Delhi High Court Refers Comedian Papa CJ's Dispute Over Purchase Of Coffee Startup Shares To Arbitration

The Delhi High Court has appointed Advocate Veena Ralli as sole arbitrator to adjudicate a share purchase dispute between stand-up comedian Chirag Jain, popularly known as Papa CJ, and the promoters of Delhi-based coffee startup Beanly Beverages.

The court held that whether the company, which did not sign the share purchase agreements, can nevertheless be treated as a party to the arbitration agreement is an issue that must be decided by the arbitral tribunal after examining the evidence.

Justice Mini Pushkarna noted that Rahul Jain and Samayesh Khanna, who executed the share purchase agreements with Jain, had already consented to the appointment of a sole arbitrator. The only issue before the court was Beanly Beverages' objection to being referred to arbitration as a non-signatory.

"However, the question whether a Company, acting through its controlling shareholders and Directors, who are themselves parties to the Arbitration Agreement, can be treated as a party thereto by virtue of the transaction structured and implemented through them, is an issue which would necessarily require a detailed examination of the facts and evidence. It is trite law that this question cannot be conclusively determined at the stage of Section 11 of the Arbitration Act. ", the court ruled.

The dispute arose from two share purchase agreements executed on April 27, 2024. Under the agreements, Jain agreed to purchase 70 equity shares each from Rahul Jain and Khanna at ₹1,225 per share. The agreements were amended on May 6, 2024.

Jain contended that he paid the entire sale consideration, but the promoters neither transferred the shares nor handed over the share certificates. He also alleged that Beanly Beverages allotted fresh equity shares to third parties on July 1, 2024, diluting his contractual rights.

After issuing notices invoking arbitration on December 20, 2024, Jain approached the High Court seeking appointment of an arbitral tribunal. Earlier, a Patiala House court had restrained Rahul Jain and Khanna from transferring, alienating, disposing of or encumbering the disputed shares and directed Jain to commence arbitration proceedings within 90 days.

Rahul and Khanna did not oppose the appointment of a sole arbitrator. Beanly Beverages, however, argued that it was a separate legal entity, had not signed the share purchase agreements, had never consented to arbitration and therefore could not be compelled to participate in the proceedings.

Jain argued that the company's involvement was central to the transaction.

Jain argued that the agreements recorded Beanly Beverages' knowledge and consent, required board approval for the share transfer and involved acts that could only be carried out by the company. He also contended that Rahul Jain and Khanna, as the company's majority shareholders and directors, controlled its affairs.

The court noted that Rahul Jain and Khanna held majority shareholding and decision-making authority in Beanly Beverages, enabling them to undertake corporate acts on the company's behalf, including obtaining board approvals and affixing its common seal.

Referring to the Supreme Court's decision in Cox and Kings Ltd. v. SAP India Pvt. Ltd., the court observed that deciding whether a non-signatory is a "veritable party" to an arbitration agreement requires an examination of factors such as the parties' conduct, their relationship, the nature of the transaction and the performance of the contract. Such an exercise, it held, cannot be undertaken while deciding an application for appointment of an arbitrator.

"The final determination as to whether a non-signatory is a veritable party to such Agreement is one that falls within the domain of the Arbitral Tribunal, which is vested with the adjudicatory authority to determine the issue on the basis of the pleadings, evidence, and other materials placed before it", the court ruled

The court also observed that Beanly Beverages' objections that no notice invoking arbitration had been served on it and that the dispute was not arbitrable were not grounds to refuse appointment of an arbitrator at this stage.

Those objections, along with the question of whether the company is bound by the arbitration agreement, were left open for the arbitral tribunal to decide.

Accordingly, the court appointed Advocate Ralli as sole arbitrator to adjudicate the disputes arising from the two share purchase agreements.

It clarified that it had expressed no opinion on the merits of the dispute and left all issues for determination by the arbitral tribunal.

For Petitioner (Chirag Jain): Advocates Satvik Varma, Wasim Beg, Farheen Penwale, Harshita Rawat, Shantanu Parmar, Balaram and Aditya Tewari.

For Respondent (Rahul Jain, Samayesh Khanna and Beanly Beverages Private Limited): Advocates Ishaan S. Sharma, Shambhavi Sharma, Shubham Shukla, Ayush, Mukund Ranjan, Anurag Ahluwalia, Vidhit Gupta, Kartik Dey and Dipanshu Gaba.