Haryana State Cooperative Supply and Marketing Federation Limited v. M/S Indo Arya Logistics & Anr

1. The present petitions have been filed under Sections 11(3)and(4)of the Arbitration and Conciliation Act, 1996 [hereinafter, "the Act'^ seeking appointment of an Arbitrator for adjudication of disputes, arising out of a Registered Lease Deed dated 5"^ May,2015 [hereinafter, "Registered Lease Deeds"] executed between the lessor/Petitioner herein - Haryana State Cooperative Supply And Marketing Federation Limited [hereinafter, "HAFED"], and lessee/Respondent No. 1 - Indo Arya Logistics [hereinafter, "lAV] in relation to HAFED Warehouse, Inner Ring Road, Near Wazirpur, DTC Depot, Delhi [hereinafter, "Leased Premises"]. The Registered Lease Deed contains an arbitration clause,which reads as under: "4. ARBITRATION All disputes and difference arising out of or in any way touching upon or concerning this agreement of lease whatsoever shall be referred to the sole arbitration ofManaging Director, Tlafed or his nominee whose decision shall be final and binding on both theparties.

2. Before proceeding, it must be noted that though HAFED and Indo Arya Logistics are common parties to all the petitions. Respondents No.2 in each ofthe petitions are separate and distinct entities, which have apparently NAMITA DfTYANI ARB.P. 792/2021 and connected matters Page2of[9] 24.01.20H entered into separate, unregistered Lease Deeds with Indo Arya Logistics [hereinafter, '"Unregistered Lease Deeds''] and are presently in occupation of certain portion of the Leased Premises. For clarity's sake, a tabulation setting out such details ofeach petition is given below: Arb. Petition No. Petitioner Respondent No. 1 Respondent No.2 [hereinafter, collectively, "Sub-Lessees"] Date of Registered Lease Deed between Petitioner and Respondent No.I Date of Unregistered Lease Deed between Respondent No. I and Respondent No. 2 792/2021 HAFED M/s Indo Arya Logistics Focus Combine Marketing Pvt. Ltd. 5"'May,2015 ^ 20"'July,2016 794/2021 HAFED M/s Indo Arya Logistics Syscom Packaging Company 5"^ May,2015 B'" May,2015 795/2021 HAFED M/s Indo Arya Logistics Syscom Consumer Products Pvt. Ltd. 5"' May,2015 13'" April,2015

3. At the outset, Mr. Bharat Bhushan Gupta,counsel for lAL,states that he has no objection to the prayer made in the petitions, while reserving lAL's liberty to raise claims against FIAFED as well as the Sub-Lessees. In fact, he supports HAFED's request seeking appointment ofan Arbitrator to adjudicate disputes also against the Sub-Lessees in all the petitions. This statement made by Mr.Gupta is taken on record.

4. On the other hand, Mr. Sidhant Bhatia, counsel for all the Sub- Lessees, contests the maintainability of the present petitions qua them. In this view of the matter, the only aspect that requires to be adjudicated is whether Sub-Lessees, who are non-signatory to the Registered Lease Deed, should also be referred to arbitration.

5. On this aspect, the Court has heard the counsel for the parties at length. HAFED's case is that the Registered Lease Deed executed with lAL Signature'Not Verified NAMITA DHYANI 24.01.20M 14:49:29J ARB.P, 792/2021 and connected matters Page3of[9] (3 categorically prohibited any sub-letting, assignment or parting with the possession of the Leased Premises. In this regard, reliance is placed on Clause 4,which reads as under: "4. To use the demisedpremises by the lessee as its warehouse andshall in no case whatsoever sub-let, assisn or otherwise part with possession ofa part or whole of the premises hereby demised and also not to avail the loan facility by way of mortgage/pledge ofthe above premises against the leasefrom any person, bank, financial institution under any circumstances. However, The Lessee shall befree to do business of warehousing. Cold Storage/Logistics/Transport/ C&F work and allied service like grading, sorting, mechanized packing ofstaples/agro products etc. for their various customers. Indo Arya Logistics shall apply for packing License at their own cost and shall be required to ensure compliance oflabour Jaws and otherstatutoiy requirements at their end." [Emphasis supplied]

6. However,it appears that in contravention to the above,lAL executed the three Unregistered Lease Deeds with each ofthe Sub-Lessees whereby a certain portion ofthe Leased Premises was sub-let. Be that as it may, when HAFED ealled upon lAL to hand over the vacant physical possession ofthe property, lAL complied to the extent possible. However, since certain portions were being occupied by the Sub-Lessees, vacant possession ofthe entire Leased Premises eould not be handed over, and resultantly, such portions continue be occupied by the Sub-Lessees.

7. At this juncture, it must also be noted that inter se the parties, there are pending litigations initiated by Sub-Lessees against HAFED as well as lAL,before the District Courts. In the said suits be CS 403/2017(and other eonnected matters) dated 24^'^ December 2018, an Order was passed by the ADJ,Rohini Courts under Order XXXIX Rule 1 and 2 ofthe Code ofCivil Procedure, 1908 [hereinafter, "CPC'\ making certain observations on a primafacie basis-that lAL had no authority to sub-let the said premises or part with possession thereof in terms of the Registered Lease Deed, and ARB.P. 792/202]and connected matters Page4of[9] 24.01.2022 accordingly, declined the injunction sought by Sub-Lessees. When the said Order was challenged in an appeal, this Court vide a common order dated 13"^ September, 2019 passed in FAQ No. 9/2019 (and other connected matters), confirmed the Order of dismissal of the application under Order XXXIX Rules 1 and 2 of the CPC, and further, made the following observations: "8. It is not disputed that the second,respondent is not the owner oftheproperty. It had come in use, occupation and enjoyment ofthe subjectproperty only as a lessee under the first respondent (owner-cum- lessor). The second respondent cannot admittedly have unbridled or unrestricted right to use or deal with the- property beyond the circumspection ofthe discipline created by the lease deed under which it came in possession. The creation oflease in respect ofthe parts ofthe subject property by the lessee (second respondent) in favour of the third parties was clearly and indisputably without authorization from or approval ofthe superior lessor- and prima facie impermissible and illeeal. No such risht as did not vest in the lessee could have been passed on in favour of the third party (i.e. the appellants). In these circumstances, the lease agreements executed by the second respondent infavour ofappellants in respect ofthe parts ofthe subject property are prima facie unenforceable and ofno consequence, not the least against the owner orsuperior lessor.

9. On theforegoingfacts and in the circumstances, the view taken by the trial court holding the appellants to havefailed to bring home a primafacie case cannot be faulted. The said view does-not suffer from any error or infirmity. In this view of the matter, there is no needfor any scrutiny on the touchstone ofthe otherfactors such as balance ofconvenience or irreparable loss.

10. The appeals are thus found to be wholly devoid of.substance. They are dismissed with costs ofRs.50,000/- each to be payable to thefirst re.spondent."

8. Though the aforenoted observations of the Court were undoubtedly made on a primafacie basis, however, it clearly emerges that Sub-Lessees were claiming their rights under the Unregistered Lease Deeds executed with lAL - which was found to be primafacie is in conflict with the Registered Lease Deed executed between HAFED and lAL. That said, the question before the Court today is whether Sub-Lessees 792/2021 and connected matters Page 5of[9] 14:49';29'-J -who are non-signatories to the Lease Deeds-can be referred to arbitration. On this issue, counsel for Sub-Lessees has argued that the Sub-Lessees are neither agents nor representatives oflAL.They are also not connected in any manner to lAL, and are separate legal entities, and have independent, subsisting contracts with lAL.They also do not have privity ofcontract with HAFED. Therefore, in the absence of an arbitration agreement with HAFED,these entities cannot be referred to arbitration.

10. However,in the opinion ofthe Court,in view ofseveraljudgments of this Court as well as ofthe Supreme Court,the afore-noted objections ofthe Sub-Lessees are without merit. Although the Court is always cautious to refer non-signatories to arbitration, there can be no quarrel that nonsignatories or third-parties to arbitral agreements can be referred to arbitration, without their prior consent,in exceptional cases which fall within the touchstone of Court-laid precedents. One such principle under which Courts have referred non-signatories to arbitration is when the Courts have commonality of subject-matter and the circumstances indicate that the adjudication of a dispute in arbitration cannot be possible without the presence ofsuch non-signatory.[See: Cheran Properties Limited v. Kasturi and Sons Limited,^ Chloro Controls India Private Limited v. Severn Trent Water Purification Inc.,^ Ameet Lalchand Lalchand Shah and Others v. Rishabh Enterprises and Anr? and Shapoorji Pallonji & Co. Pvt. Ltd. v. '(2018)16SCC413. ^(2013) 1 see 641. ^2018(15)see 678.

11. Keeping in mind the principles enunciated in the aforenoted decisions, the Court finds a clear commonality of subject matter - being the Leased Premises - between the two agreements i.e., the Lease Deeds (executed between HAFED and lAL) and the unregistered Lease Deeds (executed between lAL and Sub-Lessees). Indisputability, the disputes sought to be adjudicated in arbitration concern the Leased Premises, and as the Sub- Lessees are claiming to be lessees under lAL, albeit under separate agreements,their presence would certainly be necessary for the adjudication of any dispute between HAFED and lAL. In fact, from HAFED's standpoint,the Sub-lessees are unauthorised occupants/sub-lessees.Thus,for effective adjudication of disputes, recovery of vacant possession of the Leased Premises,it would not only be proper,but necessary that all the Sub- Lessees are also referred to the arbitration. In such circumstances, the Court is inclined to accept HAFED's request qua Sub-Lessees.

12. Atthisjuncture it must also be noted that even the Unregistered Lease Deeds contain an arbitration clause even. Although, the ambit under that clause would be limited to governing the disputes between lAL and the Sub- Lessees only, it is surely indicative ofthe Sub-Lessees' intention to opt for alternate dispute resolution mechanism for adjudication ofdisputes with LAL concerning the Leased Premises. "In ARB.P. 716/2019 dated 7"' April,2021. NAMITAD^ANI ARB.P.792/2021andconnected matters Page 7of[9] 24.01.20H 14:49:29-J

13. In view of the above, the petitions are allowed, and accordingly, Hon'ble Mr. Justice S. P. Garg, retired Judge of this Court [Contact; 9910384627] is appointed as the common Sole Arbitrator to adjudicate the disputes between:(i) HAFED,(ii)lAF,(iii) Focus Combine Marketing Pvt. Ltd.,(iv)Syscom Packaging Company,(v)Syscom Consumer Products Pvt. Ltd.

14. The Court further observes that all the disputes urged in the three petitions are arising from the same Lease Deed,nevertheless, since separate petitions have been filed, it is clarified that the appointment ofthe Arbitrator is common with respect to all the three petitions.