DEUTSCHE POST BANK HOME FINANCE LTD.versusTADURI SRIDHAR AND ANR.

                          [2011] 5 S.C.R. 674


A        DEUTSCHE POST BANK HOME FINANCE l TD.
                                    v.
                    TADURI SRIDHAR AND ANR.
                   (Civil Appeal No. 2691 of 2011)
                           MARCH 29, 2011
B
          [R.V. RAVEENDRAN AND A.K. PATNAIK, JJ.]

         Arbitration and Conciliation Act, 1996 - s.11 - Petition
    under - lmpleadment of a non-party to arbitration agreement
C   - Development agreement between second respondent-
    developer and owners of lands for constructing multi-storied
    apartments - First respondent wanted to purchase an
    apartment and for such purpose took housing loan from
    appellant - Land-owners and the deve/Oper executed a
D   registered sale deed in favour of first respondent in respect
    of an unfinished apartment - First respondent entrusted
    construction of the unfinished apartment to the developer
    under a construction agreement dated 21-2-2008 containing
    an arbitration clause - Dispute between first respondent and
E   developer - First respondent invoked arbitration clause
    contained in the construction agreement dated 21-2-2008 and
    later filed petition u/s. 11 - In the said petition, the appellant
    was also impleaded as a respondent along with the developer
    - Designate of the Chief Justice of High Court allowed the
F   application u/s.11 and appointed a sole arbitrator - Whether
    the appellant, a non-party to the construction agreement dated
    21-2-2008 containing the arbitration clause, could be roped
    in, as a party to such arbitration - Held, No - If a person who
    is not a party to the arbitration agreement is impleaded as a
G   party to the petition u/s. 11, the court should either delete such
    party from the array of parties, or when appointing an Arbitrator
    make it clear that the Arbitrator is appointed only to decide
    the disputes between the parties to the arbitration agreement
    - In the instant case, the existence of an arbitration agreement

H                                 674
 DEUTSCHE POST BANK HOME FINANCE LTD. v.                 675
         TADURI SRIDHAR AND ANR.
in a contract between appellant and first respondent did not A
enable the first respondent to implead the appellant as a party
to an arbitration m regard to his disputes with the developer -
Petition uls. 11 against the appellant was misconceived as it
was not a party to the construction agreement dated 21-2-2008
- Order of the designate of the Chief Justice of High Court B
set aside m part, insofar as the appellant is concerned.

     The second respondent-developer entered into a
development agreement with owners of lands for
constructing independent houses and multi-storied C
apartments. The first respondent wanted to buy an
apartment. The appellant sanctioned housing loan to first
respondent for purchase of the apartment in terms:.of a
loan agreement. The land-owners and the developer
executed a registered sale deed in favour of the first
respondent in respect of an unfinished apartment. The D
first respondent entrusted the construction of the
unfinished apartment to the developer under a
construction agreement dated 21·2·2008 containing an
arbitration clause.
                                                                E
     In view of alleged delay in construction and delivery
of the apartment, the first respondent made demand for
damages against the developer. As the developer refused
to comply, first respondent invoked the arbitration clause
contained in the construction agreement dated 21·2·2008 F
and later filed petition u/s. 11 for appointment of Arbitrator.
In the said petition, the appellant was also impleaded as
a respondent along with the developer. The designate of
the Chief Justice of High Court allowed the application
u/s.11 and appointed a sole arbitrator.
                                                                G
    In the instant appeal, the question which arose. for
consideration was whether the appellant, a non-party to .·
the construction agreement dated 21 ·2·2008 containing · ·-

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    676         SUPREME COURT REPORTS            [2011] 5 S.C.R.


A   the arbitration clause, could be roped in, as a party to
    such arbitration.

                 .
          Allowing the
                     .
                       appeal, the Court ·
         HELD:1.1. If 'X' enters into two contracts, one with
B 'M' and another with '0', each containing an arbitration
   clause providing for settlement of disputes arising under
   the respective contract, in a claim for arbitration by 'X'
   against 'M' in regard to the contract with 'M', 'X' cannot
   implead 'D' as. a party on the ground that there is an
C .arbitration clause in the agreement between 'X' and 'D'.
   [Para
      \· .
           12) [687 -G-H;
            '           .
                          688-A]
           1.2. The existence of an arbitration agreement
    between the parties to the petition under section 11 of the
0   Arbitration     and Conciliation Act, 1996 and existence of
    dispute/s to be referred to arbitration are conditions
     precedent for appointing an Arbitrator under section 11
     of the Act. A dispute can be said to arise only when one
   ·party to the arbitration agreement makes or asserts a
E claim/demand against the other party to the arbitration
     agreement and the other party refuses/denies such claim
     or demand. If a party to an arbitration agreement, files a
   · petition under section 11 of the Act impleading the other
     party to the arbitration agreement as also a non-party to
     t.he .arbitration agreement as respondents, and the court
F merely appoints an Arbitrator without deleting or
     excluding the non-party, the effect would be that all
     parties to the petition under section 11 of the Act
     (including the non-party to arbitration agreement) will be
     parties to the· arbitration. That will be contrary to the
G contract and the law. If a person who is not a party to the
     arbitration agreement is impleaded as a party to the
  . petition under section .11 of the Act, the court should
     either delete such .party from the array of parties; or when
     appointing an Arbitrator make it clear that the Arbitrator
H
  DEUTSCHE POST BANK HOME FINANCE LTD. v.               677
         TADURI SRIDHAR AND ANR.
is appointed only' to decide the disputes between the          A
parties to the arbitration agree'ment.'[Para 13) [688-B-E]

    Jagdish Chander vs. Ramesh Chander 2007 (5) SCC
719: 2007 (5) SCR 720; Yogi Agaf'Wal vs. Inspiration Clothes
& U 2009 (1) sec 372: 2008 (16) SCR 895; S. N. Prasad          B
vs. Monnet Finance Ltd (2011) 1 sec 320: 2010· (13) seR.
207 - relied on.          ·                           ·

      2.1. In the instant case, the arbitration agreement
 relied upon by the first respondent to seek appointment
of arbitrator, is clause (7) of the construction agreement C
dated 21.2.2008. The appellant was not a party to the said
construction agreement dated 21.2.2008 containing the
arbitration agreement. It is no doubt true that the loan
agreement dated 21.12.2006 between the first respondent
as borrower, and the appellant as the creditor, also D
contains an arbitration clause (vide Article 11) providing
for resolution of disputes in regard to the said loan
agreement by arbitration. But ·the developer was not a
party to the loan agreement.. There is no arbitration
agreement between the developer and the appellant. The E
disputes between the first respondent and the developer
cannot be arbitrated under Article 11 of the Loan
Agreement. The first respondent invoked the arbitration
agreement contained in claus·e 7 of the construction
agreement (between first respondent and developer) and F
 not the arbitration agreement contained in clause 11 ·of
the loan agreement (between appellant and first
respondent). The existence of an arbitration agreement
in a contract between appellant and firsfrespondent, will
not enable the first. respondent to implead the appellant G
as a party to an arbitration in regard to his disputes With
the developer. [Para 14) [688~F~H;·689-A-C]
                                     ,.
    2.2. The first respondent obviously cannot involve
the appellant as a party to an arbitration in regard to his
                                                               H
    678    SUPREME COURT REPORTS              [2011] 5 S.C.R.

A disputes arising out of the claims made· by him against
  , the developer which are covered by clause (7) of ,t~e
   ,construction agreement. The disputes referred to in the
    petition under section 11 of the Act relate to the claims
    of the first respondent against the developer. It is
B however true that there is reference to the appellant in.
    disputes (b), (e) and (f) and reference to collusion
    between the developer and the appellant in those
    'disputes'. The first respondent has also alleged that the
    appellant by releasing the payments to the developer
c   without verifying the ground realities about the progress
    and construction and without intimation to him, had
    committed breach of trust and therefore liable to pay
    compensation for the financial and mental suffering of the
    first respondent as also the legal and other expenses. No
    such claim was ever been made against the appellant
0
    before filing the petition under section 11 of the Act, nor
    did the first respondent at any time seek arbitration in
    regard to such claims against the appellant. The said
    claims against the appellant cannot be arbitrated in an
E arbitration in pursuance of clause (7) of the construction
    agreement between the first respondent and the
    developer. [Para 15] [689-C-G]

      2.3. The first respondent did not issue any notice or
  demand making any claim against the appellant nor did
F he issue any notice claiming that the appellant is liable
  for the consequences of non-performance by the
  developer, of its obligations. Nor did the first respondent
  issue any notice to the appellant seeking reference of any
  disputes to arbitration. Therefore it could not be said that
G any dispute existed between the first respondent and
  appellant, when the petition under section 11 of the Act
  was filed. Even in the application under section 11 of the
  Act, there is no reference to clause No.(11) of the loan
  agreement which contains the arbitration agreement in
H
 DEUTSCHE POST BANK HOME FINANCE LTD. v.                679
        TADURI SRIDHAR AND ANR.
regard to disputes that may arise between the appellant        A
as lender and the first respondent as the borrower. There
is no claim or dispute in regard to the loan agreement.
The first respondent has not invoked clause (11) of the
loan agreement for deciding any dispute with the
appellant. [Para 16] [689-H] [690-A-C]                         B

     2.4. If there had been an arbitration clause in the
tripartite agreement among the first respondent,
developer and the appellant, and if the first respondent
had made claims or raised disputes against both the            C
developer and the appellant with reference to such
tripartite agreement, the position would have been
different. But that is not so. The petition under section 11
of the Act against the appellant was therefore
misconceived as the appellant was not a party to the
construction agreement dated 21.2.2008. [Para 17] [690-        D
D-E]

      3. The order of the designate of the Chief Justice is
set aside· in part, in so far as the appellant is concerned.
It is made clear that the appointment of arbitrator under      E
the impugned order shall remain undisturbed in so far as
the disputes between first respondent and the second
respondent (developer) are concerned. It is further made
clear that this order will not come in the way of first
respondent making any claim or raising a dispute against       F
the appellant or appellant making any claim or raising a
dispute against the first respondent and either of them
seeking recourse to arbitration in regard to such
disputes. [Para 18] [690-F-G]
                    Case Law Reference:                        G
    2007 (5) SCR 720         relied on           Para 12
    2008 (16) SCR 895        relied on           Para 12
    2010 (13) SCR 207        relied on           Para 12       H
    680       SUPREME COURT REPORTS               [2011] 5 S.C.R.


A       CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    2691 of 2011.

         From the Judgment & Order dated 12.4.2010 of the High
    Court of Judicature of Andhra Pradesh at Hyderabad in
    Arbitration Application No. 91 of 2009.
8
        R.K. Kapoor, Sanjana Bali, Harish Chandra Pant, Sweta
    Kapoor, Anis Ahmed Khan for the Appellant.

          Keerthi Prabhakar, Aniruddha P. Mayee for the
c · Respondents.
          The Judgment of the Court was delivered by

          R.V.RAVEENDRAN, J. 1. Leave granted.

D       2. The second respondent (referred to as the 'Developer')
  entered into a development agreement with the owners of
  certain lands at Bachupally village, Qutubullapur Mandal, Ranga
  Reddy District, for constructing independent houses and
  multistoried Apartment buildings with common facilities in a
E layout known as 'Hill County township'. The landowners as the
  first party, the developer as the second party and the first
  respondent who wanted to acquire an apartment therein as the
  third party entered into an agreement for sale dated
  16.10.2006 under which the land-owners agreed to sell an
F undivided share equivalent to 87 sq.yds. out of a total extent of
  16.95 acres to the first respondent and the developer agreed
  to construct a residential apartment measuring 1889 sq.ft. for
  the first respondent. The total consideration for the undivided
  share in the land, apartment and car parking space was agreed
  as Rs.55,89,368. The agreement contemplating the entire price
G being paid in instalments, that is 10% on booking, 85% in seven
  instalments upto 15.3.2008 and 5% at the time of delivery.
  Clause (14) of the said agreement dated 16.10.2006 provided
  for settlement of disputes by arbitration.

H
  DEUTSCHE POST BANK HOME FINANCE LTD. v. 681
 TADURI SRIDHAR AND ANR. [R.V. RAVEENDRAN, J.]
       3. On the request of the first respondent, the appellant        A
  (earlier known as 'BHW Home Finance Ltd.') sanctioned a
  housing loan of Rs.52 lakhs to the first respondent for purchase
  of the said apartment in terms of a loan agreement dated
  21.12.2006 entered into between the first respondent as the
  borrower and the appellant as the lender. The said loan              B
  agreement contained the terms of the loan, rate of interest,
  provisions for amortization, consequences of delay in payment
. of EMls, security for repayment, and general covenants of
  borrower. Clause (11) thereof provided for settlement of all
  disputes (that is, all matters, questions, disputes, differences     c
  and/or claims arising out of and/or concerning and/or in
  connection and/or in consequences of breaches, termination
  or invalidity thereof or relating to the Agreement) by arbitration
  by the Managing Director of the appellant or his nominee as
  sole Arbitrator. The first respondent subse.qu~_ntly had entered     0
  into a supplemental loan agreement with the appellant on
  29.10.2007 for reducing the loan amount from Rs.52 lakhs to
  Rs.49,78,527/-; and the said loan has been disbursed in terms
  of the said loan agreements.

      4. It is alleged that a tripartite agreement was also executed   E
 on 21.12.2006 among first respondent as borrower, the
 developer as guarantor and the appellant as the lender, under
 which it was agreed that the loan amount should be disbursed
 by the appellant directly to the developer and such amounts
 paid to the developer shall be deemed to be disbursement of           F
 loan by the appellant to the first respondent.

       5. In pursuance of the agreement of sale dated
 16.10.2006, the first respondent paid the entire sale price to
 the developer through the appellant. Thereafter, the land-owners      G
 and the developer executed a registered sale deed dated
 21.2.200.8 for a consideration Rs.21,27,409/-, conveying to the
 first respondent, an undivided share in the land equivalent to
 87 sq.yds. with the semi finlshed apartment bearing No.3E in
 the third floor of Nainital Block of Hill County with one reserved
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    682       SUPREME COURT REPORTS                  [2011] 5 S.C.R.


A parking space. On the same day the first respondent entrusted
  the construction of the unfinished flat to the developer under a
  construction agreement dated 21.2.2008, under which the
  developer acknowledged the receipt of the total cost of
  construction, that is Rs.33,22,226 from the first respondent and
B agreed to complete the construction of the apartment and
  deliver the same to the first respondent by 16.10.2008 with a
  grace period of three months. Clause 7 of the said construction
  agreement dated 21.2.2008 between the first respondent and
  the developer provided for arbitration and is extracted below :
c         " 7. Arbitration

          a. In the event of any dispute between the parties in
          connection with the validity, interpretation, implementation
          or breach of any provision of this agreement or any other
D         disputes including the question of whether there is proper
          termination of the agreement shall be resolved through
          arbitration by appointing a sole arbitrator by the Vice
          Chairman of the First Party. The decision of the Arbitrator
          shall be final and binding on both the parties.
E
          b. The arbitration proceedings shall be in accordance with
          the provisions laid down in the Arbitration and Conciliation
          Act, 1996 and shall be governed by the laws in AP. subject
          to the authorized arbitration clauses. The venue of the
          Arbitration proceedings shall be Hyderabad and the
F         language shall be in English. All the proceedings are
          subject to the exclusive jurisdiction of the courts at
          Hyderabad limits."

       On the execution of the sale deed dated 21.2.2008 and
G construction agreement dated 21.2.2008, the earlier agreement
  for sale dated 16.10.2006 apparently lost its relevance, as the
  land-owners went out of the picture on execution of the sale
  deed regarding the undivided share and a fresh construction
  agreement dated 21.2.2008 was executive regarding
H completion of the apartment by the developer.
 DEUTSCHE POST BANK HOME FINANCE LTD. v. 683
TADURI SRIDHAR AND ANR. [RV. RAVEENDRAN, J.]
       6. The first respondent issued a notice dated 31.7.2009        A
Ito the developer, alleging delay in construction and delivery of
lthe apartment and called upon it to pay Rs.54,778 per month
-as compensatio:"l for the period of delay, that is from the due
  jate of completion (16.10.2008) till date of actual completion
;;and delivery of the apartment. By another letter dated 15.9.2009    B
.addressed to the developer, first respondent invoked the
-3rbitration clause contained in clause (7) of the construction
=:igreement dated 21.2.2008 and sought reference of the
  jisputes between them to arbitration. There was no response
  'rom the developer. ·                                               c
       7. Thereafter, the first respondent filed a petition under
,,;ection 11 of the Arbitration and Conciliation Act, 1996 ("Act'.'
_.or short) in the Andhra Pradesh High Court, for appointment
 )fan Arbitrator. In the said petition, the appellant was brought
-nto the dispute, for the first time, by impleading it as a           D
 ·espondent along with the developer. In the said petition, the
  irst respondent alleged that the developer had failed to
 :omplete and deliver the apartment in terms of the construction
 3greement dated 21.2.2008. He also alleged that the
 :leveloper had arranged the housing loan from the appellant;         E
=:ind that the appellant-lender had released the total loan amount
  o the developer without ensuring that there was sufficient
  )regress of construction and without verifying the 'ground
  ealities' and thereby failed to perform its minimum obligations
 end responsibilities as a lender. He contended that the              F
  ~rcumstances disclosed collusion, fraud and misrepresentation
  )n the part of the developer and the appellant. First respondent
 -urther alleged that the following disputes had arisen between
  lim on the one hand, and the respondents therein (the developer
 and the appellant) on the other, which required to be decided        G
  >y arbitration :

      (a)   The developer committed breach of contract in not
            fulfilling its part of contractual obligations and
            consequently was liable to refund all the amounts
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    684         SUPREME COURT REPORTS                [2011) 5 S.C.R.


A                collected from him and the appellant, together with
                 interest thereon at 24% per annum with monthly
                 rests from the date of its respectivfl dates of
                 collections till payment, besides the interest and
                 damages that may be charged by the appellant.
B
          (b)    The appellant clandestinely and deliberately
                 released the entire payments to the developer
                 without verifying the ground realities about the
                 progress of construction and without intimation to
                 him (first respondent) and thus committed breach
c                of trust and was liable for all consequences,

          (c)    In view of the breach of trust and non-fulfillment of
                 the obligations, the developer was also liable to pay
                 a sum of Rs.15 lakhs towards miscellaneous
D                expenditure incurred and mental agony suffered by
                 the petitioner.

          (d)    The developer was also liable to pay/reimburse
                 whatsoever that may be demanded by the appellant
                 in respect of the entire transaction.
E
          (e)    The developer and the appellant were liable to pay
                 the first respqndent all the expenditure incurred/to
                 be incurred towards legal and other miscellaneous
                 charges.
F
          (f)    The developer and the appellant were liable to
                 compensate him for his financial and mental
                 suffering.

          (g)    The developer and the appellant were liable to pay
G                commercial rate of interest to the first respondent
                 on the amounts found due from the due date till
                 payment.

      The first respondent relying upon clause (7) of the
H construction agreement dated 21.2.2008, sought appointment
 DEUTSCHE POST BANK HOME FINANCE· LTD. v. 685
TADURI SRIDHAR AND ANR. [R.V. RAVEENDRAN, J.)
of a sole arbitrator to adjudicate. upon the disputes between him A
and the developer and the appellant in respect of purchase of
the apartment.

      8. The said petition was resisted by the appellant. The
appellant contended that it had nothing to do with the dispute
                                                                  8
between first respondent and developer; that for the first time,
the first respondent had chosen to make allegations against the
appellant in the petition under section 11 of the Act, apparently
in collusion with the developer, to avoid payment of EMls due
to the appellant; and that the petition under section 11 of the C
Act was not maintainable against it, as the dispute was
between the first respondent and the developer (second
respondent) and it was not a party to the arbitration agreement .
invoked by the first respondent (that is clause 7 of the
construction agreement dated 21.2.2008).
                                                                  D
     9. The designate of the Chief Justice of Andhra Pradesh
High Court by the impugned order dated 12.4.2010 allowed the
said application under section 11 and appointed a retired
Judge of High Court as the sole arbitrator. The learned
designate referred to the construction agreement dated · E
21.2.2008 between the first respondent and second
respondent and clause (7) therein providing for arbitration. The
said order did not refer to the contention of the appellant that it
was not a party to the dispute and therefore the petition under
section 11 was not maintainable against it. In view of the F
impugned order, the appellant though not concerned with the ·
disputes between the first respondent and the developer, is
made a party to the arbitration.

     10. The said order is challenged by the appellant urging
the following contentions :                                       G

      (i)   As the first respondent and the developer were the
            only parties to the construction agreement dated
            21.2.2008 containing the arbitration agreement, the
            appellant could not be dragged into a dispute         H .
    686           SUPREME COURT REPORTS               [2011] 5 S.C.R.


A                   between them, by impleading it as a party to the
                    petition under section 11 of the Act.

           (ii)     The designate of the Chief Justice ought to have
                    examined whether both respondents in the petition
                    under section 11 of the Act were parties to the
B
                    arbitration agreement (clause 7 of the construction
                    agreement dated 21.2.2008) before making an
                    order appointing an arbitrator under section 11 of
                    the Act.

C        On the contentions urged, the question that arises for our
    consideration is whether the appellant could be made a party
    to the arbitration, even though the appellant was not a party to
    the arbitration agreement contained in clause (7) of the
    construction agreement dated 21.2.2008.
D
         11. In this case, the first respondent made a demand for
    damages against the developer in his notice dated 31.7.2009.
    As the developer refused to comply, the first respondent
    invoked the arbitration agreement contained in clause (7) of the
    Construction Agreement dated 21.2.2008 between him and the
E   developer. Therefore, in so far as the disputes between the first
    respondent and the developer (second respondent) are
    concerned, the designate of th~ Chief Justice was justified in
    appointing an arbitrator. But the question is whether the
    appellant, a non-party to the construction agreement containing
F   the arbitration agreement as per clause (7), could be roped in,
    as a party to such arbitration.

       12. In Jagdish Chander vs. Ramesh Chander [2007 (5)
    sec 719] this court held :
G
          "The existence of an arbitration agreement as defined
          under Section 7 of the Act is a condition precedent for
          exercise of power to appoint an arbitrator/Arbitral Tribunal,
          under Section 11 of the Act by the Chief Justice or his
          designate. It is not permissible to appoint an arbitrator to
H
 DEUTSCHE POST BANK HOME FINANCE l TD. v. 687
TADURI SRIDHAR AND ANR. [R.V. RAVEENDRAN, J.]
    adjudicate the disputes between the parties in the absence       A
    of an arbitration agreement or mutual consent."

     In Yogi Agarwal vs. Inspiration Clothes & U [2009 (1) SCC
372], this court observed :

    "When Sections 7 and 8 of the Act refer to the existence         B
    of an arbitration agreement between the parties, they
    necessarily refer to an arbitration agreement in regard to
    the current dispute between the parties or the subject-
    matter of the suit. It is fundamental that a provision for
    arbitration, to constitute an arbitration agreement for the      C
    purposes of Sections 7 and 8 of the Act, should satisfy two
    conditions. Firstly, it should be between the parties to the
    dispute. Secondly, it should relate to or be applicable to
    the dispute."
                                                                     D
     In S. N. Prasad vs. Monnet Finance Ltd - (2011) 1 SCC
320, this Court held:

    "There can be reference to arbitration only if there is an
    arbitration agreement between the parties. lf there is a
    dispute between a party to an arbitration agreement, with        E
    other parties to the arbitration agreement as also non-
    pa rties to the arbitration agreement, reference to
    arbitration or appointment of arbitration can be only with
    respect to the parties to the arbitration agreement and not
    the non-parties ........ As there was no arbitration             F
    agreement between the parties, the impleading of the
    appellant as a respondent in the proceedings and the
    award against the appellant in such arbitration cannot be
    sustained."
                                                                     G
     Therefore, if 'X' enters into two contracts, one with 'M' and
another with 'D', each containing an arbitration clause providing
for settlement of disputes arising under the respective contract,
in a claim for arbitration by 'X' against 'M' in regard to the
contract with 'M', 'X' cannot implead 'D' as a party on the
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    688      SUPREME COURT REPORTS                 [2011] 5 S.C.R.


A   ground that there is an arbitration clause in the agreement
    between 'X' and 'D'.

        13. The existence of an arbitration agreement between the
  parties to the petition under section 11 of the Act and existence
  of dispute/s to be referred to arbitration are conditions
8
  precedent for appointing an Arbitrator under section 11 of the
  Act. A dispute can be said to arise only when one party to the
  arbitration agreement makes or asserts a claim/demand
  against the other party to the arbitration agreement and the
  other party refuses/denies such claim or demand. If a party to
C an arbitration agreement, files a petition under section 11 of
  the Act impleading the other party to the arbitration agreement
  as also a non-party to the arbitration agreement as
  respondents, and the court merely appoints an Arbitrator
  without deleting or excluding the non-party, the effect would be
D that all parties to the petition under section 11 of the Act
  (including the non-party to arbitration agreement) will be parties
  to the arbitration. That will be contrary to the contract and the
  law. If a person who is not a party to the arbitration agreement
  is impleaded as a party to the petition under section 11 of the
E Act, the court .should either delete such party from the array of
  parties, or when appointing an Arbitrator make it clear that the
  Arbitrator is appointed only to decide the disputes between the
  parties to the arbitration agreement.

F       14. The arbitration agreement relied upon by the first
  respondent to seek appointment of arbitrator, is clause (7) of
  the construction agreement dated 21.2.2008. The appellant
  was not a party to the said construction agreement dated
  21.2.2008 containing the arbitration agreement. It is no doubt
  true that the loan agreement dated 21.12.2006 between the first
G respondent as borrower, and the appellant as the creditor, also
  contains an arbitration clause (vide Article 11) providing for
  resolution of disputes in regard to the said loan agreement by
  arbitration. But the developer was not a party to the loan
  agreement. There is no arbitration agreement between the
H
 DEUTSCHE POST BANK HOME FINANCE LTD. v. 689
TADURI SRIDHAR AND ANR. [R.V. RAVEENDRAN, J.]
developer and the appellant. The disputes between the first         A
respondent and the developer cannot be arbitrated under Article
11 of the Loan Agreement. The first respondent invoked the
arbitration agreement contained in clause 7 of the construction
agreement (between first respondent and developer) and not
the arbitration agreement contained in clause 11 of the loan        B
agreement (between appellant and first respondent). The
existence of an arbitration agreement in a contract between
appellant and first respondent, will not enable the first
respondent to implead the appellant as a party to an arbitration
in regard to his disputes with the developer. ·                     c
      15. The first respondent obviously cannot involve the
appellant as a party to an arbitration in regard to his disputes
arising out of the claims made by him against the developer
which are covered by clause (7) of the construction agreement.
The disputes referred to in the petition under section 11 of the    D
Act relate to the claims of the first respondent against the
developer. It is however true that there is reference to the
appellant in disputes (b), (e) and (f) and reference to collusion
between the developer and the appellant in those 'disputes'.
The first respondent has also alleged that the appellant by         E
releasing the payments to the developer without verifying the
ground realities about the progress and construction and
without intimation to him, had committed breach of trust and
therefore liable to pay compensation for the financial and mental
suffering of the first respondent as also the legal and other       F
expenses. No such claim was ever been made against the
appellant before filing the petition under section 11 of the Act,
nor did the first respondent at any time seek arbitration in
regard to such claims against the appellant. The said claims
against the appellant cannot be arbitrated in an arbitration in     G
pursuance of clause (7) of the construction agreement between
the first respondent and the developer.

   16. The first respondent did not issue any notice or
demand making any claim against the appellant nor did he
                                                                    H
    690     SUPREME COURT REPORTS                  [2011] 5 S.C.R.

A issue any notice claiming that the appellant is liable for the
  consequences of non-performance by the developer, of its
  obligations. Nor did the first respondent issue any notice to the
  appellant seeking reference of any disputes to arbitration.
  Therefore it could not be said that any dispute existed between
B the first respondent and appellant, when the petition under
  section 11 of the Act was filed. Even in the application under
  section 11 of the Act, there is no reference to clause No.(11)
  of the loan agreement which contains the arbitration agreement
  in regard to disputes that may arise between the appellant as
c lender and the first respondent as the borrower. There is no
  claim or dispute in regard to the loan agreement. The first
  respondent has not invoked clause (11) of the loan agreement
  for deciding any dispute with the appellant.

       17. If there had been an arbitration clause in the tripartite
D agreement among the first respondent, developer and the
  appellant, and if the first respondent had made claims or raised
  disputes against both the developer and the appellant with
  reference to such tripartite agreement, the.position would have
  been different. But that is not so. The petition under section 11
E of the Act against the appellant was therefore misconceived as
  the appellant was not a party to the construction agreement
  dated 21.2.2008.

        18. In view of the above, we allow this appeal and set aside
F the order dated 12.4.2010 of the designate of the Chief Justice,
  in part, in so far as the appellant is concerned. We make it clear
  that the appointment of arbitrator under the impugned order shall
  remain undisturbed in so far as the disputes between first
  respondent and the second respondent (developer) are
G concerned. We further make it clear that this order will not come
  in the way of first respondent making any claim or raising a
  dispute against the appellant or appellant making any claim or
  raising a dispute against the first respondent and either of them
  seeking recourse to arbitration in regard to such disputes.

H B.B.B.                                          Appeal allowed.