Anheuser Busch Inbev India ... vs East Godavari Breweries Private ...
2021 Latest Caselaw 1850 Kant

                                  1
                                                        R
            IN THE HIGH COURT OF KARNATAKA
                     AT BENGALURU

       DATED THIS THE 31ST DAY OF MARCH 2021

                              BEFORE

     THE HON'BLE MR.JUSTICE S. SUNIL DUTT YADAV

     CIVIL MISCELLANEOUS PETITION No.304/2019

Between:

ANHEUSER BUSCH INBEV INDIA LIMITED
A Company governed by the provisions of
the Companies Act, 2013 and having its
registered office at
Unit No.301-302, Dynasty Business Park,
'B' Wing, 3rd Floor, Andheri Kurla Road,
Andheri (East),
Mumbai- 400 059, Maharashtra.
Represented by its authorised representative
Ajitha Pichaipillai, Legal Director, India BU     ... Petitioner

(By Mr.Srinivas Raghavan, Senior Advocate for
    Ms.Meenakshy Natesan, Mr.Amar Gupta,
    Mr.Ashish Joshi & Ms.Divya Aggarwal, Advocates)

And:

1.     EAST GODAVARI BREWERIES PRIVATE LIMITED
       A Company governed under the provisions of
       the Companies Act, 2013 and having its
       registered office at 5-172C, Thimmapuram,
       Near Tata Motors, Kakinada,
       Guntur, Andhra Pradesh - 533 005.

       Also at:
       4th Floor, Plot No.13, Phase-III,
       Road No.82, Jubilee Hills,
       Hyderabad- 500 033.
                               2


2.   SCARPE MARKETING PRIVATE LIMITED
     A Company governed under the provisions of
     the Companies Act, 2013 and having its
     registered office at Flat No.4B,
     Rama Classic 9, Shilpi Valley,
     Gafoor Nagar, Madhapur,
     Hyderabad, Telangana- 500 081.

3.   SATISH BABU SANA
     Major,
     Father's name not known to this petitioner
     Residing at Flat No.4B, Rama Classis 9,
     Shilpi Valley,
     Gafoor Nagar, Madhapur,
     Hyderabad, Telangana- 500 081.

4.   S.V.BAPUJI
     Major,
     Father's name not known to this petitioner
     Residing at House No.8-105,
     Near Geetha Mandir, Korumamidi,
     Nidadavolu Mandalam, Korumarnidi,
     West Godavari, Andhra Pradesh- 534 305.

5.   S. GURUJU
     Major,
     Father's name not known to this petitioner
     Residing at Flat No.504, Block-1,
     Swathi Heights, Prashant Nagar Colony,
     A.S.Rao Nagar, Kapra,
     Hyderabad, Telangana- 500 062.           ... Respondents

(By Mr.Pradeep Nayak, Advocate for
    Mr.Nishanth Kadur and
    Mr.Siddharth Aiyanna, Advocate for R1;
    Mr.Udaya Holla, Senior Advocate for
    Ms.Nitya Kalyani, Advocate for R3;
    Mr.Salman Khurshid, Senior Advocate for
    Mr.Jafar Khurshid, Ms. Aadya Mishra and
    Mr.Sivaramakrishnan M.S., Advocates for R2, R4 and R5)
                                     3


      This Civil Miscellaneous Petition is filed under Section
11(6) of the Arbitration and Conciliation Act, 1996, praying to
appoint the remaining Members of the three-member Arbitral
Tribunal and constitute the Arbitral Tribunal for the reference of
disputes between the parties as per Clause 24.1 of the Brewing
Agreement dated 06.02.2015 vide Annexure-'B' and etc.

      This Civil Miscellaneous Petition having been heard and
reserved on 10.02.2021 and coming on for pronouncement of
orders, this day, the Court made the following:

                             ORDER

The present petition has been filed seeking

appointment of remaining three Members' of the Arbitral

Tribunal and to constitute the Arbitral Tribunal for reference

of disputes between the parties as per Clause 24.1 of the

Brewing Agreement dated 06.02.2015.

I. Facts of the case:-

1. It is stated that the petitioner-Anheuser Busch

Inbev India Limited and the respondent No.2 were parties

to a Customer Information Service Provider Agreement

(hereinafter referred to as "CISP Agreement") entered into

on 21.03.2012. It is stated that originally the 'CISP

Agreement' was executed on 21.03.2012 between

M/s.SKOL Breweries Limited (hereinafter referred to as

'SKOL') renamed to SABMiller India Limited (hereinafter

referred to as 'SABMiller') in 2014 and has been eventually

taken over by the petitioner on the one hand and ILIOS

Business Solutions Private Ltd., (hereinafter referred to as

'ILIOS') the Company stated to have been promoted by

respondent No.3-Mr.Satish Babu Sana.

2. It is further stated that on 31.01.2015, the

respondent No.3 and ILIOS represented to the petitioner

that respondent No.1 and ILIOS are affiliate Companies and

had guaranteed performance of respondent No.1 under the

brewing contract, which was still under contemplation.

3. It is stated that respondent No.3 representing

ILIOS executed a "Guarantee" in favour of SABMiller on

31.01.2015 and it is asserted that on the basis of such

Guarantee, the petitioner has executed the Brewing

Agreement with respondent No.1 on 06.02.2015. The

purpose of Brewing Agreement was setting up of a facility to

manufacture and brew the beer of petitioner Company. The

petitioner is stated to have granted an advance of Rs.17.50

Crores in terms of Clause 6.12 of the Agreement and the

parties have also stipulated at Clause 24 of the Agreement

that the dispute resolution mechanism is by recourse to

arbitration.

4. It is further submitted that on 13.02.2015, the

Directors/Promoters of respondent No.1 (including

respondent No.3 and another) have given a second

guarantee undertaking to perform all the obligations under

the Brewing Agreement in case of default by respondent

No.1 including return of the advance.

5. It is also stated that after the rights of CISP

Agreement were assigned to respondent No.2 on

09.09.2015, the respondent Nos.2 to 5 have furnished

fresh guarantee under which the promoters had guaranteed

that they would be jointly and severally liable to ensure

"due performance of the obligation" under the Brewing

Agreement, extending to an undertaking for refund of the

advance by respondent No.1 to the petitioner under the

stated circumstances.

6. It was clarified that in the event of termination of

Brewing Agreement and the advance having become due,

they would be "jointly and severally" liable to repay the

advance with applicable interest. It is also stated that the

petitioner would be entitled to offset the amounts due to the

respondent No.2 under the CISP Agreement against the

refund of advance.

7. It is stated that as the petitioner's representative

allegedly gave oral instructions to respondent No.1 to stop

working on 11.11.2016, operations being stopped

eventually resulted in notice of termination being issued by

the petitioner on 03.08.2018. The petitioner has

subsequently called upon the respondent No.1 to pay the

advance with interest. The respondent No.1 had in turn

replied that it paused all operations on the basis of

instructions from the representative of the petitioner. The

petitioner is also stated to have invoked the Guarantee of

other respondents. Accordingly, the notice of arbitration

having been sent to the respondents and in light of absence

of concurrence as regards the appointment of Arbitrator,

the present petition has been filed.

II. Contentions of Petitioner:-

8. The petitioner contends that the respondent No.3

(described as Promoter No.1 in Document No.2 of the

memo dated 05.01.2021), respondent Nos.4 and 5

(described as Promoter Nos.(i) and (ii) in Document No.1 of

the memo dated 05.01.2021) are promoters of respondent

No.2 and the respondent No.2 is an affiliate of respondent

No.1, are all bound by the Arbitration Clause provided in the

Brewing Agreement. It is contended that under the

Guarantee stated to have been executed by the respondent

Nos.2 to 5 referred to supra in paras-(1) to (6), each of

them have jointly and severally agreed to be bound by all

the obligations under the Brewing Agreement which would

include the obligations to resolve the dispute through

arbitration.

9. It is further contended that the parties' intention

to be bound by the Arbitration Agreement is manifest from

the terms of the Guarantee itself. Reliance is placed on the

judgments of Apex Court in the case of Chloro Controls

India Private Limited v. Severn Trent Water

Purification INC. and Others1 and Cheran Properties

Limited v. Kasturi and Sons Limited and Others2 to

contend that even non-signatories will be bound by the

arbitration agreement, if there is implied consent to be so

bound. It is stated that the non-signatories would be bound

in the event if the parties are affiliated, where non-

signatory is an alter ego and have a direct relationship with

the signatory to the arbitration agreement, all of which

conditions are made out in the present case.

10. It is further submitted that the various

agreements i.e., the Brewing Agreement and the Guarantee

are part of a composite transaction, if that would be so the

transactions are construed in a commercial sense and a

"sense of business efficacy" is to be attributed to the

transactions to serve the ends of justice. It is further

(2013) 1 SCC 641

(2018) 16 SCC 413

submitted that it is to be construed that the respondent

Nos.2 to 5 are bound by the arbitration clause contained in

the Brewing Agreement entered into between the petitioner

and respondent No.1.

11. It is also contended that the Guarantee is

inextricably linked to the Brewing Agreement and its

performance and any dispute regarding such Guarantee is

also covered under Clause-24 of the Brewing Agreement.

III. Contentions of Respondents:

12. The respondent No.1 on the other hand contends

that it is only the petitioner and respondent No.1 who are

parties to the Brewing Agreement and that the respondent

Nos.2 to 5 are non-signatories. It is stated that the

interpretation of Clause-24 would restrict the reference to

arbitration only as regards "any dispute between the parties

arising out of this agreement or any clause or words in

connection with the obligation under this agreement".

13. It is specifically asserted that the dispute of the

petitioner against respondent Nos.2 to 5 are stated to have

arisen on the basis of 'Letter of Guarantee/Letter of

Comfort', while respondent No.1 is not a party to such

'Letter of Guarantee/Letter of Comfort'.

14. It is stated that the dispute as framed by the

petitioner would make out a dispute between the petitioner

on one hand and a dispute with the respondent Nos.1 to 5

based on joint and several liability of respondent Nos.1 to 5.

It is contended that as respondent No.1 has not entered

into any explicit agreement with the other respondents and

accordingly, it cannot be construed that the respondent

No.1 had agreed to refer the dispute for arbitration

pertaining to the petitioner on one hand and respondent

Nos.2 to 5 on the other.

15. It is further contended that when the Dominus

Litus frames a dispute in a certain manner, then the

bifurcation of proceedings in terms of subject matter of the

dispute and the parties is impermissible and accordingly, as

partial reference of dispute between the petitioner and

respondent No.1 is impermissible, the question of reference

to arbitration does not arise. In support of such contention,

reliance is placed on the judgment of Apex Court in the case

of Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and

Another3. Reliance is also placed on the judgment of

Bombay High Court in the case of MSTC Ltd. v.

M/s. Omega Petro Products Pvt. Ltd. and Ors.4

16. The respondent No.3 has further contended that

he is not a party to the Brewing Agreement, that the 'Letter

of Guarantee/Letter of Comfort' made out in favour of

petitioner were not intended to create any legally binding

relationship. It is asserted that the 'Letter of

Guarantee/Letter of Comfort' are not guarantees and are

issued only for the purpose of internal approvals to obtain

sanctions and were unconnected to the Brewing Agreement.

It is also submitted that the "existence of an Arbitration

Agreement" is a condition precedent and in its absence,

(2003) 5 SCC 531

(2018) SCC Online Bom 487

insofar as the respondent No.3 is concerned, the reference

must fail. It is asserted that there is no incorporation of

Arbitration Agreement by reference to another contract

justifying the reference. Reliance is placed on the judgment

of Apex Court in the case of M.R. Engineers and

Contractors Private Limited v. Som Datt Builders

Limited5.

17. Respondent Nos.2, 4 and 5 have taken a

common stand and assert that the second Letter of

Comfort, which is undated was merely issued to enable the

petitioner to obtain internal approval and sanctions for the

purposes of obtaining loan and is not connected with the

Brewing Agreement. Similar contentions as raised by

respondent No.3 have been raised including that there

exists no agreement between these respondents, that the

Letters of Comfort do not create any legally enforceable

right in favour of the petitioner against respondent Nos.2, 4

and 5.

(2009) 7 SCC 696

18. Heard Mr.V.Srinivas Raghavan learned Senior

Counsel appearing for Ms.Meenakshy Natesan, Mr.Amar

Gupta, Mr.Ashish Joshi, Ms.Divya Aggarwal for the

petitioner and Mr.Pradeep Nayak, learned counsel appearing

for Mr.Nishanth Kadur, Mr.Siddharth Aiyanna for respondent

No.1 and Mr.Udaya Holla, learned Senior Counsel appearing

for Ms.Nitya Kalyani for respondent No.3 and Mr.Salman

Khurshid, learned Senior Counsel appearing for Mr.Jafar

Khurshid, Ms.Aadya Mishra and Mr. Sivaramakrishnan M.S.,

for respondent Nos.2, 4 and 5.

IV. Consideration:-

19. Scope of power exercised under Section 11 of the Arbitration and Conciliation Act, 1996:-

At the outset, the scope of power conferred upon the

Court under Section 11 of the Arbitration and Conciliation

Act, 1996 ('the Act' for brevity) needs to be determined.

(i) The Apex Court in the case of Mayavati Trading

Private Limited v. Pradyuat Deb Burman6 has clarified

that post 2015 Amendment, the enquiry under Section

11(6-A) of the Arbitration and Conciliation Act is confined to

the examination of existence of an Arbitration Agreement in

the narrow sense laid down in the case of Duro Felguera,

S.A. v. Gangavaram Port Limited7 in paras-48 and 59.

In para-59 of Duro Felguera, S.A., (supra), the Apex

Court has clarified that post 2015 amendment, all that the

Court needs to see is to "whether the arbitration agreement

exists - nothing more nothing less" and that Legislative

policy and purpose is to minimize the Court's intervention,

which intention as reflected in Section 11(6-A) of the Act is

to be respected.

(ii) The Apex Court in the case of Vidya Drolia and

Others v. Durga Trading Corporation8 has clarified that

the scrutiny is extremely limited and restricted and it is only

the prima facie test that needs to be applied and where

(2019) 8 SCC 714

(2017) 9 SCC 729

(2021) 2 SCC 1

there are debatable and disputable facts and a good

reasonable arguable case is made out for reference, the

matter is to be relegated to the Arbitral Tribunal which has

the primary jurisdiction to decide the disputes relating to its

jurisdiction.

(iii) The Apex Court has opined that while exercising

power to decline reference to the Arbitral Tribunal, it is only

where it is manifestly and ex-facie certain that the

arbitration agreement is non-existent and to protect parties

from being forced to arbitrate where no case is made out

and to cut-off the dead wood, the Court could refuse

reference.

It is also clarified that it is not the stage for the Court

to enter into a mini trial or elaborate review so as to usurp

the jurisdiction of the Arbitral Tribunal.

Keeping in mind the above limitations on exercise of

power, the Court is required to consider the material on

record and decide.

20. Binding nature of Arbitration Clause contained in Brewing Agreement on the other respondents vis-à-vis their Guarantees :-

(i) Another aspect of the matter that requires

consideration is as regards to whether the other

respondents, i.e. respondent Nos.2 to 5 being

non-signatories to the Brewing Agreement are also bound

by the arbitration clause insofar as their disputes with the

petitioner arising out of Letter of Guarantee/Letter of

Comfort stated to have been executed by them in favour of

the petitioner.

(ii) The Apex Court in the case of Chloro Controls

India Private Limited v. Severn Trent Water

Purification INC. and Others9 has observed that even

non-signatories could be subjected to arbitration, though in

exceptional cases as enunciated in para-73, which reads as

follows:

"73. A non-signatory or third party could be subjected to arbitration without their prior consent, but this would only be in exceptional cases. The

(2013) 1 SCC 641

court will examine these exceptions from the touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject-matter and the agreement between the parties being a composite transaction. The transaction should be of a composite nature where performance of the mother agreement may not be feasible without aid, execution and performance of the supplementary or ancillary agreements, for achieving the common object and collectively having bearing on the dispute. Besides all this, the court would have to examine whether a composite reference of such parties would serve the ends of justice. Once this exercise is completed and the court answers the same in the affirmative, the reference of even non-signatory parties would fall within the exception afore-discussed."

(iii) The non-signatories being bound by an

arbitration clause in another agreement finds its source on

the legal basis as enunciated by the Apex Court in the case

of Chloro Controls (supra) at paras-103.1 and 103.2 as

follows:-

"103.1. The first theory is that of implied consent, third-party beneficiaries, guarantors,

assignment and other transfer mechanisms of contractual rights. This theory relies on the discernible intentions of the parties and, to a large extent, on good faith principle. They apply to private as well as public legal entities.

103.2. The second theory includes the legal doctrines of agent-principal relations, apparent authority, piercing of veil (also called "the alter ego"), joint venture relations, succession and estoppel. They do not rely on the parties' intention but rather on the force of the applicable law."

(iv) The Apex Court in the case of Cheran Properties

Limited v. Kasturi and Sons Limited and Others10 has

given an expanded meaning to composite nature of

transaction by observing as follows:

"23. As the law has evolved, it has recognised that modern business transactions are often effectuated through multiple layers and agreements. There may be transactions within a group of companies. The circumstances in which they have entered into them may reflect an intention to bind both signatory and non-signatory entities within the same group. In holding a non-

(2018) 16 SCC 413

signatory bound by an arbitration agreement, the court approaches the matter by attributing to the transactions a meaning consistent with the business sense which was intended to be ascribed to them. Therefore, factors such as the relationship of a non-signatory to a party which is a signatory to the agreement, the commonality of subject- matter and the composite nature of the transaction weigh in the balance. The group of companies doctrine is essentially intended to facilitate the fulfillment of a mutually held intent between the parties, where the circumstances indicate that the intent was to bind both signatories and non- signatories. The effort is to find the true essence of the business arrangement and to unravel from a layered structure of commercial arrangements, an intent to bind someone who is not formally a signatory but has assumed the obligation to be bound by the actions of a signatory."

21. Factual matrix in the context of the legal position.-

(i) The facts relevant to demonstrate implied

consent in the context of multi-layer composite

transaction:-

(a) Director of respondent No.1 viz., respondent

No.3 and first respondent Company have executed an

undertaking on 13.02.2015 in favour of the

predecessor-in-title of the present petitioner, viz., SABMiller

and have furnished the cheques authorising SABMiller to

present the cheques towards realization of advance

provided by SABMiller to respondent No.1, if circumstances

so warrant.

(b) It is specifically clarified in the said document

that respondent No.3 and Ms.Sana Naga Jyothi, who are

promoters and Directors would also ensure that the first

respondent Company would honour its commitment under

the Brewing Agreement. The petitioner has filed this

undertaking by respondent No.1 produced as Document

No.3 dated 13.02.2015 alongwith the memo dated

05.01.2021.

(c) Respondent Nos.2, 4 and 5 have by an

assignment undertaken to be bound by all obligations

agreed by ILIOS with SABMiller. As per such undertaking

as contained in Document No.1 (filed alongwith the memo

dated 05.01.2021), the signatories referred to above affirm

the contents of the letter dated 31.01.2015 and stand

guarantee for the due performance of the obligations of the

respondent No.1 under the Brewing Agreement, including

refund of advance by respondent No.1 to SABMiller.

Further, the undertaking by promoter Nos.(i) and (ii) are

stated to be an undertaking on their personal behalf apart

from an undertaking on behalf of the second respondent.

(d) At an earlier point of time, respondent No.3 in

the capacity of promoter of ILIOS and Ms.Sana Naga

Jyothi, promoter No.(ii) of ILIOS had also executed a

document in favour of SABMiller that they would ensure due

performance of obligation by the respondent No.1 under the

Brewing Agreement. It was also provided that in the event

of termination of contract, i.e. Brewing Agreement and upon

intimation from SABMiller and Guarantee becoming due, the

signatories would make arrangements for refund of advance

with interest upon demand by SABMiller.

It is also to be noted that this undertaking/guarantee

was assigned in favour of respondent No.2.

(ii) It becomes clear from such of the documents

prima facie that the guarantee as contained in Document

Nos.1, 2 and 3 (filed alongwith memo dated 05.01.2021)

have all been made to facilitate and ensure that the

respondent No.1 would honour its commitments under the

Brewing Agreement to SABMiller (eventually transformed

into petitioner). The essence of such undertaking would

indicate that the Brewing Agreement may not have been

entered into, but for such undertaking as made out in the

aforesaid documents. The signatories to the said

documents include the Promoters/Directors in their personal

capacity as well as on behalf of respondent No.2.

Accordingly, it is a case as made out by the petitioner in the

legal notice issued, invoking the arbitration clause as per

Annexure-H dated 08.11.2018 that SCARPE-respondent

No.2 and its Promoters are jointly and severally liable for

losses suffered by the petitioner Company due to breach of

the obligation under the Brewing Agreement, while also

making claim as against the respondent No.1 by virtue of

obligations under the Brewing Agreement.

(iii) It must be seen in light of discussion supra at

para-19 that the scope of enquiry in the present

proceedings are limited only to a prima facie satisfaction.

(iv) It is relevant to notice that the respondent

Nos.2, 4 and 5 as well as respondent No.3 do not dispute

the execution of documents at Document Nos.1, 2 and 3.

(v) The multi-layered agreements some of which are

in the nature of undertakings which include the agreement

executed by ILIOS and those as contained in Document

Nos.1, 2 and 3 (filed alongwith the memo dated

05.01.2021) can be stated to have been executed with the

common objective of ensuring that the Brewing Agreement

is implemented.

(vi) The only way of ensuring business efficacy to the

multi-layered commercial transaction is to construe the

entirety of undertakings by the respondents apart from the

obligations imposed in the Brewing Agreement on

respondent No.1 to be a composite transaction with the

objective of implementing the Brewing Agreement. The

present factual matrix would require assigning the term

'composite transaction' without restricting such expression

to cases where the ancillary contracts are intrinsically

intertwined to the main contract.

(vii) In the present case, the facts point out to

standing assurances by the respondents other than

respondent No.1 made to the petitioner solely with the

objective of ensuring that the petitioner reposes faith in

respondent No.1 for performance of obligations under the

Brewing Agreement. But for the assurances made by

respondents other than respondent No.1, the Brewing

Agreement may never have materialized. If that were to be

so, it could be construed that in the event of any breach by

respondent No.1, the other respondents are required to be

held accountable to their assurances in the same action

where respondent No.1 is called to account. This is the only

manner in which the entirety of multi-layered transaction,

i.e. the Brewing Agreement, other undertakings as

contained in Document Nos.1, 2 and 3 filed alongwith the

memo dated 05.01.2021 is to be construed for the purpose

of providing business efficacy to the entire transaction and

to construe the same in a commercial sense.

(viii) In light of the requirement of prima facie

determination in the present proceedings, it cannot be

stated that the petitioner has not made out even a "good

arguable case" for reference.

V. Judgments relied upon by the parties:-

22. Reliance has been placed on the judgment of

Apex Court in the case of Indowind Energy Limited v.

Wescare (India) Limited and Another11 (Decision by a

Bench of three Judges) by the respondents in support of

their contention that the satisfaction of Section 7(5) is to be

strictly construed, failing which, the non-signatory to the

agreement could not be bound. Further, the reference to

the role of Affiliate Companies and the Directors/Promoters

signing the guarantees relied upon by the petitioner while

(2010) 5 SCC 306

seeking to bind the non-signatories is countered by placing

reliance on the observations in the case of Indowind

Energy Limited (supra) that each Company is a separate

and distinct legal entity and the mere fact that the

Companies have common share holders or common Board

of Directors will not make the separate entities a single

entity.

23. It must be noted that the Apex Court in the case

of Cheran Properties Limited (Supra) (decision by a

Bench of three Judges) at para-22 has specifically stated

that the judgment in Indowind Energy Limited (supra)

was prior to the evolution of law in Chloro Controls

(supra). Evolution of law which is to be discerned from the

observations at para-23 and while enlarging the category of

cases with respect to which a non-signatory would also be

bound, the Apex Court has observed as follows:-

"23. ...The effort is to find the true essence of the business arrangement and to unravel from a layered structure of commercial arrangements, an intent to bind someone who is not formally a

signatory but has assumed the obligation to be bound by the actions of a signatory."

Accordingly, the judgment in Indowind Energy Limited

(supra) does not come to the aid of the respondents.

24. The respondents have also relied on the decision

of Apex Court in the case of S.N.Prasad, Hitek Industries

(Bihar) Limited v. Monnet Finance Limited and

Others12 to contend that the guarantor for a loan who is

not a party to a loan agreement containing the arbitration

agreement executed between the lender and borrower

cannot be bound by the arbitration clause found in the

agreement between the borrower and lender. The Apex

Court in the case of Cheran Properties Limited (Supra)

clarifies the evolution of law at para-23 while specifically

referring to the case of S.N.Prasad Hitek Industries

(supra). It is also to be noticed that while in S.N.Prasad

Hitek Industries (supra) deals with a loan transaction

and where a surety was sought to be made a party, in the

present case, the facts would reveal that the guarantee is in

(2011) 1 SCC 320

the form of an assurance to secure the performance of

Brewing Agreement and cannot be equated to a mere

contract of guarantee.

25. As regards the judgment of Apex Court in the

case of Deutsche Post Bank Home Finance Limited v.

Taduri Sridhar and Another13, it must be noted that the

said decision is prior to the decision in Chloro Controls

(supra) and the Apex Court has refused to follow the same

both on facts and law as observed in para-160 and hence,

cannot be relied upon at this point of time, where the law

has evolved substantially.

26. The reliance on the case of STCI Finance Ltd v.

Shreyas Kirti Lal Doshi and Another14, where the Delhi

High Court was considering as to whether the arbitration

clause found in the facility agreement was intended to be

incorporated into the deed of guarantee where it was held

that reference to arbitration was not permissible and held

that there was no intention of the parties that even disputes

(2011) 11 SCC 375

2020 SCC Online Del 100

with respect to deed of guarantee was also to be referred to

arbitration and that the parties had intended only to refer

the disputes in the loan facility agreement alone, it is to be

noted that the said judgment does not refer to the

judgment of Apex Court in the case of Cheran Properties

(supra) and in fact, the Delhi High Court does not refer to

the case of Fernas Construction Co. Inc. v. ONGC Petro

Additions Ltd.15. In Fernas Construction Co. Inc.

(supra), the Delhi High Court has detailed the evolution of

law relating to arbitration clause being extended so as to

bind a non-signatory and had reiterated "Group of

Companies Doctrine", commonality of subject matter and

composite transaction while following the judgments in

Chloro Controls (supra) and Cheran Properties

(supra) and accordingly, the judgment in STCI Finance

Limited (supra) cannot be relied upon.

27. While the judgment of Supreme Court of United

States in the case of GE Energy Power Conversion

2019 SCC OnLine Del 8580

France SAS, Corp., FKA Converteam SAS v. Outokumpu

Stainless USA, LLC, ET AL16., has been relied upon as

being persuasive to contend that the non-signatory could

invoke arbitration against the signatory but not the

converse. However, the logic relied upon does not

persuade the Court in light of what is stated in Chloro

Controls India Private Limited v. Severn Trent Water

Purification INC. and Others17 at para-107, which reads

as follows:-

"107. If one analyses the above cases and the authors' views, it becomes abundantly clear that reference of even non-signatory parties to an arbitration agreement can be made. It may be the result of implied or specific consent or judicial determination. Normally, the parties to the arbitration agreement calling for arbitral reference should be the same as those to the action. But this general concept is subject to exceptions which are that when a third party i.e. non-signatory party, is claiming or is sued as being directly affected through a party to the arbitration agreement and there are principal and subsidiary agreements, and such third party is signatory to a subsidiary

590 US (2020)

(2013) 1 SCC 641

agreement and not to the mother or principal agreement which contains the arbitration clause, then depending upon the facts and circumstances of the given case, it may be possible to say that even such third party can be referred to arbitration."

28. The respondents have also relied on the

judgment of Apex Court in the case of M.R. Engineers and

Contractors Private Limited v. Som Datt Builders

Limited18 in support of their contention that though the

Letters of Comfort/Letters of Guarantee refer to the Brewing

Agreement, Section 7(5) of the Act is not satisfied, as the

material on record does not reflect the intention of

incorporating the arbitration clause into the letters of

comfort/letters of guarantee.

29. While in the case of M.R. Engineers and

Contractors Private Limited (supra) the Apex Court has

indeed pointed out to incorporation of the arbitration clause

only if such intention for incorporation of the arbitration

clause also finds a mention, however, the law as it has

(2009) 7 SCC 696

evolved in Chloro Controls (supra) and Cheran

Properties (supra) (decision by Bench of three Judges)

which have been rendered subsequent to the decision in

M.R.Engineers and Contractors Private Limited

(supra) (decision by Bench of two Judges) points out to

"discerned intention" being relevant and accordingly, the

law has moved far ahead of the requirement of intention to

incorporate the arbitration clause. This movement of law

towards imputation of intention is indeed only an exception

and the challenge in every case as to how far the exception

can be expanded which would be the dictate of the facts on

hand. The guidelines to be kept in mind are those which

have been laid down in the case of Chloro Controls

(supra) and as subsequently broadened in the case of

Cheran Properties (supra) and variously described as

commonality of subject matter, composite nature of

transaction, Group Companies Doctrine, alter ego, etc.

30. The reliance on Apex Court's decision in the case

of MSTC Ltd. v. M/s. Omega Petro Products Pvt. Ltd.

and Ors.19 is essentially in support of their contention

regarding incorporation of arbitration clause found in the

main contract to the guarantee by the other parties. The

Court also refused to refer the matter for arbitration

invoking Section 8 while holding that the arbitration

agreement invoked did not include the entirety of subject

matter of the suit.

It must be noted that the recent trend to harmonize

the scope of reference under Sections 8 and 11 by placing

both on the same plain needs to be kept in mind. Further,

the judgment in Cheran Properties (supra) is subsequent

and has enlarged the scope of applicability of the arbitration

clause to non-signatories as discussed supra. Accordingly,

the judgment in MSTC Ltd., (supra) cannot be relied

upon.

31. It is also pointed out by the respondents that the

judgment in Cheran Properties (supra) relates to a post-

award situation and was considering the aspect of finality of

(2018) SCC Online Bom 487

arbitral awards in the context of Section 35 of the

Arbitration and Conciliation Act, 1996 and accordingly the

law laid down in the case of Cheran Properties (supra)

cannot be extended to pre-reference proceedings under

Section 11 of the Act. However, it ought to be noted that

what would be good as regards post-award situation so as

to bind a non-signatory should also be good as regards the

proceedings under Section 11 relating to appointment of an

Arbitrator and accordingly, the distinction sought to be

made out by the respondents is one without a difference.

Accordingly, the contentions of the respondents

opposing reference are liable to be rejected.

VI. Bifurcation of dispute:-

32. As regards the contention of the

respondent No.1 that the consent of the respondent is only

as regards to the reference of dispute under the Brewing

Agreement and that the manner in which the petitioner has

framed the dispute and has sought for its reference is

contrary to the nature of dispute under the Brewing

Agreement, reliance has been placed on the judgment of

Apex Court in the case of Sukanya Holdings (P) Ltd. v.

Jayesh H. Pandya and Another20 to contend that the

bifurcation of dispute is impermissible.

33. It must be noted that in Sukanya Holdings (P)

Ltd., (supra) the Apex Court was dealing with the factual

matrix where a suit was already instituted seeking for

dissolution of Partnership Firm and for rendering of

accounts and on the same day, an application came to be

filed under Section 8 of the Arbitration and Conciliation Act,

1996 by one of the partners seeking reference of dispute for

arbitration. The Court, however, was of the view that all

defendants to the suit were not parties or partners in the

Firm and that the terms of Partnership Deed, including the

arbitration clause were not binding upon them, while

holding so, the Court has further proceeded to observe that

the subject matter of suit cannot be bifurcated by leaving

one portion of the dispute to be decided in the suit while

(2003) 5 SCC 531

referring part of a dispute between the parties to the

Partnership Deed containing the arbitration clause only for

arbitration.

34. In the present case, this Court is also of the view

that bifurcation of dispute may not be appropriate, as there

is every possibility of conflicting judgments or orders being

passed. Moreover, having held that though the dispute

between the petitioner and respondent No.1 are covered by

the Brewing Agreement, by resort to the principle of implied

consent, the other respondents i.e., respondent Nos. 2 to 5

are also held to be subject to the arbitration clause as

regards to their disputes and while holding that the 'entirety

of disputes' is a matter to be referred for arbitration, the

question of bifurcation of dispute as was the case in

Sukanya Holdings (P) Ltd. (supra) will not arise.

35. The effect of trying to divide the dispute into

separate parcels, i.e. as regards the agreement between the

petitioner and respondent No.1 on one hand, and the

breach in the obligations of respondent No.3 and that of

respondent Nos.2, 4 and 5 together on the other hand and

limiting arbitration only to the petitioner and respondent

No.1 in terms of arbitration clause in the Brewing

Agreement would result in deferring the determination of

liability of the respondent Nos.2, 3, 4 and 5 which is not

legally practicable. The obligations taken upon by

respondent Nos.2, 3, 4 and 5 to ensure that the Brewing

Agreement is adhered to by the respondent No.1 would fail

if efforts are sought to be made for bifurcation of the

dispute as above and that would not be an appropriate

manner of interpreting the multi-layered contracts which

have been executed with the purpose of ensuring

respondent No.1's adherence to the Brewing Agreement.

The obligations of other respondents vis-à-vis the petitioner

cannot be sought to be enforced directly while asserting

that the guarantees become enforceable once the liability is

determined as regards the petitioner and respondent No.1

without participation of respondent No.3 and respondent

Nos.2, 4 and 5 in such determination.

In fact, if the dispute only of petitioner and respondent

No.1 is referred for arbitration while the dispute between

the other respondents is relegated to the Civil Courts, there

would be a possibility of conflicting orders and it would also

be incongruous that adjudication of substantive breach of

obligations under the Brewing Agreement vis-à-vis the

petitioner and respondent No.1 would be conclusive and

binding on the other respondents, who are not made parties

in the arbitration proceedings which would also be a

relevant criteria to decide against the bifurcation of dispute.

36. It is also to be noted that in Sukanya Holdings

(P) Ltd., (supra) the Apex Court never dealt with the

question of Arbitration Clause being binding as regards

non-signatories which evolution of law can be traced

through the decisions of Apex Court in Chloro Controls

(supra) and Cheran Properties (supra) which are both

subsequent judgments.

37. In fact, the judgment in Sukanya Holdings (P)

Ltd. (supra) is to be construed as laying down the law as

regards bifurcation of disputes which this Court also accepts

to be a relevant factor while making reference of disputes

and efforts must be made to prevent such bifurcation.

38. The petitioner has issued the legal notice to the

respondents as per Annexure-H dated 08.11.2018 which

has been served on the respondents as stated in para-21 of

the petition.

39. Accordingly, the respondent No.1 and

respondent Nos.2, 3, 4 and 5 are all referred to arbitration,

as regards the disputes that have arisen under the Brewing

Agreement as well as the disputes that have arisen in

connection with the undertakings as contained in Document

Nos.1, 2 and 3 filed alongwith the memo dated 05.01.2021.

40. Taking note of Clause-24 of the Brewing

Agreement, which provides that the Arbitral Tribunal shall

consist of three Arbitrators and that one Arbitrator shall be

appointed by each of the parties and the two Arbitrators so

appointed shall appoint the Presiding Arbitrator, the Arbitral

Tribunal is constituted as follows:-

(i) Hon'ble Sri Justice Swatanter Kumar, Former

Judge, Supreme Court of India (Arbitrator already appointed

by the petitioner as per the legal notice at Annexure-H

dated 08.11.2018) is appointed as the petitioner's nominee

as per the procedure under Clause-24 of the Brewing

Agreement.

(ii) Hon'ble Sri Justice V. Gopala Gowda, Former

Judge, Supreme Court of India (name suggested as per the

memo dated 29.01.2021 filed by respondent No.1, who is

party to the Brewing Agreement)

(iii) The above two Arbitrators shall appoint the

Presiding Arbitrator in terms of Clause 24 of the Brewing

Agreement. The endeavour is to be made to complete the

said process of appointment of Presiding Arbitrator within

four weeks from the date of communication of the order.

(iv) The place of arbitration would be Bengaluru as

per Clause 24.1 of the Brewing Agreement.

Accordingly, this petition is disposed off.

Sd/-

JUDGE

NP/VGR