Supreme Court Upholds Arbitration Clause: Sushma Shivkumar Daga & Anr. vs. Madhurkumar Ramkrishnaji Bajaj & Ors. (2023)

Date of the Judgment: 15 December 2023

Citation: 2023 INSC 1081

Judges: Aniruddha Bose, J., Sudhanshu Dhulia, J.

Can a dispute over a property conveyance be resolved through arbitration when the original agreements had an arbitration clause, but the conveyance deed does not? The Supreme Court of India recently addressed this question in a case involving a property dispute, clarifying the scope of arbitration agreements and the extent of judicial intervention in such matters. The Court examined whether the absence of an arbitration clause in a conveyance deed prevents the matter from being referred to arbitration, given that the deed was based on prior agreements that did contain such a clause. The judgment was delivered by a two-judge bench comprising Justice Aniruddha Bose and Justice Sudhanshu Dhulia, with the majority opinion authored by Justice Sudhanshu Dhulia.

Case Background

The case revolves around a property dispute initiated by Sushma Shivkumar Daga and her son (the appellants), who are the legal heirs of the late Shivkumar Daga. Shivkumar Daga, along with Madhurkumar Ramkrishnaji Bajaj and others (the respondents), had entered into two Tripartite Agreements in 2007 and 2008. These agreements aimed to develop, trade, and deal with certain properties. Subsequently, several development agreements were signed, and eventually, a Conveyance Deed was executed in 2019.

After Shivkumar Daga’s death in 2011, the appellants filed a civil suit in 2021 seeking to declare the 2019 Conveyance Deed null and void and to have the development agreements terminated. The respondents then applied to the court under Section 8 of the Arbitration & Conciliation Act, 1996, requesting that the matter be referred to arbitration based on the arbitration clauses in the 2007 and 2008 Tripartite Agreements. The Trial Court granted this request, and the Bombay High Court upheld the decision, leading to the current appeal before the Supreme Court.

Timeline

Course of Proceedings

The Trial Court, upon application by the respondents under Section 8 of the Arbitration Act, referred the matter to arbitration, citing the arbitration clauses in the Tripartite Agreements of 2007 and 2008. The appellants challenged this order in the Bombay High Court, arguing that the Conveyance Deed did not contain an arbitration clause and that the dispute was not arbitrable. The High Court dismissed the writ petition, agreeing with the Trial Court that the dispute stemmed from the Tripartite Agreements, which did have arbitration clauses. Aggrieved by these decisions, the appellants approached the Supreme Court.

Legal Framework

The core legal provision at play is Section 8 of the Arbitration & Conciliation Act, 1996. This section allows a judicial authority to refer parties to arbitration if there is an arbitration agreement, provided that an application is made before the first statement on the substance of the dispute is submitted. The 2015 amendments to Section 8 aimed to minimize judicial intervention, restricting it to cases where no valid arbitration agreement exists.

Section 5 of the Arbitration Act emphasizes minimal judicial intervention in matters governed by the Act, stating:
“Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.”

The amended Section 8 of the Arbitration Act reads:
“A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.”

The 246th Report of the Law Commission of India, 2014, recommended these amendments to limit judicial intervention, stating that courts should only interfere if the arbitration agreement is non-existent or null and void. The note to the clause for amendment of Section 8 by the Arbitration and Conciliation (Amendment) Bill, 2015, specifies that a judicial authority shall refer parties to arbitration unless it finds that prima facie no valid arbitration agreement exists.

Arguments

The appellants argued that the dispute should not be referred to arbitration for the following reasons:

• There is no arbitration clause in the Conveyance Deed dated 17.12.2019 or the development agreements.
• The suit filed by the appellants seeks cancellation of a document relating to immovable property, which is an action in rem and therefore not arbitrable.
• The appellants alleged fraud, which they claimed should oust the jurisdiction of an arbitrator.

The respondents countered that:

• The Conveyance Deed and the development agreements are based on the Tripartite Agreements of 2007 and 2008, which contain a broad arbitration clause.
• The dispute is related to a property that is the subject matter of the Tripartite Agreements.
• The plea of fraud was unsubstantiated and not serious enough to prevent arbitration.

The arbitration clause in the Tripartite Agreements reads:
“It is agreed between Parties that in the event of any disputes or differences between the Parties hereto in relation to this Agreement or in relation to any matter touching or arising from this Agreement, the parties shall refer such disputes and differences to the arbitration under the provisions of the Arbitration & Conciliation Act, 1996 or any statutory modification thereof.”

The appellants argued that the absence of an arbitration clause in the Conveyance Deed and the Development Agreements meant that the dispute was not arbitrable. They contended that the suit was for cancellation of a document related to immovable property, which is an action in rem, and thus, only a civil court could adjudicate it. They also raised an allegation of fraud, asserting that this should prevent the matter from being referred to arbitration.

The respondents argued that the Tripartite Agreements of 2007 and 2008 formed the basis for all subsequent agreements, including the Conveyance Deed and the Development Agreements. They highlighted the broad language of the arbitration clause in these agreements, which covered any disputes related to or arising from the agreements. They further contended that the allegations of fraud were unsubstantiated and not serious enough to prevent arbitration.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the Trial Court and the High Court correctly referred the matter to arbitration, or if the dispute was of such a nature that it should not be referred to arbitration, given that there was no arbitration clause in the Conveyance Deed dated 17.12.2019, and whether the matter is arbitrable.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

The Court also considered the following legal provisions:

• Section 5 of the Arbitration & Conciliation Act, 1996: Extent of judicial intervention
• Section 8 of the Arbitration & Conciliation Act, 1996: Power to refer parties to arbitration
• Section 16 of the Arbitration & Conciliation Act, 1996: Competence of arbitral tribunal to rule on its jurisdiction

Judgment

The Supreme Court held that the Trial Court and the High Court were correct in referring the matter to arbitration. The Court reasoned that the Conveyance Deed and the Development Agreements were based on the Tripartite Agreements of 2007 and 2008, which contained a broad arbitration clause. The Court emphasized that the arbitration clause was wide enough to cover disputes arising from or related to those agreements.

The Court also addressed how the authorities were viewed:

• Booz Allen and Hamilton Inc. v. SBI Home Finance Limited and Others, (2011) 5 SCC 532*: The Court used this case to define the categories of disputes that are not arbitrable, such as matrimonial, guardianship, and consumer disputes.
• Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1*: The Court applied the fourfold test laid down in this case to determine the arbitrability of the dispute, finding that the present case did not fall under any of the non-arbitrable categories.
• Deccan Paper Mills v. Regency Mahavir Properties, (2021) 4 SCC 786*: The Court relied on this case to establish that a suit for cancellation of a deed is an action in personam and not in rem, making it arbitrable.
• Aliens Developers (P) Ltd. v. Janardhan Reddy, 2015 SCC Online Hyd 370*: This case was specifically overruled by the Supreme Court in Deccan Paper Mills (supra).
• Rashid Raza v. Sadaf Akhtar, (2019) 8 SCC 710*: The Court used this case to determine that the plea of fraud was not serious enough to oust the jurisdiction of the arbitrator.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle of minimal judicial intervention in arbitration matters, as enshrined in the Arbitration & Conciliation Act, 1996, particularly after the 2015 amendments. The Court emphasized that the arbitration clause in the Tripartite Agreements was broad enough to cover the dispute, and that the plea of fraud was unsubstantiated and not serious enough to oust the jurisdiction of the arbitrator. The Court also relied heavily on the principle that a suit for cancellation of a deed is an action in personam and therefore arbitrable.

The Court’s reasoning was primarily based on legal principles and precedents, with a relatively smaller emphasis on the specific facts of the case. The legal considerations, such as the interpretation of the arbitration clause and the nature of the suit, weighed more heavily in the Court’s decision.

The Court considered alternative interpretations, such as the argument that the absence of an arbitration clause in the Conveyance Deed meant the dispute was not arbitrable. However, it rejected this argument, emphasizing the broad language of the arbitration clause in the underlying Tripartite Agreements and the principle of minimal judicial intervention in arbitration matters.

The Court’s decision was clear and accessible, stating that the dispute was arbitrable and that the matter was rightly referred to arbitration. The Court’s reasoning was based on established legal principles and precedents, and it provided a clear explanation of its decision.

The Court stated:
“The first prerequisite for an application under Section 8, of an arbitration agreement being there in the 2007 and 2008 Tripartite agreements cannot be denied, as all the other Development Agreements find their source in the aforesaid two Tripartite Agreements.”

The Court also stated:
“The contention of the appellants therefore that the dispute raised in the civil suit is non- arbitrable is also not correct. The dispute relates to a property which is the subject matter of the two tripartite agreements dated 31.03.2007 and 25.07.2008.”

Additionally, the Court noted:
“All jurisdictional issues including the existence and the validity of an arbitration clause can be gone into by the Arbitral Tribunal. In other words, the Arbitral Tribunal is competent to decide on its own competence.”

Key Takeaways

• Arbitration clauses in underlying agreements can extend to subsequent agreements if the latter are based on the former.
• Courts should minimize intervention in arbitration matters, especially after the 2015 amendments to the Arbitration Act.
• A suit for cancellation of a deed is an action in personam and is arbitrable.
• A plea of fraud must be serious and substantiated to oust the jurisdiction of an arbitrator.

This judgment reinforces the pro-arbitration stance of the Indian judiciary and clarifies that the scope of arbitration agreements can be broad, encompassing disputes arising from related agreements. It also emphasizes the importance of minimal judicial intervention in arbitration matters, which can help in faster resolution of disputes.

Directions

The Supreme Court did not give any specific directions other than dismissing the appeal and upholding the decision to refer the matter to arbitration.

Development of Law

The ratio decidendi of this case is that a dispute arising from a conveyance deed and development agreements can be referred to arbitration if those documents are based on prior agreements that contain a broad arbitration clause, even if the subsequent documents themselves do not have such a clause. This judgment reinforces the principle of minimal judicial intervention in arbitration matters and clarifies that suits for cancellation of deeds are considered actions in personam and are therefore arbitrable.

This decision does not change the previous position of law but rather reinforces the existing principles of arbitration law in India, particularly the interpretation of arbitration clauses and the limited scope of judicial intervention.

Conclusion

The Supreme Court dismissed the appeal, upholding the decision of the Trial Court and the High Court to refer the dispute to arbitration. The Court emphasized that the arbitration clause in the Tripartite Agreements was broad enough to cover the dispute, and that the plea of fraud was unsubstantiated. This judgment reinforces the pro-arbitration stance of the Indian judiciary and clarifies the scope of arbitration agreements.