Bombay High Court
Rajasthan State Co-Op. Oil Seed Growers ... vs B.G.Shirke Construction Technology ... on 3 November, 2025
2025:BHC-AS:46528
ARA;47.2013.docx
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
ARBITRATION APPEAL NO. OF 47 OF 2013
WITH
ARBITRATION APPEAL NO. OF 48 OF 2013
WITH
ARBITRATION APPEAL NO. OF 49 OF 2013
Rajasthan State Co-op Oil Seed Growers ...Appellant
Federation Ltd. (Tilam Sangh)
Versus
B.G. Shirke Construction Technology Pvt. ...Respondents
Ltd. & Anr
Mr. Rajiv Narula a/w Tarang Jagtiani, i/b Thangiani, Narula &
Associates, for the Appellant.
Mr. Sukand Kulkarni for Respondent No.1.
Ms. Archita Gharat a/w Prabhakar M. Jadhav for Respondent
No.2 in ARA/47/2013.
Mr. Prabhakar M. Jadhav for Respondent No.2 in ARA/48/2013
& ARA/49/2013.
CORAM : SOMASEKHAR SUNDARESAN, J.
RESERVED ON : March 11, 2025
PRONOUNCED ON : November 3, 2025
ASHWINI
JANARDAN
VALLAKATI
Digitally signed by
ASHWINI JANARDAN
VALLAKATI
Page 1 of 32
Date: 2025.11.03
15:02:50 +0530
November 3, 2025
::: Uploaded on - 03/11/2025 ::: Downloaded on - 03/11/2025 21:21:37 :::
ARA;47.2013.docx
JUDGEMENT :
Context and Factual Background:
1. The captioned appeals are filed under Section 37 of the
Arbitration and Conciliation Act, 1996 ("the Act") challenging orders
passed by the Learned District Court Pune, disposing of challenges to
arbitral awards passed by a three-member arbitral tribunal in three
separate arbitral awards, in all of which the issues are just the same.
2. In a nutshell, the Appellant, Rajasthan State Co-op Oil Seed
Growers Federation Ltd. ("Tilam Sangh") was desirous of setting up
silos for storage and process of mustard seeds in three different
locations - a 100-tonnes per day facility at Merta City (Nagaur District);
a 50-tonnes per day facility at Gangapur City (Sawaimadhopur District);
and a 100-tonnes per day facility at Sri Ganganagar (Ganganagar
District) - in the State of Rajasthan. Towards this end, Tilam Sangh
engaged National Heavy Engineering Co-operative Ltd. (" NHEC") as the
Project Management Consultant ("PMC"), which in turn engaged Shirke
Structurals Pvt. Ltd. ("Shirke") to carry out the works involved in each
of the aforesaid projects. Shirke underwent a name change later.
3. Work was completed, and payment claims were made by
Shirke, which filed civil suits. NHEC filed applications under Section 8
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of the Act indicating that the disputes are subject matter of an
arbitration agreement. These were allowed and an arbitral tribunal was
constituted in each matter, and arbitral awards came to be passed.
4. The Learned Advocates for the parties have consented to take
up Appeal No. 47 of 2013 as the representative lead matter, indicating
that adjudication of issues in that Appeal would be dispositive of all
Appeals. By consent of the parties, all references to facts, dates and the
record are made to those contained in Appeal No. 47 of 2013, on the
understanding that this judgement would cover all the captioned
proceedings.
5. A brief overview of relevant facts is set out below:-
a) On November 6, 1987, Tilam Sangh executed an
agreement with NHEC as the PMC (" PMC
Contract");
b) PMC executed an agreement dated September 28,
1989 ("Agreement") appointing Shirke as the
contractor to carry out the work. The work was to
be commenced by October 5, 1989 and completed
by January 20, 1990;
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c) Work was completed and a certificate of completion
was issued on October 31, 1993;
d) On April 4, 1994, Shirke made a claim for a sum of
Rs. ~4.83 lakh;
e) Shirke filed a Special Civil Suit 1734 of 1995 (" Civil
Suit") against Tilam Sangh and NHEC, but it was on
an application filed by NHEC, the Civil Suit was
rejected, referring the parties to arbitration;
f) On May 20, 2002, Tilam Sangh filed a Written
Statement in response to the Statement of Claim
and also filed a Counter-claim;
g) On April 4, 2003, Tilam Sangh claimed to have
made a mistake, withdrew the Counter-Claim, and
claimed that the Learned Arbitral Tribunal had no
jurisdiction since there was no privity of contract
between Tilam Sangh and Shirke under the
Agreement, and the arbitration clause could not
bind Tilam Sangh;
h) On June 2, 2003, an arbitral award was passed
awarding Rs. ~4.83 lakh coupled with interest at
15% per annum from September 4, 1993 and at 12%
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per annum from May 1, 2002 until realisation
("Arbitral Award"). Both Tilam Sangh and NHEC
were made jointly liable to pay the amount to Shirke
under the Arbitral Award;
i) Special Leave Petition filed in the Supreme Court
was disposed of giving leave to Tilam Sangh to raise
jurisdictional grounds when pursuing a challenge
under Section 34;
j) Each of Tilam Sangh and NHEC filed their
respective challenge under Section 34 of the Act.
NHEC claimed that it was merely an agent of Tilam
Sangh and could not be liable while Tilam Sangh
claimed that the arbitral award was entirely without
jurisdiction. Tilam Sangh claimed that its
participation in the arbitration was under protest;
and
k) On July 18, 2013, the District Court, Pune upheld
the Arbitral Award but also ruled that NHEC was
merely an agent and that Tilam Sangh would be
responsible. Therefore, the Section 34 Petition of
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NHEC was allowed while the Section 34 Petition of
Tilam Singh was rejected.
Contentions of Parties:
6. I have heard at length Mr. Rajiv Narula, Learned Advocate on
behalf of Tilam Sangh, Mr. Sukand Kulkarni, Learned Advocate on
behalf of Shirke and Ms. Archita Gharat, and Mr. Prabhakar Jadhav,
Learned Advocates on behalf of NHEC.
Tilam Sangh's Contentions:
7. At the heart of Mr. Rajiv Narula's submissions lies the
contention that there was no scope for privity of contract between
Shirke and Tilam Sangh, and therefore, the Arbitral Award is per se
without jurisdiction. Merely because the work was commissioned by
Tilam Sangh, it would not follow that Shirke had privity with Tilam
Sangh, which had appointed NHEC to take care of the work. The
Agreement is an instrument not executed by Tilam Sangh at all but was
executed between NHEC and Shirke. Therefore, to direct Tilam Sangh
to pay Shirke for the claims under the Agreement to which Tilam Sangh
is not even a party, is untenable. That apart, the Section 34 Court
having set aside the Arbitral Award in relation to NHEC's challenge
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could not have deleted NHEC's liability and maintained the Arbitral
Award as against Tilam Sangh - this would constitute modification of
the Arbitral Award, which is impermissible.
8. Mr. Narula would also point to the Agreement having been
contracted on a principal-to-principal basis, leaving no scope for any
agency relationship being inferred. Participating by Tilam Sangh in the
process of appointing Shirke as a sub-contractor of NHEC would not
lead to privity of contract between Tilam Sangh and Shirke, Mr. Narula
would submit. He would also indicate that the PMC Contract made it
clear that the work could be withdrawn and any element of liability
being owed to NHEC was ruled out.
Shirke's Contentions:
9. Mr. Sukand Kulkarni on behalf of Shirke would contend the
PMC Contract led to NHEC being appointed as the PMC by Tilam
Sangh. The contract price was set out in Clause 3.1 of the PMC Contract
and Tilam Sangh had agreed to pay NHEC in terms of the schedule
contained in it. On the strength of the PMC Contract, NHEC was the
"Delegated Constituted Purchaser" in the Agreement, which defined the
term "Purchaser" as Tilam Sangh. Mr. Kulkarni would point to Clauses
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3.1 and 13.2 of the Agreement to indicate that when read with the PMC
Contract, it was clear the principal employer was Tilam Sangh and it
ought to have made the payments due. The disputes being covered by
an arbitration agreement in Clause 24.2, the Arbitral Award has rightly
recognised Tilam Sangh's role.
10. Shirke had brought the Civil Suit against both the principal
Tilam Sangh, and the PMC agent, NHEC, who jointly and severally owed
monies to Shirke, Mr. Kulkarni would contend. It was on NHEC's
application under Section 8 of the Act that the disputes under the Civil
Suit got referred to arbitration, which too he would submit can be
regarded as an act of the agent on behalf of the principal. Tilam Sangh
participated in the arbitration and even filed a Counter-Claim, he would
contend, to indicate that it could not then pretend to have participated
under protest when there was no protest before the Learned Arbitral
Tribunal. Mr. Kulkarni would contend that Tilam Sangh participated in
the actions taken under the Agreement all along - right from selection
of Shirke; authorising NHEC by Tilam Sangh's own resolution to
appoint Shirke; participating in meetings relating to the work;
overseeing and certifying the work; and even participating in
constitution of the Learned Arbitral Tribunal. Mr. Kulkarni would point
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to various clauses in the Agreement and in the PMC Contract to indicate
that they were interwoven agreements.
11. Defending the Impugned Judgement and thereby the Arbitral
Award, Mr. Kulkarni would submit that the Arbitral Award was not
modified but was partially set aside insofar as it related to NHEC, which
is an eminently plausible view of the Learned District Court, which
should not be disturbed. He would invoke multiple judgements on
partial setting aside of an arbitral award so long as it does not affect the
other portions of the Arbitral Award.
NHEC's Contentions:
12. Ms. Archita Gharat and Mr. Prabhakar Jadhav would invoke
the various provisions of the Agreement and read them with the PMC
Contract to indicate how the flow of obligations owed to Shirke are
relatable to obligations of Tilam Sangh. If the Arbitral Award as a
culmination of adjudication has found that amounts are payable to
Shrike, it can only be Tilam Sangh that is liable to pay. They would
defend the Impugned Judgement in its finding that imposing a joint
liability on NHEC is improbable. Shirke always knew that NHEC would
facilitate payments by Tilam Sangh and was not personally liable to pay.
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No bill raised by Shirke would be paid by NHEC, which would only
approve it and Tilam Sangh would pay, they would contend.
13. Ms. Gharat would contend that Tilam Sangh did not raise any
objection to the Section 8 Application filed by NHEC when it was
considered by the Learned District Court in the Civil Suit. Worse, in the
arbitration, the opposition was on merits and even a Counter-Claim was
filed and as an afterthought, the objection to jurisdiction was filed with
the Counter-Claim being withdrawn. Ms. Gharat would invoke the
judgement by the Constitution Bench of the Supreme Court in Cox and
Kings1 to indicate that Tilam Sangh's implied consent to the Agreement
is writ large and there is no erosion of party autonomy. Participation by
a non-signatory in the negotiation of an agreement, the unravelling of
commercial arrangements, the common intention and purpose, the
implied intention of being bound by the terms of the agreement,
estoppel after receiving the benefit of the agreement, and the common
subject matter between the PMC Contract and the Agreement, are all
points that would inexorably demonstrate that Tilam Sangh is a
veritable party.
Cox and Kings Ltd. Vs/ SAP India (P) Ltd - (2024) 3 SCC 1
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ANALYSIS AND FINDINGS:
14. Having heard the parties at length, and having navigated and
reviewed the material on record with the benefit of the written
submissions filed by the Learned Advocates before and after judgement
was reserved, the following facets become clear:
a) NHEC was the PMC appointed by Tilam Sangh,
which conceptualised the projects for which bids were to be
invited;
b) NHEC's role was that of a consultant and it was to be
remunerated on the basis of overseeing and implementing
the work through professional engagement of entities such as
Shirke to undertake and complete the work. NHEC was
incentivised for timely completion and proper oversight;
c) The very title clause in the Agreement identifies
NHEC as the PMC of Tilam Sangh. The term "Delegated
Constituted Purchaser" is used to describe NHEC, which is
also identified as "PMC", but more importantly, the term
"the Purchaser" is defined to mean Tilam Sangh;
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d) The Agreement is replete with references to "the
Purchaser" and the various rights and action points of Tilam
Sangh. Provisions relating to impact of variation in taxes on
the "Contract Price" point to implications of Tilam Sangh
and not for NHEC. The beneficiary of insurance is of Tilam
Sangh and insurance policies were to be sent to Tilam Sangh.
Warranties are provided for and warranty claims were to be
raised by Tilam Sangh on Shirke;
e) Clause 23 of the Agreement is titled "Purchaser's
Rights and Obligations" and contains a detailed framework
of rights enjoyed by Tilam Sangh and duties owed by NHEC
to Tilam Sangh; and
f) Clause 23.1.4 of the Agreement provides that NHEC's
discretionary decisions must be taken in a manner fair to
both Tilam Sangh and Shirke. It explicitly provides that " if
either party disagrees with the action taken by the Project
Management Consultant, it shall be at liberty to refer the
matter to arbitration in accordance with the provisions of the
Contract";
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Scope of Review:
15. The core question to ask is whether the Impugned Judgement
calls for any interference. It is now settled law that the scope of
jurisdiction under Section 37 of the Act, when sitting in appeal over a
decision under Section 34, is identical to the contours of the Section 34
jurisdiction. The question to ask is whether the Section 34 Court
adhered to the mandate of Section 34 and conducted itself in line with
the jurisdiction or whether it exceeded the jurisdiction or failed to
exercise such jurisdiction. Equally, it must be remembered that there
has to be due deference to an arbitral award and the Section 34 Court,
and indeed the Section 37 Court must not lightly disturb and displace
plausible findings contained in arbitral awards. The following passage
from Konkan Railway2 would be apt to quote in this regard:
14. Analysis: At the outset, we may state that the jurisdiction of the
Court under Section 37 of the Act, as clarified by this Court in MMTC
Ltd. v. Vedanta Ltd., is akin to the jurisdiction of the court
under Section 34 of the Act. Scope of interference by a court in an
appeal under Section 37 of the Act, in examining an order, setting
aside or refusing to set aside an award, is restricted and subject to the
same grounds as the challenge under Section 34 of the Act.
Konkan Railway Corporation Ltd. Vs. Chenab Bridge Project Undertaking - (2023)
11 SCR 215
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15. Therefore, the scope of jurisdiction under Section
34 and Section 37 of the Act is not akin to normal appellate
jurisdiction. It is well-settled that courts ought not to interfere with the
arbitral award in a casual and cavalier manner. The mere possibility
of an alternative view on facts or interpretation of the contract does
not entitle courts to reverse the findings of the Arbitral Tribunal. In
Dyna Technologies Private Limited v. Crompton Greaves
Limited (2019) 20 SCC 1, this Court held:
"24. There is no dispute that Section 34 of the Arbitration
Act limits a challenge to an award only on the grounds
provided therein or as interpreted by various courts. We need
to be cognizant of the fact that arbitral awards should not be
interfered with in a casual and cavalier manner, unless the
court comes to a conclusion that the perversity of the award
goes to the root of the matter without there being a possibility
of alternative interpretation which may sustain the arbitral
award. Section 34 is different in its approach and cannot be
equated with a normal appellate jurisdiction. The mandate
under Section 34 is to respect the finality of the arbitral award
and the party autonomy to get their dispute adjudicated by an
alternative forum as provided under the law. If the courts were
to interfere with the arbitral award in the usual course on
factual aspects, then the commercial wisdom behind opting for
alternate dispute resolution would stand frustrated.
25. Moreover, umpteen number of judgments of this Court
have categorically held that the courts should not interfere
with an award merely because an alternative view on facts and
interpretation of contract exists. The courts need to be cautious
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and should defer to the view taken by the Arbitral Tribunal
even if the reasoning provided in the award is implied unless
such award portrays perversity unpardonable under Section
34 of the Arbitration Act."
[Emphasis Supplied]
16. The challenge in this Appeal filed by Tilam Sangh has to be
examined in this light. NHEC has not challenged the Impugned
Judgement to support Tilam Sangh on merits, in its capacity as PMC, by
claiming that Shirke's claim was untenable. Shirke has not challenged
the Impugned Judgement for letting off NHEC, which was jointly made
liable, and that too when Tilam Sangh has been claiming some
protections and immunities under State laws of Rajasthan. Therefore,
the scope of review is restricted to the challenge mounted by Tilam
Sangh, which would claim that the Arbitral Award is untenable on the
basic ground of absence of jurisdiction of the Learned Arbitral Tribunal
over Tilam Sangh. The objection to modification of the Arbitral Award
by Tilam Sangh has to be seen in this light - as an added argument on
the implausible conduct by the Learned District Court. Such challenge
has to be examined in the light of the scope outlined in Konkan Railway
and extracted above.
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Veritable Party Analysis:
17. First, on a careful perusal of the PMC Contract and the
Agreement, and based on a conjoint reading of the two together, Tilam
Sangh's contention of being a disconnected third party by reason of
being a non-signatory is an implausible contention. The Agreement is
not only dependent on NHEC's role as a PMC as contracted by Tilam
Sangh under the PMC Contract but also makes it explicitly clear that if
Tilam Sangh or Shirke have any disagreement with NHEC, the
disagreement would be amenable to arbitration under the Agreement.
Clause 23.1.4 (quoted from above), thereby expands and extrapolates
the reach of the jurisdiction of the arbitration agreement contained in
the Agreement to Tilam Sangh too. One need not look any further to
ascertain privity of Tilam Sangh to the arbitration agreement as a non-
signatory who is indeed a veritable party.
18. Second, the law declared in Cox and Kings expansively
articulates how one must ascertain if a non-signatory to an agreement
containing an arbitration clause is a veritable party to the arbitration
agreement. While Cox and Kings was rendered in the context of
examining if the 'group of companies doctrine' could be invoked to treat
parties who are not signatories to an arbitration agreement as veritable
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parties to the agreement, it elaborated on the factors and principles to
be borne in mind when making such assessment. The following extracts
are noteworthy:
37. Over time, this Court has identified certain additional factors
for the invocation of the Group of Companies doctrine. In Reckitt
Benckiser (India) (P) Ltd. v. Reynders Label Printing (India) (P)
Ltd. [Reckitt Benckiser (India) (P) Ltd. v. Reynders Label Printing
(India) (P) Ltd., (2019) 7 SCC 62 : (2019) 3 SCC (Civ) 453] , a two-
Judge Bench of this Court was dealing with an application under
Section 11(6) of the Arbitration Act seeking the appointment of an
arbitrator. This Court prima facie observed that the parties belonged
to the same group of companies. Subsequently, the issue before this
Court was whether there was a clear intention of the parties to bind
both the signatory and non-signatory parties based on their
participation in the negotiation of the underlying contract. The Court
held that the non-signatory party, even though a constituent part of the
corporate group, did not have "any causal connection with the
process of negotiations preceding the agreement or the execution
thereof, whatsoever". Thus, the participation of the non-signatory
party in the negotiation and performance of the underlying contract
was held to be the key determinant of the intention of the parties to be
bound by an arbitration agreement.
50. In Swiss law, the consent of the parties to be bound by an
arbitration agreement may be express or implied by conduct. In a
2008 decision, the Swiss Federal Court held that certain behaviour or
conduct may substitute compliance with a formal requirement of an
arbitration agreement. [ Decision 4A_376/2008 of 5-12-2008.] To
determine the implied consent, it was held that the Courts or tribunals
may take into consideration the fact whether the non-signatory party
was involved in the negotiation and performance of the contract, and
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thereby expressed its willingness to be bound by the arbitration
agreement. [X v. Y Engg. S.p.A. & Y S.p.A. 4A_450/2013, ASA Bull.,
160 (2015).] Thus, the subjective element of willingness to be bound
by an arbitration agreement ought to be expressed through an
objective element in the form of negotiation or performance of the
contract.
[Emphasis Supplied]
19. Applying this principle to the facts of the case, not only did
Tilam Sangh conceive and commission the project covered by the
Agreement, it appointed NHEC as the PMC to oversee it on its behalf
and yet retained control even in the provisions of the Agreement that it
permitted NHEC to execute, and even more importantly, oversaw the
insertion of Clause 23.1.4 to provide for arbitration over disputes in
terms of the arbitration clause in the Agreement. It is arguable that the
scope of arbitration under Clause 23.1.4 is relatable to situations where
the PMC has exercised discretion and not to other situations. However,
it is equally arguable that the existence of a provision of this nature
would point to Tilam Sangh necessarily being a veritable party to the
Agreement.
20. Third, the common objective and purpose of the parties is
also writ large. The subject matter of the PMC Contract and the
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Agreement is the works commissioned by Tilam Sangh. NHEC was
engaged as a consultant i.e. a service provider. NHEC was not meant to
taken on the risk and reward of the project. It was paid a commission as
a percentage of the project cost with an incentive structure to enable
speedy and timely commissioning of the work. It is quite clear that
Tilam Sangh has not signed the Agreement is not expressly a party to
the arbitration agreement, although the very Agreement refers to Tilam
Sangh.
21. Therefore, the question to examine is whether Tilam Sangh is
an implied party to the arbitration agreement i.e. a "veritable party".
Towards this end, the following discussion from Cox and Kings would
be noteworthy:
(ii) Parties to arbitration agreement
70. The general method to figure out the parties to an arbitration
agreement is to look for the entities who are named in the recitals and
have signed the agreement. The signature of a party on the agreement
is the most profound expression of the consent of a person or entity to
submit to the jurisdiction of an Arbitral Tribunal. However, the
corollary that persons or entities who have not signed the agreement
are not bound by it may not always be correct. A written contract does
not necessarily require that parties put their signatures to the
document embodying the terms of the agreement. [ Pollock and
Mulla, The Indian Contract and Specific Reliefs Act (14th Edn., 2016)
235.] Therefore, the term "non-signatories", instead of the traditional
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"third parties", seems the most suitable to describe situations where
consent to arbitration is expressed through means other than
signature. A non-signatory is a person or entity that is implicated in a
dispute which is the subject-matter of an arbitration, although it has
not formally entered into an arbitration agreement. [ Stavros
Brekoulakis, "Rethinking Consent in International Commercial
Arbitration : A General Theory for Non-signatories" (2017) 8 Journal
of International Dispute Settlement 610.] The important determination
is whether such a non-signatory intended to effect legal relations with
the signatory parties and be bound by the arbitration agreement.
There may arise situations where persons or entities who have not
formally signed the arbitration agreement or the underlying contract
containing the arbitration agreement may intend to be bound by the
terms of the agreement. In other words, the issue of who is a "party"
to an arbitration agreement is primarily an issue of consent.
72. Chitty on Contracts explains the difference between express
and implied contracts as follows:
"Contracts may either be express or implied. The difference is
not one of legal effect but simply of the way in which the
consent of the parties is manifested. Contracts are express
when their terms are stated in words by the parties. They are
often said to be implied when their terms are not so stated, as,
for example, when a passenger is permitted to board a bus :
from the conduct of the parties the law implies a promise by the
passenger to pay the fare, and a promise by the operator of the
bus to carry him safely to his destination.[...] Express and
implied contracts are both contracts in the true sense of the
term, for they both arise from the agreement of the parties,
though in one case the agreement is manifested in words and in
the other case by conduct. Since, as we have seen, agreement is
not a mental state but an act, an inference from conduct, and
since many of the terms of an express contract are often
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implied, it follows that the distinction between express and
implied contracts has little importance." [Chitty on Contracts,
Hugh Beale (Ed.), (32nd Edn., Sweet and Maxwell, 2015) para
1-104.]
73. The above exposition gives rise to the inference that in case of
an implied contract, the question revolves around the determination of
the consent of the parties to be bound by the terms of the contract.
Such determination is manifested through the acts or conduct. The
theory of implied contract by conduct has also been accepted by this
Court. In Haji Mohd. Ishaq v. Mohd. Iqbal & Mohd. Ali & Co. [Haji
Mohd. Ishaq v. Mohd. Iqbal & Mohd. Ali & Co., (1978) 2 SCC 493] ,
the plaintiff supplied tobacco to the defendant. Although there was no
express agreement between the parties, the defendant accepted the
goods, but allegedly failed to clear the outstanding dues despite
repeated demands raised by the plaintiff. A Bench of three Judges of
this Court observed that the conduct of the defendants in accepting the
goods and not repudiating any of the demand letters raised by the
plaintiff "clearly showed that a direct contract which in law is called
an implied contract by conduct was brought about between them".
Under the Indian contract law, it is posited that actions or conduct can
be an indicator of consent of a party to be bound by a contract. This
also applies to an arbitration agreement considering the fact that it is
a creature of contract. However, an arbitration agreement also has to
meet the requirements laid down under the Arbitration Act to be valid
and enforceable.
83. Reading Section 7 of the Arbitration Act in view of the above
discussion gives rise to the following conclusions : first, arbitration
agreements arise out of a legal relationship between or among persons
or entities which may be contractual or otherwise; second, in
situations where the legal relationship is contractual in nature, the
nature of relationship can be determined on the basis of general
contract law principles; third, it is not necessary for the persons or
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entities to be signatories to the arbitration agreement to be bound by
it; fourth, in case of non-signatory parties, the important
determination for the Courts is whether the persons or entities
intended or consented to be bound by the arbitration agreement or the
underlying contract containing the arbitration agreement through
their acts or conduct; fifth, the requirement of a written arbitration
agreement has to be adhered to strictly, but the form in which such
agreement is recorded is irrelevant; sixth, the requirement of a written
arbitration agreement does not exclude the possibility of binding non-
signatory parties if there is a defined legal relationship between the
signatory and non-signatory parties; and seventh, once the validity of
an arbitration agreement is established, the Court or tribunal can
determine the issue of which parties are bound by such agreement.
84. It is presumed that the formal signatories to an arbitration
agreement are parties who will be bound by it. However, in
exceptional cases persons or entities who have not signed or formally
assented to a written arbitration agreement or the underlying contract
containing the arbitration agreement may be held to be bound by such
agreement. As mentioned in the preceding paragraphs, the doctrine of
privity limits the imposition of rights and liabilities on third parties to
a contract. Generally, only the parties to an arbitration agreement can
be subject to the full effects of the agreement in terms of the reliefs and
remedies because they consented to be bound by the arbitration
agreement. Therefore, the decisive question before the Courts or
tribunals is whether a non-signatory consented to be bound by the
arbitration agreement. To determine whether a non-signatory is bound
by an arbitration agreement, the Courts and tribunals apply typical
principles of contract law and corporate law. The legal doctrines
provide a framework for evaluating the specific contractual language
and the factual settings to determine the intentions of the parties to be
bound by the arbitration agreement. [ Gary Born, International
Arbitration Law and Practice, (3rd Edn., 2021) at p. 1531.]
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(ii) Adopting a pragmatic approach to consent
96. An arbitration agreement encapsulates the commercial
understanding of business entities as regards to the mode and manner
of settlement of disputes that may arise between them in respect of
their legal relationship. In most situations, the language of the
contract is only suggestive of the intention of the signatories to such
contract and not the non-signatories. However, there may arise
situations where a person or entity may not sign an arbitration
agreement, yet give the appearance of being a veritable party to such
arbitration agreement due to their legal relationship with the
signatory parties and involvement in the performance of the
underlying contract. Especially in cases involving complex
transactions involving multiple parties and contracts, a non-signatory
may be substantially involved in the negotiation or performance of the
contractual obligations without formally consenting to be bound by the
ensuing burdens, including arbitration.
97. Modern commercial reality suggests that there often arise
situations where a company which has signed the contract containing
the arbitration clause is not always the one to negotiate or perform the
underlying contractual obligations. In such situations, emphasis on
formal consent will lead to the exclusion of such non-signatories from
the ambit of the arbitration agreement, leading to multiplicity of
proceedings and fragmentation of disputes. In A. Ayyasamy v. A.
Paramasivam [A. Ayyasamy v. A. Paramasivam, (2016) 10 SCC 386 :
(2017) 1 SCC (Civ) 79] , this Court observed that it is the duty of the
Courts "to impart to that commercial understanding a sense of
business efficacy". The Courts must interpret contracts in a manner
that would give them a sense of efficacy rather than invalidating the
commercial interests of the parties. The meaning of the contract must
be gathered by adopting a common sense approach, which should
"not be allowed to be thwarted by a narrow, pedantic and legalistic
interpretation". [Union of India v. D.N. Revri & Co., (1976) 4 SCC
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147] Therefore, there is a need to adopt a modern approach to
consent, which takes into consideration the circumstances, apparent
conduct, and commercial facets of business transactions.
100. Arbitration law is an autonomous legal field. While the main
purpose of corporate law and contract law is imputation of substantive
legal liability, the main purpose behind the law of arbitration is to
determine whether an Arbitral Tribunal has jurisdiction over the
dispute arising between parties to an arbitration agreement. On the
one hand, the Courts and tribunals cannot lightly brush aside the
decision of the parties to not make a person or entity a party to the
arbitration agreement. The fact that the non-signatory did not put pen
to paper may be an indicator of its intention to not assume any rights
or responsibilities under the arbitration agreement. On the other hand,
courts and tribunals cannot adopt a rigid approach to exclude all
persons or entities who, through their conduct and relationship with
the signatory parties, intended to be bound by the underlying contract
containing the arbitration agreement. The area of arbitration law not
only concerns domestic law, but it also encompasses the international
law, particularly when it pertains to the enforcement of international
arbitral awards. Therefore, this Court ought to adopt a balanced
approach without comprising (quaere compromising) on the basic
principles of arbitration law, contract law, and company law to ensure
that the resultant legal framework is consistent with internationally
accepted practices and principles.
101. A formalistic construction of an arbitration agreement would
suggest that the decision of a party to not sign an arbitration
agreement should be construed to mean that the mutual intention of
the parties was to exclude that party from the ambit of the arbitration
agreement. Indeed, corporate entities have the commercial and
contractual freedom to structure their businesses in a manner to limit
their liability. However, there have been situations where a corporate
entity deliberately made an effort to be not bound by the underlying
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contract containing the arbitration agreement, but was actively
involved in the negotiation and performance of the contract. The level
of the non-signatory party's involvement was to the extent of making
the other party believe that it was a veritable party to the contract, and
the arbitration agreement contained under it. Therefore, the Group of
Companies doctrine is applied to ascertain the intentions of the parties
by analysing the factual circumstances surrounding the contractual
arrangements. [ Gary Born, International Arbitration Law and
Practice, (3rd Edn., 2021) at p. 1568.]
[Emphasis Supplied]
22. A prolix reproduction became necessary since the aforesaid
extracts speak for themselves in their relevance to the matter at hand.
The role of Tilam Sangh looming large over the Agreement and the
commonality of subject matter of the PMC Contract and the Agreement,
and the inter-connected nature of the two contracts and the bundle of
rights and obligations contained therein cannot be ignored. In the
application of the aforesaid principles, the following further extracts
from Cox and Kings would complete the framework in which the matter
at hand must be examined:-
120. In case of multiple parties, the necessity of a common subject-
matter and composite transaction is an important factual indicator. An
arbitration agreement arises out of a defined legal relationship
between the parties with respect to a particular subject-matter.
Commonality of the subject-matter indicates that the conduct of the
non-signatory party must be related to the subject-matter of the
arbitration agreement. For instance, if the subject-matter of the
contract underlying the arbitration agreement pertains to distribution
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of healthcare goods, the conduct of the non-signatory party should
also be connected or in pursuance of the contractual duties and
obligations, that is, pertaining to the distribution of healthcare goods.
The determination of this factor is important to demonstrate that the
non-signatory party consented to arbitrate with respect to the
particular subject-matter.
121. In case of a composite transaction involving multiple
agreements, it would be incumbent for the Courts and tribunals to
assess whether the agreements are consequential or in the nature of a
follow-up to the principal agreement. This Court in Canara
Bank [MTNL v. Canara Bank, (2020) 12 SCC 767] observed that a
composite transaction refers to a situation where the transaction is
interlinked in nature or where the performance of the principal
agreement may not be feasible without the aid, execution, and
performance of the supplementary or ancillary agreements.
122. The general position of law is that parties will be referred to
arbitration under the principal agreement if there is a situation where
there are disputes and differences "in connection with" the main
agreement and also disputes "connected with" the subject-matter of
the principal agreement. [Olympus Superstructures (P) Ltd. v. Meena
Vijay Khetan, (1999) 5 SCC 651] In Chloro Controls [Chloro
Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013)
1 SCC 641 : (2013) 1 SCC (Civ) 689] , this Court clarified that the
principle of "composite performance" would have to be gathered from
the conjoint reading of the principal and supplementary agreements
on the one hand, and the explicit intention of the parties and attendant
circumstances on the other. The common participation in the
commercial project by the signatory and non-signatory parties for the
purposes of achieving a common purpose could be an indicator of the
fact that all the parties intended the non-signatory party to be bound
by the arbitration agreement. Thus, the application of the Group of
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Companies doctrine in case of composite transactions ensures
accountability of all parties who have materially participated in the
negotiation and performance of the transaction and by doing so have
evinced a mutual intent to be bound by the agreement to arbitrate.
123. The participation of the non-signatory in the performance of
the underlying contract is the most important factor to be considered
by the Courts and tribunals. The conduct of the non-signatory parties
is an indicator of the intention of the non-signatory to be bound by the
arbitration agreement. The intention of the parties to be bound by an
arbitration agreement can be gauged from the circumstances that
surround the participation of the non-signatory party in the
negotiation, performance, and termination of the underlying contract
containing such agreement......
[Emphasis Supplied]
23. The law declared by the Supreme Court is clear. A conjoint
reading is necessary in the situation at hand. The PMC Contract and the
Agreement have a common subject matter. The PMC is but a consultant
of Tilam Sangh. The PMC was authorised by Tilam Sangh to appoint
Shirke. The Agreement was authorised by Tilam Sangh. The Agreement
being on a principal-to-principal basis can only mean that Shirke is not
an agent of NHEC. The PMC Contract is purely to enable NHEC to
carry out the specific tasks assigned to NHEC by Tilam Sangh. The risk
and reward from the project work flowed to Tilam Singh. The only
reward for NHEC is the fees and the incentive for timely completion.
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24. Therefore, to my mind, the objection on the ground of Tilam
Sangh having no implied privity to the Agreement and thereby the
Learned Arbitral Tribunal having no jurisdiction over Tilam Singh are
implausible propositions.
Making NHEC Pay is Implausible:
25. Moreover, it is totally implausible that a PMC is made to pay
on the primary payment obligations owed by the principal employer. To
that extent, making NHEC jointly and severally liable to Shirke is indeed
implausible. Therefore, the intervention by the Learned District Court
in severing and excising that portion of the Arbitral Award that makes
NHEC jointly liable to discharge duties owed to Shirke cannot be
faulted. It is only where a finding is implausible such that no reasonable
person could take that view that an intervention can be made. The
Learned District Court's limited intervention cannot be faulted.
26. When this matter was argued, the case law cited on partial
setting aside of awards were all rendered prior to the Constitution
Bench judgement of the Supreme Court in Gayatri Balasamy3, which has
clearly declared the law on partial setting aside of arbitral awards.
Without meaning to add more length to this judgement by extracting
Gayatri Balasamy vs. M/s ISG Novasoft Technologies Limited - 2025 INSC 605
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from it, it would be only apt to say that by now it is trite law that if any
portion of an arbitral award deserves to be set aside, the Section 34
Court could do so if it is completely severable and its contents are not
inseparably intertwined to the other components of the arbitral award
found to be valid and legal. Part II of the majority judgement ( Per.
Sanjiv Khanna, CJI -paragraphs 33 to 36) and in the concurring
contents of the separate judgement ( Per. K.V. Vishwanathan J -
paragraphs 142 to 152), clearly lay down the law. I have examined the
Arbitral Award from this perspective, and I note that excising the
portion that makes NHEC liable for what is payable by Tilam Sangh to
sustain the Arbitral Award in its material substance and removing the
vulnerability posed by NHEC's challenge under Section 34, does not
undermine the Arbitral Award. There is nothing inextricably
interwoven and interconnected about NHEC being jointly liable with
Tilam Sangh that makes its excision undermine anything in the rest of
the Arbitral Award. In fact, it is because this element is out of sync with
the rest of the Arbitral Award, that the excision of this offending portion
is found to be a meritorious means of sustaining the Arbitral Award.
27. There are other facets contended - about Tilam Sangh not
having filed an application under Section 16 of the Act, and in fact
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having participated in the arbitration. On the other hand, the Supreme
Court has indeed given liberty to raise contentions on jurisdiction in the
Section 34 Petition and thereby in this Section 37 Appeal. To my mind,
it is unnecessary to deal with this strand of submissions and counter-
submissions since, for the reasons set out above, I do not think this
Appeal has merit and, in any case, even assuming the liberty granted
permits making these submissions, I have examined the substance and
dealt with the same.
Summary of Conclusions:
28. To summarize:
a) Tilam Sangh is a veritable party to the Agreement.
Therefore, the Arbitral Award is not without jurisdiction over
Tilam Sangh;
b) The obligation to pay, which is a determination on
merits, cannot be visited upon NHEC, which was merely a
PMC;
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c) The Agreement has to be interpreted in accordance
with its terms as well as customs and usages. It cannot be
contended that it is customary for a project management
consultant to undertake the liability owed by the principal
employer owed to sub-contractors. To this extent, the
Arbitral Award had returned an implausible finding of joint
liability of NHEC;
d) The excision of the joint liability fastened on NHEC is
permissible and is well covered by the law declared in
Gayatri Balsamy. Such partial setting aside is not an
impermissible modification and in fact, removes the
vulnerability to the Arbitral Award;
e) Therefore, there is nothing in the Impugned
Judgement that warrants interference by this Court in
exercise of jurisdiction under Section 37 of the Act.
29. In the result, the captioned Appeal would fail. The Appeal is
dismissed. Interim Applications, if any, shall stand disposed of
accordingly. Amounts, if any, lying in the Registry of this Court shall be
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released within a week of the expiry of four weeks from the upload of
this judgement on this Court's website.
30. All actions required to be taken pursuant to this order shall
be taken upon receipt of a downloaded copy as available on this Court's
website.
[SOMASEKHAR SUNDARESAN, J.]
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