$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CS(COMM) 626/2022, I.A. 19669/2022, I.A. 4678/2023 & I.A.
13160/2023
th
Reserved on: 26 September, 2024
th
Date of Decision: 30 December, 2024
M/S. MGM PAPERS LLP .....Plaintiff
Through: Ms. Monica Goel, Ms. Kajal Pal and
Mr. Yash Nagpal and Ms. Muskan
Aggarwal, Advocates along with Mr.
Sarvesh Sharma, AR
versus
M S SAMMAN LAL SHER SINGH PAPER PVT
LTD AND ORS .....Defendants
Through: Mr. Kamil Khan, Mr. Suman Raj, Mr.
Fardeen Khan and Ms. Aashna Bhola,
Advocates
CORAM:
HON'BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA
J U D G M E N T
MANMEET PRITAM SINGH ARORA, J:
I.A. 19669/2022 (on behalf of the defendants under Section 8 of the
Arbitration and Conciliation Act, 1996 seeking reference of the disputes to
arbitration)
1. This is an application under Section 8 of the Arbitration and
filed by the defendants relying upon
Conciliation Act, 1996 [‘Act of 1996’]
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Clause 28 of the Settlement Agreement dated 30.12.2019
[‘Settlement
for seeking reference of the disputes, which are the subject
Agreement’]
matter of this suit to arbitration.
2. It is stated at paragraph 10 of the application that though the
Settlement Agreement has been signed by defendant nos. 2 and 4, defendant
nos. 1 and 3 acknowledge that they are bound by the said Settlement
Agreement.
3. In reply, non-applicant/plaintiffs state that the said application is not
maintainable as it is barred by limitation since the application has been filed
beyond 30 days from date of service of the summons in the suit. It is stated
that defendants were served with the summons vide email on 18.10.2022
and therefore, the present application filed on 21.11.2022 is barred by
limitation.
3.1. It is stated that Clause 28 of the Settlement Agreement has to be read
with Clause 23 of the Settlement Agreement. It is contended that the said
Clause is applicable only if disputes are referred between 30.12.2019 and
31.01.2020. It is contended that the said arbitration clause is thus valid for
only one (1) month and thereafter, the disputes have to be resolved through
the process of Civil Courts.
3.2. In addition, it is stated that Clause 23 names two (2) arbitrators,
whereas, Section 10(1) of the Act of 1996 stipulates that the number of
arbitrators cannot be even and therefore, the Clause is unenforceable being
contrary to the statutory provision.
3.3. It is stated at paragraph 12 of the reply that though it is correct that
plaintiff nos. 2 and 4 executed the Settlement Agreement on behalf of
plaintiff no. 3 as well; however, since plaintiff no. 3 has not actually signed
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the Settlement Agreement, the said Agreement is voidable at its instance.
3.4. Similarly, at paragraph 18 of the reply, it is admitted that plaintiff nos.
2 and 4 signed the Settlement Agreement on behalf of plaintiff nos. 1 and 3;
however, it is contended that it may not be right to contend that the non-
signatory plaintiff nos. 1 and 3 are bound by the Settlement Agreement.
3.5. It is stated that defendants have submitted to the jurisdiction of the
Civil Court and waived their right to seek reference to arbitration as
defendants in their reply dated 29.08.2022 to the legal notice dated
22.07.2022 did not suggest reference to arbitration. It is stated that similarly,
defendants in their reply dated 19.08.2022 refused to participate in pre-
institution mediation; however, in this reply as well they did not seek
reference to arbitration.
4. This Court has considered the submissions of the parties and perused
the record.
5. The relevant Clauses 23 and 28 of the Settlement Agreement refer to
by the parties in the pleading reads as under: -
That in case of dispute or difference between the parties on any
“23.
matters, the same shall be referred to following 'Arbitrators' (1) Sh.
Raj Kumar Bindal and (2) Sh. Satya Narain Gupta, being
respected members of the Paper market and their decision shall be
final and binding on both the parties.
28. It has been further agreed amongst the parties that if any matter,
which has been left or overlooked or has not been considered in this
st
Final Consolidated Balance Sheet as on 31 March 2019 of joint
businesses of both the Families as stated above, shall be checked and
st
verified by both the parties within a period of one month i.e. upto 31
Jan. 2020 and shall be settled by both the parties with mutual consent.
If, however, there is some dispute or disagreement on the same
then in such case, the decision of Arbitrators as stated above,
‘ ’
shall be binding on both the parties. However, it does not include
interest recovery matter of any party or customer which has been
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considered in point below.”
(Emphasis Supplied)
6. The Settlement Agreement has been relied upon by plaintiff nos. 1 to
4 in their plaint in its entirety without any exception or reservation. The
captioned suit for recovery of money against the defendants has been filed
relying upon the contents of the Settlement Agreement. It is thus evident
from the averments in the plaint that plaintiff nos. 1 and 3, who are
otherwise non-signatories to the Settlement Agreement; admit and ratify the
terms of the said agreement. Thus, the submissions of the non-
applicant/plaintiffs at paragraph nos. 12 and 18 of the reply that the non-
signatories can avoid the arbitration Clause in the Settlement Agreement is
without any merit, as the said plaintiff nos. 1 and 3 have by filing the plaint
relying upon the Settlement Agreement, unequivocally accepted the
arbitration Clause of the Settlement Agreement. The relevant paragraph of
the amended plaint reads as under:
“16. That, both the parties, Plaintiff nos. 2 to 4 and Defendant nos. 2
to 5, had decided to make a Final Settlement Agreement through
mutually settled terms and conditions which is documented and
named as Final Settlement Agreement along with the E-Stamp no.
‘ ’
IN-DL03034360793135R on 30.12.2019 which is duly notarised and
signed by Plaintiff no. 2 and 3 on behalf of all the Plaintiffs and by
Defendant nos. 2 and 4 on behalf of all the Defendants and two
witnesses, and a true copy is annexed herein as DOCUMENT D-5.
31. That, this Hon'ble Court has territorial jurisdiction to entertain and
adjudicate the present suit as the Final Settlement Agreement dated
30.12.2019 between the Plaintiffs and the Defendants was formed and
signed at Delhi. The CoA arose in the jurisdiction of this Hon'ble
Court and both the parties resides and have their registered offices in
Delhi. Hence, this Hon'ble Court has territorial Jurisdiction to
entertain and try this commercial dispute within the meaning and
scope of Section 2(1)c of the Commercial Courts Act, 2015.”
(Emphasis Supplied)
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7. The Supreme Court in its recent judgment in Ajay Madhusudan
1
Patel and Others v. Jyotrindra S. Patel and Others , has held that if the
consent of a non-signatory party is discernible from the circumstances
surrounding the negotiation and performance of the contract containing the
arbitration agreement, the referral Court can draw a legitimate inference that
such a non-signatory is a party to the arbitration agreement. The relevant
paragraph 71 of the said judgment reads as under: -
“71. It is evident that the intention of the parties to be bound by an
arbitration agreement can be gauged from the circumstances that
surround the participation of the non-signatory party in the
negotiation, performance, and termination of the underlying contract
containing such an agreement. Further, when the conduct of the non-
signatory is in harmony with the conduct of the others, it might lead
the other party or parties to legitimately believe that the non-signatory
was a veritable party to the contract containing the arbitration
agreement. However, in order to infer consent of the non-signatory
party, their involvement in the negotiation or performance of the
contract must be positive, direct and substantial and not be merely
incidental. Thus, the conduct of the non-signatory party along with the
other attending circumstances may lead the referral court to draw a
legitimate inference that it is a veritable party to the arbitration
agreement.”
8. The amended plaint duly records the averments as regards
participation of plaintiff nos. 1 and 3 in the negotiation and performance of
the Settlement Agreement. The said plaintiffs admit that plaintiff nos. 2 and
4 signed the Settlement Agreement on their behalf. In these admitted facts,
the plea of plaintiff nos. 1 and 3 of being non-signatory ceases to have effect
as the said plaintiffs have filed the plaint for enforcement of the said
Settlement Agreement.
9. The next plea of the plaintiffs that Clause 28 of the Settlement
1 2024 SCC OnLine SC 2597
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Agreement could be invoked only during the period 30.12.2019 and
31.01.2020 is also incorrect. On a conjoint reading of Clauses 23 and 28 of
the Settlement Agreement, it is evident that the said Clause was to operate
with respect to any dispute or difference between the parties. The period of
30.12.2019 to 31.01.2020 is only with respect to period provided for
verification of the entries in the Final Consolidated Balance Sheet; however,
the said period does not govern the operability of the arbitration agreement
recorded at Clause 23 of the Settlement Agreement.
10. The plea of the plaintiffs that since Clause 23 provides two (2)
arbitrators, the same does not fulfil the criteria of Section 10(1) of the Act of
1996 and thus no reference can be made, is misconceived. The intent of the
parties to have the disputes settled through arbitration and the preference to
have the arbitration presided over by the members of the Trade all indicate
that the parties agreed to this remedy of arbitration for expeditious resolution
of the disputes. The intent of Section 10(1) of the Act of 1996 is to prevent a
deadlock in the final opinion of a multi-member tribunal, which is likely if
tribunal has even number of members. The Section 10 of the Act of 1996,
thus stipulates that the number of members in a multi-member Tribunal
should not be even.
11. At this juncture, it would be relevant to refer to the judgment of the
Supreme Court in Narayan Prasad Lohia v. Nikunj Kumar Lohia2 ,
17. We are also unable to accept Mr Venugopal's argument that, as a
matter of public policy, Section 10 should be held to be non-
derogable. Even though the said Act is now an integrated law on the
subject of arbitration, it cannot and does not provide for all
contingencies. An arbitration being a creature of agreement between
the parties, it would be impossible for the legislature to cover all
2 (2002) 3 SCC 572
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aspects. Just by way of example Section 10 permits the parties to
determine the number of arbitrators, provided that such number is not
an even number. Section 11(2) permits parties to agree on a procedure
for appointing the arbitrator or arbitrators. Section 11 then provides
how arbitrators are to be appointed if the parties do not agree on a
procedure or if there is failure of the agreed procedure. A reading of
Section 11 would show that it only provides for appointments in cases
where there is only one arbitrator or three arbitrators. By agreement
parties may provide for appointment of 5 or 7 arbitrators. If they do
not provide for a procedure for their appointment or there is failure of
the agreed procedure, then Section 11 does not contain any provision
for such a contingency. Can this be taken to mean that the agreement
of the parties is invalid? The answer obviously has to be in the
negative. Undoubtedly the procedure provided in Section 11
will mutatis mutandis apply for appointment of 5 or 7 or more
arbitrators. Similarly, even if parties provide for appointment of
only two arbitrators, that does not mean that the agreement
becomes invalid. Under Section 11(3) the two arbitrators should
then appoint a third arbitrator who shall act as the presiding
arbitrator. Such an appointment should preferably be made at the
beginning. However, we see no reason, why the two arbitrators
cannot appoint a third arbitrator at a later stage i.e. if and when they
differ. This would ensure that on a difference of opinion the
arbitration proceedings are not frustrated. But if the two arbitrators
agree and give a common award there is no frustration of the
proceedings. In such a case their common opinion would have
prevailed, even if the third arbitrator, presuming there was one, had
differed. Thus we do not see how there would be waste of time,
money and expense if a party, with open eyes, agrees to go to
arbitration of two persons and then participates in the proceedings. On
the contrary there would be waste of time, money and energy if such a
party is allowed to resile because the award is not to its liking.
Allowing such a party to resile would not be in furtherance of any
public policy and would be most inequitable.
(Emphasis Supplied)
12. It is apparent that the Clause 23 of the Settlement Agreement provides
names of two (2) arbitrators to adjudicate the disputes between the parties
and in view of the law settled in Narayan Prasad Lohia (supra), the said
Clause 23 is not invalid. Accordingly, to give effect to the intent of the
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parties in Clause 23 of the Settlement Agreement to have the dispute
referred through arbitration in consonance with the mandate of Section 10 of
the Act of 1996, the two (2) named arbitrators at Clause 23 will be at liberty
to appoint a Presiding Arbitrator with mutual consent so as to form an
Arbitral Tribunal consisting of three (3) members. However, the arbitration
agreement does not fail on account of the ground raised by the non-
applicant/plaintiffs.
13. Lastly, the plea of the plaintiffs that the application is barred by
limitation is also misconceived. The summons through email were served on
18.10.2022. The statutory period of 30 days for filing written statement
expired on 17.11.2022; however, the grace period of additional 90 days for
filing written statement expired on 15.02.2023.
14. The applicant/defendants filed this application under Section 8 with
the registry on 23.11.2022 and the written statement was first filed with the
registry on 30.01.2023 and thereafter, was finally re-filed on 18.02.2023.
15. It is thus apparent that the captioned application has been filed during
the period available to the defendants to file their written statement. The
defendants right to file written statement has not been foreclosed. Thus, the
contention that the Section 8 application is barred by limitation is without
any merit.
16. The plaintiffs/non-applicants do not dispute that the subject matter of
the suit is covered by the arbitration clause in the Settlement Agreement.
This Court is therefore satisfied that valid arbitration agreement exists
between the parties. Consequently, the application is allowed. The parties
herein are referred to arbitration in terms of the arbitration clause contained
in the Settlement Agreement dated 30.12.2019 executed between the parties
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herein.
17. With the aforesaid directions, the present proceedings are drawn to a
close. The decree sheet be drawn up.
I.A. 4678/2023
18. This is an application under Section 151 of the Code of Civil
Procedure, 1908 filed by the defendants seeking condonation of
(‘CPC’)
delay of 76 days in filing the written statement. It is stated that the summons
in the suit were served on 18.10.2022 through email and the delay in filing
the written statement occurred due to the illness of the father of the counsel
on record. It is stated that however, the written statement has been filed on
with a delay of 76 days.
19. It is apparent that the written statement has been filed by the
defendants with the registry of this Court on 30.01.2023, within the grace
period of 90 days permissible under the amended Order VIII Rule 1 CPC as
applicable to the Commercial suit.
20. This Court is satisfied that the defendants have shown sufficient cause
for the delay in filing the written statement and the same is hereby condoned
and the written statement along with affidavit of admission/denial of
documents is taken on record.
21. The written statement is also being taken on record so as to bind down
the defendants to the stand already taken so that the arbitral proceedings can
proceed without any further delay.
22. With the aforesaid directions, the application is allowed and stands
disposed of.
CS(COMM) 626/2022
23. In view of the orders passed in I.A. 19669/2022, the present suit is
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disposed of.
24. Pending applications are disposed of.
25. All future dates stand cancelled.
MANMEET PRITAM SINGH ARORA, J
DECEMBER 30, 2024/hp/MG
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