Calcutta High Court
Lindsay International Private ... vs Laxmi Niwas Mittal & Ors on 21 January, 2022
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE
Present :-
THE HON'BLE JUSTICE MOUSHUMI BHATTACHARYA
IA No. GA No. 4 of 2017
(Old GA No. 176 of 2017)
In
C.S. No. 2 of 2017
LINDSAY INTERNATIONAL PRIVATE LIMITED & ORS.
Versus
LAXMI NIWAS MITTAL & ORS.
For the Applicant / Defendant no. 39 : Mr. Tilak Kr. Bose, Sr. Adv.
Mr. Jishnu Chowdhury, Adv.
Mr. Soumabho Ghose, Adv.
Mr. Deepan Kr. Sarkar, Adv.
Ms. Ashika Daga, Adv.
For the Respondents / Plaintiffs : Mr. S.N. Mookherjee, Sr. Adv.
Mr. S. R. Kakrania, Adv.
Mr. Rudraman Bhattacharyya, Adv.
Mr. Shaunak Mitra, Adv.
Ms. Priyanka Prasad, Adv.
Mr. Tanuj Kakrania, Adv.
Mr. Aviroop Mitra, Adv.
Last Heard on : 22.12.2021.
Delivered on : 21.01.2022.
2
Moushumi Bhattacharya, J.
1. The issue in this application for reference of the dispute to arbitration,
is whether the dictum of the Supreme Court in Sukanya Holdings (P) Ltd. v.
Jayesh H. Pandya; (2003) 5 SCC 531 - non-permissibility of bifurcation of
subject-matter or causes of action in the suit - should be considered by a
court in an application under section 8 of The Arbitration and Conciliation
Act, 1996, as amended in 2016.
2. The present application for reference is of Vesuvius India Ltd., the
defendant no. 39, in the suit filed by Lindsay International Private Limited
and its majority shareholders and directors.
3. Lindsay has filed the suit for a decree for specific performance of a
pre-incorporation agreement against the defendant nos. 1-38 and for
specific performance of a non-competition agreement against the defendant
nos. 39-42 and for declaration and injunction. The applicant Vesuvius - the
defendant no. 39 in the suit - wants all claims, disputes and differences
made by the plaintiff no.1 Lindsay against Vesuvius which are the subject
matter of the suit to be referred to arbitration in terms of the arbitration
agreement contained in Purchase Orders issued by Lindsay upon Vesuvius.
The applicant also prays for stay of all further proceedings in the suit as
against the applicant Vesuvius. The arbitration clause refers to Vesuvius as
the 'Seller' and Lindsay as the 'Buyer' and covers any dispute, controversy
or interpretation of any terms or claims arising out of or in connection with
the Purchase Orders.
4. Mr. Tilak Bose, learned Senior Counsel appearing for the applicant
Vesuvius, argues that the arbitration clause has not been disputed and is
identical in all the Purchase Orders executed between the plaintiff Company
and Vesuvius has assumed finality and that arbitration proceedings are
pending between the parties pursuant to a successful application filed by
Vesuvius under section 11 of the Act. Counsel relies on the amendment to
section 8 as being evident from a plain reading of the section, the Law
Commission Report and the Objects and Reasons to the Arbitration and
Conciliation (Amendment) Bill 2015 to urge that the statutory mandate to
refer is reiterated in all three and that the only requirement of the Court is
to see whether any valid arbitration agreement exists or not.
5. Mr. S.N. Mookherjee, learned Senior Counsel appearing for the
plaintiffs, opposes the reference on the ground that the disputes against the
different defendants are inextricably interlinked and are incapable of
piecemeal adjudication. Counsel submits that the reliefs prayed for by
Vesuvius are geared to bifurcate composite causes of action and split
necessary and proper parties. It is submitted that the disputes forming the
subject matter of the suit are not covered by the arbitration agreement and
do not arise out of the limited scope of the Purchase Orders to which the
arbitration agreement relates. Counsel places reliance on Sukanya Holdings
and the recent pronouncement of the Supreme Court in Vidya Drolia v.
Durga Trading Corporation ; (2021) 2 SCC 1 in support of these contentions.
6. Upon considering the submissions made on behalf of the parties and
the relevant material on the question to be answered, this Court proposes to
structure the judgment in the following manner:
A. The import of section 8, post-amendment.
B. The case made in the plaint against the applicant/defendant
no.39.
C. Whether the cause of action can be bifurcated.
D. The relevance of Sukanya Holdings at the stage of reference.
....***....
A. The legislative intent apparent in the amendment to section 8 of the 1996
Act
7. The overall import of section 8, as amended with effect from
23.10.2015, would best be assessed from a plain reading of the section itself
together with the Law Commission Report and the Arbitration and
Conciliation (Amendment) Bill, 2015 which would give a composite picture of
what the framers intended.
8. From a plain reading of the provision:
Section 8(1) mandates a judicial authority before which an action is brought
to refer a matter which is the subject matter of an arbitration agreement to
arbitration. If the existence of the arbitration agreement is admitted, all that
the Court is required to look into is whether the matter which is going to be
referred to arbitration has a valid arbitration agreement. The statutory
mandate is subject to the Court ascertaining
a) Whether any valid arbitration agreement exists;
b) Whether the matter is arbitrable;
c) Whether the party, who seeks reference, has applied before
submitting its first statement on the subject matter of the dispute.
If the Court can tick all of the above conditions, the Court must refer the
parties to arbitration ''unless it finds that prima facie no valid arbitration
agreement exists.''
9. The relevant part of section 8 is set out:
"8. Power to refer parties to arbitration where there is an arbitration
agreement.− (1) A judicial authority, before which an action is brought in a
matter which is the subject of an arbitration agreement shall, if a party to the
arbitration agreement or any person claiming through or under him, so applies
not later than the date of submitting his first statement on the substance of
the dispute, then, notwithstanding any judgment, decree or order of the
Supreme Court or any Court, refer the parties to arbitration unless it finds that
prima facie no valid arbitration agreement exists.
(2)............."
10. The unambiguous mandate on the court is to refer the parties to
arbitration, regardless of any judgment, decree or order of the Supreme
Court or any Court. The only exception that the court can make to the above
is if and only if it is prima facie established that no valid arbitration
agreement exists. The onus of establishing that the valid arbitration clause
does not exist rests squarely on the party who seeks to resist the reference.
11. In terms of semantics per se, from a reading of section 8(1), it is
evident that the clause ".... unless it finds that prima facie no valid
arbitration agreement exists.", is conditionally-nested under the mother
clause ".... notwithstanding any judgment, decree or order of the Supreme
Court or any court, refer the parties to arbitration....". Hence, it is crystal clear
that if a valid arbitration agreement exists, the court must refer the parties
to arbitration even if there are judgments, decrees or orders of the Supreme
Court or any other court pronounced before 2016.
12. The Law Commission Report No. 246:
The Note to the proposal for amendment to section 8 makes a specific
reference to Sukanya Holdings and to cases where all the parties to the
dispute are not parties to the arbitration agreement. The Law Commission
recommends rejection of the reference to arbitration where such parties are
'necessary parties to the action'. Hence, the recommendation of the Law
Commission was to restrict the rigour of Sukanya Holdings only to
'necessary parties'. The expression "Necessary Parties" has been defined in
Wharton's Law Lexicon, 15th Edn., as those parties in the absence of who no
effective order can be passed. However, this recommendation did not find
place in the final amendment which instead brought '...notwithstanding any
judgment, decree or order of the Supreme Court or any Court...' in section 8
(1).
13. With reference to the above, a reckoner of what was proposed and
what finally was retained/rejected or inserted dehors the recommendation in
the amendment to section 8 may be easier to appreciate from the statement
below:
The parts in BOLD in Column 2 are what was proposed by the Law
Commission and the parts in BOLD and within ( ) in Column 3 are what
was inserted in section 8(1) post-amendment.
Before Amendment Amendments to Section 8 as Post 2015 Amendment
mentioned in Report No. 246 of the
(Additions are
Law Commission of India Dated
bracketed and
August 2014
underlined)
8. Power to refer parties In Section 8 of the Act: 8. Power to refer
to arbitration where (i) In sub-section (1), after the parties to arbitration
there is an arbitration words "substance of the dispute, where there is an
agreement. - refer" add "to arbitration, such arbitration agreement.
(1) A judicial authority of" and after the words "the - (1) A Judicial
before which an action parties to" add "the action who authority, before which
is brought in a matter are parties to the" and after the an action is brought in
which is the subject of word "arbitration" add the word a matter which is the
an arbitration "agreement". subject of an
agreement shall, if a (ii) after sub-section (1), add arbitration agreement
party so applies not "Provided that no such reference shall, if a party (to the
later than when shall be made only in cases where arbitration
submitting his first - agreement or any
statement on the (i) the parties to the action who person claiming
substance of the are not parties to the arbitration through or under
dispute, refer the agreement, are necessary parties him), so applies not
parties to arbitration. to the action. later than the date of
(ii) the judicial authority finds submitting his first
that the arbitration agreement statement on the
does not exist or is null and void. substance of the
[Note: The words "such of the dispute, (then,
parties.... to the arbitration notwithstanding any
agreement" and proviso (i) of the judgment, decree or
amendment have been proposed order of the Supreme
in the context of the decision of Court or any Court,)
the Supreme Court in Sukanya refer the parties to
Holdings Pvt. Ltd. v Jayesh H. arbitration (unless it
Pandya and Anr. (2003) 5 SCC finds that prima
531, − in cases where all the facie no valid
parties to the dispute are not arbitration
parties to the arbitration agreement exists.)
agreement, the reference is to be
rejected only where such parties
are necessary parties to the
action - and not if they are only
proper parties, or are otherwise
legal strangers to the action and
have been added only to
circumvent the arbitration
agreement.
14. The Objects and Reasons to The Arbitration and Conciliation
(Amendment) Bill, 2015:
The objects indicate that the Act was enacted to provide speedy disposal of
cases relating to arbitration with least court intervention since the
interpretation of the provisions of the Act by courts in some cases have
resulted in delay in disposal of arbitration proceedings and an increase in
the interference by courts in arbitration matters which tend to defeat the
object of the Act.
15. Recent Case-law on the subject:
The interpretation of the various facets of the amended section 8 as given by
the Supreme Court can be summarized as follows-
Sukanya Holdings was referred to by the Supreme Court in Ameet Lalchand
Shah v. Rishabh Enterprises; (2018) 15 SCC 678 on the issue of amendment
to section 8 wherein it was held that arbitration can be refused only where a
serious question of fraud is involved. In Emaar MGF Land Limited v. Aftab
Singh (2019) 12 SCC 751, the Supreme Court interpreted "...notwithstanding
any judgment, decree or order of the Supreme Court or any Court" in section 8
(1) as being a clear departure from fulfilling the conditions as noticed in P.
Anand Gajapathi Raju v. P.V.G. Raju (2000) 4 SCC 539, Sukanya Holdings
and other judgments prior to the 2016 Amendment. A 3-Judge Bench of the
Supreme Court in Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1
noted the intrinsic limits of arbitration when it affects the rights and
liabilities of persons who are not bound by the arbitration agreement - the
erga omnes effect. The decision however propounded a test to determine
when the subject- matter of a dispute is not arbitrable and held that the
Arbirtal tribunal is the preferred first authority to decide all questions of
non-arbitrability. The Supreme Court further commented on section 8 being
a positive mandate on the judicial authority to refer parties to arbitration in
terms of the arbitration agreement and dispensed with the element of
judicial discretion in the matter of holding down the parties to the terms of
the arbitration agreement. In the later part of the judgment, the Court
concluded that judicial interference at the reference stage, post-amendment,
has substantially been curtailed and the structure of the Act was changed to
bring it in tune with the 'pro-arbitration approach'. In the last paragraph of
the judgment (para 244 of the SCC Report), the succinct advice on the prima
facie evaluation of the validity of the arbitration agreement is "when in
doubt, do refer".
16. Another 3-Judge decision in N.N. Global Mercantile vs. Indo Unique
Flame Ltd.; (2021) 4 SCC 379 explored the doctrine of separability of an
arbitration agreement from the underlying contract. Recent decisions of the
Bombay and the Delhi High Courts have also considered the effect of the
amendment on section 8; Taru Meghani v. Shree Tirupati Greenfield 2020
SCC Online Bom 110, Knowledge Podium Systems Pvt. Ltd. vs S.M.
Professional Services Pvt. Ltd. 2021 SCC OnLine Del 136 and Hero Electric
Vehicles Private Limited vs Lectro E-Mobility Private Limited; 2021 SCC Online
Del 1058.
17. Although the plaintiffs have relied on Vidya Drolia and parts of Hero
Electric to urge that the Supreme Court has called for a centralized
adjudication of disputes where the disputes are interlinked with each other
and the cause of action cannot be bifurcated, the said contention has to be
seen in the proper perspective. Paragraph 28 of Vidya Drolia refers to the
dictum in Sukanya Holdings and instances where such dictum would apply
but does not say that Sukanya Holdings is still good law and would cover all
instances where a party applies for reference of the dispute to arbitration.
This would be clear from para 154 -court not to enter into a mini trial so as
to usurp the jurisdiction of the arbitral tribunal and para 159 where the
Supreme Court leaves the issue of arbitrability to be decided by the arbirtal
tribunal. Vidya Drolia hence cannot be cited only for the proposition that a
centralized adjudication is the preferred route in all cases. Further, Vidya
Drolia has also to be seen against the other pronouncements of the Supreme
Court in Emaar MGF and N.N.Global which reinforced the legislative
intention of minimizing judicial interference in matters of reference. The
pointers set out in para 41 of Hero Electric which the plaintiffs have relied on
are in the context of arbitrability and in rem disputes.
18. The only conclusion which emerges from the above interpretations
and decisions is this: a Court must keep a hands-off approach - as opposed
to a face-off with the arbitration process − and give a decisive push to the
arbitral process once the court is satisfied, prima facie, that a valid
arbitration agreement exists in a matter which is arbitrable. The Court's
enquiry is limited only to this and no more.
B. The case made in the plaint against the applicant/defendant no. 39
19. The case made out against the applicant/ defendant No. 39, Vesuvius
would appear from paragraph 42 onwards. In Paragraph 42, the plaintiffs
have pleaded a negative covenant incorporated in the agreements between
the plaintiff no. 1 and the defendant no. 39 by implication to the effect that
the defendant no. 39 would not enter into competition with the plaintiff
Company by selling its materials to any of the Arcelor Mittal Companies.
Paragraph 45 pleads breach of contract on the part of the defendant no. 39
and also sets out the entire cause of action against the said defendant.
Paragraph 45(j) admits that an application under section 9 of the Act was
filed by the defendant no. 39 for various injunctive reliefs against the
plaintiff Company. Paragraph 45(gg) alleges breach of contract by the
defendant no. 39 and paragraph 51 alleges loss and damage suffered by the
plaintiff Company on account of the repudiation of the non-competition
agreement by the defendant no. 39. The reliefs claimed against the
defendant no. 39 are in paragraphs 64 and 65 of the plaint; namely the said
defendant is liable to pay substantial damages to the plaintiff Company. The
other relevant paragraph would be paragraph 12 of the plaint which refers
to the Purchase Orders issued by the plaintiff Company to the defendant no.
39 and states that the defendant no. 39 along with the defendant nos. 40 -
42 simply acted as suppliers/vendors of the plaintiff Company without
having any contractual privity with any of the Mittal Companies. Paragraph
29 also states that defendant nos. 39 to 42 were amongst four of the existing
suppliers/vendors used by the plaintiffs to supply refractory materials and
other allied goods to the Mittal Companies. Paragraph 41 pleads an oral
agreement with each of the defendant nos. 39 to 42 and states that apart
from the express stipulations, which were essential and fundamental terms
agreed upon between the plaintiff Company and the said four defendants,
certain general terms and conditions were also mutually agreed upon which
were routinely followed by the plaintiff Company while purchasing from the
said defendants.
20. The statements made in the plaint do not plead or reject any collusion
or conspiracy between the defendant no. 39 and other vendors and the
Mittal Companies or any common agreement between the defendant no. 39
and other vendors and the Mittal Companies. The schematic arrangement of
the paragraphs separate the cause of action pleaded against the defendant
no. 39 and the other vendors being the defendant nos. 40 - 42. The cause of
action against the defendant no. 39 can hence be segregated from the cause
of action made out against the Mittal Companies. The prayers in the plaint
also indicate independent reliefs claimed against the defendant nos. 39 - 42:
namely prayers b, e, o, r and t. The prayer for a decree of specific
performance of the non-competition agreement, declaration in that regard
and perpetual injunction restraining the defendant nos. 39 to 42 from
selling their goods directly to any of the other defendants have only been
sought against the defendant nos. 39 - 42.
21. The pleadings in the plaint belie the plaintiffs' contention of the
disputes against the different defendants being inextricably interlinked or
being incapable of piecemeal adjudication. The argument of composite
causes of action discouraging the splitting-up of necessary and proper
parties is also rejected since the cause of action pleaded against the
defendant no. 39 and the other three vendor/defendants no. 40-42 as well
as the reliefs claimed against them are clearly separable from the cause of
action pleaded and the reliefs claimed against the Mittal Companies and can
easily be demarcated on that basis.
22. The case made out is also of an agreement between the plaintiff
Company and the vendor group of defendants on a principal to principal
basis, independent of any agreement with the Mittal group of defendants.
The plain(t) case is that there was no contractual privity between the
vendors and the Mittal companies at all (paras 10, 12 of the plaint).
Moreover, the Purchase Orders are issued by the plaintiff Company and the
Mittal group of defendants are not parties to the said Purchase Orders.
23. It is thus evident from the statements made in the plaint that the suit
has been filed against two groups of defendants with separate claims and
causes of action which has been claimed and pleaded against each of the
said groups; more specifically, (a) the Mittal group consisting of defendant
nos. 1-38 to who the plaintiff no.1 was selling goods and (b) the Vendors
group - defendant nos. 39-42 from who the plaintiff Company was buying
goods.
C. Can the cause of action in the suit be bifurcated?
24. Order II Rule 6 of The Code of Civil Procedure, 1908, gives an option
to the Court to order separate trials where there is joinder of causes of
action in one suit which has a potential of delaying the trial or otherwise
cause inconvenience to the proceedings. The aforesaid provision hence
provides for cases where bifurcation and separate trials are called for by
reason of joinder of causes of action and parties (Ref: Taru Meghani vs Shree
Tirupati Greenfield; 2020 SCC OnLine Bom 110). As discussed in the
preceding section of this judgment, the reliefs claimed against the two
groups of defendants, namely the Mittal Group and the vendors group (of
which the applicant, defendant No. 39 is a party) are separate and
independent of each other. The disputes and reliefs as claimed in the suit
are hence bifurcable.
25. It is also to be noted that the suit was filed after receipt of notices
under section 21 of the 1996 Act for commencement of arbitral proceedings.
It is also relevant that the existence and validity of the non-competition
agreement said to exist between Lindsay and the vendors is the basis of the
reliefs claimed against the vendor defendants which are in turn
consequential upon the determination of the existence and validity of the
non-competition agreement.
26. It can fairly be assumed that the plaint has been prepared with the
object of avoiding the arbitration agreement between the plaintiff no. 1 and
the vendor group of defendants.
27. In N.N. Global, the Supreme Court held that all civil and commercial
disputes, either contractual or non-contractual, which can be adjudicated
by a Civil Court, in principle, can be adjudicated and resolved through
arbitration unless it is excluded either expressly, by a statute or by
necessary implication. The Supreme Court further proceeded to hold that
the 1996 Act does not exclude any category of disputes as being non-
arbitrable. The Supreme Court reiterated the categories recognized in Booz
Allen & Hamilton Inc. vs. SBI Home Finance Ltd; (2011)5 SCC 532 as
instances of disputes which are not arbitrable. In that case, the Supreme
Court held that the civil aspect of fraud can be adjudicated by an arbirtal
tribunal with the only exception being where the arbitration agreement itself
is vitiated by fraud or fraudulent inducement and goes to the validity of the
underlying contract and impeaches the arbitration clause itself.
28. Hence, this Court does not find any merit in the argument made on
behalf of the plaintiffs that the disputes, if referred, would result in
bifurcation of composite causes of action or split-up necessary and proper
parties. This interpretation is in any event destructive of the legislative
intent to promote arbitration as noticed in the earlier part of the judgment.
The view of this Court is bolstered by the fact that none of the decisions
cited, including Vidya Drolia, have held that an application under section 8
will only succeed if the entire suit is capable of being referred to arbitration.
D. Is Sukanya Holdings relevant at the stage of reference, post-amendment?
29. The recommendation of the Law Commission of discouraging reference
where the parties to the action, who are not the parties to the arbitration
agreement, are necessary parties to the action, read with the Note referring
to Sukanya Holdings, did not serve as a trailer in the final cut of the 2016
Amendment. The legislature, in fact, jettisoned the entire portion on
"necessary parties" as well as Sukanya Holdings to declare, with
unequivocal intent, that a judicial authority shall refer the parties to
arbitration "notwithstanding any judgment, decree or order of the Supreme
Court or any Court". The amended section 8 hence does not contain any
remnant of the recommendation with reference to Sukanya Holdings and
has thrown out any impediment in connection with the dictum in Sukanya
Holdings, or any other judicial pronouncements before the amendment, in
its entirety. (Ref: Emaar MGF)
30. The dictum in Sukanya Holdings that bifurcation of causes of action
and parties cannot be permitted in adjudicating an application under
section 8 has been rejected in N.N. Global (see the preceding section of this
judgment). Vidya Drolia also cannot also be used as a proposition to support
the plaintiffs' argument that the entire cause of action in the suit must be
capable of being referred to arbitration in a section 8 application. In fact
paragraph 225 of Vidya Drolia recognizes that judicial interference at the
reference stage has been substantially curtailed and the 2015 amendment
has altered the structure of the Act to make it pro-arbitration. Paragraph
154.3 of the said judgment further reinforces the principle of severability,
competence-competence and that the Arbirtal tribunal is the preferred first
authority to determine all questions of non-arbitrability. In paragraph 244.4,
the advice of the Supreme Court is "when in doubt, do refer".
31. The conclusion, without a doubt, is that Sukanya Holdings is no
longer a relevant factor for the Court to consider at the stage of reference in
an application under section 8 of the Act. The Court is not even under a
mandate, post amendment, to adjudicate on the bifurcability of the causes
of action or the presence of parties who are necessary parties to the action
but not to the arbitration. The only brake in the momentum of reference is
the court finding, prima facie, that no valid arbitration agreement exists.
32. The rejection of the Law Commission's recommendation in the Note to
section 8 with regard to Sukanya Holdings was considered in Emaar MGF
where the Supreme Court opined that pronouncements made prior to the
amendment were not to be adhered to as the legislative intent was to move
away from the conditions in P. Anand and Sukanya Holdings. The Court
proceeded to explain that the object of the amendment was to minimise the
scope of the judicial authority to refuse reference to arbitration.
33. Besides, the argument that Sukanya Holdings continues to hold the
field would, in effect, result in the amended section 8 looking somewhat like
this;
"... notwithstanding any judgment, decree or order of the Supreme
Court or any Court save and except the judgment in Sukanya
Holdings..." (the added bit is underlined).
34. This Court is of the view that adding to the plain and unambiguous
words of the provision in the pretext of interpretation cannot be the
permitted course of action.
35. It is also important to bear in mind that the issue is not whether the
dictum in Sukanya Holdings is correct, as the law laid down in that decision
may continue to be relevant for deciding applications under section 8 filed
prior to the amendment of 2016 but not where the suit or application is filed
after 23.10.2015 when the amendment came into force (underlined for
emphasis).
D1. The bar to reference under the amended Section 8 of the 1996 Act:
36. Existence of a valid arbitration agreement:-
According to the applicant/defendant no. 39, the Purchase Orders, placed
by the plaintiff no. 1 Lindsay on the applicant, contained terms and
conditions relating to the purchase of refractory items from the applicant
each one of which Orders contained an arbitration clause worded in
identical terms. This contention has not been disputed by the plaintiffs. The
relevant part of the arbitration clause- Clause 15- is set out below--
"15.1. The BUYER and SELLER agree that any dispute
or difference which may arise out of or in connection with this
ORDER, shall be amicably settled through mutual discussion.
In case BUYER and SELLER fail to reach an agreement on any
dispute, controversy, interpretation of any terms, claim arising
out of or in connection with this ORDER or the breach,
termination shall be settled by arbitration in accordance with
the Rules of the Indian Arbitration & Conciliation Act, 1996.
15.4. The venue of arbitration shall be at Kolkata, India
and the Courts in Kolkata shall have the exclusive jurisdiction."
37. All the Purchase Orders contain the above arbitration clause. It is also
undisputed that the plaintiff Company accepted the invoice of the applicant
in terms of the Purchase Orders without demur. The plaintiffs have also not
disputed the arbitrability of the dispute or the existence or validity of the
arbitration clause. Notably, the General Terms & Conditions of Supply dated
1st September, 2010 issued by the plaintiff Lindsay on the vendor
defendants also contain an arbitration clause (Clause 19) and record that
the Terms shall remain valid for all the Purchase Orders issued by Lindsay
after 1st September, 2010 unless Lindsay confirms to the Seller/vendor
defendants of any modification or amendment to the Terms.
38. This would be evident from an application filed under section 11 by
the applicant arising out of the several Purchase Orders under which the
claims of the applicant were referred to a Sole Arbitrator and arbitration
proceedings are presently pending. The order of the learned Single Judge of
this Court dated 9th August, 2019 was passed on the basis of a similar order
in an application filed by the defendant nos. 41 and 42 (IFGL) under section
11. A Special Leave Petition preferred against the said order is presently
pending before the Supreme Court and no stay has been granted in favour
of the plaintiffs against the order dated 9th August, 2019. Notably, the
Special Leave Petition filed by the plaintiffs against the order passed in the
section 11 filed by the defendant nos. 41 and 42 has been dismissed by the
judgment and order in Vidya Drolia. It can hence be said that the order
dated 9th August, 2019 passed by the learned Single Judge has become
binding for the proposition that consolidation of arbitration is possible
where the dispute arises out of several Purchase Orders containing identical
arbitration clauses (Ref: Enercon (India) Ltd. Vs. Enercon Gmbh (2014) 5 SCC
1). In Enercon, the Supreme Court exhorted courts to adopt a pragmatic
approach instead of a pedantic one while construing an arbitration
agreement and to make the arbitration clause workable within the
permissible limits of the law.
39. By reason of the free-ranging width of the arbitration agreement, all
disputes arising out of or in connection with the Purchase Orders are clearly
covered by the arbitration clause; Ref: Giriraj Garg Vs. Coal India Limited;
(2019) 5 SCC 192, where the Supreme Court held that disputes 'in
connection with' or in similarly-worded terms are to be given a broad
meaning and quoted Russell from his commentary on Arbitration (24th Edn.,
2015) to note that such clauses may also be sufficient to catch disputes
arising under another contract related to the contract containing the
arbitration clause.
40. In this context, reference may also be made to Ameet Lalchand Shah
where the Supreme Court referred all the four agreements which formed the
subject matter of the suit to arbitration, although one of the agreements did
not contain any arbitration clause, on the ground that this particular
agreement was connected with the others which had the arbitration clause.
41. In any event, the question whether the contract with the vendor
defendants is intertwined with the contracts between the plaintiff and the
Mittal defendants is a matter of interpretation of the contract as recorded in
the Purchase Orders and falls within the domain of the arbitrator. It is also
relevant that defendant nos. 1-38 (the Mittal group of defendants) have not
opposed the present application for reference to arbitration.
42. The requirement of a valid arbitration agreement involves a dispute
which is arbitrable and was clarified by the Supreme Court in N.N. Global. In
the said decision, all civil or commercial disputes which are capable of being
adjudicated by a Civil Court in principle were held to be capable of being
resolved unless specifically excluded by statute or by necessary implication.
The Arbitration and Conciliation Act, 1996 does not contain any provision
by which any particular category of disputes are held to be non-arbitrable.
section 2(3) of the Act saves certain prevalent laws under which disputes
may not be submitted to arbitration. The Supreme Court also clarified that
actions in personam which determine the rights and interest of the parties to
the subject matter of the dispute are clearly arbitrable.
43. The present case squarely falls within the dictum of N.N. Global. It is
not a lis in rem or a claim to exercise a right against the world at large. The
claims and disputes are entirely between private parties for determination of
their rights and obligations as contained in the Purchase Orders containing
the arbitration clause. It is also not a case where the cause of action and
subject-matter of the dispute require centralized adjudication or would have
the effect of binding third parties thereby rendering piecemeal adjudication
inappropriate and unenforceable. It may also be noted that, even before the
amendment was effected to section 8 in 2016, once the existence of a valid
arbitration agreement was admitted, the judicial authority was statutorily
mandated to refer the matter to arbitration; Rashtriya Ispat Nigam Ltd. Vs.
Verma Transport Co.; (2006) 7 SCC 275.
44. Prima facie finding:
A prima facie finding necessarily implies a first assessment of a matter as
opposed to a full review of the merits of the case. Borrowing an expression
from Vidya Drolia, a prima facie review at the reference stage is to "cut the
deadwood and trim off the side branches in straightforward cases where
dismissal is barefaced and pellucid and when on the facts and law the
litigation must stop at the first stage." The rejection of the reference in such
case is only premised on the absence or non-existence of a valid arbitration
agreement or where the dispute or subject matter is not arbitrable. In Vidya
Drolia, the Supreme Court clarified that exercise of the limited power of
prima facie review only ensures that frivolous matters are shed at the initial
stage and does not in any way interfere with the principle of competence-
competence or impede arbitration proceedings.
45. The decisions relied upon on behalf of the plaintiffs proceed on the
conditions required for reference before the amendment to section 8. Bengal
Immunity Company Limited Vs. State of Bihar; AIR 1955 SC 661 has been
cited for the proposition that judgments prior to an amendment remain good
law unless overruled. This decision along with Sukanya Holdings is no
longer relevant in view of the reasons given in the earlier part of this
judgment, namely, that Sukanya Holdings has not been accepted in the final
amendment and the subsequent clarification of the legislative intent by the
Supreme Court in Emaar MGF.
46. It should also be added that bifurcation of parties and of the cause of
action, as recommended by the Law Commission, was restricted only to
"necessary parties". However, even this restricted recommendation was done
away with and replaced by"...notwithstanding any judgment, decree or order
of the Supreme Court or any Court,...".
47. In any event, the statements in the plaint reflect that the cause of
action as pleaded against the vendor defendants including the defendant No.
39 and the reliefs prayed against the said defendants render the other
parties wholly unnecessary for adjudication of the dispute. The cause of
action against the defendant No. 39 is essentially for breach of an alleged
non-competition clause contained in the agreement where none of the other
Mittal defendants are signatories or parties. Hence the other defendants are
not necessary or even proper parties, which is also reiterated in paragraph
12 of the plaint. This paragraph states that the plaintiffs have independent
agreements with each of the vendors and further that the vendors have no
contractual privity with any of the Mittal Companies at all. With regard to
bifurcation of cause of action, Paragraph 28 of Vidya Drolia defines the
expression "cause of action" in relation to the subject matter to mean as one
which relates to the scope of the arbitration agreement and whether the
dispute can be resolved by arbitration. Garware Wall Ropes Limited Vs.
Coastal Marine Constructions and Engineering Limited; (2019) 9 SCC 209
placed reliance on SMS Tea Estates (P) Ltd. Vs. Chandmari Tea Co. (P) Ltd.,
(2011) 14 SCC 66 and has been overruled by the Supreme Court in N.N.
Global. Certain other views expressed in Garware Wall Ropes which were
noted with approval in Vidya Drolia (Paragraph 147.1) have now been
referred to a larger bench in N.N. Global. The judgments of the Supreme
Court in Duro Felguera S.A. Vs. Gangavaram Port Limited; (2017) 9 SCC 729
and Uttarakhand Purv Sainik Kalyan Nigam Limited Vs. Northern Coal Field
Limited; (2020) 2 SCC 455 were in the context of applications under section
11 of the Act and considered the effect of the amendment on National
Insurance Co. Ltd. Vs. Boghara Polyfab (P) Ltd. (2009) 1 SCC 267 and S.B.P &
Co. Vs. Patel Engg. Ltd. (2005) 8 SCC 618, respectively. Pravin Electricals Pvt.
Ltd. Vs. Galaxy Infra and Engieering Pvt. Ltd. (2021) 5 SCC 671 was also in
the context of section 11(6). The Supreme Court however left the question
with regard to existence of arbitration agreement to be decided by the
arbitrator. The judgment of a learned Single Judge in Emirates Grains
Products Co. LLC Vs. L.M.J. International Ltd.; (2009) 4 CHN 125 has been
challenged and the appeal is pending. The said judgment is also of an
application filed under section 45 of the 1996 Act and not under section 8.
The unreported judgment of a learned Single Judge of this Court in G.A. No.
820 of 2020 with C.S. No. 02 of 2017: Lindsay International Private Limited
Vs. Laxmi Niwas Mittal involved an application filed by one of the parties
seeking reference under section 8 after filing the written statement. This
has been specifically made statutorily impermissible under the amended
section 8. The said judgment also does not concern the applicant or any of
the vendor defendants.
48. Therefore, none of the decisions cited assist the plaintiffs or persuade
the Court that the present application under section 8 must fail either on
the ground of Sukanya Holdings or otherwise.
49. This Court is hence of the view that the applicant/ defendant no. 39
has successfully made out a case for reference of the disputes to arbitration
in terms of the arbitration agreement contained in the Purchase Orders. The
only question which remains is the fate of the suit as far as defendant no.
39 is concerned. As held in Hindustan Petroleum Corpn. Ltd. v. Pinkcity
Midway Petroleums; (2003) 6 SCC 503, once an application under section 8
is allowed, the Civil Court does not retain jurisdiction to entertain the suit
as against the defendant who filed the application for reference.
50. G.A. no. 176 of 2017 is accordingly allowed in terms of prayers (a) and
(b). All claims made by the first plaintiff against the defendant no. 39 and all
disputes, differences and controversies raised against the said defendant,
which are the subject matter of the suit, shall be referred to arbitration in
terms of the arbitration agreement. There shall also be a stay of all further
proceedings in CS No. 2 of 2017 as against the defendant no. 39.
51. The application is disposed of.
52. Learned counsel appearing for the plaintiffs prays for stay of operation
of the judgment. Considering the law on the subject as discussed in the
judgment, the prayer for stay is considered and refused.
Urgent Photostat certified copy of this Judgment, if applied for, shall
be supplied to the parties upon compliance of all requisite formalities.
(MOUSHUMI BHATTACHARYA, J.)
