Madras High Court
M/S.Daimler Financial Services ... vs M/S.Rajasree Motors Private ... on 4 September, 2021
Arb.O.P.(Com.Div) No.226 of 2021 &
A.Nos.282 of 2021 & O.A.No.689 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
D AT E D : 14.12.2021
C O RAM :
The Hon'ble Mr. Justice SENTHILKUMAR RAMAMOORTHY
Arb. O.P.(Com. Div.) No.226 of 2021 &
A.No.282 of 2021 & O.A.No.689 of 2021
M/s.Daimler Financial Services India
Private Limited
having its office inter alia at
5th Floor, Plot 8, Baashyam Willow Square
9 & 10, First Street, Thiru Vika Industrial Estate,
Guindy, Chennai-600 032. ... Applicant
Vs
1. M/s.Rajasree Motors Private Limited
Represented by its Managing Director,
Mr.S.Sivakumar,
No.39/3842-55/231, Alappat Raod,
Ravipuram Ernakulam, Kerala-682 016.
2. S.Sivakumar
3. S.Krishnakumar
4. Gangu Swamy Rajam
5. M/s.Manikandan Automobile Pvt. Ltd.,
Rep. By its Managing Director/
Joint Managing Director,
Residing at Manikanda Nivas, KSN
Menon road, Kochi Kerala-682 016. ... Respondents
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Page No.1 of 13
Arb.O.P.(Com.Div) No.226 of 2021 &
A.Nos.282 of 2021 & O.A.No.689 of 2021
PRAYER in Arb.O.P.No.226 of 2021 : This petition is filed under Section
11(4) of the Arbitration and Conciliation Act, 1996 praying to appoint a sole
arbitrator to adjudicate and resolve the disputes through arbitral proceedings
between the parties.
PRAYER in Arbitration Application No.282 of 2021:This Application is
filed under Order XIV Rule 8 of O.S.Rules r/w.Section 9(ii) (a)(b) & (e) of
the Arbitration and Conciliation Act, 1996 praying to direct the 1 st, 2md. 3rd.
4th and 5th respondents to furnish security to the tune of Rs.71,35,15,525.35
(Rupees Seventy one Crores Thirty Five Lakhs Fifteen Though Five Hundred
Twenty Five and paise Thirty Five only), failing which attachment of the 5 th
respondent's immovable property as detailed in the Judges summons
schedules.
PRAYER in Original Application No.689 of 2021:This Application is filed
under Order XIV Rule 8 of O.S.Rules r/w.Section 9(ii) (a)(b) & (e) of the
Arbitration and Conciliation Act, 1996 praying to direct an order of interim
injunction restraining the 5th respondent from alienating the immovable
property which is more fully described in the Judges summons schedule.
For Petitioner/ : Mr.P.H.Aravindh Pandian, Senior Counsel
Applicant for M/s.S.Namasivayam
in both O.P. and
Applications
For Respondents : Mr.P.Vinod Kumar
in both O.P. And
Applications
ORDER
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Arb.O.P.(Com.Div) No.226 of 2021 &
A.Nos.282 of 2021 & O.A.No.689 of 2021
Two applications under Section 9 of the Arbitration and
Conciliation Act, 1996 [the Arbitration Act] and a petition under Section 11
thereof are before this Court.
2. The petitioner extended loan facilities to the first respondent
herein in relation to the first respondent being appointed as a dealer for
vehicles manufactured by a sister concern of the petitioner. It appears that a
suite of agreements were executed between the petitioner and one or more of
the respondents herein. The admitted position is that some of the
agreements contain arbitration clauses and others do not. According to the
petitioner, all these agreements constitute an integrated suite of agreements,
which are referred to by the defined expression “Transaction Documents”.
After invoking the arbitration clause by communication dated 04.09.2021,
the petition under Section 11 of the Arbitration Act is filed.
3. The petitioner refers to the term sheet dated 20.12.2018 and
contends that such term sheet dealt with a range of loan facilities which
were extended to the first respondent. The petitioner, thereafter, refers to
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Arb.O.P.(Com.Div) No.226 of 2021 &
A.Nos.282 of 2021 & O.A.No.689 of 2021
each agreement which forms part of the Transaction Documents. By way of
illustration, it may be noticed that the petitioner referred to the Wholesale
Master Loan Agreement (the Wholesale Loan Agreement) in detail and drew
attention to the definition of deed of guarantee, guarantor, deed of
hypothecation, loan and transaction documents as set out therein. After
conceding that the Wholesale Loan Agreement does not contain an
arbitration clause, the petitioner referred to the Addendum Real Estate
Funding Facility Agreement (the Real Estate Funding Agreement). From this
agreement, the petitioner pointed out that the expression “Loan Documents”,
which is a defined term used therein, covers all the Transaction Documents.
Therefore, it is contended that the arbitration clause contained in Article X of
the Real Estate Funding Agreement would apply to all disputes arising out of
the Transaction Documents. Similarly, a reference was made to the
Addendum Equipment Finance Facility Agreement and the Retail Loan
Agreement. As regards the personal guarantee and corporate guarantee, the
petitioner contended that the guarantor or corporate guarantor, as the case
may be, under the respective deeds of guarantee are bound by the arbitration
clause contained in the other Transaction Documents. In support of this
contention, the petitioner relied upon the following judgments:
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Arb.O.P.(Com.Div) No.226 of 2021 &
A.Nos.282 of 2021 & O.A.No.689 of 2021
(1) DLF Home Developers Limited v. Rajapura Homes Private
Limited and Others, Manu/SC/0687/2021, wherein the Supreme Court
referred to an extract from the judgment in Vidya Drolia v. Durga Trading
Corporation (2021) 2 SCC 1 (Vidya Drolia). In particular, the petitioner
relied upon paragraph 244.4 thereof, wherein the Supreme Court concluded
that if the existence of the arbitration agreement cannot be determined on a
prima facie basis, i.e. if there is doubt in relation thereto, the dispute should
be referred for arbitration.
(2) Ameet Lalchand Shah v. Rishabh Enterprises (2018) 5 MLJ
496 (SC) (Ameet Lalchand) and, in particular, paragraphs 21 and 22
thereof, wherein the Supreme Court concluded that since all the four
agreements were integrally connected, the dispute could be resolved by
referring the parties to arbitration.
4. These contentions were refuted by the respondents. The
respondents contended that the term sheet and the Wholesale Loan
Agreement do not contain an arbitration clause. Likewise, the personal
guarantee deed dated 28.12.2018 and the corporate guarantee deed dated
27.12.2018 do not contain arbitration clauses. The principal contention of
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Arb.O.P.(Com.Div) No.226 of 2021 &
A.Nos.282 of 2021 & O.A.No.689 of 2021
the respondents is that the arbitration clause in the other agreements were
not incorporated by reference into the personal guarantee deed or corporate
guarantee deed. Consequently, it is contended that the dispute between the
petitioner, on the one hand, and the guarantors, including the corporate
guarantor, on the other, cannot be resolved through arbitration.
5. With regard to the scope of Section 11 of the Arbitration Act, as
amended, the respondents submit that the Court is required to consider
whether an arbitration agreement exists between the parties to the dispute.
The respondents referred to and relied upon the following judgments:
(1) Pravin Electricals Private Limited v. Galaxy Infra and
Engineering Private Limited (2021) 5 SCC 671(Praveen Electricals) and,
in particular, paragraphs 16 and 18 thereof, wherein Vidya Drolia was
extracted and discussed.
(2) Duro Felguera S.A v. Gangavaram Port Limited (2017) 9
SCC 729, wherein, at paragraph 36, the Supreme Court referred to and
relied upon the judgment in M.R. Engineers and Contractors Private
Limited v. Som Datt Builders Limited (2009) 7 SCC 696 for the proposition
that the mere reference to another contract is insufficient to incorporate the
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Arb.O.P.(Com.Div) No.226 of 2021 &
A.Nos.282 of 2021 & O.A.No.689 of 2021
arbitration clause from the referred contract into the contract under
consideration. Such reference should clearly indicate an intention to
incorporate the arbitration clause into the relevant contract.
(3) S.N.Prasad, Hitek Industries (Bihar) Limited v. Monnet
Finance Limited (2011) 1 SCC 320 and, in particular, paragraphs 21, 24
and 25 thereof, wherein the Supreme Court concluded that parties cannot be
directed to take recourse to arbitral proceedings merely because parallel
proceedings would have to be conducted if the court were to refuse to refer
parties to arbitration. The Supreme Court concluded that the critical issue is
whether there was an arbitration agreement as between the guarantor therein
and the counter party and not whether it would be convenient and expedient
to refer the parties for arbitration.
6. Upon considering the rival submissions, the question that arises
for consideration is whether the petitioner has made out a case to refer the
dispute between itself and the respondents herein for arbitration. As
indicated earlier, the petitioner and one or more of the respondents entered
into a suite of agreements which the petitioner refers to by the defined term,
Transaction Documents. These agreements include the Wholesale Loan
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Arb.O.P.(Com.Div) No.226 of 2021 &
A.Nos.282 of 2021 & O.A.No.689 of 2021
Agreement, Real Estate Funding Agreement, the Equipment Finance
Agreement, the Retail Loan Agreement, Deed of Hypothecation, Mortgage
Agreement and deeds of guarantee. Prima facie, all these agreements appear
to deal with the loan facilities extended by the petitioner to the first
respondent in relation to its functions as a dealer for a specific brand of
vehicles. Therefore, these agreements are prima facie interconnected. It is
also not in dispute that the defined term “Transaction Documents” is used in
most of these agreements to refer to the suite of agreements. Therefore, a
follow-on question would be whether it can be said that the arbitration
clause in agreements such as the Real Estate Funding Agreement or the
Equipment Finance Agreement or Retail Loan Agreement are incorporated
by reference into the guarantee deeds. Irrespective of the answer to this
question, a related question would be whether the respondents herein
constitute a group of entities, which are interconnected, and whether a non-
signatory could be subject to the arbitral process by adopting the test
formulated in Chloro Controls India Private Limited v. Severn Trent Water
Purification Inc. (2013) 1 SCC 641 (Chloro Controls). The resolution of
these questions would not only require the detailed scrutiny of all the
agreements which collectively constitute the Transaction Documents but also
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Arb.O.P.(Com.Div) No.226 of 2021 &
A.Nos.282 of 2021 & O.A.No.689 of 2021
other material documents.
7. In Praveen Electricals, the Hon'ble Supreme Court referred
extensively to the judgment in Vidya Drolia. In paragraph 139, the Supreme
Court concluded that the Court in exercise of jurisdiction under Section 11
can conduct an intense yet summary prima facie review. At paragraph 140,
the Supreme Court held that if such prima facie review is inconclusive, or
requires more detailed examination, the matter should be left for final
determination by the arbitral tribunal. Likewise, at paragraph 154.4, the
Supreme Court held as under:
“154.4 Rarely as a demurrer the court may interfere
at Section 8 or 11 stage when it is manifestly and ex facie
certain that the arbitration agreement is non-existent, invalid
or the disputes are non-arbitrable, though the nature and
facet of non-arbitrability would, to some extent determine the
level and nature of judicial scrutiny. The restricted and
limited review is to check and protect parties from being
forced to arbitrate when the matter is demonstrably “non-
arbitrable” and to cut off the deadwood. The court by default
would refer the matter when contentions relating to non-
arbitrability are plainly arguable; when consideration in
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Arb.O.P.(Com.Div) No.226 of 2021 &
A.Nos.282 of 2021 & O.A.No.689 of 2021
summary proceedings would be insufficient and inconclusive;
when facts are contested; when the party opposing arbitration
adopts delaying tactics or impairs conduct of arbitration
proceedings. This 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 but to affirm and uphold integrity and
efficacy of arbitration as an alternative dispute resolution
mechanism.”
8. The principle laid down in the above judgment is that the Court
should prima facie examine whether an arbitration agreement exists between
the parties to the dispute and, if it clearly does not, reject the petition. In case
of doubt, the matter should be referred to the arbitral tribunal concerned to
take a decision. In the case at hand, as referred to earlier, the parties entered
into several integrated agreements, some of which contain an arbitration
clause whereas others do not. Prima facie, all these agreements relate to the
extending of loan facilities to the first respondent. In these circumstances, in
my view, it is inappropriate to decide in a Section 11 petition as to whether
the arbitration clauses were incorporated by reference into the deeds of
guarantee or whether the circumstances, nonetheless, justify drawing a non-
signatory into the arbitral process by applying the Chloro Controls test as
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Arb.O.P.(Com.Div) No.226 of 2021 &
A.Nos.282 of 2021 & O.A.No.689 of 2021
extended to domestic arbitrations in cases such as Ameet Lalchand. This is
a determination which should be made by the arbitral tribunal after
examining all the Transaction Documents and other material documents
closely.
9. For reasons set out above, Arb. O.P.No.226 of 2021 is allowed
without any order as to costs by appointing Mrs.Justice Chitra Venkatraman,
a former Judge of this Court as the sole Arbitrator. The sole Arbitrator shall
enter upon reference and adjudicate the dispute in accordance with law. It is
open to the respondents to raise the question of jurisdiction and arbitrability
before the Arbitral Tribunal, whether in relation to consolidation,
incorporation by reference or otherwise. The Arbitral Tribunal may fix the
fees and expenses in connection with such arbitral proceedings.
10. O.A.No.689 of 2021 is for an interim injunction restraining the
fifth respondent from alienating the the immovable property described in the
schedule to Judge's summons therein. An interim order was granted on
02.11.2021. In view of the constitution of the Arbitral Tribunal, the interim
order shall continue to operate for a period of two weeks after the Arbitral
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Arb.O.P.(Com.Div) No.226 of 2021 &
A.Nos.282 of 2021 & O.A.No.689 of 2021
Tribunal enters upon reference. Thereafter, it is open to the
applicant/petitioner to file a fresh application in such regard before the
Arbitral Tribunal. With these directions, O.A.No.689 of 2021 is disposed of
without any order as to costs.
11. A.No.282 of 2021 is to direct the respondents to furnish
security. Since no orders were passed therein till date, the said application
is closed by granting leave to the applicant to file a fresh application for the
same relief before the Arbitral Tribunal.
14.12.2021
Index :Yes
Internet :Yes
kal/rrg
SENTHILKUMAR RAMAMOORTHY,
J
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Arb.O.P.(Com.Div) No.226 of 2021 &
A.Nos.282 of 2021 & O.A.No.689 of 2021
kal/rrg
Arb. O.P.(Com. Div.) No.226 of
2021 &
A.No.282 of 2021 & O.A.No.689 of 2021
14.12.2021
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