Arbitral Tribunal Can Decide Claim Between Co-Respondents Under Tripartite Agreement: Kerala High Court

The Kerala High Court has held that an arbitral tribunal can decide a claim raised by one respondent against another under a tripartite agreement where the parties have agreed to refer all disputes arising out of the contract to arbitration.

The court ruled that although the claim had been labelled a "counterclaim", it was, in substance, an independent contractual claim between parties to the same agreement. It also noted that Section 19 of the Arbitration and Conciliation Act, 1996 makes it clear that arbitral tribunals are not bound by the Code of Civil Procedure, 1908.

As a result, the restriction under Order VIII Rule 6A of the CPC on counterclaims solely against a co-defendant could not apply in the present case.

Justice T.R. Ravi delivered the ruling while dismissing a petition filed by Karthik Exports and its managing partner, S. Vijayan. They had challenged a Commercial Court order declaring executable an arbitral award directing commission agent Krishna Kumar Agarwal to pay about ₹1.34 crore, along with 8% annual interest, to Preetha Vijayan, wife of S. Vijayan.

The court observed, “There can hence be no doubt that the parties had agreed to refer all disputes and differences arising out of the contract for arbitration. Claim of the 1st respondent against the 1st petitioner is one arising from the contract and hence is arbitrable. After having agreed before the High Court of Calcutta for reference to arbitration in an application in which all the parties to the contract were parties either as petitioner or respondents, it is not open to the petitioners to submit that the claim of the 1st respondent as against the 1st petitioner cannot be subject matter of the arbitration. Though it has been referred to as a counter claim, it is in effect a claim between the said parties.”

The dispute arose out of a tripartite agreement executed on March 29, 2019 between seller D. Monalisa Impex, buyer Karthik Exports and commission agent Krishna Kumar Agarwal. The agreement required all disputes arising from the contract to be resolved through arbitration before a sole arbitrator in Kolkata.

An arbitral award passed on June 23, 2022 directed Krishna Kumar Agarwal to pay Preetha Vijayan about ₹1.34 crore, together with interest from May 22, 2019, until recovery. Karthik Exports has challenged the award before the Calcutta High Court. That challenge is still pending.

Meanwhile, Krishna Kumar Agarwal initiated execution proceedings before the Commercial Court in Pathanamthitta. Karthik Exports, S. Vijayan and Preetha Vijayan objected, arguing that the arbitral tribunal lacked jurisdiction to entertain what had been described as a counterclaim between co-respondents.

They also contended that no notice invoking arbitration had been issued in relation to the claim and that the award could not be enforced against S. Vijayan and Preetha Vijayan as they were not parties to the arbitral proceedings.

The Commercial Court rejected those objections and held the award executable.

Before the High Court, the petitioners relied on Order VIII Rule 6A of the CPC and Supreme Court decisions to argue that a counterclaim could only be maintained against the original claimant and not solely against a co-defendant.

Rejecting the contention, the High Court held that the impugned claim was, in reality, an independent contractual claim arising under the tripartite agreement rather than a procedural counterclaim. Since the arbitration clause covered all disputes arising from the contract, the claim fell within its scope.

The Court further held that decisions interpreting Order VIII Rule 6A in civil suits could not govern the present proceedings. It observed:

“This is all the more so since Section 19 of the Arbitration and Conciliation Act, 1996 specifically says that arbitral Tribunal shall not be bound by the Code of Civil Procedure, 1908.”

Finding no reason to interfere with the Commercial Court's order, the High Court dismissed the petition. It clarified, however, that its decision would not affect the contentions raised by Karthik Exports in its pending challenge to the arbitral award before the Calcutta High Court.

For Petitioners (Karthik Exports and S. Vijayan): Advocates Jacob P. Alex, Joseph P. Alex, Manu Sankar P., Amal Amir Ali.

For Respondents (Krishna Kumar Agarwal and Preetha Vijayan): Advocates Aamir Sohrab M. M., Debraj Sahu (instructed by Aamir Sohrab M. M.).