AMEET LALCHAND SHAH AND OTHERS versus RISHABH ENTERPRISES AND ANOTHER
[2018] 6 S.C.R. 1001, Supreme Court of India, 2018
Outcome: Appeal(s) allowed (Granted)
Segment: Ratio
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AMEET LALCHAND SHAH AND OTHERS
v.
RISHABH ENTERPRISES AND ANOTHER
(Civil Appeal No. 4690 of 2018)
MAY 03, 2018
[RANJAN GOGOI AND R. BANUMATHI, JJ.]
Arbitration and Conciliation Act, 1996 – ss.8 and 45 – First
Respondent entered into four agreements in regard to commission
of a Photovoltaic Solar Plant – Two agreements dated 01.02.2012
were with M/s. ‘JI’; one agreement dated 05.03.2012 with appellant
no.2 and another agreement dated 14.03.2012 with appellant no.3
– All the agreements contained arbitration clause except agreement
dated 05.03.2012 – Dispute arose between the parties – First
respondent alleged that appellant no.3 defaulted in payment of rent
and appellant no.2 committed fraud by inducing first respondent to
purchase the Photovoltaic products by investing huge amount –
Appellants sought for reference to arbitration u/s.8 of all four
agreements as they were inter-connected – Single Judge of High
Court dismissed the application u/s.8 and held that agreement dated
14.03.2012 cannot be treated as mother/principal agreement and
other agreements as ancillary agreements and further that since
there was criminal complaint against the appellants, they cannot be
referred to arbitration – Division Bench of High Court held that
main agreement dated 05.03.2012 did not contain an arbitration
clause, thus the matter cannot be referred to arbitration – On appeal,
held: All the four agreements were inter-connected – It was a case
where several parties were
involved in a commercial project executed
through several agreements/contracts – In such a case, all parties
can be covered by the arbitration clause in the main agreement
dated 14.03.2012 – Insofar as allegations of fraud are concerned,
it is only where serious questions of fraud are involved, the
arbitration can be refused – In instant case, the allegations cannot
be said to be so serious to refuse to refer the parties to arbitration
– Arbitrator appointed can examine the allegations regarding fraud
– All the four agreements and the parties thereon referred to
arbitration.
[2016] 6 S.C.R. 1001
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Allowing the appeal, the Court
HELD: 1.  In a case like the present one, though there are
different agreements involving several parties, it is a single
commercial project namely operating a 2 MWp Photovoltaic Solar
Plant.  Commissioning of the Solar Plant, which is the commercial
understanding between the parties and it has been effected
through several agreements.  The agreement – Equipment Lease
Agreement (14.03.2012) for commissioning of the Solar Plant is
the principal/main agreement.  The two agreements of First
respondent with ‘JI’ (i) Equipment and Material Supply Contract
(01.02.2012); and (ii) Engineering, Installation and
Commissioning Contract (01.02.2012) and the First Respondent
Sale and Purchase Agreement with appellant no.2 (05.03.2012)
are ancillary agreements which led to the main purpose of
commissioning the Photovoltaic Solar Plant by Appellant No.3
(Lessee).  Even though, the Sale and Purchase Agreement
(05.03.2012) between First Respondent and appellant no.2 does
not contain arbitration clause, it is integrally connected with the
commissioning of the Solar Plant by appellant no.3.  ‘JI’, even
though, not a party to the suit and even though, appellant no.2
and appellant No.1 are not signatories to the main agreement
viz. Equipment Lease Agreement (14.03.2012), it is a commercial
transaction integrally connected with commissioning of
Photovoltaic Solar Plant.  Be it noted, as per clause(v) of
Article
4, parties have agreed that the entire risk, cost of the delivery
and installation shall be at the cost of the first respondent
(Lessor).  What is evident from the facts and intention of the
parties is to facilitate procurement of equipments, sale and
purchase of equipments, installation and leasing out the
equipments to Dante Energy. The dispute between the parties
to various agreements could be resolved only by referring all the
four agreements and the parties thereon to arbitration. [Para
21][1019-E-H; 1020-A-C]
2. All the four agreements are inter-connected.  This is a
case where several parties are involved in a single commercial
project (Solar Plant at Dongri) executed through several
agreements/contracts.  In such a case, all the parties can be
covered by the arbitration clause in the main agreement i.e.
Equipment Lease Agreement (14.03.2012). [Para 22][1020-D-E]
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3. In the present case, both parties have consciously
proceeded with the commercial transactions to commission the
Photovoltaic Solar Plant. The first respondent has proceeded to
procure the materials, entered into agreement with ‘JI’ for
engineering, installation and commissioning and the sale and
purchase agreement with appellant no.2, were all the conscious
steps taken in the commercial understanding to commission the
Solar Plant. Even though ‘JI’ and appellant no.2 are not parties
to the main agreement-Equipment Lease Agreement
(14.03.2012), all the agreements/ contracts contain clauses
referring to the main agreement. It is the duty of the Court to
impart the commercial understanding with a “sense of business
efficacy” and not by the mere averments made in the plaint. The
High Court was not right in refusing to refer the parties on the
ground of the allegations of fraud levelled in the plaint. [Para
33][1026-B-D]
4.  It is only where serious questions of fraud are involved,
the arbitration can be refused. In this case, as contended by the
appellants there were no serious allegations of fraud; the
allegations levelled against appellant no.2 is that appellant no.1
misrepresented by inducing the respondents to pay higher price
for the purchase of the equipments. There is a criminal case
registered against the appellants in FIR before the Economic
Offences Wing, Delhi. The appellant no.1 has filed Criminal Writ
Petition before the High Court of Delhi
for quashing the said
FIR. The said writ petition is stated to be pending. Suffice to say
that the allegations cannot be said to be so serious to refuse to
refer the parties to arbitration. In any event, the Arbitrator
appointed can very well examine the allegations regarding fraud.
[Para 34][1026-E-G]
5.  Main agreement- Equipment Lease Agreement
(14.03.2012) for leasing and commissioning of Solar Plant contains
arbitration clause (Clause 29).  Other three agreements-two
agreements between first respondent and ‘JI’ (01.02.2012) and
Sale and Purchase Agreement (05.03.2012) between first
respondent and appellant no.2 are integrally connected with the
commercial understanding of commissioning the Solar Project
and to resolve the dispute between the parties, they are to be
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referred to arbitration. The order of the High Court declining to
refer the parties to arbitration cannot be sustained and is liable
to be set aside. The four agreements namely:- (i) Equipment and
Material Supply Contract (01.02.2012) between first respondent
and ‘JI’; (ii)  Engineering, Installation and Commissioning
Contract (01.02.2012) between first respondent and ‘JI’; (iii) Sale
and Purchase Agreement (05.03.2012) between first respondent
and appellant no.2; and (iv) Equipment Lease Agreement
(14.03.2012) between respondent and appellant no.3 and the
parties thereon are referred to arbitration. [Para 35][1026-G-H;
1027-A-C]
6.  As per the terms of Equipment Lease Agreement
(14.03.2012), appellant No.3 has to pay lease rentals of
Rs.13,67,500/- for the month of March, 2012 and with effect from
April, 2012 to pay lease rentals of Rs.28,26,000/- per month for a
period of fifteen years. Respondents has submitted that appellant
No.3 has not paid the rentals as per the terms and conditions of
Equipment Lease Agreement and has also drawn attention that
appellant no.2 has transferred 99.99% of its shares and appellant
no.1 has only one share (0.01%). The interest of the respondents
is to be protected till the matter is resolved by the arbitrator by
directing the appellants to pay the arrears of lease rent and also
to pay the future lease rent for the equipments at the rate of
Rs.28,26,000/- per month. [Para
36][1027-C-D, F-G]
A. Ayyasamy v. A. Paramasivam and others (2016) 10
SCC 386 : [2016] 11 SCR 521 – relied on.
Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and
another (2003) 5 SCC 531 : [2003] 3 SCR 558; Chloro
Controls India Private Limited v. Severn Trent Water
Purification Inc. and others (2013) 1 SCC 641 : [2012]
13 SCR 402; Arundhati Mishra (Smt) v. Sri Ram
Charitra Pandey (1994) 2 SCC 29 – referred to.
Justice R.S. Bachawat’s Law of Arbitration and
Conciliation, Sixth Edition, Vol. I (Sections 1 to 34) at
page 695 published by Lexis Nexis) – referred to.
Case Law Reference
[2003] 3 SCR 558
referred to
Para 2
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[2012] 13 SCR 402
referred to
Para 10
(1994) 2 SCC 29
referred to
Para 29
[2016] 11 SCR 521
relied on
            Para 32
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4690
of 2018.
From the Judgment and Order dated 17.04.2017 of the High Court
of Delhi at New Delhi in FAO (OS) (Comm.) No. 85 of 2017 and C. M.
No. 14229-14300 of 2017.
Shanti Bhushan, Yatinder Singh, Sr. Advs.,  Kamini Jaiswal, Sanjeev
Dubey, Rohit Kumar Singh, Ms. Rani Mishra, Jatinderpal Singh,
Rajmangal Kumar, Ms. Shruti Dutt, Advs. for the Appellants.
Kapil Sibal, C.S. Vaidyanathan, K.V. Vishwanathan, Amit Sibal,
Sr. Advs. Amit Bhandari, Anish Dayal, Dr. Saif Mahmood, Sumant De,
Adit S. Pujari, Abhishek Kaushik, Vinay Tripathi, Amrendra Kumar
Mehta, Advs. for the Respondents.
The Judgment of the Court was delivered by
R. BANUMATHI, J. 1. Leave granted.
2. This appeal arises out of the judgment dated 17.04.2017 passed
by the Delhi High Court in FAO(OS) (COMM) No.85 of 2017 in and by
which the Division Bench affirmed the order of the Single Judge dismissing
the application filed under Section 8 of the Arbitration and Conciliation
Act, 1996 (the ‘Act’) by holding that the agreements between the parties
are not inter-connected with the principal agreement dated 05.03.2012
and therefore, the parties cannot be referred to arbitration as per the
decision in Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and
another (2003) 5 SCC 531.
3. Brief facts which led to filing of this appeal are as
follows:-
On 01.02.2012, the first respondent – Rishabh Enterprises (the
‘Rishabh’), the sole proprietorship concern of the second respondent –
Dr. A.M. Singhvi entered into two agreements with M/s Juwi India
Renewable Energies Pvt. Ltd. (Juwi India) namely:- (i) Equipment and
Material Supply Contract for purchase of power generating equipments
to the tune of Rs.8,89,80,730/-; and (ii) 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.
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4. The first respondent - Rishabh entered into Sale and Purchase
Agreement dated 05.03.2012 with the second appellant company –
Astonfield Renewables Private Limited (Astonfield) for purchasing CIS
Photovoltaic products to be leased to appellant No.3 – Dante Energy
Pvt. Ltd. (Dante Energy) to be installed at the Solar Plant at Dongri,
Raksa, District Jhansi, Uttar Pradesh.  As per the agreement, these
products were valued for Rs.25,16,00,000/-. The second appellant –
Astonfield received Rs.21,40,49,999/- from the respondents under various
cheques issued by the Rishabh.  This agreement dated 05.03.2012 does
not contain the arbitration clause.  According to the appellants, an amount
of Rs.10,00,00,000/- by cash was paid back 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.  An Equipment Lease Agreement (ELA)
dated 14.03.2012 was entered into between the Rishabh and Dante Energy
whereby Dante Energy agreed to pay the Rishabh Rs.13,50,000/- as
lease rent for March, 2012 and from April, 2012 onwards, the said rent
payable was Rs.28,26,000/-.  The Solar Plant at Jhansi has been
commissioned and energized on 16.03.2012.
5. Gist of the agreements are as under:-
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6. 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 amount.  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
and nominated Justice Sujata Manohar, former Judge, Supreme Court
of India as the Arbitrator.  The respondents namely the Rishabh and its
sole proprietor
preferred a Civil Suit (Commercial) No.195 of 2016 before
the High Court on 11.03.2016 against all the appellants levelling various
allegations including fraud and misrepresentation.  In the suit, multiple
reliefs were claimed:- (i) for a declaration that Sale and Purchase
Agreement dated 05.03.2012; 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; (ii) for recovery of a sum of Rs.32,22,80,288/-
which the appellants are jointly and severely liable to pay to the
respondents; (iii) 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 (iv) to pay arrears of lease rent.
8. On receipt of notice and summons in the suit, the appellants/
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defendants preferred application I.A. No.4158 of 2016 under Section 8
of the Act seeking for reference of the dispute between the parties to
arbitration pertaining to all the four agreements.  The appellants sought
for reference to arbitration of all the four agreements by contending that
the Sale and Purchase Agreement (05.03.2012) is the main agreement
and that other three agreements are inter-connected as they are executed
between the same parties and the obligations and the performance of
the terms of the agreements are inter-connected viz. commissioning of
the Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, U.P.  The
respondents Rishabh and Dr. A.M. Singhvi resisted the application by
contending that the suit is for declaration that the agreements are vitiated
due to fraud and misrepresentation and while so, the matter cannot be
referred to arbitration.  It was further averred that the suit is neither
concerned about the agreement dated 01.02.2012 with Juwi India nor
concerned about Equipment Lease Agreement (14.03.2012); 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.
9. The learned Single Judge by order dated 15.03.2017 dismissed
the application filed under Section 8 of the Act holding that the Equipment
Lease Agreement (14.03.2012) between Rishabh and Dante Energy
cannot be treated as the mother/principal agreement and the agreements
between the respondents and Astonfield and Juwi India cannot be said
to be ancillary agreements to the same.  The learned Single Judge further
held that not only the respondents accuse the appellants of fraud but
appellants also accuse the respondents of fraud, concealment and
suppression of material facts and that there was also a registration of a
criminal case based on the complaint filed by the respondents and also
the enquiry by the Income Tax Authorities regarding transfer of
Rs.10,00,00,000/- to the sons of Dr. A.M. Singhvi and when there are
such serious issues between the parties, they cannot be referred to
arbitration.
10. Being aggrieved by the dismissal of the application, the
appellants preferred appeal before the Division Bench which came to
be dismissed. The Division Bench pointed out the difference in the
language between Section 8 and Section 45 of the Act and after referring
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to Chloro Controls India Private Limited v. Severn Trent Water
Purification Inc. and others (2013) 1 SCC 641, observed that Sukanya
Holdings was not overruled. The Division Bench further pointed out
that in spite of amendment brought in under Section 8, since the main/
principal agreement–Sale and Purchase Agreement (05.03.2012) does
not contain an arbitration clause, the matter cannot be referred to
arbitration.  After referring to A. Ayyasamy v. A. Paramasivam and
others (2016) 10 SCC 386, the Division Bench held that in view of
serious allegations of fraud, arbitration of such dispute is excluded.
11. We have heard Mr. Shanti Bhushan, learned senior counsel
appearing for the appellants and Mr. Kapil Sibal, learned senior counsel
appearing for the respondents. Upon consideration of the rival
submissions, the following points arise for consideration in this appeal:-
1. Whether all the four agreements viz. – (i) Equipment and
Material Supply Contract (01.02.2012) between Rishabh and
Juwi India; (ii) Engineering, Installation and Commissioning
Contract (01.02.2012) between Rishabh and Juwi India; (iii)
Sale and Purchase Agreement (05.03.2012) between Rishabh
and Astonfield; and (iv) Equipment Lease Agreement
(14.03.2012) between Rishabh and Dante Energy are inter-
connected to refer the parties to arbitration though there is no
arbitration clause in the Sale and Purchase Agreement
(05.03.2012) between Rishabh and Astonfield?
2. Whether reference of the
dispute between the parties to
arbitration is to be refused on the ground of allegations of fraud
levelled against the appellants by the respondents in the plaint
or whether the agreements ought to be taken as commercial
undertaking of the parties “with a sense of business efficacy”
as held in Ayyasamy case?
12. First, the Rishabh entered into two agreements with Juwi India
dated 01.02.2012:- (i) Equipment and Material Supply Contract; and (ii)
Engineering, Installation and Commissioning Contract. The first
agreement-Equipment and Material Supply Contract (01.02.2012)
contains arbitration clause (Clause 19.4).  The second agreement –
Engineering, Installation and Commissioning Contract (01.02.2012) also
contains arbitration clause (Clause 25).  Sale and Purchase Agreement
(05.03.2012) between Rishabh and Astonfield for Rs.25,16,00,000/- does
AMEET LALCHAND SHAH v. RISHABH ENTERPRISES
[R. BANUMATHI, J.]
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not contain the arbitration clause. The fourth agreement namely
Equipment Lease Agreement (14.03.2012) between Rishabh and Dante
Energy contains arbitration clause (Clause 29).  A careful perusal of all
the four agreements that is:- (i) Equipment and Material Supply Contract;
(ii) Engineering, Installation and Commissioning Contract; (iii) Sale and
Purchase Agreement; and (iv) Equipment Lease Agreement shows that
all the four agreements were for the single purpose to commission 2
MWp Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, Uttar
Pradesh to be purchased by Rishabh and leasing the equipments to Dante
Energy.
13. The averments in the plaint also prima facie indicate that all
the four agreements are inter-connected and that appellant No.1 – Ameet
Lalchand Shah is stated to be the promoter and controlling man of both
Astonfield as well as Dante Energy.  We may usefully refer to the relevant
averments in the plaint which read as under:-
“Defendant No.1, Mr. Ameet Lalchand Shah, is the
Promoter of the Defendant Nos. 2 and 3 Companies.
Through his other group companies, Defendant No.1 is also
the controlling shareholder of Defendant Nos. 2 and 3.  He
is involved in running the day to day affairs of the said
companies and it is on his instructions and directions and
under his overall control and dictation that the said
companies are run.  He is the co-founder and the co-
chairman of the “Astonfield Group”
consisting of various
companies incorporated both outside of and in India
(www.astonfield.com).  Defendant No.1 is the main brain behind
the serious fraud that has been perpetuated upon the Plaintiffs
and the prima donna, mind, body, soul and controlling entity of all
other defendants to this suit.  If the corporate veil is lifted by this
Hon’ble Court (and, this is an appropriate case for lifting of the
corporate veil), it will be found that it is, in fact, Defendant No.1
only who is the real entity behind all the other defendants and it is
on his directions that the others have made, played their respective
roles in and/or participated in the transactions in question…….
Further, Defendant No.1 has also been corresponding with the
plaintiffs on behalf of Defendant Nos. 2 and 3. ……… The said
Defendant No.1 is also responsible for running the day to
day affairs of this Company which is run on his directions
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and under his control.  Defendant No.2 entered into a Sale
and Purchase Agreement with the Plaintiffs, the transaction
under which is vitiated by serious fraud. ……”
Though there are two agreements, individual parties to the Sale
and Purchase Agreement (05.03.2012) and the Equipment Lease
Agreement (Dante Energy) are one and the same,.  Though Juwi India
is not the defendant, as discussed infra, 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.
14. The clauses in the Equipment and Material Supply Contract
(01.02.2012) 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
goods to Dante Energy.  The following clauses in the said Equipment
and Material Supply Contract would clearly establish the link of Equipment
and Material Supply Contract with the main Lease Agreement with Dante
Energy:-
“This Equipment and Material Supply contract is between
M/s Rishabh Enterprises………….. (the ‘Client’)
AND
Juwi India Renewable Energies Private Limited ……..(the
‘Supplier’)
Whereas:-
A. The Client (Rishabh) is entering into Lease Agreement
with M/s Dante Energy Pvt. Ltd. (‘Lessee’) and the
Lessee (Dante Energy) has necessary authorizations
to develop, own, operate and commercially exploit a
2 MWp thin-film photovoltaic solar plant at Dongri,
Raksa, District-Jhansi, UP (Plant Site), 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/transmission grid at
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the Grid Substation in UP, India (the ‘Facility’).
B. The Client (Rishabh) proposes to source Photovoltaic
Products/Panels, Inverters, Transformers and similar
solar power generating equipments, etc. for sale of
goods to the Client (Rishabh) and the Client (Rishabh)
will onward lease these goods to M/s Dante Energy
Pvt. Ltd. (Lessee).
C. The Client (Rishabh) wishes to engage the Supplier (Juwi
India) for supply of Equipment (as defined below) and
materials with respect to the development of the Solar Park.
D. The M/s Dante Energy Private Limited (Lessee) will have
the right to inspect the respective goods to be sourced by
the Client (Rishabh) and based on the confirmation from
the M/s Dante Energy Private Limited (Lessee), the
respective goods will be purchased by the Client (Rishabh)
for onward sale to M/s Dante Energy Private Limited
(Lessee) and will be consigned to the project site.
E. The Supplier (Juwi India) is aggregable to supply the
Equipment and Materials to the Client (Rishabh) in
accordance with the terms of this Contract.”
15. Likewise, clauses in the agreement for Engineering, Installation
and Commissioning Contract between Rishabh and Juwi India
(01.02.2012) also clearly indicate that the agreement was entered into
for the purpose of commissioning Photovoltaic Solar Plant at Dongri,
Raksa, District Jhansi, Uttar Pradesh.  Clause (A) of the agreement
that the Rishabh has entered into Equipment Lease
Agreement with M/
s Dante Energy (Lessee) reiterates that the second agreement with
Juwi India for engineering, installation and commissioning is integrally
connected with Equipment Lease Agreement (14.03.2012).  The relevant
clauses in the agreement read as under:-
“This Engineering, Installation and Commissioning
Contract Agreement is between
M/s Rishabh Enterprises……….. (the ‘Client’)
AND
Juwi India Renewable Energies Pvt. Ltd………(the
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‘Contractor’)
Whereas:-
A. The Client (Rishabh) is the owner of certain
Photovoltaic 
products/Panels, 
Inverters,
Transformers and similar solar power generating
equipments etc. and is entering into an Equipment
Lease Agreement with M/s Dante Energy Pvt. Ltd.
(Lessee).
B. The Lessee (Dante Energy) has necessary
authorizations to develop, own, operate and
commercially exploit a2 MWp thin-film photovoltaic
solar plant at Dongri, Raksa, District-Jhansi, UP (Plant
Site), 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/transmission grid at the Grid Substation in
UP, India (the ‘Facility’).
C. The Client (Rishabh) proposes to purchase the Client’s
Equipment as required by the Lessee (Dante Energy) for
onward lease to the Lessee (Dante Energy).
D. The Lessee (Dante Energy) requires the services for
design, engineering, construction, erection, testing,
commissioning and handing over of the Facility to the Client
(Rishabh) and accordingly the Client (Rishabh) has
agreed to identity the competent Contractor (Juwi
India) for undertaking the above work.
E. The Contractor (Juwi India) has represented to the Client
(Rishabh) and the Lessee (Dante Energy) that the
Contractor (Juwi India) has the requisite experience,
expertise, resources and skills for undertaking and
performing
all the activities and services required for design
engineering, construction, erection, testing, commissioning
and handing over of the Facility and has submitted an offer
to the Client (Rishabh) in response to the Technical
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Specifications as set out by the Client (Rishabh).
F. Based on the offer submitted by the Contractor (Juwi India)
and relying on the Contractor’s representations and
warranties herein, and on the concurrence and approval of
the Lessee (Dante Energy), the Client (Rishabh) wishes
to appoint the Contractor (Juwi India) to  undertake
the Services and (except for purchase of the Client’s
Equipments) to perform all the activities and services
required for design, engineering, construction,
erecting, testing, commissioning and handing over of
the Facility and the Contractor (Juwi India) has agreed
to such appointment and to undertake such other
duties and obligations as mentioned in this Contract.”
The above clauses in the very commencement of the agreement
with Juwi India dated 01.02.2012 clearly state that the agreement itself
was for the purpose of commissioning Photovoltaic Solar Plant at Dongri,
Raksa, District Jhansi, Uttar Pradesh for which Dante Energy (Lessee)
has necessary authorizations.  The above quoted clauses in the
Engineering, Installation and Commissioning Contract (01.02.2012)
establish that this agreement is inter-connected with Equipment Lease
Agreement (14.03.2012) with Dante Energy.
16. Equally, the Sale and Purchase Agreement (05.03.2012)
between M/s Astonfield and Rishabh is also for the purpose of onward
leasing of goods to Dante Energy as seen from the following clauses:-
“Sale and Purchase
Agreement
Astonfiled Renewable Pvt. Ltd. ……….. (Seller)  AND Rishabh
Enterprises…….. (Buyer) agree to sell and to purchase the
following products, which are required for onwards leasing of
goods by the Buyer (Rishabh) to Dante Energy Private
Limited.…………… (Lessee) under the terms and conditions
stated below (Transaction), effective as of the date of last
signature below (Effective Date):-
1. Buyer: Rishabh Enterprises
2. Seller: Astonfield Renewables Private Limited
3. Transaction: The parties agree that this Transaction shall be
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governed by this Sale and Purchase Agreement and its
apendices.
The products under this Agreement shall be used for the 2 MWp
grid connected solar PV power project being set up by the Lessee
(Dante Energy) at Dongri, Raksa, District-Jhansi, Uttar Pradesh
(Plant Site)
The Buyer (Rishabh) is purchasing the above goods for
onward supply/lease to lessee (Dante Energy).  Lessee
(Dante Energy) will have the right to inspect the respective
goods and based on the confirmation from the Lessee (Dante
Energy), the respective goods will be purchased by the
Buyer (Rishabh) for onward sale to Lessee (Dante Energy)
and will be consigned to the Project Site.”
Though the Sale and Purchase Agreement (05.03.2012) does not
have any arbitration clause, by the above clauses, it is clearly linked with
the main agreement - Equipment Lease Agreement (14.03.2012).  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 to 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.
17. Equipment Lease Agreement (14.03.2012) between Rishabh
and Dante Energy is only a follow-up of all the above three agreements
as is clear from the various clauses in the Equipment Lease Agreement.
The relevant clauses of Equipment Lease Agreement (14.03.2012) are
as under:-
“Equipment Lease Agreement
M/s
Rishabh Enterprises………. (Lessor) AND M/s Dante
Energy Pvt. Ltd……….. (Lessee) is setting up a 2 MWp
grid connected solar PV power project at Dongri, Raksa,
District-Jhansi, Uttar Pradesh (Plant Site)……
Whereas the Lessor (Rishabh) is the owner of certain
Photovoltaic products/Panels, Inverters, Transformers and
similar solar power generating equipments etc. (herein
referred to as “Equipments”), more particularly described
in the First Schedule hereunder written.
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And whereas the Lessee (Dante Energy) has necessary
authorizations to develop, own, operate and commercially exploit
a 2 MWp thin-film photovoltaic solar plant on the Site (“SPY
Power Plant”), 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/transmission
grid at the Grid Substation in Jhansi, Uttar Pradesh, India as
specified in the Second Schedule (“Facility”) and for this purpose,
they are in requirement of the Equipments as mentioned in the
First Schedule hereunder written.
And whereas the Lessee (Dante Energy) being desirous of
obtaining from the Lessor (Rishabh) on lease the specified nature
of Equipments more particularly described in the First Schedule
hereunder written, has approached the Lessor (Rishabh) and has
requested the Lessor (Rishabh) to lease out the Equipments to
the Lessee (Dante Energy) on the terms, covenants and conditions
herein contained/specified.
…………
Article 4
Delivery, Commencement and disbursement:
(i) It is expressly understood by the Lessee (Dante Energy) and
Lessor (Rishabh) that in the present case, the respective
Equipments are being sourced from the supplier of Solar
Photovoltaic Modular-located in the State of Maharashtra i.e.
Astonfield Renewables Private Limited and supplier of other
solar
power generating equipments like inverters, transformers,
etc. in the State of Karnataka i.e. Juwi India Renewable
Energies Private Limited.  These goods have been inspected
by the Lessee (Dante Energy) and are found suitable for its
commercial use of the same.
(ii) Pursuant to this lease agreement, the respective Equipments,
will be purchased by the Lessor (Rishabh) from the respective
Supplier and accordingly, the Equipments will be consigned
directly to the project site in the State of Uttar Pradesh.
Accordingly, in the present case, the delivery of respective
Equipments will be effected by Endorsement of the
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consignment Note in the favour of Lessee (Dante Energy) by
the Lessor (Rishabh).
………
(v) Irrespective of how and by whom the delivery is effected,
it is hereby agreed that the entire risk, cost or any
outgoing pertaining to the said delivery and installation
shall be at the cost and risk of the Lessor (Rishabh).”
The above extracted clauses clearly demonstrate that all the four
agreements are inter-connected.  Clause (v) in Article 4 in the Equipment
Lease Agreement that delivery and installation shall be at the cost and
risk of Rishabh (Lessor) is clearly linked with the Engineering, Installation
and Commissioning Contract between Rishabh and Juwi India.
18. The High Court placed reliance upon Sukanya Holdings for
dismissal of the application filed under Section 8 of the Act.  In Sukanya
Holdings, the suit was filed for dissolution of the partnership firm and
accounts and inter alia challenged the conveyance deed executed by
the partnership firm in favour of M/s West End Gymkhana Limited.   An
application filed under Section 8 of the Act was opposed by respondent
No.1 thereon by contending that the subject matter of the suit was not
between the contracting parties and that the reliefs claimed are not only
against respondents No. 1 and 2 who are the contracting parties but are
claimed against the remaining twenty-three parties who are the
purchasers/tenants of disputed flats.  This Court held that if all the parties
to the suit are not parties to the
agreement then the matter cannot be
referred to arbitration since there is no provision in the Act for partly
referring the dispute to arbitration.  This Court noted that the buyers
were not parties to the arbitration agreement and that the non-signatories
cannot be referred to arbitration.  In Sukanya Holdings in paras (15)
and (16), this Court held as under:-
“15. The relevant language used in Section 8 is: “in a matter
which is the subject of an arbitration agreement”. The court
is required to refer the parties to arbitration. Therefore, 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.
Where, however, a suit is commenced — “as to a matter” which
lies outside the arbitration agreement and is also between some
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of the parties who are not parties to the arbitration agreement,
there is no question of application of Section 8. The words “a
matter” indicate that the entire subject-matter of the suit should
be subject to arbitration agreement.
16. The next question which requires consideration is — even if
there is no provision for partly referring the dispute to arbitration,
whether such a course is possible under Section 8 of the Act. In
our view, it would be difficult to give an interpretation to Section 8
under which bifurcation of the cause of action, that is to say, the
subject-matter of the suit or in some cases bifurcation of the suit
between parties who are parties to the arbitration agreement and
others is possible. This would be laying down a totally new
procedure not contemplated under the Act. If bifurcation of the
subject-matter of a suit was contemplated, the legislature would
have used appropriate language to permit such a course. Since
there is no such indication in the language, it follows that bifurcation
of the subject-matter of an action brought before a judicial authority
is not allowed.”
19. Mr. Sibal, learned senior counsel for the respondents submitted
that the High Court rightly relied upon Sukanya Holdings as it relates
to Part-I of the Act that the parties who are not signatories to the
arbitration agreement (in this case, Astonfield under Sale and Purchase
Agreement) cannot be referred to
arbitration.  It was further submitted
that Chloro Controls arises under Part-II of the Act and was rightly
distinguished by the High Court and Sukanya Holdings was not
overruled by Chloro Controls and hence, the appellants cannot rely
upon Chloro Controls.  It was contended that the Sale and Purchase
Agreement (05.03.2012) under which huge money was parted with, is
the main agreement having no arbitration clause cannot be referred to
arbitration.  It was submitted that the subject matter of the suit cannot
be bifurcated between the parties to arbitration agreement and others.
20. In Chloro Controls, this Court was dealing with the scope
and interpretation of Section 45 of the Act - Part-II of the Act and in that
context, discussed the scope of relevant principles on the basis of which
a non-signatory party also could be bound by the arbitration agreement.
Under Section 45 of the Act, an applicant seeking reference of disputes
to arbitration can either be a party to the arbitration agreement or any
person claiming through or under such party.  Section 45 uses the
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expression “….at the request of one of the parties or any person
claiming through or under him…..” includes non-signatory parties who
can be referred to arbitration provided they satisfy the requirements of
Sections 44 and 45 read with Schedule I of the Act.  In para (73) of
Chloro Controls, this Court held as under:-
“73. A non-signatory or third party could be subjected to arbitration
without their prior consent, but this would only be in exceptional
cases. The court will examine these exceptions from the
touchstone of direct relationship to the party signatory to the
arbitration agreement, direct commonality of the subject-matter
and the agreement between the parties being a composite
transaction. The transaction should be of a composite nature where
performance of the mother agreement may not be feasible without
aid, execution and performance of the supplementary or ancillary
agreements, for achieving the common object and collectively
having bearing on the dispute. Besides all this, the court would
have to examine whether a composite reference of such parties
would serve the ends of justice. Once this exercise is completed
and the court answers the same in the affirmative, the reference
of even non-signatory parties would fall within the exception afore-
discussed.” (Underlining added)
21. In a case like the present one, though there are different
agreements involving several parties, as discussed above, it is a single
commercial project namely
operating a 2 MWp Photovoltaic Solar Plant
at Dongri, Raksa, District Jhansi, Uttar Pradesh.  Commissioning of the
Solar Plant, which is the commercial understanding between the parties
and it has been effected through several agreements.  The agreement –
Equipment Lease Agreement (14.03.2012) for commissioning of the Solar
Plant is the principal/main agreement.  The two agreements of Rishabh
with Juwi India:- (i) Equipment and Material Supply Contract
(01.02.2012); and (ii) Engineering, Installation and Commissioning
Contract (01.02.2012) and the Rishabh’s Sale and Purchase Agreement
with Astonfield (05.03.2012) are ancillary agreements which led to the
main purpose of commissioning the Photovoltaic Solar Plant at Dongri,
Raksa, District Jhansi, Uttar Pradesh by Dante Energy (Lessee).  Even
though, the Sale and Purchase Agreement (05.03.2012) between Rishabh
and Astonfield does not contain arbitration clause, it is integrally connected
with the commissioning of the Solar Plant at Dongri, Raksa, District
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Jhansi, U.P. by Dante Energy.  Juwi India, even though, not a party to
the suit and even though, Astonfield and appellant No.1 – Ameet Lalchand
Shah are not signatories to the main agreement viz. Equipment Lease
Agreement (14.03.2012), it is a commercial transaction integrally
connected with commissioning of Photovoltaic Solar Plant at Dongri,
Raksa, District Jhansi, U.P.  Be it noted, as per clause(v) of Article 4,
parties have agreed that the entire risk, cost of the delivery and installation
shall be at the cost of the Rishabh (Lessor).  Here again, we may
recapitulate that engineering and installation is to be done by Juwi India.
What is evident from the facts and intention of the parties is to facilitate
procurement of equipments, sale and purchase of equipments, installation
and leasing out the equipments to Dante Energy.  The dispute between
the parties to various agreements could be resolved only by referring all
the four agreements and the parties thereon to arbitration.
22. Parties to the agreements namely Rishabh and Juwi India:- (i)
Equipment and Material Supply Agreement; and (ii) Engineering,
Installation and Commissioning Contract and the parties to Sale and
Purchase Agreement between Rishabh and Astonfield are one and the
same as that of the parties in the main agreement namely Equipment
Lease Agreement (14.03.2012).  All the four agreements are inter-
connected.  This is a case where several parties
are involved in a single
commercial project (Solar Plant at Dongri) executed through several
agreements/contracts.  In such a case, all the parties can be covered by
the arbitration clause in the main agreement i.e. Equipment Lease
Agreement (14.03.2012).
23. Since all the three agreements of Rishabh with Juwi India and
Astonfield had the purpose of commissioning the Photovoltaic Solar Plant
project at Dongri, Raksa, District Jhansi, Uttar Pradesh, the High Court
was not right in saying that the Sale and Purchase Agreement (05.03.2012)
is the main agreement.  The High Court, in our view, erred in not keeping
in view the various clauses in all the three agreements which make them
as an integral part of the principal agreement namely Equipment Lease
Agreement (14.03.2012) and the impugned order of the High Court
cannot be sustained.
Amendment to Section 8 of the Arbitration and Conciliation
Act, 1996
24. Arbitration and Conciliation (Amendment) Act, 2015 has
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brought in amendment to Section 8 to make it in line with Section 45 of
the Act. In view of the observation made in Sukanya Holdings, Law
Commission has made recommendation for amendment to Section 8 of
the Act. Consequent to 2015 Amendment Act, Section 8 is amended as
under:-
“8. Power to refer parties to arbitration where there is an
arbitration agreement. - (1) A judicial authority before which
an action is brought in a matter which is the subject of an arbitration
agreement shall, if a party to the arbitration agreement or any
person claiming through or under him, so applies not later than
when the date of submitting his first statement on the substance
of the dispute, then, notwithstanding any judgment, decree or order
of the Supreme Court or any court refer the parties to arbitration
unless it finds that prima facie no valid arbitration agreement
exists.
(2) The application referred to in sub-section (1) shall not be
entertained unless it is accompanied by the original arbitration
agreement or a duly certified copy thereof
Provided that where the original arbitration agreement or a certified
copy thereof is not available with the party applying for reference
to arbitration under sub-section (1), and the said agreement or
certified copy is retained by the other party to that agreement,
then, the party so applying shall file such application along with a
copy of the arbitration agreement and a petition praying the Court
to call upon the other party
to produce the original arbitration
agreement or its duly certified copy before that Court.
(3) Notwithstanding that an application has been made under sub-
section (1) and that the issue is pending before the judicial authority,
an arbitration may be commenced or continued and an arbitral
award made.
25. “Principally four amendments to Section 8(1) have been
introduced by the 2015 Amendments - (i) the relevant “party” that is
entitled to apply seeking reference to arbitration has been clarified/
amplified to include persons claiming “through or under” such a party to
the arbitration agreement; (ii) scope of examination by the judicial authority
is restricted to a finding whether “no valid arbitration agreement exists”
and the nature of examination by the judicial authority is clarified to be
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on a “prima facie” basis; (iii) the cut-off date by which an application
under Section 8 is to be presented has been defined to mean “the date
of” submitting the first statement on the substance of the dispute; and
(iv) the amendments are expressed to apply notwithstanding any prior
judicial precedent. The proviso to Section 8(2) has been added to allow
a party that does not possess the original or certified copy of the
arbitration agreement on account of it being retained by the other party,
to nevertheless apply under Section 8 seeking reference, and call upon
the other party to produce the same.” (Ref: Justice R.S. Bachawat’s
Law of Arbitration and Conciliation, Sixth Edition, Vol. I (Sections 1
to 34) at page 695 published by LexisNexis).
26. Amendment to Section 8 by the Act, 2015 are to be seen in
the background of the recommendations set out in the 246th Law
Commission Report. In its 246th Report, Law Commission, while
recommending the amendment to Section 8, made the following
observation/comment:-
“LC Comment: The words “such of the parties…. to the
arbitration agreement” and proviso (i) of the amendment have
been proposed in the context of the decision of the Supreme Court
in Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and Anr.
(2003) 5 SCC 531, - in cases where all the parties to the dispute
are not parties to the arbitration agreement, the reference is to be
rejected only where such parties are
necessary parties to the action
– and not if they are only proper parties, or are otherwise legal
strangers to the action and have been added only to circumvent
the arbitration agreement. Proviso (ii) of the amendment
contemplates a two-step process to be adopted by a judicial
authority when considering an application seeking the reference
of a pending action to arbitration. The amendment envisages that
the judicial authority shall 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. If the judicial authority is of the opinion that prima
facie the arbitration agreement exists, then it shall refer the dispute
to arbitration, and leave the existence of the arbitration agreement
to be finally determined by the arbitral tribunal. However, if the
judicial authority concludes that the agreement does not exist, then
the conclusion will be final and not prima facie. The amendment
also envisages that there shall be a conclusive determination as to
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whether the arbitration agreement is null and void.
(2) The application referred to in sub-section (1) shall not be
entertained unless it is accompanied by the original arbitration
agreement or a duly certified copy thereof or a copy accompanied
by an affidavit calling upon the other party to produce the original
arbitration agreement or duly certified thereof in circumstances
where the original arbitration agreement or duly certified copy is
retained only by the other party.
LC Comment: In many transactions involving Government bodies
and smaller market players, the original/duly certified copy of the
arbitration agreement is only retained by the former. This
amendment would ensure that the latter class is not prejudiced in
any manner by virtue of the same” (Ref: 246th Law Commission
Report, Government of India)
27. The language of amendment to Section 8 of the Act is clear
that the amendment to Section 8(1) of the Act would apply notwithstanding
any prayer, judgment, decree or order of the Supreme Court or any
other Court. The High Court laid emphasis upon the word “.....unless it
finds that prima-facie no valid agreement exists”. The High Court
observed that there is no arbitration agreement between Astonfield and
Rishabh. After referring to Sukanya Holdings and the amended Section
8 and Section 45 of the Act, the High Court pointed out the difference in
language of Section 8 and Section 45 of the Act. The High Court
distinguished between Sukanya
Holdings andChloro Controls, and
observed that Sukanya Holdings was not overruled by Chloro Controls.
In para (23) of the impugned judgment, it was held as under:-
“23. ......The change in Section 8 is that the Court is to - in cases
where arbitration agreements are relied on- to refer the disputes
in the suit, to arbitration, “notwithstanding any judgment, decree
or order of the Supreme Court or any Court, refer the parties to
arbitration unless it finds that prima facie no valid arbitration
agreement exists”. The Court is of opinion that Sukanyais not per
se overruled, because the exercise of whether an arbitration
agreement exists between the parties, in relation to the disputes
that are the subject matter of the suit, has to be carried out. If
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there are causes of action that cannot be subjected to arbitration,
or the suit involves adjudication of the role played by parties who
are not signatories to the arbitration agreement, it has to continue
because “prima facie no valid arbitration agreement exists”
between such non parties and others, who are parties.”
28. Re: contention: allegations of fraud disable an
arbitration:- Yet another ground based on which the High Court declined
to refer the parties to arbitration is the allegations of fraud levelled by
respondents/plaintiffs in their plaint against Astonfield and appellant no.1.
The High Court held that the respondents levelled allegations of fraud
against the appellants which raise serious triable issues of fraud and
hence, the matter cannot be referred to arbitration.
29. According to the respondents, it is not a case where “fraud is
alleged merely to disable an arbitration”. Mr. Sibal, learned senior
counsel for respondents contended that the plaint is based on the
averments that from inception, the intention of appellants/defendants
was to cheat the respondents and the respondents were made to part
with large sums of money on the basis of the misrepresentation made by
the appellants. It was submitted that alternative prayer in the plaint will
not convert the fraud suit to a regulatory suit because of alternative
prayer since alternative prayer – ‘lease rental’ has been projected only
as an alternative
remedy. Placing reliance upon Arundhati Mishra (Smt)
v. Sri Ram Charitra Pandey (1994) 2 SCC 29, it was submitted that it
is settled law that it is open to the parties to raise mutually inconsistent
pleas and the relief could be granted on the alternative plea so raised.
30. Refuting the above contentions, Mr. Shanti Bhushan, learned
senior counsel for the appellants placed reliance upon Ayyasamy case
to contend that there are no serious allegations in the plaint to decline
reference of the matter to arbitration. It was submitted that mere
allegations of fraud were not sufficient to detract from the performance
of the obligation of the parties in terms of the agreement and refer the
matter to arbitration.
31. Under the Act, an arbitration agreement means an agreement
which is enforceable in law and the jurisdiction of the arbitrator is on the
basis of an arbitration clause contained in the arbitration agreement.
However, in a case where the parties alleged that the arbitration agreement
is vitiated on account of fraud, the Court may refuse to refer the parties
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to arbitration.  In Ayyasamy case, this Court held that mere allegation
of fraud is not a ground to nullify the effect of arbitration agreement
between the parties and arbitration clause need not be avoided and parties
can be relegated to arbitration where merely simple allegations of fraud
touched upon internal affairs of parties is levelled. Justice A.K. Sikri
observed that it is only in those cases where the Court finds that there
are serious allegations of fraud which make a virtual case of criminal
offence and where there are complicated allegations of fraud then it
becomes necessary that such complex issues can be decided only by
the civil court on the appreciation of evidence that needs to be produced.
In para (25) of  Ayyasamy case, Justice Sikri held as under:-
“25…..Therefore, the inquiry of the Court, while dealing with an
application under Section 8 of the Act, should be on the aforesaid
aspect viz. whether the nature of dispute is such that it cannot be
referred to arbitration, even if there is an arbitration agreement
between the parties. When 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, 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, then alone
such an application under Section 8 should be rejected.”
32. While concurring with Justice Sikri, Justice D.Y. Chandrachud
pointed out that the duty of the Court is to impart “sense of business
efficacy” to the commercial transactions pointing out that mere allegations
of fraud were not sufficient to decline to refer the parties to arbitration.
In para (48) of Ayyasamy case, Justice D.Y. Chandrachud held as
under:-
“48. The basic principle which must guide judicial decision-making
is that arbitration is essentially a voluntary assumption of an
obligation by contracting parties to resolve their disputes through
a private tribunal. The intent of the parties is expressed in the
terms of their agreement. Where commercial entities and persons
of business enter into such dealings, they do so with a knowledge
of the efficacy of the arbitral process. The commercial
understanding is reflected in the terms of the agreement
between the parties. The duty of the court is to impart to
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that commercial understanding a sense of business
efficacy.”  (Underlining added)
33. When we apply the aforesaid principles to the facts of the
present case, as discussed earlier, both parties have consciously proceeded
with the commercial transactions to commission the Photovoltaic Solar
Plant at Dongri, Raksa, District Jhansi, U.P. The first respondent has
proceeded to procure the materials, entered into agreement with Juwi
India for engineering, installation and commissioning and the sale and
purchase agreement with Astonfield, were all the conscious steps taken
in the commercial understanding to commission the Solar Plant at Dongri,
Raksa, District Jhansi, U.P. Even though Juwi India and Astonfield are
not parties to the main agreement - Equipment Lease Agreement
(14.03.2012), all the agreements/contracts contain clauses referring to
the main agreement. It is the duty of the Court to impart the commercial
understanding with a “sense of business efficacy” and not by the mere
averments made in the plaint. The High Court was not right in refusing
to refer the parties on the ground of the allegations of fraud levelled in
the plaint.
34. It is only where serious questions of fraud are involved, the
arbitration can be refused. In this case, as contended by the appellants
there were no serious allegations of fraud; the allegations levelled against
Astonfield is that appellant no.1 - Ameet Lalchand Shah misrepresented
by inducing the respondents to pay higher price for the purchase of the
equipments. There is, of course, a criminal case registered against the
appellants in FIR No.30 of 2015 dated 05.03.2015 before the Economic
Offences Wing, Delhi. The appellant no.1 – Ameet Lalchand Shah has
filed Criminal Writ Petition No.619 of 2016 before the High Court of
Delhi for quashing the said FIR. The said writ petition is stated to be
pending and therefore, we do not propose to express any views in this
regard, lest, it would prejudice the parties. Suffice to say that the
allegations cannot be said to be so serious to refuse to refer the parties
to arbitration. In any event, the Arbitrator appointed can very well examine
the allegations regarding fraud.
35. Main agreement - Equipment Lease Agreement (14.03.2012)
for leasing and commissioning of Solar Plant at Dongri, Raksa, District
Jhansi, Uttar Pradesh contains arbitration clause (Clause 29).  As
discussed earlier, other three agreements - two agreements between
Rishabh and Juwi India (01.02.2012) and Sale and Purchase Agreement
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B
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(05.03.2012) between Rishabh and Astonfield are integrally connected
with the commercial understanding of commissioning the Solar Project
at Dongri, Raksa, District Jhansi, Uttar Pradesh and to resolve the dispute
between the parties, they are to be referred to arbitration. The order of
the High Court declining to refer the parties to arbitration cannot be
sustained and is liable to be set aside. The four agreements namely:- (i)
Equipment and Material Supply Contract (01.02.2012) between Rishabh
and Juwi India; (ii)  Engineering, Installation and Commissioning Contract
(01.02.2012) between Rishabh and Juwi India; (iii) Sale and Purchase
Agreement (05.03.2012) between Rishabh and Astonfield; and (iv)
Equipment Lease Agreement (14.03.2012) between Rishabh and Dante
Energy and the parties thereon are referred to arbitration.
36. As per the terms of Equipment Lease Agreement (14.03.2012),
appellant No.3 - Dante Energy has to pay lease rentals of Rs.13,67,500/
- for the month of March, 2012 and with effect from April, 2012 to pay
lease rentals of Rs.28,26,000/- per month for a period of fifteen years.
Learned Senior Counsel for respondents, Mr. Sibal has submitted that
appellant No.3 - Dante Energy has not paid the rentals as per the terms
and conditions of Equipment Lease Agreement. Mr. Sibal has also drawn
our attention that Astonfield Solar Rajasthan Pvt. Ltd. has transferred
99.99% of its shares to ARRL (Mauritius) Ltd. (Holding Company) and
Ameet
Lalchand Shah has only one share (0.01%). Our attention was
also drawn to Astonfield Solar Gujarat Pvt. Ltd., which has also transferred
99.99% of its shares to ARRL (Mauritius) Ltd. (Holding Company) and
that Ameet Lalchand Shah has only one share (0.01%). It was also
submitted that the appellant No.1 - Ameet Lalchand Shah was
subsequently removed from the Board of Directors of Astonfield Solar
Gujarat Pvt. Ltd. by the shareholders by EGM dated 17.12.2016.  We
do not propose to go into the merits of this contention; however, keeping
in view that Astonfield has transferred its shareholdings qua Rajasthan
and Gujarat Solar Power units, in our view, the interest of the respondents
is to be protected till the matter is resolved by the arbitrator by directing
the appellants to pay the arrears of lease rent and also to pay the future
lease rent for the equipments at the rate of Rs.28,26,000/- per month.
37. The impugned order of the High Court is set aside and this
appeal is allowed. All the aforesaid four agreements and the parties
thereon are referred to arbitration. By notice dated 13.02.2016, appellants
have nominated Justice Sujata Manohar, former Judge of the Supreme
AMEET LALCHAND SHAH v. RISHABH ENTERPRISES
[R. BANUMATHI, J.]
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SUPREME COURT REPORTS
[2018] 6 S.C.R.
Court of India as their Arbitrator. We leave it open to the parties as to
the choice of the Arbitrator. If the parties are not in a position to arrive
at consensus as to the Arbitrator, the parties shall approach the
appropriate High Court for appointment of the Arbitrator.  Appellants
are jointly and severely liable to pay the arrears of lease rent and also to
pay the future lease rent for the equipments of the PV Solar Power
Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh at the rate of
Rs.28,26,000/- per month till the disposal of the arbitration proceedings.
Such payment of lease rent shall be without prejudice to the contentions
of both parties and shall be subject to the final outcome of arbitration
proceedings.   Since parties are referred to arbitration, commercial Suit
No.85 of 2017 filed by the respondents on the file of Delhi High Court
shall stand disposed of.  No cost.
Ankit Gyan
                  Appeal allowed.