LAW FOR ALL

Arbitration and Conciliation Act, 1996: s. 45 - Reference to arbitration under - Scope of - International commercial arbitration - Multi-party agreements - Joint venture agreements with different parties - Some of the agreements contained arbitration clause while the others did not - Dispute between parties leading to filing of suit - High Court referred the entire suit (including the non-signatory parties to the arbitration agreement) for arbitration u/s. 45 - Joinder of non-signatory parties to arbitration - Permissibility - Held: Joinder of non-signatory parties to arbitration is permissible - They can be referred to arbitration, provided they satisfy the pre-requisites u/ss. 44 and 45 r/w Schedule I of the Act - The cases of group companies or where various agreements constitute a composite transaction with intrinsically interlinked cause of action, can be referred to arbitration, even if the disputes exist between signatory or even non-signatory parties - However, the discretion of the court has to be exercised in exceptional, limiting, befitting and cases of necessity and very cautiously - Expression `any person claiming through or under him' used in s. 45, takes within its ambit persons who are in legal relationships via multiple and multi-party agreements, though they may not all be signatories to the arbitration clause - In the present case, the corporate structure of the companies demonstrates a definite legal relationship between the parties to the lis or persons claiming under them - Their contractual relationship spells out the terms, obligations and roles of the respective parties which they were expected to perform for attaining the object of successful completion of the joint venture agreement - All the other agreements were intrinsically inter-connected with the mother agreement - All the agreements were part of a composite transaction to facilitate implementation of principal agreement - Hence, all the parties to the lis were covered under expression "any person claiming through or under" the principal (mother) agreement - Arbitration clause in the principal agreement was comprehensive enough to include all disputes arising "under and in connection with" principal agreement - Conduct of parties and even subsequent events show that the parties had executed, intended and actually implemented composite transaction contained in principal/mother agreement - Hence, direction to refer the disputes to arbitration -Convention on Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) - Article II (3) - ICC Rules - UNCITRAL Model Rules. s. 45 - Issues under - Determination of - Issue of jurisdiction should be decided at the beginning of the proceedings itself and they should have finality - Determination of fundamental issues as contemplated u/s. 45 at the very first instance is not only appropriate but is also the legislative intent - Jurisdiction. Code of Civil Procedure, 1908 - s. 9 - Jurisdiction of civil courts - Jurisdiction of the court and the right to a party emerging from s. 9 is not an absolute right, but contains inbuilt restrictions - Civil courts have jurisdiction to try all suits except those which is either expressly or impliedly barred - The provisions of s. 45 of the 1996 Act would prevail over the provisions of CPC - Arbitration and Conciliation Act, 1996 - s. 45. Doctrines/Principles: `Group of Companies' Doctrine; Principle of `incorporation by reference'; Principle of `composite performance'; Principle of `agreements within an agreement' and Principle of `Kompetenz kompetenz' - Discussed. Precedent - Observations - Precedential value - Held: The observations to be construed and read to support the ratio decidendi - They would not constitute valid precedent as it would be hit by the doctrine of stare decisis - Doctrine - Constitution of India, 1950 - Art. 141. Words and Phrases: Expression `connection' - Meaning of. The questions which inter alia arose for consideration in the present appeals were: (1) What is the ambit and scope of Section 45 of the Arbitration and Conciliation Act, 1996; (2) Whether in a case where multiple agreements were signed between different parties some containing an arbitration clause and others not and where the parties were not identically common in proceedings before the Court (in a suit) and the arbitration agreement, a reference of disputes as a whole or in part could be made to the arbitral tribunal, more particularly, where the parties to an action were claiming under or through a party to the arbitration agreement; and (3) Whether the principles enunciated in the case of *Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya was the correct exposition of law.= Dismissing the appeals, the Court HELD: 1.1 Section 45 is a provision falling under Chapter I of Part II of the Arbitration and Conciliation Act, 1996 which is a self-contained Code. The expression `person claiming through or under' would mean and take within its ambit multiple and multi-party agreements, though in exceptional case. Even non-signatory parties to some of the agreements can pray and be referred to arbitration provided they satisfy the pre-requisites under Sections 44 and 45 r/w Schedule I. Reference of non-signatory parties is neither unknown to arbitration jurisprudence nor is it impermissible. [Para 167] 1.2 An arbitration agreement, under Section 45 of the 1996 Act, should be evidenced in writing and in terms of Article II of Schedule 1, an agreement in writing shall include an arbitral clause in a contract or an arbitration agreement signed by the parties or contained in an exchange of letters or telegrams. Thus, the requirement that an arbitration agreement be in writing is an expression incapable of strict construction and requires to be construed liberally, as the words of this Article provide. Even in a given circumstance, it may be possible and permissible to construe the arbitration agreement with the aid and principle of `incorporation by reference'. Though the New York Convention is silent on this matter, in common practice, the main contractual document may refer to standard terms and conditions or other standard forms and documents which may contain an arbitration clause and, therefore, these terms would become part of the contract between the parties by reference. The solution to such issue should be case-specific. The relevant considerations to determine incorporation would be the status of parties, usages within the specific industry, etc. Cases where the main documents explicitly refer to arbitration clause included in standard terms and conditions would be more easily found in compliance with the formal requirements set out in the Article II of the New York Convention than those cases in which the main contract simply refers to the application of standard forms without any express reference to the arbitration clause. [Para 72] M.V. "Baltic Confidence" and Anr. v. State Trading Corporation of India Ltd. and Anr. (2001) 7 SCC 473: 2001 (1) Suppl. SCR 699; Olympus Superstructure Pvt. Ltd. v. Meena Vijay Khetan and Ors. (1999) 5 SCC 651: 1999 (3) SCR 490 - relied on 1.3 Under the Indian Law, greater obligation is cast upon the Courts to determine whether the agreement is valid, operative and capable of being performed at the threshold itself. Such challenge has to be a serious challenge to the substantive contract or to the agreement, as in the absence of such challenge, it has to be found that the agreement was valid, operative and capable of being performed; the dispute would be referred to arbitration. [Para 78] State of Orissa v. Klockner and Company and Ors. AIR 1996 SC 2140: 1996 (1) Suppl. SCR 368 - relied on. Abu Dhabi Gas Liquefaction Co. Ltd. v. Eastern Bechtel Corp.(1982) 2 Lloyd's Rep. 425, CA - referred to. Law and Practice of International Commercial Arbitration by Alan Redfern and Martin Hunder (Fourth Edition) 1.4 The legislative intent and essence of the 1996 Act was to bring domestic as well as international commercial arbitration in consonance with the UNCITRAL Model Rules, the New York Convention and the Geneva Convention. The New York Convention was physically before the Legislature and available for its consideration when it enacted the 1996 Act. Article II of the Convention provides that each contracting State shall recognize an agreement and submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not concerning a subject matter capable of settlement by arbitration. Once the agreement is there and the Court is seized of an action in relation to such subject matter, then on the request of one of the parties, it would refer the parties to arbitration unless the agreement is null and void, inoperative or incapable of performance. Still, the legislature opted to word Section 45 somewhat dissimilarly. Section 8 of the 1996 Act also uses the expression `parties' simpliciter without any extension. In significant contra-distinction, Section 45 uses the expression `one of the parties or any person claiming through or under him' and `refer the parties to arbitration', whereas the rest of the language of Section 45 is similar to that of Article II(3) of the New York Contention. The Court cannot ignore this aspect and has to give due weightage to the legislative intent. It is a settled rule of interpretation that every word used by the Legislature in a provision should be given its due meaning. The Legislature intended to give a liberal meaning to this expression. [Paras 88 and 89] 1.5 The language and expressions used in Section 45, `any person claiming through or under him' including in legal proceedings may seek reference of all parties to arbitration. Once the words used by the Legislature are of wider connotation or the very language of Section is structured with liberal protection then such provision should normally be construed liberally. [Para 90] 1.6 In view of the legislative object and the intent of the framers of the statute, i.e., the necessity to encourage arbitration, the Court is required to exercise its jurisdiction in a pending action, to hold the parties to the arbitration clause and not to permit them to avoid their bargain of arbitration by bringing civil action involving multifarious cause of action, parties and prayers. [Para 91] 1.7 The scope of concept of `legal relationship' as incorporated in Article II(1) of the New York Convention vis-