Judgment

R.V. RAVEENDRAN, J.

1. The scope of section 8 of the Arbitration and Conciliation Act, 1996 (Act, for short) arises for consideration in this appeal by special leave.

2. Capstone Investment Co. Pvt. Ltd. (second respondent herein, for short "Capstone") and Real Value Appliances Pvt. Ltd. (respondent No.3 herein, for short "RV Appliances") are the owners of flat No.9A and 9B respectively situated at "Brighton", Napien Sea Road, Mumbai. Capstone and RV Appliances had borrowed loans from SBI Home Finance Ltd., (the first respondent herein, for short "SBI") under two loan agreements dated 3.12.1994 by securing the said two flats in favour of SBI.

3. Under two leave and licence agreements dated 5.4.1996, Capstone and RV Appliances permitted the appellant to use their respective flats, for the term 1.9.1996 to 31.8.1999. Each licence agreement was signed, in addition to the licensor and licensee, by the other flat owner (that is RV Appliances in respect of agreement relating to 9A and Capstone in respect of agreement relating to 9B) and SBI as confirming parties 1 and 2.

4. On the same day (5.4.1996) a tripartite deposit agreement was entered among RV Appliances and Capstone as the first party, appellant as the second party and SBI as the third party. Under the said agreement, the appellant paid a refundable security deposit of Rs.6.5 crores to Capstone and RV Appliances (at the rate of Rs.3.25 crores for each flat). Clause (E) of the said agreement confirmed that the appellant made the said deposit and Capstone and RV Appliances received the said deposit on the basis of the terms and conditions recorded in the two leave and licence agreements and the deposit agreement; and that the three agreements together formed a single integral transaction, inseparable, co-extensive and co-terminus in character. Out of the said deposit of Rs.6.5 crores, a sum of Rs.5.5 crores was directly paid to SBI on the instructions of Capstone and RV Appliances towards repayment of the loan taken by Capstone and Real Value and the balance of Rs.1 crore accounted in the manner indicated therein. As a consequence, the loan due by Capstone to SBI in regard to flat No.9A was cleared, but the loan taken by RV Appliances remained due and outstanding. Capstone however became a guarantor for repayment of the amount due by RV Appliances and flat No.9A was secured in favour of SBI and a charge was created in the shares relating to flat No.9A belonging to Capstone in favour of SBI, as security for repayment of the loan by R V Appliances. We extract below the relevant portion of para 5A of the agreement :

"However, notwithstanding the repayment of the dues of Capstone Investment Co.Pvt.Ltd., the share Nos.4001 to 4250 of the Society and Flat No.9A shall continue to be available to the Party of the Third Part as security of the remaining dues of Real Value Appliances Ltd., and in this connection it is agreed that upon liquidating the dues of Capstone Investment Co.Pvt.Ltd., and in order to make available the said shares Nos.4001 to 4250 and Flat No.9A as security, Capstone Investment Co.Pvt.Ltd. shall become a Guarantor for repayment of dues of Real Value Appliances Pvt.Ltd. The Parties of the Third Part are confirming that it has no objection to the Party of the Second Part, its employee or officer occupying the Flats and that as long as the balance of the principal amount and interest due thereon is paid by the Parties of the First Part (or as per arrangement hereafter recorded) by the Party of the Second Part to Party of the Third Part, the Parties of the Third Part shall not enforce the mortgage and will permit the Party of the Second Part, its employee or officer to occupy the said Flats."

Clause (3) of the Deposit agreement gave an option to the appellant who opted to continue the licence in respect of the two flats for a further period of two years beyond 31.8.1999, by paying an additional deposit of Rs.2 crores (at the rate of Rs.1 crore for each fl