Vimarsh Development Solutions Private ... vs M.P.Consultancy Organisation (Ltd) ... on 18 September, 2019

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Madhya Pradesh High Court

Vimarsh Development Solutions Private ... vs M.P.Consultancy Organisation (Ltd) ... on 18 September, 2019

This application has been filed under Section 11(6) of the Arbitration & Conciliation Act, 1996 (for short the "Arbitration Act, 1996") by the applicant Vimarsh Development Solutions Private Limited for appointment of an arbitrator on the ground that initially on 01.12.2018 an agreement, titled as, 'Professional Services Contract' was entered into between the predecessor proprietorship firm of the applicant company known as Vimarsh Consultancy Group, Gurgaon, Haryana and the respondent M.P. Consultancy Organisation Limited for providing certain services to the respondent. On the same date, another agreement was also executed between the parties in the form of Memorandum of Understanding (MoU) wherein Vimarsh Consultancy Group was referred to as a second part and which expression also included its successors and permitted assigns. It is also an admitted fact that subsequently, on 08.04.2013 the aforesaid Vimarsh Consultancy Group was converted into a private limited company.

Admittedly, the case of the applicant is that a dispute arose between the applicant and the respondent company and since the aforesaid agreement contained an arbitration clause No.21, a notice for appointment of arbitrator was sent by the applicant to the respondent on 26.02.2017 to which the respondent sent their reply contending that since the applicant was not party to the initial 2 agreement, there is no question for appointment of arbitrator. Hence, the applicant were compelled to file this application under Section 11(6) of the Arbitration Act, 1996 for appointment of arbitrator to settle the dispute between the parties.

Learned counsel for the applicant has submitted that on account of the aforesaid two initial agreements, viz., Provisional Services Contract dated 01.12.2008 as also Memorandum of Understanding (MoU) executed on the same date between the parties, the applicant company had a legal right to invoke the arbitration clause of the initial agreement between the predecessor proprietorship firm of the applicant company and the respondent. Learned counsel for the applicant has further submitted that the initial proprietorship firm Vimarsh Consultancy Group was subsequently converted into a private limited company i.e. the applicant herein and since the private limited company is the successor of the proprietorship firm, it was entitled to invoke the arbitration clause. The applicant has also relied upon a document dated 15.04.2013 titled as, 'Sale agreement of Business as a going concern' which was filed subsequently on record.

In support of his contention, learned counsel for the applicant has relied upon the following judgments:

(i) Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641

(ii) Cheran Properties Ltd. v. Kasturi & Sons Ltd., (2018) 16 SCC 413

(iii) Ameet Lalchand Shah v. Rishabh Enterprises, (2018) 15 SCC 678

(iv) Emaar MGF Land Ltd. v. Aftab Singh, 2018 SCC Online 2771 decided on 10.10.2019 3

(v) Mahanagar Telephone Nigam Ltd. v. Canara Bank, 2019 SCC Online 995 Learned counsel for the respondent on the other hand has opposed the prayer and has submitted that no case for appointment of arbitrator is made out as there was no direct legal agreement between the applicant and the respondent as the agreement of the respondent company was with Vimarsh Consultancy Group which was a proprietorship firm whereas the applicant company was registered only in the year 2013 and even though if the business of the initial proprietorship firm was taken over by the applicant company that would not entitle it to invoke the arbitration clause entered into between the proprietorship firm and the respondent company. He has further submitted that even otherwise no case for invocation of arbitration clause is made out on the ground of limitation as admittedly the cause of action arose in the year 2010 whereas the notice for appointment of arbitrator has been sent by the applicant company on 26.02.2017. Thus, it is submitted that even assuming there was an arbitration agreement, the arbitration clause itself has been invoked by the applicant company after a period of more than six years. Learned counsel has also submitted that the subsequent agreement between the Vimarsh Consultancy Group and the applicant company dated 15.04.2013 and titled as, 'Sale agreement of Business as a going concern' is not a valid document as the date of its execution is doubtful. Thus, it is submitted that the aforesaid agreement can also not be taken into consideration by this Court.

In support of his contention, counsel for the respondent has relied upon a recent judgment passed by this Court in the case of Uttarakhand Purv Sainik Kalyan Nigam Limited v. Northern Coal Field Limited reported as (2018) 4 MPLJ 45 wherein, in similar 4 circumstances this Court has held that before invoking Section 11 of the Arbitration Act, 1996, the Court is required to see if the application has been filed within the period of limitation and this Court has also referred to Article 137 of the limitation Act, 1963 to hold that the limitation of 3 years from the date of accrual would be applicable in the cases of arbitration. Counsel has also referred to a Single Bench judgment rendered by the High Court of Delhi in the case of Govt. of N.C.T. of Delhi v. M/s. Yasikan Enterprises Pvt. Ltd. reported as 2018 SCC Online Del 11918 wherein a Division Bench judgment has been relied upon by the Delhi High Court to hold that if the agreement has not been signed by the parties in that case a party which is a distinct legal entity from the sole proprietorship cannot invoke the arbitration clause. It is further submitted that as per the original agreement itself, as per Clause 18, the original proprietorship firm could not have assigned the rights emanating from the original agreement to any other party including the applicant herein without prior consent of the respondent company. Counsel has also relied upon a judgment rendered by the Apex Court in the case of Velugubanti Hari Babu v. Parvathini Narasimha Rao and another reported as (2016) 14 SCC 126 wherein it is held that a party, who is not a party in the original agreement cannot invoke the arbitration clause and that the issue regarding the existence of the arbitration clause has to be decided by the Court under Section 11 of the Arbitration Act, 1996.

In rebuttal, learned counsel for the applicant has drawn the attention of this Court to the second document which was entered into between the Vimarsh Consultancy Group and the respondent which is also filed on record and titled as Memorandum of Understanding (MoU) which provides that Vimarsh Consultancy Group shall also include its successors and promoted assigns, hence 5 it is submitted that even if aforesaid consultancy firm has been taken over by the applicant company, it can surely invoke the arbitration cause.

Having heard learned counsel for the parties and on perusal of the record, this Court is inclined to accept the application filed by the applicant for appointment of arbitrator for the reasons assigned herein below.

The sole question which falls for consideration of this Court is whether the applicant-company, which is the successor of the proprietorship firm can invoke arbitration clause contained in the agreement, which was executed between the predecessors proprietorship firm and the respondent herein.

To ascertain the aforesaid facts, it would be necessary to go through the various clauses of the agreements entered into between the parties. Admittedly, the initial agreement was entered into between MPCON Ltd., Gangotri Building, Bhopal and VIMARSH, the Consultancy Group, Gurgaon, Haryana, which was the proprietorship firm. On the same date another document titled as, 'Memorandum of Understanding' was signed by the parties wherein it was also provided that Madhya Pradesh Consultancy Organization Ltd. shall also include its successors and permitted assigns and in respect of VIMARSH, the Consultancy Group also it was also this expression "shall include its successors and permanent assigns". It is permanent to mention here that the respondent has not denied the execution of the Memorandum of Understanding executed between the parties on the same date on which the original agreement was executed. In the original agreement executed in the year 2008 there is an arbitration clause No.21, which provides that any controversy claim or dispute arising between the parties shall be referred to an arbitrator agreed between the parties. Thus, this Court has no 6 hesitation to hold that the arbitration clause was assignable to the applicant company on the basis of this MOU only.

The applicant has also placed on record the subsequent sale agreement dated 15.04.2013 between the applicant-company and Smt. Kamini Bhandari, who is the proprietor of VIMARSH, Consultancy Group. In the aforesaid agreement it was provided that the applicant-company has taken over the business of VIMARSH, Consultancy Group.

Learned counsel for the respondent has also relied upon the Clause 18 of the agreement which provides that the contractor shall not, without the prior written consent of the client, assign or transfer or cause to be assigned or transferred, whether actually or as the result of takeover, merger or other change of identity or character of the contractor, any of its rights or obligations under this contract or any part, share or interest therein. It was the submission of the learned counsel for the respondent that without taking prior permission from the respondent-company the business of the proprietorship firm could not have been assigned to the applicant- company. Thus prima facie on perusal of the aforesaid documents, this Court is of the considered opinion that the applicant-company is the successor of VIMARSH, Consultancy Group. At this conjuncture, it would be apt to refer certain judgments of the Hon'ble Apex Court in the case of Emaar MGF Land Ltd. Vs. Aftab Singh, reported in 2018 SCC Online SC 2771. In para 46 and 47 the Hon'ble Apex Court has held as under:-

"46. The law as declared by this Court in the above cases was in existence when the Law Commission submitted its 246th Report and Parliament considered the Bill, 2015 for Amendment Act, 2016. The Law Commission itself in its Report has referred to amendment in Section 8 in context of decision of this Court in Sukanya Holdings (P) Ltd. (supra), which was clearly noticed in the Note to Section 8 as extracted above. The words 7 "notwithstanding any judgment, decree or order of the Supreme Court or any Court" added by amendment in Section 8 were with intent to minimise the intervention of judicial authority in context of arbitration agreement. As per the amended Section 8(1), the judicial authority has only to consider the question whether the parties have a valid arbitration agreement? The Court cannot refuse to refer the parties to arbitration "unless it finds that prima facie no valid arbitration agreement exists". The amended provision, thus, limits the intervention by judicial authority to only one aspect, i.e. refusal by judicial authority to refer is confined to only one aspect, when it finds that prima facie no valid arbitration agreement exists. Other several conditions, which were noticed by this court in various pronouncements made prior to amendment were not to be adhered to and the Legislative intendment was clear departure from fulfilling various conditions as noticed in the judgment of P. Anand Gajapathi Raju (supra) and Sukanya Holdings (P) Ltd. (supra). Same Legislative intendment is decipherable by amendment of Section 11 by adding sub-section (6A). Section 11(6A) is as follows:-

11. Appointment of arbitrators.-- xxxxxxxxxxxxxxxxxxxxxxxx [(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub- section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.

47. The same words "notwithstanding any judgment, decree or order of any Court" finds place in sub- section (6A) of Section 11 and Supreme Court and High Court is confined to the examination of the existence of an arbitration agreement. This Court had occasion to consider the amendment made in Section 11(6A) in Duro Felguera, S.A. (supra).

Justice Kurian Joseph in his concurring opinion in Paragraph No. 48 has laid down following:-

"48. Section 11(6-A) added by the 2015 Amendment, reads as follows:

"11. (6-A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub- section (4) or sub-section (5) or sub- section (6), shall, notwithstanding any judgment, decree or order of any court, confine to the examination of the existence of an arbitration agreement." (emphasis supplied) From a reading of Section 11(6-A), the intention of the legislature is crystal clear i.e. the court should and need only look into one aspect--the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple--it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement."

Reference may also be had to a recent judgment of the Hon'ble Apex Court in the case of Mahanagar Telephone Nigam Ltd. Vs. Canara Bank and others, reported in 2019 SCC Online SC 995. The relevant para 10.1 to 10.7 reads as under:-

"10.1. Canara Bank raised an objection to the joinder of Respondent No. 2 - CANFINA as a party to the arbitration proceedings.

10.2. As per the principles of contract law, an agreement entered into by one of the companies in a group, cannot be binding 8Savitri Goenka v. Kanti Bhai Damini & Ors., 2009 (1) Arb LR 320 (Del) (DB). on the other members of the same group, as each company is a separate legal entity which has separate legal rights and liabilities. The parent, or the subsidiary company, entering into an agreement, unless acting in accord with the principles of agency or representation, will be the only entity in a group, to be bound by that agreement. Similarly, an arbitration agreement is also governed by the same principles, and normally, the company entering into the agreement, would alone be bound by it.

10.3. A non-signatory can be bound by an arbitration agreement on the basis of the "Group of Companies" doctrine, where the conduct of the parties evidences a clear intention of the parties to bind both the signatory as well as the non-signatory parties. Courts and tribunals have invoked this doctrine to join a non- signatory member of the group, if they are satisfied that the non- signatory company was by reference to the common intention of the parties, a necessary party to the contract. 10.4. The doctrine of 'Group of Companies' had its origins in the 1970's from French arbitration practice. The 'Group of Companies' doctrine indicates the implied consent to an agreement to arbitrate, in the context of modern multiparty business transactions. It was first propounded in the case of Dow Chemical v. Isover Saint Gobain, where the arbitral tribunal held that:

"... the arbitration clause expressly accepted by certain of the companies of the group should bind the other companies which, by virtue of their role in the conclusion, performance, or termination of the 9 contracts containing said clauses, and in accordance with the mutual intention of all parties to the proceedings, appear to have been veritable parties to these contracts or to have been principally concerned by them and the disputes to which they may give rise".

The 'Group of Companies' doctrine has been invoked by courts and tribunals in arbitrations, where an arbitration agreement is entered into by one of the companies in the group; and the non- signatory affiliate, or sister, or parent 9 1984 Rev Arb 137; 110 JDI 899 (1983). concern, is held to be bound by the arbitration agreement, if the facts and circumstances of the case demonstrate that it was the mutual intention of all parties to bind both the signatories and the nonsignatory affiliates in the group. The doctrine provides that a nonsignatory may be bound by an arbitration agreement where the parent or holding company, or a member of the group of companies is a signatory to the arbitration agreement and the nonsignatory entity on the group has been engaged in the negotiation or performance of the commercial contract, or made statements indicating its intention to be bound by the contract, the nonsignatory will also be bound and benefitted by the relevant contracts. The circumstances in which the 'Group of Companies' Doctrine could be invoked to bind the nonsignatory affiliate of a parent company, or inclusion of a third party to an arbitration, if there is a direct relationship between the party which is a signatory to the arbitration agreement; direct commonality of the subject matter; the composite nature of the transaction between the parties.

A 'composite transaction' refers to a transaction which is interlinked in nature; or, where the performance of the agreement may not be feasible without the aid, execution, and performance of the supplementary or the ancillary agreement, for achieving the common object, and collectively having a bearing on the dispute.

10.5. The Group of Companies Doctrine has also been invoked in cases where there is a tight group structure with strong organizational and financial links, so as to constitute a single economic unit, or a single economic reality. In such a situation, signatory and nonsignatories have been bound together under the arbitration agreement. This will apply in particular when 10 the funds of one company are used to financially support or restructure other members of the group.

10.6. The 'Group of Companies' doctrine has been invoked and applied by this Court in Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc.,12 with respect to an international commercial agreement. Recently, this Court in Ameet Lal Chand Shah v. Rishabh Enterprises,13 invoked the Group of Companies doctrine in a domestic arbitration under Part I of the 1996 Act."

(emphasis supplied)"

Reference may also be had to the case of Chloro Controls India Private Ltd. Vs. Severn Trent Water Purification Inc. and others, reported in (2013) 1 SCC Online SC 641. In paras 97 to 99, the Apex court has held as under:-

"97. Now, we should examine the scope of concept of 'legal relationship' as incorporated in Article II(1) of the New York Convention vis-à-vis the expression 'any person claiming through or under him' appearing in Section 45 of the 1996 Act. Article II(1) and (3) have to be read in conjunction with Section 45 of the Act. Both these expressions have to be read in harmony with each other. Once they are so read, it will be evident that the expression "legal relationship" connotes the relationship of the party with the person claiming through or under him. A person may not be signatory to an arbitration agreement, but his cause of action may be directly relatable to that contract and thus, he may be claiming through or under one of those parties. It is also stated in the Law and Practice of International Commercial Arbitration, Alan Redfern and Martin Hunter (supra), that for the purposes of both the New York Convention and the UNCITRAL Model Law, it is sufficient that there should be a defined "legal relationship" between the parties, whether contractual or not. Plainly there has to be some contractual relationship between the parties, since there must be some arbitration agreement to form the basis of the arbitral proceedings. Given the existence of such an agreement, the dispute submitted to arbitration may be governed by the principles of delictual or tortuous liability rather than by the law of contract.

98...............................................................................................

99. Having examined both the above-stated views, we are of the considered opinion that it will be the facts of a given case that would act as precept to the jurisdictional forum as to whether any of the stated principles should be adopted or not. If in the facts of a given case, it is not possible to construe that the person approaching the forum is a party to the arbitration agreement or a person claiming through or under such party, then the case would not fall within the ambit and scope of the provisions of the section and it may not be possible for the Court to permit reference to arbitration at the behest of or against such party."

(emphasis supplied) On the other hand, learned counsel for the respondent has also relied upon the judgment of the coordinate bench of this Court in the case of Uttarakhand Purv Sainik Kalyan Nigam Limited Vs. Northern Coal Field Limited in Arbitration Case No.56/2016. In the aforesaid case this Court has dealt with the issues of limitation before deciding the applicability of the arbitration clause but on due perusal of the same reveals that nowhere in the aforesaid judgment, Section 11(6-A), as inserted in the year 2015, has been referred to by this Court. In view of the same, the aforesaid judgment is distinguishable as sub-section 6A has limited the scope of the application for appointment of arbitrator to the examination of arbitration clause only.

In the other judgment rendered by the Delhi High Court in the case of Govt. of NCT of Delhi Vs. M/s Yasikan Enterprises Pvt. Ltd., reported in 2018 SCC Online 11918, the Delhi High Court has held that the arbitration clause is not assignable except under certain circumstances where it is specifically assigned. This judgment has not taken note the judgment of the Hon'ble Apex Court in the case of Chloro Controls India Private Ltd. (supra) as also the judgment in the case of Emaar MGF Land Ltd. (supra), 12 hence, the same is distinguishable. Otherwise also in the case on hand, this Court has already held that the arbitration clause was also assignable as per the MOU between the parties.

In the case of Velugubanti Hari Babub Vs. Parvathini Narsimha Rao and another, reported in (2016) 14 SCC 126 again this judgment does not refer to Section 11(6-A), hence is not applicable.

As a result, the present arbitration case stands allowed and Ms. Renu Sharma, retired District and Sessions Judge, R/o H- 22, Nishat Colony, 74-Banglow, Bhopal (MP) is appointed as proposed arbitrator to settle the dispute between the parties. Registry is directed to seek declaration/consent from the proposed arbitrator as per the provisions of Section 11(8) of the Arbitration and Conciliation Act, 1996 and place the same on record on the next date of hearing.

List the case on 04.10.2019.

It is further observed that the respondent herein shall be entitled to raise all the questions arising between the parties including the existence of arbitration clause between them before the arbitrator.

(Subodh Abhyankar) Judge vc Digitally signed by VARSHA CHOURASIYA Date: 2019.09.25 14:53:54 +05'30'

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