Madras High Court
Mr.A.Kumar vs M/S.Precision Engineering on 2 September, 2022
Author: R.N.Manjula
Bench: R.N.Manjula
C.R.P (PD).No.2315 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on 18.08.2022
Pronounced on 02.09.2022
CORAM:
THE HON'BLE Ms.JUSTICE R.N.MANJULA
C.R.P (PD).No.2315 of 2022
and
CMP.No.11861 of 2022
Mr.A.Kumar ... Petitioner
Vs.
1.M/s.Precision Engineering
Rep. By its Managing Partner Mr.P.Arumugam
2.P.Arumugam
3.A.Murugan
4.The Branch Manager
Federal Bank,
Ambattur Branch ... Respondents
PRAYER : Civil Revision Petition is filed under Article 227 of the
Constitution of India to set aside the order and decretal order dated
28.06.2022 in I.A.No.2 of 2022 in OS.No.130 of 2022 on the file of the
District Munsif Court at Ambattur.
For Petitioner : Mr.V.Raghavachari
for M/S.AR.M.Arunachalam
For Respondents : Mr.C.P.Sivamohan
for M/s.Best law Firm for RR1 and 3
1/28
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C.R.P (PD).No.2315 of 2022
ORDER
This Civil Revision Petition has been preferred challenging the order of the learned District Munsif, Ambattur dated 28.06.2022 in I.A.No.2 of 2022 in OS.No.130 of 2022.
2.The 2nd defendant in the said suit is the revision petitioner. Respondents 1 to 3 - plaintiffs filed the said suit against the revision petitioner and the 4th respondent/1st defendant seeking the relief of declaration that plaintiffs 2 & 3 have got all the rights to operate, maintain and handle the bank accounts of the 1st plaintiff lying with the 1st defendant's bank and for mandatory injunction directing the 2nd defendant to revoke and remove the freezing imposed on bank accounts. After receiving the suit summons, the revision petitioner, who is the 2nd defendant, had filed the said application under Section 8 of the Arbitration and Conciliation Act, 1996 (for short, the Act) read with Section 151 of the Civil Procedure Code and sought to refer the suit for Arbitration. However, the said application was dismissed by an impugned order. Aggrieved over that, this civil revision petition has been preferred.
3. The first respondent /plaintiff is the partnership firm, in which, plaintiffs 2 and 3 and the revision petitioner are partners. The 2/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022 partnership deed was originally entered into on 19.03.1998 and later it was reconstituted on 01.04.2008 by virtue of a reconstitution deed. The partnership deed and the reconstituted deed were marked as Ex.P1 and Ex.P2 in I.A.No.2 of 2022 before the trial Court. The revision petitioner and the 3rd respondent/3rd plaintiff are the sons of the 2nd plaintiff-Mr.P.Arumugam.
3.1. When the original partnership deed was written on 19.03.1998, the revision petitioner and his father alone were the partners of the 1st plaintiff-M/S. Precision Engineering and in the said partnership deed, under Clause 17, it was agreed that all the disputes relating to partnership business or its dissolution arising out of the deed should be resolved by arbitration and the decision of the Arbitrator should be final and binding on all the partners of the firm. Later, when the 3rd plaintiff-Mr.A.Murugan was inducted into the partnership firm and when the reconstituted deed was written, the earlier Clause about arbitration was not included. When the petitioner/ 2nd defendant filed the said application under Section 8 of the Act to refer the said suit for arbitration by invoking Clause 17 of the partnership deed dated 19.03.1998, respondents 1 to 3 herein namely the plaintiffs contested that the reconstituted deed does not contain any Clause as to arbitration and hence, such an order cannot be 3/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022 passed.
4. Heard the submissions made by the learned counsel for the petitioner and the learned counsel appearing for the respondents 1 to 3 and perused the materials available on record.
5.Mr.V.Raghavachari, learned counsel appearing on behalf of Mr.AR.M.Arunachalam, learned counsel on record for the revision petitioner submitted that even though the reconstituted deed did not contained the arbitration clause, by taking into consideration of the clause included in the original partnership deed dated 19.03.1998, the Court below ought to have referred the suit for Arbitration.
5.1.The further contention of the learned counsel for the petitioner is that a partnership firm is like a running bus, in which, partners will keep on changing like passengers; just because there was a reconstitution in the partnership in the year 2008 by inducting the 3rd plaintiff, who is another son of the 2nd plaintiff, as a partner, it cannot be said that the terms of the earlier partnership deed dated 19.03.1998 will not be applicable; even in the reconstituted deed, the partners agreed to continue their business and that would only mean that the corpus of business was the same. So, Clause 17 of the 4/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022 partnership deed dated 19.03.1998 will bind the newly inducted partner as well; it cannot be claimed that the 3 rd plaintiff is not a signatory to the partnership deed dated 19.03.1998 because the firm is the same and the business is also the same.
5.2.In support of the above contentions, the learned counsel for the petitioner cited the following decisions which are as follows:
sl. Case particulars Reported in
No
1 Groupe Chimique Tunisien SA Vs. Southern 2006 (5) SCC 275
Petrochemicals Industries Corpn.ltd
2 Pradeep V.Naik Vs Sulakshana A.Naik MNU/MH/1436/2005
3 Johnson Stephen Vs. MCEES Trading and 2021 SCC Online KER
others 1222
4 Chloro Controls(I) P.Ltd., Vs. Severn Trent MANU/SC/0803/2012
Water Purification Inc. and Ors.
5 Sharad Vasant Kotak and others Vs. 1998 (2) SCC 171
Ramniklal Mohanlal Chawda and another
6 A.Ayyasamy Vs. A.Paramasivam and others 2016(10) SCC 386
7 Mahanagar Telephone Nigam Ltd Vs. 2020 (12) SCC 767
Canara Bank and others
6. In contrast, Mr.C.P.Sivamohan, learned counsel appearing on behalf of respondents 1 to 3 submitted that in the reconstituted deed, 5/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022 the partners are required to pump more funds and hence, it cannot be stated that the same corpus was carried over; the 3rd plaintiff and the banker, who is the 1st defendant in the suit are not signatories to Ex.P1-partnership deed and hence, the arbitration clause will not bind them; since the subsequent reconstituted deed will supersede the original partnership deed, the arbitration clause also will get superseded; when a contract is substituted by another contract, the earlier contract will get nullified and that will not have any impact in order to enforce an Arbitration Clause against the parties to the suit; it should be proved that all the parties to the suit are parties to the original partnership deed as well; in the case on hand, the 3rd plaintiff and the 1st defendant are not parties to the original partnership deed; the implied consent cannot be inferred against a party, who is a non signatory and when there is no direct commonality; hence, it is right for the learned trial Judge to dismiss the said application filed under Section 8 of the Act.
6.1. In support of the above contentions, the learned counsel for respondents 1 to 3 cited the following decisions:
sl. Case particulars Reported in
No
1 Young Achievers Vs. IMS Learning Resources (2013) 10 SCC 535
private Limited
6/28
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sl. Case particulars Reported in
No
2 Yogi Agarwal Vs. Inspiration Clothes & U and (2009) 1 SCC 372
Others
3 Booz Allen and Hamilton Inc Vs. SBI Home (2011) 5 SCC 532
Finance Limited and others
4 Duro Felguera, S.A. Vs. Gangavaram Port (2017) 9 SCC 729
Limited
5 Cheran Properrties Limited Vs. Kasturi and (2018) 16 SCC 413
sons Limited and others
6 Samyak Projects Private Limited Vs.Ansal The decision of the
Housing & Construction Limited Delhi High Court
dated 13.2.2019
made in
FAO(OS)33/2019 &
CAV.NO.130/2019
and
CM.No.6506/2019
7. The learned counsel appearing for respondents 1 to 3 insisted on the basic point that in order to enable a defendant to invoke Section 8 of the Act, he should prove the following two fundamental conditions:
(i) it should be between the parties to the dispute; and
(ii)it should be related or applicable to the suit property [reliance was placed on the decision of the Hon'ble Supreme Court in the case of Yogi Agarwal (cited supra)].7/28
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8. In reply, the learned counsel appearing for the revision petitioner submitted that the terms of the partnership deed will bind all the partners and just because reconstitution of the firm is done, that will not render the terms of the earlier partnership deed extinguished; the reconstituted deed cannot be read in an isolated manner but, it should be read along with the original partnership deed; even though all the parties are not signatories to the original partnership deed, in certain exceptional circumstances, it will also bind the parties, who are not signatories.
9. The attention of this Court was drawn to a case where more or less a similar circumstance has arisen wherein the High Court of Bombay has held that the dispute shall be referred to arbitration. In the said case, the dispute was with regard to the execution of the second agreement. But, in the case on hand, there is no dispute as to the execution of both the agreements dated 19.03.1998 and 01.04.2008. The fact that the 2nd plaintiff is the father and the 3 rd plaintiff and the 2nd defendant are his sons is admitted. The partnership firm was constituted in the year 2008.
10. The learned counsel appearing for the revision petitioner persuaded by citing the decision in the case of Johnson Stephen 8/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022 (cited supra) in support of his contention that if the modifications done in the original contract do not go to the very root of the original contract and do not change its essential character, the reconstitution cannot be considered as novation or alteration of the contract. Admittedly, in the case on hand, a new partner was introduced, but the essential character of the partnership firm is the same.
11. In fact, at the very inception of the reconstituted deed, it has been stated that they agreed to carry on the 1st plaintiff's business. In the partnership deed dated 19.03.1998, it was agreed between the partners that they were constituting a firm by name M/S Precious Engineering. If the reconstituted deed alone is read and taken as a second agreement and that it substituted or replaced the original partnership deed by reading that alone it can not be known how the partnership firm came into existence because the firm was constituted by the original partnership deed dated 19.03.1998. Unless both the deeds are read together, the holistic idea of formation of the partnership firm will not be known. In other wards, the reconstituted deed alone has no independent legs to stand. So, in all probabilities, the second deed namely the reconstituted deed dated 01.04.2008 should be read along with Ex.P1 partnership deed dated 19.03.1998. 9/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022
12. The march of law on arbitration cannot be complete without the Full Bench judgement of the Hon'ble Supreme Court rendered in Chloro Controls (I) P.Ltd (cited supra) wherein it has been held that the expression 'person claiming through or under', as seen in Section 45 of the Act, would mean and take within its ambit multiple and multiparty agreements, in certain exceptional circumstances. In those situations even non signatory parties to some of the agreements can pray to be referred for arbitration. In the case of group companies or where various agreements constitute a composite transaction like a mother agreement and all other agreements being ancillary to and for effective and complete implementation of the mother agreement, the court may have to make a reference to arbitration even these disputes existing between signatory or even non signatory parties. It has been further held that the discretion of the court has to be exercised in exceptional, limiting, befitting cases of necessity and very cautiously. The ratio decidendi in the said judgement of the Hon'ble Supreme Court, is as under:
“When Court satisfies that agreement is enforceable and is not null and void, then it is obligatory upon Court to make reference to arbitration”
13. The Hon'ble Supreme Court has elaborated the interpretation 10/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022 of more than one agreement and held that even when the party is not a signatory to the one of the agreements, in which, the mother agreement speaks about the Arbitration Clause, but a party to the supplementary or ancillary agreement, without which, the mother contract cannot be effectively implemented, the arbitration clause can be invoked for the disputes involving non signatories as well. The language of the Hon'ble Supreme Court in the case of Chloro Controls (I) P.Ltd., (cited supra), is as hereunder:
“65. Normally, arbitration takes place between the persons who have, from the outset, been parties to both the arbitration agreement as well as the substantive contract underlining that agreement. But, it does occasionally happen that the claim is made against or by someone who is not originally named as a party. These may create some difficult situations, but certainly, they are not absolute obstructions to law/the arbitration agreement. Arbitration, thus, could be possible between a signatory to an arbitration agreement and a third party. Of course, heavy onus lies on that party to show that, in fact and in law, it is claiming ‘through’ or ‘under’ the signatory party as contemplated under Section 45 of the 1996 Act. Just to deal with such situations illustratively, reference can be made to the following examples in Law and Practice of Commercial Arbitration in England (Second Edn.) by Sir Michael J. Mustill:
“1. The claimant was in reality always a party to the contract, although not named in it.11/28
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2. The claimant has succeeded by operation of law to the rights of the named party.
3. The claimant has become a part to the contract in substitution for the named party by virtue of a statutory or consensual novation.
4. The original party has assigned to the claimant either the underlying contract, together with the agreement to arbitrate which it incorporates, or the benefit of a claim which has already come into existence.”
66. Though the scope of an arbitration agreement is limited to the parties who entered into it and those claiming under or through them, the Courts under the English Law have, in certain cases, also applied the “Group of Companies Doctrine”. This doctrine has developed in the international context, whereby an arbitration agreement entered into by a company, being one within a group of companies, can bind its non-
signatory affiliates or sister or parent concerns, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates. This theory has been applied in a number of arbitrations so as to justify a tribunal taking jurisdiction over a party who is not a signatory to the contract containing the arbitration agreement. [‘Russell on Arbitration’ (Twenty Third Edition)].
67. 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 12/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022 arbitration can be said to include the signatory as well as the non-signatory parties.
68. 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 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.”
14. In the said case dealt by the Hon'ble Supreme Court, two of the agreements among the group of companies, which fall under the ambit of the mother agreement, did not contain the Arbitration Clause. The interconnection between the above two agreements with the mother agreement is said to be the factor, which will bind the parties to these agreements, which did not have the Arbitration Clause. For a better understanding, paragraph Nos.153,155,156,157,158 and 163 to 169 in the said judgement of the Hon'ble Supreme Court are 13/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022 extracted as hereunder:
“153. As already noticed, two of the agreements did not contain any arbitration clause, but they also did not subject the parties even for litigative jurisdiction. They are the Managing Directors Agreement and the Trademark Registered User Agreement. These two agreements had been executed in furtherance to and for compliance of the terms and conditions of the mother agreement which contained the arbitration clause. They were, thus, intrinsically inter-connected with the mother agreement.
154....
155. The effect of execution of multiple agreements has been discussed by us in some elaboration above. The real intention of the parties was not only to refer all their disputes arising under the agreement which could not be settled despite friendly negotiations to arbitration, but even the disputes which arose in connection with the shareholder/mother agreement to arbitration.
156. Thus, a composite reference was well within the comprehension of the parties to various agreements which were executed on the same day and for the same purpose. There cannot be any doubt to the contention that in terms of Section 9 of the CPC, the courts in India shall have jurisdiction to try all suits of civil nature.
Further, this section gives a right to a person to institute a suit before the court of competent jurisdiction. However, the language of Section 9 itself makes it clear that the civil courts have jurisdiction to try all suits of civil nature except the suits of which taking cognizance is either expressly or impliedly barred. In other words, the jurisdiction of the court and the right to a party emerging from Section 9 of the CPC is not an absolute right, but contains inbuilt restrictions. It is an accepted 14/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022 principle that jurisdiction of the court can be excluded. In the case of Dhulabhai v. State of M.P. and Anr. [AIR 1969 SC 78], this Court has settled the principle that jurisdiction of the Civil Court is all embracing, except to the extent it is excluded by law or by clear intendment arising from such law. In Nahar Industrial Enterprises Ltd. v. Hong Kong & Shanghai Banking Corporation [(2009) 8 SCC 646], this Court has even stated the conditions for exclusion of jurisdiction. They are, (a) whether the legislative intent to exclude is expressed explicitly or by necessary implication, and (b) whether the statute in question provides for an adequate and satisfactory alternative remedy to a party aggrieved by an order made under it.
157. The provisions of Section 45 of the 1996 Act are to prevail over the provisions of the CPC and when the Court is satisfied that an agreement is enforceable, operative and is not null and void, it is obligatory upon the court to make a reference to arbitration and pass appropriate orders in relation to the legal proceedings before the court, in exercise of its inherent powers.
158. In the present case, the court can safely gather definite intention on behalf of the parties to have their disputes collectively resolved by the process of arbitration. Even if different forums are provided, recourse to one of them which is capable of resolving all their issues should be preferred over a refusal of reference to arbitration. There appears to be no uncertainty in the minds of the parties in that regard, rather the intention of the parties is fortified and clearly referable to the mother agreement.
159...
160...
161...
15/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022
162...
163. Another argument advanced with some vehemence on behalf of the appellant was that respondent Nos.3 and 4 were not party to any of the agreements entered into between the parties and their cause of action is totally different and distinct, and their rights were controlled by the agreement of distribution executed by respondent Nos.1 and 2 in their favour for distribution of products of gas and electro- chlorination. It was contended that there cannot be splitting of parties, splitting of cause of action and remedy by the Court.
164. On the other hand, it was contended on behalf of the respondent No.1 that it is permissible to split cause of action, parties and disputes. The mater referable to arbitration could be segregated from the civil action. The court could pass appropriate orders referring the disputes covered under the arbitration agreement between the signatory party to arbitration and proceed with the claim of respondent Nos. 3 and 4 in accordance with law.
165. As far as this question of law is concerned, we have already answered the same. On facts, there is no occasion for us to deliberate on this issue, because respondent Nos.3 and 4 had already consented for arbitration. In light of that fact, we do not wish to decide this question on the facts of the present case.
166. Having dealt with all the relevant issues in law, now we would provide answer to the questions framed by us in the beginning of the judgment as follows :
Answer
167. Section 45 is a provision falling under Chapter I of Part II of the 1996 Act which is a self-contained Code. The expression ‘person claiming through or under’ would mean and take within its ambit multiple and multi-party agreements, though in exceptional case. Even non- 16/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022 signatory parties to some of the agreements can pray and be referred to arbitration provided they satisfy the pre-requisites under Sections 44 and 45 read with Schedule I. Reference of non-signatory parties is neither unknown to arbitration jurisprudence nor is it impermissible.
168. In the facts of a given case, the Court is always vested with the power to delete the name of the parties who are neither necessary nor proper to the proceedings before the Court. In the cases of group companies or where various agreements constitute a composite transaction like mother agreement and all other agreements being ancillary to and for effective and complete implementation of the Mother Agreement, the court may have to make reference to arbitration even of the disputes existing between signatory or even non- signatory parties. However, the discretion of the Court has to be exercised in exceptional, limiting, befitting and cases of necessity and very cautiously.
169. Having answered these questions, we do not see any reason to interfere with the judgment of the Division Bench of the Bombay High Court under appeal. We direct all the disputes arise in the suit and from the agreement between the parties to be referred to arbitral tribunal and be decided in accordance with the Rules of ICC.”
15. In the case in hand, as discussed already, without the mother partnership deed dated 19.03.1998, the reconstituted deed dated 01.04.2008 cannot have an independent meaning. Or in other words, the reconstituted deed dated 01.04.2008 is a continuation of 17/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022 the partnership deed 19.03.1998. The very object of the reconstituted deed is only to induct a new partner and not to change the character of the business or for dissolving the firm. If the earlier partnership firm is dissolved but later it was reconstituted, then it can be understood that by dissolution of the earlier partnership firm, everything will get dissolved including the Arbitration Clause. When, there is no dissolution of partnership firm and there is no reconstitution subsequent to the dissolution, the sum and substance of the earlier partnership deed will not be lost.
16. The learned counsel for the civil revision petitioner made a reference to the judgement of the Hon'ble Supreme Court in the case of Sharad Vasant Kotak (cited supra) and stated that when the firm is reconstituted for inducting a new partner, it does not require a fresh registration. That will only show that the firm has the same identity after reconstitution, except for addition of a new partner.
17. It is further submitted by the learned counsel for the petitioner that not informing about the Registrar of Firms about the subsequent change in the constitution will attract only penalty and it will not lead to extinguishment of the firm itself. It is further submitted that even in the said application filed to refer the suit for Arbitration, 18/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022 the other party objected by stating that there was no Arbitration Clause in the reconstituted deed or validity of the Arbitration Clause. However, as per Clause 17 of the partnership deed dated 19.03.1998, such objections should be raised before the aribtral tribunal itself. The 1st plaintiff's partnership firm does not fall under the group companies, the business is being carried on in terms of the partnership deed dated 19.3.1998 and the reconstituted deed dated 1.4.2008. Since the reconstituted deed has been written only for inducting a new partner and not for any other specific reasons, the reconstituted deed cannot be considered to have superseded the original partnership deed dated 19.3.1998. The reconstituted deed is supplementary to the original partnership deed. Hence, the contention of the learned counsel for respondents 1 to 3 that by virtue of Ex.P2 dated 01.04.2008, Ex.P1 was superseded, cannot be accepted. Though it is a general principle that the parties to the suit should be parties to the Arbitration agreement also, in exceptional circumstances, depending on the nature of the case, the nature of the agreement and nature of the business the Arbitration Clause shall bind the non-signatories.
18. The learned counsel for respondents 1 to 3 cited the decision of the Hon'ble Supreme Court in the case of Duro Felguera (cited supra) and stated that in order to make Arbitration Clause as a part 19/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022 of other agreements, there should be a special reference or indication for such incorporation of the intention. In the above said case, the principle laid down in the Chloro Controls (cited supra) was distinguished to the facts of the said case. In the said judgement, it is held as under:
“36. In M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited (2009) 7 SCC 696, the Supreme Court held that even though the contract between the parties does not contain a provision for arbitration, an arbitration clause contained in an independent document will be incorporated into the contract between the parties, by reference, if the reference is such as to make the arbitration clause in such document, a part of the contract. In M. R. Engineers and Contractors Private Limited (supra), this Court held as under:-
13. .......Having regard to Section 7(5) of the Act, even though the contract between the par- ties does not contain a provision for arbitration, an arbitration clause contained in an indepen - dent document will be imported and engrafted in the contract between the parties, by refer- ence to such independent document in the contract, if the reference is such as to make the arbitration clause in such document, a part of the contract. .....
22. A general reference to another contract will not be sufficient to incorporate the arbitration clause from the referred contract into the contract under consideration. There should be a special reference indicating a mutual intention to incorporate the arbitration clause from another document into the contract. The exception to the requirement of special reference is where the referred document is not another contract, but a standard form of terms and conditions of trade associations or regulatory 20/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022 institutions which publish or circulate such standard terms and conditions for the benefit of the members or others who want to adopt the same. ......
24. The scope and intent of Section 7(5) of the Act may therefore be summarised thus:
(i) An arbitration clause in another document, would get incorporated into a contract by reference, if the following conditions are fulfilled:
(1) the contract should contain a clear reference to the documents containing arbitration clause, (2) the reference to the other document should clearly indicate an intention to incorporate the arbitration clause into the contract, (3) the arbitration clause should be appropriate, that is capable of application in respect of disputes under the contract and should not be repugnant to any term of the contract.
(ii) When the parties enter into a contract, making a general reference to another contract, such general reference would not have the effect of incorporating the arbitration clause from the referred document into the contract between the parties. The arbitration clause from another contract can be incorporated into the contract (where such reference is made), only by a specific reference to arbitration clause.
(iii) Where a contract between the parties provides that the execution or performance of that contract shall be in terms of another contract (which contains the terms and conditions relating to performance and a provision for settlement of disputes by arbitration), then, the terms of the referred contract in regard to execution/performance alone will apply, and not the arbitration agreement in the referred contract, unless there is special reference to the arbitration clause also.
(iv) Where the contract provides that the standard form of terms and conditions of an independent trade or professional institution (as for example the standard terms and conditions of a trade association or architects association) will bind them or apply to the contract, such standard form of terms and 21/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022 conditions including any provision for arbitration in such standard terms and conditions, shall be deemed to be incorporated by reference. Sometimes the contract may also say that the parties are familiar with those terms and conditions or that the parties have read and understood the said terms and conditions.
(v) Where the contract between the parties stipulates that the conditions of contract of one of the parties to the contract shall form a part of their contract (as for example the general conditions of contract of the Government where the Government is a party), the arbitration clause forming part of such general conditions of contract will apply to the contract between the parties."
...
...
42.The learned Senior Counsel for GPL relied upon Chloro Controls India Private Ltd. (supra), to contend that where various agreements constitute a composite transaction, court can refer disputes to arbitration if all ancillary agreements are relatable to principal agreement and performance of one agreement is so intrinsically interlinked with other agreements. Even though Chloro Controls has considered the doctrine of "composite reference", "composite performance" etc., ratio of Chloro Controls may not be applicable to the case in hand. In Chloro Controls, the arbitration clause in the principal agreement i.e. clause (30) required that any dispute or difference arising under or in connection with the principal (mother) agreement, which could not be settled by friendly negotiation and agreement between the parties, would be finally settled by arbitration conducted in accordance with Rules of ICC. The words thereon "under and in connection with" in the principal agreement was very wide to make it more comprehensive. In that background, the performance of all other agreements by respective parties including third parties/non-signatories had to fall in line with the principal 22/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022 agreement. In such factual background, it was held that all agreements pertaining to the entire disputes are to be settled by a "composite reference". The case in hand stands entirely on different footing. As discussed earlier, all five different Packages as well as the Corporate Guarantee have separate arbitration clauses and they do not depend on the terms and conditions of the Original Package No.4 TD nor on the MoU, which is intended to have clarity in execution of the work. “
19. It is to be noted that the above decision that has been taken in the above case pursuant to Chloral Control India(P) Ltd, (cited supra), which involved several agreements in connection with the group companies where lifting of corporate veil also needs to be done at times. In the case on hand, the task is very simple because it is a single partnership firm, in which, originally there were two partners and later, another son was added for doing the very same business by using the same corpus along with addition of some more funds. The pumping of new funds for the business will be for the purpose of enhancing the business or to fulfil the commitments of the business. That does not mean that the corpus, with which the firm was being run, has run out and the firm has become an insolvent or the firm got dissolved. So, the manner in which, the 3 rd plaintiff was inducted into the partnership would show that there was no compelling necessity to dissolve the partnership firm, but the partners have agreed to carry on the partnership business in the same name and style. Since the 23/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022 original sketch of the partnership firm was not changed except for the purpose of adding a new partner, the reconstituted deed can only act as supplementary to the earlier mother deed Ex.P1.
20. Clause 17 of the mother deed dated 19.03.1998 reads as hereunder:
“17) All the differences and disputes relating to the Partnership Business or its dissolution arising out of this Deed shall be resolved by Arbitration under Arbitration Act 1940 amended upto date or any other Act or Law prevailing in its place at that time and the decision of the Arbitrator shall be final and binding on all the Partners of the firm.”
21. The above extracted Clause relates to the differences and disputes in connection with the business of the firm and its binding nature on the partners. Even though the newly added party is not a party to the earlier mother agreement, his inclusion would mean that he is subjected to the terms of the earlier mother deed along with the reconstituted deed. In the case on hand, the dispute is with regard to the operation of the bank accounts of the partnership firm. Obviously, it is a dispute with regard to the funds of the business. Since it has a 24/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022 financial implication on the business, that can be considered as a dispute arising out of the business of the firm only. However, the dispute not with any 3rd party but among the partners themselves. Since the partners are subjected to the terms of both the mother deed and the reconstituted deed, the Arbitration Clause will bind the newly included partner also.
22.Even though the 1st defendant-the Bank is not a party to the original partnership deed, he is not going to be a contesting party. The bank was impleaded just because the funds of the partnership firm was being operated with the bank. Since the 1 st defendant is going to be a formal party and he will be bound by the verdict of the Court, there need not be any fuss that the bank is not a party to the Arbitration Clause. Or in other words, once the dispute between the partners gets resolved, that will settle the manner in which the accounts of the 1st respondent firm should be operated. Hence, I feel that the revision petitioner is entitled to invoke Clause 17 of the mother deed and that will bind the non signatory namely the 3 rd respondent/ 3rd plaintiff also, in view of the special circumstances involved in this case. For the above stated reasons, the impugned order of the District Munsif Court at Ambattur calls for interference and should be reversed.
25/28 https://www.mhc.tn.gov.in/judis C.R.P (PD).No.2315 of 2022 In the result, the civil revision petition is allowed and the fair and decretal order dated 28.06.2022 passed in I.A.No.2 of 2022 in OS.No.130 of 2022 by the learned District Munsif, Ambattur is set aside. No costs. Consequently connected miscellaneous petition is also closed.
Index: Yes 02.09.2022
Speaking
Internet: Yes
RS/jrs
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C.R.P (PD).No.2315 of 2022
To
The District Munsif Court at Ambattur.
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https://www.mhc.tn.gov.in/judis
C.R.P (PD).No.2315 of 2022
R.N.MANJULA,J
RS/jrs
C.R.P (PD).No.2315 of 2022
and
CMP.No.11861 of 2022
02.09.2022
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https://www.mhc.tn.gov.in/judis