Madras High Court
Mr.V.G.Santhosam vs Mrs.Shanthi Gnanasekaran on 24 February, 2020
Author: S.M.Subramaniam
Bench: S.M.Subramaniam
C.M.A.Nos.4465, 4467 to 4469 of 2019
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 24-02-2020
CORAM
THE HONOURABLE MR. JUSTICE S.M.SUBRAMANIAM
C.M.A.Nos.4465, 4467 to 4469 of 2019
And
C.M.P.Nos.25291, 25293, 25294 and 25295 of 2019
1.Mr.V.G.Santhosam
2.Mr.V.G.P.Ravidas
3.Mr.V.G.P.Rajadas
4.Mr.V.G.P.Babudas .. Appellants in all CMAs
vs.
1.Mrs.Shanthi Gnanasekaran
2.Mr.V.G.P.Prasaddas
3.Mr.V.G.P.Murphydas
4.Mr.V.G.S.Vinodh Raj
5.Mr.V.G.Selvaraj
6.Mr.V.G.S.Rajesh Alias Amaladas Rajesh .. Respondents in all CMAs
These Civil Miscellaneous Appeals are preferred under Section
37(2)(b) of the Arbitration and Conciliation Act, 1996 to set aside the
impugned orders dated 02.11.2019 passed by the learned Arbitrator in
M.A.Nos.4 of 2019 in Arbitration Claim No.1 of 2019, 4 of 2019 in
Arbitration Claim No.3 of 2019, 4 of 2019 in Arbitration Claim No.2 of
2019 and 4 of 2019 in Arbitration Claim No.4 of 2019.
For Appellants in all CMAs : Mr.S.R.Rajagopal
for M/s.Ojas Law Firm.
For Respondent-1 : Mr.AL.Somayaji,
Senior Counsel for
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Mr.B.Nedunchezhiyan.
For Respondents-4&5 : Mr.H.Karthik Seshadri
For Respondent-6 : Mr.R.Saravanakumar
C OM M M O N JUDGMENT
The lis on hand arose in result of the orders passed by the
sole Arbitrator on 02.11.2019 in M.A.No.4 of 2019. The sole Arbitrator
passed orders, impleading the first respondent Mrs.Shanthi
Gnanasekaran to participate in the adjudicative process in Arbitration
Claim Nos.1, 3, 2 and 4 of 2019. Challenging the said impleadments,
the Civil Miscellaneous Appeals are filed both on factual and on legal
grounds.
2. THE COMMON FACTS IN BRIEF:
The appellants state that the partnership firm M/s.V.G.P.
Beach Housing was originally formed on 27.03.1979 by and between
late Mr.V.G.Panneerdas, Mr.V.G.Santhosam, Mr.V.G.Selvaraj,
Mr.V.G.P.Ravidas and Mr.V.G.P.Rajadas. On 16.12.1982, the
partnership firm was reconstituted with the induction of two new
partners, namely, Mr.V.G.P.Babudas and Mr.V.G.S.Rajesh and thereby
every partner was entitled to 1/7th of the net profits in accordance with
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the Clause 9 of the Partnership Deed dated 16.12.1982.
3. The abovesaid Partnership Deed states that upon the
death of one of the partners, the nominees of the deceased partner
would be entitled to absolute rights of that partner. Therefore, upon
Mr.V.G.Panneerdas's death on 07.05.1988, his nominee (and wife) late
Mrs.Parijatham became the sole successor of his share in the profits as
in accordance with Clause 13 of the Partnership Deed dated
16.12.1982. However, vide Partnership Deed, dated 07.05.1988, late
Mrs.P.Parijatham along with the original six partners of the partnership
firm M/s.V.G.P. Beach Housing, reconstituted the partnership firm in
accordance with the existing partners along with the induction of two
more new members i.e., Mr.V.G.P.Prasaddas and V.G.P.Murphydas,
therefore, leaving every partner entitled for 1/9th share in the
partnership firm.
4. On 25.08.1992 late Mrs.Parijatham died nominating
Mr.V.G.P.Ravidas as her nominee of her 1/9th share in net profit as
specified in Clause 13 of the Partnership Deed dated 07.05.1988.
However, upon the demise of late Mrs.Parijatham with the concurrence
of all the partners, they had reconstituted the Partnership Deed dated
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27.08.1993 and inducted Mr.V.G.S.Vinodhraj as a partner in the firm.
The partners thereby decided to retain the shares of every partner to
1/9th share in the net profit. It is pertinent to note that the sons of late
Mr.V.G.Panneerdas are not entitled to anything more than 1/9 th of the
share in the net profit and it is Mr.Vinodhraj who became the sole
beneficiary of 1/9th share of late Mrs.Parijatham.
5. The share of late Mr.V.G.Panneerdas was transferred to
late Mrs.Parijatham after which, Mr.V.G.Vinodhraj became the sole
beneficiary of the 1/9th share as the partnership firm which was
unanimously reconstituted vide Partnership Deed dated 27.08.1993.
The contractual agreement between the parties extensively pave way
to Clause 13, wherein the partners had to nominate their beneficiaries.
Thus, only the nominees are entitled to net profits and the first
respondent Mrs.Shanthi Gnanasekaran is not entitled to any rights or
claim as the legal heir of late Mr.V.G.Panneerdas.
6. Late Mr.V.G.Panneerdas decided to include all the male
members of the partnership firm and other businesses when he was
alive, his daughters were married and were settled sufficiently to live
lavishly in their matrimonial homes. Late Mr.V.G.Panneerdas decided
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to leave his legacy of business with his sons who have been
contributing to the revenue and net profit of the partnership firm for
the past 37 years.
7. Mr.V.G.Selvaraj, Mr.V.G.S.Vinodhraj and Mr.V.G.S.
Rajeshbegan to illegally deal with the partnership firms' property and
alienated and created encumbrances over several properties belonging
to the partnership firms in dispute. Therefore, the appellants in the
present Civil Miscellaneous Appeals approached this Court and filed an
application under Section 9 of the Arbitration and Conciliation Act in
Original Application Nos.81, 82 and 84 of 2018, prayed for an order of
interim injunction restraining the aforementioned partners from
alienating or encumbering the properties of the partnership firms
either by the partners themselves or through any other persons.
8. This Court passed an order on 05.02.2018, granting an
interim injunction and the said interim order was extended from time
to time till 10.04.2018. The appellants had further filed Original
Petition in O.P.Nos.577 to 579 of 2018 under Section 11 of the
Arbitration Act for appointment of an Arbitrator. This Court passed an
order on 19.06.2019, appointing the Hon'ble Mr.Justice K.Kannan,
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Judge (Retired), Punjab and Haryana High Court, to adjudicate the
disputes inter se the parties and the first hearing was also held on
07.07.2019.
9. Upon initiation of arbitration proceedings, the first
respondent Mrs.Shanthi Gnanasekaran filed an impleading petition and
the Arbitral Tribunal consisting of the sole Arbitrator, passed an order
dated 02.11.2019, impleading the first respondent as a party to the
subject matter in dispute. The said order provided a cause for filing the
present Civil Miscellaneous Appeals under Section 37(2)(b) of the
Arbitration and Conciliation Act, 1996.
10. The first respondent, who is contesting these Civil
Miscellaneous Appeals filed petitions for impleadment before the
Arbitrator on 26.09.2019, stating that the facts regarding the
Partnership Deed dated 16.12.1982 and further admitted after the
demise of her father Mr.V.G.Panneerdas and her mother
Mrs.Parijatham was entered as a nominee by her father and
subsequently included as partner in Mr.V.G.P.Housing by way of a
Deed of Partnership dated 07.05.1988. The reconstituted Partnership
Deeds are admitted by the first respondent Mrs.Shanthi Gnanasekaran
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and the main contention raised by the first respondent before the
Arbitrator was that Mr.V.G.Panneerdas ought to have included his
daughters as partners in the partnership firm businesses, as his legal
heirs are entitled for equal shares in profits and in the partnership firm
businesses. The entire capital was invested by their father
Mr.V.G.Panneerdas. None of the brothers of the fourth respondent and
the legal heirs of Mr.V.G.Panneerdas had their own source of income,
but were all party in the family business, thereby leaving no doubt with
regard to the capital invested by the father into the partnership firm
businesses. The entire partnership firm businesses were intended to be
run as a family business and thus, it can be very well seen that at the
time of reconstitution of each of the partnership firms dated
25.08.1993, 27.08.1993 and 01.10.1994 only the male lineal
descendants of Mr.V.G.Panneerdas, who have attained majority were
made partners, which by itself would be illegal and unlawful.
11. It is contended by the first respondent that the male
descendants of Mr.V.G.Pannerdas along with Mr.V.G.Santhosam and
Mr.V.G.Selvaraj had all these years kept the unilateral, illegal,
reconstitution as a secret and now a dispute rose among them, the
entire illegal activities committed by the sons of Mr.V.G.Panneerdas
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has come to light. The first respondent has stated that she came to
know about all such illegality of her process when the dispute arose
between them. The first respondent admits all other facts regarding
the reconstitution of the partnership firm and claiming right in respect
of the profits derived from and out of the partnership firm, which were
originally constituted by her father and as a legal heir, she is entitled
for the same. It is further contended that in the event of not
impleading the first respondent in the arbitral proceedings, irreparable
loss would be caused and the rights of the first respondent would be
infringed. With the abovesaid contention, the petition is filed before the
sole Arbitrator for impleadment. As regards the other respondents 2 to
6 are concerned, they have no serious objection for the impleadment
of the first respondent in the arbitral proceedings and therefore, they
have not contested the case seriously.
ARGUMENTS ADVANCED ON BEHALF OF THE APPELLANTS:
12. It is contended that there is no valid agreement
between the first respondent and the persons, who are partners in the
partnership firm in relation to the subject matter of arbitration and the
first respondent Mrs.Shanthi Gnanasekaran is not a party to the
Partnership Deed dated 27.08.1993, which is in dispute before the
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learned Arbitrator in the Arbitral Tribunal and the claim if any are not
maintainable therein.
13. The agreement in relation to the subject matter of
arbitral proceedings is the Partnership Deed dated 27.08.1993, which
was reconstituted and entered into 26 years prior to the dispute raised
by the first respondent is barred by limitation as the cause of action for
the first time arose would be on the death of Mr.V.G.Panneerdas on
07.05.1988, his nominee (and wife) late Mrs.Partijatham and she
became the sole successor of his share in the net profit as in
accordance with Clause 13 of the Partnership Deed dated 16.12.1982.
However, vide the Partnership Deed dated 07.05.1988, late
Mrs.Parijatham along with the original six partners of the partnership
firm of M/s.VGP Beach Housing, reconstituted the partnership firm in
concurrence with the existing partners and inducted two more new
members. The cause of action for the second time arose when late
Mrs.Parijatham died, nominating Mr.V.G.P.Ravidas as her nominee of
her 1/9th share in net profit as specified in Clause 13 of the Partnership
Deed dated 07.05.1988. However, upon the demise of late
Mrs.Parijatham with the concurrence of all partners, they had
reconstituted the Partnership Deed dated 27.08.1993 and inducted
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Mr.V.G.S.Vinodhraj as a partner in the firm. The partners thereby
decided to retain the share of every partner to 1/9 th share in the net
profit. It is pertinent to note that the sons of late Mr.V.G.Panneerdas
are not entitled to anything more than their 1/9 th of the share in the
net profit and it is Mr.V.G.S.Vinodhraj, who has been identified to hld
the shares of late Mrs.Parijatham. Section 113 of the Limitation Act,
1963 is applicable to the case and therefore, the petition filed by the
first respondent before the Arbitrator is hit by the Law of Limitation.
14. The intent of the partnership firm M/s.V.G.P. Beach
Housing was for the partners of the firm to enjoy the net profits and
the same is explicitly stated in Clause 9 of the Partnership Deeds dated
27.03.1979, 16.12.1982, 07.05.1988 and Clause 10 of the Partnership
Deed dated 27.08.1993. The learned Arbitrator, Arbitral Tribunal has
erroneously held that the first respondent may file its statement of
claim on or before 16.11.2019. However, the first respondent is not a
party to the Partnership Deed and cannot have any claim seeking the
dissolution of the partnership as the legal heirs of the deceased
partner M/s.V.G.P. Beach Housing, M/s.V.G.P.Investments and
M/s.V.G.Panneerdas and Company as concluded by the learned
Arbitrator, Arbitral Tribunal. Since the dispute before the learned
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Arbitrator, Arbitral Tribunal is arising out of the Arbitration Agreement
pertaining to the Partnership Deed dated 27.08.1993, the learned
Arbitrator, Arbitral Tribunal ought not to have impleaded the first
respondent, who is not a related party to the terms of the said
Arbitration Agreement that is the subject matter in dispute.
15. The Arbitral Tribunal erred in holding that the first
respondent may be impleaded to the arbitration proceedings, as the
learned Arbitrator, Arbitral Tribunal only holds a power to pass interim
orders under Section 17 of the Arbitration and Conciliation Act, 1996.
16. The petition to impleadment filed by the first
respondent was not filed under Section 17 and therefore the same is
liable to be set aside. The learned Arbitrator, Arbitral Tribunal
overlooked the facts that the Clause 13 of the Partnership Deed dated
07.05.1988 states that even upon the demise of one of the partners,
their nominees are the sole beneficiaries and for their respective
shares. Therefore, no question of legal heirship arises. Thus, the
Arbitral Tribunal has erred as the first respondent, who is not a
nominee of her father or mother, as per Clause 13 of the Partnership
Deed dated 07.05.1988, she cannot claim to be inducted as a partner
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until and unless all the partners of the firm unilaterally decided to
reconstitute the Partnership Deed as in the case of Mr.V.G.S.Vinodhraj.
It is contended that at no point in time, does the question of seniority
among the legal heirs arose and the first respondent will not have the
right to succeed as a legal representative in the firm. The nominees
are the sole beneficiaries of their respective shares in accordance with
the language and the interpretation of the Partnership Deed whereby
the clear intention of the contact was that the nominee shall be the
“beneficial nominee” of the shares thereof and no question of legal
heirship arises.
17. While it is true that the first respondent is the senior
most among the legal heirs of late Mr.V.G.Panneerdas, the first
respondent has wrongly relied on the nominee, being a trustee,
wherein the intent of the Partnership Deeds dated 27.03.1979,
16.12.1982, 07.05.1988 and 27.08.1993 was that the nominee shall
be the beneficiary of late Mr.V.G.Panneerdas' shares as in accordance
with the Partnership Deed dated 16.12.1982 and subsequently, late
Mrs.Parijatham appointed Mr.V.G.P.Ravidas as her nominee and
beneficiary vide Partnership Deed dated 07.05.1988. Therefore, the
learned Arbitrator, Arbitral Tribunal erroneously held that the first
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respondent, who is neither a party to the Partnership Deed nor a
nominee and beneficiary in the Partnership Deed could be impleaded in
the present arbitration proceedings.
18. It is contended that the decisions made by the
partners unilaterally are valid and legally binding and thus, the
unanimous decision of the partners to reconstitute the Partnership
Deed dated 27.08.1993 cannot be disputed. When a clause admitting
the nominee of the dead partner, i.e., benefactor, into the partnership
is in existence, the question of legal heirs does not arise. The said
question of legal heirs will subsist only upon the death of a partner
without a nominee or in the case where a partner died intestate. The
first respondent can only be entitled to equal share of net profit of the
benefactors late Mr.V.G.Panneerdas and late Mrs.Parijatham, if her
parents had appointed her as their nominee. Therefore, the
observation of the learned Arbitrator, Arbitral Tribunal in holding that
the first respondent must be impleaded as she is a legal representative
is incorrect and detrimental to resolving the subject matter in dispute.
19. It is contended that from an equitable stance, the
share in the net profit of the partners who have contributed
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extensively towards the growth and development of the partnership
firm will be diluted upon the order of the Arbitral Tribunal. The
partnership firms have maintained its goodwill and created a better
name over time attributable to the efforts of the appellants. The first
respondent who has neither contributed to the revenue nor the growth
and development of the partnership firms, cannot be held to be
entitled to any share in the net profits without being a party to the
Partnership Deed. The Arbitral Tribunal further erroneously arrived a
conclusion that Section 113 of the Limitation Act, 1963 is not
applicable to the case on hand. It is contended that as the daughters
of late Mr.V.G.Panneerdas were settled at the time of their marriage
and have been living luxurious lifestyle. There is no illegality in respect
of creating a partnership firm only through male descendants.
20. It is contended that the Partnership Deeds were
reconstituted on several occasions on 25.08.1993, 27.08.1993 and
01.10.1994. The first respondent has not raised a dispute upon the
death of late Mrs.Parijatham at which point the Partnership Deeds
were reconstituted between the years 1993 and 1994 and therefore,
the petition for impleadment is to be rejected also on the ground of
limitation. The first respondent got married in the year 1978 during
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the lifetime of her father. It is a contractual decision made by the
partners and therefore, the first respondent, who was not inducted in
the partnership firm as her father Mr.V.G.Panneerdas had not
nominated her, is not entitled to participate in the adjudicative process
in the arbitration proceedings.
21. The first respondent cannot have any interest or power
on the subject matter in arbitral dispute. The observation made by the
Arbitrator is that “I do not foreclose any argument at the later stage of
the proceedings that the observations made here in the impleadment
application have the effect of res judicata in the subsequent stage of
proceedings” has no relevance as the Arbitrator cannot allow a party to
participate in the adjudicative process without ascertaining their right
to participate at the first instance.
22. The Court has the authority to implead persons in
accordance with Sections 8 and 9 of the Arbitration and Conciliation
Act, 1996. The learned Arbitrator, Arbitral Tribunal has capriciously
held that the Tribunal adopts the “wide powers” under Order 1, Rule
10 of the Code of Civil Procedure, which is applicable only in respect of
Civil Courts proceedings. It is a setled principle in law that third parties
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cannot be impleaded as the first respondent is neither a signatory to
the Arbitration Agreement nor has any proper claims arising out of and
in relation to the Arbitration Agreement. Thus, the first respondent has
no locus standi not only in respect of the claim against
M/s.V.G.P.Beach Housing, M/s.V.G.Panneerdas and Company and
M/s.V.G.P.Investments and also in any other partnership firm as these
are contractual rights and responsibilities binding those parties, who
have entered into the partnership at free will.
23. The learned Arbitral Tribunal has miserably failed to
take cognizance of the fact that late Mr.V.G.Panneerdas decided to
leave his legacy of business with his sons who have been contributing
to the revenue and net profit of the partnership firm for the last 37
years. Therefore, the first respondent, who has approached the
learned Arbitrator, Arbitral Tribunal with unclean hands and with an
intention to wrongfully gain from the said dispute, cannot have any
locus standi to participate in the adjudicative process in the arbitral
proceedings.
ARGUMENTS AS ADVANCED ON BEHALF OF THE FIRST
RESPONDENT:
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24. The learned Senior Counsel appearing on behalf of the
first respondent contended that the Arbitrator in clear terms held that
all those issues relating to the merits and demerits of the claims set
out by the first respondent will be adjudicated at the time of final
hearing of the Arbitration Claims and therefore, there is no error as
such in respect of impleading the first respondent. The Arbitrator
rightly formed an opinion that the first respondent, being a legal heir
of late Mr.V.G.Panneerdas, is entitled for such impleadment and she
has got interest in respect of the partnership firm. However, the rights
or otherwise set out in the pleadings would be adjudicated at the time
of hearing of the Arbitration Claims and under these circumstances,
the present Civil Miscellaneous Appeals are to be rejected.
25. The learned Senior Counsel mainly contended that the
present Civil Miscellaneous Appeals filed under Section 37(2)(b) of the
Arbitration and Conciliation Act, 1996 are not maintainable. Section 37
of the Act enumerates that an appeal is maintainable against an order
passed by the Arbitrator granting or refusing to grant an interim
measure under Section 17 of the Act. Under Section 17 of the Act,
interim measures can be ordered by the Arbitral Tribunal.
Impleadment of the first respondent cannot be construed as an interim
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measure contemplated under Section 17 of the Arbitration Act and
therefore, the appeals now filed under Section 37(2)(b) of the Act, are
not maintainable. To substantiate the said contention, the learned
Senior Counsel reiterated that the interim measures or certain orders
which all are passed during the pendency of the arbitral proceedings
and impleadment cannot be construed as an interim measure within
the meaning of Section 17 of the Act. Thus, the Civil Miscellaneous
Appeals are not maintainable.
26. By soliciting the attention of this Court, the learned
Senior Counsel cited the findings made by the Arbitrator in the order
impugned, wherein the Arbitrator in clear terms held that the point of
limitation, exclusion of the first respondent from the arbitral
proceedings and right of all the parties are to be decided finally when
the issue of dissolution or otherwise of the partnerships are
undertaken through arbitral adjudication. When the Arbitrator himself
is clear about the scope of the Act and the jurisdiction and
competency, has made a finding that all such issues involving the
rights of the parties to be adjudicated during the arbitral proceedings,
then there is no reason to entertain the present Civil Miscellaneous
Appeals filed against the impleadment of the first respondent in the
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arbitral proceedings. The learned Senior Counsel emphasised that the
first respondent, being a legal heir of late Mr.V.G.Panneerdas, and now
the arbitration proceedings are between the sons and other legal heirs
of late Mr.V.G.Panneerdas, then the first respondent became a
necessary party to the arbitral proceedings and she is also entitled for
an opportunity to put forth her case and right before the Arbitrator for
the purpose of effective adjudication of the arbitral proceedings.
27. The learned Senior Counsel further submitted that
even the point of limitation raised by the appellants will be decided by
the Arbitrator at the time of hearing the case on merits. Therefore, the
very contentions raised by the appellants are untenable and
impleadment of the first respondent would not cause any prejudice to
the appellants in the matter of adjudication of merits and therefore,
the Civil Miscellaneous Appeals are to be dismissed in limine.
28. The learned Senior Counsel relying on the judgment of
the Hon'ble Supreme Court of India in the case of Chloro Controls
India (P) Ltd vs. Severn Trent Water Purification Inc. [(2013) 1
SCC 641], wherein in paragraph-70, held that normally, arbitration
takes place between the persons who have, from the outset, been
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parties to both the arbitration agreement as well as the substantive
contract underlining 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.
29. The learned Senior Counsel relied on the “Group of
Companies Doctrine” elaborated by the Apex Court in the abovesaid
judgment. The Apex Court held that 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
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contract containing the arbitration agreement.
30. The Hon'ble Supreme Court of India, in the judgment,
cited supra, in paragraphs-72 and 73 held as under:-
“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
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mother agreement may not be feasible
without aid, execution and performance of the
supplementary or ancillary agreements, for
achieving the common object and collectively
having bearing on the dispute. Besides all
this, the court would have to examine
whether a composite reference of such parties
would serve the ends of justice. Once this
exercise is completed and the court answers
the same in the affirmative, the reference of
even non-signatory parties would fall within
the exception afore-discussed.”
31. The learned Senior Counsel is of the firm opinion that
in an arbitral proceedings, there is no impediment for impleading a
third party. However, mere impleadment would not confer any right on
such third party. All such rights are to be adjudicated by the Arbitrator
during the hearing of the arbitral proceedings and therefore, the very
impleading need not be interfered with and the Arbitrator is to be
allowed to continue the arbitral proceedings by adjudicating the merits
by providing opportunity to all the parties. Therefore, the present Civil
Miscellaneous Appeals are devoid of merits and are liable to be
dismissed.
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32. The first respondent has narrated certain important
events with respect to the entire dispute between the appellants and
the respondents 2 to 6, wherein it is contended that the house
property which stood in the name of late Mr.V.G.Panneerdas was
transferred in the name of Mr.V.G.P.Ravidas by the sons of
Mr.V.G.Panneerdas, representing as the legal heirs without obtaining
No Objection Certificate from the daughters of Mr.V.G.Panneerdas.
33. It is contended that the property, belongs to
Mr.V.G.Panneerdas, has been dealt with by the sons without the
consent from the daughters, who are also having equal shares in
respect of their father's property. The appellants are having complete
control over M/s.V.G.P. Housing Pvt Limited and did not transmit the
rightful shares of the first respondent and in this regard, an application
under Section 58(3) of the Companies Act, 2013 is also pending before
the National Company Law Tribunal vide C.A.No.1443 of 2019. The
appellants had obtained Power of Attorney from Mrs.Usha Rajkumar in
respect of a property in her name and the same was sold through
M/s.V.G.Panneerdas and Company by promoting a layout wherein the
first respondent has not been provided with any share.
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34. Narrating all the above facts and circumstances, the
first respondent contended that the brothers are acting against the
interest of the daughters and the same shows the intention on the part
of the sons of Mr.V.G.Panneerdas not to share the proceeds earned by
their father Mr.V.G.Panneerdas. It is stated by the first respondent that
all the properties and layouts that have been promoted by M/s.V.G.P.
Group of Companies under the name and style or through any entity
were all acquired during the lifetime of Mr.V.G.Panneerdas, which were
only subsequently sold by the appellants. The first respondent states
that the properties were acquired during the lifetime of
Mr.V.G.Panneerdas, the intention of the father was always to share the
proceeds equally with all the family members, which would be obvious
by the original balance sheet filed during the lifetime of
Mr.V.G.Panneerdas showing the share application money in the name
of 15 family members. After the demise of father and mother of the
first respondent, the intention of the appellants had changed
completely, as they had decided not to give any share to the
daughters, who all are entitled under the Indian Succession Act, 1923.
35. The first respondent states that when there was
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disputes between the brothers of Mr.V.G.Panneerdas along with the
appellants, the intention of the appellants came to light and therefore,
a notice dated 19.03.2019 five legal heirs of Mr.V.G.Panneerdas
namely the daughters and Mr.Murphydas and Mr.Prasaddas, asking
them to share all documents relating to partnership firms, companies
and individually owned properties of father and mother. There was no
reasons from the part of the appellants to the aforesaid letter, as they
decided to ignore the same.
36. The first respondent after becoming aware of the fact
that there were pending disputes with regard to the partnership firm,
which was founded by her father and also in the company in which she
had equity shares in the year 1971, sent a notice dated 23.09.2019 to
the appellants pointing out the illegal activities of the appellants and
oppressive acts of the appellants in withholding the rightful shares of
the first respondent in her father's estate.
37. The first respondent and Mrs.Usha Rajkumar had
requested the appellants herein on numerous occasions regarding the
various partnership firm and companies which were founded by their
later father Mr.V.G.Panneerdas, the appellants would at all instances
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maintain that the first respondent and Mrs.Usha Rajkumar have no
rights over these businesses, however, it was only a mere oral
statement and the first respondent was not even shown any of the
documents pertaining to the various businesses. It was only after the
first respondent obtained these documents from other family
members, did she become aware of the fact that the appellants have
illegally denied the first respondent of her rightful share over her
father's interest in the partnership firm.
38. Respondents 2 to 6 made a submission that they have
no objection for the impleadment of the first respondent in the arbitral
proceedings.
39. The important issues arose in the lis on hand are that:-
“(1) Whether an Arbitrator under the
Arbitration Act, 1996 is empowered to implead
a party, who is not a party in the Arbitration
Agreement, with reference to the dispute
raised between the parties through a contract ?
(2) Whether an Arbitrator is empowered
to exercise the “inherent power” and “wide
power” under Order I, Rule 10 of the Code of
Civil Procedure for the purpose of impleading a
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person in the arbitration proceedings which is
otherwise contractual in nature ?
(3) Whether an appeal under Section
37(2)(b) of the Arbitration and Conciliation Act,
1996 is maintainable against an order passed
by the Arbitrator, allowing the impleading
petition filed by a person to participate in the
adjudicative process ?
(4) Whether an Arbitrator is
empowered to decide the legal right of a party
to inherit the property or the partnership firm
under the Succession Laws in a contracted
arbitration proceedings between the partners
with reference to the Arbitration Agreement ?”
(5) Whether the principles laid down
by the Hon'ble Supreme Court of India in the
case of Chloro Controls India (P) Ltd vs.
Severn Trent Water Purification Inc.
[(2013) 1 SCC 641], would be applicable with
reference to the facts and circumstances of the
present case, which is a domestic arbitral
proceedings and the dispute is among the
partners.
MAINTAINABILITY :
40. Regarding the maintainability of the Civil
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Miscellaneous Petitions under Section 37, this Court is of the opinion
that there is no express provision under the Act to entertain an
impleading petition by the Arbitrator. However, the Arbitrator impliedly
entertained the impleading petition under Section 17(1)(ii)(e) of the
Act, which states that such other interim measure of protection as may
appear to the arbitral tribunal to be just and convenient. This apart,
impleading a person in the main arbitration proceeding is an interim
measure. Even an independent interpretation with reference to the
impugned order passed by the Arbitrator, the first respondent is made
to participate in the arbitral adjudications. Therefore, the said
impugned order, now under challenge, is to be treated as an interim
measure within the meaning of Section 17(1)(ii)(e) of the Act. When
the impugned order is an interim measure, permitting a person to
implead herself in the arbitration proceedings, then Section 37 will
come into force and accordingly, the present Civil Miscellaneous
Appeals are maintainable under Section 37(2)(b) of the Act.
41. The objections raised by the first respondent is that
the present Civil Miscellaneous Appeals are not maintainable and liable
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to be rejected in limine. The Arbitrator left open all the issues for
adjudication and therefore, it is for the first respondent to place her
documents, evidences and arguments before the Arbitrator, enabling
him to adjudicate the rights and the issues. It is further contended that
the impugned order of impleading the first respondent cannot be
construed as an interim measure within the meaning of Section 17 of
the Act and therefore, an appeal under Section 37(2)(b) is not
maintainable.
42. No order of an Arbitrator can remain as remediless.
There is no express provision in the Arbitration Act for the
impleadment of the third party. Thus, any such interim application filed
for impleadment by a third person is necessarily to be treated as an
application under Section 17(1)(ii)(e) of the Act. Once the
impleadment is allowed, then the right of appeal cannot be denied. The
Arbitrator allowed a third person to a contracted Arbitration Agreement
to participate in the arbitral proceedings and such an order of
impleadment cannot be construed as a final order in the arbitration
proceedings. Therefore, an appeal under Section 37(2)(b) of the
Arbitration Act, is entertainable by this Court and consequently, the
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point of maintainability raised by the first respondent is devoid of
merits and stands rejected.
DISCUSSIONS:
43. Let us now consider the Scheme, purpose and the
object of the Arbitration and Conciliation Act, 1996. Section 2 of the
Arbitration and Conciliation Act, 1996, provides definitions. Section
2(a) defines the word ' Arbitration' means any arbitration whether or
not administered by the permanent arbitral institution'. Section 2(b)
defines 'Arbitration Agreement' means an agreement referred to in
Section 7. Section 7 deals with Arbitration Agreement and Section 2(e)
defines the word 'Court' means “(i) in the case of an arbitration other
than international commercial arbitration, the principal Civil Court of
original jurisdiction in a district, and includes the High Court in exercise
of its ordinary original civil jurisdiction, having jurisdiction to decide the
questions forming the subject-matter of the arbitration if the same had
been the subject-matter of a suit, but does not include any Civil Court
of a grade inferior to such principal Civil Court, or any Court of Small
Causes; (ii) in the case of international commercial arbitration, the
High Court in exercise of its ordinary original civil jurisdiction, having
jurisdiction to decide the questions forming the subject-matter of the
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arbitration if the same had been the subject-matter of a suit, and in
other cases, a High Court having jurisdiction to hear appeals from
decrees of courts subordinate to that High Court.”
44. Section 2(g) defines the word 'legal representative'
means “a person who in law represents the estate of a deceased
person, and includes any person who intermeddles with the estate of
the deceased, and, where a party acts in a representative character,
the person on whom the estate devolves on the death of the party so
acting”.
45. The term 'Legal Representative' is well defined in the
Arbitration and Conciliation Act, 1996 and therefore, the said definition
cannot be further expanded for the purpose of impleadment of any
other person other than the person who is falling within the ambit of
Section 2(g) of the Arbitration and Conciliation Act, 1996.
46. Section 5 of the Act provides 'extent of judicial
intervention' which states that notwithstanding anything contained in
any other law for the time being in force, in matters governed by this
Part, no judicial authority shall intervene except where so provided in
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this Part”. Therefore, it is made clear that the judicial intervention is
permitted only within the provisions of the Act.
47. Section 7 of the Arbitration and Conciliation Act, 1996
deals with Arbitration Agreement and the same reads as under:-
“Arbitration agreement.—(1) In this
Part, “arbitration agreement” means an
agreement by the parties to submit to
arbitration all or certain disputes which have
arisen or which may arise between them in
respect of a defined legal relationship, whether
contractual or not.
(2) An arbitration agreement may be in the
form of an arbitration clause in a contract or in
the form of a separate agreement.
(3) An arbitration agreement shall be in
writing.
(4) An arbitration agreement is in writing if
it is contained in—
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams
or other means of telecommunication 1
[including communication through electronic
means] which provide a record of the
agreement; or
(c) an exchange of statements of claim and
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defence in which the existence of the agreement
is alleged by one party and not denied by the
other.
(5) The reference in a contract to a
document containing an arbitration clause
constitutes an arbitration agreement if the
contract is in writing and the reference is such
as to make that arbitration clause part of the
contract.”
48. Section 8 of the Arbitration and Conciliation Act,
1996 defines power to refer parties to arbitration where there is an
Arbitration Agreement. Section 8(1) contemplates that '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”.
49. Section 16 of the Arbitration and Conciliation Act,
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1996, provides competence of Arbitral Tribunal to Rule on its
Jurisdiction, which reads as under:-
“Competence of Arbitral Tribunal to
rule on its jurisdiction.—
(1) The Arbitral Tribunal may rule on its
own jurisdiction, including ruling on any
objections with respect to the existence or
validity of the arbitration agreement, and for
that purpose,—
(a) an arbitration clause which forms
part of a contract shall be treated as an
agreement independent of the other terms
of the contract; and
(b) a decision by the Arbitral Tribunal
that the contract is null and void shall not
entail ipso jure the invalidity of the
arbitration clause.
(2) A plea that the Arbitral Tribunal
does not have jurisdiction shall be raised not
later than the submission of the statement
of defence; however, a party shall not be
precluded from raising such a plea merely
because that he has appointed, or
participated in the appointment of, an
arbitrator.
(3) A plea that the Arbitral Tribunal is
exceeding the scope of its authority shall be
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raised as soon as the matter alleged to be
beyond the scope of its authority is raised
during the arbitral proceedings.
(4) The Arbitral Tribunal may, in either
of the cases referred to in sub-section (2) or
sub-section (3), admit a later plea if it
considers the delay justified.
(5) The Arbitral Tribunal shall decide on
a plea referred to in sub-section (2) or sub-
section (3) and, where the Arbitral Tribunal
takes a decision rejecting the plea, continue
with the arbitral proceedings and make an
arbitral award.
(6) A party aggrieved by such an
arbitral award may make an application for
setting aside such an arbitral award in
accordance with section 34.”
50. Section 17 of the Arbitration and Conciliation Act,
1996 states interim measures ordered by Arbitral Tribunal. Section 21
of the Arbitration and Conciliation Act, 1996, defines commencement
of arbitral proceedings and Section 37 of the Arbitration and
Conciliation Act, 1996 provides appealable orders. Section 45 of the
Arbitration and Conciliation Act, 1996, deals with enforcement of
certain foreign awards, which stipulates the power of judicial authority
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to refer parties to arbitration.
51. With reference to the above provisions of the Act, the
dispute raised in these Civil Miscellaneous Appeals are to be
considered.
52. It is a paramount clause found in the Deed of
Partnership dated 27.08.1993 entered into between the appellants and
the respondents 2 to 6 and the Clause contains and the partners in the
said Partnership Deed agreed to resolve their disputes, if any, by
recourse to arbitration. The said clause reads as under:-
“13. Any dispute or difference among the
partners arising in regard to the construction or
terms of this deed or any part thereof or in
respect of account or the rights and liabilities of
the partners under this Deed or any other
matter relating to the partnership whether
during or after the partnership shall be referred
to arbitration, each party appointing an
Arbitrator or the partners mutually agreeing
upon to a single Arbitrator or the partners
mutually agreeing upon to a single Arbitrator
and the provisions of the Indian Arbitration Act,
1940 and any statutory”.
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53. Relying on the abovesaid Clause of the Partnership
Deed dated 27.08.1993, the learned counsel appearing on behalf of
the appellants reiterated that any dispute relating to the Deed of
Partnership or in respect of the account or the rights and liabilities of
partners or any matter relating to the partnership whether during or
after the partnership shall be referred to arbitration by appointing a
sole Arbitrator.
54. A dispute arose among the partners and therefore as
contemplated under Section 21 of the Arbitration and Conciliation Act,
a notice was issued by the appellants, invoking Clause 13 of the
Partnership Deed and requesting the dispute to be referred to
arbitration. There was no consensus amongst the parties, a petition in
O.P. No.577 of 2018 was filed under Section 11 of the Arbitration and
Conciliation Act, 1996 and this Court by an order dated 31.07.2018,
pursuant to the consent of the parties to the proceedings, namely, the
partners have referred the matter to the Mediation, As the parties
could not arrive at an amicable settlement, an order came to be
passed by this Court on 19.06.2019, appointing the Hon'ble Mr. Justice
K.Kannan (Retired Judge of Punjab and Haryana High Court) as the
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sole Arbitrator to adjudicate the disputes inter se the parties.
55. The learned counsel appearing on behalf of the
appellant reiterated that during the pendency of the arbitral
proceedings, the first respondent filed an application in M.A.No.4 of
2019, seeking for impleading him as a party respondent in the
proceedings. The said impleading petition is allowed by the Arbitrator
by an order dated 02.11.2019 in M.A.No.4 of 2019, as against which
the present Civil Miscellaneous Appeals are filed under Section
37(2)(b) of the Arbitration and Conciliation Act, 1996.
56. The learned counsel contended that the Arbitrator is
the name given person selected with reference to a person selected/
nominated/appointed with reference to determination of controversies,
though not judicially, and yet regulated by Law. His powers and duties
are prescribed by the Arbitration and Conciliation Act, 1996. His
decision is called 'Award' and could be challenged under Section 34 of
the Arbitration and Conciliation Act, 1996. Subsequent to the
amendment by Act 3 of 2016, which came into force with effect from
23.10.2015, inter alia among other amendments, Section 17 of the
Principal Act was substituted. The Act underwent a substantial change.
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Thereafter, the Act was again amended by Act 33 of 2019.
57. An Agreement to Arbitrate excludes jurisdiction of
National Courts, where the parties have agreed to resolve their
disputes by arbitration and they seek to substitute a Private Forum for
dispute resolution in place of the adjudicatory institutions constituted
by the State. According to “Redfern and Hunter on International
Arbitration”, the requirement of an agreement to arbitrate in writing is
an elucidation of the principle that the existence of such an agreement
should be clearly established, since its effect is to exclude the authority
of National Courts to adjudicate upon disputes.
58. In respect of the abovesaid contentions, the learned
counsel for the appellants referred to Section 2(e) of the Arbitration
and Conciliation Act, 1996, which defines (Court) and Section 7 defines
Arbitration Agreement and Section 16 provides competence of Arbitral
Tribunal to Rule on its jurisdiction and Section 17 deals with interim
measures ordered by the Arbitral Tribunal.
59. Relying on the abovesaid provisions, the learned
counsel for the appellants emphasised that in the absence of the
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Arbitration Agreement amongst the parties, it is improper on the part
of the Arbitrator to allow the impleading petition. Admittedly, the first
respondent is not a party to the agreement and further she claims
right as a legal heir of late Mr.V.G.Panneerdas and it is pertinent to
note that after his death, the partnership was reconstituted on several
occasions and even as per the Clause in the partnership, a partner is
empowered to nominate a person and only through nomination, a
partner can be included in the partnership firm and not otherwise.
Therefore, in the absence of any Clause for inclusion of a legal heir in
the Partnership Deed originally constituted by late Mr.V.G.Panneerdas,
the first respondent is not entitled to participate in the arbitration
proceedings.
60. Section 17 of the Arbitration and Conciliation Act,
1996, provides interim measures ordered by the Arbitral Tribunal. The
impleading petition is entertained under Section 17(1)(ii)(e), which
states that “such other interim measure of protection as may appear to
the arbitral tribunal to be just and convenient”. By invoking the said
provision of Law, the Tribunal can pass any order regarding interim
measures. There is no express provision for impleadment in the Act. In
the absence of any such express provision, the Arbitrator impliedly
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could entertain the impleading petition only under Section 17 (1)(ii)(e)
of the Arbitration and Conciliation Act, 1996. However, the said
provision indicates that the power is to be exercised within the ambit
of the Act and cannot be extended so as to exercise an inherent power
by invoking the Code of Civil Procedure. Thus, the very findings of the
Arbitrator by exercising wide powers under Order I, Rule 10 of the
Code of Civil Procedure, he entertained the impleading petition is
absolutely untenable and beyond the scope of the arbitral proceedings
as well as the Act itself. Any interim measure is to be granted within
the scope of the arbitral proceedings and not beyond the dispute
raised between the parties for arbitration. Therefore, the very exercise
of power to implead a third person who is unconnected with the
Partnership Deed is improper and in violation of the very Scheme of
the Act itself.
61. It is pertinent to note that Section 2(h) of the
Arbitration Act defines “Party means a party to an Arbitration
Agreement”. When the definition for the word 'Party' is provided under
the Act, then no other party other than the party to the “Arbitration
Agreement” is entitled to participate in the arbitral proceedings. The
term 'Arbitration Agreement' is defined under Section 2(b) as an
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agreement referred to in Section 7 of the Act. Section 7(1) of the Act,
stipulates that Arbitration Agreement means “an agreement by the
parties to submit to arbitration all or certain disputes which have
arisen or which may arise between them in respect of a defined legal
relationship, whether contractual or not.” Thus, the Arbitrator has
committed an error in interpreting the scope of the Act and allowed the
impleading petition in violation of the very Scheme and the provisions
of the Act.
62. An analysis of sub-sections (2), (3) and (4) of Section
7 shows that an Arbitration Agreement will be considered to be in
writing if it is contained in -
(a) a document signed by the parties; or
(b) an exchange of letters, telex, telegrams or other means
of telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in
which the existence of the agreement is alleged by one party and not
denied by the other; or
(d) a contract between the parties making a reference to
another document containing an arbitration Clause indicating a mutual
intention to incorporate the arbitration Clause from such other
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document into the contract.
63. Section 2(1)(b) of the Act defines 'Arbitration
Agreement' as an agreement referred to in Section 7 and Section 7
provides that an Arbitration Agreement is an agreement between the
parties to submit all or any of the disputes to be adjudicated by an
Arbitrator in respect of their definite legal relationship whether
contractual or not. Section 7 contemplates that the agreement should
be in writing and signed by the parties. Therefore, a non-signatory or a
third party could not be subjected to arbitration. Only in exceptional
cases like the case whether the rights of the parties are flowing under
the Arbitration Agreement, third parties could be subjected to
arbitration. The Court is required to examine the exceptions from the
touchstone of direct relationship of the party signatories to the
contract.
64. Section 8 of the Arbitration and Conciliation Act
empowers a Judicial Authority to refer parties to arbitration where
there is an Arbitration Agreement. Thus, when a lis is brought about by
a person and when the same is covered by an agreement between the
parties in the lis to be resolved by arbitration, the dispute is required
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to be referred to an Arbitrator. Arbitration and Conciliation Act does
not oust the jurisdiction of the Civil Court to decide the dispute in case,
where the parties to the Arbitration Agreement do not take steps as
contemplated under Section 8 of the Act. There is no provision in the
Act, when the subject matter of the suit includes other departments,
apart from the dispute that is covered by Arbitration Agreement to
direct parties to the lis to be referred to arbitration, i.e., there cannot
be splitting of causes of action. That apart, there is no provision in the
Act as to what is required to be done with certain parties to the lis are
not parties to the Arbitration Agreement.
65. In view of the above discussions, when the lis is in
respect of the partnership, the first respondent not being a partner or
party to the agreement, cannot seek to implead herself to the
proceedings. Admittedly, no right whatsoever arises to the first
respondent under the Deed of Partnership and cannot be a person
having a right in the lis subject matter of arbitration. The contentions
of the first respondent is that claim of right of inheritance in respect of
the share of her father who was a partner in the partnership under the
Deed of Partnership dated 27.03.1979. The father died on 07.05.1988
and the partnership firms were reconstituted. The share of the father
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transferred in favour of the mother, namely, late Mrs.Parijatham by
nomination, who also died on 16.12.1992. Thereafter, the Partnership
Deed was again reconstituted. Therefore, the first respondent cannot
be a person interested in the dispute and the differences that arose
between the contracting parties. The reference to the Arbitrator is only
with regard to the dispute amongst the parties to the Partnership Deed
dated 27.08.1993 and thus, the claim of the first respondent does not
fall within the dispute or differences to be adjudicated by the learned
Arbitrator, Arbitral Tribunal.
66. On the side of the appellants, in order to substantiate
the above position, cited certain judgments. In the case of Sukanya
Holdings (P) Ltd. vs. Jayesh H. Pandya [(2003) 5 SCC 531],
wherein in paragraph-7, the Hon'ble Supreme Court made an
observation “The object and purpose of the Act is to avoid multiplicity
of proceedings and not to allow two forums simultaneously to proceed
with the matter. That judgment and order is challenged in this appeal”.
In paragraphs 15 and 16 of the judgment, cited supra, the Hon'ble
Supreme Court held as under:-
“15. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. ..
Therefore, the suit should be in respect of “a
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matter” which the parties have agreed to refer
and which comes within the ambit of arbitration
agreement. Where, however, a suit is
commenced — “as to a matter” which lies
outside the arbitration agreement and is also
between some of the parties who are not
parties to the arbitration agreement, there is
no question of application of Section 8. The
words “a matter” indicate that the entire
subject-matter of the suit should be subject to
arbitration agreement.
16. The next question which requires
consideration is — even if there is no provision
for partly referring the dispute to arbitration,
whether such a course is possible under
Section 8 of the Act. In our view, it would be
difficult to give an interpretation to Section 8
under which bifurcation of the cause of action,
that is to say, the subject-matter of the suit or
in some cases bifurcation of the suit between
parties who are parties to the arbitration
agreement and others is possible. This would
be laying down a totally new procedure not
contemplated under the Act. If bifurcation of
the subject-matter of a suit was contemplated,
the legislature would have used appropriate
language to permit such a course. Since there
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is no such indication in the language, it follows
that bifurcation of the subject-matter of an
action brought before a judicial authority is not
allowed.”
67. In the case Indowind Energy Ltd vs. Wescare (I)
Ltd [(2010) 5 SCC 306], wherein in paragraphs-10 and 15, the
Hon'ble Supreme Court, held as under:-
“10. On the contentions urged the
following two questions arise for
consideration:
(i) Whether an arbitration clause found in
a document (agreement) between two
parties, could be considered as a binding
arbitration agreement on a person who is not
a signatory to the agreement? (ii)
Whether a company could be said to be a
party to a contract containing an arbitration
agreement, even though it did not sign the
agreement containing an arbitration clause,
with reference to its subsequent conduct?
15. Wescare puts forth the agreement
dated 24-2-2006 as an agreement signed by
the parties containing an arbitration
agreement but the said agreement is signed
by Wescare and Subuthi and not by Indowind.
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It is not in dispute that there can be
appointment of an arbitrator if there was any
dispute between Wescare and Subuthi. The
question is when Indowind is not a signatory
to the agreement dated 24-2-2006, whether
it can be considered to be a “party” to the
arbitration agreement. In the absence of any
document signed by the parties as
contemplated under clause (a) of sub-section
(4) of Section 7, and in the absence of
existence of an arbitration agreement as
contemplated in clauses (b) or (c) of sub-
section (4) of Section 7 and in the absence of
a contract which incorporates the arbitration
agreement by reference as contemplated
under sub-section (5) of Section 7, the
inescapable conclusion is that Indowind is not
a party to the arbitration agreement. In the
absence of an arbitration agreement between
Wescare and Indowind, no claim against
Indowind or no dispute with Indowind can be
the subject-matter of reference to an
arbitrator. This is evident from a plain, simple
and normal reading of Section 7 of the Act.”
68. In paragraph-15 of the judgment, cited supra, the
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Hon'ble Apex Court in clear terms held that the Arbitration Agreement
is signed by Wescare and Subuthi and not by Indowind. It is not in
dispute that there can be appointment of an arbitrator if there was any
dispute between Wescare and Subuthi. The question is when Indowind
is not a signatory to the agreement dated 24-2-2006, whether it can
be considered to be a “party” to the arbitration agreement. In the
absence of any document signed by the parties as contemplated under
clause (a) of sub-section (4) of Section 7, and in the absence of
existence of an arbitration agreement as contemplated in clauses (b)
or (c) of sub-section (4) of Section 7 and in the absence of a contract
which incorporates the arbitration agreement by reference as
contemplated under sub-section (5) of Section 7, the inescapable
conclusion is that Indowind is not a party to the arbitration agreement.
69. The Hon'ble Supreme Court unambiguously
enumerated that “in the absence of an arbitration agreement between
Wescare and Indowind, no claim against Indowind or no dispute with
Indowind can be the subject-matter of reference to an arbitrator. This
is evident from a plain, simple and normal reading of Section 7 of the
Act.”
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70. In the case of Chloro Controls India (P) Ltd vs.
Severn Trent Water Purification Inc. [(2013) 1 SCC 641], Scope
of jurisdiction while referring the parties to arbitration were considered
by the Hon'ble Supreme Court in paragraphs 118, 119, 131.2, 131.3,
131.4 and 133.1, held as under:-
“118. An application for appointment of
the Arbitral Tribunal under Section 45 of the
1996 Act would also be governed by the
provisions of Section 11(6) of the Act. This
question is no more res integra and has been
settled by decision of a Constitution Bench of
seven Judges of this Court in SBP &
Co. vs. Patel Engg. Ltd. [(2005) 8 SCC 618] ,
wherein this Court held that power exercised
by the Chief Justice is not an administrative
power. It is a judicial power. It is a settled
principle that the Chief Justice or his designate
Judge will decide preliminary aspects which
would attain finality unless otherwise directed
to be decided by the Arbitral Tribunal.
119. In para 39 of the judgment, this
Court held as under: (SBP case [(2005) 8 SCC
618] , SCC pp. 660-61)
“39. It is necessary to define what
exactly the Chief Justice, approached with an
application under Section 11 of the Act, is to
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decide at that stage. Obviously, he has to
decide his own jurisdiction in the sense
whether the party making the motion has
approached the right High Court. He has to
decide whether there is an arbitration
agreement, as defined in the Act and whether
the person who has made the request before
him, is a party to such an agreement. It is
necessary to indicate that he can also decide
the question whether the claim was a dead
one; or a long-barred claim that was sought to
be resurrected and whether the parties have
concluded the transaction by recording
satisfaction of their mutual rights and
obligations or by receiving the final payment
without objection. It may not be possible at
that stage, to decide whether a live claim
made, is one which comes within the purview
of the arbitration clause. It will be appropriate
to leave that question to be decided by the
Arbitral Tribunal on taking evidence, along with
the merits of the claims involved in the
arbitration. The Chief Justice has to decide
whether the applicant has satisfied the
conditions for appointing an arbitrator under
Section 11(6) of the Act. For the purpose of
taking a decision on these aspects, the Chief
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Justice can either proceed on the basis of
affidavits and the documents produced or take
such evidence or get such evidence recorded,
as may be necessary. We think that adoption of
this procedure in the context of the Act would
best serve the purpose sought to be achieved
by the Act of expediting the process of
arbitration, without too many approaches to
the court at various stages of the proceedings
before the Arbitral Tribunal.”
This aspect of the arbitration law was
explained by a two-Judge Bench of this Court
in Shree Ram Mills Ltd. vs. Utility Premises (P)
Ltd. [(2007) 4 SCC 599] wherein, while
referring to the judgment in SBP & Co. [(2005)
8 SCC 618] particularly the above paragraph
(para 39) of SBP case [(2005) 8 SCC 618] ,
this Court held that the scope of order under
Section 11 of the 1996 Act would take in its
ambit the issue regarding territorial jurisdiction
and the existence of the arbitration agreement.
The Court noticed that if these issues are not
decided by the Chief Justice or his designate,
there would be no question of proceeding with
the arbitration. It held as under: (Shree Ram
Mills case [(2007) 4 SCC 599] , SCC pp. 607-
08, para 27)
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“27. … Thus, the Chief Justice has to
decide about the territorial jurisdiction and also
whether there exists an arbitration agreement
between the parties and whether such party
has approached the Court for appointment of
the arbitrator. The Chief Justice has to examine
as to whether the claim is a dead one or in the
sense whether the parties have already
concluded the transaction and have recorded
satisfaction of their mutual rights and
obligations or whether the parties concerned
have recorded their satisfaction regarding the
financial claims. In examining this if the parties
have recorded their satisfaction regarding the
financial claims, there will be no question of
any issue remaining. It is in this sense that the
Chief Justice has to examine as to whether
there remains anything to be decided between
the parties in respect of the agreement and
whether the parties are still at issue on any
such matter. If the Chief Justice does not, in
the strict sense, decide the issue, in that event
it is for him to locate such issue and record his
satisfaction that such issue exists between the
parties. It is only in that sense that the finding
on a live issue is given. Even at the cost of
repetition we must state that it is only for the
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purpose of finding out whether the arbitral
procedure has to be started that the Chief
Justice has to record satisfaction that there
remains a live issue in between the parties. The
same thing is about the limitation which is
always a mixed question of law and fact. The
Chief Justice only has to record his satisfaction
that prima facie the issue has not become dead
by the lapse of time or that any party to the
agreement has not slept over its rights beyond
the time permitted by law to agitate those
issues covered by the agreement. It is for this
reason that it was pointed out in the above
paragraph that it would be appropriate
sometimes to leave the question regarding the
live claim to be decided by the Arbitral
Tribunal. All that he has to do is to record his
satisfaction that the parties have not closed
their rights and the matter has not been barred
by limitation. Thus, where the Chief Justice
comes to a finding that there exists a live
issue, then naturally this finding would include
a finding that the respective claims of the
parties have not become barred by limitation.”
(emphasis supplied)
Thus, the Bench while explaining the
judgment of this Court in SBP & Co. [(2005) 8
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SCC 618] has stated that the Chief Justice may
not decide certain issues finally and upon
recording satisfaction that prima facie the issue
has not become dead even leave it for the
Arbitral Tribunal to decide.
131.2. The issue of jurisdiction normally
is a mixed question of law and facts.
Occasionally, it may also be a question of law
alone. It will be appropriate to decide such
questions at the beginning of the proceedings
itself and they should have finality.
131.3. Even when the arbitration law in
India contained the provision like Section 34 of
the 1940 Act which was somewhat similar to
Section 4 of the English Arbitration Act, 1889,
this Court in Anderson Wright Ltd. [AIR 1955
SC 53 : (1955) 1 SCR 862] took the view that
while dealing with the question of grant or
refusal of stay as contemplated under Section
34 of the 1940 Act, it would be incumbent upon
the court to decide first of all whether there is
a binding agreement for arbitration between
the parties to the suit or not.
131.4. Applying the analogy thereof
will fortify the view that determination of
fundamental issues as contemplated under
Section 45 of the 1996 Act at the very first
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instance by the judicial forum is not only
appropriate but is also the legislative intent.
Even the language of Section 45 of the 1996
Act suggests that unless the court finds that an
agreement is null and void, inoperative and
incapable of being performed, it shall refer the
parties to arbitration.
133.1. Firstly, Sukanya [(2003) 5
SCC 531] was a judgment of this Court in a
case arising under Section 8, Part I of the 1996
Act while the present case relates to Section
45, Part II of the Act. As such that case may
have no application to the present case.”
71. As far as the judgment of the Apex Court, cited above,
the first point to be considered is that His Lordship Swatanter Kumar,
J. (as He then was), in His opening paragraph of the judgment,
emphatically reiterated that “Leave granted. The expanding need for
international arbitration and divergent schools of thought, have
provided new dimensions to the arbitration jurisprudence in the
international field. The present case is an ideal example of invocation
of arbitral reference in multiple, multi-party agreements with
intrinsically interlinked causes of action, more so, where performance
of ancillary agreements is substantially dependent upon effective
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execution of the principal agreement.
72. The abovesaid findings of the Hon'ble Supreme Court
of India, in the case of Chloro Controls India (P) Ltd, cited supra, is
crystal clear that, while invoking an arbitral reference in multiple,
multi-party agreements with intrinsically interlinked causes of action,
more so, where performance of ancillary agreements is substantially
dependent upon effective execution of the principal agreement. Such
facts and circumstances would not arise as far as the present lis on
hand is concerned. The present lis relates to a domestic arbitral
proceedings wherein the Partnership Deed between the appellants and
the respondents 2 to 6 are definite and regarding such facts, there is
no dispute between the parties, including the first respondent.
Therefore, the multi-party agreement with intrinsically interlinked
causes of action has not arisen as far as the facts and circumstances of
the present cases are concerned. In paragraph-70 of the judgment,
cited supra, the Hon'ble Supreme Court unambiguously enumerated
that normally, an 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 that agreement. The
occasional circumstances are narrated by the Supreme Court and in
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those circumstances, in the case of Chloro Controls India (P) Ltd,
cited supra, the Supreme Court arrived a conclusion that there is no
absolute obstructions to law/the arbitration agreement. Arbitration and
it could be possible between a signatory to an arbitration agreement
and a third party. However, the Supreme Court held that 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. In paragraph-71, the Supreme Court held
that the “Group of Companies Doctrine” was mainly extended in the
judgment, cited supra, wherein there is a principal agreement and
other ancillary agreements which flow from and out of the same
transaction and the right also consequently flows between the parties,
may not be signatory in the principal agreement. However, those
circumstances have not arisen as far as the present cases are
concerned. Even in paragraph-72 of the case of Chloro Controls
India (P) Ltd, cited supra, the Supreme Court held that “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. In this case, the facts regarding the execution of the
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Partnership Deed by the father of the first respondent late
Mr.V.G.Panneerdas is not disputed by the first respondent. The
reconstitution of Partnership Deeds on various occasions for the last 37
years are also not disputed between the parties, including the first
respondent. Under these circumstances, the first respondent has filed
a petition before the Arbitrator after a lapse of 37 years from the
constitution of the original Partnership Deed by her father late
Mr.V.G.Panneerdas. Therefore, the present cases cannot be construed
as exceptional. The exceptional circumstances cannot be extended in
view of the fact that the present arbitration is a domestic arbitration
without reference to Section 45 of the Arbitration Act, 1996 and this
apart, the Partnership Deed between the father and sons were
established and the same is admitted by the first respondent and there
is no right flows from those Partnership Deeds in favour of the first
respondent. This being the factum, the judgment of the Supreme
Court, cited supra, may not have any application with reference to the
facts and the circumstances of the present cases on hand and
consequently, the reliance placed by the learned Senior Counsel
appearing on behalf of the first appellant deserves no merit
consideration.
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74. In the case of Cheran Properties Ltd vs. Kasturi &
Sons Ltd [(2018) 16 SCC 413], wherein in paragraphs 21, 22, 23,
24 and 25, the Hon'ble Supreme Court of India, held as under:-
“21. Explaining the legal basis that may be
applied to bind a non-signatory to an
arbitration agreement, this Court in Chloro
Controls case [Chloro Controls India (P)
Ltd. vs. Severn Trent Water Purification Inc.,
(2013) 1 SCC 641 : (2013) 1 SCC (Civ) 689]
held thus: (SCC p. 694, paras 103.1, 103.2 &
105)
“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.
***
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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. vs. Wescare (India) Ltd., (2010) 5
SCC 306 : (2010) 2 SCC (Civ) 397] 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. vs. Severn Trent Water
Purification Inc., (2013) 1 SCC 641 : (2013) 1
SCC (Civ) 689] . Indowind [Indowind Energy
Ltd. vs. Wescare (India) Ltd., (2010) 5 SCC
306 : (2010) 2 SCC (Civ) 397] 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 vs. Monnet Finance Ltd., (2011) 1 SCC
320 : (2011) 1 SCC (Civ) 141] evidently
involved a guarantee, where the guarantor who
was sought to be impleaded as a party to the
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arbitral proceeding was not a party to the loan
agreement between the lender and borrower.
The loan 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 fulfilment
of a mutually held intent between the parties,
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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.
24. International conventions on
arbitration as well as the UNCITRAL Model Law
mandate that an arbitration agreement must be
in writing. Section 7 of the Arbitration and
Conciliation Act, 1996 affirms the same
principle. Why does the law postulate that
there should be a written agreement to
arbitrate? The reason is simple. An agreement
to arbitrate excludes the jurisdiction of national
courts. Where parties have agreed to resolve
their disputes by arbitration, they seek to
substitute a private forum for dispute resolution
in place of the adjudicatory institutions
constituted by the State. According to Redfern
and Hunter on International Arbitration, the
requirement of an agreement to arbitrate in
writing is an elucidation of the principle that the
existence of such an agreement should be
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clearly established, since its effect is to exclude
the authority of national courts to adjudicate
upon disputes. [Redfern and Hunter on
International Arbitration, 5th Edn. — 2.13, pp.
89-90.]
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 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
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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 [ Op cit fn.
16, 2.40, p. 100.]. 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. [Id,
2.41 at p. 100.]”
75. In the case of Transcore vs. Union of India [(2008)
1 SCC 125], wherein the Hon'ble Supreme Court, in paragraph-67,
held as under:-
“67. The question still remains as to the
object behind insertion of the three provisos to
Section 19(1) of the DRT Act vide amending Act
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30 of 2004. The DRT is a tribunal, it is the
creature of the statute, it has no inherent
power which exists in the civil courts. Order 23
Rule 1(3) CPC states inter alia that where the
court is satisfied that there are sufficient
grounds for allowing the plaintiff to institute a
fresh suit for the subject-matter of a suit or
part of a claim then the civil court may, on such
terms as it thinks fit, grant the plaintiff
permission to withdraw the entire suit or such
part of the claim with liberty to institute a fresh
suit in respect thereof. Under Order 23 Rule
1(4)(b), in cases where a suit is withdrawn
without the permission of the court, the plaintiff
shall be precluded from instituting any fresh
suit in respect of such subject-matter. Order 23
Rule 2 states that any fresh suit instituted on
permission granted shall not exclude limitation
and the plaintiff shall be bound by law of
limitation as if the first suit had not been
instituted. Order 23 Rule 3 deals with
compromise of suits. It states that where it is
proved to the satisfaction of the court that a
suit has been adjusted wholly or in part by any
lawful agreement or compromise or where the
defendant satisfies the plaintiff in respect of
whole or any part of the subject-matter of the
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suit, the court shall order such agreement,
compromise or satisfaction to be recorded, and
shall pass a decree in accordance therewith.”
76. In paragraph-67 of the judgment, cited supra, the
Hon'ble Supreme Court distinguished the facts by holding that the DRT
is a Tribunal, it is the creature of the statute, it has no inherent power,
which exists in the Civil Courts, then the Supreme Court relied on
Order 23, Rule 1 of the Code of Civil Procedure in the matter of
institution of fresh suit by the parties.
77. The above proposition of law laid down by the Courts
would reveal that the Arbitrator cannot exercise an inherent power
conferred to the Civil Courts under the Code of Civil Procedure. The
Arbitrator is bound to function within the scope and ambit of the Act
and resolve the disputes between the contracted parties to the
Arbitration Agreement as defined under the Act. Travelling beyond the
scope of the Act is impermissible and if such an exercise is made, then
the same would result in exercise of excess jurisdiction and finally the
Arbitrator would be functioning as a Civil Court, which is not intended
under the provisions of the Arbitration and Conciliation Act, 1996.
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When the Arbitrator is appointed under the Statute, scope, powers and
jurisdiction shall be within the provisions of the said Statute. The
Arbitrator is not empowered to travel beyond the scope of such powers
and in the event of such an exercise, the same would cause prejudice
to either of the parties to the Arbitration Agreement and this apart,
certain common civil rights cannot be decided by the Arbitrator.
78. The sole object of the Arbitration Act is to resolve the
disputes as expeditiously as possible with the minimum intervention of
the Court of Law. The scope of Alternative Dispute Resolution (ADR)
cannot be expanded so as to usurp the inherent powers of Civil Courts.
Section 16 cannot be interpreted so as to entertain an application from
any person, who is a third party to the Arbitration Agreement for the
purpose of arbitral adjudications and competence of the Arbitral
Tribunal to Rule of its Jurisdiction would indicate that the Arbitral
Tribunal may rule on its own jurisdiction, including ruling on any
objections with respect to the existence or validity of the Arbitration
Agreement and for that purpose, the Tribunal may consider the facts
and the terms and conditions of the agreement. Section 16(2) states
that “a plea that the Arbitral Tribunal does not have jurisdiction shall
be raised not later than the submission of the statement of defence”.
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79. In the present appeals, the appellants have raised an
objection with regard to the Arbitral Tribunal to implead a third party
to the Arbitration Agreement in the adjudicative process, since the first
respondent is unconnected with the business transactions which all are
being carried on and under the Partnership Deed of the year 1993.
Admittedly, the first respondent is not a signatory to the original
Partnership Deed or the subsequent reconstituted Partnership Deeds
on various occasions. However, the first respondent is claiming right of
inheritance through her father late Mr.V.G.Panneerdas and her
capacity as a legal heir. The fact remains that Mr.V.G.Panneerdas had
not nominated the first respondent as a partner. Contrarily,
Mr.V.G.Panneerdas nominated his wife Mrs.Parijatham as partner in
the partnership firm after his death and the wife of Mr.V.G.Panneerdas
nominated her son as a partner. Subsequently, the Partnership Deeds
were reconstituted between the partners on various occasions for the
last 37 years, the partners are continuing the business and developing
the same. Under these circumstances, the first respondent filed
impleading petition in the arbitration proceedings, setting out a claim
that she is the legal heir of late Mr.V.G.Panneerdas and she is entitled
to inherit the profits from the partnership firm, which was originally
constituted by her father.
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80. This Court is of the considered opinion that even such
a right is traceable in favour of the first respondent, then the only
possible course would be to approach the Competent Court of Law and
establish her legal right , if any, available based on the documents or
the evidences. Civil rights are to be established independently before
the Competent Civil Court by the parties. However, such civil rights
cannot be adjudicated or enforced by the Arbitrator in the contracted
arbitration proceedings under the provisions of the Act. If an Arbitrator
is allowed to adjudicate the civil rights of the parties or the rights
regarding inheritance of properties, then it would result in submerger
of the very Arbitration Agreement.
81. The Arbitrator is a person appointed in order to resolve
the dispute between the parties under certain terms and conditions in
the Arbitration Agreement. The disputes between the parties are
definite and existence of Arbitration Agreement is an essential one,
while-so, the Arbitrator cannot invoke the powers contemplated under
Order 1, Rule 10 of the Code of Civil Procedure, wherein wide powers
are granted, so as to implead a person, which is otherwise
unconnected with the partnership or in the Arbitration Agreement. If
such a concept of power to impleadment is provided to the Arbitrator,
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then the scope of arbitration proceedings will be, not only widened but,
the purpose and the object of the Act, would be defeated. Thus, the
Arbitrator is empowered to adjudicate the disputes strictly with
reference to the Arbitration Agreement and with the consent of the
parties to the Arbitration Agreement. Contrary to the contractual
agreement between the parties, the Arbitrator cannot exercise any
powers so as to implead a third party to the Arbitration Agreement for
the purpose of adjudicating the right of any such third party.
82. The first respondent herein admittedly is not a party to
the Arbitration Agreement nor a signatory in the Partnership Deed or
any dispute relatable to the civil rights are subjected to the arbitral
adjudication. Admittedly, the first respondent last 37 years has not
raised any dispute regarding the reconstitution of Partnership Deeds
between the partners. Under these circumstances, the impleading
petition is filed in order to participate in the arbitration proceedings to
establish the civil rights of the first respondent, relatable to the Law of
Inheritance. In the event of claiming the legacy of late
Mr.V.G.Panneerdas, the first respondent is at liberty to approach the
Competent Court of Law and arbitration proceedings are not a Forum
for adjudication of such civil rights. Thus, the impleading petition at the
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threshold is liable to be rejected as not maintainable for the simple
reason that the first respondent is neither a partner or the right flows
from and out of the Partnership Deed, enabling this Court to consider
her case as an exceptional one.
83. However, the Arbitrator usurped the wide powers
conferred under Order 1, Rule 10 of the Code of Civil Procedure and
impleaded the first respondent for the purpose of adjudicating the
disputes aroused through an Arbitration Agreement. It violates the
very contractual obligation between the Arbitrator as well as the
parties to the Arbitration Agreement under the provisions of the
Arbitration and Conciliation Act, 1996. The Arbitrator in the event of
exercising such wide powers under the Code of Civil Procedure, the
same would infringe the rights of other parties, which cannot be
adjudicated in the arbitration proceedings.
84. Even after impleadment, the possible disputes to be
raised by the first respondent in the arbitration proceedings are that
she is the legal heir of late Mr.V.G.Panneerdas and therefore, she is
entitled to be a partner in the partnership firm in her capacity as a
legal heir. This Court is doubtful, whether such a dispute affecting the
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rights of all other legal heirs shall be adjudicated by the Arbitrator in
the arbitration proceedings. Considering the scope of the arbitration
proceedings and taking note of the rights of the legal heirs of late
Mr.V.G.Panneerdas and the terms and conditions of the Partnership
Deed as well as the disputes raised under the Arbitration Act, it is
highly improper on the part of the learned Arbitrator to adjudicate the
civil rights of the parties under the General Laws. In such an event,
the Arbitrator would be travelling beyond the scope of the Arbitration
Act and such a power is not vested with an Arbitrator under the
provisions of the Arbitration Act, 1996.
85. Therefore, the civil rights of the parties are to be
established before the Competent Court of Law. The disputes raised
under the Arbitration Act alone can be adjudicated by the Arbitrator by
exercising the powers conferred under the Act. The Arbitrator cannot
be equated with the Court of Law and this proposition is well settled as
the Arbitrator is a creator of the Statute and has no inherent power,
which exists in the Civil Court and the Arbitrator cannot exercise the
inherent power and has to exercise the powers strictly within the ambit
of the Arbitration Act and certainly not beyond the scope of the
arbitration proceedings.
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86. Undoubtedly, It is fundamental that a provision for
arbitration to constitute an Arbitration Agreement for the purpose of
Section 7 should satisfy two conditions, namely, (i) it should be
between the parties to the dispute; and (ii) it should relate to or be
applicable to the dispute. Therefore, what remains to be seen is
whether there is any document signed by the parties as provided in
Clause (a) of sub-section (4) of Section 7. If no such signed
documents between the parties are available, then it cannot be
construed as an Arbitration Agreement within the meaning of Section 7
of the Act.
87. In the present cases, the first respondent is not a
signatory to the documents, namely, the Partnership Deed. The
dispute was originally raised between the appellants and the
respondents 2 to 6. An application was filed before the High Court
under Section 11 of the Arbitration Act, 1996, the High Court
appointed an Arbitrator to adjudicate and resolve the disputes. Before
the Arbitrator, the first respondent has filed an application for
impleadment and she could not able to establish that she is the
signatory to the document or partner in the partnership firm. In the
absence of establishing that the first respondent is either a partner or
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signatory, then the Arbitrator has no power to entertain the impleading
petition under the provisions of the Arbitration Act.
88. With reference to the findings of the Arbitrator in his
order dated 02.11.2019, the first point considered by the Arbitrator is
whether the application filed seeking for applicant's rights as a legal
representative of her parents, who died on 07.05.1987 and
25.08.1993 was barred by limitation.
89. The second point taken was that all three partnerships
owned their origin to the partnership of the year 1982, where her
father had been a partner and since he nominated his wife to continue
the partnership on his death, the applicant's mother was a partner and
on her death her son had been nominated as such to become a partner
and contrary to the earlier terms three separate partnership were
made. However, the nominee only represented the legal heirs as a
Trustee and the applicant as a legal heir to her parents must be taken
to be represented in the estate of the deceased and their
corresponding interest in the partnerships.
90. The third point taken into consideration by the
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Arbitrator is that the applicant is not shown as a partner in any of the
three partnership firms brought about subsequent to the death of
Mrs.Parijatham. The question to be seen therefore is, whether there
was any Arbitral Agreement that availed in her favour to join the
proceedings.
91. While answering the above three issues raised by the
Arbitrator for the purpose of deciding the impleadment petition,
regarding the first issue, the Arbitrator arrived a conclusion that “I will
not find the plea of limitation could be encountered without calling for
evidence and proof of manifest and hostile conduct of ouster that will
have to await till a later point of time, and I hold accordingly”.
92. With reference to the second issue, the Arbitrator
concluded that “the nature of holding by respondents 1 to 4 itself
cannot be seen prima facie as in exclusion as I observed in previous
paragraph and a fortiorari, the same logic would apply for retaining
such a consideration at a future point of time and not conclude it. I will
hold the second point accordingly”.
93. As far as the third issue is concerned, the Arbitrator
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held as “that can surely await a due consideration when rights of all
parties are decided finally when the issue of dissolution or otherwise of
the partnerships are undertaken through arbitral adjudication”.
94. In paragraph-16 of the order, the Arbitrator made a
finding that “I reiterate that they are merely for the purpose of
considering whether the applicant could be brought on Board or could
be pitch-forked at the threshold. None of my observations can ever
come in the way the respondents to argue that the legal provision that
I have applied have no relevance or applicability at the conclusion of
the proceedings, when the rights of parties are considered”.
95. In paragraph-17, the findings made are that
“impleadment of party must be of a person who has a semblance of
right and not established right or admitted right in previous
proceedings between the parties”.
96. In paragraph-18, the Arbitrator arrived a conclusion
that “we will literally be deciding all the relevant questions on whether
the partnerships must be dissolved or allowed to continue and the
mutual rights and obligations of partners. Who are entitled and who
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are not are also relevant. As a more generic issue, the impleadment of
party provisions contained in the Code of Civil Procedure
through order 1, Rule 10 gives a wide power to a Court and in
our context, the same must apply to an Arbitral Tribunal”.
97. Finally, the Arbitrator arrived a conclusion that “I shall
therefore see the impleadment of the applicant will help to secure a
comprehensive adjudication of the extent to which the heirs of the
parents who were partners during the respective lifetime could claim a
right or not”.
98. In paragraph-19, the Arbitrator held that “I allow the
application and order the impleadment in claim statements 1 to 4.
Rajesh has filed claim statements which is numbered as 5, 6 and
7/2019. Since the claim statement has come out subsequently I direct
the suo moto impleadment of the applicant in the above petitions
also”.
99. The spirit of the order passed by the Arbitrator with
reference to the Arbitration Act is to be considered by this Court. The
above findings would reveal that the Arbitrator has made an initiation
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to decide the legal rights of the parties, including the rights of the first
respondent. The Arbitrator in express terms held that the impleadment
of party, provisions contained in the Code of Civil Procedure through
Order 1, Rule 10 gives a wide power to a Court and in our context, the
same must apply to an Arbitral Tribunal. Such a conclusion arrived by
the Arbitral Tribunal is undoubtedly an exercise of inherent power,
which is impermissible in law. The power which is not contemplated
under the Arbitration Act, cannot be exercised by the Arbitral Tribunal.
The power being statutory in character, the inherent power is not
vested. While-so, the Arbitrator cannot invoke the provisions of the
Code of Civil Procedure for the purpose of impleading a third person
into the arbitral proceedings and he is bound to be strict with reference
to the contracted Arbitration Agreement as well as the parties to the
Arbitration Agreement and the adjudication must be within the
parameters of the disputes raised between the parties to the
Arbitration Agreement.
100. The decision of the Hon'ble Supreme Court of India in
the case of Chloro Controls India (P) Ltd, cited supra, has got a
restricted implication, as in the opening paragraph itself, the Apex
Court, clarified the scope of widening of arbitral proceedings. The
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Supreme court in unambiguous terms held that a third party cannot be
impleaded as a party to the arbitral proceedings. Only on exceptional
circumstances, where there is multiple, multi-party agreements with
intrinsically interlinked causes of action, more so, where performance
of ancillary agreements is substantially dependent upon effective
execution of the principal agreement. Thus, there must be a link
between the Principal Arbitration Agreement and an ancillary
agreement if any. The circumstances mostly would arise in business
transactions between the Multinational Companies in international
arbitration proceedings under Section 45 of the Arbitration act. Thus,
such exceptional circumstances is a rare occasion as far as the
domestic Arbitration Agreements are concerned. But however, the
parties, who are filing such an application must establish such
intrinsically interlinked causes of action for the purpose of participating
in the arbitral adjudication.
101. There is no express provision available for
impleadment of a third party in the Arbitration Act. Even there is no
implied provision, which is traceable under the Act. In the absence of
any provision when the Arbitrator is impleading a person for an
effective adjudication of the disputes under the Arbitration Act, then
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the principles laid down by the Supreme Court in the case of Chloro
Controls India (P) Ltd, cited supra, is to be followed.
102. In the order impugned, the Arbitrator arrived a
conclusion that the impleadment of the first respondent will help to
secure a comprehensive adjudication of the extent to which the heirs
of the parents, who were partners during the respective lifetime could
claim right or not. Such a broad exercise of power invoked by the
Arbitrator for the purpose of determining the civil rights of a person is
beyond the scope of the provisions of the Arbitration Act. If the
Arbitrator is appointed under the Arbitration Act is allowed to decide
the civil rights of a person, who is otherwise not a party to the
Arbitration Agreement, then the Arbitrator would be exercising the
inherent power conferred to the Civil Court, which is not contemplated.
103. The findings arrived in paragraphs 16 and 17 of the
order impugned also reveal that the Arbitrator has decided to
undertake the process of complete adjudication regarding the family
dispute of Mr.V.G.Panneerdas and his heirs. Such an exercise of
deciding the rights of legal heirs of Mr.V.G.Panneerdas in the
arbitration proceedings, wherein admittedly the partners are the
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appellants as well as the respondents 2 to 6 cannot be done at all.
Deciding the rights of the legal heirs of Mr.V.G.Panneerdas is a civil
dispute and the aggrieved parties are entitled to approach the
Competent Civil Court of Law.
104. In a contracted arbitration, the Arbitrator cannot
travel beyond the scope of the disputes raised between the parties and
attempt to decide the civil rights of the other legal heirs or the
persons, who all are not signatories to the Arbitration Agreement. In
this case, the question of intrinsically interlinked causes of action does
not arise as there is no ancillary Arbitration Agreement to the Principal
Arbitration Agreement, which is admittedly between the appellants and
the respondents 2 to 6. Thus, invoking Section 45 would not arise and
the rights of all the legal heirs of late Mr.V.G.Panneerdas is a pure civil
dispute and mixed question of facts and law, which cannot be
adjudicated by the Arbitrator under the provisions of the Arbitration
Act. Thus, such civil disputes cannot be entertained or adjudicated by
the Arbitrator, who is otherwise empowered to decide the disputes
between the parties to the Arbitration Agreement strictly within the
ambit of the provisions of the Arbitration Act.
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105. The Arbitrator while considering the grounds raised
by the appellants that the first respondent has to workout her
remedies for her establishing her right under her parents by an
independent suit and not through Arbitral Tribunal. The Arbitral
Tribunal arrived a conclusion that world over, there have been growing
awareness to strengthen Alternative Dispute Resolution (ADR)
processes and arbitration practice is a robust exercise in that direction.
However, such Alternative Dispute Resolution processes would not
confer any power to the Arbitrator to decide the civil rights of a third
person, who is not a party to the Arbitration Agreement. Alternative
Dispute Resolution mechanism would not provide any competency to
exercise the inherent power conferred to the competent Civil Court of
Law. The Alternative Dispute Resolution processes with reference to
the Statute is to be exercised within the ambit of the provisions and
not to decide the civil rights of the citizen. In such an event, we are
converting the Alternative Dispute Resolution System as the Court of
Law and such a practice would be dangerous as the Arbitrators are
appointed based on contract basis and by consent of the parties and
the remuneration to the Arbitrator is also paid by the parties to the
Arbitration Agreement. When the Arbitrators are receiving their
remuneration from the parties to the Arbitration Agreement, which is
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contractual in nature, they are bound to act as a neutral person
between the parties to the agreement and resolve the disputes raised
between those parties. In the event of allowing the Arbitrator to
exercise the powers beyond the scope of the Arbitration Act, then the
Arbitrator would be exercising the inherent powers of the Court, so as
to grant the relief to a person, who is not a party to the Arbitration
Agreement and the very nature of the arbitration proceedings do not
permit such a situation.
106. Taking a simple example, where two parties entered
into an agreement and there is a dispute arose and the two parties
have agreed to place the dispute before a neutral person and pay
remuneration to him and the said neutral person adjudicate the
disputes between those two parties and resolve the same in
accordance with certain procedures. In such a scenario, if such a
neutral person is allowed to exercise the power to decide the civil
rights of other legal heirs or persons, who all are not party to the
Arbitration Agreement, then he would be exercising the powers of the
Civil Court, which is not only impermissible but an infringement into
the constitutional structure of Judicial System, as well as the principles
laid down in the Constitution.
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107. The findings of the Arbitrator that the first respondent
has established a semblance of right, which is sufficient for impleading
the first respondent in the arbitral adjudication. This Court is of the
considered opinion that this itself amounts to expanding the scope of
the arbitration proceedings. A semblance of right referred by the
Arbitrator is relatable to the civil right of the first respondent regarding
her right of inheritance from her father late Mr.V.G.Panneerdas.
108. “The Doctrine of No-Prejudice” cannot have any
application with reference to the impleadment of a person in a dispute
under the Arbitration Agreement within the ambit and provisions of the
Arbitration Act, 1996. The impact of the application of the said
Doctrine, would result in exercise of inherent powers of the Court of
Law. Thus, the rights of a third person to an Arbitration Agreement
cannot be adjudicated during the further or final hearing of the arbitral
proceedings.
109. In view of the facts, circumstances and the
discussions elaborately made in the aforementioned paragraphs, this
Court has no hesitation in arriving a conclusion that the Arbitrator has
exercised excess jurisdiction beyond the scope of the provisions of the
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Arbitration Act as well as beyond the scope of the contracted arbitral
proceedings and consequently, the orders dated 02.11.2019 passed by
the Arbitrator M.A.Nos.4 of 2019 in Arbitration Claim No.1 of 2019, 4
of 2019 in Arbitration Claim No.3 of 2019, 4 of 2019 in Arbitration
Claim No.2 of 2019 and 4 of 2019 in Arbitration Claim No.4 of 2019
are quashed. Consequently, C.M.A.Nos.4465, 4467 to 4469 of 2019
stands allowed. However, there shall be no order as to costs. The
connected miscellaneous petitions are closed.
24-02-2020
Index : Yes/No.
Internet: Yes/No.
Speaking Order/Non-Speaking Order
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S.M.SUBRAMANIAM, J.
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