Composite Reference To Arbitration Necessary When Dispute Involves Same Subject Matter: Calcutta High Court
The Calcutta High Court bench of Justice Sabyasachi Bhattacharyya has held allowed composite reference of two companies to arbitration noting that the two arbitration agreement refer to the self-same demised property. Moreover, it noted that both the agreements were entered into by the same proposed lessee with two co-owners of the self-same property. The bench held...
The Calcutta High Court bench of Justice Sabyasachi Bhattacharyya has held allowed composite reference of two companies to arbitration noting that the two arbitration agreement refer to the self-same demised property. Moreover, it noted that both the agreements were entered into by the same proposed lessee with two co-owners of the self-same property.
The bench held that:
“if two different references were to be made, there would be ample scope of conflict of decision pertaining to the self-same subject matter between the co-owners of the self-same property.”
Brief Facts:
K2V2 Hospitality LLP (Petitioner) entered into two different lease agreements with Respondent nos. 1 and 2 companies. These two lease agreements referred to the tenancy being granted in respect of the same property. The Petitioner's argued that Respondent nos. 1 and 2 are co-owners of the property which required two separate agreements. Despite this, it was contended that the arbitration clauses in both agreements were identical. It further argued that the agreements arose from the same transaction which made a composite reference to arbitration legally tenable. Additionally, the directors of the two companies were impleaded in the application as they were signatories to both agreements. It was also contended that the documents did not contemplate an immediate grant of lease and thus were not compulsorily registrable. Therefore, it approached the High Court for appointment of arbitrator.
The Respondents contended that the application was flawed as Respondent nos. 3 and 4 who are directors of the respective companies (Respondent nos. 1 and 2), were not parties to the arbitration agreement and thus could not be included in the arbitration reference. It argued that the disputes arose from two distinct and separate agreements between the Petitioner and two separate companies which make it impossible to club them together for a composite arbitration reference.
Observations by the High Court:
The High Court observed that misjoinder of parties may lead to superfluity but does not affect the maintainability of an application. Thus, even if Respondent nos. 3 and 4 were not necessary parties, it held that their inclusion does not vitiate the application as a whole. However, the High Court held that Respondent nos. 3 and 4 cannot be necessary parties to the arbitration in their independent capacities but can be referred to only as authorized representatives of Respondent nos. 1 and 2. As the application depicted them as representatives and directors of Respondent nos. 1 and 2, the High Court held the reference as being against the companies not the individuals.
The High Court then addressed the Respondents' contention that the composite reference sought by the Petitioner was not maintainable due to the existence of two distinct agreements with separate arbitration clauses. The High Court referred to the Supreme Court's judgment in R.R. Shah, Shares and Stock Brokers Private Limited vs. B.H.H. Securities Private Limited and Others where the Supreme Court allowed for joint arbitration against multiple parties when there are separate arbitration agreements.
Additionally, the High Court referred to ONGC Limited v. Discovery Enterprises Private Limited which outlines factors to determine if a non-signatory company within a group could be bound by an arbitration agreement. Such factors include mutual intent of the parties, relationship of a non-signatory to a party which is a signatory to the agreement, the commonality of the subject matter, composite nature of the transaction and performance of the contract.
The High Court held that the tests from ONGC were satisfied as Respondent nos. 1 and 2, though separate entities co-owned the same property.
The High Court observed that both agreements described the same space, measuring about 10,430 square feet, and had identical property descriptions. Despite the separate agreements, the co-ownership nature of the property created inseparable and intertwined rights, making it necessary for a composite reference to avoid conflicting decisions. The High Court held that a composite reference was required to satisfy both legal and equitable considerations.
Therefore, the High Court appointed Deblina Lahiri as the sole arbitrator to resolve the disputes.
Case Title: K2V2 Hospitality Llp Vs Limton Electro Optics Pvt. Ltd. And Ors.
Case Number: AP/472/2023
Advocate for the Petitioner: Mr. Dhiraj Trivedi, Adv. Mr. Bikash Kumar Singh, Adv. Mr.Sunil Gupta, Adv.
Advocate for the Respondent: Mr. Sourajit Dasgupta, Adv. Mr. Ashis Kr. Mukherjee, Adv. Mr. Sourabh Prasad, Adv.
Date of Judgment: AP/472/2023