Court rules that arbitration clause from a share transfer agreement is applicable to a connected escrow agreement, directing parties to resolve disputes through arbitration.
In a significant judgment delivered on December 17, 2025, the Calcutta High Court's Division Bench, comprising Justices Debangsu Basak and Md. Shabbar Rashidi, ruled that an arbitration clause in a share transfer agreement can be incorporated into an escrow agreement if both are intrinsically linked. The case involved Asian Tea And Exports Limited, the appellant, and Priyanka Gupta and others, respondents, in a dispute over the interpretation and application of arbitration clauses in related agreements dated September 12, 2014.
The dispute centered around a share transfer agreement, which included an arbitration clause, and an escrow agreement executed on the same date as part of the share transfer transaction. The appellant sought to have disputes referred to arbitration, arguing that the arbitration clause in the share transfer agreement should extend to the escrow agreement, which was deemed integral to the former.
The Division Bench overturned a previous judgment by a Single Judge, who had refused to refer the matter to arbitration. The High Court applied principles established in the Supreme Court's judgments, particularly the case of M. R. Engineers & Contractors Pvt. Ltd. v. Som Datt Builders Ltd., to determine that the arbitration clause in the share transfer agreement was indeed incorporated into the escrow agreement.
The court emphasized that both agreements were not standalone documents but rather parts of a single transaction, thereby satisfying the conditions for incorporation of arbitration clauses as outlined by the Supreme Court. As a result, the court set aside the earlier judgment and directed that the disputes be resolved through arbitration as per the terms of the share transfer agreement.
The decision underscores the importance of recognizing arbitration clauses across interconnected agreements, enhancing the enforceability of arbitration as a dispute resolution mechanism in complex commercial transactions. The case references included the Supreme Court rulings in Ameet Lalchand Shah v. Rishabh Enterprises and NBCC (India) Limited v. Zillion Infraprojects Pvt. Ltd., which supported the view that arbitration agreements can be incorporated by reference when agreements are interconnected.
The ruling is expected to have a significant impact on how arbitration clauses are interpreted in commercial agreements, particularly in cases where multiple documents form part of a single transaction.
Bottom Line:
Arbitration agreement in a share transfer agreement can be incorporated into an escrow agreement if both agreements are intrinsically interconnected and the share transfer agreement contemplates escrow as an integral part.
Statutory provision(s): Arbitration and Conciliation Act, 1996, Section 7(5)
Asian Tea And Exports Limited v. Priyanka Gupta, (Calcutta)(DB) : Law Finder Doc Id # 2829295
