VINOD KUMAR SACHDEVA (THROUGH LRS) V. ASHOK KUMAR SACHDEVA 

OVERVIEW OF THE CASE

ABSTRACT

The case pertains to the verdict of supreme court in ‘Vinod Kumar Sachdevav Through Lrs v. Ashok Kumar Sachdeva & ors.The case involves a dispute between the appellant-Ashok kumar sachdeva and the respondent-Vindo kumar sachdeva.The source of dispute is a Memorandum of Understanding brought up by the parties dated on 14 september 2010.The appellant instituted two suit and the first respondent sought an application to refer the suit to arbitration under section 8. Arbitration and conciliation Act,1996.The application had been dismissed by the Trial court . However it was upheld by the High Court.The case eventually reached the supreme court which granted leave and allowed appeals.In it’s decision the apex court has sought to dismiss the appeal for arbitration on grounds that certain parties seeking to arbitrate the matter are not signatories to the Arbitration agreement under the MoU. The court upheld the autonomy of the parties in arbitration because the basis for arbitration is mutual consent.However certain other judgements have also been discussed in this paper which are of different view and hold the validity of non-signatories in arbitrating disputes under arbitration.

 KEYWORDS:

Arbitration- Memorandum of Understanding-Arbitration and conciliation Act,1996-Supreme court of India-Non signatory to arbitration-canara bank

FACTS/BACKGROUND:

Appelant- Vinod kumar sachdeva (dead) Through LRS

Respondent 1- Ashok kumar sachdeva

Procedural history- Trial court; Amritsar

                                 First appellate; Punjab and Haryana High Court

                                 Final appellate; Hon’ble Supreme court of India 

A MOU(Memorandum of understanding ) had been signed between the Appellant, Vinod Kumar Sachdeva and the respondent, Ashok kumar Sachdeva. The appellant and the respondent happen to be real brothers and jointly own the company under a partnership business –‘Sachdeva and Sons’. The memorandum signed by the parties prescribed that the jointly owned family properties or ancestral properties could be utilized to settle the debts arising out of the business transactions. Clause 15 of the MoU included an arbitration agreement which clarified that disputes arising between the parties are to be referred to Maa Deva Ji and /or Sh.Surinder Kumar and further any other person could be appointed by mutual agreement, whose decision was to be considered final.

Owing to the differences arising between the parties, The appellant filed a suit, in Amritsar court against 

• Respondent 1- Ashok Kumar Sachdeva; R1
• Respondent 2- Sachdeva and sons; R2

The Suit sought a permanent Injunction barring R1 and R2 from selling/alienating the business properties. Another suit was filed by the appellant Injuncting R1 and R2 from seeking any financial aid from any bank against business properties.

Further the appellant filed a suit against

• Respondent 3- Canara Bank; R3

The R3 was directed to recall any loans/financial aids provided to R1 and R2 against properties pertaining to the jointly owned business.

Respondent 1 –Ashok kumar sachdeva sought reference to the arbitration, in both suits as per Section 8,Arbitration and conciliation Act, 1996. However the applications were quashed by The trial court of Amritsar. A writ was filed by the respondent before the high court of Punjab and Haryana against the trial court’s orders.The High Court permitted the application, thereby setting aside the dismissal pronounced by the Trial court.

Through two different orders the High court directed the disputes to be resolved by means of arbitration.

ISSUES RAISED:

1. Whether the parties not signatories under the MoU could be subjected to the terms of the arbitration agreement.
2. Whether the disputes between the parties could be subjected to arbitration as per the arbitration agreement included in the MoU

CONTENTIONS:

APPELANT:

The counsels appearing for the appellants argued that parties like- Respondent 3;Canara Bank and Respondent 2; ‘Sachdeva and sons’ not being signatories to the MoU cannot be bound to the arbitration agreement.The only parties signatories to the MoU being the appellant and the Respondent-1 and were thus bound by the arbitration clause. Hence it can be inferred that non-signatory entities cannot be bound by the terms of the arbitration agreement to arbitrate the concerned issue.

It was further contended that non-family members who were shareholders in the concerned enterprise, were not signatories to the arbitration agreement. Therefore it was contended that since the agreement had been signed only by the respondent and the appellant therefore the said dispute cannot be raised for arbitration.

RESPONDENT:

The counsels for the respondent based their arguments on Section 8, Arbitration and conciliation Act,1996 – “Power to refer parties to arbitration where there is an arbitration agreement.”

The counsels argued that arbitration must be sought in order to settle the disputes in the present case because they come under the ambit of the terms of the arbitration clause in the MoU.And therefore the core essence of the contentions pertained to the referral of the said matter to arbitration.

  JUDGEMENT:

 The court examined the concerned arbitration clause of the MoU and upheld the contentions raised by the Appellants.The court struck down the reference of the matter to arbitration citing grounds that 

• “Parties not signatory to the arbitration agreement could not be forced to arbitrate.”
• The court observed that the arbitration agreement was only limited to disagreements arising between the appellant and respondent.
• Organisations and parties like –“canara Bank” and “Sachdeva and sons” no being signatories are beyond the scope of Clause 8.Arbitration and conciliation act.
• The court delineated that parties not specifically and explicitly mentioned in the agreement cannot be compelled to arbitrate the dispute.

The case/matter was thus consequentially returned to the Civil Judge for further action. It was affirmed by the apex court, through its judgment that in order to maintain the utmost autonomy of the party, the parties drawing an arbitration agreement should emphasize explicit and definite arbitration agreement.

ANALYSIS

The case essentially highlights the need for a well-drafted definite and absolute in it’s inference agreement and with a reasonable foresight.The apex court reaffirms that mutual consent being the essence of an arbitration agreement it’s of utmost priority to the inclusion of parties only when they are interested to be under the purview of Arbitration.Therefore the pleading of one of the parties to refer to arbitration stands invalid and the parties are required to seek redressal through proper legal forum.However certain judgments  of different High Courts present a similar or a contrary opinion which results in a diarchy. 

For Instance The Delhi high court in the case of Hindustan prefab Limited v. Messrs NCC ltd   held that a non-signatory is not bound by the agreement of arbitration and hence dismissed the applications for a single composite arbitral proceeding.

 On another occasion, The High court of madras in the case of Vatsala Jagganthan v. Tristar Accomodations Ltd.,non-signatories can be referred to arbitration by means of ‘Doctrine of Alter-Ego’ in cases where there exists substantial evidence to present that the non-signatory is ‘alter-ego’ which basically enquires whether a  corporation posses a different legal entity apart from it’s owner.

The Supreme court in Yogi Agarwal v.Inspiration Clothes &U  held that it is of paramount importance to determine that the dispute must be within the parties and the arbitration in it’s true nature and character occurs between the interested parties who have obligations and enjoy rights under the arbitration agreement. In a similar case before the Delhi High court it was however held that ‘Confirming Party’ to a contract ,but are non- signatories to the arbitration clause are entitled to invoke arbitration.

In presence of such varying and contradicting opinions of different courts of justice it becomes highly essential to draw a consensus as to the most accurate interpretation of status and facts pertaining to the case.

BIBLIOGRAPHY

1. SUPREME COURT REITERATES THAT PARTIES TO THE SUIT WHO WERE NOT PART OF THE MOU WHICH HAD ARBITRATION CLAUSE CANNOT BE BOUND BY THE TERMS OF THE MOU – The Indian Lawyer, https://theindianlawyer.in/supreme-court-reiterates-that-parties-to-the-suit-who-were-not-part-of-the-mou-which-had-arbitration-clause-cannot-be-bound-by-the-terms-of-the-mou
2. Court Refuses Reference To Arbitration Due To Exclusivity Of Arbitration Agreement Court: Supreme Court Of, https://www.lawyersclubindia.com/judiciary/court-refuses-reference-to-arbitration-due-to-exclusivity-of-arbitration-agreement-court-supreme-court-of-india-in-vinod-kumar-sachdeva-dead-thr-lrs-v-ashok-kumar-sachdeva-ors-6848.asp
3.  The Arbitration and Conciliation Act, 1996|Legislative Department | Ministry of Law and Justice | GoI, https://lddashboard.legislative.gov.in/actsofparliamentfromtheyear/arbitration-and-conciliation-act-1996 (last visited Nov 5, 2023).
4. BINDING NON-SIGNATORIES TO ARBITRATION: TRACING THE EVOLUTION OF THE LAW SINCE MTNL V. CANARA BANK – Legal Developments, https://www.legal500.com/developments/thought-leadership/binding-non-signatories-to-arbitration-tracing-the-evolution-of-the-law-since-mtnl-v-canara-bank/ (last visited Nov 5, 2023).
5. Parina Katyal, Non – Signatory Can Be Referred To Arbitration Under ‘Doctrine Of Alter Ego’: Madras High Court, (2023), https://www.livelaw.in/news-updates/non-signatory-can-be-referred-to-arbitration-under-doctrine-of-alter-ego-madras-high-court-219983 (last visited Nov 5, 2023).
6. Editor_4, Can a Non-Signatory or Confirming Party Be Made Party to the Arbitration? The Position of Non-Signatory in an Arbitration Agreement, SCC Blog (Jun. 14, 2021), https://www.scconline.com/blog/post/2021/06/14/arbitration-agreement/ 
7. Parina Katyal, “Confirming Party” To A Contract, Who Is Not Signatory To The Arbitration Clause, Can Invoke Arbitration: Delhi High Court, (2022), https://www.livelaw.in/news-updates/delhi-high-court-arbitration-clause-section-8-arbitration-conciliation-act-invocation-of-arbitration-211465 (last visited Nov 5, 2023).

This case analysis has been written by Insha Pani, National Law University Odisha an intern under Legal Vidhiya.

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