the same property and

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Aalso involved the appellant and the respondent No. 1. The latertransactions involved other parties too like the tripartiteagreement dated 06.07.2006 whereby the respondent No. 2 banksanctioned loan to the respondent No. 1 and then, supplementalto the said tripartite agreement for dealing with the deposit oftitle deeds. Similarly, the other deeds of conveyance datedB23.01.2015 involve the appellant and the other defendants. Thesubmissions made by the appellant with reference to theamendment of Section 8 of the Act of 1996 and the later decisionsof this Court in interpretation of the amended Section 8 do notinure to the benefit of the appellant. This is for the simple reasonCthat no such conjunction can be provided to the original licenceagreement dated 07.04.2005 and the tripartite agreementinvolving the Bank dated 06.07.2006 and 23.01.2008, wherebythe arbitration clause could be held applicable to the tripartiteagreement too. This is apart from the fact that in the frame of thesuit and various other reliefs claimed, involving subsequentDpurchasers too and the allegations of fraud, the dispute cannotbe said to be arbitrable at all. The present one cannot be said tobe a case involving any “doubt” about non-existence of arbitrationagreement in relation to the dispute in question. [Paras 17,17.1][137-F-G; 138-A-C]

E1.2 There being no doubt about non-existence of arbitrationagreement in relation to the entire subject-matter of the suit,and when the substantive reliefs claimed in the suits fall outsidethe arbitration clause in the original licence agreement, the viewtaken by the High Court does not appear to be suffering fromFany infirmity or against any principle laid down by this Court.Even if by reference to remote pedigree, the original licenceagreement is said to be the genesis of the contractual relationsof the appellant and the respondent No. 1, that does not ipsofacto lead to the availability of the arbitration agreement in relation

to the dispute in question, which emanates from the tripartiteGagreement and which cannot be determined without reference tothe said tripartite agreement and without involving all the partiesthereto. In other words, no dispute resolution process, includingarbitration, could be undertaken in relation to the subject-matterof the suit without reference to the terms of tripartite agreementHand without involving the bank- respondent No.2. This is apart A

from the fact that the other elements of dispute pertaining to thesubsequent purchasers too cannot be resolved in any forumwithout reference to the tripartite agreement and its amendedclause, which did not provide for arbitration. Thus, the ancestryof the tripartite agreement, in the facts of the present case, doesnot lead to the result desired by the appellant. Therefore, evenon the principles enunciated in Vidya Drolia, the prayer of thepresent appellant for reference to arbitration under Section 8cannot be granted. On the facts and in the circumstances of thepresent case and in the nature of transactions as also the natureof reliefs claimed in the suit, the view taken by the CommercialCourt and the High Court in declining the prayer of the appellantfor reference to arbitration cannot be faulted. [Paras 17.2, 18,18.1 and 20][138-D-H; 140-B-C]

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Vidya Drolia and Ors. v. Durga Trading Corporation(2021) 2 SCC 1; Ameet Lalchand Shah and Ors. v.Rishabh Enterprises and Anr. (2018) 15 SCC 678 :[2018] 6 SCR 1001; ONGC Ltd. v. DiscoveryEnterprises (2022) 8 SCC 42; Intercontinental Hotelsv. Waterline Hotels (2022) 7 SCC 662 – distinguished.

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Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya & Anr.(2003) 5 SCC 531 : [2003] 3 SCR 558; S. N. Prasad v.Monnet Finance Ltd. and Ors. (2011) 1 SCC 320 :[2010] 13 SCR 207; Deutsche Bank Home Finance Ltd.v. Taduri Sridhar and Anr. (2011) 11 SCC 375 : [2011]5 SCR 674; Himangi Enterprises v. Kamaljeet SinghAhluwalia (2017) 10 SCC 706 : [2017] 10 SCR 139 –referred to.

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[2023] 5 S.C.R.

ACIVIL APPELLATE JURISDICTION: Civil Appeal No. 3259of 2023.

From the Judgment and Order dated 23.04.2018 of the High Courtof Gujarat at Ahmedabad in FA No. 588 of 2018.

WithBCivil Appeal No. 3260 of 2023.

Nikhil Goel, Aniruddha Deshmukh, Adhitya Koshy Roy,Ms. Naveen Goel, Advs. for the Appellant.

Ramesh Singh, Sr. Adv., Biju Mattam, Rahul Singh, N D Kaushik,Satish Kumar, Avishkar Singhvi, Rohan Sharma, Pradhuman Gohil,CMrs. Taruna Singh Gohil, Ms. Ranu Purohit, Alapati Sahithya Krishna,Dushyant Parashar, Bhaskar, Manu Parashar, Dinesh Pandey,Harshvardhan Singh Rathore, Muthuvel Palani M., Advs. for theRespondents.

The Judgment of the Court was delivered byDDINESH MAHESHWARI, J.

Leave granted.

2. These appeals have been preferred against the commonjudgment and order dated 23.04.2018 passed by the High Court of GujaratEwhereby, the High Court has dismissed First Appeal Nos. 588 of 2018and 587 of 2018 filed by the appellant against the order passed by theCommercial Court, Ahmedabad dismissing the applications under Section8 of the Arbitration and Conciliation Act, 1996[1] in Commercial Civil SuitNos. 90 of 2017 and 91 of 2017 respectively. Both these appeals, involvingcommon questions concerning arbitrability of the dispute, have been heardFtogether and are being taken up for disposal by this common judgment.

3. It would be apposite to take note of the factual and backgroundaspects to the extent relevant for the points arising for determination inthe present appeals. Given the commonalities of the factual chronology,it would be proper to accord primacy to facts of the lead matter i.e., theGappeal arising from SLP (C) No. 16932 of 2018 [relating to First AppealNo. 588 of 2018 in the High Court, arising from the order passed inCommercial Civil Suit No. 90 of 2017], apart from noticing a few factsthat may be of relevance in the cognate appeal.

H1 Hereinafter also referred to as ‘Act of 1996’ or simply ‘the Act’.

H1 Hereinafter also referred to as ‘Act of 1996’ or simply ‘the Act’.

3.1. On 07.04.2005, the appellant herein entered into two licenceagreements with respondent No. 1 and the sister concern of respondentNo. 1[2] (against whom the cognate appeal is filed). The first agreementwith respondent No. 1 was for licensing the operation of twomanufacturing units of the appellant, being A.C. Sheet and CementGrinding, with the licensing fee per quarter set at Rs. 5,00,000/- (RupeesFive Lakh) for the combined use of land and building as well as factorymachinery and equipment. The second agreement with the sister concernof respondent No. 1 was for licensing the operation of anothermanufacturing unit of the appellant, being A.C. Pressure Pipe, with thecumulative licensing fee per quarter set at Rs. 2,00,000/- (Rupees TwoLakh). Both agreements were of the same nature and were executedfor a term of 7 years (84 months). The relevant clauses of the agreemententered into between the appellant and respondent No. 1 could be usefullyreproduced as under: - “3. The duration of the Licence for manufacture will be for aperiod of 84 months, extendable to a further period of 84 monthson mutual consent from the date on which the LICENSEE takesover production and manufacturing facilities after completion ofthe necessary inspection and the compilation of inventories asstipulated herein. The said takeover would be fully and dulyevidenced by acknowledgement of both the parties in writing, andwill constitute a pan of this Licence Agreement.

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8. LICENSEE shall pay quarterly licence fee of Rs.1,00,000(Rupees One lakh only) per quarter towards the use of land andbuilding including office building and Rs.4,00,000 (Rupees Fourlakhs only) per quarter towards the use of factory machinery &equipments. The Licence fee shall, be paid within 21 days of endof the quarter.

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12. LICENSEE shall not be entitled to mortgage, assign, licenceor sublet the said Unit. However, LICENSEE shall be at liberty tomortgage/ charge, Raw Material stock, Finished Goods book debtsand equipment brought in and belonging to LICENSEE under thisarrangement which shall be kept separately identified and insured.*********

2 Hereinafter referred to as ‘sister concern’.

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A15. The LICENSOR will be entitled to a Bonus, in addition tolicence fee payable under Clause 8, in consideration of the use ofits manufacturing facilities, licence, brand goodwill etc, as workedout below:

i. 14% of the profit earned will be the retained profit in thisBarrangement and balance 86% shall be distributable as under:

a) The Bonus payable by LICENSEE to LICENSOR underthis Clause would be 43% of the divisible profit minus thelicence fee payable as per Clause 8 above. In the event theamount of Bonus works out to be negative, then LICENSORCshall be liable to reimburse this amount to LICENSEE onquarter to quarter basis.

b) The retained profit shall always belongs to theLICENSEE during the continuation or upon determinationof the licence period.

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c) The computation of the Profit & Loss and its distributionshall be done quarterly.

ii. Profit for this purpose means operating profits/losses earnedduring the quarter, after deducting interest on working capitaland depreciation on the assets added by LICENSEE, but beforeEcharging the licence fee specified in Clause 8. The operatingprofit shall be worked out on the basis of Accepted Accountingprinciples.

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17. The LICENSEE at its absolute discretion may advance someamount to the LICENSOR on the terms/conditions/security asmay be mutually agreed to facilitate smooth operation of thisagreement.

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32. Disputes if any, arising out of this Agreement shall be referredto arbitration of a Sole Arbitrator if mutually agreed, failing whichArbitrator will be appointed as per provisions of Arbitration andConciliation Act, 1996. The venue of Arbitration will be as decidedmutually but preferably at Delhi.”

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3.2. On the same date i.e., 07.04.2005, a supplementary agreementwas also executed between the appellant-licensor, respondent-licensee,and the sister concern as confirming party. As per the terms of thisagreement, appellant requested respondent No. 1 for some financialassistance to arrive at a settlement with its creditors, employees as wellas statutory authorities for discharging their dues. The respondent No.1, therefore, agreed to advance a sum of Rs. 5,30,00,000/- (Rupees FiveCrore Thirty Lakh) to the appellant with interest at 10% p.a. and asconsideration for the financial assistance rendered, it was agreed thatrespondent No. 1 would be permitted to create a mortgage on the threelicensed manufacturing units in order to secure the ad hoc advance.This advance was recoverable in ten quarterly instalments commencingfrom the 90[th] day of payment of the ad hoc advance out of the licencefee and bonus under clauses 8 and 15 of the main agreement. A fewrelevant clauses of the supplementary agreement dated 07.04.2005 couldalso be usefully reproduced as under: - “NOW, THEREFORE, in consideration of the premises and themutual covenants set forth herein, and also in the main LicenseAgreement dated 7[th] April 2005 and for other good and valuableconsiderations, the parties hereto hereby agrees as follows:

1. The LICENSOR requested the LICENSEE for some financialassistance to arrive at an amicable settlement with the creditors;employees and statutory authorities for discharging of their dues.

2. The LICENSEE, in consideration of facilitating the smoothoperation of the main agreement dated 7[th] April 2005 betweenLICENSOR and CONFIRMING PARTY and main agreementdated 7[th] April 2005 between LICENSOR and LICENSEEincluding smooth operation of A. C. Pipes, A. C. Sheets andCement Units, have agreed to advance a sum of Rs. 5,30,00,000(Rupees Five Crores Thirty Lakhs only) to the LICENSORfetching interest at 10% per annum to be calculated at monthlyrests after receipt of the approval of LICENSOR’S securedcreditors as per Clause 4 of the main agreement and upon creationof mortgage on A.C. Sheet, A. C. Pipe and Cement manufacturingUnit including building, plant, and machineries in favour ofLICENSEE for securing the above adhoc advance. LICENSORshall use the said (illegible) for entering into a settlement with itssecured creditors by making a down payment towards their dues A

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Aand for payment of balance in an agreed manner and for obtainingtheir consent to the above agreement and to pay and dischargevarious other pressing liabilities of LICENSOR including paymentof dues of workers, statutory liabilities etc. This advance alongwith interest thereon shall be recoverable in Ten. (10) quarterlyinstalments, commencing from the 90[th] day of the payment of ad-Bhoc advance amount, out of the licence fee payable as per Clause8 and Bonus as per Clause 15 of the main Agreement.”

3.3. Subsequently, clauses 11 and 15 of the original licenceagreement, (pertaining to repurchase of assets and entitlement of licensorto bonus) were amended by means of execution of an amendmentCagreement dated 25.06.2005 between appellant and respondent No. 1.The amended clauses read as under: -

“Clause- 11: LICENSOR will allow LICENSEE to makenecessary modification/ addition/ changes in the machinery, buildingor any other fixed assets for smooth operation of the plant. Minorexpenses to the extent of Rs.25000/- (Rupees Twenty FiveThousand only) may be debited to P&L Account and the expensesin excess of specified amount will be capitalized and may befunded by both the parties in the following ratio.

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i) Licensor : 43%E

ii) Licensee : 57%

Such expenses to be decided mutually and duly minuted.Depreciation on these additions to the fixed assets shall becalculated at the rates specified in the Companies Act as perFStraight Line Method. Upon determination of the license periodthe LICENSOR would be under obligation to buy these assets atthe Written Down Value.

b) Clause No.15 : The LICENSOR will be entitled to a Bonus, inaddition to license fee payable under Clause-8, in consideration ofthe use of its manufacturing facilities, license, brand goodwill etc.Gas worked out below.

i) The Bonus payable by LICENSEE to LICENSOR under thisClause would be 43% of the profit. The Bonus so payable shallbe reduced by the amount of License fee payable as per Clause-8 of the Agreement. However, in the event of loss, the LICENSOR

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shall be liable to reimburse 43% of the total loss to LICENSEE ona quarter-to-quarter basis.

ii) Computation of the Profit & Loss and its distribution shall beprovisionally based on the annual audited accounts.

iii) Profit/Losses for this purpose means profits/losses earned, afterdeducting interest on working capital and depreciation on the assetsadded by the LICENSEE but before changing the license feespecified in Clause No. 8. The profit/loss shall be worked out onthe basis of accepted accounting principles.”

3.4. Thereafter, on 06.07.2006, a tripartite agreement was executedby and amongst the appellant, respondent No. 1 and respondent No. 2(Bank of Baroda[3]) upon sanctioning of a loan to the tune of Rs. 500 lakhto respondent No. 1. The appellant agreed to create first charge onfixed assets, which was to be released only with the consent of respondentNo. 1. However, it was also stipulated that if payment of corporate loanwas made directly by the appellant to the bank, the first charge could bereleased without the consent of respondent No. 1. The relevant clausesof the tripartite agreement dated 06.07.2006 could be usefully reproducedas follows: - “WHEREAS Bank of Baroda has sanctioned Corporate loan ofRs.500 lacs to M/s. A Infrastructure Limited on the terms &conditions stipulated in the sanction letter and to secure this aboveloan in addition to other conditions and corporate guarantee alsoprovided by M/s. Gujarat Composite Limited.

Further M/s. Gujarat Composite Limited has agreed to createfirst charge on the fixed assets as stipulated in the sanctionedletter in favour of Bank of Baroda.

Further M/s. Gujarat Composite Limited, has agreed that firstcharges will be released by Bank of Baroda only with the consentof M/s. A Infrastructure Limited even after repayment of the saidloan. Bank of Baroda further agreed to release the first chargeonly with the consent of M/s. A Infrastructure Limited. Howeverin case M/s. Gujarat Composite Ltd. will make payment of thiscorporate loan of Rs.500 lacs directly to Bank of Baroda. Bankof Baroda will release the first charges without the consent ofM/ s. A Infrastructure Limited”

3 Hereinafter also referred to as ‘the bank’.

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3 Hereinafter also referred to as ‘the bank’.

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A3.5. An amendment was introduced to the aforementionedtripartite agreement on 23.01.2008, so as to restrict the transfer of titledeeds of the land of appellant during the term of licence agreements.The amended condition reads as follows: - “Further M/ s. Gujarat Composite Limited, has agreed that FirstBCharge will be released by Bank of Baroda only with the consentof M/s. A Infrastructure Limited even after repayment of the saidloan. Bank of Baroda further agreed to release the First Chargeonly with the consent of M/s. A Infrastructure Limited. However,in case M/s. Gujarat Composite Ltd. will make payment of duesagainst this corporate loan of Rs.500 lacs directly to Bank ofCBaroda, Bank of Baroda will release the First Charge without theconsent of M/s. A Infrastructure Limited. But M/s GujaratComposite agrees that the title Deeds of the land will not betransferred to any other party during the currency of LicenceAgreements executed between M/s. A Infrastructure Limited andDM/s. Gujarat Composite Ltd. “

3.6. The dispute in the present matter arose after respondent No.1, by means of representation dated 22.02.2012, invoked clause 3 of theoriginal licence agreement and called upon the appellant to extend theterm of the licence agreement by a further period of 84 months. ThisEextension was sought because appellant was unable to pay certain duesowed to respondent No. 1 and sought time to arrange for payment. Inresponse to this representation, the appellant, through letter dated29.02.2012, denied the proposal of respondent No. 1 to extend the termof licence agreement as also the projected outstanding dues. Later, on06.04.2012, which was the date of completion of tenure of the originalFlicence agreement, respondent No. 1 did not hand over possession andinstead, declared its intention to continue with possession. Between April2012 and March 2015, according to the appellant, certain attempts weremade to resolve the dispute, but to no avail. It is also a part of the caseof respondent No. 1 that certain parcels of land were transferred toGrespondent Nos. 3 to 5 in January 2015.

3.7. Then, on 07.04.2015, the appellant issued notice to respondentNo. 1 claiming recovery of possession of the manufacturing units aswell as certain monetary dues. In the notice, the appellant stated that thelicence had expired by efflux of time without any extension, henceHpossession by respondent No. 1 was illegal. Further, the appellant claimed that there was a huge outstanding payable by respondent No. 1. In thereply dated 20.04.2015, respondent No. 1 disputed these claims andasserted that the appellants had not cared to pay back its legitimatelyclaimed amounts. Yet again, between 26.08.2015 to 17.11.2016, attemptswere made to resolve the dispute but there was no positive outcome.Seeing that the attempts to resolve the dispute had failed, on 28.02.2017,the appellant served a notice on respondent No. 1 under Section 21 ofthe Act of 1996 invoking the provision for arbitration contained in thelicence agreement (clause 32). Respondent No. 1 replied to this noticeon 27.03.2017, contesting the arbitrability of the dispute since it wasinextricably interconnected with other related transactions and unresolvedissues arising therefrom. It was asserted that as the jurisdiction of thearbitrator was derived from the agreement, adjudication of the allegeddispute would go beyond the scope of the said agreement.

3.8. In this backdrop of events, the appellant preferred a compositearbitration petition before the Gujarat High Court on 26.04.2017 beingIAAP No. 63 of 2017 against respondent No. 1 and its sister concern.On the other hand, respondent No. 1-A Infrastructure Limited-filed acommercial civil suit bearing No. 90 of 2017 before the CommercialCourt at Ahmedabad on 27.04.2017 with the following defendants:

1. Gujarat Composite Limited

2. Bank of Baroda

3. Real Home Corporation - a partnership firm

4. M/s. Raj Corporation (Confirming Party) - partnership firm

5. RJD Buildcon Ltd.

3.8.1. In the said suit, the respondent No. 1 (the plaintiff) madethe prayers for multiple reliefs in the following terms: - “33) The Plaintiff therefore prays that:

(A) This Hon’ble Court may be pleased to direct the defendantNo.1 to pay to the Plaintiff herein a sum of Rs.32,66 crores withinterest @ 14% per annum from the date of suit till realizationherein under this decree and any further orders to be passed bythis Hon’ble Court; (B) This Hon’ble Court may be pleased to hold and declare thatthe Deeds of Conveyance dated 23rd January, 2015 registered AB

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Avide registration no. 742 and 750 executed by defendant No.1 infavour of defendant Nos.3 and 5, as null and void;

(C) This Hon’ble Court may be pleased to permanently restrainthe defendant Nos.1, 3, 4 and 5 or their agent, executors, oradministrators from disturbing or obstructing the plaintiffsBoccupation possession of the suit property till the discharged; (D) This Hon’ble Court may be pleased to direct the defendantNo.2 Bank not to release original title papers and other relevantdocuments in favour of defendant Nos.1, 3 and/or 4; (E) This Hon’ble Court may be pleased to hold and declare thatCthe Conveyance Deed dated 23[rd] January, 2015 entered intobetween the defendant No. 1 and defendant No. 3 to 5 as null andvoid; (F) This Hon’ble Court may be pleased to direct the defendantNo. 2 to take over all the current assets of the plaintiff pertainingDto or in connection with the operation of A.C. Sheet and Cement.Manufacturing unit under license agreement at their book valueand make payment to the plaintiff for the current assets availableat the time of handing over of the possession, if required.”

3.9. An application was preferred by the appellant under SectionE8 of the Act of 1996 in the said commercial civil suit bearing No. 90 of2017 for reference of the dispute to arbitration. In the written statementof the appellant, objection was also raised against the jurisdiction of theCommercial Court, given the arbitration clause in the licence agreement.Respondent No. 1 filed a reply to the application and the appellant filedFan affidavit in rejoinder to the aforesaid reply on 03.07.2017.

3.10. In relation to the said application moved by the appellant interms of Section 8 of the Act of 1996, another material factor may alsobe noticed. Two memos (pursis), came to be filed before the CommercialCourt on 06.12.2017. In one of the memos, the respondent Nos. 3 to 5(subsequent purchasers of the property in question) purportedly statedGthat they were not having any objection if the dispute concerning themwas resolved by arbitration proceedings. The appellant, by another memoof the even date, suggested that the tripartite amended agreement waswith reference to the licence agreement and it was agreed that till thetime of the defendant No. 1 (appellant) making payment of a sum of Rs.

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5 crore to the plaintiff, the title deeds of the immovable property wouldremain with the bank. The appellant suggested that with a view that thedispute between the parties should be resolved by arbitration proceedings,keeping all contentions open, they would be depositing the said amountof Rs. 5 crore in the Court and that in this manner ‘the dispute withdefendant No. 2 would be ended’ and then, the bank who was handedover the title deed, would deposit the same in the Court and the Courtwould be pleased to place the same in sealed cover till the dispute of theother parties was not resolved by arbitration proceedings.

3.11. Before adverting to the order passed by the CommercialCourt on the prayer of the appellant for reference to arbitration in termsof Section 8 of the Act of 1996, we may complete the narrationconcerning the parallel proceedings in terms of Section 11 of the Act of1996, even while deviating a little from the chronology. The said IAAPNo. 63 of 2017 was withdrawn on 07.07.2017, as it was a compositepetition against both respondent No. 1 and its sister concern with libertyto file fresh petitions. Thereafter, two separate IAAPs being IAAP No.90 of 2017 and 89 of 2017 were filed by the appellant but, the proceedingstherein ultimately culminated in the common order dated 15.12.2017.The High Court dismissed those applications in view of the fact that theprayer of the appellant in terms of Section 8 of the Act had been rejectedby the Commercial Court on 13.12.2017 but, with liberty to the appellantto file afresh under Section 11 of the Act after decision on the challengeto the order so passed by the Commercial Court. Be that as it may, thisaspect is not as such relevant for the present purpose and could be leftat that.

4. The Commercial Court at Ahmedabad, in the order dated13.12.2017, rejected the application of the appellant under Section 8 ofthe Act of 1996. It was held that there was no arbitration clause in thetripartite agreement and no reference had been made to the original orsupplementary licence agreement to give effect or consider the arbitrationclause as a part and parcel of the tripartite agreement. While referringto clause 32 of the Licence Agreement dated 07.04.2005, the Courtobserved that it was explicitly clear that the arbitration clause wasapplicable to the appellant and respondent No. 1, specifically in referenceto the original licence agreement and supplementary licence agreementbut the same could not be extended to apply to subsequent transactionsand agreements with different parties.

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A4.1. In consonance with the aforementioned observations, theCommercial Court also held that there must be a valid arbitrationagreement in order to invoke the powers of the Court to refer the partiesto arbitration under Section 8 of the Act of 1996. It was further observedthat persons who are not parties to the arbitration agreement cannot bereferred to arbitration, as the binding effect would only apply to theBparties thereto, i.e., the appellant and respondent No. 1. Hence, if thedispute was between parties and non-parties to the arbitration agreement,appointment of arbitrator could only be made with respect to the parties.The relevant parts of the order passed by Commercial Court could beusefully reproduced as under: - C

“15….As such, no arbitration clause seems to have been insertednor any reference has been made as to the License Agreementor Supplementary License Agreement executed between theplaintiff and defendant No. 1 so as to give effect and to consideras a part and parcel of the tripartite agreement executed betweenthe plaintiff, defendant No. 1 and defendant No. 2.

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16. Even perusing item No. 32 of the Licence Agreement dated07/04/2005 executed between the plaintiff and defendant No. 1wherein it has been expressly agreed upon between the partiesthereto that dispute, if any, arising out of this Agreement shallEbe referred to arbitration…..Thus, it is explicitly clear that thearbitration clause is binding to the plaintiff and defendant No. 1only and that too pertaining to the Licence Agreement/Supplementary Licence Agreement and cannot be given effectand extended and made applicable to the subsequent transactionsand/or agreements so executed between the plaintiff andFdefendant No. 1 with the strangers.

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ARBITRATION AGREEMENT:

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ARBITRATION AGREEMENT:

17. Now the question arises is as to what is an “arbitrationagreement” and/or “a valid arbitration agreement”? To meetwith the aforesaid issue, the provisions of Section 7 of theArbitration Act requires to have a glance wherein the arbitrationagreement means an agreement between the parties to submit toarbitration of or certain disputes which have arisen or which mayarise between them in respect of a definite legal relationship,whether contractual or not.

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18. It is further provided that the arbitration agreement must be inwriting and signed by the parties and also in exchange of statement– defence in which the existence of the agreement is alleged byone party and not denied by the other party.

19. Thus, considering the facts of the case on hand while applyingthe provisions of Section 7 of the Arbitration Act, the powers ofthe Court to refer the parties to arbitration are subject to fulfilmentof the required conditions i.e. there should be an arbitrationagreement and if the Court finds that no valid arbitration agreementexists between the parties, then to invoke the powers underSection 8 and the issue thereof does not arise.

20. Hence, on the aforesaid account and as discussed in theforegoing paragraphs, the clause of arbitration so inserted isbetween the plaintiff and defendant No.1 as inserted in the LicenceAgreement and the same cannot be applied to the subsequenttransactions and with the persons who are not the parties to thearbitration agreement who cannot be compelled to or referred toarbitration. Hence, in view of the aforesaid, the arbitration clause,the binding effect applies to the plaintiff and defendant No.1 onlyand cannot be extended to the rest, admittedly who are not theparties to the arbitration agreement.

21. Thus, the sum and substance of the aforesaid discussion isthat the reference to the arbitration is possible only if there is avalid arbitration agreement between the parties, but if the disputeis between the parties to an arbitration with the other parties asalso non-parties to the arbitration agreement, a reference to thearbitration or even the appointment of the arbitrator can only bemade with respect to only the parties to the arbitration agreementand not the non-parties.”

4.2. In terms of the requirements of Section 8 of the Act of 1996the Commercial Court held that the matter could be referred to arbitrationonly if it were a part of the subject-matter of the agreement. The reliefssought by the plaintiff involved its challenge to the conveyance deeds asviolative of the undertaking submitted before the Industrial Tribunal asalso the fact that the transaction was entered into during the operationof stay granted by the High Court[4]. Thus, this would not fall within the 4 We have not elaborated on the other litigations wherein the said orders were passed,for being not entirely necessary in relation to the core question involved in the matter.

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Ascope of adjudication. The Commercial Court further held that the issueof mortgage was not arbitrable. In essence, the considerations of theCommercial Court had been that the relief sought by the plaintiff relatedto several other transactions which did not provide for arbitration as adispute resolution mechanism. It was observed that the challenge to theconveyance deed and also the relief sought against the bank to not releaseBdocuments in favour of appellant would only be capable of adjudicationby the Courts and could not be resolved by arbitrator.

4.3. Another ancillary observation had been that the conduct ofrespondent Nos. 3 to 5 would indicate collusion with the appellant duringpendency of litigation. Thus, in substance, it was held that the issues inCquestion were not connected with the licence agreement and that therewas no valid arbitration agreement between the plaintiff and the rest ofthe defendants apart from defendant No. 1 (appellant). The CommercialCourt further clarified that a partial reference to arbitration would not bepossible because the cause of action could not be split into separateDparts.

5. In appeal, the decision of the Commercial Court was upheld bythe High Court, after extensively taking note of the material aspects ofthe pleadings in plaint and the rival submissions as also the principlesenunciated in the cited decisions, with the finding that it would not beEproper to bifurcate the disputes in terms of arbitrable and non-arbitrabledisputes.

5.1. As regards the suit in respect of a matter which falls partlywithin and partly outside the arbitration agreement, and also involvesnon-parties as well as parties, it was held that Section 8 of the Act ofF1996 would not be attracted, in reference to several decisions of thisCourt. The High Court observed that the licence agreements were onlyexecuted between the appellant and respondent No. 1 and respondentNos. 2 to 5 were not party to the agreement. There was a tripartiteagreement between the appellant, respondent No. 1 and the bank,however, it was an admitted position that no arbitration agreement existedGin that regard. Further, the tripartite agreement was an independentagreement for mortgage by deposit of title deeds. It was further observedby the High Court, as had also been observed by the Commercial Court,that the appellant had breached the injunction granted by the High Courtas well as the undertaking before the Industrial Tribunal by selling someHof the properties to respondent Nos. 3 to 5. Referring to the plaint averments, the High Court took note of the reliefs sought by respondentNo. 1 and the parties against whom reliefs were sought as also thepleadings with respect to cause of action in the following words: - “[8.5] In the present case as observed herein above there arelicense agreements containing the arbitration clause, executedbetween the plaintiff and the original defendant No.1 on one hand.Admittedly, the original defendant Nos.2 to 5 are not party to thearbitration agreement. There is a tripartite agreement betweenthe original plaintiff, original defendant No.1 and the originaldefendant No.2 (Bank of Baroda) under which the plaintiff andthe original defendant No.2 have prayed the reliefs. It is anadmitted position that in the tripartite agreement between theoriginal plaintiff, original defendant No.1 and the original defendantNo.2 (Bank of Baroda), there does not exist any arbitrationagreement. Under the tripartite agreement the original defendantNo.1 has placed the title deeds and the said tripartite agreementas such can be said to be an independent agreement and underthe said tripartite agreement there is a mortgage by deposit of titledeeds in respect of immovables and hypothecation of movables.It appears that the said tripartite agreement was executed whilesanctioning a corporate loan of Rs.500 lakh in favour of the originalplaintiff and the charge and mortgage has been created in favourof Bank of Baroda – original defendant No.2. It appears thatduring the pendency and subsistence of the aforesaid mortgageand as alleged by the original plaintiff surreptitiously and in breachof the injunction granted by this Court as well as the undertakingbefore the Industrial Tribunal, the original defendant No.1 hassold some of the properties (mortgaged properties) in favour oforiginal defendant Nos.3 to 5. In light of the above broad factsand averments in the plaint, pleadings on the cause of action andthe reliefs sought are required to be considered.

[8.6] In the plaint in Commercial Civil Suit No.90/2017, the plaintiffhas sought the relief against the following defendants:

1. Gujarat Composite Limited

2. Bank of Baroda

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4. M/s. Raj Corporation (Confirming Party) - partnership firm

5. RJD Buildcon Ltd.

The suit is filed for recovery of legitimate dues, cancellationof sale deed and for permanent injunction. In the suit the plaintiffhas prayed for the following reliefs.

“(A) This Hon’ble Court may be pleased to direct the defendantNo.1 to pay to the Plaintiff herein a sum of Rs.32.66 Croreswith interest @ 14% per annum from the date of suit tillrealization herein under this decree and any further orders tobe passed by this Hon’ble Court; (B) This Hon’ble Court may be pleased to hold and declarethat the Deeds of Conveyance dated 23[rd ]January, 2015registered vide registration no. 742 and 750 executed bydefendant No.1 in favour of defendant Nos.3 and 5, as nulland void;

(C) This Hon’ble Court may be pleased to permanently restrainthe defendant Nos.1, 3, 4 and 5 or their agent, executors, oradministrators from disturbing or obstructing the plaintiffsoccupation possession of the suit property till the plaintiff claimmade in para (a) and (b) above is fully discharged; (D) This Hon’ble Court may be pleased to direct the defendantNo. 2 Bank not to release original title papers and other relevantdocuments in favour of defendant Nos.1, 3 and/or 4; (E) This Hon’ble Court may be pleased to hold and declarethat the Conveyance Deed dated 23[rd] January, 2015 enteredinto between the defendant No. 1 and defendant No. 3 to 5 asnull and void; (F) This Hon’ble Court may be pleased to direct the defendantNo. 2 to take over all the current assets of the plaintiff pertainingto or in connection with the operation of A.C. Sheet and CementManufacturing unit under license agreement at their book valueand make payment to the plaintiff for the current assets availableat the time of handing over of the possession, if required.”

[8.7] Necessary pleadings in the plaint with respect to cause ofaction are as under:

1. The cause of action has arisen when the defendant No. 1,behind the back of the plaintiff, entered into Conveyance Deedwith defendant no. 3 and defendant No. 5.

2. Even the original title deeds and other documents partiallypertaining to the suit property are in the custody of defendant No.2 Bank and by suppressing the fact that the plaintiff has absoluteright over the suit property qua possession, the defendant No. 1has entered into Conveyance Deed with defendant No. 3 anddefendant No. 5 stating that suit property is free from anyencumbrance and/or mortgage.

3. That the cause of action for filing the suit has arisen becausethe defendant No. 3 and defendant No. 5 made an application tomutate the entry in the revenue record in regard to the Deed ofConveyance. As the plaintiff is legitimately in possession of thesuit property by virtue of license agreement, supplementaryagreement, tripartite and amended tripartite agreement, itvehemently opposed the said entry and ultimately the authorityconcerned rejected the application of the defendant No. 3 anddefendant No. 5 for mutation of entry in regard to ConveyanceDeed. Thus the mutation entry with regard to mortgage of thesuit property with defendant No. 2 Bank still exists and thedefendant No. 2 Bank has not removed/revoked the said mortgage.

4. That though the plaintiff is in possession of the suit property byvirtue of license agreement, supplementary agreement, tripartiteagreement and amended tripartite agreement, the defendant No.1; behind the back of the plaintiff, entered into Conveyance Deedwith defendant No. 3 and defendant No. 5.

5. The defendant No. 1 even did not part with the saleconsideration with the plaintiff which it has received from defendantNo. 3 and defendant No. 5 for conveying the suit property todefendant No. 3 and defendant No. 5.

6. That the cause of action for filing the suit has arisen also asdefendant No. 1 had defaulted in repayment to Punjab NationalBank and hence was not in a position to get any loan whatsoeverin its own capacity from any financial institution, and as it was inneed of financial assistance, defendant No. 1 requested the plaintifffor financial help, because of which plaintiff obtained corporate AB

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Aloan of Rs. 05.00 Crores on its name from defendant No. 2 andadvanced the same to defendant No. 1.

7. Even during the currency of the license agreement, plaintiffhas paid other amounts also for and on behalf of the defendantNo. 1 towards wages to the workers, revenue taxes, electricityBbills, excise duty, etc.

8. The cause of action has arisen because in lieu of all thesefinancial help from plaintiff, defendant No. 1 entered into tripartiteagreement and subsequently amended tripartite agreement withplaintiff and defendant No. 2 Bank, whereby defendant No. 1Cmortgaged the suit property with defendant No. 2 Bank and stoodas guarantor towards the corporate loan which was obtained byplaintiff in its name to help out the defendant No. 1, wherein it hasbeen specifically agreed by defendant No. 1 that unless all andfull legitimate dues of the plaintiff has been paid up, plaintiff shallenjoy the possession of the suit property.

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9. That the cause of action for filing of the suit has arisen alsobecause the plaintiff has to recover Rs. 32.66 Crores from thedefendant No. 1 towards corporate loan and other amount, whichthe plaintiff has advanced to the defendant No. 1.”

E5.2. As far as the first relief under paragraph 33(A) wasconcerned, whereby respondent No. 1 sought recovery of Rs. 32.66crore with interest @ 14% p.a. from the date of suit till realisation, theHigh Court observed that this relief would lie against the appellant whowould be bound by the arbitration clause in the licence agreement. Therest of the prayers were against respondent No. 2 - the bank, andFrespondent Nos. 3 to 5 - the subsequent purchasers, who were not partiesto the arbitration agreement. In the opinion of the High Court, the factthat the reliefs were all interconnected and on the basis of multiple causesof action, the dispute could not be bifurcated. Thus, the High Court appliedthe law laid down in Sukanya Holdings Pvt. Ltd. v. Jayesh H. PandyaG& Anr.: (2003) 5 SCC 531 and other referred decisions, to hold thatthere was no error by the Commercial Court in rejecting the applicationunder Section 8 of the Act of 1996. The relevant observations of theHigh Court are as follows: - “[8.8] Considering the above and the reliefs prayed / sought in thesuit, it can be said that the prayer in terms of para 33(A) can be H

said to be against the original defendant No.1 who is a party tothe arbitration agreement contained in the license agreement.Prayer in terms of paras 33(B), 33(C) and 33(E) can be said to beagainst the original defendant No.1 and original defendant Nos.3to 5. Original defendant Nos.3 to 5 are not party to the arbitrationagreement and as such they are third parties who have alleged tohave purchased the properties from the original defendant No.1during the subsistence of the license agreement as well as theyhave purchased the said property surreptitiously. The prayer interms of paras 33(D) and 33(F) can be said to be against theoriginal defendant No.2 – Bank of Baroda who admittedly is nota party to the arbitration agreement. All these reliefs areinterconnected and the reliefs sought in the plaint are on the basisof multiple cause of actions and multiple reliefs against thedefendants and it is not possible to bifurcate the dispute in the suitbetween the plaintiff and the original defendant No.1 (parties tothe arbitration agreement) and the original plaintiff and the originaldefendant Nos.2 to 5 (nonparties to the arbitration agreement).Therefore, applying the law laid down by the Hon’ble SupremeCourt in the case of Sukanya Holdings (P) Ltd. (Supra) and otherdecisions referred to herein above, it cannot be said that the learnedCommercial Court has committed any error in rejecting section 8application and refusing to refer the matter / dispute in the suit forarbitration.

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[8.13] Considering the facts and circumstances of the case narratedherein above and the law laid down by the Hon’ble Supreme Courtin the case of Sukanya Holdings Pvt. Ltd. (Supra) and otherdecisions referred to herein above, it cannot be said that the learnedCommercial Court has committed any error in rejecting theapplication under Section 8 of the Arbitration Act, 1996 andrefusing to refer the dispute / matter for arbitration. On facts it isnot proper, advisable and/or possible to bifurcate the disputes viz.arbitrable and nonarbitrable. We are in complete agreement withthe view taken by the learned Commercial Court while rejectingthe application under Section 8 of the Arbitration Act, 1996.”

5.3. Accordingly, the High Court proceeded to dismiss both theappeals and thereby affirmed the order passed by the Commercial Court AB

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Ain rejection of the applications moved by the appellant under Section 8 ofthe Act of 1996. Hence, these appeals.

6. Learned counsel for the appellant has, after reference to thebackground aspects, strenuously argued that the Commercial Court andthe High Court have erred in law as also on facts in declining theBapplications moved by the appellant in terms of the amendment to Section8 of the Act of 1996; and with reference to the later decisions of thisCourt including the 3-Judge Bench decisions, has contended that theimpugned judgment and orders deserve to be set aside and the applicationsmade by the appellant deserve to be allowed.

C6.1. Learned counsel for the appellant has contended that thecivil suits in question and the application therein for referral to arbitrationwere filed subsequent to the amendment to Section 8 of the Act of 1996in the year 2015, and therefore, the present matter is governed by theamended Section 8 whereby and whereunder, there is no choice but torefer the parties to arbitration, even for deciding the arbitrability of theDdispute.

6.2. Learned counsel has argued that though the High Court reliedon the decision of this Court in Sukanya Holdings (supra) but the samehas been doubted and distinguished in various decisions of this Courtsubsequently. In this regard, learned counsel has referred to variousEdecisions in which the said decision in Sukanya Holdings wasdistinguished or clarified; and has particularly referred to the decision inAmeet Lalchand Shah and Ors. v. Rishabh Enterprises and Anr.:(2018) 15 SCC 678 and a 3-Judge Bench decision in the case of VidyaDrolia and Ors. v. Durga Trading Corporation: (2021) 2 SCC 1.FLearned counsel would submit that now, the law pertaining to Section 8of the Act of 1996 is solely interpreted keeping in view the amendmentto it. With reference to the case of Vidya Drolia (supra) learned counselhas submitted that two major principles have been laid down therein:one, that only those cases that are ‘deadwood’ should not be referred toarbitration; and second, that whenever there is doubt, the correct courseGis to refer to arbitration. Further placing reliance on ONGC Ltd. v.Discovery Enterprises: (2022) 8 SCC 42 and Intercontinental Hotelsv. Waterline Hotels: (2022) 7 SCC 662 he has submitted that unlessthe issue before the Court patently indicates existence of deadwood,Courts should ensure that arbitration is carried on. Learned counsel wouldHsubmit that the High Court has adopted a rather restrictive interpretation of the Act of 1996 in the order impugned, which deserves to be setaside.

6.3. Learned counsel for appellant has also submitted that themandate of Act of 1996 would have ensured the completion ofproceedings within a year, with a reduced scope of interference in thepossible Section 34 proceedings at the instance of either party, but thematter has remained pending with only framing of issues. Learnedcounsel would further submit that the licensees are squatting over theproperty, under a licence agreement dating back to the year 2005, withoutperforming any work and have illegally and unauthorisedly preventedthe appellant, who is the owner of the property, from dealing with it.Learned counsel has underscored the point that the respondent No. 1has not denied the existence of a dispute, but merely argues that the saiddisputes cannot be resolved through arbitration due to the involvementof the bank, an argument that cannot withstand legal scrutiny.

7. Per contra, learned counsel for the contesting respondent hasalso referred to the background aspects and various transactions as alsothe grievance of the plaintiff- respondent No. 1 to submit that the disputeas involved in the suit has rightly not been referred to arbitration.

7.1. Learned counsel for the contesting respondent would submitthat the underlying civil suits are spread over various agreements/transactions and involve various parties where except the appellant noneof the other defendants are parties to the arbitration agreement which iscontained only in the main licence agreement dated 07.04.2005. It hasalso been submitted that the cause of action of the suits in question goesbeyond the transaction containing the arbitration agreement where eventhe case of serious fraud has been alleged against the appellant and thedispute also pertains to mortgage. It has been particularly emphasisedthat the tripartite agreement involving the appellant, respondent No.1and Bank of Baroda lacks arbitration clause; and the dispute emanatingfrom the tripartite agreement and also pertaining to the questioned deedsof conveyance cannot be correlated with the arbitration agreement inthe main licence agreement dated 07.04.2005.

7.2. Learned counsel has also argued that for a matter to bereferred to arbitration, the entire subject-matter should be subject toarbitration and while relying on Sukanya Holdings (supra), has submittedthat the suit cannot be bifurcated partially to refer a part of the suit toarbitration and to allow the rest of it to continue. It has further been AB

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Asubmitted that the reliefs claimed in the suits in question fall outside thelicence agreement and the disputes pertaining to different agreements/transactions and causes of action arising therefrom goes beyond thearbitration agreement.

7.3. Learned Counsel has further submitted that the supplementaryBagreement dated 07.04.2005 is ancillary to original agreement dated07.04.2005 executed between the appellant and respondent No. 1 but,the said tripartite agreement does not have any ancillary relationshipwith the main agreement and the tripartite agreement having Bank ofBaroda as a party is independent of the original agreement.

C7.4. Learned counsel also highlighted the amendment in the Actof 2015, wherein Section 8 was amended envisaging that if the judicialauthority is of the opinion that prima facie the arbitration agreementexists, then it shall refer the dispute to arbitration, and leave the existenceof the arbitration agreement to be finally determined by the arbitraltribunal. However, if the judicial authority concludes that the agreementDdoes not exist, then the conclusion will be final and not prima facie. Theamendment also envisages that there shall be a conclusive determinationas to whether the arbitration agreement is null and void.

7.5. Learned counsel has also placed reliance on S.N. Prasad v.Monnet Finance Ltd. and Ors.: (2011) 1 SCC 320 and DeutscheEBank Home Finance Ltd. v. Taduri Sridhar and Anr.: (2011) 11SCC 375 wherein guarantors were not held to be bound by arbitrationagreement as they were not party to tripartite agreements havingarbitration clause. Learned counsel would also submit that the decisionsrelied upon by the appellant do not apply to the present case because ofFnon-existence of arbitration agreement in relation to dispute in question.

8. We have given anxious considerations to the rival submissionsand have examined the record with reference to the law applicable.

9. For dealing with the vexed question in these appeals as towhether the parties were required to be referred to arbitration by allowingGthe applications moved by the appellant under Section 8 of the Act of1996, appropriate it would be to take note of the provisions contained inSection 8, as existing before its amendment by Act 3 of 2016 (w.r.e.f.23.10.2015) and as existing now.

9.1. Earlier, Section 8 of the Act of 1996 read as under: - H

“8. Power to refer parties to arbitration where there is anarbitration agreement.- (1) A judicial authority before whichan action is brought in a matter which is the subject of an arbitrationagreement shall, if a party so applies not later than when submittinghis first statement on the substance of the dispute, refer the partiesto arbitration.

(2) The application referred to in sub-section (1) shall notbe entertained unless it is accompanied by the original arbitrationagreement or a duly certified copy thereof:

(3) Notwithstanding that an application has been made undersub-section (1) and that the issue is pending before the judicialauthority, an arbitration may be commenced or continued and anarbitral award made.”

9.2 After the amendment by Act 3 of 2016, Section 8, now, readsas under: -

“8. Power to refer parties to arbitration where there is anarbitration agreement.- (1) A judicial authority, before whichan action is brought in a matter which is the subject of an arbitrationagreement shall, if a party to the arbitration agreement or anyperson claiming through or under him, so applies not later than thedate of submitting his first statement on the substance of the dispute,then, notwithstanding any judgment, decree or order of theSupreme Court or any Court, refer the parties to arbitration unlessit finds that prima facie no valid arbitration agreement exists.

(2) The application referred to in sub-section (1) shall notbe entertained unless it is accompanied by the original arbitrationagreement or a duly certified copy thereof:

Provided that where the original arbitration agreementor a certified copy thereof is not available with the party applyingfor reference to arbitration under sub-section (1), and the saidagreement or certified copy is retained by the other party tothat agreement, then, the party so applying shall file suchapplication along with a copy of the arbitration agreement anda petition praying the Court to call upon the other party toproduce the original arbitration agreement or its duly certifiedcopy before that Court.

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128SUPREME COURT REPORTS

A(3) Notwithstanding that an application has been made undersub-section (1) and that the issue is pending before the judicialauthority, an arbitration may be commenced or continued and anarbitral award made.”

10. In the case of Sukanya Holdings (supra), while dealing withBthe question of applicability of Section 8 of the Act, as then existing, thisCourt underscored the requirements of correlation of subject-matter ofthe suit and subject-matter of the arbitration agreement and, inter alia,held as under: - “12. For interpretation of Section 8, Section 5 would have noCbearing because it only contemplates that in the matters governedby Part I of the Act, the judicial authority shall not intervene exceptwhere so provided in the Act. Except Section 8, there is no otherprovision in the Act that in a pending suit, the dispute is required tobe referred to the arbitrator. Further, the matter is not required tobe referred to the Arbitral Tribunal, if: (1) the parties to theDarbitration agreement have not filed any such application forreferring the dispute to the arbitrator; (2) in a pending suit, suchapplication is not filed before submitting first statement on thesubstance of the dispute; or (3) such application is not accompaniedby the original arbitration agreement or duly certified copy thereof.EThis would, therefore, mean that the Arbitration Act does not oustthe jurisdiction of the civil court to decide the dispute in a casewhere parties to the arbitration agreement do not take appropriatesteps as contemplated under sub-sections (1) and (2) of Section 8of the Act.

F13. Secondly, there is no provision in the Act that when the subject-matter of the suit includes subject-matter of the arbitrationagreement as well as other disputes, the matter is required to bereferred to arbitration. There is also no provision for splitting thecause or parties and referring the subject-matter of the suit to thearbitrators.G

14. Thirdly, there is no provision as to what is required to be donein a case where some parties to the suit are not parties to thearbitration agreement. As against this, under Section 24 of theArbitration Act, 1940, some of the parties to a suit could applythat the matters in difference between them be referred to H

arbitration and the court may refer the same to arbitration providedthat the same can be separated from the rest of the subject-matterof the suit. The section also provided that the suit would continueso far as it related to parties who have not joined in such application.

15. The relevant language used in Section 8 is: “in a matter whichis the subject of an arbitration agreement”. The court isrequired to refer the parties to arbitration. Therefore, the suit shouldbe in respect of “a matter” which the parties have agreed torefer and which comes within the ambit of arbitration agreement.Where, however, a suit is commenced — “as to a matter” whichlies outside the arbitration agreement and is also between someof the parties who are not parties to the arbitration agreement,there is no question of application of Section 8. The words “amatter” indicate that the entire subject-matter of the suit shouldbe subject to arbitration agreement.

16. The next question which requires consideration is — even ifthere is no provision for partly referring the dispute to arbitration,whether such a course is possible under Section 8 of the Act. Inour view, it would be difficult to give an interpretation to Section 8under which bifurcation of the cause of action, that is to say, thesubject-matter of the suit or in some cases bifurcation of the suitbetween parties who are parties to the arbitration agreement andothers is possible. This would be laying down a totally newprocedure not contemplated under the Act. If bifurcation of thesubject-matter of a suit was contemplated, the legislature wouldhave used appropriate language to permit such a course. Sincethere is no such indication in the language, it follows that bifurcationof the subject-matter of an action brought before a judicial authorityis not allowed.

17. Secondly, such bifurcation of suit in two parts, one to be decidedby the Arbitral Tribunal and the other to be decided by the civilcourt would inevitably delay the proceedings. The whole purposeof speedy disposal of dispute and decreasing the cost of litigationwould be frustrated by such procedure. It would also increase thecost of litigation and harassment to the parties and on occasionsthere is possibility of conflicting judgments and orders by twodifferent forums.”

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A11. As explained by this Court in Ameet Lalchand Shah (supra),the amendment to Section 8 after the aforesaid decision in SukanyaHoldings could be seen in the background of the recommendations of246[th] Law Commission Report in which, inter alia, it was observed thatas per the proposed amendment, judicial authority would not refer theparties to arbitration only if it finds that there does not exist an arbitrationBagreement or that it is null and void. If the judicial authority is of theopinion that prima facie the arbitration agreement exists, it would referthe dispute to arbitration and leave the existence of arbitration agreementto be finally determined by the Arbitral Tribunal.

12. All the relevant aspects of the matter came up for fullerCexposition by a 3-Judge Bench of this Court in the case of Vidya Drolia(supra). In the said case, basically, the reference came to be made tothe bench of three judges when the ratio expressed in the case ofHimangi Enterprises v. Kamaljeet Singh Ahluwalia: (2017) 10 SCC706, to the effect that landlord-tenant disputes governed by the provisionsDof the Transfer of Property Act, 1882 were not arbitrable, was doubted.While dealing with the reference, the Court also dealt with the otherinterconnected aspects as to the meaning of non-arbitrability and whenthe subject-matter of the dispute would not be capable of being resolvedthrough arbitration; and as to whether the question of non-arbitrabilitywould be decided by the Court at the reference stage or by the ArbitralETribunal in the arbitration proceedings. The 3-Judge Bench of courseoverruled the decision in Himangi Enterprises (supra) and in thatcontext, made various observations and enunciated the relevant principles.In the process, the decision in Sukanya Holdings (supra) was alsotaken into consideration. In that regard and with reference to the relianceFplaced by learned counsel for the respective parties, we may refer tothe following observations and enunciations of the Court, in the leadjudgment as also in the concurring opinion in the following passages:- “28. Another facet, not highlighted earlier, arises from the dictumin Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya [(2003) 5GSCC 531], a decision upholding rejection of an application underSection 8, on the ground that there is no provision in the ArbitrationAct to bifurcate and divide the causes or parties, that is, the subject-matter of the suit/judicial proceedings, and parties to the arbitrationagreement. The suit should be in respect of a “matter” which theparties have agreed to refer and which comes within the ambit of H

the arbitration agreement. The words “a matter”, it was interpreted,would indicate that the entire subject-matter of the suit should besubject to arbitration agreement. Bifurcation of subject-matter orcauses of action in the suit is not permissible and contemplated.Similarly, the parties to the suit should be bound by the arbitrationagreement, as there is no provision in the Arbitration Act to compelthird persons who have not exercised the option to give up theright to have access to courts and be bound by the arbitrationclause. This would violate party autonomy and consensual natureof arbitration. Bifurcation in such cases would result in a suit beingdivided into two parts, one being decided by the Arbitral Tribunal,and the other by the court or judicial authorities. This would defeatthe entire purpose and inevitably delay the proceedings and increasecost of litigation, cause harassment and on occasions give rise toconflicting judgments and orders by two different fora. Cause ofaction in relation to the subject-matter relates to the scope of thearbitration agreement and whether the dispute can be resolved byarbitration. Second mandate relating to common parties expositsthe inherent limitation of the arbitration process which is consensualand mutual, an aspect we would subsequently examine.************

31. We are clearly bound by the dictum of the Constitution Benchjudgment in Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd.,(2005) 8 SCC 618] that the scope and ambit of court’s jurisdictionunder Section 8 or 11 of the Arbitration Act is similar. An applicationunder Section 11 of the Arbitration Act need not set out in detailthe disputes or the claims and may briefly refer to the subject-matter or broad contours of the dispute. However, where judicialproceedings are initiated and pending, specific details of the claimsand disputes are normally pleaded and, therefore, the court or thejudicial authority has the advantage of these details. There is adifference between a non-arbitrable claim and non-arbitrablesubject-matter. Former may arise on account of scope of thearbitration agreement and also when the claim is not capable ofbeing resolved through arbitration. Generally non-arbitrability ofthe subject-matter would relate to non-arbitrability in law. Further,the decision in Sukanya Holdings (P) Ltd. [Sukanya Holdings(P) Ltd. v. Jayesh H. Pandya, (2003) 5 SCC 531] has to be read AB

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along with subsequent judgment of this Court in Chloro Controls(India) (P) Ltd. v. Severn Trent Water Purification Inc.(2013)1 SCC 641.

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154.3. The general rule and principle, in view of thelegislative mandate clear from Act 3 of 2016 and Act 33 of 2019,and the principle of severability and competence-competence, isthat the Arbitral Tribunal is the preferred first authority to determineand decide all questions of non-arbitrability. The court has beenconferred power of “second look” on aspects of non-arbitrabilitypost the award in terms of sub-clauses (i), (ii) or (iv) of Section34(2)(a) or sub-clause (i) of Section 34(2)(b) of the ArbitrationAct.

154.4. Rarely as a demurrer the court may interfere atSection 8 or 11 stage when it is manifestly and ex facie certainthat the arbitration agreement is non-existent, invalid or the disputesare non-arbitrable, though the nature and facet of non-arbitrabilitywould, to some extent, determine the level and nature of judicialscrutiny. The restricted and limited review is to check and protectparties from being forced to arbitrate when the matter isdemonstrably “non-arbitrable” and to cut off the deadwood. Thecourt by default would refer the matter when contentions relatingto non-arbitrability are plainly arguable; when consideration insummary proceedings would be insufficient and inconclusive; whenfacts are contested; when the party opposing arbitration adoptsdelaying tactics or impairs conduct of arbitration proceedings. Thisis not the stage for the court to enter into a mini trial or elaboratereview so as to usurp the jurisdiction of the Arbitral Tribunal butto affirm and uphold integrity and efficacy of arbitration as analternative dispute resolution mechanism.

238. At the cost of repetition, we note that Section 8 of the Actmandates that a matter should not (sic) be referred to an arbitrationby a court of law unless it finds that prima facie there is no validarbitration agreement. The negative language used in the sectionis required to be taken into consideration, while analysing thesection. The court should refer a matter if the validity of the arbitration agreement cannot be determined on a prima facie basis,as laid down above. Therefore, the rule for the court is “when indoubt, do refer”.

239. Moreover, the amendment to Section 8 now rectifies theshortcomings pointed out in Chloro Controls case [ChloroControls (India) (P) Ltd. v. Severn Trent Water PurificationInc., (2013) 1 SCC 641: (2013) 1 SCC (Civ) 689] with respect todomestic arbitration. Jurisdictional issues concerning whethercertain parties are bound by a particular arbitration, under group-company doctrine or good faith, etc., in a multi-party arbitrationraises complicated factual questions, which are best left for thetribunal to handle. The amendment to Section 8 on this front alsoindicates the legislative intention to further reduce the judicialinterference at the stage of reference.

240. Courts, while analysing a case under Section 8, may chooseto identify the issues which require adjudication pertaining to thevalidity of the arbitration agreement. If the court cannot rule onthe invalidity of the arbitration agreement on a prima facie basis,then the court should stop any further analysis and simply refer allthe issues to arbitration to be settled.

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244: Before we part the conclusions reached, with respect toQuestion 1 are:

244.1. Sections 8 and 11 of the Act have the same ambit withrespect to judicial interference.

244.2. Usually, subject-matter arbitrability cannot be decided atthe stage of Section 8 or 11 of the Act, unless it is a clear case ofdeadwood.

244.3. The court, under Sections 8 and 11, has to refer a matterto arbitration or to appoint an arbitrator, as the case may be, unlessa party has established a prima facie (summary findings) case ofnon-existence of valid arbitration agreement, by summarilyportraying a strong case that he is entitled to such a finding.

244.4. The court should refer a matter if the validity of thearbitration agreement cannot be determined on a prima facie basis,as laid down above i.e. “when in doubt, do refer”.

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A244.5. The scope of the court to examine the prima facie validityof an arbitration agreement includes only:

244.5.1. Whether the arbitration agreement was in writing? or 244.5.2. Whether the arbitration agreement was contained inexchange of letters, telecommunication, etc.?

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244.5.3. Whether the core contractual ingredients qua thearbitration agreement were fulfilled?

244.5.4. On rare occasions, whether the subject-matter of disputeis arbitrable?”

C13. In the case of Oil and Natural Gas Corporation (supra),another 3-Judge Bench of this Court essentially dealt with the groupcompanies doctrine and application of alter ego principle in arbitrationmaking a party not assenting to a contract containing arbitration clauseto be nevertheless bound by the clause if that party is ‘alter ego’ of anDentity who is a party to the arbitration agreement. The observationsrelied upon by learned counsel for the appellant from that case couldalso be usefully extracted as under:- “38. Explaining the application of the alter ego principle inarbitration, Born also notes:

E“Authorities from virtually all jurisdictions hold that a partywho has not assented to a contract containing an arbitration clausemay nonetheless be bound by the clause if that party is an ‘alterego’ of an entity that did execute, or was otherwise a party to, theagreement. This is a significant, but exceptional, departure fromthe fundamental principle … that each company in a group ofFcompanies (a relatively modern concept) is a separate legal entitypossessed of separate rights and liabilities.

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“the group of companies doctrine is akin to principles ofGagency or implied consent, whereby the corporate affiliationsamong distinct legal entities provide the foundation for concludingthat they were intended to be parties to an agreement,notwithstanding their formal status as non-signatories.”

39. Recently, John Fellas elaborated on the principle of binding anon-signatory to an arbitration agreement from the lens of the H

doctrine of estoppel. He situated the rationale behind the applicationof the principle of direct estoppel against competing considerationsof party autonomy and consent in interpreting arbitrationagreements. Fellas observed that non-signatory parties can bebound by the principle of direct estoppel to prohibit such a partyfrom deriving the benefits of a contract while disavowing theobligations to arbitrate under the same:

“There are at least two distinct types of estoppel doctrinethat apply in the non-signatory context:”the direct benefits”estoppel theory and the “intertwined” estoppel theory. Thedirect benefits theory bears the hallmark of any estoppeldoctrine-prohibiting a party from taking inconsistent positionsor seeking to “have it both ways” by “rely[ing] on the contractwhen it works to its advantage and ignor[ing] it when it worksto its disadvantage.” Tepper Realty Co. v. Mosaic TileCo. [Tepper Realty Co. v. Mosaic Tile Co., 259 F Supp 688(SDNY 1966)]. The direct benefits doctrine reflects that coreprinciple by preventing a party from claiming rights under acontract but, at the same time, disavowing the obligation toarbitrate in the same contract.

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By contrast, the intertwined estoppel theory looks not towhether any benefit was received by the non-signatory, but ratherat the nature of the dispute between the signatory and the non-signatory, and, in particular whether “the issues the non-signatoryis seeking to resolve in arbitration are intertwined with theagreement that the estoppel [signatory party] has signed….theintertwined estoppel theory has as its central aim the perseverationof the efficacy of the arbitration process is clear when one looksat the typical fact pattern of an intertwined estoppel case.” [JohnFellas, “Compelling Signatories to Arbitrate with Non-Signatories”,New York Law Journal (28-3-2022)]

(emphasis supplied)

40. In deciding whether a company within a group of companieswhich is not a signatory to arbitration agreement would nonethelessbe bound by it, the law considers the following factors:

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A(i) The mutual intent of the parties;

(ii) The relationship of a non-signatory to a party which is asignatory to the agreement;

(iii) The commonality of the subject-matter; B(iv) The composite nature of the transaction; and

(v) The performance of the contract.””

14. In the case of Intercontinental Hotels Group (supra), theCourt has essentially proceeded on the enunciation in Vidya Drolia(supra) even while accepting the requirement of constituting larger benchCto settle the jurisprudence of the implication of non-stamping or under-stamping on the arbitration agreement. This Court, however, providedthat until decision by the larger bench, the matters at pre-appointmentstage be not kept pending. Not much of dilation is required in that regard.

15. It is at once clear that the observations and enunciations in theDaforesaid have no application to the facts of the present case.

16. As noticed, there had been multiple transactions in this matter.Learned counsel for the contesting respondent has placed before us intabular form the relevant agreements, the contracting parties thereto,the purpose of the agreement, and availability of arbitration clause therein.EWe may reproduce the same to facilitate an eye view of the salientfeatures of the transactions in question as follows: - F

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17. Thus, except the principal agreement dated 07.04.2005, noneof the other agreements contained any arbitration clause, even if theyrelated to the same property and also involved the appellant and therespondent No. 1. The later transactions involved other parties too likethe tripartite agreement dated 06.07.2006 whereby the respondent No.2 bank sanctioned loan to the respondent No. 1 and then, supplementalto the said tripartite agreement for dealing with the deposit of title deeds.Similarly, the other deeds of conveyance dated 23.01.2015 involve theappellant and the other defendants.

17.1. The aforesaid position of the dealings of the parties, whenexamined with reference to the reliefs claimed in the suit and the causeof action pertaining to the said reliefs, as extensively noticed by the HighCourt and extracted hereinabove, we are clearly of the view that the 137AB

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Asubmissions made by the appellant with reference to the amendment ofSection 8 of the Act of 1996 and the later decisions of this Court ininterpretation of the amended Section 8 do not inure to the benefit of theappellant. This is for the simple reason that no such conjunction can beprovided to the original licence agreement dated 07.04.2005 and thetripartite agreement involving the Bank dated 06.07.2006 and 23.01.2008,Bwhereby the arbitration clause could be held applicable to the tripartiteagreement too. This is apart from the fact that in the frame of the suitand various other reliefs claimed, involving subsequent purchasers tooand the allegations of fraud, the dispute cannot be said to be arbitrable atall. The present one cannot be said to be a case involving any “doubt”Cabout non-existence of arbitration agreement in relation to the dispute inquestion.

17.2. There being no doubt about non-existence of arbitrationagreement in relation to the entire subject-matter of the suit, and whenthe substantive reliefs claimed in the suits fall outside the arbitrationDclause in the original licence agreement, the view taken by the HighCourt does not appear to be suffering from any infirmity or against anyprinciple laid down by this Court.

18. Even if by reference to remote pedigree, the original licenceagreement is said to be the genesis of the contractual relations of theEappellant and the respondent No. 1, that does not ipso facto lead to theavailability of the arbitration agreement in relation to the dispute inquestion, which emanates from the tripartite agreement and which cannotbe determined without reference to the said tripartite agreement andwithout involving all the parties thereto. In other words, no disputeresolution process, including arbitration, could be undertaken in relationFto the subject-matter of the suit without reference to the terms of tripartiteagreement and without involving the bank- respondent No. 2. This isapart from the fact that the other elements of dispute pertaining to thesubsequent purchasers too cannot be resolved in any forum withoutreference to the tripartite agreement and its amended clause, which didGnot provide for arbitration. Thus, the ancestry of the tripartite agreement,in the facts of the present case, does not lead to the result desired by theappellant.

18.1. Therefore, even on the principles enunciated in Vidya Drolia(supra), the prayer of the present appellant for reference to arbitrationHunder Section 8 cannot be granted.

19. So far as the propositions based on the memos before theCommercial Court dated 06.12.2017, as filed by the respondent Nos. 3to 5 (subsequent purchasers) and by the appellant are concerned, thesubmissions made on that basis do not take the case of the appellant anyfurther. As noticed, in the said memos, the respondent Nos. 3 to 5purportedly stated that if dispute concerning them was resolved byarbitration proceedings, they were not having any objection thereto. Theappellant, on the other hand, suggested that the tripartite amendedagreement was with reference to the licence agreement and it was agreedthat till the time of the defendant No. 1 (appellant) making payment of asum of Rs. 5 crore to the plaintiff, the title deeds of the immovableproperty would remain with the bank. The appellant suggested that witha view that the dispute between the parties be resolved by arbitrationproceedings, keeping all contentions open, they would be depositing thesaid sum of Rs. 5 crore in the Court and that in this manner ‘the disputewith defendant No. 2 would be ended’ and then the bank, who washanded over the title deed in their custody, would deposit the same in theCourt and the Court would be pleased to place the same in sealed covertill the disputes of the other parties were resolved.

19.1. The memo submitted by the appellant was not likely to bringabout the desired legal effect. This is for the simple reason that even ifthe appellant deposited the said sum of Rs. 5 crore in the Court, the bankwas not directly obliged to deposit the title deed in the Court as presumedby the appellant; and then, there was no reason that the Court was to beobliged to accept such a proposition and to keep the title deed in itscustody till the completion of proceedings in any other forum. In otherwords, if at all the matter was to be referred to arbitration, there wouldnot be any justification for the Court to retain the title deed. It wouldappear that the said memo dated 06.12.2017 by the appellant had onlybeen a desperate attempt to somehow seek arbitration despite beingaware of the fact that the core of the dispute in the civil suit related tothe tripartite agreement wherein the bank was an equal participant andno effective award could have been made in the arbitration proceedingsin the absence of the bank. The necessity of the bank’s presence in thematter could not have been obviated by such nebulous suggestion asstated in the memo filed by the appellant on 06.12.2017.

19.2. The other memo by respondent Nos. 3 to 5 had been of noeffect whatsoever. Consent of the said respondents, the subsequent AB

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Apurchasers, for reference to arbitration could not have infused anarbitration clause in the tripartite agreement and their memo could nothave propelled the matter to arbitration, particularly looking to the coreof the dispute and its obvious non-arbitrability for the reason that it relatedto the tripartite agreement.

B20. For what has been discussed hereinabove, on the facts and inthe circumstances of the present case and in the nature of transactionsas also the nature of reliefs claimed in the suit, the view taken by theCommercial Court and the High Court in declining the prayer of theappellant for reference to arbitration cannot be faulted.

C21. Accordingly, and in view of the above, these appeals fail andare, therefore, dismissed. No costs.

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Divya Pandey

(Assisted by : Roopanshi Virang, LCRA)

Appeals dismissed.

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