Civil Appeal No. 7134 of 2012 (Arising out of SLP (C) No. 8950 of 2010) and Civil Appeal Nos. 7135-7136 of 2012 (Arising out of SLP (C) Nos. 26514-26515 of 2011). Case: Chloro Controls (I) P. Ltd. Vs Severn Trent Water Purification Inc. and Ors.. Supreme Court (India)

Case NumberCivil Appeal No. 7134 of 2012 (Arising out of SLP (C) No. 8950 of 2010) and Civil Appeal Nos. 7135-7136 of 2012 (Arising out of SLP (C) Nos. 26514-26515 of 2011)
CounselFor Appellant: F.S. Nariman, Sr. Adv., Rohaan Cama, Subhash Sharma, Ravela D'Souza, Ruby Singh Ahuja, Ruchira Gupta, Deepti Sarin and Shruti Katakey, Advs. for Karanjawala and Co. and For Respondents: H.N. Salve, K.V. Vishwanathan, Sr. Advs., Ajay Bhargava, Vanita Bhargava, Susmit Pushkar, Anchit Oswal, Ankur Khandelwal, Gayatri Goswami, Chetna...
JudgesS.H. Kapadia, C.J.I., A.K. Patnaik and Swatanter Kumar, JJ.
IssueArbitration and Conciliation Act, 1996 - Sections 2, 5, 8, 8(3), 9, 11, 11(6), 11(7), 16, 16(1), 16(2), 16(3), 16(5), 16(6), 34, 34(2), 44, 45, 46, 47, 48, 48(1), 49, 50, 50(1), 50(2), 52; Companies Act, 1956 - Sections 397, 398, 433; Indian Contract Act, 1872 - Section 27; Arbitration Act, 1940 - Sections 21, 24, 34; Foreign Awards (...
Citation2013 (1) ABR 563, 2012 (4) ARBLR 1 (SC), 2013 (1) AWC 943 SC, 2013 (1) BomCR 392, 2012 (111) CLA 1 (SC), 2013 (181) CompCas 339 (SC), 2013 (1) CompLJ 19 (SC), 2013 (1) CTC 418, JT 2012 (10) SC 187, JT 2012 (10) SC 241, 2012 (4) RCR 638 (Civil), RLW 2012 (4) SC 3750, 2012 (9) SCALE 595, 2013 (1) SCC 641, 2013 (2) WBLR (SC) 67
Judgement DateSeptember 28, 2012
CourtSupreme Court (India)

Judgment:

Swatanter Kumar, J.

  1. Leave granted.

  2. The expanding need for international arbitration and divergent schools of thought, have provided new dimensions to the arbitration jurisprudence in the international field. The present case is an ideal example of invocation of arbitral reference in multiple, multi-party agreements with intrinsically interlinked causes of action, more so, where performance of ancillary agreements is substantially dependent upon effective execution of the principal agreement. The distinguished learned Counsel appearing for the parties have raised critical questions of law relatable to the facts of the present case which in the opinion of the Court are as follows:

    (1) What is the ambit and scope of Section 45 of the Arbitration and Conciliation Act, 1996 (for short 'the 1996 Act')?

    (2) Whether the principles enunciated in the case of Sukanya Holdings Pvt. Limited v. Jayesh H. Pandya (2003) 5 SCC 531, is the correct exposition of law?

    (3) Whether in a case where multiple agreements are signed between different parties and where some contain an arbitration clause and others don't and further the parties are not identically common in proceedings before the Court (in a suit) and the arbitration agreement, a reference of disputes as a whole or in part can be made to the arbitral tribunal, more particularly, where the parties to an action are claiming under or through a party to the arbitration agreement?

    (4) Whether bifurcation or splitting of parties or causes of action would be permissible, in absence of any specific provision for the same, in the 1996 Act?

  3. Chloro Controls (India) Private Ltd., the Appellant herein, filed a suit on the original side of the High Court of Bombay being Suit No. 233 of 2004, for declaration that the joint venture agreements and supplementary collaboration agreement entered into between some of the parties are valid, subsisting and binding. It also sought a direction that the scope of business of the joint venture company, Respondent No. 5, set up under the said agreements includes the manufacture, sale, distribution and service of the entire range of chlorination equipments including the electro-chlorination equipment and claimed certain other reliefs as well, against the Defendants in that suit. The said parties took out two notices of motion, being Notice of Motion No. 553 of 2004 prior to and Notice of Motion No. 2382 of 2004 subsequent to the amendment of the plaint. In these notices of motion, the principal question that fell for consideration of the learned Single Judge of the High Court was whether the joint venture agreements between the parties related only to gas chlorination equipment or whether they included electro-chlorination equipment as well. The applicant had prayed for an order of restraint, preventing Respondent Nos. 1 and 2, the foreign collaborators, from acting upon their notice dated 23rd January, 2004, indicating termination of the joint venture agreements and the supplementary collaboration agreement. A further prayer was made for grant of injunction against committing breach of contract by directly or indirectly dealing with any person other than the Respondent No. 5, in any manner whatsoever, for the manufacture, sale, distribution or services of the chlorination equipment, machinery parts, accessories and related equipments including electro-chlorination equipment, in India and other countries covered by the agreement. The Defendants in that suit had taken out another Notice of Motion No. 778 of 2004, under Section 8 read with Section 5 of the 1996 claiming that arbitration clauses in some of the agreements governed all the joint venture agreements and, therefore, the suit should be referred to an appropriate arbitral tribunal for final disposal and until a final award was made by an arbitral tribunal, the proceedings in the suit should be stayed. The learned Single Judge, vide order dated 28th December, 2004, allowed Notice of Motion No. 553 of 2004 and consequently disposed of Notice of Motion No. 2382 of 2004 as not surviving. Against this order, an appeal was preferred, which came to be registered as Appeal No. 24 of 2005 and vide a detailed judgment dated 28th July, 2011, a Division Bench of the High Court of Bombay set aside the order of the learned Single Judge and dismissed both the notices of motion taken out by the Plaintiff in the suit.

  4. Notice of Motion No. 778 of 2004 was dismissed by another learned Single Judge of the High Court of Bombay, declining the reference of the suit to an arbitral tribunal vide order dated 8th April, 2004. This order was again assailed in appeal by the Defendants in the suit and another Division Bench of the Bombay High Court, vide its judgment dated 4th March, 2010, allowed the Notice of Motion No. 778 of 2004 and made reference to arbitration under Section 45 of the 1996 Act.

  5. The judgments of the Division Benches, dated 4th March, 2010 and 28th July, 2011, respectively, have been assailed by the respective parties before this Court in the present Special Leave Petitions, being SLP(C) No. 8950/2010 and SLP(C) No. 26514-15/2011, respectively. Thus, both these appeals shall be disposed of by this common judgment.

  6. Before we notice in detail the factual matrix giving rise to the present appeals and the contentions raised, it would be appropriate to illustrate the corporate structure of the companies and the scope of the agreements that were executed between the parties to these proceedings.

    Corporate Structure of the Companies who are parties to lis

  7. In order to describe the corporate structure with precision we will explain it diagrammatically as follows:


    SEVERN TRENT (DEL) INC.

    Formerly known as SEVEREN TRENT U.S. INC.; Name Changed in May 1992

    SEVERN TRENT SERVICES (DEL) INC.

    R-1 -- CAPITAL CONTROL CO. INC.

    Acquired 80% on 15.05.1990 and 20% on 31.03.1994.

    NAME CHANGED ON 1.4.2002 TO

    SEVERN TRENT WATER PURIFICATION INC.

    (GAS CHLO. & HYPOGEN Product Lines)

    R-2 - CAPITAL CONTROL

    (DELAWARE) CO. INC.

    Formed on 21.09.94

    EXCEL TECHNOLOGIES

    INT''L CORP.

    Acquired in 1998

    Original OMNIPURE and

    SANILEC Manufacturer

    Appellant

    CHLORO CONTROL

    INDIA PVT. LTD.

    MERGED INTO

    ON 31.03.2003

    Shareholders Agreement JV

    CAPITAL CONTROL (INDIA) PVT LTD.

    (ON 14.11.1995 a new Joint Venture)

    R-5 - GAS CHLORINATORS & HYPOGEN

    Distributorship and Knowhow Agreement

    ODN,

    B.V.

    DENORA NORTH AMERICA, INC.

    GROUPO DE NORA

    Original Seaclor and Seaclor Mac Manufacturer

    JV

    SERVEN TRENT DE NORA LLC -- SEPT, 2001

    PRODUCTS CURRENTLY OFFERED ARE OMNIPURE,

    SANILE 7 SEACLOR

    R-3 -- TITANOR

    COMPONENTS LTD.

    Distributes SEACLOR MAC

    Product Line

    R-4 -- HI POINT SERVICES PVT LTD

    OMNIPURE, SANILEC

    Before 1998

    Independent Distributor of EXCEL TECHNOLOGIES since prior to Severn Trent''s Acquisition of EXCEL TECHNOLOGIES

    Currently, Independent Distributor for SEVERN TRENT DENORA

    Distributes Omnipure and Sanilec Products in India

  8. Severn Trent, U.S., Inc. was a company existing under the laws of the State of Pennsylvania, United States of America (for short, 'U.S.A.'). This name came to be changed, in 1992, to Severn Trent (Delaware) Inc., which is the principal parent company. This company owned a 100 per cent subsidiary, Severn Trent Services (Delaware) Inc., U.S.A. Severn Trent Services (Delaware) Inc. owned Capital Control (Delaware) Co. Inc. which was formed on 21st September, 1994. On or about 14th May, 1990, Severn Trent Services PLC, U.K., an erstwhile state-owned water authority, privatized in 1989, expanded its business into the U.S.A. by acquiring 80 per cent shares in Capital Control Co. Inc. on 15th May 1990 and a further 20 per cent on 31st March 1994. It is in this period that the joint venture agreements with the Appellant were negotiated, with the consent of the Severn Trent group, which was, by that time, a majority shareholder in Capital Control Co. Inc. Subsequently, the name of Capital Control Co. Inc., was changed to Severn Trent Water Purification, Inc. (Respondent No. 1), with effect from 1st April, 2002. The Severn Trent Water Purification Inc./Capital Control Co. Inc. then came to be merged with Capital Control (Delaware) Co. Inc. (Respondent No. 2), on 31st March, 2003. As a result thereof, Capital Control (Delaware) Co. Inc. ceased to exist. As per the pleadings of the parties, reference to Capital Control Co. Inc. includes reference to Capital Control Co. Inc. as well as Capital Control (Delaware) Co. Inc.

  9. The Appellant is a company carrying on business under that name and style for the manufacture of chlorination equipments and incorporated under the Indian laws by Madhusudan Kocha (Respondent No. 9 herein) and his group (for short, the "Kocha Group"). This company had been negotiating with Respondent No. 1 for entering into a joint venture agreement, to deal with the manufacture, distribution and sale of gas chlorination equipment and "Hypogen" electro-chlorination equipment Series 3300, etc. This led to the execution of joint venture agreements between the Appellant and Respondent No. 1. The joint venture agreements were signed between these companies for constituting a joint venture company under the name and style of Capital Control (India) Pvt. Ltd., with 1,50,000 equity shares of Rs. 10 each and 50 per cent shareholding with each party. These agreements being prior to the merger of Capital Control (Delaware) Co. Inc. with Capital Control Co. Inc. and also prior to the change of name of Capital Control Co. Inc. to Severn Trent Water Purification Inc., 50 per cent of the shares allotted to the foreign collaborators were to be equally divided between Capital Control (Delaware) Co. Inc. and Capital Control Co. Inc. These joint venture agreements were executed between the parties on 16th November, 1995, as already noticed. However, the joint venture company had been incorporated on 14th November, 1995 itself.

  10. In the year 1998, Excel Technologies...

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