2010 Supreme(SC) 370

2010 (3) Supreme 669
SUPREME COURT OF INDIA
R V Raveendran and K S Radhakrishnan, JJ.
Indowind Energy Ltd. — Appellant
versus
Wescare (I) Ltd. & Anr. — Respondents
Civil Appeal No.3874. of 2010
[Arising out of SLP [C] No.27330 of 2008]
Decided on : 27-04-2010

IMPORTANT POINTS
1. It is fundamental that a provision for arbitration to constitute an arbitration agreement for the purpose of section 7 should be between the parties to the dispute; and should relate to or be applicable to dispute
2. When an application is filed under section 11, Chief Justice or his Designate is required to decide only two issues, that is whether the party making the application has approached the appropriate court and whether there is an arbitration agreement and whether the party who has applied under section 11 of the Act, is a party to such agreement.

Headnote:Arbitration and Conciliation Act, 1996 –Sections 7, 11(6) -Agreement of sale was entered into between parties wherein seller agreed to transfer to buyer certain business assets of seller for a consideration of Rs.98.19 crores, of which Rs.24.19 crores was payable in cash and Rs.74 crores by issue of 74 lakhs shares (of the face value of Rs.10/- at a premium of Rs.90/- per share)- On dispute between parties Wescare filed a petition under section 11(6) of the Act against Subuthi and Indowind for appointment of a sole arbitrator to arbitrate upon disputes between them in respect of agreement –Subuthi resisted the said petition alleging that as the agreement did not contemplate any transaction between Wescare and itself (Subuthi) , there was no cause of action nor any arbitrable dispute between them- Indowind resisted the petition on the ground that it was not a party to the agreement entered into between Wescare and Subuthi and therefore petition was liable to be dismissed- High Court allowed said application under section 11 of the Act, and appointed a sole arbitrator and held that Indowind was prima facie a party to the arbitration agreement and was bound by it, even though it was not a signatory to agreement-Appeal- It is fundamental that a provision for arbitration to constitute an arbitration agreement for the purpose of section 7 should be between the parties to the dispute; and should relate to or be applicable to dispute-Wescare has not entered into any agreement with Indowind, referring to the agreement dated 24.2.2006 containing the arbitration agreement, with the intention of making such arbitration agreement, a part of the their agreement- Nor was it the case of Wescare that there had been any exchange of statements of claim and defence in which it had alleged the existence of an arbitration agreement and the same had been accepted and not denied by Indowind in the defence statement- No case of Wescare that any exchange of letters, telex, telegrams or other means of telecommunication referred to and provided a record of any arbitration agreement between the parties- Hence held that neither sub-section (5) nor clauses (b) and (c) of sub-section (4) of section 7 was applicable. (Paras 11, 12)

       Arbitration and Conciliation Act, 1996 –Sections 7, 11(6) -Agreement of sale was entered into between parties -On dispute between parties Wescare filed a petition under section 11(6) of the Act against Subuthi and Indowind for appointment of a sole arbitrator - Indowind resisted the petition on the ground that it was not a party to the agreement entered into between Wescare and Subuthi and therefore petition was liable to be dismissed- High Court allowed said application under section 11 of the Act, and appointed a sole arbitrator and held that Indowind was prima facie a party to the arbitration agreement and was bound by it, even though it was not a signatory to agreement-Appeal-Wescare had put forth the agreement dated 24.2.2006 as an agreement signed by parties containing an arbitration agreement but said agreement was signed by Wescare and Subuthi and not by Indowind.- The question was when Indowind was not a signatory to the agreement dated 24.2.2006, whether it could be considered to be a ‘party’ to the arbitration agreement- In the absence of any document signed by the parties as contemplated under clause (a) of sub-section (4) of section 7, and in the absence of existence of an arbitration agreement as contemplated in clauses (b) or (c) of sub-section (4) of section 7 and in the absence of a contract which incorporates the arbitration agreement by reference as contemplated under sub-section (5) of section 7, inescapable conclusion was that Indowind was not a party to the arbitration agreement- In absence of an arbitration agreement between Wescare and Indowind, no claim against Indowind or no dispute with Indowind could be the subject-matter of reference to an arbitrator- This was evident from a plain, simple and normal reading of section 7 of Act-No dispute that Subuthi and Indowind were two independent companies -Mere fact that two companies had common shareholders or common Board of Directors, not made the two companies a single entity-Very fact that parties carefully avoided making Indowind a party and the fact that the Director of Subuthi though a Director of Indowind, was careful not to sign the agreement as on behalf of Indowind, showed that the parties did not intend that Indowind should be a party to the agreement-Impugned order of High Court appointing an Arbitrator in regard to the claims of Wescare against Indowind being unsustainable set aside-Appointment of Arbitrator in so far as Subuthi was concerned, held not liable to be disturbed-Appeal allowed. (Paras 12 to 16, 25)

       Arbitration and Conciliation Act, 1996 -Section7-Scope and ambit of-An analysis of sub-sections (2), (3) and (4) of section 7 shows that an arbitration agreement will be considered to be in writing if it is contained in a document signed by the parties or an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement or an exchange of statements of claim and defence in which the existence of agreement is alleged by one party and not denied by the other, or a contract between the parties making a reference to another document containing an arbitration clause indicating a mutual intention to incorporate arbitration clause from such other document into the contract. (Para 10)

       Facts of the Case :

       An Agreement of sale was entered into between parties wherein seller agreed to transfer to buyer certain business assets of seller for a consideration of Rs.98.19 crores, of which Rs.24.19 crores was payable in cash and Rs.74 crores by issue of 74 lakhs shares (of the face value of Rs.10/- at a premium of Rs.90/- per share). On dispute between parties Wescare filed a petition under section 11(6) of the Act against Subuthi and Indowind for appointment of a sole arbitrator to arbitrate upon disputes between them in respect of agreement .Subuthi resisted said petition alleging that as the agreement did not contemplate any transaction between Wescare and itself (Subuthi) , there was no cause of action nor any arbitrable dispute between them. Indowind resisted the petition on the ground that it was not a party to the agreement entered into between Wescare and Subuthi and therefore petition was liable to be dismissed. High Court allowed said application under section 11 of the Act, and appointed a sole arbitrator and held that Indowind was prima facie a party to the arbitration agreement and was bound by it, even though it was not a signatory to agreement.

       2.Present appeal has been filed against said order of High Court.

       Findings of the Court :

       Wescare had not entered into any agreement with Indowind, referring to the agreement dated 24.2.2006 containing the arbitration agreement, with the intention of making such arbitration agreement, a part of the their agreement. Nor was it the case of Wescare that there had been any exchange of statements of claim and defence in which it had alleged the existence of an arbitration agreement and the same had been accepted and not denied by Indowind in the defence statement. No case of Wescare that any exchange of letters, telex, telegrams or other means of telecommunication referred to and provided a record of any arbitration agreement between the parties.Hence held that neither sub-section (5) nor clauses (b) and (c) of sub-section (4) of section 7 was applicable. Wescare had put forth the agreement dated 24.2.2006 as an agreement signed by parties containing an arbitration agreement but said agreement was signed by Wescare and Subuthi and not by Indowind. The question was when Indowind was not a signatory to the agreement dated 24.2.2006, whether it could be considered to be a ‘party’ to the arbitration agreement. In the absence of any document signed by the parties as contemplated under clause (a) of sub-section (4) of section 7, and in the absence of existence of an arbitration agreement as contemplated in clauses (b) or (c) of sub-section (4) of section 7 and in the absence of a contract which incorporates the arbitration agreement by reference as contemplated under sub-section (5) of section 7, inescapable conclusion was that Indowind was not a party to the arbitration agreement. In absence of an arbitration agreement between Wescare and Indowind, no claim against Indowind or no dispute with Indowind could be the subject-matter of reference to an arbitrator. This was evident from a plain, simple and normal reading of section 7 of Act.Impugned order of High Court appointing an Arbitrator in regard to the claims of Wescare against Indowind being unsustainable was set aside.Appointment of Arbitrator in so far as Subuthi was concerned, held not liable to be disturbed. Appeal was allowed.