Delhi High Court
Canara Bank vs Sanjeev Sharma & Ors on 16 July, 2025
Author: Subramonium Prasad
Bench: Subramonium Prasad
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 09.07.2025
Judgment pronounced on: 16.07.2025
+ RFA(COMM) 54/2022, CM APPL. 36812/2022 (O-20 R-6A
CPC) & CM APPL. 3397/2025 (Delay 52 days in filing Reply
to CM 36810/2022)
CANARA BANK .....Appellant
Through: Ms. Rekha Rustagi, Advocate.
versus
SANJEEV SHARMA & ORS. .....Respondents
Through: Mr. Vinod Kumar and Mr.
Sparsh Jhamb, Advocates for
R-1 & R-2.
CORAM:
HON'BLE MR. JUSTICE SUBRAMONIUM PRASAD
HON'BLE MR. JUSTICE HARISH VAIDYANATHAN
SHANKAR
JUDGMENT
HARISH VAIDYANATHAN SHANKAR, J.
1. The present regular first appeal under Section 13(1A) of the
Commercial Courts Act, 2015 read with Section 96 of the Code of
Civil Procedure, 1908 1 has been filed against the Judgment dated
06.05.20222 passed by the learned District Judge, Commercial Court-
05, Central District, Tis Hazari, Delhi in CS (Comm) No. 4274/2021
titled as Canara Bank vs. Sanjeev Sharma And Ors., for remanding
the case back to the learned District Judge for trial and adjudication on
merits.
1
CPC
2
Impugned Judgment
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
BHATIA RFA(COMM) 54/2022 Page 1 of 18
Signing Date:17.07.2025
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2. By the judgment impugned herein, the learned District Judge
has dismissed the suit and held as follows:
“….
4) Defendants no. 1 & 2 executed the loan application, mortgaged
deed of the allotted flat on 24.07.2008, which was still under
construction and no possession of the same was handed over to
them by the builder defendant no.3. Since, the mortgage could not
take place and it could not be treated as a security for repayment of
the loan so the bank required one tripartite agreement to be
executed by the borrower as well as the builder also and ultimately
this additional tripartite agreement was executed on 18.11.2008.
This fact is not in dispute that whatever payment was released by
the plaintiff bank was credited in the account of the defendant no.3
builder. In this agreement dated 18.11.2008, certain more
obligations were put upon the defendant no. l borrower and
defendant no. 3 builder. The clause 10 on page no. 3 of this
agreement clearly mention that the payment is to be disbursed by
the plaintiff bank even if the borrower is unable to create mortgage
on the strength of this tripartite agreement. On the basis of this
agreement, it was decided that the bank will disburse the
sanctioned loan amount to the builder directly, the builder will
have no objection in creating the mortgage of the allotted flat in
favour of the bank which will have also a lien on the same and the
builder will also complete the necessary formalities regarding
completion of the mortgage of the flat, handing over the documents
to the bank etc. In case of the cancellation of the allotment, the
builder was to return the amount to the bank including the amount
deposited by the borrower with it. The money which the builder
will receive from the bank will be held in the capacity of trust and
separate account of the same has to be maintained etc. Certain
more conditions were agreed upon by the plaintiff bank with the
borrower and the builder relating to alloted flat, to secure the
money given as loan etc. Clause 16 and 17 of this tripartite
agreement mention that in case of a dispute, the matter will be
sorted out through arbitrator. It was also agreed upon in the
tripartite agreement that in case of non payment of the installments
by the defendant no. l borrower, plaintiff bank will issue a letter to
the defendant no.3 for cancellation of the allotment and to enforce
the lien till the amount is returned by the builder.
5) The tripartite agreement dated 18.11.2008 has to be treated as a
part and parcel of the original loan agreement dated 24.07.2008
executed between the plaintiff and defendants no. l & 2 because
certain formalities regarding mortgage, release of payment,
creation of lien, terms and conditions regarding non payment and
its consequences etc. were finalised later on with the consent of the
plaintiff bank and builder. Mere fact that in the original loan
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application form signed by defendants no. l & 2 were not
containing any such arbitration clause is of no consequences.
Similarly, the fact that defendant no.2 guarantor has not signed this
tripartite agreement is an immaterial fact. Hon‟ble Supreme Court
in Chloro Controls India Ltd. vs. Severn Trent Water
Purification (2013) 1 SCC 641 held that in exceptional cases, the
reference can be made against non-signatory or third party to the
agreement containing an arbitration clause. Where there are
various agreements constituting a composite transaction relating to
and connected with main agreement, then dispute between
signatory and non signatory to arbitration clause can be referred to
arbitrator on the basis of principle of composite performance. Delhi
High Court also in case Global Infonet Distribution Pvt. Ltd. vs.
Lenovo (India) Pvt. Ltd. 2019 SCC online Del 9980 held that in
some cases, non signatory of the agreement containing an
arbitration clause can be referred to arbitration proceedings. Hence,
non joining of defendant no.2 guarantor in the tripartite agreement
cannot be treated as invalid arbitration clause.
6) If the terms and conditions of this tripartite agreement are taken
into consideration, then it can be safely said that it was executed in
pursuance to and in furtherance to the main loan agreement and is a
supplement to the original agreement. The defendant no.3 builder
has become liable for return of the loan amount qua which defaults
have been committed in payment of installments by the defendants
no. l & 2. The builder has also to cancel the allotment in favour of
defendant no. l and to assist the bank for recovery of payments
either by returning the amount itself or by allowing another buyer
to step into the shoes of the defendant no. l but the bank has not
taken any such steps against the builder for recovery of the loan
amount or to enforce the security as per terms of the tripartite
agreement.
7) The bank has transferred the part of the sanctioned loan amount
to the builder and now the responsibility of the builder comes into
picture for returning the said amount under the tripartite agreement.
A dispute has arisen in respect of the return of the loan amount as
well as to enforce the security and mortgaged property which only
can be sorted through arbitration clause existing in this agreement.
The arbitration clause of this tripartite agreement has to be read in
existence for original loan agreement also. The filing of the civil
suit is, thus, barred due to such arbitration clause. The plaintiff
bank was required to invoke the arbitration clause before coming to
the court and the suit is liable to be rejected being not
maintainable. Application of the defendant under Section 8 of
Arbitration & Conciliation Act r/w Order 7 Rule 11 CPC is
allowed. Suit is dismissed with liberty to the plaintiff bank to get
the dispute sorted out through the arbitration proceedings as per
law. File be consigned to record room.”
Signature Not Verified
Digitally Signed
By:HARVINDER KAUR
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Signing Date:17.07.2025
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BRIEF FACTS:
3. The relevant facts, which led to the filing of the present appeal,
are set out in the paragraphs that follow.
4. The Respondent No. 1 herein had entered into an agreement for
the purchase of a flat from Respondent No. 3 via an Allotment letter
dated 24.07.2008.
5. Vide Sanction Letter dated 26.08.2008, the Appellant herein
sanctioned a Housing Loan for the sum of Rs. 22,50,000/- in favour of
the Respondent No. 1, wherein the Respondent No. 2 stood as a
guarantor.
6. In pursuance of the same, the Respondent Nos. 1 and 2,
thereafter, executed further documents, inter alia, an agreement titled
“Agreement to Mortgage” and some other Documents. An agreement,
being a Tri-partite Agreement dated 18.11.2008, was entered into as
between the Appellant and Respondent Nos. 1 and 3.
7. It is stated that the loan account of the Respondent No. 1 was
declared a Non-Performing Asset on 02.05.2018, and a notice dated
05.05.2018 under Section 13(2) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002, was issued to the Respondent No. 1.
8. It is stated that despite the said notice, the Respondents have
failed to pay their dues.
9. It is stated that for the purpose of recovery of the amounts due
to it, the Appellant herein applied for ‘Pre-Institution Mediation‟
against the Respondents and thereafter, a Non-starter Certificate dated
17.07.2021 was issued by the Delhi State Legal Services Authority,
Central District, Tis Hazari, Delhi. The Appellant herein, then,
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preferred a suit being CS (Comm) No. 4274/2021, and prayed for the
following reliefs:-
“i)To pass a decree in favour of the plaintiff and against the
defendants (jointly & severally) for the recovery of ₹7,95,406/-
(Rs. Seven Lacs Ninety Five Thousand Four Hundred Six Only)
along with interest pendent-lite and future interest @ 11.95% per
annum (to be compounded monthly) and penal interest @ 2% p.a.
in respect of A/c No.- 90717200003631 from the date of filing of
the suit till the date of realisation.
ii)To direct the defendant no. 3 to sell/ transfer the said property
measuring 1495 sq. ft., bearing Flat no.- 1407, Tower No.- T-23,
14th Floor, Triveni Galaxy, Sector- 78, Faridabad, Haryana; or in
alternatively, to direct the defendant no. 3 to refund the entire
amount received on account of the flat in question to the Plaintiff
with interest @ 11.95% per annum (to be compounded monthly)
and penal interest @ 2% p.a. till the date of realisation, for
realisation of the decreetal amount as may be ordered by the
Hon’ble Court in favour of the Plaintiff -Bank and against the
defendants,”
10. The Respondent Nos. 1 and 2 herein preferred an application
under Section 8 of the Arbitration and Conciliation Act, 1996 3 read
with Order VII Rule 11 and Section 151 of the CPC, praying that
since the Tri-partite Agreement dated 18.11.2008 as between the
parties contained therein arbitration clause being clauses 16 and 17,
the suit was not maintainable and as such, was likely to be either
dismissed or referred to an independent arbitrator as provided for in
the arbitration agreement. Clauses 16 and 17 of the Tri-Partite
Agreement held as follows:-
“16. In Respect of any dispute arising in connection with the
tripartite agreement, the same will be referred to the sole arbitrator
to be nominated by the Bank through its Chief Manager of the
concerned Branch and the Award published by the sole arbitrator
shall be final and binding on all the parties.
17. The Arbitrator so appointed by the Bank may be an officer of
the Bank and/ or any outside person, but parties of the first and3
A&C Act
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second part here to will not have any objection on the choice of
Arbitrator nominated by the Bank unless, the person is legally
barred to be the sole arbitrator. The arbitration shall be in
accordance with the provisions of Arbitration and Conciliation Act,
1996 or any other law in substitution thereof.”
11. The Appellant herein filed a reply to the said application
denying that the suit was not maintainable and that the suit filed was
primarily based on the documents signed by the Respondent Nos. 1
and 2 and was only relying upon the Tri-partite Agreement to show its
right for the flat in question, title of which has not been transferred by
the Respondent No. 3 to the Respondent No. 1.
ANALYSIS:
12. At the outset, we would like to observe that the plaint was
drafted as a composite one as against all the Respondent Nos. 1 to 3.
A reading of the averments and the reliefs sought thereof clearly
shows that the Appellant/Bank had sought to file a suit wherein what
was primarily sought was the recovery of the loan amount advanced
by it; meaning thereby that the subject matter of the Suit was
essentially the recovery of the amount advanced towards the purchase
of the apartment which was also mortgaged to the Appellant herein.
The said mortgage formed an integral and essential part of the
condition of the advancement of the loan, and the same was sought to
be ensured by the Tri-Partite Agreement between the Appellant and
the Respondent Nos. 1 and 3.
13. The fact that the said Suit was a composite one is evidenced not
only from the memo of parties but also by the composite nature of the
reliefs as sought for and as extracted hereinbefore. The same is also
evidenced from the Pleadings in the Plaint and more particularly
paragraph Nos. 13 and 14 of the Suit, which read as follows:
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“13. That now, the Defendant no. l, being the borrower, Defendant
no. 2, being the guarantor and defendant no. 3 being the builder are
therefore, jointly and severally liable to pay a sum of ₹7,92,551.99
rounded of as ₹7,92,552/- as on 06.10.2021, which is inclusive of
interest upto 30.09.2021, in respect of A/c No.- 90717200003631,
as per statement of Account duly certified under Banker’s Book of
Evidence Act. The defendants are also liable to pay unapplied
interest of ₹2,854/- from 01.09.2021 till 11.10.2021 i.e. the filing
of the suit. Therefore, the defendants are liable to pay total sum of
₹7,95,406/- (Rs. Seven Lacs Ninety Five Thousand Four Hundred
Six Only) till the date of filing of the suit.
14. That defendants are also liable to pay pendent-lite and future
interest at the rate @ 11.95% p.a., at monthly rest, and penal
interest @ 2% p.a. i.e. from the date of filing of suit till the
realisation of amount claimed.”
14. In our opinion, the learned District Judge has rightly concluded
that the Tri-partite Agreement is an intrinsic part of the composite
Loan arrangement that was agreed upon as between the parties. It
would be difficult to assume, given the nature of the pleadings as well
as the reliefs sought, to isolate the Agreements as sought to be done at
this stage. The Appellant cannot, at this stage, seek to contend that
what was sought was, in fact, only to claim the loan amount from the
Respondent Nos. 1 and 2 and that the Tri-partite Agreement was only
“relied upon to show its right over the flat in question, title of which
has not been transferred by the Defendant No. 3 to defendant No.1
and the liability of defendant No. 3.” Paragraph No. 5 of the reply to
the Application under Section 8 of the A&C Act dated 25.03.2022
reads as follows:
“5) That the contents of para 5 of the Application, as stated, are
wrong, vague, baseless, misconceived, and hence, specifically
denied. It is specifically denied that the present suit filed by the
plaintiff is barred by the provisions of section- 8 of Arbitration and
Conciliation Act and deserves to be rejected under Order 7 Rule 11
of CPC. It is respectfully submitted that the plaintiff bank has filed
the present suit to claim the loan amount due on the basis of loan
documents signed by the defendant no. 1 & 2 and has relied upon
the tripartite agreement to show its right over the flat in question,
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title of which has not been transferred by the defendant no. 3 to
defendant no. 1 and the liability of the defendant no. 3.”
15. The Appellant, in the averments made in the Appeal, has sought
to further improve upon the case originally sought to be canvassed in
the Reply under Section 8 of the A&C Act, by making the following
averments:
“VI) BECAUSE Ld. District Judge, Commercial Court has failed
to appreciate that the relief sought for recovery of entire amount
due from the respondent no. 1 & 2 on the basis of Housing Loan
Agreement cannot be barred any other law including section 8 of
Arbitration and Conciliation Act, 1996, merely on the ground that
the Tri-partite Agreement contains Arbitration clause. Therefore,
the order of rejection of suit i.e. the impugned order dt. 06.05.2022
under Order 7 Rule 11 CPC is not maintainable and liable to be set
aside.
VII) BECAUSE Ld. District Judge, Commercial Court has
misinterpreted the Judgments passed by the Hon’ble Supreme
Court in „Chloro Controls India Ltd. Vs Severn Trent Water
Purification (2013) 1 SCC 641‟ and „Global Infonet Distribution
Private Ltd. Vs Lenovo (India) Pvt. Ltd. 2019 SCC online Del
9980‟. In is pertinent to mention here that the appellant has no
where challenged the arbitration clause of the Tri partite
Agreement. In fact, the Appellant has claimed that the liability of
respondent no. 1 & 2 to pay the amount due to the bank cannot be
decided on the basis of Tri partite Agreement. The Judgments
referred to by the ld. Trial Court are not applicable to the facts of
present matter.
VIII) BECAUSE Ld. District Judge, Commercial Court has
wrongly considered that the Arbitration Clause of Tripartite
Agreement has to be read in existence for Loan Agreement also.
The Ld. Trial Court has failed to appreciate that the very purpose
of the Tripartite Agreement is to bind the builder since the building
was under construction and mortgage under Transfer of Property
Act could not be created.
IX) BECAUSE the Ld. District Judge, Commercial Court, has
failed to appreciate that the suit can only be rejected if prima facie
appears that the suit is not maintainable. The Ld. Trial Court has
failed to appreciate that the Appellant has filed the suit against
respondent no. 1 & 2 on the basis of Housing Loan Agreement and
cannot be dismissed on the ground of Arbitration clause of
Tripartite Agreement U/o 7 Rule 11 CPC.”
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16. This Court is of the view that the Appellant is now trying to
argue against the original pleadings as made in the Plaint, which was
in the nature of a composite Suit, as against all the Respondents and
not only against Respondent Nos. 1 and 2. The relevant paragraphs of
the Plaint as well as the Prayers sought have already been extracted
hereinbefore.
17. The Appellant, in fact, rightly contends that there can be no
bifurcation of the Cause of Action. In the present case, the purport of
the Appellant and the intent of the Appellant are clearly evidenced by
the pleadings and the Prayer as sought for, which are directed towards
the recovery of the loan as against all the Respondents named therein.
The Judgment relied upon by the Appellant to this effect, namely
Sukanya Holdings Vs. Jayesh H. Pandya4, is against the Appellant
and would squarely apply to the case, in particular paragraph Nos. 15
to 17, which read as under:
“15. The relevant language used in Section 8 is: “in a matter which
is the subject of an arbitration agreement”. The court is required to
refer the parties to arbitration. Therefore, the suit should be in
respect of “a matter” which the parties have agreed to refer and
which comes within the ambit of arbitration agreement. Where,
however, a suit is commenced — “as to a matter” which lies
outside the arbitration agreement and is also between some of the
parties who are not parties to the arbitration agreement, there is no
question of application of Section 8. The words “a matter” indicate
that the entire subject-matter of the suit should be subject to
arbitration agreement.
16.The next question which requires consideration is — even if
there is no provision for partly referring the dispute to arbitration,
whether such a course is possible under Section 8 of the Act. In our
view, it would be difficult to give an interpretation to Section 8
under which bifurcation of the cause of action, that is to say, the
subject-matter of the suit or in some cases bifurcation of the suit4
(2003) 5 SCC 531
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between parties who are parties to the arbitration agreement and
others is possible. This would be laying down a totally new
procedure not contemplated under the Act. If bifurcation of the
subject-matter of a suit was contemplated, the legislature would
have used appropriate language to permit such a course. Since
there is no such indication in the language, it follows that
bifurcation of the subject-matter of an action brought before a
judicial authority is not allowed.
17. Secondly, such bifurcation of suit in two parts, one to be
decided by the Arbitral Tribunal and the other to be decided by the
civil court would inevitably delay the proceedings. The whole
purpose of speedy disposal of dispute and decreasing the cost of
litigation would be frustrated by such procedure. It would also
increase the cost of litigation and harassment to the parties and on
occasions there is possibility of conflicting judgments and orders
by two different forums.”
(Emphasis supplied)
Given the facts of the present case, it is apparent that what was
the subject matter of the proceedings was the recovery of the loan
amount.
18. The matter, which has been referred to Arbitration, is not one
that was alien to the subject matter of the Arbitration Agreement. In
fact, as clearly seen, the entire subject matter of the Suit would fall
wholly within the purport of the Arbitration Agreement. In any event,
the various documents and Agreements form a composite whole and
cannot be sought to be separated in the manner as claimed.
19. The learned District Judge records the fact that the Respondent
No. 3/builder was liable to return the amounts that were disbursed to
the Appellant/Bank. A perusal of the Tri-partite Agreement would
also show that any money that the Respondent No. 3 was to receive
from the Bank was to be held in the capacity of a trustee, and a
separate account with the Bank had to be maintained. All the amounts
disbursed under the Loan agreement were directly credited to the
account of the Bank, in accordance with the purport of the Tri-partite
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Agreement and the manner in which the loan was effectuated by the
Appellant Bank.
20. The framing of the Suit and the Prayers does not support the
understanding that the reliefs sought were confined solely to the
enforcement of the Loan Agreement against the Respondent Nos. 1
and 2, and that nothing was claimed as against the Respondent No.3.
21. The nuanced difference that the Appellant seeks to make
through its averments to this effect in the Appeal, as respects the
separate claims as against Respondent Nos. 1 and 2 on the one hand,
as respects Respondent Nos. 1 and 3 on the other, as well as, as
against Respondent No. 3 are not made out from, or supported by a
holistic reading of the contents of the Plaint or the Prayers therein.
The same, in any event, is not even permissible as held in Sukanya
Holdings (supra). If the same were to be accepted, the Suit as framed
would have to be separated into at least two different proceedings;
One as against the Respondent Nos. 1 and 2, by way of a Suit and
another as against Respondent Nos. 1 and 3, by way of an Arbitration
proceeding.
22. In our opinion, the learned District Judge has rightly held that
the mere fact that the agreement by which the Respondent No. 2 was
made a surety to the loan, not containing an arbitration clause, would
not be of much significance. The most important observation made by
the learned District Judge, and in our opinion, rightly so, is that the
agreements must be read as a whole to ascertain their composite intent
and given that the loan amount was disbursed directly to the builder,
and in view of the clauses in the Tri-partite agreement making the
builder directly liable to return the said amount, the same would have
to form the basis for adjudicating the dispute between the parties.
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23. The Hon‟ble Supreme Court in the judgment of Ameet
Lalchand Shah v. Rishabh Enterprises5, while examining a situation
where multiple inter-connected agreements, involving various parties,
were executed as part of a single commercial project, emphasized that
even where certain agreements did not contain an arbitration clause or
involved non-signatories to the principal contract, the composite
nature of the transaction and the common commercial intent could
warrant reference of all parties and agreements to arbitration. The
relevant paragraphs of the said judgement read as follows:
“24. In a case like the present one, though there are different
agreements involving several parties, as discussed above, it is a
single commercial project, namely, operating a 2 MWp
Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, Uttar
Pradesh. Commissioning of the Solar Plant, which is the
commercial understanding between the parties and it has been
effected through several agreements. The agreement — Equipment
Lease Agreement (14-3-2012) for commissioning of the Solar Plant
is the principal/main agreement. The two agreements of Rishabh
with Juwi India: (i) Equipment and Material Supply Contract (1-2-
2012); and (ii) Engineering, Installation and Commissioning
Contract (1-2-2012) and the Rishabh’s Sale and Purchase
Agreement with Astonfield (5-3-2012) are ancillary agreements
which led to the main purpose of commissioning the Photovoltaic
Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh by
Dante Energy (lessee). Even though, the Sale and Purchase
Agreement (5-3-2012) between Rishabh and Astonfield does not
contain arbitration clause, it is integrally connected with the
commissioning of the Solar Plant at Dongri, Raksa, District Jhansi,
U.P. by Dante Energy. Juwi India, even though, not a party to the
suit and even though, Astonfield and Appellant 1 Ameet Lalchand
Shah are not signatories to the main agreement viz. Equipment
Lease Agreement (14-3-2012), it is a commercial transaction
integrally connected with commissioning of Photovoltaic Solar
Plant at Dongri, Raksa, District Jhansi, U.P. Be it noted, as per
Clause (v) of Article 4, parties have agreed that the entire risk, cost
of the delivery and installation shall be at the cost of the Rishabh
(lessor). Here again, we may recapitulate that engineering and
installation is to be done by Juwi India. What is evident from the
facts and intention of the parties is to facilitate procurement of
equipments, sale and purchase of equipments, installation and
5
(2018) 15 SCC 678
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leasing out the equipments to Dante Energy. The dispute between
the parties to various agreements could be resolved only by
referring all the four agreements and the parties thereon to
arbitration.
25. Parties to the agreements, namely, Rishabh and Juwi India: (i)
Equipment and Material Supply Agreement; and (ii) Engineering,
Installation and Commissioning Contract and the parties to Sale and
Purchase Agreement between Rishabh and Astonfield are one and
the same as that of the parties in the main agreement, namely,
Equipment Lease Agreement (14-3-2012). All the four agreements
are inter-connected. This is a case where several parties are involved
in a single commercial project (Solar Plant at Dongri) executed
through several agreements/contracts. In such a case, all the parties
can be covered by the arbitration clause in the main agreement i.e.
Equipment Lease Agreement (14-3-2012).
***
27. Arbitration and Conciliation (Amendment) Act, 2015 has
brought in amendment to Section 8 to make it in line with Section 45
of the Act. In view of the observation made in Sukanya Holdings
[Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya, (2003) 5 SCC 531]
, Law Commission has made recommendation for amendment to
Section 8 of the Act. Consequent to the 2015 Amendment Act,
Section 8 is amended as under:
“8. Power to refer parties to arbitration where there is an
arbitration agreement.–(1) A judicial authority, before
which an action is brought in a matter which is the subject
of an arbitration agreement shall, if a party to the
arbitration agreement or any person claiming through or
under him, so applies not later than the date of submitting
his first statement on the substance of the dispute, then,
notwithstanding any judgment, decree or order of the
Supreme Court or any court refer the parties to arbitration
unless it finds that prima facie no valid arbitration
agreement exists.
(2) The application referred to in sub-section (1) shall not
be entertained unless it is accompanied by the original
arbitration agreement or a duly certified copy thereof:
Provided that where the original arbitration agreement or a
certified copy thereof is not available with the party
applying for reference to arbitration under sub-section (1),
and the said agreement or certified copy is retained by the
other party to that agreement, then, the party so applying
shall file such application along with a copy of the
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arbitration agreement and a petition praying the court to
call upon the other party to produce the original arbitration
agreement or its duly certified copy before that court.
(3) Notwithstanding that an application has been made
under sub-section (1) and that the issue is pending before
the judicial authority, an arbitration may be commenced or
continued and an arbitral award made.”
(emphasis supplied)
***
29. Amendment to Section 8 by the 2015 Act, are to be seen in the
background of the recommendations set out in the 246th Law
Commission Report. In its 246th Report, Law Commission, while
recommending the amendment to Section 8, made the following
observation/comment:
LC Comment:
“The words “such of the parties … to the arbitration
agreement” and proviso (i) of the amendment have been
proposed in the context of the decision of the Supreme Court
in Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya [Sukanya
Holdings (P) Ltd. v. Jayesh H. Pandya, (2003) 5 SCC 531] in
cases where all the parties to the dispute are not parties to the
arbitration agreement, the reference is to be rejected only
where such parties are necessary [Ed.: Emphasis in original.]
parties to the action — and not if they are only proper parties,
or are otherwise legal strangers to the action and have been
added only to circumvent the arbitration agreement. Proviso
(ii) of the amendment contemplates a two-step process to be
adopted by a judicial authority when considering an
application seeking the reference of a pending action to
arbitration. The amendment envisages that the judicial
authority shall not refer the parties to arbitration only if it
finds that there does not exist an arbitration agreement or that
it is null and void. If the judicial authority is of the opinion
that prima facie the arbitration agreement exists, then it shall
refer the dispute to arbitration, and leave the existence of the
arbitration agreement to be finally determined by the Arbitral
Tribunal. However, if the judicial authority concludes that the
agreement does not exist, then the conclusion will be final
and not prima facie. The amendment also envisages that there
shall be a conclusive determination as to whether the
arbitration agreement is null and void.
(2) The application referred to in sub-section (1) shall not be
entertained unless it is accompanied by the original
arbitration agreement or a duly certified copy thereof or a
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copy accompanied by an affidavit calling upon the other
party to produce the original arbitration agreement or duly
certified thereof in circumstances where the original
arbitration agreement or duly certified copy is retained only
by the other party.”
(emphasis supplied)
LC Comment:
“In many transactions involving government bodies and
smaller market players, the original/duly certified copy of the
arbitration agreement is only retained by the former. This
amendment would ensure that the latter class is not
prejudiced in any manner by virtue of the same.” (Ref: 246th
Law Commission Report, Government of India)
30. The language of amendment to Section 8 of the Act is clear that
the amendment to Section 8(1) of the Act would apply
notwithstanding any prayer, judgment, decree or order of the
Supreme Court or any other court. The High Court laid emphasis
upon the word “… unless it finds that prima facie no valid
agreement exists”. The High Court observed that there is no
arbitration agreement between Astonfield and Rishabh. After
referring to Sukanya Holdings [Sukanya Holdings (P) Ltd. v. Jayesh
H. Pandya, (2003) 5 SCC 531] and the amended Section 8 and
Section 45 of the Act, the High Court pointed out the difference in
language of Section 8 and Section 45 of the Act. The High Court
distinguished between Sukanya Holdings [Sukanya Holdings (P)
Ltd. v. Jayesh H. Pandya, (2003) 5 SCC 531] and Chloro Controls
[Chloro Controls India (P) Ltd. v. Severn Trent Water Purification
Inc., (2013) 1 SCC 641 : (2013) 1 SCC (Civ) 689] , and observed
that Sukanya Holdings [Sukanya Holdings (P) Ltd. v. Jayesh H.
Pandya, (2003) 5 SCC 531] was not overruled by Chloro Controls
[Chloro Controls India (P) Ltd. v. Severn Trent Water Purification
Inc., (2013) 1 SCC 641 : (2013) 1 SCC (Civ) 689] . In para 29 of the
impugned judgment, it was held as under: (Ameet Lalchand case
[Ameet Lalchand Shah v. Rishabh Enterprises, 2017 SCC OnLine
Del 7865] , SCC OnLine Del)
“29. The change in Section 8 is that the court is to — in cases
where arbitration agreements are relied on — to refer the
disputes in the suit, to arbitration, “notwithstanding any
judgment, decree or order of the Supreme Court or any Court,
refer the parties to arbitration unless it finds that prima facie
no valid arbitration agreement exists”. The Court is of
opinion that Sukanya [Sukanya Holdings (P) Ltd. v. Jayesh
H. Pandya, (2003) 5 SCC 531] is not per se overruled,
because the exercise of whether an arbitration agreement
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exists between the parties, in relation to the disputes that are
the subject-matter of the suit, has to be carried out. If there
are causes of action that cannot be subjected to arbitration, or
the suit involves adjudication of the role played by parties
who are not signatories to the arbitration agreement, it has to
continue because “prima facie no valid arbitration agreement
exists” between such non-parties and others, who are
parties.””
(Emphasis supplied)
24. It is apparent that the payment was made to Respondent No. 3,
and the Tri-partite Agreement provides for the Respondent No. 3 to
ensure that the said amounts that were credited to it, are to be held in
the capacity of a trustee, and the Respondent No. 3/builder would
have to repay the same. It is precisely this aspect that the Appellant
chose to enforce by way of prayer no. 2 in the plaint.
25. The pleadings and the prayer, read holistically, indicate that the
Appellant, in fact, confirms that all the Agreements are an integral
part of the entire transaction and that is the reason why the Suit makes
express reference to all the Agreements which formed a part of the
Transaction, inter alia, the Tri-partite Agreement, which contained the
Arbitration Clause. This further supports the conclusion that there can
be no bifurcation sought.
26. The underlying principle regarding a non-signatory party not
being subjected to an Arbitration Proceeding is the absence of consent
by such a non-signatory. The “exceptional circumstance” principle
that is sought to be relied upon by the Appellant, and as espoused in
the Cox & Kings Ltd. v. SAP India (P) Ltd.6, while impugning the
Judgment, and averring that the Respondent No. 2 cannot be subjected
to Arbitration, as she is a non-signatory, in our opinion, is not
available to the Appellant at all.
6
(2024) 4 SCC 1
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27. In our opinion, the “exceptional circumstance” principle is
primarily for the protection of the non-signatory party and a defence
for the said non-signatory. The same cannot be used by the Appellant
for contending that the Respondent No. 2 was not a signatory to the
Arbitration Agreement and resultantly, contend that the suit was
maintainable as against the Respondent Nos. 1 and 2 and that the
impugned Judgment is erroneous in so far as it refers all the parties to
the Suit to Arbitration. This is all more so in view of the manner in
which the Plaint and reliefs have been framed. Reference may be
made to paragraph Nos. 83 and 84 of the Judgment of the Hon‟ble
Supreme Court in Cox & Kings Ltd. (supra), which in our view,
support this conclusion and are reproduced hereinbelow:
“83. Reading Section 7 of the Arbitration Act in view of the above
discussion gives rise to the following conclusions : first, arbitration
agreements arise out of a legal relationship between or among
persons or entities which may be contractual or otherwise; second,
in situations where the legal relationship is contractual in nature,
the nature of relationship can be determined on the basis of general
contract law principles; third, it is not necessary for the persons or
entities to be signatories to the arbitration agreement to be bound
by it; fourth, in case of non-signatory parties, the important
determination for the Courts is whether the persons or entities
intended or consented to be bound by the arbitration agreement or
the underlying contract containing the arbitration agreement
through their acts or conduct; fifth, the requirement of a written
arbitration agreement has to be adhered to strictly, but the form in
which such agreement is recorded is irrelevant; sixth, the
requirement of a written arbitration agreement does not exclude the
possibility of binding non-signatory parties if there is a defined
legal relationship between the signatory and non-signatory parties;
and seventh, once the validity of an arbitration agreement is
established, the Court or tribunal can determine the issue of which
parties are bound by such agreement.
84. It is presumed that the formal signatories to an arbitration
agreement are parties who will be bound by it. However, in
exceptional cases persons or entities who have not signed or
formally assented to a written arbitration agreement or the
underlying contract containing the arbitration agreement may be
held to be bound by such agreement. As mentioned in the
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preceding paragraphs, the doctrine of privity limits the imposition
of rights and liabilities on third parties to a contract. Generally,
only the parties to an arbitration agreement can be subject to the
full effects of the agreement in terms of the reliefs and remedies
because they consented to be bound by the arbitration agreement.
Therefore, the decisive question before the Courts or tribunals is
whether a non-signatory consented to be bound by the arbitration
agreement. To determine whether a non-signatory is bound by an
arbitration agreement, the Courts and tribunals apply typical
principles of contract law and corporate law. The legal doctrines
provide a framework for evaluating the specific contractual
language and the factual settings to determine the intentions of the
parties to be bound by the arbitration agreement. [ Gary Born,
International Arbitration Law and Practice, (3rd Edn., 2021) at p.
1531.]”
(Emphasis supplied)
28. By filing the Application under Section 8 of the A&C Act, the
Respondent No. 2 not only evidences the parties‟ understanding, but
also clearly consents to be subjected to the Arbitration Proceedings. In
view of the consent by the non-signatory, the contention of the
Appellant in this regard is unsustainable.
29. In view of the foregoing discussion, this Court is of the view
that there is no infirmity in the impugned judgment and order. The
appeal is consequently disposed of, affirming the Judgment of the
learned District Judge dated 06.05.2022, along with pending
application(s), if any.
SUBRAMONIUM PRASAD, J.
HARISH VAIDYANATHAN SHANKAR, J.
JULY 16, 2025/nd/er
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