Octavius Tea & Industries Ltd @APPELLANT@Hash Lakshmi Chand Garg & Ors

Soumen Sen, J.

This is an application filed by the defendant Nos.1 to 5 (hereinafter referred to as “the Gargsâ€) for referring the disputes between the petitioners

and the respondents to arbitration as per Section 8(3) of the Arbitration and Conciliation Act, 1996. The basis of the application appears to be a

Memorandum of Understanding (hereinafter referred to as “MoUâ€) dated 16th July, 2011 which contains an arbitration clause. Sworn of details,

Octavius Tea & Industries Ltd., prior to January 11, 2011, was the owner of the four tea estates including the Dalmore Tea Estate at Jalpaiguri.

On January 11, 2011 by an order of demerger, Dalmore Tea Estate became a separate legal entity and was incorporated and registered under the

Companies Act, 1956 in the name of Dalmore Tea Estate Private Ltd. The Jain Group represented by Suresh Kumar Jain, Hulas Chand Jain, Jayanta

Kumar Jain, Navin Kumar Jain, Sunita Jain, Shalini Jain, Ekta Jain, Nilima Jain and Kamalesh Trivedi (hereinafter referred to as “the Jainsâ€),

however, continued to be in the management of the Tea Company along with the plaintiff. Ultimately, on 16th July, 2011, a MoU was entered into by

and between the said Jains and Kamalesh Trivedi on the one hand and the petitioner Nos.1 to 5, the Gargs, on the other hand, by which the Jains

transferred their 100% shares in the Tea Company in favour of the Gargs. Although the shares were transferred yet the original share scripts were

kept with one Navin Chandra Bothra to be transferred to the Gargs upon compliance of the terms of the said MOUs.

The MoU contemplates that Jains would transfer the said entire Equity and Preference Shares representing 67,51,146 issued, subscribed and paid up

Equity Shares of the Company for the total consideration of Rs.33,75,576/- and Rs.36,000 Preference Shares of the Company for the total

consideration of Rs.3,60,000/- to the Gargs. On execution of the MOU, the Jains would deposit certificates of both Equity and Preference Shares

along with duly executed Transfer Deeds and relative Bills and receipts to be held by him in escrow till the formalities relating to additional Loan of

Rs. 1 Crore is availed by the Gargs and deposited with Provident Fund Department against Balance dues to the company. Upon presentation of

payment challan of Rs. 1 Crore and on verification of the payment to be made by Gargs, Mr. N.C. Bothra would hand over the share certificates,

transfer deeds and relative Bills and receipts to the Gargs irrespective of any objection by the Jains and thereafter the shares would stand vested in

the Gargs with full and absolute right.

On account of Provident Fund dues in respect of the said company calculated up to 31st March, 2011 on execution of the MoU, the Gargs has

deposited with the Regional Provident Fund Authorities a sum of Rs. 67 Lakhs (vide DD No.760777 dated 13.7.2011 for Rs. 55 lakhs in the name of

the Regional Provident Fund Commissioner Jalpaiguri, and DD. No.760779 dated 15.7.2011 for Rs.12,00,000/- only in the name of Regional Provident

Fund Commissioner, Jalpaiguri).

The Gargs shall further deposit Rs.1 crore with Regional Provident Fund Authorities by availing Term Loan from any Schedule Bank or Financial

Institution before creating any charge over the share certificates. After deducting Rs. 67 Lakhs and Rs. 1 Crore, the Gargs shall handover thirty six

undated account payee cheque of equal value in the name of regional Provident Fund to the Jains from the Bank Account to be opened newly on

account of the remaining outstanding dues of Provident Fund.

The parties have agreed that the transfer of the control and management of the said company shall be effective from May 01, 2011. Another

agreement on the same date, i.e., July 16, 2011 was executed between the same parties in relation to Dalsinghpara Tea Estate Pvt. Ltd. on similar

terms, which is the subject matter of G.A. No. 3491 of 2014. Upon execution of the said MoU, the Gargs have taken the management of the said

company with effect from May 1, 2011. It is understood between the parties that consideration for the assets of the company has been fixed and

agreed at Rs. 8,15,00,000/- only. The Schedules to the MoU define the liabilities required to be discharged by the Gargs. It is alleged that the MoU

made it clear that if there is any liability on account of penalty and/or damages in respect of Provident Fund, the same would also be borne by the

Gargs without considering or construing the same as part of the agreed consideration.

The Gargs would not be liable for any liabilities which are not stated in Schedule III to the MoU. Any liability which is not stated in the Schedule and is

found out later would be the liability of the Jains; and they shall upon demand by the Gargs, settle such liability. The Jains agreed to indemnify the

Gargs in respect of all liabilities which were found to exist over and above the liability stated in Schedule III. The applicants alleged that not only have

the applicants made the dues of the Provident Fund but also made payment of a substantial amount to the creditors of the tea company/estate for and

on behalf of the Jains and such liabilities are beyond Schedule III of the said MOU dated 16th July, 2011 which amount to Rs.1,33,95,497/- as on 19th

January, 2012 in respect of the applicant No. 6. The applicants by a letter dated 19th January, 2012 requested the plaintiffs to make payment of the

aforesaid sum towards the liabilities in excess of the liability mentioned in the said Schedule III of the said MoU which was detected from the

Auditor’s Report.

The applicants complained that in spite of fulfilling the terms and conditions of MoU and in spite of demand made by the applicants through their

Advocate’s letter dated 7th April, 2014, Mr. Bothra failed to return the share certificates and the said certificates are still in custody of the said

escrow agent. The plaintiff by a letter dated 15th May, 2014 wrongly and illegally imposed further conditions for return of the said share certificates

beyond the agreed terms. The applicants calmed that they have further ascertained from the Auditor’s Report dated 16th June, 2014 that they

have paid a sum of Rs.1,69,80,07.22/- as on 16th June, 2014 for and on behalf of the plaintiffs in respect of other liabilities which are beyond Schedule

III of the MoU dated 16th July, 2011. The MoU in Clause 23 contains a mechanism for resolving disputes between the parties by arbitration. The

applicant contends that since there is a live dispute between the applicants and the plaintiff the dispute is required to be referred to arbitration in terms

of Clause 23 which reads:-

“Clause 23. All or any dispute or differences arising out of or touching this Memorandum of Understanding shall be referred to the arbitration in

accordance with the provision of Arbitration and Conciliation Act, 1996 and the award to be made by such arbitrator shall be final and binding on the

parties. The arbitrator shall have summary power and will not be required to assign reasons in support of his award. The place of arbitration shall be

Kolkata.â€​

The applicants alleged that it has been the specific case of the Gargs that the Jains have committed concealment of certain liabilities over and in

excess of the liabilities stipulated under the said Schedule III of MoU and as such have committed breaches in respect of the said MoU. Inasmuch as

the parties are required to resolve the disputes by arbitration, the Gargs have given a notice for arbitration on June 30, 2014 and subsequently on 29th

September, 2014. The plaintiffs did not respond to the said notices. In view thereof the applicants filed an application under Section 11 of the

Arbitration and Conciliation Act, 1996. The said application was, however, withdrawn on 24th September, 2014 as it was found that some of the

necessary parties were missed out.

Mr. Hirak Kumar Mitra, the Learned Senior Counsel, submits that the presence of the defendant No. 8 is neither necessary nor required for a proper

and fair adjudication of the disputes between the parties. The defendant No. 8, namely, United Bank of India, has been joined solely to defeat the right

of the applicants to enforce the arbitration clause between the applicants and the plaintiffs. The Bank is neither affected by the MoU nor is the Bank

affected by the result in the arbitration proceeding. The cause of action of plaintiff against the applicants and the defendant Bank are distinct and

separate. The purpose of filing of the suit is to cloud the issues and overshadow the right of the applicants to have the disputes resolved by arbitration.

Mr. Hirak Kumar Mitra, learned Senior Counsel, has submitted that the dispute between the parties is arising out of implementation of Schedule III of

the MoU. The issue as to whether the plaintiff would be liable to pay any sum in excess of any amount under Schedule III is a dispute arising out of

the MoU. This decision between the parties cannot affect the bank. In order to resolve the said dispute the bank is not a necessary party. It is

submitted that the prayers (c) and (d) of the plaint has been cleverly couched in order to bypass and nullify the arbitration clause. In any event, for

adjudication of such dispute the presence of the applicants are not necessary. Mr. Mitra, in this regard has relied upon the decision in Gujarat NRE

Coke Limited Versus Jindal Steel and Power Limited reported in 2015 SCC Online Cal 7519, Utkarsh Tubes & Pipes Ltd. v. Simplex Infrastructure

Limited & Anr. reported at 2015 (2) Arb. LR. 27 (Cal) and Pam Infrastructure Projects Limited v. Lourdes Textile Pvt. Ltd. reported at 2014 (2)

CHN 484.

Mr. S. N. Mitra, the learned Senior Counsel, appearing on behalf of the plaintiffs submits that the disputes as canvassed in the plaint cannot be

decided without the presence of the defendant No. 8, namely, the Bank. Mr. Mitra has referred to the plaint and submits that the Jains in discharge of

their obligations under the MoU deposited with the defendant No. 9, the escrow agent, certificates of both the equity and preference shares of the

defendant Nos. 6 and 7 along with duly executed transfer deeds and relative bills and receipts. The defendant No. 6 is now under the control and

management of the defendant Nos. 1 to 5. The defendant No. 6 issued two letters dated 6th February, 2014 and 3rd March, 2014 to the escrow agent

for release of the original shares certificates with copies forwarded to one of the Directors of the plaintiff. In response to the said letter, the plaintiff

issued two letters both dated 27th March, 2014, calling upon the defendant Nos. 6 and 7 to produce the no-dues certificates from the Provident Fund

Department for the relevant period and confirmed discharge of corporate guarantee of the plaintiff in respect of the credit facilities availed of by the

defendant Nos. 6 and 7 from the defendant No. 8.

It is the contention of the plaintiff that only upon receipt of the required information would the plaintiff give its no-objection to the escrow agent for

handing over the share certificates kept with the escrow agent. The plaintiffs contend that the defendant refused to furnish any such particulars and

information by reason whereof the plaintiff had no obligation to issue no-objection to the escrow agent for release of the share certificates. In the

meantime, the defendant No. 8 issued two notices dated 28th May, 2014 and 29th May, 2014 to the defendant Nos. 6 and 7 with copies marked to the

plaintiff as well as to the defendant No. 1 and to Radharani Tea Estate Pvt. Ltd. calling upon the defendant Nos. 6 and 7 to pay their respective dues

to the tune of Rs.4,28,55,000/- and Rs.3,43,44,000/- as on 31st March, 2014 in which the plaintiff was described as the corporate guarantor. The

plaintiff denies such description and stated that such notices are wrongly, illegally and in breach of the agreement contains in the letter dated 14th July,

2011 written by the defendant No.8 to the defendant Nos.6 and 7.

The plaintiff in two communications dated 12th Jun, 2014 both addressed to the defendant No. 8 contended that the plaintiff had ceased to be a

corporate guarantor in respect of a credit facility granted by the respondent No. 8 to the defendant Nos. 6 and 7 and as such the bank should desist

from making any further claim upon the plaintiff. In respect of such contention, the Bank had failed to withdraw such notices.

Mr. S. N. Mitra, submits that the averments made in the plaint would clearly show that the bank is inextricably connected with the disputes and

without the presence of the bank the entire dispute cannot be resolved. It is submitted that the causes of action as pleaded in the plaint is required to

be taken as correct. The causes of action against the defendants are not separate and distinct. The presence of the petitioners would be required for a

complete and effective adjudication of the dispute between the parties in suit. The causes of action cannot be dissected. Mr. Mitra in this regard has

relied upon a decision of the Hon’ble Supreme Court in Sukannya Holdings Pvt. Ltd. v. Jayesh H. Pandiya & Anr. reported in AIR 2003 SC

2252. Mr. Mitra submits that having regard to the nature of the controversy the entire dispute cannot be referred to arbitration.

The other objection raised by Mr. S.N. Mitra is with regard to the non-compliance of Sub-Section 2 of Section 8 of 1996 Act, which requires that

“the application shall be accompanied by the original arbitration agreement or a duly certified copy thereofâ€. Mr. Mitra has relied upon a decision

of the Hon’ble Supreme Court in Atul Singh and Others vs. Sunil Kumar Singh and Others reported in (2008) 2 SCC 602 paragraph 18 and 19 and

submits that admittedly the petitioner has relied upon the MoU duly notarized but not certified as required under the Act. It is submitted that since such

requirement is mandatory and not that ground alone this application is liable to be dismissed.

In reply Mr. Hirak Kumar Mitra, Senior Counsel, has submitted that Sukannya Holdings Pvt. Ltd. (supra) has been explained in Niranjan Lal Todi &

Anr. Versus Nando Lal Todi & Anr reported in 2011(1) CHN 6762 where it was held that the said decision is not an authority for the proposition that

if some parties have been deliberately impleaded with a view to avoiding the enforcement of the arbitration agreement the judicial authority in seisin of

the action is required to reject the said objection and referred the parties to arbitration. The facts in brief have been stated earlier.

A bare reading of the plaint would show that the present dispute is arising out of a MoU executed between the Jains and the Gargs. There are

reciprocal obligations required to be discharged under the agreement. Whether the parties have discharged the reciprocal obligations under the MoU is

required to be resolved through the mechanism of arbitration to which both the groups have agreed and finds place in clause 23 of the MoU. Mr. S.N.

Mitra has laid much emphasis on some of the clauses of the MoU which refers to the bank. The MoU in clause 15 has recorded that on execution of

the memorandum, the Jains would negotiate with UBI for discharge and/or release of the liability of the Jains to the State Bank in respect of the said

company. In this regard the Gargs shall execute and/or perform as per requirement of the UBI. In the following clause, namely Clause 16, it is

recorded that execution of this memorandum the Gargs shall replace and/or cause to be cancelled the bank guarantees which are executed by M/s.

Octavious Tea & Industries Limited in favour of West Bengal State Electricity Board as well as Regional P.F. authorities for any other

understandings given by Octavious to anybody by executing fresh bank guarantees forthwith. The nature of the bank guarantees have been described

in schedule 5 of the said MoU. It is recorded that the Gargs have undertaken to pay amongst other liabilities to the UBI in different loan accounts

amounting to Rs.3,32,00,000/- more or less. There are two separate MoUs both dated 16th July, 2011 in respect of the tea estates, namely

Dalsingpara Tea Estate Pvt. Ltd. and Dalmore Tea Estate. Both MoUs contain similar terms. Both the agreements contemplate reciprocal obligations

to be discharged by the parities to the said agreement.

The plaintiff has stated in the plaint that prior to the aforesaid two MoUs, both dated 16th July, 2011, the defendant nos. 6 and 7 wrote several letters

to the defendant no. 8 intimating that there were negotiating to sell and/or transfer the controlling stake of the respective companies to the defendant

no. 1 and/his nominees. By the said letter defendant nos. 6 and 7 also requested defendant no. 8 to give no-objection for transfer of such shares to the

defendant no. 1 and its nominees. The defendant nos. 6 and 7 by the said letter also informed defendant no. 8 that in view of the said letter given by

defendant no. 8 such transfer of shares to the defendant no. 1 or his nominees shall be effected and the defendant no. 1 will be in the board of

directors of the defendant nos. 6 and 7. The defendant nos. 6 and 7 also requested defendant no. 8 to change the sanctioned terms to replace the

corporate guarantee given by the plaintiff in lieu of the personal guarantee given by the defendant no. 1. In response to the aforesaid two letters the

defendant no. 8 by two several letters both dated 14th July, 2011 written to the defendant nos. 6 and 7 agreed to the request for issuance of no-

objection for transfer of shares of the then promoters/shareholders of the respective companies to the defendant no. 1 and its nominees and

substitution of the corporate guarantee of the plaintiff by personal guarantee of the defendant no. 1.

The plaintiff alleged that the defendant nos. 1 to 5 and particularly defendant no.1 acting for self and on behalf of the defendant nos. 2 to 5 accepted

the terms and conditions stipulated by the defendant no.8 by entering two memoranda on understanding and by executing fresh loan document for and

on behalf of the defendant nos. 6 and 7 and in favour of the defendant no.8. The defendant no. 8 also accepted such new management by defendant

nos. 6 and 7 by allowing the defendant nos. 1 to 5 to execute fresh loan document in favour of the defendant no.8 and for on behalf of the defendant

no.6 and 7.

The acceptance of the new management of the defendant nos. 6 and 7 by the defendant no.8 would be further evident from the conduct of the

defendant no.8, who since after 16th July, 2011 did not call upon the old management of the defendant nos.6 and 7 to renew and/or re-execute the

loan documents, which were and are obtained by the defendant no.8 as and by way of security for the credit facilities granted by it to the defendant

nos.6 and 7. The defendant no.8 also since after 16th July, 2011 did not call upon the plaintiff to execute any fresh corporate guarantee in its favour.

The cause of action against the defendant nos. 1 to 5 and the defendant nos.6 and 7 have been briefly summarized in paragraph 23, which reads:-

“The plaintiff states that the defendants no. 1 to 5 have and each one of them has, however, failed to honour and discharge their respective

obligations towards the plaintiff as contemplated in the said two Memoranda of Understanding both dated 16th July, 2011. The breaches so committed

by the defendants no.1 to 5 and through them, the defendants no.6 and 7 are, inter alia as follows:-

(i) The defendants no.1 to 5 and through them, the defendants no.6 and 7 did not discharge their obligations under the said two Memoranda of

Understanding by failing to pay, discharge and/or secure the liabilities towards the defendant no.8 in different loan accounts amounting to

Rs.4,32,00,000/- and Rs.3,32,00,000/-respectively in respect of the defendants no.6 and 7 as on 31st March, 2011.

(ii) The defendants no.1 to 5 and each one of them and through them, the defendants no.6 and 7 did not take any step to execute and/or perform as

per the requirements of the defendant no.8 for discharge and/or release of the liability of Jains including the plaintiff to the defendant no.8 in respect of

the defendants no.6 and 7.

(iii) The defendants no.1 to 5 have and each one of them has failed and neglected to liquidate the entire liabilities of the defendants no.6 and 7 to the

Provident Fund Authority and the defendants no.1 to 5 have and each one of them has also failed and neglected to produce sufficient documentary

evidence by way of No Dues Certificate from the Provident Fund Authority to substantiate clearance of all the dues of the defendants no.6 and 7 to

the Provident Fund Authority. The plaintiff is unable to give further particulars of the defaults so committed by the defendants and particularly by the

defendants no. 1 to 5 until full disclosers are made by the said defendants.â€​

It is alleged that in terms of the two MoUs both dated 16th July, 2011, the Jains were required to deposit with the defendant no.9 the certificates of

both the equity and preference shares duly executed transfer deeds in respect of the defendant nos.6 and 7 along with related bills and receipts which

were and are to be held by the defendant no.9 as an escrow till the liabilities mentioned in the said two MoUs were discharged by the Gargs. Even

though the defendant nos.1 to 5 failed to discharge their obligation towards the plaintiff and/or the Jains, the defendant no. 6 which is now under the

control and management of the defendant nos.1 to 5 issued two several letters dated 6th February, 2014 and 8th March, 2016 to the defendant no.9

for release of the original share certificates which were handed over to the defendant no.9 as escrow agent under the said agreement. The plaintiff

contends that without fulfilling all the obligations by the defendant nos.6 and 7, the said defendants are not entitled to release of such original share

certificates together with duly executed transfer deeds and related bills and receipts from the defendant no.9.

As against the defendant no. 8, it has been specifically stated that the plaintiff recently had received two purported notices dated 28th May, 2014 and

29th May, 2014 addressed to the defendant nos.6 and 7 with copies marked to the plaintiff as well as the defendant no.1 and to the said Radharani

Tea Estate Private Limited demanding Rs.4,28,55,000/- and Rs.3,43,44,000/- as dues from them on 31st March, 2014 and in the said communication

the plaintiff has been described as the corporate guarantor. The plaintiff contended that since the plaintiff including the Jains has performed the

essential terms of both the MoUs dated 16th July, 2011 which were performed by the Jains, the other terms, performance of which has been

prevented or waived by the defendants and particularly by the defendant nos.1 to 7, the plaintiffs have no obligation to discharge.

The plaintiff further contended that the defendant no. 8 has illegally and wrongfully sent the said notices of demand addressed to the defendant nos. 6

and 7 to the plaintiff as the said defendant no. 8 is obliged to release the corporate guarantee having regard to the fact that with the knowledge and

consent of the defendant no.8, such transfer of management had taken place and the shares have been transferred to the defendant no.1 and

accordingly the defendant no.1 cannot hold on to such corporate guarantee or seek to recover its dues from the defendant nos.6 and 7 by enforcement

of such corporate guarantee.

In such conspectus of facts, it has to be seen whether the prayer of the applicant for referring the dispute to arbitration is maintainable. As I read the

plaint, it appears to me that there are two distinct causes of action â€" one is arising out of the MoU as summarised in paragraph 23 of the plaint and

the other is the alleged failure on the part of the bank in releasing the corporate guarantee. The plaintiff has alleged that the defendant nos. 1 to 7 have

not discharged some of the obligations under the MoU. Those disputes are essentially disputes arising out of the implementation of MoU.

Insofar as the bank is concerned, the allegation against the bank appears to be that with the knowledge and consent of the bank, the transfer of

management had taken place and, accordingly, the bank has waived the right, if any, in relation to the corporate guarantee and cannot now enforce the

corporate guarantee. The said guarantees stood discharged by conduct. The essence of the claim against the bank is of estoppel, waiver and

acquiescence.

The question arises whether the disputes are inextricably connected. Mr. S.N. Mitra has relied upon Sukanya Holdings (supra). In the said decision it

can be seen that there was a partnership agreement between Sukanya, Jayesh H. Pandya and Ms. Jaykriti Mehta for development of a land belonging

to Ms. Jaykriti Mehta. The said firm entered into an agreement with M/s. Laxman Commercial and Finance Ltd. for development of the said property

and, on that basis, construction started. During continuance of the partnership between 1996 and 1998, Jayesh and Jaykriti alleged to have withdrawn

some amount from the partnership without contribution to capital construction. On 7th April, 1998, five flats were sold to the creditors of the

partnership firm in order to repay the loans and excess amount was paid to the firm. In April 1999, the developer, namely, M/s. Laxman Commercial

and Finance Ltd sold two flats to different purchasers. On 23rd June, 1999, the partnership firm executed a deed of conveyance subject to rights of

other parties in favour of M/s. West End Gymkhana Ltd. in respect of disposed-of flats. Thereafter, Jayesh filed a suit before the Bombay High Court

for dissolution of the partnership firm and accounts inter alia challenging the conveyance deed executed by the partnership firm in favour of M/s. West

End Gymkhana Ltd.

On the same day, Sukanya filed an application under Section 8 of the Arbitration and Conciliation Act, 1996. Subsequently, Jayesh filed a fresh suit

bearing No. 2812 of 2001 for dissolution of the suit firm, accounts and other reliefs including the relief for setting aside the transfer of suit flats in

favour of various defendants. Such other defendants were not partners of the firm. On such facts, the Hon’ble Supreme Court held that it would

be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action i.e., the subject matter of the suit or in some cases

bifurcation of the suit between parties who are parties to arbitration agreement and others is possible. If bifurcation of the subject matter of the suit

was contemplated, then legislature would have made appropriate language to permit such a course. Moreover, bifurcation of suit in two parts, one to

be decided by the arbitral tribunal and the other to be decided by the civil court, would invariably delay the proceedings.

In a similar situation in Utkarsh Tube and Pipes Limited (supra), it was held that the court is to see the real purpose in impleading a party who is not a

party to the arbitration agreement. It is stated in paragraph 28 of the said report:

“28. The plaintiff can have a separate cause of action against the bank if the bank had acted in breach of the said guarantee or has committed any

fraud. The Court has to see the real purpose in joining the bank in this proceeding. The cause of action against the defendant no.1 and the cause of

action against the defendant no.2 are different. The court can direct a separate trial. The joinder of cause of action or joinder of parties is only

enabling provisions. The Court, in my view, having regard to the object of the Arbitration and Conciliation Act, 1996, in such a situation, is required to

find out the real controversy between the parties and if the Court is of the view that the other party has been impleaded in order to avoid arbitration,

the Court should ignore such addition and refer the parties to arbitration. In the instant case, I have already held that the real controversy is between

the plaintiff and the defendant no.1. The joinder of the defendant no.2 is made obviously to avoid arbitration since the plaintiff perceived bias or

impartiality in the appointment of an arbitrator under the arbitration clause.â€​

Recently Section 8 of the Arbitration and Conciliation Act, 1996 has undergone an amendment. Section 8(1) after amendment reads:-

A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration

agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the

dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that

prima facie no valid arbitration agreement exists.

The earlier Section 8(1) of the Arbitration and Conciliation Act, 1996 reads:-

“A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not

later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.â€​

The amended provision came up for consideration in Ameet Lalchand Shah and others vs. Rishabh Enterpirses and another reported at 2018 SCC

Online SC 487. The decision in Sukanya Holding Private Ltd (supra) was considered in the light of the aforesaid amendment.

On consideration of the amended Section 8 of the Arbitration and Conciliation Act it was held:

“29. Principally four amendments to Section 8(1) have been introduced by the 2015 Amendments - (i) the relevant ""party"" that is entitled to apply

seeking reference to arbitration has been clarified/amplified to include persons claiming ""through or under"" such a party to the arbitration agreement;

(ii) scope of examination by the judicial authority is restricted to a finding whether ""no valid arbitration agreement exists"" and the nature of examination

by the judicial authority is clarified to be on a ""prima facie"" basis; (iii) the cut-off date by which an application under Section 8 is to be presented has

been defined to mean ""the date of"" submitting the first statement on the substance of the dispute; and (iv) the amendments are expressed to apply

notwithstanding any prior judicial precedent. The proviso to Section 8(2) has been added to allow a party that does not possess the original or certified

copy of the arbitration agreement on account of it being retained by the other party, to nevertheless apply under Section 8 seeking reference, and call

upon the other party to produce the same.†(Ref: Justice R.S. Bachawat’s Law of Arbitration and Conciliation, Sixth Edition, Vol. I (Sections 1

to 34) at page 695 published by LexisNexis).

Amendment to Section 8 by the Act, 2015 are to be seen in the background of the recommendations set out in the 246 th Law Commission

Report. In its 246th Report, Law Commission, while recommending the amendment to Section 8, made the following observation/comment:-

“LC Comment: The words “such of the parties…. to the arbitration agreement†and proviso (i) of the amendment have been proposed in the

context of the decision of the Supreme Court in Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and Anr. (2003) 5 SCC 531,- in cases where all the

parties to the dispute are not parties to the arbitration agreement, the reference is to be rejected only where such parties are necessary parties to the

action â€" and not if they are only proper parties, or are otherwise legal strangers to the action and have been added only to circumvent the arbitration

agreement. Proviso (ii) of the amendment contemplates a two-step process to be adopted by a judicial authority when considering an application

seeking the reference of a pending action to arbitration. The amendment envisages that the judicial authority shall not refer the parties to arbitration

only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the

arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined

by the arbitral tribunal. However, if the judicial authority concludes that the agreement does not exist, then the conclusion will be final and not prima

facie. The amendment also envisages that there shall be a conclusive determination as to whether the arbitration agreement is null and void.

(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly

certified copy thereof or a copy accompanied by an affidavit calling upon the other party to produce the original arbitration agreement or duly certified

thereof in circumstances where the original arbitration agreement or duly certified copy is retained only by the other party.

LC Comment: In many transactions involving Government bodies and smaller market players, the original/duly certified copy of the arbitration

agreement is only retained by the former. This amendment would ensure that the latter class is not prejudiced in any manner by virtue of the sameâ€

(Ref: 246th Law Commission Report, Government of India)

The language of amendment to Section 8 of the Act is clear that the amendment to Section 8(1) of the Act would apply notwithstanding any

prayer, judgment, decree or order of the Supreme Court or any other Court.â€​

The Courts have consistently held while interpreting Sukanya Holdings (supra) that if on a meaningful assessment of the subject matter of the action it

appears to the Court that the claimant is seeking to deliberately avoid the arbitration by adding a twist to a cause of action or implead a party who is

not bound by the arbitration agreement, the Court must take into consideration the object of the Arbitration and Conciliation Act, 1996 and more

particularly the mandate of Section 8 which leaves no room for the Court to continue with an action if it appears to the Court that the real and

essential dispute between the parties is covered by the arbitration agreement. In Sukanya Holdings (supra), it was found that the cause of action

against the defendant who was not a party to the arbitration agreement was real and integral to the claim of the suit which in the present case is

singularly absent.

It can be seen from the amended provision that at the stage of Section 8, the Court is required to ascertain if there is a valid arbitration agreement

between parties. In the instant case it cannot be disputed that there is a valid arbitration agreement between the Jains and the Gargs. The agreement

between the plaintiff and the defendant no.8 is independent of MoU. The MoU is not concerned with the obligations inter se between the plaintiff and

defendant no.8. The real cause of action in the suit is against the applicants for alleged failure to perform its obligation under the MoU. The cause of

action against the bank is separate and distinct and unconnected with the disputes arising out of MoU.

The existence of the arbitration agreement is not in dispute. The bank is not a party to MoU nor is the bank bound by MoU. The cause of action

against the defendant no.8 is not real and integral to the claim in the suit against the applicants. The reliefs claimed in prayers (c) and (d) can be

independently tried. The reliefs (a) and (b) cannot be decided in the suit in view of arbitration Clause in the MoU. The disputes are covered by MoU.

The objection with regard to the non-compliance of Section 8(1) and Section 8(2) are not sustainable for the simple reason that the plaintiff in the suit

has relied upon the self-same agreements and the cause of action in the suit is based on the said two MoUs. The authenticity of the said two MoUs is

not in dispute. The plaintiff obviously did not raise any objection with regard to the existence, authenticity and validity of the said two MoUs.

In Bharat Sewa Sansthan vs. U.P. Electronics Corporation Ltd. reported at (2007) 7 SCC 737 the Hon’ble Supreme Court approved the view

taken by the High Court that the photocopies of the agreements could be taken on record under Section 8 of the Arbitration Act for ascertaining the

existence of arbitration clause. The dispute raised by the applicants against the plaintiff and vice versa are arbitrable and arising out of the said two

MoUs.

In view thereof, the disputes between the applicants and the plaintiff are referred to arbitration. Since the facts and issues in G.A. No. 3490 of 2014

are similar to G.A. No. 3491 of 2014, the disputes forming subject matter of G.A. No.3491 of 2014 are also referred to arbitration. It is however,

made clear that the suit may proceed against the defendant no. 8. The application being G.A. No. 3490 of 2014 and G.A. No. 3491 of 2014 both are

allowed. However, there shall be no order as to costs. Urgent Photostat certified copy of this judgment, if applied for, be given to the parties on usual

undertaking.