All The Members Of A ‘Joint Venture’ Are Jointly And Severally Liable To Third Parties; No Need To Separately Make Individual Members A Party To Arbitration: Delhi High Court

The bench of Justice Yashwant Varma held that a JV is a quasi-partnership wherein two or more entities may come together and jointly undertake a particular transaction or contract for mutual profit. It held the parties to a JV agreement may provide for different rights or obligations amongst themselves, however, this arrangement inter se parties would not have any effect on the right of a third party to proceed jointly or severally against any individual member of the JV.

The Court also held that when the JV is made a party before an arbitral tribunal, all its members are bound by the result of the arbitral award and there is no requirement to separately array individual members.

Facts

The first respondent is a joint venture between the second and the third respondents. It was formed for the purpose of the execution of the contract relating to the construction of a Barrage and a De-silting Chamber for Tapovan- Vishnugad Hydroelectric Power Project.

Accordingly, the JV entered into an agreement with the decree holder on 06.02.2009 for the construction of an upstream cut-off wall. A dispute arose between the parties which was referred to arbitration.

An arbitration award was passed against the JV. The decree holder put the award for enforcement under Section 36 of the A&C Act. In the execution proceedings, the second respondent moved an application for being struck off from the array of parties.

The contention of the parties

The first respondent sought its removal from the array of parties on the following grounds:

• The arbitration proceedings were not maintainable against it as it was not separately put on notice by the arbitral tribunal in the arbitration proceedings, therefore, the consequent award is also not enforceable against it.
• It is an entity duly incorporated and has a separate legal identity, therefore, it ought to have been separately impleaded as a party to arbitration and in absence of the same, the award cannot be enforced against it merely because it was a party to the JV.

The decree holder countered the above submissions by making the following submissions:

• A joint venture is in the nature of a quasi-partnership and the rights and obligations of the parties to a joint venture agreement are akin to those of partners in a partnership firm.
• The parties to a JV agreement may provide or specify the rights and obligations of each individual member and those can be distinct, however, when the JV as a whole enters into a contractual relationship with a third party, all the individual members regardless of their inter se responsibilities are jointly and severally responsible to the third party. (Reliance placed on Asia Foundation v. State of Gujarat, 1985 SCC OnLIne Guj 93 and Continental Construction v. State of Gujarat, 1986 SCC OnLIne Guj 16.)
• There is no requirement to make all the members of the JV agreement a party before the arbitral tribunal, impleading the JV would suffice.

Analysis by the Court

Placing reliance on the judgments of the Gujarat High Court in Asia Foundation (supra) and Continental Construction (supra), the judgment of the Supreme Court in Horizons ltd v. Union of India, (1995) 1 SCC 478 and the Corpus Juris Secundum, the Court held that that all the members of a ‘joint venture (JV)’ are jointly and severally liable to the third parties with which the JV enters into an agreement.

The Court held that a JV is a quasi-partnership wherein two or more entities may come together and jointly undertake a particular transaction or contract for mutual profit. It held the parties to a JV agreement may provide for different rights or obligations amongst themselves, however, this arrangement inter se parties would not have any effect on the right of a third party to proceed jointly or severally against any individual member of the JV.

The Court also held that when the JV is made a party before an arbitral tribunal, all its members are bound by the result of the arbitral award and there is no requirement to separately array individual members.

Accordingly, the Court dismissed the application moved by the second respondent.

Case Title: ITD Cementation India Limited v. SSJV-ZVS Joint Venture and ors, OMP(ENF.)(COMM.) 188 of 2021

Citation: 2023 LiveLaw (Del) 225

Date: 07.03.2023

Counsel for the Decree Holder: Dr. Amit George, Mr. Piyo Horold, Mr. Amol Acharya, Mr. Rayadurgam Bharat and Mr. Arkaneik Bhaumik, Advs.

Counsel for the Respondents: Ms. Nupoor Maharaj, Adv. for Judgement Debtor No. 1 & 2 Mr. Garnishee, Adv. with Mr. Puneet Taneja, Adv. for NTPC.

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