Mgrm Medicare Ltd. v. Narang Surgicals

Factual and Procedural Background

The plaintiff, MGRM Medicare Ltd., instituted CS(COMM) 1642/2016 under Order XXXVII of the CPC seeking recovery of Rs.2,91,52,237/- with interest jointly and severally from three defendants: (i) Narang Surgicals (defendant no.1), (ii) Ajay Narang (defendant no.2), and (iii) Dharamvir Narang (defendant no.3). The plaint pleads that defendant no.1 is the sole proprietary concern of defendant no.3 and that defendant no.2, posing as a partner of defendant no.1, signed a Memorandum of Understanding dated 27 October 2014 with the plaintiff. The plaintiff alleges it advanced Rs.1,95,00,000/- as working capital, received four cheques aggregating Rs.2,39,75,000/- for refund (with agreed interest), that those cheques were dishonoured, and that FIR complaints were lodged (with a charge sheet reportedly filed).

Summons were issued and, after appearance, summons for judgment were issued. The defendants filed applications for leave to defend and separate applications under Section 8 of the Arbitration & Conciliation Act, 1996: IA No.3639/2017 (filed by defendants no.1 & 3) and IA No.3662/2017 (filed by defendant no.2). The court heard the counsels first on the Section 8 applications and delivered the impugned order on 30 October 2018.

Legal Issues Presented

1. Whether the disputes falling for adjudication in this suit are referable to arbitration in view of Clause 7.1 of the MOU (arbitration in accordance with ICC Rules, venue Delhi/Hyderabad) and whether Section 8 of the Arbitration & Conciliation Act, 1996 mandates such reference.
2. Whether the arbitration clause can be invoked in circumstances where the MOU was signed by a person (defendant no.2) who is alleged not to be the proprietor of defendant no.1 and where the suit includes claims against non-signatories to the MOU.
3. Whether the existence of a summary procedure under Order XXXVII and leave to defend impedes reference to arbitration under Section 8.

Arguments of the Parties

Defendants' Arguments

• The defendants (no.1 and 3) drew attention to Clause 7.1 of the MOU dated 27 October 2014 which provides: "7.1 In case of any disputes or differences of claims arising out of this agreement shall be resolved by an Arbitration conducted in accordance with ICC Rules of Arbitration. The venue of Arbitration shall be at Delhi / Hyderabad, India."
• The counsel for defendants no.1 and 3 stated they did not know the particulars of the "ICC Rules" referenced but the defendants were agreeable to arbitration by a sole arbitrator as deemed appropriate.
• Defendant no.2 supported the position taken by defendants no.1 and 3.
• On enquiry, the defendants stated that, in the event the plaintiff made a joint monetary claim in arbitration against them, they would not take the plea in arbitration that they were not bound by the arbitration clause or not subject to arbitration.

Plaintiff's Arguments

• The plaintiff contended that because the suit was instituted under Order XXXVII (summary procedure), the defendants' leave to defend did not entitle them to avoid immediate decree and that the plaintiff would be entitled to a decree forthwith.
• The plaintiff pointed out internal inconsistencies in the MOU—at one place defendant no.2 described himself as a partner of defendant no.1 and at another place as Director—whereas it transpired that defendant no.3 is the sole proprietor of defendant no.1.
• The plaintiff argued the arbitration clause is contained in the MOU with defendant no.1 but was signed by defendant no.2, who is not the proprietor of defendant no.1, and that the suit includes claims against non-parties to the MOU. In support of this contention reliance was placed on Sukanya Holdings Pvt. Ltd. Vs. Vs. Jayesh H. Pandya (2003) 5 SCC 531.

Table of Precedents Cited

Court's Reasoning and Analysis

The court examined Clause 7.1 of the MOU which provides for arbitration under ICC Rules with venue at Delhi/Hyderabad. On enquiry the counsel for defendants no.1 and 3 stated they did not know the particulars of the ICC Rules but were agreeable to arbitration by a sole arbitrator; defendant no.2 supported this position. The plaintiff's objections focused on the identity and signatory status of defendant no.2 vis-à-vis defendant no.1 and on the presence of non-signatories in the suit, relying on Sukanya Holdings.

The court drew attention to the Supreme Court's decision in Ameet Lalchand Shah Vs. Rishabh Enterprises (2018 SCC OnLine SC 487), which set aside earlier reliance on Sukanya and held that where averments in the plaint show a single transaction involving parties and non-parties to an agreement, the parties are to be referred to arbitration. Further, the defendants expressly stated they would not take the defence in arbitration that they were not bound by the arbitration clause. The court found that this allayed the plaintiff's concerns. Noting that Section 8 is mandatory and that no argument of invalidity of the arbitration agreement had been urged, the court concluded that the mandate of Section 8 must be followed.

On that basis the court allowed and disposed of IA No.3639/2017 and IA No.3662/2017 (both under Section 8) and referred the parties to arbitration by a sole arbitrator.

Holding and Implications

Holding: IA No.3639/2017 & IA No.3662/2017 under Section 8 of the Arbitration & Conciliation Act, 1996 were allowed and disposed of; the suit was disposed of by referring the parties to sole arbitration.

The court appointed Mr. B.B. Chaudhary, Additional District Judge (Retd.) (mobile number as recorded in the order) as the sole arbitrator. The counsels agreed that the arbitrator be left to fix his own fee and other terms. The court directed issuance of a certificate entitling the plaintiff to a refund of the court fees paid on the plaint less Rs.20,000/-, to be handed over to the plaintiff's counsel. The order records "Dasti" and is dated October 30, 2018, by Rajiv Sahai Endlaw, J.

Implications for the parties: The immediate effect is that the contractual disputes and monetary claim between the parties will be determined through the appointed sole arbitrator rather than by adjudication of the suit in this Court; the plaintiff will receive a partial refund of court fees as directed. The opinion does not purport to lay down any novel legal principle beyond applying the cited Supreme Court dictum and directing reference under Section 8.