Separate Arbitration Agreements can be referred to joint arbitration in case of composite transaction, Delhi HC

The Delhi High Court has held that dispute arising out of separate agreements having distinct arbitration clauses can be referred to a joint arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 if the agreements form a composite transaction..The order was passed by a Single Judge Bench of Justice Jayant Nath in a suit filed by the plaintiff, Global Infonet Distribution Pvt Ltd against Lenovo (India) Pvt Ltd (Defendant no 1) and two of its business associates for recovery of a sum of Rs.17,70,39,462..The Plaintiff engaged in trading and distribution of computers, laptops computer hardware etc and was approached by Defendant no 1 in 2014 for regional distributorship of Lenovo products..The offer was accepted by the Plaintiff and it was first given the distributorship for the State of Punjab and subsequently for other States as well..The Plaintiff was given distributorship for these regions through Defendant No.2 and was thus required to purchase the products under distributorship from Defendant No.2 only and also make payments for the bills/invoices to the Defendant No 2 only..For this purpose, the Plaintiff executed Regional Distribution Agreement with both Defendants No.1 and 2 for various territories..Subsequently, the performance of the Plaintiff was assessed and Defendant No 1 implemented a direct distributorship arrangement with the Plaintiff. Under this agreement, the Plaintiff was required to directly purchase the products from Defendant No.1 but would make payments through the financial arrangements made through Defendants No.3..Later on, disputes arose between the parties as the Plaintiff alleged that the Defendants 1 and 2 failed to keep their promises and assurances. It was pleaded that from Defendant No.1 in collusion with Defendant No.2 and 3 “devised a unique and ingenious strategy in respect of pricing and marketing” and imposed it on the Plaintiff through Defendant No 1’s dominant position..This strategy “ensured that defendants are always overpaid and the plaintiff was at the mercy of the defendants“, it was argued..The Plaintiff thus sought to recover damages to the tune of Rs 17,70,39,462, jointly and severally from the Defendants..In response, the Defendants filed three applications under section 8 of the Arbitration and Conciliation Act, 1996..The Plaintiff argued the situation was not covered by an Arbitration Agreement. It stated that it had executed separate Distribution Agreements/Agreement with the three defendants. The Agreements provided for different dispute resolution mechanisms and jurisdictions and it was not possible for the Plaintiff to resort to them separately, it was added..After hearing the parties, the Court noted that Section 8 of the Arbitration Act contained a positive mandate which obligated it to refer the parties to arbitration in terms of an arbitration agreement..Relying on the Supreme Court judgement in Cheran Properties Limited vs. Kasturi & Sons Limited and Ors., the Court stated that for the purpose of Section 8, facts of any cases are to be tested at the touchstone of existence of a relationship between the parties, commonality of the subject matter and whether the agreement between the parties is a part of a composite transaction..The Court observed that in the present case, although the parties had entered into three different agreements, there was clearly a commonality of facts which, as per the plaintiff, bound the defendants together..“It is the own case of the plaintiff in the plaint that defendants No.1, 2 and 3 are jointly and severally liable for the damages suffered by the plaintiff. The plaintiff further states that the transactions of the plaintiff with the defendants in relation to the products of defendant No.1 are closely inter-related, fully inter-dependent and the defendants have acted in joint collusion by hatching an ingenious plan. It is also stated by the plaintiff that the cause of action for the plaintiff qua the defendant arises out of mutual collusive acts and omissions of the said defendants.”.Thus, in view of the above, the Court held that there was a commonality of facts which bound the defendants together and the Plaintiff could not be allowed to escape from the arbitration agreement..The Arbitration Agreement with Defendants No 1 and 3 provided that the seat of arbitration was Bangalore while the one with Defendant 2 had Mumbai as the seat..Defendant No 2, however, submitted that it had no objection if arbitration proceedings were held in Bangalore..Accordingly, in view of the existence of a composite transaction, the suit was disposed of and the Section 8 application was allowed with the dispute being sent to joint arbitration..The Plaintiff was represented by Advocates Asit Tewari, Ankita Rastogi..The Defendants were represented by Advocates Sanjeev Anand, Arush Khanna, Shreya Singh, Sudhir Kumar, Ashna Abrol, Purushattam Kr.Jha. .Read the Order: