Page 1 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 8837 OF 2016

Mrs. Hema Khattar & Anr. .... Appellant(s)

Versus

Shiv Khera .... Respondent(s)

J U D G M E N T

R.K. Agrawal, J.

1)Challenge in this appeal is to the legality of the judgment

and order dated 28.09.2012 rendered by a Division Bench of

the High Court of Delhi at New Delhi in FAO (OS) No. 470 of

2012 whereby the High Court dismissed the appeal filed by the

appellants herein.

2)Factual position in a nutshell is as follows:-

a)An agreement to reconstruct a building situated at C-6/4,

Vasant Vihar, New Delhi was executed between Hema

Khattar-the appellant No. 1 herein, wife of Ashwani Khattar –

the appellant No. 2 herein, carrying on business in

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Page 2 construction under the name and style of M/s Dessignz and

Shiv Khera-the respondent herein on 06.06.2009.

b)Pursuant to the said agreement, the building site was

handed over to the appellant No. 1 herein on 09.11.2010 and

thereafter the execution of the work had started. In March

2011, as per Clause 16 of the Agreement dated 06.06.2009, a

spot inspection was conducted by renowned structural

engineers which pointed out several structural lacunae. On

coming to know about the same, the respondent further

arranged inspection by various specialized agencies which

confirmed the same in their reports.

c)Being aggrieved by the quality of construction, the

respondent served a legal notice dated 19.09.2011 to the

appellant No. 1 seeking damages. The respondent, vide

Clause 33 of the said agreement, appointed a sole arbitrator

claiming that the appellant No. 1 has not complied with the

terms of the agreement whereby disputes, requiring

adjudication, have arisen between the parties. In statement of

claims, the respondent, besides other claims, also sought for a

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Page 3 sum of Rs. 39.85 lakhs paid to the appellant No. 1 along with

a sum of Rs. 35,000/- for the TDS deposited to her credit.

d)The appellants filed a suit for declarations, permanent

injunction and recovery before the High Court being CS(OS)

No. 1532 of 2012 seeking a decree that the agreement dated

06.06.2009 entered into between the appellant No. 1 and the

respondent was vitiated and had been terminated by mutual

consent by both the parties and any proceeding initiated

pursuant to the agreement is null, non-est and void and also

for recovery of an amount of Rs. 45,50,000/-.

e)It is also pertinent to mention here that it was alleged in

the plaint that a formal meeting was held between the parties

in which it was decided that appellant No.1 will no longer be

the contractor and the agreement dated 06.06.2009 would

stand terminated by mutual consent and the construction

would be carried out by the sub-contractors to be appointed

as per the advice of appellant No. 2 who would supervise the

same without remuneration/profit.

f)The respondent filed I.A. No. 12124 of 2012 in CS(OS) No.

1532 of 2012 under Section 8 of the Arbitration and

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Page 4 Conciliation Act, 1996 (in short ‘the Act’) claiming that the

subject-matter of dispute in the present suit is already

pending adjudication before the Arbitral Tribunal, hence, the

suit cannot be proceeded with which was denied by the

appellants in their reply to the above said application.

g)Vide order dated 17.09.2012, learned single Judge of the

High Court, found that the suit is bad for misjoinder of parties

as well as for causes of action and gave an option to the

appellants therein to elect whether they want the suit to be

treated as a suit for recovery of money by appellant No. 2

herein against the respondent or a suit for declarations and

injunction by appellant No. 1.

h)Being aggrieved by the order dated 17.09.2012, the

appellants went in appeal and filed FAO (OS) being No. 470 of

2012 before the High Court. A division bench of the High

Court, vide order dated 28.09.2012, dismissed the appeal.

i)Aggrieved by the order dated 28.09.2012, the appellants

have filed this appeal by way of special leave before this Court.

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Page 5 3)Heard Mr. Jayant Bhushan, learned senior counsel for the

appellants and Mr. Sakal Bhushan, learned counsel for the

respondent and perused the records.

Point for consideration:-

4)The only point for consideration before this Court is

whether in the present facts and circumstances of the case the

suit is bad for misjoinder of parties as well as for causes of

action?

Rival submissions:-

5)Learned senior counsel for the appellants contended

before this Court that the agreement dated 06.06.2009 was

executed with dishonest intention containing the arbitration

clause and in any event the same has been superseded by a

subsequent oral agreement between appellant No. 2 herein

and the respondent.

6)Learned senior counsel further contended that the High

Court erred in upholding that the cause of action with respect

to relief of money is an independent cause of action from that

of the relief of declarations and injunction. The High Court

failed to appreciate that common trial of joint causes of

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Page 6 action is necessary, if at all, as they raise common questions

of law and facts and the course adopted by the High Court

would lead to multiplicity of proceedings causing delay.

Learned senior counsel finally contended that in view of the

patent illegality in the orders passed by the High Court, the

same are liable to be set aside.

7)Without prejudice to the aforesaid, learned senior counsel

for the appellants, in the alternative submitted that the entire

matter be referred to another sole arbitrator which may be

appointed by this Court as according to him, in the written

contract, there was a clause for arbitration and, subsequently,

in the oral contract also, the terms of the earlier contract

continued to remain in operation except those which were

modified in the oral contract.

8)In support of the above submission, learned senior

counsel for the appellants placed reliance upon a judgment of

this Court in P.R. Shah, Shares and Stock Brokers Private

Limited vs. B.H.H. Securities Private Limited and Others

(2012) 1 SCC 594. He has referred to paragraph 19 of the

judgment which reads as under:-

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Page 7 “19. If A had a claim against B and C, and there was an

arbitration agreement between A and B but there was no

arbitration agreement between A and C, it might not be

possible to have a joint arbitration against B and C. A cannot

make a claim against C in an arbitration against B, on the

ground that the claim was being made jointly against B and

C, as C was not a party to the arbitration agreement. But if

A had a claim against B and C and if A had an arbitration

agreement with B and A also had a separate arbitration

agreement with C, there is no reason why A cannot have a

joint arbitration against B and C. Obviously, having an

arbitration between A and B and another arbitration between

A and C in regard to the same claim would lead to conflicting

decisions. In such a case, to deny the benefit of a single

arbitration against B and C on the ground that the

arbitration agreements against B and C are different, would

lead to multiplicity of proceedings, conflicting decisions and

cause injustice. It would be proper and just to say that when

A has a claim jointly against B and C, and when there are

provisions for arbitration in respect of both B and C, there

can be a single arbitration.”

9)Per contra, learned counsel for the respondent submitted

that the suit has been filed by the two appellants jointly with

respect to the two separate alleged causes of action. He further

submitted that the alleged cause of action of the appellant No.

1 is based upon the agreement dated 06.06.2009 between the

appellant No. 1 and the respondent in which appellant No. 2

cannot be said to have any joint interest and the alleged cause

of action of appellant No. 2 is based upon an oral

understanding arrived at between appellant No.2 and the

respondent in which appellant No. 1 cannot be said to have

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Page 8 any joint interest. Learned counsel for the respondent further

submitted that in such circumstances, the instant suit in the

present form is not maintainable in terms of Order II Rule 3 of

the Code of Civil Procedure, 1908 (in short ‘the Code’) and the

suit of the appellant No. 1 is required to be separated under

Order II Rule 6 of the Code.

10)Learned counsel further submitted that in view of the

existence of the arbitration clause in the agreement dated

06.06.2009 and the subject matter of dispute between the

parties in the present suit is already pending adjudication

before the Arbitral Tribunal, the instant suit filed by the

appellant No. 1 cannot be proceeded with and the matter is

required to be referred to arbitration. Learned counsel finally

submitted that the judgment rendered by the division bench of

the High Court upholding the decision of the learned single

Judge is correct and no interference is called for in the appeal.

11)Learned counsel further submitted that the oral contract

did not contain any clause for arbitration and the dispute

raised by the appellant No. 2 cannot be referred to arbitration.

In support whereof, he relied upon a decision of this Court in

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Page 9 Kvaerner Cementation India Limited vs. Bajranglal

Agarwal and Another (2012) 5 SCC 214 wherein this Court

has held that there cannot be any dispute that in the absence

of arbitration clause in the agreement, no dispute could be

referred for arbitration to an Arbitral Tribunal.

12)Learned counsel, however, submitted that if this Court

comes to the conclusion that the matter should be resolved by

way of arbitration, the entire matter be referred to the sole

arbitrator already appointed by the respondent.

Discussion:

13)From the materials on record, it is evident that an

agreement dated 06.06.2009 was executed between the parties

wherein appellant No. 1 was the contractor and the

respondent as a client. The agreement impugned clearly

states that there is an arbitration clause therein. Owing to the

dispute among parties, the respondent, in exercise of his right

under the said clause, appointed a sole arbitrator.

Subsequently, notices were issued to the appellant No. 1 and

the matter remained pending despite appearance before the

Arbitral Tribunal. In the meantime, the appellants jointly filed

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Page 10 a suit before the High Court for declarations, permanent

injunction and recovery claiming a formal meeting was held

between the parties in which it was decided that appellant

No.1 will no longer be the contractor and the agreement dated

06.06.2009 would stand terminated by mutual consent and

the construction would be carried out by the sub-contractors

to be appointed as per the advice of appellant No. 2 who would

supervise the same without remuneration/profit. The

respondent filed I.A. No. 12124 of 2012 in CS(OS) No. 1532 of

2012 under Section 8 of the Act claiming that the

subject-matter of dispute in the present suit is already

pending adjudication before the Arbitral Tribunal, hence, the

suit cannot be proceeded with. Vide order dated 17.09.2012,

learned single Judge of the High Court, found that the suit is

bad for mis-joinder of parties as well as for causes of action

and gave an option to the appellants to elect whether they

want the suit to be treated as a suit for recovery of money by

appellant No. 2 herein against the respondent or a suit for

declarations and injunction by appellant No. 1. The

appellants went in appeal before the division bench of the High

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Page 11 Court. Vide order dated 28.09.2012, the division bench also

dismissed the same.

14)From the facts of this case, we find that a suit was filed

for declarations, permanent injunction and recovery of money

by the appellants stating that a meeting was held in between

the parties in which it was decided that appellant No. 1 would

no longer be the contractor and the agreement dated

06.06.2009 would stand terminated by mutual consent and

the construction would be carried out by the sub-contractors

to be appointed as per the suggestions of appellant No.2, who

would supervise the same but without any

profit/remuneration as per the oral agreement. The

respondent agreed to make all payments towards purchase of

material, construction, fee of architect etc. Appellant No. 2

incurred an amount of Rs. 45 lakhs for and on behalf of the

respondent which is sought to be recovered under this suit.

The appellants also claimed a declaration to the effect that the

agreement dated 06.06.2009 between appellant No. 1 and the

respondent was obtained by fraud and mis-representation,

hence, it is null and void. Another declaration sought for in

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Page 12 the suit was that the agreement dated 06.06.2009 stood

terminated by mutual consent. A decree for injunction is also

sought for restraining the respondent from initiating and

carrying on any proceeding arising out of and on the basis of

agreement dated 06.06.2009 between appellant No. 1 and the

respondent. On the other hand, the respondent took the

preliminary objection that the suit is bad for misjoinder of

parties and causes of action and further that the arbitration

proceedings initiated by the respondent, in terms of the

arbitration clause, is pending adjudication before the Arbitral

Tribunal.

15)Admittedly, the cause of action for recovery of Rs. 45

lakhs claimed in the present suit is the expenditure alleged to

have been incurred by appellant No. 2 pursuant to the oral

agreement he claims he had with the respondent sometime in

April, 2011. On the other hand, the cause of action with

respect to reliefs of declarations and injunction is the

agreement dated 06.06.2009. The alleged agreement dated

06.06.2009 was, admittedly, between the appellant No. 1 and

the respondent to which appellant No. 2 was only a witness,

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Page 13 which as per the terms of the plaint terminated later on by

mutual agreement between the appellant No. 1 and the

respondent. At this stage, it was agreed orally that appellant

No. 2, who is the husband of appellant No. 1, would take over

the execution of the pending works. Admittedly, Appellant No.

1 is not a party to the alleged oral agreement between

Appellant No. 2 and the respondent for supervision of the

construction by him.

16)From the materials available on record, particularly, the

transcript of conversation between the appellant No. 2 and the

respondent on 6

th

and 7

th

April, 2011, we find that the oral

agreement was substituted in place of the alleged written

agreement dated 06.06.2009. There is a complete accord and

discharge of the responsibilities and liabilities of appellant No.

1 vis-à-vis the defendant and vice-versa. The plaint also avers

that after the accord between appellant No. 1 and the

respondent and simultaneous discharge of the obligations, a

distinct oral agreement was entered into between appellant No.

2 and the respondent. It is quite clear from what has been

stated above that the cause of action: the right to get

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Page 14 declarations with regard to the said contract as null and void

or a right to seek an injunction restraining the respondent

from taking any action on the basis of the said contract, if any,

with regard to the prior written agreement arises in favour of

appellant No. 1 against respondent and not in favour of

appellant No. 2 as he was not a party to the agreement dated

06.06.2009. On the similar lines, the right to seek money

decree, as is claimed by the appellants, would be a distinct

cause of action founded on subsequent oral agreement

between the appellant No. 2 and the respondent.

17)Learned single Judge of the High Court, vide order dated

17.09.2012, directed the parties to elect as to whether they

want the suit to be treated as a suit for recovery of money by

appellant No. 2 against the respondent or a suit for

declarations and injunction by appellant No. 1 against the

respondent and to amend the plaint accordingly. Learned

single Judge, after taking a considered view that the suit is

bad for misjoinder of parties and/or misjoinder of causes of

action, held that the application filed by the defendant under

Section 8 of the Act would be disposed of only after the

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Page 15 appellants make an election in terms of this order. The

appellants herein, instead of amending the plaint, went in

appeal before the division bench, which got dismissed vide

order dated 28.09.2012.

18)Since the suit was dismissed for misjoinder of parties

and/or causes of action, it is pertinent to mention here the law

on the point which is as under:-

Order II Rule 3

“Joinder of causes of action – (1) Save as otherwise

provided, a plaintiff may unite in the same suit several

causes of action against the same defendant, or the same

defendants jointly; and any plaintiffs having causes of action

in which they are jointly interested against the same

defendant or the same defendants jointly may unite such

causes of action in the same suit.

(2)Where causes of action are united, the jurisdiction of

the Court as regards the suit shall depend on the amount or

value of the aggregate subject matters at the date of

instituting the suit.”

Order II Rule 6

“Power of Court to order separate trials – Where it appears

to the court that the joinder of causes of action in one suit

may embarrass or delay the trial or is otherwise

inconvenient, the Court may order separate trials or make

such other order as may be expedient in the interests of

justice.”

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Page 16 In Black's Law Dictionary it has been stated that the

expression ‘cause of action’ is the fact or facts which give a

person a right to judicial relief. A cause of action, thus, means

every fact, which, if traversed, it would be necessary for the

plaintiff to prove in order to support his right to a judgment of

the court. In other words, it is a bundle of facts which taken

with the law applicable to them gives the plaintiff a right to

relief against the defendant. It must include some act done by

the defendant since in the absence of such an act no cause of

action can possibly accrue. It is not limited to the actual

infringement of the right sued on but includes all the material

facts on which it is founded.

19)Order II, Rule 3, provides for the joinder of several causes

of action and states that a plaintiff may unite in the same suit

several causes of action against the same defendant, or the

same defendants jointly or several plaintiffs having causes of

action in which they are jointly interested against the same

defendant or defendants jointly may unite them in one suit.

The remedy for any possible inconvenience with regard to said

rule is supplied by the provisions of Order II, Rule 6, which

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Page 17 authorizes the Court to order separate trials of causes of

action which though joined in one suit cannot be conveniently

tried or disposed of together.

20)Similarly, Order I Rule 1 of the Code permits joinder of

more than one persons any right to relief in respect of, or

arising out of, the same act or transaction or series of acts or

transactions is alleged to exist in such persons, whether

jointly, severally or in the alternative; and if such persons

brought separate suits, any common question of law or fact

would arise. Order I Rule 2 provides that where it appears to

the court that any joinder of plaintiffs may embarrass or delay

the trial of the suit, the court may put the plaintiffs to their

election or order separate trials or make such other order as

may be expedient.

21)In this connection, it is pertinent to refer to a judgment of

this Court in Ramesh Hirachand Kundanmal vs. Municipal

Corporation of Greater Bombay and Others 1992 (2) SCC

524 wherein it was held as under:-

“14. It cannot be said that the main object of the rule is to prevent

multiplicity of actions though it may incidentally have that effect.

But that appears to be a desirable consequence of the rule rather

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Page 18 than its main objectives. The person to be joined must be one

whose presence is necessary as a party. What makes a person a

necessary party is not merely that he has relevant evidence to give

on some of the questions involved; that would only make him a

necessary witness . It is not merely that he has an interest in the

correct solution of some questions involved and has thought or

relevant arguments to advance. The only reason which makes it

necessary to make a person a party to an action is that he should

be bound by the result of the action and the question to be settled,

therefore, must be a question in the action which cannot be

effectually and completely settled unless he is a party.”

22)In view of the foregoing discussion, we are of the opinion

that the appellants even though had different causes of action

against the respondent but it was a continuity of the

agreement dated 06.06.2009 and oral agreement is evidenced

by the transcript of conversation between the appellant No. 2

and the respondent on 6/07.04.2011, therefore, both the

appellants could have joined as plaintiffs in a suit and the suit

is not bad for misjoinder of parties or causes of action. Hence,

learned single Judge as also the division bench, was not right

in giving an option to the appellants to pursue reliefs qua

appellant No. 1 or qua appellant No. 2 only.

23)In the present facts and circumstances of the case, it is

also imperative to find out whether the High Court was

justified in deciding the maintainability of the suit when an

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Page 19 application under Section 8 of the Act is pending adjudication

before the Arbitral Tribunal. Before proceeding further, it is

appropriate to quote here Section 8 of the Act which reads as

under:-

“8.Power to refer parties to arbitration where there is

an arbitration agreement. – [(1) A judicial authority, before

which an action is brought in a matter which is the subject

of an arbitration agreement shall, if a party to the arbitration

agreement or any person claiming through or under him, so

applies not later than the date of submitting his first

statement on the substance of the dispute, then,

notwithstanding any judgment, decree or order of the

Supreme Court or any Court, refer the parties to arbitration

unless it finds that prima facie no valid arbitration

agreement exists.]

(2) The application referred to in sub-section (1) shall not be

entertained unless it is accompanied by the original

arbitration agreement or a duly certified copy thereof:

[Provided that where the original arbitration agreement

or a certified copy thereof is not available with the

party applying for reference to arbitration under

sub-section (1), and the said agreement or certified

copy is retained by the other party to that agreement,

then, the party so applying shall file such application

along with a copy of the arbitration agreement and a

petition praying the Court to call upon the other party

to produce the original arbitration agreement or its

duly certified copy before the Court.]

(3)Notwithstanding that an application has been made

under sub-section (1) and that the issue is pending before

the judicial authority, an arbitration may be commenced or

continued and an arbitral award made.”

24)It is also worthwhile to note Clause33(d) of the

agreement dated 06.06.2009 which refers the parties to

Arbitration:-

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Page 20 “Governing Law & Dispute Resolution : All or any

disputes and differences whatsoever between the parties

arising out of this Agreement or relating to or touching the

mutual rights and obligations of the parties shall be subject

to the jurisdiction of the Courts/Forums in Delhi only and

shall be referred for adjudication to the sole arbitrator, to be

appointed solely and exclusively by the FIRST PARTY, whose

decision shall be final and binding upon the parties. The

arbitration proceedings shall be held at New Delhi, India and

only the Courts at New Delhi, India alone shall have

jurisdiction over the subject matter of this AGREEMENT.”

25)In Sundaram Finance Limited and Another vs. T.

Thankam (2015) 14 SCC 444, this Court has held as under:-

“8. Once there is an agreement between the parties to

refer the disputes or differences arising out of the agreement

to arbitration, and in case either party, ignoring the terms of

the agreement, approaches the civil court and the other

party, in terms of Section 8 of the Arbitration Act, moves the

court for referring the parties to arbitration before the first

statement on the substance of the dispute is filed, in view of

the peremptory language of Section 8 of the Arbitration Act,

it is obligatory for the court to refer the parties to arbitration

in terms of the agreement, as held by this Court in P. Anand

Gajapathi Raju v. P.V.G. Raju.”

26)In P. Anand Gajapathi Raju & Others vs. P.V.G. Raju

(Dead) and Others (2000) 4 SCC 539, it was held as under:-

“5. The conditions which are required to be satisfied under

sub-sections (1) and (2) of Section 8 before the court can

exercise its powers are:

(1) there is an arbitration agreement;

(2) a party to the agreement brings an action in the court

against the other party;

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Page 21 (3) subject-matter of the action is the same as the

subject-matter of the arbitration agreement;

(4) the other party moves the court for referring the

parties to arbitration before it submits his first statement on

the substance of the dispute.”

In view of the above, where an agreement is terminated by one

party on account of the breach committed by the other,

particularly, in a case where the clause is framed in wide and

general terms, merely because agreement has come to an end

by its termination by mutual consent, the arbitration clause

does not get perished nor is rendered inoperative. This Court,

in the case of P. Anand Gajapathi Raju (supra) , has held

that the language of Section 8 is peremptory in nature.

Therefore, in cases where there is an arbitration clause in the

agreement, it is obligatory for the court to refer the parties to

arbitration in terms of their arbitration agreement and nothing

remains to be decided in the original action after such an

application is made except to refer the dispute to an arbitrator.

Therefore, it is clear that in an agreement between the parties

before the civil court, if there is a clause for arbitration, it is

mandatory for the civil court to refer the dispute to an

arbitrator.

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Page 22 27)In view of the above, we are of the considered opinion

that in the present case, the prerequisites for an application

under Section 8 are fulfilled, viz., there is an arbitration

agreement; the party to the agreement brings an action in the

court against the other party; the subject matter of the action

is the same as the subject-matter of the arbitration agreement;

and the other party moves the court for referring the parties to

arbitration before it submits his first statement on the

substance of the dispute. We have come to the conclusion

that the civil court had no jurisdiction to entertain a suit after

an application under Section 8 of the Act is made for

arbitration. In such a situation, refusal to refer the dispute to

arbitration would amount to failure of justice as also causing

irreparable injury to the defendant.

28)As we have already held that the oral agreement as

evidenced by the transcript of conversation between the

appellant No. 2 and the respondent on 06/07.04.2011

substituting the alleged written agreement dated 06.06.2009

and which contained a clause for arbitration, the same clause

for arbitration would also be applicable to the oral agreement.

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Page 23 The Division Bench has also erred in law in affirming the order

passed by learned single Judge. Both the orders, therefore,

cannot be sustained and are set aside and, therefore, in view

of the decision in P.R. Shah (supra), there can only be one

arbitrator and there can only be a single arbitration.

29)In view of the foregoing discussion, the appeal succeeds

and is allowed. However, instead of remitting the matter back

to the learned single Judge for deciding the suit itself on

merits, we refer the disputes raised by the appellants in

CS(OS) 1532 of 2012 to the sole arbitrator already appointed,

viz., Hon’ble Mr. Justice V.K. Gupta (Retd.) and request the

arbitrator to decide the disputes expeditiously in accordance

with law.

...…………….………………………J.

(MADAN B. LOKUR)

.…....…………………………………J.

(R.K. AGRAWAL)

NEW DELHI;

APRIL 10, 2017.

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