If Head Of The Families Are Parties To Arbitration Agreement And Others Have Signed, All Are Bound By Arbitration Clause: Delhi High Court

The bench of Justice Navin Chawla held that a party appending its signature of an MoU is bound by the terms and conditions of such an agreement, including the arbitration agreement. It held that a party cannot escape the agreement merely on the ground that it was not expressly made a party under the agreement.

The Court also reiterated that the scope of judicial examination under Section 8 of the A&C Act is limited to taking a prima facie view and the Court would be bound to refer the parties to arbitration when the arbitration agreement is found to exist. Moreover, the Court reiterated that the issue of limitation is a mixed question of law and facts, therefore, must be left to be decided by the arbitrator unless claims are ex-facie barred by limitation.

The Court further held that the reference would be governed by the amended Section 8 of the A&C Act when the suit was filed after the 2015 amendment came into effect and a party claiming under the party to arbitration agreement would be referred to arbitration.

Facts

The dispute pertains to division of family properties jointly held by the members of the joint family consisting of two groups with Defendant No. 1 and Defendant No. 3 as their heads. The differences had emerged between defendant no.3 and defendant no.1, leading to discussions and meetings involving family members, relatives, and mutual friends. In November 2014 an Agreement was reached among the parties. This Agreement was documented in a Memorandum of Understanding (MoU) and was signed by both defendant no.3 and defendant no.1. To demonstrate unanimous family agreement, various other family members, including the plaintiff, had endorsed the MoU by signing every page and annexure.

While the MoU was partially acted upon by the parties, defendant no.1 subsequently failed to adhere to its terms. Consequently, defendant no.3 invoked the Arbitration Agreement within the MoU through a notice dated 23.09.2015. Defendant no.3 then filed a Petition under Section 11 of the Act which was allowed by the and the parties were referred the dispute between the defendant no. 1 and defendant no. 3 to arbitration.

However, the plaintiff had filed a suit against the defendants alleging that the MoU is null and void. It was asserted that through the MoU, the defendants seek to divest and divide the self-acquired properties of the plaintiff and that the plaintiff was neither a member to the MoU nor it has appended its signatures to the same. In this suit, the defendant nos. 3-6 filed an application under Section 8 of the A&C Act asserting that the MoU is binding on the plaintiff and the dispute arising out of the MoU are to be referred to arbitration.

Contention of the Parties

Applicant/Defendant Nos. 3-6 sought the reference of the dispute to arbitration on the following grounds:

• The plaintiff, having signed the MoU, is bound by the arbitration remedy. The present suit, it was argued, lacks maintainability due to the existence of the Arbitration Agreement.
• Referring to the MoU's contents, it was highlighted that defendant no. 1 signed on behalf of themselves and their family, including the plaintiff. The applicants contended that the plaintiff's acceptance of the MoU binds them to its terms, including the Arbitration Agreement. The plaintiff's attempts to cast doubt on the signatures were noted as vague, and the court's previous decision affirmed the signatures.
• Drawing upon legal precedent, including cases such as Bihar State Electricity Board Patna v. Green Rubber Industries (1990) 1 SCC 731 and Orma Impex Pvt. Ltd. v. Nissai Asb Pte. Ltd. (1999) 2 SCC 541, the applicants argued that signing a document with contractual terms binds the signer even if they claim ignorance of the legal consequences.
• The applicants invoked the Supreme Court's ruling in Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1 and National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd. (2009) 1 SCC 267, contending that issues of contract formation, existence, validity, and non-arbitrability are intertwined with the merits of disputes, making them fit for arbitration.
• It was further urged that the plaintiff has made a very evasive denial of its signature on the MoU, therefore, it has failed to bring home the allegations pertaining to fraud.

The plaintiff made the following submissions against the application:

• The plaintiff relied on Bihar State Mineral Development Corporation v. ENCON Builder (I)(P) Ltd. (2003) 7 SCC 418, contesting that signing the MoU doesn't make the plaintiff an Arbitration Agreement party.
• The MoU is governed by the pre-amendment Act, therefore, it only binds the parties to arbitration.
• They highlighted the plaintiff's denial of signing the MoU and raised questions of fraud, asserting these must be addressed by the court, not arbitration
• The counsel contended that the plaintiff's non-consent to the MoU renders it voidable, exercised through the current suit, releasing them from the Arbitration Agreement.

Analysis by the Court

The Court observed that the MoU was executed between the defendant no. 1 and the defendant no. 3, the husband and the brother-in-law of the plaintiff respectively. It was further observed that the purpose of the MoU was the diversion of the properties held by the members of both the families and the individual members of both the families had appended their signatures on each page of the MoU.

The Court also observed that the allegations regarding fraud, non-signatory were already considered and rejected by a coordinate bench in Section 11 petition preferred by the defendant no. 3.

The Court held that all the members of the families would be bound by the terms and conditions of a settlement agreement executed between the heads of the two branches of families if they have signed the said agreement that pertains to the properties owned by them.

It held that a party appending its signature of an MoU is bound by the terms and conditions of such an agreement, including the arbitration agreement. It held that a party cannot escape the agreement merely on the ground that it was not expressly made a party under the agreement.

The Court also reiterated that the scope of judicial examination under Section 8 of the A&C Act is limited to taking a prima facie view and the Court would be bound to refer the parties to arbitration when the arbitration agreement is found to exist. Moreover, the Court reiterated that the issue of limitation is a mixed question of law and facts, therefore, must be left to be decided by the arbitrator unless claims are ex-facie barred by limitation.

The Court further held that the reference would be governed by the amended Section 8 of the A&C Act when the suit was filed after the 2015 amendment came into effect and a party claiming under the party to arbitration agreement would be referred to arbitration.

Accordingly, the Court allowed the application and referred the parties to arbitration. The Court further imposed a cost of Rs. 2 lacs on the plaintiff.

Case Title: Mrs. Vinnu Goel v. Mr. Santosh Goes and Ors

Citation: 2023 LiveLaw (Del) 678

Date: 08.08.2023

Counsel for the Plaintiff: Ms.Kanika Agnihotri, Mr.Rohan Anand, Mr.Shaurya Rohit, Advs.

Counsel for the Applicants/Defendants: Mr.Gurmehar S.Sistani, Adv. for D-1 & 7. Mr.Ajay Verma, Sr. Adv. with Mr.Ishaan Verma, Ms.Diviani K.Verma, Mr.Armaan Verma, Advs. for D-3 to 6

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