CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT WATER PURIFICATION INC. AND ORS.
Tools
- Court
- Supreme Court of India
- Decided
- (year only)
- Bench
- S.H. KAPADIA, A.K. PATNAIK and SWATANTER KUMAR
- Citation
- [2012] 13 S.C.R. 402
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Headnote — Supreme Court Reports (editorial summary, not part of the judgment)
Catchwords
Arbitration and Conciliation Act, 1996: s. 45 - Reference! to arbitration under - Scope of - International commercial arbitration - Multi-party agreements - Joint venture agreements with different parties - Some of the agreements contained arbitration clause while the others did not - Dispute betw1~en parties leading to filing of suit - D High Court referred the entire suit (including the non-signatory parties to the arbitration agreement) for arbitration uls. 45 - Joinder of non-signatory parties to arbitration - Permissibility -
Held
Joinder of non-signatory parties to arbitration is permissible - They can be referred to arbitration, provided El they satisfy the pre-requisites ulss. 44 and 45 rlw Schedule I of the Act - The cases of group companies or where various agreements constitute a composite transaction with intrinsically interlinked cause of action, can be referred to arbitration, even if the disputes exist 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 - Expression 'any person claiming through or under him' used in s. 45, takes within its ambit persons who are in legal relationships via GI multiple and multi-party agreements, though they may not all be signatories to the arbitration clause - In the present case, the corporate structure of the companies demonstrates a definite legal relationship between the parties to the /is or persons claiming under them - Their contractual relationship H 402
A by reference'; Principle of 'composite performance'; Principle of 'agreements within an agreement' and Principle of 'Kompetenz kompetenz' - Discussed. Precedent - Observations - Precedential value -
Held
The obseNations to be construed and read to support the ratio decidendi - They would not constitute valid precedent as it would be hit by the doctrine of stare decisis - Doctrine - Constitution of India, 1950 - Art. 141. Words and Phrases: C Expression 'connection' - Meaning of. The questions which inter alia arose for consideration in the pr1esent appeals were: (1) What is the ambit and scope of Section 45 of the Arbitration and D Conciliation Act, 1996; (2) Whether in a case where multiple agreements were signed between different parties some containing an arbitration clause and others not and where the parties were not identically common in proceedings before the Court (in a suit) and the arbitration agreement, a reference of disputes as a whole or in part could be made to the arbitral tribunal, more particularly, where the parties to an action were claiming under or through a party to the arbitration agreement; and (3) Whether the principles enunciated in the case of *Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya was the correct exposition of law. Dismissing the appeals, the Court HELD: 1.1 Section 45 is a provision falling under Chapter I of Part II of the Arbitration and Conciliation Act, G 1996 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-signatory parties to some of the agreements can pray and be referred to arbitration provided they satisfy the pre-requisites under
Reporter's headnote (continued) and case details
p. 402
A (Civil Appeal No. 7134 of 2012)
SEPTEMBER 28, 2012 B
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 403 WATER PURIFICATION INC.
spells out the terms, obligations and roles of the respective parties which they were expected to perform for attaining the object of successful completion of the joint venture agreement - All the other agreements were intrinsically inter-connected with the mother agreement - All the agreements were part of a composite transaction to facilitate implementation of principal agreement - Hence, all the parties to the /is were covered under expression "any person claiming through or under" the principal (mother) agreement - Arbitration clause in the principal agreement was comprehensive enough to include all disputes arising ·under and in connection with" c principal agreement - Conduct of parties and even subsequent events show that the parties had executed, intended and actually implemented composite transaction contained in principal/mother agreement - Hence, direction to refer the disputes to arbitration -Convention on Recognition 0 and Enforcement of Foreign Arbitral Awards (New York Convention) - Article II (3) - ICC Rules - UNCITRAL Model Rules. s. 45 - Issues under - Determination of - Issue of jurisdiction should be decided at the beginning of the proceedings itself and they should have finality - Determination of fundamental issues as contemplated u/s. 45 at the very first instance is not only appropriate but is also the legislative intent - Jurisdiction. Code of Civil Procedure, 1908 - s. 9 - Jurisdiction of civil courts - Jurisdiction of the court and the right to a party emerging from s. 9 is not an absolute right, but contains inbuilt restrictions - Civil courts have jurisdiction to try all suits except those which is either expressly or impliedly baffed - The provisions of s. 45 of the 1996 Act would prevail over the provisions of CPC - Arbitration and Conciliation Act, 1996 - s. 45. Doctrines/Principles: 'Group of Companies' Doctrine; Principle of 'incorporation H
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CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 405 WATER PURIFICATION INC. Sections 44 and 45 r/w Schedule I. Reference of non- A signatory parties is neither unknown to arbitration jurisprudence nor is it impermissible. [Para 167] (515-A-C] 1.2 An arbitration agreement, under Section 45 of the 1996 Act, should be evidenced in writing and in terms of Article II of Schedule 1, an agreement in writing shall 8 include an arbitral clause in a contract or an arbitration agreement signed by the parties or contained in an exchange of letters or telegrams. Thus, the requirement that an arbitration agreement be in writing is an expression incapable of strict construction and requires to be construed liberally, as the words of this Article provide. Even in a given circumstance, it may be possible and permissible to construe the arbitration agreement with the aid and principle of 'incorporation by reference'. Though the New York Convention is silent on this matter, in common practice, the main contractual document may refer to standard terms and conditions or other standard forms and documents which may contain an arbitration clause and, therefore, these terms would become part of the contract between the parties by reference. The E solution to such issue should be case-specific. The relevant considerations to determine incorporation would be the status of parties, usages within the specific industry, etc. Cases where the main documents explicitly refer to arbitration clause included in standard terms and F conditions would be more easily found in compliance with the formal requir~ments set out in the Article II of the New York Convention than those cases in which the main contract simply refers to the application of standard forms without any express reference to the arbitration clause. G [Para 72] (462-A-F] M. V. "Baltic Confidence" and Anr. v. State Trading Corporation of/ndia Ltd. and Anr. (2001) 7 SCC 473: 2001 (1) Suppl. SCR 699; Olympus Superstructure Pvt. Ltd. v. H
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A Meena VijayKhetan and Ors. (1999) 5 SCC 651: 1999 (3) SCR 490 - relied on. ~ 1.3 Under the Indian Law, greater obligation is cast upon the Courts to determine whether the agreement is valid, operative and capable of being performed at the threshold itself. Such challenge has to be a serious challenge to the substantive contract or to the agreement, as in the absence of such challenge, it has to be found that the agreement was valid, operative and capable of being performed; the dispute would be referred to arbitration. [Para 78] [468-D-E] State of Orissa v. Klockner and Company and Ors. AIR 1996 SC2140: 1996 (1) Suppl. SCR 368 - relied on. Abu Dhabi Gas Liquefaction Co. Ltd. v. Eastern Bechtel D Co1p.(1982) 2 Lloyd's Rep. 425, CA - referred to. Law and Practice of International Commercial Arbitration by AlanRedfern and Martin Hunder (Fourth Edition) 1.4 The legislative intent and essence of the 1996 Act E was to bring domestic as well as international commercial arbitration in consonance with the UNCITRAL Model Rules, the New York Convention and the Geneva Convention. The New York Convention was physically before the Legislature and available for its consideration when it enacted the 1996 Act. Article II of the Convention provide·s that each contracting State shall recognize an agreement and submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not concerning a subject matter capable of settlement by arbitration. Once the agreement is there and the Court is seized of an action in relation to such subject matter, then on the request of one of the parties, it would refer the parties to arbitration unless the agreement is null and void, inoperative or incapable of
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 407 WATER PURIFICATION INC.
performance. Still, the legislature opted to word Section A 45 somewhat dissimilarly. Section 8 of the 1996 Act also uses the expression 'parties' simpliciter without any extension. In significant contra-distinction, Section 45 uses the expression 'one of the parties or any person claiming through or under him' and 'refer the parties to B arbitration', whereas the rest of the language of Section 45 is similar to that of Article 11(3) of the New York Contention. The Court cannot ignore this aspect and has to give due weightage to the legislative intent. It is a settled rule of interpretation that every word used by the c Legislature in a provision should be given its due meaning. The Legislature intended to give a liberal meaning to this expression. [Paras 88 and 89] [472-G-H; 473-A-E] 1.5 The language and expressions used in Section 45, D 'any person claiming through or under him' including in legal proceedings may seek reference of all parties to arbitration. Once the words used by the Legislature are of wider connotation or the very language of Section is structured with liberal protection then such provision should normally be construed liberally. [Para 90] [473-F-G] 1.6 In view of the legislative object and the intent of the framers of the statute, i.e., the necessity to encourage arbitration, the Court is required to exercise its jurisdiction in a pending action, to hold the parties to the arbitration clause and not to permit them to avoid their bargain of arbitration by bringing civil action involving multifarious cause of action, parties and prayers. [Para 91] [473-H; 474-A-B] G 1.7 The scope of concept of 'legal relationship' as incorporated in Article 11(1) of the New York Convention vis-il-vis the expression 'any person claiming through or under him' appearing in Section 45 of the 1996 Act has to be examined by reading Article 11(1) and (3) in H
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A conjunction with Se1:tion 45 of the Act. Both these expressions have to be read in harmony with each other. Once they are so mad, it will be evident that the expression "legal relationship" connotes the relationship of the party with the person claiming through or under B him. A person may not be signatory to an arbitration agreement, but his cause of action may be directly relatable to that contract and thus, he may be claiming through or under one of those parties. For the purp.oses of both the New York Convention and the UNg.vrf'{AL C Model Law, it is sufficient that there should be a• defined "legal relationship" between the parties, whether contractual or not. Given the existence of such an agreement, the dispute submitted to arbitration may be governed by the principles of delictual or tortuous liability rather than by the law of contract. [Para 92] [474-C-G] 0 Roussel - Uclaf v. G.D. Searle and Co. Ltd. and G.D. Searle andCo. 1978 Vol. 1 LLR 225; City of London v. Sancheti (2009) 1 Lloydslaw Reports 116 - referred to. Law and Practice of Commercial Arbitration in England E (SecondEdn.) by Sir Michael J. Mustill - referred to. 1.8 Heavy onus lies on the non-signatory party to show that in fact and in law, it is claiming under or through a signatory party, as contemplated under F Section 45 of the 1996 Act. It occasionally happens that the plaintiff is not himself a party to the arbitration agreement on which the application is fo\lnded. This may arise in the following situations: (i) The plaintiff has acquired the rights, which the action is brought to G enforce, from someone who is a party to an arbitration agreement with the defendant; (ii) The plaintiff is bringing the action on behalf of someone else, who is a party to an arbitration agreeme,nt with the defendant. (iii) When the expression used in tlhe provision, the words 'claiming ffi under plaintiff' relate to substantive right which is being
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 409 WATER PURIFICATION INC. asserted. [Paras 96 and 97] [476-C, E-G] A The Law and Practice of Commercial Arbitration in England byMichael J. Mustilll and Stewart C.Boyd - referred to. 1.9 Joinder of non-signatory parties to arbitration is B not unknown to the arbitration jurisprudence. Even the ICCA's Guide to the Interpretation of the 1958 New York Convention provides for such situation. Various legal basis may be applied to bind a non-signatory to an arbitration agreement. The first theory is that of implied c 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. The second 0 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. [Paras 99 and E 100] (477-B, D-E] The City of Prince George v. A.L. Sims and Sons Ltd. YCA XX.Ill (1988) 223 - referred to. 1.10 The question of formal validity of the arbitration agreement is independent of the nature of parties to the agreement, which is a matter that belongs to the merits and is not subject to substantive assessment. Once it is determined that a valid arbitration agreement exists, it is a different step to establish which parties are bound by it. Third parties, who are not explicitly mentioned in an arbitration agreement made in writing, may enter into its : ratione personae scope. [Para 103] [478-B-C] 1.11 Normally, the parties to the arbitration agreement calling for arbitral reference should be the same as those H
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A to the action. But this general concept is subject to exceptions which are that when a third party, i.e. non- signatory party, is claiming or is sued as being directly affected through a party to the arbitration agreement and there are principal and subsidiary agreements, and such B third party is signato11r to a subsidiary agreement and not to the mother or princ:ipal agreement which contains the arbitration clause, tben depending upon the facts and circumstances of the given case, it may be possible to say that even such third party can be referred to c arbitration. [Para 104] [478-E-G] 1.12 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 D 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. [Para 68) {460-C-D] E Anderson Wnght Ltd. v. Moran and Company 1955 SCR 862 - relied on. Sumitomo Corporation v. CDS Financial Services (Mauritius) Ltd.and Ors, (2008) 4 SCC 91: 2008 (3) SCR 309 - referred to. F Turnock v. Sartoris 1888 (43) Chancery Division 1955 SCR 862; Taunton-Col/ins v. Cromie and Anr. 1964 Vol.1 Weekly Law Reports 633 - Cited. 2.1 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.
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 411 WATER PURIFICATION INC.
However, the discretion of the Court has to be exercised in exceptional, limiting, befitting and cases of necessity and very cautiously. [Para 168] [515-D-E] Bhatia /ntemational v. Bulk Trading S.A. and Anr. (2002) 4 SCC 105: 2002 (2) SCR 411 - distinguished. B 2.2 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. [Para 168] [515-C-D] 2.3 Where origin and end of all the agreements is with C the Mother or the Prioclpal Agreement, the fact that a party was non-signatory to one or other agreement may not be of much significance. The performance of any one of such agreements may be quite irrelevant without the performance and fulfillment of the Principal or the Mother D Agreement. Besides designing the corporate management to successfully complete the joint ventures, where tt;ie parties execute different agreements but all with one primary object in mind, the Court would normally hold the parties to the bargain of arbitration and not encourage its avoidance. In cases involving execution of such m'-lltiple agreements, two essential features exist; firstly, aH ancillary agreements are relatable to the mother agreement and secondly, performance of one is so intrinsically inter-linked with the other agreements that they are incapable of being beneficially performed without performance of the others or severed from the rest. The intention of the parties to refer all the disputes between all the parties to the arbitral tribunal is one of the determinative factor. [Paras 69] [460-F-H; 461-A-B] G Ruhrgos AG v. Marathon Oil Co. 526 US 574 (1999) - referred to. 2.4 In the case of composite transactions and multiple agreements, it may again be possible to invoke such H
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A principle in accepting the pleas of non-signatory parties for reference to arbitration. Where the agreements are consequential and in the nature of a follow-up to the principal or mother agreement, the latter containing the arbitration agreement and such agreements being so B intrinsically inter-mingled or inter-dependent that it is their composite performance which shall discharge the parties of their respective mutual obligations and performances, this would be a sufficient indicator of intent of the parties to refer signatory as well as non-signatory parties to c arbitration. The principle of 'composite performance' would have to be gathered from the conjoint reading of the principal and supplementary agreements on the one hand and the explicit intention of the parties and the attendant circumstances on the other. [Para 71] [461-E-G] D 2.5 Where the Court which, on its judicial side, is seized of an action in a matter in respect of which the parties have made an arbitration agreement, once the required ingredients are satisfied, it would refer the parties to arbitration but for the situation where it comes to the conclusion that the agreement is null and void, inoperative or incapable of being performed. These expressions have to be construed somewhat strictly so as to ensure that the Court returns a finding with certainty and on the correct premise of law and fact as it has the effect of depriving the party of its right of reference to arbitration. These are the issues which go to the root of the matter and their determination at the threshold would prevent multiplicity of litigation and would even prevent futile exercise of proceedings before the arbitral tribunal. [Para 76) [467-B-E] General Electric Co. v. Renusagar Power Co. (1987) 4 SCC 137: 1987 (3) SCR 858 - relied on. 2.6 In the present case, the corporate structure of the respondent companies as well as that of the appellant
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 413 WATER PURIFICATION INC.
companies clearly demonstrates a legal relationship which not only is inter-legal relationship but also intra- legal relationship between the parties to the /is or persons claiming under them. They have contractual relationship which arises out of the various contracts that spell out the terms, obligations and roles of the respective parties which they were expected to perform for attaining the object of successful completion of the joint venture agreement. This joint venture project was not dependant on any single agreement but was capable of being achieved only upon fulfillment of all these agreements. c [Para 105] [478-G-H; 479-A-B] 2.7 In the present case, the companies which executed the various agreements were the companies signatory to the Principal Agreement or their holding companies or the companies belonging to the D respondent group in which they had got merged for the purposes of attaining effective designing, manufacturing, import, export and marketing of the agreed chlorinated products. All the subsequent agreements were, therefore, ancillary or incidental agreements to the Principal E Agreement. Thus, the joint venture entered between the parties had different facets. Its foundation was provided under the Principal Agreement but all the agreed terms could only be fulfilled by performance of the ancillary agreements. If one segregates the Principal Agreement F from the rest, the subsequent agreements would be rendered ineffective. It was one composite transaction for attaining the purpose of business of the joint venture company. All these agreements are so intrinsically connected to each other that it is neither possible nor G probable to imagine the execution and implementation of one without the collective performance of all the other agreements. The intention of the parties was clear that all these agreements were being executed ss integral parts of a composite transaction. It can safely be covered H
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A under the principle of 'agreements within an agreement'. [Paras 138 and 139) [502-F-H; 503-A, C-E] 2.8 All the six material agreements had been signed by some parties Oii' their holding companies or the companies into which the signatory company had 8 merged. None of these companies is either stranger to the transaction or not an appropriate party. The parties who have signed the agreements could alone give rights or benefits to the joint venture company and they, in turn, were the compani1es descendants in interest or the subsidiaries of the principal company though all the parties to the /is are not signatory to all the agreements in question, but still they would be covered under the expression 'claiming through or under' the parties to the agreement. The interests of these companies are not adverse to the interest of the principal company and/or the joint venture company. On the contrary, they derive their basic interest and enforceability from the Mother Agreement and performance of all the other agreements by respective parties had to fall in line with the contents of the Principal Agreement. Thus, these companies claim their interest and invoke the terms of the agreement or defend the action in the capacity of a 'party claiming through or under' the parties to the agreement. [Paras 142 and 143) [505··G-H; 506-A-D] F 2.9 The arbitration clause contained in the Principal Agreement requires that any dispute or difference arising under or in connection with that agreement which could not be settled by friendly negotiation and agreement between the parties, would be finally settled by arbitration G conducted in accordance with the Rules of ICC. This clause is comprehensive enough to include the disputes arising 'under and in connection with' the agreement. The word 'connection' has been added by the parties to expand the scope of the disputes under the agreements. H The agreement has to be construed and interpreted in
CHLORO CONTROLS (I) P LTD. v. SEVERN TRENT 415 WATER PURIFICATION INC. accordance with laws of the Union of India, as consented by the parties. [Para 144] [506-F-H; 507-A] 2.10 The expression 'connection' means a link or relationship between people or things or the people with whom one has contact. The dictionary meaning of this expression is liberally worded. It implies expansion in its operation and effect both. Connection can be direct or remote but it should not be fanciful or marginal. In other words, there should be relevant connection between the dispute and the agreement by specific words or by necessary implication like reference to all other agreements in one (principal) agreement. [Paras 145 and 146] [507-B, C-0] Concise Oxford Dictionary (Indian Edition); Law Lexicon 2nd Edn. 1997 - referred to. D 2.11 The expression appearing in the arbitration clause has to be given a meaningful interpretation particularly when the Principal Agreement itself, by specific words or by necessary implication, refers to all other agreements. This would imply that the other agreements originate from the Principal Agreement and hence, its terms and conditions would be applicable to those agreements. [Para 146] [507-D-E] 2.12 All the agreements were executed simultaneously on the same date, which fact fully supports the view that the parties intended to have all these agreements as a composite transaction. Furthermore, when the parties signed the Supplementary Collaboration Agreement by that time all these agreements had not only been signed and understood by the parties but, in fact, had also been acted upon. [Para 147] [508-C-D] 2.13 The conduct of the parties and even the subsequent events leave no doubt that the parties had H
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A executed, intended and actually implemented the composite transaction contained in the Principal Agreement. The Courts have also applied the Group of Companies Doctrine in such cases. In group company cases, that the fact that a party being non-signatory to B one or other agreement may not be of much significance, the performance of one may be quite irrelevant with the performance and fulfillment of the principal or the mother agreement. That, in fact, is the situation in the present case. [Paras 149 and 150) [508-G-H; 509-A, C-D] C Olympus Superstructure Pvt. Ltd. v. Meena Vijay Khetan and Ors. (1999) 5 sec 651: 1999 (3) SCR 490 - relied on. 2.14 Two of the agreements did not contain any arbitration clause, but they also did not subject the parties even for litigative jurisdiction. These two agreements had 0 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. E [Para 153) [510-E-F] 2.15 Where different agreements between the parties provide for alternative remedies, it does not necessarily mean that the other remedy or jurisdiction stands ousted. Where the parties to such composite transaction provide for different alternative forums, including arbitration, it has to be taken that real intention of the parties was to give effect to the purpose of agreement and refer the entire subject matter to arbitration and not to frustrate the remedy in law. It was for the parties to choose either to institute a suit qua the International Distributor Agreement or to invoke the arbitration agreement in terms of clause 30 of the mother agreement. They have chosen the latter remedy. 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
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 417 WATER PURIFICATION INC, purpose. [Paras 154 and 156] [510-G-H; 511-A-B-E] A 2.16 All the disputes that arise in the suit and from the agreement between the parties, are directed to be referred to arbitral tribunal and be decided in accordance with the Rules of ICC. [Para 169] [515-F] B 3.1 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. Determination of fundamental c issues as contemplated under Section 45 of the 1996 Act at the very first 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, 0 inoperative and incapable of being performed, it shall refer the parties to arbitration. [Para 131] [497-F-G; 498- B-C] 3.2 An application for appointment of arbitral tribunal u/s. 45 would also be governed by the provisions of E Section 11 (6) of the 1996 Act. Before making a reference, the Court has to dispose of the objections as contemplated under Section 8 or Section 45, as the case may be, and wherever needed upon filing of affidavits. Thus, to an extent, the law laid down by this Court on F Section 11 shall be attracted to an international arbitration which takes place in India as well as domestic arbitration. This would be applicable at pre-award stage. Thus, there exists a direct legal link, limited to that extent. [Paras 114 and 128] [483-C; 495-D-E] G SBP and Co. v. Patel Engineering Ltd. and Anr. (2005) 8 SCC 618:2005 (4) Suppl. SCR 688 - followed. Shree Ram Mills Ltd. v. Utility Premises (P) Ltd, (2007) 4 SCC 599; National Insurance Co. Ltd. v. Boghara Polyfab H
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Footnotes
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arbitration agreement. [Para 129] (495-F-H] A Fouchard Gaillard Goldman on International Commercial Arbitration-referred to.
3.5 Another very significant aspect of adjudicating the matters initiated with reference to Section 45 of the 1996 B Act, at the threshold of judicial proceedings, is that the finality of the decision in regard to the fundamental issues stated under Section 45 would further the cause of justice and interest of the parties as well. [Para 131] [497- B-C] C 4.1 Though in terms of Section 9 CPC, the courts shall have jurisdiction to try all suits of civil nature and this Section also gives a right to a person to institute a suit before the court of competent jurisdiction, but the language of Section 9 itself makes it clear that the civil 0 courts have jurisdiction to try all suits of civil nature except the suits of which taking cognizance is either expressly or impliedly barred. The jurisdiction of the court and the right to a party emerging from Settion 9 CPC is not an absolute right, but contains inbuilt E restrictions. [Para 156] [511-F-G] Dhulabhai v. State of M.P. and Anr. AIR 1969 SC 78: 1968 SCR 662; Nahar Industrial Enterprises Ltd. v. Hong Kong and Shanghai Banking Corporation (2009) 8 SCC 646: F 2009 (12) SCR 54 - relied on. 4.2 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 G the court to make a reference to arbitrdtion and pass appropriate orders in relation to the legal proceedings before the court, in exercise of its inherent powers. [Para 157] (512-C-D] H
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A 4.3 The arbitration Clause would stand incorporated into the International Distributor Agreement. The terms and conditions of the International Distribution Agreement were an integral part of the Principal Agreement as Appendix II and the Principal Agreement B had an arbitration clause which was wide enough to cover disputes in all the ancillary agreements. It is not necessary to examine the choice of forum or legal enforceability of legal system in the present case, as there is no repugnancy even where the main contract is c governed by law of some other country and the arbitration clause by Indian law. They both could be invoked, neither party having invoked the former will be no bar for invocation of the latter in view of arbitration clause 30 of the mother agreement. [Paras 159 and 160) D [512-G; 513-8-D] M.R. Engineers and Contractors Pvt. Ltd. v. Som Datt Builders Ltd. (2009) 7 SCC 696: 2009 (10) SCR 373 - relied on. Deutsche Post Bank Home Finance Ltd. v. Taduri E Sridhar AIR 2011 SC 1899: 2011 (5) SCR 674 distinguished.
Footnotes
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 421 WATER PURIFICATION INC.
*Sukanya would.not apply to the present case. On facts, the judgment in *Sukanya's case, has no application to the case in hand. [Para 133] [498-F-G; 499-A-B] *Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya (2003) 5 SCC 531: 2003 (3) SCR 558 - held inapplicable. B
6. The observations made by the Court have to be construed and read to support the ratio decidendi of the judgment. Observations in a judgment which are stared upon by the judgment of a larger bench would not constitute valid precedent as it will be hit by the doctrine c of stare decisis. [Para 122] [489-E-F] Case Law Reference: 2002 (2) SCR 411 Distinguished Para 51 526 us 574 (1999) Referred to Para 70 D
2001 (1) Suppl. SCR 699 Relied on Para 73 1999 (3) SCR 490 Relied on Para 74, 149 E 1987 (3) SCR 858 Relied on Para 76 1996 (1) Suppl. SCR 368 Relied on Para 78 (1982) 2 Lloyd's Rep. Referred to Para 80 425, CA F 1978 Vol. 1 LLR 225 Referred to Para 93 (2009) 1 Lloyds Law Referred to Para 94 Reports116 YCA XXlll (1988) 223 Referred to Para 101 G 1955 SCR 862 Cited Para 108 1964 Vol.1 Weekly Law Cited Para 108 Reports 633 1955 SCR 862 referred to Para 110 H
p. 422
A Relied on • Para 131 2008 (3) SCR 309 referred to Para 112 (2007) 4 sec 599 relied on Para 115 2005 (2) Suppl. SCR 699 Referred to Para 122 B 2005 (4) Suppl. SCR 688 Followed Para 130 2008 (13) SCR 638 Relied on Para 130 2003 (3) SCR 558 held inapplicable Para c 132 1968 SCR 662 Relied on Para 156 2009 (12) SCR 54 Relied 011 Para 156 2009 (10) SCR 373 Relied on Para 159 D 2011 (5) SCR 674 Distinguished Para 161 CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7134 of 2012. From the Judgment and Order dated 04.03.2010 of the E High Court of Judicature at Bombay in Appeal No. 372 of 2004 in Notice of Motion No. 778 of of 2004 in Suit No. 233 of 2004. WITH Civil Appeal Nos. 7135-7136 of 2012. F F.S. Nariman, Rohaan Cama, Subhash Sharma, Ravela D'Souza, Ruby Singh Ahuja, Ruchira Gupta, Deepti Sarin, Shruti Katakey (For Karanjawala & Co.) for the Appellant. H.N. Salve, K.V. Vishwanathan, Ajay Bhargava, Vanita G Bhargava, Susmit Pushkar, Anchit Oswal, Ankur Khandelwal, Gayatri Goswami,Chetna Rai, Kripa Pandit, Anadi Chopra, Gayatri Goswami (For Khaitan & Co.), Vikas Mehta, Aditi Bhat, Nar Hari Singh, Christopher D'Souza, Venkatakrishna Kunduru, Santosh Paul, Aarti Singh for the Respondents. H
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 423 WATER PURIFICATION INC.
The Judgment and order of the Court was delivered by A
Judgment
SWATANTER KUMAR, J. 1. Leave granted.
22. The expanding need for international arbitration and divergent schools of thought, have provided new dimensions to the arbitration jurisprudence in the international field. The B present case is an ideal example of invocation of arbitral reference in multiple, multi-party agreements with intrinsi9ally interlinked causes of action, more so, where performance of ancillary agreements is substantially dependent upon effective execution of the principal agreement. The qistinguished learned c counsel appearing for the parties have raised critical questions of law relatable to the facts of the present case which in the opinion of the Court are as follows : (1) What is the ambit and scope of Section 45 of the Arbitration and Conciliation Act, 1996 (for short 'the D 1996 Act')? (2) Whether the principles enunciated in the case of Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya [(2003) 5 sec 531], is the correct exposition of law? (3) Whether in a case where multiple agreements are signed between different parties and where some contain an arbitration clause and others don't and further the parties are not identically common in proceedings before the Court (in a suit) and the arbitration agreement, a reference of disputes as a whole or in part can be made to the arbitral tribunal, more particularly, where the parties to an action are claiming under or through a party to the arbitration agreement? (4) Whether bifurcation or splitting of parties or causes of action would be permissible, in absence of any specific provision for the same, in the 1996 Act? H
p. 424
33. Chloro Controls (India) Private Ltd., the appellant herein, filed a suit on the original side of the High Court of Bombay being Suit No.233 of 2004, for declaration that the joint venture agreements and supplementary collaboration agreement entered into between some of the parties are valid, subsisting B and binding. It also sought a direction that the scope of business of the joint venture company, Respondent No. 5, set up under the said agreements includes the manufacture, sale, distribution and service of the entire range of chlorination equipments including the electro-chlorination equipment and c claimed certain other reliefs as well, against the defendants in that suit. The said parties took out two notices of motion, being Notice of Motion No.553 of 2004 prior to and Notice of Motion No.2382 of 2004 subsequent to the amendment of the plaint. In these notices of motion, the principal question that fell for consideration.of the learned Single Judge of the High Court was 0 whether the joint venture agreements between the parties related only to gas chlorination equipment or whether they included electro-chlorination equipment as well. The applicant had prayed for an order of restraint, preventing Respondent Nos. 1 and 2, the foreign collaborators, from acting upon their notice dated 23rd January, 2004, indicating termination of the joint venture agreements and the supplementary collaboration agreement. A further prayer was made for grant of injunction against committing breach of contract by directly or indirectly dealing with any person other than the Respondent No.5, in any manner whatsoever, for the manufacture, sale, distribution or services of the chlorination equipment, machinery parts, accessories and related equipments including electro- chlorination equipment, in India and other countries covered by the agreement. The defendants in that suit had t3ken out another Notice of Motion No.778 of 2004, under Section 8 read with Section 5 of the1996 claiming that arbitration clauses in some of the agreements governed all the joint venture agreements and, therefore, the suit should be referred to an appropriate arbitral tribunal for final disposal and until a final H
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 425 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]
award was made by an arbitral tribunal, the proceedings in the A suit should be stayed. The learned Single Judge, vide order dated 28th December, 2004, allowed Notice of Motion No.553 of 2004 and consequently disposed of Notice of Motion No.2382 of 2004 as not surviving. Against this order, an appeal was preferred, which came to be registered as Appeal No.24 B of 2005 and vide a detailed judgment dated 28th July, 2011, a Division Bench of the High Court of Bombay set aside the order of the learned Single Judge and dismissed both the notices of motion taken out by the plaintiff in the suit.
44. Notice of Motion No.778 of 2004 was dismissed by C another learned Single Judge of the High Court of Bombay, declining the reference of the suit to an arbitral tribunal vide order dated 8th April, 2004. This order was again assailed in appeal by the defendants in the suit and another Division Bench of the Bombay High Court, vide its judgment dated 4th March, D 2010, allowed the Notice of Motion No.778 of 2004 and made reference to arbitration under Section 45 of the 1996 Act.
55. The judgments of the Division Benches, dated 4th March, 2010 and 28th July, 2011, respectively, have been assailed by the respective parties before this Court in the present Special Leave Petitions, being SLP(C) No.8950/2010 and SLP(C) No.26514-15/2011, respectively. Thus, both these appeals shall be disposed of by this common judgment.
66. Before we notice in detail the factual matrix giving rise to the present appeals and the contentions raised, it would be appropriate to illustrate the corporate structure of the companies and the scope of the agreements that were executed between the parties to these proceedings. Corporate Structure of the Companies who are parties to lis
77. In order to describe the corporate structure with precision we will explain it diagrammatically as follows: H
I G') ""Tl m 0 () OJ )> -- [- ------- SEVERN TRENT (DEL) INC. ~ For:merly known aa SEVEREN TRENT U.S. INC.; Name Changed In May 1992 - __ I ___ ----- --.-- -----. "' CJ)
T~NT SERVICES~EL) I~
h [ - SEVERN (/) c Appellant CHLURO .j. ~-2 --CAPITAL R-1 l CAPITAL CONTROL CO. INC. l EXCI:::LTf.;CHNOLOGIES -~ "U ;;o CONTROL CONTROL co. rJIERGED !NfO A'-·quirc-d 8rr::, on l~.05.199U and 20~<> on lNT'L CORP m INDIA PVT. (DELA\VARE) INC ON 31.03.2003 31.03.1Y94. Acquired in 1998 :s:: LTD. Fonned on 21.09.94 NAME CHANGF.D ON l.4.2002 TO SEVERN TRENT WATER PURIFICATION I Original OMNIPURE and SANILEC Manufacturer _ J m
------_ Shareholders Agreement INC. J () (GAS CHLO. & H~~GEN _i:._od~~t-L~nes)_ 0 Distributorship] i c
1 ;;o CAPITAL CUNTRUL (INDIA) PVT LTD. and Kno'\Vho~' ~~ .l~l;· ~ii~o~~~.J!~~ ~enture) Agreement -I HVPOGEN · ----- ;;o m "U DENO~ Nc;;~=r-; ~ivt!';RicA ~;-! 0 ::] ;;o GROUPO DE NORA Odginal Seaclor -·-- -I
~ and Seaclor Mac ---~·- Manufacturer ERVEN TRENT DE NORA LLC - SEPT, 2001 (/) RODUCTS CURH.ENTLY OFFERED ARE OMNIPURE, • R-3 - TITANOR ANILE 7 BEACLOR -· ~ -----···- -.~· •
-i ~ COMPONENTS LTD.
Distributes SEACLOR MAC R-4 ·HI POINT SERVICES PVT LTD OMNll--'Ut<E. SANILF.C "'_. 0
"'_. Product Line B'"fore 1998 ~
Independent Distributor of EXCEL TECHNOLOGIES :nncc pnor to St"'v~rn Trent':.i Acqurnit10n of EXCEL TECHNOLOGIES w Currently, Independent Distributor for SEVERN TRI-;NT (/) OEJNORA () LJ10.tnbutc-s Umnip:.rre rind $;uUlt"'c Products in Indi<3 ;;o
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 427 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]
88. Severn Trent, U.S., Inc. was a company existing under A the laws of the State of Pennsylvania, United States of America (for short, 'U.S.A.'). This name came to be changed, in 1992, to Severn Trent (Delaware) Inc., which is the principal parent company. This company owned a 100 per cent subsidiary, Severn Trent Services (Delaware) Inc., U.S.A. Severn Trent B Services (Delaware) Inc. owned Capital Control (Delaware) Co. Inc. which was formed on 21st September, 1994. On or about 14th May, 1990, Severn Trent Services PLC, U.K., an erstwhile state-owned water authority, privatized in 1989, expanded its business into the U.S.A. by acquiring 80 per cent shares in c Capital Control Co. Inc. on 15th May 1990 and a further 20 per cent on 31st March 1994. It is in this period that the joint venture agreements with the appellant were negotiated, with the consent of the Severn Trent group, which was, by that time, a majority shareholder in Capital Control Co. Inc. Subsequently, D the name of Capital Control Co. Inc., was changed to Severn Trent Water Purification, Inc. (Respondent No.1 ), with effect from 1st April, 2002. The Severn Trent Water Purification Inc./ Capital Control Co. Inc. then came to be merged with Capital Control (Delaware) Co. Inc. (Respondent No. 2), on 31st March,
2003. As a result thereof, Capital Control (Delaware) Co. Inc. E ceased to exist. As per the pleadings of the parties, reference to Capital Control Co. Inc. includes reference to Capital Control Co. Inc. as well as Capital Control (Delaware) Co. Inc.
99. The appellant is a company carrying on business under that name and style for the manufacture of chlorination equipments and incorporated under the Indian laws by Madhusudan Kocha (Respondent No.9 herein) and his group (for short, the "Kocha Group"). This company had been negotiating with Respondent No. 1 for entering into a joint venture agreement, to deal with the manufacture, distribution and sale of gas chlorination equipment and "Hypogen" electro- chlorination equipment Series 3300, etc. This led to the execution of joint venture agreements between the appellant and Respondent No. 1. The joint venture agreements were H
428 SUPREME COURT REPORTS [2012] 13 S.C.R.
A signed between these companies for constituting a joint venture company under the name and style of Capital Control (India) Pvt. Ltd., with 1,50,000 equity shares of Rs. 10 each and 50 per cent shareholding with each party. These agreements being prior to the merger of Capital Control (Dela~"1are) Co. Inc. with B Capital Control Co. Inc. and also prior to the change of name of Capital Control Co. Inc. to Severn Trent Water Purification Inc., 50 per cent of the shares allotted to the foreign collaborators were to be equally divided between Capital Control (Delaware) Co. Inc. and Capital Control Co. Inc. These c joint venture agreements were executed between the parties on 16th November, 1995, as already noticed. However, the joint venture company had been incorporated on 14th November, 1995 itself.
1010. In the year 1998, Excel Technologies International D Corporation came to be acquired by Severn Trent Services (Delaware) Inc. This company was dealing in the manufacture of "Omnipure" and "Sanilec", distinct brands of chlorination products. Later, Excel Technologies entered into a joint venture agreement with De Nora North America Inc. and floated another joint venture company, Severn Trent De Nora LLC in September, 2001 for dealing in the products "Omnipure", "Sanilec" and "Seaclor Mac". It may be noticed that "Seaclor Mac" was a product dealt with and distributed by Titanor Components Ltd., Respondent no.3, and whose original manufacturer was Groupo De Nora; the latter is the parent company of the De Nora North America Inc. The distribution rights in respect of all these three products were given by the joint venture company Severn Trent De Nora LLC to Hi Point Services Pvt. Ltd., Respondent No. 4, for independent distribution of the products for Severn Trent De Nora LLC, in India.
1111. This corporate structure clearly indicates that Severn Trent Services (Del.) Inc. is the holding company of the companies which have entered into the joint venture H
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 429 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]
agreements, for floating both the companies Capital Controls A (India) Pvt. Ltd., as well as "Severn Trent De Nora LLC". The disputes have actually arisen between Chloro Controls (India) Pvt. Ltd. and the Kocha Group on the one hand, and Severn Trent Water Purification Inc., the erstwhile Capital Control (Delaware) Co. Inc. and Capital Control Co. Inc. on the other. B
Details of Agreements s. Date of Detai!s of Parties to Whether No Agreement Agreement the Agreement contains arb~ration clause c
1. 16.11.1995 Shareholders 1.Capital Controls (Delware) Yes Agreement Company, Inc. (Respondent No.2)
2. Chloro Controls India Pvt. Ltd. (Appellant) D
3. Mr. M.B. Kocha (Respondent No.9)
2. 16.11.1995 International 1. Capital Controls Company Inc., No Distributor (Colmar) now Severn Trent Water Agreement Purification Inc. (Respondent No.1)
2. Capital Controls (India) Private E Ltd. (Respondent No.5)
3. 16.11.1995 Managing 1. Capital Controls (India) No Directors' Private Ltd. (Respondent No.5) Agreement
2. Mr. M.B. Kocha (Respondent F No.9)
4. 16.11.1995 Financial & 1. Capital Controls Company Inc Yes Technical (Colmar) now Severn Trent Water Know-how Purification Inc. (Respondent License No.1) Agreement G
2. Capital Controls (India) Private Ltd. (Respondent No.5)
5. 16.11.1995 Export Sales 1. Capital Controls Company Inc., Yes Agreement (Colmar) now Severn Trent Water Purification Inc. (Respondent No.1) H
430 SUPREME COURT REPORTS [2012] 13 S.C.R.
A 2. Capital Controls (India) Private Ltd. (Respondent No.5)
6. 16.11.1995 Trademark 1. Capital Controls Company Inc., No Registered (Colmar) now Severn Trent Water User License Purification Inc. (Respondent No.1) Agreement
B 2. Capital Controls (India) Private Ltd. (Respondent No.5)
7. August Suppleme- 1. Capital Controls Company Inc., 1997 -ntary (Colmar) now Severn Trent Water Collaboration Purification Inc. (Respondent No.1) Agreement c 2. Capital Controls (India) Private Ltd. (Respondent No.5)
Facts
1212. Prior to the formation of the joint venture company, the 0 Chloro Controls Group carried on the business of manufacture and sale of gas chlorination equipments and from 1980 onwards, it developed and commenced the manufacturing of electro-chlorination equipment also. The business was done in E the name of "Chloro Controls Equipments Company", a sole proprietary concern of Respondent No.9, Mr. M.B. Kocha and it was the distributor in India for the products of the Capital Controls group for more than a decade prior to the formation of the joint venture. On 1st December, 1988, a letter of intent and a letter of understanding were executed between Capital F Controls Company Inc., Colmar, Pennsylvania, U.S.A (which name was subsequently changed in the year 2002 to 'Severn Trent Water Purification Inc., respondent No.1) and respond~nt No.9 to form a new, jointly-owned company in India, to be called "Capital Controls (India) Pvt. Ltd.", the respondent No.5 in the G present appeals, for the purposes of manufacture, sale and export of chlorination equipments on the terms and conditions as agreed between the parties. The formation of the joint venture company got delayed for some time, because Respondent No.1 informed the appellant that Severn Trent, U.K. H and the officers of the Capital Controls Company Inc., Colmar,
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 431 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]
Pennsylvania, U.S.A. had acquired all the shares of the Capital A Controls Company Inc. and this share acquisition permitted them to support their representatives and distributers with continuity. On 14th November, 1995, the joint venture company, Capital Controls (India) Private Ltd., Respondent No. 5, was incorporated and registered under the Companies Act, 1956 B (for short, the 'Companies Act').
1313. To examine the factual matrix of the case in its correct perspective, reference to pleadings of the parties would be appropriate. c
1414. The petitioner is a Private Limited Company and its shares are entirely held by Respondent/Defendant Nos.9 to 11 (Kocha/Chloro Control Group). Respondent No.1-Company was earlier known as "Capital Control Company Inc." and in or about the year 1990 the Capital Controls Group came to be acquired by Severn Trent Services PLC (UK), originally a State owned water authority and following privatization from the UK Government in 1989, it proceeded to build a product and services business from the US beginning with the acquisition of the Capital Controls Group. The name of the first respondent was changed to Severn Trent Water Purification Inc. with effect from 1st April, 2002. Thus, Respondent Nos.1 and 2 became the group companies and were earlier part of "the Capital Controls Group" (hereinafter referred to as the Capital Controls/ Severn Trent Group). Till January 1999, the respondent Nos.1 and 2 deve.loped and sold electro-chlorination equipment under the brand name "Hypogen" and from January 1999 onwards, the said brand was replaced by the brands "Sanilac" and "Omnipure". Respondent Nos.1 and 2 carried on the business of manufacture, supply, sale and distribution of chlorination equipments, including gas and electro-chlorination equipments. G Respondent No.3 is a company incorporated under the Companies Act and engaged in the business of manufacture and marketing of electro-chlorination equipment. In or about the year 1989-90, the said Respondent no.3 was floated as a joint venture in technical and financial collaboration with the De Nora H
432 SUPREME COURT REPORTS [2012) 13 S.C.R.
A group of Italy which held 51% of the equity share capital of the said respondent. Respondent No.4 is a Private Limited Company incorporated under the Companies Act and carried on business in electro-chlorination equipments. It had a tie-up with an American Company called "Excel Technologies B International Inc." which was engaged in the business of electrolytic disinfection equipment.
1515. Respondent No.5, i.e., Capital Controls (India) Private Ltd. is a Company incorporated under the Companies Act pursuant to the joint venture agreements dated 16th November, C 1995 executed between the appellant and respondent no.9 on the one hand and the respondent nos.1 and 2 on the other. 50 per cent of the share capital of Respondent No.5 is held by the appellant and balance of 50 per cent is held by Respondent No.2. Thus, the appellant and Respondent No.2 are the joint venture partners who have together incorporated the Respondent No.5 - company.
1616. Respondent Nos.6 and 8 are the Directors of the Respondent No.5 Company, appointed as such by the Capital Controls Group. Respondent No. 7 is the Chairman also appointed by the Capital Controls Group, but has no casting vote. Respondent Nos.9 to 11 are the Directors of the Respondent No.5 company, nominated by the Kocha Group/ Chloro Controls Group and Respondent No.9 is the Managing Director of the said joint venture. F
1717. It appears that the joint venture company, Respondent No.5, was incorporated on 14th November, 1995. As discussed above, the joint venture agreements were primarily a project between Respondent Nos. 1 and 2 on the one hand and the appellant company along with its proprietor, G Respondent No. 9, on the other. The purpose of these joint venture agreements as indicated in the Memorandum of Association of this joint venture company was to design, manufacture, import, export, act as agent, marketing etc. of gas and electro-chlorination equipments. In order to achieve this object, the parties had decided to execute various agreements.
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 433 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]
It needs to be emphasized at this stage itself that, as is clear from the above narrated chart, the agreements had been signed between different parties, each agreement containing somewhat different clauses. Therefore, there is a need to examine the content and effect of each of the seven agreements that are stated to have been signed between different parties. B Content, scope and purpose of the agreements subject matter of the present appeals
1818. The parties to the proceedings, except respondent Nos. 3 and 4, were parties to one or more of the seven c agreements entered into between the parties. This includes the Principal Agreement, i.e., the Shareholders Agreement, the Financial and Technical Know-how License Agreement, the International Distributor Agreement, Exports Sales Agreement, Trademark Registered User License Agreement and Managing 0 Director's Agreement, all dated 16th November, 1995. Lastly, the parties also entered into and executed a Supplementary Collabor,ation Agreement in August, 1997. We have already noticed that except respondent Nos.3 and 4 who were not signatory to any agreement, all other parties were not parties E to all the agreements but had signed one or more agreement(s) keeping in mind the content and purpose of that agreement.
1919. Now we shall proceed to discuss each of these agreements. Share Holders Agreement F
2020. The Shareholders Agreement dated 16th November, 1995 was entered into and executed between the Capital Control (Delaware) Co. Inc., respondent No. 2, on the one hand and Chloro Controls (India) Private Ltd., the appellant company G run by the Kocha/ Capital Controls group and Mr. M.B. Kocha, respondent No. 9, on the other. As is apparent from the pleadings on record, these two groups had negotiated for starting a joint venture company in India and for this purpose they had entered into the Shareholders Agreement. The main object of this agreement was to float a joint venture company H
434 SUPREME COURT REPORTS (2012] 13 S.C.R.
A which would be responsible for manufacture, sale and services of the products as defined in the Financial & Technical Know- H ow License Agreement, in terms of clause 1 of the Agreement. The Agreement was subject to obtaining all necessary approvals, licenses and authorization from the B Government of India, as the joint venture company under the name and style of Capital Control India Pvt. Ltd. was to be registered as a company with its office located in India at Bombay and to carry on its business in India. The plant was to be taken on lease. As already noticed, the authorized capital c of the company was Rs.5 million, consisting of equity shares of Rs.10 each. In terms of clause 7, Capital Controls, which was the short form for Capital Control (Delaware) Co. Inc., appointed the joint venture company as a distributor in India of the products manufactured by it, subject to the terms and conditions of the D International Distributor Agreement attached to that Agreement as Appendix II. Directors to the joint venture company were to be nominated for a period of three years in accordance with clause 8 of the Agreement. Clause 14 made it obligatory for the parties to ensure that the joint venture company entered into the Financial and Technical Know-How License Agreement with E Capital Controls, subject to which, as mentioned above, the joint venture company was to have the right and license to manufacture the specified products in India. The Financial and Technical Know-How License Agreement, which was annexed to the Principal Agreement as Appendix IV, was to be executed F relating to sale and purchase of chlorination equipment assets. This Agreement had to be construed and interpreted in accordance with the laws of the Union of India in terms of clause
29. Further clause 21 related to termination of this Principal Agreement. In terms of this clause, it was agreed that the G Agreement was to continue in force and effect for so long as each party held not less than twenty-six per cent (26%) of the total paid-up equity shares of the company or in the event that the company failed to achieve a cumulative sales volume of Rs.120 million over three years and cumulative profit of fifteen per cent (15%) over three years from signing of the Agreement.
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 435 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]
Either party had the option to terminate the agreement and dispose of the shares as provided in the terms thereof. Material breach of the Agreement or a deadlock regarding the management of the Company were, inter alia, the contemplated grounds for termination of the Agreement, whereby the party not in default could terminate the Agreement by giving notice in writing to the other party. The period of notice in the event of a material breach was 90 days from the date of such notice. Clause 21.3 provided that in the event of the termination of the Agreement, the joint venture company would be wound up and all obligations undertaken by Chloro Controls under different c agreements would cease with immediate effect. In such an eventuality, even the name of the joint venture company was required to be changed and the word 'Capital', either individually or in combination with other words, was to be removed.
2121. Two other very material clauses of this Agreement, D which require the attention of this Court, are clauses 4 and 30. In terms of clause 4.5, the Kocha Group and their company Chloro Controls were bound not to engage themselves, directly or indirectly, or even have financial interest in the manufacture, sale or distribution of chlorination equipment which were similar E to those manufactured by the joint venture company during the term of the Agreement. In terms of clause 30, all or any disputes or differences arising under or in connection with the Agreement between the parties were liable to be settled by arbitration, in accordance with the Rules of Conciliation and F Arbitration of the International Chamber of Commerce (for short, the 'ICC'), by three arbitrators designated in conformity with those Rules. The arbitration proceedings were to be held in London, England and were to be governed by and subject to English laws. G
2222. As is clear from the above terms and conditions of this Agreement, it was treated as a principal agreement executed between the parties and other agreements, like the Financial & Technical Know-How License Agreement, Trademark Registered User License Agreement, International Distributor H
436 SUPREME COURT REPORTS [2012] 13 S.C.R.
A Agreement, Managing Directors' Agreement and Export Sales Agreements were not the only anticipated agreements to be executed between the parties, but their drafts and necessary details had been annexed as Appendix I to VII of the shareholder agreement. The other Agreements were only required to be signed by the parties who, as per the Shareholders Agreement, were required to sign such agreement. The Arbitration Clause of the Shareholders Agreement reads as under: "Any dispute or difference arising under or in connection with this Agreement, or any breach thereof, which cannot be settled by friendly negotiation and agreement between the parties, shall be finally settled by arbitration conducted in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three arbitrators designated in conformity with those Rules. The arbitration proceedings shall be held in London, England and shall be governed by and subject to English law. Judgment upon the award rendered may be entered in any court of competent jurisdiction." E International Distributor Agreement
2323. The International Distributor Agreement has been mentioned as Appendix II to the Shareholders Agreement. The International Distributor Agreement was executed on the same F day and entered into between Capital Controls Company Inc., respondent No.1 and the joint venture company Capital Controls India Pvt. Ltd., respondent No.5. Under this Agreement, the joint venture company was appointed as the exclusive distributor of products in the "territory'' and for the term provided under clause G 10 of that Agreement. The specified territory was India, Afghanistan, Nepal and Bhutan but the agreement also stated that exports to other countries were not permissible except with the specific authorization by respondent No.1. Besides providing the rights and duties of the Distributors, this Agreement also stated the schedule for delivery of products/ H
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 437 WATER PURIFICATION INC. [SWATANTER KUMAR, J.)
orders, the prices payable, commissions and inspection. It also A provided for the terms of payment. Distributor's orders of products were subject to acceptance by the seller at its offices and the seller reserved his right, at any time, to cease manufacture as well as offering for sale any product and to change the design of product. B
2424. This distributorship right was non-assignable and was exclusively between the distributor and the seller. The relationship between the parties was agreed to be that of a seller and purchaser. Clause 11 of the Agreement then clearly postulated that the distributor was an independent contractor and not joint venture or partner with an agent or employee of the seller. Clause 13 provided that the Agreement contained the entire understanding between the parties with respect to that subject matter and superseded all negotiations, discussions, promises or agreements, prior to or contemporaneous with this Agreement.
2525. Further, this Agreement contained the confidentiality clause as well as the non-competition clause being clauses 16 and 18, respectively. The latter specified that the distributor shall not, directly or indirectly, sell, manufacture or supply products similar to any of the products or engage, directly or indirectly, in any business the same as or similar to that of seller, except subject to the conditions of the Agreement.
2626. In terms of clause 20, the agreement between the parties was to remain confidential and not to be discussed, shown to or filed with any Government agencies without the prior consent of the seller in writing. This Agreement did not contain any arbitration clause, but it did provide a jurisdiction clause i.e. clause 21, which read as under: G "The construction, interpretation and performance of this Agreement and all transactions under it shall be governed by and interpreted under the laws of the State of Pennsylvania, U.S.A., and the parties hereto agree that each shall be subject to the jurisdiction of, and any litigation H
438 SUPREME COURT REPORTS [2012] 13 S.C.R.
A hereunder shall be brought in, any federal or state court located in the Eastern District of the Commonwealth of Pennsylvania, and that the resolution of such litigation by such court shall be binding upon the parties."
2727. We may notice here that the International Distributor B Agreement was not only executed in furtherance to Clause 7 of the Shareholders Agreement but in that clause itself it was also stated to be annexed thereto as Appendix II. The Distributor Agreement was liable to be renewed as long as the Distributor i.e. Capital Controls, held at least twenty-six per cent C (26%) of the shares in the joint venture company. Managing Directors Agreement
2828. Clause 8.6 of the Shareholders Agreement had provided for appointment or reappointment of the Managing D Director or whole time Director by mutual consent. Subject to the provisions of the Companies Act, it was agreed that Mr. Kocha would be appointed as the first Managing Director of the Company for an initial period of 3 years and on such terms and conditions as were specified in Appendix Ill, i.e., the E Managing Directors Agreement of the same date. In other words, the Managing Directors Agreement had been executed between joint venture company, Capital Control India Pvt. Ltd. and Mr. M.B. Kocha, on terms already agreed to between the parties to the Shareholders' Agreement.
2929. The joint venture company, which is stated to have been incorporated on 14th November, 1995, held Board Meeting on 16th November, 1995 and as contemplated under Clause 8.6 of the Shareholders Agreement, appointed Mr. Kocha as the Managing Director of the Company for three years commencing from 1st April, 1996. This Managing Directors Agreement spelt out the powers which the Managing Director could exercise and more specifically, under Clause 3, the powers which the Managing Director could exercise only with the prior approval of the Board of Directors of the Joint H Venture Company. For instance, under Clause 3 (k), the
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 439 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]
Managing Director was not entitled to undertake any new A business or substantially expand the business contemplated thereunder except with the approval of the Board of Directors. Further, clause 6 contained a non-compete clause requiring Mr. Kocha not to run any similar business for two years after the date of termination of the Agreement. B
3030. This Agreement also did not contain any arbitration agreement and provided no terms which were not within the contemplation of clause 8. 7 of the Shareholders Agreement. Export Sales Agreement c
3131. Export Sales Agreement was again singed between the Chloro Control India Pvt. Ltd. and Capital Control Co. Inc., the foreign partner to the joint venture. This Agreement, on its bare reading, presupposes the existence and working of the joint venture company. The products required to be manufactured by the joint venture company under the Shareholders Agreement as well as those stated in Exhibit 1 of this Agreement were to be exported to different countries by Capital Control Company Inc. which was required to export those goods and execute such orders as per the terms and conditions of this Agreement, except in countries specified in Exhibit 2 to the Agreement. It is noteworthy that the export could be effected to all countries covered under the 'Territory' excluding the countries specified in Ext. 2 of the agreement which was completely in consonance with the execution and performance of Shareholder Agreement and the International Distributor Agreement executed between the parties. This Agreement stipulated distinct terms and conditions which had to be adhered to by the parties while the Capital Control Company Inc. was to act as sole and exclusive agent for sale of the products. The products under the Agreement meant design, supply, installation commissioning and after-sale services of chlorination systems and equipment related products manufactured by the Joint Venture Company. The services under the Agreement could be performed by Capital H
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A control Co. Inc. itself or through its affiliated corporation or duly appointed sales agents and distributors. In terms of Clause 17 of the Agreement, it was to be construed and interpreted in accordance with the laws in the State of Pennsylvania, U.S.A. It specifically contained an arbitration clause (clause 18) that read as under: "Any dispute of difference arising under or in connection with this Agreement, or any breach thereof, which cannot be settled by friendly negotiation and agreement between the parties shall be finally settled by arbitration conducted in accordance with the Rules of American Arbitration Association. The arbitration proceedings shall be held in Pennsylvania, U.S.A. Judgment upon the award rendered may be rendered may be entered in any court of competent jurisdiction." D Financial and Technical Know-how License Agreement and Trademark Registered User Agreement
3232. Now, we shall deal with both these agreements together as both these agreements are inter-dependent and one finds elaborate reference to one in the other. Furthermore, both these agreements have been entered into and executed between Capital Control Co. Inc. on the one hand and the joint venture company on the other.
3333. Under clause 14 of the Shareholders Agreement, it was required of the parties to cause the joint venture company to enter into the Financial and Technical Know-How License Agreement with the Capital Controls under which the latter was to grant the joint venture company the right and license to manufacture the products in India in accordance with the G Technical Know-How and other technical information possessed by Capital Controls. Clause 18 of the Principal Agreement also referred to this agreement and postulated that if the Government of India did not grant permission for the terms of foreign collaboration contained in this agreement, even the Principal H Agreement, i.e. the Shareholder's Agreement would be liable
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 441 WATER PURIFICATION INC. [SWATANTER KUMAR, J.)
to be terminated without giving rise to any claim for damages. A Both these clauses provided that this Agreement was attached to the Principal Agreement itself and had been referred to as the 'License Agreement', for short.
3434. We may refer to certain terms of this agreement which would indicate that the terms and conditions of the Principal 8 Agreement were to be implemented through this Agreement. Besides providing the obligations of the Capital Controls (respondent no.5), it also stipulated that the licensee, i.e. the joint venture company would be free to manufacture the products under the said patent even after the expiry of the C Agreement. Under clauses 9 and 10 of the Agreement, obligations of the licensee were stated and it required the licensee to maintain quality comparable to corresponding products made by Capital Controls in USA and to allow free access and information to Capital Controls. The products manufactured by the lircensee whose quality was approved by Capital Controls could be marked with the legend, 'Manufactured in India under license from Capitals Control Company Inc. Colmar, Pennsylvania, USN'. However, if the agreement was terminated, the licensee was not to use the trademark and legend.
3535. As stated, th1e purpose of this Agreement was that the licensee desired to obtain the right and license to manufacture the products in accordance with the Technical Know-How owned or acquired by Capital Controls and for which that company was willing to grant license on the terms and conditions stated in that Agreement. The first and foremost restriction was that the rights under the agreement were non- transferable and the right was restricted to sell the products exclusively in India and the countries listed in the Appendix to the Agreement. The Agreement also contained a non-competing clause providing that the licensee must not manufacture or have manufactured for it, sell or offer for sale or be financially interested in similar products without prior written permission of Capital Controls. Respondent no.1 had also agreed that its H
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A affiliated companies would sell the product in India only through the licensee. The Agreement provided for payment of royalties under clause 11.
3636. Another very significant clause of this Agreement was the Term and Termination clause. The agreement was to continue in force for ten years from the date it was filed with the Reserve Bank of India, subject to earlier termination in terms of clause 15.2. Clause 14.2 provided practically for the conditions of termination of this Agreement similar to those contemplated for the Share Holders Agreement. Neither any modification/amendment of this Agreement nor any waiver of its terms and conditions was to be binding upon the parties unless made in writing and duly executed by both the parties. Appendix I to this agreement recorded the products which the joint venture company was to manufacture. In the event of dispute, the parties were expected to settle it by friendly negotiations, failing which it was to be referred to the ICC, by three Arbitrators designated in conformity with the relevant Rules. Clause 26, the Arbitration clause, read as under:- "Any dispute or difference arising under or in connection with this Agreement, or any breach thereof, which cannot be settled by friendly negotiation and agreement between the parties shall be finally settled by arbitration conducted in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three arbitrators designated in conformity with those Rules. The Arbitration proceedings shall be held in London, England and shall be governed by and subjeict to English Law. Judgment upon the award rendered m&'Y be entered in any court of competent jurisdiction."
3737. Clauses 15.1 and 15.2 of the Principal Agreement referred to the Trademark Registered User License Agreement. Firstly, it is provided that respondent no.9, Mr. iKocha and Chloro Controls acknowledged that Capital Contmls was the sole owner of certain trademarks and trade-names: used by Capital H
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 443 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]
Controls in connection with the sale of the products. Besides A agreeing that they would not adopt, use or register as a trademark or tradename any word or symbol, which in the opinion of Capital Controls is confusingly similar to their trademarks, there the joint venture company was required to enter into a Trademark Registered User License Agreement B for obtaining the right to use certain trademarks and tradenames and it was further specifically provided that the said agreement formed part of the Financial and Technical Know-How License Agreement.
3838. The Trademark Registered User Agreement, as already noticed, was executed between the respondent no.1 and respondent no.5, the joint venture company. The relationship between the parties under this agreement was contractual and respondent no.1 had agreed to grant user permission to use the trademarks, subject to the terms and conditions specified in the agreement. The agreement was executed with the clear intention that the license owner (respondent No. 1) would provide its secret drawings, plans, specifications, test data, formulae and other manufacturing procedures and as well as technical know-how for assembly, manufacture, quality control and testing of goods to the licensee, the joint venture company. The agreement dealt with various aspects including grant of non-exclusive right to use the trademarks in relation to the goods in the territory as the registered user of the trademarks. In terms of clause 10 of the agreement, the joint venture company was not to acquire any ownership interest in the trademarks or registrations thereof by virtue of use of trademark and it was specifically agreed that every permitted use of trademarks by the user would enure to the benefit of the licensor company. This Agreement was to terminate automatically in the event the License Agreement i.e. the Financial and Technical Know-How License Agreement, was terminated for any reason. Clause 13 also provided that the permitted use of the trademarks did not involve the payment of any royalty or other consideration, other than the royalties H
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A payable under the Financial and Technical Know-How License Agreement by joint venture company to the licensor company. This agreement was terminable on the conditions stipulated in clause 16, which again were similar to the termination clause provided in other agreements. This Agreement did not contain B an arbitration clause. Supplementary Collaboration Agreement
3939. The last of the documents in this series which requires to be mentioned by the Court is the Supplementary C Collaboration Agreement. Any joint venture agreement in India which is in collaboration with a foreign partner can be commenced only after obtaining the permission of the Government of India. The parties herein had already executed a joint venture agreement dated 16th November, 1995. The company obtained the permission of the Government of India D vide its letter No. FC-11 830(96)245(96) dated 11th October, 1996 amended on 21st April, 1997. The company then commenced the operation and business of the joint venture company with effect from 1st April, 1997.
4040. In the letter by the Government of India dated 11th October, 1996, besides noticing the items of manufacture activity covered by the foreign collaboration agreement, foreign equity participation being 50% and other conditions which had been specifically postulated, under clause 7 of the letter it was specified that the approval letter was made a part of the foreign collaboration agreement executed between the parties and only those provisions of the agreement which were covered by the said letter or which were not at variance with the said letter would be binding on the Government of India or the Reserve Bank of India. Thus, the parties were directed to proceed to finalize the agreement.
4141. Vide its letter dated 21st December, 1996, the joint venture company had written to the Ministry of Industry, Department of Industrial Policy and Promotion, Government of H India, requesting to amend point No. 2 of the above-mentioned
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 445 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]
approval letter. The request was to widen the scope of the manufacture activities covered by the foreign collaboration agreement. The company wished to add the manufacture of gas and electro-chlorination equipments, amongst other stated items. The other amendment that was sought for was increase in the authorized share capital from Rs.25 lakhs to paid-up capital of 50 lakhs in the joint venture company. Both these requests of the joint venture company were accepted by the Government of India vide their letter dated 21st April, 1997 and clauses (2), (3) and (4) of the earlier approval letter dated 11th October, 1996 were modified. All other terms and conditions c of the approval letter remained the same. The Government of India had asked for acknowledgement of the said letter.
4242. In furtherance to this letter of the Government of India, the joint venture company and the respondent no.2 executed this Supplementary Collaboration Agreement. The important D part of this one-page agreement is 'we hereby conform that we shall adhere to the terms and conditions as stipulated by the Government of India. Letter No. FC.11: 830(96) 295(96) dated 11.10.1996, amended 21.04.1997.' It also stated that the companies had entered into the joint venture agreement dated E 16th November, 1995 and had commenced their operation with effect from 1st April, 1997. In other words, the Supplementary Collaboration Agreement was a mere confirmation of the previous joint venture agreement. By this time i.e., somewhere in August 1997, all other agreements had been executed, the F joint venture company had come into existence and, in furtherance to those agreements, it had commenced its business.
4343. As we have already noticed under the head 'Corporate Structure', the name of Respondent No. 1, Capital Control Co. G Inc. was changed to Severn Trent Water Purification Inc. with effect from 1st April, 2002. Later on, respondent no.2, Capital Control (Delaware) Co. Inc. was merged with the respondent no.1 on 31st March, 2003. Thus, for all purposes and intents, in fact and in law, interest of respondent no.1 and 2 was H
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A cot;1·~r9l(e:d ahci given effect to by Severn Trent. · ·. · :·4.4::'b'ktfos issue, version of the respondents had been disputed in the earlier round of litigation between the parties where respondent No. 1, Severn Trent Water Purification Co. Inc., USA, had filed a petition for winding up respondent No. B 5-Chloro Controls India Pvt. Ltd., the joint venture company, on just and equitable ground under Section 433(j) of the Companies Act. In this petition, specific issue was raised that merger of Capital Controls (Delaware) Co. with Severn Trent was not intimated to the respondent No. 5 company prior to the C filing of the arbitration petition by Severn Trent under Section 9 of the 1996 Act as well as that Severn Trent was not a share holder of the joint venture company and thus had no locus standi to file the petition. This Court vide its judgment dated 18th February, 2008 in Civil Appeal No. 1351 of 2008 titled Severn D Trent Water Purification Inc. v. Chloro Control (India) Pvt. Ltd. and Anr. held that the winding up petition by Severn Trent Water Purification Inc. was not maintainable as it was not a contributory. But the question whether that company was a creditor of the joint venture company was left open.
4545. At this very stage, we may make it clear that we do not propose to deal with any of the contentions raised in that petition whether decided or left open, as the judgment has already attained finality. In terms of the settled position of law, the said judgment cannot be brought in challenge in the present F proceedings, collaterally or otherwise.
4646. Certain disputes had already arisen between the . parties that resulted in termination of the joint venture agreements. Vide letter dated 21st July, 2004, Severn Trent Services informed respondent no.9, respondent no.5 and G Chloro Controls India Pvt. Ltd., the present appellant, that they had failed to remedy the issues and grievances communicated to them in their previous correspondences and meetings and also failed to engage in any productive negotiation· in this connection and therefore, they were terminating from that very day, the joint venture agreements executed between them and
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 447 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]
the appellant company, which included agreements stated in that letter i.e. the Shareholders Agreement, the International Distributor Agreement, the Financial and Technical Know-How License Agreement, the Export Sales Agreement and the Trademark Registered User Agreement, all dated 16th November, 1995 and requested them to commence the winding 8 up proceedings of the joint venture company, respondent No.
5. They were also called upon to act in accordance with the terms of the agreement in the event of such termination. It may be noticed here itself that prior to the serving of the notice of termination, a suit had been instituted by the appellant in which application under Section 8/45 of the 1996 Act was filed. Contentions of the learned Counsel appearing for the parties in the backdrop of above detailed facts
4747. The appellant had filed a derivative suit being Suit No. 233 of 2004 praying, inter alia, for a decree of declaration that the joint venture agreements and the supplementary collaboration agreement are valid, subsisting and binding and that the scope of business of the joint venture company included the manufacture, sale, distribution and service of entire range of chlorination equipments including electro-chlorination equipment. An order of injunction was also obtained restraining respondent Nos. 1 and 2 from interfering in any way and/or preventing respondent No.5 from conducting its business of sale of chlorination equipments including electro-chlorination equipment and that they be not permitted to sell their products in India save and except through the joint venture company, in compliance of clause 2.5 of the Financial and Technical Know- How License Agreement read with the Supplementary Collaboration Agreement. Besides this, certain other reliefs have also been prayed for. G
4848. After the institution of the suit, as already noticed, the respondent Nos.1 and 2 had terminated the joint-venture agreements vide notices dated 23rd January, 2004 and 21st July, 2004. Resultantly, in the amended plaint, specific prayer was made that both these notices were wrong, illegal and 1:1
448 SUPREME COURT REPORTS [2012] 13 S.C.R.
A invalid; in breach of the joint venture agreements and of no effect; and the joint venture agreements were binding and subsisting. To be precise, the appellant had claimed damages, declaration and injunction in the suit primarily-relying upon the agreements entered into between the parties. In this suit, earlier 8 interim injunction had been granted in favour of the appellant, which was subsequently vacated at the appellate stage. The respondent Nos.1 and 2 filed an application under Section 8 of the Act, praying for reference of the suit to the arbitral tribunal in accordance with the agreement between the parties. This C application was contested and finally decided by the High Court in favour of respondent Nos.1 and 2, vide order dated 4th March, 2010 making a reference of the suit to arbitration. ' --i 49. It is this Order of the Division Bench of the High Court of Bombay that has given rise to the present appeals before D this Court. While raising a challenge, both on facts and in law, to the judgment of the Division Bench of the Bombay High Court making a reference of the entire suit to arbitration, Mr. Fali S. Nariman, learned senior counsel appearing for the appellant, has raised the following contentions :
E 1. There is inherent right conferred on every person by Section 9 of the Code of Civil Procedure, 1908, (for short 'CPC') to bring a suit of a civil nature unless it is barred by a statute or there was no agreement restricting the exercise of such right. F Even if such clause was there (is invoked), the same would be hit by Section 27 of the Indian Contract Act, 1872 and under Indian law, arbitration is only an exception to a suit and not an alternative to it. The appellant, in exercise of such right, had G instituted a suit before the Court of competent jurisdiction, at Bombay and there being no bar under any statute to such suit. The Court could not have sent the suit for arbitration under the provisions of the 1996 Act.
H 2. The appellant, being dominus litus to the suit, had
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 449 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]
included respondent Nos.3 and 4, who were necessary parties. The appellant had claimed different and distinct reliefs. These respondents had not been added as parties to the suit merely to avoid the arbitration clause but there were substantive reliefs prayed for against these respondents. Unless the Court, in exercise of its power under Order I, Rule 10(2) of the CPC, struck out the name of these parties as being improperly joined, the decision of the High Court would be vitiated in law as these parties admittedly were not c parties to the arbitration agreement.
3. On its plain terms, Section 45 of the 1996 Act provides that a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44, D shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration. The expression 'party' refers to parties to the action or suit. The request for arbitration, thus, has to come from one of the parties to the suit or action or any person claiming through or under him. The Court then can refer those parties to arbitration. The expression 'parties' used under Section 45 would necessarily mean all the parties and not some or any one of them. If the expression 'parties' is not construed to mean all parties to the action and the agreement, it will result in multiplicity of proceedings, frustration of the intended one-stop remedy and may cause further mischief. G Judgment of the High Court in referring the entire suit, including the parties who were not parties to the arbitration agreement as well as against whom the cause of action did not arise from arbitration agreement, suffers from error of law. H
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A 4. The 1996 Act is an amending and consolidating Act being an enactment setting out in one statute the law relating to arbitration, international commercial arbitration and enforcement of foreign arbitral awards. Further, the 1996 Act has no provision like B Section 34 of the Arbitration Act, 1940 (for short "1940 Act"). In Section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961 (for short '1961 Act'), there existed a mandate only to stay the -proceedings and not to actually refer the parties to c arbitration. Thus, the position before 1996 in India, as in England, permitted a partial stay of the suit, both as regards matters and parties. But after coming into force of the 1996 Act, it is no longer possible to contend that some parties and/or some matters in a suit can be referred to arbitration leaving the rest to be decided by another forum.
5. Bifurcation of matters/cause of action and parties is not permissible under the provisions of the 1996 Act Such procedure is unknown to the law of arbitration.in India. The judgment of this Court in the case of Sukanya Holdings Pvt Ltd. (supra) is a judgment in support of this contention. This judgment of the Court is holding the field even now. In the alternative, it is submitted that bifurcation, if permitted, would lead to conflicting decisions by two different forums and under two different systems of law. In such situations, reference would not be permissible.
6. In the alternative, reference to arbitral tribunal is not possible in the facts and circumstances of the present case. Where three major agreements, i.e., Managing Director Agreement, Trademark Registered User Agreement and Supplementary Collaboration Agreement do not have any arbitration clause, there the International Distributor
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 451 WATER PURIFICATION INC. [SWATANTER KUMAR, J.]
Agreement exclusively provides the jurisdiction for resolution of dispute to the federal or state courts in the Eastern District of the Commonwealth of Pennsylvania, USA This latter agreement, thus, provided for resolution of disputes under a specific law and by a specific forum. Thus, for uncertainty 8 and indefiniteness, the alleged arbitration clause is unenforceable. Thus, in the present case, out of all the agreements signed between different parties, four agreements, i.e., Managing Director Agreement, International C Distributor Agreement, Trademark Registered User Agreement and the Supplementary Collaboration Agreement, have no arbitration clause. Furthermore, different agreements have been signed by different parties and respondent No.9 is. D not a party to some of the agreements containing/ not containing an arbitration clause. In any case, respondent Nos.3 and 4 are not party to any of the Agreements and the cause of action of the appellant against them is limited to the scope of E International Distributor Agreement vis-a-vis the products covered under the joint-venture agreement. On these contentions, it is submitted that the judgment of the High Court is liable to be set aside and no reference to arbitral tribunal is possible. Also, the submission is that, within the ambit and scope of Section 45 of the 1996 Act, multiple agreements, where some contain an arbitration clause and others don't, a composite reference to arbitration is not permissible. There has to be clear intention of the parties to refer the dispute to arbitration.
5050. Mr. Harish Salve, learned senior counsel, while supporting the judgment of the High Court for the reasons stated therein, argued in addition that the submissions made by Mr. H
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A F.S. Nariman, learned senior counsel, cannot be accepted in law and on the facts of the case. He contended that : (i) Under the provisions of the 1996 Act, particularly in Part II, the Right of Reference to Arbitration is indefeasible and therefore, an interpretation in B favour of such reference should be given primacy over any other interpretation. (ii) In substance, the suit and the reliefs claimed therein relate to the dispute with regard to the agreed scope of business of the joint venture company as c regards gas based chlorination or electro based chlorination. This major dispute in the present suit being relatable to joint venture agreement therefore, execution of multiple agreements would not make any difference. The reference of the suit to arbitral D Tribunal by the High Court is correct on facts and in law. (iii) The filing of the suit as a derivative action and even the joinder of respondent Nos.3 and 4 to the suit were primarily attempts to escape the impact of the arbitration clause in the joint venture agreements. Respondent Nos. 3 and 4 were neither necessary nor appropriate parties to the suit. In the facts of the case the party should be held to the bargain of arbitration and even the plaint should yield in favour of the arbitration clause. (iv) All agreements executed between the parties are in furtherance to the Shareholders Agreement and were intended to achieve only one object, i.e., G constitution and carrying on of business of chlorination products by the joint venture company in India and the specified countries. The parties having signed the various agreements, some containing an arbitration clause and others not, performance of the latter being dependent upon the H
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