Parties Cannot Be Referred To Arbitration In Absence Of Privity Of Contract: Telangana High Court

The Single Bench of Justice Ujjal Bhuyan held that the word 'party' under the Arbitration and Conciliation Act, 1996 (A&C Act) has been given a definite meaning with respect to an arbitration agreement. The Court added that only the disputes between the signatories to an arbitration agreement can be referred to arbitration and a third party cannot be roped into arbitration in the absence of privity of contract.

The Telangana State Road Transport Corporation (TSRTC) invited tenders for supplying buses on hire basis. The applicant Gagiri Hari Krishna submitted tender for supply of buses and its bid was declared successful. The applicant purchased vehicles from the respondent no. 1 M/s Jasper Industries Pvt Ltd, the authorized dealer of Tata vehicles in Hyderabad. The respondent Jasper Industries issued separate tax invoices for each of the vehicles purchased by the applicant. After several defects in the vehicles were noticed by the applicant, the applicant addressed the issues faced by it before the respondent no. 1 and the respondent no. 2 - M/s. Tata Motors Limited, being the manufacturer of Tata vehicles. Due to the said defects the applicant could not ply the buses, and ultimately the TSRTC issued termination notice to the applicant for non-operation of the vehicles by the applicant.

The applicant issued a legal notice to the respondents for compensating the applicant for the loss incurred by it. The applicant also invoked the arbitration clause as per the tax invoices issued by the dealer of the vehicles, i.e., the respondent no. 1, and nominated an arbitrator.

Thereafter, the applicant filed an application under Section 11 (6) of the A&C Act before the Telangana High Court for appointment of an arbitrator to arbitrate the dispute between the parties.

The respondent no. 1 Jasper Industries submitted before the High Court that it was only a dealer of the said vehicles that were manufactured by the respondent no. 2 M/s. Tata Motors, and that apart from being a dealer, it only provided servicing facilities and played the role of a delivery agent, and thus it was only an intermediary. The respondent no. 1 contended that the contract between it and the applicant was only in respect of pricing and delivery of the vehicle, and the tax invoices issued by the respondent no.1 only contained the terms and conditions of the limited contract entered into between them. The respondent no. 1 averred that since the grievance of the applicant was with respect to the alleged manufacturing defects, the respondent no.1 being only a dealer had no role to play in the dispute raised by the applicant. The respondent no. 1 thus contended that there was no dispute between it and the applicant which arose out of the tax invoices and which could be referred to arbitration.

The respondent no. 2 Tata Motors submitted before the High Court that there is no arbitration agreement between the applicant and the respondent no. 2 as contemplated under Section 7 of the A&C Act. Tata Motors contended that once the vehicle was sold by it to the dealer, i.e., the respondent no. 1, the transaction between them was completed, and any subsequent transaction of sale by the respondent no. 1 as a dealer and purchase of the said vehicle by the applicant was an independent contract of sale and purchase. Thus, Tata Motors contended that there was no privity of contract between the applicant and Tata Motors.

The High Court noticed that under Section 7 (1) of the A&C Act, an 'arbitration agreement' has been defined as an agreement by the parties to submit disputes between them in respect of a defined legal relationship to arbitration. The Court observed that the word 'party' has been defined in Section 2 (1) (h) of the A&C Act as a party to an arbitration agreement.

The High Court thus ruled that the word 'party' or 'parties' has been given a definite meaning so far an arbitration agreement is concerned, and that an agreement or a document would be an arbitration agreement only when it is signed by the given parties.

The High Court held that the applicant sought to invoke arbitration proceedings on the basis of the tax invoices issued by the respondent no. 1, which had been signed by the applicant and respondent no. 1. The Court ruled that only the disputes between the signatories to the tax invoices could be referred to arbitration.

The Court ruled that since only the applicant and the respondent no. 1 were signatories to the tax invoice and not the respondent no. 2, thus there was no privity of contract between the applicant and the respondent no. 2 Tata Motors.

The Court added that since the grievance of the applicant pertained to the alleged manufacturing defect of the vehicles, there was no arbitrable dispute between the applicant and respondent no.1, since it was merely a dealer. The Court added that roping in respondent no. 2 Tata Motors to arbitration on the strength of the tax invoices signed by the applicant and the respondent no. 1 would be beyond the terms and conditions of the said tax invoices.

The Court thus ruled that the dispute raised by the applicant alleging manufacturing defects by the respondent no. 2 Tata Motors did not pertain to the respondent no. 1, who was only a dealer of the said vehicles. The Court added that in the absence of any contract between applicant and respondent no. 2, the parties could not be referred to arbitration.

The High Court thus dismissed the application of the applicant.

Case Title: Gagiri Hari Krishna versus M/s Jasper Industries Pvt Ltd

Dated: 06.04.2022 (Telangana High Court)

Citation: 2022 LiveLaw (Tel) 32 

Counsel for the Petitioner: Mr. Keerthi Arun Kumar

Counsel for the Respondent: M/S Indus Law Firm

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