# GUJARAT COMPOSITE LIMITED v. A INFRASTRUCTURE LIMITED & ORS

- **Citation:** [2023] 5 S.C.R. 103
- **Court:** Supreme Court of India
- **Decided:** 2023-05-01
- **Case number:** Civil Appeal No. 3259 of 2023
- **Bench:** Dinesh Maheshwari, Sudhanshu Dhulia
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/gujarat-composite-limited-v-a-infrastructure-limited-ors-37149
- **Pages:** 38

## Headnote

Arbitration and Conciliation Act, 1996 - s.8 - Arbitrability
of the dispute in question - Held: Except the principal licence
agreement, none of the other agreements contained any arbitration
clause, even if they related to the same property and also involved
the appellant and the respondent No.1 - Even if the original licence
agreement is said to be the genesis of the contractual relations of
the appellant and the respondent No.1, that does not ipso facto lead
to the availability of the arbitration agreement in relation to the
dispute in question emanating from the tripartite agreement and
which cannot be determined without reference to the said tripartite
agreement and without involving all the parties thereto - Thus, no
dispute resolution process, including arbitration, could be
undertaken in relation to the subject-matter of the suit without
reference to the terms of tripartite agreement and without involving
the bank-respondent No.2 - This is apart from the fact that the
other elements of dispute pertaining to the subsequent purchasers
too cannot be resolved in any forum without reference to the tripartite
agreement and its amended clause, which did not provide for
arbitration - Thus, there is no doubt about non-existence of
arbitration agreement in relation to the dispute in question -
Substantive reliefs claimed in the suits fall outside the arbitration
clause in the original licence agreement - Therefore, the view taken
by the Commercial Court and the High Court in declining the prayer
of the appellant for reference to arbitration u/s.8 cannot be faulted
- Arbitration and Conciliation (Amendment) Act, 2015.
Dismissing the appeals, the Court
HELD: 1.1 Except the principal agreement dated
07.04.2005, none of the other agreements contained any
arbitration clause, even if they related to the same property and
[2023] 5 S.C.R. 103
103
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also involved the appellant and the respondent No. 1. The later
transactions involved other parties too like the tripartite
agreement dated 06.07.2006 whereby the respondent No. 2 bank
sanctioned loan to the respondent No. 1 and then, supplemental
to the said tripartite agreement for dealing with the deposit of
title deeds. Similarly, the other deeds of conveyance dated
23.01.2015 involve the appellant and the other defendants. The
submissions made by the appellant with reference to the
amendment of Section 8 of the Act of 1996 and the later decisions
of this Court in interpretation of the amended Section 8 do not
inure to the benefit of the appellant. This is for the simple reason
that no such conjunction can be provided to the original licence
agreement dated 07.04.2005 and the tripartite agreement
involving the Bank dated 06.07.2006 and 23.01.2008, whereby
the arbitration clause could be held applicable to the tripartite
agreement too. This is apart from the fact that in the frame of the
suit and various other reliefs claimed, involving subsequent
purchasers too and the allegations of fraud, the dispute cannot
be said to be arbitrable at all. The present one cannot be said to
be a case involving any "doubt" about non-existence of arbitration
agreement in relation to the dispute in question. [Paras 17,
17.1][137-F-G; 138-A-C]
1.2 There being no doubt about non-existence of arbitration
agreement in relation to the entire subject-matter of the suit,
and when the substantive reliefs claimed in the suits fall outside
the arbitration clause in the original licence agreement, the view
taken by the High Court does not appear to be suffering from
any infirmity or against any principle laid down by this Court.
Even if by reference to remote pedigree, the original licence
agreement is said to be the genesis of the contractual relations
of the appellant and the respondent No. 1, that does not ipso
facto lead to the availability of the arbitration agreement in relation
to the dispute in question, which emanates from the tripartite
agreement and wh

## Text

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GUJARAT COMPOSITE LIMITED
v.
A INFRASTRUCTURE LIMITED & ORS.
(Civil Appeal No. 3259 of 2023)
MAY 01, 2023
[DINESH MAHESHWARI AND SUDHANSHU DHULIA, JJ.]
Arbitration and Conciliation Act, 1996 - s.8 - Arbitrability
of the dispute in question - Held: Except the principal licence
agreement, none of the other agreements contained any arbitration
clause, even if they related to the same property and also involved
the appellant and the respondent No.1 - Even if the original licence
agreement is said to be the genesis of the contractual relations of
the appellant and the respondent No.1, that does not ipso facto lead
to the availability of the arbitration agreement in relation to the
dispute in question emanating from the tripartite agreement and
which cannot be determined without reference to the said tripartite
agreement and without involving all the parties thereto - Thus, no
dispute resolution process, including arbitration, could be
undertaken in relation to the subject-matter of the suit without
reference to the terms of tripartite agreement and without involving
the bank-respondent No.2 - This is apart from the fact that the
other elements of dispute pertaining to the subsequent purchasers
too cannot be resolved in any forum without reference to the tripartite
agreement and its amended clause, which did not provide for
arbitration - Thus, there is no doubt about non-existence of
arbitration agreement in relation to the dispute in question -
Substantive reliefs claimed in the suits fall outside the arbitration
clause in the original licence agreement - Therefore, the view taken
by the Commercial Court and the High Court in declining the prayer
of the appellant for reference to arbitration u/s.8 cannot be faulted
- Arbitration and Conciliation (Amendment) Act, 2015.
Dismissing the appeals, the Court
HELD: 1.1 Except the principal agreement dated
07.04.2005, none of the other agreements contained any
arbitration clause, even if they related to the same property and
[2023] 5 S.C.R. 103
103
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also involved the appellant and the respondent No. 1. The later
transactions involved other parties too like the tripartite
agreement dated 06.07.2006 whereby the respondent No. 2 bank
sanctioned loan to the respondent No. 1 and then, supplemental
to the said tripartite agreement for dealing with the deposit of
title deeds. Similarly, the other deeds of conveyance dated
23.01.2015 involve the appellant and the other defendants. The
submissions made by the appellant with reference to the
amendment of Section 8 of the Act of 1996 and the later decisions
of this Court in interpretation of the amended Section 8 do not
inure to the benefit of the appellant. This is for the simple reason
that no such conjunction can be provided to the original licence
agreement dated 07.04.2005 and the tripartite agreement
involving the Bank dated 06.07.2006 and 23.01.2008, whereby
the arbitration clause could be held applicable to the tripartite
agreement too. This is apart from the fact that in the frame of the
suit and various other reliefs claimed, involving subsequent
purchasers too and the allegations of fraud, the dispute cannot
be said to be arbitrable at all. The present one cannot be said to
be a case involving any "doubt" about non-existence of arbitration
agreement in relation to the dispute in question. [Paras 17,
17.1][137-F-G; 138-A-C]
1.2 There being no doubt about non-existence of arbitration
agreement in relation to the entire subject-matter of the suit,
and when the substantive reliefs claimed in the suits fall outside
the arbitration clause in the original licence agreement, the view
taken by the High Court does not appear to be suffering from
any infirmity or against any principle laid down by this Court.
Even if by reference to remote pedigree, the original licence
agreement is said to be the genesis of the contractual relations
of the appellant and the respondent No. 1, that does not ipso
facto lead to the availability of the arbitration agreement in relation
to the dispute in question, which emanates from the tripartite
agreement and which cannot be determined without reference to
the said tripartite agreement and without involving all the parties
thereto. In other words, no dispute resolution process, including
arbitration, could be undertaken in relation to the subject-matter
of the suit without reference to the terms of tripartite agreement
and without involving the bank- respondent No.2. This is apart
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from the fact that the other elements of dispute pertaining to the
subsequent purchasers too cannot be resolved in any forum
without reference to the tripartite agreement and its amended
clause, which did not provide for arbitration. Thus, the ancestry
of the tripartite agreement, in the facts of the present case, does
not lead to the result desired by the appellant. Therefore, even
on the principles enunciated in Vidya Drolia, the prayer of the
present appellant for reference to arbitration under Section 8
cannot be granted. On the facts and in the circumstances of the
present case and in the nature of transactions as also the nature
of reliefs claimed in the suit, the view taken by the Commercial
Court and the High Court in declining the prayer of the appellant
for reference to arbitration cannot be faulted. [Paras 17.2, 18,
18.1 and 20][138-D-H; 140-B-C]
Vidya Drolia and Ors. v. Durga Trading Corporation
(2021) 2 SCC 1; Ameet Lalchand Shah and Ors. v.
Rishabh Enterprises and Anr. (2018) 15 SCC 678 :
[2018] 6 SCR 1001; ONGC Ltd. v. Discovery
Enterprises (2022) 8 SCC 42; Intercontinental Hotels
v. Waterline Hotels (2022) 7 SCC 662 - distinguished.
Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya & Anr.
(2003) 5 SCC 531 : [2003] 3 SCR 558; S. N. Prasad v.
Monnet Finance Ltd. and Ors. (2011) 1 SCC 320 :
[2010] 13 SCR 207; Deutsche Bank Home Finance Ltd.
v. Taduri Sridhar and Anr. (2011) 11 SCC 375 : [2011]
5 SCR 674; Himangi Enterprises v. Kamaljeet Singh
Ahluwalia (2017) 10 SCC 706 : [2017] 10 SCR 139 -
referred to.
Case Law Reference
[2003] 3 SCR 558
referred to
Para 5.2
[2018] 6 SCR 1001
distinguished
Para 6.2
[2010] 13 SCR 207
referred to
Para 7.5
[2011] 5 SCR 674
distinguished
Para 7.5
[2017] 10 SCR 139
referred to
Para 12
GUJARAT COMPOSITE LIMITED v. A INFRASTRUCTURE
LIMITED & ORS.
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SUPREME COURT REPORTS
[2023] 5 S.C.R.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3259
of 2023.
From the Judgment and Order dated 23.04.2018 of the High Court
of Gujarat at Ahmedabad in FA No. 588 of 2018.
With
Civil Appeal No. 3260 of 2023.
Nikhil Goel, Aniruddha Deshmukh, Adhitya Koshy Roy,
Ms. Naveen Goel, Advs. for the Appellant.
Ramesh Singh, Sr. Adv., Biju Mattam, Rahul Singh, N D Kaushik,
Satish Kumar, Avishkar Singhvi, Rohan Sharma, Pradhuman Gohil,
Mrs. Taruna Singh Gohil, Ms. Ranu Purohit, Alapati Sahithya Krishna,
Dushyant Parashar, Bhaskar, Manu Parashar, Dinesh Pandey,
Harshvardhan Singh Rathore, Muthuvel Palani M., Advs. for the
Respondents.
The Judgment of the Court was delivered by
DINESH MAHESHWARI, J.
Leave granted.
2. These appeals have been preferred against the common
judgment and order dated 23.04.2018 passed by the High Court of Gujarat
whereby, the High Court has dismissed First Appeal Nos. 588 of 2018
and 587 of 2018 filed by the appellant against the order passed by the
Commercial Court, Ahmedabad dismissing the applications under Section
8 of the Arbitration and Conciliation Act, 19961 in Commercial Civil Suit
Nos. 90 of 2017 and 91 of 2017 respectively. Both these appeals, involving
common questions concerning arbitrability of the dispute, have been heard
together and are being taken up for disposal by this common judgment.
3. It would be apposite to take note of the factual and background
aspects to the extent relevant for the points arising for determination in
the present appeals. Given the commonalities of the factual chronology,
it would be proper to accord primacy to facts of the lead matter i.e., the
appeal arising from SLP (C) No. 16932 of 2018 [relating to First Appeal
No. 588 of 2018 in the High Court, arising from the order passed in
Commercial Civil Suit No. 90 of 2017], apart from noticing a few facts
that may be of relevance in the cognate appeal.
1 Hereinafter also referred to as 'Act of 1996' or simply 'the Act'.
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3.1. On 07.04.2005, the appellant herein entered into two licence
agreements with respondent No. 1 and the sister concern of respondent
No. 12 (against whom the cognate appeal is filed). The first agreement
with respondent No. 1 was for licensing the operation of two
manufacturing units of the appellant, being A.C. Sheet and Cement
Grinding, with the licensing fee per quarter set at Rs. 5,00,000/- (Rupees
Five Lakh) for the combined use of land and building as well as factory
machinery and equipment. The second agreement with the sister concern
of respondent No. 1 was for licensing the operation of another
manufacturing unit of the appellant, being A.C. Pressure Pipe, with the
cumulative licensing fee per quarter set at Rs. 2,00,000/- (Rupees Two
Lakh). Both agreements were of the same nature and were executed
for a term of 7 years (84 months). The relevant clauses of the agreement
entered into between the appellant and respondent No. 1 could be usefully
reproduced as under: -
"3. The duration of the Licence for manufacture will be for a
period of 84 months, extendable to a further period of 84 months
on mutual consent from the date on which the LICENSEE takes
over production and manufacturing facilities after completion of
the necessary inspection and the compilation of inventories as
stipulated herein. The said takeover would be fully and duly
evidenced by acknowledgement of both the parties in writing, and
will constitute a pan of this Licence Agreement.
***
***
***
8. LICENSEE shall pay quarterly licence fee of Rs.1,00,000
(Rupees One lakh only) per quarter towards the use of land and
building including office building and Rs.4,00,000 (Rupees Four
lakhs only) per quarter towards the use of factory machinery &
equipments. The Licence fee shall, be paid within 21 days of end
of the quarter.
***
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***
12. LICENSEE shall not be entitled to mortgage, assign, licence
or sublet the said Unit. However, LICENSEE shall be at liberty to
mortgage/ charge, Raw Material stock, Finished Goods book debts
and equipment brought in and belonging to LICENSEE under this
arrangement which shall be kept separately identified and insured.
***
***
***
2 Hereinafter referred to as 'sister concern'.
GUJARAT COMPOSITE LIMITED v. A INFRASTRUCTURE
LIMITED & ORS. [DINESH MAHESHWARI, J.]
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15. The LICENSOR will be entitled to a Bonus, in addition to
licence fee payable under Clause 8, in consideration of the use of
its manufacturing facilities, licence, brand goodwill etc, as worked
out below:
i. 14% of the profit earned will be the retained profit in this
arrangement and balance 86% shall be distributable as under:
a) The Bonus payable by LICENSEE to LICENSOR under
this Clause would be 43% of the divisible profit minus the
licence fee payable as per Clause 8 above. In the event the
amount of Bonus works out to be negative, then LICENSOR
shall be liable to reimburse this amount to LICENSEE on
quarter to quarter basis.
b) The retained profit shall always belongs to the
LICENSEE during the continuation or upon determination
of the licence period.
c) The computation of the Profit & Loss and its distribution
shall be done quarterly.
ii. Profit for this purpose means operating profits/losses earned
during the quarter, after deducting interest on working capital
and depreciation on the assets added by LICENSEE, but before
charging the licence fee specified in Clause 8. The operating
profit shall be worked out on the basis of Accepted Accounting
principles.
***
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17. The LICENSEE at its absolute discretion may advance some
amount to the LICENSOR on the terms/conditions/security as
may be mutually agreed to facilitate smooth operation of this
agreement.
***
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***
32. Disputes if any, arising out of this Agreement shall be referred
to arbitration of a Sole Arbitrator if mutually agreed, failing which
Arbitrator will be appointed as per provisions of Arbitration and
Conciliation Act, 1996. The venue of Arbitration will be as decided
mutually but preferably at Delhi."
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3.2. On the same date i.e., 07.04.2005, a supplementary agreement
was also executed between the appellant-licensor, respondent-licensee,
and the sister concern as confirming party. As per the terms of this
agreement, appellant requested respondent No. 1 for some financial
assistance to arrive at a settlement with its creditors, employees as well
as statutory authorities for discharging their dues. The respondent No.
1, therefore, agreed to advance a sum of Rs. 5,30,00,000/- (Rupees Five
Crore Thirty Lakh) to the appellant with interest at 10% p.a. and as
consideration for the financial assistance rendered, it was agreed that
respondent No. 1 would be permitted to create a mortgage on the three
licensed manufacturing units in order to secure the ad hoc advance.
This advance was recoverable in ten quarterly instalments commencing
from the 90th day of payment of the ad hoc advance out of the licence
fee and bonus under clauses 8 and 15 of the main agreement. A few
relevant clauses of the supplementary agreement dated 07.04.2005 could
also be usefully reproduced as under: -
"NOW, THEREFORE, in consideration of the premises and the
mutual covenants set forth herein, and also in the main License
Agreement dated 7th April 2005 and for other good and valuable
considerations, the parties hereto hereby agrees as follows:
1. The LICENSOR requested the LICENSEE for some financial
assistance to arrive at an amicable settlement with the creditors;
employees and statutory authorities for discharging of their dues.
2. The LICENSEE, in consideration of facilitating the smooth
operation of the main agreement dated 7th April 2005 between
LICENSOR and CONFIRMING PARTY and main agreement
dated 7th April 2005 between LICENSOR and LICENSEE
including smooth operation of A. C. Pipes, A. C. Sheets and
Cement Units, have agreed to advance a sum of Rs. 5,30,00,000
(Rupees Five Crores Thirty Lakhs only) to the LICENSOR
fetching interest at 10% per annum to be calculated at monthly
rests after receipt of the approval of LICENSOR'S secured
creditors as per Clause 4 of the main agreement and upon creation
of mortgage on A.C. Sheet, A. C. Pipe and Cement manufacturing
Unit including building, plant, and machineries in favour of
LICENSEE for securing the above adhoc advance. LICENSOR
shall use the said (illegible) for entering into a settlement with its
secured creditors by making a down payment towards their dues
GUJARAT COMPOSITE LIMITED v. A INFRASTRUCTURE
LIMITED & ORS. [DINESH MAHESHWARI, J.]
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and for payment of balance in an agreed manner and for obtaining
their consent to the above agreement and to pay and discharge
various other pressing liabilities of LICENSOR including payment
of dues of workers, statutory liabilities etc. This advance along
with interest thereon shall be recoverable in Ten. (10) quarterly
instalments, commencing from the 90th day of the payment of adhoc advance amount, out of the licence fee payable as per Clause
8 and Bonus as per Clause 15 of the main Agreement."
3.3. Subsequently, clauses 11 and 15 of the original licence
agreement, (pertaining to repurchase of assets and entitlement of licensor
to bonus) were amended by means of execution of an amendment
agreement dated 25.06.2005 between appellant and respondent No. 1.
The amended clauses read as under: -
"Clause- 11: LICENSOR will allow LICENSEE to make
necessary modification/ addition/ changes in the machinery, building
or any other fixed assets for smooth operation of the plant. Minor
expenses to the extent of Rs.25000/- (Rupees Twenty Five
Thousand only) may be debited to P&L Account and the expenses
in excess of specified amount will be capitalized and may be
funded by both the parties in the following ratio.
i) Licensor : 43%
ii) Licensee : 57%
Such expenses to be decided mutually and duly minuted.
Depreciation on these additions to the fixed assets shall be
calculated at the rates specified in the Companies Act as per
Straight Line Method. Upon determination of the license period
the LICENSOR would be under obligation to buy these assets at
the Written Down Value.
b) Clause No.15 : The LICENSOR will be entitled to a Bonus, in
addition to license fee payable under Clause-8, in consideration of
the use of its manufacturing facilities, license, brand goodwill etc.
as worked out below.
i) The Bonus payable by LICENSEE to LICENSOR under this
Clause would be 43% of the profit. The Bonus so payable shall
be reduced by the amount of License fee payable as per Clause8 of the Agreement. However, in the event of loss, the LICENSOR
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shall be liable to reimburse 43% of the total loss to LICENSEE on
a quarter-to-quarter basis.
ii) Computation of the Profit & Loss and its distribution shall be
provisionally based on the annual audited accounts.
iii) Profit/Losses for this purpose means profits/losses earned, after
deducting interest on working capital and depreciation on the assets
added by the LICENSEE but before changing the license fee
specified in Clause No. 8. The profit/loss shall be worked out on
the basis of accepted accounting principles."
3.4. Thereafter, on 06.07.2006, a tripartite agreement was executed
by and amongst the appellant, respondent No. 1 and respondent No. 2
(Bank of Baroda3) upon sanctioning of a loan to the tune of Rs. 500 lakh
to respondent No. 1. The appellant agreed to create first charge on
fixed assets, which was to be released only with the consent of respondent
No. 1. However, it was also stipulated that if payment of corporate loan
was made directly by the appellant to the bank, the first charge could be
released without the consent of respondent No. 1. The relevant clauses
of the tripartite agreement dated 06.07.2006 could be usefully reproduced
as follows: -
"WHEREAS Bank of Baroda has sanctioned Corporate loan of
Rs.500 lacs to M/s. A Infrastructure Limited on the terms &
conditions stipulated in the sanction letter and to secure this above
loan in addition to other conditions and corporate guarantee also
provided by M/s. Gujarat Composite Limited.
Further M/s. Gujarat Composite Limited has agreed to create
first charge on the fixed assets as stipulated in the sanctioned
letter in favour of Bank of Baroda.
Further M/s. Gujarat Composite Limited, has agreed that first
charges will be released by Bank of Baroda only with the consent
of M/s. A Infrastructure Limited even after repayment of the said
loan. Bank of Baroda further agreed to release the first charge
only with the consent of M/s. A Infrastructure Limited. However
in case M/s. Gujarat Composite Ltd. will make payment of this
corporate loan of Rs.500 lacs directly to Bank of Baroda. Bank
of Baroda will release the first charges without the consent of
M/ s. A Infrastructure Limited"
3 Hereinafter also referred to as 'the bank'.
GUJARAT COMPOSITE LIMITED v. A INFRASTRUCTURE
LIMITED & ORS. [DINESH MAHESHWARI, J.]
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3.5. An amendment was introduced to the aforementioned
tripartite agreement on 23.01.2008, so as to restrict the transfer of title
deeds of the land of appellant during the term of licence agreements.
The amended condition reads as follows: -
"Further M/ s. Gujarat Composite Limited, has agreed that First
Charge will be released by Bank of Baroda only with the consent
of M/s. A Infrastructure Limited even after repayment of the said
loan. Bank of Baroda further agreed to release the First Charge
only with the consent of M/s. A Infrastructure Limited. However,
in case M/s. Gujarat Composite Ltd. will make payment of dues
against this corporate loan of Rs.500 lacs directly to Bank of
Baroda, Bank of Baroda will release the First Charge without the
consent of M/s. A Infrastructure Limited. But M/s Gujarat
Composite agrees that the title Deeds of the land will not be
transferred to any other party during the currency of Licence
Agreements executed between M/s. A Infrastructure Limited and
M/s. Gujarat Composite Ltd. "
3.6. The dispute in the present matter arose after respondent No.
1, by means of representation dated 22.02.2012, invoked clause 3 of the
original licence agreement and called upon the appellant to extend the
term of the licence agreement by a further period of 84 months. This
extension was sought because appellant was unable to pay certain dues
owed to respondent No. 1 and sought time to arrange for payment. In
response to this representation, the appellant, through letter dated
29.02.2012, denied the proposal of respondent No. 1 to extend the term
of licence agreement as also the projected outstanding dues. Later, on
06.04.2012, which was the date of completion of tenure of the original
licence agreement, respondent No. 1 did not hand over possession and
instead, declared its intention to continue with possession. Between April
2012 and March 2015, according to the appellant, certain attempts were
made to resolve the dispute, but to no avail. It is also a part of the case
of respondent No. 1 that certain parcels of land were transferred to
respondent Nos. 3 to 5 in January 2015.
3.7. Then, on 07.04.2015, the appellant issued notice to respondent
No. 1 claiming recovery of possession of the manufacturing units as
well as certain monetary dues. In the notice, the appellant stated that the
licence had expired by efflux of time without any extension, hence
possession by respondent No. 1 was illegal. Further, the appellant claimed
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that there was a huge outstanding payable by respondent No. 1. In the
reply dated 20.04.2015, respondent No. 1 disputed these claims and
asserted that the appellants had not cared to pay back its legitimately
claimed amounts. Yet again, between 26.08.2015 to 17.11.2016, attempts
were made to resolve the dispute but there was no positive outcome.
Seeing that the attempts to resolve the dispute had failed, on 28.02.2017,
the appellant served a notice on respondent No. 1 under Section 21 of
the Act of 1996 invoking the provision for arbitration contained in the
licence agreement (clause 32). Respondent No. 1 replied to this notice
on 27.03.2017, contesting the arbitrability of the dispute since it was
inextricably interconnected with other related transactions and unresolved
issues arising therefrom. It was asserted that as the jurisdiction of the
arbitrator was derived from the agreement, adjudication of the alleged
dispute would go beyond the scope of the said agreement.
3.8. In this backdrop of events, the appellant preferred a composite
arbitration petition before the Gujarat High Court on 26.04.2017 being
IAAP No. 63 of 2017 against respondent No. 1 and its sister concern.
On the other hand, respondent No. 1-A Infrastructure Limited-filed a
commercial civil suit bearing No. 90 of 2017 before the Commercial
Court at Ahmedabad on 27.04.2017 with the following defendants:
1. Gujarat Composite Limited
2. Bank of Baroda
3. Real Home Corporation - a partnership firm
4. M/s. Raj Corporation (Confirming Party) - partnership firm
5. RJD Buildcon Ltd.
3.8.1. In the said suit, the respondent No. 1 (the plaintiff) made
the prayers for multiple reliefs in the following terms: -
"33) The Plaintiff therefore prays that:
(A) This Hon'ble Court may be pleased to direct the defendant
No.1 to pay to the Plaintiff herein a sum of Rs.32,66 crores with
interest @ 14% per annum from the date of suit till realization
herein under this decree and any further orders to be passed by
this Hon'ble Court;
(B) This Hon'ble Court may be pleased to hold and declare that
the Deeds of Conveyance dated 23rd January, 2015 registered
GUJARAT COMPOSITE LIMITED v. A INFRASTRUCTURE
LIMITED & ORS. [DINESH MAHESHWARI, J.]
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vide registration no. 742 and 750 executed by defendant No.1 in
favour of defendant Nos.3 and 5, as null and void;
(C) This Hon'ble Court may be pleased to permanently restrain
the defendant Nos.1, 3, 4 and 5 or their agent, executors, or
administrators from disturbing or obstructing the plaintiffs
occupation possession of the suit property till the discharged;
(D) This Hon'ble Court may be pleased to direct the defendant
No.2 Bank not to release original title papers and other relevant
documents in favour of defendant Nos.1, 3 and/or 4;
(E) This Hon'ble Court may be pleased to hold and declare that
the Conveyance Deed dated 23rd January, 2015 entered into
between the defendant No. 1 and defendant No. 3 to 5 as null and
void;
(F) This Hon'ble Court may be pleased to direct the defendant
No. 2 to take over all the current assets of the plaintiff pertaining
to or in connection with the operation of A.C. Sheet and Cement.
Manufacturing unit under license agreement at their book value
and make payment to the plaintiff for the current assets available
at the time of handing over of the possession, if required."
3.9. An application was preferred by the appellant under Section
8 of the Act of 1996 in the said commercial civil suit bearing No. 90 of
2017 for reference of the dispute to arbitration. In the written statement
of the appellant, objection was also raised against the jurisdiction of the
Commercial Court, given the arbitration clause in the licence agreement.
Respondent No. 1 filed a reply to the application and the appellant filed
an affidavit in rejoinder to the aforesaid reply on 03.07.2017.
3.10. In relation to the said application moved by the appellant in
terms of Section 8 of the Act of 1996, another material factor may also
be noticed. Two memos (pursis), came to be filed before the Commercial
Court on 06.12.2017. In one of the memos, the respondent Nos. 3 to 5
(subsequent purchasers of the property in question) purportedly stated
that they were not having any objection if the dispute concerning them
was resolved by arbitration proceedings. The appellant, by another memo
of the even date, suggested that the tripartite amended agreement was
with reference to the licence agreement and it was agreed that till the
time of the defendant No. 1 (appellant) making payment of a sum of Rs.
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5 crore to the plaintiff, the title deeds of the immovable property would
remain with the bank. The appellant suggested that with a view that the
dispute between the parties should be resolved by arbitration proceedings,
keeping all contentions open, they would be depositing the said amount
of Rs. 5 crore in the Court and that in this manner 'the dispute with
defendant No. 2 would be ended' and then, the bank who was handed
over the title deed, would deposit the same in the Court and the Court
would be pleased to place the same in sealed cover till the dispute of the
other parties was not resolved by arbitration proceedings.
3.11. Before adverting to the order passed by the Commercial
Court on the prayer of the appellant for reference to arbitration in terms
of Section 8 of the Act of 1996, we may complete the narration
concerning the parallel proceedings in terms of Section 11 of the Act of
1996, even while deviating a little from the chronology. The said IAAP
No. 63 of 2017 was withdrawn on 07.07.2017, as it was a composite
petition against both respondent No. 1 and its sister concern with liberty
to file fresh petitions. Thereafter, two separate IAAPs being IAAP No.
90 of 2017 and 89 of 2017 were filed by the appellant but, the proceedings
therein ultimately culminated in the common order dated 15.12.2017.
The High Court dismissed those applications in view of the fact that the
prayer of the appellant in terms of Section 8 of the Act had been rejected
by the Commercial Court on 13.12.2017 but, with liberty to the appellant
to file afresh under Section 11 of the Act after decision on the challenge
to the order so passed by the Commercial Court. Be that as it may, this
aspect is not as such relevant for the present purpose and could be left
at that.
4. The Commercial Court at Ahmedabad, in the order dated
13.12.2017, rejected the application of the appellant under Section 8 of
the Act of 1996. It was held that there was no arbitration clause in the
tripartite agreement and no reference had been made to the original or
supplementary licence agreement to give effect or consider the arbitration
clause as a part and parcel of the tripartite agreement. While referring
to clause 32 of the Licence Agreement dated 07.04.2005, the Court
observed that it was explicitly clear that the arbitration clause was
applicable to the appellant and respondent No. 1, specifically in reference
to the original licence agreement and supplementary licence agreement
but the same could not be extended to apply to subsequent transactions
and agreements with different parties.
GUJARAT COMPOSITE LIMITED v. A INFRASTRUCTURE
LIMITED & ORS. [DINESH MAHESHWARI, J.]
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4.1. In consonance with the aforementioned observations, the
Commercial Court also held that there must be a valid arbitration
agreement in order to invoke the powers of the Court to refer the parties
to arbitration under Section 8 of the Act of 1996. It was further observed
that persons who are not parties to the arbitration agreement cannot be
referred to arbitration, as the binding effect would only apply to the
parties thereto, i.e., the appellant and respondent No. 1. Hence, if the
dispute was between parties and non-parties to the arbitration agreement,
appointment of arbitrator could only be made with respect to the parties.
The relevant parts of the order passed by Commercial Court could be
usefully reproduced as under: -
"15....As such, no arbitration clause seems to have been inserted
nor any reference has been made as to the License Agreement
or Supplementary License Agreement executed between the
plaintiff and defendant No. 1 so as to give effect and to consider
as a part and parcel of the tripartite agreement executed between
the plaintiff, defendant No. 1 and defendant No. 2.
16. Even perusing item No. 32 of the Licence Agreement dated
07/04/2005 executed between the plaintiff and defendant No. 1
wherein it has been expressly agreed upon between the parties
thereto that dispute, if any, arising out of this Agreement shall
be referred to arbitration.....Thus, it is explicitly clear that the
arbitration clause is binding to the plaintiff and defendant No. 1
only and that too pertaining to the Licence Agreement/
Supplementary Licence Agreement and cannot be given effect
and extended and made applicable to the subsequent transactions
and/or agreements so executed between the plaintiff and
defendant No. 1 with the strangers.
ARBITRATION AGREEMENT:
17. Now the question arises is as to what is an "arbitration
agreement" and/or "a valid arbitration agreement"? To meet
with the aforesaid issue, the provisions of Section 7 of the
Arbitration Act requires to have a glance wherein the arbitration
agreement means an agreement between the parties to submit to
arbitration of or certain disputes which have arisen or which may
arise between them in respect of a definite legal relationship,
whether contractual or not.
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18. It is further provided that the arbitration agreement must be in
writing and signed by the parties and also in exchange of statement
- defence in which the existence of the agreement is alleged by
one party and not denied by the other party.
19. Thus, considering the facts of the case on hand while applying
the provisions of Section 7 of the Arbitration Act, the powers of
the Court to refer the parties to arbitration are subject to fulfilment
of the required conditions i.e. there should be an arbitration
agreement and if the Court finds that no valid arbitration agreement
exists between the parties, then to invoke the powers under
Section 8 and the issue thereof does not arise.
20. Hence, on the aforesaid account and as discussed in the
foregoing paragraphs, the clause of arbitration so inserted is
between the plaintiff and defendant No.1 as inserted in the Licence
Agreement and the same cannot be applied to the subsequent
transactions and with the persons who are not the parties to the
arbitration agreement who cannot be compelled to or referred to
arbitration. Hence, in view of the aforesaid, the arbitration clause,
the binding effect applies to the plaintiff and defendant No.1 only
and cannot be extended to the rest, admittedly who are not the
parties to the arbitration agreement.
21. Thus, the sum and substance of the aforesaid discussion is
that the reference to the arbitration is possible only if there is a
valid arbitration agreement between the parties, but if the dispute
is between the parties to an arbitration with the other parties as
also non-parties to the arbitration agreement, a reference to the
arbitration or even the appointment of the arbitrator can only be
made with respect to only the parties to the arbitration agreement
and not the non-parties."
4.2. In terms of the requirements of Section 8 of the Act of 1996
the Commercial Court held that the matter could be referred to arbitration
only if it were a part of the subject-matter of the agreement. The reliefs
sought by the plaintiff involved its challenge to the conveyance deeds as
violative of the undertaking submitted before the Industrial Tribunal as
also the fact that the transaction was entered into during the operation
of stay granted by the High Court4. Thus, this would not fall within the
4 We have not elaborated on the other litigations wherein the said orders were passed,
for being not entirely necessary in relation to the core question involved in the matter.
GUJARAT COMPOSITE LIMITED v. A INFRASTRUCTURE
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scope of adjudication. The Commercial Court further held that the issue
of mortgage was not arbitrable. In essence, the considerations of the
Commercial Court had been that the relief sought by the plaintiff related
to several other transactions which did not provide for arbitration as a
dispute resolution mechanism. It was observed that the challenge to the
conveyance deed and also the relief sought against the bank to not release
documents in favour of appellant would only be capable of adjudication
by the Courts and could not be resolved by arbitrator.
4.3. Another ancillary observation had been that the conduct of
respondent Nos. 3 to 5 would indicate collusion with the appellant during
pendency of litigation. Thus, in substance, it was held that the issues in
question were not connected with the licence agreement and that there
was no valid arbitration agreement between the plaintiff and the rest of
the defendants apart from defendant No. 1 (appellant). The Commercial
Court further clarified that a partial reference to arbitration would not be
possible because the cause of action could not be split into separate
parts.
5. In appeal, the decision of the Commercial Court was upheld by
the High Court, after extensively taking note of the material aspects of
the pleadings in plaint and the rival submissions as also the principles
enunciated in the cited decisions, with the finding that it would not be
proper to bifurcate the disputes in terms of arbitrable and non-arbitrable
disputes.
5.1. As regards the suit in respect of a matter which falls partly
within and partly outside the arbitration agreement, and also involves
non-parties as well as parties, it was held that Section 8 of the Act of
1996 would not be attracted, in reference to several decisions of this
Court. The High Court observed that the licence agreements were only
executed between the appellant and respondent No. 1 and respondent
Nos. 2 to 5 were not party to the agreement. There was a tripartite
agreement between the appellant, respondent No. 1 and the bank,
however, it was an admitted position that no arbitration agreement existed
in that regard. Further, the tripartite agreement was an independent
agreement for mortgage by deposit of title deeds. It was further observed
by the High Court, as had also been observed by the Commercial Court,
that the appellant had breached the injunction granted by the High Court
as well as the undertaking before the Industrial Tribunal by selling some
of the properties to respondent Nos. 3 to 5. Referring to the plaint
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averments, the High Court took note of the reliefs sought by respondent
No. 1 and the parties against whom reliefs were sought as also the
pleadings with respect to cause of action in the following words: -
"[8.5] In the present case as observed herein above there are
license agreements containing the arbitration clause, executed
between the plaintiff and the original defendant No.1 on one hand.
Admittedly, the original defendant Nos.2 to 5 are not party to the
arbitration agreement. There is a tripartite agreement between
the original plaintiff, original defendant No.1 and the original
defendant No.2 (Bank of Baroda) under which the plaintiff and
the original defendant No.2 have prayed the reliefs. It is an
admitted position that in the tripartite agreement between the
original plaintiff, original defendant No.1 and the original defendant
No.2 (Bank of Baroda), there does not exist any arbitration
agreement. Under the tripartite agreement the original defendant
No.1 has placed the title deeds and the said tripartite agreement
as such can be said to be an independent agreement and under
the said tripartite agreement there is a mortgage by deposit of title
deeds in respect of immovables and hypothecation of movables.
It appears that the said tripartite agreement was executed while
sanctioning a corporate loan of Rs.500 lakh in favour of the original
plaintiff and the charge and mortgage has been created in favour
of Bank of Baroda - original defendant No.2. It appears that
during the pendency and subsistence of the aforesaid mortgage
and as alleged by the original plaintiff surreptitiously and in breach
of the injunction granted by this Court as well as the undertaking
before the Industrial Tribunal, the original defendant No.1 has
sold some of the properties (mortgaged properties) in favour of
original defendant Nos.3 to 5. In light of the above broad facts
and averments in the plaint, pleadings on the cause of action and
the reliefs sought are required to be considered.
[8.6] In the plaint in Commercial Civil Suit No.90/2017, the plaintiff
has sought the relief against the following defendants:
1. Gujarat Composite Limited
2. Bank of Baroda
3. Real Home Corporation - a partnership firm
GUJARAT COMPOSITE LIMITED v. A INFRASTRUCTURE
LIMITED & ORS. [DINESH MAHESHWARI, J.]
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4. M/s. Raj Corporation (Confirming Party) - partnership firm
5. RJD Buildcon Ltd.
The suit is filed for recovery of legitimate dues, cancellation
of sale deed and for permanent injunction. In the suit the plaintiff
has prayed for the following reliefs.
"(A) This Hon'ble Court may be pleased to direct the defendant
No.1 to pay to the Plaintiff herein a sum of Rs.32.66 Crores
with interest @ 14% per annum from the date of suit till
realization herein under this decree and any further orders to
be passed by this Hon'ble Court;
(B) This Hon'ble Court may be pleased to hold and declare
that the Deeds of Conveyance dated 23rd January, 2015
registered vide registration no.