Arbitration from one Arbitration Agreement cannot be invoked in disputes originating from another Arbitration Agreement between the same parties: Justice Surya Kant

In the case of DLF Home Developers Limited v. Rajapura Homes Private Limited & Anr. (2021) SC 490, the petitioner has filed an Arbitration Petition under Section 11, Sub-Sections 6 and 12 of the Arbitration and Conciliation Act, 1996. Sub-Section 6 of the Act allows a party to the arbitration to request the Supreme Court/ the High Court/ Any Person or Institution Designated by such Court to take the necessary measure in the following cases in relation to the procedure of appointment of an arbitrator for two parties in dispute:

  1. A party fails to act in adherence to the provisions of the said procedure or (Clause A);
  2. The parties or the two appointed arbitrators fail to reach an agreement expected of them under the said procedure or (Clause B);
  3. A person/ institution fails to perform certain functions entrusted to it under the said procedure (Clause C).

Sub-Section 6 operates in areas where agreement on the appointment procedure is silent on matters for securing such an appointment.

The petition had been filed by the petitioner for the appointment of a sole arbitrator to adjudicate the differences between the parties to the arbitration. DHDL is a limited liability involved in the business of providing development, management, and investment services concerning real estate projects. The petitioner and Ridgewood Holdings Limited (RHL) entered into a joint venture in 2007-2008, wherein RHL invested in Rajapura Homes Private Limited (RHPL) and Begur OMR Homes Private Limited (BOHPL) for developing residential projects in various cities across India, primarily in Bangalore. There were two agreements: two Share Purchase Agreements (SPA) and Construction Management Agreements (CMA), wherein the SPA involved the sale of shares of the respondents: RHPL and BOHPL by DHDL to Resimmo PCC (RP) as the purchaser, executed on July 08, 2016, and January 25, 2017, respectively. The Dispute Resolution Clause with RHPL laid down arbitration to resolve disputes between the parties (RHPL, DHDL and RP) according to the Rules of Singapore International Arbitration Centre (SIAC) with Singapore as the venue and seat of the arbitration. The Construction Management Agreements dated January 25, 2017, were signed: Rajapura Project (RCMA) and Southern Homes Project (SCMA), wherein the Dispute Resolution Clause for these agreements laid down arbitration to resolve disputes between the parties according to the Arbitration & Conciliation Act, 1996 with the seat and venue of arbitration as New Delhi.

A two-judge bench consisting of the Chief Justice of India N. V. Ramana and Justice Surya Kant read the aforementioned agreements in harmony to avoid any head-on collision of contractual provisions, wherein the bench declared that the two sets of agreements had no overlapping since their object and field of operation were different and distinct in nature. The arbitration clause in SPA has no overriding effect and is in no any broader or wider than the arbitration clause in CMA according to the bench; subsequently, the arbitration clause of one agreement could not be relied on to adjudicate the disputes within the scope of the other agreement which has its own arbitration clause for the same.

The scope of disputes covered by the arbitration clause of the SPA is limited to issues relating to the transaction of sale and purchase of shares while the same for the CMA is limited to the performance of the construction-related obligations. The Senior Counsel for the petitioner submitted that the purchase of shares by RP has been duly completed without any recorded grievances by RP, wherein it contends that the disputes sought to be referred to arbitration does not emanate from the SPA. The bench observed that when neither party has pleaded the infringement of the provisions within the SPA, it is difficult to accept outrightly that the dispute at hand falls within the scope of the Dispute Resolution Clause of SPA and the prayer of the parties to hold the arbitration in adherence to the rules of SIAC with the seat of arbitration as Singapore was rejected by the Supreme Court owing to the fact that the arbitration clause involving the rules of SIAC is strictly limited in its scope to the disputes arising between the parties regarding the SPA whose non-infringement has been settled by the parties in the present case. The court added that the arbitrable dispute between the parties exists prima facie in the CMA and the same must be arbitrated in adherence to the Dispute Resolution Clause within the CMA; however, the bench added that if the arbitrator feels that the “real dispute” between the parties stems from the SPA, then the arbitrator shall be free to wind up the arbitration proceedings with liberty to the parties to seek redressal under the rules of SIAC.

The bench added that the two agreements of CMA are inextricably interlinked and connected to each other, wherein the bench directed the two disputes to be referred to a sole, single and composite arbitral tribunal to avoid multiplicity of proceedings which may result in conflicting awards. For the sake of avoiding the wastage of time and resources, the bench directed the two disputes to a sole arbitrator: Justice (Retd.) R. V. Raveendran, Former Judge of Supreme Court of India, No. 8/2, Krishna Road, Basavangudi, Bangalore-560004.

Lastly, the bench opined that the sole arbitrator can decide if the disputes should be consolidated and adjudicated under one composite award, wherein the sole arbitrator would be allowed to decide the manner and modalities in which the two separate arbitration proceedings are to be conducted per the bench.

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