Ajay Madhusudan Patel & Ors. v. Jyotrindra S. Patel & Ors.

p. 942 Copy page pinpoint

Digital Supreme Court Reports

and third, the other party has legitimate reasons to rely on the appearance created by the non-signatory party so as to bind it to the arbitration agreement.

xxx xxx xxx

127. […] The nature or standard of involvement of the non-signatory in the performance of the contract should be such that the non-signatory has actively assumed obligations or performance upon itself under the contract. In other words, the test is to determine whether the non- signatory has a positive, direct, and substantial involvement in the negotiation, performance, or termination of the contract. Mere incidental involvement in the negotiation or performance of the contract is not sufficient to infer the consent of the non-signatory to be bound by the underlying contract or its arbitration agreement. The burden is on the party seeking joinder of the non-signatory to the arbitration agreement to prove a conscious and deliberate conduct of involvement of the non-signatory based on objective evidence.” (Emphasis supplied)

71Copy pinpoint71. It is evident that the intention of the parties to be bound by an arbitration agreement can be gauged from the circumstances that surround the participation of the non-signatory party in the negotiation, performance, and termination of the underlying contract containing such an agreement. Further, when the conduct of the non-signatory is in harmony with the conduct of the others, it might lead the other party or parties to legitimately believe that the non-signatory was a veritable party to the contract containing the arbitration agreement. However, in order to infer consent of the non- signatory party, their involvement in the negotiation or performance of the contract must be positive, direct and substantial and not be merely incidental. Thus, the conduct of the non-signatory party along with the other attending circumstances may lead the referral court to draw a legitimate inference that it is a veritable party to the arbitration agreement.

72Copy pinpoint72. Of the several entities pertaining to which settlement is contemplated under the FAA dated 28.02.2020 executed between the AMP Group

p. 943 Copy page pinpoint

and JRS Group, clauses 2.1.4 and 2.1.6 relate to Millenium and Deegee which are Respondent Nos. 7 and 8 companies respectively. It is an undisputed fact that Respondent Nos. 7 and 8 companies are themselves a part of the SRG Group. Therefore, prima facie without the joinder of the SRG Group, which includes Millenium and Deegee, there may not be a complete and effective resolution of the disputes arising out of the FAA between the AMP and JRS Groups.

73Copy pinpoint73. Clause 2.1.4 read with Schedule 7 of the FAA prima facie indicates that the petitioners i.e., the AMP Group has to exit from the Respondent No.7 company i.e. Millenium where they hold Class A equity shares amounting to 36%. According to the procedure contemplated therein, during Phase 1 of the Millenium exit, the SRG Group (which already holds 40% shares in Millenium) is supposed to additionally purchase approx. 11% of the shares in Millenium held by the AMP Group. It is stated therein that the JRS Group would provide the necessary funding to SRG Group to purchase the aforementioned shares. In Phase 2, Millenium would buy back the balance shares of the AMP Group i.e., approx. 25% from the funds to be received from Respondent No. 8 company i.e. Deegee.

74Copy pinpoint74. Clause 2.1.6 read with Schedule 8 prima facie indicates that the JRS Group and SRG Group would completely exit from the Respondent No. 8 Company i.e., Deegee. The proceeds received by the AMP Group from the sale of its shares in Millenium as per Phase 1 of the Millenium exit would be brought into Deegee by the AMP Group. AMP Group is also required to bring further funds into Deegee to pay off the entire loan provided by Millenium to Deegee along with interest at the rate of 14.5% compounded annually. Simultaneously with the repayment of loans to Millenium as aforesaid, Deegee is also required to pay off the entire loan provided by the JRS Group and SRG Group with interest at the rate of 14.5% compounded annually. Subsequently, the shares of Deegee held by the JRS Group and SRG Group would be transferred completely to the AMP Group.

75Copy pinpoint75. In short, while the AMP Group is supposed to exit from Millenium and acquire shares in Deegee, the JRS and SRG Groups are supposed to exit from Deegee and, the SRG Group would acquire shares in Millenium. It is also provided that agreements are to be executed with or by the SRG Group to record and finalize the understanding

p. 944 Copy page pinpoint

Digital Supreme Court Reports

with respect to the exit of AMP Group from Millenium and the exit of JRS and SRG Groups from Deegee. Recognising the interdependent nature of the transactions contemplated with respect to Millenium and Deegee, clause 2.1.4(a) also states that the exit of Millenium and Deegee should be endeavoured to be undertaken simultaneously on the same day.

76Copy pinpoint76. Further Clause 2.1.7 requires the AMP Group to irrevocably and unconditionally withdraw all litigations including CP/383/2017 filed in connection with Deegee by the AMP Group before the NCLT at Mumbai wherein Respondent No.9 of the SRG Group is one of the respondents.

77Copy pinpoint77. All that has been stated aforesaid gives an impression, though prima facie, that the SRG Group may be connected to the FAA and forms part of the settlement contemplated therein. However, this aspect should be looked into more closely by the Arbitral Tribunal.

78Copy pinpoint78. Moreover, on the question whether the non-signatory party i.e., the SRG Group intended or consented to be bound by the arbitration agreement or the underlying contract containing the arbitration agreement through their acts or conduct, elaborate submissions have been made on behalf of all three groups, by placing reliance on the terms of the agreement, several email exchanges etc. On bare perusal of the email exchanges produced by the petitioner, it appears prima facie that several contested questions of fact, including but not limited to those hereinbelow, need to be first resolved: • Whether Mr. Kalpesh Parmar or the JRS Group can be said to have represented the interests of the SRG Group during the negotiations leading up to the FAA, its implementation and during the mediation process; • Whether the marking of several emails to the Respondent No.9 of the SRG Group and the absence of any protest on his part can imply consent of the SRG Group to be bound by the underlying contract and/or the arbitration agreement; • Whether the documents required for the valuation and due diligence of Millenium and Deegee could have been shared by an employee of Deegee without the knowledge or consent of the SRG Group; and

p. 945 Copy page pinpoint

• Whether the demand of an additional Rs. 25 crore made by the SRG Group through the JRS Group as a condition for exit from Deegee indicates their intention to be bound by the underlying contract and/or the arbitration agreement?

79Copy pinpoint79. A detailed examination of numerous disputed questions of fact are imperative in deciding whether the SRG Group participated in the negotiation and performance of the underlying contract and can be bound by the arbitration agreement. At the cost of repetition, we may state that under our limited jurisdiction afforded under Section 11(6) of the Act, 1996 we should not conduct a mini trial and delve into contested or disputed questions of fact. This has been categorically laid down in several decisions of this Court including Vidya Drolia (supra) and Krish Spinning (supra). Further, it is also the case of the SRG Group that a dual test needs to be satisfied before it is compelled to be a party to the present arbitration proceedings i.e., (a) SRG Group should be shown to have agreed to the underlying contract and (b) SRG Group should also be shown to have agreed to be bound by the arbitration agreement. We are of the considered view that the same requires a much more detailed examination of the evidence that may be adduced by the parties which can only be gone into by the Arbitral Tribunal.

80Copy pinpoint80. Therefore, considering the complexity involved in the determination of the question whether the SRG Group is a veritable party to the arbitration agreement or not, we are of the view that it would be appropriate for the arbitral tribunal to take a call on the question after taking into consideration the evidence that may be adduced by the parties before it and the application of the legal doctrine as elaborated in the decision in Cox and Kings (supra).

81Copy pinpoint81. We also prima facie find force in the contention of the petitioner AMP Group that the nomenclature of the agreement is not determinative of its character as held by this Court in Sasan Power Ltd. (supra). Therefore, the fact that the underlying contract is called the “Family Arrangement Agreement” by itself may not preclude the impleadment of the SRG Group in arbitration.

82Copy pinpoint82. Once the arbitral tribunal is constituted, it shall be open for the respondents to raise all the available objections in law, and it is only after (and if) the preliminary objections are rejected that the tribunal shall proceed to adjudicate the claims of the Petitioners.

p. 946 Copy page pinpoint

Digital Supreme Court Reports

F. CONCLUSION

83Copy pinpoint83. In view of the aforesaid, the present petition is allowed. We appoint Mr. Akil Kureshi (Former Chief Justice, High Court of Rajasthan) to act as the sole arbitrator. The fees of the arbitrator including other modalities shall be fixed in consultation with the parties.

84Copy pinpoint84. It is made clear that all the rights and contentions of the parties are left open for adjudication by the learned arbitrator.

85Copy pinpoint85. Pending application(s), if any, shall stand disposed of.

Result of the Case: Petition allowed.

† Headnotes prepared by: Ankit Gyan