Gujarat Composite Limited vs A Infrastructure Limited & Ors.

Civil Appeal · 2023 INSC 470Decided 1 May 2023
Civil Appeal No. 3259 of 2023
Sudhanshu Dhulia · Sanjay Kumar instead of Justice Sudhanshu Dhulia

Background

In 2005, Gujarat Composite Limited licensed out several of its manufacturing units to A Infrastructure Limited and its sister concern under agreements that included an arbitration clause. Over the following years, the parties entered into further agreements, including a 2006 tripartite agreement bringing in Bank of Baroda (which had sanctioned a loan and taken a charge on Gujarat Composite's assets), a 2008 agreement about title deeds, and 2015 conveyance deeds: none of which contained any arbitration clause. When a commercial dispute arose, Gujarat Composite sought to force the matter into arbitration under Section 8 of the Arbitration and Conciliation Act, 1996, arguing the dispute traced back to the original 2005 licence agreement that did have an arbitration clause. The Commercial Court and the Gujarat High Court both rejected this, holding the dispute was not arbitrable.

Decision Breakdown

The Supreme Court agreed with the High Court and dismissed the appeals. It reasoned that only the original 2005 licence agreement contained an arbitration clause: the tripartite agreement with the bank, and the later conveyance deeds involving other purchasers, did not, even though they concerned the same underlying property and relationship. Because the actual relief claimed in the civil suit arose from the tripartite agreement (and involved the bank and subsequent purchasers as necessary parties), the dispute could not be resolved through arbitration without those parties' presence, and no "genesis" argument tracing the dispute back to the 2005 agreement could import an arbitration clause into agreements that never had one. Attempts by the parties to engineer consent to arbitration through court memos were also rejected, as consent cannot manufacture jurisdiction where none exists.

Lesson Learnt

An arbitration clause in one agreement does not automatically extend to cover disputes arising from later, separate agreements between overlapping parties, especially once new parties (like a bank or other creditors) become essential to resolving the dispute, so businesses restructuring or refinancing a deal should ensure each new agreement expressly addresses dispute resolution rather than assuming the original arbitration clause still applies.

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