2023 Supreme(Del) 4208

IN THE HIGH COURT OF DELHI AT NEW DELHI
V. Kameswar Rao, J.
A. Es Engineers Private Limited – Appellant
Versus
Ugro Capital Limited & Anr. – Respondents
Arb.P. 26 of 2022
Decided On : 22-05-2023

A non-signatory to an arbitration agreement cannot invoke the arbitration clause of the agreement to which it is not a party.

Headnote:

ARBITRATION - APPOINTMENT OF ARBITRATOR - JURISDICTION - SEAT OF ARBITRATION - COMPOSITE TRANSACTION - INCORPORATION BY REFERENCE - NON-SIGNATORY TO THE ARBITRATION AGREEMENT - ARBITRATION CLAUSE - INTERPRETATION - SECTION 11(6) OF THE ARBITRATION AND CONCILIATION ACT, 1996.

Fact of the Case:

The petitioner, a small enterprise registered under the Micro, Small and Medium Enterprises Development Act, 2006, was engaged in the business of manufacturing and supplying cast iron products. The respondent No. 1, M/s. UGRO Capital Limited, was a Non- Banking Financial Company (NBFC) within the meaning of the Reserve Bank of India Act, 1934. The respondent No. 2, M/s. Kiran Udyog Pvt. Ltd, was a company involved in the business of manufacturing and marketing automobile components globally. The petitioner would supply its products to respondent No.2, which would be utilized by respondent No.2, in manufacturing of automobile components and parts. The petitioner and the respondent No.2 had business relationship in early 2019, whereby the petitioner supplied goods to the respondent No. 2, against which the respondent No. 2, directly released payments. In early 2019, the respondent No.2 began defaulting on its payments to the petitioner, due to the augmenting outstanding dues from the respondent No.2, the petitioner expressed its inability to continue rendering supplies. Pursuant to this, respondent No.2, introduced the petitioner to the respondent No.1, which had agreed to provide Bill Discounting Services to the respondent No.2. The petitioner and the respondent No.1 executed a Facility Agreement (FA). In early 2021, the respondent No.2 began defaulting on its payments to the respondent No.1. The respondent No.1 sent a Loan Recall Notice to the petitioner, claiming an amount of Rs.1,97,27,033/-. The respondent No.1 continued to disburse money to the petitioner even after the Loan Recall Notice. The respondent No.1 sent an Arbitration Reference Notice to the petitioner under Clause 13 of the FA, along with a letter of appointment of a sole Arbitrator for the arbitration only against the petitioner. The petitioner contacted the respondent No.1, objecting to the unilateral appointment and also to the incorrect picture being portrayed by the respondent No.1, in the transactions and the agreements. The sole Arbitrator withdrew from the arbitration proceedings. The respondent No.1 filed an application under Section 7 of the Insolvency and Bankruptcy Code against petitioner before the NCLT, New Delhi, abandoning the arbitration process. The respondent No.1 had also lodged a police complaint for cheating and breach of trust against the petitioner. The respondent No.1 sent another Arbitration Notice under Section 11 of the Act of 1996 to the petitioner appointing a new arbitrator, and for the first time making a reference to a Service Agreement dated July 31, 2020 executed amongst the respondents, which agreement had never been disclosed to the petitioner. The respondent No.1 filed a petition under Section 9 of the Act, 1996, against the petitioner before the High Court of Judicature at Calcutta, which are pending adjudication. The petitioner filed the present Petition under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (`Act of 1996', for short) seeking appointment of a three-member Arbitral Tribunal to adjudicate disputes between the petitioner and the respondents.

Finding of the Court:

The Court held that the petitioner is not entitled to the prayer for appointment of an Arbitrator in this petition. The Court held that the petitioner is not a party to the agreement which the petitioner seek to invoke. Hence, in that sense, the arbitration clause in the MSA would only govern the disputes between respondent No.1 and respondent No.2 and not a dispute between the petitioner and respondent No.1. The Court further held that the petitioner cannot enunciate the MSA as a mother agreement, and the arbitration under Clause 13 therein, cannot be invoked as the petitioner is not a signatory to it. The arbitration under Clause 13 of the FA is reproduced as under:

Issues: Whether the petitioner is entitled to the prayer for appointment of an Arbitrator in this petition.

Ratio Decidendi: The Court held that the petitioner is not entitled to the prayer for appointment of an Arbitrator in this petition. The Court held that the petitioner is not a party to the agreement which the petitioner seek to invoke. Hence, in that sense, the arbitration clause in the MSA would only govern the disputes between respondent No.1 and respondent No.2 and not a dispute between the petitioner and respondent No.1. The Court further held that the petitioner cannot enunciate the MSA as a mother agreement, and the arbitration under Clause 13 therein, cannot be invoked as the petitioner is not a signatory to it. The arbitration under Clause 13 of the FA is reproduced as under:

Final Decision: The Court dismissed the petition.