In commercial transaction effected through several interconnected agreements, all parties are subject to the arbitration clause contained in the main agreement even if there is no arbitration clause in the ancillary agreement.
In a recent judgment, the Supreme Court held that where several parties are involved in a single commercial project executed through several interconnected agreements/contracts then all parties can be covered by the arbitration clause in the main agreement.
The ratio was delivered in the matter of Ameet Lalchand Shah Vs. Rishabh Enterprises, Civil Appeal No. 4690 of 2018 (Arising out of SLP(C) No.16789 of 2017) decided on 03.05.2018
Challenge
The dispute in the present case had arisen in relation to four agreements entered into by the Appellant and each Respondent separately namely – (i) Equipment and Material Supply Contract; (ii) Engineering, Installation and Commissioning Contract; (iii) Sale and Purchase Agreement; and (iv) Equipment Lease Agreement. While three agreements contained an arbitration clause one did not. All the four agreements were for the single purpose to commission 2 MWp Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh.
On receipt of notice and summons in the suit, the appellants/defendants preferred an application before the Delhi High Court under Section 8 of the Arbitration and Conciliation Act seeking for reference of the dispute between the parties to arbitration pertaining to all the four agreements. The appellants sought for reference to arbitration of all the four agreements by contending that the Sale and Purchase Agreement is the main agreement and that other three agreements are inter-connected as they are executed between the same parties and the obligations and the performance of the terms of the agreements are inter-connected viz. commissioning of the Photovoltaic Solar Plant at Dongri, Raksa, District. The learned Single Judge seized of the matter dismissed the application holding that the Equipment Lease Agreement cannot be treated as the mother/principal agreement and the agreements between the respondents and Astonfield and Juwi India cannot be said to be ancillary agreements to the same.
Being aggrieved by the dismissal of the application, the appellants preferred appeal before the Division Bench which came to be dismissed. The Division Bench pointed out the difference in the language between Section 8 and Section 45 of the Act and after referring to Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. and others (2013) 1 SCC 641, observed that Sukanya Holdings was not overruled. The Division Bench further pointed out that in spite of amendment brought in under Section 8, since the main/principal agreement–Sale and Purchase Agreement does not contain an arbitration clause, the matter cannot be referred to arbitration.
Therefore, the Supreme Court was posed with the question – whether all the four agreements are interconnected to refer the parties to arbitration though there is no arbitration clause in the principal agreement?
Held
After studying the clauses of each agreement and the averments made in the plaint, the Supreme Court concluded that all the four agreements are inter-connected.
It was held that in a case like the present one, though there are different agreements involving several parties, it is a single commercial project namely operating a 2 MWp Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh. Commissioning of the Solar Plant, which is the commercial understanding between the parties and it has been effected through several agreements. The agreement – Equipment Lease Agreement for commissioning of the Solar Plant is the principal/main agreement. The two agreements of Rishabh with Juwi India:- (i) Equipment and Material Supply Contract; and (ii) Engineering, Installation and Commissioning Contract and the Rishabh’s Sale and Purchase Agreement with Astonfield are ancillary agreements which led to the main purpose of commissioning the Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh by Dante Energy (Lessee). Even though, the Sale and Purchase Agreement between Rishabh and Astonfield does not contain arbitration clause, it is integrally connected with the commissioning of the Solar Plant at Dongri, Raksa, District Jhansi, U.P. by Dante Energy. Juwi India, even though, not a party to the suit and even though, Astonfield and appellant No.1 – Ameet Lalchand Shah are not signatories to the main agreement viz. Equipment Lease Agreement, it is a commercial transaction integrally connected with commissioning of Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, U.P. What is evident from the facts and intention of the parties is to facilitate procurement of equipment’s, sale and purchase of equipment’s, installation and leasing out the equipment’s to Dante Energy.
It was held that the dispute between the parties to various agreements could be resolved only by referring all the four agreements and the parties thereon to arbitration.