1.

Indus Mobile Distribution Private Limited vs Datawind Innovations Private Limited

Intro: On 19 April 2017, a bench comprising of Justice Pinaki Chandra Ghosh and Justice Rohington Fali
Nariman held that where an exclusive jurisdiction clause in an arbitration agreement states that the
courts at a particular place alone would have jurisdiction in respect of disputes arising under the
agreement, it would oust all other courts' jurisdiction in the matter, even in a case where no part of
the cause of action arises at that place.

Factual Background: The Respondent in the matter was engaged in the manufacture, marketing and
distribution of mobile phones, tablets and other accessories and had its registered office at Amritsar
in Punjab. The Respondent was supplying goods to the Appellant at Chennai via New Delhi. The
Appellant expressed its desire to become the Retail Chain Partner of the Respondent following which,
an agreement dated 25 October 2014 was entered between the two parties. Clauses 18 and 19 of the
aforesaid agreement dealt with the dispute resolution mechanism between the parties. In terms
thereof disputes between the parties were to be finally settled by arbitration conducted under the
provisions of the Arbitration and Conciliation Act, 1996. Further it was categorically stated that such
Arbitration was to be conducted in Mumbai. Clause 19 also provided that all disputes arising out of, or
in connection with the aforesaid Agreement would be subject to the exclusive jurisdiction of the Courts
of Mumbai only. A dispute arose between the parties and thereafter the Respondent invoked the
arbitration clause and appointed a sole Arbitrator to which the Appellant objected in writing. Two
Petitions were then filed by the Respondents - one under Section 9 of the Act for certain interim reliefs,
in which the Delhi High Court issued notice and restrained the Appellant from alienating, transferring
or creating any third-party interests in respect of a certain property in Chennai vide interim order dated
22 September 2015. The second was a petition under Section 11 of the Act, for appointing an
Arbitrator.

The Impugned Judgment: The Delhi High Court held that as no part of the cause of action arose in
Mumbai only the Courts of Amritsar, Chennai and Delhi would have jurisdiction in the Matter and the
Courts in Mumbai would have no jurisdiction over the matter. It was also determined that the Delhi
Courts being the first to be approached would have jurisdiction in the matter and confirmed the
interim order dated 22 September 2015.

Decision of the Supreme Court: The Court referred to its earlier judgments in Bharat Aluminium Co. v.
Kaiser Aluminium Technical Services Inc (2012) 9 SCC 552, Enercon (India) Ltd. v. Enercon Gmbh, (2014)
5 SCC 1 and Reliance Industries Ltd. v. Union of India, (2014) 7 SCC, 603 and opined that the Court has
time and again reiterated that once a seat of Arbitration has been decided upon and fixed it is akin to
a clause of exclusive jurisdiction. Thereafter the court (which has territorial jurisdiction) over the seat
would exercise supervisory powers over the arbitration. Further that the 'juridical seat" is equivalent
to the "legal place" of arbitration. Under the law of Arbitration, the concept of "seat" has been
developed to facilitate the exercise of the option by the parties, of choosing a neutral venue for
Arbitration. It is neither necessary for any cause of action to have arisen at the neutral venue, nor
would any of the provisions of Section 16 to 21 of the Code of Civil Procedure, 1908 be attracted. It
was thus held that in the present case, the minute the seat of arbitration was chosen as Mumbai, the
Courts of Mumbai alone would have jurisdiction over all proceedings in the Arbitration to the exclusion
of all other courts in the country. To this extent the impugned judgment was set aside.

Conclusion: This judgment rendered by the Supreme Court provides clarity on an issue that often
arises when an arbitration clause refers to one state/city as the seat of arbitration and parties
thereafter approach the courts of other states/cities as per their convenience alone and against the
terms of the contract. In light of the recent amendments to the Act, this judgment and the judgments
referred to herein, parties will now select the seat of arbitration after due thought and deliberation
and will be prevented from resorting to forum shopping, in derogation to contractually agreed terms.

2. Booz Allen & Hamilton Inc v SBI Home Finance Limited & Ors (2011) 5 SCC 532

Intro: The biggest and most prominent judgment given by the Hon’ble Supreme Court which dealt
with the question of arbitrability of IPR disputes was Booz Allen and Hamilton Inc. v SBI Home Finance
Ltd. {(2011) 5 SCC 532} in the year 2011.

Facts of the case: In this case, Capstone Investment Co. Pvt. Ltd. and Real Value Appliance Pvt. Ltd.
availed a loan from SBI Home Finance Ltd. The loan availed was secured by the two companies
mortgaging the flats owned by them. Thereafter, the two companies entered into a leave and license
agreement with Booz Allen and Hamilton Inc. A security deposit agreement was entered into by the
above-mentioned 4 entities which contained an arbitration agreement. A dispute arose and SBI filed a
suit for redemption of money through the sale of the suit premises.

Issue of case: Whether a suit for the enforcement of mortgage by the sale can be adjudicated by an
arbitral tribunal and whether the subject matter of the suit fell within the scope of an arbitration
agreement?

Judgement: Thereafter, the Hon’ble Supreme Court dismissing the appeal recognised three conditions
that need to be satisfied for a subject matter to come under the jurisdiction of arbitration. They were:

• The disputes must be capable of adjudication and settlement by arbitration;

Conclusion: The Hon’ble Apex Court also added a caveat to reserve arbitrability of certain categories
of disputes. Such categories were rights in rem as opposed to rights in personam. Since rights in rem
determined rights not only as between the parties to the action but also against the world itself,
including any other person claiming an interest in the subject matter, the Supreme Court held that
such actions could not be arbitrated and rights in personam were held to be arbitrable. Arbitrability of
another species of rights i.e. rights in personam arising out of rights in rem was also discussed and it
was held that such rights were also considered to be arbitrable.

3. Cheran Properties Limited v. Kasturi and Sons Limited & Ors.

Intro: A full bench of the Supreme Court of India in Cheran Properties Limited v. Kasturi and Sons
Limited & Ors.[1] has held that an award can be enforced even against a non-signatory to the
arbitration proceedings. Further the Apex Court has ruled that such an award directing transfer of
shares can be enforced through the NCLT.

Facts of the Case: Sporting Pastime India Limited ('SPIL') a wholly owned subsidiary of Kasturi & Sons
Limited ('KSL'), entered into an agreement with KC Palanisamy ('KCP'), KSL and another entity for
transfer shares. The transaction was such that SPIL would transfer shares to KSL, 90% of which would
then be sold to KCP and its nominees including, Cheran Properties Limited ('Cheran') which received
95% of KCP's 90% shares. Disputes arose between the parties and the matter was settled by way of
arbitration. The award directed KCP and SPIL to return the documents of title and share certificates to
KSL and Hindcorp. Cheran the nominee of KCP and recipient of 95% shares was not party to these
arbitration proceedings. The award was unsuccessfully challenged by KCP under §34 of the Arbitration
and Conciliation Act, 1996 ('A&C Act'). In the interim, KSL initiated proceedings, inter alia, under §111
of the Companies Act, 1956 ('Companies Act') for rectification of the register of SPIL before the
National Company Law Tribunal ('NCLT') to give effect to the Award. This was opposed by Cheran. The
petition was allowed by the NCLT and an appeal against the NCLT's order was dismissed by the National
Company Law Appellate Tribunal. The proceedings thereafter moved to the Supreme Court of India.

Proceedings before the Supreme Court: Cheran relied upon the Supreme Court Judgments in
Indowind Energy Limited v Wescare (India) Limited [2] and S.N.Prasad, Hitek Industries (Bihar) Limited
v Monnet Finance Limited [3] to contend that it was not a signatory to the arbitration agreement and
therefore not a party. It had not participated in the arbitration and therefore the award did not bind
it. Cheran also relied on §36 of the A&C Act to argue that an award being enforceable as a decree of a
civil court could not be enforced by pursuing a "camouflaged petition" before the NCLT. KSL argued
that the share transfer agreement specifically stipulated that KCP's nominees would be bound by it.
Cheran was therefore bound by the share transfer agreement, the arbitration agreement and the
award. It was also argued that only the NCLT had jurisdiction to effectively transfer shares.

Judgment: The Supreme Court considered the ratio of its judgment in Chloro Controls to observe that
an arbitration agreement entered into by a company within a group of companies could bind non-
signatory affiliates, if the circumstances could demonstrate a mutual intention of the parties to bind
both signatories and non-signatories. Based on the facts of this case, the Court held that the transfer
of shares by KCP to its nominees (including Cheran) was subject to the express condition that the
nominee would abide by the terms of the share transfer agreement. Therefore, Cheran could not
contend that it wouldn't be bound by the arbitration agreement or the award.

The Supreme Court thereafter laid special emphasis on §35 of the A&C Act, which provides that an
arbitration award binds parties and the persons claiming under them. The Court felt that Cheran being
a nominee of KCP, as well as being bound by the share transfer agreement was a party having the same
position as KCP and therefore bound by the award in terms of §35 of the A&C Act.

Cheran's contention that the Award in view of §36 could not have been enforced before the NCLT was
also rejected. The Court relied on Sundaram Finance Limited v Abdul Samad[4] to conclude that
execution proceedings can be initiated anywhere in the country where the assets of the judgment
debtor are located. The Court further held that in order to give effect to the transfer of shares,
approaching the NCLT for registration of such transfer and rectification of the register under §111 of
the Companies Act was the only remedy available to KSL and therefore its actions were not only
appropriate but also necessary.

Conclusion:

The Supreme Court has yet again recognized the complexity of modern transactions and passed orders
keeping the commercial intent of the parties in mind. This approach of the Supreme Court is arbitration
friendly and ensures that the arbitration award in the facts of this case was not rendered a mere paper
decree. The commercial and common-sense approach of the Supreme Court of India to complex
commercial transactions is a positive step and likely to go a long way in protecting the integrity of
arbitration and arbitration awards.

4. Rv Solutions Pvt. Ltd. vs Ajay Kumar Dixit & Ors on 15 January, 2019

Intro: The present case was related to the right of a person who is non- signatory to the agreement
i.e. who is not bound by the terms and conditions of the arbitration agreement.

Facts of the case: Plaintiff company was indulged in the business of providing the services related to
telecommunication, information technology, cell-phones etc. Due to the certain issues which arose
between the employees and the company, the employees i.e. the defendants left their job in the
plaintiff company without giving any justified reason or proper notice. All the defendants held senior
positions in the plaintiff company due to which they had access to the highly sensitive and important
information, leakage of which can adversely affect the plaintiff company. After leaving the plaintiff
company, defendants breached their employment contract and indulged in acts which were contrary
to the terms of their employment. For this breach plaintiff filed suit against the defendant. Defendant
no.5 was the company in which defendant no. 1 hold the position of CEO. It was alleged that defendant
no. 1 may have used some sensitive information related to the business of plaintiff company to benefit
defendant no. 5.

Issue: Whether an arbitration agreement will be binding on non-signatory parties?

Contentions of the parties: Defendant no. 1, 2 and 4 said that disputed shall be submitted to the
arbitral tribunal due to the arbitration clause in the contract and filed application under section 8 of
The Arbitration and Conciliation Act, 1996 to refer the matter o the arbitral tribunal. As far as
defendant no. 3 and defendant no. 5 are concerned they were foreign parties which means they were
not bound by the arbitration clause but they were no against referring the matter to the arbitral
tribunal. With respect to plaintiff, its contention was that matter cannot be referred to arbitral tribunal
because it involved defendant no. 3 and defendant no. 5 which are not the parties to the arbitration
agreement.

Decision of the Court: Before deciding on the matter for which the suit is filed, court decides to answer
on the issue of arbitration agreement. Court said that that there is nothing in the act or under section
8 of The Arbitration and Conciliation Act, 1996 which prevent non signatories from resorting to the
option of submitting the dispute to the arbitral tribunal. Court quoting section 8 of The Arbitration and
Conciliation Act, 1996 said that the only condition for given under this section, which prevents the
dispute to be referred to the arbitral tribunal is that arbitration agreement is invalid. This means that
if there is an arbitration agreement and parties are non-signatories to the agreement but related
indirectly in some way to the agreement, then also they can use the remedy of referring the matter to
arbitral tribunal provided the arbitration agreement is valid.

Conclusion: the point here to be noted is that defendant no.3 and defendant no.5 who were non-
signatories did not object against the matter to be refer to the arbitral tribunal. Court said that in some
exceptional circumstances dispute of non-signatories’ parties without the prior consent can be
referred to arbitral tribunal but, in this case, court has to examine the relationship of the parties to the
agreement and also have to see that whether referring the dispute to the arbitration procedure will
fulfil the purpose of serving the justice. In the present case court finally decided to refer the matter to
the arbitral tribunal.

5. A. Sankarasadasivam And Anr. vs A. Kumaravel And Ors. on 11 October, 1976

Intro: This appeal arises out of an order passed by the lower court dismissing an application filed by
the appellants herein, who are defendants 1 and 2 in the suit, under S. 34 of the Arbitration Act, 1940,
for stay of the suit, O. S. No. 82 of 1975 on the ground that there is an arbitration agreement between
that there is an arbitration agreement between the parties to the suit.

Fact of the Case: Respondents 1 to 4 have filed a suit for partition and separate possession of three-
fourth share in the suit properties belonging to respondents 1 to 3 and for recovery of maintenance
said to be due to the 4th respondent. Respondents 1 to 3 and the appellants are brothers, being the
sons of one Arunachala Chettiar who died leaving considerable properties. The 4th respondent is the
widow of the said Arunachala Chettiar while respondents 5 and 6 are the wives of appellants 1 and 2
respectively. The said Arunachala Chettiar had executed a Will on 6-11-1958, bequeathing his
properties equally in favour of all his sons. As no provision was made in the said will in favour of his
wife, she disputed the Will in O. S. 32 of 1959. However, the said suit was compromised between the
parties by the 4th respondent agreeing to receive maintenance at the rate of Rs. 350 per month from
the sons. After the death of their father, Arunachala Chettiar, appellants 1 and 2 have been in
management of the entire properties. Respondents 1 to 3 and their mother, the 4th respondent have
now filed the suit for partition and maintenance, out of which this appeal arises, alleging fraud on the
part of the appellants in the course of the management of the business and other properties of the
family and complaining that from the income of the joint family, they have acquired properties benami
in the names of their wives, respondents 5 and 6.

Issue of the Case: On receipt of the summons in the suit, the appellants filed an application under S.
34 of the Arbitration Act alleging that there is an arbitration agreement dated 3-1-1971, entered into
between all the brothers, that under the said agreement, if any dispute arises regarding the partition
and division of the properties between the sharers, the same should be referred to the arbitration of
one S. Arumugaswami Nadar, Tirunelveli Jn. for his award and the parties will abide by the same, and
that in the face of the said arbitration agreement dated 3-1-1971, the suit has to be stayed under
Section 34 of the Arbitration Act. Respondents 1 to 4 resisted the said application for stay contending
that the agreement dated 3-1-1971, set up by the appellants is not true and genuine, that the same
had been created fraudulently by the appellants to prevent respondents 1 to 4 from getting their
legitimate shares in the suit properties, and that even if the agreement dated 3-1-1971, is true and
valid, having regard to the subject-matter of the suit and the reliefs claimed therein, the Court will be
justified in rejecting the application for stay in exercise of its discretion. Thus, the main contest
between the parties in the application under S. 34 of the Arbitration Act is as to the exercise and
binding character of the agreement dated 3-1-1971, containing the arbitration clause.

Precedent Analysis: In Muthu Kutti v. Varee Kutti, , Satyanarayana Rao, J., while dealing with a similar
order passed under S. 34 of the Arbitration Act, expressed the view that as the very foundation of the
jurisdiction of the Court to stay the trial of the suit under S. 34 is the existence of an arbitration
agreement, the Court has necessarily to find whether the agreement exists between the parties. The
following observations of the learned Judge are very pertinent-

"The very foundation for the jurisdiction of the Court to stay the trial of a suit under Section 34 is the
existence of an arbitration agreement. The applicant comes to Court and asserts that there is such an
agreement while the other side either disputes the truth of such an agreement or admitting its truth
pleads that it is invalid by reason of other vitiating circumstances which are open under law for the
objector to raise and prove. I do not see any reason why in that event when the question was raised
and validity of the jurisdiction of the Court depends upon the result of its decision on that question, the
Court should not try that issue. Section 33, in my opinion, gives an independent right to a person who
wishes to challenge the existence or validity of an arbitration agreement or award and to anticipate
the other side and to initiate proceedings to have those questions determined before hand. It does not,
in my opinion, prohibit the Court acting under S. 34 of the Act from deciding a question which is raised
before it for its decision and the decision on which alone would depend the exercise of its jurisdiction.
From this point of view, it seems to me that the learned Subordinate Judge was not justified in
preventing the plaintiff from adducing evidence on the question of fraud and misrepresentation put
forward by him. It necessary, the counter filed by the plaintiff may be treated as an application under
S. 32, but I think even this it required."

Conclusion: The appeal is, therefore, allowed and the matter is remitted to the lower Court for a fresh
disposal after giving an opportunity to both sides to adduce such evidence as they consider necessary,
both oral and documentary, in support of their respective contentions and after giving a specific finding
on the question as to the existence and validity of the arbitration agreement set up by the appellants.