Impleading Non-Signatory Against Whom No Cause Of Action Is Disclosed Does Not Defeat Reference To Arbitration: Calcutta High Court

The Division Bench of Calcutta High comprising Justices Sabyasachi Bhattacharyya and Uday Kumar while deciding an appeal under Section 37, Arbitration and Conciliation Act (“ACA”) against the dismissal of an application for reference under Section 8, ACA observed that where a non-signatory party has been impleaded against whom no cause of action has been disclosed in the suit and who is a collateral beneficiary, the Court can refer the parties to arbitration. The Court noted that it was well aware that precedents allowed impleadment of such parties only when they were applicants, however, the spirit of Section 8, ACA would allow such reference even if the non-signatory party is a defendant. Facts The present two appeals have been preferred against the same order. In FMAT 167 of 2025, the grant of injunction in favour of the Respondent No. 1 has been assailed whereas in FMA 816 of 2025, the rejection of an application under Section 8 of ACA filed by the Appellant has been challenged under Section 37, ACA. The main premise on which the application under Section 8, ACA was refused by the Trial Judge was that the Defendant No. 2 was a non-signatory to the arbitration agreement and as such, the parameters of Section 8 are not satisfied. Contentions The Senior Counsel appearing for Defendant No.1/Appellant argues that the principal relief in the suit has been sought against the Defendant No.1. Moreover, the entire gamut of reliefs sought in the suit revolves around the lease agreement containing the arbitration clause. Relief 'A' in the suit is for declaration that the said deed of agreement dated July 9, 2004 and the subsequent agreement dated March 3, 2005 executed between the Plaintiff no. 1 and Defendant no. 1 are subsisting and relief 'B' is to the effect that the Plaintiff no. 1 is still a lessee in respect of the suit property on the basis of the subsisting lease agreement dated July 9, 2024. Thus, it is argued that the Defendant No.2 was impleaded merely to obviate a reference to arbitration. The Senior Counsel for the Appellant highlighted that in the pleadings no cause of action has been disclosed against the Defendant No.2 and as such, there cannot be any hindrance in the court referring the matter to arbitration. Hence, no independent right of the Defendant No. 2 has been disclosed. Since the Defendant No. 2 claims through the Defendant No.1 for the purpose of the suit, the agreement containing the arbitration clause also binds the Defendant No. 2. The Senior Counsel further submitted that at best, it is argued that the Defendant No. 2 can have a cause of action against the Defendant No.1 in the event the work order issued in favour of Defendant No.1 is not fructified. However, the same cannot determine the outcome of the Section 8 application within the conspectus of the present suit as framed. On the other hand, the Senior Counsel for the Respondent No.1 placed reliance on Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Anr. (2003) 5 SCC 531(“Sukanya Holdings”) and submitted that unless the matter which is in dispute in a suit is entirely covered by the arbitration agreement, there cannot be any reference to arbitration. If part of the cause of action is amenable to the jurisdiction of arbitration, there cannot be a bifurcation of the suit in two parts and as such, the application under Section 8, ACA should be dismissed. The Senior Counsel next cited Vinod Kumar Sachdeva (Dead) thr Lrs v. Ashok Kumar Sachdeva and Ors. (2023) SCC OnLine SC 878 in support of his proposition that in the said case the Section 8 application was rejected since some of the parties to the suit were non-signatories to the arbitration agreement. Observations Upon a comprehensive perusal of the materials on record, the Court found that the disputes raised in the suit were entirely covered by the arbitration clause in the lease agreement between the Plaintiff No.1 and the Defendant No.1. The Court observed that Defendant No. 2 being a director of the Plaintiff No. 1 cannot be segregated from the Plaintiff No.1. Throughout the plaint of the suit, there was not a single sentence disclosing any cause of action against Defendant No.2. The averments in the plaint which come nearest to such allegation are that Defendant No.1 was attempting to forcibly dispossess Plaintiff No.1 from the suit premises and hand over possession to the Defendant No.2. Hence, there is no positive assertion of any overt or covert act on the part of Defendant No.2, to comprise a cause of action against Defendant No.2 in the suit. The Court observed that the Agreement dated July 9, 2024 was the plinth of the suit and contained the arbitration clause. In the consequential reliefs, permanent injunction was sought against all the Defendants but there was no disclosure of any cause of action against Defendant No. 2 at all. Hence, the omnibus relief of...

Impleading Non-Signatory Against Whom No Cause Of Action Is Disclosed Does Not Defeat Reference To Arbitration: Calcutta High Court

Arpita Pande

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