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POSITION OF THIRD PARTIES UNDER THE INDIAN ARBITRATION ACT, 1996

The issue regarding the position of third parties under the Indian Arbitration and Conciliation
Act, 1996 needs to be looked into with respect to sections 7, 8, 9, 11, 34, 44 and 45. Section 7
of the 1996 Act which provides for an arbitration agreement, when read with section 8 of the
1996 Act provides for a judicial authority to refer the parties to arbitration, who have, in a
well defined legal relationship agreed to arbitrate any dispute arising between them to. The
question which often arises while interpreting section 7 with section 8 is that whether a third
party which is not a signatory to the arbitration agreement and not in a well defined legal
relationship can ask a judicial authority before whom an action has been brought to refer the
matter to arbitration.

The Supreme Court made an attempt to answer this question in Sukanya Holdings Pvt. Ltd. v
Jayesh H. Pandya & Anr.1 and held that where a suit is commenced – ‘as to a matter’ which
lies outside the arbitration agreement and is also between some of the parties who are not
parties to the arbitration agreement, there is no question of application of Section 8. The
judgment in this case, however, was concerned more with bifurcation of cause of action and
did not directly deal with the position of third parties. The court finally held that section 8
cannot be interpreted in a manner so as to allow bifurcation of the cause of action or the
subject-matter of the suit. Bifurcation of the suit between parties who are parties to the
arbitration agreement and others is not possible. Moreover, such bifurcation of the suit in two
parts, one to be decided by the Arbitral Tribunal and other to be decided by a civil court
would cause delay to the proceedings.

A certain amount of clarity regarding the position of third parties was provided by the
Supreme Court in Deutsche Post Bank Home Finance Ltd. v Taduri Sridhar & Anr.2 wherein
it was held by the Court that in case of tripartite agreement between Respondents and
Appellant, where the Respondent had not raised any dispute against the Appellant with
reference to an arbitration agreement, the Appellant could not be made a party to the
arbitration. The arbitration agreement in this case was between the first respondent and the
second respondent, to which the Appellant was not a party to. The first respondent had filed a
petition u/s 11 of the 1996 Act for appointment of a sole arbitrator and for making the
Appellant a party to the arbitration proceedings. The order of the Chief Justice’s designate as

1
AIR 2003 SC 2252, (2003) 5 SCC 531, (2003) 3 SCR 558
2
AIR 2011 SC 1899, (2011) 11 SCC 375, 2011 (2) Arb LR 1 (SC)
per section 11, appointed the arbitrator without considering the Appellants objection that it
was not a party to the arbitration agreement and therefore, should not be made a party to the
arbitral proceedings. On appeal, the Supreme Court held that the first respondent could not
involve the appellant as a party in regard to disputes arising out of claims made by the first
respondent against the second respondent. 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 developer and the Appellant
with reference to such tripartite agreement, the position would have been different. But that is
not so. The Court relied upon Yogi Agarwal v Inspiration Clothes3 and made an observation
that when Sections 7 and 8 of the Act refer to the existence 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 purposes of Sections 7 and 8 of
the Act, should satisfy two conditions. Firstly, it should be between the parties to the dispute
and secondly, it should relate to or be applicable to the dispute. The Court explained the
position by an example that 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 ground that there is an arbitration clause
in the agreement between ‘X’ and ‘D’. In this case, the Court took a strictly contractual view
of the arbitration agreement and held that non-signatories cannot be made a party to the
arbitral proceedings.

In Indowind Energy Ltd. v Wescare Ltd. & Anr.4, the same position was adopted by the
Supreme Court that as per the definition of ‘party’ u/s 2(h) read with sections 7 and 2(b),
Indowind, not being a signatory to the arbitration agreement between Wescare and Subuthi,
could not be made a party to the arbitration proceedings. Indowind and Wescare were two
different companies having a distinct legal identity from the other. Since Indowind had not

3
(2009) 1 SCC 372
4
AIR 2010 SC 1793, (2010) 5 SCC 306, (2010) 4 SCALE 395
See also; The General Manager, Oriental Fire and General Insurance Co. Ltd. & Anr. v Mahendra Pd. Gupta,
1983 PLJR 711 – the arbitration clause which was entered into between the insured and the insurer cannot be
taken advantage of by a third person and the said third person cannot, in case a dispute arises with regard to his
claim against the insured, take advantage of the said arbitration clause and get such dispute referred to
arbitration.
entered into any arbitration agreement with Wescare, it could not be made a party to the
proceedings commenced by Wescare against Subuthi.

A slightly liberal approach regarding the position of third parties to an arbitration agreement
was taken by the Supreme Court in P.R. Shah Shares and Stock Brokers v B.H.H. Securities5.
As per the facts of this case, the appellant and the second respondents were sister concerns
and had a common director. The director had approached the first respondent for a ‘sauda’ on
the Stock Exchange. The first respondent secured the ‘sauda’, delivered the bill and contract
to the second respondent and only the second respondent’s name was on the contract. A
dispute arose regarding full payment to the first respondent not made by the appellant and the
second respondent which led to arbitration proceedings as per the Bye-laws of the Mumbai
Stock Exchange. An award was made which was challenged by the appellant before the
Bombay High Court on the grounds that there was no arbitration agreement between itself
and the first respondent. The appellant also contended that there could not have been a single
arbitration as per the Bye-Laws of the Stock Exchange between two members and a member
and a non-member. The High Court dismissed the petition and on appeal to the Supreme
Court the appellant contended that as the provisions for arbitration are different in regard to a
dispute between a member and a non-member and in regard to a dispute between two
members, there cannot be a common arbitration in regard to a claim or dispute by a member
against another member and a non-member. Under Bye Law 248, there can be arbitration
only in regard to a dispute between a member and a non- member. A dispute between two
members will have to be decided under Bye Law 282. The constitution of the Arbitral
Tribunal, the procedure followed and remedies available were completely different in regard
to a claim of a member against a non-member and claim of a member against another
member. Therefore, there could not be a single arbitration in regard to a claim of a member
against a non-member and another member. Reliance was placed by the Appellant on
Sukanya Holdings wherein it was held that where a suit is commenced in respect of a matter
which falls partly within the arbitration agreement and partly outside and which involves the
parties, some of whom are parties to the agreement while some are not, Section 8 of the Act
was not attracted and the subject- matter of the suit could not be referred to arbitration, either
wholly or by splitting up the causes of action and the parties. The Supreme Court rejected the
contention of the appellants by distinguishing Sukanya Holdings and held that the decision in

5
AIR 2012 SC 1866, 2011 (4) Arb LR 128 (SC)
Sukanya Holdings will not apply as we are not concerned with a suit or a situation where
there is no provision for arbitration in regard to some of the parties.

In this case the court further explained the position that if A had a claim against B and C, and
there was an arbitration agreement between A and B but there was no arbitration agreement
between A and C, it might not be possible to have a joint arbitration against B and C. A
cannot make a claim against C in an arbitration against B, on the ground that the claim was
being made jointly against B and C, as C was not a party to the arbitration agreement. But if
A had a claim against B and C and if A had an arbitration agreement with B and A also had a
separate arbitration agreement with C, there is no reason why A cannot have a joint
arbitration against B & C. Obviously, having an arbitration between A and B and another
arbitration between A and C in regard to the same claim would lead to conflicting decisions.
In such a case, to deny the benefit of a single arbitration against B and C on the ground that
the arbitration agreements against B and C are different, would lead to multiplicity of
proceedings, conflicting decisions and cause injustice. It would be proper and just to say that
when A has a claim jointly against B and C, and when there are provisions for arbitration in
respect of both B and C, there can be a single arbitration. In this case though the arbitration in
respect of a non-member is under Bye-law 248 and arbitration in respect of the member is
under Bye Law 282, as the Exchange has permitted a single arbitration against both, there
could be no impediment for a single arbitration It is this principle that has been applied by the
learned Single Judge, and affirmed by the division bench. As first respondent had a single
claim against second respondent and appellant and as there was provision for arbitration in
regard to both of them, and as the Exchange had permitted a common arbitration, it is not
possible to accept the contention of the appellant that there could not be a common arbitration
against appellant and second respondent. The court thereafter, refused to set aside the award.
The decision in P.R. Shah further clarifies the position of non signatories or third parties to an
arbitration agreement and the position after this judgment can be summed up as being that a
third party cannot be made a party to the arbitration proceedings where there is no agreement
to arbitrate between such a party and the claimant. However, in case such an agreement does
exist, such a party can still be made a party to the arbitration proceedings commenced on
claims arising from another party and both claims can be heard in a single arbitration in case
of a joint claim against both the parties.
POSITION OF THIRD PARTIES UNDER SECTION 9 OF THE 1996 ACT.

Section 9 of the Arbitration and Conciliation Act, 1996 provides for interim measures to be
granted by a Court. While granting such an interim measure, the courts might be faced with a
situation where the interim measure would have to be granted against a third party who is not
a signatory to the arbitration agreement. The position of third parties under section 9 of the
Act needs to be analysed in the perspective of whether an interim measure can be granted
against such a third party by the Court.

In Shoney Sanil v Coastal Foundation,6 there was an arbitration agreement between


respondents 1 to 4. The Writ Petitioner had bought the property in question and was in
possession of the property. On an application filed by Respondent No. 1 under section 9 of
the 1996 Act, the district court passed an order of injunction restraining the writ petitioner
and respondents 2 to 4 or their agents from doing any work or challenging or altering the
present nature of the property and the piles in the said property. The Petitioner challenged this
order and the question which arose before the Kerala High Court was whether the writ
petitioner, admittedly, a third party to an alleged arbitral agreement between the respondents
and who has, in his favour, a confirmed court sale and certificate of such sale and delivery of
possession, following and arising under an independent decree, could be dispossessed,
injuncted or subjected to other court proceedings under Section 9 of the Act? The Court
looked into the definition of ‘parties’ as per Section 2(1)(h), the meaning of arbitration
agreement under section 7 and the wording of section 9 and answered the question in the
negative. The court held that on a plain reading of Section 9 of the Act and going by the
scheme of the said Act, there is no room to hold that by an interim measure under Section 9,
the rights of third party, holding possession on the basis of a court sale could be interfered
with, injuncted or subjected to proceedings under Section 9 of the Act. Section 9 of the Act
contemplates issuance of interim measures by the court only at the instance of a party to an
arbitration agreement with regard to the subject-matter of the arbitration agreement. This can
be only as against the party to an arbitration agreement, or at best, against any person
claiming under him. The writ petitioner is a third party auction purchaser in whose favour is a
sale certificate, followed by delivery of possession. He cannot therefore be subjected to
proceedings under Section 9.

6
AIR 2006 Ker 206, 2006 (4) Arb LR 294 (Kerala), 2006 (1) KLT 915
However, a Division Bench decision of the Bombay High Court in Girish Mulchand Mehta
& Durga Jaishankar Mehta v Mahesh S. Mehta and Harini Cooperative Housing Society
Ltd.7 took the opposite view and held that an interim measure under section could also be
directed against a third party who was a non signatory to the arbitration agreement. The Court
distinguished the case of Shoney Sanil and held that the Kerala High Court had clearly opined
that an interim measure may be passed against a ‘person claiming under any party’ to the
agreement. According to the Court, in the given factual situation the interim measure was
granted against a third party who was claiming under a party to the arbitration agreement.
The Court went on to observe that the right conferred by Section 9 is on a party to an
Arbitration Agreement. That Section 9 has relevance to the locus standi as an applicant. A
person not party to an arbitration agreement cannot enter the Court for protection under
Section 9 of the Act. Section 9 has nothing to do with the relief which is sought for from the
Court or the right which is sought to be canvassed in support of the relief. The relief sought in
such application is neither in a suit nor a right arising from a contract. The Court under
Section 9 only formulates interim measures so as to protect the right under adjudication
before the Arbitral Tribunal from being frustrated.8 Such an interim measure could also be
granted against a third party.

In Impex Trading GMBH v Anunay Fab. Ltd. and Ors.9 the relief was sought against the
bankers of the Respondent No. 1 and Petitioner respectively. The Court found as of fact that
liability of the Bank under the document was independent of any dispute as to breach of
contract between the seller and the buyer. On this finding, the Court went on to hold that
Petition under Section 9 of the Act against the Bankers who are not even party to the
consignment Agreement and the Arbitration Clause is not maintainable and deserves
dismissal qua them.

No general principle of maintainability/applicability or non-maintainability/non-applicability


can be laid down. It will have to be determined by the Court in the facts of each case whether
for the purpose of interim measure of protection, preservation, sale of any goods, securing the
amount in dispute and order affecting the third party can be made or not.10

7
(2010) 1 Bom CR 31
8
Firm Ashok Traders and Anr. v. Gurmukhdas Saluja and Ors., AIR 2004 SC 1433
9
(2008) 1 Arb LR 50 (Delhi)
10
Value Advisory Services v. ZTE Corporation and Ors. See also; Arun Kapur v. Vikram Kapur, 2002-DLT-95-
42 - Section 9 is distinct from Section 17 in as much as Petition under Section 17 is moved before the Arbitrator
POSITION OF THIRD PARTIES UNDER SECTION 34 OF THE 1996 ACT

Section 34 of the Arbitration and Conciliation Act, 1996 provides for setting aside of an
arbitral award by a party on an application and on the grounds mentioned in sub-section 2. In
Chennai Container Terminal Pvt. Ltd. v Union of India11 there was an arbitration agreement
between Chennai Container Terminal Private Limited (CCTPL) and Chennai Port Trust,
arbitration proceedings commenced as per the agreement and an award was made by the
Tribunal. Union of India, being a third party to the arbitration agreement sought to set aside
the award u/s 34 of the 1996 Act. The Single Judge allowed this by holding that though
Government of India was not a signatory to the arbitration agreement, it was a party non-
signatory. Therefore, not only a party to the arbitration agreement but a party non-signatory
also can challenge the impugned award passed by the learned arbitrator. On appeal to the
Division Bench, the Court came to the conclusion that the order of the Single Judge could not
be sustained because Union of India was neither a party to the agreement nor to the
arbitration proceedings. The Court looked into section 2(1)(h) and section 34 of the 1996 Act
and came to the conclusion that the word ‘party’ wherever it occurs in the Act unless the
context otherwise requires could only mean such person who is a party to an arbitration
agreement as defined in Section 2(1)(b) of the Act as an agreement referred to in Section 7.
A plain reading of Section 34 shows that only party to the arbitration agreement and party
to the arbitration award can file an application to set aside the arbitration award and
that too only on the grounds provided under Section 34(2) of the Act. The Court however,
agreed with the observation of the Single Judge that though Section 34 of the Act
contemplates challenge of the award made by the party to the arbitration agreement,
in view of Section 2(1)(h) of the Act, the import of the word 'party' can be judiciously
expanded, if the context so warrants. In the given factual circumstance the Court however,
did not find any reason to expand the import of the word ‘party’ as per the context the
arbitration agreement. There was nothing in the subject or context of Section 34 which would
suggest us to depart from the definitional meaning of the expression ‘party’.

for an order against a party to the proceedings, whereas Section 9 vests remedy to a party to arbitration
proceedings to seek interim measure of protection against a person who need not be either party to the
arbitration agreement or to the arbitration proceedings.
11
AIR 2007 Mad 327, (2007) 3 Arb LR 510 (Madras)
In B.D. Bhanot v Shri Narmada Enterprises & Ors.,12 the Division Bench of the High Court
of Madhya Pradesh dealt with the question, namely, whether a third party or non-signatory to
an arbitration agreement could seek to set aside an arbitral award by invoking extra-ordinary
jurisdiction of the Writ Court under Article 226 of the Constitution of India. The Single Judge
was of the view that though the Writ Petitioners were not a ‘party’ to the arbitration
agreement and could not challenge an award u/s 34 or appeal against an order u/s 37 of the
1996 Act but they could approach the High Court by invoking Writ jurisdiction under artice
226 of the Constitution of India. The Division Bench did not agree with this view and on a
perusal of Sections 2(1)(h), section 34, section 37 and section 7 held that not a single
provision in the entire 1996 Act countenanced an appeal by a stranger. The parties can assail
the award under Section 34 of the 1996 Act by satisfying conditions enumerated
therein. The statutory appeal lies at the instance of the party to appropriate Court. A
Writ Petition filed by a stranger to the agreement could not be entertained to appeal from an
order of the Tribunal or to set aside an award.

In S.N. Prasad v Monnet Finance Ltd. & Ors.,13 the award was passed against the appellant
who was not a party to the arbitration agreement. The Appellant contended that he was not a
party to the tripartite loan agreements executed among respondents 1, 2 and 3 (that is the
lender, the borrower and borrower's Managing Director-cum-Guarantor) containing the
arbitration clause. He had merely given a short letter standing guarantee for a loan of Rs. 75
Lakhs sanctioned by the first respondent. As there was no arbitration agreement between the
first respondent and appellant, the claim against the appellant could not be referred to
arbitration, nor could any award be made against him. The awards against the appellant were
therefore liable to be set aside under section 34(2)(a)(ii) of the Act. The Court after looking
into the relevant provisions of the 1996 Act came to the conclusion that as there was no
arbitration agreement between the parties (the first respondent and appellant), the impleading
of appellant as a respondent in the arbitration proceedings and the award against the appellant
in such arbitration could not be sustained.

12
2007 (3) MPHT 206
13
AIR 2011 SC 442, (2011) 1 SCC 320, 2010 (10) SCALE 225
SECTION 45 OF THE 1996 ACT AND THIRD PARTIES.

Section 45 of the Arbitration and Conciliation Act, 1996 falls under Part-II of the Act relating
to Enforcement of Foreign Awards and is a provision that is worded similarly to section 8 of
the 1996 Act. According to section 45, if any judicial authority is seized of an action in a
matter in respect of which the parties have had an agreement to arbitrate as per section 44,
then, at the request of any of the parties or any person claiming through or under him, the
judicial authority shall refer the matter to arbitration.

Section 45 differs from section 8 with respect to the words ‘persons claiming through or
under’ a party which are present in section 45 but not in section 8. A recent decision of the
Supreme Court in Chloro Controls Pvt. Ltd. v Severn Trent Water Purification Inc. & Ors.14
analysed section 45 in detail and interpreted the words ‘persons claiming through or under
him’ featuring in the section. The following issues regarding third party or multi-party
arbitration were posed before the Supreme Court for determination:

1. What is the ambit and scope of Section 45 of the Arbitration and Conciliation Act,
1996 (for short 'the 1996 Act')?
2. Whether the principles enunciated in the case of Sukanya Holdings Pvt. Limited v
Jayesh H. Pandya, is the correct exposition of law?
3. Whether in a case where multiple agreements are signed between different parties
and where some contain an arbitration clause and others don't and further the
parties are not identically common in proceedings before the Court (in a suit) and
the arbitration agreement, a reference of disputes as a whole or in part can be made
to the arbitral tribunal, more particularly, where the parties to an action are claiming
under or through a party to the arbitration agreement?

The Court firstly looked into the interpretation of section 45 and held that satisfying the
requirements of section 44 would be a pre-requisite to approaching any court under section
45 of the 1996 Act. As per section 44, there needs to be an arbitration agreement between
parties in accordance with Article II of the First Schedule of the 1996 Act. Only after this
requirement is fulfilled, can an application under section 45 be made.

14
2012 (4) Arb LR 1 (SC), (2013) 1 SCC 641, 2012 (9) SCALE 595
The Court then observed that the language of Section 45 is at a substantial variance to the
language of Section. In Section 45, the expression 'any person' clearly refers to the
legislative intent of enlarging the scope of the words beyond 'the parties' who are signatory
to the arbitration agreement. Such applicant should claim through or under the signatory
party. Once this link is established, then the Court shall refer them to arbitration. 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 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 but 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. The Court then gave the
following illustrations where a non-signatory could also be made a party to an arbitration
proceeding by referring to Sir Michael J. Mustill’s book on the Law and Practice of
Commercial Arbitration in England:
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 part 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.

The Court also considered the ‘Group of Companies Doctrine’ whereby an arbitration
agreement entered into by a company, being one within a group of companies, can bind its
non-signatory affiliates or sister or parent concerns, if the circumstances demonstrate that
the mutual intention of all the parties was to bind both the signatories and the non-
signatory affiliates. Thus, a non-signatory could also be bound by an arbitration agreement
as per this doctrine when there was a clear intention to bind the companies forming that
group by the arbitration agreement.

However, in certain exceptional circumstances non-signatories or third parties could be


subjected to arbitration without their prior consent. The Court would have to examine these
exceptions keeping in mind the 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 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. The court considered the opinion of
Alan Redfern and Martin Hunter in their book, Law and Practice of International
Commercial Arbitration, where they have said that when several parties are involved in a
dispute, it is desirable that the dispute should be dealt with in the same proceedings rather
than in a series of separate proceedings.

The Court went on to say that where origin and end of all transactions is with the Mother or
the Principal Agreement, the fact that a party was non-signatory to one or other agreement
may not be of much significance. The performance of any one of such agreements may be
quite irrelevant without the performance and fulfillment of the Principal or the Mother
Agreement. Besides designing the corporate management to successfully complete the
joint ventures, where the parties execute different agreements but all with one primary
object in mind, the Court would normally hold the parties to the bargain of arbitration and
not encourage its avoidance. In cases involving execution of such multiple agreements, two
essential features exist; firstly, all ancillary agreements are relatable to the mother
agreement and secondly, performance of one is so intrinsically inter-linked with the other
agreements that they are incapable of being beneficially performed without performance of
the others or severed from the rest. The intention of the parties to refer all the disputes
between all the parties to the arbitral tribunal is one of the determinative factors.

Regarding multi-party arbitrations, the Court said that such arbitration may arise in two
conditions. First, in a situation where there may be several parties to one contract and
second, where there are several contracts with different parties that may have a bearing on
the matter in dispute. In the latter case a problem arises as the parties may have different
issues in dispute. Each one of them will be operating under different contracts often with
different choice of law and arbitration clauses and yet, any dispute between for example,
employer and the main contractor is likely to involve or affect one or more of the suppliers
or sub-contractors, even under other contracts. The Court referred to the judgment in the
Adgas Case15 where Adgas had started arbitration in England against the main contractors
under an international construction contract, who in turn denied their liability, placed it on
the sub-contractors, and wanted to initiate separate arbitration proceedings against the sub-
contractors. Lord Denning, giving judgment in the English Court of Appeal, plainly wished
that an order could be made consolidating the two sets of arbitral proceedings so as to save
time and money and to avoid the risk of inconsistent awards:

“As we have often pointed out, there is a danger in having two separate arbitrations in a
case like this. You might get inconsistent findings if there were two separate
arbitrators. This has been said in many cases...it is most undesirable that there should
be inconsistent findings by two separate arbitrators on virtually the self-same question,
such as causation. It is very desirable that everything should be done to avoid such a
circumstance.”

The Court further looked into the legislative intent behind Section 45 and held that the
New York Convention was physically before the Legislature and available for its
consideration when it enacted the 1996 Act. Article II of the Convention provides that each
contracting State shall recognise an agreement and submit to arbitration all or any
differences which have arisen or which may arise between them in respect of a defined
legal relationship, whether contractual or not concerning a subject matter capable of
settlement by arbitration. Once the agreement is there and the Court is seized of an action
in relation to such subject matter, then on the request of one of the parties, it would refer
the parties to arbitration unless the agreement is null and void, inoperative or incapable of
performance. Still, the legislature opted to word Section 45 somewhat dissimilarly.
Section 8 of the 1996 Act also uses the expression 'parties' simpliciter without any
extension. In significant contra-distinction, Section 45 uses the expression 'one of the
parties or any person claiming through or under him' and 'refer the parties to arbitration',
whereas the rest of the language of Section 45 is similar to that of Article II (3) of the New
York Contention. The Court cannot ignore this aspect and has to give due weightage to the
legislative intent. It is a settled rule of interpretation that every word used by the
Legislature in a provision should be given its due meaning. Thus, it appears that the
Legislature intended to give a liberal meaning to this expression.

15
Abu Dhabi Gas Liquefaction Co. Ltd. v Eastern Bechtel Corporation, (1982) 2 Lloyd's Rep. 425, CA
Coming to the correctness of the judgment in Sukanya Holdings, the Court came to the
conclusion that there was no need for the Court to examine the correctness of the law in the
judgment since it was not concerned with section 45 but with section 8 of the 1996 Act.
Secondly, in that case the Court was concerned with the disputes of a partnership concern.
A suit had been filed for dissolution of partnership firm and accounts also challenging the
conveyance deed executed by the partnership firm in favour of one of the parties to the
suit. The Court noticing the facts of the case emphasized that where the subject matter of
the suit includes subject matter for arbitration agreement as well as other disputes, the
Court did not refer the matter to arbitration in terms of Section 8 of the Act. In the case in
hand, there is a mother agreement and there are other ancillary agreements to the mother
agreement. It is a case of composite transaction between the same parties or the parties
claiming through or under them falling under Section 45 of the Act. Thus, the dictum
stated in para 13 of the judgment of Sukanya Holdings would not apply to the present case.

In conclusion the Court held that Section 45 is a provision falling under Chapter I of Part II
of the 1996 Act which is a self-contained Code. The expression 'person claiming through
or under' would mean and take within its ambit multiple and multi-party agreements,
though in exceptional case. Even non-signatory parties to some of the agreements can pray
and be referred to arbitration provided they satisfy the pre-requisites under
Sections 44 and 45 read with Schedule I. Reference of non-signatory parties is neither
unknown to arbitration jurisprudence nor is it impermissible. In the facts of a given case,
the Court is always vested with the power to delete the name of the parties who are neither
necessary nor proper to the proceedings before the Court. In the cases of group companies
or where various agreements constitute a composite transaction like mother agreement and
all other agreements being ancillary to and for effective and complete implementation of
the Mother Agreement, the court may have to make reference to arbitration even of the
disputes existing between signatory or even non-signatory parties. However, the discretion
of the Court has to be exercised in exceptional, limiting, befitting and cases of necessity
and very cautiously. The judgment in Chloro Chemicals v Severn Trent comprehensively
lays down the law on section 45 in India with respect to third parties. It is not
inconceivable for third parties or non signatories to be made a party to arbitration
proceedings if they seem to be claiming through or under any party to the agreement. The
position under section 45 is therefore liberal than what has been held to be under section 8
as per this judgment.