The Supreme Court has dismissed an arbitration petition filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“the Act”), holding that Indian courts lack jurisdiction to appoint an arbitrator where the parties have chosen a foreign seat of arbitration in their principal or “Mother Agreement.”
The Division Bench comprising Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar held that the arbitration clause in the principal Buyer and Seller Agreement (BSA), which designated Benin as the seat, prevailed over conflicting arbitration clauses in subsequent ancillary contracts. The Court further observed that the petitioner was barred by the principle of “issue estoppel” due to the dismissal of a prior anti-arbitration injunction suit by the Delhi High Court involving the same issues.
Brief Summary of the Dispute
The petitioner, Balaji Steel Trade, sought a composite reference to arbitration against Fludor Benin S.A. (Respondent No. 1), M/s Vink Corporations DMCC (Respondent No. 2), and Tropical Industries International Pvt. Ltd. (Respondent No. 3). The core legal issue was whether the arbitration clause in the principal BSA, seated in Benin, was novated or superseded by subsequent Sales Contracts and High Seas Sales Contracts (HSSAs) entered into with Respondent Nos. 2 and 3, which provided for arbitration in India. The Supreme Court ruled that the BSA remained the “Mother Agreement,” and the dispute constituted an international commercial arbitration seated in Benin, thereby excluding the application of Part I of the Act.
Background of the Case
The petitioner, a partnership firm, entered into a Buyer and Seller Agreement (BSA) with Respondent No. 1, a company incorporated in the Republic of Benin, on June 6, 2019, for the supply of cottonseed cakes. Article 11 of the BSA stipulated that disputes would be resolved by arbitration which “will take place in Benin.” An Addendum executed on January 9, 2021, further clarified that the agreement would be governed by the laws of Benin.
To facilitate the supply, Respondent No. 1 assigned obligations to Respondent No. 2. Consequently, the petitioner entered into separate Sales Contracts with Respondent No. 2, which contained an arbitration clause providing for a sole arbitrator in New Delhi under the Indian Arbitration and Conciliation Act, 1996. Additionally, to address supply shortfalls, the petitioner entered into High Seas Sales Contracts (HSSAs) with Respondent No. 3, which contained an arbitration clause referring disputes to arbitration under the “Indian Arbitration Act 1940.”
Disputes arose regarding the quantity of supply and payments. Respondent No. 1 invoked arbitration in Benin. The petitioner, resisting the Benin arbitration, issued a notice invoking arbitration under the Indian Act against all three respondents, alleging a composite transaction. The petitioner also filed an anti-arbitration injunction suit before the Delhi High Court, which was dismissed. Subsequently, the petitioner approached the Supreme Court under Section 11(6).
Arguments of the Parties
Arguments on behalf of the Petitioner: Mr. Devadatt Kamat, Senior Counsel for the petitioner, argued:
- Composite Transaction: The agreements were interlinked under the “Group of Companies” doctrine, as the respondents were part of the TGI Group.
- Novation: The arbitration clause in the BSA stood novated by the subsequent Sales Contracts and HSSAs, which provided for arbitration in India.
- Seat vs. Venue: Alternatively, Benin was merely the “venue,” and the conduct of parties in later contracts pointed to India as the juridical seat, relying on Mankastu Impex Pvt. Ltd. v. Airvisual Ltd.
- Non-Est Proceedings: The arbitration proceedings initiated by Respondent No. 1 in Benin were non-est as Benin is not a reciprocating territory.
Arguments on behalf of the Respondents: Mr. Nakul Dewan, Senior Counsel for Respondent No. 1, contended:
- International Commercial Arbitration: The dispute arises solely under the BSA, governed by Benin law with Benin as the seat. Therefore, Part I of the Act (including Section 11) is inapplicable.
- Mother Agreement: Relying on Balasore Alloys Ltd. v. Medima LLC, it was argued that the BSA is the “mother agreement,” and its arbitration clause prevails over ancillary contracts.
- No Privity: Respondent Nos. 2 and 3 argued they were not parties to the BSA, and the disputes raised by the petitioner related to the BSA, to which they were aliens.
- Issue Estoppel: The findings of the Delhi High Court in the anti-arbitration suit had attained finality, barring re-litigation.
The Court’s Analysis
The Supreme Court examined the maintainability of the petition and the interaction between the varying arbitration clauses.
1. Exclusion of Part I of the Act The Court observed that the dispute qualified as an “international commercial arbitration” under Section 2(1)(f) of the Act. Citing the precedent set in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (BALCO) and BGS SGS SOMA JV v. NHPC Ltd., the Court held that Part I of the Act has no application to arbitrations seated outside India. The Bench noted:
“Article 11 of BSA read with Article 5 of the Addendum unequivocally shows that the parties not only indicated the geographical location of arbitration but also selected the governing law. The dual indications together leave little scope for doubt that Benin was intended to be the juridical seat with laws of Benin as the curial law.”
2. Dominance of the ‘Mother Agreement’ The Court rejected the petitioner’s argument regarding novation. It characterised the BSA as the “mother agreement” defining the long-term relationship, whereas the Sales Contracts and HSSAs were limited-purpose, ancillary instruments for specific shipments. The Court stated:
“The BSA continued to subsist independently… while the Sales Contracts and HSSAs merely operated as implementing or ancillary arrangements for discrete transactions… Therefore, the arbitration agreements in the Sales Contracts or HSSAs cannot displace or override the arbitration clause in the BSA.”
3. Issue Estoppel The Court placed significant weight on the dismissal of the petitioner’s anti-arbitration injunction suit by the Delhi High Court on November 8, 2024. The High Court had already determined that the BSA was the principal contract and that the Sales Contracts were distinct. The Supreme Court held that these findings on “jurisdictional facts” created an “issue estoppel.” Quoting Hope Plantations Ltd. v. Taluk Land Board Peermade, the Court affirmed:
“Rule of res judicata prevents the parties to a judicial determination from litigating the same question over again even though the determination may even be demonstratedly wrong.”
4. Rejection of Group of Companies Doctrine The Court found the reliance on the “Group of Companies” doctrine, as laid down in Cox & Kings Ltd. v. SAP India (P) Ltd., to be misplaced. The Court emphasized that mere overlap of shareholding is insufficient to bind non-signatories absent mutual intention.
Conclusion and Decision
The Supreme Court concluded that the invocation of Part I of the Act was legally untenable as the arbitration was foreign-seated. The Court also noted that the arbitration in Benin had already culminated in a final award dated May 21, 2024, and the petitioner could not initiate parallel proceedings.
The Bench held:
“The findings of the High Court of Delhi furnish a cogent and authoritative factual foundation… the BSA constitutes the mother agreement; the juridical seat of arbitration is Benin; the governing and curial law is the law of Benin; Part I of the Act stands excluded by operation of law.”
Consequently, Arbitration Petition No. 65 of 2023 was dismissed, with parties directed to bear their own costs.
