2023 Supreme(Online)(SC) 8580
DINESH MAHESHWARI, SUDHANSHU DHULIA, JJ
GUJARAT COMPOSITE LIMITED – Appellant
Versus
A INFRASTRUCTURE LIMITED – Respondent
CIVIL APPEAL NO.3259 OF 2023 (ARISING OUT OF SLP (CIVIL) NO. 16932 OF 2018) | CIVIL APPEAL NO.3260 OF 2023 (ARISING OUT OF SLP (CIVIL) NO. 18074 OF 2018)
Advocates:
For the Appellants/Petitioners:
For the Respondents:
Court affirmed that arbitration agreements must include all parties involved, and disputes cannot be split between parties and non-parties; non-arbitrability of disputes in absence of a valid arbitration agreement was confirmed.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Section 8 - Appeal against dismissal of application for arbitration - The High Court upheld the Commercial Court's decision which determined the absence of a valid arbitration agreement in the tripartite agreements, ruling that disputes involving non-parties cannot be referred to arbitration per the original agreement's provisions. (Paras 18, 21)
(B) Jurisdiction - Definition of Arbitration Agreement - The court concluded that all parties involved must be included in an arbitration agreement for a dispute to be arbitrable, reinforcing the principle that disputes cannot be bifurcated between parties and non-parties
(C) Judicial Authority - Amendments to Section 8 - The amended provisions require a court to refer parties to arbitration unless it finds no prima facie valid arbitration agreement exists, reflecting a legislative intent to minimize judicial intervention in arbitration matters. (Paras 9.1, 11)
Facts of the case:
Appeals arise from claims related to multiple driving agreements between the parties, undergoing substantial disputes on claims for outstanding payments post-termination of licenses and on the enforceability of arbitration provisions. (Paras 3.1, 3.7)
Findings of Court:
The court found that the arbitration clause was only applicable to the original licenses and did not extend to supplementary or tripartite agreements involving other parties. The court upheld the findings of the lower courts concerning non-arbitrability of the disputes. (Paras 4.2, 5.1)
Issues: The central questions were whether the disputes were arbitrable, whether the absence of other parties from the arbitration agreement affected the enforceability of such provisions, and how the amendment to Section 8 affected existing agreements. (Paras 5, 11)
Ratio Decidendi: The judgment underscores that valid arbitration clauses require the involvement of all parties to a contract; hence, disputes involving non-signatories cannot be adjudicated through arbitration as per the established agreements. (Paras 18, 21)
Result: Appeals dismissed.
| Table of Content |
|---|
| 1. background of license agreements and disputes (Para 2 , 3) |
| 2. litigation and arbitration attempts (Para 4) |
| 3. court's findings on arbitration applications (Para 5) |
| 4. appellant's arguments for arbitration reference (Para 6) |
| 5. respondent's arguments against arbitration (Para 7) |
| 6. court's reasoning on arbitration agreements (Para 8) |
| 7. legal standards for arbitration disputes (Para 9 , 10 , 11 , 12) |
| 8. conclusions regarding arbitration and jurisdiction (Para 13 , 18 , 19 , 20 , 21) |
JUDGEMENT
DINESH MAHESHWARI, J. Leave granted.
2. These appeals have been preferred against the common judgment and order dated 23.04.2018 passed by the High Court of Gujarat whereby, the High Court has dismissed First Appeal Nos. 588 of 2018 and 587 of 2018 filed by the appellant against the order passed by the Commercial Court, Ahmedabad dismissing the applications under Section 8 of the Arbitration and Conciliation Act , 19961 in Commercial Civil Suit Nos. 90 of 2017 and 91 of 2017 respectively. Both these appeals, involving common questions concerning arbitrability of the dispute, have been heard together and are being taken up for disposal by this common judgment.
3. It would be apposite to take note of the factual and background aspects to the extent relevant for the points arising for determination in 1 Hereinafter also referred to as ‘Act of 1996’ or simply ‘the Act’.
Digitally signed by ARJUN BISHT Date: 2023.05.01 17:14:41 IST Reason:
Signature Not Verified the present appeals. Given the commonalities of the factual chronology, it would be proper to accord primacy to facts of the lead matter i.e., the appeal arising from SLP (C) No. 16932 of 2018 [relating to First Appeal No. 588 of 2018 in the High Court, arising from the order passed in Commercial Civil Suit No. 90 of 2017], apart from noticing a few facts that may be of relevance in the cognate appeal.
3.1. On 07.04.2005, the appellant herein entered into two licence agreements with respondent No. 1 and the sister concern of respondent No. 12 (against whom the cognate appeal is filed). The first agreement with respondent No. 1 was for licensing the operation of two manufacturing units of the appellant, being A.C. Sheet and Cement Grinding, with the licensing fee per quarter set at Rs. 5,00,000/- (Rupees Five Lakh) for the combined use of land and building as well as factory machinery and equipment. The second agreement with the sister concern of respondent No. 1 was for licensing the operation of another manufacturing unit of the appellant, being A.C. Pressure Pipe, with the cumulative licensing fee per quarter set at Rs. 2,00,000/- (Rupees Two Lakh). Both agreements were of the same nature and were executed for a term of 7 years (84 months). The relevant clauses of the agreement entered into between the appellant and respondent No. 1 could be usefully reproduced as under: -
“3. The duration of the Licence for manufacture will be for a period of 84 months, extendable to a further period of 84 months on mutual consent from the date on which the LICENSEE takes over production and manufacturing facilities after completion of the necessary inspection and the compilation of inventories as 2 Hereinafter referred to as ‘sister concern’.
stipulated herein. The said takeover would be fully and duly evidenced by acknowledgement of both the parties in writing, and will constitute a pan of this Licence Agreement.
*** *** *** 8. LICENSEE shall pay quarterly licence fee of Rs.1,00,000 (Rupees One lakh only) per quarter towards the use of land and building including office building and Rs.4,00,000 (Rupees Four lakhs only) per quarter towards the use of factory machinery & equipments. The Licence fee shall, be paid within 21 days of end of the quarter.
Click Here to Read the rest of this document
Back
