Suit involving intertwined causes of action against non-signatories cannot be referred to arbitration.

The plaintiff filed a commercial suit seeking a declaration that an arbitral award dated June 29, 2023, is not binding on its 18% shareholding interest in Defendant No. 1, alongside claims for the refund of approximately Rs. 51 crores.

The plaintiff had entered into a Memorandum of Understanding (MOU) on June 21, 2012, with Defendant No. 2 (with Defendants 4 and 6 as confirming parties) to acquire shares that Defendant No. 2 was purportedly purchasing from Defendants 8–19 via a separate Share Purchase Agreement (SPA).

The plaintiff alleged it paid substantial sums directly to various defendants (including those not party to the MOU) on the instructions of Defendant No. 2.

Following disputes and an arbitration between the defendants (to which the plaintiff was not a party), Defendant Nos. 2 and 3 filed this application under Section 8 of the Arbitration and Conciliation Act, 1996, seeking to refer the suit to arbitration based on the clause in the MOU.

1. Whether the subject matter of the suit, involving multiple defendants who are not parties to the arbitration agreement and intertwined allegations of fraud, can be referred to arbitration under Section 8 of the Act.

2. Whether the cause of action and reliefs against the various defendants are bifurcable or so interconnected that they must be tried together in a civil court.

The court primarily applied Section 8 of the Arbitration and Conciliation Act, 1996, which mandates reference to arbitration if the subject matter is covered by a valid agreement.

It relied on the principle from *Vidya Drolia v. Durga Trading Corporation* [(2021) 2 SCC 1], established that the court must conduct a prima facie review of the arbitration agreement's validity.

It further applied the doctrine from *Gujarat Composite Limited v. A Infrastructure Limited* [(2023) 7 SCC 193], which holds that where causes of action against parties and non-parties to an arbitration agreement are inextricably intertwined and cannot be bifurcated, the matter cannot be referred to arbitration.

The court also noted that while simple allegations of fraud are arbitrable (*Ameet Lalchand Shah v. Rishabh Enterprises*), complex fraud involving third parties may stay with the court.

The court observed that while an arbitration clause exists in the MOU between the plaintiff and Defendant No. 2, the plaintiff’s case is built upon a "composite cause of action" involving nineteen defendants, the majority of whom are not signatories to the MOU.

The court found that the plaintiff made direct payments to non-signatory defendants (e.g., Defendant No. 1 and Defendants 8–19) and that these transactions were reflected in the books of those specific entities, not just Defendant No. 2.

Consequently, proving the claim for the refund of money or the entitlement to shares requires the participation of these third parties in the adjudication.

The court distinguished this from *Lindsay International v. Laxmi Niwas Mittal*, noting that in the present case, the reliefs are sought "jointly and severally" against all defendants and the allegations of fraud are not restricted to the applicants but extend to the "masterminds" behind the various corporate entities.

The court determined that the bundle of facts constitutes an inseparable link that prevents the bifurcation of the suit.

The court answered the issues by stating that a Section 8 reference is impermissible when the judicial proceedings involve non-parties and inseparable issues.

The application (I.A. No. GA-COM/2/2025) was dismissed without costs.