2019 Supreme(Del) 323

IN THE HIGH COURT OF DELHI AT NEW DELHI
NAVIN CHAWLA, J.
ROYALE INDIA RAIL TOURS LTD - Petitioner
Versus
COX & KINGS INDIA LTD & ANR - Respondents
ARB. A. (COMM.) 11, 12, 13, 14 of 2018 & IA 3587, 3590 of 2018
Decided on : 30-01-2019

The Arbitration Agreement clearly binds only C&K and IRCTC. The disputes are also only between IRCTC and C&K. C&K, being the claimant, is seeking no relief against RIRTL.

Headnote:

The appellants, Cox and Kings India Ltd. and Royale Indian Rail Tours Ltd. filed appeals challenging the order passed by the Arbitral Tribunal allowing the applications filed by the respondent no.1, Indian Railway Catering and Tourism Corporation (IRCTC) under Section 16 of the Arbitration and Conciliation Act, 1996, deleting RIRTL from the array of parties in both the arbitration proceedings. The Memorandum of Understanding (MoU) executed between C&K and IRCTC contained an Arbitration Agreement. RIRTL was incorporated on 27.11.2008. Article 200 of the Articles of Association (AOA) contains the Arbitration Agreement. IRCTC vide its letter dated 12.08.2011 terminated the JVA alleging default on part of C&K. C&K sent a legal notice invoking Arbitration Agreements contained in Clause-S of the MoU, Article 200 of the AOA and Article 30 of the JVA. A reading of the above notice would clearly show that the arbitration proceedings were aimed at IRCTC alone with no claim made against RIRTL. IRCTC responded to the above notice inter alia claiming that RIRTL could not be made a party to such arbitration proceedings as even Article 200 of the AOA was an Arbitration Agreement only between IRCTC and C&K. C&K addressed a letter to the Indian Council of Arbitration (ICA), IRCTC and RIRTL seeking appointment of the Arbitral Tribunal and making a reference to Article 200 of the AOA and Article 30 of the JVA. The Arbitral Tribunal dismissed the applications filed by C&K seeking amendment of its Statement of Claim and reply to the applications under Section 16 of the Act. The Arbitral Tribunal held that the plea of IRCTC, inter alia that RIRTL is not a party to the Arbitration Agreement contained in the AOA, shall be decided at the time of hearing and proceeded to fix the schedule for the parties to complete the pleadings and file their evidence. C&K produced Mr.Arup Sen as its witness. Based on certain answers given by the witness in his cross examination, IRCTC filed an application seeking deletion of RIRTL from the array of parties. The Arbitral Tribunal held that even this application shall be heard after conclusion of the evidence. The Impugned Orders have been passed on the above applications filed by IRCTC, ordering deletion of RIRTL from the array of parties. The learned senior counsels for the appellants submit that the AOA and the JVA form part of one single transaction. The RIRTL, by its conduct, had affirmed to the JVA and therefore, was a necessary and proper party to the arbitration proceedings. It is further submitted that the primary relief sought was the specific performance of the JVA and therefore, any order passed by the Arbitral Tribunal would ultimately impact RIRTL as well and therefore, RIRTL was a necessary and proper party to the arbitration proceedings. As far as, the arbitration proceedings under the AOA are concerned, the AOA being a contract between the company and its members, in terms of Section 36 of the Companies Act, 1956 (Section 10 of Companies Act, 2013), Article 200 of the AOA bound the parties, including RIRTL, to arbitration. On the other hand, the senior counsel for the IRCTC submits that it was the case of the appellants that RIRTL was not a party to the JVA. It is only after IRCTC filed an application under Section 16 of the Act, that C&K sought to withdraw its admission by seeking to amend its Statement of Claim and its reply to the said application. The said application seeking amendment was dismissed by the Arbitral Tribunal vide its order dated 30.04.2013 and therefore, any plea of the appellants that RIRTL is a party to the JVA as a confirming party or by conduct, cannot be accepted. As far as Article 200 of the AOA is concerned, the learned senior counsel for IRCTC submits that the said Article again is an Arbitration Agreement only between C&K and IRCTC, and RIRTL is not a party to the same. In any case, no dispute having been raised between C&K and RIRTL, RIRTL has been rightly ordered to be deleted from the array of parties by the Arbitral Tribunal. I have considered the submissions made by the learned senior counsels for the parties. Admittedly, RIRTL, though in existence on the date of execution of the JVA, was not a signatory to the same. The JVA has been executed only between C&K and IRCTC. The Arbitral Tribunal has also taken note of the above Clause and held as under in its Impugned order dated 10.12.2017 passed in Arb. Case No.AC-1811: It is an admitted position that the JVA is not signed by Respondent No.2. Therefore, it would be correct to say that there is no Arbitration Agreement, much less any Agreement between the Claimant, Respondent No. 1 and Respondent No.2. The Agreement is between the Claimant and the Respondent No. 1 only. The JVA bears the signatures, only of the Claimant and the Respondent No. 1. Importantly, Respondent No. 2 was already in existence when the JVA was signed. Further, Clause 2.2 of the JVA contains that the only way an entity could become a confirming party was by executing the JVA. Admittedly, no such process under Clause 2.2 was followed by Respondent No.2. The Arbitral Tribunal has also considered the above issue and has held as under: In the opinion of the Tribunal upon a bare reading of the above Clauses, it can be clearly seen that Respondent No. 2 is not a Party to the Arbitration Agreement contained in Article 30. The Arbitration Agreement is evidently only between the Claimant and Respondent No.1. Article 30.1 speaks of only IRCTC and C&K and it does not refer to any other party, including Respondent No.2. Article 30.1 envisages that IRCTC and C&K will endeavour to resolve their dispute by mutual negotiations and in the event the dispute between the said parties remains unresolved, then the same shall be referred to arbitrator. Article 30.2 clearly refers to those disputes which could not be satisfactorily resolved by mutual negotiations, which shall be finally settled by the arbitral tribunal constituted in accordance with the procedure laid down in the said Article. Thus, Articles 30.1 and 30.2 are inter linked and Article 30.2 can be invoked only when the dispute or difference cannot be resolved by mutual negotiations. The Tribunal thus, finds force in the contention of Respondent No.1 that only the Claimant and Respondent are the parties to the Arbitration Agreement in Article 30 of the JVA. Once it can be seen from the Parties in Articles 30.1 and 30.2 are only Respondent No. 1 and the Claimant, then accepting the plea of the Claimant would virtually amount to rewriting the contract and creating a new contract between the Parties. It is stated that as per settled position of law, a Tribunal cannot create a new contract for the Parties and must necessarily act within the four corners of the Contract. Judgment of Ameet Lalchand Shah (supra) can have no application to the facts of the present case. In the said case, the Court was considering an application filed by the appellant therein u/s 8 of the Act seeking reference of the parties to arbitration. The Court, as a matter of fact found that the Equipment Lease Agreement dated 14.03.2012 was the Principal/main Agreement and the other Agreements were integrally connected therewith. In those peculiar facts, the Court referred the Agreements and the parties to arbitration. The court, took note of the amended provisions of Section 8 of the Act in passing the order. In Cheran Properties Ltd. (supra), the Supreme Court held that the circumstances in which the Agreements have been entered into may reflect an intention to bind both signatory and non-signatory entities within the same group. Therefore, factors such as relationship of a non-signatory to a party which is a signatory to the Agreement, the commonality of subject matter and the composite nature of the transaction weigh in the balance. The effort is to find the true essence of the business arrangement and to unravel from a layered structure of commercial arrangements, an intent to bind someone who is not formally a signatory but has assumed the obligation to be bound by the actions of a signatory. In reaching the above conclusion, the Supreme Court placed reliance on Chloro Controls (supra), while distinguishing the earlier judgments in Indowind (supra). There can be no quarrel with the above proposition of law, however, the facts of each case have to be considered in applying the above principles. In the present case, the IRCTC and C&K are equal Joint Venture Partners in RIRTL. The Arbitration Agreement clearly binds only C&K and IRCTC. The disputes are also only between IRCTC and C&K. C&K, being the claimant, is seeking no relief against RIRTL. Section 8 of the Act, as amended by the Arbitration and Conciliation (Amendment Act), 2015 is reproduced hereinbelow: Power to refer parties to arbitration where there is an arbitration agreement (1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if an party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists. A reading of the above provision would clearly show that it is ‘a party to the Arbitration Agreement or any person claiming through or under him’ who can apply for reference of the parties to the arbitration. In the present case, RIRTL is not the claimant before the Arbitral Tribunal and therefore, cannot be said to be making a claim ‘through or under’ C&K. The Arbitral Tribunal has also rejected the contention of the appellants that the claim of C&K being a derivative action, RIRTL could be made a party to such arbitration proceedings. The Arbitral Tribunal holds as under:- The Respondent No.1 is also right in contending that by making a derivative action the Respondent No.2 does not become a party to the Arbitration Agreement. Moreover, any such plea o£ derivative action would be outside the scope of reference. In fact, the Statement of Claim does not refer to any derivative cause of action and the entire case is predicated on the Claimant's personal cause of action which evident from a bear reading of the prayers made in the Statement of Claim. Further, it is now well established that a derivative action in an arbitration can only be maintainable if the Company and the shareholders both are parties to the arbitration clause. [See the decision of the Bombay High Court in Onyx Musicabsloute v. Yashraj Films (Supra)]. As far as the submissions of the learned senior counsels for the appellants relying upon Article 200 of the AOA are concerned, the same are noted to be rejected. First of all, the finding of the Arbitral Tribunal that there are no disputes between the parties in relation to the AOA of RIRTL could not be disputed by the learned senior counsels for the appellants. The disputes between the parties are in relation to and connected with only the JVA. Secondly, a reading of Article 200 of the AOA, again suggests that it is applicable only to IRCTC and C&K. Learned senior counsel for C&K submitted that the words ‘this agreement’ used in Article 200(a) of the AOA refers to the JVA and therefore, any dispute in relation to the JVA can also be referred to arbitration relying upon Article 200(a) of the AOA. He further submitted that as AOA is an agreement between the company and its members, the company was rightly made a party to the arbitration proceedings. I am unable to agree with the said submission of the learned senior counsel for the appellants. Though, AOA of a Company is an agreement between the company and its members, the words ‘this agreement’ used in Article 200(a) can only be construed to mean the Articles of Association of RIRTL alone and not the JVA. It is of significance to note that the JVA was not even in existence on the date of the formation of Articles of Association of RIRTL. In view of the above, I find no merit in the present appeals and the same are dismissed with costs quantified at Rs.1 lac for each appeal to be paid by the appellants for their respective appeals.