# 13 S.C.R. 402 CHLORO CONTROLS (I) P. LTD v. SEVERN TRENT WATER PURIFICATION INC. AND ORS

- **Citation:** [2012] 13 S.C.R. 402
- **Court:** Supreme Court of India
- **Decided:** 2012-09-28
- **Case number:** Civil Appeal No. 7134 of 2012
- **Bench:** S.H. Kapadia, A.K. Patnaik, Swatanter Kumar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/13-s-c-r-402-chloro-controls-i-p-ltd-v-severn-trent-water-purification-inc-and-28142
- **Pages:** 115

## Headnote

Arbitration and Conciliation Act, 1996:
s. 45 - Reference! to arbitration under - Scope of -
International commercial arbitration - Multi-party agreements
- Joint venture agreements with different parties - Some of
the agreements contained arbitration clause while the others
did not - Dispute betw1~en parties leading to filing of suit -
D High Court referred the entire suit (including the non-signatory
parties to the arbitration agreement) for arbitration uls. 45 -
Joinder of non-signatory parties to arbitration - Permissibility
- Held: Joinder of non-signatory parties to arbitration is
permissible - They can be referred to arbitration, provided
El
they satisfy the pre-requisites ulss. 44 and 45 rlw Schedule I
of the Act - The cases of group companies or where various
agreements constitute a composite transaction with
intrinsically interlinked cause of action, can be referred to
arbitration, even if the disputes exist between signatory or
F even non-signatory parties - However, the discretion of the
court has to be exercised in exceptional, limiting, befitting and
cases of necessity and very cautiously - Expression 'any
person claiming through or under him' used in s. 45, takes
within its ambit persons who are in legal relationships via
GI multiple and multi-party agreements, though they may not all
be signatories to the arbitration clause - In the present case,
the corporate structure of the companies demonstrates a
definite legal relationship between the parties to the /is or
persons claiming under them - Their contractual relationship
H
402
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT
403
WATER PURIFICATION INC.
spells out the terms, obligations and roles of the respective A
parties which they were expected to perform for attaining the
object of successful completion of the joint venture agreement
- All the other agreements were intrinsically inter-connected
with the mother agreement - All the agreements were part of
a composite transaction to facilitate implementation of B
principal agreement - Hence, all the parties to the /is were
covered under expression "any person claiming through or
under" the principal (mother) agreement - Arbitration clause
in the principal agreement was comprehensive enough to
include all disputes arising ·under and in connection with" c
principal agreement -
Conduct of parties and even
subsequent events show that the parties had executed,
intended and actually implemented composite transaction
contained in principal/mother agreement - Hence, direction
to refer the disputes to arbitration -Convention on Recognition 0
and Enforcement of Foreign Arbitral Awards (New York
Convention) - Article II (3) - ICC Rules - UNCITRAL Model
Rules.
s. 45 - Issues under - Determination of - Issue of
jurisdiction should be decided at the beginning of the E
proceedings itself and they should have finality -
Determination of fundamental issues as contemplated u/s. 45
at the very first instance is not only appropriate but is also the
legislative intent - Jurisdiction.
Code of Civil Procedure, 1908 - s. 9 - Jurisdiction of civil F
courts - Jurisdiction of the court and the right to a party
emerging from s. 9 is not an absolute right, but contains inbuilt
restrictions - Civil courts have jurisdiction to try all suits
except those which is either expressly or impliedly baffed -
The provisions of s. 45 of the 1996 Act would prevail over the G
provisions of CPC - Arbitration and Conciliation Act, 1996 -
s. 45.
Doctrines/Principles:
'Group of Companies' Doctrine; Principle of 'incorporation H
404
SUPREME COURT REPORTS
[2012] 13 S.C.R.
A by reference'; Principle of 'composite performance'; Principle
of 'agreements within an agreement' and Principle of
'Kompetenz kompetenz' - Discussed.
Precedent - Observations - Precedential value - Held:
The obseNations to be construed and read to support the
B ratio decidendi - They would not constitute valid precedent
as it would be hit by the doctrine of stare decisis - Doctrine -
Consti

## Text

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A
B
[2012) 13 S.C.R. 402
CHLORO CONTROLS (I) P. LTD.
v.
SEVERN TRENT WATER PURIFICATION INC. AND ORS.
(Civil Appeal No. 7134 of 2012)
SEPTEMBER 28, 2012
[S.H. KAPADIA, CJI., A.K. PATNAIK AND
SWATANTER KUMAR, JJ.]
Arbitration and Conciliation Act, 1996:
s. 45 - Reference! to arbitration under - Scope of -
International commercial arbitration - Multi-party agreements
- Joint venture agreements with different parties - Some of
the agreements contained arbitration clause while the others
did not - Dispute betw1~en parties leading to filing of suit -
D High Court referred the entire suit (including the non-signatory
parties to the arbitration agreement) for arbitration uls. 45 -
Joinder of non-signatory parties to arbitration - Permissibility
- Held: Joinder of non-signatory parties to arbitration is
permissible - They can be referred to arbitration, provided
El
they satisfy the pre-requisites ulss. 44 and 45 rlw Schedule I
of the Act - The cases of group companies or where various
agreements constitute a composite transaction with
intrinsically interlinked cause of action, can be referred to
arbitration, even if the disputes exist between signatory or
F even non-signatory parties - However, the discretion of the
court has to be exercised in exceptional, limiting, befitting and
cases of necessity and very cautiously - Expression 'any
person claiming through or under him' used in s. 45, takes
within its ambit persons who are in legal relationships via
GI multiple and multi-party agreements, though they may not all
be signatories to the arbitration clause - In the present case,
the corporate structure of the companies demonstrates a
definite legal relationship between the parties to the /is or
persons claiming under them - Their contractual relationship
H
402
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT
403
WATER PURIFICATION INC.
spells out the terms, obligations and roles of the respective A
parties which they were expected to perform for attaining the
object of successful completion of the joint venture agreement
- All the other agreements were intrinsically inter-connected
with the mother agreement - All the agreements were part of
a composite transaction to facilitate implementation of B
principal agreement - Hence, all the parties to the /is were
covered under expression "any person claiming through or
under" the principal (mother) agreement - Arbitration clause
in the principal agreement was comprehensive enough to
include all disputes arising ·under and in connection with" c
principal agreement -
Conduct of parties and even
subsequent events show that the parties had executed,
intended and actually implemented composite transaction
contained in principal/mother agreement - Hence, direction
to refer the disputes to arbitration -Convention on Recognition 0
and Enforcement of Foreign Arbitral Awards (New York
Convention) - Article II (3) - ICC Rules - UNCITRAL Model
Rules.
s. 45 - Issues under - Determination of - Issue of
jurisdiction should be decided at the beginning of the E
proceedings itself and they should have finality -
Determination of fundamental issues as contemplated u/s. 45
at the very first instance is not only appropriate but is also the
legislative intent - Jurisdiction.
Code of Civil Procedure, 1908 - s. 9 - Jurisdiction of civil F
courts - Jurisdiction of the court and the right to a party
emerging from s. 9 is not an absolute right, but contains inbuilt
restrictions - Civil courts have jurisdiction to try all suits
except those which is either expressly or impliedly baffed -
The provisions of s. 45 of the 1996 Act would prevail over the G
provisions of CPC - Arbitration and Conciliation Act, 1996 -
s. 45.
Doctrines/Principles:
'Group of Companies' Doctrine; Principle of 'incorporation H
404
SUPREME COURT REPORTS
[2012] 13 S.C.R.
A by reference'; Principle of 'composite performance'; Principle
of 'agreements within an agreement' and Principle of
'Kompetenz kompetenz' - Discussed.
Precedent - Observations - Precedential value - Held:
The obseNations to be construed and read to support the
B ratio decidendi - They would not constitute valid precedent
as it would be hit by the doctrine of stare decisis - Doctrine -
Constitution of India, 1950 - Art. 141.
Words and Phrases:
C
Expression 'connection' - Meaning of.
The questions which inter alia arose for
consideration in the pr1esent appeals were: (1) What is the
ambit and scope of Section 45 of the Arbitration and
D Conciliation Act, 1996; (2) Whether in a case where
multiple agreements were signed between different
parties some containing an arbitration clause and others
not and where the parties were not identically common
in proceedings before the Court (in a suit) and the
E arbitration agreement, a reference of disputes as a whole
or in part could be made to the arbitral tribunal, more
particularly, where the parties to an action were claiming
under or through a party to the arbitration agreement; and
(3) Whether the principles enunciated in the case of
*Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya was the
F correct exposition of law.
Dismissing the appeals, the Court
HELD: 1.1 Section 45 is a provision falling under
Chapter I of Part II of the Arbitration and Conciliation Act,
G 1996 which is a self.·contained Code. The expression
'person claiming through or under' would mean and take
within its ambit multiple and multi-party agreements,
though in exceptional case. Even non-signatory parties
to some of the agreements can pray and be referred to
H arbitration provided they satisfy the pre-requisites under
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 405
WATER PURIFICATION INC.
Sections 44 and 45 r/w Schedule I. Reference of nonA
signatory parties is neither unknown to arbitration
jurisprudence nor is it impermissible. [Para 167] (515-A-C]
1.2 An arbitration agreement, under Section 45 of the
1996 Act, should be evidenced in writing and in terms of
Article II of Schedule 1, an agreement in writing shall 8
include an arbitral clause in a contract or an arbitration
agreement signed by the parties or contained in an
exchange of letters or telegrams. Thus, the requirement
that an arbitration agreement be in writing is an
expression incapable of strict construction and requires C
to be construed liberally, as the words of this Article
provide. Even in a given circumstance, it may be possible
and permissible to construe the arbitration agreement
with the aid and principle of 'incorporation by reference'.
Though the New York Convention is silent on this matter, D
in common practice, the main contractual document may
refer to standard terms and conditions or other standard
forms and documents which may contain an arbitration
clause and, therefore, these terms would become part of
the contract between the parties by reference. The E
solution to such issue should be case-specific. The
relevant considerations to determine incorporation would
be the status of parties, usages within the specific
industry, etc. Cases where the main documents explicitly
refer to arbitration clause included in standard terms and
F
conditions would be more easily found in compliance
with the formal requir~ments set out in the Article II of the
New York Convention than those cases in which the main
contract simply refers to the application of standard forms
without any express reference to the arbitration clause. G
[Para 72] (462-A-F]
M. V. "Baltic Confidence" and Anr. v. State Trading
Corporation of/ndia Ltd. and Anr. (2001) 7 SCC 473: 2001 (1)
Suppl. SCR 699; Olympus Superstructure Pvt. Ltd. v.
H
406
SUPREME COURT REPORTS
[2012] 13 S.C.R.
A
Meena VijayKhetan and Ors. (1999) 5 SCC 651: 1999 (3)
SCR 490 - relied on.
~
1.3 Under the Indian Law, greater obligation is cast
upon the Courts to determine whether the agreement is
valid, operative and capable of being performed at the
B threshold itself. Such challenge has to be a serious
challenge to the substantive contract or to the agreement,
as in the absence of such challenge, it has to be found
that the agreement was valid, operative and capable of
being performed; the dispute would be referred to
C arbitration. [Para 78] [468-D-E]
State of Orissa v. Klockner and Company and Ors. AIR
1996 SC2140: 1996 (1) Suppl. SCR 368 - relied on.
Abu Dhabi Gas Liquefaction Co. Ltd. v. Eastern Bechtel
D Co1p.(1982) 2 Lloyd's Rep. 425, CA - referred to.
Law and Practice of International Commercial Arbitration
by AlanRedfern and Martin Hunder (Fourth Edition)
1.4 The legislative intent and essence of the 1996 Act
E was to bring domestic as well as international
commercial arbitration in consonance with the
UNCITRAL Model Rules, the New York Convention and
the Geneva Convention. The New York Convention was
physically before the Legislature and available for its
F consideration when it enacted the 1996 Act. Article II of
the Convention provide·s that each contracting State shall
recognize an agreement and submit to arbitration all or
any differences which have arisen or which may arise
between them in respect of a defined legal relationship,
G whether contractual or not concerning a subject matter
capable of settlement by arbitration. Once the agreement
is there and the Court is seized of an action in relation to
such subject matter, then on the request of one of the
parties, it would refer the parties to arbitration unless the
H agreement is null and void, inoperative or incapable of
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT
407
WATER PURIFICATION INC.
performance. Still, the legislature opted to word Section
A
45 somewhat dissimilarly. Section 8 of the 1996 Act also
uses the expression 'parties' simpliciter without any
extension. In significant contra-distinction, Section 45
uses the expression 'one of the parties or any person
claiming through or under him' and 'refer the parties to
B
arbitration', whereas the rest of the language of Section
45 is similar to that of Article 11(3) of the New York
Contention. The Court cannot ignore this aspect and has
to give due weightage to the legislative intent. It is a
settled rule of interpretation that every word used by the c
Legislature in a provision should be given its due
meaning. The Legislature intended to give a liberal
meaning to this expression. [Paras 88 and 89] [472-G-H;
473-A-E]
1.5 The language and expressions used in Section 45,
D
'any person claiming through or under him' including in
legal proceedings may seek reference of all parties to
arbitration. Once the words used by the Legislature are of
wider connotation or the very language of Section is
structured with liberal protection then such provision
E
should normally be construed liberally. [Para 90] [473-F-G]
1.6 In view of the legislative object and the intent of
the framers of the statute, i.e., the necessity to encourage
arbitration, the Court is required to exercise its
jurisdiction in a pending action, to hold the parties to the
arbitration clause and not to permit them to avoid their
bargain of arbitration by bringing civil action involving
multifarious cause of action, parties and prayers. [Para
91] [473-H; 474-A-B]
1. 7 The scope of concept of 'legal relationship' as
incorporated in Article 11(1) of the New York Convention
vis-il-vis the expression 'any person claiming through or
under him' appearing in Section 45 of the 1996 Act has
to be examined by reading Article 11(1) and (3) in
F
G
H
408
SUPREME COURT REPORTS
[2012] 13 S.C.R.
A conjunction with Se1:tion 45 of the Act. Both these
expressions have to be read in harmony with each other.
Once they are so mad, it will be evident that the
expression "legal relationship" connotes the relationship
of the party with the person claiming through or under
B him. A person may not be signatory to an arbitration
agreement, but his cause of action may be directly
relatable to that contract and thus, he may be claiming
through or under one of those parties. For the purp.oses
of both the New York Convention and the UNg.vrf'{AL
•
C Model Law, it is sufficient that there should be a defined
"legal relationship" between the parties, whether
contractual or not. Given the existence of such an
agreement, the dispute submitted to arbitration may be
governed by the principles of delictual or tortuous liability
0 rather than by the law of contract. [Para 92] [474-C-G]
Roussel - Uclaf v. G.D. Searle and Co. Ltd. and G.D.
Searle andCo. 1978 Vol. 1 LLR 225; City of London v.
Sancheti (2009) 1 Lloydslaw Reports 116 - referred to.
Law and Practice of Commercial Arbitration in England
E (SecondEdn.) by Sir Michael J. Mustill - referred to.
1.8 Heavy onus lies on the non-signatory party to
show that in fact and in law, it is claiming under or
through a signatory party, as contemplated under
F Section 45 of the 1996 Act. It occasionally happens that
the plaintiff is not himself a party to the arbitration
agreement on which the application is fo\lnded. This may
arise in the following situations: (i) The plaintiff has
acquired the rights, which the action is brought to
G enforce, from someone who is a party to an arbitration
agreement with the defendant; (ii) The plaintiff is bringing
the action on behalf of someone else, who is a party to
an arbitration agreeme,nt with the defendant. (iii) When the
expression used in tlhe provision, the words 'claiming
ffi under plaintiff' relate to substantive right which is being
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT
409
WATER PURIFICATION INC.
asserted. [Paras 96 and 97] [476-C, E-G]
A
The Law and Practice of Commercial Arbitration in
England byMichael J. Mustilll and Stewart C.Boyd -
referred to.
1.9 Joinder of non-signatory parties to arbitration is
B
not unknown to the arbitration jurisprudence. Even the
ICCA's Guide to the Interpretation of the 1958 New York
Convention provides for such situation. Various legal
basis may be applied to bind a non-signatory to an
arbitration agreement. The first theory is that of implied c
consent, third party beneficiaries, guarantors, assignment
and other transfer mechanisms of contractual rights. This
theory relies on the discernible intentions of the parties
and, to a large extent, on good faith principle. They apply
to private as well as public legal entities. The second
0
theory includes the legal doctrines of agent-principal
relations, apparent authority, piercing of veil (also called
the "alter ego"), joint venture relations, succession and
estoppel. They do not rely on the parties' intention but
rather on the force of the applicable law. [Paras 99 and
100] (477-B, D-E]
The City of Prince George v. A.L. Sims and Sons Ltd.
YCA XX.Ill (1988) 223 - referred to.
1.10 The question of formal validity of the arbitration
agreement is independent of the nature of parties to the
agreement, which is a matter that belongs to the merits
and is not subject to substantive assessment. Once it is
determined that a valid arbitration agreement exists, it is
E
F
a different step to establish which parties are bound by
it. Third parties, who are not explicitly mentioned in an
G
arbitration agreement made in writing, may enter into its
: ratione personae scope. [Para 103] [478-B-C]
1.11 Normally, the parties to the arbitration agreement
calling for arbitral reference should be the same as those
H
410
SUPREME COURT REPORTS
[2012] 13 S.C.R.
A to the action. But this general concept is subject to
exceptions which are that when a third party, i.e. nonsignatory party, is claiming or is sued as being directly
affected through a party to the arbitration agreement and
there are principal and subsidiary agreements, and such
B third party is signato11r to a subsidiary agreement and not
to the mother or princ:ipal agreement which contains the
arbitration clause, tben depending upon the facts and
circumstances of the given case, it may be possible to
say that even such third party can be referred to
c arbitration. [Para 104] [478-E-G]
1.12 A non-signatory or third party could be
subjected to arbitration without their prior consent, but
this would only be in exceptional cases. The Court will
examine these exceptions from the touchstone of direct
D relationship to the party signatory to the arbitration·
agreement, direct commonality of the subject matter and
the agreement between the parties being a composite
transaction. [Para 68) {460-C-D]
E
Anderson Wnght Ltd. v. Moran and Company 1955 SCR
862 - relied on.
F
Sumitomo Corporation v. CDS Financial Services
(Mauritius) Ltd.and Ors, (2008) 4 SCC 91: 2008 (3) SCR 309
- referred to.
Turnock v. Sartoris 1888 (43) Chancery Division 1955
SCR 862; Taunton-Col/ins v. Cromie and Anr. 1964 Vol.1
Weekly Law Reports 633 - Cited.
2.1 In the cases of group companies or where various
G agreements constitute a composite transaction like
mother agreement and all other agreements being
ancillary to and for effective and complete implementation
of the Mother Agreement, the court may have to make
reference to arbitration even of the disputes existing
H between signatory or even non-signatory parties.
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT
411
WATER PURIFICATION INC.
However, the discretion of the Court has to be exercised
A
in exceptional, limiting, befitting and cases of necessity
and very cautiously. [Para 168] [515-D-E]
Bhatia /ntemational v. Bulk Trading S.A. and Anr. (2002)
4 SCC 105: 2002 (2) SCR 411 - distinguished.
2.2 In the facts of a given case, the Court is always
vested with the power to delete the name of the parties
who are neither necessary nor proper to the proceedings
before the Court. [Para 168] [515-C-D]
B
2.3 Where origin and end of all the agreements is with
C
the Mother or the Prioclpal Agreement, the fact that a
party was non-signatory to one or other agreement may
not be of much significance. The performance of any one
of such agreements may be quite irrelevant without the
performance and fulfillment of the Principal or the Mother D
Agreement.
Besides
designing
the
corporate
management to successfully complete the joint ventures,
where tt;ie parties execute different agreements but all
with one primary object in mind, the Court would normally
hold the parties to the bargain of arbitration and not E
encourage its avoidance. In cases involving execution of
such m'-lltiple agreements, two essential features exist;
firstly, aH ancillary agreements are relatable to the mother
agreement and secondly, performance of one is so
intrinsically inter-linked with the other agreements that
F
they are incapable of being beneficially performed
without performance of the others or severed from the
rest. The intention of the parties to refer all the disputes
between all the parties to the arbitral tribunal is one of the
determinative factor. [Paras 69] [460-F-H; 461-A-B]
G
Ruhrgos AG v. Marathon Oil Co. 526 US 574 (1999) -
referred to.
2.4 In the case of composite transactions and multiple
agreements, it may again be possible to invoke such
H
412
SUPREME COURT REPORTS
[2012] 13 S.C.R.
A principle in accepting the pleas of non-signatory parties
for reference to arbitration. Where the agreements are
consequential and in the nature of a follow-up to the
principal or mother agreement, the latter containing the
arbitration agreement and such agreements being so
B intrinsically inter-mingled or inter-dependent that it is their
composite performance which shall discharge the parties
of their respective mutual obligations and performances,
this would be a sufficient indicator of intent of the parties
to refer signatory as well as non-signatory parties to
c arbitration. The principle of 'composite performance'
would have to be gathered from the conjoint reading of
the principal and supplementary agreements on the one
hand and the explicit intention of the parties and the
attendant circumstances on the other. [Para 71] [461-E-G]
D
2.5 Where the Court which, on its judicial side, is
seized of an action in a matter in respect of which the
parties have made an arbitration agreement, once the
required ingredients are satisfied, it would refer the
parties to arbitration but for the situation where it comes
E to the conclusion that the agreement is null and void,
inoperative or incapable of being performed. These
expressions have to be construed somewhat strictly so
as to ensure that the Court returns a finding with
certainty and on the correct premise of law and fact as it
F has the effect of depriving the party of its right of
reference to arbitration. These are the issues which go
to the root of the matter and their determination at the
threshold would prevent multiplicity of litigation and
would even prevent futile exercise of proceedings before
G the arbitral tribunal. [Para 76) [467-B-E]
General Electric Co. v. Renusagar Power Co. (1987) 4
SCC 137: 1987 (3) SCR 858 - relied on.
2.6 In the present case, the corporate structure of the
H respondent companies as well as that of the appellant
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT
413
WATER PURIFICATION INC.
companies clearly demonstrates a legal relationship
A
which not only is inter-legal relationship but also intralegal relationship between the parties to the /is or persons
claiming under them. They have contractual relationship
which arises out of the various contracts that spell out
the terms, obligations and roles of the respective parties
B
which they were expected to perform for attaining the
object of successful completion of the joint venture
agreement. This joint venture project was not dependant
on any single agreement but was capable of being
achieved only upon fulfillment of all these agreements. c
[Para 105] [478-G-H; 479-A-B]
2.7 In the present case, the companies which
executed the various agreements were the companies
signatory to the Principal Agreement or their holding
companies or the companies belonging to the D
respondent group in which they had got merged for the
purposes of attaining effective designing, manufacturing,
import, export and marketing of the agreed chlorinated
products. All the subsequent agreements were, therefore,
ancillary or incidental agreements to the Principal
Agreement. Thus, the joint venture entered between the
parties had different facets. Its foundation was provided
under the Principal Agreement but all the agreed terms
could only be fulfilled by performance of the ancillary
agreements. If one segregates the Principal Agreement
from the rest, the subsequent agreements would be
rendered ineffective. It was one composite transaction for
attaining the purpose of business of the joint venture
company. All these agreements are so intrinsically
connected to each other that it is neither possible nor G
probable to imagine the execution and implementation of
one without the collective performance of all the other
agreements. The intention of the parties was clear that all
these agreements were being executed ss integral parts
E
F
of a composite transaction. It can safely be covered
H
414
SUPREME COURT REPORTS
[2012] 13 S.C.R.
A under the principle of 'agreements within an agreement'.
[Paras 138 and 139) [502-F-H; 503-A, C-E]
2.8 All the six material agreements had been signed
by some parties Oii' their holding companies or the
companies into which the signatory company had
8 merged. None of these companies is either stranger to
the transaction or not an appropriate party. The parties
who have signed the agreements could alone give rights
or benefits to the joint venture company and they, in turn,
were the compani1es descendants in interest or the
C subsidiaries of the principal company though all the
parties to the /is are not signatory to all the agreements
in question, but still they would be covered under the
expression 'claiming through or under' the parties to the
agreement. The interests of these companies are not
D adverse to the interest of the principal company and/or
the joint venture company. On the contrary, they derive
their basic interest and enforceability from the Mother
Agreement and performance of all the other agreements
by respective parties had to fall in line with the contents
E of the Principal Agreement. Thus, these companies claim
their interest and invoke the terms of the agreement or
defend the action in the capacity of a 'party claiming
through or under' the parties to the agreement. [Paras
142 and 143) [505··G-H; 506-A-D]
F
2.9 The arbitration clause contained in the Principal
Agreement requires that any dispute or difference arising
under or in connection with that agreement which could
not be settled by friendly negotiation and agreement
between the parties, would be finally settled by arbitration
G conducted in accordance with the Rules of ICC. This
clause is comprehensive enough to include the disputes
arising 'under and in connection with' the agreement. The
word 'connection' has been added by the parties to
expand the scope of the disputes under the agreements.
H The agreement has to be construed and interpreted in
CHLORO CONTROLS (I) P LTD. v. SEVERN TRENT
415
WATER PURIFICATION INC.
accordance with laws of the Union of India, as consented
A
by the parties. [Para 144] [506-F-H; 507-A]
B
2.10 The expression 'connection' means a link or
relationship between people or things or the people with
whom one has contact. The dictionary meaning of this
expression is liberally worded. It implies expansion in its
operation and effect both. Connection can be direct or
remote but it should not be fanciful or marginal. In other
words, there should be relevant connection between the
dispute and the agreement by specific words or by
necessary implication like reference to all other C
agreements in one (principal) agreement. [Paras 145 and
146] [507-B, C-0]
Concise Oxford Dictionary (Indian Edition); Law Lexicon
2nd Edn. 1997 - referred to.
D
2.11 The expression appearing in the arbitration
clause has to be given a meaningful interpretation
particularly when the Principal Agreement itself, by
specific words or by necessary implication, refers to all
other agreements. This would imply that the other
E
agreements originate from the Principal Agreement and
hence, its terms and conditions would be applicable to
those agreements. [Para 146] [507-D-E]
F
2.12
All
the
agreements
were
executed
simultaneously on the same date, which fact fully
supports the view that the parties intended to have all
these agreements as a composite transaction.
Furthermore, when the parties signed the Supplementary
Collaboration Agreement by that time all these
agreements had not only been signed and understood
G
by the parties but, in fact, had also been acted upon.
[Para 147] [508-C-D]
2.13 The conduct of the parties and even the
subsequent events leave no doubt that the parties had
H
416
SUPREME COURT REPORTS
[2012] 13 S.C.R.
A executed, intended and actually implemented the
composite transaction contained in the Principal
Agreement. The Courts have also applied the Group of
Companies Doctrine in such cases. In group company
cases, that the fact that a party being non-signatory to
B one or other agreement may not be of much significance,
the performance of one may be quite irrelevant with the
performance and fulfillment of the principal or the mother
agreement. That, in fact, is the situation in the present
case. [Paras 149 and 150) [508-G-H; 509-A, C-D]
C
Olympus Superstructure Pvt. Ltd. v. Meena Vijay Khetan
and Ors. (1999) 5 sec 651: 1999 (3) SCR 490 - relied on.
2.14 Two of the agreements did not contain any
arbitration clause, but they also did not subject the parties
0 even for litigative jurisdiction. These two agreements had
been executed in furtherance to and for compliance of the
terms and conditions of the mother agreement which
contained the arbitration clause. They were, thus,
intrinsically inter-connected with the mother agreement.
E [Para 153) [510-E-F]
2.15 Where different agreements between the parties
provide for alternative remedies, it does not necessarily
mean that the other remedy or jurisdiction stands ousted.
Where the parties to such composite transaction provide
F for different alternative forums, including arbitration, it has
to be taken that real intention of the parties was to give
effect to the purpose of agreement and refer the entire
subject matter to arbitration and not to frustrate the
remedy in law. It was for the parties to choose either to
G institute a suit qua the International Distributor Agreement
or to invoke the arbitration agreement in terms of clause
30 of the mother agreement. They have chosen the latter
remedy. Thus, a composite reference was well within the
comprehension of the parties to various agreements
H which were executed on the same day and for the same
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT
417
WATER PURIFICATION INC,
purpose. [Paras 154 and 156] [510-G-H; 511-A-B-E]
2.16 All the disputes that arise in the suit and from
the agreement between the parties, are directed to be
referred to arbitral tribunal and be decided in accordance
with the Rules of ICC. [Para 169] [515-F]
A
B
3.1 The issue of jurisdiction normally is a mixed
question of law and facts. Occasionally, it may also be a
question of law alone. It will be appropriate to decide such
questions at the beginning of the proceedings itself and
they should have finality. Determination of fundamental c
issues as contemplated under Section 45 of the 1996 Act
at the very first instance by the judicial forum is not only
appropriate but is also the legislative intent. Even, the
language of Section 45 of the 1996 Act suggests that
unless the Court finds that an agreement is null and void,
0
inoperative and incapable of being performed, it shall
refer the parties to arbitration. [Para 131] [497-F-G; 498B-C]
3.2 An application for appointment of arbitral tribunal
u/s. 45 would also be governed by the provisions of E
Section 11 (6) of the 1996 Act. Before making a reference,
the Court has to dispose of the objections as
contemplated under Section 8 or Section 45, as the case
may be, and wherever needed upon filing of affidavits.
Thus, to an extent, the law laid down by this Court on
F
Section 11 shall be attracted to an international
arbitration which takes place in India as well as domestic
arbitration. This would be applicable at pre-award stage.
Thus, there exists a direct legal link, limited to that extent.
[Paras 114 and 128] [483-C; 495-D-E]
G
SBP and Co. v. Patel Engineering Ltd. and Anr. (2005)
8 SCC 618:2005 (4) Suppl. SCR 688 - followed.
Shree Ram Mills Ltd. v. Utility Premises (P) Ltd, (2007)
4 SCC 599; National Insurance Co. Ltd. v. Boghara Polyfab
H
418
SUPREME COURT REPORTS
[2012] 13 S.C.R.
A (P) Ltd. (2009) 1 sec 267: 2008 (13) scR 638 - relied on.
Shin-Etsu Chemcial Co. Ltd. v. Mis. Aksh Optifibre Ltd.
and Anr.(2005) 7 SCC 234: 2005 (2) Suppl. SCR 699 -
referred to.
B
3.3 The absence of any provision in Chapter I of Part
II of the 1996 Act, like Section 16 appearing in Part I of
1996 Act is suggestive of the requirement for the Court
to determine the ingredients of Section 45, at the
threshold itself. It is expected of the Court to answer the
c question of validity of the arbitration agreement, if a plea
is raised that the agreement containing the arbitration
clause or the arbitration clause itself is null and void,
inoperative or incapable of being performed. Such
determination by the Court in accordance with law would
0 certainly attain finality and would not be open to question
by the arbitral tribunal, even as per the principle of
prudence. It will prevent multiplicity to litigation and reag itati ng of same issues over and over again. The
underlining principle of finality in Section 11 (7) would be
applicable with equal force while dealing with the
E interpretation of Sections 8 and 45. [Para 130) [496-B-E]
3.4 The principle of 'Kompetenz kompetenz' requires
the arbitral tribunal to rule on its own jurisdiction and at
the first instance. One school of thought propagates that
F it has duly the positive effect as it enables the arbitrator
to rule on its own jurisdiction as it widely recognized
international arbitration. However, the negative effect is
equally important, that the Courts are deprived of their
jurisdiction. The arbitrators are to be not the sole judge
G but first judge, of their jurisdiction. In other words, it is to
allow them to come to a decision on their own jurisdiction
prior to any court or other judicial authority and thereby
limit the jurisdiction of the national courts to review the
award. The kompetenz kompetenz rule, thus, concerned
H not only is the positive but also the negative effect of the
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT
419
WATER PURIFICATION INC.
arbitration agreement. [Para 129] (495-F-H]
Fouchard Gaillard Goldman on International Commercial
Arbitration-referred to.
A
3.5 Another very significant aspect of adjudicating the
matters initiated with reference to Section 45 of the 1996
B
Act, at the threshold of judicial proceedings, is that the
finality of the decision in regard to the fundamental issues
stated under Section 45 would further the cause of
justice and interest of the parties as well. [Para 131] [497B-C]
C
4.1 Though in terms of Section 9 CPC, the courts
shall have jurisdiction to try all suits of civil nature and
this Section also gives a right to a person to institute a
suit before the court of competent jurisdiction, but the
0
language of Section 9 itself makes it clear that the civil
courts have jurisdiction to try all suits of civil nature
except the suits of which taking cognizance is either
expressly or impliedly barred. The jurisdiction of the
court and the right to a party emerging from Settion 9
CPC is not an absolute right, but contains inbuilt E
restrictions. [Para 156] [511-F-G]
Dhulabhai v. State of M.P. and Anr. AIR 1969 SC 78:
1968 SCR 662; Nahar Industrial Enterprises Ltd. v. Hong
Kong and Shanghai Banking Corporation (2009) 8 SCC 646:
F
2009 (12) SCR 54 - relied on.
4.2 The provisions of Section 45 of the 1996 Act are
to prevail over the provisions of the CPC and when the
Court is satisfied that an agreement is enforceable,
operative and is not null and void, it is obligatory upon
G
the court to make a reference to arbitrdtion and pass
appropriate orders in relation to the legal proceedings
before the court, in exercise of its inherent powers. [Para
157] (512-C-D]
H
420
SUPREME COURT REPORTS
[2012] 13 S.C.R.
A
4.3 The arbitration Clause would stand incorporated
into the International Distributor Agreement. The terms
and conditions of the International Distribution
Agreement were an integral part of the Principal
Agreement as Appendix II and the Principal Agreement
B had an arbitration clause which was wide enough to
cover disputes in all the ancillary agreements. It is not
necessary to examine the choice of forum or legal
enforceability of legal system in the present case, as there
is no repugnancy even where the main contract is
c governed by law of some other country and the
arbitration clause by Indian law. They both could be
invoked, neither party having invoked the former will be
no bar for invocation of the latter in view of arbitration
clause 30 of the mother agreement. [Paras 159 and 160)
D [512-G; 513-8-D]
M.R. Engineers and Contractors Pvt. Ltd. v. Som Datt
Builders Ltd. (2009) 7 SCC 696: 2009 (10) SCR 373 -
relied on.
Deutsche Post Bank Home Finance Ltd. v. Taduri
E Sridhar AIR 2011 SC 1899: 2011 (5) SCR 674
distinguished.
5. It is not necessary for the Court to examine the
correctness or otherwise of the judgment in the case of
F *Sukanya. It was a judgment in a case arising under
Section 8 Part I of the 1996 Act while the present case
relates to Section 45 Part II of the Act. As such that case
may have no application to the present case. In that case
the Court was concerned with the disputes of a
G partnership concern. In the case in hand, there is a
mother agreement and there are other ancillary
agreements to the mother agreement. It is a case of
composite transaction between the same parties or the
parties claiming through or under them falling u/s. 45 of
H the Act. Thus, the dictum stated in the judgment of
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 421
WATER PURIFICATION INC.
*Sukanya would.not apply to the present case. On facts,
A
the judgment in *Sukanya's case, has no application to
the case in hand. [Para 133] [498-F-G; 499-A-B]
*Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya (2003)
5 SCC 531: 2003 (3) SCR 558 - held inapplicable.
B
6. The observations made by the Court have to be
construed and read to support the ratio decidendi of the
judgment. Observations in a judgment which are stared
upon by the judgment of a larger bench would not
constitute valid precedent as it will be hit by the doctrine c
of stare decisis. [Para 122] [489-E-F]
Case Law Reference:
2002 (2) SCR 411
Distinguished Para 51
526 us 574 (1999)
Referred to
Para 70
D
2001 (1) Suppl. SCR 699 Relied on
Para 73
1999 (3) SCR 490
Relied on
Para 74,
149
1987 (3) SCR 858
Relied on
Para 76
E
1996 (1) Suppl. SCR 368
Relied on
Para 78
(1982) 2 Lloyd's Rep.
Referred to
Para 80
425, CA
F
1978 Vol. 1 LLR 225
Referred to
Para 93
(2009) 1 Lloyds Law
Referred to
Para 94
Reports116
YCA XXlll (1988) 223
Referred to
Para 101
G
1955 SCR 862
Cited
Para 108
1964 Vol.1 Weekly Law
Cited
Para 108
Reports 633
1955 SCR 862
referred to
Para 110
H
A
B
c
D
422
SUPREME COURT REPORTS
[2012] 13 S.C.R.
2008 (3) SCR 309
(2007) 4 sec 599
Relied on • Para 131
referred to
Para 112
relied on
Para 115
2005 (2) Suppl. SCR 699
Referred to
Para 122
2005 (4) Suppl. SCR 688
Followed
2008 (13) SCR 638
Relied on
Para 130
Para 130
2003 (3) SCR 558
1968 SCR 662
2009 (12) SCR 54
2009 (10) SCR 373
2011 (5) SCR 674
held inapplicable
Para
132
Relied on
Para 156
Relied 011
Para 156
Relied on
Para 159
Distinguished Para 161
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
7134 of 2012.
From the Judgment and Order dated 04.03.2010 of the
E High Court of Judicature at Bombay in Appeal No. 372 of 2004
in Notice of Motion No. 778 of of 2004 in Suit No. 233 of 2004.
F
WITH
Civil Appeal Nos. 7135-7136 of 2012.
F.S. Nariman, Rohaan Cama, Subhash Sharma, Ravela
D'Souza, Ruby Singh Ahuja, Ruchira Gupta, Deepti Sarin, Shruti
Katakey (For Karanjawala & Co.) for the Appellant.
H.N. Salve, K.V. Vishwanathan, Ajay Bhargava, Vanita
G Bhargava, Susmit Pushkar, Anchit Oswal, Ankur Khandelwal,
Gayatri Goswami,Chetna Rai, Kripa Pandit, Anadi Chopra,
Gayatri Goswami (For Khaitan & Co.), Vikas Mehta, Aditi Bhat,
Nar Hari Singh, Christopher D'Souza, Venkatakrishna Kunduru,
Santosh Paul, Aarti Singh for the Respondents.
H
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT
423
WATER PURIFICATION INC.
The Judgment and order of the Court was delivered by
A
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
B
present case is an ideal example of invocation of arbitral
reference in multiple, multi-party agreements with intrinsi9ally
interlinked causes of action, more so, where performance of
ancillary agreements is substantially dependent upon effective
execution of the principal agreement. The qistinguished learned c
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
D
1996 Act')?
(2)
Whether the principles enunciated in the case of
Sukanya Holdings Pvt. Ltd. v. Jayesh H.