The Supreme Court of India, in a recent judgment, has clarified that a dispute involving multiple transactions with different contracting parties and agreements, of which only one agreement has an arbitration clause, cannot be referred to arbitration if the cause of action for the suit goes beyond the transaction containing the arbitration agreement.
In the case of Gujarat Composite Limited Vs Infrastructure Limited & Ors., the dispute arose between the appellant, Gujarat Composite, and the respondent, Infrastructure, over certain disagreements. Infrastructure filed a commercial civil suit before the Commercial Court at Ahmedabad seeking recovery of its dues from Gujarat Composite. The dispute involved multiple transactions, including different contracting parties and agreements, of which only one agreement had an arbitration clause.
Gujarat Composite filed an application under Section 8 of the Arbitration and Conciliation Act, seeking a reference of the dispute to arbitration. However, the Commercial Court dismissed the application, holding that a partial reference to arbitration was not possible because the cause of action could not be split into separate parts.
The High Court of Gujarat upheld the decision of the Commercial Court. In an appeal filed before the Supreme Court, the court observed that the matter involved multiple transactions, involving different contracting parties and agreements, all of which did not contain an arbitration clause, except for the license agreement between Infrastructure and Gujarat Composite.
The Supreme Court noted that the reliefs claimed in the suit fell outside the arbitration clause, which contained the agreement executed between the parties. The reliefs claimed in the suit also involved subsequent purchasers of the suit property, who were not signatories to the arbitration agreement.
The Court held that the issues raised in the suit were not connected with the license agreement, and the reliefs sought by Infrastructure involved a challenge to the Conveyance Deeds executed by Gujarat Composite in favor of respondents 3-5. The challenge was on the ground that the same was violative of the undertaking submitted before the Industrial Tribunal.
The Supreme Court concluded that the case did not involve any doubt about the non-existence of an arbitration agreement concerning the dispute in question. The Court held that the consent of subsequent purchasers (respondents Nos. 3 to 5) for reference to arbitration could not have infused an arbitration clause in the tripartite agreement.
Therefore, the Court dismissed the appeal and held that the challenge to the Conveyance Deed and the relief sought against the bank to not release documents in favor of Gujarat Composite was only capable of adjudication by the Courts and could not be resolved by an arbitrator.