Case: AMEET LALCHAND SHAH Vs. RISHABH ENTERPRISES

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 clause4. 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:-S.No. DATE OF CONTRACT CONTRACTING PARTY PURPOSE OF CONTRACT ARBITRATION AGREEMENT1. 01.02.2012 Rishabh Enterprises entered into two agreements with M/s. Juwi India Renewable Energies Pvt. Ltd. (i) Rishabh to purchase power generating equipments - Rs.8,89,80,730/- (ii) Engineering, Installation and commission of the plant at Jhansi - Rs.2,20,19,270/- Both agreements contain arbitration clause - Parties agreed that the seat of arbitration shall be at Bombay2. 05.03.2012 Rishabh entered into agreement with M/s. Aston Renewables Pvt. Ltd. (appellant no.2) (i) Purchasing CIS Photovoltaic products to be leased to Dante Energy (Appellant no.3) for energizing solar plant installed at Jhansi - Rs.21,40,49,999/- This agreement does not contain arbitration clause3. 14.03.2012 Rishabh entered into agreement with M/s. Dante Energy Pvt. Ltd. (appellant no.3) Dante agreed to pay Rs.13,50,000/- as lease rent for the equipment for March, 2012 and from April, 2012 onwards, Rs.28,26,000/- per month. This agreement contains arbitration clause. Parties have agreed that the seat of arbitration shall be at Bombay.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 rent8. On receipt of notice and summons in the suit, the appellants/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 arbitration9. 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 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.

Court's reasoning:
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.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 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 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 EnergyThough 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 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.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 Rishabhs 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 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, 199625.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 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. Bachawats Law of Arbitration and Conciliation, Sixth Edition, Vol. I (Sections 1 to 34) at page 695 published by LexisNexis).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.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 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 impartsense of businesso 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 that commercial understanding a sense of business efficacy.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 asense of business efficacyand 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 fraud35. 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 (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.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.