M/S Star D.G. Home Proprietorship Firm vs. M/S. Khaitan Chemicals And Fertilizers LTD. Through President And Chief Financial Officer Shri Harsh

Held

The Court held that the application for the appointment of an arbitrator was not maintainable. The central issue was whether the applicant, as an assignee, could be considered a 'veritable party' to the arbitration agreement, even though it was not an original signatory. The Court referred to the doctrine of 'veritable party' as expounded by the Supreme Court, emphasizing that for a non-signatory to be considered a veritable party, their involvement in the negotiation or performance of the contract must be positive, direct, and substantial, not merely incidental. The Court found that the applicant's engagement by Respondent No.3 for discharging its contractual obligations, along with other entities like Royal Traders and Varun Infratech, constituted business arrangements for fulfilling contractual duties. This arrangement of business transactions, in the Court's view, did not create a binding arbitration agreement between Respondent No.1 and the applicant. Therefore, in the absence of an arbitration agreement between the present parties, the Court dismissed the application, holding that it could not entertain the appointment of an arbitrator.

Facts

The applicant, M/s Star D.G. Home Proprietorship Firm, filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of a sole arbitrator. The dispute arose from agreements concerning the dismantling and sale of scrap from Respondent No.1's (M/s. Khaitan Chemicals and Fertilizers Ltd.) solvent extraction plant. Initially, Respondent No.1 entered into an agreement with Respondent No.2 on May 23, 2022, for Rs. 20 crores. Due to GST liabilities, a tripartite agreement was executed on September 9, 2022, involving Respondent No.3. Subsequently, Respondent No.3 assigned its rights to the applicant via a letter dated December 29, 2022. The applicant deposited Rs. 6,68,91,527/- with Respondent No.1, who issued invoices totaling Rs. 4,86,91,036.32/-. However, Respondent No.1 discontinued supply despite an unadjusted balance of Rs. 1,82,00,491/- and began selling scrap to others. The applicant had previously obtained interim relief from the Commercial Court under Section 9 of the Act.

Key Issues

1. Whether the applicant, as an assignee of rights under agreements to which it was not an original signatory, is bound by the arbitration agreement contained in the original contract between Respondent No.1 and Respondent No.2, thereby making it a 'veritable party' to the arbitration agreement? (Section 11(6) of the Arbitration and Conciliation Act, 1996, read with principles of assignment and arbitration law). Petitioner's Arguments: - The applicant contended that through a cumulative reading of the agreements and the letter of assignment, it became a party to the original agreement and thus bound by its arbitration clause. - It argued that the assignment was made with the consent of Respondent No.1, as evidenced by the tripartite agreement and the invoices issued by Respondent No.1 in favour of the applicant, which referenced all relevant agreements. - Reliance was placed on the Supreme Court judgments in Cox and Kings Ltd. vs. SAP India (P) Ltd. and Vidya Drolia and Others vs. Durga Trading Corporation. Respondent No.1's Arguments: - Respondent No.1 argued that the application was not maintainable because the applicant and Respondent No.1 had never entered into an arbitration agreement. - It asserted that the applicant had approached the Court by suppressing material facts and that the original agreements were between Respondents No.1 to 3.