Disposed

Anheuser Busch Inbev India Limited v. East Godavari Breweries Private Limited

Karnataka HC31 Mar 2021CMP/304/2019

Case brief

AI extract

What is this about?

Disputes under a brewing agreement and supporting guarantees concerned whether non-signatories were bound by its arbitration clause. The court referred all respondents and the entirety of disputes to arbitration, appointed two arbitrators, and directed them to appoint the presiding arbitrator.

What did the court decide?

All respondents referred to arbitration; Swatanter Kumar and V. Gopala Gowda appointed arbitrators, to appoint the presiding arbitrator. Place of arbitration: Bengaluru.

Anheuser Busch Inbev India Limited Vs East Godavari Breweries… — Arbitration | Karnataka HC (2021)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 31^ST DAY OF MARCH 2021

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BEFORE

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THE HON'BLE MR.JUSTICE S. SUNIL DUTT YADAV CIVIL MISCELLANEOUS PETITION No.304/2019

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Between:

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ANHEUSER BUSCH INBEV INDIA LIMITED A Company governed by the provisions of the Companies Act, 2013 and having its registered office at

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Unit No.301-302, Dynasty Business Park, 'B' Wing, 3^rd Floor, Andheri Kurla Road, Andheri (East), Mumbai- 400 059, Maharashtra. Represented by its authorised representative Ajitha Pichaipillai, Legal Director, India BU … Petitioner

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(By Mr.Srinivas Raghavan, Senior Advocate for Ms.Meenakshy Natesan, Mr.Amar Gupta, Mr.Ashish Joshi & Ms.Divya Aggarwal, Advocates)

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And:

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EAST GODAVARI BREWERIES PRIVATE LIMITED A Company governed under the provisions of the Companies Act, 2013 and having its registered office at 5-172C, Thimmapuram, Near Tata Motors, Kakinada, Guntur, Andhra Pradesh - 533 005.

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Also at: 4^th Floor, Plot No.13, Phase-III, Road No.82, Jubilee Hills, Hyderabad- 500 033.

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SCARPE MARKETING PRIVATE LIMITED A Company governed under the provisions of the Companies Act, 2013 and having its registered office at Flat No.4B, Rama Classic 9, Shilpi Valley, Gafoor Nagar, Madhapur, Hyderabad, Telangana- 500 081.

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SATISH BABU SANA Major, Father's name not known to this petitioner Residing at Flat No.4B, Rama Classis 9, Shilpi Valley, Gafoor Nagar, Madhapur, Hyderabad, Telangana- 500 081.

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S.V.BAPUJI Major, Father's name not known to this petitioner Residing at House No.8-105, Near Geetha Mandir, Korumamidi, Nidadavolu Mandalam, Korumarnidi, West Godavari, Andhra Pradesh- 534 305.

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S. GURUJU Major, Father's name not known to this petitioner Residing at Flat No.504, Block-1, Swathi Heights, Prashant Nagar Colony, A.S.Rao Nagar, Kapra, Hyderabad, Telangana- 500 062. … Respondents

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(By Mr.Pradeep Nayak, Advocate for

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Mr.Nishanth Kadur and

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Mr.Siddharth Aiyanna, Advocate for R1;

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Mr.Udaya Holla, Senior Advocate for

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Ms.Nitya Kalyani, Advocate for R3;

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Mr.Salman Khurshid, Senior Advocate for

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Mr.Jafar Khurshid, Ms. Aadya Mishra and

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Mr.Sivaramakrishnan M.S., Advocates for R2, R4 and R5)

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This Civil Miscellaneous Petition is filed under Section 11(6) of the Arbitration and Conciliation Act, 1996, praying to appoint the remaining Members of the three-member Arbitral Tribunal and constitute the Arbitral Tribunal for the reference of disputes between the parties as per Clause 24.1 of the Brewing Agreement dated 06.02.2015 vide Annexure-'B' and etc.

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This Civil Miscellaneous Petition having been heard and reserved on 10.02.2021 and coming on for pronouncement of orders, this day, the Court made the following:

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ORDER

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The present petition has been filed seeking appointment of remaining three Members' of the Arbitral Tribunal and to constitute the Arbitral Tribunal for reference

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of disputes between the parties as per Clause 24.1 of the Brewing Agreement dated 06.02.2015.

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I. Facts of the case:-

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It is stated that the petitioner-Anheuser Busch Inbev India Limited and the respondent No.2 were parties to a Customer Information Service Provider Agreement (hereinafter referred to as "CISP Agreement") entered into on 21.03.2012. It is stated that originally the 'CISP Agreement' was executed on 21.03.2012 between M/s.SKOL Breweries Limited (hereinafter referred to as

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'SKOL') renamed to SABMiller India Limited (hereinafter referred to as 'SABMiller') in 2014 and has been eventually taken over by the petitioner on the one hand and ILIOS Business Solutions Private Ltd., (hereinafter referred to as 'ILIOS') the Company stated to have been promoted by respondent No.3-Mr.Satish Babu Sana.

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It is further stated that on 31.01.2015, the respondent No.3 and ILIOS represented to the petitioner that respondent No.1 and ILIOS are affiliate Companies and had guaranteed performance of respondent No.1 under the brewing contract, which was still under contemplation.

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It is stated that respondent No.3 representing ILIOS executed a "Guarantee" in favour of SABMiller on 31.01.2015 and it is asserted that on the basis of such Guarantee, the petitioner has executed the Brewing Agreement with respondent No.1 on 06.02.2015. The purpose of Brewing Agreement was setting up of a facility to manufacture and brew the beer of petitioner Company. The petitioner is stated to have granted an advance of Rs.17.50

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Crores in terms of Clause 6.12 of the Agreement and the parties have also stipulated at Clause 24 of the Agreement that the dispute resolution mechanism is by recourse to arbitration.

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It is further submitted that on 13.02.2015, the Directors/Promoters of respondent No.1 (including respondent No.3 and another) have given a second guarantee undertaking to perform all the obligations under the Brewing Agreement in case of default by respondent No.1 including return of the advance.

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It is also stated that after the rights of CISP Agreement were assigned to respondent No.2 on 09.09.2015, the respondent Nos.2 to 5 have furnished fresh guarantee under which the promoters had guaranteed that they would be jointly and severally liable to ensure "due performance of the obligation" under the Brewing Agreement, extending to an undertaking for refund of the advance by respondent No.1 to the petitioner under the stated circumstances.

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It was clarified that in the event of termination of

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Brewing Agreement and the advance having become due, they would be "jointly and severally" liable to repay the advance with applicable interest. It is also stated that the petitioner would be entitled to offset the amounts due to the respondent No.2 under the CISP Agreement against the refund of advance.

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It is stated that as the petitioner's representative allegedly gave oral instructions to respondent No.1 to stop working on 11.11.2016, operations being stopped eventually resulted in notice of termination being issued by the petitioner on 03.08.2018. The petitioner has subsequently called upon the respondent No.1 to pay the advance with interest. The respondent No.1 had in turn replied that it paused all operations on the basis of instructions from the representative of the petitioner. The petitioner is also stated to have invoked the Guarantee of other respondents. Accordingly, the notice of arbitration having been sent to the respondents and in light of absence

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of concurrence as regards the appointment of Arbitrator, the present petition has been filed.

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II. Contentions of Petitioner:-

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The petitioner contends that the respondent No.3 (described as Promoter No.1 in Document No.2 of the memo dated 05.01.2021), respondent Nos.4 and 5 (described as Promoter Nos.(i) and (ii) in Document No.1 of the memo dated 05.01.2021) are promoters of respondent No.2 and the respondent No.2 is an affiliate of respondent No.1, are all bound by the Arbitration Clause provided in the Brewing Agreement. It is contended that under the Guarantee stated to have been executed by the respondent Nos.2 to 5 referred to supra in paras-(1) to (6), each of them have jointly and severally agreed to be bound by all the obligations under the Brewing Agreement which would include the obligations to resolve the dispute through arbitration.

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It is further contended that the parties' intention

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to be bound by the Arbitration Agreement is manifest from

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the terms of the Guarantee itself. Reliance is placed on the judgments of Apex Court in the case of Chloro Controls India Private Limited v. Severn Trent Water Purification INC. and Others¹ and Cheran Properties Limited v. Kasturi and Sons Limited and Others² to contend that even non-signatories will be bound by the arbitration agreement, if there is implied consent to be so bound. It is stated that the non-signatories would be bound in the event if the parties are affiliated, where nonsignatory is an alter ego and have a direct relationship with the signatory to the arbitration agreement, all of which conditions are made out in the present case.

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It is further submitted that the various

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agreements i.e., the Brewing Agreement and the Guarantee are part of a composite transaction, if that would be so the transactions are construed in a commercial sense and a "sense of business efficacy" is to be attributed to the transactions to serve the ends of justice. It is further

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1 (2013) 1 SCC 641

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2 (2018) 16 SCC 413

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submitted that it is to be construed that the respondent Nos.2 to 5 are bound by the arbitration clause contained in the Brewing Agreement entered into between the petitioner and respondent No.1.

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It is also contended that the Guarantee is inextricably linked to the Brewing Agreement and its performance and any dispute regarding such Guarantee is also covered under Clause-24 of the Brewing Agreement.

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III. Contentions of Respondents:

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The respondent No.1 on the other hand contends

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that it is only the petitioner and respondent No.1 who are parties to the Brewing Agreement and that the respondent Nos.2 to 5 are non-signatories. It is stated that the interpretation of Clause-24 would restrict the reference to arbitration only as regards "any dispute between the parties arising out of this agreement or any clause or words in connection with the obligation under this agreement".

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It is specifically asserted that the dispute of the petitioner against respondent Nos.2 to 5 are stated to have arisen on the basis of 'Letter of Guarantee/Letter of Comfort', while respondent No.1 is not a party to such 'Letter of Guarantee/Letter of Comfort'.

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It is stated that the dispute as framed by the petitioner would make out a dispute between the petitioner on one hand and a dispute with the respondent Nos.1 to 5 based on joint and several liability of respondent Nos.1 to 5. It is contended that as respondent No.1 has not entered into any explicit agreement with the other respondents and accordingly, it cannot be construed that the respondent No.1 had agreed to refer the dispute for arbitration pertaining to the petitioner on one hand and respondent Nos.2 to 5 on the other.

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It is further contended that when the Dominus Litus frames a dispute in a certain manner, then the bifurcation of proceedings in terms of subject matter of the dispute and the parties is impermissible and accordingly, as

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partial reference of dispute between the petitioner and respondent No.1 is impermissible, the question of reference to arbitration does not arise. In support of such contention, reliance is placed on the judgment of Apex Court in the case of Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Another³ . Reliance is also placed on the judgment of Bombay High Court in the case of MSTC Ltd. v. M/s. Omega Petro Products Pvt. Ltd. and Ors.⁴

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The respondent No.3 has further contended that he is not a party to the Brewing Agreement, that the 'Letter of Guarantee/Letter of Comfort' made out in favour of petitioner were not intended to create any legally binding relationship. It is asserted that the 'Letter of Guarantee/Letter of Comfort' are not guarantees and are issued only for the purpose of internal approvals to obtain sanctions and were unconnected to the Brewing Agreement. It is also submitted that the "existence of an Arbitration Agreement" is a condition precedent and in its absence,

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3 (2003) 5 SCC 531

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4 (2018) SCC Online Bom 487

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insofar as the respondent No.3 is concerned, the reference must fail. It is asserted that there is no incorporation of Arbitration Agreement by reference to another contract justifying the reference. Reliance is placed on the judgment of Apex Court in the case of M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited⁵ .

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Respondent Nos.2, 4 and 5 have taken a common stand and assert that the second Letter of Comfort, which is undated was merely issued to enable the petitioner to obtain internal approval and sanctions for the purposes of obtaining loan and is not connected with the Brewing Agreement. Similar contentions as raised by respondent No.3 have been raised including that there exists no agreement between these respondents, that the Letters of Comfort do not create any legally enforceable right in favour of the petitioner against respondent Nos.2, 4 and 5.

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5 (2009) 7 SCC 696

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Heard Mr.V.Srinivas Raghavan learned Senior

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Counsel appearing for Ms.Meenakshy Natesan, Mr.Amar Gupta, Mr.Ashish Joshi, Ms.Divya Aggarwal for the petitioner and Mr.Pradeep Nayak, learned counsel appearing for Mr.Nishanth Kadur, Mr.Siddharth Aiyanna for respondent No.1 and Mr.Udaya Holla, learned Senior Counsel appearing for Ms.Nitya Kalyani for respondent No.3 and Mr.Salman Khurshid, learned Senior Counsel appearing for Mr.Jafar Khurshid, Ms.Aadya Mishra and Mr. Sivaramakrishnan M.S., for respondent Nos.2, 4 and 5.

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IV. Consideration:-

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19. Scope of power exercised under Section 11 of the Arbitration and Conciliation Act, 1996:-

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At the outset, the scope of power conferred upon the

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Court under Section 11 of the Arbitration and Conciliation Act, 1996 ('the Act' for brevity) needs to be determined.

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(i) The Apex Court in the case of Mayavati Trading

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Private Limited v. Pradyuat Deb Burman⁶ has clarified that post 2015 Amendment, the enquiry under Section 11(6-A) of the Arbitration and Conciliation Act is confined to the examination of existence of an Arbitration Agreement in the narrow sense laid down in the case of Duro Felguera, S.A. v. Gangavaram Port Limited⁷ in paras-48 and 59. In para-59 of Duro Felguera, S.A., (supra), the Apex Court has clarified that post 2015 amendment, all that the Court needs to see is to "whether the arbitration agreement exists - nothing more nothing less" and that Legislative policy and purpose is to minimize the Court's intervention, which intention as reflected in Section 11(6-A) of the Act is to be respected.

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(ii) The Apex Court in the case of Vidya Drolia and Others v. Durga Trading Corporation⁸ has clarified that the scrutiny is extremely limited and restricted and it is only the prima facie test that needs to be applied and where

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6 (2019) 8 SCC 714

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7 (2017) 9 SCC 729

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8 (2021) 2 SCC 1

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there are debatable and disputable facts and a good reasonable arguable case is made out for reference, the matter is to be relegated to the Arbitral Tribunal which has the primary jurisdiction to decide the disputes relating to its jurisdiction.

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(iii) The Apex Court has opined that while exercising power to decline reference to the Arbitral Tribunal, it is only where it is manifestly and ex-facie certain that the arbitration agreement is non-existent and to protect parties from being forced to arbitrate where no case is made out and to cut-off the dead wood, the Court could refuse reference.

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It is also clarified that it is not the stage for the Court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the Arbitral Tribunal.

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Keeping in mind the above limitations on exercise of power, the Court is required to consider the material on record and decide.

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20. Binding nature of Arbitration Clause contained in Brewing Agreement on the other respondents vis-à-vis their Guarantees :-

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(i) Another aspect of the matter that requires consideration is as regards to whether the other respondents, i.e. respondent Nos.2 to 5 being non-signatories to the Brewing Agreement are also bound by the arbitration clause insofar as their disputes with the petitioner arising out of Letter of Guarantee/Letter of Comfort stated to have been executed by them in favour of the petitioner.

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(ii) The Apex Court in the case of Chloro Controls India Private Limited v. Severn Trent Water Purification INC. and Others⁹ has observed that even non-signatories could be subjected to arbitration, though in exceptional cases as enunciated in para-73, which reads as follows:

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"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

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9 (2013) 1 SCC 641

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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."

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(iii) The non-signatories being bound by an arbitration clause in another agreement finds its source on the legal basis as enunciated by the Apex Court in the case of Chloro Controls (supra) at paras-103.1 and 103.2 as follows:-

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"103.1. The first theory is that of implied consent, third-party beneficiaries, guarantors,

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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.

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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 the force of the applicable law."

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(iv) The Apex Court in the case of Cheran Properties Limited v. Kasturi and Sons Limited and Others¹⁰ has

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given an expanded meaning to composite nature of transaction by observing as follows:

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" 23. As the law has evolved, it has recognised that modern business transactions are often effectuated through multiple layers and agreements. There may be transactions within a group of companies. The circumstances in which they have entered into them may reflect an intention to bind both signatory and non-signatory entities within the same group. In holding a non-

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10 (2018) 16 SCC 413

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signatory bound by an arbitration agreement, the court approaches the matter by attributing to the transactions a meaning consistent with the business sense which was intended to be ascribed to them. Therefore, factors such as the relationship of a non-signatory to a party which is a signatory to the agreement, the commonality of subjectmatter and the composite nature of the transaction weigh in the balance. The group of companies doctrine is essentially intended to facilitate the fulfillment of a mutually held intent between the parties, where the circumstances indicate that the intent was to bind both signatories and non- signatories. The effort is to find the true essence of the business arrangement and to unravel from a layered structure of commercial arrangements, an intent to bind someone who is not formally a signatory but has assumed the obligation to be bound by the actions of a signatory."

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21. Factual matrix in the context of the legal position.-

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(i) The facts relevant to demonstrate implied consent in the context of multi-layer composite transaction:-

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(a) Director of respondent No.1 viz., respondent No.3 and first respondent Company have executed an

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undertaking on 13.02.2015 in favour of the predecessor-in-title of the present petitioner, viz., SABMiller and have furnished the cheques authorising SABMiller to present the cheques towards realization of advance provided by SABMiller to respondent No.1, if circumstances so warrant.

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(b) It is specifically clarified in the said document

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that respondent No.3 and Ms.Sana Naga Jyothi, who are promoters and Directors would also ensure that the first respondent Company would honour its commitment under the Brewing Agreement. The petitioner has filed this undertaking by respondent No.1 produced as Document No.3 dated 13.02.2015 alongwith the memo dated 05.01.2021.

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(c) Respondent Nos.2, 4 and 5 have by an assignment undertaken to be bound by all obligations agreed by ILIOS with SABMiller. As per such undertaking as contained in Document No.1 (filed alongwith the memo dated 05.01.2021), the signatories referred to above affirm

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the contents of the letter dated 31.01.2015 and stand guarantee for the due performance of the obligations of the respondent No.1 under the Brewing Agreement, including refund of advance by respondent No.1 to SABMiller. Further, the undertaking by promoter Nos.(i) and (ii) are stated to be an undertaking on their personal behalf apart from an undertaking on behalf of the second respondent.

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(d) At an earlier point of time, respondent No.3 in the capacity of promoter of ILIOS and Ms.Sana Naga Jyothi, promoter No.(ii) of ILIOS had also executed a document in favour of SABMiller that they would ensure due performance of obligation by the respondent No.1 under the Brewing Agreement. It was also provided that in the event of termination of contract, i.e. Brewing Agreement and upon intimation from SABMiller and Guarantee becoming due, the signatories would make arrangements for refund of advance with interest upon demand by SABMiller.

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It is also to be noted that this undertaking/guarantee was assigned in favour of respondent No.2.

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(ii) It becomes clear from such of the documents prima facie that the guarantee as contained in Document Nos.1, 2 and 3 (filed alongwith memo dated 05.01.2021) have all been made to facilitate and ensure that the respondent No.1 would honour its commitments under the Brewing Agreement to SABMiller (eventually transformed into petitioner). The essence of such undertaking would indicate that the Brewing Agreement may not have been entered into, but for such undertaking as made out in the aforesaid documents. The signatories to the said documents include the Promoters/Directors in their personal capacity as well as on behalf of respondent No.2. Accordingly, it is a case as made out by the petitioner in the legal notice issued, invoking the arbitration clause as per Annexure-H dated 08.11.2018 that SCARPE-respondent No.2 and its Promoters are jointly and severally liable for losses suffered by the petitioner Company due to breach of the obligation under the Brewing Agreement, while also making claim as against the respondent No.1 by virtue of obligations under the Brewing Agreement.

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(iii) It must be seen in light of discussion supra at para-19 that the scope of enquiry in the present proceedings are limited only to a prima facie satisfaction.

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(iv) It is relevant to notice that the respondent Nos.2, 4 and 5 as well as respondent No.3 do not dispute the execution of documents at Document Nos.1, 2 and 3.

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(v) The multi-layered agreements some of which are in the nature of undertakings which include the agreement executed by ILIOS and those as contained in Document Nos.1, 2 and 3 (filed alongwith the memo dated 05.01.2021) can be stated to have been executed with the common objective of ensuring that the Brewing Agreement is implemented.

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(vi) The only way of ensuring business efficacy to the multi-layered commercial transaction is to construe the entirety of undertakings by the respondents apart from the obligations imposed in the Brewing Agreement on respondent No.1 to be a composite transaction with the

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objective of implementing the Brewing Agreement. The present factual matrix would require assigning the term 'composite transaction' without restricting such expression to cases where the ancillary contracts are intrinsically intertwined to the main contract.

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(vii) In the present case, the facts point out to standing assurances by the respondents other than respondent No.1 made to the petitioner solely with the objective of ensuring that the petitioner reposes faith in respondent No.1 for performance of obligations under the Brewing Agreement. But for the assurances made by respondents other than respondent No.1, the Brewing Agreement may never have materialized. If that were to be so, it could be construed that in the event of any breach by respondent No.1, the other respondents are required to be held accountable to their assurances in the same action where respondent No.1 is called to account. This is the only manner in which the entirety of multi-layered transaction, i.e. the Brewing Agreement, other undertakings as

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contained in Document Nos.1, 2 and 3 filed alongwith the memo dated 05.01.2021 is to be construed for the purpose of providing business efficacy to the entire transaction and to construe the same in a commercial sense.

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(viii) In light of the requirement of prima facie determination in the present proceedings, it cannot be stated that the petitioner has not made out even a “good arguable case” for reference.

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V. Judgments relied upon by the parties:-

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Reliance has been placed on the judgment of Apex Court in the case of Indowind Energy Limited v.

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Wescare (India) Limited and Another¹¹ (Decision by a Bench of three Judges) by the respondents in support of their contention that the satisfaction of Section 7(5) is to be strictly construed, failing which, the non-signatory to the agreement could not be bound. Further, the reference to the role of Affiliate Companies and the Directors/Promoters signing the guarantees relied upon by the petitioner while 11 (2010) 5 SCC 306

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seeking to bind the non-signatories is countered by placing reliance on the observations in the case of Indowind Energy Limited (supra) that each Company is a separate and distinct legal entity and the mere fact that the Companies have common share holders or common Board of Directors will not make the separate entities a single entity.

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It must be noted that the Apex Court in the case of Cheran Properties Limited (Supra) (decision by a Bench of three Judges) at para-22 has specifically stated that the judgment in Indowind Energy Limited (supra) was prior to the evolution of law in Chloro Controls (supra). Evolution of law which is to be discerned from the observations at para-23 and while enlarging the category of cases with respect to which a non-signatory would also be

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bound, the Apex Court has observed as follows:-

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"23. ...The effort is to find the true essence

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of the business arrangement and to unravel from a layered structure of commercial arrangements, an intent to bind someone who is not formally a

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signatory but has assumed the obligation to be bound by the actions of a signatory."

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Accordingly, the judgment in Indowind Energy Limited (supra) does not come to the aid of the respondents.

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The respondents have also relied on the decision of Apex Court in the case of S.N.Prasad, Hitek Industries (Bihar) Limited v. Monnet Finance Limited and Others¹² to contend that the guarantor for a loan who is not a party to a loan agreement containing the arbitration agreement executed between the lender and borrower cannot be bound by the arbitration clause found in the agreement between the borrower and lender. The Apex Court in the case of Cheran Properties Limited (Supra) clarifies the evolution of law at para-23 while specifically referring to the case of S.N.Prasad Hitek Industries (supra) . It is also to be noticed that while in S.N.Prasad

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Hitek Industries (supra) deals with a loan transaction and where a surety was sought to be made a party, in the present case, the facts would reveal that the guarantee is in 12 (2011) 1 SCC 320

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the form of an assurance to secure the performance of Brewing Agreement and cannot be equated to a mere contract of guarantee.

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As regards the judgment of Apex Court in the case of Deutsche Post Bank Home Finance Limited v. Taduri Sridhar and Another¹³ , it must be noted that the said decision is prior to the decision in Chloro Controls (supra) and the Apex Court has refused to follow the same both on facts and law as observed in para-160 and hence, cannot be relied upon at this point of time, where the law has evolved substantially.

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The reliance on the case of STCI Finance Ltd v.

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Shreyas Kirti Lal Doshi and Another¹⁴ , where the Delhi High Court was considering as to whether the arbitration clause found in the facility agreement was intended to be incorporated into the deed of guarantee where it was held that reference to arbitration was not permissible and held that there was no intention of the parties that even disputes

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13 (2011) 11 SCC 375

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14 2020 SCC Online Del 100

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with respect to deed of guarantee was also to be referred to arbitration and that the parties had intended only to refer the disputes in the loan facility agreement alone, it is to be noted that the said judgment does not refer to the judgment of Apex Court in the case of Cheran Properties (supra) and in fact, the Delhi High Court does not refer to the case of Fernas Construction Co. Inc. v. ONGC Petro Additions Ltd.¹⁵ . In Fernas Construction Co. Inc. (supra), the Delhi High Court has detailed the evolution of law relating to arbitration clause being extended so as to bind a non-signatory and had reiterated "Group of Companies Doctrine", commonality of subject matter and composite transaction while following the judgments in Chloro Controls (supra) and Cheran Properties (supra) and accordingly, the judgment in STCI Finance Limited (supra) cannot be relied upon.

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While the judgment of Supreme Court of United States in the case of GE Energy Power Conversion

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15 2019 SCC OnLine Del 8580

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France SAS, Corp., FKA Converteam SAS v. Outokumpu Stainless USA, LLC, ET AL¹⁶ ., has been relied upon as being persuasive to contend that the non-signatory could invoke arbitration against the signatory but not the converse. However, the logic relied upon does not persuade the Court in light of what is stated in Chloro Controls India Private Limited v. Severn Trent Water Purification INC. and Others¹⁷ at para-107, which reads as follows:-

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"107. If one analyses the above cases and the authors' views, it becomes abundantly clear that reference of even non-signatory parties to an arbitration agreement can be made. It may be the result of implied or specific consent or judicial determination. Normally, the parties to the arbitration agreement calling for arbitral reference should be the same as those to the action. But this general concept is subject to exceptions which are that when a third party i.e. non-signatory party, is claiming or is sued as being directly affected through a party to the arbitration agreement and there are principal and subsidiary agreements, and such third party is signatory to a subsidiary

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16 590 US (2020)

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17 (2013) 1 SCC 641

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agreement and not to the mother or principal agreement which contains the arbitration clause, then depending upon the facts and circumstances of the given case, it may be possible to say that even such third party can be referred to arbitration."

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The respondents have also relied on the judgment of Apex Court in the case of M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited¹⁸ in support of their contention that though the Letters of Comfort/Letters of Guarantee refer to the Brewing Agreement, Section 7(5) of the Act is not satisfied, as the material on record does not reflect the intention of incorporating the arbitration clause into the letters of comfort/letters of guarantee.

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While in the case of M.R. Engineers and Contractors Private Limited (supra) the Apex Court has indeed pointed out to incorporation of the arbitration clause only if such intention for incorporation of the arbitration clause also finds a mention, however, the law as it has

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18 (2009) 7 SCC 696

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evolved in Chloro Controls (supra) and Cheran

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Properties (supra) (decision by Bench of three Judges) which have been rendered subsequent to the decision in M.R.Engineers and Contractors Private Limited (supra) (decision by Bench of two Judges) points out to "discerned intention" being relevant and accordingly, the law has moved far ahead of the requirement of intention to incorporate the arbitration clause. This movement of law towards imputation of intention is indeed only an exception and the challenge in every case as to how far the exception

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can be expanded which would be the dictate of the facts on hand. The guidelines to be kept in mind are those which have been laid down in the case of Chloro Controls (supra) and as subsequently broadened in the case of Cheran Properties (supra) and variously described as commonality of subject matter, composite nature of transaction, Group Companies Doctrine, alter ego, etc.

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The reliance on Apex Court's decision in the case of MSTC Ltd. v. M/s. Omega Petro Products Pvt. Ltd.

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and Ors.¹⁹ is essentially in support of their contention regarding incorporation of arbitration clause found in the main contract to the guarantee by the other parties. The Court also refused to refer the matter for arbitration invoking Section 8 while holding that the arbitration agreement invoked did not include the entirety of subject matter of the suit.

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It must be noted that the recent trend to harmonize the scope of reference under Sections 8 and 11 by placing both on the same plain needs to be kept in mind. Further, the judgment in Cheran Properties (supra) is subsequent and has enlarged the scope of applicability of the arbitration clause to non-signatories as discussed supra. Accordingly, the judgment in MSTC Ltd., (supra) cannot be relied upon.

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It is also pointed out by the respondents that the judgment in Cheran Properties (supra) relates to a postaward situation and was considering the aspect of finality of

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19 (2018) SCC Online Bom 487

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arbitral awards in the context of Section 35 of the Arbitration and Conciliation Act, 1996 and accordingly the law laid down in the case of Cheran Properties (supra) cannot be extended to pre-reference proceedings under Section 11 of the Act. However, it ought to be noted that what would be good as regards post-award situation so as to bind a non-signatory should also be good as regards the proceedings under Section 11 relating to appointment of an Arbitrator and accordingly, the distinction sought to be made out by the respondents is one without a difference.

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Accordingly, the contentions of the respondents opposing reference are liable to be rejected.

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VI. Bifurcation of dispute:-

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As regards the contention of the

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respondent No.1 that the consent of the respondent is only as regards to the reference of dispute under the Brewing Agreement and that the manner in which the petitioner has framed the dispute and has sought for its reference is contrary to the nature of dispute under the Brewing

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Agreement, reliance has been placed on the judgment of Apex Court in the case of Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya and Another²⁰ to contend that the bifurcation of dispute is impermissible.

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It must be noted that in Sukanya Holdings (P)

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Ltd., (supra) the Apex Court was dealing with the factual matrix where a suit was already instituted seeking for dissolution of Partnership Firm and for rendering of accounts and on the same day, an application came to be filed under Section 8 of the Arbitration and Conciliation Act, 1996 by one of the partners seeking reference of dispute for arbitration. The Court, however, was of the view that all defendants to the suit were not parties or partners in the Firm and that the terms of Partnership Deed, including the arbitration clause were not binding upon them, while holding so, the Court has further proceeded to observe that the subject matter of suit cannot be bifurcated by leaving one portion of the dispute to be decided in the suit while

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20 (2003) 5 SCC 531

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referring part of a dispute between the parties to the Partnership Deed containing the arbitration clause only for arbitration.

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In the present case, this Court is also of the view that bifurcation of dispute may not be appropriate, as there is every possibility of conflicting judgments or orders being passed. Moreover, having held that though the dispute between the petitioner and respondent No.1 are covered by the Brewing Agreement, by resort to the principle of implied consent, the other respondents i.e., respondent Nos. 2 to 5 are also held to be subject to the arbitration clause as regards to their disputes and while holding that the 'entirety of disputes' is a matter to be referred for arbitration, the question of bifurcation of dispute as was the case in Sukanya Holdings (P) Ltd. (supra) will not arise.

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The effect of trying to divide the dispute into separate parcels, i.e. as regards the agreement between the petitioner and respondent No.1 on one hand, and the

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breach in the obligations of respondent No.3 and that of respondent Nos.2, 4 and 5 together on the other hand and limiting arbitration only to the petitioner and respondent No.1 in terms of arbitration clause in the Brewing Agreement would result in deferring the determination of liability of the respondent Nos.2, 3, 4 and 5 which is not legally practicable. The obligations taken upon by respondent Nos.2, 3, 4 and 5 to ensure that the Brewing Agreement is adhered to by the respondent No.1 would fail if efforts are sought to be made for bifurcation of the dispute as above and that would not be an appropriate manner of interpreting the multi-layered contracts which have been executed with the purpose of ensuring respondent No.1's adherence to the Brewing Agreement. The obligations of other respondents vis-à-vis the petitioner cannot be sought to be enforced directly while asserting that the guarantees become enforceable once the liability is determined as regards the petitioner and respondent No.1 without participation of respondent No.3 and respondent Nos.2, 4 and 5 in such determination.

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In fact, if the dispute only of petitioner and respondent No.1 is referred for arbitration while the dispute between the other respondents is relegated to the Civil Courts, there would be a possibility of conflicting orders and it would also be incongruous that adjudication of substantive breach of obligations under the Brewing Agreement vis-à-vis the petitioner and respondent No.1 would be conclusive and binding on the other respondents, who are not made parties in the arbitration proceedings which would also be a relevant criteria to decide against the bifurcation of dispute.

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It is also to be noted that in Sukanya Holdings

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(P) Ltd., (supra) the Apex Court never dealt with the question of Arbitration Clause being binding as regards non-signatories which evolution of law can be traced through the decisions of Apex Court in Chloro Controls (supra) and Cheran Properties (supra) which are both subsequent judgments.

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37. In fact, the judgment in Sukanya Holdings (P)

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Ltd. (supra) is to be construed as laying down the law as regards bifurcation of disputes which this Court also accepts to be a relevant factor while making reference of disputes and efforts must be made to prevent such bifurcation.

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The petitioner has issued the legal notice to the respondents as per Annexure-H dated 08.11.2018 which has been served on the respondents as stated in para-21 of the petition.

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Accordingly, the respondent No.1 and

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respondent Nos.2, 3, 4 and 5 are all referred to arbitration, as regards the disputes that have arisen under the Brewing Agreement as well as the disputes that have arisen in connection with the undertakings as contained in Document Nos.1, 2 and 3 filed alongwith the memo dated 05.01.2021.

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Taking note of Clause-24 of the Brewing Agreement, which provides that the Arbitral Tribunal shall consist of three Arbitrators and that one Arbitrator shall be

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appointed by each of the parties and the two Arbitrators so appointed shall appoint the Presiding Arbitrator, the Arbitral Tribunal is constituted as follows:-

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(i) Hon'ble Sri Justice Swatanter Kumar , Former Judge, Supreme Court of India (Arbitrator already appointed by the petitioner as per the legal notice at Annexure-H dated 08.11.2018) is appointed as the petitioner's nominee as per the procedure under Clause-24 of the Brewing Agreement.

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(ii) Hon'ble Sri Justice V. Gopala Gowda, Former Judge, Supreme Court of India (name suggested as per the memo dated 29.01.2021 filed by respondent No.1, who is party to the Brewing Agreement)

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(iii) The above two Arbitrators shall appoint the Presiding Arbitrator in terms of Clause 24 of the Brewing Agreement. The endeavour is to be made to complete the said process of appointment of Presiding Arbitrator within four weeks from the date of communication of the order.

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(iv) The place of arbitration would be Bengaluru as

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per Clause 24.1 of the Brewing Agreement.

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Accordingly, this petition is disposed off.

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Sd/JUDGE

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NP/VGR