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There Cannot Be A Single Arbitration Reference For Disputes Arising Out Of Different Agreements :SC [Read Judgment]

Manu Sebastian
14 Oct 2017 6:38 AM GMT
There Cannot Be A Single Arbitration Reference For Disputes Arising Out Of Different Agreements :SC [Read Judgment]
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While disposing of arbitration requests pertaining to agreements between Gangavaram Port Ltd(GPL)., M/s Duro Felguera S.A, a Spanish company(DF) and Felguera Graus India Private Ltd.(FGI), the Supreme Court held that there cannot be a single arbitration reference for disputes arising out of different agreements, even if they are inter-linked to a single transaction.

GPL had awarded a tender work to DF and FGI, its Indian subsidiary. Later, the original contract was split up into five separate contracts, with different job descriptions. Four of such contracts were with FGI, the Indian subsidiary, and one of them was with DF. Each contract had a separate arbitration clause. Apart from that, DF had entered into a performance guarantee agreement with GPL for the performance of contract by FGI, which also had an arbitration clause. Later, a tripartite MoU was entered into between GPL, DF and FGI, which had listed their performance obligations with reference to the split up contracts.

When disputes arose, arbitration clause was invoked by DF and FGI. FGI had issued four arbitration notices, and DF issued one arbitration notice, under their respective agreements. On the other hand, GPL issued a composite notice constituting a single arbitral tribunal on the basis of MoU. The justification of GPL was that the subsequent MoU subsumed the earlier separate agreements.

The bench comprising Justice R. Banumathi and Justice Kurian Joseph, through their separate judgments,  did not uphold the course of action adopted by GPL in issuing a comprehensive notice. It was held that there were different agreements, each having its own arbitration clause, and hence there had to be arbitral tribunals. Also, the dispute with respect to DF was an international arbitration, whereas the disputes with respect to FGI were a domestic arbitration.

GPL placed reliance on Chloro Controls India Pvt.Ltd. v.Severn Trent Water Purification Inc and others (2013) 1 SCC 641 to contend that where various agreements constitute a composite transaction, court can refer disputes to arbitration if all ancillary agreements are relatable to principal agreement and performance of one agreement is so intrinsically interlinked with other agreement. However, it was distinguished by pointing out that therein the arbitration clause was widely couched to bring within its ambit all disputes under and in connection with the principal agreement. Such a clause was absent in the instant case.

Further, it was held that after the 2015 amendment, the power of the Court to appoint the arbitrator under Section 11 has been narrowed down to expressly state that the Court need only examine the existence of arbitration agreement. Regarding the scope of Section 11(6A), it was observed as hereunder:-  From a reading of Section 11(6A), the intention of the legislature is crystal clear i.e. the Court should and need only look into one aspect- the existence of an arbitration agreement. What are the factors for deciding as to whether there is an arbitration agreement is the next question. The resolution to that is simple - it needs to be seen if the agreement contains a clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement.

It was also observed that the legislative policy and purpose is essentially to minimize the Court’s intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11 (6A) ought to be respected.

There is no dispute that there are five distinct contracts pertaining to five different works. The argument that the MoU substituted all the earlier five agreements was rejected. The matters were disposed of with the following conclusions:-

There are six arbitrable agreements (five agreements for works and one Corporate Guarantee) and each agreement contains a provision for arbitration. Hence, there has to be an Arbitral Tribunal for the disputes pertaining to each agreement. While the arbitrators can be the same, there has to be six Tribunals - two for international commercial arbitration involving the Spanish Company-M/s Duro Felguera, S.A. and four 44 for the domestic.

Read the Judgment Here

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