Claims Related To Company Are Arbitrable Even Though It Is Non-Signatory To Arbitration Agreement, Delhi High Court Reinforces GOC Doctrine
The Delhi High Court bench comprising Justice Pratibha M. Singh held that the disagreements related to the partners' business activities, whether conducted through the firm or the company, fall within the scope of arbitrable matters. The bench rejected the argument that the firm or the company cannot be brought forth in the arbitration proceedings since neither the firm nor the company...
The Delhi High Court bench comprising Justice Pratibha M. Singh held that the disagreements related to the partners' business activities, whether conducted through the firm or the company, fall within the scope of arbitrable matters. The bench rejected the argument that the firm or the company cannot be brought forth in the arbitration proceedings since neither the firm nor the company are signatories to the arbitration agreement. It referred to the Supreme Court decision in Cox and Kings Ltd. v. SAP India Pvt. Ltd. and held that common business ventures of the partners, whether conducted through the firm or the Company, fell within the purview of the arbitration clause.
Brief Facts:
A partnership agreement was entered with the intention to conduct various business activities, including trading, import, and export of books, under the name M/s Opuskart Enterprises (“Company”). The partnership commenced on June 27, 2016, and remained in force, with the respective shares of the partners (“Petitioners) of the Company detailed in the agreement. Paragraph 12 of the partnership deed mandated partners to act justly, provide accurate accounts and information to each other, and settle personal debts independently.
The Petitioners alleged that Mr. Kaushal Kishore Tyagi (“Respondent”), a partner, misappropriated funds from the firm. Initially, a notice was sent to the Respondent claiming Rs. 60,50,000. Respondent disputed the allegations. Thereafter, the Petitioners invoked the arbitration clause for resolution of the dispute. The Petitioners increased the claims to Rs. 3.88 crores for arbitration. The Respondent didn't reply to the notice. Aggrieved by the same, the Petitioners filed an application Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) for the appointment of an arbitrator in the Delhi High Court (“High Court”).
The Petitioner raised several objections to the Respondent's reply. Firstly, it was contended that the reference to the Indian Arbitration Act, 1940, in clause 16 of the partnership deed does not invalidate the arbitration agreement. Secondly, they asserted that the absence of stamping on the arbitration agreement does not preclude arbitration as a form of dispute resolution. Thirdly, they maintained that discrepancies in claimed amounts between the initial notice and the arbitration notice do not impede arbitration. Fourthly, they argued that claims regarding the Company's affairs are arbitrable due to the intertwined nature of the firm and the company's operations.
In contrast, the Respondent raised two primary objections. Firstly, he argued that claims concerning the firm or the Company cannot be part of the arbitration proceedings as neither entity was a party to the arbitration agreement. Secondly, he argued that amounts related to the Company's accounts are not arbitrable, and since the firm is not a party to the arbitration agreement.
Observations by the High Court:
Upon examining the partnership deed, the High Court noted that the parties intended to engage in various business activities, notably trading, import, and export of books. Clause 16 of the partnership deed, which serves as the arbitration clause, was sufficiently broad, encompassing disputes concerning the interpretation, meaning, and effect of the deed, as well as accounting matters, business operations, and partners' rights and liabilities. Given this expansive language, the High Court held that disputes arising from the common business ventures of the partners, whether conducted through the firm or the Company, fell within the purview of the arbitration clause.
Further, the High Court held that the Respondent's response to the legal notice further corroborates the intertwined nature of the firm and the Company's businesses. The High Court referred to the decision of the Supreme Court decision in Cox and Kings Ltd. v. SAP India Pvt. Ltd. [2023 LiveLaw (SC) 1042] and held that non-signatory affiliates can be a party to an arbitration agreement if mutual intention exists among the signatories and non-signatories. The High Court held that since the business by the partners is being conducted both through the firm and by the Company, the disputes raised would be arbitrable.
The High Court allowed the petition and appointed Justice V.K. Jain (Retired) as sole arbitrator for the dispute.
Case Title: M/s Opuskart Enterprises & Ors vs Kaushal Kishore Tyagi
Citation: 2024 LiveLaw (Del) 141
Case Number: ARB.P. 134/2023
Advocate for the Petitioners: Mr Shyam Kumar and Ms Iqra Khan
Advocate for the Respondent: Mr. Suhail Sehgal and Mr. Prashant Drolia