2019:DHC:277

$~OS-17
* IN THE HIGH COURT OF DELHI AT NEW DELHI

% Date of Decision: 15.01.2019

+ CS(COMM) 745/2017

RV SOLUTIONS PVT. LTD. ..... Plaintiff

Through Mr.Roshan Santhalaia and Ms.Nikitha
Surabhi, Advs.

versus

AJAY KUMAR DIXIT & ORS ..... Defendants

Through Mr.Bharat Arora, Adv. for D-1 to 4.
Mr.Rajeev Sharma, Adv. for D-5.
CORAM:
HON'BLE MR. JUSTICE JAYANT NATH

JAYANT NATH, J. (Oral)

IA No. 5097-99/2018
1. These applications are filed by defendants No. 1, 2 and 4 respectively
under Section 8 of the Arbitration and Conciliation Act, 1996 to refer the
parties to arbitration and direct the plaintiff to have the dispute resolved in
accordance with the mechanism of dispute resolution provided in the
agreement specially Clause 14.
2. This suit has been filed by the plaintiff seeking a decree of permanent
prohibitory injunction to restrain the defendants and its affiliates, directors,
etc. from inducing or soliciting or working with any employee of the
plaintiff. A decree of damages to the tune of Rs.1.10 crores is also sought
against the defendants.
3. The case of the plaintiff is that the plaintiff is a company providing

CS(COMM) 745/2017 Page 1 of 11

 2019:DHC:277

quality mobile repairing and maintenance, telecom, IT services and IT

solutions to its clients for a long period of time. It is stated that the plaintiff
has created a reputation for itself. Defendants No. 1 to 4 are ex-employees of
the plaintiff company. They joined the employment of the plaintiff at
different points of time and were working at senior managerial positions.
However, defendants No. 1, 3 and 4 abruptly left the services of the plaintiff
company. Now, defendants No. 1 to 4 with mala fide and ulterior motives
have colluded with each other and have acted in breach of the express
agreement and covenants signed and executed by them and are hence acting
in a manner causing grave damages to the plaintiff. It is pleaded that
defendants No. 1 to 4 have in fact joined defendant No. 5 Company.
Defendant No. 1 being CEO of defendant No. 5 Company is in complete
control of defendant No. 5 Company. It is pleaded that defendant No.1 has
misused the private and confidential information of the plaintiff company to
solicit clients, vendors and staff of the plaintiff. It is stated that huge losses
have been suffered from by the plaintiff Company on account of the
soliciting activities committed by the defendants at the behest of defendant
No. 1. Hence, the present suit has been filed.
4. As noted above, defendants No. 1, 2 and 4 have now filed the
aforesaid applications under Section 8 of the Arbitration Act. The
Arbitration clause in their employment agreement is admitted. There is no
arbitration clause in the employment agreement with defendant No. 3.
However, learned counsel for defendant No.3 does not oppose these
applications. Similarly, learned counsel appearing for defendant No. 5
submits that there is no agreement between the plaintiff and defendant No.
5. However, defendant No. 5 has no objection in case the present dispute is

CS(COMM) 745/2017 Page 2 of 11

 2019:DHC:277

referred to arbitration.
5. Learned counsel for the plaintiff has vehemently opposed the present
applications. He has submitted that in the present case, defendants No.5 is a
foreign entity with whom there is no agreement or collaboration. He submits
that in these facts, the judgment of the Supreme Court in the case of
Sukanya Holdings Pvt. Ltd. vs. Jayes H. Pandya & Ors., AIR 2003 SC
2252 would continue to apply.
6. Learned counsel for the defendants No. 1 to 4 has however submitted
that the judgment of the Supreme Court in the case of Ameet Lalchand
Shah & Ors. vs. Rishabh Enterprises & Ors., 2018 SCCOnline 487 will be
applicable. He also relies upon the judgment of the Single Judge of a
Coordinate Bench passed on 30.10.2018 in MGRM Medicare Ltd. vs.
Narang Surgicals and Ors., MANU/DE/4043/2018 which has relied upon
the judgment of the Supreme Court in Ameet Lalchand Shah & Ors. vs.
Rishabh Enterprises & Ors.
7. Section 8 of the Arbitration and Conciliation Act reads as follows:-
“8. Power to refer parties to arbitration where there is an
arbitration agreement.—
“1) A judicial authority, before which an action is brought in a
matter which is the subject of an arbitration agreement shall, if a
party to the arbitration agreement or any person claiming
through or under him, so applies not later than the date of
submitting his first statement on the substance of the dispute,
then, notwithstanding any judgment, decree or order of the
Supreme Court or any Court, refer the parties to arbitration
unless it finds that prima facie no valid arbitration agreement
exists. ;
....”

CS(COMM) 745/2017 Page 3 of 11

 2019:DHC:277

8. Hence, the Court before whom an action is brought may refer the
parties to arbitration unless it finds that prima facie no valid arbitration
agreement exists. The Supreme Court in A.Ayyasamy vs. A.Paramasivam
and Ors., AIR 2016 SC 4675 has held that the above provision contains a
positive mandate that obligates the judicial authority to refer the parties to
arbitration in terms of the arbitration agreement. The Supreme Court held as
follows:-
“26. The Arbitration and Conciliation Act, 1996 does not in
specific terms exclude any category of disputes—civil or
commercial—from arbitrability. Intrinsic legislative material is
in fact to the contrary. Section 8 contains a mandate that where
an action is brought before a judicial authority in a matter which
is the subject of an arbitration agreement, the parties shall be
referred by it to arbitration, if a party to or a person claiming
through a party to the arbitration agreement applies not later than
the date of submitting the first statement on the substance of the
dispute. The only exception is where the authority finds prima
facie that there is no valid arbitration agreement. Section 8
contains a positive mandate and obligates the judicial authority
to refer parties to arbitration in terms of the arbitration
agreement. While dispensing with the element of judicial
discretion, the statute imposes an affirmative obligation on every
judicial authority to hold down parties to the terms of the
agreement entered into between them to refer disputes to
arbitration. Article 8 of the Uncitral Model Law enabled a court
to decline to refer parties to arbitration if it is found that the
arbitration agreement is null and void, inoperative or incapable
of being performed. Section 8 of the 1996 Act has made a
departure which is indicative of the wide reach and ambit of the
statutory mandate. Section 8 uses the expansive expression
“judicial authority” rather than “court” and the words “unless it
finds that the agreement is null and void, inoperative and
incapable of being performed” do not find place in Section 8.”

CS(COMM) 745/2017 Page 4 of 11

 2019:DHC:277

9. Over passage of time the law regarding reference to arbitraton has

evolved. Even non signatories have now been referred to arbitration. In this
context reference may be had to some of the recent judgments of the
Supreme Court. In Chloro Controls India Private Limited vs. Severn Trent
Water Purification Inc.& Ors., (2013) 1 SCC 641 the Supreme Court held
as follows:-
“70. Normally, arbitration takes place between the persons who
have, from the outset, been parties to both the arbitration
agreement as well as the substantive contract underlining (sic
underlying) 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
agreement. Arbitration, thus, could be possible between a
signatory to an arbitration agreement and a third party. Of
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
Arbitration in England (2nd 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 the rights
of the named party.
3. The claimant has become a party 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 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.”
……

CS(COMM) 745/2017 Page 5 of 11

 2019:DHC:277

73. 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 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 the mother agreement 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 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.
…..
102. 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
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 is
supported by a number of reasons.
103. Various legal bases may be applied to bind a non-signatory
to an arbitration agreement:
103.1 The first theory is that of implied 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.
103.2 The second 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

CS(COMM) 745/2017 Page 6 of 11

 2019:DHC:277

the force of the applicable law.”

10. Similarly, in Cheran Properties Limited vs. Kasturi & Sons Limited
and Ors., 2018 SCC Online SC 431 the Supreme Court held as follows:-
“26. The Court held that it would examine the facts of the case
on the touch-stone of the existence of a direct relationship with a
party which is a signatory to the arbitration agreement, a „direct
commonality‟ of the subject matter and on whether the
agreement between the parties is a part of a composite
transaction:

“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
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 the mother
agreement 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 justice. Once this exercise is completed and
the court answers the same in the affirmative, the
reference of even no signatory parties would fall
within the exception afore-discussed.”

27. Explaining the legal basis that may be applied to bind a non-
signatory to an arbitration agreement, this Court held thus:
“The first theory is that of implied consent,
third-party beneficiaries, guarantors, assignment
and other transfer mechanisms of contractual
rights. This theory relies on the discernible

CS(COMM) 745/2017 Page 7 of 11

 2019:DHC:277

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,
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.
..
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-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.”
…..
31. Does the requirement, as in Section 7, that an arbitration
agreement be in writing exclude the possibility of binding third
parties who may not be signatories to an agreement between two
contracting entities? The evolving body of academic literature as
well as adjudicatory trends indicate that in certain situations, an
arbitration agreement between two or more parties may operate to
bind other parties as well. Redfern and Hunter explain the
theoretical foundation of this principle:

“..The requirement of a signed agreement in writing,

however, does not altogether exclude the possibility of
an arbitration agreement concluded in proper form
between two or more parties also binding other parties.
Third parties to an arbitration agreement have been
held to be bound by (or entitled to rely on) such an
agreement in a variety of ways: first, by operation of
the „group of companies‟ doctrine pursuant to which
the benefits and duties arising from an arbitration
agreement may in certain circumstances be extended

CS(COMM) 745/2017 Page 8 of 11

 2019:DHC:277

to other members of the same group of companies;

and, secondly, by operation of general rules of private
law, principally on assignment, agency, and
succession.”

11. Similarly, in Ameet Lalchand Shah & Ors. vs. Rishabh Enterprises
& Another, 2018, SCCOnline SC 487 the Supreme Court held as follows:-
“35. Under the Act, an arbitration agreement means an
agreement which is enforceable in law and the jurisdiction of the
arbitrator is on the basis of an arbitration clause contained in the
arbitration agreement. However, in a case where the parties
alleged that the arbitration agreement is vitiated on account of
fraud, the Court may refuse to refer the parties to arbitration.
In Ayyasamy case, this Court held that mere allegation of fraud is
not a ground to nullify the effect of arbitration agreement
between the parties and arbitration clause need not be avoided
and parties can be relegated to arbitration where merely simple
allegations of fraud touched upon internal affairs of parties is
levelled. Justice A.K. Sikri observed that it is only in those cases
where the Court finds that there are serious allegations of fraud
which make a virtual case of criminal offence and where there
are complicated allegations of fraud then it becomes necessary
that such complex issues can be decided only by the civil court
on the appreciation of evidence that needs to be produced. In
para (25) of Ayyasamy case, Justice Sikri held as under:—
“25…..Therefore, the inquiry of the Court, while
dealing with an application under Section 8 of the Act,
should be on the aforesaid aspect viz. whether the
nature of dispute is such that it cannot be referred to
arbitration, even if there is an arbitration agreement
between the parties. When the case of fraud is set up by
one of the parties and on that basis that party wants to
wriggle out of that arbitration agreement, a strict and
meticulous inquiry into the allegations of fraud is
needed and only when the Court is satisfied that the
allegations are of serious and complicated nature that it
would be more appropriate for the Court to deal with

CS(COMM) 745/2017 Page 9 of 11

 2019:DHC:277

the subject-matter rather than relegating the parties to

arbitration, then alone such an application under Section
8 should be rejected.”

36. While concurring with Justice Sikri, Justice D.Y.

Chandrachud pointed out that the duty of the Court is to impart
“sense of business efficacy” to the commercial transactions
pointing out that mere allegations of fraud were not sufficient to
decline to refer the parties to arbitration. In para (48)
of Ayyasamy case, Justice D.Y. Chandrachud held as under:—

“48. The basic principle which must guide judicial

decision-making is that arbitration is essentially a
voluntary assumption of an obligation by contracting
parties to resolve their disputes through a private
tribunal. The intent of the parties is expressed in the
terms of their agreement. Where commercial entities
and persons of business enter into such dealings, they
do so with a knowledge of the efficacy of the arbitral
process. The commercial understanding is reflected in
the terms of the agreement between the parties. The
duty of the court is to impart to that commercial
understanding a sense of business efficacy.”
(Underlining added)
12. As held by the Supreme Court in Cheran Properties Limited vs.
Kasturi & Sons Limited and Ors.(surpa), the 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 have to be
seen. A third party or a non-signatory could be subjected to arbitration
without his prior consent, though this would only be in exceptional cases.
This would happen only when there is a direct relationship to the party
signatory to the arbitration agreement, commonality of the subject-matter
and the agreement between the parties being a composite transaction.

CS(COMM) 745/2017 Page 10 of 11

 2019:DHC:277

13. In the present case, there is clearly commonality of facts which bind
the defendants together. It is the own case of the plaintiff that the defendants
have in collusion with each other in a mala fide and unlawful manner acted
to cause loss and damages to the plaintiff. Defendants No. 1 to 4 are said to
be the ex-employees of the plaintiff. The said five defendants are said to
have together caused loss and damages to the plaintiff. It is manifest that
there is commonality of parties, commonalities of interest which would
warrant that the matter be referred to arbitration. The objection of the
plaintiff is without merit.
14. At this stage, learned counsel for the parties request that the matter be
referred for arbitration to Delhi International Arbitration Centre.
Accordingly, I appoint Mr.Justice N.K. Mody (Retd.) r/o A-192, Defence
Colony, New Delhi (Mobile No.9425115911) as the Sole Arbitrator in the
present case. The learned Arbitrator will work under the aegis of Delhi
International Arbitration Centre.
15. The application stands disposed of.
CS(COMM) 745/2017
At this stage, learned counsel for the plaintiff submits that as the
matter has been referred to arbitration, this court may direct refund of the
court fees under Section 89 of the CPC read with Section 16 of the Court
Fees Act, 1870. It is ordered accordingly. The plaintiff shall be entitled to
refund of the court fees
In view of the above, the suit stands disposed of.
All pending applications also stand disposed of.

JANUARY 15, 2019/rb JAYANT NATH, J

CS(COMM) 745/2017 Page 11 of 11