Case: Chloro Controls(I) P.Ltd Vs. Severn Trent Water Purification Inc &amp;Ors

3. Chloro Controls (India) Private Ltd., the appellant herein, filed a suit on the original side of the High Court of Bombay being Suit No.233 of 2004, for declaration that the joint venture agreements and supplementary collaboration agreement entered into between some of the parties are valid, subsisting and binding. It also sought a direction that the scope of business of the joint venture company, Respondent No. 5, set up under the said agreements includes the manufacture, sale, distribution and service of the entire range of chlorination equipments including the electro-chlorination equipment and claimed certain other reliefs as well, against the defendants in that suit. The said parties took out two notices of motion, being Notice of Motion No.553 of 2004 prior to and Notice of Motion No.2382 of 2004 subsequent to the amendment of the plaint. In these notices of motion, the principal question that fell for consideration of the learned Single Judge of the High Court was whether the joint venture agreements between the parties related only to gas chlorination equipment or whether they included electro-chlorination equipment as well. The applicant had prayed for an order of restraint, preventing Respondent Nos. 1 and 2, the foreign collaborators, from acting upon their notice dated 23rd January, 2004, indicating termination of the joint venture agreements and the supplementary collaboration agreement. A further prayer was made for grant of injunction against committing breach of contract by directly or indirectly dealing with any person other than the Respondent No.5, in any manner whatsoever, for the manufacture, sale, distribution or services of the chlorination equipment, machinery parts, accessories and related equipments including electro-chlorination equipment, in India and other countries covered by the agreement. The defendants in that suit had taken out another Notice of Motion No.778 of 2004, under Section 8 read with Section 5 of the1996 claiming that arbitration clauses in some of the agreements governed all the joint venture agreements and, therefore, the suit should be referred to an appropriate arbitral tribunal for final disposal and until a final award was made by an arbitral tribunal, the proceedings in the suit should be stayed. The learned Single Judge, vide order dated 28th December, 2004, allowed Notice of Motion No.553 of 2004 and consequently disposed of Notice of Motion No.2382 of 2004 as not surviving. Against this order, an appeal was preferred, which came to be registered as Appeal No.24 of 2005 and vide a detailed judgment dated 28th July, 2011, a Division Bench of the High Court of Bombay set aside the order of the learned Single Judge and dismissed both the notices of motion taken out by the plaintiff in the suit.4. Notice of Motion No.778 of 2004 was dismissed by another learned Single Judge of the High Court of Bombay, declining the reference of the suit to an arbitral tribunal vide order dated 8th April, 2004. This order was again assailed in appeal by the defendants in the suit and another Division Bench of the Bombay High Court, vide its judgment dated 4th March, 2010, allowed the Notice of Motion No.778 of 2004 and made reference to arbitration under Section 45 of the 1996 Act.Corporate Structure of the Companies who are parties to lis7. In order to describe the corporate structure with precision we will explain it diagrammatically as follows:8. Severn Trent, U.S., Inc. was a company existing under the laws of the State of Pennsylvania, United States of America (for short, U.S.A.). This name came to be changed, in 1992, to Severn Trent (Delaware) Inc., which is the principal parent company. This company owned a 100 per cent subsidiary, Severn Trent Services (Delaware) Inc., U.S.A. Severn Trent Services (Delaware) Inc. owned Capital Control (Delaware) Co. Inc. which was formed on 21st September, 1994. On or about 14th May, 1990, Severn Trent Services PLC, U.K., an erstwhile state-owned water authority, privatized in 1989, expanded its business into the U.S.A. by acquiring 80 per cent shares in Capital Control Co. Inc. on 15th May 1990 and a further 20 per cent on 31st March 1994. It is in this period that the joint venture agreements with the appellant were negotiated, with the consent of the Severn Trent group, which was, by that time, a majority shareholder in Capital Control Co. Inc. Subsequently, the name of Capital Control Co. Inc., was changed to Severn Trent Water Purification, Inc. (Respondent No.1), with effect from 1st April, 2002. The Severn Trent Water Purification Inc./Capital Control Co. Inc. then came to be merged with Capital Control (Delaware) Co. Inc. (Respondent No. 2), on 31st March, 2003. As a result thereof, Capital Control (Delaware) Co. Inc. ceased to exist. As per the pleadings of the parties, reference to Capital Control Co. Inc. includes reference to Capital Control Co. Inc. as well as Capital Control (Delaware) Co. Inc.9. The appellant is a company carrying on business under that name and style for the manufacture of chlorination equipments and incorporated under the Indian laws by Madhusudan Kocha (Respondent No.9 herein) and his group (for short, the Kocha Group). This company had been negotiating with Respondent No. 1 for entering into a joint venture agreement, to deal with the manufacture, distribution and sale of gas chlorination equipment and Hypogen electro- chlorination equipment Series 3300, etc. This led to the execution of joint venture agreements between the appellant and Respondent No. 1. The joint venture agreements were signed between these companies for constituting a joint venture company under the name and style of Capital Control (India) Pvt. Ltd., with 1,50,000 equity shares of Rs. 10 each and 50 per cent shareholding with each party. These agreements being prior to the merger of Capital Control (Delaware) Co. Inc. with Capital Control Co. Inc. and also prior to the change of name of Capital Control Co. Inc. to Severn Trent Water Purification Inc., 50 per cent of the shares allotted to the foreign collaborators were to be equally divided between Capital Control (Delaware) Co. Inc. and Capital Control Co. Inc. These joint venture agreements were executed between the parties on 16th November, 1995, as already noticed. However, the joint venture company had been incorporated on 14th November, 1995 itself10. In the year 1998, Excel Technologies International Corporation came to be acquired by Severn Trent Services (Delaware) Inc. This company was dealing in the manufacture of Omnipure and Sanilec, distinct brands of chlorination products. Later, Excel Technologies entered into a joint venture agreement with De Nora North America Inc. and floated another joint venture company, Severn Trent De Nora LLC in September, 2001 for dealing in the products Omnipure, Sanilec and Seaclor Mac. It may be noticed that Seaclor Mac was a product dealt with and distributed by Titanor Components Ltd., Respondent no.3, and whose original manufacturer was Groupo De Nora; the latter is the parent company of the De nora North America Inc. The distribution rights in respect of all these three products were given by the joint venture company Severn Trent De Nora LLC to Hi Point Services Pvt. Ltd., Respondent No. 4, for independent distribution of the products for Severn Trent De nora LLC, in India11. This corporate structure clearly indicates that Severn Trent Services (Del.) Inc. is the holding company of the companies which have entered into the joint venture agreements, for floating both the companies Capital Controls (India) Pvt. Ltd., as well as Severn Trent De Nora LLC. The disputes have actually arisen between Chloro Controls (India) Pvt. Ltd. and the Kocha Group on the one hand, and Severn Trent Water Purification Inc., the erstwhile Capital Control (Delaware) Co. Inc. and Capital Control Co. Inc. on the other.12. Prior to the formation of the joint venture company, the Chloro Controls Group carried on the business of manufacture and sale of gas chlorination equipments and from 1980 onwards, it developed and commenced the manufacturing of electro-chlorination equipment also. The business was done in the name of Chloro Controls Equipments Company, a sole proprietary concern of Respondent No.9, Mr. M.B. Kocha and it was the distributor in India for the products of the Capital Controls group for more than a decade prior to the formation of the joint venture. On 1st December, 1988, a letter of intent and a letter of understanding were executed between Capital Controls Company Inc., Colmar, Pennsylvania, U.S.A (which name was subsequently changed in the year 2002 to Severn Trent Water Purification Inc., respondent No.1) and respondent no.9 to form a new, jointly-owned company in India, to be called Capital Controls (India) Pvt. Ltd., the respondent No.5 in the present appeals, for the purposes of manufacture, sale and export of chlorination equipments on the terms and conditions as agreed between the parties. The formation of the joint venture company got delayed for some time, because Respondent No.1 informed the appellant that Severn Trent, U.K. and the officers of the Capital Controls Company Inc., Colmar, Pennsylvania, U.S.A. had acquired all the shares of the Capital Controls Company Inc. and this share acquisition permitted them to support their representatives and distributers with continuity. On 14th November, 1995, the joint venture company, Capital Controls (India) Private Ltd., Respondent No. 5, was incorporated and registered under the Companies Act, 1956 (for short, the Companies Act).14. The petitioner is a Private Limited Company and its shares are entirely held by Respondent/Defendant Nos.9 to 11 (Kocha/Chloro Control Group). Respondent No.1–Company was earlier known as Capital Control Company Inc. and in or about the year 1990 the Capital Controls Group came to be acquired by Severn Trent Services PLC (UK), originally a State owned water authority and following privatization from the UK Government in 1989, it proceeded to build a product and services business from the US beginning with the acquisition of the Capital Controls Group. The name of the first respondent was changed to Severn Trent Water Purification Inc. with effect from 1st April, 2002. Thus, Respondent Nos.1 and 2 became the group companies and were earlier part of the Capital Controls Group (hereinafter referred to as the Capital Controls/Severn Trent Group). Till January 1999, the respondent Nos.1 and 2 developed and sold electro- chlorination equipment under the brand name Hypogen and from January 1999 onwards, the said brand was replaced by the brands Sanilec and Omnipure. Respondent Nos.1 and 2 carried on the business of manufacture, supply, sale and distribution of chlorination equipments, including gas and electro-chlorination equipments. Respondent No.3 is a company incorporated under the Companies Act and engaged in the business of manufacture and marketing of electro-chlorination equipment. In or about the year 1989-90, the said Respondent no.3 was floated as a joint venture in technical and financial collaboration with the De Nora group of Italy which held 51% of the equity share capital of the said respondent. Respondent No.4 is a Private Limited Company incorporated under the Companies Act and carried on business in electro-chlorination equipments. It had a tie-up with an American Company called Excel Technologies International Inc. which was engaged in the business of electrolytic disinfection equipment15. Respondent No.5, i.e., Capital Controls (India) Private Ltd. is a Company incorporated under the Companies Act pursuant to the joint venture agreements dated 16th November, 1995 executed between the appellant and respondent no.9 on the one hand and the respondent nos.1 and 2 on the other. 50 per cent of the share capital of Respondent No.5 is held by the appellant and balance of 50 per cent is held by Respondent No.2. Thus, the appellant and Respondent No.2 are the joint venture partners who have together incorporated the Respondent No.5 – company16. Respondent Nos.6 and 8 are the Directors of the Respondent No.5 Company, appointed as such by the Capital Controls Group. Respondent No.7 is the Chairman also appointed by the Capital Controls Group, but has no casting vote. Respondent Nos.9 to 11 are the Directors of the Respondent no.5 company, nominated by the Kocha Group/Chloro Controls Group and Respondent No.9 is the Managing Director of the said joint venture17. It appears that the joint venture company, Respondent no.5, was incorporated on 14th November, 1995. As discussed above, the joint venture agreements were primarily a project between Respondent Nos. 1 and 2 on the one hand and the appellant company along with its proprietor, Respondent No. 9, on the other. The purpose of these joint venture agreements as indicated in the Memorandum of Association of this joint venture company was to design, manufacture, import, export, act as agent, marketing etc. of gas and electro-chlorination equipments. In order to achieve this object, the parties had decided to execute various agreements. It needs to be emphasized at this stage itself that, as is clear from the above narrated chart, the agreements had been signed between different parties, each agreement containing somewhat different clauses.Content, scope and purpose of the agreements subject matter of the present appeals18. The parties to the proceedings, except respondent Nos. 3 and 4, were parties to one or more of the seven agreements entered into between the parties. This includes the Principal Agreement, i.e., the Shareholders Agreement, the Financial and Technical Know-how License Agreement, the International Distributor Agreement, Exports Sales Agreement, Trademark Registered User License Agreement and Managing Directors Agreement, all dated 16th November, 1995. Lastly, the parties also entered into and executed a Supplementary Collaboration Agreement in August, 1997. We have already noticed that except respondent Nos.3 and 4 who were not signatory to any agreement, all other parties were not parties to all the agreements but had signed one or more agreement(s) keeping in mind the content and purpose of that agreement.Corporate Structure of the Companies who are parties to lis7. In order to describe the corporate structure with precision we will explain it diagrammatically as follows:46. Certain disputes had already arisen between the parties that resulted in termination of the joint venture agreements. Vide letter dated 21st July, 2004, Severn Trent Services informed respondent no.9, respondent no.5 and Chloro Controls India Pvt. Ltd., the present appellant, that they had failed to remedy the issues and grievances communicated to them in their previous correspondences and meetings and also failed to engage in any productive negotiation in this connection and therefore, they were terminating from that very day, the joint venture agreements executed between them and the appellant company, which included agreements stated in that letter i.e. the Shareholders Agreement, the International Distributor Agreement, the Financial and Technical Know-How License Agreement, the Export Sales Agreement and the Trademark Registered User Agreement, all dated 16th November, 1995 and requested them to commence the winding up proceedings of the joint venture company, respondent No. 5. They were also called upon to act in accordance with the terms of the agreement in the event of such termination. It may be noticed here itself that prior to the serving of the notice of termination, a suit had been instituted by the appellant in which application under Section 8/45 of the 1996 Act was filed.47. The appellant had filed a derivative suit being Suit No. 233 of 2004 praying, inter alia, for a decree of declaration that the joint venture agreements and the supplementary collaboration agreement are valid, subsisting and binding and that the scope of business of the joint venture company included the manufacture, sale, distribution and service of entire range of chlorination equipments including electro- chlorination equipment. An order of injunction was also obtained restraining respondent Nos. 1 and 2 from interfering in any way and/or preventing respondent No.5 from conducting its business of sale of chlorination equipments including electro-chlorination equipment and that they be not permitted to sell their products in India save and except through the joint venture company, in compliance of clause 2.5 of the Financial and Technical Know-How License Agreement read with the Supplementary Collaboration Agreement. Besides this, certain other reliefs have also been prayed for48. After the institution of the suit, as already noticed, the respondent Nos.1 and 2 had terminated the joint-venture agreements vide notices dated 23rd January, 2004 and 21st July, 2004. Resultantly, in the amended plaint, specific prayer was made that both these notices were wrong, illegal and invalid; in breach of the joint venture agreements and of no effect; and the joint venture agreements were binding and subsisting. To be precise, the appellant had claimed damages, declaration and injunction in the suit primarily relying upon the agreements entered into between the parties. In this suit, earlier interim injunction had been granted in favour of the appellant, which was subsequently vacated at the appellate stage. The respondent Nos.1 and 2 filed an application under Section 8 of the Act, praying for reference of the suit to the arbitral tribunal in accordance with the agreement between the parties. This application was contested and finally decided by the High Court in favour of respondent Nos.1 and 2, vide order dated 4th March, 2010 making a reference of the suit to arbitration.While raising a challenge, both on facts and in law, to the judgment of the Division Bench of the Bombay High Court making a reference of the entire suit to arbitration, Mr. Fali S. Nariman, learned senior counsel appearing for the appellant, has raised the following contentions :1. There is inherent right conferred on every person by Section 9 of the Code of Civil Procedure, 1908, (for short CPC) to bring a suit of a civil nature unless it is barred by a statute or there was no agreement restricting the exercise of such right. Even if such clause was there (is invoked), the same would be hit by Section 27 of the Indian Contract Act, 1872 and under Indian law, arbitration is only an exception to a suit and not an alternative to it. The appellant, in exercise of such right, had instituted a suit before the Court of competent jurisdiction, at Bombay and there being no bar under any statute to such suit. The Court could not have sent the suit for arbitration under the provisions of the 1996 Act2. The appellant, being dominus litus to the suit, had included respondent Nos.3 and 4, who were necessary parties. The appellant had claimed different and distinct reliefs. These respondents had not been added as parties to the suit merely to avoid the arbitration clause but there were substantive reliefs prayed for against these respondents. Unless the Court, in exercise of its power under Order I, Rule 10(2) of the CPC, struck out the name of these parties as being improperly joined, the decision of the High Court would be vitiated in law as these parties admittedly were not parties to the arbitration agreement3. On its plain terms, Section 45 of the 1996 Act provides that a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration. The expression party refers to parties to the action or suit. The request for arbitration, thus, has to come from one of the parties to the suit or action or any person claiming through or under him. The Court then can refer those parties to arbitration. The expression parties used under Section 45 would necessarily mean all the parties and not some or any one of them. If the expression parties is not construed to mean all parties to the action and the agreement, it will result in multiplicity of proceedings, frustration of the intended one-stop remedy and may cause further mischiefJudgment of the High Court in referring the entire suit, including the parties who were not parties to the arbitration agreement as well as against whom the cause of action did not arise from arbitration agreement, suffers from error of law4. The 1996 Act is an amending and consolidating Act being an enactment setting out in one statute the law relating to arbitration, international commercial arbitration and enforcement of foreign arbitral awards. Further, the 1996 Act has no provision like Section 34 of the Arbitration Act, 1940 (for short 1940 Act). In Section 3 of the Foreign Awards (Recognition and Enforcement) Act, 1961 (for short 1961 Act), there existed a mandate only to stay the proceedings and not to actually refer the parties to arbitration. Thus, the position before 1996 in India, as in England, permitted a partial stay of the suit, both as regards matters and parties. But after coming into force of the 1996 Act, it is no longer possible to contend that some parties and/or some matters in a suit can be referred to arbitration leaving the rest to be decided by another forum5. Bifurcation of matters/cause of action and parties is not permissible under the provisions of the 1996 Act. Such procedure is unknown to the law of arbitration in India. The judgment of this Court in the case of Sukanya Holdings Pvt. Ltd. (supra) is a judgment in support of this contention. This judgment of the Court is holding the field even now. In the alternative, it is submitted that bifurcation, if permitted, would lead to conflicting decisions by two different forums and under two different systems of law. In such situations, reference would not be permissible6. In the alternative, reference to arbitral tribunal is not possible in the facts and circumstances of the present case. Where three major agreements, i.e., Managing Director Agreement, Trademark Registered User Agreement and Supplementary Collaboration Agreement do not have any arbitration clause, there the International Distributor Agreement exclusively provides the jurisdiction for resolution of dispute to the federal or state courts in the Eastern District of the Commonwealth of Pennsylvania, USA. This latter agreement, thus, provided for resolution of disputes under a specific law and by a specific forum. Thus, for uncertainty and indefiniteness, the alleged arbitration clause is unenforceable., in the present case, out of all the agreements signed between different parties, four agreements, i.e., Managing Director Agreement, International Distributor Agreement, Trademark Registered User Agreement and the Supplementary Collaboration Agreement, have no arbitration clause. Furthermore, different agreements have been signed by different parties and respondent No.9 is not a party to some of the agreements containing/not containing an arbitration clause. In any case, respondent Nos.3 and 4 are not party to any of the Agreements and the cause of action of the appellant against them is limited to the scope of International Distributor Agreement vis-à-vis the products covered under the joint-venture agreementOn these contentions, it is submitted that the judgment of the High Court is liable to be set aside and no reference to arbitral tribunal is possible. Also, the submission is that, within the ambit and scope of Section 45 of the 1996 Act, multiple agreements, where some contain an arbitration clause and others dont, a composite reference to arbitration is not permissible. There has to be clear intention of the parties to refer the dispute to arbitration.Corporate Structure of the Companies who are parties to lis7. In order to describe the corporate structure with precision we will explain it diagrammatically as follows:11. This corporate structure clearly indicates that Severn Trent Services (Del.) Inc. is the holding company of the companies which have entered into the joint venture agreements, for floating both the companies Capital Controls (India) Pvt. Ltd., as well as Severn Trent De Nora LLC. The disputes have actually arisen between Chloro Controls (India) Pvt. Ltd. and the Kocha Group on the one hand, and Severn Trent Water Purification Inc., the erstwhile Capital Control (Delaware) Co. Inc. and Capital Control Co. Inc. on the other

Court's reasoning:
43. As we have already noticed under the head Corporate Structure, the name of Respondent No. 1, Capital Control Co. Inc. was changed to Severn Trent Water Purification Inc. with effect from 1st April, 2002. Later on, respondent no.2, Capital Control (Delaware) Co. Inc. was merged with the respondent no.1 on 31st March, 2003. Thus, for all purposes and intents, in fact and in law, interest of respondent no.1 and 2 was controlled and given effect to by Severn Trent44. On this issue, version of the respondents had been disputed in the earlier round of litigation between the parties where respondent No. 1, Severn Trent Water Purification Co. Inc., USA, had filed a petition for winding up respondent No. 5-Chloro Controls India Pvt. Ltd., the joint venture company, on just and equitable ground under Section 433(j) of the Companies Act. In this petition, specific issue was raised that merger of Capital Controls (Delaware) Co. with Severn Trent was not intimated to the respondent No. 5 company prior to the filing of the arbitration petition by Severn Trent under Section 9 of the 1996 Act as well as that Severn Trent was not a share holder of the joint venture company and thus had no locus standi to file the petition. This Court vide its judgment dated 18th February, 2008 in Civil Appeal No. 1351 of 2008 titled Severn Trent Water Purification Inc. v. Chloro Control (India) Pvt. Ltd. and Anr. held that the winding up petition by Severn Trent Water Purification Inc. was not maintainable as it was not a contributory. But the question whether that company was a creditor of the joint venture company was left open.45. At this very stage, we may make it clear that we do not propose to deal with any of the contentions raised in that petition whether decided or left open, as the judgment has already attained finality. In terms of the settled position of law, the said judgment cannot be brought in challenge in the present proceedings, collaterally or otherwise.The propositions stated in the case of Bhatia International (supra) do not directly arise for consideration of this Court in the facts of the present case. Thus, we are not dealing with the dictum of the Court in Bhatia Internationals case and application of its principles in this judgment.Interpretation of Section 45 of the 1996 Act53. In order to invoke jurisdiction of the Court under Section 45, the applicant should satisfy the pre-requisites stated in Section 44 of the 1996 Act.54. Chapter I, Part II deals with enforcement of certain foreign awards in accordance with the New York Convention, annexed as Schedule I to the 1996 Act. As per Section 44, there has to be an arbitration agreement in writing. To such arbitration agreement the conditions stated in Schedule I would apply. In other words, it must satisfy the requirements of Article II of Schedule I. Each contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration their disputes in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration. The arbitration agreement shall include an arbitration clause in a contract or an arbitration agreement signed by the parties or entered in any of the specified modes. Subject to the exceptions stated therein, the reference shall be made55. The language of Section 45 read with Schedule I of the 1996 Act is worded in favour of making a reference to arbitration when a party or any person claiming through or under him approaches the Court and the Court is satisfied that the agreement is valid, enforceable and operative. Because of the legislative intent, the mandate and purpose of the provisions of Section 45 being in favour of arbitration, the relevant provisions would have to be construed liberally to achieve that object56. The 1996 Act makes it abundantly clear that Part I of the Act has been amended to bring these provisions completely in line with the UNCITRAL Model Law on International Commercial Arbitration (for short, the UNCITRAL Mode Law), while Chapter I of Part II is meant to encourage international commercial arbitration by incorporating in India, the provisions of the New York Convention. Further, the protocol on Arbitration Clauses (for short Geneva Convention) was also incorporated as part of Chapter II of Part II57. For proper interpretation and application of Chapter I of Part II, it is necessary that those provisions are read in conjunction with Schedule I of the Act.. The International Council for Commercial Arbitration prepared a Guide to the Interpretation of 1958 New York Convention, which lays/contains the Road Map to Article II. Section 45 is enacted materially on the lines of Article II of this Convention. When the Court is seized with a challenge to the validity of an arbitration agreement, it would be desirable to examine the following aspects :1. Does the arbitration agreement fall under the scope of the Convention?2. Is the arbitration agreement evidenced in writing?3. Does the arbitration agreement exist and is it substantively valid?4. Is there a dispute, does it arise out of a defined legal relationship, whether contractual or not, and did the parties intend to have this particular dispute settled by arbitration?5. Is the arbitration agreement binding on the parties to the dispute that is before the Court?6. Is this dispute arbitrable?. According to this Guide, if these questions are answered in the affirmative, then the parties must be referred to arbitration. Of course, in addition to the above, the Court will have to adjudicate any plea, if taken by a non-applicant that the arbitration agreement is null and void, inoperative or incapable of being performed. In these three situations, if the Court answers such plea in favour of the non-applicant, the question of making a reference to arbitration would not arise and that would put the matter at rest59. If the parties are referred to arbitration and award is made under these provisions of the Convention, then it shall be binding and enforceable in accordance with the provisions of Sections 46 to 49 of the 1996 Act. The procedure prescribed under Chapter I of Part II is to take precedence and would not be affected by the provisions contained under Part I and/or Chapter II of Part II in terms of Section 52. This is the extent of priority that the Legislature had intended to accord to this Chapter 1 of Part II.60. Amongst the initial steps, the Court is required to enquire whether the dispute at issue is covered by the arbitration agreement. Stress has normally been placed upon three characteristics of arbitrations which are as follows –(1) arbitration is consensual. It is based on the parties agreement;(2) arbitration leads to a final and binding resolution of the dispute; and(3) arbitration is regarded as substitute for the court litigation and results in the passing of an binding award.64. We have already noticed that the language of Section 45 is at a substantial variance to the language of Section 8 in this regard. In Section 45, the expression any person clearly refers to the legislative intent of enlarging the scope of the words beyond the parties who are signatory to the arbitration agreement. Of course, such applicant should claim through or under the signatory party. Once this link is established, then the Court shall refer them to arbitration. The use of the word shall would have to be given its proper meaning and cannot be equated with the word may, as liberally understood in its common parlance. The expression shall in the language of the Section 45 is intended to require the Court to necessarily make a reference to arbitration, if the conditions of this provision are satisfied. To that extent, we find merit in the submission that there is a greater obligation upon the judicial authority to make such reference, than it was in comparison to the 1940 Act. However, the right to reference cannot be construed strictly as an indefeasible right. One can claim the reference only upon satisfaction of the pre-requisites stated under Sections 44 and 45 read with Schedule I of the 1996 Act. Thus, it is a legal right which has its own contours and is not an absolute right, free of any obligations/limitations65. Normally, arbitration takes place between the persons who have, from the outset, been parties to both the arbitration agreement as well as the substantive contract underlining that agreement. But, it does occasionally happen that the claim is made against or by someone who is not originally named as a party. These may create some difficult situations, but certainly, they are not absolute obstructions to law/the arbitration agreement. Arbitration, thus, could be possible between a signatory to an arbitration agreement and a third party. Of course, heavy onus lies on that party to show that, in fact and in law, it is claiming through or under the signatory party as contemplated under Section 45 of the 1996 Act. Just to deal with such situations illustratively, reference can be made to the following examples in Law and Practice of Commercial Arbitration in England (Second Edn.) by Sir Michael J. Mustill:1. The claimant was in reality always a party to the contract, although not named in it.. The claimant has succeeded by operation of law to the rights of the named party3. The claimant has become a part to the contract in substitution for the named party by virtue of a statutory or consensual novation4. The original party has assigned to the claimant either the underlying contract, together with the agreement to arbitrate which it incorporates, or the benefit of a claim which has already come into existence.. Though the scope of an arbitration agreement is limited to the parties who entered into it and those claiming under or through them, the Courts under the English Law have, in certain cases, also applied the Group of Companies Doctrine. This doctrine has developed in the international context, whereby an arbitration agreement entered into by a company, being one within a group of companies, can bind its non-signatory affiliates or sister or parent concerns, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates. This theory has been applied in a number of arbitrations so as to justify a tribunal taking jurisdiction over a party who is not a signatory to the contract containing the arbitration agreement. [Russell on Arbitration (Twenty Third Edition)]67. This evolves the principle that a non-signatory party could be subjected to arbitration provided these transactions were with group of companies and there was a clear intention of the parties to bind both, the signatory as well as the non-signatory parties. In other words, intention of the parties is a very significant feature which must be established before the scope of arbitration can be said to include the signatory as well as the non-signatory parties68. 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 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-discussed69. In a case like the present one, where origin and end of all is with the Mother or the Principal Agreement, the fact that a party was non-signatory to one or other agreement may not be of much significance. The performance of any one of such agreements may be quite irrelevant without the performance and fulfillment of the Principal or the Mother Agreement. Besides designing the corporate management to successfully complete the joint ventures, where the parties execute different agreements but all with one primary object in mind, the Court would normally hold the parties to the bargain of arbitration and not encourage its avoidance. In cases involving execution of such multiple agreements, two essential features exist; firstly, all ancillary agreements are relatable to the mother agreement and secondly, performance of one is so intrinsically inter- linked with the other agreements that they are incapable of being beneficially performed without performance of the others or severed from the rest. The intention of the parties to refer all the disputes between all the parties to the arbitral tribunal is one of the determinative factor70. We may notice that this doctrine does not have universal acceptance. Some jurisdictions, for example, Switzerland, have refused to recognize the doctrine, while others have been equivocal. The doctrine has found favourable consideration in the United States and French jurisdictions. The US Supreme Court in Ruhrgos AG v Marathon Oil Co. [526 US 574 (1999)] discussed this doctrine at some length and relied on more traditional principles, such as, the non- signatory being an alter ego, estoppel, agency and third party beneficiaries to find jurisdiction over the non-signatories71. The Court will have to examine such pleas with greater caution and by definite reference to the language of the contract and intention of the parties. In the case of composite transactions and multiple agreements, it may again be possible to invoke such principle in accepting the pleas of non-signatory parties for reference to arbitration. Where the agreements are consequential and in the nature of a follow-up to the principal or mother agreement, the latter containing the arbitration agreement and such agreements being so intrinsically inter-mingled or inter-dependent that it is their composite performance which shall discharge the parties of their respective mutual obligations and performances, this would be a sufficient indicator of intent of the parties to refer signatory as well as non-signatory parties to arbitration. The principle of composite performance would have to be gathered from the conjoint reading of the principal and supplementary agreements on the one hand and the explicit intention of the parties and the attendant circumstances on the other72. As already noticed, an arbitration agreement, under Section 45 of the 1996 Act, should be evidenced in writing and in terms of Article II of Schedule 1, an agreement in writing shall include an arbitral clause in a contract or an arbitration agreement signed by the parties or contained in an exchange of letters or telegrams. Thus, the requirement that an arbitration agreement be in writing is an expression incapable of strict construction and requires to be construed liberally, as the words of this Article provide. Even in a given circumstance, it may be possible and permissible to construe the arbitration agreement with the aid and principle of incorporation by reference. Though the New York Convention is silent on this matter, in common practice, the main contractual document may refer to standard terms and conditions or other standard forms and documents which may contain an arbitration clause and, therefore, these terms would become part of the contract between the parties by reference. The solution to such issue should be case-specific. The relevant considerations to determine incorporation would be the status of parties, usages within the specific industry, etc. Cases where the main documents explicitly refer to arbitration clause included in standard terms and conditions would be more easily found in compliance with the formal requirements set out in the Article II of the New York Convention than those cases in which the main contract simply refers to the application of standard forms without any express reference to the arbitration clause. For instance, under the American Law, where standard terms and conditions referred to in a purchase order provided that the standard terms would have been attached to or form part of the purchase order, this was considered to be an incorporation of the arbitration agreement by reference. Even in other countries, the recommended criterion for incorporation is whether the parties were or should have been aware of the arbitration agreement. If the Bill of Lading, for example, specifically mentions the arbitration clause in the Charter Party Agreement, it is generally considered sufficient for incorporation. Two different approaches in its interpretation have been adopted, namely, (a) interpretation of documents approach; and (b) conflict of laws approach. Under the latter, the Court could apply either its own national law or the law governing the arbitration73. In India, the law has been construed more liberally, towards accepting incorporation by reference. In the case of Owners and Parties Interested in the Vessel M.V. Baltic Confidence & Anr. v. State Trading Corporation of India Ltd. & Anr. [(2001) 7 SCC 473] , the Court was considering the question as to whether the arbitration clause in a Charter Party Agreement was incorporated by reference in the Bill of Lading and what the intention of the parties to the Bill of Lading was. The primary document was the Bill of Lading, which, if read in the manner provided in the incorporation clause thereof, would include the arbitration clause of the Charter Party Agreement. The Court observed that while ascertaining the intention of the parties, attempt should be made to give meaning and effect to the incorporation clause and not to invalidate or frustrate it by giving it a literal, pedantic and technical reading. This Court, after considering the judgments of the courts in various other countries, held as under :19. From the conspectus of the views expressed by courts in England and also in India, it is clear that in considering the question, whether the arbitration clause in a Charter Party Agreement was incorporated by reference in the Bill of Lading, the principal question is, what was the intention of the parties to the Bill of Lading? For this purpose the primary document is the Bill of Lading into which the arbitration clause in the Charter Party Agreement is to be read in the manner provided in the incorporation clause of the Bill of Lading. While ascertaining the intention of the parties, attempt should be made to give meaning to the incorporation clause and to give effect to the same and not to invalidate or frustrate it giving a literal, pedantic and technical reading of the clause. If on a construction of the arbitration clause of the Charter Party Agreement as incorporated in the Bill of Lading it does not lead to inconsistency or insensibility or absurdity then effect should be given to the intention of the parties and the arbitration clause as agreed should be made binding on parties to the Bill of Lading. If the parties to the Bill of Lading being aware of the arbitration clause in the Charter Party Agreement have specifically incorporated the same in the conditions of the Bill of Lading then the intention of the parties to abide by the arbitration clause is clear. Whether a particular dispute arising between the parties comes within the purview of the arbitration clause as incorporated in the Bill of Lading is a matter to be decided by the arbitrator or the court. But that does not mean that despite incorporation of the arbitration clause in the Bill of Lading by specific reference the parties had not intended that the disputes arising on the Bill of Lading should be resolved by an arbitrator.. Reference can also be made to the judgment of this Court in the case of Olympus Superstructure Pvt. Ltd. v. Meena Vijay Khetan & Ors. [(1999) 5 SCC 651] , where the parties had entered into a purchase agreement for the purchase of flats. The main agreement contained the arbitration clause (clause 39). The parties also entered into three different Interior Design Agreements, which also contained arbitration clauses. The main agreement was terminated due to disputes about payment and non-grant of possession. These disputes were referred to arbitration. A sole arbitrator was appointed to make awards in this respect. Inter alia, the question was raised as to whether the disputes under the Interior Design Agreements were subject to their independent arbitration clauses or whether one and the same reference was permissible under the main agreement. It was argued that the reference under clause 39 of the main agreement could not permit the arbitrator to deal with the disputes relating to Interior Design Agreements and the award was void. The Court, however, took the view that parties had entered into multiple agreements for a common object and the expression other matters…connected with appearing in clause 39 would permit such a reference. The Court held as under :30. If there is a situation where there are disputes and differences in connection with the main agreement and also disputes in regard to other matters connected with the subject-matter of the main agreement then in such a situation, in our view, we are governed by the general arbitration clause 39 of the main agreement under which disputes under the main agreement and disputes connected therewith can be referred to the same arbitral tribunal. This clause 39 no doubt does not refer to any named arbitrators. So far as clause 5 of the Interior Design Agreement is concerned, it refers to disputes and differences arising from that agreement which can be referred to named arbitrators and the said clause 5, in our opinion, comes into play only in a situation where there are no disputes and differences in relation to the main agreement and the disputes and differences are solely confined to the Interior Design Agreement. That, in our view, is the true intention of the parties and that is the only way by which the general arbitration provision in clause 39 of the main agreement and the arbitration provision for a named arbitrator contained in clause 5 of the Interior Design Agreement can be harmonised or reconciled. Therefore, in a case like the present where the disputes and differences cover the main agreement as well as the Interior Design Agreement, — (that there are disputes arising under the main agreement and the Interior Design Agreement is not in dispute) — it is the general arbitration clause 39 in the main agreement that governs because the questions arise also in regard to disputes relating to the overlapping items in the schedule to the main agreement and the Interior Design Agreement, as detailed earlier. There cannot be conflicting awards in regard to items which overlap in the two agreements. Such a situation was never contemplated by the parties. The intention of the parties when they incorporated clause 39 in the main agreement and clause 5 in the Interior Design Agreement was that the former clause was to apply to situations when there were disputes arising under both agreements and the latter was to apply to a situation where there were no disputes or differences arising under the main contract but the disputes and differences were confined only to the Interior Design Agreement. A case containing two agreements with arbitration clauses arose before this Court in Agarwal Engg. Co. v. Technoimpex Hungarian Machine Industries Foreign Trade Co. There were arbitration clauses in two contracts, one for sale of two machines to the appellant and the other appointing the appellant as sales representative. On the facts of the case, it was held that both the clauses operated separately and this conclusion was based on the specific clause in the sale contract that it was the sole repository of the sale transaction of the two machines. Krishna Iyer, J. held that if that were so, then there was no jurisdiction for travelling beyond the sale contract. The language of the other agreement appointing the appellant as sales representative was prospective and related to a sales agency and later purchases, other than the purchases of these two machines. There was therefore no overlapping. The case before us and the above case exemplify contrary situations. In one case the disputes are connected and in the other they are distinct and not connected. Thus, in the present case, clause 39 of the main agreement applies. Points 1 and 2 are decided accordingly in favour of the respondents.. The Court also took the view that a dispute relating to specific performance of a contract in relation to immoveable property could be referred to arbitration and Section 34(2)(b)(i) of the 1996 Act was not attracted. This finding of the Court clearly supports the view that where the law does not prohibit the exercise of a particular power, either the Arbitral Tribunal or the Court could exercise such power. The Court, while taking this view, has obviously rejected the contention that a contract for specific performance was not capable of settlement by arbitration under the Indian law in view of the statutory provisions. Such contention having been rejected, supports the view that we have taken.76. Where the Court which, on its judicial side, is seized of an action in a matter in respect of which the parties have made an arbitration agreement, once the required ingredients are satisfied, it would refer the parties to arbitration but for the situation where it comes to the conclusion that the agreement is null and void, inoperative or incapable of being performed. These expressions have to be construed somewhat strictly so as to ensure that the Court returns a finding with certainty and on the correct premise of law and fact as it has the effect of depriving the party of its right of reference to arbitration. But once the Court finds that the agreement is valid then it must make the reference, without any further exercise of discretion refer General Electric Co. v. Renusagar Power Co. [(1987) 4 SCC 137] . These are the issues which go to the root of the matter and their determination at the threshold would prevent multiplicity of litigation and would even prevent futile exercise of proceedings before the arbitral tribunalA majority of the countries admit to the positive effect of kompetenz kompetenz principle, which requires that the arbitral tribunal must exercise jurisdiction over the dispute under the arbitration agreement. Thus, challenge to the existence or validity of the arbitration agreement will not prevent the arbitral tribunal from proceeding with hearing and ruling upon its jurisdiction. If it retains jurisdiction, making of an award on the substance of the dispute would be permissible without waiting for the outcome of any court action aimed at deciding the issue of the jurisdiction. The negative effect of the kompetenz kompetenz principle is that arbitrators are entitled to be the first to determine their jurisdiction which is later reviewable by the court, when there is action to enforce or set aside the arbitral award. Where the dispute is not before an arbitral tribunal, the Court must also decline jurisdiction unless the arbitration agreement is patently void, inoperative or incapable of being performed78. This is the position of law in France and in some other countries, but as far as the Indian Law is concerned, Section 45 is a legislative mandate and does not admit of any ambiguity. We must take note of the aspect of Indian law that Chapter I of Part II of the 1996 Act does not contain any provision analogous to Section 8(3) under Part I of the Act. In other words, under the Indian Law, greater obligation is cast upon the Courts to determine whether the agreement is valid, operative and capable of being performed at the threshold itself. Such challenge has to be a serious challenge to the substantive contract or to the agreement, as in the absence of such challenge, it has to be found that the agreement was valid, operative and capable of being performed; the dispute would be referred to arbitration. [State of Orissa v. Klockner and Company & Ors. (AIR 1996 SC 2140 )].proceedings before national courts, it is generally possible to join additional parties or to consolidate separate sets of proceedings. In arbitration, however, this is difficult, sometimes impossible, to achieve this because the arbitral process is based upon the agreement of the parties80. Where there is multi-party arbitration, it may be because there are several parties to one contract or it may be because there are several contracts with different parties that have a bearing on the matter in dispute. It is helpful to distinguish between the two. Where there are several parties to one contract, like a joint venture or some other legal relationship of similar kind and the contract contains an arbitration clause, when a dispute arises, the members of the consortium or the joint venture may decide that they would each like to appoint an arbitrator. In distinction thereto, in cases involving several contracts with different parties, a different problem arises. They may have different issues in dispute. Each one of them will be operating under different contracts often with different choice of law and arbitration clauses and yet, any dispute between say the employer and the main contractor is likely to involve or affect one or more of the suppliers or sub-contractors, even under other contracts.This was the issue raised in the Adgas case Abu Dhabi Gas Liquefaction Co. Ltd. v. Eastern Bechtel Corp. [1982] 2 Lloyds Rep. 425, CA. Adgas was the owner of a plant that produced liquefied natural gas in the Arabian Gulf. The company started arbitration in England against the main contractors under an international construction contract, alleging that one of the huge tanks that had been constructed to store the gas was defective. The main contractor denied liability but added that, if the tank was defective, it was the fault of the Japanese sub-contractor. Adgas brought ad hoc arbitration proceedings against the main contractor before a sole arbitrator in London. The main contractor then brought separate arbitration proceedings, also in London, against the Japanese sub-contractor81. There is little doubt that if the matter had been litigated in an English court, the Japanese company would have been joined as a party to the action. However, Adgas did not agree that the Japanese sub-contractor should be brought into its arbitration with the main contractor, since this would have lengthened and complicated the proceedings. The Japanese sub-contractor also did not agree to be joined. It preferred to await the outcome of the main arbitration, to see whether or not there was a case to answer82. Lord Denning, giving judgment in the English Court of Appeal, plainly wished that an order could be made consolidating the two sets of arbitral proceedings so as to save time and money and to avoid the risk of inconsistent awards:As we have often pointed out, there is a danger in having two separate arbitrations in a case like this. You might get inconsistent findings if there were two separate arbitrators. This has been said in many cases…it is most undesirable that there should be inconsistent findings by two separate arbitrators on virtually the self-same question, such as causation. It is very desirable that everything should be done to avoid such a circumstance [Abu Dhabi Gas, op.cit.at 427]. We have already referred to the contention of Mr. Fali S. Nariman, the learned senior counsel appearing for the appellant, that the provisions of Section 45 of the 1996 Act are somewhat similar to Article II(3) of the New York Convention and the expression parties in that Section would mean that all parties to the action before the Court have to be the parties to the arbitration agreement. If some of them are parties to the agreement, while the others are not, Section 45 does not contemplate the applicable procedure and the status of the non-signatories. The consequences of all parties not being common to the action and arbitration proceedings are, as illustrated above, multiplicity of proceedings and frustration of the intended one stop action. The Rule of Mischief would support such interpretation. Even if some unnecessary parties are added to the action, the Court can always strike out such parties and even the cause of action in terms of the provisions of the CPC. However, where such parties cannot be struck off, there the proceedings must continue only before the Court84. Thus, the provisions of Section 45 cannot be effectively applied or even invoked. Unlike Section 24 of the 1940 Act, under the 1996 Act the Court has not been given the power to refer to arbitration some of the parties from amongst the parties to the suit. Section 24 of 1940 Act vested the Court with the discretion that where the Court thought fit, it could refer such matters and parties to arbitration provided the same could be separated from the rest of the subject matter of the suit. Absence of such provision in the 1996 Act clearly suggests that the Legislature intended not to permit bifurcated or partial references of dispute or parties to arbitration. Without prejudice to this contention, it was also the argument that it would not be appropriate and even permissible to make reference to arbitration when the issues and parties in action are not covered by the arbitration agreement. Referring to the consequences of all parties not being common to the action before the Court and arbitration, the disadvantages are:a) There would be multiplicity of litigation;b) Application of principle of one stop action would not be possible; andc) It will frustrate the application of the Rule of Mischief. The Court can prevent the mischief by striking out unnecessary parties or causes of action85. It would, thus, imply that a stranger or a third party cannot ask for arbitration. The expression claiming through or under will have to be construed strictly and restricted to the parties to the arbitration agreement.88. As noticed above, the legislative intent and essence of the 1996 Act was to bring domestic as well as international commercial arbitration in consonance with the UNCITRAL Model Rules, the New York Convention and the Geneva Convention. The New York Convention was physically before the Legislature and available for its consideration when it enacted the 1996 Act. Article II of the Convention provides that each contracting State shall recognise an agreement and submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not concerning a subject matter capable of settlement by arbitration. Once the agreement is there and the Court is seized of an action in relation to such subject matter, then on the request of one of the parties, it would refer the parties to arbitration unless the agreement is null and void, inoperative or incapable of performance89. Still, the legislature opted to word Section 45 somewhat dissimilarly. Section 8 of the 1996 Act also uses the expression parties simpliciter without any extension. In significant contra- distinction, Section 45 uses the expression one of the parties or any person claiming through or under him and refer the parties to arbitration, whereas the rest of the language of Section 45 is similar to that of Article II(3) of the New York Contention. The Court cannot ignore this aspect and has to give due weightage to the legislative intent. It is a settled rule of interpretation that every word used by the Legislature in a provision should be given its due meaning. To us, it appears that the Legislature intended to give a liberal meaning to this expression90. The language of Section 45 has wider import. It refers to the request of a party and then refers to an arbitral tribunal, while under Section 8(3) it is upon the application of one of the parties that the court may refer the parties to arbitration. There is some element of similarity in the language of Section 8 and Section 45 read with Article II(3). The language and expressions used in Section 45, any person claiming through or under him including in legal proceedings may seek reference of all parties to arbitration. Once the words used by the Legislature are of wider connotation or the very language of section is structured with liberal protection then such provision should normally be construed liberally91. Examined from the point of view of the legislative object and the intent of the framers of the statute, i.e., the necessity to encourage arbitration, the Court is required to exercise its jurisdiction in a pending action, to hold the parties to the arbitration clause and not to permit them to avoid their bargain of arbitration by bringing civil action involving multifarious cause of action, parties and prayers.Article II(1) and (3) have to be read in conjunction with Section 45 of the Act. Both these expressions have to be read in harmony with each other. Once they are so read, it will be evident that the expression legal relationship connotes the relationship of the party with the person claiming through or under him. A person may not be signatory to an arbitration agreement, but his cause of action may be directly relatable to that contract and thus, he may be claiming through or under one of those parties. It is also stated in the Law and Practice of International Commercial Arbitration, Alan Redfern and Martin Hunter (supra), that for the purposes of both the New York Convention and the UNCITRAL Model Law, it is sufficient that there should be a defined legal relationship between the parties, whether contractual or not. Plainly there has to be some contractual relationship between the parties, since there must be some arbitration agreement to form the basis of the arbitral proceedings. Given the existence of such an agreement, the dispute submitted to arbitration may be governed by the principles of delictual or tortuous liability rather than by the law of contract.95. Having examined both the above-stated views, we are of the considered opinion that it will be the facts of a given case that would act as precept to the jurisdictional forum as to whether any of the stated principles should be adopted or not. If in the facts of a given case, it is not possible to construe that the person approaching the forum is a party to the arbitration agreement or a person claiming through or under such party, then the case would not fall within the ambit and scope of the provisions of the section and it may not be possible for the Court to permit reference to arbitration at the behest of or against such party96. We have already referred to the judgments of various courts, that state that arbitration could be possible between a signatory to an agreement and a third party. Of course, heavy onus lies on that party to show that in fact and in law, it is claiming under or through a signatory party, as contemplated under Section 45 of the 1996 Act.99. Joinder of non signatory parties to arbitration is not unknown to the arbitration jurisprudence. Even the ICCAs Guide to the Interpretation of the 1958 New York Convention also provides for such situation, stating that when the question arises as to whether binding a non-signatory to an arbitration agreement could be read as being in conflict with the requirement of written agreement under Article I of the Convention, the most compelling answer is no and the same is supported by a number of reasons100. Various legal basis may be applied to bind a non-signatory to an arbitration agreement. The first theory is that of implied consent, third party beneficiaries, guarantors, assignment and other transfer mechanisms of contractual rights. This theory relies on the discernible intentions of the parties and, to a large extent, on good faith principle. They apply to private as well as public legal entities. The second theory includes the legal doctrines of agent- principal relations, apparent authority, piercing of veil (also called the alter ego), joint venture relations, succession and estoppel. They do not rely on the parties intention but rather on the force of the applicable law.102. We have already discussed that under the Group of Companies Doctrine, an arbitration agreement entered into by a company within a group of companies can bind its non-signatory affiliates, if the circumstances demonstrate that the mutual intention of the parties was to bind both the signatory as well as the non-signatory parties103. The question of formal validity of the arbitration agreement is independent of the nature of parties to the agreement, which is a matter that belongs to the merits and is not subject to substantive assessment. Once it is determined that a valid arbitration agreement exists, it is a different step to establish which parties are bound by it. Third parties, who are not explicitly mentioned in an arbitration agreement made in writing, may enter into its ratione personae scope. Furthermore, the Convention does not prevent consent to arbitrate from being provided by a person on behalf of another, a notion which is at the root of the theory of implied consent104. If one analyses the above cases and the authors views, it becomes abundantly clear that reference of even non-signatory parties to arbitration agreement can be made. It may be the result of implied or specific consent or judicial determination. Normally, the parties to the arbitration agreement calling for arbitral reference should be the same as those to the an action. But this general concept is subject to exceptions which are that when a third party, i.e. non-signatory party, is claiming or is sued as being directly affected through a party to the arbitration agreement and there are principal and subsidiary agreements, and such third party is signatory to a subsidiary agreement and not to the mother or principal agreement which contains the arbitration clause, then depending upon the facts and circumstances of the given case, it may be possible to say that even such third party can be referred to arbitration105. In the present case, the corporate structure of the respondent companies as well as that of the appellant companies clearly demonstrates a legal relationship which not only is inter-legal relationship but also intra-legal relationship between the parties to the lis or persons claiming under them. They have contractual relationship which arises out of the various contracts that spell out the terms, obligations and roles of the respective parties which they were expected to perform for attaining the object of successful completion of the joint venture agreement. This joint venture project was not dependant on any single agreement but was capable of being achieved only upon fulfillment of all these agreements. If one floats a joint venture company, one must essentially know-how to manage it and what shall be the methodology adopted for its management. If one manages it well, one must know what goods the said company is to produce and with what technical knowhow. Even if these requisites are satisfied, then also one is required to know, how to create market, distribute and export such goods. It is nothing but one single chain consisting of different components. The parties may choose to sign different agreements to effectively implement various aforementioned facets right from managing to making profits in a joint venture company. A party may not be signatory to an agreement but its execution may directly be relatable to the main contract even though he claims through or under one of the main party to the agreement. In such situations, the parties would aim at achieving the object of making their bargain successful, by execution of various agreements, like in the present case106. The New York Convention clearly postulates that there should be a defined legal relationship between the parties, whether contractual or not, in relation to the differences that may have arisen concerning the subject matter capable of settlement of arbitration. We have referred to a number of judgments of the various courts to emphasize that in given circumstances, if the ingredients above-noted exist, reference to arbitration of a signatory and even a third party is possible. Though heavy onus lies on the person seeking such reference, multiple and multi-party agreements between the parties to the arbitration agreement or persons claiming through or under such parties is neither impracticable nor impermissible.107. Next, we are to examine the issue whether the cause of action in a suit can be bifurcated and a partial reference may be made by the Court. Whatever be the answer to this question, a necessary corollary is as to whether the Court should or should not stay the proceedings in the suit?Further, this may give rise to three different situations. Firstly, while making reference of the subject matter to arbitration, whether the suit may still survive, partially or otherwise; secondly, whether the suit, still pending before the Court, should be stayed completely; and lastly, whether both the arbitration and the suit proceedings could be permitted to proceed simultaneously in accordance with law.109. In the case of Turnock (supra), the Court had stated that it was not right to cut up that litigation into two actions, one to be tried before the arbitrator and the other to be tried elsewhere, as in that case matters in respect of which the damages were claimed by the plaintiff could not be referred to arbitration because questions arising as to the construction of the agreement and provisions in the lease deed were involved and they did not fall within the power of the arbitrator in face of the arbitration agreement. In the case of Taunton-Collins (supra), the Court again expressed the view that it was undesirable that there should be two proceedings before two different tribunals, i.e., the official referee and an Arbitrator, as they may reach inconsistent findings110. This Court dealt with the provisions of the 1940 Act, in the case of Anderson Wright Ltd. v. Moran & Company [1955 SCR 862], and described the conditions to be satisfied before a stay can be granted in terms of Section 34 of the 1940 Act. The Court also held that it was within the jurisdiction of the Court to determine a question whether the plaintiff was a party to the contract containing the arbitration clause or not. Still in the case of Sumitomo Corporation (supra), this Court primarily declined the reference to arbitration for the reason that the disputes stated in the petition did not fall within the ambit of the arbitration clause contained in the agreement between the parties and also that the Joint Venture Agreement did not itself contain a specific arbitration clause. An observation was also made in paragraph 20 of the judgment that the party would mean the party to the judicial proceeding should be a party to the arbitration agreement.As far as Sumitomo Corporation (supra) is concerned, it was a case dealing with the matter where the proceedings under Section 397-398 of the Companies Act had been initiated and the Company Law Board had passed an order. Whether the appeal against such order would lie to the High Court was the principal question involved in that case. The denial of arbitration reference, as already noticed, was based upon the reasoning that disputes related to the joint venture agreement to which the parties were not signatory and the said agreement did not even contain the arbitration clause. On the other hand, it was the other agreement entered into by different parties which contained the arbitration clause. As already noticed, in paragraph 20, the Court had observed that a party to an arbitration agreement has to be a party to the judicial proceedings and then alone it will fall within the ambit of Section 2(h) of the 1996 Act. As far as the first issue is concerned, we shall shortly proceed to discuss it when we discuss the merits of this case, in light of the principles stated in this judgment. However, the observations made by the learned Bench in the case of Sumitomo Corporation (supra) do not appear to be correct. Section 2(h) only says that party means a party to an arbitration agreement. This expression falls in the Chapter dealing with definitions and would have to be construed along with the other relevant provisions of the Act. When we read Section 45 in light of Section 2(h), the interpretation given by the Court in the case of Sumitomo Corporation (supra) does not stand to the test of reasoning. Section 45 in explicit language permits the parties who are claiming through or under a main party to the arbitration agreement to seek reference to arbitration. This is so, by fiction of law, contemplated in the provision of Section 45 of the 1996 Act113. We have already discussed above that the language of Section 45 is incapable of being construed narrowly and must be given expanded meaning to achieve the twin objects of arbitration, i.e., firstly, the parties should be held to their bargain of arbitration and secondly, the legislative intent behind incorporating the New York Convention as part of Section 44 of the Act must be protected. Moreover, paragraph 20 of the judgment of Sumitomo Corporation (supra) does not state any principle of law and in any event it records no reasons for arriving at such a conclusion. In fact, that was not even directly the issue before the Court so as to operate as a binding precedent. For these reasons, respectfully but without hesitation, we are constrained to hold that the conclusion or the statement made in paragraph 20 of this judgment does not enunciate the correct law.114. An application for appointment of arbitral tribunal under Section 45 of the 1996 Act would also be governed by the provisions of Section 11(6) of the Act. This question is no more res integra and has been settled by decision of a Constitution Bench of seven Judges of this Court in the case of SBP and Co. v. Patel Engineering Ltd. and Anr. [(2005) 8 SCC 618] , wherein this Court held that power exercised by the Chief Justice is not an administrative power. It is a judicial power. It is a settled principle that the Chief Justice or his designate Judge will decide preliminary aspects which would attain finality unless otherwise directed to be decided by the arbitral tribunal. In para 39 of the judgment, the Court held as under :39. It is necessary to define what exactly the Chief Justice, approached with an application under Section 11 of the Act, is to decide at that stage. Obviously, he has to decide his own jurisdiction in the sense whether the party making the motion has approached the right High Court. He has to decide whether there is an arbitration agreement, as defined in the Act and whether the person who has made the request before him, is a party to such an agreement. It is necessary to indicate that he can also decide the question whether the claim was a dead one; or a long-barred claim that was sought to be resurrected and whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection. It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration clause. It will be appropriate to leave that question to be decided by the Arbitral Tribunal on taking evidence, along with the merits of the claims involved in the arbitration. The Chief Justice has to decide whether the applicant has satisfied the conditions for appointing an arbitrator under Section 11(6) of the Act. For the purpose of taking a decision on these aspects, the Chief Justice can either proceed on the basis of affidavits and the documents produced or take such evidence or get such evidence recorded, as may be necessary. We think that adoption of this procedure in the context of the Act would best serve the purpose sought to be achieved by the Act of expediting the process of arbitration, without too many approaches to the court at various stages of the proceedings before the Arbitral Tribunal.. This aspect of the arbitration law was explained by a two Judge Bench of this Court in the case of Shree Ram Mills Ltd. v. Utility Premises (P) Ltd. [(2007) 4 SCC 599] wherein, while referring to the judgment in SBP & Co. (supra) particularly the above paragraph, this Court held that the scope of order under Section 11 of the 1996 Act would take in its ambit the issue regarding territorial jurisdiction and the existence of the arbitration agreement. The Court noticed that if these issues are not decided by the Chief Justice or his designate, there would be no question of proceeding with the arbitration. It held as under:27…Thus, the Chief Justice has to decide about the territorial jurisdiction and also whether there exists an arbitration agreement between the parties and whether such party has approached the court for appointment of the arbitrator. The Chief Justice has to examine as to whether the claim is a dead one or in the sense whether the parties have already concluded the transaction and have recorded satisfaction of their mutual rights and obligations or whether the parties concerned have recorded their satisfaction regarding the financial claims. In examining this if the parties have recorded their satisfaction regarding the financial claims, there will be no question of any issue remaining. It is in this sense that the Chief Justice has to examine as to whether there remains anything to be decided between the parties in respect of the agreement and whether the parties are still at issue on any such matter. If the Chief Justice does not, in the strict sense, decide the issue, in that event it is for him to locate such issue and record his satisfaction that such issue exists between the parties. It is only in that sense that the finding on a live issue is given. Even at the cost of repetition we must state that it is only for the purpose of finding out whether the arbitral procedure has to be started that the Chief Justice has to record satisfaction that there remains a live issue in between the parties. The same thing is about the limitation which is always a mixed question of law and fact. The Chief Justice only has to record his satisfaction that prima facie the issue has not become dead by the lapse of time or that any party to the agreement has not slept over its rights beyond the time permitted by law to agitate those issues covered by the agreement. It is for this reason that it was pointed out in the above para that it would be appropriate sometimes to leave the question regarding the live claim to be decided by the Arbitral Tribunal. All that he has to do is to record his satisfaction that the parties have not closed their rights and the matter has not been barred by limitation. Thus, where the Chief Justice comes to a finding that there exists a live issue, then naturally this finding would include a finding that the respective claims of the parties have not become barred by limitation. Thus, the Bench while explaining the judgment of this Court in SBP & Co. (supra) has stated that the Chief Justice may not decide certain issues finally and upon recording satisfaction that prima facie the issue has not become dead even leave it for the arbitral tribunal to decide117. In National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd. [(2009) 1 SCC 267] , another equi-bench of this Court after discussing various judgments of this Court, explained SBP & Co. (supra) in relation to scope of powers of the Chief Justice and/or his designate while exercising jurisdiction under Section 11(6), held as follows :22. Where the intervention of the court is sought for appointment of an Arbitral Tribunal under Section 11, the duty of the Chief Justice or his designate is defined in SBP & Co. This Court identified and segregated the preliminary issues that may arise for consideration in an application under Section 11 of the Act into three categories, that is, (i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide22.1. The issues (first category) which the Chief Justice/his designate will have to decide are:(a) Whether the party making the application has approached the appropriate High Court(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement22.2. The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are:(a) Whether the claim is a dead (long-barred) claim or a live claim(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection22.3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration)(ii) Merits or any claim involved in the arbitration.. We may notice that at first blush, the judgment in the case of Shree Ram Mills (supra) is at some variance with the judgment in the case of National Insurance Co. Ltd. (supra) but when examined in depth, keeping in view the judgment in the case of SBP & Co. (supra) and provisions of Section 11(6) of the 1996 Act, both these judgments are found to be free from contradiction and capable of being read in harmony in order to bring them in line with the statutory law declared by the larger Bench in SBP & Co. (supra). The expressions Chief Justice does not in strict sense decide the issue or is prima facie satisfied, will have to be construed in the facts and circumstances of a given case. Where the Chief Justice or his designate actually decides the issue, then it can no longer be prima facie, but would be a decision binding in law. On such an issue, the Arbitral Tribunal will have no jurisdiction to re-determine the issue. In the case of Shree Ram Mills (supra), the Court held that the Chief Justice could record a finding where the issue between the parties was still alive or was dead by lapse of time. Where it prima facie found the issue to be alive, the Court could leave the question of limitation and also open to be decided by the arbitral tribunal119. The above expressions are mere observations of the Court and do not fit into the contours of the principle of ratio decidendi of the judgment. The issues in regard to validity or existence of the arbitration agreement, the application not satisfying the ingredients of Section 11(6) of the 1996 Act and claims being barred by time etc. are the matters which can be adjudicated by the Chief Justice or his designate. Once the parties are heard on such issues and the matter is determined in accordance with law, then such a finding can only be disturbed by the Court of competent jurisdiction and cannot be reopened before the arbitral tribunal. In SBP & Co. (supra), the Seven Judge Bench clearly stated, the finality given to the order of the Chief Justice on the matters within his competence under Section 11 of the Act are incapable of being reopened before the arbitral tribunal. Certainly the Bench dealing with the case of Shree Ram Mills (supra) did not intend to lay down any law in direct conflict with the Seven Judge Bench judgment in SBP & Co. (supra). In the reasoning given in Shree Ram Mills case, the Court has clearly stated that matters of existence and binding nature of arbitration agreement and other matters mentioned therein are to be decided by the Chief Justice or his designate and the same is in line with the judgment of this Court in the case of SBP & Co. (supra). It will neither be permissible nor in consonance with the doctrine of precedent that passing observations by the Bench should be construed as the law while completely ignoring the ratio decidendi of that very judgment. We may also notice that the judgment in Shree Ram Mills (supra) was not brought to the notice of the Bench which pronounced the judgment in the case of National Insurance Co. Ltd. (supra)120. As far as the classification carved out by the Court in the case of National Insurance Co. Ltd. (supra) are concerned, it draws its origin from paragraph 39 of the judgment in the case of SBP & Co. (supra) wherein the Constitution Bench of the Court had observedit may not be possible at that stage to decide whether a live claim made is one which comes within the purview of the arbitration clause. It will be more appropriate to leave the seriously disputed questions to be decided by the Arbitral Tribunal on taking evidence along with the merits of the claim, subject matter of the arbitration.. The foundation for category (2) in para 22 of the National Insurance Company Ltd. (supra) is directly relatable to para 39 of the judgment of this court in SBP & Co. (supra) and matters falling in that category are those which, depending on the facts and circumstances of a given case, could be decided by the Chief Justice or his designate or even may be left for the decision of the arbitrator, provided there exists a binding arbitration agreement between the parties. Similar is the approach of the Bench in the case of Shree Ram Mills (supra) and that is why in paragraph 27 thereof, the Court has recorded that it would be appropriate sometimes to leave the question regarding the claim being alive to be decided by the arbitral tribunal and the Chief Justice may record his satisfaction that parties have not closed their rights and the matter has not been barred by limitation122. As already noticed, the observations made by the Court have to be construed and read to support the ratio decidendi of the judgment. Observations in a judgment which are stared upon by the judgment of a larger bench would not constitute valid precedent as it will be hit by the doctrine of staire decisis. In the case of the Shri Ram Mills (supra) surely the Bench did not intend to lay down the law or state a proposition which is directly in conflict with the judgment of the Constitution Bench of this Court in the case of SBP & Co. (supra)123. We have no reason to differ with the classification carved out in the case of National Insurance Co. (supra) as it is very much in conformity with the judgment of the Constitution Bench in the case of SBP (supra).