Gujarat Composite Ltd v. A Infrastructure Ltd & Ors

Background facts

  • Gujarat Composite Ltd (Appellant) entered into 2 license agreements with A Infrastructure Ltd (Respondent No. 1) and its sister concern for licensing the operation of its manufacturing units. Thereafter, the Appellant and Respondent No. 1 executed a supplementary agreement for the advancement of certain sum to the Appellant and it was agreed that Respondent No. 1 would be permitted to create a mortgage on the licensed manufacturing units to secure the ad hoc advance.
  • Subsequently, a tripartite agreement was executed between the Appellant, Respondent No. 1 and Bank of Baroda (Respondent No. 2), whereby Respondent No. 2 sanctioned a loan of INR 500 lakh to Respondent No. 1. Further, an amendment was introduced to the tripartite agreement to restrict the transfer of title deeds of the land of Appellant during the term of license agreement.
  • The dispute arose between the parties when Respondent No. 1 called upon the Appellant to extend the term of the license agreement. The Appellant, however, denied such proposal. The extension was sought because the Appellant was unable to pay certain dues owed to Respondent No. 1. Thereafter, when the tenure of the original license agreement ended, Respondent No. 1 did not hand over the possession and declared its intention to continue with possession. The Appellant then issued a notice to Respondent No. 1 claiming recovery of possession of the manufacturing units, as well as certain monetary dues on the primary ground that the license had expired by efflux of time and such possession was illegal.
  • Since several attempts to amicably resolve the dispute failed, the Appellant served a notice on the Respondent No. 1 invoking arbitration under the license agreement. In response, Respondent No. 1 contested the arbitrability of the dispute since it was inextricably interconnected with other related transactions, asserting that as the jurisdiction of the Arbitrator was derived from the agreement, adjudication of the dispute would go beyond the scope of the said agreement.
  • In the aforementioned backdrop of events, the Appellant preferred a composite arbitration petition before the Gujarat High Court (HC) against Respondent No. 1. On the other hand, Respondent No. 1 filed commercial civil suit before the Commercial Court at Ahmedabad (Commercial Court). Vide Order dated December 13, 2017, the Commercial Court rejected the application of the Appellant under Section 8 of Arbitration & Conciliation Act, 1996 (Arbitration Act) and held that there was no arbitration clause in the tripartite agreement and no reference had been made to the original or supplementary contract to give effect or consider the arbitration clause as a part and parcel of the tripartite agreement.
  • Thereafter, the Appellant filed an Appeal, and the HC too dismissed it on the grounds that the matter in the suit falls partly within and partly outside the arbitration agreement, and involves non- parties, thus, Section 8 of the Arbitration Act would not be attracted.
  • Being aggrieved by the decision of the HC and Commercial Court, the Appellant preferred an Appeal before the Supreme Court (SC).

Issue at hand?

  • Whether the issues raised in suit went beyond the license agreement for the purposes of application under Section 8 of the Arbitration & Conciliation Act?

Decision of the Court

  • At the outset, the SC perused Section 8 of the Arbitration Act, which deals with the Court referring the parties to arbitration and noted that the suit should be in respect of a matter which the parties have agreed to refer, and which comes within the ambit of arbitration agreement. The SC relied on its judgement in the case of Ameet Lalchand Shah v. Rishabh Enterprises & Anr1 and observed that the amendment to Section 8 of the Arbitration Act after the decision in Sukanya Holdings Pvt Ltd v. Jayesh H Pandya & Ors2 could be seen in the background of the recommendations of 246th Law Commission Report in which, inter alia, it was observed that as per the proposed amendment, judicial authority would not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void.
  • The SC placed reliance on its judgement in Oil and Natural Gas Corporation v. Discovery Enterprises3 concerning the group of companies doctrine and noted that the factors:
    • The mutual intent of the parties
    • The relationship of a non-signatory to a party which is a signatory to the agreement
    • The commonality of the subject-matter
    • The composite nature of the transaction
  • The performance of the contract is responsible for deciding if a company within a group of companies, which is not a signatory to arbitration agreement, would nonetheless be bound by it. The SC noted that there had been multiple transactions in this case, and further it observed that except the original license agreement, none of the other agreements contained any arbitration clause even if they related to the same property and involved the Appellant and the Respondent No. 1. Moreover, SC noted that the genesis of the contractual relations between Appellant and Respondent No.1 is from the original license agreement, and it does not ipso facto lead to the availability of the arbitration agreement in relation to the dispute in question, which emanates from the tripartite agreement, and which cannot be determined without reference to the said tripartite agreement and without involving all the parties.
  • The SC further observed that there is no doubt about non-existence of arbitration agreement in relation to the entire subject-matter of the suit, and when the substantive reliefs claimed in the suit falls outside the arbitration clause in the original license agreement, the view taken by the HC does not appear to be suffering from any infirmity or against any principle laid down by this Court.
  • In view of the above, the SC held that the view taken by the Commercial Court and the HC in declining the prayer of the Appellant for reference to arbitration under Section 8 of the Arbitration Act cannot be faulted and accordingly, SC dismissed the Appeal.

Ghanshyam v. Yogendra Rathi

Background facts

  • The Respondent instituted a suit for eviction of the Appellant from the suit premises which is part of H-768, J.J. Colony, Shakarpur, Delhi and for mesne profits on the averment that he is the owner of the said property by virtue of an agreement to sell dated April 10, 2002, power of attorney, a memo of possession and a receipt of payment of sale consideration as well as a will of the Appellant bequeathing the said property in his favor.
  • The possession of the suit premises was handed over to the Respondent pursuant to the agreement to sell. Subsequently, on the request of the Appellant, the Respondent allowed the Appellant to occupy the ground floor and one room on the first floor of it for a period of 3 months as a licensee.
  • The Appellant failed to vacate the suit premises despite expiry of the license period and termination of license vide notice dated February 18, 2002.cFurthermore, the Appellant opposed the suit on the grounds that the documents had been manipulated on blank sheets but did not contest their execution or the fact that the possession memo or the sale consideration stipulated in the agreement had not been paid.
  • The Trial Court held that the Respondent has proved his right over the property and since the license of the Appellant stands determined, he is entitled to a decree of eviction and payment of mesne profits, though not at the rate claimed by the Respondent, but at the rate of INR 1000 per month for the use and occupation of the premises in dispute. A categorical finding of fact was recorded that there is no evidence to prove that any of the above documents were obtained by misrepresentation, manipulation or by playing fraud upon the Appellant.
  • The suit as per the pleadings is that of eviction and mesne profits on the averment that the Respondent is the owner of the property. He has claimed ownership on the strength of the aforesaid documents, especially the agreement to sell and the memo of possession as well as the receipt of payment of sale consideration.
  • After having lost from all the three Courts, the Appellant, herein, has preferred this Appeal.

Issue at hand?

  • Whether the documents, namely the power of attorney, will, agreement to sell coupled with possession memo and receipt of payment of sale consideration, would confer any title upon the Respondent so as to entitle him to a decree of eviction and mesne profits?

Decision of the Court

  • At the outset, the Division Bench of Supreme Court held that 'the Power of Attorney executed by the Defendant has no bearing because neither a Sale Deed nor any other action done by the Power of Attorney holder in accordance with it has been executed, which may have conferred title on the Respondent. The specified general Power of Attorney is rendered ineffective if any document is not executed by the person holding it as a result.'
  • The Apex Court further observed that 'the will executed has no meaning as the same comes into effect only after the death of the executants and not before it.' It was noted that the general Power of Attorney and the will as executed, as well as any practice followed by a State or the High Court that recognizes these documents as being documents of title or documents granting rights in any immoveable property, violate the law. The precise legal requirements, which demand the execution of a deed of title or transfer and its registration in order to provide right and title to an immovable property worth more than INR 100, would prevail over any such practice or custom that may be in use.
  • The Supreme Court relied on various cases such as the decisions of the Delhi High Court in the case of Veer Bala Gulati v. Municipal Corporation of Delhi & Anr4 and in the case of Asha M Jain v. Canara Bank & Ors5 holding that the agreement to sell with payment of full consideration and possession along with irrevocable Power of Attorney and other ancillary documents is a transaction to sell even though there may not be a Sale Deed.
  • The Apex Court relied on the case of Imtiaz Ali v. Nasim Ahmed6 and G Ram v. Delhi Development Authority7 in which the Delhi High Court observed that an agreement to sell or the Power of Attorney are not documents of transfer and as such the right title and interest of an immovable property do not stand transferred by mere execution of the same unless any document as contemplated under Section 54 of the Transfer of Property Act, 1882, is executed and is registered under Section 17 of the Indian Registration Act, 1908.
  • The Supreme Court held that 'an agreement to sell may not be legally regarded as a sale transaction or a document transferring the proprietary rights in immovable property, but once the prospective buyer has fulfilled his obligations under the agreement and is lawfully in possession, he or she acquires possessory title that is subject to protection under Section 53A of the Transfer of Property Act, 1882. No one, including the transferor or anybody deriving rights from him, may infringe upon the aforementioned possessory rights of the potential buyer'
  • The Supreme Court ruled that the Plaintiff has rightly been held to be entitled to a decree of eviction with mesne profits. Accordingly, the Supreme Court dismissed the Appeal.

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1. (2018) 15 SCC 678

2. (2003) 5 SCC 351

3. (2022) 8 SCC 42

4. (2003) 104 DLT 787

5. (2001) 94 DLT 841

6. AIR 1987 DELHI 36

7. AIR 2003 DELHI 120

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