Ameet Lalchand Shah & Ors vs Rishabh Enterprises & Anr on 17 April, 2017

Case Name: Ameet Lalchand Shah and Others vs. Rishabh Enterprises and Others , (2018) 15 SCC 678: (2019) 1 Supreme court cases (civ) 308: 2018 SCC online 487 : MANU/ SC / 0501 /2018

Citation: (2018) 15 SCC 678: (2019) 1

Date of Decision: 17.04.2017

Bench: HON’BLE MR. JUSTICE S. RAVINDRA BHAT HON’BLE MR. JUSTICE I.S. MEHTA S.RAVINDRA BHAT, J.(OPEN COURT

Supreme Court Reports Citation: Supreme court cases (civ) 308: 2018 SCC online 487 : MANU/ SC / 0501 /2018

Appealent: AMEET LALCHAND SHAH & ORS

Respondents: RISHABH ENTERPRISES & ONR      

Lawyers: Through Mr. Amit Sibal, Sr. Adv. with Dr. Saif Mahmood, Mr. Anish Dayal, Mr. Namit Suri and Mr. Amit Bhandari, Advocates CORAM:

       For Appellant:  Through Mr. Amit Sibal, Sr. Adv. with Dr. Saif Mahmood, Mr. Anish Dayal.

          For Respondents:  Mr. Namit Suri and Mr. Amit Bhandari, Advocates CORAM:

Introduction :-  this case is filed under section 37 of the arbitration and conciliation act , 1996 to resolve the problem of two parties. 

On 1^st February, 2012 – Rishabh Enterprises entered into two agreement with M/s Juwi India Renewable Energies Pvt. Ltd. Namely first is Equipment and Material supply contract for purchase of power generating equipment for the tune of Rs. 8,89,80,730/- and second Installation and commissioning contract for installation of solar plant of Rs. 2,20,19,270/- both agreements are made under the arbitration act.

The disputes arose between both the parties when Dante has defaulted to payment of rent and committed fraud by inducing to purchase the photovoltaic products by investing huge amount.  He also alleged that the appellants have committed misrepresentation and criminal breach of contract as the equipments procured and leased to dante energy .

 The court held that the appellants are jointly or severely liable to pay the rent and also have liable to pay future rent lease of equipment of the PV solar power plant at Dongri , Raksa , district Jhansi , uttar Pradesh at the rate of Rs. 28,26,000/- per month .

Facts of the case :– 

On 01.02.2012, the first respondent of the case– Rishabh Enterprises, and  the second respondent – Dr.   Singhvi entered between two agreements with M/s Juwi India Renewable Energies Pvt. Ltd. Company  namely:-Equipment and Material Supply Contract for purchase of power generating equipments to the tune of Rs.8,89,80,730/- and Engineering, Installation and Commissioning Contract for installation and commissioning of the Solar Plant for Rs.2,20,19,270/-. Both these agreements contain arbitration clause.

Then first respondent – Rishabh entered into Sale and Purchase Agreement with the second appellant company – Astonfield Renewables Private Limited for purchasing CIS Photovoltaic products to be leased to appellant – Dante Energy Pvt. Ltd. company  to be installed at the Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh. As per the agreement, these products are valued of Rs. 25,16,00,000/-. And The second appellant – Astonfield received Rs.21,40,49,999/- from the respondents under various cheques issued by the Rishabh. 

Dispute arose between the parties when respondents alleged that appellant No. 3 – Dante Energy has defaulted in payment of rent and that Astonfield committed fraud by inducing the Rishabh to purchase the Photovoltaic products by investing huge amounts. The respondents have also alleged that the appellants have committed misrepresentation and criminal breach of trust so far as the equipments procured and leased to Dante Energy. The respondents have also filed a criminal complaint before the Economic Offences Wing at Delhi against the appellants, based on which, FIR No. 30 of 2015 was registered. The appellants have filed writ petition bearing CWP No.619 of 2016 before the High Court of Delhi seeking quashing of the said FIR which is sub judice. There was also an enquiry by the Income Tax Authorities seeking explanation from the appellants regarding transfer of money to the sons of Dr. A.M. Singhvi i.e. Rs.2,50,00,000/- to Mr. Avishkar Singhvi and Rs.7,50,00,000/- to Mr. Anubhav Singhvi. Appellant No.1 – Ameet Lalchand Shah was summoned by the Income Tax Authorities seeking explanation with regard to transfer of the said money to the sons of Dr. A.M. Singhvi. 7. Owing to the dispute between the parties, appellant No.3 – Dante Energy issued notice dated 13.02.2016 invoking arbitration clause.

In the suit, multiple  reliefs were claimed, i) for a declaration that Sale and Purchase Agreement ii) Equipment and Material Supply Contract, Engineering, Installation and Commissioning Contract both dated 01.02.2012 and Equipment Lease Agreement dated 14.03.2012 are vitiated by serious fraud committed by the appellants and that the agreements are void; iii) for recovery of a sum of Rs.32,22,80,288/- which the appellants are jointly and severely liable to pay to the respondents to pay a sum of Rs.19,31,74,804/- as the interest on the aforesaid amount of Rs.32,22,80,288/- at the rate of 18% per annum from the date of the agreement i.e. 01.02.2012 till the date of the realization; and  to pay arrears of lease rent.

Under Section 8 of the arbitration Act , seeking for reference of the dispute between the parties to arbitration pertaining to all the four agreements. The appellants reference to arbitration of all the four agreements by contending that , the Sale and Purchase Agreement  is the main agreement and all three agreements are inter-connected as they are executed between the same parties and the obligations and the performance of the terms and condition  of the agreements are inter-connected viz. commissioning of the Photovoltaic Solar Plant at Dongri, Raksa, District 5 Jhansi, U.P. The respondents Rishabh and Dr. A.M. Singhvi resisted the application by contending that the suit of declaration that the agreements are done due to fraud and misrepresentation and while so, the matter cannot be referred to arbitration. It was further declared that the suit is neither concerned about the agreement with Juwi India nor concerned about Equipment Lease Agreement , whereas the suit is concerned about the false assurances and fraud played by the appellants Ameet Lalchand Shah and Dante Energy regarding which a criminal case has also been registered and hence, the dispute is not referable to arbitration.

Issues Raised :- 

1.  Whether all four agreements mentioned have interconnected references to arbitration, even though only three of them (Equipment and Material Supply Contract, Engineering, Installation and Commissioning Contract, and Equipment Lease Agreement) have arbitration clauses. 
2. The Sale and Purchase Agreement between Rishabh and Astonfield does not have an arbitration clause, but the question is inquiring if there are still implicit references to arbitration in this agreement due to its connection with the other agreements that do have arbitration clauses.
3. The question is whether the allegations of fraud raised by the respondents in their plaint should result in a refusal to refer the dispute between the parties to arbitration, or whether the agreements should be interpreted as commercial undertakings with a sense of business efficacy.
4. The question is inquiring whether the allegations of fraud in this particular case should be sufficient to refuse enforcement of the arbitration clause.

Argument made  by appealent :- 

1. The subject matter of the three agreements is contained the arbitration clauses, within the one were inseparable and twined. By reason of connection between the subject matter and the parties, the plaintiffs could not do clever drafting of the pleadings, escape the clear implication arising out of the document. The singular intention of the parties to facilitate procurement of equipment on the one hand and payment of lease rent on the other for the business.
2. Since the intention of the parties was clearly mentioned that the disputes were arbitrable, the circumstance that one of the agreements did not contain an arbitration clause, and should not have entailed the dismissal of the application under Section 8 of the Act. It was argued by Mr. Singh that the iteration of the expression “serious fraud” in the facts of the present case did not mean that there were actually such allegations. 
3. It was also urged that the impugned judgment cannot be sustained because of the learned single Judge reasoning that the suit was based upon a cause of action that was not arbitrable. Apart from this the fact that there was one transaction but recorded in several agreements, the essential nature of the claim was for the return of money that could be proceeded and the other matters relating to the three agreements for procuring supply etc. Left for decision in arbitration,senior counsel submitted that the decision in Chloro Controls and the observations in the decision with respect to Sukanya Holdings  were in the context of the unamended Section 45 of the Act. The argument presented by the learned senior counsel is that with the 2015 amendments to the Act, there is a significant change in the phrasing of Sections 8 and 45, making them identical. This change in phrasing requires that these provisions be interpreted in a similar manner. 
4. The counsel further argued that when two provisions in a statute use identical expressions or words, they must be interpreted in a like and identical manner. Consequently, with the change in law, the reasoning in Sukanya Holdings (supra) – that if a suit encompasses a cause of action that is not arbitrable or impleads someone who is not a party to the arbitration agreement, the matter cannot be referred under Section 8 – is no longer valid.

5. Lastly, the counsel urged that an arbitration agreement is deemed severable from the underlying principal agreement, and therefore, allegations of fraud too can be adjudicated by the tribunal.

Argument made by respondent :-  The learned senior counsel for the respondents argued that the decision in Sukanya Holdings (supra) stated that when third parties who have not signed an arbitration agreement are included in civil proceedings along with other defendants who have signed the arbitration agreement, and the subject matter of the arbitration agreement covers both arbitrable and non-arbitrable issues, then an application under Section 8 of the Act cannot be made. This view was not overruled in Chloro Controls. The counsel submitted that although Sections 8 and 45 now have identical language due to recent amendments, this change does not affect the jurisdiction under Section 8. One of the points for decision was whether the decision in Sukanya Holdings was correct. 

Though there are two agreements, between the parties to the Sale and Purchase Agreement and the Equipment Lease Agreement with Dante Energy are one of the same. Juwi India is not the defendant, as discussed Equipment and Material Supply Contract and Engineering, Installation and Commissioning Contract with Juwi India itself were for the purpose of commissioning Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh. This clauses in the Equipment and Material Supply Contract between Rishabh and Juwi India clearly indicate that the Rishabh has entered into Lease Agreement with Dante Energy and that the Rishabh proposes to source Photovoltaic products/panels etc. and similar Solar Power generating equipments for onward lease of those 10 goods to Dante Energy. 

Case analysis :- 

1. The Client Rishabh is entering into Lease Agreement with M/s Dante Energy Pvt. Ltd. The Lessee Dante Energy has necessary authorizations to develop and operate and commercially exploit a 2 MWp thin-film photovoltaic solar plant at Dongri, Raksa, District-Jhansi, UP. The transmission line from power plant to the Grid Substation, bay extension work at the Grid Substation, including all of the infrastructure and relevant installations required to connect the electricity producing equipment to the distribution and transmission grid at the Grid Substation in UP, India.
2. Rishabh intends to purchase Photovoltaic products, inverters, transformers, and other solar power generating equipment for its own use and then lease them to Dante Energy (Lessee). This is evident from the clause mentioned in the Equipment and Material Supply Contract.
3. Then Dante Energy  will have the opportunity to examine the solar power generating equipment that Rishabh  intends to purchase. After Dante Energy confirms its approval, Rishabh will buy the equipment and deliver it to the project site for Dante Energy’s use. This is also mentioned in the Equipment and Material Supply Contract.
4. The Supplier is agree to supply the Equipment and Materials to the Client  in accordance with the terms and condition of this Contract. 
5. The Engineering, Installation, and Commissioning Contract between Rishabh and Juwi India, signed on March 14, 2012, was specifically for the purpose of commissioning a Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh. This agreement is linked to Rishabh’s Equipment Lease Agreement with Dante Energy, as mentioned in Clause (A) of the Engineering, Installation, and Commissioning Contract. The connection between the two agreements is highlighted in the relevant clauses of the contract. 
6. Then the Sale and Purchase Agreement march 5, 2012, does not have any arbitration clause, by the above clauses, it is clearly linked with the main agreement – Equipment Lease Agreement Sale and Purchase Agreement was entered into between Astonfield and Rishabh only for the purpose of onward transmission of leasing of the goods by Rishabh with  Dante Energy. There is no merit in the contention that the Sale and Purchase Agreement is not connected with the Equipment Lease Agreement with Dante Energy.

Judgment :-  

It was observed that the opinion of the Equipment Lease Agreement dated march 14, 2012, alone was not the subject matter of the action. The learned single Judge council observed that the suit is filed by the plaintiffs revealed that though one of causes of actions therein undoubtedly was non-payment of lease rentals by the Dante energy to the plaintiffs but the latter, in the suit did not claim lease rentals and had not sought return of the equipment but alleged to having been induced by the defendants to pay the price to Juwi India and were seeking to recover the said amount from the defendants jointly and severally. 

It was also observed that when we look at the suit filed by the plaintiffs, though one of causes of actions for the dispute raised therein undoubtedly is non-payment of lease rentals by the defendant No.3 to the plaintiffs but the plaintiffs in the suit are not claiming lease rentals and have not sought return of the equipment but are averring having been induced by the defendants to pay the price to Juwi India and are seeking to recover the said amount from the defendants jointly and severally.  This Court is also  held that mere allegation of fraud is not a ground to nullify to  effect the arbitration agreement between the parties and arbitration clause need not be avoided and parties can be relegated to arbitration.  

Conclusion :- In conclusion, The Supreme Court clarified that Section  8 of the Act should be the aforesaid aspect,  whether the nature of dispute is such cases that it cannot be referred to arbitration, even if there is an arbitration agreement between the parties. Then  the case of fraud is set up by one of the parties and on that basis that party wants to wriggle out of that arbitration agreement, this a strict and meticulous inquiry into the allegations of fraud is needed and only when the Court is satisfied that the allegations are of serious and complicated nature that it would be more appropriate for the Court to deal with the subject matter rather than relegating the parties to arbitration.

REFERENCES:- 

https://main.sci.gov.in/supremecourt/2017/18500/18500_2017_Judgement_03-May-2018.pdf

https://indiankanoon.org/doc/191092863/

https://www.barandbench.com/columns/ameet-lalchand-shah-case-allegation-fraud-commercial-contract

https://www.livelaw.in/pdf_upload/pdf_upload-374311.pdf

This Article is written by Lakshmi singh student of Lovely Professional University Jalandhar Punjab; Intern at Legal Vidhiya.

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