The Delhi High Court has referred stand-up comedian Papa CJ (Chirag Jain)’s dispute with the promoters of coffee startup Beanly Beverages Private Limited to arbitration, holding that the question of whether the company, despite being a non-signatory to the Share Purchase Agreements (SPAs), is bound by the arbitration clause must be decided by the arbitral tribunal after examining the evidence.
Justice Mini Pushkarna was hearing two petitions filed by Chirag Jain seeking appointment of an arbitrator in disputes arising out of SPAs executed with Rahul Jain and Samayesh Khanna (Directors) for the purchase of equity shares in Beanly Beverages. Under the agreements dated April 27, 2024, petitioner agreed to purchase 70 equity shares each from the two promoters at ₹1,225 per share, paying a total consideration of ₹1.71 lakh.
He alleged that although he paid the entire sale consideration, the promoters failed to hand over the signed share transfer deeds and physical share certificates. He further claimed that Beanly subsequently issued fresh shares to third parties, diluting his contractual rights under the SPAs.
While Rahul Jain and Samayesh Khanna consented to the appointment of a sole arbitrator despite the agreements providing for a three-member tribunal, Beanly objected to being referred to arbitration. The company argued that it had neither signed the SPAs nor consented to arbitration and therefore could not be compelled to arbitrate disputes arising from private agreements between the investor and its promoters.
Rejecting Beanly’s objection at the referral stage, the High Court observed that determining whether a non-signatory company can be treated as a party to an arbitration agreement would require a detailed examination of the facts, the parties’ conduct and the surrounding commercial relationship, an exercise that falls within the jurisdiction of the arbitral tribunal rather than the Court under Section 11 of the Arbitration and Conciliation Act. The Court observed:
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“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 further held that non-issuance of a notice under Section 21 of the Arbitration Act to Beanly would not prevent the dispute from being referred to arbitration, observing that the objection could not act as an impediment at the referral stage.
Accordingly, Justice Pushkarna appointed Advocate Veena Ralli as the sole arbitrator to adjudicate the disputes, leaving it to the arbitral tribunal to decide whether Beanly Beverages is a “veritable party” bound by the arbitration agreement despite not being a signatory to the SPAs
