Full Text
CIVIL APPELLATE JURISDICTION
ARBITRATION PETITION NO. 221 OF 2023
Ravindra Eknath Kumavat .… Petitioner
Vs.
M/s. Future Development
Construction Company & 8 Ors. .. Respondents
Mr. Hemant Ghadigaonkar, for Petitioner.
Mr. Prathamesh Bhargude, for Respondent Nos. 1, 2, 3 and 5.
Mr. Sugandh Deshmukh, for Respondent Nos. 4, 6 and 7.
None for Respondent Nos. 8 and 9
Context and Background:
JUDGMENT
1. This Petition has been filed under Section 11 of the Arbitration and Conciliation Act, 1996 (“the Act”) seeking a reference to arbitration, of disputes and differences purporting to arise from a Memorandum of Understanding dated February 24, 2022 (“MoU”). The arbitration agreement is contained in Clause 12 (found at Page Nos. 64 and 65 of the Petition). In the interest of brevity, the arbitration agreement is not being extracted here. Suffice it to say that this matter falls within the jurisdiction of this Court July 2, 2025
2. It is apparent from the record that the arbitration agreement was invoked by the Petitioner on September 2, 2023. The MoU related to sale of certain property held by the Petitioner in favour of the Respondents (other than Respondent Nos. 1, 2, 3 and 5) who are parties to the MoU. The MoU contains an arbitration agreement. The Petitioner contends that obligations contained in the MoU need to be performed and it entails consideration of value of Rs. 60 Lakhs per acre for the land covered by the MoU.
3. Multiple Sale Deeds were executed between May 16, 2023 and May 18,
2023. The land covered by these Sale Deeds was the very land referred to in the MoU. Some of the Sale Deeds are also with parties who are not signatories to the MoU – these are Respondent Nos. 1 2, 3 and 5. The dispute appears to be over the amounts payable for the land sold.
4. The primary objection on behalf of the signatory Respondents (Respondent Nos. 4, 6 and 7), as indeed the non-signatory Respondents (Respondent Nos. 1, 2, 3 and 5), is that the MoU came to be cancelled by a Cancellation Deed dated May 18, 2023. Incidentally, this date is two days after the date of execution of the multiple Sale Deeds i.e. on May 16, 2023. The MoU appears to have cancelled after completion of the transactions in relation to transfer of land that was subject matter of the MoU.
5. The upshot of the reliance on the Cancellation Deed placed by Learned Counsel for the Respondents who are present today is that once the MoU is cancelled, the arbitration agreement contained therein also stands cancelled. Therefore, within the limited scope of jurisdiction of this Court under Section 11(6A) of the Act, it is submitted that the arbitration agreement does not exist.
6. The Petitioner contests the validity of the Cancellation Deed dated May 18, 2023. According to the Petitioner, this deed was not executed by him and it has been fabricated by the Respondents. This is strongly objected to by Learned Counsel for the Respondents, who point to the stamp paper having been bought in the name of the Petitioner. They also submit that the Petitioner has signed every page of the said Cancellation Deed. Analysis and Findings:
7. Having heard Learned Counsel for the parties, it is apparent that MoU in question entails transfer of certain lands. All of that very land came to be transferred by way of multiple Sale Deeds variously between May 16, 2023 and May 18, 2023. The Cancellation Deed is, therefore, executed contemporaneously with the completion of execution of the Sale Deeds. Doubts are sought to be raised about the veracity of the Cancellation Deed. This would be a matter of evidence that would need to be examined. The Section 11 Court ought to have the discipline of not to be drawn into seemingly convincing or unconvincing arguments about the veracity of documents that parties may present, in the hope that reference to arbitration need not be made. Whether the dispute is arbitrable is a matter squarely in the domain of the arbitral tribunal.
8. In the past, Courts may have stretched their examination even when exercising the jurisdiction under Section 11 of the Act, to try and consider whether to send parties to arbitration at all, if they feel that doubts being raised appear valid – for example, claims about the underlying dispute being time-barred or that parties have confirmation of discharge of their obligations or have executed cancellation instruments, and other such circumstances.
9. However, it has now been comprehensively declared by the Supreme Court that the real import of Section 11(6A) of the Act must be adhered to with strict discipline by the Section 11 Courts. If the formally executed agreement is in existence, existential questions of substance of the agreement must necessarily be left to the arbitral tribunal.
10. The scope of review under Section 11 is explicitly set out in Section 11(6A) of the Act. It is now trite law, with particular regard to the decisions of a seven-judge bench in the Interplay Judgement[1] followed by multiple others, including SBI General[2] and Patel[3] that the Section 11 Court ought not to venture beyond examining the existence of a validly existing arbitration agreement that has been formally executed. Even questions of existential substance is a matter that falls squarely in the domain of the arbitral tribunal, in view of Section 16 of the Act.
11. In the facts of the case, having heard the parties, it is apparent that the land covered by the MoU is the land covered by the Sale Deeds. The Sale Deeds indeed were executed substantially with most of the signatory- Respondents. Certain Sale Deeds are executed with the non-signatory Respondents, but the land conveyed under such Sale Deeds is the land referred to in the MoU. It stands to reason that if land covered by the MoU is, in fact, transferred to an unconnected third party, the parties to the MoU would have objected to the same on the ground that the land meant to be sold to them under the MoU ought not to be sold to third parties. If they did not protest, it could well follow that the third parties who are the non-signatory In Re: Interplay Between Arbitration Agreements Under Arbitration and Conciliation Act, 1996 & Stamp Act, 1899 – (2024) 6 SCC 1 SBI General Insurance Co. Ltd. v. Krish Spinning – 2024 SCC OnLine SC 1754 Ajay Madhusudan Patel v. Jyotrindra S. Patel – 2024 SCC OnLine SC 2597 Respondents have connections with the signatory-Respondents or have executed the Sale Deeds at the pleasure of the signatory-Respondents. They cannot be regarded as complete strangers to the transactions contemplated in the MoU. All these are matters of evidence that the Section 11 Court cannot go into. Suffice it to say, a prima facie case for making the non-signatory Respondents a party to the arbitration proceedings has been made. Now, it is for the arbitral tribunal to consider the matter further on merits, including deciding on jurisdiction over such parties, if they apply under Section 16 of the Act.
12. Whether the rates at which the Sale Deeds were contracted were materially different from the MoU, or whether other consideration flowed among the parties, and whether there are inter-linkages in the conveyance of the very same land, are all matters of fact and evidence which will need to be gone into, but only by the arbitral tribunal. Consequently, prima facie looking at the mere existence of the arbitration agreement in the MoU, and the fact that none of the Respondents had a quarrel about the MoU being violated by sales to parties outside of the MoU, and in fact, the cancellation of the MoU being given effect contemporaneous with execution of all the Sale Deeds, a pattern of relevance of the non-signatory Respondents to the arbitration proceedings has been made out. It is also trite law that the mere termination of an agreement cannot bring an end to the arbitration agreement contained therein. The arbitration clause in any agreement would always survive the termination. In these circumstances, having heard Learned Counsel for the parties, I am not satisfied that a case has been made out for holding up this Petition any further.
13. Learned Counsel for the non-signatory Respondents draws my attention to paragraph 83 in Patel[4]. The same is extracted for ease of reference:
83. It is evident that the intention of the parties to be bound by an arbitration agreement can be gauged from the circumstances that surround the participation of the non-signatory party in the negotiation, performance, and termination of the underlying contract containing such an agreement. Further, when the conduct of the non-signatory is in harmony with the conduct of the others, it might lead the other party or parties to legitimately believe that the non-signatory was a veritable party to the contract containing the arbitration agreement. However, in order to infer consent of the non-signatory party, their involvement in the negotiation or performance of the contract must be positive, direct and substantial and not be merely incidental. Thus, the conduct of the nonsignatory party along with the other attending circumstances may lead the referral court to draw a legitimate inference that it is a veritable party to the arbitration agreement. (Emphasis supplied) Ajay Madhusudan Patel Vs. Jyotindra S. Patel, 2024 SCC OnLine SC 2597
14. A plain reading of the foregoing would show that one of the factors that needs to be taken into account is whether the conduct of the nonsignatory is in harmony with the conduct of the others. The Supreme Court has said that this might lead to the other party or parties to legitimately believe that the non-signatory was a veritable party to the wider transaction.
15. Without meaning to express a firm opinion on the merits, on the face of it, a prima facie view can be drawn that this standard stipulated by the Supreme Court in Patel appears to have been met with the strength that is adequate to allow this Petition by making a reference of the parties to arbitration.
16. In a recent judgement, in the case of Adavya Projects[5], the role of nonsignatories in arbitral proceedings was considered and elaborated further, also noting the law laid down in Cox and Kings[6] on third party involvement in arbitral proceedings. In the summary of conclusions, the Supreme Court inter alia held the following:
II. The purpose of an application under Section 11 is for the court to appoint an arbitrator, so as to enable dispute resolution through arbitration when the appointment procedure in the agreement fails. Adavya Projects (P) Ltd. v. Vishal Structurals (P) Ltd., 2025 SCC OnLine SC 806 Cox and Kings Ltd. Vs. SAP India Pvt. Ltd. (2024) 4 SCC 1 The court only undertakes a limited and prima facie examination into the existence of the arbitration agreement and its parties at this stage. Hence, merely because a court does not refer a certain party to arbitration in its order does not denude the jurisdiction of the arbitral tribunal from impleading them during the arbitral proceedings as the referral court's view does not finally determine this issue. (Emphasis supplied)
17. It would be seen from a plain reading of the foregoing that the Supreme Court has gone a step further to hold that even when a Court does not refer a certain third party to arbitration by expressing a prima facie case, it would not denude the arbitral tribunal of its jurisdiction to permit adding a non-signatory as a party subject to the standards stipulated for interconnectedness being discernable. Whether the conduct of a party is in accordance with, and apparently in pursuance of the agreement in question, is an existential fact that would need to be considered by the Arbitral Tribunal. This is the reason why I have no hesitation in allowing this Petition, referring the parties to arbitration.
18. Having said the foregoing, in the specific facts and circumstances of the case, the Arbitral Tribunal is requested to consider whether the absence of jurisdiction over the non-signatory Respondents should be treated as a preliminary issue. This Court must not direct any arbitral tribunal on how to conduct its proceedings and sequence the issues, and therefore the aforesaid sentence is merely a reminder that this is purely left to the arbitral tribunal should it find merit in framing this as a preliminary issue. It is clarified this is not a direction or a requirement expected from the Arbitral Tribunal. Should the Arbitral Tribunal desire to see more evidence and more demonstration of facts before deciding the issue of jurisdiction, it would be totally at liberty to do so.
19. With the aforesaid observations, this Petition is finally disposed of in the following terms: A) Mr. Kedar Dhongde, a learned advocate of this Court is hereby appointed as the Sole Arbitrator to adjudicate upon the disputes and differences between the parties arising out of and in connection with the MoU referred to above. The contact details of the Arbitrator is given below: Office Address:-C/o P Narayan and Associates, 67/2, Uberoi House, Karve Road, Nal Stop, Near Yezdi Showroom, Pune 4, Email ID: advdhongde@gmail.com B) A copy of this Order will be communicated to the Learned Sole Arbitrator by the Advocates for the Petitioner within a period of one week from the date of upload of this order on the website of this Court. The Petitioner shall provide the contact and communication particulars of the parties to the Arbitral Tribunal along with a copy of this Order; C) The Learned Sole Arbitrator is requested to forward the statutory Statement of Disclosure under Section 11(8) read with Section 12(1) of the Act to the parties within a period of two weeks from receipt of a copy of this Order; D) The parties shall appear before the Learned Sole Arbitrator on such date and at such place as indicated, to obtain appropriate directions with regard to conduct of the arbitration including fixing a schedule for pleadings, examination of witnesses, if any, schedule of hearings etc. At such meeting, the parties shall provide a valid and functional email address along with mobile and landline numbers of the respective Advocates of the parties to the Arbitral Tribunal. Communications to such email addresses shall constitute valid service of correspondence in connection with the arbitration; E) All arbitral costs and fees of the Arbitral Tribunal shall be borne by the parties equally in the first instance, and shall be subject to any final Award that may be passed by the Tribunal in relation to costs.
20. Needless to say, nothing contained in this order is an expression of an opinion on merits of the matter or the relative strength of the parties. All issues on merits are expressly kept open to be agitated before the arbitral tribunal appointed hereby.
21. All actions required to be taken pursuant to this order, shall be taken upon receipt of a downloaded copy as available on this Court’s website. [ SOMASEKHAR SUNDARESAN, J.]