Case Note & Summary
The matter arose from a summary suit filed by M/s. Ruby Organics Pvt. Ltd. against M/s. Sai Mirra Innopharm Pvt. Ltd. for recovery of amounts due on various tax invoices for goods supplied. The defendants took out a notice of motion under Section 8 of the Arbitration and Conciliation Act, 1996 seeking reference of the dispute to arbitration, relying on an agreement dated 26th May 2006 between the parties which contained an arbitration clause. There was also an agreement dated 25th May 2006 between the defendants and a sister concern of the plaintiffs, which also had an arbitration clause. An earlier application based on that second agreement was withdrawn after the defendants admitted it was not between the parties to the suit. The fresh application annexed both agreements.
The plaintiffs contended that the suit claims were based on independent invoices which did not refer to either agreement, that the terms of the invoices differed from the agreement, that some products were not covered by the agreement, and that therefore the subject matter of the suit was not the same as the subject matter of the arbitration agreement. They also argued that bifurcation of the claim was impermissible under the law laid down in Sukanya Holdings (P) Ltd. vs. Jayesh H.Pandya. The defendants relied on Branch Manager, M/s. Magma Leasing & Finance Ltd. to argue that once an arbitration agreement existed, the court must refer the parties to arbitration if conditions under Section 8 were satisfied.
The court examined the invoices and found that they made no reference to the agreement dated 26th May 2006 and were issued on different terms. It held that the mandatory condition under Section 8 that the subject matter of the suit must be the same as the subject matter of the arbitration agreement was not satisfied. It further held that even if an attempt were made to bifurcate the transactions, it was not possible to split the plaintiff's claim. Regarding the agreement dated 25th May 2006, the court noted that the plaintiffs were not a party to it, and thus the arbitration agreement therein could not be extended to them under Section 7 of the Act. Consequently, the notice of motion was dismissed with no order as to costs.
Headnote
A) Arbitration - Reference to Arbitration under Section 8 - Conditions for reference - Arbitration and Conciliation Act, 1996, Section 8 - The suit claims were based on invoices that were not issued under the agreement dated 26th May 2006 containing the arbitration clause, thus the mandatory condition that the subject matter of the suit must be the same as the subject matter of the arbitration agreement was not satisfied. Held that parties cannot be referred to arbitration. (Paras 13-14)
B) Arbitration - Bifurcation of Suit - Not permissible - Arbitration and Conciliation Act, 1996, Section 8 - Even if an attempt is made to bifurcate transactions, it is not possible to split the plaintiff's claim, and referring part to arbitration is not allowed. Reliance placed on Sukanya Holdings (P) Ltd. vs. Jayesh H.Pandya. Held that parties cannot be referred to arbitration. (Paras 15-16)
C) Arbitration - Non-signatory to Arbitration Agreement - Extension to non-signatory - Arbitration and Conciliation Act, 1996, Section 7 - The plaintiffs were not a party to the agreement dated 25th May 2006 between the sister concern and the defendants, thus the arbitration agreement therein cannot be extended to disputes between the plaintiffs and defendants. Held that plaintiffs cannot be referred under that agreement. (Para 16)
Issue of Consideration
Whether the disputes in the summary suit should be referred to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 based on the arbitration clause in the agreement dated 26th May 2006, and whether the subject matter of the suit is the same as the subject matter of the arbitration agreement
Final Decision
Notice of Motion dismissed. No order as to costs.
Law Points
- For reference under Section 8 of Arbitration and Conciliation Act
- 1996
- subject matter of suit must be same as subject matter of arbitration agreement
- invoices issued without reference to agreement cannot be basis for arbitration
- bifurcation of suit not permissible
- agreement with third party cannot bind non-signatory plaintiff
Case Details
2013 LawText (BOM) (09) 42
Notice of Motion No. 3551 of 2011 in Summary Suit No. 2602 of 2009
Mr. Vinod Tayade, i/b. Mr. Anil Desai for applicant/defendants; Mr. Sanjay Jain, i/b. A.V. Jain & Associates for respondents/plaintiffs
M/s. Sai Mirra Innopharm Pvt. Ltd.
M/s. Ruby Organics Pvt. Ltd.
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Nature of Litigation
Application under Section 8 of Arbitration and Conciliation Act, 1996 seeking reference of disputes in a summary suit to arbitration.
Remedy Sought
Defendants sought that the dispute between the plaintiffs and defendants be referred to arbitration.
Filing Reason
The defendants alleged that an arbitration agreement existed between the parties and that the subject matter of the suit fell within its scope.
Previous Decisions
Earlier Notice of Motion (661 of 2010) was withdrawn by defendants after they conceded that the agreement dated 25th May 2006 was not between the parties to the suit. The court dismissed it as withdrawn with liberty to file a fresh notice.
Issues
Whether the suit could be referred to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 when the claims in the suit were based on invoices not issued under the agreement containing the arbitration clause.
Whether the subject matter of the suit was the same as the subject matter of the arbitration agreement.
Whether bifurcation of the claim was permissible.
Whether an arbitration agreement between the defendants and a sister concern of the plaintiffs could be enforced against the plaintiffs.
Submissions/Arguments
Defendants argued that the agreement dated 26th May 2006 contained an arbitration clause and therefore all disputes must be referred to arbitration; relied on Branch Manager, M/s.Magma Leasing & Finance Ltd. to assert that once conditions of Section 8 are met, the court must refer the parties.
Plaintiffs contended that the suit invoices were independent transactions not based on the said agreement; the terms differed and some products were not covered; the agreement with the sister concern could not bind them; bifurcation was not permissible as held in Sukanya Holdings.
Ratio Decidendi
For reference under Section 8 of the Arbitration and Conciliation Act, 1996, the subject matter of the suit must be the same as the subject matter of the arbitration agreement. Where the suit is based on independent invoices that do not refer to the agreement containing the arbitration clause, the mandatory condition is not satisfied. Also, bifurcation of the suit is not permissible, and an arbitration agreement between different parties cannot bind a non-signatory to the proceedings.
Judgment Excerpts
None of these invoices are based on any of the agreements whether dated 26th May, 2006 or 25th May, 2006. In my view subject matter of this suit is not the subject matter of arbitration agreement as the invoices issued and goods sold are not under agreement dated 26th May, 2006 which contained arbitration agreement.
If bifurcation of the subject matter of a suit was contemplated, the legislature would have used appropriate language to permit such a course. Since there is no such indication in the language, it follows that bifurcation of the subject matter of an action brought before a judicial authority is not allowed.
Since the plaintiffs are not party to the said agreement dated 25th May, 2006 which records the arbitration agreement, that agreement recorded between the parties to the said agreement cannot be extended in respect of the dispute if any having arisen between the plaintiffs and the defendants in this suit.
Procedural History
On 26th May 2006, an agreement was entered into between the plaintiffs and the defendants with an arbitration clause. On 25th May 2006, a separate agreement was entered into between the defendants and a sister concern of the plaintiffs, also containing an arbitration clause. Summary Suit No. 2602 of 2009 was filed by the plaintiffs. Defendants filed Notice of Motion No. 661 of 2010 under Section 8 of the Arbitration and Conciliation Act, 1996, relying on the agreement dated 25th May 2006. On 28th November 2011, after the defendants conceded that the said agreement was not between the parties, the court permitted withdrawal with liberty to file a fresh motion. The present Notice of Motion No. 3551 of 2011 was then filed, annexing both agreements. The motion was heard and dismissed on 21st September 2013.
Acts & Sections
- Arbitration and Conciliation Act, 1996: 8, 7
