Sukanya Holdings Pvt. Ltd vs Jayesh H. Pandya & Anr.

   

         Sukanya Holdings Pvt. Ltd vs Jayesh H. Pandya & Anr.

                                              Before the Hon’ble Supreme Court of India 

NAME OF CASE	Sukanya Holdings Pvt. Ltd vs Jayesh H. Pandya & Anr
CITATION	2003 SC
DATE OF JUDGEMENT	14th April, 2003
APPELLANT	Sukanya Holdings Pvt. Ltd
RESPONDENT	Jayesh H. Pandya and Anr
BENCH/ JUDGE	M.B Shah and Arun Kumar
STATUTES INVOLVED	Arbitration and Conciliation Act, 1940

Sukanya Holdings Pvt. Ltd vs Jayesh H. Pandya & Anr

Before the Hon’ble Supreme Court of India

 

 

 

INTRODUCTION

Referring a case to arbitration where it involves the right of third parties has been a matter of contention where there has been various disagreement between courts. Sukanya Holdings is a landmark case in which the question arose as to whether non-signatory parties could be referred to single arbitration process.

Facts of the Case

• Appellant and respondent Nos.1 and 2 entered into a partnership agreement on 30th April 1992 for carrying on business in the name and style of M/s Hetali Construction Company to develop the land belonging to Ms Jaykirti Mehta who brought the said land as her capital contribution. A Plan for construction of building was submitted in April 1992 and on 20.1.1993, commencement certificate was issued. It is submitted that till issue of commencement certificate, appellant’s contribution in the said partnership was to the extent of Rs.1,25,00,000/- as capital contribution.
• The partnership firm entered into an agreement with M/s Laxman Commercial and Finance Ltd. and accordingly construction was started. It is contended that from 1996 to 1998, respondents took away some amount from the partnership without contribution to capital construction. On 7.4.1998, five flats were sold to the creditors of the partnership firm in order to repay the loans and excess amount was paid to the firm. On 23.6.1999, the partnership firm executed a Deed of Conveyance subject to rights of other parties in favour of M/s West End Gymkhana Ltd. in respect of disposed of flats. Thereafter, respondent no.1 filed suit No.1991 of 2000 in the High Court of Bombay for dissolution of partnership firm and accounts and inter alia challenging the conveyance deed executed by partnership firm in favour of M/s West End Gymkhana Ltd. On the same day, appellant filed an application under Section 8 of the Arbitration & Conciliation Act, 1996.
• The appellant filed an arbitration petition No.500 of 2001 under Section 8 of Arbitration and Conciliation Act, 1996, (the Act). That application was opposed by respondent no.1 by contending that the subject matter of the suit is not between the contracting parties and the reliefs are claimed not only against respondent nos.1 and 2 who are contracting parties but are claimed against remaining 23 parties, who are purchasers/so-called tenants of the disputed flats.
• The High Court by its judgment and order dated 18.9.2001 rejected application under Section 8 of the Act. The Court arrived at the conclusion that in the suit apart from the relief of dissolution and accounts, plaintiff has prayed for other reliefs. All the defendants to the suit are not parties or partners in the partnership firm and the terms of the partnership deed including the arbitration clause are not binding to them. Only part of the subject matter could at the most be referred to the arbitration. Further, there is no power conferred on the Court to add parties who are not parties to the agreement in the arbitration proceedings. Sukanya Holdings(petioner) filed an appeal by special leave against order and judgement passed by the High Court of Bombay in Arbitration Petition No.500 of 2001.

Issues Before the Court

• Whether there can be bifurcation as to the cause of action in arbitration?
• Whether arbitration involves the right of third parties has been a matter of contention where there have been various court disagreements?
• Whether any interpretation can be derived from section 89 of Civil Procedure Code, 1908 with respect to section 8 of the Arbitration Act, 1940?

Arguments From Appellant

• The appellant submitted that under Section 8 of the Act, the Court was required to refer the dispute arising because of the dissolution of the partnership to the arbitrator as contemplated by the arbitration clause. He further submitted that in any case there is no bar in referring the dispute which arises between the appellant and respondent nos.1 and 2 who are bound by the agreement to the arbitrator as envisaged in the partnership deed.
• He next contended that if the interpretation given by the High Court is accepted, arbitration clause could be defeated by an interested party by adding some reliefs which are not covered by the arbitration clause or by adding a few parties who are not bound by the arbitration clause. This interpretation would be against the object and purpose of the Act and against the spirit of Section 89 of Code of Civil Procedure.
• He also submitted that the third parties who purchased the flat that is stock-in-trade of the firm and entered into transactions in connection with the business of the firm, are not necessary parties to the dispute amongst the partners relating to dissolution and accounts of the firm and, therefore, dispute ought to have been referred to the arbitrator.

Arguments From Respondent

• Respondent submitted that the order passed by the High Court does not call for any interference as the plaintiffs have claimed various reliefs in the suit which could not be referred to the arbitrator.
• He further submitted that defendants no.3 to 25 are not parties to the arbitration agreement.

Judgement

• Supreme Court held that the non-signatory parties could not be referred to a single arbitration, in the context of Section 8[1] of the the Act. It was further held that causes of action cannot be bifurcated in an arbitration and thus the arbitral proceedings could be restricted only to the parties to the arbitration agreement.
• Therefore, any person who was not a party to the arbitration agreement could not be brought into the arbitration. It stated that ‘the suit should be in respect of ’a matter’ which the parties have agreed to refer and which comes within the ambit of arbitration agreement.
• Where, however, a suit is commenced - "as to a matter" which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, there is no question of application of Section 8. The words ’a matter’ indicates entire subject matter of the suit should be subject to arbitration agreement.’ No substance was found in the appeal and it was accordingly dismissed.

Conclusion

• For interpretation of Section 8, Section 5[2] would have no bearing because it only contemplates that in the matters governed by Part-I of the Act, Judicial authority shall not intervene except where so provided in the Act. Except Section 8, there is no other provision in the Act that in a pending suit, the dispute is required to be referred to the arbitrator. Further, the matter is not required to be referred to the arbitral Tribunal, if (1) the parties to the arbitration agreement have not filed any such application for referring the dispute to the arbitrator; (2) in a pending suit, such application is not filed before submitting first statement on the substance of the dispute; or (3) such application is not accompanied by the original arbitration agreement or duly certified copy thereof. This would, therefore, mean that Arbitration Act[3] does not oust the jurisdiction of the Civil Court to decide the dispute in a case where parties to the Arbitration Agreement do not take appropriate steps as contemplated under sub- sections (1) & (2) of Section 8 of the Act.
• Secondly, there is no provision in the Act that when the subject matter of the suit includes subject matter of the arbitration agreement as well as other disputes, the matter is required to be referred to arbitration. There is also no provision for splitting the cause or parties and referring the subject matter of the suit to the arbitrators.
• Thirdly, there is no provision as to what is required to be done in a case where some parties to the suit are not parties to the arbitration agreement. As against this, under Section 24[4] of the Arbitration Act, 1940, some of the parties to a suit could apply that the matters in difference between them be referred to arbitration and the Court may refer the same to arbitration provided that the same can be separated from the rest of the subject matter of the suit. The section also provided that the suit would continue so far as it related to parties who have not joined in such application.

Related Provisions

Arbitration Act, 1940-

• Section 8

power of Court to appoint arbitrator or umpire.

(1) In any of the following cases,-

(a) where an arbitration agreement provides that the reference shall be to one or more arbitrators to be appointed by consent of the parties, and all the parties do not, after differences have arisen, concur in the appointment or appointments; or

(b) if any appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, and the parties or the arbitrators, as the case may be, do not supply the vacancy; or

(c) where the parties or the arbitrators are required to appoint an umpire and do not appoint him; any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy.

(2) If the appointment is not made within fifteen clear days after the service of the said notice, the Court may, on the application of the party who gave the notice and after giving the other parties an opportunity of being heard, appoint an arbitrator or arbitrators or umpire, as the case may be, who shall have like power to act in the reference and to make an award as if he or they had been appointed by consent of all parties.

• Section 5

Authority of appointed arbitrator or umpire irrevocable except by leave of Court. The authority of an appointed arbitrator or umpire shall not be revocable except with the- leave of the Court, unless a contrary Intention is expressed in the arbitration agreement.

• Section 24

Reference to arbitration by some of ht parties. Where some only of the parties to a suit apply to have the matters in difference between them referred to arbitration in accordance with, and in the manner provided by, section 21, the Court may, if it thinks fit, so refer such matters to arbitration (provided that the same can be separated from the rest of the subject- matter of the suit) in the manner provided in that section, but the suit shall continue so far as it relates to the parties who have not joined in the said application and to matters not contained in the said reference as if no such application had been made, and an award made in pursuance of such a reference shall be binding only on the parties who have joined in the application.

• Section 34[5]

Power to stay legal proceedings where there is an arbitration agreement. Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other patty to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in' the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings; and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced. and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, such authority may make an order staying the proceedings.

---

[1] Arbitration Act 1940, s 8.

[2] Arbitration Act 1940, s 5.

[3] Arbitration Act 1940.

[4] Arbitration Act 1940, s 24.

[5] Arbitration Act 1940, s 34.