Calcutta High Court
Sailendra Shaw And Anr vs Manju Gupta And Ors on 14 May, 2025
Author: Shampa Sarkar
Bench: Shampa Sarkar
OCD -11
ORDER SHEET
IN THE HIGH COURT AT CALCUTTA
COMMERCIAL DIVISION
ORIGINAL SIDE
AP-COM/1102/2024
SAILENDRA SHAW AND ANR
VS
MANJU GUPTA AND ORS
BEFORE:
The Hon'ble JUSTICE SHAMPA SARKAR
Date: 14thMay, 2025.
Appearance:
Mr. PourushBandyapadhyay, Adv.
Mr. Abhrajit Roy Chowdhury, Adv.
Ms. Megha Shaw, Adv.
.... for the petitioner
Mr. Ritoban Sarkar, Adv.
Mr. Arpit Agarwal, Adv.
...for respondent nos. 1 and 2
Mr. Pratip Mukherjee, Adv.
Mr. YashashwiSundariya, Adv.
...for respondent no. 3
The Court:
1. This is an application for appointment of a learned arbitrator for
adjudication of the dispute which arose between the parties, in respect of the
Deed of Partnership which was executed between the petitioner and the
respondent nos. 1 and 2. The respondent no. 3 is a partnership business,
carried on by the husbands of the respondent nos. 1 and 2 and their sons.
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2. Mr. Bandyapadhyay, learned advocate for the petitioners submits that
although the partnership agreement was entered into between the petitioners
and the respondent nos. 1 and 2, their husbandswere actually running the
business. The respondent nos. 1 and 2 were the name lenders. The petitioners
were under the impression that profits would be shared equally and the
petitioners would have anequal say in the business of the partnership firm.
Upon receiving some communications from the bank authorities, the
petitioners came to know that the manufacturing unit had stopped and the
respondent no. 3 and its partners were found operating from the place of
business of the firm. Reliance has been placed on certain photographs to
support that, even at the meetings of the partnership business, the husbands
of the respondent nos. 1 and 2 had participated in place of the said
respondents and that the respondent nos. 1 and 2 were only name lenders. The
allegations are that the petitioners were induced to invest in the business by
the respondents, they were kept in the dark about the day to day functioning of
the business. The manufacturing unit was unilaterally shut down and the
investment made in the partnership business had been siphoned off by all the
respondents.
3. Mr. Ritoban Sarkar, learned advocate for respondent nos. 1 and 2
submits that the allegations made against the respondent were fraud,
misrepresentation and cheating. These allegations are criminal offences. Both
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parties alleged fraudulent activities against each other. The respondent nos. 1
and 2 had lodged a complaint before the jurisdictional magistrate under
Section 156(3) of the CRPC. An FIR was registered. The investigation was
concluded with the filing of the charge sheet. Under such circumstances, Mr.
Sarkar submits that the allegation of fraud being serious in nature, the
arbitrator does not have the jurisdiction to decide on such issue, especially
when criminal proceedings are pending.
4. Mr. Mukherjee, learned advocate for the respondent no. 3 submits that
the respondent no. 3 was a non-signatory. The petitioner has not been able to
find out how the respondent no. 3 was connectedto the arbitrationagreement.
The petitioner does not have any claim against the respondent no. 3. The
decision inCox and Kings Ltd. vs SAP (India) (P) Ltd., reported in (2025) 1
SCC 611will support the case of the respondent no. 3, to the extent that there
was no commonality of the interest between the parties, arising out of the
partnership agreement.There was no direct relationship between the
respondent no. 3 and the petitioners. The dealings between the parties do not
indicate that the respondent no. 3 had ever sought to be bound by the said
partnership agreement and was connected in any way.
5. Heard learned advocates for the respective parties.
6. In the decision of A. Ayyasamy vs. A. Paramasivam and
Others.reported in (2016) 10 Supreme Court Cases 386, the Hon'ble Apex
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Court had the occasion to decide whether fraud could be adjudicated by the
learned Arbitral Tribunal. It was held that where allegations of fraud in the
procurement or performance of a contract were alleged, there was no reason for
the Arbitral Tribunal to decline jurisdiction. In the heat of the battle, such
allegations were frequently made, although much less frequently proven.
7. The fraudulent behaviour of the respondent No.3 as alleged in the
application, can be adjudicated by the learned arbitral Tribunal. In my, prima
facie view, the respondents also have an opportunity to raise all their
objections with regard to the non- arbitrability of the issue of fraud before the
learned Arbitrator. Whether, upon the charge sheet having been filed pursuant
to a criminal investigation, the issue of fraud should be decided by the learned
arbitrator or not, is a matter of competence of the tribunal. The learned
arbitrator is competent to decide on such issue. The fact that one party by
fraud and misrepresentation had induced another to enter into the agreement,
invest money and had thereafter withdrawn money from the business, in order
to deprive the legitimate claim of the partners are matters which can to be
decided by the learned Arbitrator. In paragraph 45.2 of the decision it was held
that if allegations of fraud could be adjudicated in the course of a trial before
an ordinary civil court, there was no reason or justification to exclude such
disputes from the ambit and purview of a claim in arbitration. The parties who
entered into commercial dealings and agreed to the resolution of disputes by an
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arbitral forum, exercised an option and expressed a choice of a preferred mode
for the resolution of their disputes. The parties in choosing arbitration, placed
priority upon the speed, flexibility and expertise inherent in arbitral
proceedings. Once the parties agreed to refer disputes to arbitration, the Court
must plainly discourage and discountenance litigative strategies designed to
avoid recourse to arbitration. Any other approach would seriously place in
uncertainty, the institutional efficacy of arbitration. Thus the contention of Mr.
Sarkar that as criminal proceedings were pending and there was a, prima facie,
finding of commission of offenceby the investigating agency, the referral court
should stay his hand, is not acceptable. The respondent nos. 1 and 2 are at
liberty to raise such objection at the appropriate stage, before the Arbitrator.
8. With regard to Mr. Mukherjee's contention thatthe respondent No. 3,
being a non signatory to the arbitration agreement should not have been
impleaded, this Court is of the view that issues of joinder, non-joinder and mis-
joinder of parties to an arbitration proceeding, must also be decided by the
learned arbitrator. Mr. Mukherjee also has the liberty to raise this point at any
stage of the proceeding. Reference is made to the decision of "ASF Buildtech
Private Limited vs. ShapoorjiPallonji and Company Private Limited
reported in 2025 SCC OnLine SC 1016.
"113. It is well within the jurisdiction of the Arbitral Tribunal to
decide the issue of joinder and non-joinder of parties and to assess
the applicability of the Group of Companies Doctrine. Neither in Cox
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and Kings (I) (supra) nor in Ajay Madhusudhan (supra), this Court
has said that it is only the reference courts that are empowered to
determine whether a non-signatory should be referred to arbitration.
The law which has developed over a period of time is that both 'courts
and tribunals' are fully empowered to decide the issues of
impleadment of a non-signatory and Arbitral Tribunals have been
held to be preferred forum for the adjudication of the same.
114. In the case of Ajay Madhusudhan (supra), this Court, placing
reliance on Cox and Kings (I) (supra), has expressly held that Section
16 is an inclusive provision which comprehends all preliminary
issues touching upon the jurisdiction of the arbitral tribunal and the
issue of determining parties to an arbitration agreement goes to the
very root of the jurisdictional competence of the arbitral tribunal.
115. The case of Ajay Madhusudhan (supra) also recognizes that the
legal relationship between the signatory and non-signatory assumes
significance in determining whether the non-signatory can be taken
to be bound by the Arbitration Agreement. This Court also issued a
caveat that the 'courts and tribunals should not adopt a conservative
approach to exclude all persons or entities who are otherwise bound
by the underlying contract containing the arbitration agreement
through their conduct and their relationship with the signatory
parties. The mutual intent of the parties, relationship of a non-
signatory with a signatory, commonality of the subject matter, the
composite nature of the transactions and performance of the contract
are all factors that signify the intention of the non-signatory to be
bound by the arbitration agreement'.
116. Recently, a coordinate bench of this Court in Adavya Projects
Pvt. Ltd. v. Vishal Strcturals Pvt. Ltd., 2025 INSC 507, also held that
an arbitral tribunal under Section 16 of the Act, 1996 has the power
to implead the parties to an arbitration agreement, irrespective of
whether they are signatories or non-signatories, to the arbitration
proceedings. This Court speaking through. P.S. Narasimha J.
observed that since an arbitral tribunal's jurisdiction is derived from
the consent of the parties to refer their disputes to arbitration, any
person or entity who is found to be a party to the arbitration
agreement can be made a part of the arbitral proceedings, and the
tribunal can exercise jurisdiction over him. Section 16 of the Act,
1996 which empowers the arbitral tribunal to determine its own
jurisdiction, is an inclusive provision that covers all jurisdiction
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question including the determination of who is a party to the
arbitration agreement, and thus, such a question would be one which
falls within the domain of the arbitral tribunal. It further observed
that, although most national legislations do not expressly provide for
joinder of parties by the arbitral tribunal, yet an arbitral tribunal can
direct the joinder of a person or entity, even if no such provision
exists in the statute, as long as such person or entity is a party to the
arbitration agreement. Accordingly, this Court held that since the
respondents therein were parties to the underlying contract and the
arbitration agreement, the arbitral tribunal would have the power to
implead them as parties to the arbitration proceedings in exercise of
its jurisdiction under Section 16 of the Act, 1996. The relevant
observations read as under: -
"24. As briefly stated above, the determination of who is a party to the
arbitration agreement falls within the domain of the arbitral tribunal
as per Section 16 of the ACA. Section 16 embodies the doctrine of
kompetenz-kompetenz, i.e., that the arbitral tribunal can determine
its own jurisdiction. The provision is inclusive and covers all
jurisdictional questions, including the existence and validity of the
arbitration agreement, who is a party to the arbitration agreement.
and the scope of disputes referrable to arbitration under the
agreement. Considering that the arbitral tribunal's power to make an
award that binds the parties is derived from the arbitration
agreement, these jurisdictional issues must necessarily be decided
through an interpretation of the arbitration agreement itself.
Therefore, the arbitral tribunal's jurisdiction must be determined
against the touchstone of the arbitration agreement."
9. In the matter of Ajay Madhusudan Patel v. Jyotrindra S. Patel,
reported in (2025) 2 SCC 147, the Hon'ble Apex Court held as follows:-
"82. An important factor to be considered by the courts and tribunals is
the participation of the non-signatory in the performance of the
underlying contract. In this regard, it was observed in Cox & Kings [Cox
& Kings Ltd. v. SAP India (P) Ltd., (2024) 4 SCC 1 : (2024) 2 SCC (Civ) 1 :
(2024) 251 Comp Case 680] as follows : (SCC pp. 75-77, paras 123 &
126-27)
"123. ... The intention of the parties to be bound by an arbitration
agreement can be gauged from the circumstances that surround the
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participation of the non-signatory party in the negotiation,
performance, and termination of the underlying contract containing
such agreement. The Unidroit Principle of International Commercial
Contract, 2016 [Unidroit Principles of International Commercial
Contracts, 2016, Article 4.3.] provides that the subjective intention
of the parties could be ascertained by having regard to the following
circumstances:
(a) preliminary negotiations between the parties;
(b) practices which the parties have established between themselves;
(c) the conduct of the parties subsequent to the conclusion of the
contract;
(d) the nature and purpose of the contract;
(e) the meaning commonly given to terms and expressions in the
trade concerned; and
(f) usages.
***
126. Evaluating the involvement of the non-signatory party in the negotiation, performance, or termination of a contract is an important factor for a number of reasons. First, by being actively involved in the performance of a contract, a non-signatory may create an appearance that it is a veritable party to the contract containing the arbitration agreement; second, the conduct of the non-signatory may be in harmony with the conduct of the other members of the group, leading the other party to legitimately believe that the non-signatory was a veritable party to the contract; and third, the other party has legitimate reasons to rely on the appearance created by the non-signatory party so as to bind it to the arbitration agreement.
***
127. ... The nature or standard of involvement of the non-signatory in the performance of the contract should be such that the non- signatory has actively assumed obligations or performance upon itself under the contract. In other words, the test is to determine whether the non-signatory has a positive, direct, and substantial involvement in the negotiation, performance, or termination of the contract. Mere incidental involvement in the negotiation or performance of the contract is not sufficient to infer the consent of 9 the non-signatory to be bound by the underlying contract or its arbitration agreement. The burden is on the party seeking joinder of the non-signatory to the arbitration agreement to prove a conscious and deliberate conduct of involvement of the non-signatory based on objective evidence."
10. In the matter ofChloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., reported in(2013) 1 SCC 641, the Hon'ble Apex Court held as follows:-
"70. Normally, arbitration takes place between the persons who have, from the outset, been parties to both the arbitration agreement as well as the substantive contract underlining (sic underlying) that agreement. But, it does occasionally happen that the claim is made against or by someone who is not originally named as a party. These may create some difficult situations, but certainly, they are not absolute obstructions to law/the arbitration agreement. Arbitration, thus, could be possible between a signatory to an arbitration agreement and a third party. Of course, heavy onus lies on that party to show that, in fact and in law, it is claiming "through" or "under" the signatory party as contemplated under Section 45 of the 1996 Act. Just to deal with such situations illustratively, reference can be made to the following examples in Law and Practice of Commercial Arbitration in England (2ndEdn.) by Sir Michael J. Mustill:
'1. The claimant was in reality always a party to the contract, although not named in it.
2. The claimant has succeeded by operation of law to the rights of the named party.
3. The claimant has become a party to the contract in substitution for the named party by virtue of a statutory or consensual novation.
4. The original party has assigned to the claimant either the underlying contract, together with the agreement to arbitrate which it incorporates, or the benefit of a claim which has already come into existence ."10
11. In the matter of Cox & Kings Ltd. v. SAP (India) (P) Ltd.,reported in (2025) 1 SCC 611, the Hon'ble Apex Court held as follows:-
"31.
****
169. In case of joinder of non-signatory parties to an arbitration agreement, the following two scenarios will prominently emerge : first, where a signatory party to an arbitration agreement seeks joinder of a non-signatory party to the arbitration agreement; and second, where a non-signatory party itself seeks invocation of an arbitration agreement. In both the scenarios, the referral court will be required to prima facie rule on the existence of the arbitration agreement and whether the non- signatory is a veritable party to the arbitration agreement. In view of the complexity of such a determination, the referral court should leave it for the Arbitral Tribunal to decide whether the non-signatory party is indeed a party to the arbitration agreement on the basis of the factual evidence and application of legal doctrine. The Tribunal can delve into the factual, circumstantial, and legal aspects of the matter to decide whether its jurisdiction extends to the non-signatory party. In the process, the Tribunal should comply with the requirements of principles of natural justice such as giving opportunity to the non-signatory to raise objections with regard to the jurisdiction of the Arbitral Tribunal. This interpretation also gives true effect to the doctrine of competence- competence by leaving the issue of determination of true parties to an arbitration agreement to be decided by the Arbitral Tribunal under Section 16."
12. Moreover, whether a non signatory should be impleaded as a party to the arbitral proceeding is a matter of construction of the contract. Thus, the contention of Mr. Mukerjee that commonality of interest, willingness of the respondent No.3 to be bound by the arbitration agreement and the intrinsic connection of the respondent no. 3 with the business, should have been 11 demonstrated before this Court, is not correct. The learned arbitrator is empowered to construe the contract as per the terms and also decide on evidence whether the respondent no. 3, although a non-signatory,was a necessary or proper party. The deed of partnership records that the some of the partners of the respondent no. 3 were the lessors of the premises where the factory unit of the firm is situated and the allegation is that the said partners had usurped the said partnership business.
13. This Court has not gone into the merits of the claim and the counter- claims. All points are left open to be decided at the appropriate stage which includes the opportunity to file an application under Section 16 of the Arbitration and Conciliation Act, 1996.
14. Under such circumstances, the application is allowed by referring the matter to arbitration by appointing Mr. Samrat Sen, learned senior advocate as the sole arbitrator, to arbitrate upon the disputes. The learned Arbitrator shall comply with the provisions of Section 12 of the Arbitration and Conciliation Act, 1996. The learned Arbitrator shall be at liberty to fix his remuneration as per the schedule of Arbitration and Conciliation Act, 1996.
(SHAMPA SARKAR, J.) TR/