THE COMMISSIONER OF INCOME TAX - INTERNATIONAL TAXATION -3, vs. SHANGHAI ELECTRIC GROUP CO. LTD.

ITA/461/2018HC DelhiDLHC01094461201817 April 2018Bench: HON'BLE MR. JUSTICE S. RAVINDRA BHAT,HON'BLE MR. JUSTICE A. K. CHAWLA79 pages

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Cases cited in this judgment

Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.

ITO v. Lakhmani Mewal Das
2 SCC 302 · 1976
721 citing
Vodafone International Holdings BV v. Union of India
6 SCC 613 · 2012 · SC
216 citing
ZAHIRA HABIBULLAH SHEIKH AND ANOTHER v. STATE OF GUJARAJ AND OTHERS. 31
2 SCC 1 · 1998
167 citing
Indian Express 498 Newspapers (Bombay) (P) Ltd. v. Union of India
1 SCC 641 · 1985
109 citing
LIC v. Escorts Ltd.58 and Vodafone 58
1 SCC 264 · 1986
46 citing
Page 54 of 79 36. Similarly in DDA v. Skipper Construction Company (P) Ltd.
4 SCC 622 · 1996
18 citing
(1) N.Balkrishnan v. M. Krishnamurty
7 SCC 125 · 1988
9 citing
Indowind Energy Limited v. Wescare (India) Limited And Another
5 SCC 306 · 2012
6 citing
SBP & Co. v. Patel Engineering Ltd. & Anr.
8 SCC 618 · 2005
6 citing
Tata Engineering and Locomotive Co. Ltd. v. State of Bihar
6 SCR 885 · 1964
5 citing
35. Similarly in Balwant Rai Saluja v. Air India Ltd.
9 SCC 407 · 2014
4 citing
Workmen v. Associated Rubber Industry Ltd.
4 SCC 114 · 1985
4 citing
Article 19. In CIT v. Sri Meenakshi Mills Ltd.
1 SCR 934 · 1967
3 citing
Nahar Singh v. Harnak Singh
6 SCC 699 · 1996
3 citing
Nimbus Communications Limited v. Board of Control for Cricket in India and Ors.
2012 SCC OnLine BOM 287 · 2012
3 citing

O.M.P.(I) (COMM.) 460-461/2018

Page 1 of 79

$~ * IN THE HIGH COURT OF DELHI AT NEW DELHI

Reserved on: 13.03.2020 Pronounced on: 22.06.2020

+ O.M.P.(I) (COMM.) 460/2018 and I.A. Nos. 9313/2019, 9356/2019

STERLING AND WILSON INTERNATIONAL FZE

..... Petitioner Through: Mr. Sandeep Sethi and Mr. Darpan Wadhwa, Sr. Advocates with Ms. Farida Dholakawala, Mr. Sameer Patel, Mr. Shubhanshu Gupta, Mr. Kabir Chilwar, Ms. Sanjana Bakshi and Mr. Hitesh Singhvi, Advocates.

Versus

SUNSHAKTI SOLAR POWER PROJECTS PRIVATE LIMITED & ORS.

..... Respondents Through: Mr. A.S. Chandiok, Sr. Advocate with Mr. Ritesh Kumar, Mr. Tishampati Sen, Ms. Riddhi Sancheti, Ms. Abhisree Saujanya, Ms. Tejasvi Chaudhary, Mr. Mayur Shetty and Ms. Aarti Kumar, Advocates for R-1.

Mr. Sharan Jagtiani, Advocate for R-2 to 8.

O.M.P.(I) (COMM.) 460-461/2018

Page 2 of 79

+ O.M.P.(I) (COMM.) 461/2018 and I.A. Nos. 9314/2019, 9358/2019

STERLING AND WILSON INTERNATIONAL FZE

Versus

SKYPOWER SOLAR INDIA PRIVATE LIMITED & ORS.

..... Respondents Through: Mr. Dayan Krishnan, Sr. Advocate with Mr. Ritesh Kumar, Mr. Tishampati Sen, Ms. Riddhi Sancheti, Ms. Abhisree Saujanya, Ms. Tejasvi Chaudhary, Mr. Mayur Shetty and Ms. Aarti Kumar, Advocates for R-1.

Mr. Sharan Jagtiani, Advocate for R-2 to 8.

CORAM: HON'BLE MS. JUSTICE JYOTI SINGH

O.M.P.(I) (COMM.) 460-461/2018

Page 3 of 79

significant feature which must be established before the scope of arbitration can be said to include the signatory as well as the non-signatory parties. 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 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. 74. In a case like the present one, where origin and end of all 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 fulfilment 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 interlinked 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

doctrine, where the conduct of the parties evidences a clear intention of the parties to bind both the signatory as well as the non-signatory parties. Courts and tribunals have invoked this doctrine to join a non-signatory member of the group, if they are satisfied that the non-signatory company was by reference to the common intention of the parties, a necessary party to the contract. 10.4. The doctrine of „Group of Companies‟ had its origins in the 1970's from French arbitration practice. The „Group of Companies‟ doctrine indicates the implied consent to an agreement to arbitrate, in the context of modern multi-party business transactions. It was first propounded in the case of Dow Chemical v. Isover-Saint-Gobain,9 where the arbitral tribunal held that: “… the arbitration clause expressly accepted by certain of the companies of the group should bind the other companies which, by virtue of their role in the conclusion, performance, or termination of the contracts containing said clauses, and in accordance with the mutual intention of all parties to the proceedings, appear to have been veritable parties to these contracts or to have been principally concerned by them and the disputes to which they may give rise”. The „Group of Companies‟ doctrine has been invoked by courts and tribunals in arbitrations, where an arbitration agreement is entered into by one of the companies in the group; and the non-signatory affiliate, or sister, or parent concern, is held to be bound by the arbitration agreement, if the facts and circumstances of the case demonstrate that it was the mutual intention of all parties to bind both the signatories and the non-signatory affiliates in the group. The doctrine provides that a non-signatory may be bound by an arbitration agreement where the parent or holding company, or a member of the group of companies is a signatory to the arbitration agreement and the non-signatory entity on the group has been engaged in the negotiation or performance of the commercial

can be passed against a third party and this issue is no longer res integra. In Girish Mulchand Mehta and Ors. v. Mahesh S. Mehta and Ors., [2010 (1) BomCR 31], Court brought out the nature of reliefs that can be given under Section 9 as well as held that orders can be passed against third parties. Relevant paras are as under:- “9. The purport of Section 9 has been expounded by the Apex Court in the case of Firm Ashok Traders and Anr. v. GurmukhdasSaluja and Ors. reported in MANU/SC/0026/2004 : AIR 2004 SC 1433. It considered the scheme of Section 9 of the Act. It has held that application under Section 9 is not a suit although such application results in initiation of civil proceedings. It 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. In other words, the party to an Arbitration Agreement can invoke this jurisdiction for securing relief which the Court has power to grant before, during or after arbitral proceedings by virtue of Section 9. The Apex Court further held that 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 Court is competent to grant reliefs to a party under Clauses (i) and (ii) of Section 9 which flow from the power vesting in Court exercisable by reference to "contemplated", "pending" or "completed" arbitral proceedings. The Court is conferred with the same power for making the specified orders as it has for the purpose before it though the venue of the proceedings in relation to which the power under Section 9 is sought to be exercised is the Arbitral Tribunal. It is thus clear that 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

issuing interim orders including pre-decretal ones against third parties was well-accepted under the C.P.C., and therefore, it would be illogical not to extend the same powers to the Court under section 9 of the Act. On the question of possibility of the third party contesting such an application, or setting up a defense thereto, calling for an adjudication on trial, the Court, inter- alia, observed that "The court, in such cases in its discretion can on a prima facie view of the matter, either refuse to exercise powers under Section 9 or pass other appropriate order to protect the interest of all parties concerned." However, in the facts of that case, the court refused to order respondent no. 3 to deposit the monies in Court. 69. The observations made in Value Advisory Services (supra) with respect to power of the court under section 9 being analogous to power of a civil court to pass an order qua a third party for attachment of property/deposit of money in court, at a pre-decretal stage, were made in the context of an interim relief in nature of a garnishee order. The observations were made with respect to power of the court to order attachment of property/monies of a defendant, which may be in possession of third party-in trust, for or on behalf of the defendant. 70. I find myself in respectful agreement with the learned single judge that no hard and fast rule can be laid down as to issuance of interim orders qua third parties, and the same depends on the facts of each case. I may point out that subsequently, the court taking note of the said observation made in Value Advisory Services (supra), in the specific facts of the respective cases, refused to exercise its power under section 9against a non-signatory to arbitration agreement in Ajay Makhija v. Dollarmine Exports Pvt. Lt. &Ors, MANU/DE/1906/2009, whereas, it passed interim orders with respect to a third party in Dorling Kindersley (India) Pvt. Ltd. vs. Sanguine Technical Publishers &Ors., MANU/DE/1853/2013 : 2013 (3) ARB LR 52 (Del).

71.Undoubtedly, section 9 provides that the court shall have the same powers for making interim orders under section 9 as a civil court has for the purpose of, and in relation to, any proceedings before it, and the powers of a civil court in this regard are very wide. The civil courts as and when required, and deemed appropriate in the facts and circumstances of a particular case have been making interim orders in respect of third parties, such as: interim injunction restraining third party- banks from honouring bank guarantees; attaching defendant's monies/property in hands of third party trustee, debtor, agent etc; restraining third party-subsequent transferee/person claiming rights in suit property from disposing of the same, and the like. As a corollary, the power of the court to issue interim orders under section 9 cannot be confined only to the parties to arbitration agreement. However, a significant parameter inherent in section 9, for exercise of this power against a non-signatory to arbitration agreement, is that the purpose of section 9 is to aid arbitration between the parties thereto, and the interim orders there under have to be with regard to subject matter of arbitration/in connection with the arbitral proceedings. In this context, it is relevant to draw a distinction between orders granting interim relief against a party to the arbitration agreement which incidentally affects a third party, on one hand, and orders granting relief directed against a third party, on the other. While the former is ordinarily acceptable as being within the scope of section 9, the power with respect to the latter should be exercised sparingly. For instance, an order appointing a third party as a receiver or guardian of a minor/person of unsound mind is not an order against the third party, or detrimental to its rights as such. Rather, it is a relief granted to the petitioner in support of the arbitral proceedings and affects the party to the arbitration agreement. Similarly, when a subsequent transferee, or a person claiming title under a party to arbitration is ordered to maintain status quo, or not to dispose of property which is subject matter of arbitration, it is again ancillary to arbitral proceedings in as much, as, it

but provisions of Order XXXIX Rule 1 and 2 CPC and Order XXXVIII Rule 5 CPC have to be kept in mind as guiding principles. In Raman Tech (supra), the Supreme Court has laid down that before passing an order in the nature of Attachment before Judgment, the Court must be satisfied that the Petitioner has a prima facie case and also that the Respondent is in the process of removing its assets from the jurisdiction of the Court to defeat the ultimate relief that may be granted in favour of the Petitioner. Court also held that the order under Order XXXVIII Rule 5 CPC is a drastic order and must be carefully passed and in exceptional circumstances. Relevant part of the judgment reads as under:- “4. The object of supplemental proceedings (applications for arrest or attachment before judgment, grant of temporary injunctions and appointment of receivers) is to prevent the ends of justice being defeated. The object of Order 38 Rule 5 CPC in particular, is to prevent any defendant from defeating the realization of the decree that may ultimately be passed in favour of the plaintiff, either by attempting to dispose of, or remove from the jurisdiction of the court, his movables. The Scheme of Order 38 and the use of the words 'to obstruct or delay the execution of any decree that may be passed against him' in Rule 5 make it clear that before exercising the power under the said Rule, the court should be satisfied that there is a reasonable chance of a decree being passed in the suit against the defendant. This would mean that the court should be satisfied that the plaintiff has a prima facie case. If the averments in the plaint and the documents produced in support of it, do not satisfy the court about the existence of a prima facie case, the court will not go to the next stage of examining whether the interest of the plaintiff should be protected by exercising power under Order 38 Rule 5 CPC. It is well-settled that merely having a just or valid claim or a prima facie case, will not entitle the plaintiff to an order of

of clause (ii) for the grant of an interim injunction or the appointment of a receiver. As regards sub-clause (b) of clause (ii) the interim measure of protection is to secure the amount in dispute in the arbitration. The underlying object of Order 38 Rule 5 is to confer upon the Court an enabling power to require a defendant to provide security of an extent and value as may be sufficient to satisfy the decree that may be passed in favour of the plaintiff. The exercise of the power to order that security should be furnished is, however, pre-conditioned by the requirement of the satisfaction of the Court that the defendant is about to alienate the property or remove it beyond the limits of the Court with an intent to obstruct or delay execution of the decree that may be passed against him. In view of the decisions of the Supreme Court both in Arvind Constructions and Adhunik Steels, it would not be possible to subscribe to the position that the power to grant an interim measure of protection under Section 9(ii)(b) is completely independent of the provisions of the Code of Civil Procedure 1908 or that the exercise of that power is untrammeled by the Code. The basic principle which emerges from both the judgments of the Supreme Court is that though the Arbitration and Conciliation Act 1996 is a special statute, Section 9 does not either attach a special condition for the exercise of the power nor does it embody a special form of procedure for the exercise of the power by the Court. The second aspect of the provision which has been noted by the Supreme Court is the concluding part of Section 9 under which it has been specified that the Court shall have the same power for making orders as it has for the purpose of and in relation to any proceedings before it. This has been interpreted in both the judgments to mean that the normal rules that govern the Court in the grant of an interlocutory order are not jettisoned by the provision. The judgment of the Division Bench of this Court in National Shipping Company (supra) notes that though the power by Section 9(ii)(b) is wide, it has to be governed by the paramount consideration that a party which has a claim adjudicated in its favour ultimately