Case Note- Hema Khattar v. Shiv Khera

Ayush Kishore

KiiT School of Law,

Kalinga Institute of Technology,

Deemed to be University, Bhubaneshwar.

Case Details

Equivalent Citations: (2017) 7 Supreme Court Cases 716

Decided on: 10th April, 2017.

At the Hon’ble Supreme Court of India

Head by: Honb’le Bench (Division Bench)

BEFORE, Madan B Lokur, AND R.K. Agrawal, JJ.

Table of Cases

P.R. Shah, Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd. : (2012) 1 SCC 594

Kvaerner Cementation v. Bajranglal Agarwal : (2012) 5 SCC 214

Ramesh Hirachand Kundanmal v. Municipal Corpn. Of Bombay : (1992) 2 SCC 524

P. Anand Gajapati Raju v. P.V.G. Raju : (2000) 4 SCC 539

Legislations Involved

Section 8, Arbitration and Conciliation Act, 1996
Order 1 Rule 1, O 1 R 2 O 2 R 3, Civil Procedural Code, 1908

Facts of the case

There was an agreement signed between Hema Khattar (Appellant 1), wife of Ashwini Khattar (Appellant 2), who runs a construction business under the name of M/s Dessignz and Shiv Khera (Respondent) on the 6th of June, 2009, for the construction of a building, situated at C-6/4 in Vasant Vihar, New Delhi.
The possession of the building was handed over to Appellant 1, on 9th November 2010, for the construction work was started simultaneously.
In March 2011, there was a certain inspection conducted by experts in the field of civil engineering, wherein they prepared a report, citing certain structural lacunas. The inspection took place as per the agreement signed between them.
When this report was disclosed, there was another inspection conducted by the respondent under certain specialized agencies, wherein the previous report was affirmed.
Aggrieved by this, the respondent served a legal notice to Appellant 1, seeking damages.
There was an arbitrator, appointed under the terms of the agreement. Now, the respondent claimed the sum of ₹ 39.85 lakhs was paid to Appellant 1, by the respondent, along with the Tax deducted on Source (TDS), while the money was deposited to her account, in the Arbitrational Tribunal.
The suit was filed by the Appellant(s) to the Hon’ble High Court of Delhi. The High Court directed the parties to elect whether the Appellant(s) want the suit to be treated as the suit for recovery of money or want a declaration of injunction order.
Later it went to the Division bench, wherein the same was upheld.
The suit was held as bad for misjoinder of parties.
The suit now went to the Hon’ble Supreme Court of India, wherein the Division Bench is hearing the suit.

Issues

There were two suits which arose, one was by Appellant 1 against the respondent for the injunction order, before the High Court of Delhi and another was for the recovery of money by Appellant 2, against the respondent.

Now the issue arose:

that whether or not the suit is fit for misjoinder of parties?
that whether or not the High Court was justified in deciding the maintainability of the suit, while the application was made to the Arbitral Tribunal by the Appellant 1?

Contentions

While such issues were being discussed between Appellant 1 and the respondent. Meanwhile, Appellant 1 filed a suit claiming for permanent injunction before the High Court of Delhi. It was contended by the Appellant 1 that, since the agreement dated 6th June, 2009 was null and void as it was vitiated by the mutual consent of both parties. Furthermore, it was decided that on the advice of Appellant 2, the further construction work will be done by other subcontractors, and there would be no remunerations will be given to them, as it was already a deal between the Appellant 1 and the respondent.

Appellant(s)

It was contended by the counsel, submitting on behalf of Appellant 1 that the agreement was signed between the parties with dishonest intention because there was an arbitration clause, which was prevailing in the agreement and the oral agreement between Appellant 2 and the Respondent went into an oral agreement, which was superseded by the agreement.

The suit for recovery of money and the suit for injunction order have common cause of action, the question of law and facts. The High Court has observed that there would be a multiplicity of proceedings if separate trials were conducted. There should be the joinder of parties, and the High Court failed to appreciate this.

The submissions were supported by another judgement of Stock Brokers (P) Ltd. v. B.H.H. Securities (P) Ltd., referred to Para 19 of the judgement, which can be summarised as illustrations that if there was an arbitration agreement between say A, B and C, and the agreement of arbitration was signed between only A and B, but not C, A won’t be having any claim against C. Hence, a joinder of parties is not possible.

Respondent

The respondent contended that the present issue is pending adjudication in the Arbitral Tribunal, constituted under Section 8 of the Arbitration and Conciliation Act, 1996. Therefore, the suit filed by the Appellant is not maintainable before the High Court.

There were two separate causes of action. In the first instance, the issue was related to the agreement signed between them and another was with the oral consideration between Appellant 2 and the respondent.

It was submitted that the present suit was not fit in the terms of Order 2 Rule 3 of the Civil Procedural Code, 1908.

The submission was supported by the judgement of Kvaerner Cementation v. Bajranglal Agarwal, wherein it was held that the suit can’t be brought to the Arbitrational Tribunal if there is no arbitrational clause in the agreement. Therefore, for the cause of action, the sole arbitrator may hear the cause of action and may be appointed by this court with Appellant 1 and therefore, it is not fit for joinder of parties.

Judgment

The Hon’ble Supreme Court held that the suit is fit for the joinder of parties under Order 2 Rule 3 of the CPC, and both the cause of action can be heard in the court of arbitration. The Hon’ble apex Court appointed Hon’ble Justice Mr. V.K. Gupta (Retd.) as the arbitrator

Reasoning

The Hon’ble Court reasoned out that there was a joint suit filed by the appellants, in the High Court, for the permanent injunction and recovery of money. The Learned High Court found that this suit was bad for the joinder of parties. The appeal was made then to the Division Bench, the same was upheld by the Division Bench.

The Appellant 2 was not a party to the agreement, which was signed on the 6th of June, 2009. The legal relation between the respondent and Appellant 2 shared was merely that there was an oral contract between them, which took place on 6th and 7th April, 2011. Wherein, he promised that the further works would be taken care of by the Appellant 2, without any remuneration or profits. Now, this oral contract made between Appellant 2 and Respondent, made the contract between Appellant 1 and Respondent, to which Appellant 2 was only a witness, as null and void. Also, since the recovery suit for money was pending before the Arbitral Tribunal, shows the intention of the parties, and therefore the contract ipso facto becomes null and void.

The Hon’ble apex court referred to the definition given in the Black’s Law Dictionary, that the cause of action is the bundle of facts and law applicable to them, wherein it gives a right to the plaintiff against any act done by the defendant.

The court analysed Order 2 Rule 3, Order 1 Rule 1, and Order 1 Rule 2. The court relied upon the judgement of Ramesh Hirachand Kundanmal v. Municipal Corpn. Of Bombay, wherein it was held that the parameter for making a person party to the suit is to what extent is the said person bound by the result of the action. Also, the suit would haven’t been initiated, until or unless he would have been made the party to the suit.

The court also relied upon the judgment of P. Anand Gajapati Raju v. P.V.G. Raju, which was also quoted in the judgment of Sundaram Finance Ltd. v Thankam that while exercising Section 8 of the Arbitration Act, the parties should at the first instance approach the Arbitral Tribunal, and even if the parties wish to approach a court, there were four parameters led down by the Hon’ble Court, summarised that there should be the same subject-matter of the action, as the subject matter in the arbitration agreement and substance of the dispute should be submitted at first instance.

Since the agreement was terminated, section 8 of the Arbitration Act was peremptory in nature. Also, the oral agreement between Appellant 2 and the respondent is a successor for the agreement, signed between Appellant 1 and the respondent. While the arbitration clause is already there in the agreement, the civil court is barred from taking any kind of cognizance of the suit. Because in such a situation, it would amount to a failure of justice and irreparable harm to the defendant.

Relying upon the P.R. Shah case, the court observed that there could be only one arbitrator, in a single arbitration. Therefore, the arbitrator was appointed by the court only as prayed by the Appellant(s) and the suit was referred to the arbitration.