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CALCUTTA HIGH COURT
I. P. MUKERJI, J.
ABG Infralogistics Ltd. – Appellant
Vs.
PSA India Pte. Ltd. & Ors. – Respondents
T. A. No. 47 of 2014
Decided On : 01/04/2014
ARBITRATION ACT, 1996 - SECTIONS 8 AND 45 - INTERIM ORDERS - STAY OF SUIT - PRIMA FACIE CASE - SUBJECT MATTER OF DISPUTE - JURISDICTION OF COURT - KOLKATA PORT TRUST - INTERFERENCE IN CONTRACT - KNOWLEDGE OF CONTRACT - INTENTION TO INTERFERE - REQUIREMENTS - MERKUR ISLAND SHIPPING CORPORATION V. LAUGHTON SHAW AND LEWIS (THE HOEGH APAPA) - RATIO.
Fact of the Case:
The plaintiff filed a suit against the first and second defendants for violation of a right of first refusal clause in a shareholders agreement. The first defendant filed an application under Section 45 of the Arbitration & Conciliation Act, 1996, to refer the parties to arbitration. The second defendant, a related party of the first defendant, was not a signatory to the arbitration agreement. The Kolkata Port Trust (KoPT) was impleaded as the third defendant for allegedly causing interference in the performance of the contract between the plaintiff and the first defendant.
Finding of the Court:
1. The court held that the prima facie case in a Section 45 application must be considered first before considering an interim application. 2. The court applied the test laid down in Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc. and held that if the subject matter of the suit is sent to arbitration, the other subject matter would not survive. 3. The court held that the plaintiff, the first, second, and fourth defendants were bound by the arbitration clause. 4. The court held that the subject matter of the dispute covered by the arbitration clause would not leave much surviving in the suit. 5. The court stayed the suit and allowed the parties to commence and proceed with arbitration. 6. The court held that the KoPT was not a party to the arbitration agreement and there was no averment in the plaint imputing knowledge of the KoPT with regard to the contract between the plaintiff and the first defendant or the relationship of the plaintiff with the first and second defendants.
Issues: 1. Whether the court should refer the parties to arbitration under Section 45 of the Arbitration & Conciliation Act, 1996. 2. Whether the second defendant, a related party of the first defendant, was bound by the arbitration clause. 3. Whether the subject matter of the dispute covered by the arbitration clause would leave much surviving in the suit. 4. Whether the KoPT was a necessary party to the arbitration proceedings.
Ratio Decidendi: 1. The court held that a prima facie case in a Section 45 application must be considered first before considering an interim application. 2. The court held that the parties were bound by the arbitration clause as the second defendant was described as a related party in the plaintiff's pleading and agreed to go to arbitration with the first defendant. 3. The court held that the subject matter of the dispute covered by the arbitration clause would not leave much surviving in the suit. 4. The court held that the KoPT was not a necessary party to the arbitration proceedings as there was no averment in the plaint imputing knowledge of the KoPT with regard to the contract between the plaintiff and the first defendant or the relationship of the plaintiff with the first and second defendants.
Final Decision: The court stayed the suit and allowed the parties to commence and proceed with arbitration.
1. Shareholders agreement with arbitration clause under LCIA rules; Section 45 application to refer dispute to arbitration; prima facie determination of arbitration clause and binding of parties. (Para 9000370810012 , 9000370810013 , 9000370810014 , 9000370810015 , 9000370810016 , 9000370810017 , 9000370810018 , 9000370810019 , 9000370810020 , 9000370810022 )
2. Whether Section 45 prima facie must be decided before interim relief; whether non-signatory parties are bound by arbitration clause; whether suit should proceed or be referred to arbitration. (Para 9000370810005 , 9000370810007 , 9000370810023 , 9000370810025 , 9000370810027 )
3. Stay suit pending disposal of Section 45 application; prima facie hold all relevant parties bound by arbitration clause; interim application to be considered after Section 45 disposal. (Para 9000370810030 , 9000370810033 , 9000370810034 , 9000370810035 , 9000370810036 )
The court must at the threshold prima facie decide whether an operative arbitration clause exists binding the parties and covering the subject matter of the dispute before passing orders on interim relief or staying the suit. (Para 9000370810001 , 9000370810002 , 9000370810003 , 9000370810004 , 9000370810009 , 9000370810010 , 9000370810011 )
Where a party is a related company or subsidiary and maintains position to participate in arbitration, it can be bound by the arbitration clause, especially where it is shown to be claiming under or acting for another party. (Para 9000370810017 , 9000370810029 , 9000370810030 , 9000370810031 )
Where the subject matter of the dispute covered by the arbitration clause would not leave much surviving in the suit, the court should stay the suit pending disposal of the Section 45 application. (Para 9000370810032 , 9000370810033 , 9000370810034 )
A party joined merely to enlarge the subject matter of the dispute cannot be excluded from arbitration if it is bound by the arbitration clause; the court must scrutinize and decide whether all parties should be referred to arbitration. (Para 9000370810021 , 9000370810025 , 9000370810026 , 9000370810027 )
One is an application by the plaintiff asking for interim orders. There is another application under Section 45 of the Arbitration & Conciliation Act, 1996, by the first defendant to refer the parties to arbitration.
2. An unreported judgment of a Division Bench of the Hon’ble Gujarat High Court in Sadbhav Engineering Limited v. Montecarlo Limited delivered on 22nd August, 2013, cited by Mr. S. N. Mookherjee, learned senior advocate for the first defendant, opines that it is obligatory for the judicial authority to decide or ' prima facie find out as to whether the conditions mentioned in Section 8 of the above Act were fulfilled or not. The dictum of this High Court with regard to Section 8, in my opinion, should be extended in its application, to Section 45 as well.
3. This, in my opinion, is a very important judgment because neither Section 8 nor Section 45 states what would happen to a proceeding filed in Court, pending consideration of an application under Section 8 or Section 45. Sub-section (3) of Section 8 provides that during pendency of a proceeding before a judicial authority an arbitration may be commenced or continued and an arbitral award made. Nothing is said as to how the Court should deal with the action before it.
4. This judgment provides a valuable guidance. The Court in which an application under Section 8 or Section 45 is filed is required, at the threshold, to prima facie decide whether there is an operative arbitration clause binding the parties and covering the subject-matter of the dispute or a substantial part of it in the judicial action and then pass necessary orders with regard to the suit.
5. When this Division Bench judgment was cited before the Company Law Board in another case in General Atlantic Singapore F. Pte Ltd. v. Fourcee Infrastructure Equipment Pvt. Ltd. decided on 29th October, 2013 the member deciding the case, quite improperly in breach of judicial discipline, added his own authority to the law by saying that in his opinion an interim application should be decided during the pendency of the Section 8 application, without even prima facie deciding whether an arbitration clause operated or not.
6. This order was challenged in appeal before the Hon’ble Bombay High Court which admitted the appeal. This in turn was carried to the Hon’ble Supreme Court which passed an order on 29th November, 2013 by consent of the parties inter alia stating that the Section 45 application should be heard after the application for interim relief was decided by the Company Law Board.
7. These orders of the Company Law Board, the Bombay High Court and the Hon’ble Supreme Court were cited by Mr. Sarkar. He argued that on this basis I should not follow the Gujarat decision. In my opinion the expression of opinion by the member of the Company Law Board Mumbai Bench is not even of persuasive value to this High Court. The Hon’ble Bombay High Court and the Hon’ble Supreme Court have not pronounced any ratio to bind this Court.
8. The judgment in Tayabbhai M. Bagasarwalla v. Hind Rubber Industries Pvt. Ltd., reported in (1997) 3 SCC 443 (paras 15 & 16) : (AIR 1997 SC 1240) relating to interim orders in a suit, where jurisdictional questions are raised was erroneously attempted to be applied by Mr. Sarkar to Section 8 or Section 45 cases, where the legislative intent is completely different.
9. Hence, the judgment of the Gujarat High Court, which is of great value, in my opinion, is relevant in this case.
10. On these authorities I hold that the prima facie case in Section 45 application has to be considered first and a ruling made by this Court before the interim application could be considered.
11. After consideration of the above prima facie, one of the cardinal tests to be applied as laid down in paragraph 10 of the judgment in Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., reported in (2013) 1 SCC 641 : (AIR 2013 SCC (Civ) 457) is : if a subject-matter of the suit is sent to arbitration
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