Arbitration Agreement Executed By Joint Venture Can’t Be Invoked By Its Constituents: Patna High Court

While dealing with a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) seeking appointment of arbitrator, the bench of Chief Justice K. Vinod Chandran held that only the Joint Venture, being a separate legal entity and a party to the arbitration agreement, could invoke arbitration and not the petitioner, who was only one of the constituents of the said Joint Venture.

The bench dismissed the contention of the petitioner that since the other constituent of the Joint Venture had executed a power of attorney, authorizing the Director of the petitioner-company to initiate arbitration with respect to the disputes between the contracting parties, the petition must be allowed.

The court remarked that when two parties come together to float a Joint Venture, which has a distinct legal entity, then further authorization to represent such a Joint Venture has to be made by the Joint Venture itself, according to the terms of its constitution.

A Joint Venture, consisting of the petitioner, M/s REW Contracts Pvt Ltd, and M/s A.K. Das Associates Ltd, executed certain contracts with the respondent- Bihar State Power Transmission Co. Ltd. After certain disputes arose under the contracts, the petitioner invoked the arbitration clause and filed a petition under Section 11 of the A&C Act before the Patna High Court.

The respondent, Bihar State Power Transmission, contended before the court that since only the Joint Venture was a party to the agreement, it alone could invoke the arbitration clause and not the petitioner, who was only one of the constituents of the Joint Venture.

The court observed that the contracts were executed between the respondent-company and the Joint Venture, comprising M/s A.K. Das Associates, who was the lead partner of the Joint Venture, and the petitioner, M/s REW Contracts.

While reckoning that it was not the Joint Venture who had initiated the arbitration request, the court held that one of the constituents of the Joint Venture cannot be considered as a ‘party’ to the agreement enabling such ‘party’ to make a request for arbitration.

Referring to the Apex Court’s decision in New Horizons Ltd. vs Union of India, (1995) 1 SCC 478, the court held that a joint venture has been conferred with the status of a separate legal entity, distinct from its constituents who come together to form it.

While observing that the said Joint Venture was a party to the arbitration agreement as a separate legal entity, the court concluded that M/s REW Contracts, who was one of its constituents, cannot be considered as a party to the arbitration agreement.

To this, the petitioner, M/s REW Contracts, contended that the other constituent of the Joint Venture, M/s A.K. Das Associates, had executed a power of attorney authorizing the Director of the petitioner-company, to do every act with respect to the contract executed between the Joint Venture and the respondent. The said power of attorney also conferred power on the Director to initiate arbitration for settling disputes for and on behalf of the Joint Venture, the petitioner submitted.

The court observed that the power was conferred by the other constituent of the Joint Venture, M/s A.K Das Associates, on an individual, who is the Director of the petitioner, and not on the petitioner itself, who sought appointment of the arbitrator.

The bench further observed that in its petition, M/s REW Contracts was represent by an individual, authorized to represent it vide a resolution, who was different from the power holder of M/s A.K Das Associates.

The court also took note that the said power of attorney or the resolution was not executed/ passed by the Joint Venture. The bench thus concluded that the petitioner did not have the authorization to represent the Joint Venture.

Referring to the facts of the case, the bench remarked, “When two parties come together to float a JV, which as the Hon’ble Supreme Court held, has a distinct and definite status of a legal entity, then the further authorization to represent such JV has to be made by the JV according to the terms of its constitution; which is totally absent in the present case. M/s. A.K. Das Associates Ltd. is also the lead partner of the JV, who is not effectively represented in this request; nor is the JV, having a legal status, represented here.”

“The arbitration request hence has to be rejected on the ground of the requester being not a party to the agreement. However, this would not affect the rights of the JV to seek for arbitration, subject to just exceptions,” said the court

The court thus dismissed the petition.

Case Title: M/s REW Contracts Pvt Ltd vs Bihar State Power Transmission Co Ltd & Anr.

Dated: 12.04.2023

Counsel for the Petitioner: Mr. Ankit Katriar

Counsel for the Respondent: Mr. Anand Kumar Ojha

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