Holding

Section 45 permits the joinder of non‑signatory parties to arbitration where the agreements constitute a composite transaction and the parties are claiming through or under a signatory, provided the requirements of Sections 44, 45 and Schedule I are met.

Summary

Chloro Controls (India) Pvt. Ltd. filed a suit seeking declaration and injunction against Severn Trent Water Purification Inc. and related entities over a joint‑venture arrangement involving multiple agreements, some of which contained arbitration clauses. The respondents moved under Section 45 of the Arbitration and Conciliation Act, 1996 to refer the entire suit, including parties who were not signatories to the arbitration agreement, to arbitration. The Supreme Court examined the ambit of Section 45, the meaning of "any person claiming through or under" and the applicability of the Group‑of‑Companies and composite‑transaction doctrines. It held that where the agreements form a single composite transaction and the non‑signatory parties are claiming through or under a signatory, they may be joined to arbitration, provided the pre‑conditions of Sections 44 and 45 and Schedule I are satisfied. The Court also rejected the view that the suit could be bifurcated or that non‑signatory parties could be excluded, emphasizing the legislative intent to give arbitration a primary role. Consequently, the Court directed that all disputes arising from the agreements be referred to an ICC arbitral tribunal and dismissed the appeals.

Issues considered

What is the ambit and scope of Section 45 of the Arbitration and Conciliation Act, 1996?
Does the judgment in *Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya* correctly apply to the present case?
Can a court refer a suit involving multiple agreements, some without arbitration clauses, and non‑signatory parties, to arbitration under Section 45?
Is bifurcation or splitting of parties or causes of action permissible under the 1996 Act?
May non‑signatory parties be joined to arbitration when the agreements constitute a composite transaction?

Legislation cited

Arbitration and Conciliation Act, 1996s. 11(6), s. 16, s. 44, s. 45, s. 8
Code of Civil Procedure, 1908s. 9
New York Convention on the Recognition and Enforcement of Foreign Arbitral Awardss. Article II

Subjects

ArbitrationSection 45Non‑signatory joinderComposite transactionGroup of Companies doctrineInternational commercial arbitrationNew York ConventionJurisdictionBifurcationCompetence‑competence

Judgment

[2012) 13 S.C.R. 402

A CHLORO CONTROLS (I) P. LTD.
v.
SEVERN TRENT WATER PURIFICATION INC. AND ORS.
(Civil Appeal No. 7134 of 2012)

SEPTEMBER 28, 2012
B
[S.H. KAPADIA, CJI., A.K. PATNAIK AND
SWATANTER KUMAR, JJ.]

Arbitration and Conciliation Act, 1996:
s. 45 - Reference! to arbitration under - Scope of -
International commercial arbitration - Multi-party agreements
- Joint venture agreements with different parties - Some of
the agreements contained arbitration clause while the others
did not - Dispute betw1~en parties leading to filing of suit -
D High Court referred the entire suit (including the non-signatory
parties to the arbitration agreement) for arbitration uls. 45 -
Joinder of non-signatory parties to arbitration - Permissibility
- Held: Joinder of non-signatory parties to arbitration is
permissible - They can be referred to arbitration, provided
El they satisfy the pre-requisites ulss. 44 and 45 rlw Schedule I
of the Act - The cases of group companies or where various
agreements constitute a composite transaction with
intrinsically interlinked cause of action, can be referred to
arbitration, even if the disputes exist between signatory or
F even non-signatory parties - However, the discretion of the
court has to be exercised in exceptional, limiting, befitting and
cases of necessity and very cautiously - Expression 'any
person claiming through or under him' used in s. 45, takes
within its ambit persons who are in legal relationships via
GI multiple and multi-party agreements, though they may not all
be signatories to the arbitration clause - In the present case,
the corporate structure of the companies demonstrates a
definite legal relationship between the parties to the /is or
persons claiming under them - Their contractual relationship
H 402
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 403
WATER PURIFICATION INC.

spells out the terms, obligations and roles of the respective A
parties which they were expected to perform for attaining the
object of successful completion of the joint venture agreement
- All the other agreements were intrinsically inter-connected
with the mother agreement - All the agreements were part of
a composite transaction to facilitate implementation of B
principal agreement - Hence, all the parties to the /is were
covered under expression "any person claiming through or
under" the principal (mother) agreement - Arbitration clause
in the principal agreement was comprehensive enough to
include all disputes arising ·under and in connection with" c
principal agreement - Conduct of parties and even
subsequent events show that the parties had executed,
intended and actually implemented composite transaction
contained in principal/mother agreement - Hence, direction
to refer the disputes to arbitration -Convention on Recognition
0
and Enforcement of Foreign Arbitral Awards (New York
Convention) - Article II (3) - ICC Rules - UNCITRAL Model
Rules.
s. 45 - Issues under - Determination of - Issue of
jurisdiction should be decided at the beginning of the E
proceedings itself and they should have finality -
Determination of fundamental issues as contemplated u/s. 45
at the very first instance is not only appropriate but is also the
legislative intent - Jurisdiction.
Code of Civil Procedure, 1908 - s. 9 - Jurisdiction of civil F
courts - Jurisdiction of the court and the right to a party
emerging from s. 9 is not an absolute right, but contains inbuilt
restrictions - Civil courts have jurisdiction to try all suits
except those which is either expressly or impliedly baffed -
The provisions of s. 45 of the 1996 Act would prevail over the G
provisions of CPC - Arbitration and Conciliation Act, 1996 -
s. 45.
Doctrines/Principles:
'Group of Companies' Doctrine; Principle of 'incorporation H
404 SUPREME COURT REPORTS [2012] 13 S.C.R.

A by reference'; Principle of 'composite performance'; Principle
of 'agreements within an agreement' and Principle of
'Kompetenz kompetenz' - Discussed.
Precedent - Observations - Precedential value - Held:
The obseNations to be construed and read to support the
B ratio decidendi - They would not constitute valid precedent
as it would be hit by the doctrine of stare decisis - Doctrine -
Constitution of India, 1950 - Art. 141.
Words and Phrases:
C Expression 'connection' - Meaning of.
The questions which inter alia arose for
consideration in the pr1esent appeals were: (1) What is the
ambit and scope of Section 45 of the Arbitration and
D Conciliation Act, 1996; (2) Whether in a case where
multiple agreements were signed between different
parties some containing an arbitration clause and others
not and where the parties were not identically common
in proceedings before the Court (in a suit) and the
E arbitration agreement, a reference of disputes as a whole
or in part could be made to the arbitral tribunal, more
particularly, where the parties to an action were claiming
under or through a party to the arbitration agreement; and
(3) Whether the principles enunciated in the case of
*Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya was the
F correct exposition of law.
Dismissing the appeals, the Court
HELD: 1.1 Section 45 is a provision falling under
Chapter I of Part II of the Arbitration and Conciliation Act,
G 1996 which is a self.·contained Code. The expression
'person claiming through or under' would mean and take
within its ambit multiple and multi-party agreements,
though in exceptional case. Even non-signatory parties
to some of the agreements can pray and be referred to
H arbitration provided they satisfy the pre-requisites under
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 405
WATER PURIFICATION INC.
Sections 44 and 45 r/w Schedule I. Reference of non- A
signatory parties is neither unknown to arbitration
jurisprudence nor is it impermissible. [Para 167] (515-A-C]
1.2 An arbitration agreement, under Section 45 of the
1996 Act, should be evidenced in writing and in terms of
Article II of Schedule 1, an agreement in writing shall 8
include an arbitral clause in a contract or an arbitration
agreement signed by the parties or contained in an
exchange of letters or telegrams. Thus, the requirement
that an arbitration agreement be in writing is an
expression incapable of strict construction and requires C
to be construed liberally, as the words of this Article
provide. Even in a given circumstance, it may be possible
and permissible to construe the arbitration agreement
with the aid and principle of 'incorporation by reference'.
Though the New York Convention is silent on this matter, D
in common practice, the main contractual document may
refer to standard terms and conditions or other standard
forms and documents which may contain an arbitration
clause and, therefore, these terms would become part of
the contract between the parties by reference. The E
solution to such issue should be case-specific. The
relevant considerations to determine incorporation would
be the status of parties, usages within the specific
industry, etc. Cases where the main documents explicitly
refer to arbitration clause included in standard terms and F
conditions would be more easily found in compliance
with the formal requir~ments set out in the Article II of the
New York Convention than those cases in which the main
contract simply refers to the application of standard forms
without any express reference to the arbitration clause. G
[Para 72] (462-A-F]
M. V. "Baltic Confidence" and Anr. v. State Trading
Corporation of/ndia Ltd. and Anr. (2001) 7 SCC 473: 2001 (1)
Suppl. SCR 699; Olympus Superstructure Pvt. Ltd. v.
H
406 SUPREME COURT REPORTS [2012] 13 S.C.R.

A Meena VijayKhetan and Ors. (1999) 5 SCC 651: 1999 (3)
SCR 490 - relied on.
~ 1.3 Under the Indian Law, greater obligation is cast
upon the Courts to determine whether the agreement is
valid, operative and capable of being performed at the
B threshold itself. Such challenge has to be a serious
challenge to the substantive contract or to the agreement,
as in the absence of such challenge, it has to be found
that the agreement was valid, operative and capable of
being performed; the dispute would be referred to
C arbitration. [Para 78] [468-D-E]
State of Orissa v. Klockner and Company and Ors. AIR
1996 SC2140: 1996 (1) Suppl. SCR 368 - relied on.
Abu Dhabi Gas Liquefaction Co. Ltd. v. Eastern Bechtel
D Co1p.(1982) 2 Lloyd's Rep. 425, CA - referred to.
Law and Practice of International Commercial Arbitration
by AlanRedfern and Martin Hunder (Fourth Edition)
1.4 The legislative intent and essence of the 1996 Act
E was to bring domestic as well as international
commercial arbitration in consonance with the
UNCITRAL Model Rules, the New York Convention and
the Geneva Convention. The New York Convention was
physically before the Legislature and available for its
F consideration when it enacted the 1996 Act. Article II of
the Convention provide·s that each contracting State shall
recognize an agreement and submit to arbitration all or
any differences which have arisen or which may arise
between them in respect of a defined legal relationship,
G whether contractual or not concerning a subject matter
capable of settlement by arbitration. Once the agreement
is there and the Court is seized of an action in relation to
such subject matter, then on the request of one of the
parties, it would refer the parties to arbitration unless the
H agreement is null and void, inoperative or incapable of
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 407
WATER PURIFICATION INC.

performance. Still, the legislature opted to word Section A
45 somewhat dissimilarly. Section 8 of the 1996 Act also
uses the expression 'parties' simpliciter without any
extension. In significant contra-distinction, Section 45
uses the expression 'one of the parties or any person
claiming through or under him' and 'refer the parties to B
arbitration', whereas the rest of the language of Section
45 is similar to that of Article 11(3) of the New York
Contention. The Court cannot ignore this aspect and has
to give due weightage to the legislative intent. It is a
settled rule of interpretation that every word used by the c
Legislature in a provision should be given its due
meaning. The Legislature intended to give a liberal
meaning to this expression. [Paras 88 and 89] [472-G-H;
473-A-E]
1.5 The language and expressions used in Section 45, D
'any person claiming through or under him' including in
legal proceedings may seek reference of all parties to
arbitration. Once the words used by the Legislature are of
wider connotation or the very language of Section is
structured with liberal protection then such provision E
should normally be construed liberally. [Para 90] [473-F-G]
1.6 In view of the legislative object and the intent of
the framers of the statute, i.e., the necessity to encourage
arbitration, the Court is required to exercise its
jurisdiction in a pending action, to hold the parties to the F
arbitration clause and not to permit them to avoid their
bargain of arbitration by bringing civil action involving
multifarious cause of action, parties and prayers. [Para
91] [473-H; 474-A-B]
G
1.7 The scope of concept of 'legal relationship' as
incorporated in Article 11(1) of the New York Convention
vis-il-vis the expression 'any person claiming through or
under him' appearing in Section 45 of the 1996 Act has
to be examined by reading Article 11(1) and (3) in
H
408 SUPREME COURT REPORTS [2012] 13 S.C.R.

A conjunction with Se1:tion 45 of the Act. Both these
expressions have to be read in harmony with each other.
Once they are so mad, it will be evident that the
expression "legal relationship" connotes the relationship
of the party with the person claiming through or under
B him. A person may not be signatory to an arbitration
agreement, but his cause of action may be directly
relatable to that contract and thus, he may be claiming
through or under one of those parties. For the purp.oses
of both the New York Convention and the UNg.vrf'{AL
C Model Law, it is sufficient that there should be a• defined
"legal relationship" between the parties, whether
contractual or not. Given the existence of such an
agreement, the dispute submitted to arbitration may be
governed by the principles of delictual or tortuous liability
rather than by the law of contract. [Para 92] [474-C-G]
0
Roussel - Uclaf v. G.D. Searle and Co. Ltd. and G.D.
Searle andCo. 1978 Vol. 1 LLR 225; City of London v.
Sancheti (2009) 1 Lloydslaw Reports 116 - referred to.
Law and Practice of Commercial Arbitration in England
E (SecondEdn.) by Sir Michael J. Mustill - referred to.
1.8 Heavy onus lies on the non-signatory party to
show that in fact and in law, it is claiming under or
through a signatory party, as contemplated under
F Section 45 of the 1996 Act. It occasionally happens that
the plaintiff is not himself a party to the arbitration
agreement on which the application is fo\lnded. This may
arise in the following situations: (i) The plaintiff has
acquired the rights, which the action is brought to
G enforce, from someone who is a party to an arbitration
agreement with the defendant; (ii) The plaintiff is bringing
the action on behalf of someone else, who is a party to
an arbitration agreeme,nt with the defendant. (iii) When the
expression used in tlhe provision, the words 'claiming
ffi under plaintiff' relate to substantive right which is being
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 409
WATER PURIFICATION INC.
asserted. [Paras 96 and 97] [476-C, E-G] A
The Law and Practice of Commercial Arbitration in
England byMichael J. Mustilll and Stewart C.Boyd -
referred to.
1.9 Joinder of non-signatory parties to arbitration is B
not unknown to the arbitration jurisprudence. Even the
ICCA's Guide to the Interpretation of the 1958 New York
Convention provides for such situation. Various legal
basis may be applied to bind a non-signatory to an
arbitration agreement. The first theory is that of implied c
consent, third party beneficiaries, guarantors, assignment
and other transfer mechanisms of contractual rights. This
theory relies on the discernible intentions of the parties
and, to a large extent, on good faith principle. They apply
to private as well as public legal entities. The second 0
theory includes the legal doctrines of agent-principal
relations, apparent authority, piercing of veil (also called
the "alter ego"), joint venture relations, succession and
estoppel. They do not rely on the parties' intention but
rather on the force of the applicable law. [Paras 99 and
E
100] (477-B, D-E]
The City of Prince George v. A.L. Sims and Sons Ltd.
YCA XX.Ill (1988) 223 - referred to.
1.10 The question of formal validity of the arbitration
agreement is independent of the nature of parties to the F
agreement, which is a matter that belongs to the merits
and is not subject to substantive assessment. Once it is
determined that a valid arbitration agreement exists, it is
a different step to establish which parties are bound by
it. Third parties, who are not explicitly mentioned in an G
arbitration agreement made in writing, may enter into its
: ratione personae scope. [Para 103] [478-B-C]
1.11 Normally, the parties to the arbitration agreement
calling for arbitral reference should be the same as those H
410 SUPREME COURT REPORTS [2012] 13 S.C.R.

A to the action. But this general concept is subject to
exceptions which are that when a third party, i.e. non-
signatory party, is claiming or is sued as being directly
affected through a party to the arbitration agreement and
there are principal and subsidiary agreements, and such
B third party is signato11r to a subsidiary agreement and not
to the mother or princ:ipal agreement which contains the
arbitration clause, tben depending upon the facts and
circumstances of the given case, it may be possible to
say that even such third party can be referred to
c arbitration. [Para 104] [478-E-G]
1.12 A non-signatory or third party could be
subjected to arbitration without their prior consent, but
this would only be in exceptional cases. The Court will
examine these exceptions from the touchstone of direct
D relationship to the party signatory to the arbitration·
agreement, direct commonality of the subject matter and
the agreement between the parties being a composite
transaction. [Para 68) {460-C-D]
E Anderson Wnght Ltd. v. Moran and Company 1955 SCR
862 - relied on.
Sumitomo Corporation v. CDS Financial Services
(Mauritius) Ltd.and Ors, (2008) 4 SCC 91: 2008 (3) SCR 309
- referred to.
F Turnock v. Sartoris 1888 (43) Chancery Division 1955
SCR 862; Taunton-Col/ins v. Cromie and Anr. 1964 Vol.1
Weekly Law Reports 633 - Cited.
2.1 In the cases of group companies or where various
G agreements constitute a composite transaction like
mother agreement and all other agreements being
ancillary to and for effective and complete implementation
of the Mother Agreement, the court may have to make
reference to arbitration even of the disputes existing
H between signatory or even non-signatory parties.
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 411
WATER PURIFICATION INC.

However, the discretion of the Court has to be exercised A
in exceptional, limiting, befitting and cases of necessity
and very cautiously. [Para 168] [515-D-E]
Bhatia /ntemational v. Bulk Trading S.A. and Anr. (2002)
4 SCC 105: 2002 (2) SCR 411 - distinguished.
B
2.2 In the facts of a given case, the Court is always
vested with the power to delete the name of the parties
who are neither necessary nor proper to the proceedings
before the Court. [Para 168] [515-C-D]
2.3 Where origin and end of all the agreements is with C
the Mother or the Prioclpal Agreement, the fact that a
party was non-signatory to one or other agreement may
not be of much significance. The performance of any one
of such agreements may be quite irrelevant without the
performance and fulfillment of the Principal or the Mother D
Agreement. Besides designing the corporate
management to successfully complete the joint ventures,
where tt;ie parties execute different agreements but all
with one primary object in mind, the Court would normally
hold the parties to the bargain of arbitration and not E
encourage its avoidance. In cases involving execution of
such m'-lltiple agreements, two essential features exist;
firstly, aH ancillary agreements are relatable to the mother
agreement and secondly, performance of one is so
intrinsically inter-linked with the other agreements that F
they are incapable of being beneficially performed
without performance of the others or severed from the
rest. The intention of the parties to refer all the disputes
between all the parties to the arbitral tribunal is one of the
determinative factor. [Paras 69] [460-F-H; 461-A-B] G
Ruhrgos AG v. Marathon Oil Co. 526 US 574 (1999) -
referred to.
2.4 In the case of composite transactions and multiple
agreements, it may again be possible to invoke such H
412 SUPREME COURT REPORTS [2012] 13 S.C.R.

A principle in accepting the pleas of non-signatory parties
for reference to arbitration. Where the agreements are
consequential and in the nature of a follow-up to the
principal or mother agreement, the latter containing the
arbitration agreement and such agreements being so
B intrinsically inter-mingled or inter-dependent that it is their
composite performance which shall discharge the parties
of their respective mutual obligations and performances,
this would be a sufficient indicator of intent of the parties
to refer signatory as well as non-signatory parties to
c arbitration. The principle of 'composite performance'
would have to be gathered from the conjoint reading of
the principal and supplementary agreements on the one
hand and the explicit intention of the parties and the
attendant circumstances on the other. [Para 71] [461-E-G]
D 2.5 Where the Court which, on its judicial side, is
seized of an action in a matter in respect of which the
parties have made an arbitration agreement, once the
required ingredients are satisfied, it would refer the
parties to arbitration but for the situation where it comes
E to the conclusion that the agreement is null and void,
inoperative or incapable of being performed. These
expressions have to be construed somewhat strictly so
as to ensure that the Court returns a finding with
certainty and on the correct premise of law and fact as it
F has the effect of depriving the party of its right of
reference to arbitration. These are the issues which go
to the root of the matter and their determination at the
threshold would prevent multiplicity of litigation and
would even prevent futile exercise of proceedings before
G the arbitral tribunal. [Para 76) [467-B-E]
General Electric Co. v. Renusagar Power Co. (1987) 4
SCC 137: 1987 (3) SCR 858 - relied on.
2.6 In the present case, the corporate structure of the
H respondent companies as well as that of the appellant
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 413
WATER PURIFICATION INC.

companies clearly demonstrates a legal relationship A
which not only is inter-legal relationship but also intra-
legal relationship between the parties to the /is or persons
claiming under them. They have contractual relationship
which arises out of the various contracts that spell out
the terms, obligations and roles of the respective parties B
which they were expected to perform for attaining the
object of successful completion of the joint venture
agreement. This joint venture project was not dependant
on any single agreement but was capable of being
achieved only upon fulfillment of all these agreements. c
[Para 105] [478-G-H; 479-A-B]
2.7 In the present case, the companies which
executed the various agreements were the companies
signatory to the Principal Agreement or their holding
companies or the companies belonging to the D
respondent group in which they had got merged for the
purposes of attaining effective designing, manufacturing,
import, export and marketing of the agreed chlorinated
products. All the subsequent agreements were, therefore,
ancillary or incidental agreements to the Principal E
Agreement. Thus, the joint venture entered between the
parties had different facets. Its foundation was provided
under the Principal Agreement but all the agreed terms
could only be fulfilled by performance of the ancillary
agreements. If one segregates the Principal Agreement F
from the rest, the subsequent agreements would be
rendered ineffective. It was one composite transaction for
attaining the purpose of business of the joint venture
company. All these agreements are so intrinsically
connected to each other that it is neither possible nor G
probable to imagine the execution and implementation of
one without the collective performance of all the other
agreements. The intention of the parties was clear that all
these agreements were being executed ss integral parts
of a composite transaction. It can safely be covered
H
414 SUPREME COURT REPORTS [2012] 13 S.C.R.

A under the principle of 'agreements within an agreement'.
[Paras 138 and 139) [502-F-H; 503-A, C-E]
2.8 All the six material agreements had been signed
by some parties Oii' their holding companies or the
companies into which the signatory company had
8 merged. None of these companies is either stranger to
the transaction or not an appropriate party. The parties
who have signed the agreements could alone give rights
or benefits to the joint venture company and they, in turn,
were the compani1es descendants in interest or the
C subsidiaries of the principal company though all the
parties to the /is are not signatory to all the agreements
in question, but still they would be covered under the
expression 'claiming through or under' the parties to the
agreement. The interests of these companies are not
D adverse to the interest of the principal company and/or
the joint venture company. On the contrary, they derive
their basic interest and enforceability from the Mother
Agreement and performance of all the other agreements
by respective parties had to fall in line with the contents
E of the Principal Agreement. Thus, these companies claim
their interest and invoke the terms of the agreement or
defend the action in the capacity of a 'party claiming
through or under' the parties to the agreement. [Paras
142 and 143) [505··G-H; 506-A-D]
F 2.9 The arbitration clause contained in the Principal
Agreement requires that any dispute or difference arising
under or in connection with that agreement which could
not be settled by friendly negotiation and agreement
between the parties, would be finally settled by arbitration
G conducted in accordance with the Rules of ICC. This
clause is comprehensive enough to include the disputes
arising 'under and in connection with' the agreement. The
word 'connection' has been added by the parties to
expand the scope of the disputes under the agreements.
H The agreement has to be construed and interpreted in
CHLORO CONTROLS (I) P LTD. v. SEVERN TRENT 415
WATER PURIFICATION INC.
accordance with laws of the Union of India, as consented A
by the parties. [Para 144] [506-F-H; 507-A]
2.10 The expression 'connection' means a link or
relationship between people or things or the people with
whom one has contact. The dictionary meaning of this
B
expression is liberally worded. It implies expansion in its
operation and effect both. Connection can be direct or
remote but it should not be fanciful or marginal. In other
words, there should be relevant connection between the
dispute and the agreement by specific words or by
necessary implication like reference to all other C
agreements in one (principal) agreement. [Paras 145 and
146] [507-B, C-0]
Concise Oxford Dictionary (Indian Edition); Law Lexicon
2nd Edn. 1997 - referred to.
D
2.11 The expression appearing in the arbitration
clause has to be given a meaningful interpretation
particularly when the Principal Agreement itself, by
specific words or by necessary implication, refers to all
other agreements. This would imply that the other E
agreements originate from the Principal Agreement and
hence, its terms and conditions would be applicable to
those agreements. [Para 146] [507-D-E]
2.12 All the agreements were executed
simultaneously on the same date, which fact fully F
supports the view that the parties intended to have all
these agreements as a composite transaction.
Furthermore, when the parties signed the Supplementary
Collaboration Agreement by that time all these
agreements had not only been signed and understood G
by the parties but, in fact, had also been acted upon.
[Para 147] [508-C-D]
2.13 The conduct of the parties and even the
subsequent events leave no doubt that the parties had
H
416 SUPREME COURT REPORTS [2012] 13 S.C.R.

A executed, intended and actually implemented the
composite transaction contained in the Principal
Agreement. The Courts have also applied the Group of
Companies Doctrine in such cases. In group company
cases, that the fact that a party being non-signatory to
B one or other agreement may not be of much significance,
the performance of one may be quite irrelevant with the
performance and fulfillment of the principal or the mother
agreement. That, in fact, is the situation in the present
case. [Paras 149 and 150) [508-G-H; 509-A, C-D]
C Olympus Superstructure Pvt. Ltd. v. Meena Vijay Khetan
and Ors. (1999) 5 sec 651: 1999 (3) SCR 490 - relied on.
2.14 Two of the agreements did not contain any
arbitration clause, but they also did not subject the parties
even for litigative jurisdiction. These two agreements had
0
been executed in furtherance to and for compliance of the
terms and conditions of the mother agreement which
contained the arbitration clause. They were, thus,
intrinsically inter-connected with the mother agreement.
E [Para 153) [510-E-F]
2.15 Where different agreements between the parties
provide for alternative remedies, it does not necessarily
mean that the other remedy or jurisdiction stands ousted.
Where the parties to such composite transaction provide
F for different alternative forums, including arbitration, it has
to be taken that real intention of the parties was to give
effect to the purpose of agreement and refer the entire
subject matter to arbitration and not to frustrate the
remedy in law. It was for the parties to choose either to
G institute a suit qua the International Distributor Agreement
or to invoke the arbitration agreement in terms of clause
30 of the mother agreement. They have chosen the latter
remedy. Thus, a composite reference was well within the
comprehension of the parties to various agreements
H which were executed on the same day and for the same
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 417
WATER PURIFICATION INC,
purpose. [Paras 154 and 156] [510-G-H; 511-A-B-E] A
2.16 All the disputes that arise in the suit and from
the agreement between the parties, are directed to be
referred to arbitral tribunal and be decided in accordance
with the Rules of ICC. [Para 169] [515-F]
B
3.1 The issue of jurisdiction normally is a mixed
question of law and facts. Occasionally, it may also be a
question of law alone. It will be appropriate to decide such
questions at the beginning of the proceedings itself and
they should have finality. Determination of fundamental c
issues as contemplated under Section 45 of the 1996 Act
at the very first instance by the judicial forum is not only
appropriate but is also the legislative intent. Even, the
language of Section 45 of the 1996 Act suggests that
unless the Court finds that an agreement is null and void, 0
inoperative and incapable of being performed, it shall
refer the parties to arbitration. [Para 131] [497-F-G; 498-
B-C]
3.2 An application for appointment of arbitral tribunal
u/s. 45 would also be governed by the provisions of E
Section 11 (6) of the 1996 Act. Before making a reference,
the Court has to dispose of the objections as
contemplated under Section 8 or Section 45, as the case
may be, and wherever needed upon filing of affidavits.
Thus, to an extent, the law laid down by this Court on F
Section 11 shall be attracted to an international
arbitration which takes place in India as well as domestic
arbitration. This would be applicable at pre-award stage.
Thus, there exists a direct legal link, limited to that extent.
[Paras 114 and 128] [483-C; 495-D-E] G
SBP and Co. v. Patel Engineering Ltd. and Anr. (2005)
8 SCC 618:2005 (4) Suppl. SCR 688 - followed.
Shree Ram Mills Ltd. v. Utility Premises (P) Ltd, (2007)
4 SCC 599; National Insurance Co. Ltd. v. Boghara Polyfab H
418 SUPREME COURT REPORTS [2012] 13 S.C.R.

A (P) Ltd. (2009) 1 sec 267: 2008 (13) scR 638 - relied on.
Shin-Etsu Chemcial Co. Ltd. v. Mis. Aksh Optifibre Ltd.
and Anr.(2005) 7 SCC 234: 2005 (2) Suppl. SCR 699 -
referred to.
B 3.3 The absence of any provision in Chapter I of Part
II of the 1996 Act, like Section 16 appearing in Part I of
1996 Act is suggestive of the requirement for the Court
to determine the ingredients of Section 45, at the
threshold itself. It is expected of the Court to answer the
c question of validity of the arbitration agreement, if a plea
is raised that the agreement containing the arbitration
clause or the arbitration clause itself is null and void,
inoperative or incapable of being performed. Such
determination by the Court in accordance with law would
certainly attain finality and would not be open to question
0
by the arbitral tribunal, even as per the principle of
prudence. It will prevent multiplicity to litigation and re-
ag itati ng of same issues over and over again. The
underlining principle of finality in Section 11 (7) would be
applicable with equal force while dealing with the
E interpretation of Sections 8 and 45. [Para 130) [496-B-E]
3.4 The principle of 'Kompetenz kompetenz' requires
the arbitral tribunal to rule on its own jurisdiction and at
the first instance. One school of thought propagates that
F it has duly the positive effect as it enables the arbitrator
to rule on its own jurisdiction as it widely recognized
international arbitration. However, the negative effect is
equally important, that the Courts are deprived of their
jurisdiction. The arbitrators are to be not the sole judge
G but first judge, of their jurisdiction. In other words, it is to
allow them to come to a decision on their own jurisdiction
prior to any court or other judicial authority and thereby
limit the jurisdiction of the national courts to review the
award. The kompetenz kompetenz rule, thus, concerned
H not only is the positive but also the negative effect of the
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 419
WATER PURIFICATION INC.

arbitration agreement. [Para 129] (495-F-H] A
Fouchard Gaillard Goldman on International Commercial
Arbitration-referred to.

3.5 Another very significant aspect of adjudicating the
matters initiated with reference to Section 45 of the 1996 B
Act, at the threshold of judicial proceedings, is that the
finality of the decision in regard to the fundamental issues
stated under Section 45 would further the cause of
justice and interest of the parties as well. [Para 131] [497-
B-C] C
4.1 Though in terms of Section 9 CPC, the courts
shall have jurisdiction to try all suits of civil nature and
this Section also gives a right to a person to institute a
suit before the court of competent jurisdiction, but the
language of Section 9 itself makes it clear that the civil 0
courts have jurisdiction to try all suits of civil nature
except the suits of which taking cognizance is either
expressly or impliedly barred. The jurisdiction of the
court and the right to a party emerging from Settion 9
CPC is not an absolute right, but contains inbuilt E
restrictions. [Para 156] [511-F-G]
Dhulabhai v. State of M.P. and Anr. AIR 1969 SC 78:
1968 SCR 662; Nahar Industrial Enterprises Ltd. v. Hong
Kong and Shanghai Banking Corporation (2009) 8 SCC 646: F
2009 (12) SCR 54 - relied on.
4.2 The provisions of Section 45 of the 1996 Act are
to prevail over the provisions of the CPC and when the
Court is satisfied that an agreement is enforceable,
operative and is not null and void, it is obligatory upon G
the court to make a reference to arbitrdtion and pass
appropriate orders in relation to the legal proceedings
before the court, in exercise of its inherent powers. [Para
157] (512-C-D]
H
420 SUPREME COURT REPORTS [2012] 13 S.C.R.

A 4.3 The arbitration Clause would stand incorporated
into the International Distributor Agreement. The terms
and conditions of the International Distribution
Agreement were an integral part of the Principal
Agreement as Appendix II and the Principal Agreement
B had an arbitration clause which was wide enough to
cover disputes in all the ancillary agreements. It is not
necessary to examine the choice of forum or legal
enforceability of legal system in the present case, as there
is no repugnancy even where the main contract is
c governed by law of some other country and the
arbitration clause by Indian law. They both could be
invoked, neither party having invoked the former will be
no bar for invocation of the latter in view of arbitration
clause 30 of the mother agreement. [Paras 159 and 160)
D [512-G; 513-8-D]
M.R. Engineers and Contractors Pvt. Ltd. v. Som Datt
Builders Ltd. (2009) 7 SCC 696: 2009 (10) SCR 373 -
relied on.
Deutsche Post Bank Home Finance Ltd. v. Taduri
E Sridhar AIR 2011 SC 1899: 2011 (5) SCR 674
distinguished.
5. It is not necessary for the Court to examine the
correctness or otherwise of the judgment in the case of
F *Sukanya. It was a judgment in a case arising under
Section 8 Part I of the 1996 Act while the present case
relates to Section 45 Part II of the Act. As such that case
may have no application to the present case. In that case
the Court was concerned with the disputes of a
G partnership concern. In the case in hand, there is a
mother agreement and there are other ancillary
agreements to the mother agreement. It is a case of
composite transaction between the same parties or the
parties claiming through or under them falling u/s. 45 of
H the Act. Thus, the dictum stated in the judgment of
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 421
WATER PURIFICATION INC.

*Sukanya would.not apply to the present case. On facts, A
the judgment in *Sukanya's case, has no application to
the case in hand. [Para 133] [498-F-G; 499-A-B]
*Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya (2003)
5 SCC 531: 2003 (3) SCR 558 - held inapplicable.
B
6. The observations made by the Court have to be
construed and read to support the ratio decidendi of the
judgment. Observations in a judgment which are stared
upon by the judgment of a larger bench would not
constitute valid precedent as it will be hit by the doctrine c
of stare decisis. [Para 122] [489-E-F]
Case Law Reference:
2002 (2) SCR 411 Distinguished Para 51
526 us 574 (1999) Referred to Para 70 D

2001 (1) Suppl. SCR 699 Relied on Para 73
1999 (3) SCR 490 Relied on Para 74,
149
E
1987 (3) SCR 858 Relied on Para 76
1996 (1) Suppl. SCR 368 Relied on Para 78
(1982) 2 Lloyd's Rep. Referred to Para 80
425, CA
F
1978 Vol. 1 LLR 225 Referred to Para 93
(2009) 1 Lloyds Law Referred to Para 94
Reports116
YCA XXlll (1988) 223 Referred to Para 101 G
1955 SCR 862 Cited Para 108
1964 Vol.1 Weekly Law Cited Para 108
Reports 633
1955 SCR 862 referred to Para 110 H
422 SUPREME COURT REPORTS [2012] 13 S.C.R.

A Relied on • Para 131
2008 (3) SCR 309 referred to Para 112
(2007) 4 sec 599 relied on Para 115
2005 (2) Suppl. SCR 699 Referred to Para 122
B
2005 (4) Suppl. SCR 688 Followed Para 130
2008 (13) SCR 638 Relied on Para 130
2003 (3) SCR 558 held inapplicable Para
c 132
1968 SCR 662 Relied on Para 156
2009 (12) SCR 54 Relied 011 Para 156
2009 (10) SCR 373 Relied on Para 159
D
2011 (5) SCR 674 Distinguished Para 161
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
7134 of 2012.
From the Judgment and Order dated 04.03.2010 of the
E High Court of Judicature at Bombay in Appeal No. 372 of 2004
in Notice of Motion No. 778 of of 2004 in Suit No. 233 of 2004.
WITH
Civil Appeal Nos. 7135-7136 of 2012.
F
F.S. Nariman, Rohaan Cama, Subhash Sharma, Ravela
D'Souza, Ruby Singh Ahuja, Ruchira Gupta, Deepti Sarin, Shruti
Katakey (For Karanjawala & Co.) for the Appellant.
H.N. Salve, K.V. Vishwanathan, Ajay Bhargava, Vanita
G Bhargava, Susmit Pushkar, Anchit Oswal, Ankur Khandelwal,
Gayatri Goswami,Chetna Rai, Kripa Pandit, Anadi Chopra,
Gayatri Goswami (For Khaitan & Co.), Vikas Mehta, Aditi Bhat,
Nar Hari Singh, Christopher D'Souza, Venkatakrishna Kunduru,
Santosh Paul, Aarti Singh for the Respondents.
H
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 423
WATER PURIFICATION INC.

The Judgment and order of the Court was delivered by A
SWATANTER KUMAR, J. 1. Leave granted.
2. The expanding need for international arbitration and
divergent schools of thought, have provided new dimensions
to the arbitration jurisprudence in the international field. The B
present case is an ideal example of invocation of arbitral
reference in multiple, multi-party agreements with intrinsi9ally
interlinked causes of action, more so, where performance of
ancillary agreements is substantially dependent upon effective
execution of the principal agreement. The qistinguished learned c
counsel appearing for the parties have raised critical questions
of law relatable to the facts of the present case which in the
opinion of the Court are as follows :
(1) What is the ambit and scope of Section 45 of the
Arbitration and Conciliation Act, 1996 (for short 'the D
1996 Act')?
(2) Whether the principles enunciated in the case of
Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya
[(2003) 5 sec 531], is the correct exposition of E
law?
(3) Whether in a case where multiple agreements are
signed between different parties and where some
contain an arbitration clause and others don't and
further the parties are not identically common in F
proceedings before the Court (in a suit) and the
arbitration agreement, a reference of disputes as
a whole or in part can be made to the arbitral
tribunal, more particularly, where the parties to an
action are claiming under or through a party to the G
arbitration agreement?
(4) Whether bifurcation or splitting of parties or causes
of action would be permissible, in absence of any
specific provision for the same, in the 1996 Act?
H
424 SUPREME COURT REPORTS [2012] 13 S.C.R.

A 3. Chloro Controls (India) Private Ltd., the appellant herein,
filed a suit on the original side of the High Court of Bombay
being Suit No.233 of 2004, for declaration that the joint venture
agreements and supplementary collaboration agreement
entered into between some of the parties are valid, subsisting
B and binding. It also sought a direction that the scope of
business of the joint venture company, Respondent No. 5, set
up under the said agreements includes the manufacture, sale,
distribution and service of the entire range of chlorination
equipments including the electro-chlorination equipment and
c claimed certain other reliefs as well, against the defendants in
that suit. The said parties took out two notices of motion, being
Notice of Motion No.553 of 2004 prior to and Notice of Motion
No.2382 of 2004 subsequent to the amendment of the plaint.
In these notices of motion, the principal question that fell for
consideration.of the learned Single Judge of the High Court was
0
whether the joint venture agreements between the parties
related only to gas chlorination equipment or whether they
included electro-chlorination equipment as well. The applicant
had prayed for an order of restraint, preventing Respondent
Nos. 1 and 2, the foreign collaborators, from acting upon their
E notice dated 23rd January, 2004, indicating termination of the
joint venture agreements and the supplementary collaboration
agreement. A further prayer was made for grant of injunction
against committing breach of contract by directly or indirectly
dealing with any person other than the Respondent No.5, in any
F manner whatsoever, for the manufacture, sale, distribution or
services of the chlorination equipment, machinery parts,
accessories and related equipments including electro-
chlorination equipment, in India and other countries covered by
the agreement. The defendants in that suit had t3ken out
G another Notice of Motion No.778 of 2004, under Section 8 read
with Section 5 of the1996 claiming that arbitration clauses in
some of the agreements governed all the joint venture
agreements and, therefore, the suit should be referred to an
appropriate arbitral tribunal for final disposal and until a final
H
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 425
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

award was made by an arbitral tribunal, the proceedings in the A
suit should be stayed. The learned Single Judge, vide order
dated 28th December, 2004, allowed Notice of Motion No.553
of 2004 and consequently disposed of Notice of Motion
No.2382 of 2004 as not surviving. Against this order, an appeal
was preferred, which came to be registered as Appeal No.24 B
of 2005 and vide a detailed judgment dated 28th July, 2011, a
Division Bench of the High Court of Bombay set aside the
order of the learned Single Judge and dismissed both the
notices of motion taken out by the plaintiff in the suit.
4. Notice of Motion No.778 of 2004 was dismissed by C
another learned Single Judge of the High Court of Bombay,
declining the reference of the suit to an arbitral tribunal vide
order dated 8th April, 2004. This order was again assailed in
appeal by the defendants in the suit and another Division Bench
of the Bombay High Court, vide its judgment dated 4th March, D
2010, allowed the Notice of Motion No.778 of 2004 and made
reference to arbitration under Section 45 of the 1996 Act.
5. The judgments of the Division Benches, dated 4th
March, 2010 and 28th July, 2011, respectively, have been
assailed by the respective parties before this Court in the E
present Special Leave Petitions, being SLP(C) No.8950/2010
and SLP(C) No.26514-15/2011, respectively. Thus, both these
appeals shall be disposed of by this common judgment.
6. Before we notice in detail the factual matrix giving rise F
to the present appeals and the contentions raised, it would be
appropriate to illustrate the corporate structure of the
companies and the scope of the agreements that were
executed between the parties to these proceedings.
Corporate Structure of the Companies who are parties to G
lis
7. In order to describe the corporate structure with
precision we will explain it diagrammatically as follows:
H
I G') ""Tl m 0 () OJ )>
--
[- -------
SEVERN TRENT (DEL) INC.
~
For:merly known aa SEVEREN TRENT U.S. INC.; Name Changed In May 1992
- __ I ___ ----- --.-- -----. "'
CJ)

[ - SEVERN T~NT SERVICES~EL) I~

Appellant
CHLURO
CONTROL
INDIA PVT.
LTD.
CONTROL
(DELA\VARE)
INC
.j.
~-2 --CAPITAL

Fonned on 21.09.94
co. rJIERGED !NfO
ON 31.03.2003
R-1

31.03.1Y94.
l
CAPITAL CONTROL CO. INC.
A'-·quirc-d 8rr::, on l~.05.199U and 20~<> on

NAME CHANGF.D ON l.4.2002 TO
SEVERN TRENT WATER PURIFICATION I
lNT'L CORP
Acquired in 1998
l
EXCI:::LTf.;CHNOLOGIES

Original OMNIPURE and
SANILEC Manufacturer _
-~ h
J
(/)
c
"U
;;o
m
:s::
m

------_
Shareholders Agreement INC. J ()
(GAS CHLO. & H~~GEN _i:._od~~t-L~nes)_
0
Distributorship] i c

1 ;;o
CAPITAL CUNTRUL (INDIA) PVT LTD. and Kno'\Vho~'
~~ .l~l;· ~ii~o~~~.J!~~ ~enture) Agreement -I
HVPOGEN · ----- ;;o
m
"U
DENO~ Nc;;~=r-; ~ivt!';RicA ~;-! 0
::] ;;o
GROUPO DE NORA
Odginal Seaclor
-·-- -I

~
and Seaclor Mac ---~·-
Manufacturer ERVEN TRENT DE NORA LLC - SEPT, 2001 (/)
RODUCTS CURH.ENTLY OFFERED ARE OMNIPURE,
•
R-3 - TITANOR
ANILE 7 BEACLOR
-· ~ -----···-
-.~·
•

-i
~
COMPONENTS LTD.

Distributes SEACLOR MAC
R-4 ·HI POINT SERVICES PVT LTD
OMNll--'Ut<E. SANILF.C "'_.
0

"'_.
Product Line B'"fore 1998
~

Independent Distributor of EXCEL TECHNOLOGIES :nncc pnor
to St"'v~rn Trent':.i Acqurnit10n of EXCEL TECHNOLOGIES
w
Currently, Independent Distributor for SEVERN TRI-;NT (/)
OEJNORA
()
LJ10.tnbutc-s Umnip:.rre rind $;uUlt"'c Products in Indi<3
;;o
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 427
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

8. Severn Trent, U.S., Inc. was a company existing under A
the laws of the State of Pennsylvania, United States of America
(for short, 'U.S.A.'). This name came to be changed, in 1992,
to Severn Trent (Delaware) Inc., which is the principal parent
company. This company owned a 100 per cent subsidiary,
Severn Trent Services (Delaware) Inc., U.S.A. Severn Trent B
Services (Delaware) Inc. owned Capital Control (Delaware) Co.
Inc. which was formed on 21st September, 1994. On or about
14th May, 1990, Severn Trent Services PLC, U.K., an erstwhile
state-owned water authority, privatized in 1989, expanded its
business into the U.S.A. by acquiring 80 per cent shares in c
Capital Control Co. Inc. on 15th May 1990 and a further 20 per
cent on 31st March 1994. It is in this period that the joint venture
agreements with the appellant were negotiated, with the
consent of the Severn Trent group, which was, by that time, a
majority shareholder in Capital Control Co. Inc. Subsequently, D
the name of Capital Control Co. Inc., was changed to Severn
Trent Water Purification, Inc. (Respondent No.1 ), with effect
from 1st April, 2002. The Severn Trent Water Purification Inc./
Capital Control Co. Inc. then came to be merged with Capital
Control (Delaware) Co. Inc. (Respondent No. 2), on 31st March,
2003. As a result thereof, Capital Control (Delaware) Co. Inc. E
ceased to exist. As per the pleadings of the parties, reference
to Capital Control Co. Inc. includes reference to Capital Control
Co. Inc. as well as Capital Control (Delaware) Co. Inc.

9. The appellant is a company carrying on business under F
that name and style for the manufacture of chlorination
equipments and incorporated under the Indian laws by
Madhusudan Kocha (Respondent No.9 herein) and his group
(for short, the "Kocha Group"). This company had been
negotiating with Respondent No. 1 for entering into a joint G
venture agreement, to deal with the manufacture, distribution
and sale of gas chlorination equipment and "Hypogen" electro-
chlorination equipment Series 3300, etc. This led to the
execution of joint venture agreements between the appellant
and Respondent No. 1. The joint venture agreements were H
428 SUPREME COURT REPORTS [2012] 13 S.C.R.

A signed between these companies for constituting a joint venture
company under the name and style of Capital Control (India)
Pvt. Ltd., with 1,50,000 equity shares of Rs. 10 each and 50
per cent shareholding with each party. These agreements being
prior to the merger of Capital Control (Dela~"1are) Co. Inc. with
B Capital Control Co. Inc. and also prior to the change of name
of Capital Control Co. Inc. to Severn Trent Water Purification
Inc., 50 per cent of the shares allotted to the foreign
collaborators were to be equally divided between Capital
Control (Delaware) Co. Inc. and Capital Control Co. Inc. These
c joint venture agreements were executed between the parties
on 16th November, 1995, as already noticed. However, the joint
venture company had been incorporated on 14th November,
1995 itself.

10. In the year 1998, Excel Technologies International
D Corporation came to be acquired by Severn Trent Services
(Delaware) Inc. This company was dealing in the manufacture
of "Omnipure" and "Sanilec", distinct brands of chlorination
products. Later, Excel Technologies entered into a joint venture
agreement with De Nora North America Inc. and floated another
E joint venture company, Severn Trent De Nora LLC in
September, 2001 for dealing in the products "Omnipure",
"Sanilec" and "Seaclor Mac". It may be noticed that "Seaclor
Mac" was a product dealt with and distributed by Titanor
Components Ltd., Respondent no.3, and whose original
F manufacturer was Groupo De Nora; the latter is the parent
company of the De Nora North America Inc. The distribution
rights in respect of all these three products were given by the
joint venture company Severn Trent De Nora LLC to Hi Point
Services Pvt. Ltd., Respondent No. 4, for independent
G distribution of the products for Severn Trent De Nora LLC, in
India.

11. This corporate structure clearly indicates that Severn
Trent Services (Del.) Inc. is the holding company of the
companies which have entered into the joint venture
H
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 429
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

agreements, for floating both the companies Capital Controls A
(India) Pvt. Ltd., as well as "Severn Trent De Nora LLC". The
disputes have actually arisen between Chloro Controls (India)
Pvt. Ltd. and the Kocha Group on the one hand, and Severn
Trent Water Purification Inc., the erstwhile Capital Control
(Delaware) Co. Inc. and Capital Control Co. Inc. on the other. B

Details of Agreements
s. Date of Detai!s of Parties to Whether
No Agreement Agreement the Agreement contains
arb~ration
clause c
1. 16.11.1995 Shareholders 1.Capital Controls (Delware) Yes
Agreement Company, Inc. (Respondent No.2)

2. Chloro Controls India Pvt. Ltd.
(Appellant)
D
3. Mr. M.B. Kocha (Respondent
No.9)

2. 16.11.1995 International 1. Capital Controls Company Inc., No
Distributor (Colmar) now Severn Trent Water
Agreement Purification Inc. (Respondent No.1)

2. Capital Controls (India) Private E
Ltd. (Respondent No.5)

3. 16.11.1995 Managing 1. Capital Controls (India) No
Directors' Private Ltd. (Respondent No.5)
Agreement

2. Mr. M.B. Kocha (Respondent F
No.9)

4. 16.11.1995 Financial & 1. Capital Controls Company Inc Yes
Technical (Colmar) now Severn Trent Water
Know-how Purification Inc. (Respondent
License No.1)
Agreement
G
2. Capital Controls (India)
Private Ltd. (Respondent No.5)

5. 16.11.1995 Export Sales 1. Capital Controls Company Inc., Yes
Agreement (Colmar) now Severn Trent Water
Purification Inc. (Respondent No.1)
H
430 SUPREME COURT REPORTS [2012] 13 S.C.R.

A 2. Capital Controls (India)
Private Ltd. (Respondent No.5)

6. 16.11.1995 Trademark 1. Capital Controls Company Inc., No
Registered (Colmar) now Severn Trent Water
User License Purification Inc. (Respondent No.1)
Agreement

B 2. Capital Controls (India)
Private Ltd. (Respondent No.5)

7. August Suppleme- 1. Capital Controls Company Inc.,
1997 -ntary (Colmar) now Severn Trent Water
Collaboration Purification Inc. (Respondent No.1)
Agreement
c 2. Capital Controls (India)
Private Ltd. (Respondent No.5)

Facts

12. Prior to the formation of the joint venture company, the
0
Chloro Controls Group carried on the business of manufacture
and sale of gas chlorination equipments and from 1980
onwards, it developed and commenced the manufacturing of
electro-chlorination equipment also. The business was done in
E the name of "Chloro Controls Equipments Company", a sole
proprietary concern of Respondent No.9, Mr. M.B. Kocha and
it was the distributor in India for the products of the Capital
Controls group for more than a decade prior to the formation
of the joint venture. On 1st December, 1988, a letter of intent
and a letter of understanding were executed between Capital
F Controls Company Inc., Colmar, Pennsylvania, U.S.A (which
name was subsequently changed in the year 2002 to 'Severn
Trent Water Purification Inc., respondent No.1) and respond~nt
No.9 to form a new, jointly-owned company in India, to be called
"Capital Controls (India) Pvt. Ltd.", the respondent No.5 in the
G present appeals, for the purposes of manufacture, sale and
export of chlorination equipments on the terms and conditions
as agreed between the parties. The formation of the joint
venture company got delayed for some time, because
Respondent No.1 informed the appellant that Severn Trent, U.K.
H and the officers of the Capital Controls Company Inc., Colmar,
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 431
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

Pennsylvania, U.S.A. had acquired all the shares of the Capital A
Controls Company Inc. and this share acquisition permitted
them to support their representatives and distributers with
continuity. On 14th November, 1995, the joint venture company,
Capital Controls (India) Private Ltd., Respondent No. 5, was
incorporated and registered under the Companies Act, 1956 B
(for short, the 'Companies Act').
13. To examine the factual matrix of the case in its correct
perspective, reference to pleadings of the parties would be
appropriate.
c
14. The petitioner is a Private Limited Company and its
shares are entirely held by Respondent/Defendant Nos.9 to 11
(Kocha/Chloro Control Group). Respondent No.1-Company was
earlier known as "Capital Control Company Inc." and in or about
the year 1990 the Capital Controls Group came to be acquired
by Severn Trent Services PLC (UK), originally a State owned D
water authority and following privatization from the UK
Government in 1989, it proceeded to build a product and
services business from the US beginning with the acquisition
of the Capital Controls Group. The name of the first respondent
was changed to Severn Trent Water Purification Inc. with effect E
from 1st April, 2002. Thus, Respondent Nos.1 and 2 became
the group companies and were earlier part of "the Capital
Controls Group" (hereinafter referred to as the Capital Controls/
Severn Trent Group). Till January 1999, the respondent Nos.1
and 2 deve.loped and sold electro-chlorination equipment under F
the brand name "Hypogen" and from January 1999 onwards,
the said brand was replaced by the brands "Sanilac" and
"Omnipure". Respondent Nos.1 and 2 carried on the business
of manufacture, supply, sale and distribution of chlorination
equipments, including gas and electro-chlorination equipments. G
Respondent No.3 is a company incorporated under the
Companies Act and engaged in the business of manufacture
and marketing of electro-chlorination equipment. In or about the
year 1989-90, the said Respondent no.3 was floated as a joint
venture in technical and financial collaboration with the De Nora H
432 SUPREME COURT REPORTS [2012) 13 S.C.R.

A group of Italy which held 51% of the equity share capital of the
said respondent. Respondent No.4 is a Private Limited
Company incorporated under the Companies Act and carried
on business in electro-chlorination equipments. It had a tie-up
with an American Company called "Excel Technologies
B International Inc." which was engaged in the business of
electrolytic disinfection equipment.
15. Respondent No.5, i.e., Capital Controls (India) Private
Ltd. is a Company incorporated under the Companies Act
pursuant to the joint venture agreements dated 16th November,
C 1995 executed between the appellant and respondent no.9 on
the one hand and the respondent nos.1 and 2 on the other. 50
per cent of the share capital of Respondent No.5 is held by the
appellant and balance of 50 per cent is held by Respondent
No.2. Thus, the appellant and Respondent No.2 are the joint
D venture partners who have together incorporated the
Respondent No.5 - company.
16. Respondent Nos.6 and 8 are the Directors of the
Respondent No.5 Company, appointed as such by the Capital
Controls Group. Respondent No. 7 is the Chairman also
E appointed by the Capital Controls Group, but has no casting
vote. Respondent Nos.9 to 11 are the Directors of the
Respondent No.5 company, nominated by the Kocha Group/
Chloro Controls Group and Respondent No.9 is the Managing
Director of the said joint venture.
F
17. It appears that the joint venture company, Respondent
No.5, was incorporated on 14th November, 1995. As
discussed above, the joint venture agreements were primarily
a project between Respondent Nos. 1 and 2 on the one hand
and the appellant company along with its proprietor,
G Respondent No. 9, on the other. The purpose of these joint
venture agreements as indicated in the Memorandum of
Association of this joint venture company was to design,
manufacture, import, export, act as agent, marketing etc. of gas
and electro-chlorination equipments. In order to achieve this
H object, the parties had decided to execute various agreements.
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 433
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

It needs to be emphasized at this stage itself that, as is clear A
from the above narrated chart, the agreements had been signed
between different parties, each agreement containing
somewhat different clauses. Therefore, there is a need to
examine the content and effect of each of the seven agreements
that are stated to have been signed between different parties. B
Content, scope and purpose of the agreements subject
matter of the present appeals
18. The parties to the proceedings, except respondent
Nos. 3 and 4, were parties to one or more of the seven c
agreements entered into between the parties. This includes the
Principal Agreement, i.e., the Shareholders Agreement, the
Financial and Technical Know-how License Agreement, the
International Distributor Agreement, Exports Sales Agreement,
Trademark Registered User License Agreement and Managing
0
Director's Agreement, all dated 16th November, 1995. Lastly,
the parties also entered into and executed a Supplementary
Collabor,ation Agreement in August, 1997. We have already
noticed that except respondent Nos.3 and 4 who were not
signatory to any agreement, all other parties were not parties E
to all the agreements but had signed one or more agreement(s)
keeping in mind the content and purpose of that agreement.
19. Now we shall proceed to discuss each of these
agreements.
Share Holders Agreement F
20. The Shareholders Agreement dated 16th November,
1995 was entered into and executed between the Capital
Control (Delaware) Co. Inc., respondent No. 2, on the one hand
and Chloro Controls (India) Private Ltd., the appellant company G
run by the Kocha/ Capital Controls group and Mr. M.B. Kocha,
respondent No. 9, on the other. As is apparent from the
pleadings on record, these two groups had negotiated for
starting a joint venture company in India and for this purpose
they had entered into the Shareholders Agreement. The main
object of this agreement was to float a joint venture company H
434 SUPREME COURT REPORTS (2012] 13 S.C.R.

A which would be responsible for manufacture, sale and services
of the products as defined in the Financial & Technical Know-
H ow License Agreement, in terms of clause 1 of the
Agreement. The Agreement was subject to obtaining all
necessary approvals, licenses and authorization from the
B Government of India, as the joint venture company under the
name and style of Capital Control India Pvt. Ltd. was to be
registered as a company with its office located in India at
Bombay and to carry on its business in India. The plant was to
be taken on lease. As already noticed, the authorized capital
c of the company was Rs.5 million, consisting of equity shares
of Rs.10 each. In terms of clause 7, Capital Controls, which was
the short form for Capital Control (Delaware) Co. Inc., appointed
the joint venture company as a distributor in India of the products
manufactured by it, subject to the terms and conditions of the
D International Distributor Agreement attached to that Agreement
as Appendix II. Directors to the joint venture company were to
be nominated for a period of three years in accordance with
clause 8 of the Agreement. Clause 14 made it obligatory for
the parties to ensure that the joint venture company entered into
the Financial and Technical Know-How License Agreement with
E Capital Controls, subject to which, as mentioned above, the joint
venture company was to have the right and license to
manufacture the specified products in India. The Financial and
Technical Know-How License Agreement, which was annexed
to the Principal Agreement as Appendix IV, was to be executed
F relating to sale and purchase of chlorination equipment assets.
This Agreement had to be construed and interpreted in
accordance with the laws of the Union of India in terms of clause
29. Further clause 21 related to termination of this Principal
Agreement. In terms of this clause, it was agreed that the
G Agreement was to continue in force and effect for so long as
each party held not less than twenty-six per cent (26%) of the
total paid-up equity shares of the company or in the event that
the company failed to achieve a cumulative sales volume of
Rs.120 million over three years and cumulative profit of fifteen
H per cent (15%) over three years from signing of the Agreement.
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 435
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

Either party had the option to terminate the agreement and A
dispose of the shares as provided in the terms thereof. Material
breach of the Agreement or a deadlock regarding the
management of the Company were, inter alia, the contemplated
grounds for termination of the Agreement, whereby the party
not in default could terminate the Agreement by giving notice B
in writing to the other party. The period of notice in the event of
a material breach was 90 days from the date of such notice.
Clause 21.3 provided that in the event of the termination of the
Agreement, the joint venture company would be wound up and
all obligations undertaken by Chloro Controls under different c
agreements would cease with immediate effect. In such an
eventuality, even the name of the joint venture company was
required to be changed and the word 'Capital', either individually
or in combination with other words, was to be removed.
21. Two other very material clauses of this Agreement, D
which require the attention of this Court, are clauses 4 and 30.
In terms of clause 4.5, the Kocha Group and their company
Chloro Controls were bound not to engage themselves, directly
or indirectly, or even have financial interest in the manufacture,
sale or distribution of chlorination equipment which were similar E
to those manufactured by the joint venture company during the
term of the Agreement. In terms of clause 30, all or any disputes
or differences arising under or in connection with the
Agreement between the parties were liable to be settled by
arbitration, in accordance with the Rules of Conciliation and F
Arbitration of the International Chamber of Commerce (for short,
the 'ICC'), by three arbitrators designated in conformity with
those Rules. The arbitration proceedings were to be held in
London, England and were to be governed by and subject to
English laws.
G
22. As is clear from the above terms and conditions of this
Agreement, it was treated as a principal agreement executed
between the parties and other agreements, like the Financial
& Technical Know-How License Agreement, Trademark
Registered User License Agreement, International Distributor H
436 SUPREME COURT REPORTS [2012] 13 S.C.R.

A Agreement, Managing Directors' Agreement and Export Sales
Agreements were not the only anticipated agreements to be
executed between the parties, but their drafts and necessary
details had been annexed as Appendix I to VII of the
shareholder agreement. The other Agreements were only
B required to be signed by the parties who, as per the
Shareholders Agreement, were required to sign such
agreement. The Arbitration Clause of the Shareholders
Agreement reads as under:
"Any dispute or difference arising under or in connection
C with this Agreement, or any breach thereof, which cannot
be settled by friendly negotiation and agreement between
the parties, shall be finally settled by arbitration conducted
in accordance with the Rules of Conciliation and Arbitration
of the International Chamber of Commerce by three
D arbitrators designated in conformity with those Rules. The
arbitration proceedings shall be held in London, England
and shall be governed by and subject to English law.
Judgment upon the award rendered may be entered in any
court of competent jurisdiction."
E International Distributor Agreement
23. The International Distributor Agreement has been
mentioned as Appendix II to the Shareholders Agreement. The
International Distributor Agreement was executed on the same
F day and entered into between Capital Controls Company Inc.,
respondent No.1 and the joint venture company Capital Controls
India Pvt. Ltd., respondent No.5. Under this Agreement, the joint
venture company was appointed as the exclusive distributor of
products in the "territory'' and for the term provided under clause
G 10 of that Agreement. The specified territory was India,
Afghanistan, Nepal and Bhutan but the agreement also stated
that exports to other countries were not permissible except with
the specific authorization by respondent No.1. Besides
providing the rights and duties of the Distributors, this
Agreement also stated the schedule for delivery of products/
H
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 437
WATER PURIFICATION INC. [SWATANTER KUMAR, J.)

orders, the prices payable, commissions and inspection. It also A
provided for the terms of payment. Distributor's orders of
products were subject to acceptance by the seller at its offices
and the seller reserved his right, at any time, to cease
manufacture as well as offering for sale any product and to
change the design of product. B
24. This distributorship right was non-assignable and was
exclusively between the distributor and the seller. The
relationship between the parties was agreed to be that of a
seller and purchaser. Clause 11 of the Agreement then clearly
postulated that the distributor was an independent contractor C
and not joint venture or partner with an agent or employee of
the seller. Clause 13 provided that the Agreement contained
the entire understanding between the parties with respect to
that subject matter and superseded all negotiations,
discussions, promises or agreements, prior to or D
contemporaneous with this Agreement.
25. Further, this Agreement contained the confidentiality
clause as well as the non-competition clause being clauses 16
and 18, respectively. The latter specified that the distributor
shall not, directly or indirectly, sell, manufacture or supply E
products similar to any of the products or engage, directly or
indirectly, in any business the same as or similar to that of seller,
except subject to the conditions of the Agreement.
26. In terms of clause 20, the agreement between the F
parties was to remain confidential and not to be discussed,
shown to or filed with any Government agencies without the
prior consent of the seller in writing. This Agreement did not
contain any arbitration clause, but it did provide a jurisdiction
clause i.e. clause 21, which read as under:
G
"The construction, interpretation and performance of this
Agreement and all transactions under it shall be governed
by and interpreted under the laws of the State of
Pennsylvania, U.S.A., and the parties hereto agree that
each shall be subject to the jurisdiction of, and any litigation H
438 SUPREME COURT REPORTS [2012] 13 S.C.R.

A hereunder shall be brought in, any federal or state court
located in the Eastern District of the Commonwealth of
Pennsylvania, and that the resolution of such litigation by
such court shall be binding upon the parties."
27. We may notice here that the International Distributor
B Agreement was not only executed in furtherance to Clause 7
of the Shareholders Agreement but in that clause itself it was
also stated to be annexed thereto as Appendix II. The
Distributor Agreement was liable to be renewed as long as the
Distributor i.e. Capital Controls, held at least twenty-six per cent
C (26%) of the shares in the joint venture company.
Managing Directors Agreement
28. Clause 8.6 of the Shareholders Agreement had
provided for appointment or reappointment of the Managing
D Director or whole time Director by mutual consent. Subject to
the provisions of the Companies Act, it was agreed that Mr.
Kocha would be appointed as the first Managing Director of
the Company for an initial period of 3 years and on such terms
and conditions as were specified in Appendix Ill, i.e., the
E Managing Directors Agreement of the same date. In other
words, the Managing Directors Agreement had been executed
between joint venture company, Capital Control India Pvt. Ltd.
and Mr. M.B. Kocha, on terms already agreed to between the
parties to the Shareholders' Agreement.
F 29. The joint venture company, which is stated to have
been incorporated on 14th November, 1995, held Board
Meeting on 16th November, 1995 and as contemplated under
Clause 8.6 of the Shareholders Agreement, appointed Mr.
Kocha as the Managing Director of the Company for three
G years commencing from 1st April, 1996. This Managing
Directors Agreement spelt out the powers which the Managing
Director could exercise and more specifically, under Clause 3,
the powers which the Managing Director could exercise only
with the prior approval of the Board of Directors of the Joint
H Venture Company. For instance, under Clause 3 (k), the
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 439
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

Managing Director was not entitled to undertake any new A
business or substantially expand the business contemplated
thereunder except with the approval of the Board of Directors.
Further, clause 6 contained a non-compete clause requiring Mr.
Kocha not to run any similar business for two years after the
date of termination of the Agreement. B
30. This Agreement also did not contain any arbitration
agreement and provided no terms which were not within the
contemplation of clause 8. 7 of the Shareholders Agreement.
Export Sales Agreement
c
31. Export Sales Agreement was again singed between
the Chloro Control India Pvt. Ltd. and Capital Control Co. Inc.,
the foreign partner to the joint venture. This Agreement, on its
bare reading, presupposes the existence and working of the
joint venture company. The products required to be D
manufactured by the joint venture company under the
Shareholders Agreement as well as those stated in Exhibit 1
of this Agreement were to be exported to different countries by
Capital Control Company Inc. which was required to export
those goods and execute such orders as per the terms and E
conditions of this Agreement, except in countries specified in
Exhibit 2 to the Agreement. It is noteworthy that the export could
be effected to all countries covered under the 'Territory'
excluding the countries specified in Ext. 2 of the agreement
which was completely in consonance with the execution and F
performance of Shareholder Agreement and the International
Distributor Agreement executed between the parties. This
Agreement stipulated distinct terms and conditions which had
to be adhered to by the parties while the Capital Control
Company Inc. was to act as sole and exclusive agent for sale G
of the products. The products under the Agreement meant
design, supply, installation commissioning and after-sale
services of chlorination systems and equipment related
products manufactured by the Joint Venture Company. The
services under the Agreement could be performed by Capital
H
440 SUPREME COURT REPORTS [2012) 13 S.C.R.

A control Co. Inc. itself or through its affiliated corporation or duly
appointed sales agents and distributors. In terms of Clause 17
of the Agreement, it was to be construed and interpreted in
accordance with the laws in the State of Pennsylvania, U.S.A.
It specifically contained an arbitration clause (clause 18) that
B read as under:
"Any dispute of difference arising under or in connection
with this Agreement, or any breach thereof, which cannot
be settled by friendly negotiation and agreement between
the parties shall be finally settled by arbitration conducted
C in accordance with the Rules of American Arbitration
Association. The arbitration proceedings shall be held in
Pennsylvania, U.S.A. Judgment upon the award rendered
may be rendered may be entered in any court of competent
jurisdiction."
D Financial and Technical Know-how License Agreement
and Trademark Registered User Agreement
32. Now, we shall deal with both these agreements
together as both these agreements are inter-dependent and
E one finds elaborate reference to one in the other. Furthermore,
both these agreements have been entered into and executed
between Capital Control Co. Inc. on the one hand and the joint
venture company on the other.
33. Under clause 14 of the Shareholders Agreement, it
F was required of the parties to cause the joint venture company
to enter into the Financial and Technical Know-How License
Agreement with the Capital Controls under which the latter was
to grant the joint venture company the right and license to
manufacture the products in India in accordance with the
G Technical Know-How and other technical information possessed
by Capital Controls. Clause 18 of the Principal Agreement also
referred to this agreement and postulated that if the Government
of India did not grant permission for the terms of foreign
collaboration contained in this agreement, even the Principal
H Agreement, i.e. the Shareholder's Agreement would be liable
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 441
WATER PURIFICATION INC. [SWATANTER KUMAR, J.)

to be terminated without giving rise to any claim for damages. A
Both these clauses provided that this Agreement was attached
to the Principal Agreement itself and had been referred to as
the 'License Agreement', for short.
34. We may refer to certain terms of this agreement which
would indicate that the terms and conditions of the Principal 8
Agreement were to be implemented through this Agreement.
Besides providing the obligations of the Capital Controls
(respondent no.5), it also stipulated that the licensee, i.e. the
joint venture company would be free to manufacture the
products under the said patent even after the expiry of the C
Agreement. Under clauses 9 and 10 of the Agreement,
obligations of the licensee were stated and it required the
licensee to maintain quality comparable to corresponding
products made by Capital Controls in USA and to allow free
access and information to Capital Controls. The products D
manufactured by the lircensee whose quality was approved by
Capital Controls could be marked with the legend,
'Manufactured in India under license from Capitals Control
Company Inc. Colmar, Pennsylvania, USN'. However, if the
agreement was terminated, the licensee was not to use the E
trademark and legend.
35. As stated, th1e purpose of this Agreement was that the
licensee desired to obtain the right and license to manufacture
the products in accordance with the Technical Know-How
owned or acquired by Capital Controls and for which that F
company was willing to grant license on the terms and
conditions stated in that Agreement. The first and foremost
restriction was that the rights under the agreement were non-
transferable and the right was restricted to sell the products
exclusively in India and the countries listed in the Appendix to G
the Agreement. The Agreement also contained a non-competing
clause providing that the licensee must not manufacture or have
manufactured for it, sell or offer for sale or be financially
interested in similar products without prior written permission
of Capital Controls. Respondent no.1 had also agreed that its H
442 SUPREME COURT REPORTS [2012) 13 S.C.R.

A affiliated companies would sell the product in India only through
the licensee. The Agreement provided for payment of royalties
under clause 11.
36. Another very significant clause of this Agreement was
the Term and Termination clause. The agreement was to
B continue in force for ten years from the date it was filed with
the Reserve Bank of India, subject to earlier termination in
terms of clause 15.2. Clause 14.2 provided practically for the
conditions of termination of this Agreement similar to those
contemplated for the Share Holders Agreement. Neither any
C modification/amendment of this Agreement nor any waiver of
its terms and conditions was to be binding upon the parties
unless made in writing and duly executed by both the parties.
Appendix I to this agreement recorded the products which the
joint venture company was to manufacture. In the event of
D dispute, the parties were expected to settle it by friendly
negotiations, failing which it was to be referred to the ICC, by
three Arbitrators designated in conformity with the relevant
Rules. Clause 26, the Arbitration clause, read as under:-
"Any dispute or difference arising under or in connection
E with this Agreement, or any breach thereof, which cannot
be settled by friendly negotiation and agreement between
the parties shall be finally settled by arbitration conducted
in accordance with the Rules of Conciliation and Arbitration
of the International Chamber of Commerce by three
F arbitrators designated in conformity with those Rules. The
Arbitration proceedings shall be held in London, England
and shall be governed by and subjeict to English Law.
Judgment upon the award rendered m&'Y be entered in any
court of competent jurisdiction."
G 37. Clauses 15.1 and 15.2 of the Principal Agreement
referred to the Trademark Registered User License Agreement.
Firstly, it is provided that respondent no.9, Mr. iKocha and Chloro
Controls acknowledged that Capital Contmls was the sole
owner of certain trademarks and trade-names: used by Capital
H
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 443
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

Controls in connection with the sale of the products. Besides A
agreeing that they would not adopt, use or register as a
trademark or tradename any word or symbol, which in the
opinion of Capital Controls is confusingly similar to their
trademarks, there the joint venture company was required to
enter into a Trademark Registered User License Agreement B
for obtaining the right to use certain trademarks and tradenames
and it was further specifically provided that the said agreement
formed part of the Financial and Technical Know-How License
Agreement.
38. The Trademark Registered User Agreement, as C
already noticed, was executed between the respondent no.1
and respondent no.5, the joint venture company. The
relationship between the parties under this agreement was
contractual and respondent no.1 had agreed to grant user
permission to use the trademarks, subject to the terms and D
conditions specified in the agreement. The agreement was
executed with the clear intention that the license owner
(respondent No. 1) would provide its secret drawings, plans,
specifications, test data, formulae and other manufacturing
procedures and as well as technical know-how for assembly, E
manufacture, quality control and testing of goods to the
licensee, the joint venture company. The agreement dealt with
various aspects including grant of non-exclusive right to use the
trademarks in relation to the goods in the territory as the
registered user of the trademarks. In terms of clause 10 of the F
agreement, the joint venture company was not to acquire any
ownership interest in the trademarks or registrations thereof by
virtue of use of trademark and it was specifically agreed that
every permitted use of trademarks by the user would enure to
the benefit of the licensor company. This Agreement was to G
terminate automatically in the event the License Agreement i.e.
the Financial and Technical Know-How License Agreement,
was terminated for any reason. Clause 13 also provided that
the permitted use of the trademarks did not involve the payment
of any royalty or other consideration, other than the royalties H
444 SUPREME COURT REPORTS [2012) 13 S.C.R.

A payable under the Financial and Technical Know-How License
Agreement by joint venture company to the licensor company.
This agreement was terminable on the conditions stipulated in
clause 16, which again were similar to the termination clause
provided in other agreements. This Agreement did not contain
B an arbitration clause.
Supplementary Collaboration Agreement
39. The last of the documents in this series which requires
to be mentioned by the Court is the Supplementary
C Collaboration Agreement. Any joint venture agreement in India
which is in collaboration with a foreign partner can be
commenced only after obtaining the permission of the
Government of India. The parties herein had already executed
a joint venture agreement dated 16th November, 1995. The
company obtained the permission of the Government of India
D vide its letter No. FC-11 830(96)245(96) dated 11th October,
1996 amended on 21st April, 1997. The company then
commenced the operation and business of the joint venture
company with effect from 1st April, 1997.
E 40. In the letter by the Government of India dated 11th
October, 1996, besides noticing the items of manufacture
activity covered by the foreign collaboration agreement, foreign
equity participation being 50% and other conditions which had
been specifically postulated, under clause 7 of the letter it was
F specified that the approval letter was made a part of the foreign
collaboration agreement executed between the parties and only
those provisions of the agreement which were covered by the
said letter or which were not at variance with the said letter
would be binding on the Government of India or the Reserve
Bank of India. Thus, the parties were directed to proceed to
G finalize the agreement.
41. Vide its letter dated 21st December, 1996, the joint
venture company had written to the Ministry of Industry,
Department of Industrial Policy and Promotion, Government of
H India, requesting to amend point No. 2 of the above-mentioned
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 445
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

approval letter. The request was to widen the scope of the A
manufacture activities covered by the foreign collaboration
agreement. The company wished to add the manufacture of
gas and electro-chlorination equipments, amongst other stated
items. The other amendment that was sought for was increase
in the authorized share capital from Rs.25 lakhs to paid-up B
capital of 50 lakhs in the joint venture company. Both these
requests of the joint venture company were accepted by the
Government of India vide their letter dated 21st April, 1997 and
clauses (2), (3) and (4) of the earlier approval letter dated 11th
October, 1996 were modified. All other terms and conditions c
of the approval letter remained the same. The Government of
India had asked for acknowledgement of the said letter.
42. In furtherance to this letter of the Government of India,
the joint venture company and the respondent no.2 executed
this Supplementary Collaboration Agreement. The important D
part of this one-page agreement is 'we hereby conform that we
shall adhere to the terms and conditions as stipulated by the
Government of India. Letter No. FC.11: 830(96) 295(96) dated
11.10.1996, amended 21.04.1997.' It also stated that the
companies had entered into the joint venture agreement dated E
16th November, 1995 and had commenced their operation with
effect from 1st April, 1997. In other words, the Supplementary
Collaboration Agreement was a mere confirmation of the
previous joint venture agreement. By this time i.e., somewhere
in August 1997, all other agreements had been executed, the F
joint venture company had come into existence and, in
furtherance to those agreements, it had commenced its
business.
43. As we have already noticed under the head 'Corporate
Structure', the name of Respondent No. 1, Capital Control Co. G
Inc. was changed to Severn Trent Water Purification Inc. with
effect from 1st April, 2002. Later on, respondent no.2, Capital
Control (Delaware) Co. Inc. was merged with the respondent
no.1 on 31st March, 2003. Thus, for all purposes and intents,
in fact and in law, interest of respondent no.1 and 2 was H
446 SUPR:~MECOURT REPORTS [2012] 13 S.C.R.

A cot;1·~r9l(e:d ahci given effect to by Severn Trent.
· ·. · :·4.4::'b'ktfos issue, version of the respondents had been
disputed in the earlier round of litigation between the parties
where respondent No. 1, Severn Trent Water Purification Co.
Inc., USA, had filed a petition for winding up respondent No.
B 5-Chloro Controls India Pvt. Ltd., the joint venture company, on
just and equitable ground under Section 433(j) of the
Companies Act. In this petition, specific issue was raised that
merger of Capital Controls (Delaware) Co. with Severn Trent
was not intimated to the respondent No. 5 company prior to the
C filing of the arbitration petition by Severn Trent under Section
9 of the 1996 Act as well as that Severn Trent was not a share
holder of the joint venture company and thus had no locus standi
to file the petition. This Court vide its judgment dated 18th
February, 2008 in Civil Appeal No. 1351 of 2008 titled Severn
D Trent Water Purification Inc. v. Chloro Control (India) Pvt. Ltd.
and Anr. held that the winding up petition by Severn Trent Water
Purification Inc. was not maintainable as it was not a
contributory. But the question whether that company was a
creditor of the joint venture company was left open.
E 45. At this very stage, we may make it clear that we do
not propose to deal with any of the contentions raised in that
petition whether decided or left open, as the judgment has
already attained finality. In terms of the settled position of law,
the said judgment cannot be brought in challenge in the present
F proceedings, collaterally or otherwise.
46. Certain disputes had already arisen between the
. parties that resulted in termination of the joint venture
agreements. Vide letter dated 21st July, 2004, Severn Trent
Services informed respondent no.9, respondent no.5 and
G Chloro Controls India Pvt. Ltd., the present appellant, that they
had failed to remedy the issues and grievances communicated
to them in their previous correspondences and meetings and
also failed to engage in any productive negotiation· in this
connection and therefore, they were terminating from that very
H day, the joint venture agreements executed between them and
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 447
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

the appellant company, which included agreements stated in A
that letter i.e. the Shareholders Agreement, the International
Distributor Agreement, the Financial and Technical Know-How
License Agreement, the Export Sales Agreement and the
Trademark Registered User Agreement, all dated 16th
November, 1995 and requested them to commence the winding 8
up proceedings of the joint venture company, respondent No.
5. They were also called upon to act in accordance with the
terms of the agreement in the event of such termination. It may
be noticed here itself that prior to the serving of the notice of
termination, a suit had been instituted by the appellant in which C
application under Section 8/45 of the 1996 Act was filed.
Contentions of the learned Counsel appearing for the
parties in the backdrop of above detailed facts
47. The appellant had filed a derivative suit being Suit No.
233 of 2004 praying, inter alia, for a decree of declaration that D
the joint venture agreements and the supplementary
collaboration agreement are valid, subsisting and binding and
that the scope of business of the joint venture company included
the manufacture, sale, distribution and service of entire range
of chlorination equipments including electro-chlorination E
equipment. An order of injunction was also obtained restraining
respondent Nos. 1 and 2 from interfering in any way and/or
preventing respondent No.5 from conducting its business of
sale of chlorination equipments including electro-chlorination
equipment and that they be not permitted to sell their products F
in India save and except through the joint venture company, in
compliance of clause 2.5 of the Financial and Technical Know-
How License Agreement read with the Supplementary
Collaboration Agreement. Besides this, certain other reliefs
have also been prayed for. G
48. After the institution of the suit, as already noticed, the
respondent Nos.1 and 2 had terminated the joint-venture
agreements vide notices dated 23rd January, 2004 and 21st
July, 2004. Resultantly, in the amended plaint, specific prayer
was made that both these notices were wrong, illegal and 1:1
448 SUPREME COURT REPORTS [2012] 13 S.C.R.

A invalid; in breach of the joint venture agreements and of no
effect; and the joint venture agreements were binding and
subsisting. To be precise, the appellant had claimed damages,
declaration and injunction in the suit primarily-relying upon the
agreements entered into between the parties. In this suit, earlier
8 interim injunction had been granted in favour of the appellant,
which was subsequently vacated at the appellate stage. The
respondent Nos.1 and 2 filed an application under Section 8
of the Act, praying for reference of the suit to the arbitral tribunal
in accordance with the agreement between the parties. This
C application was contested and finally decided by the High Court
in favour of respondent Nos.1 and 2, vide order dated 4th
March, 2010 making a reference of the suit to arbitration.
' --i 49. It is this Order of the Division Bench of the High Court
of Bombay that has given rise to the present appeals before
D this Court. While raising a challenge, both on facts and in law,
to the judgment of the Division Bench of the Bombay High
Court making a reference of the entire suit to arbitration, Mr.
Fali S. Nariman, learned senior counsel appearing for the
appellant, has raised the following contentions :
E 1. There is inherent right conferred on every person
by Section 9 of the Code of Civil Procedure, 1908,
(for short 'CPC') to bring a suit of a civil nature
unless it is barred by a statute or there was no
agreement restricting the exercise of such right.
F Even if such clause was there (is invoked), the
same would be hit by Section 27 of the Indian
Contract Act, 1872 and under Indian law, arbitration
is only an exception to a suit and not an alternative
to it. The appellant, in exercise of such right, had
G instituted a suit before the Court of competent
jurisdiction, at Bombay and there being no bar
under any statute to such suit. The Court could not
have sent the suit for arbitration under the provisions
of the 1996 Act.
H 2. The appellant, being dominus litus to the suit, had
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 449
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

included respondent Nos.3 and 4, who were A
necessary parties. The appellant had claimed
different and distinct reliefs. These respondents had
not been added as parties to the suit merely to
avoid the arbitration clause but there were
substantive reliefs prayed for against these B
respondents. Unless the Court, in exercise of its
power under Order I, Rule 10(2) of the CPC, struck
out the name of these parties as being improperly
joined, the decision of the High Court would be
vitiated in law as these parties admittedly were not c
parties to the arbitration agreement.
3. On its plain terms, Section 45 of the 1996 Act
provides that a judicial authority, when seized of an
action in a matter in respect of which the parties
have made an agreement referred to in Section 44, D
shall, at the request of one of the parties or any
person claiming through or under him, refer the
parties to arbitration. The expression 'party' refers
to parties to the action or suit. The request for
arbitration, thus, has to come from one of the E
parties to the suit or action or any person claiming
through or under him. The Court then can refer
those parties to arbitration. The expression 'parties'
used under Section 45 would necessarily mean all
the parties and not some or any one of them. If the F
expression 'parties' is not construed to mean all
parties to the action and the agreement, it will result
in multiplicity of proceedings, frustration of the
intended one-stop remedy and may cause further
mischief.
G
Judgment of the High Court in referring the entire suit,
including the parties who were not parties to the arbitration
agreement as well as against whom the cause of action
did not arise from arbitration agreement, suffers from error
of law. H
450 SUPREME COURT REPORTS [2012] 13 S.C.R.

A 4. The 1996 Act is an amending and consolidating Act
being an enactment setting out in one statute the
law relating to arbitration, international commercial
arbitration and enforcement of foreign arbitral
awards. Further, the 1996 Act has no provision like
B Section 34 of the Arbitration Act, 1940 (for short
"1940 Act"). In Section 3 of the Foreign Awards
(Recognition and Enforcement) Act, 1961 (for short
'1961 Act'), there existed a mandate only to stay the
-proceedings and not to actually refer the parties to
c arbitration. Thus, the position before 1996 in India,
as in England, permitted a partial stay of the suit,
both as regards matters and parties. But after
coming into force of the 1996 Act, it is no longer
possible to contend that some parties and/or some
matters in a suit can be referred to arbitration
D
leaving the rest to be decided by another forum.
5. Bifurcation of matters/cause of action and parties
is not permissible under the provisions of the 1996
Act Such procedure is unknown to the law of
E arbitration.in India. The judgment of this Court in the
case of Sukanya Holdings Pvt Ltd. (supra) is a
judgment in support of this contention. This
judgment of the Court is holding the field even now.
In the alternative, it is submitted that bifurcation, if
F permitted, would lead to conflicting decisions by two
different forums and under two different systems of
law. In such situations, reference would not be
permissible.
6. In the alternative, reference to arbitral tribunal is not
G possible in the facts and circumstances of the
present case. Where three major agreements, i.e.,
Managing Director Agreement, Trademark
Registered User Agreement and Supplementary
Collaboration Agreement do not have any
H arbitration clause, there the International Distributor
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 451
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

Agreement exclusively provides the jurisdiction for A
resolution of dispute to the federal or state courts
in the Eastern District of the Commonwealth of
Pennsylvania, USA This latter agreement, thus,
provided for resolution of disputes under a specific
law and by a specific forum. Thus, for uncertainty 8
and indefiniteness, the alleged arbitration clause is
unenforceable.
Thus, in the present case, out of all the agreements
signed between different parties, four agreements,
i.e., Managing Director Agreement, International C
Distributor Agreement, Trademark Registered User
Agreement and the Supplementary Collaboration
Agreement, have no arbitration clause.
Furthermore, different agreements have been
signed by different parties and respondent No.9 is. D
not a party to some of the agreements containing/
not containing an arbitration clause. In any case,
respondent Nos.3 and 4 are not party to any of the
Agreements and the cause of action of the
appellant against them is limited to the scope of E
International Distributor Agreement vis-a-vis the
products covered under the joint-venture
agreement.
On these contentions, it is submitted that the
judgment of the High Court is liable to be set aside and F
no reference to arbitral tribunal is possible. Also, the
submission is that, within the ambit and scope of Section
45 of the 1996 Act, multiple agreements, where some
contain an arbitration clause and others don't, a composite
reference to arbitration is not permissible. There has to be G
clear intention of the parties to refer the dispute to
arbitration.
50. Mr. Harish Salve, learned senior counsel, while
supporting the judgment of the High Court for the reasons stated
therein, argued in addition that the submissions made by Mr. H
452 SUPREME COURT REPORTS [2012] 13 S.C.R.

A F.S. Nariman, learned senior counsel, cannot be accepted in
law and on the facts of the case. He contended that :
(i) Under the provisions of the 1996 Act, particularly
in Part II, the Right of Reference to Arbitration is
indefeasible and therefore, an interpretation in
B favour of such reference should be given primacy
over any other interpretation.
(ii) In substance, the suit and the reliefs claimed therein
relate to the dispute with regard to the agreed
scope of business of the joint venture company as
c regards gas based chlorination or electro based
chlorination. This major dispute in the present suit
being relatable to joint venture agreement therefore,
execution of multiple agreements would not make
any difference. The reference of the suit to arbitral
D Tribunal by the High Court is correct on facts and
in law.
(iii) The filing of the suit as a derivative action and even
the joinder of respondent Nos.3 and 4 to the suit
were primarily attempts to escape the impact of the
E
arbitration clause in the joint venture agreements.
Respondent Nos. 3 and 4 were neither necessary
nor appropriate parties to the suit. In the facts of the
case the party should be held to the bargain of
arbitration and even the plaint should yield in favour
F of the arbitration clause.
(iv) All agreements executed between the parties are
in furtherance to the Shareholders Agreement and
were intended to achieve only one object, i.e.,
G
constitution and carrying on of business of
chlorination products by the joint venture company
in India and the specified countries. The parties
having signed the various agreements, some
containing an arbitration clause and others not,
performance of the latter being dependent upon the
H
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 453
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]
Principal Agreement and in face of clause 21.3 of A
the Principal Agreement, no relief could be granted
on the bare reading of the plaint and reference to
arbitration of the complete stated cause of action
was inevitable.
(v) The judgment of this Court in the case of Sukanya B
(supra) does not enunciate the correct law.
Severability of cause of action and parties is
permissible in law, particularly, when the legislative
intent is that arbitration has to receive primacy over
the other remedies. Sukanya being a judgment c
relatable to Part 1 (Section 8) of the 1996 Act,
would not be applicable to the facts of the present
case which exclusively is covered under Part II of
the 1996 Act.
D
(vi) The 1996 Act does not contain any restriction or
limitation on reference to arbitration as contained
under Section 34 of the 1940 Act and therefore, the
Court would be competent to pass any orders as it
may deem fit and proper, in the circumstances of
a given case particularly with the aid of Section 151 E
of the CPC.
(vii) A bare reading of the provisions of Section 3 of the
1961 Act on the one hand and Section 45 of the
1996 Act on the other clearly suggests that change
F
has been brought in the structure and not in the
substance of the provisions. Section 3 of the 1961
Act, of course, primarily relates to stay of
proceedings but demonstrates that the plaintiff
claiming through or under any other person who is
G
a party to the arbitration agreement would be
subject to the applications under the arbitration
agreement. Thus, the absence of equivalent words
in Section 45 of 1996 Act would not make much
difference. Under Section 45, the applicant seeking
H
454 SUPREME COURT REPORTS [2012] 13 S.C.R.

A reference can either be a party to the arbitration
agreement or a person claiming through or under
such party. It is also the contention that a defendant
who is neither of these, if cannot be referred to
arbitration, then such person equally cannot seek
B reference of others to arbitration. Such an approach
would be consistent with the development of
arbitration law.
51. The contention raised before us is that Part I and Part
11 of the 1996 Act operate in different fields and no interchange
C or interplay is permissible. To the contra, the submission is that
provisions of Part I have to be construed with Part II. On behalf
of the appellant, reliance has been placed upon the judgment
of this Court in the case Bhatia International v. Bulk Trading
S.A. and Anr. [(2002) 4 SCC 105]. The propositions stated in
D the case of Bhatia International (supra) do not directly arise
for consideration of this Court in the facts of the present case.
Thus, we are not dealing with the dictum of the Court in Bhatia
lnternational's case and application of its principles in this
judgment.
E It is appropriate for us to deal with the interpretation,
scope and ambit of Section 45 of the 1996 Act particularly
relating to an international arbitration covered under the
Convention on Recognition and Enforcement of Foreign Arbitral
Awards (for short, 'the New York Convention').
F
52. Now, we shall proceed to discuss the width of Section
45 of the 1996 Act.
Interpretation of Section 45 of the 1996 Act
53. In order to invoke jurisdiction of the Court under Section
G 45, the applicant should satisfy the pre-requisites stated in
Section 44 of the 1996 Act.
54. Chapter I, Part II deals with enforcement of certain
foreign awards in accordance with the New York Convention,
H annexed as Schedule I to the 1996 Act. As per Section 44, there
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 455
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

has to be an arbitration agreement in writing. To such arbitration A
agreement the conditions stated in Schedule I would apply. In
other words, it must satisfy the requirements of Article II of
Schedule I. Each contracting State shall recognize an
agreement in writing under which the parties undertake to
submit to arbitration their disputes in respect of a defined legal B
relationship, whether contractual or not, concerning a subject
matter capable of settlement by arbitration. The arbitration
agreement shall include an arbitration clause in a contract or
an arbitration agreement signed by the parties or entered in
any of the specified modes. Subject to the exceptions stated c
therein, the reference shall be made.
55. The language of Section 45 read with Schedule I of
the 1996 Act is worded in favour of making a reference to
arbitration when a party or any person claiming through or under
him approaches the Court and the Court is satisfied that the D
agreement is valid, enforceable and operative. Because of the
legislative intent, the mandate and purpose of the provisions
of Section 45 being in favour of arbitration, the relevant
provisions would have to be construed liberally to achieve that
object. The question that immediately follows is as to what are E
the aspects which the Court should consider while dealing with
an application for reference to arbitration under this provision.
56. The 1996 Act makes it abundantly clear that Part I of
the Act has been amended to bring these provisions completely
in line with the UNCITRAL Model Law on International F
Commercial Arbitration (for short, the 'UNCITRAL Mode Law'),
while Chapter I of Part II is meant to encourage international
commercial arbitration by incorporating in India, the provisions
of the New York Convention. Further, the protocol on Arbitration
Clauses (for short 'Geneva Convention') was also incorporated G
as part of Chapter II of Part II.
57. For proper interpretation and application of Chapter I
of Part II, it is necessary that those provisions are read in
conjunction with Schedule I of the Act. To examine the
H
456 SUPREME COURT REPORTS [2012) 13 S.C.R.

A provisions of Section 45 without the aid of Schedule I would
not be appropriate as that is the very foundation of Section 45
of the Act. The International Council for Commercial Arbitration
prepared a Guide to the Interpretation of 1958 New York
Convention, which lays/contains the Road Map to Article II.
B Section 45 is enacted materially on the lines of Article II of this
Convention. When the Court is seized with a challenge to the
validity of an arbitration agreement, it would be desirable to
examine the following aspects :
"1. Does the arbitration agreement fall under the scope of
C the Convention?
2. Is the arbitration agreement evidenced in writing?
3. Does the arbitration agreement exist and is it
substantively valid?
D 4. Is there a dispute, does it arise out of a defined legal
relationship, whether contractual or not, and did the parties
intend to have this particular dispute settled by arbitration?
5. Is the arbitration agreement binding on the parties to the
dispute that is before the Court?
E
6. Is this dispute arbitrable?"
58. According to this Guide, if these questions are
answered in the affirmative, then the parties must be referred
to arbitration. Of course, in addition to the above, the Court will
F have to adjudicate any plea, if taken by a non-applicant that the
arbitration agreement is null and void, inoperative or incapable
of being performed. In these three situations, if the Court
answers such plea in favour of the non-applicant, the question
of making a reference to arbitration would not arise and that
G would put the matter at rest.
59. If the parties are referred to arbitration and award is
made under these provisions of the Convention, then it shall be
binding and enforceable in accordance with the provisions of
H Sections 46 to 49 of the 1996 Act. The procedure prescribed
under Chapter I of Part II is to take precedence and would not
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 457
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

be affected by the provisions contained under Part I and/or A
Chapter II of Part II in terms of Section 52. This is the extent of
priority that the Legislature had intended to accord to this
Chapter 1 of Part 11.
60. Amongst the initial steps, the Court is required to
enquire whether the dispute at issue is covered by the 8
arbitration agreement. Stress has normally been placed upon
three characteristics of arbitrations which are as follows -
(1) arbitration is consensual. It is based on the parties'
agreement; c
(2) arbitration leads to a final and binding resolution of
the dispute; and
(3) arbitration is regarded as substitute for the court
litigation and results in the passing of an binding
award. D
61. Mr. Nariman, learned senior counsel appearing on
. behalf of the appellant, contended that in terms of Section 45
of the 1996 Act, parties to the agreement shall essentially be
the parties to the suit. A stranger or a third party cannot ask E
for arbitration. They have to be essentially the same. Further,
the parties should have a clear intention, at the time of the
contract, to submit any disputes or differences as may arise,
to arbitration and then alone the reference contemplated under
Section 45 can be enforced.
F
62. To the contra, Mr. Salve, the learned senior counsel
appearing for respondent No. 1, submitted that the phrase "at
the request of one of the parties or any person claiming through
or under him" is capable of liberal construction primarily for the
reason that under the 1996 Act, there is a greater obligation G
to refer the matters to arbitration. In fact, the 1996 Act is the
recognition of an indefeasible Right to Arbitration. Even a party
which is not a signatory to the arbitration agreement can claim
through the main party. Particularly, in cases of composite
transactions, the approach of the Courts should be to hold the H
458 SUPREME COURT REPORTS [2012] 13 S.C.R.

A parties to the bargain of arbitration rather than permitting them
to escape the reference on such pleas.
63. At this stage itself, we would make it clear that we are
primarily discussing these submissions purely on a legal basis
and not with regard to the merits of the case, which we shall
B shortly revert to.
64. We have already noticed that the language of Section
45 is at a substantial variance to the language of Section 8 in
this regard. In Section 45, the expression 'any person' clearly
C refers to the legislative intent of enlarging the scope of the
words beyond 'the parties' who are signatory to the arbitration
agreement. Of course, such applicant should claim through or
under the signatory party. Once this link is established, then the
Court shall refer them to arbitration. The use of the word 'shall'
would have to be given its proper meaning and cannot be
D equated with the word 'may', as liberally understood in its
common parlance. The expression 'shall' in the language of the
Section 45 is intended to require the Court to necessarily make
a reference to arbitration, if the conditions of this provision are
satisfied. To that extent, we find merit in the submission that
E th,eTe·is a greater obligation upon the judicial authority to make
such reference, than it was in comparison to the 1940 Act.
However, the right to reference cannot be construed strictly as
an indefeasible right. One can claim the reference only upon
satisfaction of the pre-requisites stated under Sections 44 and
F 45 read with Schedule I of the 1996 Act. Thus, it is a legal right
which has its own contours and is not an absolute right, free of
any obligations/limitations.
65. Normally, arbitration takes place between the persons
who have, from the outset, been parties to both the arbitration
G agreement as well as the substantive contract underlining that
agreement. But, it does occasionally happen that the claim is
made against or by someone who is not originally named as a
party. These may create some difficult situations, but certainly,
they are not absolute obstructions to law/the arbitration
H agreement. Arbitration, thus, could be possible between a
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 459
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

signatory to an arbitration agreement and a third party. Of A
course, heavy onus lies on that party to show that, in fact and
in law, it is claiming 'through' or 'under' the signatory party as
contemplated under Section 45 of the 1996 Act. Just to deal
with such situations illustratively, reference can be made to the
following examples in Law and Practice of Commercial B
Arbitration in England (Second Edn.) by Sir Michael J. Mustill:
"1. The claimant was in reality always a party to the
contract, although not named in it.
2. The claimant has succeeded by operation of law to C
the rights of the named party.
3. The claimant has become a part to the contract in
substitution for the named party by virtue of a
statutory or consensual novation.
4. The original party has assigned to the claimant D
either the underlying contract, together with the
agreement to arbitrate which it incorporates, or the
benefit of a claim which has already come into
existence."
E
66. Though the scope of an arbitration agreement is limited
to the parties who entered into it and those claiming under or
through them, the Courts under the English Law have, in certain
cases, also applied the "Group of Companies Doctrine". This
doctrine has developed in the international context, whereby an
arbitration agreement entered into by a company, being one F
within a group of companies, can bind its non-signatory
affiliates or sister or parent concerns, if the circumstances
demonstrate that the mutual intention of all the parties was to
bind both the signatories and the non-signatory affiliates. This
. theory has been applied in a number of arbitratio.ns so as to G
justify a tribunal taking jurisdiction over a party who is not a
signatory to the contract containing the arbitration agreement.
['Russell on Arbitration' (Twenty Third Edition)].
67. This evolves the principle that a non-signatory party H
460 SUPREME COURT REPORTS [2012] 13 S.C.R.

A could be subjected to arbitration provided these transactions
were with group of companies and there was a clear intention
of the parties to bind both, the signatory as well as the non-
signatory parties. In other words, 'intentic;>n of the parties' is a
very significant feature which must be established before the
B scope of arbitration can be said to include the signatory as well
as the non-signatory parties.
68. A non-signatory or third party could be subjected to
arbitration without their prior consent, but this would only be in
exceptional cases. The Court will examine these exceptions
C from the touchstone of direct relationship to the party signatory
to the arbitration agreement, direct commonality of the subject
matter and the agreement between the parties being a
composite transaction. The transaction should be of a
composite nature where performance of mother agreement
D may not be feasible without aid, execution and performance of
the supplementary or ancillary agreements, for achieving the
common object and collectively having bearing on the dispute.
Besides all this, the Court would have to examine whether a
composite reference of such parties would serve the ends of
E justice. Once this exercise is completed and the Court answers
the same in the affirmative, the reference of even non-signatory
parties would fall within the exception afore-discussed.
69. In a case like the present one, where origin and end
of all is with the Mother or the Principal Agreement, the fact that
F a party was non-signatory to one or other agreement may not
be of much significance. The performance of any one of such
agreements may be quite irrelevant without the performance
and fulfillment of the Principal or the Mother Agreement.
Besides designing the corporate management to successfully
G complete the joint ventures, where the parties execute different
agreements but all with one primary object in mind, the Court
would normally hold the parties to the bargain of arbitration and
not encourage its avoidance. In cases involving execution of
such multiple agreements, two essential features exist; firstly,
H all ancillary agreements are relatable to the mother agreement
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 461
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

and secondly, performance of one is so intrinsically inter-linked A
with the other agreements that they are incapable of being
beneficially performed without performance of the others or
severed from the rest. The intention of the parties to refer all
the disputes between all the parties to the arbitral tribunal is
one of the determinative factor. · B
70. We may notice that this doctrine does not have
universal acceptance. Some jurisdictions, for example,
Switzerland, have refused to recognize the doctrine, while
others have been equivocal. The doctrine has found favourable
consideration in the United States and French jurisdictions. The C
US Supreme Court in Ruhrgos AG v. Marathon Oil Co. [526
US 574 (1999)) discussed this doctrine at some length and
relied on more traditional principles, such as, the non-signatory
being an alter ego, estoppel, agency and third party
beneficiaries to find jurisdiction over the non-signatories. D
71. The Court will have to examine such pleas with greater
caution and by definite reference to the language of the contract
and intention of the parties. In the case of composite
transactions and multiple agreements, it may again be possible
to invoke such principle in accepting the pleas of non-signatory E
parties for reference to arbitration. Where the agreements are
consequential and in the nature of a follow-up to the principal
or mother agreement, the latter containing the arbitration
agreement and such agreements being so intrinsically inter-
mingled or inter-dependent that it is their composite F
performance which shall discharge the parties of their
respective mutual obligations and performances, this would be
a sufficient indicator of intent of the parties to refer signatory
as well as non-signatory parties to arbitration. The principle of
'composite performance' would have to be gathered from the G
conjoint reading of the principal and supplementary agreements
on the one hand and the explicit intention of the parties and the
attendant circumstances on the other.
72. As already noticed, an arbitration agreement, under
H
462 SUPREME COURT REPORTS [2012] 13 S.C.R.

A Section 45 of the 1996 Act, should be evidenced in writing and
in terms of Article II of Schedule 1, an agreement in writing shall
include an arbitral clause in a contract or an arbitration
agreement signed by the parties or contained in an exchange
of letters or telegrams. Thus, the requirement that an arbitration
B agreement be in writing is an expression incapable of strict
construction and requires to be construed liberally, as the words
of this Article provide. Even in a given circumstance, it may be
possible and permissible to construe the arbitration agreement
with the aid and principle of 'incorporation by reference'. Though
c the New York Convention is silent on this matter, in common
practice, the main contractual document may refer to standard
terms and conditions or other standard forms and documents
which may contain an arbitration clause and, therefore, these
terms would become part of the contract between the parties
by reference. The solution to such issue should be case-
0
specific. The relevant considerations to determine incorporation
would be the status of parties, usages within the specific
industry, etc. Cases where the main documents explicitly refer
to arbitration clause included in standard terms and conditions
would be more easily found in compliance with the formal
E requirements set out in the Article II of the New York Convention
than those cases in which the main contract simply refers to
the application of standard forms without any express reference
to the arbitration clause. For instance, under the American Law,
where standard terms and conditions referred to in a purchase
F order provided that the standard terms would have been
attached to or form part of the purchase order, this was
considered to be an incorporation of the arbitration agreement
by reference. Even in other countries, the recommended
criterion for incorporation is whether the parties were or should
G have been aware of the arbitration agreement. If the Bill of
Lading, for example, specifically mentions the arbitration clause
in the Charter Party Agreement, it is generally considered
sufficient for incorporation. Two different approaches in its
interpretation have been adopted, namely, (a) interpretation of
H documents approach; and (b) conflict of laws approach. Under
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 463
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]
the latter, the Court could apply either its own national law or A
the law governing the arbitration.
73. In India, the law has been construed more liberally,
towards accepting incorporation by reference. In the case of
Owners and Parties Interested in the Vessel M. V. "Baltic
Confidence" & Anr. v. State Trading Corporation of India Ltd. B
& Anr. [(2001) 7 sec 473), the Court was considering the
question as to whether the arbitration clause in a Charter Party
Agreement was incorporated by reference in the Bill of Lading
and what the intention of the parties to the Bill of Lading was.
The primary document was the Bill of Lading, which, if read in C
the manner provided in the incorporation clause thereof, would
include the arbitration clause of the Charter Party Agreement.
The Court observed that while ascertaining the intention of the
parties, attempt should be made to give meaning and effect to
the incorporation clause and not to invalidate or frustrate it by D
giving it a literal, pedantic and technical reading. This Court,
after considering the judgments of the courts in various other
countries, held as under :
"19. From the conspectus of the views expressed by
courts in England and also in India, it is clear that in E
considering the question, whether the arbitration clause in
a Charter Party Agreement was incorporated by reference
in the Bill of Lading, the principal question is,,what was the
intention of the parties to the Bill of Lading? For this
purpose the primary document is the Bill of Lading into F
which the arbitration clause in the Charter Party Agreement
is to be read in the manner provided in the incorporation
clause of the Bm of Lading. While ascertaining the intention
of the parties, attempt should be made to give meaning
to the incorporation clause and to give effect to the same G
and not to invalidate or frustrate it giving a literal, pedantic
and technical reading of the clause. If on a construction of
the arbitration clause of the Charter Party Agreement as
incorporated in the Bill of Lading it does not lead to
inconsistency or insensibility or absurdity then effect should H
464 SUPREME COURT REPORTS [2012) 13 S.C.R.

A be given to the intention of the parties and the arbitration
clause as agreed should be made binding on parties to
the Bill of Lading. If the parties to the Bill of Lading being
aware of the arbitration clause in the Charter Party
Agreement have specifically incorporated the same in the
B conditions of the Bill of Lading then the intention of the
parties to abide by the arbitration clause is clear. Whether
a particular dispute arising between the parties comes
within the purview of the arbitration clause as incorporated
in the Bill of Lading is a matter to be decided by the
c arbitrator or the court. But that does not mean that despite
incorporation of the arbitration clause in the Bill of Lading
by specific reference the parties had not intended that the
disputes arising on the Bill of Lading should be resolved
by an arbitrator."
D 74. Reference can also be made to the judgment of this
Court in the case of Olympus Superstructure Pvt. Ltd. v.
Meena Vijay Khetan & Ors. [(1999) 5 SCC 651), where the
parties had entered into a purchase agreement for the purchase
of flats. The main agreement contained the arbitration clause
E (clause 39). The parties also entered into three different Interior
Design Agreements, which also contained arbitration clauses.
The main agreement was terminated due to disputes about
payment and non-grant of possession. These disputes were
referred to arbitration. A sole arbitrator was appointed to make
F awards in this respect. Inter alia, the question was raised as
to whether the disputes under the Interior Design Agreements
were subject to their independent arbitration clauses or whether
one and the same reference was permissible under the main
agreement. It was argued that the reference under clause 39
of the main agreement could not permit the arbitrator to deal
G with the disputes relating to Interior Design Agreements and
the award was void. The Court, however, took the view that
parties had entered into multiple agreements for a common
object and the expression 'other matters ... connected with'
appearing in clause 39 would permit such a reference. The
H
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 465
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

Court held as under : A
"30. If there is a situation where there are disputes and
differences in connection with the main agreement and
also disputes in regard to "other matters" "connected" with
the subject-matter of the main agreement then in such a
situation, in our view, we are governed by the general 8
arbitration clause 39 of the main agreement under which
disputes under the main agreement and disputes
connected therewith can be referred to the same arbitral
tribunal. This clause 39 no doubt does not refer to any
named arbitrators. So far as clause 5 of the Interior Design C
Agreement is concerned, it refers to disputes and
differences arising from that agreement which can be
referred to named arbitrators and the said clause 5, in our
opinion, comes into play only in a situation where there are
no disputes and differences in relation to the main D
agreement and the disputes and differences are solely
confined to the Interior Design Agreement. That, in our
view, is the true intention of the parties and that is the only
way by which the general arbitration provision in clause 39
of the main agreement and the arbitration provision for a E
named arbitrator contained in clause 5 of the Interior
Design Agreement can be harmonised or reconciled.
Therefore, in a case like the present where the disputes
and differences cover the main agreement as well as the
Interior Design Agreement, - (that there are disputes arising F
under the main agreement and the Interior Design
Agreement is not in dispute) - it is the general arbitration
clause 39 in the main agreement that governs because the
questions arise also in regard to disputes relating to the
overlapping items in the schedule to the main agreement G
and the Interior Design Agreement, as detailed earlier.
There cannot be conflicting awards in regard to items
which overlap in the two agreements. Such a situation was
never contemplated by the parties. The intention of the
. parties when they incorporated clause 39 in the main H
466 SUPREME COURT REPORTS [2012] 13 S.C.R.

A agreement and clause 5 in the Interior Design Agreement
was that the former clause was to apply to situations when
there were disputes arising under both agreements and
the latter was to apply to a situation where there were no
disputes or differences arising under the main contract but
B the disputes and differences were confined only to the
Interior Design Agreement. A case containing two
agreements with arbitration clauses arose before this
Court in Agarwal Engg. Co. v. Technoimpex Hungarian
Machine Industries Foreign Trade Co. There were
c arbitration clauses in two contracts, one for sale of two
machines to the appellant and the other appointing the
appellant as sales representative. On the facts of the case,
it was held that both the clauses operated separately and
this conclusion was based on the specific clause in the
sale contract that it was the "sole repository" of the sale
D transaction of the two machines. Krishna Iyer, J. held that
if that were so, then there was no jurisdiction for travelling
beyond the sale contract. The language of the other
agreement appointing the appellant as sales
representative was prospective and related to a sales
E agency and "later purchases", other than the purchases of
these two machines. There was therefore no overlapping.
The case before us and the above case exemplify contrary
situations. In one case the disputes are connected and in
the other they are distinct and not connected. Thus, in the
F present case, clause 39 of the main agreement applies.
Points 1 and 2 are decided accordingly in favour of the
respondents."
75. The Court also took the view that a dispute relating to
specific performance of a contract in relation to immoveable
G property could be referred to arbitration and Section 34(2)(b)(i)
of the 1996 Act was not attracted. This finding of the Court
clearly supports the view that where the law does not prohibit
the exercise of a particular power, either the Arbitral Tribunal
or the Court could exercise such power. The Court, while taking
H
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 467
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

this view, has obviously rejected the contention that a contract A
for specific performance was not capable of settlement by
arbitration under the Indian law in view of the statutory
provisions. Such contention having been rejected, supports the
view that we have taken.
THRESHOLD REVIEW B
•
76. Where the Court which, on its judicial side, is seized
of an action in a matter in respect of which the parties have
made an arbitration agreement, once the required ingredients
are satisfied, it would refer the parties to arbitration but for the C
situation where it comes to the conclusion that the agreement
is null and void, inoperative or incapable of being performed.
These expressions have to be construed somewhat strictly so
as to ensure that the Court returns a finding with certainty and
on the correct premise of law and fact as it has the effect of
0
depriving the party of its right of reference to arbitration. But
once the Court finds that the agreement is valid then it must
make the reference, without any further exercise of discretion
{refer General Electric Co. v. Renusagar Power Co. [(1987) 4
SCC 137]}. These are the issues which go to the root of the
matter and their determination at the threshold would prevent E
multiplicity of litigation and would even prevent futile exercise
of proceedings before the arbitral tribunal.
77. The issue of whether the courts are empowered to
review the existence and validity of the arbitration agreement F
prior to reference is more controversial. A majority of the
countries admit to the positive effect of kompetenz kompetenz
principle, which requires that the arbitral tribunal must exercise
jurisdiction over the dispute under the arbitration agreement.
Thus, challenge to the existence or validity of the arbitration G
agreement will not prevent the arbitral tribunal from proceeding
with hearing and ruling upon its jurisdiction. If it retains
jurisdiction, making of an award on the substance of the dispute
would be permissible without waiting for the outcome of any
court action aimed at deciding the issue of the jurisdiction. The
negative effect ofthe kompetenz kompetenz principle is that H
468 SUPREME COURT REPORTS [2012] 13 S.C.R.

A arbitrators are entitled to be the first to determine their
jurisdiction which is later reviewable by the court, when there
is action to enforce or set aside the arbitral award. Where the
dispute is not before an arbitral tribunal, the Court must also
decline jurisdiction unless the arbitration agreement is patently
B void, inoperative or incapable of being performed.
78. This is the position of law in France and in some other
countries, but as far as the Indian Law is concerned, Section
45 is a legislative mandate and does not admit of any
ambiguity. We must take note of the aspect of Indian law that
C Chapter I of Part II of the 1996 Act does not contain any
provision analogous to Section 8(3) under Part I of the Act. In
other words, under the Indian Law, greater obligation is cast
upon the Courts to determine whether the agreement is valid,
operative and capable of being performed at the threshold
D itself. Such challenge has to be a serious challenge to the
substantive contract or to the agreement, as in the absence of
such challenge, it has to be found that the agreement was valid,
operative and capable of being performed; the dispute would
be referred to arbitration. [State of Orissa v. Klockner and
E Company & Ors. (AIR 1996 SC 2140)].
79. Alan Redfern and Martin Hunter in Law and Practice
of International Commercial Arbitration, (Fourth Edition) have
opined that when several parties are involved in a dispute, it is
usually considered desirable that the dispute should be dealt
F with in the same proceedings rather than in a series of separate
proceedings. In general terms, this saves time, money,
multiplicity of litigation and more importantly, avoids the
possibility of conflicting decisions on the same issues of fact
and law since all issues are determined by the same arbitral
G tribunal at the same time. In proceedings before national courts,
it is generally possible to join additional parties or to
consolidate separate sets of proceedings. In arbitration,
however, this is difficult, sometimes impossible, to achieve this
because the arbitral process is based upon the agreement of
H the parties.
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 469
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

80. Where there is multi-party arbitration, it may be A
because there are several parties to one contract or it may be
because there are several contracts with different parties that
have a bearing on the matter in dispute. It is helpful to
distinguish between the two. Where there are several parties
to one contract, like a joint venture or some other legal B
relationship of similar kind and the contract contains an
arbitration clause, when a dispute arises, the members of the
consortium or the joint venture may decide that they would each
like to appoint an arbitrator. In distinction thereto, in cases
involving several contracts with different parties, a different C
problem arises. They may have different issues in dispute. Each
one of them will be operating under different contracts often with
different choice of law and arbitration clauses and yet, any
dispute between say the employer and the main contractor is
likely to involve or affect one or more of the suppliers or sub- o
contractors, even under other contracts. What happens when
the dispute between an employer and the main contractor is
referred to arbitration, and the main contractor wishes to join
the sub-contractor in the proceedings, on the basis that if there
is any liability established, the main contractor is entitled to pass E
on such liability to the sub-contractor? This was the issue raised
in the Adgas case {Abu Dhabi Gas Liquefaction Co. Ltd. v.
Eastern Bechtel Corp. (1982] 2 Lloyd's Rep. 425, CA}. Adgas
was the owner of a plant that produced liquefied natural gas in
the Arabian Gulf. The company started arbitration in England
F
against the main contractors under an international construction
contract, alleging that one of the huge tanks that had been
constructed to store the gas was defective. The main contractor
denied liability but added that, if the tank was defective, it was
the fault of the Japanese sub-contractor. Adgas brought ad hoc
arbitration proceedings against the main contractor before a G
sole arbitrator in London. The main contractor then brought
separate arbitration proceedings, also in London, against the
Japanese sub-contractor.
81. There is little doubt that if the matter had been litigated H
470 SUPREME COURT REPORTS [2012] 13 S.C.R.

A in an English court, the Japanese company would have been
joined as a party to the action. However, Adgas did not agree
that the Japanese sub-contractor should be brought into its
arbitration with the main contractor, since this would have
lengthened and complicated the proceedings. The Japanese
B sub-contractor also did not agree to be joined. It preferred to
await the outcome of the main arbitration, to see whether or
not there was a case to answer.
82. Lord Denning, giving judgment in the English Court of
Appeal, plainly wished that an order could be made
C consolidating the two sets of arbitral proceedings so as to save
time and money and to avoid the risk of inconsistent awards:
"As we have often pointed out, there is a danger in having
two separate arbitrations in a case like this. You might get
inconsistent findings if there were two separate arbitrators.
D
This has been said in many cases ... it is most undesirable
that there should be inconsistent findings by two separate
arbitrators on virtually the self-same question, such as
causation. It is very desirable that everything should be
done to avoid such a circumstance [Abu Dhabi Gas,
E op.cit.at 427]"
83. We have already referred to the contention of Mr. Fali
S. Nariman, the learned senior counsel appearing for the
appellant, that the provisions of Section 45 of the 1996 Act are
F somewhat similar to Article 11(3) of the New York Convention
and the expression 'parties' in that Section would mean that 'all
parties to the action' before the Court have to be the parties to
the arbitration agreement. If some of them are parties to the
agreement, while the others are not, Section 45 does not
G contemplate the applicable procedure and the status of the non-
signatories. The consequences of all parties not being common
to the action and arbitration proceedings are, as illustrated
above, multiplicity of proceedings and frustration of the intended
'one stop action'. The Rule of Mischief would support such
H interpretation. Even if some unnecessary parties are added to
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 471
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

the action, the Court can always strike out such parties and even A
the cause of action in terms of the provisions of the CPC.
However, where such parties cannot be struck off, there the
proceedings must continue only before the Court.
84. Thus, the provisions of Section 45 cannot be effectively
applied or even invoked. Unlike Section 24 of the 1940 Act, B
under the 1996 Act the Court has not been given the power to
refer to arbitration some of the parties from amongst the parties
to the suit. Section 24 of 1940 Act vested the Court with the
discretion that where the Court thought fit, it could refer such
matters and parties to arbitration provided the same could be C
separated from the rest of the subject matter of the suit.
Absence of such provision in the 1996 Act clearly suggests that
the Legislature intended not to permit bifurcated or partial
references of dispute or parties to arbitration. Without prejudice
to this contention, it was also the argument that it would not be D
appropriate and even permissible to make reference to
arbitration when the issues and parties in action are not
covered by the arbitration agreement. Referring to the
consequences of all parties not being common to the action
before the Court and arbitration, the disadvantages are: E
a) There would be multiplicity of litigation;
b) Application of principle of one stop action would not
be possible; and
c) It will frustrate the application of the Rule of Mischief. F
The Court can prevent the mischief by striking out
unnecessary parties or causes of action.
85. It would, thus, imply that a stranger or a third party
cannot ask for arbitration. The expression 'claiming through or
under' will have to be construed strictly and restricted to the G
parties to the arbitration agreement.
86. Another issue raised before the Court is that there is
possibility of the arbitration proceedings going on
simultaneously with the suit, which would result in rendering
H
472 SUPREME COURT REPORTS [2012) 13 S.C.R.

A passing of conflicting orders possible. This would be contrary
to the public policy of India that Indian courts can give effect to
the foreign awards which are in conflict with judgment of the
Indian courts.
87. To the contra, Mr. Salve, learned senior counsel
8 appearing for respondent No.1, contended that the expressions
'parties to arbitration', 'any person claiming through or under
him' and 'at the request of one of the party' appearing in Section
45 are wide enough to include some or all the parties and even
non-signatory parties for the purposes of making a reference
C to arbitration. It is also the contention that on the true
construction of Sections 44, 45 and 46 of the 1996 Act, it is
not possible to accept the contention of the appellant that all
the parties to an action have to be parties to the arbitration
agreement as well as the Court proceedings. This would be
D opposed to the principle that parties should be held to their
bargain of arbitration. The Court always has the choice to make
appropriate orders in exercise of inherent powers to bifurcate
the reference or even stay the proceedings in a suit pending
before it till the conclusion of the arbitration proceedings or
E otherwise. According to Mr. Salve, if the interpretation
advanced by Mr. Nariman is accepted, then mischief will be
encouraged which would frustrate the arbitration agreement
because a party not desirous of going to arbitration would
initiate civil proceedings and add non-signatory as well as
F unnecessary parties to the suit with a view to avoid arbitration.
This would completely frustrate the legislative object underlining
the 1996 Act. Non-signatory parties can even be deemed to
be parties to the arbitration agreement and may successfully
pray for referral to arbitration.
G 88. As noticed above, the legislative intent and essence
of the 1996 Act was to bring domestic as well as international
commercial arbitration in conson;:ince with the UNCITRAL
Model Rules, the New York Convention and the Geneva
Convention. The New York Convention was physically before
H the Legislature and available for its consideration when it
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 4 73
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

enacted the 1996 Act. Article II of the Convention provides that A
each contracting State shall recognise an agreement and
submit to arbitration all or any differences which have arisen
or which may arise between them in respect of a defined legal
relationship, whether contractual or not concerning a subject
matter capable of settlement by arb~ration. Once the agreement B
is there and the Court is seized of an action in relation to such
subject matter, then on the request of one of the parties, it would
refer the parties to arbitration unless the agreement is null and
void, inoperative or incapable of performance.
89. Still, the legislature opted to word Section 45 C
somewhat dissimilarly. Section 8 of the 1996 Act also uses the
expression 'parties' simpliciter without any extension. In
significant contra-distinction, Section 45 uses the expression
'one of the parties or any person claiming through or under him'
and 'refer the parties to arbitration'. whereas the rest of the D
language of Section 45 is similar to that of Article 11(3) of the
New York Contention. The Court cannot ignore this aspect and
has to give due weightage to the legislative intent. It is a settled
rule of interpretation that every word used by the Legislature in
a provision should be given its due meaning. To us, it appears E
that the Legislature intended to give a liberal meaning to this
expression.
90. The language of Section 45 has wider import. It refers
to the request of a party and then refers to an arbitral tribunal,
while under Section 8(3) it is upon the application of one of the F
parties that the court may refer the parties to arbitration. There
is some element of similarity in the language of Section 8 and
Section 45 read with Article 11(3). The language and expressions
used in Section 45, 'any person claiming through or under him'
including in legal proceedings may seek reference of all parties G
to arbitration. Once the words used by the Legislature are of
wider connotation or the very language of section is structured
with liberal protection then such provision should normally be
construed liberally.
91. Examined from the point of view of the legislative H
474 SUPREME COURT REPORTS [2012) 13 S.C.R.

A object and the intent of the framers of the statute, i.e., the
necessity to encourage arbitration, the Court is required to
exercise its jurisdiction in a pending action, to hold the parties
to the arbitration clause and not to permit them to avoid their
bargain of arbitration by bringing civil action involving
B multifarious cause of action, parties and prayers.
Legal Relationship
92. Now, we should examine the scope of concept of 'legal
relationship' as incorporated in Article 11(1) of the New York
C Convention vis-a-vis the expression 'any person claiming
through or under him' appearing in Section 45 of the 1996 Act.
Article 11(1) and (3) have to be read in conjunction with Section
45 of the Act. Both these expressions have to be read in
harmony with each other. Once they are so read, it will be
evident that the expression "legal relationship" connotes the
0 relationship of the party with the person claiming through or
under him. A person may not be signatory to an arbitration
agreement, but his cause of action may be directly relatable to
that contract and thus, he may be claiming through or under one
of those parties. It is also stated in the Law and Practice of
E International Commercial Arbitration, Alan Redfern and
Martin Hunter (supra), that for the purposes of both the New
York Convention and the UNCITRAL Model Law, it is sufficient
that there should be a defined "legal relationship" between the
parties, whether contractual or not. Plainly there has to be some
F contractual relationship between the parties, since there must
be some arbitration agreement to form the basis of the arbitral
proceedings. Given the existence of such an agreement, the
dispute submitted to arbitration may be governed by the
principles of delictual or tortuous liability rather than by the law
G of contract.
93. In the case of Roussel - Uclaf v. G.D. Searle & Co.
Ltd. And G.D. Searle & Co. [1978 Vol. 1 LLR 225], the Court
held:
H "The argument does not admit of much elaboration, but I
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 475
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]
see no reason why these words in the Act should be A
construed so narrowly as to exclude a wholly-owned
subsidiary company claiming, as here, a right to sell
patented articles which it has obtained from and been
ordered to sell by its parent. Of course, if the arbitration
proceedings so decide, it may eventually turn out that the B
parent company is at fault and not entitled to sell the
articles in question at all; and, if so, the subsidiary will be
equally at fault. But, if the parent is blameless, it seems
only common sense that the subsidiary should be equally
blameless. The two parties and their actions are, in my c
judgment, so closely related on the facts in this case that
it would be right to hold that the subsidiary can establish
that it is within the purview of the arbitration clause, on the
basis that it is "claiming through or under" the parent to
do what it is in fact doing whether ultimately held to be
0
wrongful or not."
94. However, the view expressed by the Court in the above
case does not find approval in the decision of the Court of
Appeal in the case of City of London v. Sancheti [(2009) 1
Lloyds Law Reports 116]. In paragraph 34, it was held that the E
view in the case of Roussel Uclaf need not be followed and stay
could not be obtained against a party to an arbitration
agreement or a person claiming through or under such a party,
as mere local or commercial connection is not sufficient. But
the Court of Appeal hastened to add that, in cases such as the F
one of Mr. Sancheti, the Corporation of London was not party
to the arbitration agreement, but the relevant party is the United
Kingdom Government. The fact that in certain circumstances,
the State may be responsible under international law for the acts
of one of its local authorities, or may have to take steps to G
redress wrongs committed by one of the local authorities, does
not make the local authority a party to the arbitration agreement.
95. Having examined both the above-stated views, we are
of the considered opinion that it will be the facts of a given case
that would act as precept to the jurisdictional forum as to H
476 SUPREME COURT REPORTS [2012] 13 S.C.R.

A whether any of the stated principles should be adopted or not.
If in the facts of a given case, it is not possible to construe that
the person approaching the forum is a party to the arbitration
agreement or ~ person claiming through or under such party,
then the case 'would not fall within the ambit and scope of the
B provisions of the section and it may not be possible for the
Court to permit reference to arbitration at the behest of or
against such party.
96. We have already referred to the judgments of various
courts, that state that arbitration could be possible between a
C signatory to an agreement and a third party. Of course, heavy
onus lies on that party to show that in fact and in law, it is
claiming under or through a signatory party, as contemplated
under Section 45 of the 1996 Act.
97. Michael J. Mustill and Stewart C. Boyd in The Law and
D Practice of Commercial Arbitration in England have observed
that the applicant must show that the person whose claim he
seeks to stay is either a party to the arbitration agreement or
a person claiming through or under such a party. It is further
noticed that it occasionally happens that the plaintiff is not
E himself a party to the arbitration agreement on which the
application is founded. This may arise in the following situations:
(i) The plaintiff has acquired the rights, which the action
is brought to enforce, from someone who is a party
to an arbitration agreement with the defendant;
F
(ii) The plaintiff is bringing the action on behalf of
someone else, who is a party to an arbitration
agreement with the defendant.
(iii) When the expression used in the provision, the
G words 'claiming under plaintiff relate to substantive
right which is being asserted.
98. The requirements can scarcely be interpreted in their
literal sense, this would mean that a person could claim a stay
H even though not a party to the arbitration agreement. However,
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 4 77
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]
the applicant must be party to the agreement against whom A
legal proceedings have been initiated rather than a party as
intervenor.
99. Joinder of non signatory parties to arbitration is not
unknown to the arbitration jurisprudence. Even the ICCA's
Guide to the Interpretation of the 1958 New York Convention B
also provides for such situation, stating that when the question
arises as to whether binding a non-signatory to an arbitration
agreement could be read as being in conflict with the
requirement of written agreement under Article I of the
Convention, the most compelling answer is "no" and the same C
is supported by a number of reasons.
100. Various legal basis may be applied to bind a non-
signatory to an arbitration agreement. The first theory is that of
implied consent, third party beneficiaries, guarantors,
0
assignment and other transfer mechanisms of contractual rights.
This theory relies on the discernible intentions of the parties and,
to a large extent, on good faith principle. They apply to private
as well as public legal entities. The second theory includes the
legal doctrines of agent-principal relations, apparent authority, E
piercing of veil (also called the "alter ego"), joint venture
relations, succession and estoppel. They do not rely on the
parties' intention but rather on the force of the applicable law.
101. We may also notice the Canadian case of The City
of Prince George v. A.L. Sims & Sons Ltd. [YCA XXlll (1998), F
223] wherein the Court took the view that an arbitration
agreement is neither inoperative nor incapable of being
performed if a multi-party dispute arises and not all parties are
bound by the arbitration agreement: the parties bound by the
arbitration agreement are to be referred to arbitration and court G
proceedings may continue with respect to the other parties,
even if this creates a risk of conflicting decisions.
102. We have already discussed that under the Group of
Companies Doctrine, an arbitration agreement entered into by
a company within a group of companies can bind its non- H
478 SUPREME COURT REPORTS [2012) 13 S.C.R.

A signatory affiliates, if the circumstances demonstrate that the
mutual intention of the parties was to bind both the signatory
as well as the non-signatory parties.
103. The question of formal validity of the arbitration
agreement is independent of the nature of parties to the
B agreement, which is a matter that belongs to the merits and is
not subject to substantive assessment. Once it is determined
that a valid arbitration agreement exists, it is a different step
to establish which parties are bound by it. Third parties, who
are not explicitly mentioned in an arbitration agreement made
C in writing, may enter into its ratione personae scope.
Furthermore, the Convention does not prevent consent to
arbitrate from being provided by a person on behalf of another,
a notion which is at the root of the theory of implied consent.
104. If one analyses the above cases and the authors'
D views, it becomes abundantly clear that reference of even non-
signatory parties to arbitration agreement can be made. It may
be the result of implied or specific consent or judicial
determination. Normally, the parties to the arbitration agreement
calling for arbitral reference should be the same as those to
E the an action. But this general concept is subject to exceptions
which are that when a third party, i.e. non-signatory party, is
claiming or is sued as being directly affected through a party
to the arbitration agreement and there are principal and
subsidiary agreements, and such third party is signatory to a
F subsidiary agreement and not to the mother or principal
agreement which contains the arbitration clause, then
depending upon the facts and circumstances of the given case,
it may be possible to say that even such third party can be
referred to arbitration.
G 105. In the present case, the corporate structure of the
respondent companies as well as that of the appellant
companies clearly demonstrates a legal relationship which not
only is inter-legal relationship but also intra-legal relationship
between the parties to the lis or persons claiming under them.
H They have contractual relationship which arises out of the
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 4 79
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

various contracts that spell out the terms, obligations and roles A
of the respective parties which they were expected to perform
for attaining the object of successful completion of the joint
venture agreement. This joint venture project was not dependant
on any single agreement but was capable of being achieved
only upon fulfillment of all these agreements. If one floats a joint B
venture company, one must essentially know-how to manage
it and what shall be the methodology adopted for its
management. If one manages it well, one must know what
goods the said company is to produce and with what technical
knowhow. Even if these requisites are satisfied, then also one c
is required to know, how to create market, distribute and export
such goods. It is nothing but one single chain consisting of
different components. The parties may choose to sign different
agreements to effectively implement various aforementioned
facets right from managing to making profits in a joint venture 0
company. A party may not be signatory to an agreement but
its execution may directly be relatable to the main contract even
though he claims through or under one of the main party to the
agreement. In such situations, the parties would aim at
achieving the object of making their bargain successful, by E
execution of various agreel!lents, like in the present case.
106. The New York Convention clearly postulates that there
should be a defined legal relationship between the parties,
whether contractual or not, in relation to the differences that may
have arisen concerning the subject matter capable of F
settlement of arbitration. We have referred to a number of
judgments of the various courts to emphasize that in given
circumstances, if the ingredients above-noted exist, reference
to arbitration of a signatory and even a third party is possible.
Though heavy onus lies on the person seeking such reference, G
multiple and multi-party agreements between the parties to the
arbitration agreement or persons claiming through or under
such parties is neither impracticable nor impermissible.
107. Next, we are to examine the issue whether the cause
of action in a suit can be bifurcated and a partial reference may H
480 SUPREME COURT REPORTS [2012) 13 S.C.R.

A be made by the Court. Whatever be the answer to this
question, a necessary corollary is as to whether the Court
should or should not stay the proceedings in the suit? Further,
this may give rise to three different situations. Firstly, while
making reference of the subject matter to arbitration, whether
a the suit may still survive, partially or otherwise; secondly,
whether the suit, still pending before the Court, should be stayed
completely; and lastly, whether both the arbitration and the suit
proceedings could be permitted to proceed simultaneously in
accordance with law.
C 108. Mr. Nariman, the learned senior counsel, while relying
upon the judgments in the cases of Tumock v. Sartoris [1888
(43) Chancery Division, 1955 SCR 862], Taunton-Collins v.
Cromie & Anr., [1964 Vol.1 Weekly Law Reports 633] and
Sumitomo Corporation v. COS Financial Services (Mauritius)
D Ltd. and Others [(2008) 4 SCC 91]again emphasized that the
parties to the agreement have to be parties to the suit and also
that the cause of action cannot be bifurcated unless there was
a specific provision in the 1996 Act itself permitting such
bifurcation or splitting of cause of action. He also contended
E that there is no provision like Sections 21 and 24 of the 1940
Act in the 1996 Act and thus, it supports the view that bifurcation .
of cause of action is impermissible and such reference to
arbitration is not permissible.
109. In the case of Tumock (supra), the Court had stated
F that it was not right to cut up that litigation into two actions, one
to be tried before the arbitrator and the other to be tried
elsewhere, as in that case matters in respect of which the
damages were claimed by the plaintiff could not be referred to
arbitration because questions arising as to the construction of
G the agreement and provisions in the lease deed were involved
and they did not fall within the power of the arbitrator in face of
the arbitration agreement. In the case of Taunton-Collins
(supra), the Court again expressed the view that it was
undesirable that there should be two proceedings before two
H different tribuna!s, i.e., the official referee and an Arbitrator, as
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they may reach inconsistent findings. A
110. This Court dealt with the provisions of the 1940 Act,
in the case of Anderson Wright Ltd. v. Moran & Company
[1955 SCR 862], and described the conditions to be satisfied
before a stay can be granted in terms of Section 34 of the 1940
Act. The Court also held that it was within the jurisdiction of the 8
Court to determine a question whether the plaintiff was a party
to the contract containing the arbitration clause or not. Still in
the case of Sumitomo Corporation (supra), this Court primarily
declined the reference to arbitration for the reason that the
disputes stated in the petition did not fall within the ambit of the C
arbitration clause contained in the agreement between the
parties and also that the Joint Venture Agreement did not itself
contain a specific arbitration clause. An observation was also
made in paragraph 20 of the judgment that the 'party' would
mean 'the party to the judicial proceeding should be a party to D
the arbitration agreement.
111. It will be appropriate to refer to the contentions of Mr.
Salve, the learned senior counsel. According to him, reference,
even of the non-signatory party, could be made to arbitration
and upon such reference the proceedings in an action before E
the Court should be stayed. The principle of bifurcation of cause
of action, as contemplated under the CPC, cannot stricto sensu
apply to Section 45 of the 1996 Act in view of the non-obstante
language of the Section. He also contended that parties or
issues, even if outside the scope of the arbitration agreement, F
would not per se render the arbitration clause inoperative. Even
if there is no specific provision for staying the proceedings in
the suit under the 1996 Act, still in exercise of its inherent
powers, the Court can direct stay of the suit proceedings or
pass such other appropriate orders as the court may deem fit. G
112. We would prefer to first deal with the precedents of
this Court cited before us. As far as Sumitomo Corporation
(supra) is concerned, it was a case dealing with the matter
where the proceedings under Section 397-398 of the
H
482 SUPREME COURT REPORTS [2012] 13 S.C.R.

A Companies Act had been initiated and the Company Law
Board had passed an order. Whether the appeal against such
order would lie to the High Court was the principal question
involved in that case. The denial of arbitration reference, as
already noticed, was based upon the reasoning that disputes
B related to the joint venture agreement to which the parties were
not signatory and the said agreement did not even contain the
arbitration clause. On the other hand, it was the other
agreement entered into by different parties which contained the
arbitration clause. As already noticed, in paragraph 20, the
c Court had observed that a party to an arbitration agreement has
to be a party to the judicial proceedings and then alone it will
fall within the ambit of Section 2(h) of the 1996 Act. As far as
the first issue is concerned, we shall shortly proceed to discuss
it when we discuss the merits of this case, m light of the
principles stated in this judgment. However, the observations
0
made by the learned Bench in the case of Sumitomo
Corporation (supra) do not appear to be correct. Section 2(h)
only says that 'party' means a party to an arbitration agreement.
This expression falls in the Chapter dealing with definitions and
would have to be construed along with the other relevant
E provisions of the Act. When we read Section 45 in light of
Section 2(h), the interpretation given by the Court in the case
of Sumitomo Corporation (supra) does not stand to the test of
reasoning. Section 45 in explicit language permits the parties
who are claiming through or under a main party to the arbitration
F agreement to seek reference to arbitration. This is so, by fiction
of law, contemplated in the provision of Section 45 of the 1996
Act.
113. We have already discussed above that the language
G of Section 45 is incapable of being construed narrowly and must
be given expanded meaning to achieve the twin objects of
arbitration, i.e., firstly, the parties should be held to their bargain
of arbitration and secondly, the legislative intent behind
incorporating the New York Convention as part of Section 44
H of the Act must be protected. Moreover, paragraph 20 of the
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judgment of Sumitomo Corporation (supra) does not state any A
principle of law and in any event it records no reasons for
arriving at such a conclusion. In fact, that was not even directly
the issue before the Court so as to operate as a binding
precedent. For these reasons, respectfully but without
hesitation, we are constrained to hold that the conclusion or the B
statement made in paragraph 20 of this judgment does not
enunciate the correct law.
Scope of jurisdiction while referring the parties to
arbitration
114. An application for appointment of arbitral tribunal
c
under Section 45 of the 1996 Act would also be governed by
the provisions of Section 11 (6) of the Act. This question is no
more res integra and has been settled by decision of a
Constitution Bench of seven Judges of this Court in the case
D
of SBP and Co. v. Patel Engineering Ltd. and Anr. [(2005) 8
SCC 618], wherein this Court held that power exercised by the
Chief Justice is not an administrative power. It is a judicial
power. It is a settled principle that the Chief Justice or his
designate Judge will decide preliminary aspects which would
attain finality unless otherwise directed to be decided by the E
arbitral tribunal. In para 39 of the judgment, the Court held as
under:
"39. It is necessary to define what exactly the Chief Justice,
approached with an application under Section 11 of the
F
Act, is to decide at that stage. Obviously, he has to decide
his own jurisdiction in the sense whether the party making
the motion has approached the right High Court. He has
to decide whether there is an arbitration agreement, as
defined in the Act and whether the person who has made
the request before him, is a party to such an agreement. It G
is necessary to indicate that he can also decide the
question whether the claim was a dead one; or a long-
barred claim that was sought to be resurrected and
whether the parties have concluded the transaction by
H
484 SUPREME COURT REPORTS (2012] 13 S.C.R.

A recording satisfaction of their mutual rights and obligations
or by receiving the final payment without objection. It may
not be possible at that stage, to decide whether a live claim
made, is one which comes within the purview of the
arbitration clause. It will be appropriate to leave that
B question to be decided by the Arbitral Tribunal on taking
evidence, along with the merits of the claims involved in
the arbitration. The Chief Justice has to decide whether
the applicant has satisfied the conditions for appointing an
arbitrator under Section 11 (6) of the Act. For the purpose
c of taking a decision on these aspects, the Chief Justice
can either proceed on the basis of affidavits and the
documents produced or take such evidence or get such
evidence recorded, as may be necessary. We think that
adoption of this procedure in the context of the Act would
best serve the purpose sought to be achieved by the Act
D
of expediting the process of arbitration, without too many
approaches to the court at various stages of the
proceedings before the Arbitral Tribunal."
115. This aspect of the arbitration law was explained by a
E two Judge Bench of this Court in the case of Shree Ram Mills
Ltd. v. Utility Premises (P) Ltd. ((2007) 4 SCC 599] wherein,
while referring to the judgment in SBP & Co. (supra) particularly
the above paragraph, this Court held that the scope of order
under Section 11 of the 1996 Act would take in its ambit the
F issue regarding territorial jurisdiction and the existence of the
arbitration agreement. The Court noticed that if these issues
are not decided by the Chief Justice or his designate, there
would be no question of proceeding with the arbitration. It held
as under:
G "27 ... Thus, the Chief Justice has to decide about the
territorial jurisdiction and also whether there exists an
arbitration agreement between the parties and whether
such party has approached the court for appointment of
the arbitrator. The Chief Justice has to examine as to
H whether the claim is a dead one or in the sense whether
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the parties have already concluded the transaction and A
have recorded satisfaction of their mutual rights and
obligations or whether the parties concerned have
recorded their satisfaction regarding the financial claims.
In examining this if the parties have recorded their
satisfaction regarding the financial claims, there will be no B
question of any issue remaining. It is in this sense that the
Chief Justice has to examine as to whether there remains
anything to be decided between the parties in respect of
the agreement and whether the parties are still at issue on
any such matter. If the Chief Justice does not, in the strict c
sense, decide the issue, in that event it is for him to locate
such issue and record his satisfaction that such issue exists
between the parties. It is only in that sense that the finding
on a live issue is given. Even at the cost of repetition we
must state that it is only for the purpose of finding out 0
whether the arbitral procedure has to be started that the
Chief Justice has to record satisfaction that there remains
a live issue in between the parties. The same thing is
about the limitation which is always a mixed question of
law and fact. The Chief Justice only has to record his
satisfaction that prima facie the issue has not become E
dead by the lapse of time or that any party to the
agreement has not slept over its rights beyond the time
permitted by law to agitate those issues covered by the
agreement. It is for this reason that it was pointed out in
the above para that it would be appropriate sometimes to F
leave the question regarding the live claim to be decided
by the Arbitral Tribunal. All that he has to do is to record
his satisfaction that the parties have not closed their rights
and the matter has not been barred by limitation. Thus.
where the Chief Justice comes to a finding that there exists G
a live issue. then naturally this finding would include a
finding that the respective claims of the parties have not
become barred by limitation.
(emphasis supplied)" H
486 SUPREME COURT REPORTS [2012) 13 S.C.R.

A 116. Thus, the Bench while explaining the judgment of this
Court in SBP & Co. (supra) has stated that the Chief Justice
may not decide certain issues finally and upon recording
satisfaction that prima facie the issue has not become dead
even leave it for the arbitral tribunal to decide.
B 117. In National Insurance Co. Ltd. v. Boghara Po/yfab
(P) Ltd. ((2009) 1 SCC 267), another equi-bench of this Court
after discussing various judgments of this Court, explained SBP
& Co. (supra) in relation to scope of powers of the Chief Justice
and/or his designate while exercising jurisdiction under Section
C 11 (6), held as follows :
"22. Where the intervention of the court is sought for
appointment of an Arbitral Tribunal under Section 11, the
duty of the Chief Justice or his designate is defined in SBP
& Co. This Court identified and segregated the preliminary
D
issues that may arise for consideration in an application
under Section 11 of the Act into three categories, that is,
(i) issues which the Chief Justice or his designate is bound
to decide; (ii) issues which he can also decide, that is,
issues which he may choose to decide; and (iii) issues
E which should be left to the Arbitral Tribunal to decide.
22.1. The issues (first category) which the Chief Justice/
his designate will have to decide are:
(a) Whether the party making the application has
F approached the appropriate High Court.
(b) Whether there is an arbitration agreement and
whether the party who has applied under Section 11
of the Act, is a party to such an agreement.
G 22.2. The issues (second category) which the Chief
Justice/his designate may choose to decide (or leave
them to the decision of the Arbitral Tribunal) are:
(a) Whether the claim is a dead (long-barred) claim or
a live claim.
H
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 487
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(b) Whether the parties have concluded the contract/ A
transaction by recording satisfaction of their mutual
rights and obligation or by receiving the final
payment without objection.
22.3. The issues (third category) which the Chief Justice/
his designate should leave exclusively to the Arbitral B
Tribunal are:
(i) Whether a claim made falls within the arbitration
clause (as for example, a matter which is reserved
for final decision of a departmental authority and C
excepted or excluded from arbitration).
(ii) Merits or any claim involved in the arbitration."
118. We may notice that at first blush, the judgment in the
case of Shree Ram Mills (supra) is at some variance with the
judgment in the case of National Insurance Co. Ltd. (supra) D
but when examined in depth, keeping in view the judgment in
the case of SBP & Co. (supra) and provisions of Section 11 (6)
of the 1996 Act, both these judgments are found to be free from
contradiction and capable of being read in harmony in order
to bring them in line with the statutory law declared by the.larger E
Bench in SBP & Co. (supra). The expressions "Chief Justice
does not in strict sense decide the issue" or "is prima facie
satisfied", will have to be construed in the facts and
circumstances of a given case. Where the Chief Justice or his
designate actually decides the issue, then it can no longer be F
prima facie, but would be a decision binding in law. On such
an issue, the Arbitral Tribunal will have no jurisdiction to re-
determine the issue. In the case of Shree Ram Mills (supra),
the Court held that the Chief Justice could record a finding
where the issue between the parties was still alive or was dead G
by lapse of time. Where it prima facie found the issue to be
alive, the Court could leave the question of limitation and also
open to be decided by the arbitral tribunal.
119. The above expressions are mere observations of the
H
488 SUPREME COURT REPORTS [2012] 13 S.C.R.

A Court and do not fit into the contours of the principle of ratio
decidendi of the judgment. The issues in regard to validity or
existence of the arbitration agreement, the application not
satisfying the ingredients of Section 11 (6) of the 1996 Act and
claims being barred by time etc. are the matters which can be
B adjudicated by the Chief Justice or his designate. Once the
parties are heard on such issues and the matter is determined
in accordance with law, then such a finding can only be
disturbed by the Court of competent jurisdiction and cannot be
reopened before the arbitral tribunal. In SBP & Co. (supra), the
c Seven Judge Bench clearly stated, "the finality given to the order
of the Chief Justice on the matter5 within his competence under
Section 11 of the Act are incapable of being reopened before .
the arbitral tribunal". Certainly the Bench dealing with the case
of Shree Ram Mills (supra) did not intend to lay down any law
in direct conflict with the Seven Judge Bench judgment in SBP
0
& Co. (supra). In the reasoning given in Shree Ram Mills' case,
the Court has clearly stated that matters of existence and binding
nature of arbitration agreement and other matters mentioned
therein are to be decided by the Chief Justice or his designate
and the same is in line with the judgment of this Court in the
E case of SBP & Co. (supra). It will neither be permissible nor in
consonance with the doctrine of precedent that passing
observations by the Bench should be construed as the law
while completely ignoring the ratio decidendi of that very
judgment. We may also notice that the judgment in Shree Ram
F Mills (supra) was not brought to the notice of the Bench which
pronounced the judgment in the case of National Insurance Co.
Ltd. (supra).
120. As far as the classification carved out by the Court
in the case of National Insurance Co. Ltd. (supra) are
G concerned, it draws its origin from paragraph 39 of the judgment
in the case of SBP & Co. (supra) wherein the Constitution
Bench of the Court had observed that "it may not be possible
at that stage to decide whether a live claim made is one which
comes within the purview of the arbitration clause. It will be
H
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 489
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

more appropriate to leave the seriously disputed questions to A
be decided by the Arbitral Tribunal on taking evidence along
with the merits of the claim, subject matter of the arbitration."
121. The foundation for category (2) in para 22 of the
National Insurance Company Ltd. (supra) is directly relatable B
to para 39 of the judgment of this court in SBP & Co. (supra)
and matters falling in that category are those which, depending
on the facts and circumstances of a given case, could be
decided by the Chief Justice or his designate or even may be
left for the decision of the arbitrator, provided there exists a
binding arbitration agreement between the parties. Similar is C
the approach of the Bench in the case of Shree Ram Mills
(supra) and that is why in paragraph 27 thereof, the Court has
recorded that it would be appropriate sometimes to leave the
question regarding the claim being alive to be decided by the
arbitral tribunal and the Chief Justice may record his satisfaction D
that parties have not closed their rights and the matter has not
been barred by limitation.
122. As already noticed, the observations made by the
Court have to be construed and read to support the ratio
decidendi of the judgment. Observations in a judgment which E
are stared upon by the judgment of a larger bench would not
constitute valid precedent as it will be hit by the doctrine of
staire decisis. In the case of the Shri Ram Mills (supra) surely
the Bench did not intend to lay down the law or state a
proposition which is directly in conflict with the judgment of the F
Constitution Bench of this Court in the case of SBP & Co.
(supra).
123. We have no reason to differ with the classification
carved out in the case of National Insurance Co. (supra) as it
is very much in conformity with the judgment of the Constitution G
Bench in the case of SBP (supra). The question that follows
from the above discussion is as to whether the views recorded
by the judicial forum at the threshold would be final and binding
on the parties or would they constitute the prima facie view. This
again has been a matter of some debate before this Court. A H
490 SUPREME COURT REPORTS [2012] 13 S.C.R.

A three Judge Bench of this Court in the case of Shin-Etsu
Chemical Co. Ltd. v. Mis. Aksh Optifibre Ltd. & Anr. [(2005)
7 sec 234] was dealing with an application for reference
under Section 45 of the 1996 Act and consequently,
determination of validity of arbitration agreement which
B contained the arbitration clause governed by the ICC Rules in
Tokyo, Japan. The appellant before this Court had terminated
the agreement in that case. The respondent filed a suit claiming
a decree of declaration and injunction against the appellant for
cancellation of the agreement which contained the arbitration
c clause. In that very suit, the appellant also prayed that this long
term sale and purchase agreement, which included the
arbitration clause be declared void ab initio, inoperative and
incapable of being performed on the ground that the said
agreement contained unconscionable, unfair and unreasonable
terms; was against public policy and was entered into under
0
undue influence. The appellant had also filed an application
under Section 8 of the 1996 Act for reference to arbitration.
Some controversy arose before the Trial Court as well as before
the High Court as to whether the application was one under
Section 8 or Section 45 but when the matter came up before
E this Court, the counsel appearing for both the parties rightly took
the stand that only Section 45 was applicable and Section 8
had no application. In this case, the Court was primarily
concerned and dwelled upon the question whether an order
.. refusing reference to arbitration was appealable under Section
F 50 of the 1996 Act and what would be its effect.
124. We are not really concerned with the merits of that
case but certainly are required to deal with the limited question
whether the findings recorded by the referring Court are of final
G nature, or are merely prima facie and thus, capable of being
re-adjudicated by the arbitral tribunal. Where the Court records
a finding that the agreement containing the arbitration clause
or the arbitration clause itself is null and void, inoperative or
incapable of being performed on merits of the case, it would
decline the reference. Then the channel of legal remedy
H available to the party against whom the reference has been
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 491
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

declined would be to take recourse to an appeal under Section A
50(1 )(a) of the 1996 Act. The Arbitral Tribunal in such situations
does not deliver any determination on the issues in the case.
However, in the event that the referring Court deals with such
an issue and returns a finding that objections to reference were
not tenable, thus rejecting, the plea on merits, then the issue B
arises as to whether the arbitral tribunal can re-examine the
question of the agreement being null and void, inoperative or
incapable of performance, all over again. Sabharwal, J., after
deliberating upon the approaches of different courts under the
English and the American legal systems, stated that both the c
approaches have their own advantages and disadvantages.
The approach whereby the courts finally decide on merits in
relation to the issue of existence and validity of the arbitration
agreement would result to a large extent in avoiding delay and
increased cost. It would not be for the parties to wait for months
0
or years before knowing the final outcome of the disputes
regarding jurisdiction alone. Then, he held as follows :
"56. I am of the view that the Indian Legislature has
consciously adopted a conventional approach so as to
save the huge expense involved in international commercial E
arbitration as compared to domestic arbitration.
57. In view of the aforesaid discussion, I am of the view
that under Section 45 of the Act, the determination has to
be on merits, final and binding and not prima facie."
F
125. However, Srikrishna, J. took a somewhat different
view and noticing the truth that there is nothing in Section 45
to suggest that a finding as to the nature of the arbitration
agreement has to be ex facie or prima facie, observed that if
it were to be held that the finding of the court under Section 45
should be a final, determinative conclusion, then it is obvious G
that until such a pronouncement is made, the arbitral
proceedings would have to be in limbo. So, he held as follows

"105. I fully agree with my learned Brother's view that the H
492 SUPREME COURT REPORTS [2012] 13 S.C.R.

A object of dispute resolution through arbitration, including
international commercial arbitration, is expedition and that
the object of the Act would be defeated if proceedings
remain pending in the court even after commencing of the
arbitration. It is precisely for this reason that I am inclined
B to the view that at the pre-reference stage contemplated
by SectioJl 45, the court is required to take only a prima
facie view for making the reference, leaving the parties to
a full trial either before the Arbitral Tribunal or before the
court at the post-award stage."
C 126. Dharmadhikari, J., the third member of the Bench,
while agreeing with the view of Srikrishna, J. and noticing,
"Where a judicial authority or the court refuses to make a
reference on the grounds available under Section 45 of the Act,
it is necessary for the judicial authority or the court which is
D seized of the matter to pass a reasoned order as the same is
subject to appeal to the appellate court under Section 50(1)(a)
of the Act and further appeal to this Court under sub-section
(2) of the said section." expressed no view on the issue of prima
facie or finality of the finding recorded on the pre-reference
E stage, he left the question open in the following paragraph :
"112. Whether such a decision of the judicial authority or
the court, of refusal to make a reference on grounds
permissible under Section 45 of the Act would be
subjected to further re-examination before the Arbitral
F Tribunal or the court in which eventually the award comes
up for enforcement in accordance with Section 48(1 )(a) of
the Act, is a legal question of sufficient complexity and in
my considered opinion since that question does not
directly arise on the facts of the present case, it should be
G left open for consideration in an appropriate case where
such a question is directly raised and decided by the
court."
127. The judgment of this Court in Shin-Etsu Chemical
Co. Ltd. (supra) preceded the judgment of this Court in the case
H
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of SBP & Co. (supra). Though the Constitution Bench in the A
latter case referred to this judgment in paragraph 89 of the
judgment but did not discuss the merits or otherwise of the case
presumably for absence of any conflict. However, as already
noticed, the Court clearly took the view that the findings returned
by the Chief Justice while exercising his judicial powers under B
Section 11 relatable to Section 8 are final and not open to be
questioned by the arbitral tribunal. Sections 8 and 45 of the
1996 Act are provisions independent of each other. But for the
purposes of reference to arbitration, in bo.th cases, the
applicant has to pray for a reference before the Chief Justice c
or his designate in terms of Section 11 of the 1996 Act. We
may refer to the exact terminology used by the larger Bench in
SBP & Co. (supra) in relation to the finality of such matters, as
reflected in para 12 of the judgment which reads as under:
"12. Section 16 of the Act only makes explicit what is even D
otherwise implicit, namely, that the Arbitral Tribunal
constituted under the Act has the jurisdiction to rule on its
own jurisdiction, including ruling on objections with respect
to the existence or validity of the arbitration agreement.
Sub-section (1) also directs that an arbitration clause which E
forms part of a contract shall be treated as an agreement
independent of the other terms of the contract. It also
clarifies that a decision by the Arbitral Tribunal that the
contract is null and void shall not entail ipso jure the
invalidity of the arbitration clause. Sub-section (2) of F
Section 16 enjoins that a party wanting to raise a plea that
the Arbitral Tribunal does not have jurisdiction, has to raise
that objection not later than the submission of the statement
of defence, and that the party shall not be precluded from
raising the plea of jurisdiction merely because he has G
appointed or participated in the appointment of an
arbitrator. Sub-section (3) lays down that a plea that the
Arbitral Tribunal is exceeding the scope of its authority,
shall be raised as soon as the matter alleged to be beyond
the scope of its authority is raised during the arbitral H
proceedings. When the Tribunal decides these two
494 SUPREME COURT REPORTS [2012] 13 S.C.R.

A questions, namely, the question of jurisdiction and the
question of exceeding the scope of authority or either of
them, the same is open to immediate challenge in an
appeal, when the objection is upheld and only in an appeal
against the final award, when the objection is overruled.
B Sub-section (5) enjoins that if the Arbitral Tribunal overrules
the objections under sub-section (2) or (3), it should
continue with the arbitral proceedings and make an arbitral
award. Sub-section (6) provides that a party aggrieved by
such an arbitral award overruling the plea on lack of
c jurisdiction and the exceeding of the scope of authority,
may make an application on these grounds for setting
aside the award in accordance with Section 34 of the Act.
The question, in the context of sub-section (7) of Section
11 is, what is the scope of the right conferred on the
D Arbitral Tribunal to rule upon its own jurisdiction and the
existence of the arbitration clause, envisaged by Section
16(1 ), once the Chief Justice or the person designated by
him had appointed an arbitrator after satisfying himself that
the conditions for the exercise of power to appoint an
arbitrator are present in the case. Prima facie, it would be
E difficult to say that in spite of the finality conferred by sub-
section (7) of Section 11 of the Act, to such a decision of
the Chief Justice, the Arbitral Tribunal can still go behind
that decision and rule on its own jurisdiction or on the
existence of an arbitration clause. It also appears to us to
F be incongruous to say that after the Chief Justice had
appointed an Arbitral Tribunal. the Arbitral Tribunal can turn
round and say that the Chief Justice had no jurisdiction or
authority to appoint the Tribunal. the very creature brought
into existence by the exercise of power by its creator. the
G Chief Justice. The argument of the learned Senior
Counsel. Mr K.K. Venugopal that Section 16 has full play
only when an Arbitral Tribunal is constituted without
intervention under Section 11 (6) of the Act. is one way of
reconciling that provision with Section 11 of the Act.
H especially in the context of sub-section (7) thereof. We are
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 495
WAIER PURIFICATION INC. [SWATANTER KUMAR, J.]

inclined to the view that the decision of the Chief Justice A
on the issue of jurisdiction and the existence of a valid
arbitration agreement would be binding on the parties
when the matter goes to the Arbitral Tribunal and at
subsequent stages of the proceeding except in an appeal
in the Supreme Court in the case of the decision being by B
the Chief Justice of the High Court or by a Judge of the
High Court designated by him."
(Emphasis supplied)
128. We are conscious of the fact that the above dictum C
of the Court is in relation to the scope and application of
Section 11 of the 1996 Act. It has been held in various
judgments of this Court but more particularly in the case of SBP
(supra) which is binding on us that before making a reference,
the Court has to dispose of the objections as contemplated
0
under Section 8 or Section 45, as the case may be, and
wherever needed upon filing of affidavits. Thus, to an extent,
the law laid down by this Court on Section 11 shall be attracted
to an international arbitration which takes place in India as well
as domestic arbitration. This, of course, would be applicable
at pre-award stage. Thus, there exists a direct legal link, limited E
to that extent.
129. We are not oblivious of the principle 'Kompetenz
kompetenz'. It requires the arbitral tribunal to rule on its own
jurisdiction and at the first instance. One school of thought
F
propagates that it has duly the positive effect as it enables the
arbitrator to rule on its own jurisdiction as it widely recognized
international arbitration. However, the negative effect is equally
important, that the Courts are deprived of their jurisdiction. The
arbitrators are to be not the sole judge but first judge, of their G
jurisdiction. In other words, it is to allow them to come to a
decision on their own jurisdiction prior to any court or other
judicial authority and thereby limit the jurisdiction of the national
courts to review the award. The kompetenz kompetenz rule,
thus, concerned not only is the positive but also the negative
effect of the arbitration agreement. (refer Fouchard Gaillard H
496 SUPREME COURT REPORTS [2012] 13 S.C.R.

A Goldman on International Commercial Arbitration]
130. This policy has found a favourable mention with
reference to the New York Convention in some of the countries.
This is one aspect. The more important aspect as far as
Chapter I of Part II of the 1996 Act is concerned, is the absence
8 of any provision like Section 16 appearing in Part I of the same
Act. Section 16 contemplates that the arbitrator may determine
its own jurisdiction. Absence of such a provision in Part II,
Chapter I is suggestive of the requirement for the Court to
determine the ingredients of Section 45, at the threshold itself.
C It is expected of the Court to answer the question of validity of
the arbitration agreement, if a plea is raised that the agreement
containing the arbitration clause or the arbitration clause itself
is null and void, inoperative or incapable of being performed.
Such determination by the Court in accordance with law would
D certainly attain finality and would not be open to question by the
arbitral tribunal, even as per the principle of prudence. It will
prevent multiplicity to litigation and re-agitating of same issues
over and over again. The underlining principle of finality in
Section 11 (7) would be applicable with equal force while
E dealing with the interpretation of Sections 8 and 45. Further, it.
may be noted that even the judgment of this Court in SBP &
Co. (supra) takes a view in favour of finality of determination
by the Court despite the language of Section 16 in Part I of the
1996 Act. Thus, there could hardly be any possibility for the
F Court to take any other view in relation to an application under
Section 45 of the 1996 Act. Since, the categorization referred
to by this Court in the case of National Insurance Company
Ltd. (supra) is founded on the decision by the larger Bench of
the Court in the case of SBP & Co. (supra), we see no reason
G to express any different view. The categorization falling under
para 22.1 of the National Insurance Company case (supra)
would certainly be answered by the Court before it makes a
reference while under para 22.2 of that case, the Court may
exercise its discretion and decide the dispute itself or refer the
H dispute to the arbitral tribunal. Still, under the cases falling under
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 497
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

para 22.3, the Court is expected to leave the determination of A
such dispute upon the arbitral tribunal itself. But wherever the
Court decides in terms of categories mentioned in paras 22.1
and 22.2, the decision of the Court is unreviewable by the
arbitral tribunal.
8
131. Another very significant aspect of adjudicating the
matters initiated with reference to Section 45 of the 1996 Act,
at the threshold of judicial proceedings, is that the finality of the
decision in regard to the fundamental iss:.ies stated under
Section 45 would further the cause of justice and interest of the
parties as well. To illustratively demonstrate it, we may give an C
example. Where party 'A' is seeking reference to arbitration and
party 'B' raises objections going to the very root of the matter
that the arbitration agreement is null and void, inoperative and
incapable of being performed, such objections, if left open and
not decided finally at the threshold itself may result in not only D
parties being compelled to pursue arbitration proceedings by
spending time, money and efforts but even the arbitral tribunal
would have to spend valuable time in adjudicating the complex
issues relating to the dispute between the parties, that may
finally prove to be in vain and futile. Such adjudication by the E
arbitral tribunal may be rendered ineffective or even a nullity in
the event the courts upon filing of an award and at execution
stage held that agreement between the parties was null and void
inoperative and incapable of being performed. The Court may
also hold that the arbitral tribunal had no jurisdiction to entertain F
and decide the issues between the parties. The issue of
jurisdiction normally is a mixed question of law and facts.
Occasionally, it may also be a question of law alone. It will be
appropriate to decide such questions at the beginning of the
proceedings itself and they should have finality. Even when the G
arbitration law in India contained the provision like Section 34
of the 1940 Act which was somewhat similar to Section 4 of
the English Arbitration Act, 1889, this Court in the case of
Anderson Wright Ltd. (supra) took the view that while dealing
with the question of grant or refusal of stay as contemplated
H
498 SUPREME COURT REPORTS [2012) 13 S.C.R.

A under Section 34 of the 1940 Act, it would be incumbent upon
the Court to decide first of all whether there is a binding
agreement for arbitration between the parties to the suit or not.
Applying the analogy thereof will fortify the view that
determination of fundamental issues as contemplated under
B Section 45 of the 1996 Act at the very first instance by the
judicial forum is not only appropriate but is also the legislative
intent. Even, the language of Section 45 of the 1996 Act
suggests that unless the Court finds that an agreement is null
and void, inoperative and incapable of being performed, it shall
c refer the parties to arbitration.
Correctness of Law stated in Sukanya
132. Though rival contentions have been raised before us
on the correctness of the judgment of this Court in Sukanya
Holdings Pvt. Ltd. (supra), Mr. Salve vehemently tried to
D persuade us to hold that this judgment does not state the correct
exposition of law and to that effect it needs to be clarified by
this Court in the present case. On the contrary, Mr. Nariman
argued that this judgment states the correct law and, in fact, the
principles stated should be applied to the present case.
E
133. The ambit and scope of Section 45 of the 1996 Act,
we shall be discussing shortly but at this stage itself, we would
make it clear that it is not necessary for us to examine the
correctness or otherwise of the judgment in the case of
F Sukanya (supra). This we say for varied reasons. Firstly,
Sukanya was a judgment of this Court in a case arising under
Section 8 Part I of the 1996 Act while the present case relates
to Section 45 Part II of the Act. As such that case may have no
application to the present case. Secondly, in that case the Court
was concerned with the disputes of a partnership concern. A
G suit had been filed for dissolution of partnership firm and
accounts also challenging the conveyance deed executed by
the partnership firm in favour of one of the parties to the suit.
The Court noticing the facts of the case emphasized that where
the subject matter of the suit includes subject matter for
H arbitration agreement as well as other disputes, the Court did
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 499
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

not refer the matter to arbitration in terms of Section 8 of the A
Act. In the case in hand, there is a mother agreement and there
are other ancillary agreements to the mother agreement. It is a
case of composite transaction between the same parties or the
parties claiming through or under them falling under Section 45
of the Act. Thus, the dictum stated in para 13 of the judgment B
of Sukanya would not apply to the present case. Thirdly, on
facts, the judgment in Sukanya's case, has no application to
the case in hand.
134. Thus, we decline to examine the merit or otherwise
of this contention. C
On Merits
135. The Corporate structure of the companies in the
present case has already been stated by us in paragraph 7
which we need not refer here again in detail. Suffice it to note D
that Kocha group had floated a company and incorporated the
same under the Indian laws, which was carrying on the business
of manufacture of chlorination equipment under the name and
style 'Chloro Control India Private Limited'. They were
negotiating with Severn Trent Water Purification Inc. for an E
international joint venture agreement to deal with the
manufacture, distribution and sale of gas chlorination equipment
and electro-chlorination equipment, "Hypogen Series 3300" etc.
On this basis, they had entered into a joint venture agreement
which was signed between them. The joint venture agreement F
contemplated that the business shall be carried on under the
name and style of Capital Controls India Ltd. Private Limited.
The agreements gave 50 per cent shareholding to the foreign
collaborators which were to be equally divided between Capital
Control (Del) Company Inc. and Capital Control Company Inc. G
These joint venture agreements were executed between the
parties on 16th November, 1995 but the joint venture company
had been incorporated on 14th November, 1995 itself. Severn
Trent Services (Del) Inc. is the holding company of the
companies which have entered into the joint venture agreement
for floating both, the Capital Control India Ltd. as well as Severn H
500 SUPREME COURT REPORTS [2012) 13 S.C.R.

A Trent De Nora LLC. The disputes had arisen actually between
the Kocha Group on the one hand and Severn Trent Water
Purification Inc. on the other, and the disputes were mainly with
regard to Capital Control (India) Pvt. Ltd. Inc. Now, we must note,
even at the cost of repetition, the parties signatory to each of
B these agreements and we must also note which of these
agreements did not contain arbitration clause. Shareholders
Agreement dated 16th November, 1995 was executed between
the Capital Control (Delaware) Company Inc. and Chloro
Control India Private Ltd. Capital Control Delaware Company
c Inc. was a subsidiary of Severn Trent Services (Delaware) Inc.
and was formed on 21st September, 1994. Capital Control
Company Inc. came to be merged with Capital Control
(Delaware) Company Inc. in March 1994. As a result the Capital
Control Delaware Company was no more in existence. Thus,
D the reference to Capital Control Company Inc. includes
reference to Capital Control Company Inc. as well as Capital
Control (Delaware) Company Inc.
136. The corporate structure of the Companies involved
in the present litigation clearly shows that name of Capital
E Control Company Inc., incorporated in the year 1994, was
changed to Severn Trent Water Purification Inc. with effect from
April, 2002. Thus, both these companies together were
subsidiaries of the holding company Severn Trent Services
(Delaware) Inc. The joint venture agreement was executed
F between Chloro Control (India) Pvt. Ltd. and the erstwhile
Capital Control Company Inc. resulting into creation of the joint
venture company, Capital Control (India) Pvt. Ltd. This is the
basic structure which one has to make clear before examining
the agreements and their impact. The negotiations between the
G appellant and the respondent nos.1 and 2 or their holding
companies were going on since 1990 and ultimately culminated
into execution of the joint venture agreement. In terms of the
Shareholders Agreement, the authorized share capital of the
company was five million rupees consisting of equity shares of
Rs.10/- each. Initially the parties had decided to issue equity
H
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 501
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]
capital of 1,50,000 equity shares of Rs.10/- each with 50% of A
the initial equity to Capital Controls and the remaining 50% to
Chloro Controls. It is necessary to refer in some detail the
relevant clauses of this Agreement as this agreement is the
'Principal or the Mother Agreement'. All other agreements were
executed in furtherance to and for achieving the purpose of this B
Agreement. This agreement notices that Capital Control was
engaged in the design, manufacture, import, marketing, export
etc. of gas and electro-chlorination equipments. The company
was to be registered and as is evident, in furtherance to the
negotiations, steps for registration of the said company had c
been taken and finally it came to be incorporated on 14th
November, 1995. The main object of the joint venture company
was the manufacture, service and sale of the products. In terms
of the Principal Agreement, establishment of a plant,
management of the company, appointment of Directors, D
implementation of decisions of the Board of Directors,
appointment or re-appointment of the Managing Director,
dividend policy, loans, financial information, trademarks, transfer
of shares, sale-purchase of chlorination equipment, assets,
government approvals, performance of Chloro Controls,
trademark, service of notices, modifications, severability and E
arbitration, settlement of disputes by arbitration etc. were the
matters specifically provided for under this agreement. A very
significant feature of this contract was that the Kocha Group
was put under an injunction to not engage directly or indirectly
or be financially interested in the manufacture, sale or F
distribution of chlorination equipment and related products,
which is similar to those manufactured or sold by the company
during the term of the agreement. Similarly, a restriction was
also placed upon Capital Controls and even its holding
companies to not directly or indirectly engage in or to be G
financially interested in the manufacture, sale or distribution in
India of products manufactured or sold by the company, during
the term of the agreement.
137. The Principal Agreement specifically referred to
H
502 SUPREME COURT REPORTS [2012) 13 S.C.R.

A various agreements or even terms and conditions thereof.
Clause 7 of the agreement provided for execution of the
International Distributor Agreement which was Appendix II to
this Agreement. The Financial and Technical Know-how Licence
Agreement was executed in furtherance to clause 14 thereof.
B Similarly, the Trademark Registered User License Agreement
was required to be executed between the parties in terms of
clause 15 of this Agreement. Other terms and conditions of the
Principal Agreement referred to management of the company
by appointment or reappointment of Directors or Managing
c Directors inasmuch as Clause 8.6 contemplated execution of
the agreement which was appended as Appendix Ill. Still,
certain other clauses of the Principal Agreement specifically
dealt with the sale of goods manufactured by the joint venture
company, nationally and internationally. This resulted in signing
D of the International Distribution and Export Sales Agreement
between the parties.
138. All the five agreements signed by the parties were
primarily to fulfill their obligations and ensure performance of
this Principal Agreement. The Supplementary Collaboration
E Agreement executed in August 1997 was only to comply with
the conditions of the Government Approval which were granted
vide letter dated 11th October, 1996, as amended by letter
dated 21st April, 1997. The companies which executed the
various agreements were the companies signatory to the
F Principal Agreement or their holding companies or the
companies belonging to the respondent group in which they
had got merged for the purposes of attaining effective
designing, manufacturing, import, export and marketing of the
agreed chlorinated products.
G 139. All the subsequent agreements were, therefore,
ancillary or incidental agreements to the Principal Agreement.
Thus, the joint venture entered between the parties had different
facets. Its foundation was provided under the Principal
Agreement but all the agreed terms could only be fulfilled by
H performance of the ancillary agreements. If one segregates the
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 503
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

Principal Agreement from the rest, the subsequent agreements A
would be rendered ineffective. If the agreed goods were not
manufactured in India with the technical know-how of the
respondent No. 1 company and the joint venture company was
not incorporated, the question of the Distribution Agreement,
Managing Director Agreement, Financial and Technical Know- 8
How License Agreement or the Export Sales Agreement would
not have even arisen, in any event. Conversely, if the ancillary
agreements were not performed in a collective manner, the
Principal Agreement would be of no consequence. In other
words, it was one composite transaction for attaining the C
purpose of business of the joint venture company. All these
agreements are so intrinsically connected to each other that it
is neither possible nor probable to imagine the execution and
implementation of one without the collective performance of all
the other agreements. The intention of the parties was clear that
all these agreements were being executed as integral parts of 0
a composite transaction. It can safely be covered under the
principle of 'agreements within an agreement'. For instance, the
Financial and Technical Know-How License Agreement not only
finds a specific mention in the Principal Agreement but its
contents also are referable to the clauses of the Principal E
Agreement. The Financial and Technical Know-How License
Agreement was Appendix Ill to the Principal Agreement and the
details of the goods which were contemplated to be
manufactured, distributed and sold under the Principal
Agreement had been specified in Appendix I of the Financial F
and Technical Know-How Agreement. If the latter agreement
was not there, the Principal Agreement between the parties
would have remained incomplete and the parties would have
been at a disadvantage to know as to what goods were to be
manufactured and what goods could not have been G
manufactured. The Principal Agreement referred either
specifically or by necessary implication to all other agreements.
They were inter-dependent for their performance and one could
not be read and understood completely without the aid of the
other. H
504 SUPREME COURT REPORTS [2012) 13 S.C.R.

A 140. Having held that all these other agreements as well
as the mother/ principal agreement were part of a composite
transaction to facilitate implementation of the principal
agreement and that was in reality the intention of the parties,
now, we will deal with the question of parties to the principal
8 agreement. When the mother agreement dated 16th
November, 1995 was executed between the parties,
presumably the Certificate of Incorporation of Capital Control
India Private Ltd. had not been issued to the parties though it
had been incorporated on 14th November, 1995. If the company
C had been duly incorporated and the Certificate of Incorporation
was available to the parties, then there could be no reason for
the parties to propose in the Principal Agreement that the joint
venture company would be in the name of Capital Controls
India Private Ltd. or any other name which would be mutually
agreed between the parties. The reference to joint venture
D company, thus, was not by a specific name. Both the parties
have signed this agreement with the clear intention that the
company, Capital Control India Pvt. Ltd., will be the joint venture
company. Thus, non-mentioning of the name of the joint venture
company in the principal agreement, though it had been
E incorporated on 14th November, 1995, is immaterial and
inconsequential in face of intention of the parties appearing from
the written documents on record. Once the Principal Agreement
was signed, all other agreements had to be executed by or in
favour of the joint venture company. That is how to all these other
F agreements the joint venture company i.e. Capital Control India
Pvt. Ltd. is a party. It further completely supports the view that
non-mentioning of the name of Capital Control India Pvt. Ltd.
can hardly affect the findings of the Court. With regard to the
management of the joint venture company and implementation
G of the Principal Agreement, the parties had entered into the
Managing Director Agreement dated 16th November, 1995.
This agreement was signed by each of the concerned partners
i.e. by Capital Control India Pvt. Ltd., respondent No. 5 and the
Kocha Group, respondent No. 9. This agreement provided as
H to how the Managing Directors were to be appointed or
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 505
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

reappointed and how the meeting of the Board of Directors of A
the company were to be conducted in accordance with law and
the terms of the Mother Agreement. This agreement came to
be signed between the joint venture company and the Kocha
Group.
141. Other aspect of performance of the Principal B
Agreement was the Financial and Technical Know-How
License Agreement. This agreement had been signed between
the Capital Control Company Inc., subsequently known as
Severn Trent Water Purification, respondent No. 1, one the one
hand and the joint venture company, respondent No. 5. Severn C
Trent Water Purification Inc. is the holding company of the joint
venture to the extent of its share holding and is the company
into which Capital Control (Del.) Co. Inc. had merged. Severn
Trent Water Purification Inc. is thus, the resultant product of
Capital Control {Del.) Company Inc. being merged into Capital D
Control Company Inc. and its name was changed with effect
from 1st April, 2002. All these three companies had at the
relevant time been or when came into existence were and are
subsidiaries of Severn Trent {Del.) Inc. The requisite technical
know-how was possessed by these companies and was E
agreed to be imparted in favour of the joint venture company,
in furtherance to and as per the terms and conditions contained
in the Principal Agreement.
142. Similarly, Severn Trent Water Purification Inc. had
entered into an International Distributor Agreement and an F
Export Sales Agreement with the joint venture to facilitate the
sale, marketing and export of goods, under these two different
agreements. Thus, it is crystal clear that all the six material
agreements had been signed by some parties or their holding
companies or the companies into which the signatory company G
had merged. None of these companies is either stranger to the
transaction or not an appropriate party. The parties who have
signed the agreements could alone give rights or benefits to
the joint venture company and they, in turn, were the companies
descendants in interest or the subsidiaries of Severn Trent H •
506 SUPREME COURT REPORTS [2012] 13 S.C.R.

A Services Del. Inc.
143. May be all the parties to the lis are not signatory to
all the agreements in question, but still they would be covered
under the expression 'claiming through or under' the parties to
the agr:eement. The interests of these companies are not
B adverse to the interest of the principal company and/or the joint
venture company. On the contrary, they derive their basic
interest and enforceability from the Mother Agreement and
performance of all the other agreements by respective parties
had to fall in line with the contents of the Principal Agreement.
C In view of the settled position of law that we have indic~ted
above, we will have no hesitation in holding that these
companies claim their interest and invoke the terms of the
agreement or defend the action in the capacity of a 'party
claiming through or under' the parties to the agreement.
D ARBITRATION
144. When we refer to all the six relevant agreements in
relation to the arbitration clause, the Shareholders Agreement,
the Financial and Technical Know-How License Agreement and
E the Export Sales Agreement contained the arbitration clause
while the other three agreements, i.e., International Distributor
Agreement, the Managing Director's Agreement and the
Trademark Registered User License Agreement did not contain
any such arbitration clause. The arbitration clause contained in
F the Principal Agreement in clause 30 has been reproduced
above. It requires that any dispute or difference arising under
or in connection with that agreement which could not be settled
by friendly negotiation and agreement between the parties,
would be finally settled by arbitration conducted in accordance
with the Rules of ICC. This clause is widely worded. It is
G comprehensive enough to include the disputes arising 'under
and in connection with' the agreement. The word 'connection'
has been added by the parties to expand the scope of the
disputes under the agreements. The intention to make it more
comprehensive is writ large from the language of the agreement
H and particularly clause 30 of the Mother Agreement. It is useful
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 507
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]
to notice that the agreement has to be construed and A
interpreted in accordance with laws of the Union of India, as
consented by the parties.
145. The expression 'connection' means a link or
relationship between people or things or the people with whom
one has contact {Concise Oxford Dictionary {Indian Edition). B
'Connection' means act of uniting; state of being united; a
relative; relation between things one of which is bound up with
{Law Lexicon 2nd Edn. 1997).
146. Thus, even the dictionary meaning of this expression C
is liberally worded. It implies expansion in its operation and
effect both. Connection can be direct or remote but it should
not be fanciful or marginal. In other words, there should be
relevant connection between the dispute and the agreement by
specific words or by necessary implication like reference to all D
other agreements in one (principal) agreement. The expression
appearing in clause 30 has to be given a meaningful
interpretation particularly when the Principal Agreement itself,
by specific words or by necessary implication, refers to all other
agreements. This would imply that the other agreements
originate from the Principal Agreement and hence, its terms and E
conditions would be applicable to those agreements. There are
three agreements, as already noticed, which do not contain any
specific arbitration clause. Both the Managing Director
Agreement and the International Distributor Agreement directly
relate to the Principal Agreement stating the manner in which F
the affairs would be managed and the Managing Directors be
appointed. At the same time, the International Distributor
Agreement is executed between the Severn Trent Water
Purification Inc. the erstwhile Capital Control Company Inc. and
the Capital Control India Private Ltd., the joint venture company. G
Firstly, the chances of dispute between the same group of
companies were remote and secondly these were the
companies which were held by the same management. The
parties had also agreed to have relationship as that of seller
and distributor to make the joint venture company a success. H
508 SUPREME COURT REPORTS [2012] 13 S.C.R.

A The interest of Capital Controls Company Inc. and that of the
Capital Control India Private Ltd., to the extent of the former's
share, were common. Furthermore, this being an integral part
of the Principal Agreement would, in our opinion, be squarely
covered by the arbitration clause contained in the Mother/
B Shareholders Agreement. This agreement has been specifically
referred in clause 7 of the Mother/Shareholders Agreement. Not
only that there is incorporation by reference of International
Distribution Agreement in the Mother/Shareholders Agreement
but, in fact, it is an integral part thereof.
C 147. Another aspect of the case is that all these
agreements were executed simultaneously on 16th November,
1995 which fact fully supports the view that the parties intended
to have all these agreements as a composite transaction.
Furthermore, when the parties signed the Supplementary
D Collaboration Agreement in August 1997, by that time all these
agreements had not only been signed and 'l.mderstood by the
parties but, in fact, had also been acted upon.
148. In the Supplementary Collaboration Agreement, the
parties re-confirmed the existence of the joint venture
E agreement dated 16th November, 1995 and made a specific
stipulation that both the parties confirmed to adhere by the terms
and conditions stipulated by the Government of India in its
letters dated 11th October, 1996, amended on 21st April, 1997.
This was signed by Madhusudan 8. Kocha, member of the
F Kocha group on behalf of the joint venture company and Capital
Controls (Delaware) Inc. The necessity for executing this
agreement was in face of the condition of Government approval
as well as the subsequent amendment of clause 2, 3 and 4 of
the approval letter dated 11th October, 1996 i.e. items of
G manufacture, proposed location and foreign equity.
149. The conduct of the parties and even the subsequent
events leave no doubt in the mind of the Court that the parties
had executed, intended and actually implemented the
composite transaction contained in the Principal Agreement.
H The Courts have also applied the Group of Companies Doctrine
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 509
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

in such cases. As already noticed, this Court in the case of A
Olympus Superstructure Pvt. Ltd. (supra) permitted reference
to arbitration where there were multiple contracts between the
parties, interpreting the words 'in connection with' and 'disputes
relating to connected matters'.
150. Besides making the reference, the Court also held B
that making of two awards which may be conflicting in relation
to the items which are likely to overlap in two agreements could
not be permitted. The courts have also accepted and more so
in group company cases that the fact that a party being non-
signatory to one or other agreement may not be of much C
significance, the performance of one may be quite irrelevant
with the performance and fulfillment of the principal or the mother
agreement. That, in fact, is the situation in the present case.
151. One of the arguments advanced was that the D
International Distributor Agreement had specifically provided for
construction, interpretation and performance of the agreement
and for the transaction under that agreement to be governed
by and interpreted by the laws of State of Pennysylvania, USA
and parties thereto agreed that any litigation thereunder shall
be brought in any federal or state court in the Eastern District E
of the Commonwealth of Pennysylvania which fact would oust
the possibility of reference to arbitration in terms of clause 30
of the Principal Agreement, as the parties had chosen a
specific forum of the court system. Discussion on this argument
may not be greatly relevant in view of the above discussion in F
this judgment. This being a composite transaction, the parties
could opt for any remedy.
152. In the present case, we have already noticed, that
some agreements contain the arbitration clause, while others G
don't. The Shareholders Agreement, Financial and Technical
Knowhow Licence Agreement and Export Sales Agreement
contain the arbitration clause, while the International Distributor
Agreement, Managing Directors Agreement and Trade Mark
Registered User Agreement do not contain the arbitration
clause. The arbitration clause contained under clause 30 of the H
510 SUPREME COURT REPORTS [2012) 13 S.C.R.

A Shareholders Agreement and that under clause 26 of the
Financial and Technical Knowhow Licence Agreement are
identical. They both require the disputes to be referred to
arbitration in London as per the ICC Rules. However, the
arbitration clause contained in clause 18 of the Export Sales
B Agreement provides for reference of the disputes to arbitration
at Pennsylvania, USA, in accordance with rules of American
Arbitration Association. It also provides thatlhe judgment upon
the Award rendered could be entered in any court of competent
jurisdiction. Still, clause 21 of the International Distributor
c Agreement required the construction, interpretation and
performance of the agreement to be governed by and
interpreted under the laws of the State of Pennsylvania, USA.
Any litigation thereunder was to be brought in any federal or
State Court located in the Eastern District of the
D Commonwealth of Pennsylvania, which_ was to be binding upon
the parties.
153. As already noticed, two of the agreements did not
contain any arbitration clause, but they also did not subject the
parties even for litigative jurisdiction. They are the Managing
E Directory; ,Agn3ement and the Trademark Registered User
Agreement. These two agreements had been executed in
furtherance to and for compliance of the terms and conditions
of the mother agreement which contained the arbitration clause.
They were, thus, intrinsically inter-connected with the mother
F agreement.
154. All these agreements were signed on the same day
and in furtherance to the mother agreement. None of the parties
have invoked the jurisdiction of the Court at Pennsylvania, USA.
Thus, it was an alternative remedy that too restricted to the
G disputes, if any arising from that agreement. Where different
agreements between the parties provide for alternative
remedies, it does not necessarily mean that the other remedy
or jurisdiction stands ousted. Where the parties to such
composite transaction provide for different alternative forums,
H including arbitration, it has to be taken that real intention of the
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 511
WATER PURIFICATION INC. [SWATANTER KUMAR, J.]

parties was to give effect to the purpose of agreement and refer A
the entire subject matter to arbitration and not to frustrate the
remedy in law. It was for the parties to chose either to institute
a suit qua the International Distributor Agreement at
Pennsylvania or to invoke the arbitration agreement in terms
of clause 30 of the mother agreement. They have chosen the B
latter remedy. The question, therefore, does not arise as to
which law would apply since the only litigation taken out by the
parties is the suit instituted by the appellant before the original
side of the Bombay High Court and the subsequent application
for reference to arbitration filed by the Respondent No. 1 under c
Section 45 of the 1996 Act.
155. The effect of execution of multiple agreements has
been discussed by us in some elaboration above. The real
intention of the parties was not only to refer all their disputes
arising under the agreement which could not be settled despite D
friendly negotiations to arbitration, but even the disputes which
arose in connection with the shareholder/mother agreement to
arbitration.
156. Thus, a composite reference was well within the
comprehension of the parties to various agreements which were E
executed on the same day and for the same purpose. There
cannot be any doubt to the contention that in terms of Section
9 of the CPC, the courts in India shall have jurisdiction to try all
suits of civil nature. Further, this section gives a right to a person
to institute a suit before the court of competent jurisdiction. F
However, the language of Section 9 itself makes it clear that
the civil courts have jurisdiction to try all suits of civil nature
except the suits of which taking cognizance is either expressly
or impliedly barred. In other words, the jurisdiction of the court
and the right to a party emerging from Section 9 of the CPC is G
not an absolute right, but contains inbuilt restrictions. It is an
accepted principle that jurisdiction of the court can be excluded.
In the case of Dhwabhai v. State of M.P. and Anr. [AIR 1969
SC 78), this Court. has settled the principle that jurisdiction of
the Civil Court is all embracing, except to the extent it is H
512 SUPREME COURT REPORTS [2012] 13 S.C.R.

A excluded by law or by clear intendment arising from such law.
In Nahar Industrial Enterprises Ltd. v. Hong Kong & Shanghai
Banking Corporation [(2009) 8 SCC 646], this Court has even
stated the conditions for exclusion of jurisdiction. They are, (a)
whether the legislative intent to exclude is expressed explicitly
B or by necessary implication, and (b) whether the statute in
question provides for an adequate and satisfactory alternative
remedy to a party aggrieved by an order made under it.
157. The provisions of Section 45 of the 1996 Act are to
prevail over the provisions of the CPC and when the Court is
C satisfied that an agreement is enforceable, operative and is not
null and void, it is obligatory upon the court to make a reference
to arbitration and pass appropriate orders in relation to the
legal proceedings before the court, in exercise of its. inherent
powers.
D 158. In the present case, the court can safely gather
definite intention on behalf of the parties to have their disputes
collectively resolved by the process of arbitration. Even if
different forums are provided, recourse to one of them which
is capable of resolving all their issues should be preferred over
E a refusal of ~eference to arbitration. There appears to be no
uncertainty in the minds of the parties in that regard, rather the
intention of the parties is fortified and clearly referable to the
mother agreement.
159. It is not the case of any of the parties before us that
F any of the parties to the present litigation had taken steps before
that Court or had invoked the jurisdiction of that court under that
system. There is no apparent conflict of interest as of now. The
arbitration clause would stand incorporated into the International
Distributor Agreement as this agreement itself was Appendix
G II to the Principal Agreement. This Court in the case of M.R.
Engineers and Contractors Pvt. Ltd. v. Som Datt BuUders Ltd.
[(2009) 7 sec 696] has stated that firstly the subject of
reference be enacted by mutual intention, secondly a mere
reference to a document may not be sufficient and the reference
H should be sufficient to bring out the terms and conditions of the
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 513
WATER PURlrlCATION INC. [SWATANTER KUMAR, J.)
referred document and also that the arbitration clause should A
be capable of application in respect of a dispute under the
contract and not repugnant to any term thereof. All these three
conditions are satisfied in the present case.
160. The terms and conditions of the International
Distribution Agreement were an integral part of the Principal B
Agreement as Appendix II and the Principal Agreement had an
arbitration clause which was wide enough to cover disputes in
all the ancillary agreements. It is not necessary for us to
examine the choice of forum or legal enforceability of legal
system in the present case, as we find no repugnancy even C
where the main contract is governed by law of some other
country and the arbitration clause by Indian law. They both could
be invoked, neither party having invoked the former will be no
bar for invocation of the latter in view of arbitration clause 30
of the mother agreement. o
161. Reliance was also placed on the judgment of this
Court in the case of Deutsche Post Bank Home Finance Ltd.
v. Taduri Sridhar [AIR 2011 SC 1899] where the Court had
declined reference of multiple and multi party agreement. That
case is of no help to the appellant before us. In that case, there E
were four parties, the seller of the land, the builder, purchaser
of the flat and the bank. The bank had signed an agreement
with the purchaser of the flat to finance the flat, but it referred
to other agreement stating that it would provide funds directly
to the builder. There was an agreement between the builder and F
the owner of the land and the purchaser of the land to sell the
undivided share and that contained an arbitration clause. The
question before the Court was whether while referring the
disputes to the arbitration, the disputes between the bank on
the one hand, and the purchaser of the flat on the other could G
be referred to arbitration. The Court, in reference to Section 8
of the 1996 Act, held that the bank was a non-party to the
arbitration agreement, therefore, neither the reference was
permissible nor they could be impleaded at a subsequent
stage. This judgment on facts has no application. The distinction H
514 SUPREME COURT REPORTS [2012] 13 S.C.R.

A between Section 8 and Section 45 has elaborately been dealt
with by us above and in view of that, we have no hesitation in
holding that this judgment, on facts and law, is not applicable
to the present case.
162. Thus, in view of the above, we hold that the disputes
B referred to and arising from the multi-party agreements are
capable of being referred to arbitral tribunal in accordance with
the agreement between the parties.
163. Another argument advanced with some vehemence
C on behalf of the appellant was that respondent Nos.3 and 4
were not party to any of the agreements entered into between
the parties and their cause of action is totally different and
distinct, and their rights were controlled by the agreement of
distribution executed by respondent Nos.1 and 2 in their favour
for distribution of products of gas and electro-chlorination. It was
0
contended that there cannot be splitting of parties, splitting of
cause of action and remedy by the Court.
164. On the other hand, it was contended on behalf of the
respondent No.1 that it is permissible to split cause of action,
E parties and disputes. The mater referable to arbitration could
be segregated from the civil action. The court could pass
appropriate orders referring the disputes covered under the
arbitration agreement between the signatory party to arbitration
and proceed with the claim of respondent Nos. 3 and 4 in
F accordance with law.
165. As far as this question of law is concerned, we have
already answered the same. On facts, there is no occasion for
us to deliberate on this issue, because respondent Nos. 3 and
4 had already consented for arbitration. In light of that fact, we
G do not wish to decide this question on the facts of the present
case.
166. Having dealt with all the relevant issues in law, now
we would provide answer to the questions framed by us in the
beginning of the judgment as follows :
H
CHLORO CONTROLS (I) P. LTD. v. SEVERN TRENT 515
WATER PURIFICATION INC.
Answer A
167. Section 45 is a provision falling under Chapter I of
Part II of the 1996 Act which is a self-contained Code. The
expression 'person claiming through or unde~ would mean and
take within its ambit multiple and multi-party agreements, though
in exceptional case. Even non-signatory parties to some of the B
agreements can pray and be referred to arbitration provided
they satisfy the pre-requisites under Sections 44 and 45 read
with Schedule I. Reference of non-signatory parties is neither
unknown to arbitration jurisprudence nor is it impermissible.
168. In the facts of a given case, the Court is always
c
vested with the power to delete the name of the parties who
are neither necessary nor proper to the proceedings before the
Court. In the cases of group companies or where various
agreements constitute a composite transaction like mother
agreement and all other agreements being ancillary to and for 0
effective and complete implementation of the Mother
Agreement, the court may have to make reference to arbitration
even of the disputes existing between signatory or even non-
signatory parties. However, the discretion of the Court has to
be exercised in exceptional, limiting, befitting and cases of E
necessity and very cautiously.
169. Having answered these questions, we do not see any
reason to interfere with the judgment of the Division Bench of
the Bombay High Court under appeal. We direct all the disputes
F
arise in the suit and from the agreement between the parties
to be referred to arbitral tribunal and be decided in accordance
with the Rules of ICC.
170. The appeals are dismissed. However, in the facts and
circumstances of the present case, we do not award costs. G
ORDER
1. Upon pronouncement of the judgment Mr. F.S. Nariman,
learned senior counsel appearing for the petitioner, mentioned
H
516 SUPREME COURT REPORTS [2012] 13 S.C.R.

A that the petitioner had filed an application for injunction in the
suit before the High Court. The same was dismissed. Appeal
against the order dismissing the application had been filed
before this Court and was ordered to be listed along with SLP
(C) No. 8950 of 2010 (which is an appeal against the order of
B the High Court making reference to arbitral tribunal). However,
the Court had not heard arguments on that appeal.
2. Learned senior counsel appearing fcir the respondents,
Mr. K.V. Vishwanathan, submitted that the special leave
petitions were listed but they were not admitted.
c 3. In view of the common stand taken by the counsel for
the parties, we permit the petitioner to move an independent
application praying for hearing for those special leave petitions
i.e. SLP(C)Nos.26514-26515 of 2011 (listed along with
SLP(C)No. 8950/2010) pending for admission.
0
K.K.T. Appeals dismissed.