Which Arbitration Clause governs the dispute? Insights from DLF Home Developers Ltd. v. Rajapura Homes Pvt. Ltd. & Anr.

Factual Background

This case concerns two arbitration petitions (16 & 17 of 2020) under Section 11(6) of the Arbitration & Conciliation Act, 1996 (“A&C Act”) by DLF Home Developers Limited (hereinafter “Petitioner”).

Petitioner entered into a joint venture (“JV”) with Ridgewood Holdings Limited, wherein Ridgewood invested in four special purpose vehicles, which included Rajapura Homes Private Limited (Respondent in Petition no. 17, hereinafter “Rajapura”) and Begur OMR Homes Pvt. Ltd. (Respondent in Petition no. 16, hereinafter “Begur”) for development of residential projects across India. Subsequently, Ridgewood transferred its stake in the JV to two of its affiliates, one of which was Resimmo PCC (Respondent No. 2 in both petitions, hereinafter “Resimmo”) and other affiliate is Clogs Holding BV (collectively ‘affiliates’).

Entering into Share Purchase Agreements

As per the agreement between affiliates and Petitioner, the affiliates were to put option on Petitioner, which they exercised, but the Petitioner failed to provide an exit. In such situation, the affiliates and Petitioner agreed to a settlement under which Resimmo was to acquire both the Special Purpose Vehicles. To that effect, two Share Purchase Agreements (SPAs) were entered amongst Resimmo, Petitioner, Rajapura and Begur (respectively).

The SPAs also stipulated that the parties as a ‘condition precedent’ execute two construction management agreements (CMAs) to closing of the transactions. The Parties entered into such CMAs.

Arbitration clauses

While the SPAs stipulated that all disputes arising out of the contract shall be submitted for arbitration which shall be conducted in accordance with the rules of the Singapore International Arbitration Centre (hereinafter “SIAC”), with the seat and venue of the arbitration being Singapore; the CMAs provided that the seat and venue of Arbitration would be New Delhi, and the arbitration would be governed by the Arbitration and Conciliation Act, 1996.

Disputes

Under the CMAs, the Petitioner was to provide construction services. On completion of the same, the Petitioner was to issue a notice of completion and on acceptance of the Completion, the Resimmo was to invest a sum of Rs. 75 crores in Begur. The benefit was then to be passed to Petitioner in the form of fees. For this, the Petitioner, Rajapura, Begur and Resimmo entered into a fee computation agreement.

In both the CMAs, the Petitioner issued such notices, however, Rajapura and Begur refused to accept notices citing reasons like incomplete documents, delay in completion, etc.

In this backdrop, disputes arose between the Petitioner and the Respondents and Begur, which led to the petitioner invoking arbitration under the CMAs on the ground that the notice of completion of the projects issued pursuant to CMAs, were unreasonably rejected by the Respondents and thus there was a breach of the CMAs. The Petitioner also desired that all disputes arising out of both CMAS be referred to a common and composite Arbitral Tribunal comprising of a sole arbitrator.

The Respondents and Begur, however, refused to appoint a sole arbitrator. Further, they contended that the dispute are governed by the SPAs citing that the issue is whether the completion has been achieved is an obligation under SPAs, and thus, the disputes will have to be resolved through separate arbitration proceedings under the rules of the SIAC.

The Petitioner thus preferred the present two petitions under Section 11(6), read with Section 11(2), of the A&C Act praying for appointment of a sole arbitrator for resolution of all disputes arising from the CMAs.

Relevant extract of Dispute resolution clause in SPA

All disputes or differences regarding this Agreement shall be submitted to final and binding arbitration at the request of any of the disputing Parties upon written notice to that effect to the other Parties…….

Relevant extract of Dispute Resolution clause in CMA

Subject to Clause 4.6, all disputes or differences regarding this Agreement shall be submitted to final and binding arbitration at the request of any of the Parties upon written notice to that effect to the other Party…….

Issue

Whether the nature of dispute sought to be referred for arbitration in these petitions fall under the CMAs or SPAs.

Whether the dispute should be referred to a consolidated and composite tribunal or should there be two different arbitral tribunals to resolve the same.

Petitioner’s Position

The Petitioner relied on Garware Wall Ropes Ltd. v. Coastal Marine Construction and Engineering Ltd., Vidya Drolia vs Durga Trading Corporation, and Duro Felguera S.A vs Gangavaram Port Limited in arguing that under Section 11(6), the Court can only examine the arbitrability of a dispute. They also contended that since the parties have not disputed the presence of the arbitration agreement, the dispute should be referred for arbitration. Further, the Petitioner relied on Uttarakhand Purv Sainik Kalyan Nigam Limited v. Northern Coal Field Limited to argue that once the existence of an arbitration agreement has been established, other incidental issues should be left to be decided by the arbitrator under Section 16 of the Act.

In addition, the Petitioner relied on P.R. Shah Shares & Stock Brokers (P)Ltd vs M/S. B.H.H. Securities (P) Ltd. & Ors in submitting that the proceedings should be consolidated to avoid multiplicity of arbitrations and conflicting decisions. The Petitioner, in alternative, prayed for the Court to appoint the same sole arbitrator for both arbitration petitions and leave the decisions on the consolidation of proceedings to discretion of sole arbitrator.

Respondent’s Position

The Respondents contended that the dispute exclusively falls within the ambit of the SPAs, and therefore, it cannot be referred for arbitration under the CMAs. They relied on Duro Felgura, S.A as well as Vidya Drolia in arguing that under Section 11(6), the Court is required to examine whether the agreements in question contain an arbitration clause in respect of the disputes that have arisen between the parties.

Further, the Respondents contended that the SPAs were the principal agreement, and CMAs were only to operationalise the manner in which the Petitioner will fulfil its obligations. Reliance was placed on Olympus Superstructures Pvt. Ltd. vs Meena Vijay Khetan to argue that where there are disputes/differences concerning both the main agreement and also the matters connected to it, the arbitration would be governed by the general arbitration clause of the main agreement. The Respondents added that once it is held that disputes are governed by the SPAs, providing seat of arbitration as Singapore, the present petitions would not be maintainable.

In alternative, the Respondents contended that if the petitions are to be allowed, then following the principles laid down in Duro Felgura, the Court need to appoint separate tribunals for each CMA, though it may comprise of same sole arbitrator.

Decision and Reasoning

On Issue 1

The Supreme Court observed that it would be difficult to accept that the SPAs are the ‘principal agreements governing the transaction’ between the parties or that the present disputes can be resolved solely under the arbitration clause contained therein because, a “prima facie reading” of the two agreements suggests that notwithstanding certain overlaps between the agreements, “their object and field of operation is different and distinct in nature.”

Further, the Court examined Olympus Superstructures and observed that the nature of arbitration clauses in the present case is substantially different to the dispute resolution clause of the main agreement in Olympus Superstructuresas “arbitration Clause 9 of the Rajapura SPA/Southern Homes SPA does not have any overriding effect and is in no way broader or wider when compared to Clause 11 of the RCMA/SCMA.”

The Court also noted that by accepting Respondents’ plea that the disputes be arbitrated only under the SPAs would lead to all disputes relating to the Petitioner’s construction obligation to be arbitrable only under the SPAs, which would defeat the purpose of having a separate arbitration clause in the CMAs, and rendering them redundant, which does not seem to be the intention of the parties given that they were entered later in time.

In addition to the above, the Court also observed that neither party has actually pleaded the infringement of the provisions of the SPAs, and as a result, it refused to hold that the dispute falls within the ambit of the SPAs The Court held that the dispute came under the ambit of the CMAs and the arbitration clause mentioned in CMAs would apply.

On Issue 2

The Supreme Court observed that since the Fee Agreement provides that the “Fee” can only be calculated after taking into consideration various financial components of both the Rajapura and the Southern Homes Project, it would be appropriate to refer the disputes emanating out of the two petitions to a sole arbitrator “for the sake of avoiding wastage of time and resources, and to avoid any conflicting awards.”

However, the Court left the question of whether the disputes should be consolidated and adjudicated under one composite award or otherwise to the wisdom of the sole arbitrator.

Author(s)

Tejas Jain

Student at Vivekananda Institute of Professional Studies