Post-2015 Amendment, Court May Split Arbitrable and Non-Arbitrable Claims to Refer Parties to Arbitration.

In brief

The question

1. Whether a suit can be partly referred to arbitration when some claims are arbitrable and others are non-arbitrable or involve non-signatories.

The court held

The court held that the suits would be bifurcated: disputes arising out of prayers (a) to (e) in both suits are referred to arbitration.

It also directed

The court further held that the Plaintiff is at liberty to continue the civil suits specifically for the non-arbitrable claims (prayer 'f' in the first suit and 'f', 'g', 'h' in the second).

The court directed the appointment of an arbitrator per the Act and recorded the Defendant's statement not to take coercive action for two weeks to allow the transition.

01Facts

The Plaintiff was awarded contracts for projects at the Guwahati Refinery and Barauni Refinery.

¶ 1, 6

Disputes arose when the Plaintiff alleged the Defendants failed to provide a complete work front and relevant drawings, leading to project delays not attributable to the Plaintiff.

¶ 3

The Defendants issued show-cause notices for offloading work and threatened to recover costs from the Plaintiff’s other active projects.

¶ 4, 37

Consequently, the Plaintiff filed two suits seeking permanent/mandatory injunctions against coercive measures, recovery of bank guarantees, and recovery of monetary claims.

¶ 5, 7

Defendant No. 1 (IOCL) filed applications under Section 8 of the Arbitration and Conciliation Act, 1996, seeking to refer the disputes to arbitration based on Clauses 9.0.1.0 and 9.0.1.1 of the General Conditions of Contract (GCC).

¶ 8-9

02Issues

i.1. Whether a suit can be partly referred to arbitration when some claims are arbitrable and others are non-arbitrable or involve non-signatories.

¶ 40, 52

ii.2. Whether the dictum in Sukanya Holdings, which prohibits the bifurcation of causes of action, remains valid law after the 2015 Amendment to Section 8 of the Act.

¶ 22, 55

iii.3. Whether a non-signatory to an arbitration agreement (Defendant No. 2) can be referred to arbitration under the "veritable party" or "group of companies" doctrine.

¶ 58-59

03Law Applied

The court applied Section 8 of the Arbitration and Conciliation Act, 1996 (as amended in 2015), which mandates judicial authorities to refer parties to arbitration unless they find that prima facie no valid arbitration agreement exists.

¶ 44

It relied on Vidya Drolia v. Durga Trading Corp., establishing the "when in doubt, do refer" principle.

¶ 49

Emaar MGF Land Ltd. v. Aftab Singh, which held that the 2015 Amendment intended a clear departure from the restrictive conditions in Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya regarding the bifurcation of suits.

¶ 48, 55

The court applied the principles from Cox and Kings Ltd. v. SAP India P. Ltd. regarding the joinder of non-signatories who are "veritable parties" to the performance of the contract.

¶ 59

Provisions in the judgment · 5 · Linked ones open on LawLens

Arbitration and Conciliation Act, 1996 Section 8 Section 11 Section 16 Section 34 Section 37

04Reasoning

The court observed that the 2015 Amendment, specifically the non-obstante clause "notwithstanding any judgment... of the Supreme Court," effectively neutralized the Sukanya Holdings prohibition against bifurcating causes of action.

¶ 44, 55

The court noted that refusing reference simply because a Plaintiff added a non-arbitrable claim or a non-signatory party would allow parties to easily circumvent arbitration agreements.

¶ 52

Analyzing the specific prayers, the court found prayers (a) to (e) in CS(COMM) 295/2024 and (a) to (e) in CS(COMM) 1083/2024 related to IOCL's claims or proposed penal actions (notified or otherwise), making them prima facie arbitrable under Clause 9.0.1.0.

¶ 37-38, 65-66

However, the Plaintiff's own "unnotified" monetary claims (prayer 'f' in the first suit and 'g', 'h' in the second) were non-arbitrable per the GCC as interpreted in IOCL v. NCC Limited.

¶ 33-34, 39, 68

Regarding the non-signatory (Defendant No. 2), the court found they were a "veritable party" due to their direct role as the EPCM Consultant and Engineer-in-Charge, leaving the final jurisdictional determination to the Arbitral Tribunal.

¶ 61

05Holding

The court held that the suits would be bifurcated: disputes arising out of prayers (a) to (e) in both suits are referred to arbitration.

¶ 63, 69

The court further held that the Plaintiff is at liberty to continue the civil suits specifically for the non-arbitrable claims (prayer 'f' in the first suit and 'f', 'g', 'h' in the second).

¶ 63(iii), 69(iii)

The court directed the appointment of an arbitrator per the Act and recorded the Defendant's statement not to take coercive action for two weeks to allow the transition.

¶ 63, 73

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