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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.   7134         OF 2012 (Arising out of SLP (C) No.8950 of 2010)

Chloro Controls (I) P. Ltd.     … Appellant

Versus

Severn Trent Water Purification Inc. & Ors.     … Respondents

WITH

CIVIL APPEAL NOS.      7135-7136                    OF 2012 (Arising out of SLP (C) No.26514-26515 of 2011)

J U D G M E N  T

Swatanter Kumar, J.

1. Leave granted.

2. The  expanding  need  for  international  arbitration  and  

divergent schools of thought, have provided new dimensions to  

the  arbitration  jurisprudence  in  the  international  field.   The  

present  case  is  an  ideal  example  of  invocation  of  arbitral  

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reference in multiple, multi-party agreements with intrinsically  

interlinked  causes  of  action,  more  so,  where  performance  of  

ancillary agreements is substantially dependent upon effective  

execution of the principal agreement.  The distinguished learned  

counsel appearing for the parties have raised critical questions  

of law relatable to the facts of  the present case which in the  

opinion of the Court are as follows :

(1) What  is  the  ambit  and  scope  of  Section  45  of  the  

Arbitration and Conciliation Act, 1996 (for short ‘the 1996  

Act’)?

(2) Whether the principles enunciated in the case of Sukanya  

Holdings Pvt. Ltd. v. Jayesh H. Pandya [(2003) 5 SCC 531],  

is the correct exposition of law?

(3) Whether in a case where multiple agreements are signed  

between  different  parties  and  where  some  contain  an  

arbitration clause and others don’t and further the parties  

are not identically common in proceedings before the Court  

(in a suit)  and the arbitration agreement,  a  reference of  

disputes as a whole or in part can be made to the arbitral  

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tribunal, more particularly, where the parties to an action  

are claiming under or through a party to the arbitration  

agreement?   

(4) Whether  bifurcation  or  splitting  of  parties  or  causes  of  

action would  be  permissible,  in  absence  of  any  specific  

provision for the same, in the 1996 Act?  

3. Chloro Controls (India) Private Ltd., the appellant herein,  

filed a suit on the original side of  the High Court of Bombay  

being Suit No.233 of 2004, for declaration that the joint venture  

agreements and supplementary collaboration agreement entered  

into  between  some  of the  parties  are  valid,  subsisting  and  

binding.  It also sought a direction that the scope of business of  

the joint venture company, Respondent No. 5, set up under the  

said  agreements  includes  the  manufacture,  sale,  distribution  

and  service  of  the  entire  range  of  chlorination  equipments  

including  the  electro-chlorination  equipment  and  claimed  

certain other reliefs as well, against the defendants in that suit.  

The said parties took out two notices of motion, being Notice of  

Motion No.553 of 2004 prior to and Notice of Motion No.2382 of  

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2004 subsequent  to  the  amendment  of  the  plaint.   In  these  

notices  of  motion,  the  principal  question  that  fell  for  

consideration of the learned Single Judge of the High Court was  

whether  the  joint  venture  agreements  between  the  parties  

related  only  to  gas  chlorination  equipment  or  whether  they  

included electro-chlorination equipment as well.  The applicant  

had  prayed  for  an  order  of  restraint,  preventing  Respondent  

Nos. 1 and 2, the foreign collaborators, from acting upon their  

notice dated 23rd January, 2004, indicating termination of the  

joint venture agreements and the supplementary collaboration  

agreement.  A further prayer was made for grant of injunction  

against committing breach of contract by directly or indirectly  

dealing with any person other than the Respondent No.5, in any  

manner whatsoever, for the manufacture, sale, distribution or  

services  of  the  chlorination  equipment,  machinery  parts,  

accessories  and  related  equipments  including  electro-

chlorination equipment, in India and other countries covered by  

the  agreement.   The  defendants  in  that  suit  had  taken  out  

another Notice of Motion No.778 of 2004, under Section 8 read  

with Section 5 of the1996 claiming that arbitration clauses in  

some  of  the  agreements  governed  all the  joint  venture  

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agreements and,  therefore,  the suit  should be referred to an  

appropriate arbitral tribunal for final disposal and until a final  

award was made by an arbitral tribunal, the proceedings in the  

suit should be stayed.   The learned Single Judge,  vide order  

dated 28th December, 2004, allowed Notice of Motion No.553 of  

2004 and consequently disposed of Notice of Motion No.2382 of  

2004  as  not  surviving.  Against  this  order,  an  appeal  was  

preferred, which came to be registered as Appeal No.24 of 2005  

and vide a detailed judgment dated 28th July, 2011, a Division  

Bench of the High Court of Bombay set aside the order of the  

learned Single Judge and dismissed both the notices of motion  

taken out by the plaintiff in the suit.  

4. Notice of Motion No.778 of 2004 was dismissed by another  

learned Single Judge of the High Court of Bombay, declining the  

reference of the suit to an arbitral tribunal vide order dated 8th  

April,  2004.  This  order  was  again  assailed  in  appeal  by  the  

defendants  in  the  suit  and  another  Division  Bench  of  the  

Bombay High Court, vide its judgment dated 4th March, 2010,  

allowed the Notice of Motion No.778 of 2004 and made reference  

to arbitration under Section 45 of the 1996 Act.

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5. The judgments of the Division Benches, dated 4th March,  

2010 and 28th July, 2011, respectively, have been assailed by  

the respective parties before this Court in the present Special  

Leave  Petitions,  being  SLP(C)  No.8950/2010  and  SLP(C)  

No.26514-15/2011,  respectively.   Thus,  both  these  appeals  

shall be disposed of by this common judgment.

6. Before we notice in detail the factual matrix giving rise to  

the  present  appeals  and  the  contentions  raised,  it  would  be  

appropriate  to  illustrate  the  corporate  structure  of  the  

companies and the scope of the agreements that were executed  

between the parties to these proceedings.

Corporate Structure of the Companies who are parties to   lis   

7. In order to describe the corporate structure with precision  

we will explain it diagrammatically as follows:

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                                                                                          MERGED INTO    ON 31.03.2003

           Shareholders Agreement   JV                                                                                           

               Distributorship

                     and Knowhow            Agreement

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SEVERN TRENT (DEL) INC.

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

SEVERN TRENT SERVICES (DEL) INC.

R-1 – CAPITAL CONTROL CO. INC. Acquired 80% on 15.05.1990 and 20% on  31.03.1994. NAME CHANGED ON 1.4.2002 TO  SEVERN TRENT WATER PURIFICATION  INC. (GAS CHLO. & HYPOGEN Product Lines)

R-2 - CAPITAL  CONTROL (DELAWARE) CO. INC. Formed on 21.09.94

EXCEL TECHNOLOGIES INT’L CORP. Acquired in 1998 Original OMNIPURE and SANILEC Manufacturer

Appellant CHLORO  CONTROL  INDIA PVT. LTD.

CAPITAL CONTROL (INDIA) PVT LTD. (ON 14.11.1995 a new Joint Venture) R-5 - GAS CHLORINATORS &  HYPOGEN

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JV

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ODN, B.V.

  DENORA NORTH AMERICA, INC. GROUPO DE NORA Original Seaclor and  Seaclor Mac  Manufacturer

SERVEN TRENT DE NORA LLC – SEPT, 2001 PRODUCTS CURRENTLY OFFERED ARE OMNIPURE, SANILE 7 SEACLOR

R-3 – TITANOR  COMPONENTS LTD.

Distributes SEACLOR MAC Product Line

R-4 – HI POINT SERVICES PVT LTD  OMNIPURE, SANILEC  Before 1998

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

Currently, Independent Distributor for SEVERN TRENT DENORA

Distributes Omnipure and Sanilec Products in India

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8. Severn Trent,  U.S.,  Inc. was a company existing under  

the laws of the State of Pennsylvania, United States of America  

(for short, ‘U.S.A.’).   This name came to be changed, in 1992,  

to Severn Trent (Delaware) Inc., which is the principal parent  

company.   This company owned a 100 per cent subsidiary,  

Severn Trent Services (Delaware) Inc., U.S.A.   Severn Trent  

Services (Delaware) Inc. owned Capital Control (Delaware) Co.  

Inc. which was formed on 21st September, 1994.   On or about  

14th May, 1990, Severn Trent Services PLC, U.K., an erstwhile  

state-owned water authority, privatized in 1989, expanded its  

business into the U.S.A. by acquiring 80 per cent shares in  

Capital Control Co. Inc. on 15th May 1990  and a further 20  

per cent on 31st March 1994. It is in this period that the joint  

venture agreements with the appellant were negotiated, with  

the consent of  the Severn Trent  group,  which was,  by that  

time,  a  majority  shareholder  in  Capital  Control  Co.  Inc.  

Subsequently,  the  name  of  Capital  Control  Co.  Inc.,  was  

changed to Severn Trent Water Purification, Inc. (Respondent  

No.1), with effect from 1st April, 2002. The Severn Trent Water  

Purification  Inc./Capital  Control  Co.  Inc.  then  came  to  be  

merged with Capital Control (Delaware) Co. Inc. (Respondent  

No.  2),  on 31st March,  2003.    As a  result  thereof,  Capital  

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Control  (Delaware)  Co.  Inc.  ceased  to  exist.   As  per  the  

pleadings of the parties, reference to Capital Control Co. Inc.  

includes reference to Capital Control Co. Inc. as well as Capital  

Control (Delaware) Co. Inc.    

9.  The appellant is a company carrying on business under  

that  name  and  style  for  the  manufacture  of  chlorination  

equipments  and  incorporated  under  the  Indian  laws  by  

Madhusudan Kocha (Respondent No.9 herein) and his group  

(for  short,  the  “Kocha  Group”).   This  company  had  been  

negotiating  with  Respondent  No.  1  for  entering  into  a  joint  

venture agreement, to deal with the manufacture, distribution  

and sale of gas chlorination equipment and “Hypogen” electro-

chlorination  equipment  Series  3300,  etc.    This  led  to  the  

execution of joint venture agreements between the appellant  

and Respondent No. 1.   The joint venture agreements were  

signed  between  these  companies  for  constituting  a  joint  

venture company under the name and style of Capital Control  

(India) Pvt.  Ltd., with 1,50,000 equity shares of Rs. 10 each  

and  50  per  cent  shareholding  with  each  party.  These  

agreements  being  prior  to  the  merger  of  Capital  Control  

(Delaware) Co. Inc. with Capital Control Co. Inc. and also prior  

to the change of name of Capital Control Co. Inc. to Severn  

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Trent Water Purification Inc., 50 per cent of the shares allotted  

to the foreign collaborators were to be equally divided between  

Capital  Control  (Delaware)  Co.  Inc.  and Capital  Control  Co.  

Inc.  These joint venture agreements were executed between  

the  parties  on  16th November,  1995,  as  already  noticed.  

However, the joint venture company had been incorporated on  

14th November, 1995 itself.

10. In  the  year  1998,  Excel Technologies  International  

Corporation  came  to  be  acquired  by  Severn  Trent  Services  

(Delaware)  Inc.     This  company  was  dealing  in  the  

manufacture of “Omnipure” and “Sanilec”, distinct brands of  

chlorination products.   Later, Excel Technologies entered into  

a joint venture agreement with De Nora North America Inc.  

and floated another joint venture company, Severn Trent De  

Nora  LLC  in  September,  2001  for  dealing  in  the  products  

“Omnipure”, “Sanilec” and “Seaclor Mac”.  It may be noticed  

that “Seaclor Mac” was a product dealt with and distributed by  

Titanor Components Ltd., Respondent no.3, and whose original  

manufacturer was Groupo De Nora;  the latter  is the parent  

company of the De  Nora North America Inc. The distribution  

rights in respect of all these three products were given by the  

joint venture company Severn Trent De Nora LLC to Hi Point  

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Services  Pvt.  Ltd.,  Respondent  No.  4,  for  independent  

distribution of the products for Severn Trent De Nora LLC, in  

India.  

11. This  corporate  structure  clearly  indicates  that  Severn  

Trent  Services  (Del.)  Inc.  is  the  holding  company  of  the  

companies  which  have  entered  into  the  joint  venture  

agreements, for floating both the companies Capital Controls  

(India) Pvt. Ltd., as well as “Severn Trent De Nora LLC”. The  

disputes have actually arisen between Chloro Controls (India)  

Pvt. Ltd. and the Kocha Group on the one hand, and Severn  

Trent  Water  Purification  Inc.,  the  erstwhile  Capital  Control  

(Delaware) Co. Inc. and Capital Control Co. Inc. on the other.

Details of Agreements

S. No Date of Agreement

Details of Agreement

Parties to the Agreement Whether  contains  

arbitration  clause

1. 16.11.1995 Shareholders  Agreement

1. Capital  Controls  (Delware) Company, Inc.  (Respondent No.2)

2. Chloro  Controls  India  Pvt. Ltd. (Appellant)

3. Mr. M.B. Kocha  (Respondent No.9)

Yes

2. 16.11.1995 International  Distributor  Agreement

1. Capital Controls  Company Inc., (Colmar)  now Severn Trent  Water Purification Inc.  

No

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(Respondent No.1)

2. Capital Controls (India)  Private Ltd.  (Respondent No.5)

3. 16.11.1995 Managing  Directors’  Agreement

1. Capital Controls (India)  Private Ltd.  (Respondent No.5)

2. Mr. M.B. Kocha  (Respondent No.9)

No

4. 16.11.1995 Financial &  Technical  Know-how  License  Agreement

1. Capital Controls  Company Inc., (Colmar)  now Severn Trent  Water Purification Inc.  (Respondent No.1)

2. Capital Controls (India)  Private Ltd.  (Respondent No.5)

Yes

5. 16.11.1995 Export Sales  Agreement

1. Capital Controls  Company Inc., (Colmar)  now Severn Trent  Water Purification Inc.  (Respondent No.1)

2. Capital Controls (India)  Private Ltd.  (Respondent No.5)

Yes

6. 16.11.1995 Trademark  Registered User  License  Agreement

1. Capital Controls  Company Inc., (Colmar)  now Severn Trent  Water Purification Inc.  (Respondent No.1)

2. Capital Controls (India)  Private Ltd.  (Respondent No.5)

No

7. August 1997Suppleme-ntary  Collaboration  Agreement

1. Capital Controls  Company Inc., (Colmar)  now Severn Trent  Water Purification Inc.  (Respondent No.1)

2. Capital Controls (India)  

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Private Ltd.  (Respondent No.5)

Facts

12. Prior to the formation of the joint venture company, the  

Chloro Controls Group carried on the business of manufacture  

and  sale  of  gas  chlorination  equipments  and  from  1980  

onwards, it developed and commenced the manufacturing of  

electro-chlorination equipment also. The business was done in  

the name of “Chloro Controls Equipments Company”,  a sole  

proprietary concern of Respondent No.9, Mr. M.B. Kocha and  

it was the distributor in India for the products of the Capital  

Controls group for more than a decade prior to the formation  

of the joint venture.  On 1st December, 1988, a letter of intent  

and a letter of understanding were executed between Capital  

Controls Company Inc.,  Colmar,  Pennsylvania,  U.S.A (which  

name was subsequently changed in the year 2002 to ‘Severn  

Trent Water Purification Inc., respondent No.1) and respondent  

No.9  to  form a  new,  jointly-owned company in India,  to  be  

called “Capital Controls (India) Pvt. Ltd.”, the respondent No.5  

in the present appeals, for the purposes of manufacture, sale  

and  export  of  chlorination  equipments  on  the  terms  and  

conditions as agreed between the parties.  The formation of the  

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joint  venture  company  got  delayed  for  some  time,  because  

Respondent  No.1  informed the  appellant  that  Severn Trent,  

U.K.  and the officers of  the Capital  Controls Company Inc.,  

Colmar, Pennsylvania, U.S.A. had acquired all the shares of  

the Capital Controls Company Inc. and this share acquisition  

permitted  them  to  support  their  representatives  and  

distributers  with  continuity.   On 14th November,  1995,  the  

joint venture company, Capital  Controls (India)  Private  Ltd.,  

Respondent No. 5, was incorporated and registered under the  

Companies Act, 1956 (for short, the ‘Companies Act’).  

13. To examine the factual matrix of the case in its correct  

perspective,  reference  to  pleadings  of  the  parties  would  be  

appropriate.  

14. The  petitioner  is  a  Private  Limited  Company  and  its  

shares are entirely held by Respondent/Defendant Nos.9 to 11  

(Kocha/Chloro  Control  Group).   Respondent  No.1–Company  

was earlier known as “Capital Control Company Inc.” and in or  

about the year 1990 the Capital Controls Group came to be  

acquired by Severn Trent Services PLC (UK), originally a State  

owned water authority and following privatization from the UK  

Government  in  1989,  it  proceeded  to  build  a  product  and  

services business from the US beginning with the acquisition of  

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the Capital Controls Group.  The name of the first respondent  

was changed to Severn Trent Water Purification Inc. with effect  

from 1st April, 2002.  Thus, Respondent Nos.1 and 2 became  

the  group  companies  and  were  earlier  part  of  “the  Capital  

Controls  Group”  (hereinafter  referred  to  as  the  Capital  

Controls/Severn  Trent  Group).   Till  January  1999,  the  

respondent  Nos.1  and  2  developed  and  sold  electro-

chlorination equipment under the brand name “Hypogen” and  

from January 1999 onwards, the said brand was replaced by  

the brands “Sanilec” and “Omnipure”.  Respondent Nos.1 and  

2 carried on the business of  manufacture,  supply,  sale and  

distribution  of  chlorination  equipments,  including  gas  and  

electro-chlorination  equipments.   Respondent  No.3  is  a  

company incorporated under the Companies Act and engaged  

in  the  business  of  manufacture  and  marketing  of  electro-

chlorination equipment.   In or about the year  1989-90,  the  

said  Respondent  no.3  was  floated  as  a  joint  venture  in  

technical and financial collaboration with the De Nora group of  

Italy which held 51% of the equity share capital of the said  

respondent.  Respondent No.4 is a Private Limited Company  

incorporated  under  the  Companies  Act  and  carried  on  

business in electro-chlorination equipments.  It had a tie-up  

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with  an  American  Company  called  “Excel  Technologies  

International  Inc.”  which  was  engaged  in  the  business  of  

electrolytic disinfection equipment.

15. Respondent  No.5,  i.e.,  Capital  Controls  (India)  Private  

Ltd.  is  a  Company  incorporated  under  the  Companies  Act  

pursuant to the joint venture agreements dated 16th November,  

1995 executed between the appellant and respondent no.9 on  

the one hand and the respondent nos.1 and 2 on the other. 50  

per cent of the share capital of Respondent No.5 is held by the  

appellant and balance of 50 per cent is held by Respondent  

No.2.  Thus, the appellant and Respondent No.2 are the joint  

venture  partners  who  have  together  incorporated  the  

Respondent No.5 – company.

16. Respondent  Nos.6  and  8  are  the  Directors  of  the  

Respondent No.5 Company, appointed as such by the Capital  

Controls  Group.  Respondent  No.7  is  the  Chairman  also  

appointed by the Capital Controls Group, but has no casting  

vote.   Respondent  Nos.9  to  11  are  the  Directors  of  the  

Respondent  No.5  company,  nominated  by  the  Kocha  

Group/Chloro  Controls  Group  and  Respondent  No.9  is  the  

Managing Director of the said joint venture.

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17. It  appears that the joint venture company, Respondent  

No.5, was incorporated on 14th November, 1995. As discussed  

above, the joint venture agreements were primarily a project  

between Respondent Nos. 1 and 2 on the one hand and the  

appellant company along with its proprietor, Respondent No.  

9,  on  the  other.    The  purpose  of  these  joint  venture  

agreements as indicated in the Memorandum of Association of  

this  joint  venture  company  was  to  design,  manufacture,  

import, export, act as agent, marketing etc. of gas and electro-

chlorination equipments.   In order to achieve this object, the  

parties had decided to execute various agreements.   It needs  

to be emphasized at this stage itself that, as is clear from the  

above  narrated  chart,  the  agreements  had  been  signed  

between  different  parties,  each  agreement  containing  

somewhat  different  clauses.  Therefore,  there  is  a  need  to  

examine the content and effect of each of the seven agreements  

that are stated to have been signed between different parties.  

Content,  scope  and  purpose  of  the  agreements  subject  matter of the present appeals

18. The parties to the proceedings, except respondent Nos. 3  

and 4, were parties to one or more of the seven agreements  

entered into between the parties.  This includes the Principal  

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Agreement,  i.e.,  the  Shareholders  Agreement,  the  Financial  

and Technical Know-how License Agreement, the International  

Distributor Agreement,  Exports Sales Agreement,  Trademark  

Registered User  License Agreement and Managing Director’s  

Agreement, all dated 16th November, 1995.  Lastly, the parties  

also entered into and executed a Supplementary Collaboration  

Agreement  in August,  1997.   We have  already noticed that  

except respondent Nos.3 and 4 who were not signatory to any  

agreement,  all  other  parties  were  not  parties  to  all  the  

agreements but had signed one or more agreement(s) keeping  

in mind the content and purpose of that agreement.   

19. Now  we  shall  proceed  to  discuss  each  of  these  

agreements.   

Share Holders Agreement

20. The Shareholders Agreement dated 16th November, 1995  

was  entered into and executed between the  Capital  Control  

(Delaware) Co. Inc., respondent No. 2, on the one hand and  

Chloro Controls (India) Private Ltd., the appellant company run  

by the Kocha/ Capital Controls group and Mr.  M.B. Kocha,  

respondent  No.  9,  on  the  other.   As  is  apparent  from  the  

pleadings  on  record,  these  two  groups  had  negotiated  for  

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starting a joint venture company in India and for this purpose  

they had entered into the Shareholders Agreement.  The main  

object of this agreement was to float a joint venture company  

which would be responsible for manufacture, sale and services  

of the products as defined in the Financial & Technical Know-

How License Agreement, in terms of clause 1 of the Agreement.  

The  Agreement  was  subject  to  obtaining  all  necessary  

approvals, licenses and authorization from the Government of  

India, as the joint venture company under the name and style  

of  Capital  Control India Pvt.  Ltd.  was to be registered as a  

company with its  office  located  in  India  at  Bombay and  to  

carry on its business in India.  The plant was to be taken on  

lease.   As  already  noticed,  the  authorized  capital  of  the  

company was Rs.5 million, consisting of equity shares of Rs.10  

each.  In terms of clause 7, Capital Controls, which was the  

short form for Capital Control (Delaware) Co. Inc., appointed  

the  joint  venture  company  as  a  distributor  in  India  of  the  

products  manufactured  by  it,  subject  to  the  terms  and  

conditions of the International Distributor Agreement attached  

to  that  Agreement  as  Appendix  II.   Directors  to  the  joint  

venture company were to be nominated for a period of three  

years in accordance with clause 8 of the Agreement.  Clause 14  

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made  it  obligatory  for  the  parties  to  ensure  that  the  joint  

venture  company  entered  into  the  Financial  and  Technical  

Know-How License Agreement with Capital Controls, subject to  

which, as mentioned above, the joint venture company was to  

have  the  right  and  license  to  manufacture  the  specified  

products  in  India.   The Financial  and Technical  Know-How  

License  Agreement,  which  was  annexed  to  the  Principal  

Agreement as Appendix IV, was to be executed relating to sale  

and  purchase  of  chlorination  equipment  assets.   This  

Agreement had to be construed and interpreted in accordance  

with the laws of  the  Union of  India  in terms of  clause 29.  

Further  clause  21  related  to  termination  of  this  Principal  

Agreement.   In terms of this clause, it was agreed that the  

Agreement was to continue in force and effect for so long as  

each party held not less than twenty-six per cent (26%) of the  

total paid-up equity shares of the company or in the event that  

the company failed to achieve a cumulative sales volume of  

Rs.120 million over three years and cumulative profit of fifteen  

per cent (15%) over three years from signing of the Agreement.  

Either party had the option to terminate the agreement and  

dispose  of  the  shares  as  provided  in  the  terms  thereof.  

Material breach of the Agreement or a deadlock regarding the  

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management of the Company were, inter alia, the contemplated  

grounds for termination of the Agreement, whereby the party  

not in default could terminate the Agreement by giving notice  

in writing to the other party. The period of notice in the event  

of a material breach was 90 days from the date of such notice.  

Clause 21.3 provided that in the event of the termination of the  

Agreement, the joint venture company would be wound up and  

all obligations undertaken by Chloro Controls under different  

agreements would cease with immediate effect.   In such an  

eventuality, even the name of the joint venture company was  

required  to  be  changed  and  the  word  ‘Capital’,  either  

individually  or  in  combination with other  words,  was  to  be  

removed.

21. Two other very material clauses of this Agreement, which  

require the attention of this Court, are clauses 4 and 30.  In  

terms  of  clause  4.5,  the  Kocha  Group  and  their  company  

Chloro Controls were bound not to engage themselves, directly  

or  indirectly,  or  even  have  financial  interest  in  the  

manufacture,  sale  or  distribution  of  chlorination  equipment  

which were similar to those manufactured by the joint venture  

company during the term of the Agreement.  In terms of clause  

30,  all  or  any  disputes  or  differences  arising  under  or  in  

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connection with the Agreement between the parties were liable  

to be settled by arbitration, in accordance with the Rules of  

Conciliation and Arbitration of  the International Chamber of  

Commerce (for short, the ‘ICC’), by three arbitrators designated  

in conformity  with those  Rules.  The  arbitration proceedings  

were to be held in London, England and were to be governed  

by and subject to English laws.   

22. As is clear from the above terms and conditions of this  

Agreement, it was treated as a principal agreement executed  

between the parties and other agreements, like the Financial &  

Technical  Know-How  License  Agreement,  Trademark  

Registered User License Agreement,  International Distributor  

Agreement, Managing Directors’ Agreement and Export Sales  

Agreements were not the only  anticipated agreements to be  

executed between the parties, but their drafts and necessary  

details  had  been  annexed  as  Appendix  I  to  VII  of  the  

shareholder  agreement.   The  other  Agreements  were  only  

required  to  be  signed  by  the  parties  who,  as  per  the  

Shareholders  Agreement,  were  required  to  sign  such  

agreement.   The  Arbitration  Clause  of  the  Shareholders  

Agreement reads as under:

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“Any dispute or  difference arising under  or in connection with this Agreement, or  any  breach  thereof,  which  cannot  be  settled  by  friendly  negotiation  and  agreement between the parties,  shall  be  finally settled by arbitration conducted in  accordance with the Rules of Conciliation  and  Arbitration  of  the  International  Chamber  of  Commerce  by  three  arbitrators designated in conformity with  those Rules.  The arbitration proceedings  shall  be  held  in  London,  England  and  shall  be  governed  by  and  subject  to  English law.  Judgment upon the award  rendered may be entered in any court of  competent jurisdiction.”

International Distributor Agreement

23. The  International  Distributor  Agreement  has  been  

mentioned as Appendix II to the Shareholders Agreement.  The  

International Distributor Agreement was executed on the same  

day and entered into between Capital Controls Company Inc.,  

respondent  No.1  and  the  joint  venture  company  Capital  

Controls  India  Pvt.  Ltd.,  respondent  No.5.   Under  this  

Agreement, the joint venture company was appointed as the  

exclusive distributor of products in the “territory” and for the  

term  provided  under  clause  10  of  that  Agreement.   The  

specified territory was India, Afghanistan, Nepal and Bhutan  

but the agreement also stated that exports to other countries  

were not permissible except with the specific authorization by  24

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respondent No.1.    Besides providing the rights and duties of  

the Distributors, this  Agreement also stated the schedule for  

delivery of products/orders, the prices payable, commissions  

and inspection.   It  also provided for  the terms of  payment.  

Distributor’s orders of products were subject to acceptance by  

the seller at its offices and the seller reserved his right, at any  

time,  to cease manufacture as  well  as  offering for  sale  any  

product and to change the design of product.   

24. This  distributorship  right  was  non-assignable  and  was  

exclusively  between  the  distributor  and  the  seller.     The  

relationship between the parties was agreed to be that  of  a  

seller and purchaser.   Clause 11 of the Agreement then clearly  

postulated that the distributor was an independent contractor  

and not joint venture or partner with an agent or employee of  

the seller.   Clause 13 provided that the Agreement contained  

the entire understanding between the parties with respect to  

that  subject  matter  and  superseded  all  negotiations,  

discussions,  promises  or  agreements,  prior  to  or  

contemporaneous with this Agreement.    

25. Further,  this  Agreement  contained  the  confidentiality  

clause as well as the non-competition clause being clauses 16  

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and 18, respectively.  The latter specified that the distributor  

shall  not,  directly  or  indirectly,  sell,  manufacture  or  supply  

products similar to any of the products or engage, directly or  

indirectly, in any business the same as or similar to that of  

seller, except subject to the conditions of the Agreement.  

26. In terms of clause 20, the agreement between the parties  

was to remain confidential and not to be discussed, shown to  

or  filed  with  any  Government  agencies  without  the  prior  

consent of the seller in writing. This Agreement did not contain  

any arbitration clause, but it did provide a jurisdiction clause  

i.e. clause 21, which read as under:  

“The  construction,  interpretation  and  performance  of  this  Agreement  and  all  transactions under it shall be governed by  and  interpreted  under  the  laws  of  the  State  of  Pennsylvania,  U.S.A.,  and  the  parties  hereto  agree  that  each  shall  be  subject  to  the  jurisdiction  of,  and  any  litigation hereunder shall be brought in,  any federal or state court located in the  Eastern District of the Commonwealth of  Pennsylvania, and that the resolution of  such  litigation  by  such  court  shall  be  binding upon the parties.”

27. We  may  notice  here  that  the  International  Distributor  

Agreement was not only executed in furtherance to Clause 7 of  

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the Shareholders Agreement but in that  clause itself  it  was  

also  stated  to  be  annexed  thereto  as  Appendix  II.   The  

Distributor Agreement was liable to be renewed as long as the  

Distributor i.e. Capital Controls, held at least twenty-six per  

cent (26%) of the shares in the joint venture company.  

Managing Directors Agreement

28. Clause 8.6 of the Shareholders Agreement had provided  

for appointment or reappointment of the Managing Director or  

whole  time  Director  by  mutual  consent.   Subject  to  the  

provisions of the Companies Act, it was agreed that Mr. Kocha  

would  be  appointed  as  the  first  Managing  Director  of  the  

Company for an initial period of 3 years and on such terms  

and  conditions  as  were  specified  in  Appendix  III,  i.e.,  the  

Managing  Directors  Agreement  of  the  same  date.   In  other  

words, the Managing Directors Agreement had been executed  

between joint venture company, Capital Control India Pvt. Ltd.  

and Mr. M.B. Kocha, on terms already agreed to between the  

parties to the Shareholders’ Agreement.

29. The joint venture company, which is stated to have been  

incorporated on 14th November, 1995, held Board Meeting on  

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16th November, 1995 and as contemplated under Clause 8.6 of  

the  Shareholders  Agreement,  appointed  Mr.  Kocha  as  the  

Managing Director of the Company for three years commencing  

from 1st April, 1996.  This Managing Directors Agreement spelt  

out  the  powers  which the Managing Director  could exercise  

and more specifically, under Clause 3, the powers which the  

Managing Director could exercise only with the prior approval  

of the Board of Directors  of the Joint Venture Company.  For  

instance, under Clause 3 (k), the Managing Director was not  

entitled  to  undertake  any  new  business  or  substantially  

expand the business contemplated thereunder except with the  

approval  of  the  Board  of  Directors.   Further,  clause  6  

contained a non-compete clause requiring Mr.  Kocha not to  

run  any  similar  business  for  two  years  after  the  date  of  

termination of the Agreement.

30. This  Agreement  also  did  not  contain  any  arbitration  

agreement and provided no terms which were not within the  

contemplation of clause 8.7 of the Shareholders Agreement.

Export Sales Agreement

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31. Export  Sales Agreement  was again singed between the  

Chloro Control India Pvt. Ltd. and Capital Control Co. Inc., the  

foreign partner to the joint venture.  This Agreement, on its  

bare reading,  presupposes the existence and working of  the  

joint  venture  company.   The  products  required  to  be  

manufactured  by  the  joint  venture  company  under  the  

Shareholders Agreement as well as those stated in Exhibit 1 of  

this Agreement were to be exported to different countries by  

Capital  Control Company Inc.  which was required to export  

those goods and execute such orders as per  the terms and  

conditions of this Agreement, except in countries specified in  

Exhibit 2 to the Agreement.   It is noteworthy that the export  

could be effected to all countries covered under the ‘Territory’  

excluding the countries specified in Ext.  2 of  the agreement  

which was completely in consonance with the execution and  

performance of Shareholder Agreement and the International  

Distributor  Agreement  executed  between  the  parties.   This  

Agreement stipulated distinct terms and conditions which had  

to  be  adhered  to  by  the  parties  while  the  Capital  Control  

Company Inc. was to act as sole and exclusive agent for sale of  

the  products.   The  products  under  the  Agreement  meant  

design,  supply,  installation  commissioning  and  after-sale  

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services  of  chlorination  systems  and  equipment  related  

products manufactured by the Joint Venture Company.  The  

services under the Agreement could be performed by Capital  

control Co. Inc. itself  or through its affiliated corporation or  

duly  appointed  sales  agents  and  distributors.   In  terms  of  

Clause  17  of  the  Agreement,  it  was  to  be  construed  and  

interpreted  in  accordance  with  the  laws  in  the  State  of  

Pennsylvania,  U.S.A.  It  specifically  contained  an  arbitration  

clause (clause 18) that read as under:

“Any dispute of  difference arising under  or in connection with this Agreement, or  any  breach  thereof,  which  cannot  be  settled  by  friendly  negotiation  and  agreement  between  the  parties  shall  be  finally settled by arbitration conducted in  accordance  with  the  Rules  of  American  Arbitration Association.   The arbitration  proceedings  shall  be  held  in  Pennsylvania, U.S.A. Judgment upon the  award rendered may be rendered may be  entered  in  any  court  of  competent  jurisdiction.”

Financial and Technical Know-how License Agreement and  Trademark Registered User Agreement

32. Now, we shall deal with both these agreements together  

as both these agreements are inter-dependent and one finds  

elaborate  reference to one in the other.   Furthermore,  both  

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these  agreements  have  been  entered  into  and  executed  

between Capital Control Co. Inc. on the one hand and the joint  

venture company on the other.

33. Under clause 14 of the Shareholders Agreement, it was  

required of the parties to cause the joint venture company to  

enter  into  the  Financial  and  Technical  Know-How  License  

Agreement with the Capital  Controls under which the latter  

was to grant the joint venture company the right and license to  

manufacture  the  products  in  India  in  accordance  with  the  

Technical  Know-How  and  other  technical  information  

possessed  by  Capital  Controls.  Clause  18  of  the  Principal  

Agreement also referred to this agreement and postulated that  

if  the Government of  India did not grant permission for  the  

terms  of  foreign  collaboration  contained  in  this  agreement,  

even the Principal Agreement, i.e. the Shareholder’s Agreement  

would be liable  to  be terminated without giving rise  to any  

claim  for  damages.   Both  these  clauses  provided  that  this  

Agreement was attached to the Principal Agreement itself and  

had been referred to as the ‘License Agreement’, for short.   

34. We may refer to certain terms of this agreement which  

would indicate that the terms and conditions of the Principal  

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Agreement were to be implemented through this Agreement.  

Besides  providing  the  obligations  of  the  Capital  Controls  

(respondent no.5), it also stipulated that the licensee, i.e. the  

joint  venture  company  would  be  free  to  manufacture  the  

products under the said patent even after  the expiry of  the  

Agreement.   Under  clauses  9  and  10  of  the  Agreement,  

obligations  of  the  licensee  were  stated  and  it  required  the  

licensee  to  maintain  quality  comparable  to  corresponding  

products made by Capital Controls in USA and to allow free  

access  and  information  to  Capital  Controls.   The  products  

manufactured by the licensee whose quality was approved by  

Capital  Controls  could  be  marked  with  the  legend,  

‘Manufactured  in India  under  license  from Capitals  Control  

Company Inc.  Colmar,  Pennsylvania,  USA”.  However,  if  the  

agreement was terminated,  the licensee was not  to use the  

trademark and legend.

35. As stated,  the purpose of  this Agreement was that  the  

licensee desired to obtain the right and license to manufacture  

the  products  in  accordance  with  the  Technical  Know-How  

owned  or  acquired  by  Capital  Controls  and  for  which  that  

company  was  willing  to  grant  license  on  the  terms  and  

conditions stated in that Agreement.  The first and foremost  

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restriction was that the rights under the agreement were non-

transferable and the right was restricted to sell the products  

exclusively in India and the countries listed in the Appendix to  

the  Agreement.   The  Agreement  also  contained  a  non-

competing  clause  providing  that  the  licensee  must  not  

manufacture or have manufactured for it, sell or offer for sale  

or be financially interested in similar products without prior  

written permission of Capital Controls.  Respondent no.1 had  

also agreed that its affiliated companies would sell the product  

in India only through the licensee.  The Agreement provided for  

payment of royalties under clause 11.

36. Another very significant clause of this Agreement was the  

Term and Termination clause.  The agreement was to continue  

in force for ten years from the date it was filed with the Reserve  

Bank of India, subject to earlier termination in terms of clause  

15.2.   Clause 14.2 provided practically for the conditions of  

termination of  this Agreement similar to those contemplated  

for  the  Share  Holders  Agreement.  Neither  any  

modification/amendment of this Agreement nor any waiver of  

its terms and conditions was to be binding upon the parties  

unless made in writing and duly executed by both the parties.  

Appendix I to this agreement recorded the products which the  

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joint venture company was to manufacture.   In the event of  

dispute,  the  parties  were  expected  to  settle  it  by  friendly  

negotiations, failing which it was to be referred to the ICC, by  

three Arbitrators  designated in conformity  with the  relevant  

Rules.  Clause 26, the Arbitration clause, read as under:-

“Any dispute or  difference arising under  or in connection with this Agreement, or  any  breach  thereof,  which  cannot  be  settled  by  friendly  negotiation  and  agreement  between  the  parties  shall  be  finally settled by arbitration conducted in  accordance with the Rules of Conciliation  and  Arbitration  of  the  International  Chamber  of  Commerce  by  three  arbitrators designated in conformity with  those Rules.   The Arbitration proceedings  shall  be  held  in  London,  England  and  shall  be  governed  by  and  subject  to  English Law.   Judgment upon the award  rendered may be entered in any court of  competent jurisdiction.”

37. Clauses  15.1  and  15.2  of  the  Principal  Agreement  

referred to the Trademark Registered User License Agreement.  

Firstly,  it  is  provided that  respondent no.9,  Mr.  Kocha and  

Chloro Controls acknowledged that Capital Controls was the  

sole owner of  certain trademarks and trade-names used by  

Capital Controls in connection with the sale of the products.  

Besides agreeing that they would not adopt, use or register as  

a trademark or tradename any word or symbol, which in the  

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opinion  of  Capital  Controls  is  confusingly  similar  to  their  

trademarks, there the joint venture company was required to  

enter into a Trademark Registered User License Agreement for  

obtaining the right to use certain trademarks and tradenames  

and it was further specifically provided that the said agreement  

formed part of the Financial and Technical Know-How License  

Agreement.

38. The  Trademark  Registered  User  Agreement,  as  already  

noticed,  was  executed  between  the  respondent  no.1  and  

respondent no.5, the joint venture company.  The relationship  

between the parties under this agreement was contractual and  

respondent no.1 had agreed to grant user permission to use  

the trademarks, subject to the terms and conditions specified  

in the agreement.  The agreement was executed with the clear  

intention  that  the  license  owner  (respondent  No.  1)  would  

provide  its  secret  drawings,  plans,  specifications,  test  data,  

formulae and other manufacturing procedures and as well as  

technical know-how for assembly, manufacture, quality control  

and testing of goods to the licensee, the joint venture company.  

The agreement dealt with various aspects including grant of  

non-exclusive right to use the trademarks in relation to the  

goods in the territory as the registered user of the trademarks.  

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In  terms  of  clause  10  of  the  agreement,  the  joint  venture  

company  was  not  to  acquire  any  ownership  interest  in  the  

trademarks  or  registrations  thereof  by  virtue  of  use  of  

trademark and it was specifically agreed that every permitted  

use of trademarks by the user would enure to the benefit of the  

licensor  company.   This  Agreement  was  to  terminate  

automatically  in  the  event  the  License  Agreement  i.e.  the  

Financial  and  Technical  Know-How License  Agreement,  was  

terminated for any reason.  Clause 13 also provided that the  

permitted use of the trademarks did not involve the payment of  

any royalty  or  other  consideration,  other  than  the  royalties  

payable under the Financial and Technical Know-How License  

Agreement by joint venture company to the licensor company.  

This agreement was terminable on the conditions stipulated in  

clause 16, which again were similar to the termination clause  

provided in other agreements.  This Agreement did not contain  

an arbitration clause.

Supplementary Collaboration Agreement

39. The last of the documents in this series which requires to  

be mentioned by the Court is the Supplementary Collaboration  

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Agreement.  Any joint venture agreement in India which is in  

collaboration with a foreign partner can be commenced only  

after obtaining the permission of the Government of India.  The  

parties herein had already executed a joint venture agreement  

dated  16th November,  1995.   The  company  obtained  the  

permission of the Government of India vide its letter No. FC-II  

830(96)245(96)  dated  11th October,  1996  amended  on  21st  

April, 1997.   The company then commenced the operation and  

business  of  the  joint  venture  company  with  effect  from  1st  

April, 1997.   

40. In  the  letter  by  the  Government  of  India  dated  11th  

October,  1996,  besides  noticing  the  items  of  manufacture  

activity covered by the foreign collaboration agreement, foreign  

equity participation being 50% and other conditions which had  

been specifically postulated, under clause 7 of the letter it was  

specified  that  the  approval  letter  was  made  a  part  of  the  

foreign collaboration agreement executed between the parties  

and only those provisions of the agreement which were covered  

by the said letter or which were not at variance with the said  

letter  would be  binding  on the  Government  of  India  or  the  

Reserve  Bank of  India.   Thus,  the  parties  were  directed to  

proceed to finalize the agreement.

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41. Vide  its  letter  dated  21st December,  1996,  the  joint  

venture  company  had  written  to  the  Ministry  of  Industry,  

Department of Industrial Policy and Promotion, Government of  

India, requesting to amend point No. 2 of the above-mentioned  

approval  letter.   The request was to widen the scope of  the  

manufacture  activities  covered  by  the  foreign  collaboration  

agreement.  The company wished to add the manufacture of  

gas and electro-chlorination equipments, amongst other stated  

items.  The other amendment that was sought for was increase  

in the authorized share capital from Rs.25 lakhs to paid-up  

capital of 50 lakhs in the joint venture company.  Both these  

requests of  the joint venture company were accepted by the  

Government of India vide their letter dated 21st April, 1997 and  

clauses (2), (3) and (4) of the earlier approval letter dated 11th  

October, 1996 were modified.  All other terms and conditions  

of the approval letter remained the same.  The Government of  

India had asked for acknowledgement of the said letter.   

42. In furtherance to this letter of the Government of India,  

the joint venture company and the respondent no.2 executed  

this Supplementary Collaboration Agreement.  The important  

part of this one-page agreement is ‘we hereby conform that we  

shall adhere to the terms and conditions as stipulated by the  

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Government of India.  Letter No. FC.II: 830(96) 295(96) dated  

11.10.1996,  amended  21.04.1997.’   It  also  stated  that  the  

companies had entered into the joint venture agreement dated  

16th November, 1995 and had commenced their operation with  

effect from 1st April, 1997.  In other words, the Supplementary  

Collaboration  Agreement  was  a  mere  confirmation  of  the  

previous joint venture agreement.  By this time i.e., somewhere  

in August 1997, all other agreements had been executed, the  

joint  venture  company  had  come  into  existence  and,  in  

furtherance  to  those  agreements,  it  had  commenced  its  

business.

43. As we have  already noticed under  the head ‘Corporate  

Structure’, the name of Respondent No. 1, Capital Control Co.  

Inc. was changed to Severn Trent Water Purification Inc. with  

effect from 1st April, 2002.  Later on, respondent no.2, Capital  

Control (Delaware) Co. Inc. was merged with the respondent  

no.1 on 31st March, 2003.  Thus, for all purposes and intents,  

in  fact  and  in  law,  interest  of  respondent  no.1  and  2  was  

controlled and given effect to by Severn Trent.  

44. On  this  issue,  version  of  the  respondents  had  been  

disputed in the earlier round of litigation between the parties  

where respondent No. 1, Severn Trent Water Purification Co.  

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Inc., USA, had filed a petition for winding up respondent No. 5-

Chloro Controls India Pvt. Ltd., the joint venture company, on  

just  and  equitable  ground  under  Section  433(j)  of  the  

Companies Act.  In this petition, specific issue was raised that  

merger of Capital Controls (Delaware) Co. with Severn Trent  

was not intimated to the respondent No. 5 company prior to  

the  filing  of  the  arbitration  petition  by  Severn  Trent  under  

Section 9 of the 1996 Act as well as that Severn Trent was not  

a share holder of the joint venture company and thus had no  

locus standi to file the petition.  This Court vide its judgment  

dated 18th February, 2008 in Civil Appeal No. 1351 of 2008  

titled  Severn Trent Water Purification Inc.  v.   Chloro Control  

(India) Pvt. Ltd.  and Anr. held that the winding up petition by  

Severn Trent Water Purification Inc. was not maintainable as it  

was  not  a  contributory.   But  the  question  whether  that  

company was a creditor of the joint venture company was left  

open.

45. At this very stage, we may make it clear that we do not  

propose  to  deal  with  any  of  the  contentions  raised  in  that  

petition whether  decided or  left  open,  as  the  judgment has  

already attained finality.   In terms of the settled position of  

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law, the said judgment cannot be brought in challenge in the  

present proceedings, collaterally or otherwise.

46. Certain disputes had already arisen between the parties  

that resulted in termination of the joint venture agreements.  

Vide  letter  dated  21st July,  2004,  Severn  Trent  Services  

informed  respondent  no.9,  respondent  no.5  and  Chloro  

Controls India Pvt. Ltd., the present appellant, that they had  

failed to remedy the issues and grievances communicated to  

them in their previous correspondences and meetings and also  

failed  to  engage  in  any  productive  negotiation  in  this  

connection and therefore, they were terminating from that very  

day, the joint venture agreements executed between them and  

the appellant company, which included agreements stated in  

that letter i.e. the Shareholders Agreement, the International  

Distributor Agreement, the Financial and Technical Know-How  

License  Agreement,  the  Export  Sales  Agreement  and  the  

Trademark  Registered  User  Agreement,  all  dated  16th  

November, 1995 and requested them to commence the winding  

up proceedings of the joint venture company, respondent No.  

5.  They were also called upon to act in accordance with the  

terms of the agreement in the event of such termination.  It  

may be noticed here itself that prior to the serving of the notice  

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of termination, a suit had been instituted by the appellant in  

which application under  Section 8/45 of  the  1996 Act  was  

filed.   

Contentions  of  the  learned  Counsel  appearing  for  the  parties in the backdrop of above detailed facts

47. The appellant had filed a derivative suit being Suit No.  

233 of 2004 praying, inter alia, for a decree of declaration that  

the  joint  venture  agreements  and  the  supplementary  

collaboration agreement are valid, subsisting and binding and  

that  the  scope  of  business  of  the  joint  venture  company  

included  the  manufacture,  sale,  distribution  and  service  of  

entire  range  of  chlorination  equipments  including  electro-

chlorination  equipment.   An  order  of  injunction  was  also  

obtained restraining respondent Nos. 1 and 2 from interfering  

in  any  way  and/or  preventing  respondent  No.5  from  

conducting  its  business  of  sale  of  chlorination  equipments  

including electro-chlorination equipment and that they be not  

permitted  to  sell  their  products  in  India  save  and  except  

through the joint venture company, in compliance of  clause  

2.5  of  the  Financial  and  Technical  Know-How  License  

Agreement  read  with  the  Supplementary  Collaboration  

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Agreement.  Besides this, certain other reliefs have also been  

prayed for.   

48. After the institution of the suit, as already noticed, the  

respondent  Nos.1  and  2  had  terminated  the  joint-venture  

agreements  vide  notices  dated  23rd January,  2004 and  21st  

July, 2004.  Resultantly, in the amended plaint, specific prayer  

was  made  that  both  these  notices  were  wrong,  illegal  and  

invalid; in breach of the joint venture agreements and of no  

effect;  and  the  joint  venture  agreements  were  binding  and  

subsisting.  To be precise, the appellant had claimed damages,  

declaration and injunction in the suit primarily relying upon  

the agreements entered into between the parties.  In this suit,  

earlier interim injunction had been granted in favour of  the  

appellant,  which was subsequently vacated  at  the  appellate  

stage.  The respondent Nos.1 and 2 filed an application under  

Section 8 of the Act, praying for reference of the suit to the  

arbitral tribunal in accordance with the agreement between the  

parties.  This application was contested and finally decided by  

the High Court in favour of respondent Nos.1 and 2, vide order  

dated  4th March,  2010  making  a  reference  of  the  suit  to  

arbitration.

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49. It is this Order of the Division Bench of the High Court of  

Bombay that has given rise to the present appeals before this  

Court.   While raising a challenge, both on facts and in law, to  

the judgment of the Division Bench of the Bombay High Court  

making a reference of the entire suit to arbitration, Mr. Fali S.  

Nariman, learned senior counsel appearing for the appellant,  

has raised the following contentions :

1. There is inherent right conferred on every person by Section  

9 of the Code of Civil Procedure, 1908, (for short ‘CPC’) to  

bring a suit of a civil nature unless it is barred by a statute  

or there was no agreement restricting the exercise of such  

right. Even if such clause was there (is invoked), the same  

would be hit by Section 27 of the Indian Contract Act, 1872  

and under Indian law, arbitration is only an exception to a  

suit and not an alternative to it.  The appellant, in exercise  

of  such  right,  had  instituted  a  suit  before  the  Court  of  

competent jurisdiction, at Bombay and there being no bar  

under any statute to such suit.  The Court could not have  

sent the suit for arbitration under the provisions of the 1996  

Act.

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2. The  appellant,  being  dominus  litus to  the  suit,  had  

included respondent Nos.3 and 4,  who were necessary  

parties.  The appellant had claimed different and distinct  

reliefs.  These respondents had not been added as parties  

to  the  suit  merely  to  avoid  the  arbitration  clause  but  

there  were  substantive  reliefs  prayed for  against  these  

respondents.  Unless the Court, in exercise of its power  

under  Order  I,  Rule  10(2)  of  the  CPC,  struck  out  the  

name  of  these  parties  as  being  improperly  joined,  the  

decision of  the High Court would be vitiated in law as  

these  parties  admittedly  were  not  parties  to  the  

arbitration agreement.

3. On its plain terms, Section 45 of the 1996 Act provides  

that a judicial authority, when seized of an action in a  

matter  in  respect  of  which  the  parties  have  made  an  

agreement referred to in Section 44, shall, at the request  

of one of the parties or any person claiming through or  

under  him,  refer  the  parties  to  arbitration.   The  

expression ‘party’ refers to parties to the action or suit.  

The request for arbitration, thus, has to come from one of  

the parties to the suit or action or any person claiming  

through or under him.  The Court then can refer those  

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parties  to  arbitration.   The  expression  ‘parties’  used  

under Section 45 would necessarily mean all the parties  

and  not  some or  any  one  of  them.   If  the  expression  

‘parties’ is not construed to mean all parties to the action  

and  the  agreement,  it  will  result  in  multiplicity  of  

proceedings, frustration of the intended one-stop remedy  

and may cause further mischief.

Judgment of the High Court in referring the entire  

suit,  including the parties who were not parties to the  

arbitration agreement as well as against whom the cause  

of action did not arise from arbitration agreement, suffers  

from error of law.

4. The 1996 Act is an amending and consolidating Act being  

an enactment setting out in one statute the law relating  

to arbitration,  international  commercial  arbitration and  

enforcement  of  foreign  arbitral  awards.   Further,  the  

1996  Act  has  no  provision  like  Section  34  of  the  

Arbitration Act, 1940 (for short “1940 Act”).  In Section 3  

of the Foreign Awards (Recognition and Enforcement) Act,  

1961 (for short ‘1961 Act’), there existed a mandate only  

to  stay  the  proceedings  and  not  to  actually  refer  the  

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parties to arbitration.  Thus, the position before 1996 in  

India, as in England, permitted a partial stay of the suit,  

both as regards matters and parties.  But after coming  

into  force  of  the  1996  Act,  it  is  no  longer  possible  to  

contend that some parties and/or some matters in a suit  

can  be  referred  to  arbitration  leaving  the  rest  to  be  

decided by another forum.

5. Bifurcation of matters/cause of action and parties is not  

permissible under the provisions of the 1996 Act. Such  

procedure is unknown to the law of arbitration in India.  

The  judgment  of  this  Court  in  the  case  of  Sukanya  

Holdings Pvt. Ltd. (supra) is a judgment in support of this  

contention.  This judgment of  the Court is holding the  

field even now.  In the alternative,  it is submitted that  

bifurcation,  if  permitted,  would  lead  to  conflicting  

decisions by two different forums and under two different  

systems of law.  In such situations, reference would not  

be permissible.   

6. In  the  alternative,  reference  to  arbitral  tribunal  is  not  

possible in the facts  and circumstances of  the present  

case.   Where  three  major  agreements,  i.e.,  Managing  

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Director  Agreement,  Trademark  Registered  User  

Agreement and Supplementary Collaboration Agreement  

do  not  have  any  arbitration  clause,  there  the  

International Distributor Agreement exclusively provides  

the jurisdiction for resolution of dispute to the federal or  

state courts in the Eastern District of the Commonwealth  

of  Pennsylvania,  USA.   This  latter  agreement,  thus,  

provided for resolution of disputes under a specific law  

and  by  a  specific  forum.   Thus,  for  uncertainty  and  

indefiniteness,  the  alleged  arbitration  clause  is  

unenforceable.

Thus,  in  the  present  case,  out  of  all  the  agreements  

signed  between  different  parties,  four  agreements,  i.e.,  

Managing  Director  Agreement,  International  Distributor  

Agreement,  Trademark  Registered  User  Agreement  and  

the  Supplementary  Collaboration  Agreement,  have  no  

arbitration  clause.   Furthermore,  different  agreements  

have  been  signed  by  different  parties  and  respondent  

No.9  is  not  a  party  to  some  of  the  agreements  

containing/not containing an arbitration clause.  In any  

case, respondent Nos.3 and 4 are not party to any of the  

Agreements  and  the  cause  of  action  of  the  appellant  

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against  them  is  limited  to  the  scope  of  International  

Distributor  Agreement  vis-à-vis  the  products  covered  

under the joint-venture agreement.   

On  these  contentions,  it  is  submitted  that  the  

judgment of the High Court is liable to be set aside and  

no reference to arbitral tribunal is possible.    Also, the  

submission is that, within the ambit and scope of Section  

45  of  the  1996 Act,  multiple  agreements,  where  some  

contain  an  arbitration  clause  and  others  don’t,  a  

composite  reference  to  arbitration  is  not  permissible.  

There has to be clear intention of the parties to refer the  

dispute to arbitration.   

50. Mr.  Harish  Salve,  learned  senior  counsel,  while  

supporting the  judgment of  the  High Court  for  the reasons  

stated therein, argued in addition that the submissions made  

by  Mr.  F.S.  Nariman,  learned  senior  counsel,  cannot  be  

accepted in law and on the facts of the case.  He contended  

that :

(i) Under the provisions of the 1996 Act, particularly in Part  

II,  the  Right  of  Reference  to  Arbitration  is  

indefeasible  and  therefore,  an  interpretation  in  

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favour  of  such reference should be given primacy  

over any other interpretation.

(ii) In  substance,  the  suit  and  the  reliefs  claimed  therein  

relate to the dispute with regard to the agreed scope  

of business of the joint venture company as regards  

gas based chlorination or electro based chlorination.  

This  major  dispute  in  the  present  suit  being  

relatable  to  joint  venture  agreement  therefore,  

execution of  multiple agreements would not  make  

any difference.  The reference of the suit to arbitral  

Tribunal by the High Court is correct on facts and in  

law.

(iii) The filing of the suit as a derivative action and even the  

joinder of respondent Nos.3 and 4 to the suit were  

primarily  attempts  to  escape  the  impact  of  the  

arbitration clause in the joint venture agreements.  

Respondent Nos. 3 and 4 were neither necessary nor  

appropriate parties to the suit.  In the facts of the  

case  the  party  should  be  held  to  the  bargain  of  

arbitration  and  even  the  plaint  should  yield in  

favour of the arbitration clause.   

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(iv) All  agreements  executed  between  the  parties  are  in  

furtherance  to  the  Shareholders  Agreement  and  

were  intended  to  achieve  only  one  object,  i.e.,  

constitution  and  carrying  on  of  business  of  

chlorination products by the joint venture company  

in India  and the specified countries.   The parties  

having  signed  the  various  agreements,  some  

containing  an  arbitration  clause  and  others  not,  

performance of the latter being dependent upon the  

Principal Agreement and in face of  clause 21.3 of  

the Principal Agreement, no relief could be granted  

on the bare reading of the plaint and reference to  

arbitration of  the complete stated cause of  action  

was inevitable.

(v) The  judgment  of  this  Court  in  the  case  of  Sukanya  

(supra)  does  not  enunciate  the  correct  law.  

Severability  of  cause  of  action  and  parties  is  

permissible in law, particularly, when the legislative  

intent is that arbitration has to receive primacy over  

the  other  remedies.   Sukanya  being  a  judgment  

relatable to Part 1 (Section 8) of the 1996 Act, would  

not be applicable to the facts of  the present case  

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which  exclusively  is  covered  under  Part  II  of  the  

1996 Act.

(vi) The  1996  Act  does  not  contain  any  restriction  or  

limitation on reference to arbitration as contained  

under Section 34 of the 1940 Act and therefore, the  

Court would be competent to pass any orders as it  

may deem fit and proper, in the circumstances of a  

given case particularly with the aid of Section 151 of  

the CPC.  

(vii) A bare reading of the provisions of Section 3 of the 1961  

Act on the one hand and Section 45 of the 1996 Act on  

the other clearly suggests that change has been brought  

in  the  structure  and  not  in  the  substance  of  the  

provisions.   Section  3  of  the  1961  Act,  of  course,  

primarily relates to stay of proceedings but demonstrates  

that  the  plaintiff  claiming through or  under  any other  

person who is a party to the arbitration agreement would  

be  subject  to  the  applications  under  the  arbitration  

agreement.   Thus,  the  absence  of  equivalent  words  in  

Section 45 of 1996 Act would not make much difference.  

Under  Section 45,  the  applicant  seeking reference  can  

either be a party to the arbitration agreement or a person  

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claiming through or  under  such party.   It  is  also  the  

contention that a  defendant who is neither of  these,  if  

cannot  be  referred  to  arbitration,  then  such  person  

equally  cannot  seek  reference  of  others  to  arbitration.  

Such  an  approach  would  be  consistent  with  the  

development of arbitration law.   

51. The contention raised before us is that Part I and Part II  

of the 1996 Act operate in different fields and no interchange  

or interplay is permissible.  To the contra, the submission is  

that provisions of Part I have to be construed with Part II.  On  

behalf  of  the  appellant,  reliance  has  been placed  upon the  

judgment of this Court in the case Bhatia International v. Bulk  

Trading S.A. and Anr. [(2002) 4 SCC 105].  The propositions  

stated in the case of Bhatia International (supra) do not directly  

arise for consideration of this Court in the facts of the present  

case.  Thus, we are not dealing with the dictum of the Court in  

Bhatia International’s case and application of its principles in  

this judgment.

It  is appropriate for  us to deal with the interpretation,  

scope and ambit  of  Section 45 of  the 1996 Act particularly  

relating  to  an  international  arbitration  covered  under  the  

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Convention  on  Recognition  and  Enforcement  of  Foreign  

Arbitral Awards (for short, ‘the New York Convention’).

52. Now, we shall proceed to discuss the width of Section 45  

of the 1996 Act.

Interpretation of Section 45 of the 1996 Act

53. In order to invoke jurisdiction of the Court under Section  

45,  the applicant should satisfy the pre-requisites stated in  

Section 44 of the 1996 Act.  

54. Chapter  I,  Part  II  deals  with  enforcement  of  certain  

foreign awards in accordance with the New York Convention,  

annexed as Schedule I to the 1996 Act.   As per Section 44,  

there has to be an arbitration agreement in writing.   To such  

arbitration  agreement  the  conditions  stated  in  Schedule  I  

would apply.   In other words, it must satisfy the requirements  

of  Article  II  of  Schedule  I.    Each  contracting  State  shall  

recognize  an  agreement  in  writing  under  which  the  parties  

undertake to submit to arbitration their disputes in respect of  

a  defined  legal  relationship,  whether  contractual  or  not,  

concerning  a  subject  matter  capable  of  settlement  by  

arbitration.    The  arbitration  agreement  shall  include  an  

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arbitration clause in a contract  or  an arbitration agreement  

signed by the parties or entered in any of the specified modes.  

Subject to the exceptions stated therein, the reference shall be  

made.

55. The language of Section 45 read with Schedule I of the  

1996  Act  is  worded  in  favour  of  making  a  reference  to  

arbitration when a party or any person claiming through or  

under  him approaches the Court and the Court  is  satisfied  

that  the  agreement  is  valid,  enforceable  and  operative.  

Because of the legislative intent, the mandate and purpose of  

the provisions of Section 45 being in favour of arbitration, the  

relevant  provisions  would  have  to  be  construed  liberally  to  

achieve that object.  The question that immediately follows is  

as to what are the aspects which the Court should consider  

while dealing with an application for reference to arbitration  

under this provision.  

56. The 1996 Act makes it abundantly clear that Part I of the  

Act has been amended to bring these provisions completely in  

line  with  the  UNCITRAL  Model  Law  on  International  

Commercial Arbitration (for short, the ‘UNCITRAL Mode Law’),  

while Chapter I of Part II is meant to encourage international  

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commercial  arbitration  by  incorporating  in  India,  the  

provisions of the New York Convention.  Further, the protocol  

on Arbitration Clauses (for short ‘Geneva Convention’) was also  

incorporated as part of Chapter II of Part II.   

57. For proper interpretation and application of Chapter I of  

Part  II,  it  is  necessary  that  those  provisions  are  read  in  

conjunction  with  Schedule  I  of  the  Act.   To  examine  the  

provisions of Section 45 without the aid of Schedule I would  

not be appropriate as that is the very foundation of Section 45  

of  the  Act.   The  International  Council  for  Commercial  

Arbitration prepared a Guide to the Interpretation of 1958 New  

York Convention, which lays/contains the Road Map to Article  

II.  Section 45 is enacted materially on the lines of Article II of  

this Convention.  When the Court is seized with a challenge to  

the validity of an arbitration agreement, it would be desirable  

to examine the following aspects :

“1. Does the arbitration agreement fall  under the scope of the Convention?

2. Is  the  arbitration  agreement  evidenced in writing?

3. Does the arbitration agreement exist  and is it substantively valid?

4. Is there a dispute, does it arise out  of  a  defined  legal  relationship,  whether  

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contractual  or  not,  and  did  the  parties  intend  to  have  this  particular  dispute  settled by arbitration?

5. Is the arbitration agreement binding  on the parties to the dispute that is before  the Court?

6. Is this dispute arbitrable?”

58. According to this Guide, if these questions are answered  

in  the  affirmative,  then  the  parties  must  be  referred  to  

arbitration.  Of course, in addition to the above, the Court will  

have to adjudicate any plea, if taken by a non-applicant that  

the  arbitration  agreement  is  null  and  void,  inoperative  or  

incapable of being performed. In these three situations, if the  

Court answers such plea in favour of the non-applicant, the  

question of making a reference to arbitration would not arise  

and that would put the matter at rest.   

59. If  the  parties  are  referred  to  arbitration and  award  is  

made under these provisions of the Convention, then it shall  

be binding and enforceable in accordance with the provisions  

of Sections 46 to 49 of the 1996 Act.  The procedure prescribed  

under Chapter I of Part II is to take precedence and would not  

be affected by the provisions contained under Part I  and/or  

Chapter II of Part II in terms of Section 52. This is the extent of  

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priority  that  the  Legislature  had intended to  accord  to  this  

Chapter 1 of Part II.

60. Amongst the initial steps, the Court is required to enquire  

whether  the  dispute  at  issue  is  covered  by  the  arbitration  

agreement.   Stress  has  normally  been  placed  upon  three  

characteristics of arbitrations which are as follows –  

(1) arbitration  is  consensual.   It  is  based  on  the  parties’  

agreement;  

(2) arbitration leads to a final and binding resolution of the  

dispute; and  

(3) arbitration  is  regarded  as  substitute  for  the  court  

litigation and results in the passing of an binding award.  

61. Mr. Nariman, learned senior counsel appearing on behalf  

of the appellant, contended that in terms of Section 45 of the  

1996 Act,  parties  to  the  agreement  shall  essentially  be  the  

parties to the suit.  A stranger or a third party cannot ask for  

arbitration.  They have to be essentially the same.  Further,  

the parties should have a clear intention, at the time of the  

contract, to submit any disputes or differences as may arise, to  

arbitration and then alone the reference contemplated under  

Section 45 can be enforced.

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62. To  the  contra,  Mr.  Salve,  the  learned  senior  counsel  

appearing for respondent No. 1, submitted that the phrase “at  

the  request  of  one  of  the  parties  or  any  person  claiming  

through  or  under  him”  is  capable  of  liberal  construction  

primarily for the reason that under the 1996 Act, there is a  

greater obligation to refer the matters to arbitration.  In fact,  

the  1996 Act  is  the  recognition  of  an  indefeasible  Right  to  

Arbitration.   Even  a  party  which  is  not  a  signatory  to  the  

arbitration  agreement  can  claim  through  the  main  party.  

Particularly, in cases of composite transactions, the approach  

of the Courts should be to hold the parties to the bargain of  

arbitration rather than permitting them to escape the reference  

on such pleas.

63. At this stage itself, we would make it clear that we are  

primarily discussing these submissions purely on a legal basis  

and not with regard to the merits of the case, which we shall  

shortly revert to.

64. We have already noticed that the language of Section 45  

is at a substantial variance to the language of Section 8 in this  

regard.   In  Section  45,  the  expression  ‘any  person’  clearly  

refers  to  the  legislative  intent  of  enlarging the  scope of  the  

words beyond ‘the parties’ who are signatory to the arbitration  

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agreement.  Of course, such applicant should claim through or  

under the signatory party.  Once this link is established, then  

the Court shall refer them to arbitration.  The use of the word  

‘shall’ would have to be given its proper meaning and cannot  

be equated with the word ‘may’, as liberally understood in its  

common parlance.  The expression ‘shall’  in the language of  

the Section 45 is intended to require the Court to necessarily  

make  a  reference  to  arbitration,  if  the  conditions  of  this  

provision are satisfied.  To that extent, we find merit in the  

submission that there is a greater obligation upon the judicial  

authority to make such reference, than it was in comparison to  

the  1940  Act.   However,  the  right  to  reference  cannot  be  

construed strictly as an indefeasible right.  One can claim the  

reference  only  upon satisfaction of  the  pre-requisites  stated  

under Sections 44 and 45 read with Schedule I of the 1996  

Act.  Thus, it is a legal right which has its own contours and is  

not an absolute right, free of any obligations/limitations.   

65. Normally,  arbitration  takes  place  between  the  persons  

who have, from the outset, been parties to both the arbitration  

agreement as well as the substantive contract underlining that  

agreement.  But, it does occasionally happen that the claim is  

made against or by someone who is not originally named as a  

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party.   These  may  create  some  difficult  situations,  but  

certainly,  they  are  not absolute  obstructions  to  law/the  

arbitration  agreement.   Arbitration,  thus,  could  be  possible  

between a signatory to an arbitration agreement and a third  

party.  Of course, heavy onus lies on that party to show that,  

in  fact  and  in  law,  it  is  claiming  ‘through’  or  ‘under’  the  

signatory party as contemplated under Section 45 of the 1996  

Act.  Just to deal with such situations illustratively, reference  

can be made to the following examples in Law and Practice of   

Commercial Arbitration in England (Second Edn.) by Sir Michael  

J. Mustill:

“1. The claimant was in reality always a  party to the contract,  although not  named in it.

2. The  claimant  has  succeeded  by  operation of law to the rights of the  named party.

3. The claimant has become a part to  the contract in substitution for  the  named party by virtue of a statutory  or consensual novation.

4. The  original  party  has  assigned  to  the  claimant  either  the  underlying  contract,  together  with  the  agreement  to  arbitrate  which  it  incorporates,  or  the  benefit  of  a  claim which has already come into  existence.”

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66. Though the scope of an arbitration agreement is limited  

to the parties who entered into it and those claiming under or  

through them,  the  Courts  under  the  English  Law  have,  in  

certain cases, also applied the “Group of Companies Doctrine”.  

This  doctrine  has  developed  in  the  international  context,  

whereby an arbitration agreement entered into by a company,  

being  one  within  a  group  of  companies,  can  bind  its  non-

signatory  affiliates  or  sister  or  parent  concerns, if  the  

circumstances demonstrate that the mutual intention of all the  

parties was to bind both the signatories and the non-signatory  

affiliates.   This  theory  has  been  applied  in  a  number  of  

arbitrations so as to justify a tribunal taking jurisdiction over a  

party who is not  a  signatory to the contract  containing the  

arbitration agreement.  [‘Russell on Arbitration’ (Twenty Third  

Edition)].   

67. This  evolves  the  principle  that  a  non-signatory  party  

could be subjected to arbitration provided these transactions  

were with group of companies and there was a clear intention  

of the parties to bind both, the signatory as well as the non-

signatory parties.  In other words, ‘intention of the parties’ is a  

very significant feature which must be established before the  

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scope of arbitration can be said to include the signatory as well  

as the non-signatory parties.

68. 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  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.  The transaction should be of a  

composite  nature  where  performance  of  mother  agreement  

may not be feasible without aid, execution and performance of  

the supplementary or ancillary agreements, for achieving the  

common object and collectively having bearing on the dispute.  

Besides all this, the Court would have to examine whether a  

composite reference of  such parties would serve the ends of  

justice.  Once this exercise is completed and the Court answers  

the same in the affirmative, the reference of even non-signatory  

parties would fall within the exception afore-discussed.

69. In a case like the present one, where origin and end of all  

is with the Mother or the Principal Agreement, the fact that a  

party was non-signatory to one or other agreement may not be  

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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  Agreement.  

Besides designing the corporate management to successfully  

complete the joint ventures, where the 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 encourage its avoidance.  In cases involving execution  

of  such  multiple  agreements,  two  essential  features  exist;  

firstly,  all  ancillary  agreements  are  relatable  to  the  mother  

agreement and secondly, performance of one is so intrinsically  

inter-linked with the other agreements that 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.  

70. We may notice that this doctrine does not have universal  

acceptance.   Some  jurisdictions,  for  example,  Switzerland,  

have refused to recognize the doctrine, while others have been  

equivocal.  The doctrine has found favourable consideration in  

the United States and French jurisdictions.  The US Supreme  

Court in  Ruhrgos AG v  Marathon Oil Co. [526 US 574 (1999)]  

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discussed  this  doctrine  at  some length and  relied  on more  

traditional principles, such as, the non-signatory being an alter  

ego,  estoppel, agency  and  third  party  beneficiaries  to  find  

jurisdiction over the non-signatories.   

71. The Court will have to examine such pleas with greater  

caution  and  by  definite  reference  to  the  language  of  the  

contract and intention of the parties.  In the case of composite  

transactions and multiple agreements, it may again be possible  

to invoke such 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 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 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.

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72. As  already  noticed,  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 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  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, 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 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 conditions would be more easily found in  

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compliance with the formal requirements 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.  

For instance, under the American Law, where standard terms  

and conditions referred to in a purchase order provided that  

the standard terms would have been attached to or form part  

of  the  purchase  order,  this  was  considered  to  be  an  

incorporation of the arbitration agreement by reference.  Even  

in  other  countries,  the  recommended  criterion  for  

incorporation is whether the parties were or should have been  

aware of the arbitration agreement.  If the Bill of Lading, for  

example,  specifically  mentions  the  arbitration  clause  in  the  

Charter Party Agreement, it is generally considered sufficient  

for  incorporation.   Two  different  approaches  in  its  

interpretation have been adopted, namely, (a) interpretation of  

documents approach; and (b) conflict of laws approach.  Under  

the latter, the Court could apply either its own national law or  

the law governing the arbitration.

73. In  India,  the  law  has  been  construed  more  liberally,  

towards accepting incorporation by reference.  In the case of  

Owners  and  Parties  Interested  in  the  Vessel  M.V.  “Baltic   

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Confidence” & Anr. v. State  Trading Corporation of India Ltd. &  

Anr. [(2001)  7  SCC  473],  the  Court  was  considering  the  

question as  to  whether  the  arbitration  clause  in  a  Charter  

Party Agreement was incorporated by reference in the Bill of  

Lading  and what  the  intention of  the  parties  to  the  Bill  of  

Lading was.   The primary document was the Bill of Lading,  

which,  if  read  in the  manner  provided in the  incorporation  

clause  thereof,  would  include  the  arbitration  clause  of  the  

Charter  Party  Agreement.   The  Court  observed  that  while  

ascertaining the intention of  the parties,  attempt  should be  

made to give meaning and effect to the incorporation clause  

and  not  to  invalidate  or  frustrate  it  by  giving  it  a  literal,  

pedantic and technical reading.  This Court, after considering  

the judgments of the courts in various other countries, held as  

under :

“19. From  the  conspectus  of  the  views  expressed by courts in England and also  in India, it is clear that in considering the  question,  whether  the arbitration clause  in  a  Charter  Party  Agreement  was  incorporated  by  reference  in  the  Bill  of  Lading,  the  principal  question  is,  what  was the intention of the parties to the Bill  of Lading? For this purpose the primary  document is the Bill of Lading into which  the  arbitration  clause  in  the  Charter  Party  Agreement  is  to  be  read  in  the  manner  provided  in  the  incorporation  

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clause  of  the  Bill  of  Lading.  While  ascertaining the intention of the parties,  attempt should be made to give meaning  to  the  incorporation  clause  and  to  give  effect to the same and not to invalidate or  frustrate it giving a literal, pedantic and  technical  reading  of  the  clause.  If  on a  construction of  the arbitration clause of  the  Charter  Party  Agreement  as  incorporated in the Bill of Lading it does  not lead to inconsistency or insensibility  or absurdity then effect should be given to  the  intention  of  the  parties  and  the  arbitration  clause  as  agreed  should  be  made  binding  on  parties  to  the  Bill  of  Lading. If the parties to the Bill of Lading  being aware of  the arbitration clause in  the  Charter  Party  Agreement  have  specifically incorporated the same in the  conditions of the Bill of Lading then the  intention of  the  parties  to  abide  by the  arbitration  clause  is  clear.  Whether  a  particular  dispute  arising  between  the  parties comes within the purview of  the  arbitration clause as incorporated in the  Bill of Lading is a matter to be decided by  the arbitrator or the court. But that does  not  mean  that  despite  incorporation  of  the arbitration clause in the Bill of Lading  by specific reference the parties had not  intended that the disputes arising on the  Bill  of  Lading should be resolved by an  arbitrator.”

74. Reference can also be made to the judgment of this Court  

in the case of Olympus Superstructure Pvt. Ltd. v.  Meena Vijay  

Khetan &  Ors. [(1999)  5  SCC  651],  where  the  parties  had  

entered into a purchase agreement for the purchase of flats.  

The main agreement contained the arbitration clause (clause  

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39).   The  parties  also  entered  into  three  different  Interior  

Design Agreements, which also contained arbitration clauses.  

The main agreement was terminated due to disputes about  

payment and non-grant of  possession.  These disputes were  

referred  to  arbitration.   A  sole  arbitrator  was  appointed  to  

make  awards  in  this  respect.   Inter  alia,  the  question was  

raised as to whether the disputes under the Interior Design  

Agreements  were  subject  to  their  independent  arbitration  

clauses  or  whether  one  and  the  same  reference  was  

permissible under the main agreement.  It was argued that the  

reference under clause 39 of  the main agreement could not  

permit  the  arbitrator  to  deal  with  the  disputes  relating  to  

Interior  Design  Agreements  and  the  award  was  void.   The  

Court,  however,  took the view that parties had entered into  

multiple agreements for a common object and the expression  

‘other matters…connected with’ appearing in clause 39 would  

permit such a reference. The Court held as under :

“30. If  there  is  a  situation  where  there  are  disputes and differences in connection with the  main agreement and also disputes in regard to  “other  matters”  “connected”  with the  subject- matter of the main agreement then in such a  situation, in our view, we are governed by the  general  arbitration  clause  39  of  the  main  agreement  under  which  disputes  under  the  main  agreement  and  disputes  connected  therewith can be referred to the same arbitral  

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tribunal.  This  clause  39  no  doubt  does  not  refer  to  any  named  arbitrators.  So  far  as  clause 5  of  the Interior  Design Agreement  is  concerned, it refers to disputes and differences  arising  from  that  agreement  which  can  be  referred  to  named  arbitrators  and  the  said  clause 5, in our opinion, comes into play only  in a situation where there are no disputes and  differences in relation to the main agreement  and  the  disputes  and  differences  are  solely  confined  to  the  Interior  Design  Agreement.  That, in our view, is the true intention of the  parties and that is the only way by which the  general  arbitration  provision  in  clause  39  of  the  main  agreement  and  the  arbitration  provision for a named arbitrator contained in  clause 5 of the Interior Design Agreement can  be  harmonised or  reconciled.  Therefore,  in  a  case like the present where the disputes and  differences cover the main agreement as well  as the Interior Design Agreement, — (that there  are disputes arising under the main agreement  and  the  Interior  Design Agreement  is  not  in  dispute) — it is the general arbitration clause  39  in  the  main  agreement  that  governs  because the questions arise also in regard to  disputes  relating  to  the  overlapping  items in  the schedule to the main agreement and the  Interior Design Agreement, as detailed earlier.  There cannot be conflicting awards in regard to  items  which  overlap  in  the  two  agreements.  Such a  situation was never  contemplated by  the parties. The intention of the parties when  they  incorporated  clause  39  in  the  main  agreement and clause 5 in the Interior Design  Agreement was that the former clause was to  apply to situations when there were disputes  arising under both agreements and the latter  was to apply to a situation where there were no  disputes or differences arising under the main  contract but the disputes and differences were  confined only to the Interior Design Agreement.  A  case  containing  two  agreements  with  arbitration clauses arose before this Court in  

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Agarwal Engg.  Co. v.  Technoimpex Hungarian  Machine  Industries  Foreign  Trade  Co. There  were arbitration clauses in two contracts, one  for sale of two machines to the appellant and  the  other  appointing  the  appellant  as  sales  representative. On the facts of the case, it was  held that both the clauses operated separately  and this conclusion was based on the specific  clause in the sale contract that it was the “sole  repository” of  the sale transaction of  the two  machines.  Krishna  Iyer,  J.  held  that  if  that  were  so,  then  there  was  no  jurisdiction  for  travelling  beyond  the  sale  contract.  The  language of the other agreement appointing the  appellant  as  sales  representative  was  prospective and related to a sales agency and  “later purchases”, other than the purchases of  these  two machines.  There  was  therefore  no  overlapping. The case before us and the above  case exemplify contrary situations. In one case  the  disputes are  connected and in the  other  they are distinct and not connected. Thus, in  the  present  case,  clause  39  of  the  main  agreement applies. Points 1 and 2 are decided  accordingly in favour of the respondents.”

75. The Court also took the view that a dispute relating to  

specific performance of a contract in relation to immoveable  

property could be referred to arbitration and Section 34(2)(b)(i)  

of the 1996 Act was not attracted.  This finding of the Court  

clearly supports the view that where the law does not prohibit  

the exercise of a particular power, either the Arbitral Tribunal  

or  the  Court  could  exercise  such power.   The Court,  while  

taking this view, has obviously rejected the contention that a  

contract for specific performance was not capable of settlement  

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by arbitration under the Indian law in view of the statutory  

provisions.   Such contention having been rejected,  supports  

the view that we have taken.

THRESHOLD REVIEW

76. 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 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 has the effect  

of depriving the party of its right of reference to arbitration.  

But once the Court finds that the agreement is valid then it  

must  make  the  reference,  without  any  further  exercise  of  

discretion {refer  General  Electric Co. v.  Renusagar Power Co.  

[(1987) 4 SCC 137]}.  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 the arbitral tribunal.

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77. The issue of whether the courts are empowered to review  

the existence and validity of the arbitration agreement prior to  

reference is more controversial.   A majority of the countries  

admit to the positive effect of  kompetenz kompetenz principle,  

which  requires  that  the  arbitral  tribunal  must  exercise  

jurisdiction over the dispute under the arbitration agreement.  

Thus, challenge to the existence or validity of the arbitration  

agreement  will  not  prevent  the  arbitral  tribunal  from  

proceeding with hearing and ruling upon its jurisdiction.  If it  

retains jurisdiction, making of an award on the substance of  

the  dispute  would  be  permissible  without  waiting  for  the  

outcome of any court action aimed at deciding the issue of the  

jurisdiction.  The negative effect of the  kompetenz kompetenz  

principle  is  that  arbitrators  are  entitled  to  be  the  first  to  

determine their  jurisdiction which is later  reviewable by the  

court, when there is action to enforce or set aside the arbitral  

award.  Where the dispute is not before an arbitral tribunal,  

the Court must also decline jurisdiction unless the arbitration  

agreement is patently void, inoperative or incapable of being  

performed.   

78. This is the position of law in France and in some other  

countries, but as far as the Indian Law is concerned, Section  

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45  is  a  legislative  mandate  and  does  not  admit  of  any  

ambiguity.  We must take note of the aspect of Indian law that  

Chapter  I  of  Part  II  of  the  1996 Act  does  not  contain  any  

provision analogous to Section 8(3) under Part I of the Act.  In  

other words, 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  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 arbitration.  [State of Orissa  v.  Klockner  

and Company & Ors. (AIR 1996 SC 2140)].

79. Alan Redfern and Martin Hunter in  Law and Practice of   

International  Commercial  Arbitration,  (Fourth  Edition)  have  

opined that when several parties are involved in a dispute, it is  

usually considered desirable that the dispute should be dealt  

with  in  the  same  proceedings  rather  than  in  a  series  of  

separate  proceedings.   In  general  terms,  this  saves  time,  

money, multiplicity of litigation and more importantly, avoids  

the possibility of  conflicting decisions on the same issues of  

fact  and  law  since  all  issues  are  determined  by  the  same  

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arbitral  tribunal  at  the  same  time.   In  proceedings  before  

national  courts,  it  is  generally  possible  to  join  additional  

parties  or  to  consolidate  separate  sets  of  proceedings.   In  

arbitration, however, this is difficult, sometimes impossible, to  

achieve this because the arbitral process is based upon the  

agreement of the parties.   

80. Where there is multi-party arbitration, it may be because  

there are several parties to one contract or it may be because  

there are several contracts with different parties that have a  

bearing on the matter in dispute.  It is helpful to distinguish  

between  the  two.   Where  there  are  several  parties  to  one  

contract, like a joint venture or some other legal relationship of  

similar kind and the contract contains an arbitration clause,  

when a dispute arises, the members of the consortium or the  

joint venture may decide that they would each like to appoint  

an arbitrator.  In distinction thereto, in cases involving several  

contracts  with  different  parties,  a  different  problem  arises.  

They may have different issues in dispute.  Each one of them  

will be operating under different contracts often with different  

choice  of  law  and  arbitration  clauses  and  yet,  any  dispute  

between say the employer and the main contractor is likely to  

involve  or  affect one  or  more  of  the  suppliers  or  sub-

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contractors, even under other contracts.  What happens when  

the dispute between an employer and the main contractor is  

referred to arbitration, and the main contractor wishes to join  

the  sub-contractor  in  the  proceedings,  on  the  basis  that  if  

there is any liability established, the main contractor is entitled  

to pass on such liability to the sub-contractor?  This was the  

issue raised in the Adgas case {Abu Dhabi Gas Liquefaction Co.  

Ltd.  v.  Eastern Bechtel Corp. [1982] 2 Lloyd’s Rep. 425, CA}.  

Adgas was the owner of a plant that produced liquefied natural  

gas in the Arabian Gulf.  The company started arbitration in  

England against the main contractors under an international  

construction contract, alleging that one of the huge tanks that  

had been constructed to store the gas was defective.  The main  

contractor  denied  liability  but  added  that,  if  the  tank  was  

defective,  it  was  the  fault  of  the  Japanese  sub-contractor.  

Adgas brought ad hoc arbitration proceedings against the main  

contractor  before  a  sole  arbitrator  in  London.   The  main  

contractor then brought separate arbitration proceedings, also  

in London, against the Japanese sub-contractor.

81. There is little doubt that if the matter had been litigated  

in an English court, the Japanese company would have been  

joined as a party to the action.  However, Adgas did not agree  

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that the Japanese sub-contractor should be brought into its  

arbitration with the main contractor,  since this would have  

lengthened and complicated the proceedings.  The Japanese  

sub-contractor also did not agree to be joined.  It preferred to  

await the outcome of the main arbitration, to see whether or  

not there was a case to answer.

82. Lord Denning, giving judgment in the English  

Court of Appeal, plainly wished that an order could be made  

consolidating the two sets of arbitral proceedings so as to save  

time and money and to avoid the risk of inconsistent awards:

“As we have often pointed out, there is a  danger  in  having  two  separate  arbitrations in a case like this.  You might  get inconsistent findings if there were two  separate arbitrators.  This has been said  in  many  cases…it  is  most  undesirable  that there should be inconsistent findings  by  two separate  arbitrators  on  virtually  the  self-same  question,  such  as  causation.   It  is  very  desirable  that  everything should be done to avoid such a  circumstance  [Abu  Dhabi  Gas,  op.cit.at  427]”

83. We have already referred to the contention of Mr. Fali S.  

Nariman,  the  learned  senior  counsel  appearing  for  the  

appellant, that the provisions of Section 45 of the 1996 Act are  

somewhat similar to Article II(3) of the New York Convention  

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and the expression ‘parties’ in that Section would mean that  

‘all parties to the action’ before the Court have to be the parties  

to the arbitration agreement.  If some of them are parties to  

the agreement, while the others are not, Section 45 does not  

contemplate  the  applicable  procedure and the status  of  the  

non-signatories.   The  consequences  of  all  parties  not  being  

common  to  the  action  and  arbitration  proceedings  are,  as  

illustrated above, multiplicity of proceedings and frustration of  

the intended ‘one stop action’.   The Rule of  Mischief  would  

support such interpretation.  Even if some unnecessary parties  

are added to the action, the Court can always strike out such  

parties and even the cause of action in terms of the provisions  

of the CPC. However, where such parties cannot be struck off,  

there the proceedings must continue only before the Court.

84. Thus, the provisions of Section 45 cannot be effectively  

applied or even invoked.  Unlike Section 24 of the 1940 Act,  

under the 1996 Act the Court has not been given the power to  

refer  to  arbitration  some  of  the  parties  from  amongst  the  

parties to the suit.  Section 24 of 1940 Act vested the Court  

with the discretion that where the Court thought fit, it could  

refer  such  matters  and  parties  to  arbitration  provided  the  

same could be separated from the rest of the subject matter of  

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the suit.  Absence of such provision in the 1996 Act clearly  

suggests that the Legislature intended not to permit bifurcated  

or  partial  references  of  dispute  or  parties  to  arbitration.  

Without prejudice to this contention, it was also the argument  

that it would not be appropriate and even permissible to make  

reference to arbitration when the issues and parties in action  

are not covered by the arbitration agreement.  Referring to the  

consequences of  all  parties not being common to the action  

before the Court and arbitration, the disadvantages are:

a) There would be multiplicity of litigation;

b) Application of principle of one stop action would not be  

possible; and

c) It  will  frustrate  the application of  the Rule  of  Mischief.  

The  Court  can  prevent  the  mischief  by  striking  out  

unnecessary parties or causes of action.

85. It  would,  thus,  imply that  a  stranger  or  a  third  party  

cannot ask for arbitration.  The expression ‘claiming through  

or under’ will have to be construed strictly and restricted to the  

parties to the arbitration agreement.   

86. Another  issue  raised  before  the  Court  is  that  there  is  

possibility  of  the  arbitration  proceedings  going  on  

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simultaneously with the suit, which would result in rendering  

passing of conflicting orders possible.  This would be contrary  

to the public policy of India that Indian courts can give effect to  

the foreign awards which are in conflict with judgment of the  

Indian courts.

87. To  the  contra,  Mr.  Salve,  learned  senior  counsel  

appearing for respondent No.1, contended that the expressions  

‘parties to arbitration’, ‘any person claiming through or under  

him’  and  ‘at  the  request  of  one  of  the  party’  appearing  in  

Section 45 are wide enough to include some or all the parties  

and even non-signatory parties for the purposes of making a  

reference to arbitration.  It is also the contention that on the  

true construction of Sections 44, 45 and 46 of the 1996 Act, it  

is not possible to accept the contention of the appellant that all  

the parties to an action have to be parties to the arbitration  

agreement as well as the Court proceedings.  This would be  

opposed to the principle that parties should be held to their  

bargain of  arbitration.   The Court always has the choice to  

make  appropriate  orders  in  exercise  of  inherent  powers  to  

bifurcate the reference or even stay the proceedings in a suit  

pending  before  it  till  the  conclusion  of  the  arbitration  

proceedings  or  otherwise.   According  to  Mr.  Salve,  if  the  

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interpretation  advanced  by  Mr.  Nariman  is  accepted,  then  

mischief  will  be  encouraged  which  would  frustrate  the  

arbitration agreement because a party not desirous of going to  

arbitration  would  initiate  civil  proceedings  and  add  non-

signatory as well as unnecessary parties to the suit with a view  

to  avoid  arbitration.   This  would  completely  frustrate  the  

legislative  object  underlining  the  1996  Act.   Non-signatory  

parties can even be deemed to be parties to the arbitration  

agreement  and  may  successfully  pray  for  referral  to  

arbitration.   

88. As noticed above, the legislative intent and essence of the  

1996  Act  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  consideration  when  it  

enacted the 1996 Act.   Article II  of  the Convention provides  

that each contracting State shall recognise 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, whether contractual or not concerning a subject  

matter  capable  of  settlement  by  arbitration.    Once  the  

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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  

agreement  is  null  and  void,  inoperative  or  incapable  of  

performance.    

89. Still, the legislature opted to word Section 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 arbitration’, whereas the rest of  

the language of Section 45 is similar to that of Article II(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  

Legislature in a provision should be given its due meaning. To  

us, it appears that the Legislature intended to give a liberal  

meaning to this expression.    

90. The language of Section 45 has wider import.  It refers to  

the request of a party and then refers to an arbitral tribunal,  

while under Section 8(3) it is upon the application of one of the  

parties  that  the  court  may  refer  the  parties  to  arbitration.  

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There is some element of similarity in the language of Section 8  

and  Section  45  read  with  Article  II(3).   The  language  and  

expressions used in Section 45, ‘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 should normally be construed liberally.   

91. Examined from the point of 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.

Legal Relationship

92. Now, we should examine the scope of  concept of  ‘legal  

relationship’  as incorporated in Article II(1)  of  the New York  

Convention  vis-à-vis  the  expression  ‘any  person  claiming  

through or under him’ appearing in Section 45 of the 1996 Act.  

Article II(1) and (3) have to be read in conjunction with Section  

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45 of  the Act.    Both these expressions have to be read in  

harmony with each other.    Once they are so read, it will be  

evident that  the expression “legal  relationship” connotes the  

relationship of the party with the person claiming through or  

under 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.  It is also stated in the Law and Practice of   

International Commercial Arbitration, Alan Redfern and Martin  

Hunter   (supra), that for the purposes of both the New York  

Convention and the UNCITRAL Model Law, it is sufficient that  

there  should  be  a  defined  “legal  relationship”  between  the  

parties,  whether  contractual  or  not.  Plainly there  has to be  

some contractual relationship between the parties, since there  

must be some arbitration agreement to form the basis of the  

arbitral  proceedings.    Given  the  existence  of  such  an  

agreement,  the  dispute  submitted  to  arbitration  may  be  

governed  by  the  principles  of  delictual  or  tortuous  liability  

rather than by the law of contract.

93. In the case of Roussel - Uclaf v. G.D. Searle & Co. Ltd. And  

G.D. Searle & Co. [1978 Vol. 1 LLR 225], the Court held:

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“The argument does not admit  of  much  elaboration,  but  I  see  no  reason  why  these  words  in  the  Act  should  be  construed  so  narrowly  as  to  exclude  a  wholly-owned  subsidiary  company  claiming, as here, a right to sell patented  articles which it  has obtained from and  been  ordered  to  sell  by  its  parent.   Of  course,  if  the arbitration proceedings so  decide,  it  may  eventually  turn  out  that  the parent company is at  fault  and not  entitled to sell the articles in question at  all;  and,  if  so,  the  subsidiary  will  be  equally  at  fault.    But,  if  the  parent  is  blameless,  it  seems only common sense  that  the  subsidiary  should  be  equally  blameless.    The  two  parties  and  their  actions are,  in my judgment,  so  closely  related on the facts  in this case that  it  would be right to hold that the subsidiary  can establish that it is within the purview  of  the  arbitration  clause,  on  the  basis  that it is “claiming through or under” the  parent  to  do  what  it  is  in  fact  doing  whether ultimately held to be wrongful or  not.”

94. However, the view expressed by the Court in the above  

case does not  find approval  in the decision of  the Court  of  

Appeal in the case of City of London v. Sancheti [(2009) 1 Lloyds  

Law Reports 116].  In paragraph 34, it was held that the view  

in the case of  Roussel  Uclaf need not be followed and stay  

could  not be  obtained  against  a  party  to  an  arbitration  

agreement  or  a  person  claiming  through  or  under  such  a  

party, as mere local or commercial connection is not sufficient.  

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But the Court of Appeal hastened to add that, in cases such as  

the one of Mr.  Sancheti,  the Corporation of London was not  

party to the arbitration agreement, but the relevant party is  

the  United  Kingdom Government.   The  fact  that  in  certain  

circumstances,  the  State  may  be  responsible  under  

international law for the acts of one of its local authorities, or  

may have to take steps to redress wrongs committed by one of  

the local authorities, does not make the local authority a party  

to the arbitration agreement.   

95. Having examined both the above-stated views, we are of  

the considered opinion that it will be the facts of a given case  

that  would act  as  precept  to  the  jurisdictional  forum as  to  

whether any of the stated principles should be adopted or not.  

If in the facts of a given case, it is not possible to construe that  

the person approaching the forum is a party to the arbitration  

agreement or a person claiming through or under such party,  

then the case would not fall within the ambit and scope of the  

provisions of  the section and it may not be possible for the  

Court  to permit  reference to arbitration at  the behest of  or  

against such party.  

96. We  have  already  referred  to  the  judgments  of  various  

courts, that state that arbitration could be possible between a  

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signatory to an agreement and a third party.   Of course, heavy  

onus lies on that party to show that in fact and in law, it is  

claiming under or through a signatory party, as contemplated  

under Section 45 of the 1996 Act.

97. Michael J. Mustill and Stewart C. Boyd in The Law and  

Practice  of  Commercial  Arbitration  in  England have  observed  

that the applicant must show that the person whose claim he  

seeks to stay is either a party to the arbitration agreement or a  

person claiming through or under such a party.   It is further  

noticed that it  occasionally happens that the plaintiff  is not  

himself  a  party  to  the  arbitration  agreement  on  which  the  

application  is  founded.    This  may  arise  in  the  following  

situations :

(i) The plaintiff has acquired the rights, which the action is  

brought to 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 agreement with  

the defendant.              

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(iii) When the  expression used in the  provision,  the  words  

‘claiming under plaintiff’ relate to substantive right which  

is being asserted.

98. The  requirements  can  scarcely  be  interpreted  in  their  

literal sense, this would mean that a person could claim a stay  

even  though  not  a  party  to  the  arbitration  agreement.  

However, the applicant must be party to the agreement against  

whom legal proceedings have been initiated rather than a party  

as intervenor.

99. Joinder  of  non  signatory  parties  to  arbitration  is  not  

unknown to the arbitration jurisprudence.   Even the ICCA’s  

Guide to the Interpretation of the 1958 New York Convention  

also provides for such situation, stating that when the question  

arises as to whether binding a non-signatory to an arbitration  

agreement  could  be  read  as  being  in  conflict  with  the  

requirement  of  written  agreement  under  Article  I  of  the  

Convention, the most compelling answer is “no” and the same  

is supported by a number of reasons.    

100. Various  legal  basis  may  be  applied  to  bind  a  non-

signatory to an arbitration agreement.   The first theory is that  

of  implied  consent,  third  party  beneficiaries,  guarantors,  

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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  

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.

101. We  may  also  notice  the  Canadian  case  of  The  City of   

Prince George v. A.L. Sims & Sons Ltd. [YCA XXIII (1998), 223]  

wherein the Court took the view that an arbitration agreement  

is  neither  inoperative  nor  incapable  of  being performed if  a  

multi-party dispute arises and not all parties are bound by the  

arbitration agreement:  the  parties  bound by  the  arbitration  

agreement  are  to  be  referred  to  arbitration  and  court  

proceedings may continue with respect to the other parties,  

even if this creates a risk of conflicting decisions.

102. We  have  already  discussed  that  under  the  Group  of  

Companies Doctrine, an arbitration agreement entered into by  

a  company within a  group of  companies  can bind its  non-

signatory affiliates, if the circumstances demonstrate that the  

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mutual intention of the parties was to bind both the signatory  

as well as the non-signatory parties.  

103. 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 a different step  

to establish which parties are bound by it.   Third parties, who  

are not explicitly mentioned in an arbitration agreement made  

in  writing,  may  enter  into  its  ratione  personae  scope.  

Furthermore,  the  Convention  does  not  prevent  consent  to  

arbitrate from being provided by a person on behalf of another,  

a notion which is at the root of the theory of implied consent.

104. If one analyses the above cases and the authors’ views, it  

becomes abundantly clear that reference of even non-signatory  

parties to arbitration agreement can be made.    It may be the  

result of implied or specific consent or judicial determination.  

Normally, the parties to the arbitration agreement calling for  

arbitral  reference  should  be  the  same  as  those  to  the  an  

action.  But this general concept is subject to exceptions which  

are  that  when  a  third  party,  i.e.  non-signatory  party,  is  

claiming or is sued as being directly affected through a party to  

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the  arbitration  agreement  and  there  are  principal  and  

subsidiary agreements, and such third party is signatory to a  

subsidiary  agreement  and  not  to  the  mother  or  principal  

agreement  which  contains  the  arbitration  clause,  then  

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 arbitration.  

105. In  the  present  case,  the  corporate  structure  of  the  

respondent  companies  as  well  as  that  of  the  appellant  

companies clearly demonstrates a legal relationship which not  

only is inter-legal relationship but also intra-legal relationship  

between the parties to the lis 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  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.    If one  

floats a joint venture company, one must essentially know-how  

to manage it and what shall be the methodology adopted for its  

management.   If one manages it well, one must know what  

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goods the said company is to produce and with what technical  

knowhow.  Even if these requisites are satisfied, then also one  

is  required  to  know,  how  to  create  market,  distribute  and  

export  such  goods.   It  is  nothing  but  one  single  chain  

consisting of different components.  The parties may choose to  

sign  different  agreements  to  effectively  implement  various  

aforementioned facets right from managing to making profits  

in a joint venture company.  A party may not be signatory to  

an agreement but its execution may directly be relatable to the  

main contract even though he claims through or under one of  

the  main  party  to  the  agreement.   In  such  situations,  the  

parties  would  aim  at  achieving  the  object  of  making  their  

bargain successful, by execution of various agreements, like in  

the present case.   

106. The New York Convention clearly postulates that  there  

should  be  a  defined  legal  relationship  between  the  parties,  

whether contractual or not, in relation to the differences that  

may  have  arisen  concerning  the  subject  matter  capable  of  

settlement of arbitration.   We have referred to a number of  

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judgments of  the various courts to emphasize  that  in given  

circumstances, if the ingredients above-noted exist, reference  

to arbitration of a signatory and even a third party is possible.  

Though heavy onus lies on the person seeking such reference,  

multiple  and multi-party  agreements between the  parties  to  

the  arbitration  agreement  or  persons  claiming  through  or  

under such parties is neither impracticable nor impermissible.

107. Next, we are to examine the issue whether the cause of  

action in a suit can be bifurcated and a partial reference may  

be  made  by  the  Court.   Whatever  be  the  answer  to  this  

question,  a  necessary  corollary  is  as  to  whether  the  Court  

should  or  should  not  stay  the  proceedings  in  the  suit?  

Further,  this  may  give  rise  to  three  different  situations.  

Firstly,  while  making  reference  of  the  subject  matter  to  

arbitration,  whether  the  suit  may  still  survive,  partially  or  

otherwise; secondly, whether the suit, still pending before the  

Court, should be stayed completely; and lastly, whether both  

the arbitration and the suit proceedings could be permitted to  

proceed simultaneously in accordance with law.    

108. Mr.  Nariman,  the learned senior  counsel,  while relying  

upon the judgments in the cases of  Turnock v. Sartoris  [1888  

(43)  Chancery  Division,  1955  SCR  862],  Taunton-Collins  v.  

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Cromie  &  Anr.,  [1964  Vol.1  Weekly  Law  Reports  633]  and  

Sumitomo Corporation v. CDS Financial Services (Mauritius) Ltd.  

and  Others [(2008)  4  SCC  91]  again  emphasized  that  the  

parties to the agreement have to be parties to the suit and also  

that the cause of action cannot be bifurcated unless there was  

a  specific  provision  in  the  1996  Act  itself  permitting  such  

bifurcation or splitting of cause of action.  He also contended  

that there is no provision like Sections 21 and 24 of the 1940  

Act  in  the  1996  Act  and  thus,  it  supports  the  view  that  

bifurcation  of  cause  of  action  is  impermissible  and  such  

reference to arbitration is not permissible.   

109. In the case of Turnock (supra), the Court had stated that  

it was not right to cut up that litigation into two actions, one to  

be  tried  before  the  arbitrator  and  the  other  to  be  tried  

elsewhere,  as  in  that  case  matters  in  respect  of  which the  

damages were claimed by the plaintiff could not be referred to  

arbitration because questions arising as to the construction of  

the agreement and provisions in the lease deed were involved  

and they did not fall within the power of the arbitrator in face  

of the arbitration agreement.  In the case of  Taunton-Collins   

(supra),  the  Court  again  expressed  the  view  that  it  was  

undesirable that there should be two proceedings before two  

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different tribunals, i.e., the official referee and an Arbitrator, as  

they may reach inconsistent findings.   

110. This Court dealt with the provisions of the 1940 Act, in  

the case of  Anderson Wright Ltd. v.  Moran & Company [1955  

SCR 862], and described the conditions to be satisfied before a  

stay can be granted in terms of Section 34 of the 1940 Act.  

The Court also held that it was within the jurisdiction of the  

Court to determine a question whether the plaintiff was a party  

to the contract containing the arbitration clause or not.  Still in  

the case of  Sumitomo Corporation (supra), this Court primarily  

declined the reference to arbitration for  the reason that the  

disputes stated in the petition did not fall within the ambit of  

the arbitration clause contained in the agreement between the  

parties and also that the Joint Venture Agreement did not itself  

contain a specific arbitration clause.  An observation was also  

made in paragraph 20 of the judgment that the ‘party’ would  

mean ‘the party to the judicial proceeding should be a party to  

the arbitration agreement.   

111. It will be appropriate to refer to the contentions of Mr.  

Salve, the learned senior counsel.  According to him, reference,  

even of the non-signatory party, could be made to arbitration  

and upon such reference the proceedings in an action before  

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the Court should be stayed.  The principle of  bifurcation of  

cause of action, as contemplated under the CPC, cannot stricto  

sensu apply to Section 45 of the 1996 Act in view of the non-

obstante  language  of  the  Section.   He  also  contended  that  

parties or issues, even if outside the scope of the arbitration  

agreement,  would  not  per  se render  the  arbitration  clause  

inoperative.  Even if there is no specific provision for staying  

the proceedings in the suit under the 1996 Act, still in exercise  

of its inherent powers, the Court can direct stay of the suit  

proceedings or pass such other appropriate orders as the court  

may deem fit.

112. We would prefer to first deal with the precedents of this  

Court cited before us.  As far as Sumitomo Corporation (supra)  

is concerned, it was a case dealing with the matter where the  

proceedings under Section 397-398 of the Companies Act had  

been initiated and the Company Law Board had passed an  

order.  Whether the appeal against such order would lie to the  

High Court was the principal question involved in that case.  

The  denial  of  arbitration reference,  as  already  noticed,  was  

based upon the reasoning that  disputes related to the joint  

venture agreement to which the parties were not signatory and  

the said agreement did not even contain the arbitration clause.  

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On the other hand, it was the other agreement entered into by  

different parties which contained the arbitration clause.   As  

already noticed, in paragraph 20, the Court had observed that  

a party to an arbitration agreement has to be a party to the  

judicial proceedings and then alone it will fall within the ambit  

of Section 2(h) of the 1996 Act.  As far as the first issue is  

concerned,  we  shall  shortly  proceed  to  discuss  it  when we  

discuss the merits of this case, in light of the principles stated  

in  this  judgment.   However,  the  observations  made  by  the  

learned Bench in the case of  Sumitomo Corporation (supra) do  

not appear  to be correct.  Section 2(h) only says that  ‘party’  

means a party to an arbitration agreement.  This expression  

falls in the Chapter dealing with definitions and would have to  

be construed along with the other relevant provisions of the  

Act.   When we read Section 45 in light of  Section 2(h),  the  

interpretation  given  by  the  Court  in  the  case  of  Sumitomo  

Corporation  (supra)  does not  stand to the test  of  reasoning.  

Section 45 in explicit  language permits the parties who are  

claiming  through or  under  a  main  party  to  the  arbitration  

agreement  to  seek  reference  to  arbitration.   This  is  so,  by  

fiction of law, contemplated in the provision of Section 45 of  

the 1996 Act.   

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113. We have already discussed above that  the language of  

Section 45 is incapable of being construed narrowly and must  

be  given  expanded  meaning  to  achieve  the  twin  objects  of  

arbitration,  i.e.,  firstly,  the  parties  should  be  held  to  their  

bargain  of  arbitration  and  secondly,  the  legislative  intent  

behind  incorporating  the  New  York  Convention  as  part  of  

Section 44 of the Act must be protected.  Moreover, paragraph  

20 of the judgment of  Sumitomo Corporation (supra) does not  

state  any  principle  of  law  and  in  any  event  it  records  no  

reasons for arriving at such a conclusion.  In fact, that was not  

even directly the issue before the Court so as to operate as a  

binding precedent. For these reasons, respectfully but without  

hesitation, we are constrained to hold that the conclusion or  

the statement made in paragraph 20 of this judgment does not  

enunciate the correct law.

Scope  of  jurisdiction  while  referring  the  parties  to  arbitration

114. An application for appointment of arbitral tribunal under  

Section 45 of  the  1996 Act  would also  be  governed by  the  

provisions of Section 11(6) of the Act.  This question is no more  

res integra and has been settled by decision of a Constitution  

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Bench of seven Judges of this Court in the case of SBP and Co.  

v. Patel Engineering Ltd. and Anr. [(2005) 8 SCC 618], wherein  

this Court held that power exercised by the Chief Justice is not  

an administrative power.  It is a judicial power.  It is a settled  

principle  that  the  Chief  Justice  or  his  designate  Judge will  

decide preliminary aspects which would attain finality unless  

otherwise directed to be decided by the arbitral tribunal.  In  

para 39 of the judgment, the Court held as under :

“39. It is necessary to define what exactly  the  Chief  Justice,  approached  with  an  application under Section 11 of the Act, is  to decide at that stage. Obviously, he has  to decide his own jurisdiction in the sense  whether the party making the motion has  approached the right High Court. He has  to decide whether there is an arbitration  agreement,  as  defined  in  the  Act  and  whether  the  person  who  has  made  the  request before him, is a party to such an  agreement. It is necessary to indicate that  he can also decide the question whether  the  claim  was  a  dead  one;  or  a  long- barred  claim  that  was  sought  to  be  resurrected and whether the parties have  concluded  the  transaction  by  recording  satisfaction  of  their  mutual  rights  and  obligations  or  by  receiving  the  final  payment without objection. It may not be  possible at that stage, to decide whether a  live  claim  made,  is  one  which  comes  within  the  purview  of  the  arbitration  clause. It will be appropriate to leave that  question  to  be  decided  by  the  Arbitral  Tribunal  on taking evidence,  along with  the merits of  the claims involved in the  

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arbitration.  The  Chief  Justice  has  to  decide whether the applicant has satisfied  the  conditions  for  appointing  an  arbitrator under Section 11(6) of the Act.  For the purpose of  taking a decision on  these  aspects,  the  Chief  Justice  can  either proceed on the basis of  affidavits  and  the  documents  produced  or  take  such  evidence  or  get  such  evidence  recorded, as may be necessary. We think  that  adoption  of  this  procedure  in  the  context  of  the Act  would best  serve  the  purpose sought to be achieved by the Act  of  expediting  the  process  of  arbitration,  without too many approaches to the court  at  various  stages  of  the  proceedings  before the Arbitral Tribunal.”

115. This aspect of the arbitration law was explained by a two  

Judge Bench of this Court in the case of Shree Ram Mills Ltd.  

v.  Utility Premises (P) Ltd. [(2007) 4 SCC 599] wherein, while  

referring to the judgment in SBP & Co. (supra) particularly the  

above paragraph, this Court held that the scope of order under  

Section 11 of the 1996 Act would take in its ambit the issue  

regarding  territorial  jurisdiction  and  the  existence  of  the  

arbitration agreement.  The Court noticed that if these issues  

are not decided by the Chief  Justice or his designate,  there  

would be no question of proceeding with the arbitration.  It  

held as under:

“27…Thus,  the  Chief  Justice  has  to  decide  about  the  territorial  jurisdiction  and  also  whether  there  exists  an  

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arbitration agreement between the parties  and whether such party has approached  the  court  for  appointment  of  the  arbitrator.  The  Chief  Justice  has  to  examine as to whether the claim is a dead  one or in the sense whether the parties  have  already  concluded  the  transaction  and  have  recorded  satisfaction  of  their  mutual rights and obligations or whether  the parties concerned have recorded their  satisfaction  regarding  the  financial  claims.  In  examining  this  if  the  parties  have recorded their satisfaction regarding  the  financial  claims,  there  will  be  no  question of any issue remaining. It is in  this sense that the Chief  Justice has to  examine  as  to  whether  there  remains  anything  to  be  decided  between  the  parties in respect of  the agreement and  whether the parties are still at issue on  any such matter. If the Chief Justice does  not, in the strict sense, decide the issue,  in that event it is for him to locate such  issue  and  record  his  satisfaction  that  such issue exists between the parties. It  is only in that sense that the finding on a  live  issue  is  given.  Even at  the  cost  of  repetition we must state that it is only for  the  purpose  of  finding  out  whether  the  arbitral procedure has to be started that  the  Chief  Justice  has  to  record  satisfaction  that  there  remains  a  live  issue in  between the  parties.  The same  thing  is  about  the  limitation  which  is  always a mixed question of law and fact.  The Chief Justice only has to record his  satisfaction that prima facie the issue has  not become dead by the lapse of time or  that any party to the agreement has not  slept  over  its  rights  beyond  the  time  permitted by law to agitate those issues  covered by the agreement.  It  is  for  this  reason  that  it  was  pointed  out  in  the  above para that it would be appropriate  

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sometimes to leave the question regarding  the live claim to be decided by the Arbitral  Tribunal. All that he has to do is to record  his satisfaction that the parties have not  closed their rights and the matter has not  been  barred  by  limitation.  Thus,  where  the Chief Justice comes to a finding that  there  exists  a  live  issue,  then naturally  this finding would include a finding that  the respective claims of the parties have  not become barred by limitation.

(emphasis supplied)”

116. Thus,  the Bench while explaining the judgment of  this  

Court in SBP & Co. (supra) has stated that the Chief Justice  

may  not  decide  certain  issues  finally  and  upon  recording  

satisfaction that prima facie the issue has not become dead  

even leave it for the arbitral tribunal to decide.

117. In National Insurance Co. Ltd. v.  Boghara Polyfab (P) Ltd.  

[(2009)  1  SCC 267],  another  equi-bench of  this  Court  after  

discussing various judgments of this Court, explained  SBP &  

Co. (supra) in relation to scope of powers of the Chief Justice  

and/or  his  designate  while  exercising  jurisdiction  under  

Section 11(6), held as follows :

“22. Where the intervention of the court  is sought for appointment of an Arbitral  Tribunal  under  Section 11,  the  duty  of  the  Chief  Justice  or  his  designate  is  defined in SBP & Co. This Court identified  

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and  segregated  the  preliminary  issues  that  may  arise  for  consideration  in  an  application under  Section 11 of  the  Act  into  three  categories,  that  is,  (i)  issues  which the Chief Justice or his designate is  bound to decide; (ii) issues which he can  also decide, that is, issues which he may  choose  to  decide;  and  (iii)  issues  which  should be left to the Arbitral Tribunal to  decide.

22.1. The issues (first category) which the  Chief  Justice/his  designate  will  have  to  decide are:

(a) Whether  the  party  making  the  application  has  approached  the  appropriate High Court.

(b) Whether  there  is  an  arbitration  agreement and whether the party who  has applied under Section 11 of  the  Act, is a party to such an agreement.

22.2. The issues  (second category)  which  the Chief Justice/his designate may choose  to decide (or leave them to the decision of  the Arbitral Tribunal) are:

(a) Whether  the  claim  is  a  dead  (long- barred) claim or a live claim.

(b) Whether  the  parties  have  concluded  the contract/transaction by recording  satisfaction of their mutual rights and  obligation  or  by  receiving  the  final  payment without objection.

22.3. The issues (third category) which the  Chief  Justice/his  designate  should  leave  exclusively to the Arbitral Tribunal are:

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(i) Whether a claim made falls within the  arbitration clause (as for  example,  a  matter  which  is  reserved  for  final  decision of  a  departmental  authority  and  excepted  or  excluded  from  arbitration).

(ii) Merits  or  any  claim  involved  in  the  arbitration.”

118. We may notice that at first blush, the judgment in the  

case of  Shree Ram Mills (supra) is at some variance with the  

judgment in the case of National Insurance Co. Ltd. (supra) but  

when examined in depth, keeping in view the judgment in the  

case of SBP & Co. (supra) and provisions of Section 11(6) of the  

1996 Act,  both these  judgments  are  found to  be  free  from  

contradiction and capable of being read in harmony in order to  

bring them in line with the statutory law declared by the larger  

Bench in  SBP & Co. (supra).  The expressions “Chief Justice  

does not in strict sense decide the issue” or “is prima facie  

satisfied”,  will  have  to  be  construed  in  the  facts  and  

circumstances of a given case.  Where the Chief Justice or his  

designate actually decides the issue, then it can no longer be  

prima facie, but would be a decision binding in law.  On such  

an issue, the Arbitral Tribunal will have no jurisdiction to re-

determine the issue.  In the case of  Shree Ram Mills  (supra),  

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the Court held that the Chief Justice could record a finding  

where the issue between the parties was still alive or was dead  

by lapse of time.  Where it  prima facie  found the issue to be  

alive, the Court could leave the question of limitation and also  

open to be decided by the arbitral tribunal.   

119.  The  above  expressions  are  mere  observations  of  the  

Court and do not fit into the contours of the principle of ratio  

decidendi of the judgment.  The issues in regard to validity or  

existence  of  the  arbitration  agreement,  the  application  not  

satisfying the ingredients of Section 11(6) of the 1996 Act and  

claims being barred by time etc. are the matters which can be  

adjudicated by the Chief Justice or his designate.  Once the  

parties are heard on such issues and the matter is determined  

in  accordance  with  law,  then  such  a  finding  can  only  be  

disturbed by the Court of competent jurisdiction and cannot be  

reopened before the arbitral tribunal.  In  SBP & Co. (supra),  

the Seven Judge Bench clearly stated, “the finality given to the  

order  of  the  Chief  Justice  on  the  matters  within  his  

competence under Section 11 of the Act are incapable of being  

reopened before  the arbitral  tribunal”.   Certainly the Bench  

dealing with the case of Shree Ram Mills (supra) did not intend  

to lay down any law in direct conflict with the Seven Judge  

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Bench judgment in SBP & Co. (supra).  In the reasoning given  

in  Shree Ram Mills’  case,  the  Court  has  clearly  stated that  

matters  of  existence  and  binding  nature  of  arbitration  

agreement  and  other  matters  mentioned  therein  are  to  be  

decided by the Chief Justice or his designate and the same is  

in line with the judgment of this Court in the case of SBP & Co.  

(supra).  It will neither be permissible nor in consonance with  

the  doctrine  of  precedent  that  passing  observations  by  the  

Bench  should  be  construed  as  the  law  while  completely  

ignoring the ratio decidendi of that very judgment. We may also  

notice that the judgment in  Shree Ram Mills (supra) was not  

brought  to  the  notice  of  the  Bench  which  pronounced  the  

judgment in the case of National Insurance Co. Ltd. (supra).     

120. As far as the classification carved out by the Court in the  

case of  National Insurance Co. Ltd. (supra) are concerned, it  

draws its origin from paragraph 39 of the judgment in the case  

of  SBP & Co. (supra) wherein the Constitution Bench of the  

Court had observed that “it may not be possible at that stage  

to decide whether a live claim made is one which comes within  

the  purview  of  the  arbitration  clause.   It  will  be  more  

appropriate  to  leave  the  seriously  disputed  questions  to  be  

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decided by the Arbitral Tribunal on taking evidence along with  

the merits of the claim, subject matter of the arbitration.”   

121. The foundation for category (2) in para 22 of the National  

Insurance Company Ltd. (supra) is directly relatable to para 39  

of the judgment of this court in SBP & Co. (supra) and matters  

falling in that category are those which, depending on the facts  

and circumstances of a given case, could be decided by the  

Chief  Justice  or  his  designate  or  even  may  be  left  for  the  

decision  of  the  arbitrator,  provided  there  exists  a  binding  

arbitration  agreement  between  the  parties.   Similar  is  the  

approach of the Bench in the case of  Shree Ram Mills  (supra)  

and  that  is  why  in  paragraph  27  thereof,  the  Court  has  

recorded that it would be appropriate sometimes to leave the  

question regarding the claim being alive to be decided by the  

arbitral  tribunal  and  the  Chief  Justice  may  record  his  

satisfaction that parties have not closed their rights and the  

matter has not been barred by limitation.   

122. As already noticed, 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 of staire decisis.  

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In the case of the Shri Ram Mills (supra) surely the Bench did  

not intend to lay down the law or state a proposition which is  

directly in conflict with the judgment of the Constitution Bench  

of this Court in the case of SBP & Co. (supra).   

123. We have no reason to differ with the classification carved  

out in the case of  National Insurance Co. (supra) as it is very  

much  in  conformity  with  the  judgment  of  the  Constitution  

Bench in the case of SBP (supra).  The question that follows  

from the above discussion is as to whether the views recorded  

by  the  judicial  forum  at  the  threshold  would  be  final  and  

binding on the parties or would they constitute the prima facie  

view.  This again has been a matter of some debate before this  

Court.  A three Judge Bench of this Court in the case of Shin-

Etsu  Chemical  Co.  Ltd. v.  M/s.  Aksh  Optifibre  Ltd.  &  Anr.   

[(2005)  7  SCC  234] was  dealing  with  an  application  for  

reference under Section 45 of the 1996 Act and consequently,  

determination  of  validity  of  arbitration  agreement  which  

contained the arbitration clause governed by the ICC Rules in  

Tokyo, Japan.  The appellant before this Court had terminated  

the  agreement  in  that  case.   The  respondent  filed  a  suit  

claiming a  decree  of  declaration and  injunction against  the  

appellant  for  cancellation of  the agreement which contained  

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the arbitration clause.  In that very suit,  the appellant also  

prayed  that  this  long  term  sale  and  purchase  agreement,  

which  included  the  arbitration  clause  be  declared  void  ab  

initio,  inoperative  and  incapable  of  being  performed  on  the  

ground  that  the  said  agreement  contained  unconscionable,  

unfair and unreasonable terms; was against public policy and  

was entered into under undue influence.  The appellant had  

also filed an application under Section 8 of the 1996 Act for  

reference to arbitration.   Some controversy arose before the  

Trial Court as well as before the High Court as to whether the  

application was one under Section 8 or Section 45 but when  

the matter came up before this Court, the counsel appearing  

for both the parties rightly took the stand that only Section 45  

was applicable and Section 8 had no application.  In this case,  

the  Court  was  primarily  concerned  and  dwelled  upon  the  

question  whether  an  order  refusing  reference  to  arbitration  

was appealable under Section 50 of the 1996 Act and what  

would be its effect.

124. We are not really concerned with the merits of that case  

but  certainly are  required to  deal  with the limited question  

whether  the findings recorded by the referring Court  are  of  

final nature,  or are merely  prima facie and thus, capable of  

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being re-adjudicated by the arbitral tribunal.  Where the Court  

records a finding that the agreement containing the arbitration  

clause  or  the  arbitration  clause  itself  is  null  and  void,  

inoperative or incapable of being performed on merits of the  

case, it would decline the reference.  Then the channel of legal  

remedy available to the party against whom the reference has  

been declined would be to take recourse to an appeal under  

Section 50(1)(a) of the 1996 Act.  The Arbitral Tribunal in such  

situations does not deliver any determination on the issues in  

the case. However, in the event that the referring Court deals  

with such an issue and returns a finding that objections to  

reference were not tenable, thus rejecting, the plea on merits,  

then the issue arises as to whether the arbitral tribunal can re-

examine the question of the agreement being null and void,  

inoperative  or  incapable  of  performance,  all  over  again.  

Sabharwal,  J.,  after  deliberating  upon  the  approaches  of  

different  courts  under  the  English  and  the  American  legal  

systems,  stated  that  both  the  approaches  have  their  own  

advantages  and  disadvantages.   The  approach  whereby  the  

courts  finally  decide  on  merits  in  relation  to  the  issue  of  

existence and validity of the arbitration agreement would result  

to a large extent in avoiding delay and increased cost.  It would  

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not  be  for  the  parties  to  wait  for  months  or  years  before  

knowing  the  final  outcome  of  the  disputes  regarding  

jurisdiction alone.  Then, he held as follows :

“56. I  am  of  the  view  that  the  Indian  Legislature  has  consciously  adopted  a  conventional approach so as to save the  huge  expense  involved  in  international  commercial  arbitration  as  compared  to  domestic arbitration.

57. In view of the aforesaid discussion, I  am of the view that under Section 45 of  the Act,  the determination has to be on  merits, final and binding and not prima  facie.”

125. However,  Srikrishna, J. took a somewhat different view  

and noticing the truth that there is nothing in Section 45 to  

suggest  that  a  finding  as  to  the  nature  of  the  arbitration  

agreement has to be ex facie or prima facie, observed that if it  

were to be held that the finding of the court under Section 45  

should be a final, determinative conclusion, then it is obvious  

that  until  such  a  pronouncement  is  made,  the  arbitral  

proceedings would have to be in limbo. So, he held as follows :

“105. I  fully  agree  with  my  learned  Brother's view that the object of dispute  resolution through arbitration,  including  international  commercial  arbitration,  is  expedition and that the object of the Act  would be defeated if  proceedings remain  

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pending  in  the  court  even  after  commencing  of  the  arbitration.  It  is  precisely  for  this  reason  that  I  am  inclined  to  the  view  that  at  the  pre- reference stage contemplated by Section  45, the court is required to take only a  prima facie view for making the reference,  leaving  the  parties  to  a  full  trial  either  before the Arbitral Tribunal or before the  court at the post-award stage.”

126. Dharmadhikari, J., the third member of the Bench, while  

agreeing with the view of Srikrishna, J. and noticing, “Where a  

judicial authority or the court refuses to make a reference on  

the  grounds  available  under  Section  45  of  the  Act,  it  is  

necessary for the judicial authority or the court which is seized  

of the matter to pass a reasoned order as the same is subject  

to appeal to the appellate court under Section 50(1)(a) of the  

Act and further appeal to this Court under sub-section (2) of  

the said section.” expressed no view on the issue of prima facie  

or finality of the finding recorded on the pre-reference stage, he  

left the question open in the following paragraph :

“112. Whether  such  a  decision  of  the  judicial authority or the court, of refusal  to  make  a  reference  on  grounds  permissible under Section 45 of  the Act  would  be  subjected  to  further  re- examination before the Arbitral Tribunal  or  the  court  in  which  eventually  the  award  comes  up  for  enforcement  in  accordance  with  Section  48(1)(a)  of  the  

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Act,  is  a  legal  question  of  sufficient  complexity and in my considered opinion  since that question does not directly arise  on the facts of the present case, it should  be  left  open  for  consideration  in  an  appropriate case where such a question is  directly raised and decided by the court.”

127. The judgment of  this Court in Shin-Etsu Chemical Co.  

Ltd. (supra) preceded the judgment of this Court in the case of  

SBP & Co.  (supra).   Though the  Constitution Bench in the  

latter case referred to this judgment in paragraph 89 of the  

judgment but did not discuss the merits or otherwise of the  

case  presumably  for  absence  of  any  conflict.  However,  as  

already  noticed,  the  Court  clearly  took  the  view  that  the  

findings  returned  by  the  Chief  Justice  while  exercising  his  

judicial  powers under  Section 11 relatable  to  Section 8  are  

final and not open to be questioned by the arbitral tribunal.  

Sections 8 and 45 of the 1996 Act are provisions independent  

of each other.  But for the purposes of reference to arbitration,  

in both cases, the applicant has to pray for a reference before  

the Chief Justice or his designate in terms of Section 11 of the  

1996 Act.  We may refer to the exact terminology used by the  

larger Bench in SBP & Co. (supra) in relation to the finality of  

such matters, as reflected in para 12 of the judgment which  

reads as under :  

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“12. Section  16  of  the  Act  only  makes  explicit  what  is  even  otherwise  implicit,  namely,  that  the  Arbitral  Tribunal  constituted  under  the  Act  has  the  jurisdiction to rule on its own jurisdiction,  including  ruling  on  objections  with  respect to the existence or validity of the  arbitration  agreement.  Sub-section  (1)  also  directs  that  an  arbitration  clause  which forms part  of  a  contract shall  be  treated as an agreement independent of  the  other  terms  of  the  contract.  It  also  clarifies  that  a  decision  by  the  Arbitral  Tribunal that the contract is null and void  shall not entail ipso jure the invalidity of  the arbitration clause. Sub-section (2) of  Section 16 enjoins that a party wanting to  raise  a  plea  that  the  Arbitral  Tribunal  does  not  have  jurisdiction,  has  to  raise  that  objection  not  later  than  the  submission of  the statement of  defence,  and that the party shall not be precluded  from  raising  the  plea  of  jurisdiction  merely  because  he  has  appointed  or  participated  in  the  appointment  of  an  arbitrator. Sub-section (3) lays down that  a  plea  that  the  Arbitral  Tribunal  is  exceeding the scope of its authority, shall  be raised as soon as the matter alleged to  be  beyond the  scope  of  its  authority  is  raised  during  the  arbitral  proceedings.  When  the  Tribunal  decides  these  two  questions,  namely,  the  question  of  jurisdiction and the question of exceeding  the scope of authority or either of them,  the same is open to immediate challenge  in  an  appeal,  when  the  objection  is  upheld and only in an appeal against the  final  award,  when  the  objection  is  overruled. Sub-section (5) enjoins that if  the  Arbitral  Tribunal  overrules  the  objections under sub-section (2) or (3), it  should  continue  with  the  arbitral  

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proceedings and make an arbitral award.  Sub-section  (6)  provides  that  a  party  aggrieved  by  such  an  arbitral  award  overruling the plea on lack of jurisdiction  and  the  exceeding  of  the  scope  of  authority,  may  make  an  application  on  these grounds for setting aside the award  in accordance with Section 34 of the Act.  The  question,  in  the  context  of  sub- section (7) of  Section 11 is,  what is the  scope  of  the  right  conferred  on  the  Arbitral  Tribunal  to  rule  upon  its  own  jurisdiction  and  the  existence  of  the  arbitration  clause,  envisaged  by  Section  16(1),  once  the  Chief  Justice  or  the  person designated by him had appointed  an arbitrator after satisfying himself that  the conditions for the exercise of power to  appoint an arbitrator are present in the  case. Prima facie, it would be difficult to  say that in spite of the finality conferred  by sub-section (7) of Section 11 of the Act,  to such a  decision of  the Chief  Justice,  the Arbitral Tribunal can still go behind  that  decision  and  rule  on  its  own  jurisdiction  or  on  the  existence  of  an  arbitration clause. It also appears to us to  be incongruous to say that after the Chief  Justice  had  appointed  an  Arbitral  Tribunal,  the Arbitral  Tribunal can turn  round and say that the Chief Justice had  no jurisdiction or authority to appoint the  Tribunal,  the very creature brought into  existence by the exercise of power by its  creator, the Chief Justice. The argument  of  the  learned  Senior  Counsel,  Mr  K.K.  Venugopal that Section 16 has full play  only  when  an  Arbitral  Tribunal  is  constituted  without  intervention  under  Section 11(6)  of  the  Act,  is  one  way  of  reconciling that provision with Section 11  of  the  Act,  especially  in  the  context  of  sub-section (7) thereof. We are inclined to  the  view  that  the  decision  of  the  Chief  

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Justice  on the  issue of  jurisdiction and  the  existence  of  a  valid  arbitration  agreement  would  be  binding  on  the  parties  when  the  matter  goes  to  the  Arbitral  Tribunal  and  at  subsequent  stages  of  the  proceeding  except  in  an  appeal in the Supreme Court in the case  of the decision being by the Chief Justice  of  the High Court or  by a Judge of the  High Court designated by him.”

(Emphasis supplied)

128. We are conscious of the fact that the above dictum of the  

Court is in relation to the scope and application of Section 11  

of the 1996 Act.   It has been held in various judgments of this  

Court but more particularly in the case of SBP (supra) which is  

binding on us that 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 Section 11 shall be attracted to an international  

arbitration  which  takes  place  in  India  as  well  as  domestic  

arbitration.   This, of course, would be applicable at pre-award  

stage.  Thus, there exists a direct legal link, limited to that  

extent.  

129. We  are  not  oblivious  of  the  principle  ‘Kompetenz  

kompetenz’.  It requires the arbitral tribunal to rule on its own  

jurisdiction and at the first instance.  One school of thought  

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propagates that 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 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 not  only is  the  

positive  but  also  the  negative  effect  of  the  arbitration  

agreement.   [refer Fouchard Gaillard Goldman on International  

Commercial Arbitration]

130. This policy has found a favourable mention with reference  

to the New York Convention in some of the countries.  This is  

one aspect.  The more important aspect as far as Chapter I of  

Part  II  of  the 1996 Act is concerned,  is the absence of  any  

provision like Section 16 appearing in Part I of the same Act.  

Section 16 contemplates that the arbitrator may determine its  

own  jurisdiction.   Absence  of  such  a  provision  in  Part  II,  

Chapter  I  is  suggestive  of  the requirement for  the Court  to  

determine the ingredients of Section 45, at the threshold itself.  

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It is expected of the Court to answer the 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 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  re-

agitating 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 interpretation of Sections 8  

and 45.  Further, it may be noted that even the judgment of  

this  Court  in  SBP  &  Co.  (supra)  takes  a  view in  favour  of  

finality of determination by the Court despite the language of  

Section 16 in Part I of the 1996 Act.  Thus, there could hardly  

be any possibility   for  the Court  to take  any other  view in  

relation to an application under Section 45 of the 1996 Act.  

Since, the categorization referred to by this Court in the case of  

National  Insurance  Company Ltd.  (supra)  is  founded  on  the  

decision by the larger Bench of the Court in the case of SBP &  

Co. (supra),  we see no reason to express any different view.  

The  categorization  falling  under  para  22.1  of  the  National  

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Insurance Company case (supra) would certainly be answered  

by the Court before it makes a reference while under para 22.2  

of that case, the Court may exercise its discretion and decide  

the dispute itself or refer the dispute to the arbitral tribunal.  

Still,  under  the cases falling under  para  22.3,  the Court  is  

expected to leave the determination of such dispute upon the  

arbitral  tribunal  itself.   But  wherever  the  Court  decides  in  

terms of  categories  mentioned in paras  22.1  and 22.2,  the  

decision of the Court is unreviewable by the arbitral tribunal.

131. Another  very  significant  aspect  of  adjudicating  the  

matters initiated with reference to Section 45 of the 1996 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.  To illustratively demonstrate it, we may  

give  an  example.   Where  party  ‘A’  is  seeking  reference  to  

arbitration and party ‘B’ raises objections going to the very root  

of the matter that the arbitration agreement is null and void,  

inoperative and incapable of being performed, such objections,  

if left open and not decided finally at the threshold itself may  

result in not only parties being compelled to pursue arbitration  

proceedings by spending time, money and efforts but even the  

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arbitral  tribunal  would  have  to  spend  valuable  time  in  

adjudicating  the  complex  issues  relating  to  the  dispute  

between the parties, that may finally prove to be in vain and  

futile.   Such  adjudication  by  the  arbitral  tribunal  may  be  

rendered ineffective or even a nullity in the event the courts  

upon  filing  of  an  award  and  at  execution  stage  held  that  

agreement between the parties was null and void inoperative  

and incapable of being performed.  The Court may also hold  

that the arbitral tribunal had no jurisdiction to entertain and  

decide the issues between the parties.  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.  Even when the arbitration law  

in India contained the provision like Section 34 of the 1940 Act  

which  was  somewhat  similar  to  Section  4  of  the  English  

Arbitration  Act,  1889,  this  Court  in  the  case  of  Anderson  

Wright Ltd. (supra) took the view that while dealing with the  

question of  grant  or  refusal  of  stay  as  contemplated  under  

Section 34 of the 1940 Act, it would be incumbent upon the  

Court  to  decide  first  of  all  whether  there  is  a  binding  

agreement for  arbitration between the parties to the suit  or  

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not.   Applying the  analogy thereof  will  fortify  the  view that  

determination of  fundamental  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, inoperative and incapable of being performed, it shall  

refer the parties to arbitration.   

Correctness of Law stated in Sukanya

132. Though rival contentions have been raised before us on  

the  correctness  of  the  judgment  of  this  Court  in  Sukanya  

Holdings  Pvt.  Ltd. (supra),  Mr.  Salve  vehemently  tried  to  

persuade us  to  hold  that  this  judgment  does  not  state  the  

correct  exposition  of  law  and  to  that  effect  it  needs  to  be  

clarified by this Court in the present case.  On the contrary,  

Mr. Nariman argued that this judgment states the correct law  

and,  in fact,  the  principles stated should be applied to the  

present case.   

133. The ambit and scope of Section 45 of the 1996 Act, we  

shall be discussing shortly but at this stage itself, we would  

make it clear that it is not necessary for us to examine the  

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correctness  or  otherwise  of  the  judgment  in  the  case  of  

Sukanya (supra).   This  we say  for  varied  reasons.   Firstly,  

Sukanya was a judgment of this Court 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.   Secondly,  in that  case the  

Court  was  concerned  with  the  disputes  of  a  partnership  

concern.  A suit had been filed for dissolution of partnership  

firm  and  accounts  also  challenging  the  conveyance  deed  

executed by the partnership firm in favour of one of the parties  

to  the  suit.   The  Court  noticing  the  facts  of  the  case  

emphasized that where the subject matter of the suit includes  

subject  matter  for  arbitration  agreement  as  well  as  other  

disputes, the Court did not refer the matter to arbitration in  

terms of Section 8 of the Act.  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 under Section 45 of  the Act.   Thus,  the  

dictum stated in para 13 of the judgment of  Sukanya would  

not apply to the present case.  Thirdly, on facts, the judgment  

in Sukanya’s case, has no application to the case in hand.

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134. Thus, we decline to examine the merit or otherwise of this  

contention.

On Merits

135. The Corporate structure of the companies in the present  

case has already been stated by us in paragraph 7 which we  

need not  refer  here again in detail.   Suffice  it  to  note that  

Kocha  group  had  floated  a  company  and  incorporated  the  

same  under  the  Indian  laws,  which  was  carrying  on  the  

business of manufacture of chlorination equipment under the  

name and style ‘Chloro Control India Private Limited’.  They  

were negotiating with Severn Trent Water Purification Inc. for  

an  international  joint  venture  agreement  to  deal  with  the  

manufacture,  distribution  and  sale  of  gas  chlorination  

equipment  and  electro-chlorination  equipment,  “Hypogen  

Series 3300” etc.  On this basis, they had entered into a joint  

venture agreement which was signed between them.  The joint  

venture  agreement  contemplated  that  the  business  shall  be  

carried on under the name and style of Capital Controls India  

Ltd.  Private  Limited.   The  agreements  gave  50  per  cent  

shareholding  to  the  foreign  collaborators  which were  to  be  

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equally  divided between Capital  Control  (Del)  Company Inc.  

and  Capital  Control  Company  Inc.   These  joint  venture  

agreements  were  executed  between  the  parties  on  16th  

November,  1995  but  the  joint  venture  company  had  been  

incorporated  on  14th November,  1995  itself.   Severn  Trent  

Services (Del) Inc. is the holding company of  the companies  

which  have  entered  into  the  joint  venture  agreement  for  

floating both, the Capital Control India Ltd. as well as Severn  

Trent  De Nora LLC.  The disputes had arisen actually between  

the Kocha Group on the one hand and Severn Trent Water  

Purification Inc. on the other, and the disputes were mainly  

with regard to Capital Control (India) Pvt. Ltd. Inc.  Now, we  

must note, even at the cost of repetition, the parties signatory  

to each of these agreements and we must also note which of  

these  agreements  did  not  contain  arbitration  clause.  

Shareholders  Agreement  dated  16th November,  1995  was  

executed between the Capital Control (Delaware) Company Inc.  

and  Chloro  Control  India  Private  Ltd.   Capital  Control  

Delaware  Company  Inc.  was  a  subsidiary  of  Severn  Trent  

Services (Delaware) Inc. and was formed on 21st September,  

1994.  Capital Control Company Inc. came to be merged with  

Capital Control (Delaware) Company Inc. in March 1994.  As a  

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result the Capital Control Delaware Company was no more in  

existence.   Thus,  the reference to Capital  Control  Company  

Inc. includes reference to Capital Control Company Inc. as well  

as Capital Control (Delaware) Company Inc.

136. The corporate structure of the Companies involved in the  

present litigation clearly shows that name of Capital Control  

Company Inc., incorporated in the year 1994, was changed to  

Severn  Trent  Water  Purification  Inc.  with  effect  from April,  

2002.  Thus, both these companies together were subsidiaries  

of the holding company Severn Trent Services (Delaware) Inc.  

The  joint  venture  agreement  was  executed  between  Chloro  

Control  (India)  Pvt.  Ltd.  and  the  erstwhile  Capital  Control  

Company  Inc.  resulting  into  creation  of  the  joint  venture  

company, Capital Control (India) Pvt.  Ltd.  This is the basic  

structure which one has to make clear before examining the  

agreements and their impact.   The negotiations between the  

appellant  and  the  respondent  nos.1  and 2  or  their  holding  

companies  were  going  on  since  1990  and  ultimately  

culminated into execution of the joint venture agreement.  In  

terms of  the  Shareholders  Agreement,  the  authorized  share  

capital of  the company was five million rupees consisting of  

equity shares of Rs.10/- each.  Initially the parties had decided  

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to issue equity capital  of  1,50,000 equity shares of  Rs.10/-  

each with 50% of the initial equity to Capital Controls and the  

remaining 50% to Chloro Controls.  It is necessary to refer in  

some  detail  the  relevant  clauses  of  this  Agreement  as  this  

agreement is the ‘Principal or the Mother Agreement’.  All other  

agreements were executed in furtherance to and for achieving  

the purpose of  this Agreement.  This agreement notices that  

Capital  Control  was  engaged  in  the  design,  manufacture,  

import, marketing, export etc. of gas and electro-chlorination  

equipments.  The  company  was  to  be  registered  and  as  is  

evident,  in  furtherance  to  the  negotiations,  steps  for  

registration of the said company had been taken and finally it  

came to be incorporated on 14th November, 1995.  The main  

object  of  the  joint  venture  company  was  the  manufacture,  

service and sale of  the products.   In terms of  the Principal  

Agreement,  establishment  of  a  plant,  management  of  the  

company,  appointment  of  Directors,  implementation  of  

decisions  of  the  Board  of  Directors,  appointment  or  re-

appointment of the Managing Director, dividend policy, loans,  

financial  information,  trademarks,  transfer  of  shares,  sale-

purchase  of  chlorination  equipment,  assets,  government  

approvals, performance of Chloro Controls, trademark, service  

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of  notices,  modifications,  severability  and  arbitration,  

settlement  of  disputes  by  arbitration  etc.  were  the  matters  

specifically  provided  for  under  this  agreement.   A  very  

significant feature of this contract was that the Kocha Group  

was put under an injunction to not engage directly or indirectly  

or  be  financially  interested  in  the  manufacture,  sale  or  

distribution of  chlorination equipment and related products,  

which is similar to those manufactured or sold by the company  

during the term of the agreement.  Similarly, a restriction was  

also  placed  upon  Capital  Controls  and  even  its  holding  

companies  to  not  directly  or  indirectly  engage  in  or  to  be  

financially interested in the manufacture, sale or distribution  

in India of  products manufactured or sold by the company,  

during the term of the agreement.

137. The Principal  Agreement specifically referred to various  

agreements or even terms and conditions thereof.  Clause 7 of  

the  agreement  provided  for  execution  of  the  International  

Distributor  Agreement  which  was  Appendix  II  to  this  

Agreement.   The Financial and Technical Know-how Licence  

Agreement was executed in furtherance to clause 14 thereof.  

Similarly,  the Trademark Registered User License Agreement  

was required to be executed between the parties in terms of  

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clause 15 of this Agreement.  Other terms and conditions of  

the  Principal  Agreement  referred  to  management  of  the  

company  by  appointment  or  reappointment  of  Directors  or  

Managing  Directors  inasmuch  as  Clause  8.6  contemplated  

execution of the agreement which was appended as Appendix  

III.   Still,  certain  other  clauses  of  the  Principal  Agreement  

specifically dealt with the sale of goods manufactured by the  

joint  venture  company,  nationally  and internationally.   This  

resulted in signing of the International Distribution and Export  

Sales Agreement between the parties.   

138. All  the  five  agreements  signed  by  the  parties  were  

primarily to fulfill their obligations and ensure performance of  

this Principal  Agreement.   The Supplementary Collaboration  

Agreement executed in August 1997 was only to comply with  

the conditions of the Government Approval which were granted  

vide  letter  dated  11th October,  1996,  as  amended  by  letter  

dated 21st April,  1997.   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 respondent group in which they  

had  got  merged  for  the  purposes  of  attaining  effective  

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designing, manufacturing, import, export and marketing of the  

agreed chlorinated products.  

139. 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.   If  the agreed goods were not  

manufactured  in  India  with  the  technical  know-how of  the  

respondent No. 1 company and the joint venture company was  

not incorporated, the question of the Distribution Agreement,  

Managing Director Agreement, Financial and Technical Know-

How License Agreement or the Export Sales Agreement would  

not have even arisen, in any event.  Conversely, if the ancillary  

agreements  were  not  performed  in a  collective  manner,  the  

Principal  Agreement would be of  no consequence.   In other  

words,  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 probable to imagine the execution and  

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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 as integral parts  

of a composite transaction.   It can safely be covered under the  

principle of ‘agreements within an agreement’.  For instance,  

the Financial and Technical Know-How License Agreement not  

only finds a specific mention in the Principal Agreement but its  

contents  also  are  referable  to  the  clauses  of  the  Principal  

Agreement.  The Financial and Technical Know-How License  

Agreement was Appendix III to the Principal Agreement and the  

details  of  the  goods  which  were  contemplated  to  be  

manufactured,  distributed  and  sold  under  the  Principal  

Agreement had been specified in Appendix I of the Financial  

and Technical Know-How Agreement.  If the latter agreement  

was not  there,  the  Principal  Agreement between the  parties  

would have remained incomplete and the parties would have  

been at a disadvantage to know as to what goods were to be  

manufactured  and  what  goods  could  not  have  been  

manufactured.   The  Principal  Agreement  referred  either  

specifically or by necessary implication to all other agreements.  

They were inter-dependent for their performance and one could  

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not be read and understood completely without the aid of the  

other.

140. Having held that all these other agreements as well as the  

mother/  principal  agreement  were  part  of  a  composite  

transaction  to  facilitate  implementation  of  the  principal  

agreement and that was in reality the intention of the parties,  

now, we will deal with the question of parties to the principal  

agreement.  When the mother agreement dated 16th November,  

1995  was  executed  between  the  parties,  presumably  the  

Certificate of Incorporation of Capital Control India Private Ltd.  

had  not  been  issued  to  the  parties  though  it  had  been  

incorporated on 14th November,  1995.   If  the company had  

been duly incorporated and the Certificate of Incorporation was  

available to the parties, then there could be no reason for the  

parties to propose in the Principal  Agreement that  the joint  

venture company would be in the name of  Capital  Controls  

India Private Ltd. or any other name which would be mutually  

agreed  between the  parties.   The reference  to  joint  venture  

company, thus, was not by a specific name.  Both the parties  

have signed this agreement with the clear intention that the  

company,  Capital  Control  India  Pvt.  Ltd.,  will  be  the  joint  

venture company.   Thus, non-mentioning of the name of the  

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joint venture company in the principal agreement, though it  

had been incorporated on 14th November, 1995, is immaterial  

and  inconsequential  in  face  of  intention  of  the  parties  

appearing from the written documents on record.  Once the  

Principal Agreement was signed, all other agreements had to  

be executed   by or in favour of the joint venture company.  

That  is how to all  these other agreements the joint venture  

company i.e.  Capital Control India Pvt.  Ltd.  is a party.    It  

further completely supports the view that non-mentioning of  

the name of Capital Control India Pvt. Ltd. can hardly affect  

the findings of the Court.   With regard to the management of  

the joint venture company and implementation of the Principal  

Agreement, the parties had entered into the Managing Director  

Agreement dated 16th November, 1995.   This agreement was  

signed  by  each  of  the  concerned  partners  i.e.  by  Capital  

Control  India  Pvt.  Ltd.,  respondent  No.  5  and  the  Kocha  

Group, respondent No. 9.  This agreement provided as to how  

the Managing Directors were to be appointed or reappointed  

and how the meeting of the Board of Directors of the company  

were to be conducted in accordance with law and the terms of  

the  Mother  Agreement.   This  agreement  came  to  be  signed  

between the joint venture company and the Kocha Group.   

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141. Other aspect of performance of the Principal Agreement  

was  the  Financial  and  Technical  Know-How  License  

Agreement.    This  agreement  had  been signed between the  

Capital Control Company Inc., subsequently known as Severn  

Trent Water Purification, respondent No. 1, one the one hand  

and the joint venture company, respondent No. 5.    Severn  

Trent  Water  Purification Inc.  is  the holding company of  the  

joint  venture  to  the  extent  of  its  share  holding  and  is  the  

company into which Capital Control (Del.) Co. Inc. had merged.  

Severn  Trent  Water  Purification  Inc.  is  thus,  the  resultant  

product of Capital Control (Del.) Company Inc. being merged  

into Capital Control Company Inc. and its name was changed  

with effect from 1st April, 2002.    All these three companies  

had at  the relevant time been or  when came into existence  

were and are subsidiaries of Severn Trent (Del.) Inc.    The  

requisite  technical  know-how  was  possessed  by  these  

companies and was agreed to be imparted in favour of the joint  

venture company, in furtherance to and as per the terms and  

conditions contained in the Principal Agreement.

142. Similarly,  Severn  Trent  Water  Purification  Inc.  had  

entered into an International  Distributor  Agreement  and an  

Export Sales Agreement with the joint venture to facilitate the  

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sale, marketing and export of goods, under these two different  

agreements.    Thus, it is crystal clear that all the six material  

agreements had been signed by some parties or their holding  

companies or the companies into which the signatory company  

had 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  

companies  descendants  in  interest  or  the  subsidiaries  of  

Severn Trent Services Del. Inc.  

143. May be all the parties to the lis 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 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 of the Principal Agreement.  

In view of the settled position of law that we have indicated  

above,  we  will  have  no  hesitation  in  holding  that  these  

companies claim their  interest  and invoke the terms of  the  

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agreement  or  defend  the  action in  the  capacity  of  a  ‘party  

claiming through or under’ the parties to the agreement.

ARBITRATION

144. When  we  refer  to  all  the  six  relevant  agreements  in  

relation to the arbitration clause, the Shareholders Agreement,  

the Financial and Technical Know-How License Agreement and  

the Export Sales Agreement contained the arbitration clause  

while the other three agreements, i.e., International Distributor  

Agreement,  the  Managing  Director’s  Agreement  and  the  

Trademark Registered User License Agreement did not contain  

any such arbitration clause.  The arbitration clause contained  

in the Principal Agreement in clause 30 has been reproduced  

above.  It 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 conducted in  

accordance  with  the  Rules  of  ICC.   This  clause  is  widely  

worded.  It 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.  The intention to  

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make it more comprehensive is writ large from the language of  

the  agreement  and  particularly  clause  30  of  the  Mother  

Agreement. It is useful to notice that the agreement has to be  

construed  and  interpreted  in  accordance  with  laws  of  the  

Union of India, as consented by the parties.   

145. The expression ‘connection’ means a link or relationship  

between people or  things or the people with whom one has  

contact  (Concise  Oxford  Dictionary  (Indian  Edition).  

‘Connection’  means  act  of  uniting;  state  of  being  united;  a  

relative; relation between things one of which is bound up with  

(Law Lexicon 2nd Edn. 1997).   

146. Thus, even 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 agreements in one (principal) agreement.  The expression  

appearing  in  clause  30  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  

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agreements originate from the Principal Agreement and hence,  

its  terms  and  conditions  would  be  applicable  to  those  

agreements.  There are three agreements, as already noticed,  

which do not contain any specific arbitration clause.  Both the  

Managing Director Agreement and the International Distributor  

Agreement directly  relate  to  the Principal  Agreement stating  

the manner in which the affairs would be managed and the  

Managing  Directors  be  appointed.   At  the  same  time,  the  

International Distributor Agreement is executed between the  

Severn  Trent  Water  Purification  Inc.  the  erstwhile  Capital  

Control Company Inc.  and the Capital  Control India Private  

Ltd.,  the  joint  venture  company.   Firstly,  the  chances  of  

dispute between the same group of companies were remote  

and secondly these were the companies which were held by the  

same  management.   The  parties  had  also  agreed  to  have  

relationship as that of seller and distributor to make the joint  

venture company a success.   The interest of Capital Controls  

Company Inc.  and that  of  the Capital  Control  India Private  

Ltd.,  to  the  extent  of  the  former’s  share,  were  common.  

Furthermore,  this  being  an  integral  part  of  the  Principal  

Agreement would, in our opinion, be squarely covered by the  

arbitration  clause  contained  in  the  Mother/Shareholders  

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Agreement.  This agreement has been specifically referred in  

clause 7 of the Mother/Shareholders Agreement.  Not only that  

there is incorporation by reference of International Distribution  

Agreement in the Mother/Shareholders Agreement but, in fact,  

it is an integral part thereof.     

147. Another aspect of the case is that all these agreements  

were executed simultaneously on 16th November, 1995 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 in August 1997, by that time all these  

agreements had not only been signed and understood by the  

parties but, in fact, had also been acted upon.

148. In  the  Supplementary  Collaboration  Agreement,  the  

parties  re-confirmed  the  existence  of  the  joint  venture  

agreement  dated  16th November,  1995 and  made  a  specific  

stipulation that both the parties confirmed to adhere by the  

terms and conditions stipulated by the Government of India in  

its  letters dated 11th October,  1996,  amended on 21st April,  

1997.   This was signed by Madhusudan B. Kocha, member of  

the Kocha group on behalf of the joint venture company and  

Capital Controls (Delaware) Inc.   The necessity for executing  

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this  agreement  was  in  face  of  the  condition of  Government  

approval as well as the subsequent amendment of clause 2, 3  

and 4 of the approval letter dated 11th October, 1996 i.e. items  

of manufacture, proposed location and foreign equity.

149. The  conduct  of  the  parties  and  even  the  subsequent  

events leave no doubt in the mind of the Court that the parties  

had  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.     As already noticed, this Court in the case of  

Olympus Superstructure Pvt. Ltd. (supra) permitted reference to  

arbitration where there were multiple contracts between the  

parties,  interpreting  the  words  ‘in  connection  with’  and  

‘disputes relating to connected matters’.

150. Besides making the reference, the Court also held that  

making of two awards which may be conflicting in relation to  

the items which are likely to overlap in two agreements could  

not be permitted.    The courts have also accepted and more so  

in group company cases that the fact that a party being non-

signatory  to  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  

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mother  agreement.    That,  in  fact,  is  the  situation  in  the  

present case.   

151. One  of  the  arguments  advanced  was  that  the  

International Distributor Agreement had specifically provided  

for  construction,  interpretation  and  performance  of  the  

agreement and for the transaction under that agreement to be  

governed  by  and  interpreted  by  the  laws  of  State  of  

Pennysylvania,  USA  and  parties  thereto  agreed  that  any  

litigation thereunder shall be brought in any federal or state  

court  in  the  Eastern  District  of  the  Commonwealth  of  

Pennysylvania  which  fact  would  oust  the  possibility  of  

reference to arbitration in terms of clause 30 of the Principal  

Agreement, as the parties had chosen a specific forum of the  

court  system.    Discussion  on  this  argument  may  not  be  

greatly  relevant  in  view  of  the  above  discussion  in  this  

judgment.    This being a composite transaction,  the parties  

could opt for any remedy.    

152. In the present case, we have already noticed, that some  

agreements contain the arbitration clause, while others don’t.  

The  Shareholders  Agreement,  Financial  and  Technical  

Knowhow  Licence  Agreement  and  Export  Sales  Agreement  

contain  the  arbitration  clause,  while  the  International  

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Distributor  Agreement,  Managing  Directors  Agreement  and  

Trade  Mark  Registered  User  Agreement  do  not  contain  the  

arbitration  clause.   The  arbitration  clause  contained  under  

clause  30  of  the  Shareholders  Agreement  and  that  under  

clause  26  of  the  Financial  and Technical  Knowhow Licence  

Agreement are identical.  They both require the disputes to be  

referred  to  arbitration  in  London  as  per  the  ICC  Rules.  

However, the arbitration clause contained in clause 18 of the  

Export Sales Agreement provides for reference of the disputes  

to arbitration at Pennsylvania, USA, in accordance with rules  

of American Arbitration Association.   It also provides that the  

judgment upon the Award rendered could be entered in any  

court  of  competent  jurisdiction.    Still,  clause  21  of  the  

International Distributor Agreement required the construction,  

interpretation  and  performance  of  the  agreement  to  be  

governed by and interpreted under the laws of  the State  of  

Pennsylvania,  USA.    Any  litigation  thereunder  was  to  be  

brought in any federal or State Court located in the Eastern  

District of the Commonwealth of Pennsylvania, which was to  

be binding upon the parties.

153. As already noticed, two of the agreements did not contain  

any arbitration clause, but they also did not subject the parties  

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even  for  litigative  jurisdiction.     They  are  the  Managing  

Directors  Agreement  and  the  Trademark  Registered  User  

Agreement.    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.

154.    All these agreements were signed on the same day and  

in furtherance to the mother agreement.  None of the parties  

have  invoked the  jurisdiction of  the  Court  at  Pennsylvania,  

USA.  Thus, it was an alternative remedy that too restricted to  

the  disputes,  if  any  arising  from  that  agreement.   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 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 chose  

either  to  institute  a  suit  qua  the  International  Distributor  

Agreement  at  Pennsylvania  or  to  invoke  the  arbitration  

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agreement  in  terms of  clause  30  of  the  mother  agreement.  

They have chosen the latter remedy.   The question, therefore,  

does not  arise  as  to  which law would apply  since the  only  

litigation taken out by the parties is the suit instituted by the  

appellant before the original side of the Bombay High Court  

and  the  subsequent  application  for  reference  to  arbitration  

filed by the Respondent No. 1 under Section 45 of the 1996  

Act.    

155.  The effect of execution of multiple agreements has been  

discussed  by  us  in  some  elaboration  above.     The  real  

intention of the parties was not only to refer all their disputes  

arising under the agreement which could not be settled despite  

friendly  negotiations  to  arbitration,  but  even  the  disputes  

which  arose  in  connection  with  the  shareholder/mother  

agreement to arbitration.

156.  Thus,  a  composite  reference  was  well  within  the  

comprehension  of  the  parties  to  various  agreements  which  

were executed on the same day and for  the same purpose.  

There cannot be any doubt to the contention that in terms of  

Section 9 of the CPC, the courts in India shall have jurisdiction  

to try all suits of civil nature.   Further, this section gives a  

right  to  a  person  to  institute  a  suit  before  the  court  of  

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competent jurisdiction.   However, the 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.   In other  

words, the jurisdiction of the court and the right to a party  

emerging from Section 9 of the CPC is not an absolute right,  

but contains inbuilt restrictions.    It is an accepted principle  

that jurisdiction of the court can be excluded.   In the case of  

Dhulabhai v. State of  M.P. and Anr.  [AIR 1969 SC 78],  this  

Court  has  settled the principle that  jurisdiction of  the Civil  

Court is all embracing, except to the extent it is excluded by  

law or by clear intendment arising from such law.  In  Nahar  

Industrial Enterprises Ltd. v. Hong Kong & Shanghai Banking  

Corporation [(2009) 8 SCC 646], this Court has even stated the  

conditions for exclusion of jurisdiction. They are, (a) whether  

the legislative intent to exclude is expressed explicitly or  by  

necessary implication, and (b) whether the statute in question  

provides for an adequate and satisfactory alternative remedy to  

a party aggrieved by an order made under it.

157. 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  

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void,  it  is obligatory upon the court to make a  reference to  

arbitration and pass appropriate orders in relation to the legal  

proceedings before the court, in exercise of its inherent powers.

158. In the present case, the court can safely gather definite  

intention  on  behalf  of  the  parties  to  have  their  disputes  

collectively resolved by the process of  arbitration.    Even if  

different forums are provided, recourse to one of them which is  

capable of resolving all their issues should be preferred over a  

refusal of reference to arbitration.    There appears to be no  

uncertainty in the minds of the parties in that regard, rather  

the intention of the parties is fortified and clearly referable to  

the mother agreement.  

159. It is not the case of any of the parties before us that any  

of the parties to the present litigation had taken steps before  

that Court or had invoked the jurisdiction of that court under  

that system.   There is no apparent conflict of interest as of  

now.   The arbitration clause would stand incorporated into the  

International  Distributor  Agreement  as  this  agreement  itself  

was Appendix II to the Principal Agreement.   This Court in the  

case of  M.R. Engineers and Contractors Pvt. Ltd. v. Som Datt  

Builders  Ltd. [(2009) 7 SCC 696] has stated that  firstly  the  

subject of reference be enacted by mutual intention, secondly a  

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mere reference to a document may not be sufficient and the  

reference  should  be  sufficient  to  bring  out  the  terms  and  

conditions  of  the  referred  document  and  also  that  the  

arbitration clause should be capable of application in respect  

of a dispute under the contract and not repugnant to any term  

thereof.   All these three conditions are satisfied in the present  

case.

160. The  terms  and  conditions  of  the  International  

Distribution Agreement were an integral part of the Principal  

Agreement as Appendix II and the Principal Agreement had an  

arbitration clause which was wide enough to cover disputes in  

all  the  ancillary  agreements.   It  is  not  necessary  for  us  to  

examine  the  choice  of  forum or  legal  enforceability  of  legal  

system in the present case, as we find no repugnancy even  

where  the  main contract  is  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.

161. Reliance was also placed on the judgment of this Court in  

the case of  Deutsche Post Bank Home Finance Ltd. v. Taduri   

Sridhar  [AIR 2011  SC  1899] where  the  Court  had  declined  

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reference of multiple and multi party agreement.    That case is  

of no help to the appellant before us.    In that case, there were  

four parties, the seller of the land, the builder, purchaser of  

the flat and the bank.   The bank had signed an agreement  

with the purchaser of the flat to finance the flat, but it referred  

to other agreement stating that it would provide funds directly  

to the builder.    There was an agreement between the builder  

and the owner of the land and the purchaser of the land to sell  

the undivided share and that contained an arbitration clause.  

The question before the Court was whether while referring the  

disputes to the arbitration, the disputes between the bank on  

the one hand, and the purchaser of the flat on the other could  

be referred to arbitration.    The Court, in reference to Section  

8 of the 1996 Act, held that the bank was a non-party to the  

arbitration  agreement,  therefore,  neither  the  reference  was  

permissible  nor  they  could  be  impleaded  at  a  subsequent  

stage.     This judgment on facts has no application.    The  

distinction between Section 8 and Section 45 has elaborately  

been dealt with by us above and in view of that, we have no  

hesitation in holding that this judgment, on facts and law, is  

not applicable to the present case.

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162. Thus,  in view of  the above,  we hold that  the disputes  

referred to and arising from the multi-party agreements are  

capable  of  being referred  to  arbitral  tribunal  in  accordance  

with the agreement between the parties.

163. Another  argument  advanced  with  some  vehemence  on  

behalf of the appellant was that respondent Nos.3 and 4 were  

not party to any of the agreements entered into between the  

parties  and  their  cause  of  action  is  totally  different  and  

distinct, and their rights were controlled by the agreement of  

distribution  executed  by  respondent  Nos.1  and  2  in  their  

favour  for  distribution  of  products  of  gas  and  electro-

chlorination.   It was contended that there cannot be splitting  

of parties, splitting of cause of action and remedy by the Court.

164. On the other  hand,  it  was contended on behalf  of  the  

respondent No.1 that it is permissible to split cause of action,  

parties and disputes.   The mater referable to arbitration could  

be  segregated  from the  civil  action.   The  court  could  pass  

appropriate  orders  referring the  disputes covered under  the  

arbitration  agreement  between  the  signatory  party  to  

arbitration and proceed with the claim of respondent Nos. 3  

and 4 in accordance with law.

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165. As  far  as  this  question  of  law  is  concerned,  we  have  

already answered the same.   On facts, there is no occasion for  

us to deliberate on this issue, because respondent Nos. 3 and  

4 had already consented for arbitration.   In light of that fact,  

we do not  wish to  decide this  question on the facts  of  the  

present case.

166. Having dealt with all the relevant issues in law, now we  

would provide answer to the questions framed by us in the  

beginning of the judgment as follows :

Answer

167. Section 45 is a provision falling under Chapter I of Part II  

of the 1996 Act 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 arbitration provided  

they satisfy the pre-requisites under Sections 44 and 45 read  

with Schedule I.  Reference of non-signatory parties is neither  

unknown to arbitration jurisprudence nor is it impermissible.   

168. In the facts of a given case, the Court is always vested  

with  the  power  to  delete  the  name  of  the  parties  who  are  150

Page 151

neither  necessary  nor  proper  to  the  proceedings  before  the  

Court.   In  the  cases  of  group companies  or  where  various  

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 between signatory or  

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.   

169. Having  answered  these  questions,  we  do  not  see  any  

reason to interfere with the judgment of the Division Bench of  

the  Bombay  High Court  under  appeal.    We  direct  all  the  

disputes arise in the suit and from the agreement between the  

parties to be referred to arbitral  tribunal and be decided in  

accordance with the Rules of ICC.     

170. The appeals are dismissed.  However,  in the facts and  

circumstances of the present case, we do not award costs.

….………….....................CJI.

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                            (S.H. Kapadia)

…….………….....................J.                                                     (A.K. Patnaik)

...….………….....................J.                                                     (Swatanter Kumar)

New Delhi; September 28, 2012

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IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7134 OF 2012

     (arising out of SLP(C)No. 8950 of 2010)

Chloro Controls (I) P.Ltd. ... Appellant

Versus

Severn Trent Water Purification Inc. & Ors. ...Respondents

WITH

CIVIL APPEAL NOS. 7135-7136  OF  2012

  (Arising out of SLP(C)Nos. 26514-26515 of 2011)

       O R D E R

Upon pronouncement of the judgment  Mr. F.S.  

Nariman,  learned  senior  counsel  appearing  for  the  

petitioner, mentioned that the petitioner had filed an  

application for injunction in the suit before the High  

Court. The same was dismissed. Appeal against the order  

dismissing the application had been filed before this  

Court and was ordered to be listed along with SLP (C)  

No. 8950 of 2010 (which is an appeal against the order  

of  the  High  Court  making  reference  to  arbitral  

tribunal).  However, the Court had not heard arguments  

on that appeal.

Learned  senior  counsel  appearing  for  the  

respondents, Mr. K.V. Vishwanathan,  submitted that the  

special leave petitions were listed but they were not  

admitted.

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-2-

In  view  of  the  common  stand  taken  by  the  

counsel for the parties, we permit the petitioner to  

move an independent application praying for hearing for  

those special leave petitions i.e. SLP(C)Nos.26514-26515  

of 2011 (listed along with SLP(C)No. 8950/2010) pending  

for admission.

..............CJI (S.H.Kapadia)

................J. (A.K.Patnaik)

................J. (Swatanter Kumar)

New Delhi;

September 28, 2012.

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