Delhi High Court
Fernas Construction Co.Inc vs Ongc Petro Additions Ltd. on 25 April, 2019
Equivalent citations: AIRONLINE 2019 DEL 2495
Author: Jayant Nath
Bench: Jayant Nath
$~J
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 07.02.2019
Judgment pronounced on: 25.04.2019
+ CS (COMM.)954/2018
FERNAS CONSTRUCTION CO.INC ....Plaintiff
Through Mr.Prag P.Tripathi, Sr.Adv. with
Mr.C.D.Mulherkar, Mr.Shailabh
Tiwari and Mr.Krishnan
Ramaswamy, Advs.
versus
ONGC PETRO ADDITIONS LTD. .....Defendant
Through Mr.Somiran Sharma, Mr.K.R.
Sasiprabhu and Aditya Shandilya,
Advs.
CORAM:
HON'BLE MR. JUSTICE JAYANT NATH
JAYANT NATH, J.
IA No. 11744/2018
1. This application is filed by the defendant under section 8 of The Arbitration & Conciliation Act to refer the parties to arbitration.
2. The suit is filed seeking the following reliefs:-
(a) A decree declaring that the obligations under the Guarantee no longer subsist and/or stand discharged;
(b) A decree declaring that the notice of arbitration dated
03.05.2018 is void and unenforceable insofar as the Plaintiff is concerned;
(c) A decree of permanent injunction restraining the Defendant from proceeding further with the notice of arbitration dated 03.05.2018 insofar as the Plaintiff or from initiating any other arbitration proceedings against the Plaintiff;
CS(COMM) 954/2018 Page 1 of 193. The case of the plaintiff is that the defendant through Engineers India Limited floated a tender inviting bids for Integrated Utilities and Off-sites Package for setting up of utilities and off-sites and integration thereof for defendants Petrochemical Complex. Fernas Construction India Private Limited (FCIPL), a subsidiary of the plaintiff company, participated in the same. On 03.12.2010 the plaintiff issued a „Parent Company Guarantee‟. The bid of FCIPL was accepted and a contract was executed between the defendant and FCIPL on 19.4.2011. The General Conditions of Contract between FCIPL and the defendant contained an arbitration clause. It is the case of the plaintiff that in the „Parent Company Guarantee‟ dated 3.12.2010 there is no arbitration clause. It is further pleaded by the plaintiff that FCIPL performed his obligations under the Contract and completed 96% of the work, as per the defendant. The defendant issued a notice on 24.3.2017 alleging that the project was being delayed and the balance work should be completed quickly, failing which FCIPL will be expelled from the site. On 27.4.2017 the defendant is said to have expelled FCIPL from the site. However, at the time of expulsion of FCIPL from the site the defendant did not invoke the Guarantee issued by the plaintiff and did not call upon the plaintiff to perform the balance work in terms of clause 1 of the guarantee. For the first time the defendant invoked the guarantee only on 5.6.2017.
4. On 3.5.2018 defendant through its lawyer issued a notice for arbitration to both FCIPL and the plaintiff. It is the case of the plaintiff that this notice has been issued contrary to the provisions of the Parent Company Guarantee. It is further pleaded that there is no arbitration agreement between the parties i.e. the plaintiff and the defendant and the question of CS(COMM) 954/2018 Page 2 of 19 invoking any arbitration clause existing in the agreement between the defendant and FCIPL would not arise.
5. As per the application which is filed by the defendant under section 8 of the Arbitration & Conciliation Act, it is pleaded that the defendant and plaintiff‟s subsidiary company M/s.Fernas Construction India Pvt. Ltd. (FCIPL) had entered into a contract on 19.4.2011 which contains an Arbitration Agreement. It is pleaded that as per the bid document, in case the bidder did not himself meet the experience and financial capability criteria as stipulated in the tender documents, the bid of the bidder would be considered if it is a wholly owned (100%) subsidiary company of the parent company which itself meets the experience and financial capability criteria as stipulated. In such an eventuality, the subsidiary company would be dependent upon the experience and financial capability of the parent company with a view to ensure commitment and involvement of the parent company for successful execution of the contract. The plaintiff here is the parent company of FCIPL. It issued a corporate guarantee in the form of a Parent Company Guarantee dated 3.12.2010. In the said guarantee the plaintiff represented that it is committed to provide technical, financial and such other support as may be required to FCIPL for successful execution of the contract. It was also represented that there was an agreement between the parent company and the Indian subsidiary whereby the plaintiff/parent company would be providing technical, financial and such other support as may be necessary to perform the work relating to the tender. The plaintiff it is pleaded stood as a guarantor and made itself jointly and severally liable for the satisfactory performance of the contract. The contract dated 19.4.2011 with FCIPL specifically incorporates the parent company CS(COMM) 954/2018 Page 3 of 19 guarantee and letter dated 2.3.2011 from the plaintiff as part of the contract. It is, hence pleaded that though the plaintiff is a non-signatory to the arbitration agreement it is bound by the arbitration agreement being an assignee of the obligations under the contract on invocation of the unconditional performance guarantee. It is stated that FCIPL was set up merely for convenience and ease of doing business in India. Hence, the application under section 8 of the Arbitration Act.
6. The plaintiff has filed its reply and opposed the present application. It is stated that admittedly there is no arbitration agreement between the parties and the defendant is attempting to cover its disputes with the plaintiff under the arbitration clause. It is reiterated that the guarantee and the contract are separate distinct contracts. The contract was at all times with FCIPL. The guarantee executed by the plaintiff does not contain an arbitration clause. The rights of the parties under the guarantee and the contract it is pleaded are separate and distinct.
7. It is further pleaded that pursuant to pre-bid discussion it was agreed between the plaintiff and the defendant that the Courts at Delhi would have exclusive jurisdiction for all disputes regarding the Parent Company Guarantee. The said guarantee is to be governed and construed in accordance with the laws in force in India subject to exclusive jurisdiction of the courts in New Delhi, India. It is accepted that the plaintiff submitted a letter dated 2.3.2011 to support FCIPL financially, technically etc. and rendered its obligation under the guarantee.
8. I have heard learned counsel for the parties. Learned senior counsel for the plaintiff has vehemently argued that the parent company guarantee does not contain an arbitration clause. Further, under clause 1 of the CS(COMM) 954/2018 Page 4 of 19 guarantee the plaintiff had unconditionally agreed that in case of non performance by FCIPL of any of its obligations, the plaintiff shall on receipt of a notice of demand take up the job without any demeanor or objection. It is pleaded that no such notice has ever been served on the plaintiff and accordingly, the guarantee was never invoked. It is further pleaded that there is no arbitration clause in the guarantee agreement to warrant any arbitration proceedings being initiated.
9. Learned counsel for defendant has submitted as follows:-
(i) He has relied upon judgments of the Supreme Court in Chloro Controls India Private Limited vs. Severn Trent Water Purification Inc.and Others, (2013) 1 SCC 641 and Cheran Properties Limited vs. Kasturi and Sons Limited; (2018) 16 SCC 413 to contend that it is settled law that normally the arbitration agreement is limited to the parties who entered into it. However, it can bind its non signatory affiliates or sister or parent concerns, if the circumstances demonstrate that the mutual intention of all the parties was to bind the signatories and the non signatory affiliates. He submits that irrespective of the fact that as to whether the plaintiff has signed the arbitration agreement in view of settled law, the plaintiff would be bound by the arbitration agreement.
(ii) He has also pleaded that the submissions of learned senior counsel for the plaintiff are entirely incorrect that the notice invoking the guarantee was not issued. Reliance is placed on a communication dated 26.12.2016 filed by the plaintiffs themselves which was a notice to complete the balance scope of work agreed upon under the Subject Contract, copy of which was duly marked to the plaintiff. It is urged CS(COMM) 954/2018 Page 5 of 19 that apart from this communication there are several other such communications between the parties. It is also pleaded that the tender was granted to FCIPL on the specific assurances in the form of Parent Company Guarantee given by the plaintiff as FCIPL would not qualify on its own to bid for the contract.
(iii) Learned counsel has also clarified that pursuant to the notice dated 3.5.2018 invoking the arbitration clause the arbitral tribunal has been constituted on account of nomination of their own Arbitrator by FCIPL. He, however, submits that NCLT has appointed an Insolvency Resolution Professional (IRP) and issued a moratorium in the case of FCIPL. He submits that the defendant now would be approaching the arbitral tribunal by deleting FCIPL as a party and would press the arbitration proceedings against the plaintiffs only.
10. Section 8 of the Arbitration & Conciliation Act, 1996 reads as follows:-
"8. Power to refer parties to arbitration where there is an arbitration agreement.--
(1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.
(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.CS(COMM) 954/2018 Page 6 of 19
[Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with the a copy of the arbitration agreement and a petition praying the court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that court.] (3) Notwithstanding that an application has been made under sub- section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made."
11. In the present case the arbitration clause exists in the agreement between the defendant and FCIPL dated 19.4.2011. The general conditions of the contract contains an arbitration clause which reads as follows:-
"1.3.2 Arbitration Except as otherwise provided elsewhere in the Contract if any dispute, difference, question or disagreement arises between the parties hereto or their respective representatives or assignees, at any time in connection with construction, meaning, operation, effect, interpretation or out of the contract or breach thereof the same shall be decided by an Arbitral Tribunal consisting of three Arbitrators. Each party shall appoint one Arbitrator and the Arbitrators so appointed shall appoint the third Arbitrator who will act as Presiding Arbitrator.
In case a party fails to appoint an arbitrator within 30 days from the receipt of the request to do so by the other party or the two Arbitrators so appointed fail to agree on the appointment of third Arbitrator within 30 days from the date of their appointment, upon request of a party, the Chief Justice of India or any person or institution designated by him (in case of International Commercial Arbitration) shall appoint the Arbitrators/ Presiding Arbitrator. In case of domestic contracts, the Chief Justice of the High Court or any person or institution designated by him within whose CS(COMM) 954/2018 Page 7 of 19 jurisdiction the subject contract has been made, shall appoint the arbitrator/ Presiding Arbitrator upon request of one of the parties. If any of the Arbitrators so appointed dies, resigns, incapacitated or withdraws for any reason from the proceedings, it shall be lawful for the concerned party/arbitrators to appoint another person in his place in the same manner as aforesaid. Such person shall proceed with the reference from the stage where his predecessor had left if both parties consent for the same, otherwise, he shall proceed de novo.
It is a term of the contract that the party invoking arbitration shall specify all disputes to be referred to arbitration at the time of invocation of arbitration and not thereafter. It is also a term of the contract that neither party to the contract shall be entitled for any ante-lite (pre-reference) or pendente-lite interest on the amount of the award.
The Arbitral Tribunal shall give-reasoned award and the same shall be final, conclusive and binding on the parties. The venue of the arbitration shall be the place-from where the Contract has been made i.e Vadodara, Gujarat. The fees of the arbitrators shall be borne by the parties nominating them and the fee of the Presiding Arbitrator, costs and other expenses incidental to the arbitration proceedings shall be borne equally by the parties.
Subject to as aforesaid the provisions of the Arbitration and Conciliation Act, 1996 and any statutory modifications or re- enactment in lieu thereof shall apply to the arbitration proceedings under this clause."
12. The above arbitration clause is admitted. It is also an admitted fact that in the deed of guarantee that is signed between the parties there is no arbitration clause. The plea of the defendant regarding the arbitration agreement is made relying upon the judgments of the Supreme Court in Chloro Controls India Private Limited vs. Severn Trent Water Purification Inc.(supra) and; Cheran Properties Limited vs. Kasturi and Sons Limited and Ors (supra). I may look at the said judgments.
CS(COMM) 954/2018 Page 8 of 1913. In Chloro Controls India Private Limited vs.Severn Trent Water Purification Inc. (supra) the Supreme Court held as follows:-
"71. Though the scope of an arbitration agreement is limited to the parties who entered into it and those claiming under or through them, the courts under the English law have, in certain cases, also applied the "group of companies doctrine". This doctrine has developed in the international context, whereby an arbitration agreement entered into by a company, being one within a group of companies, can bind its non-signatory affiliates or sister or parent concerns, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates. This theory has been applied in a number of arbitrations so as to justify a tribunal taking jurisdiction over a party who is not a signatory to the contract containing the arbitration agreement. [Russell on Arbitration (23rd Edn.)]
72. This evolves the principle that a non-signatory party could be subjected to arbitration provided these transactions were with group of companies and there was a clear intention of the parties to bind both, the signatory as well as the non-signatory parties. In other words, "intention of the parties" is a very significant feature which must be established before the scope of arbitration can be said to include the signatory as well as the non-signatory parties.
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 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 CS(COMM) 954/2018 Page 9 of 19 and the court answers the same in the affirmative, the reference of even non-signatory parties would fall within the exception afore- discussed.
.....
102. Joinder of non-signatory parties to arbitration is not unknown to the arbitration jurisprudence. Even the ICCA's Guide to the Interpretation of the 1958 New York Convention also provides for such situation, stating that when the question arises as to whether binding a non-signatory to an arbitration agreement could be read as being in conflict with the requirement of written agreement under Article I of the Convention, the most compelling answer is "no" and the same is supported by a number of reasons.
...
103. Various legal bases may be applied to bind a non-signatory to an arbitration agreement:
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.
104. We may also notice the Canadian case of City of Prince George v. A.L. Sims & Sons Ltd.[(1998) 23 YCA 223] wherein the Court took the view that an arbitration agreement is neither inoperative nor incapable of being performed if a multi-party dispute arises and not all parties are bound by the arbitration agreement: the parties bound by the arbitration agreement are to be CS(COMM) 954/2018 Page 10 of 19 referred to arbitration and court proceedings may continue with respect to the other parties, even if this creates a risk of conflicting decisions.
105. We have already discussed that under the group of companies doctrine, an arbitration agreement entered into by a company within a group of companies can bind its non-signatory affiliates, if the circumstances demonstrate that the mutual intention of the parties was to bind both the signatory as well as the non-signatory parties."
14. The above principles were reiterated by the Supreme Court in Ameet Lal Chand Shah & Ors. Vs. Rishabh Enterprises & Ors., 2018 SCC Online
487.
15. To a similar effect is the judgment of the Supreme Court in Cheran Properties Limited vs. Kasturi and Sons Limited and Ors. (supra) which reads as follows:-
"20. Both these decisions were prior to the three Judge Bench decision in Chloro Controls (supra). In Chloro Controls this Court observed that ordinarily, an arbitration takes place between persons who have been parties to both the arbitration agreement and the substantive contract underlying it. English Law has evolved the "group of companies doctrine" under which an arbitration agreement entered into by a company within a group of corporate entities can in certain circumstances bind non-signatory affiliates. The test as formulated by this Court, noticing the position in English law, is as follows:
"71. Though the scope of an arbitration agreement is limited to the parties who entered into it and those claiming under or through them, the courts under the English law have, in certain cases, also applied the "group of companies doctrine". This doctrine has developed in the international context, whereby an arbitration agreement entered into by a company, being one within a group of companies, can bind CS(COMM) 954/2018 Page 11 of 19 its non-signatory affiliates or sister or parent concerns, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non- signatory affiliates. This theory has been applied in a number of arbitrations so as to justify a tribunal taking jurisdiction over a party who is not a signatory to the contract containing the arbitration agreement. [Russell on Arbitration (23rd Edn.)]
72. This evolves the principle that a non-signatory party could be subjected to arbitration provided these transactions were with group of companies and there was a clear intention of the parties to bind both, the signatory as well as the non-signatory parties. In other words, "intention of the parties" is a very significant feature which must be established before the scope of arbitration can be said to include the signatory as well as the non-signatory parties."
The Court held that it would examine the facts of the case on the touch-stone of the existence of a direct relationship with a party which is a signatory to the arbitration agreement, a „direct commonality‟ of the subject matter and on whether the agreement between the parties is a part of a composite transaction:
"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 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 CS(COMM) 954/2018 Page 12 of 19 court answers the same in the affirmative, the reference of even non-signatory parties would fall within the exception afore-discussed."
21. Explaining the legal basis that may be applied to bind a non- signatory to an arbitration agreement, this Court held thus:
"103.1The 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.
*** 105 We have already discussed that under the group of companies doctrine, an arbitration agreement entered into by a company within a group of companies can bind its non- signatory affiliates, if the circumstances demonstrate that the mutual intention of the parties was to bind both the signatory as well as the non-signatory parties.
22. The position in Indowind [Indowind Energy Ltd. v. Wescare (India) Ltd., (2010) 5 SCC 306 was formulated by a Bench of two Judges before the evolution of law in the three-Judge Bench decision in ChloroControls[Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641; Indowind [Indowind Energy Ltd. v. Wescare (India) Ltd., (2010) 5 SCC 306 arose out of a proceeding under Section 11(6). The decision turns upon a construction of the arbitration agreement as an agreement which binds parties to it. The decision in Prasad [S.N. Prasad v. Monnet Finance Ltd., (2011) 1 SCC 320 evidently involved a guarantee, where the guarantor who was sought to be impleaded as a party to the arbitral proceeding was not a party to the loan agreement between the lender and borrower. The loan CS(COMM) 954/2018 Page 13 of 19 agreement between the lender and borrower contained an arbitration agreement. The guarantor was not a party to that agreement.
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-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. ..................
25. Does the requirement, as in Section 7, that an arbitration agreement be in writing exclude the possibility of binding third parties who may not be signatories to an agreement between two contracting entities? The evolving body of academic literature as well as adjudicatory trends indicate that in certain situations, an arbitration agreement between two or more parties may operate to bind other parties as well. Redfern and Hunter explain the theoretical foundation of this principle:
"... The requirement of a signed agreement in writing, however, does not altogether exclude the possibility of an arbitration agreement concluded in proper form between two or more parties also binding other parties. Third parties to an arbitration agreement have been held to be bound by (or CS(COMM) 954/2018 Page 14 of 19 entitled to rely on) such an agreement in a variety of ways: first, by operation of the „group of companies‟ doctrine pursuant to which the benefits and duties arising from an arbitration agreement may in certain circumstances be extended to other members of the same group of companies; and, secondly, by operation of general rules of private law, principally on assignment, agency, and succession.... [Id at p.
99.] "
The group of companies doctrine has been applied to pierce the corporate veil to locate the "true" party in interest, and more significantly, to target the creditworthy member of a group of companies. Though the extension of this doctrine is met with resistance on the basis of the legal imputation of corporate personality, the application of the doctrine turns on a construction of the arbitration agreement and the circumstances relating to the entry into and performance of the underlying contract.
26.Russell on Arbitration [24th Edn. 3-025, PP 110-11] formulates the principle thus:
"Arbitration is usually limited to parties who have consented to the process, either by agreeing in their contract to refer any disputes arising in the future between them to arbitration or by submitting to arbitration when a dispute arises. A party who has not so consented, often referred to as a third party or a non- signatory to the arbitration agreement, is usually excluded from the arbitration. There are however some occasions when such a third party may be bound by the agreement to arbitrate. For example, ..., assignees and representatives may become a party to the arbitration agreement in place of the original signatory on the basis that they are successors to that party's interest and claim "through or under" the original party. The third party can then be compelled to arbitrate any dispute that arises."CS(COMM) 954/2018 Page 15 of 19
16. A perusal of the above judgment of the Supreme Court would show that the Court has noted as to whether a non-signatory to arbitration agreement can be bound by the arbitration agreement would depend on the facts of the case. The courts would examine the facts on the touchstone of acceptance of direct relationship to the party signatory to the arbitration agreement, commonality of the subject matter and as to whether the agreement between the parties is a composite transaction. The court noted the position of English Law which notes the theory of implied consent whereby a third party beneficiaries, guarantors etc. would also be bound by the arbitration agreement. The court noted that modern business transactions are effected through multiple layers and agreements. The circumstances may be such that when the agreements were entered into they may reflect an intention to bind both the signatory and non-signatory entities of the same group.
17. I may also note that the court in the aforenoted judgment referred to the earlier judgment of the Supreme Court in S.N.Prasad, Hitek Industries (Bihar) vs. Monnet Finance Limited and Others, (2011) 1 SCC 320.
In the case of S.N.Prasad, Hitek Industries (Bihar) vs. Monnet Finance Limited and Others (supra) the Court was dealing with a question as to whether a guarantor of a loan who is not a party to the loan agreement containing the arbitration agreement executed between the lender and the borrower can be made a party to a reference to the arbitration in regard to dispute relating to repayment of such loan. The Supreme Court in that judgment had noted that the parties having failed to get the appellant/guarantor to execute the loan agreement the respondent cannot CS(COMM) 954/2018 Page 16 of 19 contend that the appellant who did not sign the loan agreement containing the arbitration clause should also be deemed to be a party to the arbitration and bound by the Award. The issue is not of one of convenience.
18. However, the Supreme Court in the aforenoted judgment of Cheran Properties Limited vs. Kasturi and Sons Limited (supra) has observed that the legal position as stated by the Supreme Court in S.N.Prasad, Hitek Industries (Bihar) Limited vs. Monnet Finance Limited and Others (supra)has been modified in view of the judgment of the Three Judge Bench in Chloro Controls India Private Limited vs. Severn Trent Water Purification Inc.(supra). Hence, in stated circumstances a guarantor who may not be a signatory to the Arbitration Agreement may be made bound by the arbitration agreement if the circumstances as noted above exist.
19. I may now look at the facts of this case. The relevant facts can be culled out from the guarantee given by the plaintiff to the defendant i.e. the Parent Company Guarantee dated 3.12.2010. The relevant clause reads as follows:-
1. Fernas Construction Company Inc., Turkey is a part of nearly US $ 4 billion Fernas group with presence in more than 12 countries around the world. The group is well renowned and has its head office in Ankara, Turkey.
2. Fernas Construction Company India Private Limited is a 100% wholly owned subsidiary of Fernas Construction Company Inc., Turkey.
3. We hereby assure and commit that Fernas Construction Company Inc. Turkey shall be jointly and severally responsible for the satisfactory performance of Fernas Construction India Pvt.Ltd. as per the guarantees submitted in the technical offer appendix B9 and appendix B10.
4. The complete financing of the project shall be undertaken by the parent company from Turkey. We are financially strong and sound CS(COMM) 954/2018 Page 17 of 19 company with ready finance available to meet the project financing requirements.
5. The engineering for the project shall be undertaken by the approved engineering consultant on task force basis, from Delhi. Fernas Construction Co. Inc, Turkey engineering learn shall be stationed at the engineering office for efficient and faster coordination. The designs and drawings shall be reviewed and approved by Fernas, Turkey engineering group prior to submission to EIL/OPAL for approval.
..................................."
20. Hence, as per the above guarantee the plaintiff admits that FCIPL is a 100% wholly owned subsidiary of the plaintiff. The plaintiff has given a guarantee that they shall be jointly and severally responsible for satisfactory performance of FCIPL. It is also stated that the complete financing of the project would be undertaken by the plaintiff. An engineering team from Turkey of the plaintiff shall also be stationed at the engineering office in India. The drawings will be reviewed and approved by the plaintiff before submission to the defendant for approval. It is subsequently on 19.4.2011 that the defendant and FCIPL have entered into an agreement.
21. In fact as per the defendant if the said Parent Company Guarantee was not given, FCIPL would have been ineligible for the tender.
22. It clearly follows from perusal of the aforenoted terms of the guarantee issued by the plaintiff that the plaintiff is a guarantor for its wholly owned subsidiary. It falls within the „group of companies‟ doctrine. The plaintiff has a direct relationship with the party signatory to the arbitration agreement. There is a commonality of the subject matter and the Agreement is a composite transaction. The plaintiff and FCIPL were to perform jointly various aspects of the contract. It is manifest that plaintiff and FCIPL had a close working relationship to perform the contract between FCIPL and the CS(COMM) 954/2018 Page 18 of 19 defendant. The plaintiff was more than just a guarantor. It was providing full financial and technical support and help to FCIPL to help FCIPL perform the contract. The plaintiff though not a signatory to the contract, the intent was to bind the plaintiff to various terms of the contract dated 19.4.2011 including the Arbitration clause.
23. In my opinion, the aforenoted two judgments of the Supreme Court in Chloro Controls India Private Limited vs. Severn Trent Water Purification Inc.(supra) and; Cheran Properties Limited vs. Kasturi and Sons Limited and Ors (supra) are clearly applicable to the facts of the present case. The plaintiff is bound by the arbitration clause.
24. Accordingly, in view of the above, the present application is allowed. The parties are referred to arbitration.
CS(COMM.)954/2018 In view of the above, present suit stands disposed of. I need not deal with the other two applications, namely, IA No.7961/2087 filed under Order 39 Rule 1 and 2 CPC by the plaintiff seeking an injunction staying the operation of the arbitration notice dated 3.5.2018 and the application being IA No.11743/2018 filed by the defendant under Order 7 Rule 11 CPC for rejection of the plaint.
Suit stands disposed of. All pending applications also stand disposed of.
JAYANT NATH, J.
APRIL 25, 2019/n CS(COMM) 954/2018 Page 19 of 19