TMI Blog2018 (5) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... on the basis of an arbitration clause contained in the arbitration agreement - However, in a case where the parties alleged that the arbitration agreement is vitiated on account of fraud, the Court may refuse to refer the parties to arbitration. All the agreements and the parties thereon are referred to arbitration - appeal allowed. - Civil Appeal No. 4690 of 2018 (Arising out of SLP(C) No.16789 of 2017) - - - Dated:- 3-5-2018 - Mr. Ranjan Gogoi And R. Banumathi JJ. For the Petitioner(s) : Ms. Kamini Jaiswal, AOR For the Respondent(s) : Mr. Kapil Sibal, Sr. Adv., Dr. Saif Mahmood, Adv., Mr. Amit Bhandari, Adv., Mr. Sumant De, Adv., Mr. Vivek Agarwal, Adv., Mr. Amrendra Kumar Mehta, AOR JUDGMENT R. BANUMATHI, J. Leave granted. 2. This appeal arises out of the judgment dated 17.04.2017 passed by the Delhi High Court in FAO(OS) (COMM) No.85 of 2017 in and by which the Division Bench affirmed the order of the Single Judge dismissing the application filed under Section 8 of the Arbitration and Conciliation Act, 1996 (the Act ) by holding that the agreements between the parties are not inter-connected with the principal agreement dated 05.03.2012 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Renewable Energies Pvt. Ltd. (i) Rishabh to purchase power generating equipments - ₹ 8,89,80,730/- (ii) Engineering, Installation and commission of the plant at Jhansi - ₹ 2,20,19,270/- Both agreements contain arbitration clause - Parties agreed that the seat of arbitration shall be at Bombay 2. 05.03.2012 Rishabh entered into agreement with M/s. Aston Renewables Pvt. Ltd. (appellant no.2) (i) Purchasing CIS Photovoltaic products to be leased to Dante Energy (Appellant no.3) for energizing solar plant installed at Jhansi - ₹ 21,40,49,999/- This agreement does not contain arbitration clause. 3. 14.03.2012 Rishabh entered into agreement with M/s. Dante Energy Pvt. Ltd. (appellant no.3) Dante agreed to pay ₹ 13,50,000/- as lease rent for the equipment for March, 2012 and from April, 2012 onwards, ₹ 28,26,000/- per month. This agreement contains arbitration clause. Parties have agreed that the seat of arbitration shall be at Bombay. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v) to pay arrears of lease rent. 8. On receipt of notice and summons in the suit, the appellants/defendants preferred application I.A. No.4158 of 2016 under Section 8 of the Act seeking for reference of the dispute between the parties to arbitration pertaining to all the four agreements. The appellants sought for reference to arbitration of all the four agreements by contending that the Sale and Purchase Agreement (05.03.2012) is the main agreement and that other three agreements are inter-connected as they are executed between the same parties and the obligations and the performance of the terms of the agreements are inter-connected viz. commissioning of the Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, U.P. The respondents Rishabh and Dr. A.M. Singhvi resisted the application by contending that the suit is for declaration that the agreements are vitiated due to fraud and misrepresentation and while so, the matter cannot be referred to arbitration. It was further averred that the suit is neither concerned about the agreement dated 01.02.2012 with Juwi India nor concerned about Equipment Lease Agreement (14.03.2012); whereas the suit is concerned about the false as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Juwi India; (ii) Engineering, Installation and Commissioning Contract (01.02.2012) between Rishabh and Juwi India; (iii) Sale and Purchase Agreement (05.03.2012) between Rishabh and Astonfield; and (iv) Equipment Lease Agreement (14.03.2012) between Rishabh and Dante Energy are interconnected to refer the parties to arbitration though there is no arbitration clause in the Sale and Purchase Agreement (05.03.2012) between Rishabh and Astonfield? 2. Whether reference of the dispute between the parties to arbitration is to be refused on the ground of allegations of fraud levelled against the appellants by the respondents in the plaint or whether the agreements ought to be taken as commercial undertaking of the parties with a sense of business efficacy as held in Ayyasamy case ? 12. First, the Rishabh entered into two agreements with Juwi India dated 01.02.2012:- (i) Equipment and Material Supply Contract; and (ii) Engineering, Installation and Commissioning Contract. The first agreement-Equipment and Material Supply Contract (01.02.2012) contains arbitration clause ( Clause 19.4 ). The second agreement Engineering, Installation and Commissioning Contract (01.02.2012) als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fendant No.1 is also responsible for running the day to day affairs of this Company which is run on his directions and under his control. Defendant No.2 entered into a Sale and Purchase Agreement with the Plaintiffs, the transaction under which is vitiated by serious fraud . Though there are two agreements, individual parties to the Sale and Purchase Agreement (05.03.2012) and the Equipment Lease Agreement (Dante Energy) are one and the same,. Though Juwi India is not the defendant, as discussed infra, Equipment and Material Supply Contract and Engineering, Installation and Commissioning Contract with Juwi India itself were for the purpose of commissioning Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh. 14. The clauses in the Equipment and Material Supply Contract (01.02.2012) between Rishabh and Juwi India clearly indicate that the Rishabh has entered into Lease Agreement with Dante Energy and that the Rishabh proposes to source Photovoltaic products/panels etc. and similar Solar Power generating equipments for onward lease of those goods to Dante Energy. The following clauses in the said Equipment and Material Supply Contract would clearly est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Lessee) reiterates that the second agreement with Juwi India for engineering, installation and commissioning is integrally connected with Equipment Lease Agreement (14.03.2012). The relevant clauses in the agreement read as under:- This Engineering, Installation and Commissioning Contract Agreement is between M/s Rishabh Enterprises .. (the Client ) AND Juwi India Renewable Energies Pvt. Ltd (the Contractor ) Whereas:- A. The Client ( Rishabh ) is the owner of certain Photovoltaic products/Panels, Inverters, Transformers and similar solar power generating equipments etc. and is entering into an Equipment Lease Agreement with M/s Dante Energy Pvt. Ltd. ( Lessee ). B. The Lessee ( Dante Energy ) has necessary authorizations to develop, own, operate and commercially exploit a 2 MWp thin-film photovoltaic solar plant at Dongri, Raksa, District-Jhansi, UP (Plant Site ), transmission line from power plant to the Grid Substation, bay extension work at the Grid Substation, including all of the infrastructure and relevant installations required to connect the electricityproducing equipment to the distribution/transmission grid at the Grid Substation in UP, Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following clauses:- Sale and Purchase Agreement Astonfiled Renewable Pvt. Ltd. .. (Seller) AND Rishabh Enterprises .. (Buyer) agree to sell and to purchase the following products, which are required for onwards leasing of goods by the Buyer ( Rishabh ) to Dante Energy Private Limited. ( Lessee ) under the terms and conditions stated below (Transaction), effective as of the date of last signature below (Effective Date):- 1. Buyer:Rishabh Enterprises 2. Seller: Astonfield Renewables Private Limited 3. Transaction: The parties agree that this Transaction shall be governed by this Sale and Purchase Agreement and its apendices. The products under this Agreement shall be used for the 2 MWp grid connected solar PV power project being set up by the Lessee ( Dante Energy ) at Dongri, Raksa, District-Jhansi, Uttar Pradesh (Plant Site) The Buyer ( Rishabh ) is purchasing the above goods for onward supply/lease to lessee ( Dante Energy ). Lessee ( Dante Energy ) will have the right to inspect the respective goods and based on the confirmation from the Lessee ( Dante Energy ), the respective goods will be purchased by the Buyer ( Rishabh ) for onward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee ( Dante Energy ) on the terms, covenants and conditions herein contained/specified. Article 4 Delivery, Commencement and disbursement: (i) It is expressly understood by the Lessee ( Dante Energy ) and Lessor ( Rishabh ) that in the present case, the respective Equipments are being sourced from the supplier of Solar Photovoltaic Modular-located in the State of Maharashtra i.e. Astonfield Renewables Private Limited and supplier of other solar power generating equipments like inverters, transformers, etc. in the State of Karnataka i.e. Juwi India Renewable Energies Private Limited. These goods have been inspected by the Lessee ( Dante Energy ) and are found suitable for its commercial use of the same. (ii) Pursuant to this lease agreement, the respective Equipments, will be purchased by the Lessor ( Rishabh ) from the respective Supplier and accordingly, the Equipments will be consigned directly to the project site in the State of Uttar Pradesh. Accordingly, in the present case, the delivery of respective Equipments will be effected by Endorsement of the consignment Note in the favour of Lessee ( Dante Energy ) by the Lessor ( Rishabh ). (v) Irres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the suit should be subject to arbitration agreement. 16. The next question which requires consideration is - even if there is no provision for partly referring the dispute to arbitration, whether such a course is possible under Section 8 of the Act. In our view, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action, that is to say, the subjectmatter of the suit or in some cases bifurcation of the suit between parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the Act. If bifurcation of the subject-matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course. Since there is no such indication in the language, it follows that bifurcation of the subject-matter of an action brought before a judicial authority is not allowed. 19. Mr. Sibal, learned senior counsel for the respondents submitted that the High Court rightly relied upon Sukanya Holdings as it relates to Part-I of the Act that the parties who are not signatories to the arbitration agreement (in this case, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-signatory parties would fall within the exception afore-discussed. ( Underlining added ) 21. In a case like the present one, though there are different agreements involving several parties, as discussed above, it is a single commercial project namely operating a 2 MWp Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh. Commissioning of the Solar Plant, which is the commercial understanding between the parties and it has been effected through several agreements. The agreement Equipment Lease Agreement (14.03.2012) for commissioning of the Solar Plant is the principal/main agreement. The two agreements of Rishabh with Juwi India:- (i) Equipment and Material Supply Contract (01.02.2012); and (ii) Engineering, Installation and Commissioning Contract (01.02.2012) and the Rishabh s Sale and Purchase Agreement with Astonfield (05.03.2012) are ancillary agreements which led to the main purpose of commissioning the Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh by Dante Energy (Lessee). Even though, the Sale and Purchase Agreement (05.03.2012) between Rishabh and Astonfield does not contain arbitration clause, it is integrally con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and Conciliation Act, 1996 24. Arbitration and Conciliation (Amendment) Act, 2015 has brought in amendment to Section 8 to make it in line with Section 45 of the Act. In view of the observation made in Sukanya Holdings , Law Commission has made recommendation for amendment to Section 8 of the Act. Consequent to 2015 Amendment Act, Section 8 is amended as under:- 8. 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 a party to the arbitration agreement or any person claiming through or under him, so applies not later than when 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. (2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof Provided that where the original arbitration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and Anr. ( 2003) 5 SCC 531, - in cases where all the parties to the dispute are not parties to the arbitration agreement, the reference is to be rejected only where such parties are necessary parties to the action and not if they are only proper parties, or are otherwise legal strangers to the action and have been added only to circumvent the arbitration agreement. Proviso (ii) of the amendment contemplates a two-step process to be adopted by a judicial authority when considering an application seeking the reference of a pending action to arbitration. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. However, if the judicial authority concludes that the agreement does not exist, then the conclusion will be final and not prima facie. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be subjected to arbitration, or the suit involves adjudication of the role played by parties who are not signatories to the arbitration agreement, it has to continue because prima facie no valid arbitration agreement exists between such non parties and others, who are parties. 28. Re: contention: allegations of fraud disable an arbitration:- Yet another ground based on which the High Court declined to refer the parties to arbitration is the allegations of fraud levelled by respondents/plaintiffs in their plaint against Astonfield and appellant no.1. The High Court held that the respondents levelled allegations of fraud against the appellants which raise serious triable issues of fraud and hence, the matter cannot be referred to arbitration. 29. According to the respondents, it is not a case where fraud is alleged merely to disable an arbitration . Mr. Sibal, learned senior counsel for respondents contended that the plaint is based on the averments that from inception, the intention of appellants/defendants was to cheat the respondents and the respondents were made to part with large sums of money on the basis of the misrepresentation made by the appellants. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of fraud is set up by one of the parties and on that basis that party wants to wriggle out of that arbitration agreement, a strict and meticulous inquiry into the allegations of fraud is needed and only when the Court is satisfied that the allegations are of serious and complicated nature that it would be more appropriate for the Court to deal with the subjectmatter rather than relegating the parties to arbitration, then alone such an application under Section 8 should be rejected. 32. While concurring with Justice Sikri, Justice D.Y. Chandrachud pointed out that the duty of the Court is to impart sense of business efficacy to the commercial transactions pointing out that mere allegations of fraud were not sufficient to decline to refer the parties to arbitration. In para (48) of Ayyasamy case , Justice D.Y. Chandrachud held as under:- 48. The basic principle which must guide judicial decisionmaking is that arbitration is essentially a voluntary assumption of an obligation by contracting parties to resolve their disputes through a private tribunal. The intent of the parties is expressed in the terms of their agreement. Where commercial entities and perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xamine the allegations regarding fraud. 35. Main agreement - Equipment Lease Agreement (14.03.2012) for leasing and commissioning of Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh contains arbitration clause (Clause 29). As discussed earlier, other three agreements - two agreements between Rishabh and Juwi India (01.02.2012) and Sale and Purchase Agreement (05.03.2012) between Rishabh and Astonfield are integrally connected with the commercial understanding of commissioning the Solar Project at Dongri, Raksa, District Jhansi, Uttar Pradesh and to resolve the dispute between the parties, they are to be referred to arbitration. The order of the High Court declining to refer the parties to arbitration cannot be sustained and is liable to be set aside. The four agreements namely:- (i) Equipment and Material Supply Contract (01.02.2012) between Rishabh and Juwi India; (ii) Engineering, Installation and Commissioning Contract (01.02.2012) between Rishabh and Juwi India; (iii) Sale and Purchase Agreement (05.03.2012) between Rishabh and Astonfield; and (iv) Equipment Lease Agreement (14.03.2012) between Rishabh and Dante Energy and the parties thereon are referred to arbi ..... 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