Supreme Court of India
VINOD KUMAR SACHDEVA (DEAD) THR LRSversusASHOK KUMAR SACHDEVA & ORS
- Citation
- 2023 INSC 650
- Decided
- 25 July 2023
- Disposal
- Appeal(s) allowed
- Bench
- D Y CHANDRACHUD
Holding
A reference to arbitration under Section 8 is invalid when the arbitration agreement was executed only between the appellant and the first respondent and does not bind other parties to the suit.
Summary
The appellant and his brother, the first respondent, entered into a Memorandum of Understanding (MoU) in 2010 that included an arbitration clause. The appellant later filed two suits involving additional parties, including a private company and Canara Bank, seeking injunctions over family property. The first respondent moved under Section 8 of the Arbitration and Conciliation Act, 1996 for the disputes to be referred to arbitration, and the trial court dismissed the applications. The High Court reversed that decision, directing arbitration despite the presence of parties not party to the MoU. The Supreme Court held that because the MoU and its arbitration clause were executed only between the appellant and the first respondent, the reference to arbitration was erroneous and could not bind the non‑party entities, leading to the dismissal of the Section 8 applications and setting aside the High Court order.
Issues considered
- Whether a reference to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 is permissible when the arbitration agreement is limited to parties who are not all the litigants in the suit.
- Whether non‑party entities, such as a company and a bank, can be bound by an arbitration clause contained in a MoU executed solely between two brothers.
Legislation cited
Subjects
ArbitrationSection 8Arbitration agreementNon‑partyMemorandum of UnderstandingInjunctionFamily propertyBinding effect
Judgment
1194 [2023] 9COURT
SUPREME S.C.R. REPORTS
1194 : 2023 INSC 650
[2023] 9 S.C.R.
A VINOD KUMAR SACHDEVA (DEAD) THR LRS
v.
ASHOK KUMAR SACHDEVA & ORS
(Civil Appeal Nos. 4656-4657 of 2023)
B JULY 25, 2023
[DR. DHANANJAYA Y CHANDRACHUD, CJI,
J B PARDIWALA AND MANOJ MISRA, JJ.]
Arbitration and Conciliation Act 1996 – s.8 – Reference to
arbitration – When erred – MoU was arrived at between brothers-
C the appellant and the first respondent wherein joint family properties
were to be liquidated to repay the liabilities of the business – MoU
contained an arbitration agreement – Suits instituted by the
appellant, first respondent filed applications u/s.8 seeking reference
to arbitration – Applications dismissed by Trial Court – Order set
D aside by High Court, disputes in both the suits were referred to
arbitration u/s.8 – Held: The MoU was between the appellant and
the first respondent – The appellant instituted two suits – On facts,
there were several parties to the suit who were not parties to the
arbitration agreement – Since, the MoU was executed exclusively
between the appellant and the first respondent, the reference to
E arbitration u/s.8 was patently in error – The non-family
shareholdings, in any event, cannot be bound by the terms of the
MoU since they are not parties to the document – Impugned judgment
set aside – Applications filed by the first respondent u/s.8 dismissed.
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.4656-
F 4657 of 2023.
From the Judgment and Order dated 01.08.2017 of the High Court
of Punjab & Haryana at Chandigarh in CRN Nos.2819 and 2820 of
2017.
Rajiv Talwar, Sanjay Sarin, Ms. Gagan Deep Kaur, Pushkar Karni
G Sinha, Dinkar Kalra, Advs. for the Appellants.
Vishal Mahajan, Abhishek Mahajan, Anil Kumar, Reena Devi,
Vinod Sharma, Gunjan Kumar, Rajeev Maheshwaranand Roy, P.
Srinivasan, Advs. for the Respondents.
H
1194
VINOD KUMAR SACHDEVA (DEAD) THR LRS v. ASHOK KUMAR 1195
SACHDEVA
The Judgment of the Court was delivered by A
DR. DHANANJAYA Y CHANDRACHUD, CJI
1. Leave granted.
2. The appeals arise from a judgment of a Single Judge of the
High Court of Punjab and Haryana dated 1 August 2017 in CR Nos
B
2819 and 2820 of 2017. Both the petitions involving the jurisdiction under
Article 227 of the Constitution arose from the orders passed by the Civil
Judge (Junior Division), Amritsar allowing applications under Section 8
of the Arbitration and Conciliation Act 19961 in two suits instituted by
the first respondent, namely, Case No 64/2438/2014 and Civil Suit No
28/53/2015. C
3. The appellant and the first respondent are brothers and were
conducting business in the name and style of Sachdeva and Sons in
partnership. The partnership is alleged to have purchased a number of
properties in the name of the appellant and his deceased father. It has
also been alleged that subsequently the ownership of the property was D
transferred to a concern by the name of Sachdeva and Sons. A private
limited company has since been incorporated.
4. On 14 September 2010, a Memorandum of Understanding2
was arrived at between the appellant and the first respondent in terms
of which it was decided that the joint family properties should be liquidated
E
to repay the liabilities of the business which had arisen over a period of
time. The MoU contained an arbitration agreement in Clause 15 in the
following terms:
“15. That in case of any clarification needed or dispute arising,
the same shall be referred for settlement and arbitration
to Revered Maa Deva Ji and/ or Sh.Surinder Kumar F
alias Chhindi Ji of Ghaziabad and/ or if required, to any
other person to be mutually appointed and decision of
the arbitrator(s) shall be binding on both the parties. The
arbitration shall however, always be in accordance with
the Arbitration and Conciliation Act, 1996 as amended G
from time to time.”
5. The appellant instituted a suit before the Civil Judge (Junior
Division), Amritsar, numbered as Case No 64/2438/2014 against the first
1
“1996 Act”
2
“MoU” H
1196 SUPREME COURT REPORTS [2023] 9 S.C.R.
A respondent and Sachdeva and Sons Industries Private Limited seeking a
permanent injunction in the following terms:
“Under the circumstances, above referred, it is most
respectfully prayed that a decree for permanent injunction
restraining the defendants themselves, through their officials,
B agents, privies and representatives from selling or alienating
in any manner land having an area of 10 ½ qillas with Khasra
Nos. 29/12(8-0), 11/2/1/2(1-13), 11/2/2/2 (1-17), 8/2/1(5-
8), 19/1 (5-1), 21/2(5-1), 22/1(6-4), 8/1/1(1-18), 23(8-0), 9/
3/2/2(3-11), 24(5-8), 20/1(0-10), 29/13(8-0), 14(2-10), 17(3-
18) and 18(8-4) as per jamabandi for the year 2006-07
C situated at Village Gilwali, Chabba, Sangrana Sahib, Tarn
Taran Road, Amritsar, with complete costs of the present
suit, may kindly be passed in favour of the plaintiff and
against the defendants.”
6. A second suit, Suit No 28/53/2015, was instituted by the
D appellant. Besides the first respondent, the other parties to the suit were
Sachdeva and Sons Industries Private Limited and Canara Bank. The
reliefs which have been sought in the second suit were in the following
terms:
“Under the circumstances, above referred, it is most
E respectfully prayed that a decree for permanent injunction
restraining the defendants No.3,4 and 5 from disbursing or
releasing any kind of loan or any other finance facility to
and in the names of defendants No. 1 and 2 as against the
properties having an area of 10 ½ Qillas with Khasra Nos.
F 29/12(8-0), 11/2/1/2(1-13), 11/2/2/2 (1-17), 8/2/1(5-8), 19/
1(5-1), 21/2(5-1), 22/1(6-4), 8/1/1(1-18), 23(8-0), 9/3/2/2(3-
11), 24(5-8), 20/1(0-10), 29/13(8-0), 14(2-10), 17(3-18) and
18(8-4) as per jamabandi for the year 2011-2012 situated
at village Gilwali, Chabba, Sangrana Sahib, Tarn Taran Road,
Amritsar, and further for permanent injunction restraining
G the defendants No.3,4 and 5 from taking over any loan of
any other bank as against the abovesaid properties pertaining
to the loan accounts of defendants No.1 and 2 as well as
the business concern of the relatives and kins and wards of
defendants No.1 and 2, and further for giving directions to
H the defendants No.3,4 and 5 to recall back any finance or
VINOD KUMAR SACHDEVA (DEAD) THR LRS v. ASHOK KUMAR 1197
SACHDEVA [DR. DHANANJAYA Y CHANDRACHUD, CJI]
loan that has been so released by defendants No.3,4 and 5 A
to defendants No. 1 and 2 as against the above said property,
with complete costs of the present suit, may kindly be passed
in favour of the plaintiff and against the defendants. The
plaintiff may also be awarded any other relief to which he
shall be found entitled to under the law, equity and justice.”
B
7. Applications under Section 8 of the 1996 Act were moved by
the first respondent seeking a reference to arbitration in both the suits.
The trial court dismissed the applications by separate orders dated 27
March 2017. The first respondent challenged the orders of the trial court
under Article 227 of the Constitution. The High Court, by the impugned
order dated 1 August 2017, set aside the judgment of the trial court and C
directed that the disputes in both the suits be referred to arbitration under
Section 8 of the 1996 Act. The dispute has travelled to this Court.
8. We have heard Mr Rajiv Talwar, counsel for the appellant, Mr
Vishal Mahajan, counsel for the first and second respondents and Mr
Gunjan Kumar, counsel for the third to fifth respondents. D
9. The narration of facts indicates that the MoU dated 14
September 2010 is between the appellant and the first respondent. The
appellant instituted two suits. In the first suit, the first respondent has
been impleaded as the first defendant while Sachdeva and Sons Industries
Private Limited is impleaded as the second respondent. Admittedly, E
Sachdeva and Sons Industries Private Limited is not a party to the MoU
which is executed solely between the appellant and the first respondent.
In the second suit, apart from the two defendants who are parties to the
first suit, relief has been sought against Canara Bank. While the relief
which has been sought in the first suit is in terms of an injunction simpliciter F
from the alienation of certain land, the relief which has been sought in
the second suit is for a permanent injunction restraining Canara Bank
from disbursing or releasing any loan or finance in the name of the first
respondent and the second respondent in respect of the landed property.
Certain consequential reliefs have been sought against Canara Bank.
Hence, it is evident that there are several parties to the suit who are not G
parties to the arbitration agreement. The MoU which is executed between
the parties indicates that the Sachdeva family comprising of both the
appellant and the first respondent was carrying on business in several
companies, partnership firms and proprietorship under the joint ownership
of the Sachdeva family. The MoU contains a description of the respective H
1198 SUPREME COURT REPORTS [2023] 9 S.C.R.
A family units and their concerns. The MoU indicates that there are certain
non-family shareholdings.
10. In this backdrop and since the MoU was executed exclusively
between the appellant and the first respondent, the reference to arbitration
under Section 8 of the trial Judge was patently in error. Neither Canara
B Bank nor the company are parties to the arbitration agreement. The
MoU has been executed between the appellant and the first respondent.
The non-family shareholdings, in any event, cannot be bound by the
terms of the MoU since they are not parties to the document.
11. For the above reasons, we set aside the impugned judgment
C and order of the Single Judge of the High Court dated 1 August 2017. In
consequence, the applications filed by the first respondent under Section
8 of the 1996 Act shall stand dismissed. The High Court, while allowing
the applications under Section 8 of the 1996 Act had directed the Civil
Judge (Junior Division) to pass consequential orders. As a consequence
of the present judgment, the consequential order which has been passed
D by the trial Judge shall no longer survive.
12. The appeals shall stand allowed in the above terms.
13. Pending application, if any, stands disposed of.
E Divya Pandey Appeals allowed.
(Assisted by : Roopanshi Virang, LCRA)
F
G
H
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