21 April 2025 Legal Updates

  ARBITRAL TRIBUNAL CAN PROCEED AGAINST PARTY THOUGH THEY WEREN'T SERVED WITH S.21 NOTICE OR MADE PARTY IN S.11 APPLICATION: SUPREME COURT  

(a) Case Title: 

• Adavya Projects Pvt. Ltd. v. M/S Vishal Structurals Pvt. Ltd. & Ors.

(b) Court:

• Supreme Court of India

(c) Date of Decision:

• April 17, 2025

(d) Bench:

• Justice Pamidighantam Sri Narasimha and Justice Manoj Misra

Facts

Adavya Projects (Appellant) and Vishal Structurals (Respondent No. 1) entered into an LLP Agreement to form Vishal Capricorn Energy Services LLP (Respondent No. 2) for oil and gas sector projects. The LLP Agreement designated Mr. Kishore Krishnamoorthy (Respondent No. 3) as CEO of the LLP. Clause 40 of the LLP Agreement contained an arbitration clause. Disputes arose regarding audit and reconciliation of accounts related to a project. The Appellant issued a notice invoking arbitration under Section 21 only to Respondent No. 1. In the Section 11 application for appointment of an arbitrator, only Respondent No. 1 was impleaded. The High Court appointed a sole arbitrator. During arbitration, the Appellant sought to implead Respondent Nos. 2 and 3 as parties. Respondents filed an application under Section 16 objecting to the arbitral tribunal's jurisdiction over Respondent Nos. 2 and 3. The arbitral tribunal held it had no jurisdiction over Respondent Nos. 2 and 3, which was affirmed by the High Court on appeal.

Key Issues

1. Whether service of notice invoking arbitration under Section 21 of the Arbitration and Conciliation Act, 1996 (ACA) on a person is a prerequisite for an arbitral tribunal to exercise jurisdiction over them?
2. Whether being joined in the application under Section 11 for appointment of an arbitrator is a prerequisite for an arbitral tribunal to exercise jurisdiction over a person?
3. When can an arbitral tribunal implead a person to arbitration proceedings?

Court's Analysis

1. On Section 21 Notice:

• A notice invoking arbitration under Section 21 is mandatory as it fixes the date of commencement of arbitration.
• This date is essential for determining limitation periods and applicable law.
• However, non-service of such notice on a person does not preclude their impleadment in arbitral proceedings if they are parties to the arbitration agreement.

2. On Section 11 Application:

• The purpose of a Section 11 application is simply the constitution of the arbitral tribunal.
• The court only undertakes a limited prima facie examination at this stage.
• The order appointing an arbitrator does not limit the arbitral tribunal's jurisdiction.
• Non-joinder of a person in the Section 11 application does not bar their impleadment in arbitration.

3. Source of Arbitral Tribunal's Jurisdiction:

• The arbitral tribunal's jurisdiction over a person is derived from their consent to the arbitration agreement.
• The relevant consideration to determine whether a person can be made a party is if they are a party to the arbitration agreement.
• Under Section 16, the arbitral tribunal must determine if a non-signatory is a party to the arbitration agreement.

4. On Non-Signatories to Arbitration Agreement:

• Non-signatories can be bound by an arbitration agreement based on their conduct.
• Conduct should show mutual intention to be bound by the agreement.
• Factors include relationship with signatories, commonality of subject matter, composite nature of transactions, and performance of the contract.

5. In this Case:

• Respondent Nos. 2 and 3 were parties to the arbitration agreement despite being non-signatories.
• Their conduct was in accordance with and in pursuance of the LLP Agreement.
• Respondent No. 2 (the LLP) was created under the LLP Agreement and operated according to its terms.
• Respondent No. 3 derived his position and duties as CEO from the LLP Agreement.

Decision:

The Supreme Court allowed the appeal, set aside the High Court's judgment, and directed that Respondent Nos. 2 and 3 be impleaded as parties before the arbitral tribunal. The Court requested the arbitral tribunal to complete the proceedings expeditiously, considering the claim was filed in 2022.

  PROPOSED PURCHASER UNDER AGREEMENT TO SELL CAN'T SUE THIRD PARTY WHO CLAIMS TITLE & POSSESSION OF PROPERTY: SUPREME COURT  

(a) Case Name:

• R.B.A.N.M.S. Educational Institution v. B. Gunashekar & Another

(b) Court:

• Supreme Court of India

(c) Date of Judgment:

• April 16, 2025

(d) Bench:

• Justice J.B. Pardiwala and Justice R. Mahadevan

Background Facts

R.B.A.N.M.S. Educational Institution (appellant) is a public charitable trust established in 1873, which had been in possession of a property since 1905, formally conveyed to them in 1929. The respondents filed a suit seeking permanent injunction against the appellant from creating third-party interests over the property, based on an agreement to sell executed between the respondents and certain third parties (not the appellant). The respondents claimed they had paid Rs. 75 Lakhs as advance payment against the total sale consideration of Rs. 9 Crores. The appellant filed an application under Order VII Rule 11(a) and (d) CPC seeking rejection of the plaint, arguing that the respondents were merely agreement holders, not owners, and had no locus standi (authority) to file the case.

Both the trial court and the High Court rejected the appellant's application, leading to this appeal.

Key Issues

What is the scope of Order VII Rule 11 of the Code of Civil Procedure (CPC) regarding rejection of plaints, particularly in the context of suits based on agreements to sell against third parties in possession?

Key Legal Findings

1. On Agreements to Sell:

An agreement to sell does not create any interest in immovable property as per Section 54 of the Transfer of Property Act, 1882. Such agreements only create personal rights enforceable against the vendor, not against third parties.

2. On Rejection of Plaints under Order VII Rule 11 CPC:

Courts have a duty to reject plaints at the threshold if they fail to disclose a cause of action or are barred by law. While generally only averments in the plaint are to be considered, the court must not accept patently untenable claims or ignore settled principles of law. Where clever drafting creates an illusion of cause of action, the court should "nip it in the bud."

3. On Suits for Injunction:

When title is in dispute, a suit merely for injunction without seeking declaration of title is not maintainable. Section 41(j) of the Specific Relief Act prohibits grant of injunction when the plaintiff has no personal interest in the matter.

4. On Cash Transactions:

The Court expressed concern over the claim of payment of Rs. 75 lakhs in cash, which violates Section 269ST of the Income Tax Act that restricts cash transactions above Rs. 2,00,000.

Court's Decision

1. The appeal was allowed, and the orders of the High Court and trial court were set aside.

2. The plaint was rejected under Order VII Rule 11(a) and (d) CPC.

3. The Court issued important directions regarding cash transactions exceeding Rs. 2,00,000:

• Courts must inform the Income Tax Department when such claims are made in suits
• Sub-Registrars must report such transactions related to property conveyances
• Income tax authorities must follow due process on receiving such information
• Failure of registering authorities to report such transactions should be brought to the Chief Secretary's attention

  ' FEW TAUNTS HERE & THERE PART OF EVERYBODY LIFE': SUPREME COURT QUASHES S.498A IPC CASE AGAINST IN-LAWS  

(a)Case Name:

• Kamal & Ors. v. State of Gujarat & Anr.

(b) Court:

• Supreme Court of India

(c) Date of Decision:

• April 16, 2025

(d) Bench:

• Justice Manoj Misra and Justice Manmohan

Background:

The marriage between the first appellant (husband) and second respondent (wife) took place on September 5, 2005. On May 15, 2019, the husband filed for divorce. Three days after receiving divorce summons (on July 20, 2019), the wife lodged an FIR alleging mental and physical harassment. The appellants (husband, father-in-law, and mother-in-law) sought to quash an FIR filed against them under Sections 498-A and 114 of the Indian Penal Code (IPC).

Key Issues:

1. Whether the criminal proceedings, particularly against the parents-in-law, constituted an abuse of the legal process?

2. Whether the FIR was filed as a counterblast to the divorce proceedings?

High Court Ruling:

Dismissed the petition filed by the appellants under Section 482 of the CrPC that sought to quash the FIR and criminal proceedings against them. In its reasoning, the High Court held that:

1. The FIR contained allegations of mental harassment of the complainant (wife)

2. The FIR also contained allegations regarding demands for money earned by the complainant through her salary (though these allegations lacked specific details)

3. Once such allegations are made, whether they are true or false would need to be determined during trial, not at the quashing stage

Supreme Court's Analysis:

The FIR contained no specific allegations of dowry demands. The allegations against parents-in-law were limited to "extending taunts" without any specific details. The complainant had been working and staying in different rented accommodations for several years. The timing of the FIR (filed 14 years after marriage and just three days after divorce summons) was significant. While there were allegations of physical and mental torture against the husband, allegations against in-laws were vague.

Supreme Court's Observations:

The Supreme Court criticized the High Court's approach as "extremely pedantic" and emphasized that courts must be circumspect when dealing with allegations in matrimonial disputes, especially when:

1. Allegations are leveled after many years of marriage

2. Allegations come immediately after divorce proceedings are initiated

3. Relatives of the husband are implicated without specific allegations

Decision:

• Appeal partly allowed
• Proceedings against parents-in-law (second and third appellants) were quashed
• Proceedings against the husband (first appellant) to continue