The Delhi High Court in the case of STCI Finance Ltd. v. Sh. Shreyas Kirti Lal Doshi & Anr. passed a Judgment dated 14/01/2020, where the High Court has reiterated the principle that the scope of an arbitration agreement is wide enough to include the non-signatories who are parties to a dispute in order to enable signatory parties to arbitrate the subject disputes. The Single Bench of Justice V. Kameswar Rao was hearing an Application filed by the Defendant under Section 8 of the Arbitration and Conciliation Act, 1996.
In the present matter the Plaintiff filed a suit for recovery of approximately Rupees Ten Crores. In the said case the Borrower Company stopped making payments to the Plaintiff Company under Loan Accounts resulting in overdue payments. A Demand Notice was issued by the Plaintiff for pending payments. The Defendants while placing reliance on Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification, 2013 contended that in view of the commonality of subject matter and transactions under the Loan Accounts including the Deeds of Guarantee and Share Pledge Agreements, it is a fit case for the Court to pass appropriate directions under Section 8 of the Arbitration and Conciliation Act, 1996 referring all the disputes between the parties to be decided by a sole Arbitrator. On the other hand the Plaintiff Company while referring to the case of SMS Tea Estates v. Chandmari Tea Company 2011 argued that the Supreme Court had held that even if multiple agreements have been entered into between the parties; Arbitrator can only be appointed with regard to the disputes relating to agreement containing arbitration clause. They further submitted that there was no arbitration clause in the Deeds of Guarantee, Facility Agreements, and as such an arbitration clause cannot be read into the same.
Dismissing the Application filed by the Defendants on the ground that it was misconceived the High Court held that in STCI Finance (supra) the Court had distinguished the judgment of Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification as in that case the Supreme Court held that a non-signatory or a third party could be subjected to arbitration without their prior consent but this would only be in exceptional cases. It would be essential for the Court to ascertain that there was a clear intention of the parties – both the signatory as well as non- signatory – to refer all disputes between all parties to the Arbitral Tribunal to resolve the disputes by arbitration. The Court would examine the exceptions on the touchstone of the direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject matter and the agreement between the parties being a composite transaction.
Hence the principle laid down in Chloro Controls (supra) that has made non-signatory parties, parties to an arbitration agreement, if there is commonality of subject matter has been followed. The said principle enables disputes to be resolved between non-signatories parties thereby bringing closure to disputes that hither to took years to be decided.
GGSIP UNIVERSITY, DELHI