Non-Signatories To Arbitration Agreement Can Be Made Party To Dispute If Reliefs Sought Against Them Align With Those Sought Against Signatories: Calcutta HC

The Calcutta High Court bench of Justices Sabyasachi Bhattacharyya and Uday Kumar has observed that if the reliefs against the non-signatories to the arbitration agreement are in harmony with the reliefs sought against the signatories, particularly when the legal relationship between the signatories and non-signatories are on the same platform vis-a-vis the cause of action of the suit and the reliefs claimed, then the non-signatories could very well be brought within the purview of the arbitration agreement. Background Facts The present appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (“1996 Act”) arose out of an order passed is CS (COM) 544 of 2024 dismissing the application filed by the present Appellants under Section 8 of the 1996 Act for referring the matter to arbitration. The Appellants rely on Clause 12 of the deed of partnership dated August 23, 1994 entered into between Appellant No. 2 and Respondent No. 1, thereby forming M/s Exchange, Appellant No. 1 – the partnership firm. Clause 12 is an arbitration clause, providing that in case of any dispute arising between the partners or their representatives, the same shall be referred for the decision of the Chief Divisional Manager of Bharat Petroleum Corporation Limited (“BPCL”), Respondent No. 2, under whose jurisdiction the subject retail outlet was situated, for arbitration by him or his nominee. The partnership firm was formed for the purpose of running a petrol pump business from a retail outlet under licence from the BPCL. The learned Single Judge dismissed the application under Section 8 of the 1996 Act primarily on the premise that Defendant Nos.3 to 5 in the suit, against whom claims had been made in the plaint, were not parties to the arbitration agreement and as such, there could not be any reference under Section 8. Contentions The Senior Counsel for the Appellants argued that BPCL was not a necessary party to the suit and was impleaded in the suit merely to void the applicability of Section 8, 1996 Act. It was submitted that Defendant nos. 3 and 4, also Appellants herein, the subsequently added partners after re-constitution of the partnership firm on the retirement of Respondent no.1, had given their express consent to be subject to arbitration and, thus, the matter ought to have been referred to arbitration. The deed by which the partnership was reconstituted also contains an arbitration clause. The Counsel placed reliance on Ajay Madhusudan Patel and others v. Jyotrindra S. Patel and others, 2024 SCC OnLine SC 2597 (“Ajay Madhusudan”), in support of the proposition that even non-signatories to the arbitration agreement could be bound by the arbitration agreement if they consented to do so and if there was a defined legal relationship between the signatory and non-signatory parties. On the other hand, the Counsel for Respondent No.1 argued that unless a “party” as defined in the 1996 Act, is a party to the arbitration agreement, there could not be a reference under Section 8 of the 1996 Act. It was further contended that that Order I Rule 10(2) of the Code of Civil Procedure applies only at the juncture of the filing of the suit and subsequent action taken by the BPCL/Respondent No.2 could not be an occasion for the court to suo motu delete the name of the said Defendant. Learned counsel for the BPCL contended that the name of the BPCL be expunged, since even before the filing of the suit, the BPCL had deleted the name of the plaintiff/respondent no.1 from its records and there was no subsisting cause of action against the said party. Observations The Court began its analysis by highlighting the difference in scope of inquiry to be conducted under Section 11 and Section 8 of the 1996 Act. Under Section 11, the inquiry of the Court is limited to whether there is a valid arbitration agreement and the dispute is covered by the same. However, unlike Section 11, where court is merely an instrumentality under the 1996 Act, under Section 8, the civil court acts in dual capacity by taking up the suit as well as an authority under the 1996 Act. In Section 8, the Court not only considers the validity of the agreement but also considers whether the reliefs claimed in the suit come within the ambit of the arbitration agreement. The Court placed reliance on Ajay Madhusudan wherein it was observed that for determining whether non-signatory parties would be bound by the arbitration agreement, the court has to assess whether such parties or entities intended or consented to be bound by the arbitration agreement or the underlying contract. The requirement of a written arbitration agreement did not exclude the possibility of binding non-signatory parties if there was a defined legal relationship between the signatory and non-signatory parties. Adding to the ratio, the Court held that if upon looking at the plaint, it appears ...

Non-Signatories To Arbitration Agreement Can Be Made Party To Dispute If Reliefs Sought Against Them Align With Those Sought Against Signatories: Calcutta HC

Arpita Pande

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