Composite Reference May Be Made When Two Contracts Are So Intertwined That Separate Arbitral Proceedings Would Prejudice Parties: Calcutta HC

Brief Facts

The present application under Section 11 of the Arbitration and Conciliation Act, 1996 arises out of a dispute pertaining to two different agreements between the parties. The first agreement, being a leave and licence agreement, was entered into between the petitioner no.2, a company, and the respondent with regard to a particular property.

The second agreement, which is a service agreement, was also entered into on the same day i.e., on July 18, 2023 between the respondent and the petitioner no.1, who is the wife of one of the erstwhile directors of the petitioner no.2 and also herself a director of the petitioner no.2 company.

A composite reference of both these agreements is sought by the petitioner.

Contentions

The respondents submitted that for there to be a composite reference, a common goal or objective is required to be achieved by both the agreements.

• That there has to be a parent or superior agreement and an ancillary agreement. The parent agreement has to carry the ancillary agreement in order to achieve the self-same goal for there to be a composite reference. In the absence of any such factual component in the present case, since the service agreement and the leave and licence agreement operate in different fields, there cannot be any composite reference as sought by the petitioner.
• That in the present case, there is no singular work process or any other objective to which the two different agreements can be connected to.
• Reliance was placed on the judgment of the Calcutta High Court in Ganapati Technology Services P. Ltd. Vs. State Fisheries Development Corporation Ltd. (2021) wherein it was held that the concerned arbitration agreement or the mother agreement should be comprehensive enough to bring within its fold agreements ancillary to the mother agreement so that the disputes arising out of or in connection with the mother agreement or the ancillary agreement can be settled by a composite reference.

Per contra, the petitioner submitted that the service agreement itself, in Clause 4, mentions that it is expressly agreed and understood by and between the parties that the agreement shall be co-terminus and concurrent with the leave and licence agreement and in the event the leave and licence agreement is terminated for any reason whatsoever, the service agreement shall automatically stand terminated without any notice of such termination being required to be given by either party thereto and vice versa.

• That in the present case, the situation being that the petitioners have common claims against the respondent under two separate contracts which, however, are intertwined with each other therefore composite reference should be made.

Court's Analysis

The court, at the outset, referred to the observation of the Learned Single Judge in Ganapati Technology (Supra) and observed that the facts of this case are akin to the third limb as discussed in paragraph 21 of which envisages two or more contracts which are so intertwined with each other so as to prejudice the parties should separate arbitrations be held.

Based on the above law, the court perused the relevant clauses in the agreements and observed that conspicuously, in Clauses 2 and 3 of the service agreement itself, it is clearly stipulated that the services under the said agreement are to be provided at the licenced premises. The service agreement, in several places, relates back to the leave and licence and connects itself with providing service in respect of the licenced premises only.

The court further observed that importantly, Clause 4 of the service agreement also provides that the same is co-terminus and concurrent with the leave and licence agreement and shall stand automatically terminated without any notice on the termination of the leave and licence agreement. Again, the leave and licence agreement provides several rights to be enjoyed by the respondent in respect of the premises for which the service agreement provides services.

The court further noted that thus, there can be fourth situation than that envisaged in the cited decisions where although both the agreements may not achieve a common goal or objective as such, the underlying jural relationship, which is the common platform of both the agreements, may be the same.

Based on the above, the court further observed that in the present case, the jural relationship (licensor-licensee) created between the respondent on the one hand and the petitioners separately on the other pertain to enjoyment of the self-same premises. Thus, the common underlying jural relationship vis-àvis the property between the parties is the unifying factor which juxtaposes the rights flowing from the two agreements.

The court agreed with the contentions of the petitioner and observed that I find that in the event there is a separate reference to arbitration with regard to the two agreements, where the set of transactions and the developments leading to the disputes would be common, there is ample scope of unnecessary multiplicity of proceedings and a conflict of awards, which ultimately would not enure to the benefit of either party.

Accordingly, the present application was allowed.

Case Title: SMT SONIA DHIR AND ANR. VS PRESTAR INFRASTRUCTURE PROJECTS LIMITED

Citation : AP/179/2024

Judgment Date: 8/10/2024

Appearance For The Petitioners: Mr. Harsh Tiwari, Adv. Mr. Bhupendra Gupta, Adv. Mr. Hamidul Haque, Adv. Mr. Prithish Chandra, Adv

Appearance For The For The Respondent:Mr. Patita Paban Bishwal, Adv. Mr. Aritra Basu, Adv. Ms. Sohini Dey,Adv.