Composite reference can be made when two contracts are so intertwined that separate arbitration proceedings would be detrimental to the parties: Calcutta HC

Quick Facts

This application under Section 11 of the Arbitration and Conciliation Act 1996 arose out of a dispute relating to two different agreements between the parties. The first agreement, being a leave and license agreement, was entered into between plaintiff No. 2, the company and the defendant in respect of a particular property.

The second agreement which is a service contract was also entered into on the same date i.e. 18th July 2023 between the defendant and plaintiff No. 1 who is the wife of one of the former directors of plaintiff no. 2 and is also the director of the company of plaintiff No. 2.

The Applicant requires a comprehensive reference to both of these agreements.

Disagreements

Respondents argued that for a comprehensive link to exist, it is necessary that both agreements achieve a common goal or objective.

• There must be an agreement between the parent or superior and an additional agreement. To achieve the same goal, for there to be a compound link, the parent agreement must include a supplementary agreement. In the absence of any such factual component in the present case, since the service agreement and the vacation and license agreement operate in different areas, there cannot be any composite reference as sought by the plaintiff.
• That in this case there is no single workflow or any other purpose to which the two different agreements can be linked.
• Relying on the decision of the Calcutta High Court in Ganapati Technology Services P. Ltd. against. LLC State Fisheries Development Corporation (2021) It has been held that the relevant arbitration agreement or main agreement must be comprehensive enough to include additional agreements to the main agreement so that disputes arising out of or in connection with the main agreement or additional agreement can be settled by composite reference.

On the contrary, the applicant submits that in the service agreement itself in clause 4 it is mentioned that it is expressly agreed and understood by the parties that the agreement shall be simultaneous and concurrent with the leave and license agreement and in the event the leave and license agreement is terminated for any reason, the service agreement will automatically terminate without the need for any notice of such termination from either party, and vice versa.

• In this case, the situation is such that the plaintiffs have common claims against the defendant under two separate contracts, which, however, are intertwined with each other, so a composite reference should be made.

Forensic analysis

The Court first referred to the observation of the learned Single Judge in Ganapati Technology (see above) and noted that the facts of this case are similar to the third prong discussed in paragraph 21, which involves two or more contracts which are so intertwined with each other as to be detrimental to the parties if separate arbitrations are held.

Based on this law, the court, having read the relevant clauses of the contracts, noted that clauses 2 and 3 of the service contract itself clearly stipulated that the services under the said contract must be provided on licensed premises. . The location services agreement is holiday and license related and relates to the provision of services only in relation to licensed premises.

The Court further noted that it is significant that clause 4 of the service agreement also provides that it is coterminous in duration and contemporaneous with the leave and license agreement and terminates automatically without any notice of termination of the leave and license agreement. Again, the leave and license agreement gives the defendant several rights in relation to the premises for which the service agreement provides services.

The Court further noted that, therefore, a fourth situation may arise than that provided for in the cited decisions, where, although both agreements may not achieve a common goal or purpose as such, the underlying legal relationship, which is the common platform of both agreements may be the same.

Based on the foregoing, the court also noted that in the present case, the legal relations (licensor-licensee) that arose between the defendant, on the one hand, and the plaintiffs separately, on the other, relate to the use of the same premises. Thus, the common underlying legal relationship in relation to property between the parties is the unifying factor that juxtaposes the rights arising from the two agreements.

The court agreed with the plaintiff’s arguments and noted that I consider that in the event of a separate reference to arbitration in relation to two agreements in which the totality of transactions and the development of events leading to the disputes will be common, there is ample opportunity for unnecessary multiplicity of proceedings and conflict of judgments, which ultimately will not benefit either party.

Accordingly, the present application was granted.

Case name: SMT SONIA DHIR AND ANR. V.S. PRESTAR INFRASTRUCTURE PROJECTS LIMITED

Quote: AP/179/2024

Date of decision: 08/10/2024

Appearance for petitioners: Mr. Harsh Tiwari, Advocate. Mr. Bhupendra Gupta, Advocate. Mr. Hamidul Haque, Advocate. Mr. Pritish Chandra, Advisor

Appearance for the Defendant:Mr. Patita Paban Bishwal, Adv. Mr. Aritra Basu, Adv. Ms. Sohini Dey, Advisor.