Madras High Court
M/S. Abhibus Services India Pvt. ... vs Pallavan Transport ... on 5 January, 2021
C.M.A.Nos.408 of 2021 etc.
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Order reserved on 29.07.2021
Order delivered on 04.02.2022
CORAM
THE HONOURABLE MR.JUSTICE V.PARTHIBAN
C.M.A.Nos.408, 701, 702, 858, 859, 861, 862, 890 & 892 of 2021
and
C.M.P.Nos.2640, 4224, 4231, 4946, 4948, 4973, 4983, 5115, 5117 of 2021
CMA.Nos.408, 701, 702, 858, 859, 862, 890 & 892 of 2021
1. M/s. Abhibus Services India Pvt. Limited,
Workafella Cyber Crown, Sec-II
Village, Huda Techno Enclave,
Madhapur, Hyderabad - 500 081
2. M/s. Analogics Tech India Limited,
9/10, Road No.6, Nacharam Industrial Estate,
Hyderabad - 500 076 ..Appellants in all C.M.As.
-Vs-
1. Pallavan Transport Consultancies Services Ltd.
Represented by its Managing Director,
100 Feet Road, Institute of Road Transport Campus,
Taramani, Chennai - 600 013. .. 1st respondent in all the CMAs.
2. Metropolitan Transport Corporation (Chennai)
Represented by its Managing Director,
Pallavan House, Anna Salai,
Chennai - 600 002. ..2nd respondent in CMA.No.408/2021
3. Tamil Nadu State Transport Corporation (Tirunelveli)
Page No.1/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Represented by its Managing Director,
No.23/2, Tuticorin Road, K.T.C.Nagar,
Tirunelveli - 627 011. ..2nd respondent in CMA.701/2021
4. State Express Transport Corporation (Tamil Nadu) Ltd.,
represented by its Managing Director,
"Thiruvalluvar House", No.2, Pallavan Salai,
Chennai - 600 002. ..2nd respondent in CMA.702/2021
5. Tamil Nadu State Transport Corporation (Coimbatore) Ltd.,
Represented by its Managing Director,
37, Mettupalayam Road,
Coimbatore - 641 043. ..2nd respondent in
CMA.858/2021
6. Tamil Nadu State Transport Corporation (Kumbakonam)
represented by its Managing Director,
No.27, Railway Station New Road,
Kumbakonam - 612 001 ..2nd respondent in CMA.859/2021
7. Tamil Nadu State Transport Corporation (Madurai) Ltd.
Represented by its Managing Director, Bye Pass Road,
Madurai - 625 010. ..2nd respondent in CMA.862/2021
8. Tamil Nadu State Transport Corporation (Salem) Ltd.
Represented by its Managing Director,
12, Ramakrishna Road,
Salem - 636 007. ..2nd respondent in
CMA.890/2021
9. Tamil Nadu State Transport Corporation (Villupuram) Ltd.,
Represented by its Managing Director,
3/137, Salamedu, Villupuram - 605 602 ..2nd respondent in
CMA.892/2021
Page No.2/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
10. M/s. Ingenerie Technologies Solutions P Ltd.
Represented by its Authorized Representative,
Mr.Vamsi Krishna Gandavaram,
S/o Sridhar Reddy Gandavaram,
Office at No.558, Swarna Heights,
Arora Colony, Road No.3, Banjara Hills,
Hyderabad - 500 034
Currently having its registered office at
No.19/67, 2nd Floor, Jupiter Complex,
Dr.Ranga Road, Mylapore,
Chennai - 600 004. ..3rd Respondent in all the CMAs.
Prayer:
Civil Miscellaneous Appeals filed against the order of the Sole Arbitrator
comprising of Justice R.Banumathi (Retd.) dated 05.01.2021 made in
I.A.No.2 of 2020 in all batch matters Arb.TN-STU/MTC/2 of 2020,
Arb.No.TN-STU/Tirunelveli/6 of 2020, Arb.TN-STU/SETC/7 of 2020,
Arb.TN-STU/Coimbatore/9 of 2020, Arb.TN-STU/Kumbakonam 8/2020,
Arb.TN-STU/Madurai/3 of 2020, Arb.TN-STU/Salem 4 of 2020 and
Arb.TN-STU/Villupuram 5 of 2020 respectively.
CMA.No.861 of 2021
1. M/s. Abhibus Services India Pvt. Limited,
Workafella Cyber Crown, Sec-II
Village, Huda Techno Enclave,
Madhapur, Hyderabad - 500 081
Page No.3/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
2. M/s. Analogics Tech India Limited,
9/10, Road No.6, Nacharam Industrial Estate,
Hyderabad - 500 076 ..Appellants
-Vs-
1. Pallavan Transport Consultancies Services Ltd.
Represented by its Managing Director,
100 Feet Road, Institute of Road Transport Campus,
Taramani, Chennai - 600 013
2. M/s. Ingenerie Technologies Solutions P Ltd.
Represented by its Authorized Representative,
Mr.Vamsi Krishna Gandavaram,
S/o Sridhar Reddy Gandavaram,
Office at No.558, Swarna Heights,
Arora Colony, Road No.3, Banjara Hills,
Hyderabad - 500 034
Currently having its registered office at
No.19/67, 2nd Floor,
Jupiter Complex,
Dr.Ranga Road, Mylapore,
Chennai - 600 004. ..Respondents
Civil Miscellaneous Appeal filed against the order of the Sole Arbitrator
comprising of Justice R.Banumathi (Retd.) dated 05.01.2021 made in
I.A.No.2 of 2020 in all batch matters Arb.TN-STU/MTC/2 of 2020.
For Appellants
in all the CMAs. : Mr.Srinath Sridevan
Page No.4/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
For Respondents
in C.M.A.Nos.408, 701,
702, 858, 859, 862,
890 & 892 of 2021 : Mr.R.Shanmuga Sundaram,
Advocate General
Assisted by Mr.K.Moorthy
for R1
Mr.R.Shanmuga Sundaram,
Advocate General
Assisted by Mr.D.Raghu for R2
Mr.S.B.Kiran Kumar for R3
For Respondents
in C.M.A.No.861 of 2021: Mr.R.Shanmuga Sundaram,
Advocate General
Assisted by Mr.K.Moorthy for R1
Mr.D.Raghu for R2
COMMON JUDGMENT
The appellants herein were the proposed respondents in the above
arbitration proceedings.
2. The present appeals are against the order of the learned Arbitrator
allowing application (I.A.No.2 of 2020) filed by the respondents/ State
Undertakings herein seeking to implead them in their counter claims in the
Page No.5/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
arbitral proceedings. According to the appellants herein, they were not
signatories to the arbitration agreement and hence cannot be impleaded in
the first place. More so, the arbitral Tribunal has no power to implead them
as parties in terms of the scheme of the Arbitration and Conciliation Act,
1996.
3. The appellants herein being non-signatory to the Arbitration
agreement cannot be made parties, in the arbitral proceedings initiated at the
instance of the claimant, the 2nd respondent herein as against the State
Undertakings. In the course of the arbitral proceedings, on behalf of the
State Transport Corporation, Interlocutory Application No.2 of 2020 was
filed making a counter claim against the claimant/appellants herein for the
first time. When objections were raised against the maintainability of such
Application by the appellants herein, the learned arbitral Tribunal framed
questions for consideration as under.
i) Whether the proposed respondents are necessary parties to the
arbitral Proceedings?
Page No.6/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
ii) Whether the arbitral Tribunal has jurisdiction to implead the
proposed respondents as necessary parties?
4. Before dealing with final decision of the arbitral Tribunal in the
I.A., it is essential to delineate the relevant facts that gave rise to the
reference to the arbitration proceedings between the 2nd respondent herein
being the claimant and the State Transport Corporations, the original parties.
For the sake of clarity, the original parties to the Arbitration are described as
claimant (the 2nd/3rd respondent herein) and the State Corporation (1st
respondent herein).
i) The State Corporation has floated a tender for implementation of a
project called Electronic Ticket Machine (hereinafter referred to as 'ETM') in
all State Transport Undertakings (hereinafter referred to as 'STUs'). The
claimant before the Tribunal, viz. M/s. Ingenerie Technologies Solutions Pvt.
Ltd., the 2nd or the 3rd respondent as the case may be in these appeals in
response to the call for bids, applied for consideration as consortium along
with two other companies on board namely, the appellants herein. After
Page No.7/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
consideration of all the bids, finally, the claimant was selected to execute the
project, declaring the claimant as the lead partner of the consortium,
comprising both the appellants herein.
ii) Prior to the actual award of the contract on 03.04.2013, several
requirements and legal formalities needed to be complied with as per the
pre-contract stage called as Request For Proposal (RFP) dated 13.09.2012.
During that RFP stage, several criteria had been laid down for consideration
of the potential bidders for the project. Ultimately, the consortium
comprising the appellants herein with M/s.Ingenerie Technologies Solutions
Pvt. Ltd., as lead partner was selected for execution of the project.
iii) In the course of the execution of the project a dispute arose
between the parties which led to the filing of applications before this Court
under section 9 of the Arbitration and Conciliation Act, 1996 hereinafter
referred to as A & C Act, 1996. The lead partner M/s. Ingenerie Technologies
Solutions Pvt. Ltd., approached this Court in O.A.Nos. 317, 318, 319, 320,
321, 322, 323 & 324 of 2020 & A.Nos.1704, 1705 & 1706 of 2020 seeking
interim protection pending reference to Arbitration as against the State
Page No.8/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Corporations. When the applications came up for consideration, the learned
Judge of this Court was informed that the parties had consented to have a
common Arbitrator and requested the Court to refer the entire dispute to the
arbitral Tribunal. In the face of the submissions of the parties, this Court, by
order dated 17.09.2020, disposed of all the applications by appointing a
Former Supreme Court Judge, Mrs.R.Banumathi, as sole Arbitrator to enter
upon reference and adjudicate the dispute inter se the parties.
5. It is relevant to mention here that Section 9 applications have been
filed at the instance of M/s. Ingenerie Technologies Solutions Pvt. Ltd., as
against State Corporation, which eventually led to the reference vide
aforementioned order of the Court. The appellants were not parties to the
applications, though they were admittedly part of the consortium.
6. When the proceedings commenced before the learned Arbitrator,
on behalf of the State Corporation counter claims were raised against the
claimant M/s. Ingenerie Technologies Solutions Pvt. Ltd. and other two
Page No.9/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
consortium members, the appellants herein. Since the appellants herein were
not made parties by the lead partner, the claimant in the reference, the State
Corporation was constrained to file application in I.A.No.2 of 2020 dated
15.11.2020 seeking to implead these appellants in the pending proceedings.
The learned Arbitrator, after considering various objections raised on behalf
of the appellants herein as to the maintainability of the I.A., overruled the
same and allowed the Application by a detailed order on 05.01.2021. As
against their impleadment in the counter claim by the State Corporations,
the present appeals have been filed.
7. On behalf of these appellants, several legal objections had been
raised that the arbitral Tribunal was not vested with jurisdiction to implead
third party as no such power was available under the scheme of the A & C
Act, 1996. One of the main contentions raised therein was that the
appellants herein were not signatories to the arbitration agreement and
therefore, they cannot be impleaded in the arbitral proceedings in terms of
Section 2(1)(h) of the A & C Act, 1996. Further, when this Court ordered
Page No.10/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
for appointment of the learned Arbitrator, the claimant, the lead partner of
the consortium alone was a party before this Court.
8. In the above circumstances, the arbitral Tribunal cannot said to
be clothed either with power or jurisdiction to implead third parties in the
proceedings in terms of the underlying concept of arbitration and the scheme
of the Act in particular with reference to the definition clause of 'party' in
Section 2(1)(h) of the Act. If at all any non-signatory party could be
impleaded as a consequence of the evolving legal concept namely 'Group of
Companies' doctrine, only the Court has the power and jurisdiction to
examine whether impleadment of a third party is legally permissible and
their presence in the arbitration proceedings is proper and necessary or not
on the basis of facts and circumstances of the case. As corollary to the main
objection, supplementary objections have also been raised conceding the
power of impleadment on a hypothetical supposition, whether the arbitral
Tribunal can order impleadment by exercise of its power under Section 17
of the A & C Act, 1996 or not? which provision is intended to provide
Page No.11/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
interim measures, pending arbitration proceedings. Further, in the absence of
notice under section 21 of the Act, whether there is a valid commencement
of arbitral proceedings in respect of the counter claim against the proposed
parties or not. In substance, these objections have been the fulcrum of the
defence set up by the appellants herein before the learned arbitral Tribunal.
9. The State Corporation, on the other hand, contended that in the
execution of all the documents prior to and till the time of issuing the work
order, the claimant was considered only as the lead partner of the
Consortium which included the appellants herein. The claimant individually
could not have bagged the contract at all, but for the actual participation and
partnership of the appellants. Once the contract is given to the consortium,
considering each company's contribution of its domain knowledge, all three
companies became one entity and deemed to have become parties to all the
terms of the contract. In that view of the matter, any agreement entered into
by the lead partner could also said to be binding on the other consortium
members. This is more so when execution of the project was fully dependant
Page No.12/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
on the active participation of all the consortium members/companies.
10. In the above factual backdrop arguments have been advanced by
Mr.Srinath Sridevan, the learned counsel for the appellants. Apart from
appraising this Court of the basic facts, the learned counsel cited and relied
upon several decisions of the Hon'ble Supreme Court and this Court in
support of his contention that arbitral Tribunal has no jurisdiction to implead
third parties, as it deems fit, in the absence of their consent to the arbitration
that gave rise to the reference. According to him, admittedly, the claimant is
the only signatory to the contract agreement dated 03.04.2013, wherein
Clause 1.9.1 deals with the dispute resolution and reference to arbitration.
The said contract has been signed only by the claimant and not by these
appellants. In the same contract, these appellants have been described only
as sub-contractors.
11. According to him, section 2(i)(h) of the A & CAct, 1996, defines
party means “party to an arbitration agreement". Admittedly, these
Page No.13/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
appellants had not been parties to the arbitration agreement dated
03.04.2013. The learned Arbitrator acknowledged this fact in the order,
stating that even though these appellants were not signatories to the contract
agreement, yet, for effective determination of the contractual issues,
particularly, in response to the counter claims, these appellants were
necessary parties and thus, ordered the impleadment of the appellants.
12. The learned counsel would submit that these appellants had not
been parties either in Section 9 proceedings before this Court, which
culminated in the appointment of the learned Arbitrator in O.A.Nos. 317,
318, 319, 320, 321, 322, 323 & 324 of 2020 & A.Nos.1704, 1705 & 1706
of 2020 vide order dated 17.09.2020. In the absence of the present
appellants being parties to the proceedings before this Court, the arbitral
Tribunal on its own cannot implead third parties in the proceedings, as such
power is alien to the scheme of the A & C Act.
13. The learned counsel would further submit that the claimant
Page No.14/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
company itself did not think fit to make the appellants as parties to to their
claim against the State Corporations, notwithstanding the fact that the
appellants are part of the consortium, adding the appellants as parties only
in the counter claim by the respondent to the claim (State Corporations) is
therefore, legally impermissible, even otherwise. The learned counsel also
raised inter alia two other objections that whether power to implead is
available under Section 17 of the A & C Act, 1996. Th learned counsel also
contended as to the maintainability of the commencement of the arbitration
proceedings in respect of the fresh counter claims by the State Corporation
in the absence of notice under Section 21 of the A & C Act, 1996.
14. The learned counsel during the course of his arguments has also
drawn the attention of this Court to one important factor that in August,
2014, the Law Commission had suggested an amendment to Section
2(1)(h) by adding words "or any other person claiming through or under
such party" after the words "party to an arbitration agreement". But despite
the recommendation of the Law Commission, when several amendments
Page No.15/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
were introduced in the Act in 2015, by the Amendment Act, (3 of 2016, this
recommendation was consciously omitted. According to the learned counsel,
conscious omission to amend section 2(1)(h) despite the recommendation of
the Law Commission in the statute meant that the constricted meaning of the
definition alone is permissible. In terms of the unamended section 2(1)(h), a
third party cannot be impleaded at all in the arbitration proceedings.
15. At this point of submission by the learned counsel for the
appellants, the learned Advocate General appeared for State Corporation and
submitted that in view of the counter claims by the State Corporation against
the appellants herein being entangled in these litigations, the entire
arbitration proceedings have come to a stand still. According to him, all the
State Transport Undertakings in the State are in serious financial doldrums
and fighting for its survival. In such view of the matter, these undertakings
cannot afford to get enmeshed in a protracted litigations for long.
16. According to the learned Advocate General in the larger
Page No.16/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
consideration of the survival of the Corporation and also not having the
wherewithal to fight any further, a memo on its behalf dated 08.10.2021,
came to be filed after the orders were reserved in these appeals by this
Court. On behalf of the appellants herein, on the following day, Aide
Memoire (written summary) dated 09.10.2021 also came to be filed.
17. The contents of the memo of the State Corporation dated
08.10.2021 are extracted hereunder:
The respondents M/s. Pallavan Transport
Consultancy Services Ltd and the Tamil Nadu State Transport
Corporations, Madurai Tirunelveli and Kumbakonam submit
as follows:
1. The above Appeals arise out of the Arbitration
proceedings initiated as per orders of this Hon'ble
Court in O.A.Nos.317-324 of 2020, dated 17.09.2020
appointing the Hon'ble Mrs.Justice R.BANUMATHI as
Sole Arbitrator (TN-STU-2/2020 to 9/2020) and
pending before the Hon'ble Mrs.Justice R.BANUMATHI.
2. In the above arbitration proceedings, the
claim was made by M/s. Ingenerie Technologies
Page No.17/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Solutions Pvt.Ltd against M/s. Pallavan Transport
Consultancy services Limited and the State Transport
Units. There were counter claim was made by the
respondents who are the M/s. Pallavan transport
Consultancy Services Ltd and others, who are the State
Transport Units.
3. The respondent shave file Interim
applications to implead the other members of the
consortium partners who are the Appellants before this
Hon'ble Court.
4. The Hon'ble Court has passed an Interim
order in I.A.No.2 of 2020 for praying the Hon'ble
Arbitrator to issue notice to the other members of the
consortium the proposed respondents namely M/s.
Abhibus Services India Pvt. Ltd & M/s. Analogics Tech
India Pvt. Ltd.
5. The Hon'ble Arbitrator was pleased to
consider the following questions:
(i) Whether the proposed respondents are
necessary parties to the arbitral Proceedings?
(ii) Whether the arbitral Tribunal has
jurisdiction to implead the proposed respondents as
Page No.18/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
necessary parties?
6. The Hon'ble Arbitrator had passed an order
on 05.01.2021, allowing the applications filed by the
respondents and thereby impleading M/s. Abhibus
Services India Pvt.Ltd. & M/s. Analogics Tech India Pvt.
Limited as respondents in the counter claims filed by the
M/s. Pallavan Transport Consultancy Services Ltd and
other State Transport Units in all the claim petitions TN-
STU-PTCS 1/2020, TN-STU 2/2020 to 9/2020.
7. Against the above order, passed by the Hon'ble
Arbitrator, the impleaded respondents have preferred
the above Appeals. At the final hearing of the above
CMAs, the respondents M/s. Pallavan Transport
Consultancy Services Ltd land State Transport Units are
advised to proceed with the arbitration and the counter
claim against the lead members of consortium M/s.
Ingenerie Technologies Solutions Pvt. Ltd and defend
the claims made by M/s. Ingenerie Technologies
Solutions Pvt. Ltd. before the Arbitrator by reserving
their right to make claim separately against the
Page No.19/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
consortium partners of M/s. Ingenerie Technolgies
Solutions Pvt. Ltd, M/s. Abhibus Services India Pvt. Ltd
& M/s. Analogics Tech India Pvt. Limited, if so advised.
Therefore, it is prayed that the above submissions
may be recorded and the respondents may be permitted
to proceed with the arbitration and complete the
arbitration with stipulated time.
Dated at Chennai this the 8th day of October,
2021.
18. Despite the difficulties expressed by the State Corporations in
getting entangled in a prolonged litigation in respect of sustaining its counter
claim, yet the Corporation is not giving up their rights altogether but they
seek to reserve their right to make counter claims against all the three
consortium members. The contents of the memo point to the fact that the
Corporation is reserving their rights for the present and to come up with
counter claims separately, if so advised. The legal effect of such statement is
that the counter claims is very much part of the surviving dispute inter-se
parties but such claim for the present need not derail the pending arbitration
Page No.20/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
proceedings initiated by the claimant against the Corporation.
19. Although, no serious arguments have been advanced on behalf of
the State Corporation in view of the constraints expressed by the learned
Advocate General as indicated in the above extracted Memo, nevertheless
when the right is sought to be reserved to make a counter claim against the
appellants herein, this Court is constrained to deal with the momentous legal
issue raised in these appeals as to the power and jurisdiction of the arbitral
Tribunal to implead non-signatory in terms of the scheme of the A & C Act,
1996 and with reference to the liberal construct of the meaning 'party' to an
arbitration by the courts, lately. As a matter of fact, several judgments have
been cited and relied upon, accompanied with detailed arguments, by the
learned counsel for the appellants. The counsel besides questioning the
power and jurisdiction of the Tribunal on the legal aspect of impleadment of
third party, has also extensively placed submissions as how these appellants
were not necessary or proper parties, even otherwise.
Page No.21/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
20. In the said circumstances, this Court has to necessarily deal with
all the issues that have come up for consideration before this Court in the
present appeals. In these appeals, very vital and fundamental legal issues
have been raised on behalf of the appellants calling for its critical
examination of this Court. In the quest for comprehensive verdict, this Court
has to embark on a salutary judicial discourse by drawing reference to the
scheme of the A & C Act, 1996, the relevant case laws, the legal principles
evolved over the years touching upon the relevant provisions of the A & C
Act, 1996 prior to and post Amendment Act, 2016 etc.
21. Before dealing with the cardinal issue of whether the arbitral
Tribunal has the power to implead a non-signatory as a party to the arbitral
proceedings within the frame work of the A & C Act, 1996, this Court is
inclined to take a call on how the learned arbitral Tribunal has dealt with the
objections raised by the appellants herein and the basis of its overruling
the same, eventually holding such power is available firstly and secondly the
appellants herein are necessary and proper parties, as they being part of the
Page No.22/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
consortium. On merits, the learned Tribunal held that for the resolution of
the dispute qua parties, their presence is mandatory. In the appeals, the
learned counsel for appellants have canvassed substantially advancing their
case on merits touching upon every factual aspect that they are not parties
to the arbitration agreement and they are independent legal entities not an
affiliate or a subsidiary of the lead partner and hence, are neither proper nor
necessary parties.
22. According to the counsel, reference to arbitration is essentially
on the basis of consent and in the absence of any consent from the
appellants, adding them as parties in the arbitration proceedings cannot be
countenanced in law. In view of the elaborate submissions made on behalf of
the appellants, both on merits as well as on the lack of jurisdiction and
power of the arbitral Tribunal, this court is constrained to render a composite
ruling examining the decision of the learned arbitral Tribunal
comprehensively.
Page No.23/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
23. In terms of the memo filed before this Court, the right being
reserved by the State Corporation, such right may also rest on the finding of
this Court as to whether the impleadment of these appellants is justified or
not in the facts and circumstances of the case. This Court is taking the
extraordinary call for the reason that the State Corporation having faced the
present challenge should at the end of the day know where they stand legally
vis-a-vis their counter claim against the claimant as well as the appellants
herein.
24. The learned arbitral Tribunal, in great detail, has referred to the
project floated by the State Corporation and the participation of the
consortium of three member companies, the claimant, as the lead partner
and the other two members are the appellants herein. The consortium of all
the three members participated in the open tender called for on behalf of the
State Undertakings and it ultimately, became the successful bidder. The
letter of acceptance was issued on 28.02.2013 and the work order was
issued on 13.03.2013. The decision to award the contract was solely and
Page No.24/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
principally premised on the combined technical, financial and domain
experience by all the three members put together as consortium.
25. As between the lead partner and the appellants herein, the
supplement agreements have been entered into for the effective execution of
the project by the lead partner, the claimant before the arbitral Tribunal. In
terms of certain clauses in RFP, various documents have been executed like
Power of Attorney, Memorandum of Understanding by the appellants herein
to the satisfaction of the tender requirement and only thereafter, it was
accepted and work order was issued. At every stage, all the three members
of the consortium participated and complied with the pre-tender as well as
post-tender conditions and only thereafter, the consortium was finally
selected for the execution of the project. Moreover, without participation of
the appellants herein, the lead member alone, cannot execute the project
without participation of the appellants herein as the technical experts and
experts and experience in their respective field was for the effective
execution of the contract.
Page No.25/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
26. In the above factual background, the learned arbitral Tribunal
has dealt with the contentions of these appellants that they were not privy to
the contract agreement and therefore, not entitled to be impleaded in the first
place. The learned arbitral Tribunal has considered the term of the contract
in detail and referred to all the relevant documents executed by the parties
that very much included the appellants herein in the run up to the ultimate
award of the contract and the final issue of the work order. It is extremely
relevant and significant to see as how the learned arbitral Tribunal
particularly dealt with the stiff opposition stemming from the appellants
herein against their impleadment both on the merits and on the
jurisdictional aspect as well. The learned Tribunal, in extenso, has dealt with
every facet of the challenge, both on its merits and the maintainability of the
I.A. for impleadment but navigated through the objections and surmounted
the challenges in its detailed order. In order to appreciate the findings and
the reasons that formed the basis of its ultimate conclusion, it is necessary to
extract paragraphs 23-50 of the order herein below.
Page No.26/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
23. Re: Contention that the Proposed Respondents
are not privy to the Contract Agreements:
For proper appreciation of the contentions and
determination of the points raised, it is necessary to refer to
the relevant clauses in the RFP and Appendices thereof and
relevant terms of the Contract Agreements to show that
Claimant – Ingenerie and the proposed respondents –
Abhibus and Analogics became successful Bidder only as
Consortium and satisfying all mandatory requirements as
Consortium.
24. Clause I of RFP lays down 'Introduction to
Project'. Clause 1.1 therein contains the General terms. The
relevant clause reads as under:
"I.1. General
1.1.1 The purpose of this Request for Proposal (RFP)
is to seek the services of a reputed firm who would conduct
requirement analysis, design, develop, test and implement
Online Electronic Ticketing Machines (ETM) and Procure,
Supply, Install, Commission, Configure, Test, Integrate,
Implement, Manage and Support the ETM and Hardware &
Network Connectivity / Infrastructure / Equipments /
Cabling etc., on Design, Built, Own, Operate and Transfer
(DBOOT) model by 285 Depots, 8 Divisions, 20 Regions
Page No.27/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
and a Central Control Centre at Chennai (including
required web based software) for the State Transport
Undertakings in Tamil Nadu, for the total contract period of
5 years from the date of signing the agreement." (Page 08
Volume 1)
25. The Provision regarding Bidders Registration is
contained in Clause 2.2.1 which reads as under:
"2.2.1 The Bidders eligible for participating in the
Request for Proposal for process shall be any one of the
following:
Category I: The bidder should be an individual Company
(or)
Category II: A combination of maximum of three (3)
members, comprising one Prime Bidder (Lead Member) and
two other members all are Category-I entity and shall
hereinafter be referred as "Consortium".
26. Other Relevant Clauses of RFP as Qualification
Parameters are as under:
"2.2.2 The Bidder/ members of Consortium including
Lead Member must be an Information Technology Company
/ Corporation or Intelligent Transport Solution Provider for
Electronic Ticketing Machines.
Page No.28/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
2.2.3 The Bidder should submit a Power of Attorney
as per the format enclosed at Appendix 4, authorizing the
signatory of the Proposal to commit the Bidder.
2.2.4 Notwithstanding anything stated elsewhere in
these documents, PTCS shall have the right to seek updated
information from the Bidders to ensure their continued
eligibility. Bidders shall provide evidence of their continued
eligibility in a manner that is satisfactory to PTCS. A Bidder
may be disqualified if it is determined by PTCS, at any stage
of the process, that the Bidder will be unable to fulfil the
requirements of the Project or fails to continue to satisfy the
eligibility criteria. Supplementary information or
documentations may be sought from Bidders at any time
and must so be provided within a reasonable time frame as
stipulated by PTCS.
2.2.5 A Bidder or member of Consortium which has
earlier been barred by Transport Department, Government
of Tamil Nadu / any other entity of Government of Tamil
Nadu or blacklisted by any State Government or Central
Government / Department / Agency in India shall not be
eligible to submit a Proposal, either individually or as
Page No.29/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
member of a Consortium, if such bar subsists as on the
Proposal Due Date. The Bidder or the member of
Consortium shall be required to furnish an affidavit that
there is no such bar imposed and existing a son the
Proposed Due Date as per format provided in Appendix 8.
In case of Consortium. Prime Bidder is responsible for all
related activities with PTCS/STUs. Also, communications,
payments and other activities are to be made with Prime
Bidders or PTCS/STUs.
27. Clause 2.2.7 deals with Technical Experience
Criteria, as per which the Bidder/Consortium Member
should be a Company, registered under the Indian
Companies Act. In case of a consortium, the Eligibility
Criteria will have to be met jointly by all the Consortium
members. Clause IV deals with Financial Capability
Criteria, as per which a Bidder would be required to
demonstrate Financial Capability measured on the criteria
as listed thereon. The Bidder would have to satisfy all the
criteria set out thereon in Clauses 2.2.8 to 2.2.11. Clauses
2.2.8 provides for Financial Capability criteria of the Lead
Member and other members of the Consortium. Clause
2.2.8 reads as under:
Page No.30/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Clause IV- Financial Capability Criteria
2.2.8 For the purpose of Qualification, a Bidder
would be required to demonstrate the threshold Financial
Capability measured on the criteria as listed below. The
Bidder would have to satisfy all the criteria set out below:
a) Net worth of Rs. 25 Crores as at the end of the
financial year (2011-12) (Ref. Appendix 7), in the case of
Consortium, the lead member Net worth alone shall be
minimum of 60% of the required Net worth of minimum 20%
of the required Net worth, and the third member/member
other than above two individually shall have a Net worth
minimum of 20% of the required Net worth.
b) The average turnover of Rs. 50 Crore in last three
financial years (2009-2010, 2010-2011 & 2011-2012) (Ref.
Appendix 7), and
The Bidders should provide information regarding the
above based on audited annual accounts for the respective
financial years. The financial year would be the same as the
one normally followed by the Bidder for its Annual Report.
2.2.9 The Proposal must be accompanied by the
audited annual financial statements of the Bidder (in case of
Consortium, financials of Lead Members and other
Page No.31/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
members of the Consortium would be considered for
evaluating the financial capability) for the last three (3)
financial years.
28. Clause 2.3 stipulates Additional Requirements
for Proposal submitted by a Consortium.
Clause 2.3 reads as under:
"2.3 Additional Requirements for Proposal submitted
by a Consortium:
2.3.1 Wherever required, the Proposal shall contain
the information required for each of the members of the
Consortium.
2.3.2 The Proposal shall be signed by the duly
authorized signatory of the Lead Member and shall be
legally binding on all the members of the Consortium.
2.3.3 Members of the Bidder Consortium shall submit
a Power of Attorney in favour of the Lead Member in the
format at Appendix 4 authorising the Lead Member and
person(s) duly authorized by the Lead Member to sign the
Proposal and to make legally binding commitments.
2.3.4 Proposals submitted by a Consortium should
comply with the following additional requirements:
a) the number of members in the Consortium would be
Page No.32/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
limited to three (3);
b) the Proposal should contain the information required
from each member; c) the Proposal should include a
description of the roles and responsibilities of all the
members;
d) Members of the Consortium shall nominate one member
as the Lead Member and that Member must be a Category I
as defined in Clause 2.2.1.
(e) A Bidder who has applied for Project in its individual
capacity or as part of a consortium cannot participate as a
member of any other consortium applying for the Project;
(f) the Members of the Consortium shall execute a Power of
Attorney for Lead Member of Consortium as per the format
enclosed as Appendix 5; and
g) The Members of the Consortium shall enter into a
Memorandum of Understanding (MoU), as per the format
provided under Appendix 9 for the
purpose of submission of the Proposal.
The MoU should, inter-alia
i) clearly outline the proposed roles and responsibilities of
each member of the Consortium;
ii) include a statement to the effect that all members of the
Page No.33/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Consortium shall be liable jointly and severally for the
Project in accordance with the terms of the Contract
Agreement; and
iii) clearly refer to the Project for which the arrangement is
made.
A copy of the MoU signed by all members should be
submitted with the Proposal. The MoU entered into between
the members of the Consortium should be specific to the
Project and should contain the above requirements, failing
which the Proposal shall be considered non-responsive.
2.3.5 Any change in the composition of a Consortium shall
not be permitted
29. Format and Signing of Proposal
As per Clause 2.18.1, Bidders shall provide all the
information as per this RFP document and in the specified
formats. PTCS reserves the right to reject any Proposal that
is not in the specified formats. The proposal should be
submitted in two parts. Part 1: Technical Proposal and Part
2 Price Proposal. In case of Consortium Members, it
specifically requires compliance of signing certain formats:
30. Relevant clauses of Part 1 Technical Proposal are
Page No.34/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
extracted below:
Part 1: Technical Proposal, which would include:
i) Covering letter-cum-Project Undertaking as per Appendix
1 stating the Proposal Validity period;
ii) Power of Attorney for Signing of the Proposal (in case of
Consortium, this would need to be provided by all the
members) as in Appendix 4.
iii) In case of Consortium, Power of Attorney for
designating of the Lead Member of Consortium as in
Appendix 5.
iv) Details of Bidder (in case of Consortium, this would need
to be provided by all the members) as Appendix 6.
v) Completed format of Financial Capability of the Bidder
(in case of Consortium, Financial Capability of all the
members) as in Appendix 7.
vi) Format for Affidavit certifying that Business Entity/
Promoter(s)/ Director(s) of Business Entity are not
Blacklisted/Barred (as in Appendix 8).
vii) In case of Consortium, MoU entered into between
members in Appendix 9.
viii) Proof of registration of the Bidder (in case of
Consortium, proof or registration of all the Members).
(ix) to (xx)..."
Page No.35/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
31. Clause 3.7 deals with PTCS right to accept or
reject Proposal. Relevant portion of Clause 3.7 reads as
under:
"3.7 PTCS's Right to Accept or Reject Proposal
“....
PTCS reserves the right to reject any Proposal, if:
.....
g) there is a change in ownership/ control of the Bidder,
where it is a consortium, which is contrary to the terms of
this RFP document, including the Contract Agreement.
3.7.4 This would lead to the disqualification of the Bidder. If
the Bidder is a Consortium, then the entire Consortium
would be disqualified/rejected.
.........
3.7.8 In case it is found after the issue of the LOA or signing
of the Contract Agreement or after its execution and during
the subsistence thereof, including the contract thereby
granted that:
a) one or more of the pre-qualification conditions have not
been met by the Bidder,
b) the Bidder has made a material misrepresentation or
Page No.36/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
such material misrepresentation is uncovered;
c) the Bidder has a Conflict of Interest which affects the
Bidding Process;
d) The Bidder engages in a corrupt, fraudulent, coercive,
undesirable or restrictive practice; or
e) there is a change in ownership/ control of the Bidder,
where it is a consortium, which is contrary to the terms of
this RFP document, including the contract Agreement.
Then the LOA or the Contract Agreement, as the case may
be, shall, notwithstanding anything to the contrary
contained therein or in this RFP Document, be liable to be
terminated by a communication in writing by the PTCS to
the Successful Bidder without the PTCS being liable in any
manner whatsoever to the Successful Bidder or System
Integrator, as the case may be. In such event, the PTCS shall
forfeit and appropriate the Bid Security/EMD or
Performance Security, as the case may be, as mutually
agreed genuine pre-estimated compensation and damages
payable and effect of the PTCS, without prejudice to any
other rights or remedy that may be available to PTCS.
32. Clause 2.18.2 Part I deals with Requisite for Technical
Proposal. In compliance of Clause 2.18.2, Part 1(ii), read
Page No.37/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
with Clause 2.3.3 of RFP, the Consortium Members have
executed the Power of Attorney as contained in Appendix 4.
We may usefully refer to the said Power of Attorney executed
by Abhibus on 23.01.2013. The said Power of Attorney
reads as under:
"Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, We, M/s. Abhibus
Services India Private Ltd, having registered office at 1st Floor,
Lakshmi Tower-B, Nagarjuna Hills, Punjagutta, Hyderabad
500082, do hereby constitute, appoint and authorize Mr. N M R K
Reddy, residing at Flat No. 102, Studio Sycamore, Banjara Bills,
Road No. 4, Hyderabad 500082, who is presently employed with
us and holding the position of Vice President-Govt Sales as our
Attorney, to do in our name and on our behalf, all such acts, deeds
and things necessary in connection with or incidental to our bid
for the Project envisaging Implementation of Global Positioning
System (GPS) based - ticketing System through hand-held devices
for all State Transport Undertakings Buses in Tamil Nadu RFP
RFP No. GPS based ETS-1, including signing and submission of
all documents and providing information/responses to Pallavan
Transport Consultancy Services Limited, (“PTCS"). representing
us in all matters before PTCS, and generally dealing with PTCS in
all matters in connection with our bid for the said Project.
Page No.38/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
We hereby agree to ratify all acts, deeds and things lawfully done
by our said Attorney pursuant to this Power of Attorney and that
all acts, deeds and things done by our aforesaid attorney shall and
shall always be deemed to have been done by us.
For ABHIBUS Service India Private Limited
(Sd.) CHIRRA SUDHAKAR REDDY
MANAGING DIRECTOR & CEO"
33. In compliance of Clause 2.18.2 Part 1 (ii) read
with Clause 2.3.3 of RFP, similar Power of Attorney was
executed by Analogies appointing Mr. R. Naveen Kumar
Reddy, their General Manager-Operations as Attorney to
sign the Tender Documents, etc.
34. In compliance of Clause 2.3.4(g) read with
Clause 2.18.2 Part I (vii), the Consortium members viz.,
Ingenerie, Abhibus and Analogics have executed
Memorandum of Understanding/MoU (as per Appendix 9)
on 21.01.2013, authorising Ingenerie as Lead Member-
Project Management, Project Financing: Abhibus for
Project Management, Software Services, Data Center and
Control Center Maintenance Management; and Analogics
Page No.39/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
for ETM Supply, Depot Infrastructure Maintenance and
Management. The said MoU reads as under:
Memorandum of Understanding
"This MoU entered into this 2st day of January 2013 at
INGENERIE TECHNOLOGICES SOLUTIONS PVT LTD and
having its Registered Office at G-1, Plot No. 558, Swarna
Heights, Aurora Colony, Road No. 3, Banjara Hills,
Hyderabad, Andhra Pradesh 500034, (hereinafter referred as
'INGENERIE', which expression unless repugnant to the
context or meaning thereof includes its successors and
permitted substitutes) of the First Part;
AND
ABHIBUS SERVICES INDIA PRIVATE LIMITED and having
its Registered office at 1st Floor, Lakshmi Tower-B, Nagarjuna
Hills, Punjagutta, Hyderabad 500082 (hereinafter referred as
"ABHIBUS", which expression unless repugnant to the context
or meaning thereof includes its successors and permitted
substitutes) of the Second Part;
AND
ANALOGICS INDIA PRIVATE LIMITED and having its
Registered Office at Plot No. 9/10, Road No. 6, Nacharam
Page No.40/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Industrial Estate, Nacharam, Hyderabad 500076, (hereinafter
referred as "ANALOGICS", which expression unless
repugnant to the context or meaning thereof includes its
successors and permitted substitutes) of the This Part.
The parties are individually referred as a Party and
collectively as Parties.
WHEREAS Pallavan Transport Consultancy Services Limited
(PTCS) has invited Request for Proposal (RFP) from entities
interested for Implementation of Global Positioning System
(GPS) based e-ticketing System through hand-held devices for
all State Transport Undertakings Buses in Tamil Nadu RFP
RFP No. GPS based ETS-1, as per the terms contained in the
RFP Document and in terms of Contract Agreement.
AND WHEREAS the Parties have had discussions for
formation of a Consortium for bidding for the said Project
and have reached an understanding on the following points
with respect to the Parties "rights and obligations towards
each other and their working relationship".
IT IS HEREBY AS MUTUAL UNDERSTANDING OF THE
Page No.41/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
PARTIES AGREED AND DECLARED AS FOLLOWS:
1. That M/s. INGENERIE, M/s. ABHIBUS and M/s.
ANALOGICS who are members of the Consortium participate
in the Implementation of Global Positioning System (GPS)
based e-ticketing System through hand-held devices for all
State Transport Undertakings Buses in Tamil Nadu RFP RFP
No. GPS based ETS-1.
2. That the parties shall carry out all obligations and
responsibilities in terms of the Contract Agreement;
3. That the roles and the responsibilities of each Party at each
stage of the Project shall be as follows:
Name of Member Role (Specify Lead Member/Other
Member)
1 INGENERIE Lead Member - Project
Management, Project Financing
2 ABHIBUS Project Management, Software
Services, Data Center and Control
Center Maintenance Management
Page No.42/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Name of Member Role (Specify Lead Member/Other
Member)
3 ANALOGICS ETM Supply, Depot Infrastructure
Maintenance and Management
4. That the Parties shall be jointly and severally liable for the
execution of the Project in accordance with the terms of the
Contract Agreement to be executed on award of the Project.
5. That the Parties affirm that they shall implement the Project
in good faith and shall take all necessary steps to ensure the
expeditious implementation of the Project.
6. That this MOU shall be governed in accordance with the
laws of India and courts in Chennai shall have exclusive
jurisdiction to adjudicate disputes arising from the terms
herein.
IN WITNESS WHEREOF the Parties affirm that the
information provided is accurate and true and have caused
this MOU to be duly executed on the date and year above
mentioned.
1. For M/s. INGENERIE TECHNOLOGICES SOLUTIONS PVT
LTD
Page No.43/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Sd/ Director
2. For M/s. ABHIBUS SERVICES INDIA PRIVATE LIMITED
Sd/ Director
3. For M/s. ANALOGICS INDIA PRIVATE LIMITED
Sd/ Director
WITNESSES: Three signed
35. The MoU dated 21.01.2013 signed by all the
Consortium Members was submitted along with the
proposal as it was the mandatory requirement under
Clause 2.3 of the RFP -Additional Requirement for
Proposal submitted by a Consortium. The MoU and the
Clauses thereon clearly show that the bid was submitted
by the Consortium Members-Ingenerie, Abhibus and
Analogics.
36. In terms of Clause 2.18.2, the Consortium
Members- Ingenerie, Abhibus and Analogics have
signed their respective Affidavits stating that they are
not barred by the Tamil Nadu Government or
blacklisted by any State Government or Central
Page No.44/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Government / Department or Agency in India, either
individually or as a member of a Consortium as on
30.06.2012.
37. Appendix 5 is the Format of Power of
Attorney for designating the Lead Member of the
Consortium. As per Appendix 5, all members of the
Consortium authorized the Lead Member to conduct all
business for and on behalf of the Consortium and Head
Member shall do and act on their behalf as well. In
compliance of Clause 2.3.4 (f) read with 2.18.2 Part I
(iii), the Consortium Members have executed the Power
of Attorney as per Appendix 5 authorizing INGENERIE
as the Lead Member. The said Power of Attorney reads
as under:
Power of Attorney
"Whereas the Pallavan Transport Consultancy Services
Limited (PTCS) has invited proposals from interested parties
for Implementation of Global Positioning System (GPS) based
e-ticketing System through hand-held devices for all State
Transport Undertakings Buses in Tamil Nadu RFP No. GPS
based ETS-1.
Page No.45/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Whereas, M/ INGENERIE, MA ABHIBUS and Ms.
ANALOGICS (collectively the "Consortium”) being members
of the Consortium are interested in bidding for the Project in
accordance with the terms and conditions of this Request for
Proposal (RFP) Document and other connected documents in
respect of the Project, and
Whereas, it is necessary for the Members of the Consortium to
designate one of them as the Lead Member with all necessary
power and authority to do for and on behalf of the
Consortium, all acts, deeds and things as may be necessary in
connection with the Consortium's proposal for the Project and
its execution.
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS
We, INGENERIE TECHNOLOGIES SOLUTIONS PVT LTD and
having its registered office at G-1, Plot No. 558, Swarna
Heights, Aurora Colony, Road No. 3, Banjara Hills,
Hyderabad, Andhra Pradesh 500034, ABHIBUS SERVICES
(INDIA) PRIVATE LIMITED and having its registered office at
Page No.46/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
1st Floor, Lakshmi Tower-B, Nagarjuna Hills, Punjagutta,
Hyderabad 500082 and M/s. ANALOGICS TECH INDIA
PRIVATE LIMITED having our registered office at Plot No.
9/10, Road No. 6, Nacharam Industrial Estate, Nacharam,
Hyderabad 500076, (hereinafter collectively referred to as the
"Principals") do hereby irrevocably designate, nominate,
constitute, appoint and authorize INGENERIE
TECHNOLOGIES SOLUTIONS PVT LTD and having its
registered office at G-1, Plot No. 558, Swarna Heights, Aurora
Colony, Road No. 3, Banjara Hills, Hyderabad, Andhra
Pradesh 500034, being one of the Members of the
Consortium, as the Lead Member and true and lawful attorney
of the Consortium (hereinafter referred to as the "Attorney").
We hereby irrevocably authorize the Attorney (with power to
sub delegate) to conduct all business for and on behalf of the
Consortium and any one of us during the bidding process
and, in the event the Consortium is awarded the
concession/contract, during the execution of the Project and in
this regard, to do on our behalf and on behalf of the
Consortium, all or any of such acts, deeds and things as are
necessary or required or incidental to the qualification of the
Consortium and submission of its proposal for the Project,
Page No.47/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
including but not limited to signing and submission of all
applications, bids and other documents and writings,
participate in bidders and other conferences, respond to
queries, submit information/documents, sign and execute
contracts and undertakings consequent to acceptance of the
proposal of the Consortium and generally to represent the
Consortium in all its dealings with PTCS, and/or any other
Government Agency or any person, in all matters in
connection with or relating to or arising out of the
Consortium's proposal for the Project and/or upon award
thereof till the Contract Agreement is entered into with STUs.
AND hereby agree to ratify and confirm and do hereby ratify
and confirm all acts, deeds and things done or caused to be
done by our said Attorney pursuant to and in exercise of the
powers conferred by this Power of Attorney and that all acts,
deeds and things done by our said Attorney in exercise of the
powers hereby conferred shall and shall always be deemed to
have been done by us/Consortium.
We hereby agree to ratify all acts, deeds and things lawfully
done by Lead Member, our said attorney pursuant to this
Power of Attorney and that all acts, deeds and things done by
our aforesaid attorney shall and shall always be deemed to
Page No.48/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
have been done by us Consortium.”
(Emphasis Added)
38. In compliance of Clause 2.18.2 Part 1 (iv),
the Bidder INGENERIE as Lead Member has given the
details and the proposed Role of the Consortium
Members in the project as the Lead Member and the
role of other Consortium Members. The said
information furnished by the INGENERIE led members
are as follows:
"Information regarding all the members of the
consortium:
INGENERIE TECHNOLOGIES SOLUTIONS PVT LTD:
1 a) Name Ingenerie Technologies Solutions Pvt. Ltd.
Brief description of the Bidder including details of its
main lines of business and proposed role and
responsibilities in this Project (s): The mainlines of
business is to carry on the business of Software
development and Customization, Package Development
and Customization, Networking, Information
Technology enabled services, Internet related Business,
Page No.49/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
and to undertake Projects in software from abroad or
within India and to set up and run electronic data
processing Centres.
5. (a) Information regarding role of each member
should be provided as per table below:
Name of Member Role (Specify Lend Member/Other
Member)
1 INGENERIE TECHNOLOGIES Lead Member Project Management,
SOLUTIONS PVT LTD Project Financing
2 ABHIBUS SERVICES INDIA PVT Project Management, Software
LTD Services, Data Center and Control
Center Maintenance Management
3 ANALOGICS TECH INDIA PVT ETM Supply, Depot Infrastructure
LTD Maintenance and Management
39. The Consortium put together jointly satisfied
the eligibility criteria. The above documents clearly
spell out the role and responsibilities of each
Consortium member and specify that the parties shall
be jointly and severally liable for the execution of the
Project in accordance with the terms of RFP and
Contract Agreement. Nothing is more clear than that of
Page No.50/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
the fact that Ingenerie is the Lead Member and
recognized as the Prime Bidder or System Integrator by
the Consortium to have all correspondence and related
acts with PTCS and STUs and for making payments.
40. Be it noted that in compliance of mandatory
requirements and as required as Appendices the
Members of the Consortium have executed documents
i.e., (1) Appendix 4. Format for Power of Attorney for
Signing of proposal; (ii) Appendix 5: Format for Power
of Attorney for Lead Member of Consortium; (iii)
Appendix 6: Format for details of Bidders; (iv)
Appendix 9: Format for MoU forming part of RFP.
Likewise, Appendix 12 of RFP deals with format of
Contract Agreement to be executed by the Member-
System Integrator with STUs. Thus, in its capacity as
the Lead Member, Claimant-Ingenerie has executed
Contract Agreements with STUs and Work Orders were
issued to Claimant - Ingenerie as the Lead Member.
41. Mr. Srinath Sridevan, the learned counsel
appearing for the Proposed Respondents submitted that
Page No.51/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
the Contract Agreement was executed between the
System Integrator - Claimant - INGENERIE and STUs
and the proposed Respondents are not parties to the
Contract Agreement executed between the Claimant -
System Integrator and STUs. In this regard, the learned
counsel placed reliance upon the Clauses in the
Contract Agreement between the Claimant - System
Integrator with STU Tirunelveli for reference (All the
Contract Agreements with the remaining STUs are
similar). The Leaned counsel laid emphasis upon the
following clauses in the Contract Agreement: "STU and
System Integrator (SI) (each individually a "Party"
hereto and collectively the "Parties") have agreed to
enter into this ETM Services Agreement ("Agreement")
to govern the way in which SI will design, develop,
implement and support the solution and facilities and
deliver the services specified under this Agreement in
accordance with the roles and responsibilities of STU
and SI as set forth in the RFP."
42. The learned counsel further submitted that as
per Clause 1.1.1(a), "Agreement" means that the
Page No.52/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Contract Agreement entered together with all Schedules
and the contents and specifications of Part I of the RFP,
Corrigendum/Amendments, LOA and the Work Order
given to SI. It was submitted that in the event of a
conflict between the Contract and Schedules, the terms
of the Agreement shall prevail. It was, therefore, urged
that the Proposed Respondents to the Counter claims
are not signatories to the Contract Agreement and
therefore, they cannot be impleaded as the Respondents
in the Counter claims in the arbitral proceedings. The
learned counsel also submitted that Part I of the RFP is
part of the Contract Agreement; whereas the Contract
Agreement is contained in Part II of the RFP. Therefore,
main contention of the Proposed Respondents is that
they are not parties to the Contract Agreement which
contains the disputes resolution Clause 1.9.1.
43. It was additionally submitted that as per the
Work Order dated 13.03.2013, the words "Successful
Bidder" or "Prime Bidder" or "System Integrator" have
the same meaning. In this regard, the learned counsel
Mr. Srinath Sridevan placed reliance upon Clause 7 of
Page No.53/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
the Work Order dated 13.03.2013, which reads as
under:
"7. Successful Bidder or Operating Agency
or Contractor or Vendor or Bidder of System
Integrator or Prime Bidder is same meaning.
8. Prime Bidder M/s. Ingenerie
Technologies Solutions Pvt Ltd, Hyderabad is
responsible for all related activities with
PTCS/STUs. Also, communications, payments
and other activities are to be made with Prime
Bidder by PTCS/STUs.
9. Any change in the composition of the
Consortium shall not be permitted."
The above Clause 7 of the Work Order and the other
documents executed by the Consortium Members only
show that the System Integrator is responsible for all
acts, deeds and things and communications with PTCS
and STUs. There is no merit in the contention that the
Proposed Respondents are not parties to the Contract
Agreements and are not bound by the terms thereon.
44. As discussed earlier, Consortium members
jointly put together met the eligibility criteria and
became the successful bidder in terms of Clause 2.2.1 -
Page No.54/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Category II and in terms of Clause 2.2.2 and Clause
2.2.3. The Consortium Members have satisfied the
additional requirements in terms of Clause 2.3-
Additional Requirements for proposal submitted by a
Consortium. In the MoU executed on 21.01.2013, in
terms of Clause 2.3.4 (g) read with Clause 2.18.2 Part I
(vii) of RFP, the Consortium members clearly stated that
the Consortium Members - parties shall be jointly and
severally liable for the execution of the Project in
accordance with the terms of the Contract Agreement to
be executed on award of the Project. In the MOU, as
per Clause 5, members also affirmed that they shall
implement the Project in good faith and shall take all
necessary steps to ensure the expeditious
implementation of the project. Having undertaken that
they are jointly and severally liable for implementation
of the project in accordance with the terms of the
Contract Agreement and having stated that ingenerie as
the Lead Member is responsible for all the acts and
deeds as the Lead Member (Ingenerie), it is not open to
the Proposed Respondents who are the Consortium
members that they are not parties to the Contract
Page No.55/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Agreement entered by the SI with the STUs. Claimant
Ingenerie, who executed the Contract Agreement with
STUs is none other than the Lead Member of the
Consortium selected by the Consortium members. The
Contract Agreement with STUs which contains the
clause for Dispute Resolution is the follow up or the
consequence of the Acceptance of the bid by the
Consortium members for the implementation of the
ETM project in eight STUs. The Contract Agreements
with STUs which contains the clause Dispute Resolution
Clause 1.9.1 is nothing but a verbatim repetition of
Appendix 12 Format of Draft Contract Agreement of
RFP. In compliance of the terms of the RFP and various
Appendices, when the Consortium members have
executed documents and successfully got the bid, the
Consortium members cannot contend that they are not
parties to the Contract Agreement.
45. There is no merit in the contention that the
Proposed Respondents are only the sub-contractors. A
sub-contractor is not a party to the contract between the
employer and the contractor. But in this case, the
Page No.56/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Proposed Respondents-Abhibus and Analogics are very
much parties to the Bid, Documents executed there on
and are also parties to the Contract Agreements
through the Lead Member - Ingenerie. The Proposed
Respondents are not right in contending that they are
only sub-contractors to the Contract Agreements
between the Claimant and PTCS and STUs.
46. Ingenerie, having been appointed as the Lead
Member of the Consortium, has executed the Contract
Agreements with all STUs in its capacity as the Lead
Member of the Consortium. As pointed out earlier, this
is only the follow-up of the acceptance of the Bid by the
Consortium members who have executed Power of
Attorney in compliance of the Format in Appendix 4.
The Claimant Ingenerie has been chosen and appointed
as the Prime Bidder / Lead Member for all the related
activities with STUs, communications, payments and
other activities. The Proposed Respondents, being
members of the Consortium, cannot contend that they
are not privy to the Contract Agreement. Though not
signatories in the Contract Agreement containing
Page No.57/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Dispute Resolution - Arbitration Clause 1.9.1, being
members of the Consortium, the legal relationship of
the Proposed Respondents with PTCS and other STUs is
well established by the documents. For proper and
effective resolving of the contentious points, the
Proposed Respondents are necessary parties to the
present Arbitration proceedings.
47. The next point falling for consideration is
whether the Proposed Respondents, on the applications
filed by PTCS and other STUs, be impleaded as parties
by the arbitral Tribunal or whether the arbitral
Tribunal has no jurisdiction to implead the Proposed
Respondents as parties.
48. Various clauses in RFP and the documents
executed and submitted by Consortium members make
it clear that bid for implementation of Global
Positioning System (GPS) compatible GPRS based e-
ticketing system, was awarded in favour of a
Consortium, comprising of the original Claimant, M/s.
Analogics and M/s. Abhibus, and not individually in
Page No.58/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
favour of the Claimant. It is also apparent that the
eligibility of supplying and maintaining ETMs was
possessed by M/s. Analogics and that of providing
Software and Back end Server support by M/s. Abhibus.
Both of the functions are undoubtedly quintessential to
the successful completion of the project.
49. The legal relationship between the parties
must be established in reference to the Contract
Agreement. The structure of the Consortium was made
such that Claimant as the Lead Member of the
Consortium had responsibilities to implement the
Project i.e., Project Management and Project Financing;
Abhibus and Analogics had major role in the
Implementation of ETM project that is Abhibus being
Software and Back End Server support and Analogies
being the ETM Supplier. The three members of the
Consortium emerged as a successful Bidder by
satisfying the eligibility criteria and after compliance of
the requisites of RFP. In order to give successful run, all
three members had to work together for a successful
implementation of the Project. Members of the
Page No.59/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Consortium have contractual relationship which arises
out of the various documents signed by them as per
Appendices which spell out the terms, obligations and
roles of the respective parties which they are to perform
for attaining the object of successful implementation of
ETM Project in the eight STUs. RFP, Power of Attorney
(Appendix 5), Memorandum of Understanding
(Appendix 9), and Contract Agreement are inter-linked
and responsibilities and role of Consortium members
are clearly spelt out. Implementation of the Project was
not dependent on any single member of the Consortium
but was capable of being achieved only upon fulfilment
of the all the Software and tech support that was to be
given by, Abhibus as Software and Back end Server
support and Analogies as ETM Supplier.
50. The main criteria which was considered by
PTCS to approve the Consortium as Bidder was that
these three Consortium Members together satisfied the
eligibility criteria and would have both technical and
financial sources for the implementation of the project
in a smooth manner and to provide end solution for the
Page No.60/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
respective STUs. This significance of having all three
members of the Consortium together for implementation
of the project was well known to the parties before
submitting the Bid. By submitting all the documents in
compliance of terms of RFP as required of a
Consortium, Consortium Members, were well aware that
their Bid was accepted only as Consortium and that
they must essentially work together as Consortium in
implementation of the Project and that they are jointly
and severally liable for the execution of the project. The
Consortium Members have nominated Claimant-
Ingenerie as the Lead Member and have given Power of
Attorney to Ingenerie whereby they have agreed and
accepted to ratify all acts done by Lead Member-
Ingenerie. Contract Agreement executed by Ingenerie
with STUs is not in its individual Capacity; but in its
capacity as the Lead Member of the Consortium. The
proposed Respondents may not be signatories to
Contract Agreement; but the execution of the Contract
Agreement with STUs is directly relatable to RFP and
work order issued by PTCS who is one of the main
parties to the Agreement. Though Abhibus and
Page No.61/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Analogics, are not signatories to the Contract
Agreement; but they have direct contractual
relationship with PTCS and STUs and performance of
the Contractual obligations- Certain averments are
made by PTCS and STUs that there was delay in
implementation of the ETM project, both in Pilot Phase
and Roll-out Phase, inadequate supply of ETMs, ETMs
supplied were faulty etc, whereas Claimant - Ingenerie
states that there was non co-operation from STUs and
some STUs have not even issued work orders, though
the Claimant was ready with the plan and required
number of ETMs. These issues raised by both the parties
could be effectively determined only if the Proposed
Respondents are impleaded as Respondents. Therefore,
even though Abhibus and Analogies are not signatories
in the Contract Agreement, for effective determination
of the contentious issues raised by the parties and
Counter Claim made by PTCS and STUs, the Proposed
Respondents are necessary parties to the arbitral
proceedings.
27. The findings as could be seen above were solidified on the basis
Page No.62/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
of the concrete facts made available indisputably, demonstrating without an
iota of doubt that the appellants herein were very much integral part of the
execution of the project/contract. In the Memorandum of Understanding
(MOU) dated 21.01.2013 between the appellants and the claimant
company, it was agreed that the parties shall be jointly and severally liable
for the execution of the project in accordance with the terms of the contract
agreement. Further, the Power of Attorney executed by the appellants herein
in favour of their lead partner, the claimant as part of the contractual
requirement irrevocably authorise the Attorney of the consortium to conduct
all business for and on behalf of the consortium. Through the power of
attorney executed by the appellants, they have conferred a carte blanche
authority to the lead partner to represent the consortium in all its dealings,
signing of agreements, contract etc. and agreed to ratify and confirm the
same.
28. In the above circumstances, the Tribunal felt that there was no
escaping from the fact that no privity of contract existed between the
Page No.63/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
appellants herein and the State Corporation. Considering the facts in its
entirety with reference to the participation of the appellants in the tender
process, the Tribunal concluded that the appellants herein cannot wriggle out
of the dispute, as if they had nothing to do with the project at all. When the
lead partner is a signatory to the contract agreement, it is deemed to have
been signed by the appellants herein also. When unqualified power is given
to the lead partner, the parties are bound by the legitimate and lawful action
of the attorney as the lead partner of the consortium. The findings and the
reasons that formed the basis of conclusion by the learned Tribunal appear
to be well founded and anchored.
29. Be that as it may, in order to appreciate the challenge
questioning the basis of the conclusion arrived at by the learned Tribunal
holding that the appellants are proper and necessary parties, this Court
would have to examine whether these appellants could be construed as a
party to the arbitration agreement or not, despite the fact that they are not
signatories to the agreement. In this regard, a contention was raised with
Page No.64/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
reference to the contract agreement dated 03.04.2013, in particular, that the
arbitration clause 1.9.1 contained therein which provided for dispute
resolution through arbitration. An emphatic argument has been putforth on
behalf of the appellants by the learned counsel Mr.Srinath Sridevan that the
claimant alone is the signatory to the agreement. He would lay emphasis on
a particular clause in the contract agreement dated 03.04.2013 which
defined the claimant alone as a system integrator (SI). Sub clause (c) of the
preamble to the agreement in fact stated that consortium consists of the
claimant as well as the appellants herein however, the claimant being
identified as the lead bidder, a System Integrator (SI).
30. According to the learned counsel, in clause 1.8.4, the appellants
herein have been defined as sub-contractors. The agreement indisputably
signed only by the lead partner, the claimant. The claimant signed the
agreement as an independent company not on behalf of the other two
consortium member Companies, the appellants herein. Moreover, it is also
an indisputable fact that the appellants herein are independent companies
Page No.65/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
not part of the lead partner as its affiliate, or subsidiary or group company.
Therefore, the claimant being the only signatory to the agreement which
provided for Arbitration, the appellants herein being admittedly not a
signatory to the agreement cannot be made parties in the arbitral
proceedings.
31. In support of this contention, the learned counsel would rely on
several decisions emphasising first that non-signatory to the contract cannot
be made a party in the arbitral proceedings. Secondly, even if such
impleadment is plausible in law, the same is not legally permissible for the
arbitral Tribunal to implead parties under the scheme of A & C Act, 1996.
The learned counsel, at the outset would rely on a decision of the Hon'ble
Supreme Court of India 2010(5) SCC 306 (Indowind Energy Ltd. Vs.
Wescare India Ltd.) This Court's attention has been drawn to paragraphs
13, 22 to 24 and 29, which are extracted hereunder.
13. It is fundamental that a provision for arbitration
to constitute an arbitration agreement for the purpose of
Page No.66/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Section 7 should satisfy two conditions: (i) it should be
between the parties to the dispute; and (ii) it should relate to
or be applicable to the dispute. (See Yogi
Agarwal v. Inspiration Clothes & U [(2009) 1 SCC 372] .)
...
22. The scope of examination of the agreement dated
24-2-2006 by the learned Chief Justice or his designate
under Section 11(6) is necessarily to be restricted to the
question whether there is an arbitration agreement between
the parties. The examination cannot extend to examining the
agreement to ascertain the rights and obligations regarding
performance of such contract between the parties. This Court
in SBP & Co. v. Patel Engg. Ltd. [(2005) 8 SCC 618] and
in National Insurance Co. Ltd. v. Boghara Polyfab (P)
Ltd. [(2009) 1 SCC 267] has held that when an application is
filed under Section 11, the Chief Justice or his designate is
required to decide only two issues, that is, whether the party
making the application has approached the appropriate court
and whether there is an arbitration agreement and whether
the party who has applied under Section 11 of the Act, is a
party to such agreement. Therefore, the Chief Justice
exercising jurisdiction under Section 11 of the Act has to only
Page No.67/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
consider whether there is an arbitration agreement between
the petitioner and the respondent(s) in the application under
Section 11 of the Act. Any wider examination in such a
summary proceeding will not be warranted.
23. Insofar as the issue of existence of an arbitration
agreement between the parties, the learned Chief Justice or
his designate is required to decide the issue finally and it is
not permissible in a proceeding under Section 11 to merely
hold that a party is prima facie a party to the arbitration
agreement and that a party is prima facie bound by it. It is
not as if the Chief Justice or his designate will subsequently
be passing any other final decision as to who are the parties
to the arbitration agreement. Once a decision is rendered by
the Chief Justice or his designate under Section 11 of the Act,
holding that there is an arbitration agreement between the
parties, it will not be permissible for the arbitrator to
consider or examine the same issue and record a finding
contrary to the finding recorded by the court. This is
categorically laid down by the Constitution Bench
in SBP [(2005) 8 SCC 618] . Therefore the prima
facie finding by the learned Chief Justice that Indowind is a
party to the arbitration agreement is not what is
Page No.68/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
contemplated by the Act.
24. It is no doubt true that if Indowind had
acknowledged or confirmed in any correspondence or other
agreement or document, that it is a party to the arbitration
agreement dated 24-2-2006 or that it is bound by the
arbitration agreement contained therein, it could have been
possible to say that Indowind is a party to the arbitration
agreement. But that would not be under Section 7(4)(a) but
under Section 7(4)(b) or Section 7(5). Be that as it may. That
is not the case of Wescare. In fact, the delivery notes/invoices
issued by Wescare do not refer to the agreement dated 24-2-
2006. Nor does any letter or correspondence sent by
Indowind refers to the agreement dated 24-2-2006, either as
an agreement executed by it or as an agreement binding on it.
We may now refer to the several documents referred to and
relied on by Wescare.
...
...
29. In view of the above, we allow this appeal, set aside
the order of the High Court appointing an arbitrator in
regard to the claims of Wescare against Indowind and dismiss
the application under Section 11(6) of the Act filed by Wescare
Page No.69/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
insofar as Indowind is concerned. The appointment of
arbitrator insofar as Subuthi is concerned, is not disturbed. It
is however open to Subuthi to raise all contentions including
the contention relating to absence of arbitral dispute, before
the arbitrator.
32. According to the learned counsel, in the above case, the Hon'ble
Supreme Court has examined the scope of examination by the Courts, while
considering the application filed under Section 11(6) of the A & C Act, 1996.
The Hon'ble Supreme Court in the above case ultimately on finding of fact
has set aside the order of the High Court, appointing the Arbitrator in respect
of the claim of the claimant against the Company which was found to be not
a signatory to the arbitration agreement.
33. The learned counsel would further rely on a decision reported
in 2013 (1) SCC 641 (Chloro Controls India Pvt. Ltd. vs. Severn Trent
Water Purification inc.). This is a landmark judgment, a precursor to the
concept of 'Group of Companies' doctrine, which led to a paradigm change
Page No.70/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
in the perception of the Courts in the matter of non-signatory being made
parties to the arbitration proceedings. Being the trail blazing judgment, this
Court's attention has been drawn in extenso to paragraph Nos.68, 69 , 71 to
73, 90, 92 to 95, 107 to 112, 119 to 122, 128, 131, 131.1 131.2, 131.3,
131.4 & 165, 165.1 & 165.2 which are extracted hereunder.
68. At this stage itself, we would make it clear that we
are primarily discussing these submissions purely on a legal
basis and not with regard to the merits of the case, which we
shall shortly revert to.
69. We have already noticed that the language of
Section 45 is at a substantial variance to the language of
Section 8 in this regard. In Section 45, the expression “any
person” clearly refers to the legislative intent of enlarging the
scope of the words beyond “the parties” who are signatory to
the arbitration agreement. Of course, such applicant should
claim through or under the signatory party. Once this link is
established, then the court shall refer them to arbitration. The
use of the word “shall” would have to be given its proper
meaning and cannot be equated with the word “may”, as
liberally understood in its common parlance. The expression
“shall” in the language of Section 45 is intended to require
Page No.71/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
the court to necessarily make a reference to arbitration, if the
conditions of this provision are satisfied. To that extent, we
find merit in the submission that there is a greater obligation
upon the judicial authority to make such reference, than it was
in comparison to the 1940 Act. However, the right to reference
cannot be construed strictly as an indefeasible right. One can
claim the reference only upon satisfaction of the prerequisites
stated under Sections 44 and 45 read with Schedule I of the
1996 Act. Thus, it is a legal right which has its own contours
and is not an absolute right, free of any
obligations/limitations.
...
71. Though the scope of an arbitration agreement is
limited to the parties who entered into it and those claiming
under or through them, the courts under the English law have,
in certain cases, also applied the “group of companies
doctrine”. This doctrine has developed in the international
context, whereby an arbitration agreement entered into by a
company, being one within a group of companies, can bind its
non-signatory affiliates or sister or parent concerns, if the
circumstances demonstrate that the mutual intention of all the
parties was to bind both the signatories and the non-signatory
Page No.72/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
affiliates. This theory has been applied in a number of
arbitrations so as to justify a Tribunal taking jurisdiction over
a party who is not a signatory to the contract containing the
arbitration agreement. [Russell on Arbitration (23rd Edn.)]
72. This evolves the principle that a non-signatory
party could be subjected to arbitration provided these
transactions were with group of companies and there was a
clear intention of the parties to bind both, the signatory as
well as the non-signatory parties. In other words, “intention
of the parties” is a very significant feature which must be
established before the scope of arbitration can be said to
include the signatory as well as the non-signatory parties.
73. A non-signatory or third party could be subjected
to arbitration without their prior consent, but this would only
be in exceptional cases. The court will examine these
exceptions from the touchstone of direct relationship to the
party signatory to the arbitration agreement, direct
commonality of the subject-matter and the agreement between
the parties being a composite transaction. The transaction
should be of a composite nature where performance of the
mother agreement may not be feasible without aid, execution
and performance of the supplementary or ancillary
Page No.73/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
agreements, for achieving the common object and collectively
having bearing on the dispute. Besides all this, the court
would have to examine whether a composite reference of such
parties would serve the ends of justice. Once this exercise is
completed and the court answers the same in the affirmative,
the reference of even non-signatory parties would fall within
the exception afore-discussed.
....
....
90.We have already referred to the contention of Mr
Fali S. Nariman, the learned Senior counsel appearing for the
appellant, that the provisions of Section 45 of the 1996 Act
are somewhat similar to Article II(3) of the New York
Convention and the expression “parties” in that section
would mean that “all parties to the action” before the court
have to be the parties to the arbitration agreement. If some of
them are parties to the agreement, while the others are not,
Section 45 does not contemplate the applicable procedure and
the status of the non-signatories. The consequences of all
parties not being common to the action and arbitration
proceedings are, as illustrated above, multiplicity of
proceedings and frustration of the intended “one-stop
Page No.74/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
action”. The rule of mischief would support such
interpretation. Even if some unnecessary parties are added to
the action, the court can always strike out such parties and
even the cause of action in terms of the provisions of CPC.
However, where such parties cannot be struck off, there the
proceedings must continue only before the court. Thus, it was
contended that the provisions of Section 45 cannot be
effectively applied or even invoked. Unlike Section 24 of the
1940 Act, under the 1996 Act the court has not been given the
power to refer to arbitration some of the parties from amongst
the parties to the suit. Section 24 of the 1940 Act vested the
court with the discretion that where the court thought fit, it
could refer such matters and parties to arbitration provided
the same could be separated from the rest of the subject-
matter of the suit. Absence of such provision in the 1996 Act
clearly suggests that the legislature intended not to permit
bifurcated or partial references of dispute or parties to
arbitration. Without prejudice to this contention, it was also
the argument that it would not be appropriate and even
permissible to make reference to arbitration when the issues
and parties in action are not covered by the arbitration
agreement. Referring to the consequences of all parties not
Page No.75/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
being common to the action before the court and arbitration,
the disadvantages are:
(a) There would be multiplicity of litigation;
(b) Application of principle of one-stop action would not be
possible; and
(c) It will frustrate the application of the rule of mischief. The
court can prevent the mischief by striking out unnecessary
parties or causes of action.
It would, it was submitted, thus, imply that a stranger or a
third party cannot ask for arbitration. That the expression
“claiming through or under” will have to be construed strictly
and restricted to the parties to the arbitration agreement.
....
92.To the contra, Mr Salve, learned Senior counsel
appearing for Respondent 1, contended that the expressions
“parties to arbitration”, “any person claiming through or
under him” and “at the request of one of the parties”
appearing in Section 45 are wide enough to include some or
all the parties and even non-signatory parties for the
purposes of making a reference to arbitration. It is also the
contention that on the true construction of Sections 44, 45 and
46 of the 1996 Act, it is not possible to accept the contention
Page No.76/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
of the appellant that all the parties to an action have to be
parties to the arbitration agreement as well as the court
proceedings. This would be opposed to the principle that
parties should be held to their bargain of arbitration. The
court always has the choice to make appropriate orders in
exercise of inherent powers to bifurcate the reference or even
stay the proceedings in a suit pending before it till the
conclusion of the arbitration proceedings or otherwise.
According to Mr Salve, if the interpretation advanced by Mr
Nariman is accepted, then mischief will be encouraged which
would frustrate the arbitration agreement because a party not
desirous of going to arbitration would initiate civil
proceedings and add non-signatory as well as unnecessary
parties to the suit with a view to avoid arbitration. This would
completely frustrate the legislative object underlining
(sic underlying) the 1996 Act. Non-signatory parties can even
be deemed to be parties to the arbitration agreement and may
successfully pray for referral to arbitration.
93. As noticed above, the legislative intent and
essence of the 1996 Act was to bring domestic as well as
international commercial arbitration in consonance with
the UNCITRAL Model Rules, the New York Convention and the
Page No.77/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Geneva Convention. The New York Convention was physically
before the legislature and available for its consideration when
it enacted the 1996 Act. Article II of the Convention provides
that each contracting State shall recognise an agreement and
submit to arbitration all or any differences which have arisen
or which may arise between them in respect of a defined legal
relationship, whether contractual or not concerning a subject-
matter capable of settlement by arbitration. Once the
agreement is there and the court is seized of an action in
relation to such subject-matter, then on the request of one of
the parties, it would refer the parties to arbitration unless the
agreement is null and void, inoperative or incapable of
performance.
94. Still, the legislature opted to word Section 45
somewhat dissimilarly. Section 8 of the 1996 Act also uses the
expression “parties” simpliciter without any extension. In
significant contradistinction, Section 45 uses the expression
“one of the parties or any person claiming through or under
him” and “refer the parties to arbitration”, whereas the rest
of the language of Section 45 is similar to that of Article II(3)
of the New York Contention. The court cannot ignore this
aspect and has to give due weightage to the legislative intent.
Page No.78/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
It is a settled rule of interpretation that every word used by
the legislature in a provision should be given its due meaning.
To us, it appears that the legislature intended to give a liberal
meaning to this expression.
95. The language of Section 45 has wider import. It
refers to the request of a party and then refers to an arbitral
Tribunal, while under Section 8(3) it is upon the application
of one of the parties that the court may refer the parties to
arbitration. There is some element of similarity in the
language of Section 8 and Section 45 read with Article II(3).
The language and expressions used in Section 45, “any
person claiming through or under him” including in legal
proceedings may seek reference of all parties to arbitration.
Once the words used by the legislature are of wider
connotation or the very language of the section is structured
with liberal protection then such provision should normally be
construed liberally.
...
...
107. If one analyses the above cases and the authors'
views, it becomes abundantly clear that reference of even non-
signatory parties to an arbitration agreement can be made. It
Page No.79/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
may be the result of implied or specific consent or judicial
determination. Normally, the parties to the arbitration
agreement calling for arbitral reference should be the same as
those to the action. But this general concept is subject to
exceptions which are that when a third party i.e. non-
signatory party, is claiming or is sued as being directly
affected through a party to the arbitration agreement and
there are principal and subsidiary agreements, and such third
party is signatory to a subsidiary agreement and not to the
mother or principal agreement which contains the arbitration
clause, then depending upon the facts and circumstances of
the given case, it may be possible to say that even such third
party can be referred to arbitration.
108. In the present case, the corporate structure of the
respondent companies as well as that of the appellant
companies clearly demonstrates a legal relationship which
not only is inter-legal relationship but also intra-legal
relationship between the parties to the lis or persons claiming
under them. They have contractual relationship which arises
out of the various contracts that spell out the terms,
obligations and roles of the respective parties which they were
expected to perform for attaining the object of successful
Page No.80/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
completion of the joint venture agreement. This joint venture
project was not dependent on any single agreement but was
capable of being achieved only upon fulfilment of all these
agreements. If one floats a joint venture company, one must
essentially know how to manage it and what shall be the
methodology adopted for its management. If one manages it
well, one must know what goods the said company is to
produce and with what technical know-how. Even if these
requisites are satisfied, then also one is required to know how
to create market, distribute and export such goods. It is
nothing but one single chain consisting of different
components. The parties may choose to sign different
agreements to effectively implement various aforementioned
facets right from managing to making profits in a joint venture
company. A party may not be signatory to an agreement but
its execution may directly be relatable to the main contract
even though he claims through or under one of the main
parties to the agreement. In such situations, the parties would
aim at achieving the object of making their bargain successful
by execution of various agreements like in the present case.
109. The New York Convention clearly postulates that
there should be a defined legal relationship between the
Page No.81/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
parties, whether contractual or not, in relation to the
differences that may have arisen concerning the subject-
matter capable of settlement by arbitration. We have referred
to a number of judgments of the various courts to emphasise
that in given circumstances, if the ingredients above-noted
exist, reference to arbitration of a signatory and even a third
party is possible. Though heavy onus lies on the person
seeking such reference, multiple and multi-party agreements
between the parties to the arbitration agreement or persons
claiming through or under such parties is neither
impracticable nor impermissible.
110. Next, we are to examine the issue whether the
cause of action in a suit can be bifurcated and a partial
reference may be made by the court. Whatever be the answer
to this question, a necessary corollary is as to whether the
court should or should not stay the proceedings in the suit?
Further, this may give rise to three different situations. Firstly,
while making reference of the subject-matter to arbitration,
whether the suit may still survive, partially or otherwise;
secondly, whether the suit, still pending before the court,
should be stayed completely; and lastly, whether both the
arbitration and the suit proceedings could be permitted to
Page No.82/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
proceed simultaneously in accordance with law.
111. Mr Nariman, the learned Senior counsel, while
relying upon the judgments in Turnock v. Sartoris [(1889) 43
Ch D 150 (CA)] , Anderson Wright Ltd. v. Moran and
Co. [AIR 1955 SC 53 : (1955) 1 SCR 862] , Taunton-
Collins v. Cromie [(1964) 1 WLR 633 : (1964) 2 All ER 332
(CA)] and Sumitomo Corpn. v. CDC Financial Services
(Mauritius) Ltd. [(2008) 4 SCC 91] again emphasised that the
parties to the agreement have to be parties to the suit and
also that the cause of action cannot be bifurcated unless there
was a specific provision in the 1996 Act itself permitting such
bifurcation or splitting of cause of action. He also contended
that there is no provision like Sections 21 and 24 of the 1940
Act in the 1996 Act and thus, it supports the view that
bifurcation of cause of action is impermissible and such
reference to arbitration is not permissible.
112. In Turnock [(1889) 43 Ch D 150 (CA)] , the
Court had stated that it was not right to cut up that litigation
into two actions, one to be tried before the arbitrator and the
other to be tried elsewhere, as in that case matters in respect
of which the damages were claimed by the plaintiff could not
be referred to arbitration because questions arising as to the
Page No.83/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
construction of the agreement and provisions in the lease
deed were involved and they did not fall within the power of
the arbitrator in face of the arbitration agreement.
In Taunton-Collins [(1964) 1 WLR 633 : (1964) 2 All ER 332
(CA)] , the Court again expressed the view that it was
undesirable that there should be two proceedings before two
different Tribunals i.e. the official referee and an arbitrator,
as they may reach inconsistent findings.
119. In para 39 of the judgment, this Court held as
under: (SBP case [(2005) 8 SCC 618] , SCC pp. 660-61)
“39. It is necessary to define what exactly the Chief Justice,
approached with an application under Section 11 of the Act, is
to decide at that stage. Obviously, he has to decide his own
jurisdiction in the sense whether the party making the motion
has approached the right High Court. He has to decide
whether there is an arbitration agreement, as defined in the
Act and whether the person who has made the request before
him, is a party to such an agreement. It is necessary to
indicate that he can also decide the question whether the
claim was a dead one; or a long-barred claim that was sought
to be resurrected and whether the parties have concluded the
transaction by recording satisfaction of their mutual rights
Page No.84/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
and obligations or by receiving the final payment without
objection. It may not be possible at that stage, to decide
whether a live claim made, is one which comes within the
purview of the arbitration clause. It will be appropriate to
leave that question to be decided by the arbitral Tribunal on
taking evidence, along with the merits of the claims involved
in the arbitration. The Chief Justice has to decide whether the
applicant has satisfied the conditions for appointing an
arbitrator under Section 11(6) of the Act. For the purpose of
taking a decision on these aspects, the Chief Justice can either
proceed on the basis of affidavits and the documents
produced or take such evidence or get such evidence
recorded, as may be necessary. We think that adoption of this
procedure in the context of the Act would best serve the
purpose sought to be achieved by the Act of expediting the
process of arbitration, without too many approaches to the
court at various stages of the proceedings before the arbitral
Tribunal.”
This aspect of the arbitration law was explained by a two-
Judge Bench of this Court in Shree Ram Mills Ltd. v. Utility
Premises (P) Ltd. [(2007) 4 SCC 599] wherein, while
referring to the judgment in SBP & Co. [(2005) 8 SCC 618]
Page No.85/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
particularly the above paragraph (para 39) of SBP
case [(2005) 8 SCC 618] , this Court held that the scope of
order under Section 11 of the 1996 Act would take in its ambit
the issue regarding territorial jurisdiction and the existence
of the arbitration agreement. The Court noticed that if these
issues are not decided by the Chief Justice or his designate,
there would be no question of proceeding with the arbitration.
It held as under: (Shree Ram Mills case [(2007) 4 SCC 599] ,
SCC pp. 607-08, para 27)
“27. … Thus, the Chief Justice has to decide about the
territorial jurisdiction and also whether there exists an
arbitration agreement between the parties and whether such
party has approached the Court for appointment of the
arbitrator. The Chief Justice has to examine as to whether the
claim is a dead one or in the sense whether the parties have
already concluded the transaction and have recorded
satisfaction of their mutual rights and obligations or whether
the parties concerned have recorded their satisfaction
regarding the financial claims. In examining this if the parties
have recorded their satisfaction regarding the financial
claims, there will be no question of any issue remaining. It is
in this sense that the Chief Justice has to examine as to
Page No.86/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
whether there remains anything to be decided between the
parties in respect of the agreement and whether the parties
are still at issue on any such matter. If the Chief Justice does
not, in the strict sense, decide the issue, in that event it is for
him to locate such issue and record his satisfaction that such
issue exists between the parties. It is only in that sense that
the finding on a live issue is given. Even at the cost of
repetition we must state that it is only for the purpose of
finding out whether the arbitral procedure has to be started
that the Chief Justice has to record satisfaction that there
remains a live issue in between the parties. The same thing is
about the limitation which is always a mixed question of law
and fact. The Chief Justice only has torecord his satisfaction
that prima facie the issue has not become dead by the lapse of
time or that any party to the agreement has not slept over its
rights beyond the time permitted by law to agitate those issues
covered by the agreement. It is for this reason that it was
pointed out in the above paragraph that it would be
appropriate sometimes to leave the question regarding the
live claim to be decided by the arbitral Tribunal. All that he
has to do is to record his satisfaction that the parties have not
closed their rights and the matter has not been barred by
Page No.87/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
limitation. Thus, where the Chief Justice comes to a finding
that there exists a live issue, then naturally this finding would
include a finding that the respective claims of the parties have
not become barred by limitation.”
(emphasis supplied)
Thus, the Bench while explaining the judgment of this Court
in SBP & Co. [(2005) 8 SCC 618] has stated that the Chief
Justice may not decide certain issues finally and upon
recording satisfaction that prima facie the issue has not
become dead even leave it for the arbitral Tribunal to decide.
120. In National Insurance Co. Ltd. v. Boghara Polyfab
(P) Ltd. [(2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117] ,
another equi-Bench of this Court after discussing various
judgments of this Court, explained SBP & Co. [(2005) 8 SCC
618] in relation to scope of powers of the Chief Justice and/or
his designate while exercising jurisdiction under Section
11(6), held as follows: (National Insurance Co. Ltd.
case [(2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117] , SCC p.
283, para 22)
“22. Where the intervention of the Court is sought for
appointment of an arbitral Tribunal under Section 11, the
Page No.88/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
duty of the Chief Justice or his designate is defined in SBP &
Co. [(2005) 8 SCC 618] This Court identified and segregated
the preliminary issues that may arise for consideration in an
application under Section 11 of the Act into three categories,
that is, (i) issues which the Chief Justice or his designate is
bound to decide; (ii) issues which he can also decide, that is,
issues which he may choose to decide; and (iii) issues which
should be left to the arbitral Tribunal to decide.
22.1. The issues (first category) which the Chief Justice/his
designate will have to decide are:
(a) Whether the party making the application has approached
the appropriate High Court.
(b) Whether there is an arbitration agreement and whether the
party who has applied under Section 11 of the Act, is a party
to such an agreement.
22.2. The issues (second category) which the Chief Justice/his
designate may choose to decide (or leave them to the decision
of the arbitral Tribunal) are:
(a) Whether the claim is a dead (long-barred) claim or a live
claim.
(b) Whether the parties have concluded the
contract/transaction by recording satisfaction of their mutual
Page No.89/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
rights and obligation or by receiving the final payment
without objection.
22.3. The issues (third category) which the Chief Justice/his
designate should leave exclusively to the arbitral Tribunal
are:
(i) Whether a claim made falls within the arbitration clause
(as for example, a matter which is reserved for final decision
of a departmental authority and excepted or excluded from
arbitration).
(ii) Merits or any claim involved in the arbitration.”
121. We may notice that at first blush, the judgment
in Shree Ram Mills [(2007) 4 SCC 599] is at some variance
with the judgment in National Insurance Co. Ltd. [(2009) 1
SCC 267 : (2009) 1 SCC (Civ) 117] but when examined in
depth, keeping in view the judgment in SBP & Co. [(2005) 8
SCC 618] and provisions of Section 11(6) of the 1996 Act,
both these judgments are found to be free from contradiction
and capable of being read in harmony in order to bring them
in line with the statutory law declared by the larger Bench
in SBP & Co. [(2005) 8 SCC 618] The expressions “Chief
Justice does not in strict sense decide the issue” or “is prima
Page No.90/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
facie satisfied”, will have to be construed in the facts and
circumstances of a given case. Where the Chief Justice or his
designate actually decides the issue, then it can no longer be
prima facie, but would be a decision binding in law. On such
an issue, the arbitral Tribunal will have no jurisdiction to
redetermine the issue. In Shree Ram Mills [(2007) 4 SCC
599], the Court held that the Chief Justice could record a
finding where the issue between the parties was still alive or
was dead by lapse of time. Where it prima facie found the
issue to be alive, the Court could leave the question of
limitation and also open to be decided by the arbitral
Tribunal.
122. The above expressions are mere observations of
the Court and do not fit into the contours of the principle of
ratio decidendi of the judgment. The issues in regard to
validity or existence of the arbitration agreement, the
application not satisfying the ingredients of Section 11(6) of
the 1996 Act and claims being barred by time, etc. are the
matters which can be adjudicated by the Chief Justice or his
designate. Once the parties are heard on such issues and the
matter is determined in accordance with law, then such a
finding can only be disturbed by the court of competent
Page No.91/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
jurisdiction and cannot be reopened before the arbitral
Tribunal. In SBP & Co. [(2005) 8 SCC 618] , the seven-Judge
Bench clearly stated: (SCC p. 650, para 20)
“20. … The finality given to the order of the Chief Justice on
the matters within his competence under Section 11 of the Act
are incapable of being reopened before the arbitral
Tribunal.”
Certainly the Bench dealing with Shree Ram Mills [(2007) 4
SCC 599] did not intend to lay down any law in direct
conflict with the seven-Judge Bench judgment in SBP &
Co. [(2005) 8 SCC 618] In the reasoning given in Shree Ram
Mills case [(2007) 4 SCC 599] , the Court has clearly stated
that matters of existence and binding nature of arbitration
agreement and other matters mentioned therein are to be
decided by the Chief Justice or his designate and the same is
in line with the judgment of this Court in SBP & Co. [(2005) 8
SCC 618] It will neither be permissible nor in consonance
with the doctrine of precedent that passing observations by
the Bench should be construed as the law while completely
ignoring the ratio decidendi of that very judgment. We may
also notice that the judgment in Shree Ram Mills [(2007) 4
SCC 599] was not brought to the notice of the Bench which
Page No.92/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
pronounced the judgment in National Insurance Co.
Ltd. [(2009) 1 SCC 267 : (2009) 1 SCC (Civ) 117]
128. The judgment of this Court in Shin-Etsu Chemical
Co. Ltd. [(2005) 7 SCC 234] preceded the judgment of this
Court in SBP & Co. [(2005) 8 SCC 618] Though the
Constitution Bench in the latter case referred to this judgment
in para 89 of the judgment but did not discuss the merits or
otherwise of the case presumably for absence of any conflict.
However, as already noticed, the Court clearly took the view
that the findings returned by the Chief Justice while
exercising his judicial powers under Section 11 relatable to
Section 8 are final and not open to be questioned by the
arbitral Tribunal. Sections 8 and 45 of the 1996 Act are
provisions independent of each other. But for the purposes of
reference to arbitration, in both cases, the applicant has to
pray for a reference before the Chief Justice or his designate
in terms of Section 11 of the 1996 Act. We may refer to the
exact terminology used by the larger Bench in SBP &
Co. [(2005) 8 SCC 618] in relation to the finality of such
matters, as reflected in para 12 of the judgment which reads
as under: (SCC pp. 643-44)
Page No.93/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
“12. Section 16 of the Act only makes explicit what is even
otherwise implicit, namely, that the arbitral Tribunal
constituted under the Act has the jurisdiction to rule on its
own jurisdiction, including ruling on objections with respect
to the existence or validity of the arbitration agreement. Sub-
section (1) also directs that an arbitration clause which forms
part of a contract shall be treated as an agreement
independent of the other terms of the contract. It also clarifies
that a decision by the arbitral Tribunal that the contract is
null and void shall not entail ipso jure the invalidity of the
arbitration clause. Sub-section (2) of Section 16 enjoins that
a party wanting to raise a plea that the arbitral Tribunal does
not have jurisdiction, has to raise that objection not later
than the submission of the statement of defence, and that the
party shall not be precluded from raising the plea of
jurisdiction merely because he has appointed or participated
in the appointment of an arbitrator. Sub-section (3) lays down
that a plea that the arbitral Tribunal is exceeding the scope of
its authority, shall be raised as soon as the matter alleged to
be beyond the scope of its authority is raised during the
arbitral proceedings. When the Tribunal decides these two
questions, namely, the question of jurisdiction and the
Page No.94/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
question of exceeding the scope of authority or either of them,
the same is open to immediate challenge in an appeal, when
the objection is upheld and only in an appeal against the final
award, when the objection is overruled. Sub-section (5)
enjoins that if the arbitral Tribunal overrules the objections
under sub-section (2) or (3), it should continue with the
arbitral proceedings and make an arbitral award. Sub-
section (6) provides that a party aggrieved by such an
arbitral award overruling the plea on lack of jurisdiction and
the exceeding of the scope of authority, may make an
application on these grounds for setting aside the award in
accordance with Section 34 of the Act. The question, in the
context of sub-section (7) of Section 11 is, what is the scope of
the right conferred on the arbitral Tribunal to rule upon its
own jurisdiction and the existence of the arbitration clause,
envisaged by Section 16(1), once the Chief Justice or the
person designated by him had appointed an arbitrator after
satisfying himself that the conditions for the exercise of power
to appoint an arbitrator are present in the case. Prima facie,
it would be difficult to say that in spite of the finality
conferred by sub-section (7) of Section 11 of the Act, to such a
decision of the Chief Justice, the arbitral Tribunal can still go
Page No.95/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
behind that decision and rule on its own jurisdiction or on the
existence of an arbitration clause. It also appears to us to be
incongruous to say that after the Chief Justice had appointed
an arbitral Tribunal, the arbitral Tribunal can turn round and
say that the Chief Justice had no jurisdiction or authority to
appoint the Tribunal, the very creature brought into existence
by the exercise of power by its creator, the Chief Justice. The
argument of the learned Senior counsel, Mr K.K. Venugopal
that Section 16 has full play only when an arbitral Tribunal is
constituted without intervention under Section 11(6) of the
Act, is one way of reconciling that provision with Section 11 of
the Act, especially in the context of sub-section (7) thereof. We
are inclined to the view that the decision of the Chief Justice
on the issue of jurisdiction and the existence of a valid
arbitration agreement would be binding on the parties when
the matter goes to the arbitral Tribunal and at subsequent
stages of the proceeding except in an appeal in the Supreme
Court in the case of the decision being by the Chief Justice of
the High Court or by a Judge of the High Court designated
by him.”
(emphasis supplied)
Page No.96/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
We are conscious of the fact that the above dictum of the
Court in SBP case [(2005) 8 SCC 618] is in relation to the
scope and application of Section 11 of the 1996 Act. It has
been held in various judgments of this Court but more
particularly in SBP [(2005) 8 SCC 618] which is binding on
us that before making a reference, the Court has to dispose of
the objections as contemplated under Section 8 or Section 45,
as the case may be, and wherever needed upon filing of
affidavits. Thus, to an extent, the law laid down by this Court
on Section 11 shall be attracted to an international
arbitration which takes place in India as well as domestic
arbitration. This, of course, would be applicable at pre-award
stage. Thus, there exists a direct legal link, limited to that
extent.
...
...
131. Another very significant aspect of adjudicating the
matters initiated with reference to Section 45 of the 1996 Act,
at the threshold of judicial proceedings, is that the finality of
the decision in regard to the fundamental issues stated under
Page No.97/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Section 45 would further the cause of justice and interest of
the parties as well:
131.1. To illustratively demonstrate it, we may give an
example. Where Party A is seeking reference to arbitration
and Party B raises objections going to the very root of the
matter that the arbitration agreement is null and void,
inoperative and incapable of being performed, such
objections, if left open and not decided finally at the
threshold itself may result in not only parties being compelled
to pursue arbitration proceedings by spending time, money
and efforts but even the arbitral Tribunal would have to
spend valuable time in adjudicating the complex issues
relating to the dispute between the parties, that may finally
prove to be in vain and futile. Such adjudication by the
arbitral Tribunal may be rendered ineffective or even a
nullity in the event the courts upon filing of an award and at
execution stage hold that the agreement between the parties
was null and void inoperative and incapable of being
performed. The court may also hold that the arbitral Tribunal
had no jurisdiction to entertain and decide the issues between
the parties.
Page No.98/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
131.2. The issue of jurisdiction normally is a mixed
question of law and facts. Occasionally, it may also be a
question of law alone. It will be appropriate to decide such
questions at the beginning of the proceedings itself and they
should have finality.
131.3. Even when the arbitration law in India
contained the provision like Section 34 of the 1940 Act which
was somewhat similar to Section 4 of the English Arbitration
Act, 1889, this Court in Anderson Wright Ltd. [AIR 1955 SC
53 : (1955) 1 SCR 862] took the view that while dealing with
the question of grant or refusal of stay as contemplated under
Section 34 of the 1940 Act, it would be incumbent upon the
court to decide first of all whether there is a binding
agreement for arbitration between the parties to the suit or
not.
131.4. Applying the analogy thereof will fortify the view
that determination of fundamental issues as contemplated
under Section 45 of the 1996 Act at the very first instance by
the judicial forum is not only appropriate but is also the
legislative intent. Even the language of Section 45 of the 1996
Act suggests that unless the court finds that an agreement is
Page No.99/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
null and void, inoperative and incapable of being performed,
it shall refer the parties to arbitration.
...
...
165. Having dealt with all the relevant issues in law,
now we would provide answer to the questions framed by us
in the beginning of the judgment as follows:
165.1. Section 45 is a provision falling under Chapter I
of Part II of the 1996 Act which is a self-contained code. The
expression “person claiming through or under” would mean
and take within its ambit multiple and multi-party
agreements, though in exceptional case. Even non-signatory
parties to some of the agreements can pray and be referred to
arbitration provided they satisfy the prerequisites under
Sections 44 and 45 read with Schedule I. Reference of non-
signatory parties is neither unknown to arbitration
jurisprudence nor is it impermissible.
165.2. In the facts of a given case, the court is always
vested with the power to delete the names of the parties who
are neither necessary nor proper to the proceedings before
the court. In the cases of group companies or where various
agreements constitute a composite transaction like mother
Page No.100/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
agreement and all other agreements being ancillary to and
for effective and complete implementation of the mother
agreement, the court may have to make reference to
arbitration even of the disputes existing between signatory or
even non-signatory parties. However, the discretion of the
court has to be exercised in exceptional, limiting, befitting
and cases of necessity and very cautiously.
34. According to the learned counsel, the above decision is a
pioneering judgment which clarified several aspects of the issues that touch
upon the subject matter of challenge herein. The Hon'ble Supreme Court has
also recognised the principle of "Group of Company doctrine" in the context
of international awards and the entire consideration of the Hon'ble Supreme
Court was with reference to sections 44 and 45 of the A & C Act, 1996
relating to enforcement of foreign awards.
35. In this regard, the learned counsel sought to distinguish the
language in section 45 and section 2 (1) (h) which define party to an
agreement in the Act 1996.
Page No.101/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Section 45
45. Power of judicial authority to refer parties to
arbitration. —Notwithstanding anything contained in Part I
or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial
authority, when seized of an action in a matter in respect of
which the parties have made an agreement referred to in
section 44, shall, at the request of one of the parties or any
person claiming through or under him, refer the parties to
arbitration, unless it finds that the said agreement is null and
void, inoperative or incapable of being performed.
Section 2(1)(h)
"party" means a party to an arbitration agreement;
36. As far as the enforcement of foreign awards is concerned, the
expression used are wide enough to include any person claiming through or
under him. However, the language that is used in 2 (1) (h) is restricted only
to the party to the agreement. In this connection, the learned counsel would
once again draw the attention of this Court to the slew of amendments which
was introduced in the Act 2016 after the recommendations of the Law
Page No.102/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Commission in its "Supplementary to Report No.246 on Amendments to
Arbitration and Conciliation Act, 1996". One of the recommendations which
was suggested was to expand the definition of Clause 2 (1) (h) to include "or
in any person claim through or under such party" after the words "party to a
arbitration agreement". The suggestion was made only to bring the domestic
arbitration on par with the international arbitration but ultimately, the
suggestion was not agreed to and the definition as it stood earlier remained
as such as on date. At the same time, several other suggestions have been
accepted and amendments have been effected in the Amendment Act 2016
with effect from 23.10.2015. In the said circumstances, the Courts or for
that matter arbitral Tribunal cannot lose sight of the fact that while
considering impleading a non-signatory as party, the Courts cannot expand
the scope and amplitude of the section against the intendment of the
Parliament.
37. The learned counsel would further proceed to refer to few more
decisions in his support. A reference is made to 2017(9) SCC 729 (Duro
Page No.103/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Felguera vs. Gangavaram Port Trust). This Court's attention has been
drawn to paragraph Nos.56 to 60.
56. Having said that, this being one of the first cases
on Section 11(6-A) of the 1996 Act before this Court, I feel it
appropriate to briefly outline the scope and extent of the
power of the High Court and the Supreme Court under
Sections 11(6) and 11(6-A).
57. This Court in SBP & Co. v. Patel Engg. Ltd. [SBP
and Co. v. Patel Engg. Ltd., (2005) 8 SCC 618]
overruled Konkan Railway Corpn. Ltd. v. Mehul Construction
Co. [Konkan Railway Corpn. Ltd. v. Mehul Construction Co.,
(2000) 7 SCC 201] and Konkan Railway Corpn. Ltd. v. Rani
Construction (P) Ltd. [Konkan Railway Corpn. Ltd. v. Rani
Construction (P) Ltd., (2002) 2 SCC 388] to hold that the
power to appoint an arbitrator under Section 11 is a judicial
power and not a mere administrative function. The conclusion
in the decision as summarised by Balasubramanyan, J.
speaking for the majority reads as follows : (SBP & Co.
case [SBP and Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] ,
SCC pp. 663-64, para 47)
“47. We, therefore, sum up our conclusions as follows:
Page No.104/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
(i) The power exercised by the Chief Justice of the High
Court or the Chief Justice of India under Section 11(6)
of the Act is not an administrative power. It is a judicial
power.
(ii) The power under Section 11(6) of the Act, in its
entirety, could be delegated, by the Chief Justice of the
High Court only to another Judge of that Court and by
the Chief Justice of India to another Judge of the
Supreme Court.
(iii) In case of designation of a Judge of the High Court
or of the Supreme Court, the power that is exercised by
the Designated Judge would be that of the Chief Justice
as conferred by the statute.
(iv) The Chief Justice or the Designated Judge will have
the right to decide the preliminary aspects as indicated
in the earlier part of this judgment. These will be his
own jurisdiction to entertain the request, the existence
of a valid arbitration agreement, the existence or
otherwise of a live claim, the existence of the condition
for the exercise of his power and on the qualifications
of the arbitrator or arbitrators. The Chief Justice or the
Designated Judge would be entitled to seek the opinion
of an institution in the matter of nominating an
arbitrator qualified in terms of Section 11(8) of the Act
if the need arises but the order appointing the
arbitrator could only be that of the Chief Justice or the
Designated Judge.
(v) Designation of a District Judge as the authority
under Section 11(6) of the Act by the Chief Justice of the
High Court is not warranted on the scheme of the Act.
(vi) Once the matter reaches the arbitral Tribunal or the
sole arbitrator, the High Court would not interfere with
Page No.105/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
the orders passed by the arbitrator or the arbitral
Tribunal during the course of the arbitration
proceedings and the parties could approach the Court
only in terms of Section 37 of the Act or in terms of
Section 34 of the Act.
(vii) Since an order passed by the Chief Justice of the
High Court or by the Designated Judge of that Court is
a judicial order, an appeal will lie against that order
only under Article 136 of the Constitution to the
Supreme Court.
(viii) There can be no appeal against an order of the
Chief Justice of India or a Judge of the Supreme Court
designated by him while entertaining an application
under Section 11(6) of the Act.
(ix) In a case where an arbitral Tribunal has been
constituted by the parties without having recourse to
Section 11(6) of the Act, the arbitral Tribunal will have
the jurisdiction to decide all matters as contemplated
by Section 16 of the Act.
(x) Since all were guided by the decision of this Court
in Konkan Railway Corpn. Ltd. v. Rani Construction (P)
Ltd. [Konkan Railway Corpn. Ltd. v. Rani Construction
(P) Ltd., (2002) 2 SCC 388] and orders under Section
11(6) of the Act have been made based on the position
adopted in that decision, we clarify that appointments
of arbitrators or arbitral Tribunals thus far made, are
to be treated as valid, all objections being left to be
decided under Section 16 of the Act. As and from this
date, the position as adopted in this judgment will
govern even pending applications under Section 11(6)
of the Act.
Page No.106/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
(xi) Where District Judges had been designated by the
Chief Justice of the High Court under Section 11(6) of
the Act, the appointment orders thus far made by them
will be treated as valid; but applications if any pending
before them as on this date will stand transferred, to be
dealt with by the Chief Justice of the High Court
concerned or a Judge of that Court designated by the
Chief Justice.
(xii) The decision in Konkan Railway Corpn.
Ltd. v. Rani Construction (P) Ltd. [Konkan Railway
Corpn. Ltd. v. Rani Construction (P) Ltd., (2002) 2 SCC
388] is overruled.”
(emphasis supplied)
58. This position was further clarified in National
Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd. [National
Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC
267 : (2009) 1 SCC (Civ) 117] To quote : (SCC p. 283, para
22)
“22. Where the intervention of the court is sought
for appointment of an arbitral Tribunal under Section
11, the duty of the Chief Justice or his designate is
defined in SBP & Co. [SBP and Co. v. Patel Engg. Ltd.,
(2005) 8 SCC 618] This Court identified and
segregated the preliminary issues that may arise for
consideration in an application under Section 11 of the
Act into three categories, that is, (i) issues which the
Chief Justice or his designate is bound to decide; (ii)
issues which he can also decide, that is, issues which he
may choose to decide; and (iii) issues which should be
left to the arbitral Tribunal to decide.
Page No.107/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
22.1. The issues (first category) which the Chief
Justice/his designate will have to decide are:
(a) Whether the party making the application has
approached the appropriate High Court.
(b) Whether there is an arbitration agreement and
whether the party who has applied under Section 11 of
the Act, is a party to such an agreement.
22.2. The issues (second category) which the Chief
Justice/his designate may choose to decide (or leave
them to the decision of the arbitral Tribunal) are:
(a) Whether the claim is a dead (long-barred) claim or
a live claim.
(b) Whether the parties have concluded the
contract/transaction by recording satisfaction of their
mutual rights and obligation or by receiving the final
payment without objection.
22.3. The issues (third category) which the Chief
Justice/his designate should leave exclusively to the
arbitral Tribunal are:
(i) Whether a claim made falls within the arbitration
clause (as for example, a matter which is reserved for
final decision of a departmental authority and excepted
or excluded from arbitration).
(ii) Merits or any claim involved in the arbitration.”
59. The scope of the power under Section 11(6) of the
1996 Act was considerably wide in view of the decisions
in SBP and Co. [SBP and Co. v. Patel Engg. Ltd., (2005) 8
SCC 618] and Boghara Polyfab [National Insurance Co.
Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267 : (2009) 1
Page No.108/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
SCC (Civ) 117] . This position continued till the amendment
brought about in 2015. After the amendment, all that the
courts need to see is whether an arbitration agreement exists
—nothing more, nothing less. The legislative policy and
purpose is essentially to minimise the Court's intervention at
the stage of appointing the arbitrator and this intention as
incorporated in Section 11(6-A) ought to be respected.
60. In the case at hand, there are six arbitrable
agreements (five agreements for works and one Corporate
Guarantee) and each agreement contains a provision for
arbitration. Hence, there has to be an arbitral Tribunal for
the disputes pertaining to each agreement. While the
arbitrators can be the same, there has to be six Tribunals —
two for international commercial arbitration involving the
Spanish Company M/s Duro Felguera, S.A. and four for the
domestic.
38. In fact, the above decision was rendered after amendments were
introduced in the Act in 2015 wherein sub clause 6(A) was inserted in
Section 11. After the introduction of the sub-clause 6(A), the Court's
Page No.109/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
examination of application under section 11(6) is confined and restricted
only to examine on a prima facie or peripheral consideration of existence of
any arbitration agreement between the parties to the dispute. The earlier
legal position as it existed prior to the Amendment Act 2016 was, the Courts
before reference were called upon to decide finally as to whether there was
any valid arbitration agreement between the parties to the dispute or not.
After to the Amendment Act 2016, particularly, insertion of Section 6A in
Section 11 the Court's consideration at the stage of disposing of an
application under section 11 is only minimal. The power to refuse to refer is
restricted to exceptional and rarest of rare cases where the Courts find that
the disputes are dead woods and to be weeded out at the threshold. In all
other cases, the conceptional shift in consideration by the courts is that
"when in doubt do refer".
39. This Court's further attention has been drawn to 2018 (16) SCC
413 (Cheran Properties Ltd. vs. Kasthuri & Sons). The Hon'ble Supreme
Court in the above case has extensively dealt with the "Group of Companies"
Page No.110/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
doctrine and the binding nature of arbitral agreement on a non-signatory.
The Hon'ble Supreme Court has summarised the law on the important legal
aspect which is the core subject matter of consideration before this Court. It
is very crucial and important to refer to paragraph Nos. 19 to 30 , 43 to 47
of the judgment as under:
19. The decision in Indowind [Indowind Energy Ltd. v. Wescare
(India) Ltd., (2010) 5 SCC 306 : (2010) 2 SCC (Civ) 397] was followed
by a two-Judge Bench in Prasad [S.N. Prasad v. Monnet Finance Ltd.,
(2011) 1 SCC 320 : (2011) 1 SCC (Civ) 141] . The issue in that case was
whether a guarantor to a loan who is not a party to a loan agreement
between the lender and borrower could be made a party to a reference to
an arbitration in regard to a dispute governing the repayment of the loan
and be subjected to the arbitral award. The loan agreement contained an
arbitration clause. In the view of this Court : (S.N. Prasad case [S.N.
Prasad v. Monnet Finance Ltd., (2011) 1 SCC 320 : (2011) 1 SCC (Civ)
141] , SCC p. 325, para 10)
“10. An arbitration agreement between the lender on the
one hand and the borrower and one of the guarantors on the
other, cannot be deemed or construed to be an arbitration
agreement in respect of another guarantor who was not a party to
the arbitration agreement. Therefore, there was no arbitration
agreement as defined under Sections 7(4)(a) or (b) of the Act,
insofar as the appellant was concerned, though there was an
arbitration agreement as defined under Section 7(4)(a) of the Act
in regard to the second and third respondents.”
Page No.111/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Consequently, the impleadment of the appellant as party to
the arbitration proceedings and the award were held to be
unsustainable. The principle which was formulated by the Court
was this : (SCC p. 324, para 8)
“8. … The Act makes it clear that an arbitrator can be appointed
under the Act at the instance of a party to an arbitration agreement only
in respect of disputes with another party to the arbitration agreement. If
there is a dispute between a party to an arbitration agreement, with other
parties to the arbitration agreement as also non-parties to the arbitration
agreement, reference to arbitration or appointment of arbitrator can be
only with respect to the parties to the arbitration agreement and not the
non-parties.”
20. Both these decisions were prior to the three-Judge Bench
decision in Chloro Controls [Chloro Controls India (P) Ltd. v. Severn
Trent Water Purification Inc., (2013) 1 SCC 641 : (2013) 1 SCC (Civ)
689] . 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 observed that ordinarily, an arbitration takes place between
persons who have been parties to both the arbitration agreement and the
substantive contract underlying it. English Law has evolved the “group of
companies doctrine” under which an arbitration agreement entered into
by a company within a group of corporate entities can in certain
circumstances bind non-signatory affiliates. The test as formulated by this
Court, noticing the position in English law, is as follows : (SCC pp. 682-
83, paras 71 & 72)
Page No.112/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
“71. Though the scope of an arbitration agreement is limited to
the parties who entered into it and those claiming under or through them,
the courts under the English law have, in certain cases, also applied the
“group of companies doctrine”. This doctrine has developed in the
international context, whereby an arbitration agreement entered into by a
company, being one within a group of companies, can bind its non-
signatory affiliates or sister or parent concerns, if the circumstances
demonstrate that the mutual intention of all the parties was to bind both
the signatories and the non-signatory affiliates. This theory has been
applied in a number of arbitrations so as to justify a Tribunal taking
jurisdiction over a party who is not a signatory to the contract containing
the arbitration agreement. [Russell on Arbitration (23rd Edn.)]
72. This evolves the principle that a non-signatory party could be
subjected to arbitration provided these transactions were with group of
companies and there was a clear intention of the parties to bind both, the
signatory as well as the non-signatory parties. In other words, “intention
of the parties” is a very significant feature which must be established
before the scope of arbitration can be said to include the signatory as well
as the non-signatory parties.”
The Court held that it would examine the facts of the case on the
touchstone of the existence of a direct relationship with a party which is a
signatory to the arbitration agreement, a “direct commonality” of the
subject-matter and on whether the agreement between the parties is a part
of a composite transaction : (SCC p. 683, para 73)
“73. A non-signatory or third party could be subjected to
arbitration without their prior consent, but this would only be in
Page No.113/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
exceptional cases. The court will examine these exceptions from
the touchstone of direct relationship to the party signatory to the
arbitration agreement, direct commonality of the subject-matter
and the agreement between the parties being a composite
transaction. The transaction should be of a composite nature
where performance of the mother agreement may not be feasible
without aid, execution and performance of the supplementary or
ancillary agreements, for achieving the common object and
collectively having bearing on the dispute. Besides all this, the
Court would have to examine whether a composite reference of
such parties would serve the ends of justice. Once this exercise is
completed and the Court answers the same in the affirmative, the
reference of even non-signatory parties would fall within the
exception afore-discussed.”
21. Explaining the legal basis that may be applied to bind a non-
signatory to an arbitration agreement, this Court in Chloro Controls
case [Chloro Controls India (P) Ltd. v. Severn Trent Water Purification
Inc., (2013) 1 SCC 641 : (2013) 1 SCC (Civ) 689] held thus : (SCC p.
694, paras 103.1, 103.2 & 105)
“103.1. The first theory is that of implied consent, third-party
beneficiaries, guarantors, assignment and other transfer
mechanisms of contractual rights. This theory relies on the
discernible intentions of the parties and, to a large extent, on good
faith principle. They apply to private as well as public legal
entities.
103.2. The second theory includes the legal doctrines of agent-
principal relations, apparent authority, piercing of veil (also
called “the alter ego”), joint venture relations, succession and
estoppel. They do not rely on the parties' intention but rather on
the force of the applicable law.
***
105. We have already discussed that under the group of companies
doctrine, an arbitration agreement entered into by a company within a
group of companies can bind its non-signatory affiliates, if the
Page No.114/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
circumstances demonstrate that the mutual intention of the parties was to
bind both the signatory as well as the non-signatory parties.”
22. The position in Indowind [Indowind Energy Ltd. v. Wescare
(India) Ltd., (2010) 5 SCC 306 : (2010) 2 SCC (Civ) 397] was
formulated by a Bench of two Judges before the evolution of law in the
three-Judge Bench decision in ChloroControls [Chloro Controls India (P)
Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641 : (2013) 1
SCC (Civ) 689] . Indowind [Indowind Energy Ltd. v. Wescare (India)
Ltd., (2010) 5 SCC 306 : (2010) 2 SCC (Civ) 397] arose out of a
proceeding under Section 11(6). The decision turns upon a construction
of the arbitration agreement as an agreement which binds parties to it.
The decision in Prasad [S.N. Prasad v. Monnet Finance Ltd., (2011) 1
SCC 320 : (2011) 1 SCC (Civ) 141] evidently involved a guarantee,
where the guarantor who was sought to be impleaded as a party to the
arbitral proceeding was not a party to the loan agreement between the
lender and borrower. The loan agreement between the lender and
borrower contained an arbitration agreement. The guarantor was not a
party to that agreement.
23. As the law has evolved, it has recognised that modern
business transactions are often effectuated through multiple layers and
agreements. There may be transactions within a group of companies. The
circumstances in which they have entered into them may reflect an
intention to bind both signatory and non-signatory entities within the
same group. In holding a non-signatory bound by an arbitration
agreement, the court approaches the matter by attributing to the
transactions a meaning consistent with the business sense which was
Page No.115/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
intended to be ascribed to them. Therefore, factors such as the
relationship of a non-signatory to a party which is a signatory to the
agreement, the commonality of subject-matter and the composite nature of
the transaction weigh in the balance. The group of companies doctrine is
essentially intended to facilitate the fulfilment of a mutually held intent
between the parties, where the circumstances indicate that the intent was
to bind both signatories and non-signatories. The effort is to find the true
essence of the business arrangement and to unravel from a layered
structure of commercial arrangements, an intent to bind someone who is
not formally a signatory but has assumed the obligation to be bound by
the actions of a signatory.
24. International conventions on arbitration as well as
the UNCITRAL Model Law mandate that an arbitration agreement must be in
writing. Section 7 of the Arbitration and Conciliation Act, 1996 affirms
the same principle. Why does the law postulate that there should be a
written agreement to arbitrate? The reason is simple. An agreement to
arbitrate excludes the jurisdiction of national courts. Where parties have
agreed to resolve their disputes by arbitration, they seek to substitute a
private forum for dispute resolution in place of the adjudicatory
institutions constituted by the State. According to Redfern and Hunter on
International Arbitration, the requirement of an agreement to arbitrate in
writing is an elucidation of the principle that the existence of such an
agreement should be clearly established, since its effect is to exclude the
authority of national courts to adjudicate upon disputes. [Redfern and
Hunter on International Arbitration, 5th Edn. — 2.13, pp. 89-90.]
25. Does the requirement, as in Section 7, that an arbitration
Page No.116/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
agreement be in writing exclude the possibility of binding third parties
who may not be signatories to an agreement between two contracting
entities? The evolving body of academic literature as well as adjudicatory
trends indicate that in certain situations, an arbitration agreement
between two or more parties may operate to bind other parties as well.
Redfern and Hunter explain the theoretical foundation of this principle:
“… The requirement of a signed agreement in writing, however, does not
altogether exclude the possibility of an arbitration agreement concluded
in proper form between two or more parties also binding other parties.
Third parties to an arbitration agreement have been held to be bound by
(or entitled to rely on) such an agreement in a variety of ways : first, by
operation of the ‘group of companies’ doctrine pursuant to which the
benefits and duties arising from an arbitration agreement may in certain
circumstances be extended to other members of the same group of
companies; and, secondly, by operation of general rules of private law,
principally on assignment, agency, and succession…. [Id at p. 99.] ”
The group of companies doctrine has been applied to pierce the corporate
veil to locate the “true” party in interest, and more significantly, to target
the creditworthy member of a group of companies [ Op cit fn. 16, 2.40, p.
100.] . Though the extension of this doctrine is met with resistance on the
basis of the legal imputation of corporate personality, the application of
the doctrine turns on a construction of the arbitration agreement and the
circumstances relating to the entry into and performance of the
underlying contract. [Id, 2.41 at p. 100.]
26.Russell on Arbitration [ 24th Edn., 3-025, pp. 110-11.]
formulates the principle thus:
Page No.117/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
“Arbitration is usually limited to parties who have consented to the
process, either by agreeing in their contract to refer any disputes arising
in the future between them to arbitration or by submitting to arbitration
when a dispute arises. A party who has not so consented, often referred to
as a third party or a non-signatory to the arbitration agreement, is
usually excluded from the arbitration. There are however some occasions
when such a third party may be bound by the agreement to arbitrate. For
example, …, assignees and representatives may become a party to the
arbitration agreement in place of the original signatory on the basis that
they are successors to that party's interest and claim “through or under”
the original party. The third party can then be compelled to arbitrate any
dispute that arises.”
27. Garry B. Born in his treatise on International Commercial
Arbitration indicates that:
“The principal legal bases for holding that a non-signatory is bound (and
benefited) by an arbitration agreement … include both purely consensual
theories (e.g., agency, assumption, assignment) and non-consensual
theories (e.g. estoppel, alter ego) .”
Explaining the application of the alter ego principle in arbitration, Born
notes:
“Authorities from virtually all jurisdictions hold that a party who has not
assented to a contract containing an arbitration clause may nonetheless
be bound by the clause if that party is an ‘alter ego’ of an entity that did
execute, or was otherwise a party to, the agreement. This is a significant,
but exceptional, departure from the fundamental principle … that each
Page No.118/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
company in a group of companies (a relatively modern concept) is a
separate legal entity possessed of separate rights and liabilities .”
28. Explaining group of companies doctrine, Born states:
“the doctrine provides that a non-signatory may be bound by an
arbitration agreement where a group of companies exists and the parties
have engaged in conduct (such as negotiation or performance of the
relevant contract) or made statements indicating the intention assessed
objectively and in good faith, that the non-signatory be bound and
benefited by the relevant contracts. [Id at pp. 1448-49.] ”
While the alter ego principle is a rule of law which disregards the effects
of incorporation or separate legal personality, in contrast the group of
companies doctrine is a means of identifying the intentions of parties and
does not disturb the legal personality of the entities in question. In other
words:
“the group of companies doctrine is akin to principles of agency or
implied consent, whereby the corporate affiliations among distinct legal
entities provide the foundation for concluding that they were intended to
be parties to an agreement, notwithstanding their formal status as non-
signatories. ”
...
...
29. The decision in Indowind [Indowind Energy Ltd. v. Wescare
(India) Ltd., (2010) 5 SCC 306 : (2010) 2 SCC (Civ) 397] arose from an
application under Section 11 of the Arbitration and Conciliation Act,
1996. Indowind was not a signatory to the contract and was held not to be
a party to the agreement to refer disputes to
Page No.119/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
arbitration. Indowind [Indowind Energy Ltd. v. Wescare (India) Ltd.,
(2010) 5 SCC 306 : (2010) 2 SCC (Civ) 397] held that an application
under Section 11 was not maintainable. The present case does not
envisage a situation of the kind which prevailed before this Court
in Indowind [Indowind Energy Ltd. v. Wescare (India) Ltd., (2010) 5 SCC
306 : (2010) 2 SCC (Civ) 397] . The present case relates to a post award
situation. The enforcement of the arbitral award has been sought against
the appellant on the basis that it claims under KCP and is bound by the
award. Section 35 of the Arbitration and Conciliation Act, 1996 postulates
that an arbitral award “shall be final and binding on the parties and
persons claiming under them respectively” (emphasis supplied). The
expression “claiming under”, in its ordinary meaning, directs attention to
the source of the right. The expression includes cases of devolution and
assignment of interest (Advanced Law Lexicon by P. Ramanatha Aiyar [
3rd Edn., Vol. I, p. 818.] ). The expression “persons claiming under
them” in Section 35 widens the net of those whom the arbitral award
binds. It does so by reaching out not only to the parties but to those who
claim under them, as well. The expression “persons claiming under
them” is a legislative recognition of the doctrine that besides the parties,
an arbitral award binds every person whose capacity or position is
derived from and is the same as a party to the proceedings. Having
derived its capacity from a party and being in the same position as a
party to the proceedings binds a person who claims under it. The issue in
every such a case is whether the person against whom the arbitral award
is sought to be enforced is one who claims under a party to the
agreement.
Page No.120/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
30. Mr Sibal has sought to make a distinction between the
provisions of Section 45 and the unamended Section 8. Section 45, forms
a part of Part II dealing with the enforcement of foreign awards to which
the New York Convention applies. It contemplates a reference by a judicial
authority to arbitration at the request of one of the parties “or any person
claiming through or under him”, where there is an arbitration agreement.
The submission of Mr Sibal is that a similar expression “any person
claiming through or under him” has been introduced in the amended
provisions of Section 8 (substituted by Act 3 of 2016 with effect from 23-
10-2015) but that this expression did not find place in the unamended
provision. The submission is a non sequitur. Both Sections 8 and 45
operate in the sphere of the duty of a judicial authority to refer parties to
arbitration. In the present case Section 35 is the material provision, which
expressly stipulates that an arbitral award is, final and binding not only
on the parties but on persons claiming under them.
...
...
43. We have referred to the above findings for the completeness
of the record. These findings of the Madras High Court would indicate
that virtually every one of the submission which was urged before this
Court have been negatived.
44. Finally, having covered the entire gamut of submissions
which were urged on behalf of the appellant, it would be worthwhile to
revisit the fundamental principles which were formulated nearly fifty years
ago in a judgment of a three-Judge Bench of this Court in Satish
Kumar v. Surinder Kumar [Satish Kumar v. Surinder Kumar, (1969) 2
Page No.121/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
SCR 244 : AIR 1970 SC 833] . That case arose under the provisions of
the Arbitration Act, 1940. The question which arose before this Court was
whether an award under the Act requires registration under Section
17(1)(b) of the Registration Act, if it effects partition of immovable
property above the value of Rs 100. A Full Bench of the Patna High Court
in Seonarain Lal v. Prabhu Chand [Seonarain Lal v. Prabhu Chand, 1958
SCC OnLine Pat 15 : AIR 1958 Pat 252] held that unless a decree is
passed in terms of the award (in terms of the position as it stood under
the 1940 Act) it had no legal effect. In holding thus, the Patna High Court
had relied upon Sardool Singh v. Hari Singh [Sardool Singh v. Hari
Singh, 1966 SCC OnLine P&H 265 : ILR (1967) 1 P&H 622] , a Punjab
Full Bench decision holding that under the Arbitration Act, 1940, an
award was effective only when a decree follows a judgment on the award.
The Punjab Full Bench held that even if the award is registered, it is still a
“waste paper” unless it is made a rule of the court. In appeal, this Court
held that the two Full Benches had taken a view contrary to that
formulated in an unreported decision of this Court in Uttam Singh
Duggal & Co. v. Union of India [Uttam Singh Duggal & Co. v. Union of
India Civil Appeal No. 162 of 1962, order dated 11-10-1962 (SC)]
wherein it was held thus : (Satish Singh case [Satish Kumar v. Surinder
Kumar, (1969) 2 SCR 244 : AIR 1970 SC 833] , AIR p. 836, para 8)
“8. … ‘The true legal position in regard to the effect of an award
is not in dispute. It is well settled that as a general rule, all claims
which are the subject-matter of a reference to arbitration merge in
the award which is pronounced in the proceedings before the
arbitrator and that after an award has been pronounced, the
rights and liabilities of the parties in respect of the said claims can
be determined only on the basis of the said award. After an award
Page No.122/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
is pronounced, no action can be started on the original claim
which had been the subject-matter of the reference. As has been
observed by Mookerjee, J., inBhajahari Saha Bankiya v. Behary
Lal Basak [Bhajahari Saha Bankiya v. Behary Lal Basak, ILR
(1906) 33 Cal 881] at ILR p. 898, the award is, in fact, a final
adjudication of a Court of the parties' own choice, and until
impeached upon sufficient grounds in an appropriate proceeding,
an award, which is on the fact of it regular, is conclusive upon the
merits of the controversy submitted, unless possibly the parties
have intended that the award shall not be final and conclusive …
in reality, an award possesses all the elements of vitality even
though it has not been formally enforced and it may be relied upon
in a litigation between the parties relating to the same subject-
matter. This conclusion, according to the learned Judge, is based
upon the elementary principle that, as between the parties and
their privies, an award is entitled to that respect which is due to
the judgment of a court of last resort. Therefore, if the award
which has been pronounced between the parties has in fact, or
can, in law, be deemed to have dealt with the present dispute, the
second reference would be incompetent. This position also has not
been and cannot be seriously disputed (Uttam Singh Duggal
case [Uttam Singh Duggal & Co. v. Union of India Civil Appeal
No. 162 of 1962, order dated 11-10-1962 (SC)] ).”
(emphasis supplied)
45. The above position was followed in Satish Kumar [Satish
Kumar v. Surinder Kumar, (1969) 2 SCR 244 : AIR 1970 SC 833] as
stating a binding principle of law. The earlier decision was reiterated in
the following observations : (AIR p. 836, para 9)
“9. … In our opinion this judgment lays down that the position
under the Act is in no way different from what it was before the Act
came into force, and that an award has some legal force and is
not a mere waste paper. If the award in question is not a mere
waste paper but has some legal effect it plainly purports to or
affects property within the meaning of Section 17(1)(b) of the
Registration Act.”
Page No.123/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
(emphasis supplied)
46. The present case which arises under the Arbitration and
Conciliation Act, 1996 stands on even a higher pedestal. Under the
provisions of Section 35, the award can be enforced in the same manner
as if it were a decree of the court. The award has attained finality. The
transmission of shares as mandated by the award could be fully
effectuated by obtaining a rectification of the register under Section 111 of
the Companies Act. The remedy which was resorted to was competent.
The view [Kasturi & Sons Ltd. v. Sporting Pastime India Ltd., 2017 SCC
OnLine NCLT 767] of the NCLT, which has been affirmed [Cheran
Properties Ltd. v. Kasturi & Sons Ltd., 2017 SCC OnLine Nclat 523] by
the NCLAT does not warrant interference.
47. For the above reasons, we are of the view that the appeals
are lacking in merit. The appeals shall stand dismissed.
40. The above decision of the Hon'ble Supreme Court of India has
recognised the modern business transactions effected through multiple layers
of agreement. It also recognised the transactions within a group of
companies for execution of common contract. It also taken note of the
circumstances that may reflect an intention to bind both signatory and non-
signatory entities within the same group. The Hon'ble Supreme Court has in
clear legal terms recognised the emerging concept of "Group of Companies"
Page No.124/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
doctrine and held that such doctrine is to be applied even in domestic
arbitrations in view of the trending business transactions.
41. The learned counsel has further drawn the attention of this Court
to 2004(7) SCC 288 (Milkfood Limited vs. GMC Icecream (P) Ltd). He
would particularly rely on paragraph No.69 of the judgment which is
extracted hereunder.
69. The UNCITRAL Model Rules of Arbitration vis-à-vis
provision of Section 14 of the English Arbitration Act, 1996 must be
construed having regard to the decisions of the English courts as also
this Court which addressed the form of notice to be given in order to
commence the arbitration for the purpose of Section 34(3) of the
Limitation Act. By reason of Section 14, merely the form of notice and
strict adherence thereto has become redundant, as now in terms of
Section 14 of the Arbitration Act there is otherwise no specific
requirement as to the form of notice subject to any contract operating in
the field. (See paras 5-020, 5-027 and 5-028 of Russell on Arbitration,
22nd Edn.) Section 21 of the 1996 Act must be construed accordingly. It
defines the moment of the commencement of arbitral proceedings. In Rao,
P. Chandrasekhara: The Arbitration and Conciliation Act, 1996, it is
Page No.125/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
stated:
“Section 21 defines the moment of the commencement of arbitral
proceedings. It gives freedom to the parties to agree on the date of
commencement of arbitral proceedings. For instance, in the case of
arbitration administered by an arbitration institution, they may agree to
abide by the arbitration rules of that institution for determining the point
of time at which the arbitral proceedings can be said to have commenced.
Unless otherwise agreed by the parties, the arbitral proceedings in
respect of a particular dispute commence on the date on which a request
for that dispute to be referred to arbitration is received by the respondent.
Section 3 is relevant on the question as to when a request can be said to
have been received by the respondent. The request made to the respondent
should clearly indicate that the claimant seeks arbitration of the dispute.
Section 21 is of direct relevance in connection with the running of periods
of limitation under Section 43 and the savings provision in Section
85(2)(a).”
42. The above decision has been relied upon to lay emphasis on the
mandatory nature of Section 21 of the Act. According to the learned
counsel, while making a counter claim and seeking to implead the appellants
herein as parties, the respondent State Corporation has not issued any notice
under Section 21 of the Act. In the absence of the same, the impleadment
sought on the basis of their counter claim is to be rejected for non-
Page No.126/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
compliance with mandatory procedure laid down in the said section.
According to the learned counsel unless proper notice is issued under
Section 21, there cannot be any valid commencement of arbitration at all.
The counter claim therefore, against the appellants herein cannot be
countenanced in law. The impugned order of impleadment is liable to be
interfered with on this ground alone without labouring with the larger issue
of whether the Tribunal has the power and jurisdiction to implead them as
party to the arbitration proceedings or not?
43. The learned counsel would then refer to 2017 SCC Online Delhi
7228 (Alupro Buildings Systems Pvt. Ltd. vs. Ozone Overseas Pvt Ltd.).
The learned counsel would particularly draw the attention of this Court to
paragraph No.30 which is extracted hereunder.
30.Considering that the running theme of the Act is the consent or
agreement between the parties at every stage, Section 21 performs an
important function of forging such consensus on several aspects viz. the
scope of the disputes, the determination of which disputes remain
unresolved; of which disputes are time-barred; of identification of the
claims and counter-claims and most importantly, on the choice of
Page No.127/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
arbitrator. Thus, the inescapable conclusion on a proper interpretation of
Section 21 of the Act is that in the absence of an agreement to the
contrary, the notice under Section 21 of the Act by the claimant invoking
the arbitration clause, preceding the reference of disputes to arbitration,
is mandatory. In other words, without such notice, the arbitration
proceedings that are commenced would be unsustainable in law.
44. The above decision of the Delhi High Court reiterated the
principle laid down by the Hon'ble Supreme Court of India in the former
decision extracted above. The notice under Section 21 is held to be
mandatory. As far as this legal contention is concerned this Court is of the
view that a plain and bland construction of a provision may not suit in all
situations where courts are confronted with variegated legal scenario with
different factual settings. This Court would take a call on this objection at
the appropriate stage as part of its judicial discourse, while dealing with all
facets of the challenge respectively by the appellants herein.
45. The learned counsel then proceeded to place his submission on
the core issue of maintainability of the I.A. for impleadment of the appellants
Page No.128/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
herein in the absence of any power in the scheme of the A & C Act, 1996 by
referring to a decision of the learned Judge of this Court reported in 2020
(5) MLJ 198 (V.G.Santhosam and Ors. Vs. Shanthi Gnanasekaran and
Ors.) Reference has been made to paragraphs 62, 69 to 74, 80 to 85, 99 to
102, 108 & 109 which are extracted hereunder.
62. An analysis of sub-sections (2), (3) and (4) of Section 7
shows that an Arbitration Agreement will be considered to be in writing if
it is contained in -
(a) a document signed by the parties; or
(b) an exchange of letters, telex, telegrams or other means of
telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence
of the agreement is alleged by one party and not denied by the other; or
(d) a contract between the parties making a reference to another
document containing an arbitration Clause indicating a mutual intention
to incorporate the arbitration Clause from such other 42/87 document
into the contract.
69. The Hon'ble Supreme Court unambiguously enumerated that
“in the absence of an arbitration agreement between Wescare and
Indowind, no claim against Indowind or no dispute with Indowind can be
the subject-matter of reference to an arbitrator. This is evident from a
plain, simple and normal reading of Section 7 of the Act.”
Page No.129/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
70. In the case of Chloro Controls India (P) Ltd. v. Severn Trent
Water Purification Inc., [(2013) 1 SCC 641], Scope of jurisdiction while
referring the parties to arbitration were considered by the Hon'ble
Supreme Court in paragraphs 118, 119, 131.2, 131.3, 131.4 and 133.1,
held as under:—
“118. An application for appointment of the arbitral Tribunal under
Section 45 of the 1996 Act would also be governed by the provisions of
Section 11(6) of the Act. This question is no more res integra and has
been settled by decision of a Constitution Bench of seven Judges of this
Court in SBP & Co. v. Patel Engg. Ltd. [(2005) 8 SCC 618], wherein this
Court held that power exercised by the Chief Justice is not an
administrative power. It is a judicial power. It is a settled principle that
the Chief Justice or his designate Judge will decide preliminary aspects
which would attain finality unless otherwise directed to be decided by the
arbitral Tribunal.
119. In para 39 of the judgment, this Court held as under: (SBP
case [(2005) 8 SCC 618], SCC pp. 660-61)
“39. It is necessary to define what exactly the Chief Justice,
approached with an application under Section 11 of the Act, is to decide
at that stage. Obviously, he has to decide his own jurisdiction in the sense
whether the party making the motion has approached the right High
Court. He has to decide whether there is an arbitration agreement, as
defined in the Act and whether the person who has made the request
before him, is a party to such an agreement. It is necessary to indicate
that he can also decide the question whether the claim was a dead one; or
a long-barred claim that was sought to be resurrected and whether the
Page No.130/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
parties have concluded the transaction by recording satisfaction of their
mutual rights and obligations or by receiving the final payment without
objection. It may not be possible at that stage, to decide whether a live
claim made, is one which comes within the purview of the arbitration
clause. It will be appropriate to leave that question to be decided by the
arbitral Tribunal on taking evidence, along with the merits of the claims
involved in the arbitration. The Chief Justice has to decide whether the
applicant has satisfied the conditions for appointing an arbitrator under
Section 11(6) of the Act. For the purpose of taking a decision on these
aspects, the Chief Justice can either proceed on the basis of affidavits and
the documents produced or take such evidence or get such evidence
recorded, as may be necessary. We think that adoption of this procedure
in the context of the Act would best serve the purpose sought to be
achieved by the Act of expediting the process of arbitration, without too
many approaches to the court at various stages of the proceedings before
the arbitral Tribunal.”
This aspect of the arbitration law was explained by a two-Judge Bench of
this Court in Shree Ram Mills Ltd. v. Utility Premises (P) Ltd. [(2007) 4
SCC 599] wherein, while referring to the judgment in SBP & Co. [(2005)
8 SCC 618] particularly the above paragraph (para 39) of SBP
case [(2005) 8 SCC 618], this Court held that the scope of order under
Section 11 of the 1996 Act would take in its ambit the issue regarding
territorial jurisdiction and the existence of the arbitration agreement. The
Court noticed that if these issues are not decided by the Chief Justice or
his designate, there would be no question of proceeding with the
Page No.131/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
arbitration. It held as under: (Shree Ram Mills case [(2007) 4 SCC 599],
SCC pp. 607-08, para 27)
“27. … Thus, the Chief Justice has to decide about the territorial
jurisdiction and also whether there exists an arbitration agreement
between the parties and whether such party has approached the Court for
appointment of the arbitrator. The Chief Justice has to examine as to
whether the claim is a dead one or in the sense whether the parties have
already concluded the transaction and have recorded satisfaction of their
mutual rights and obligations or whether the parties concerned have
recorded their satisfaction regarding the financial claims. In examining
this if the parties have recorded their satisfaction regarding the financial
claims, there will be no question of any issue remaining. It is in this sense
that the Chief Justice has to examine as to whether there remains
anything to be decided between the parties in respect of the agreement
and whether the parties are still at issue on any such matter. If the Chief
Justice does not, in the strict sense, decide the issue, in that event it is for
him to locate such issue and record his satisfaction that such issue exists
between the parties. It is only in that sense that the finding on a live issue
is given. Even at the cost of repetition we must state that it is only for the
purpose of finding out whether the arbitral procedure has to be started
that the Chief Justice has to record satisfaction that there remains a live
issue in between the parties. The same thing is about the limitation which
is always a mixed question of law and fact. The Chief Justice only has to
record his satisfaction that prima facie the issue has not become dead by
the lapse of time or that any party to the agreement has not slept over its
rights beyond the time permitted by law to agitate those issues covered by
Page No.132/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
the agreement. It is for this reason that it was pointed out in the above
paragraph that it would be appropriate sometimes to leave the question
regarding the live claim to be decided by the arbitral Tribunal. All that he
has to do is to record his satisfaction that the parties have not closed
their rights and the matter has not been barred by limitation. Thus, where
the Chief Justice comes to a finding that there exists a live issue, then
naturally this finding would include a finding that the respective claims of
the parties have not become barred by limitation.”
(emphasis supplied)
Thus, the Bench while explaining the judgment of this Court in SBP &
Co. [(2005) 8 SCC 618] has stated that the Chief Justice may not decide
certain issues finally and upon recording satisfaction that prima facie the
issue has not become dead even leave it for the arbitral Tribunal to
decide.
131.2. The issue of jurisdiction normally is a mixed question of law and
facts. Occasionally, it may also be a question of law alone. It will be
appropriate to decide such questions at the beginning of the proceedings
itself and they should have finality.
131.3. Even when the arbitration law in India contained the provision like
Section 34 of the 1940 Act which was somewhat similar to Section 4 of the
English Arbitration Act, 1889, this Court in Anderson Wright Ltd. [AIR
1955 SC 53 : (1955) 1 SCR 862] took the view that while dealing with the
question of grant or refusal of stay as contemplated under Section 34 of
the 1940 Act, it would be incumbent upon the court to decide first of all
whether there is a binding agreement for arbitration between the parties
to the suit or not.
Page No.133/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
131.4. Applying the analogy thereof will fortify the view that
determination of fundamental issues as contemplated under Section 45 of
the 1996 Act at the very first instance by the judicial forum is not only
appropriate but is also the legislative intent. Even the language of Section
45 of the 1996 Act suggests that unless the court finds that an agreement
is null and void, inoperative and incapable of being performed, it shall
refer the parties to arbitration.
133.1. Firstly, Sukanya [(2003) 5 SCC 531] was a judgment of this Court
in a case arising under Section 8, Part I of the 1996 Act while the present
case relates to Section 45, Part II of the Act. As such that case may have
no application to the present case.”
71. As far as the judgment of the Apex Court, cited above, the first
point to be considered is that His Lordship Swatanter Kumar, J. (as He
then was), in His opening paragraph of the judgment, emphatically
reiterated that “Leave granted. The expanding need for international
arbitration and divergent schools of thought, have provided new
dimensions to the arbitration jurisprudence in the international field. The
present case is an ideal example of invocation of arbitral reference in
multiple, multi-party agreements with intrinsically interlinked causes of
action, more so, where performance of ancillary agreements is
substantially dependent upon effective execution of the principal
agreement.
72. The abovesaid findings of the Hon'ble Supreme Court of India,
in the case of Chloro Controls India (P) Ltd., cited supra, is crystal clear
that, while invoking an arbitral reference in multiple, multi-party
agreements with intrinsically interlinked causes of action, more so, where
Page No.134/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
performance of ancillary agreements is substantially dependent upon
effective execution of the principal agreement. Such facts and
circumstances would not arise as far as the present lis on hand is
concerned. The present lis relates to a domestic arbitral proceedings
wherein the Partnership Deed between the appellants and the respondents
2 to 6 are definite and regarding such facts, there is no dispute between
the parties, including the first respondent. Therefore, the multi-party
agreement with intrinsically interlinked causes of action has not arisen as
far as the facts and circumstances of the present cases are concerned. In
paragraph-70 of the judgment, cited supra, the Hon'ble Supreme Court
unambiguously enumerated that normally, an arbitration takes place
between the persons who have, from the outset, been parties to both the
arbitration agreement as well as the substantive contract underlining that
agreement. The occasional circumstances are narrated by the Supreme
Court and in those circumstances, in the case of Chloro Controls India
(P) Ltd., cited supra, the Supreme Court arrived a conclusion that there
is no absolute obstructions to law/the arbitration agreement. Arbitration
and it could be possible between a signatory to an arbitration agreement
and a third party. However, the Supreme Court held that heavy onus lies
on that party to show that, in fact and in law, it is claiming “through” or
“under” the signatory party as contemplated under Section 45 of the
1996 Act. In paragraph-71, the Supreme Court held that the “Group of
Companies Doctrine” was mainly extended in the judgment, cited supra,
wherein there is a principal agreement and other ancillary agreements
which flow from and out of the same transaction and the right also
consequently flows between the parties, may not be signatory in the
Page No.135/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
principal agreement. However, those circumstances have not arisen as far
as the present cases are concerned. Even in paragraph-72 of the case
of Chloro Controls India (P) Ltd., cited supra, the Supreme Court held
that “intention of the parties” is a very significant feature which must be
established before the scope of arbitration can be said to include the
signatory as well as the non-signatory parties.
73. In this case, the facts regarding the execution of the
Partnership Deed by the father of the first respondent late Mr. V.G.
Panneerdas is not disputed by the first respondent. The reconstitution of
Partnership Deeds on various occasions for the last 37 years are also not
disputed between the parties, including the first respondent. Under these
circumstances, the first respondent has filed a petition before the
Arbitrator after a lapse of 37 years from the constitution of the original
Partnership Deed by her father late Mr. V.G. Panneerdas. Therefore, the
present cases cannot be construed as exceptional. The exceptional
circumstances cannot be extended in view of the fact that the present
arbitration is a domestic arbitration without reference to Section 45 of the
Arbitration Act, 1996 and this apart, the Partnership Deed between the
father and sons were established and the same is admitted by the first
respondent and there is no right flows from those Partnership Deeds in
favour of the first respondent. This being the factum, the judgment of the
Supreme Court, cited supra, may not have any application with reference
to the facts and the circumstances of the present cases on hand and
consequently, the reliance placed by the learned Senior counsel appearing
on behalf of the first appellant deserves no merit consideration.
Page No.136/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
74. In the case of Cheran Properties Ltd. v. Kasturi & Sons Ltd.,
[(2018) 16 SCC 413], wherein in paragraphs 21, 22, 23, 24 and 25, the
Hon'ble Supreme Court of India, held as under:—
“21. Explaining the legal basis that may be applied to bind a non-
signatory to an arbitration agreement, this Court in Chloro Controls case
[Chloro Controls India (P) Ltd. v. Severn Trent Water Purification
Inc., (2013) 1 SCC 641 : (2013) 1 SCC (Civ) 689] held thus : (SCC p.
694, paras 103.1, 103.2 & 105)
“103.1. The first theory is that of implied consent, third-party
beneficiaries, guarantors, assignment and other transfer mechanisms of
contractual rights. This theory relies on the discernible intentions of the
parties and, to a large extent, on good faith principle. They apply to
private as well as public legal entities.
103.2. The second theory includes the legal doctrines of agent-principal
relations, apparent authority, piercing of veil (also called “the alter
ego”), joint venture relations, succession and estoppel. They do not rely
on the parties' intention but rather on the force of the applicable law.
***
105. We have already discussed that under the group of
companies doctrine, an arbitration agreement entered into by a company
within a group of companies can bind its non-signatory affiliates, if the
circumstances demonstrate that the + intention of the parties was to bind
both the signatory as well as the non-signatory parties.”
Page No.137/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
22. The position in Indowind [Indowind Energy Ltd. v. Wescare (India)
Ltd., (2010) 5 SCC 306 : (2010) 2 SCC (Civ) 397] was formulated by a
Bench of two Judges before the evolution of law in the three-Judge Bench
decision in ChloroControls [Chloro Controls India (P) Ltd. v. Severn
Trent Water Purification Inc., (2013) 1 SCC 641 : (2013) 1 SCC (Civ)
689]. Indowind [Indowind Energy Ltd. v. Wescare (India) Ltd., (2010) 5
SCC 306 : (2010) 2 SCC (Civ) 397] arose out of a proceeding under
Section 11(6). The decision turns upon a construction of the arbitration
agreement as an agreement which binds parties to it. The decision
in Prasad [S.N. Prasad v. Monnet Finance Ltd., (2011) 1 SCC
320 : (2011) 1 SCC (Civ) 141] evidently involved a guarantee, where the
guarantor who was sought to be impleaded as a party to the arbitral
proceeding was not a party to the loan agreement between the lender and
borrower. The loan agreement between the lender and borrower
contained an arbitration agreement. The guarantor was not a party to
that agreement.
23. As the law has evolved, it has recognised that modern business
transactions are often effectuated through multiple layers and
agreements. There may be transactions within a group of companies. The
circumstances in which they have entered into them may reflect an
intention to bind both signatory and non-signatory entities within the
same group. In holding a non-signatory bound by an arbitration
agreement, the court approaches the matter by attributing to the
transactions a meaning consistent with the business sense which was
intended to be ascribed to them. Therefore, factors such as the
relationship of a non-signatory to a party which is a signatory to the
Page No.138/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
agreement, the commonality of subject-matter and the composite nature of
the transaction weigh in the balance. The group of companies doctrine is
essentially intended to facilitate the fulfilment of a mutually held intent
between the parties, where the circumstances indicate that the intent was
to bind both signatories and nonsignatories. The effort is to find the true
essence of the business arrangement and to unravel from a layered
structure of commercial arrangements, an intent to bind someone who is
not formally a signatory but has assumed the obligation to be bound by
the actions of a signatory.
24. International conventions on arbitration as well as the UNCITRAL
Model Law mandate that an arbitration agreement must be in writing.
Section 7 of the Arbitration and Conciliation Act, 1996 affirms the same
principle. Why does the law postulate that there should be a written
agreement to arbitrate? The reason is simple. An agreement to arbitrate
excludes the jurisdiction of national courts. Where parties have agreed to
resolve their disputes by arbitration, they seek to substitute a private
forum for dispute resolution in place of the adjudicatory institutions
constituted by the State. According to Redfern and Hunter on
International Arbitration, the requirement of an agreement to arbitrate in
writing is an elucidation of the principle that the existence of such an
agreement should be clearly established, since its effect is to exclude the
authority of national courts to adjudicate upon disputes. [Redfern and
Hunter on International Arbitration, 5th Edn. — 2.13, pp. 89-90.]
25. Does the requirement, as in Section 7, that an arbitration agreement
be in writing exclude the possibility of binding third parties who may not
be signatories to an agreement between two contracting entities? The
Page No.139/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
evolving body of academic literature as well as adjudicatory trends
indicate that in certain situations, an arbitration agreement between two
or more parties may operate to bind other parties as well. Redfern and
Hunter explain the theoretical foundation of this principle:
“… The requirement of a signed agreement in writing, however, does not
altogether exclude the possibility of an arbitration agreement concluded
in proper form between two or more parties also binding other parties.
Third parties to an arbitration agreement have been held to be bound by
(or entitled to rely on) such an agreement in a variety of ways : first, by
operation of the ‘group of companies’ doctrine pursuant to which the
benefits and duties arising from an arbitration agreement may in certain
circumstances be extended to other members of the same group of
companies; and, secondly, by operation of general rules of private law,
principally on assignment, agency, and succession…. [Id at p. 99.]”
The group of companies doctrine has been applied to pierce the corporate
veil to locate the “true” party in interest, and more significantly, to target
the creditworthy member of a group of companies [Op cit fn. 16, 2.40, p.
100.]. Though the extension of this doctrine is met with resistance on the
basis of the legal imputation of corporate personality, the application of
the doctrine turns on a construction of the arbitration agreement and the
circumstances relating to the entry into and performance of the
underlying contract. [Id, 2.41 at p. 100.]”
80. This Court is of the considered opinion that even such a right
is traceable in favour of the first respondent, then the only possible course
would be to approach the Competent Court of Law and establish her legal
Page No.140/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
right, if any, available based on the documents or the evidences. Civil
rights are to be established independently before the Competent Civil
Court by the parties. However, such civil rights cannot be adjudicated or
enforced by the Arbitrator in the contracted arbitration proceedings under
the provisions of the Act. If an Arbitrator is allowed to adjudicate the civil
rights of the parties or the rights regarding inheritance of properties, then
it would result in submerger of the very Arbitration Agreement.
81. The Arbitrator is a person appointed in order to resolve the
dispute between the parties under certain terms and conditions in the
Arbitration Agreement. The disputes between the parties are definite and
existence of Arbitration Agreement is an essential one, while-so, the
Arbitrator cannot invoke the powers contemplated under Order 1, Rule 10
of the Code of Civil Procedure, wherein wide powers are granted, so as to
implead a person, which is otherwise unconnected with the partnership or
in the Arbitration Agreement. If such a concept of power to impleadment is
provided to the Arbitrator, then the scope of arbitration proceedings will
be, not only widened but, the purpose and the object of the Act, would be
defeated. Thus, the Arbitrator is empowered to adjudicate the disputes
strictly with reference to the Arbitration Agreement and with the consent of
the parties to the Arbitration Agreement. Contrary to the contractual
agreement between the parties, the Arbitrator cannot exercise any powers
so as to implead a third party to the Arbitration Agreement for the purpose
of adjudicating the right of any such third party.
82. The first respondent herein admittedly is not a party to the
Arbitration Agreement nor a signatory in the Partnership Deed or any
dispute relatable to the civil rights are subjected to the arbitral
Page No.141/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
adjudication. Admittedly, the first respondent last 37 years has not raised
any dispute regarding the reconstitution of Partnership Deeds between the
partners. Under these circumstances, the impleading petition is filed in
order to participate in the arbitration proceedings to establish the civil
rights of the first respondent, relatable to the Law of Inheritance. In the
event of claiming the legacy of late Mr. V.G. Panneerdas, the first
respondent is at liberty to approach the Competent Court of Law and
arbitration proceedings are not a Forum for adjudication of such civil
rights. Thus, the impleading petition at the threshold is liable to be
rejected as not maintainable for the simple reason that the first respondent
is neither a partner or the right flows from and out of the Partnership
Deed, enabling this Court to consider her case as an exceptional one.
83. However, the Arbitrator usurped the wide powers conferred
under Order 1, Rule 10 of the Code of Civil Procedure and impleaded the
first respondent for the purpose of adjudicating the disputes aroused
through an Arbitration Agreement. It violates the very contractual
obligation between the Arbitrator as well as the parties to the Arbitration
Agreement under the provisions of the Arbitration and Conciliation Act,
1996. The Arbitrator in the event of exercising such wide powers under the
Code of Civil Procedure, the same would infringe the rights of other
parties, which cannot be adjudicated in the arbitration proceedings.
84. Even after impleadment, the possible disputes to be raised by
the first respondent in the arbitration proceedings are that she is the legal
heir of late Mr. V.G. Panneerdas and therefore, she is entitled to be a
partner in the partnership firm in her capacity as a legal heir. This Court
is doubtful, whether such a dispute affecting the rights of all other legal
Page No.142/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
heirs shall be adjudicated by the Arbitrator in the arbitration proceedings.
Considering the scope of the arbitration proceedings and taking note of
the rights of the legal heirs of late Mr. V.G. Panneerdas and the terms and
conditions of the Partnership Deed as well as the disputes raised under
the Arbitration Act, it is highly improper on the part of the learned
Arbitrator to adjudicate the civil rights of the parties under the General
Laws. In such an event, the Arbitrator would be travelling beyond the
scope of the Arbitration Act and such a power is not vested with an
Arbitrator under the provisions of the Arbitration Act, 1996.
85. Therefore, the civil rights of the parties are to be established
before the Competent Court of Law. The disputes raised under the
Arbitration Act alone can be adjudicated by the Arbitrator by exercising
the powers conferred under the Act. The Arbitrator cannot be equated with
the Court of Law and this proposition is well settled as the Arbitrator is a
creator of the Statute and has no inherent power, which exists in the Civil
Court and the Arbitrator cannot exercise the inherent power and has to
exercise the powers strictly within the ambit of the Arbitration Act and
certainly not beyond the scope of the arbitration proceedings.
...
...
99. The spirit of the order passed by the Arbitrator with reference
to the Arbitration Act is to be considered by this Court. The above findings
would reveal that the Arbitrator has made an initiation to decide the legal
rights of the parties, including the rights of the first respondent. The
Arbitrator in express terms held that the impleadment of party, provisions
contained in the Code of Civil Procedure through Order 1, Rule 10 gives
Page No.143/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
a wide power to a Court and in our context, the same must apply to an
arbitral Tribunal. Such a conclusion arrived by the arbitral Tribunal is
undoubtedly an exercise of inherent power, which is impermissible in law.
The power which is not contemplated under the Arbitration Act, cannot be
exercised by the arbitral Tribunal. The power being statutory in character,
the inherent power is not vested. While-so, the Arbitrator cannot invoke
the provisions of the Code of Civil Procedure for the purpose of
impleading a third person into the arbitral proceedings and he is bound to
be strict with reference to the contracted Arbitration Agreement as well as
the parties to the Arbitration Agreement and the adjudication must be
within the parameters of the disputes raised between the parties to the
Arbitration Agreement.
100. The decision of the Hon'ble Supreme Court of India in the
case of Chloro Controls India (P) Ltd., cited supra, has got a restricted
implication, as in the opening paragraph itself, the Apex Court, clarified
the scope of widening of arbitral proceedings. The Supreme court in
unambiguous terms held that a third party cannot be impleaded as a party
to the arbitral proceedings. Only on exceptional circumstances, where
there is multiple, multi-party agreements with intrinsically interlinked
causes of action, more so, where performance of ancillary agreements is
substantially dependent upon effective execution of the principal
agreement. Thus, there must be a link between the Principal Arbitration
Agreement and an ancillary agreement if any. The circumstances mostly
would arise in business transactions between the Multinational
Companies in international arbitration proceedings under Section 45 of
the Arbitration act. Thus, such exceptional circumstances is a rare
Page No.144/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
occasion as far as the domestic Arbitration Agreements are concerned.
But however, the parties, who are filing such an application must establish
such intrinsically interlinked causes of action for the purpose of
participating in the arbitral adjudication.
101. There is no express provision available for impleadment of a
third party in the Arbitration Act. Even there is no implied provision,
which is traceable under the Act. In the absence of any provision when the
Arbitrator is impleading a person for an effective adjudication of the
disputes under the Arbitration Act, then the principles laid down by the
Supreme Court in the case of Chloro Controls India (P) Ltd., cited supra,
is to be followed.
102. In the order impugned, the Arbitrator arrived a conclusion
that the impleadment of the first respondent will help to secure a
comprehensive adjudication of the extent to which the heirs of the parents,
who were partners during the respective lifetime could claim right or not.
Such a broad exercise of power invoked by the Arbitrator for the purpose
of determining the civil rights of a person is beyond the scope of the
provisions of the Arbitration Act. If the Arbitrator is appointed under the
Arbitration Act is allowed to decide the civil rights of a person, who is
otherwise not a party to the Arbitration Agreement, then the Arbitrator
would be exercising the inherent power conferred to the Civil Court, which
is not contemplated.
108. “The Doctrine of No-Prejudice” cannot have any application
with reference to the impleadment of a person in a dispute under the
Arbitration Agreement within the ambit and provisions of the Arbitration
Act, 1996. The impact of the application of the said Doctrine, would result
Page No.145/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
in exercise of inherent powers of the Court of Law. Thus, the rights of a
third person to an Arbitration Agreement cannot be adjudicated during the
further or final hearing of the arbitral proceedings.
109. In view of the facts, circumstances and the discussions
elaborately made in the aforementioned paragraphs, this Court has no
hesitation in arriving a conclusion that the Arbitrator has exercised excess
jurisdiction beyond the scope of the provisions of the Arbitration Act as
well as beyond the scope of the contracted arbitral proceedings and
consequently, the orders dated 02.11.2019 passed by the Arbitrator M.A.
Nos. 4 of 2019 in Arbitration Claim No. 1 of 2019, 4 of 2019 in
Arbitration Claim No. 3 of 2019, 4 of 2019 in Arbitration Claim No. 2 of
2019 and 4 of 2019 in Arbitration Claim No. 4 of 2019 are quashed.
Consequently, C.M.A. Nos. 4465, 4467 to 4469 of 2019 stands allowed.
However, there shall be no order as to costs. The connected miscellaneous
petitions are closed.
46. According to the learned counsel, the learned Judge of this
Court, in extenso, after adverting to various decisions of the Hon'ble
Supreme Court and other High Courts has held that the Arbitrator has no
power to implead third parties. In fact, the learned Judge while holding that
third party cannot be impleaded in the arbitral proceedings but agreed with
the evolving legal principle that only in exceptional circumstances where
Page No.146/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
there is multiple, multi-party agreement with an intrinsically interlinked
causes of action in circumstances mostly arising in business transaction
between multi national companies in international arbitration proceedings
under section 45 of the Arbitration Act, the impleadment of non- signatory
is permissible in law. The learned Judge further went on to hold that no
express provision is available nor implied provision is traceable in the A & C
Act, 1996 conferring any power for ordering impleadment of third parties.
The learned counsel would therefore, submit that in the teeth of the decision
of the learned Judge of this Court as a pointed legal precedent, the order of
the learned arbitral Tribunal under challenge is liable to be held as
unsustainable in law.
47. The learned counsel would refer to another unreported decision
of the learned Single Judge of this Court in O.P.No.34 of 2020 dated
19.01.2021. As far as the said case is concerned, the learned Judge has held
that a single application filed in respect of two different agreements which
are at variance with each other was not maintainable. The ruling of the
Page No.147/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
learned single Judge was despite the fact that there was a commonality of
purpose and the work involved, nevertheless, the learned Judge held that the
single petition was not maintainable. In any case, the order of the learned
single Judge did not lay down any legal proposition but the decision was
rendered entirely on the factual matrix of that case.
48. Lastly, the learned counsel would rely on a English decision of
the Court of Appeal reported in (2009) BUS LR (City of London v
Sancheti).
49. The above case which came up before the English Court with
reference to the bilateral investment treaty between United Kingdom and
Indian Government. The Court of appeal has considered Section 9 of the
Arbitration Act, 1996. In that context, in paragraph 29, the Court has
observed as under.
29. I have no doubt that section 9 cannot apply if the parties to the
court proceedings are not the parties (or persons claiming through or
under a party: section 82(2)) to the arbitration agreement. It would be
Page No.148/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
wholly inconsistent with the purpose and structure of the 1996 Act in
general, and of section 9 in particular, if a stay could be obtained against
a claimant who was not a party to the arbitration agreement. The fact that
section 9 refers only to a “party to an arbitration agreement against
whom legal proceedings are brought … in respect of a matter which under
the agreement is to be referred to arbitration” does not obviate the need
for the claimant also to be a party. It is not sufficient that there simply be
“a matter” which is to be referred to arbitration.
50. After making the above observation, the Court has finally held in
paragraph No.35 which is extracted hereunder.
35. In the present case the Corporation of London is not a party
to the arbitration agreement. The relevant party is the United Kingdom
Government. The fact that in certain circumstances a state may be
responsible under international law for the acts of one of its local
authorities, or may have to take steps to redress wrongs committed by
one of its local authorities, does not make that local authority a party to
the arbitration agreement.
51. The learned counsel would therefore submit that the Courts have
taken a consistent view that non-signatory to the contract cannot be made a
party even in circumstances wherein a State may be responsible under
Page No.149/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
International Law for acts of one of its legal authorities, as held above in the
court of appeal.
52. The learned counsel however would submit that lately the Courts
have come up with the concept of "Group of Companies" doctrine and held
that in exceptional circumstances, even non-signatory to the arbitration
agreement can be made a party. But, he would add that in the case on hand,
factually the appellants herein are not part of the Group Company of the
lead partner, the claimant. The learned counsel contended that the appellants
and the 3rd respondent are completely different entities and they are not
"Group Companies" at all. According to him, the arbitral Tribunal did not
render any finding on that aspect and in the absence of any such finding, the
application of the “Group of Companies” doctrine is invalid and erroneous,
even assuming the Tribunal enjoyed the power to implead these parties in
the arbitral proceedings.
53. The learned counsel would further submit that even if the
Page No.150/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
“Group of Companies” doctrine is to be applied in certain exceptional cases,
whether impleadment in furtherance of the application of the doctrine could
be validly ordered by the learned arbitral Tribunal by exercise of power
under Section 17 of the Act, 1996 or not? Section 17 deals with interim
measures to be put in place pending arbitral proceedings. According to the
learned counsel, Section 17 is co-extensive with section 9 of the Act. The
arbitral Tribunal is empowered to pass orders by way of interim measure
only at the instance of a party to the arbitration. The application filed by the
State Corporations for impleadment of the appellants herein is stated to be
under Section 17 (ii)(e) read with 19(3) of the Act. Section 17(ii)(e) and
19(3) of the Act read as under.
17. Interim measures ordered by arbitral Tribunal-
(ii) for an interim measure of protection in respect of
any of the following matters, namely:—
...
(e) such other interim measure of protection as may
appear to the arbitral Tribunal to be just and convenient.
19. Determination of rules of procedure-
Page No.151/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
..
(3) Failing any agreement referred to in sub-section
(2), the arbitral Tribunal may, subject to this Part, conduct the
proceedings in the manner it considers appropriate.
54. The learned counsel would submit that by no stretch of legal
standards, the above provisions could even be remotely construed as
conferring power on the arbitral Tribunal for impleading third parties.
According to the learned counsel, there are two fallacies that could be
noticed in the matter. One that the very application under Section 17(ii)(e)
r/w 19(3) of the Act for impleadment of third party is flawed and
misconceived. The ambit of Section 17 unambiguously provide only
transitional scope for ordering interim measures which would certainly not
include power to add third parties and expand the scope of the reference
itself. Adding a new party to the dispute changes the complexion of the
original proceedings and as such it cannot be said that impleadment is a
temporary measure and the power to order impleadment is tenable in terms
of Section 17 of the A & C Act, 1996. Therefore, the exercise of power by
Page No.152/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
arbitral Tribunal without any express sanction from the scheme of the Act
and particularly, under section 17 of the Act is invalid and non-est in law.
55. The learned counsel would therefore sum up contending that the
impleadment of the appellants by the arbitral Tribunal is unsustainable in
law in terms of the Scheme of the A & C Act, 1996 and also the case laws
cited supra. Even on merits, the appellants being not a part of the Group
Company, therefore, Group Company doctrine evolved by the Courts for
making the non-signatory as party to the arbitral proceedings in exceptional
circumstances is also not attracted in this case. Having been described as
sub-contractors in the very contract agreement itself, the appellants herein
cannot be construed as necessary and proper parties to the dispute.
56. Further, when the appellants herein have not made any claim
against the respondent State Corporations, it is not open to them to implead
the appellants for their counter claims alone. The question of counter claim
comes only when there is a claim and in the absence of any claim by the
Page No.153/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
appellants herein, the impleadment sought as a consequence of the counter
claim by the State Corporations is misplaced and not tenable in law. He
would therefore, request this Court to allow the appeals and set aside the
common order of the arbitral Tribunal dated 05.01.2021 in I.A.No.2 of 2020
for all or any one of the grounds raised as above.
57. As stated in the preamble to the judgment, no arguments have
been advanced on behalf of the State Corporations in view of constraints
expressed by the learned Advocate General who appeared for them. The
entire contents of the written memo dated 08.10.2021 filed on behalf of the
State Corporations have also been extracted supra. This Court has also
explained above the necessity to deal with all the issues so that the rights
and claims of the parties are clarified leaving no room for uncertainty or
ambiguity in future.
58. The legal uncertainity namely the power and jurisdiction of the
arbitral Tribunal to implead non-signatory to the proceedings that has been
Page No.154/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
hanging fire for some time, needed a definite ruling in the larger interest of
crystallizing the contours of powers of the arbitral Tribunal within the frame
work of the A & C Act, 1996 r/w the relevant case laws.
59. The heralding of change of perception of the Courts in India
could be traced to the land mark decision of the Hon'ble Supreme Court of
India rendered in the matter of Chloro Controls India Pvt. Ltd. vs. Severn
Trent Water Purification Inc. 2013(1) SCC 641. The Hon'ble Supreme
Court in a paradigm shift of its earlier constricted view on the aspect, has
recognised the emerging principle of "Group of Companies” doctrine having
to face with multiple structured business transactions, the resultant disputes
and claims while enforcing of international awards and also the language
used in section 45 of the A & C Act. The Hon'ble Supreme Court on a
holistic and a pragmatic consideration has invoked 'Group of Companies”
doctrine in cases involving multiple agreements constituting a composite
transaction in the judgment as under:
165.2. In the facts of a given case, the court is always vested
Page No.155/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
with the power to delete the names of the parties who are neither
necessary nor proper to the proceedings before the court. In the cases of
group companies or where various agreements constitute a composite
transaction like mother agreement and all other agreements being
ancillary to and for effective and complete implementation of the mother
agreement, the court may have to make reference to arbitration even of
the disputes existing between signatory or even non-signatory parties.
However, the discretion of the court has to be exercised in exceptional,
limiting, befitting and cases of necessity and very cautiously.
60. As a matter of fact, this decision was rendered earlier to the
Amendment Act 2016. In this regard, amendment that has been brought
about in Section 8 is quite significant and crucial for the present
consideration. The amendment to the Section is presumably was a fall out
of the evolving and expanding concept of making non-signatory, a party to
the arbitration proceedings, departing from the conventional thinking with a
view to be in tune with new commercial world order. The relevance of the
amendment to section 8 on the present adjudication would be dealt with at
the appropriate place hereunder.
Page No.156/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
61. Following the above landmark judgment of the Hon'ble Supreme
Court, another judgment of the Hon'ble Supreme Court 2018(16) SCC 413
(Cheran Properties Ltd. vs. Kasthuri & Sons) has also been referred to and
paragraphs 19 to 30, 43 to 47 have been extracted supra, in the earlier part
of the order.
62. The Hon'ble Supreme Court in the above decision has dealt with
the ambit and scope of Section 7 of the Act and also the “Group Companies”
doctrine. In fact, the Court has very succinctly held that the efforts is to find
the true essence of the business arrangement and to unravel from the layered
structure of commercial arrangement, intending to bind some one who is not
formal signatory but assume obligation to be bound by the action of the
signatory. The Court reaffirmed the legal position that even a non-signatory
can be made liable under the award and it can be enforced against the non-
signatory as well. In fact, the Hon'ble Supreme Court in that case, dealt with
Section 35 of the Act and held that the arbitral award is final and binding
not only on the parties but on persons claiming under them. The Court also
Page No.157/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
recognised the legal principle that a non-signatory can also be made a party
to the arbitral proceedings. The Court has clearly indicated that in no
uncertain terms that the "Group of Companies" doctrine has been applied to
pierce the Corporate Veil to locate the true party in interest and more
significantly to target the creditworthy member of Group of Companies.
The Court has also found that the application of law was met with legal
resistance, but however held that the doctrine was to serve its purpose on the
construction of arbitration agreement and the circumstances relating to the
performance of the underlying contract. The Courts jurisprudential
appreciation of the emerging and evolving new vistas on this aspect could be
inspiring from the following observations in the Cheran Properties
judgment.
25. Does the requirement, as in Section 7, that an
arbitration agreement be in writing exclude the possibility of
binding third parties who may not be signatories to an agreement
between two contracting entities? The evolving body of academic
literature as well as adjudicatory trends indicate that in certain
situations, an arbitration agreement between two or more parties
may operate to bind other parties as well. Redfern and Hunter
Page No.158/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
explain the theoretical foundation of this principle:
“… The requirement of a signed agreement in
writing, however, does not altogether exclude the
possibility of an arbitration agreement concluded in
proper form between two or more parties also binding
other parties. Third parties to an arbitration agreement
have been held to be bound by (or entitled to rely on)
such an agreement in a variety of ways : first, by
operation of the ‘group of companies’ doctrine
pursuant to which the benefits and duties arising from
an arbitration agreement may in certain circumstances
be extended to other members of the same group of
companies; and, secondly, by operation of general
rules of private law, principally on assignment, agency,
and succession…. ”
The group of companies doctrine has been applied to pierce the
corporate veil to locate the “true” party in interest, and more
significantly, to target the creditworthy member of a group of
companies [ Op cit fn. 16, 2.40, p. 100.] . Though the extension
of this doctrine is met with resistance on the basis of the legal
imputation of corporate personality, the application of the
doctrine turns on a construction of the arbitration agreement and
the circumstances relating to the entry into and performance of
the underlying contract. [Id, 2.41 at p. 100.]
26. Russell on Arbitration [ 24th Edn., 3-025, pp. 110-11.]
formulates the principle thus:
“Arbitration is usually limited to parties who
have consented to the process, either by agreeing in
their contract to refer any disputes arising in the future
between them to arbitration or by submitting to
arbitration when a dispute arises. A party who has not
so consented, often referred to as a third party or a
Page No.159/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
non-signatory to the arbitration agreement, is usually
excluded from the arbitration. There are however some
occasions when such a third party may be bound by the
agreement to arbitrate. For example, …, assignees and
representatives may become a party to the arbitration
agreement in place of the original signatory on the
basis that they are successors to that party's interest
and claim “through or under” the original party. The
third party can then be compelled to arbitrate any
dispute that arises.”
27. Garry B. Born in his treatise on International
Commercial Arbitration indicates that:
“The principal legal bases for holding that a non-
signatory is bound (and benefited) by an arbitration
agreement … include both purely consensual theories
(e.g., agency, assumption, assignment) and non-
consensual theories (e.g. estoppel, alter ego) ”
Explaining the application of the alter ego principle in
arbitration, Born notes:
“Authorities from virtually all jurisdictions hold that a
party who has not assented to a contract containing an
arbitration clause may nonetheless be bound by the clause if
that party is an ‘alter ego’ of an entity that did execute, or
was otherwise a party to, the agreement. This is a
significant, but exceptional, departure from the fundamental
principle … that each company in a group of companies (a
relatively modern concept) is a separate legal entity
possessed of separate rights and liabilities .”
28. Explaining group of companies doctrine, Born states:
“the doctrine provides that a non-signatory may be bound
by an arbitration agreement where a group of companies
exists and the parties have engaged in conduct (such as
negotiation or performance of the relevant contract) or
made statements indicating the intention assessed
Page No.160/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
objectively and in good faith, that the non-signatory be
bound and benefited by the relevant contracts. ”
While the alter ego principle is a rule of law which disregards the effects
of incorporation or separate legal personality, in contrast the group of
companies doctrine is a means of identifying the intentions of parties and
does not disturb the legal personality of the entities in question. In other
words:
“the group of companies doctrine is akin to principles of
agency or implied consent, whereby the corporate
affiliations among distinct legal entities provide the
foundation for concluding that they were intended to be
parties to an agreement, notwithstanding their formal
status as non-signatories. ”
63. In this connection, one other decision reported in 2018 (15) SCC
678 (Ameet Lalchand Shah v. Rishabh Enterprises) which has not been
cited, but this Court finds that it would be relevant to refer herein. The
relevant paragraphs 19 to 26 are extracted hereunder.
19. The High Court placed reliance upon Sukanya
Holdings [Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya, (2003) 5 SCC
531] for dismissal of the application filed under Section 8 of the Act.
In Sukanya Holdings [Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya,
(2003) 5 SCC 531] , the suit was filed for dissolution of the partnership
firm and accounts and inter alia challenged the conveyance deed executed
by the partnership firm in favour of M/s West End Gymkhana Limited. An
application filed under Section 8 of the Act was opposed by Respondent 1
Page No.161/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
thereon by contending that the subject-matter of the suit was not between
the contracting parties and that the reliefs claimed are not only against
Respondents 1 and 2 who are the contracting parties but are claimed
against the remaining twenty-three parties who are the purchasers/tenants
of disputed flats. This Court held that if all the parties to the suit are not
parties to the agreement then the matter cannot be referred to arbitration
since there is no provision in the Act for partly referring the dispute to
arbitration. This Court noted that the buyers were not parties to the
arbitration agreement and that the non-signatories cannot be referred to
arbitration.
20. In Sukanya Holdings [Sukanya Holdings (P) Ltd. v. Jayesh
H. Pandya, (2003) 5 SCC 531] in paras 15 and 16, this Court held as
under: (SCC p. 536)
“15. The relevant language used in Section 8 is: “in a matter
which is the subject of an arbitration agreement”. The court is required to
refer the parties to arbitration. Therefore, the suit should be in respect of
“a matter” which the parties have agreed to refer and which comes within
the ambit of arbitration agreement. Where, however, a suit is commenced
— “as to a matter” which lies outside the arbitration agreement and is
also between some of the parties who are not parties to the arbitration
agreement, there is no question of application of Section 8. The words “a
matter” indicate that the entire subject-matter of the suit should be subject
to arbitration agreement.
16. The next question which requires consideration is — even if
there is no provision for partly referring the dispute to arbitration,
whether such a course is possible under Section 8 of the Act. In our view,
Page No.162/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
it would be difficult to give an interpretation to Section 8 under which
bifurcation of the cause of action, that is to say, the subject-matter of the
suit or in some cases bifurcation of the suit between parties who are
parties to the arbitration agreement and others is possible. This would be
laying down a totally new procedure not contemplated under the Act. If
bifurcation of the subject-matter of a suit was contemplated, the legislature
would have used appropriate language to permit such a course. Since
there is no such indication in the language, it follows that bifurcation of
the subject-matter of an action brought before a judicial authority is not
allowed.”
(emphasis in original)
21. Mr Sibal, learned Senior counsel for the respondents
submitted that the High Court rightly relied upon Sukanya
Holdings [Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya, (2003) 5 SCC
531] as it relates to Part I of the Act that the parties who are not
signatories to the arbitration agreement (in this case, Astonfield under
Sale and Purchase Agreement) cannot be referred to arbitration. It was
further submitted that Chloro Controls [Chloro Controls India (P)
Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641 : (2013) 1
SCC (Civ) 689] arises under Part II of the Act and was rightly
distinguished by the High Court and Sukanya Holdings [Sukanya
Holdings (P) Ltd. v. Jayesh H. Pandya, (2003) 5 SCC 531] was not
overruled by Chloro Controls [Chloro Controls India (P) Ltd. v. Severn
Trent Water Purification Inc., (2013) 1 SCC 641 : (2013) 1 SCC (Civ)
689] and hence, the appellants cannot rely upon Chloro Controls [Chloro
Page No.163/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1
SCC 641 : (2013) 1 SCC (Civ) 689] . It was contended that the Sale and
Purchase Agreement (5-3-2012) under which huge money was parted with,
is the main agreement having no arbitration clause cannot be referred to
arbitration. It was submitted that the subject-matter of the suit cannot be
bifurcated between the parties to arbitration agreement and others.
22. 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 was dealing with the scope and interpretation of Section
45 of the Act, Part II of the Act and in that context, discussed the scope of
relevant principles on the basis of which a non-signatory party also could
be bound by the arbitration agreement. Under Section 45 of the Act, an
applicant seeking reference of disputes to arbitration can either be a party
to the arbitration agreement or any person claiming through or under
such party. Section 45 uses the expression “… at the request of one of the
parties or any person claiming through or under him…” includes non-
signatory parties who can be referred to arbitration provided they satisfy
the requirements of Sections 44 and 45 read with Schedule I of the Act.
23. In para 73 of Chloro Controls [Chloro Controls India (P)
Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641 : (2013) 1
SCC (Civ) 689] , this Court held as under: (SCC p. 683)
“73. A non-signatory or third party could be subjected to
arbitration without their prior consent, but this would only be in
exceptional cases. The court will examine these exceptions from the
touchstone of direct relationship to the party signatory to the arbitration
agreement, direct commonality of the subject-matter and the agreement
Page No.164/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
between the parties being a composite transaction. The transaction should
be of a composite nature where performance of the mother agreement may
not be feasible without aid, execution and performance of the
supplementary or ancillary agreements, for achieving the common object
and collectively having bearing on the dispute. Besides all this, the court
would have to examine whether a composite reference of such parties
would serve the ends of justice. Once this exercise is completed and the
court answers the same in the affirmative, the reference of even non-
signatory parties would fall within the exception afore-discussed.”
(emphasis supplied)
24. In a case like the present one, though there are different
agreements involving several parties, as discussed above, it is a single
commercial project, namely, operating a 2 MWp Photovoltaic Solar Plant
at Dongri, Raksa, District Jhansi, Uttar Pradesh. Commissioning of the
Solar Plant, which is the commercial understanding between the parties
and it has been effected through several agreements. The agreement —
Equipment Lease Agreement (14-3-2012) for commissioning of the Solar
Plant is the principal/main agreement. The two agreements of Rishabh
with Juwi India: (i) Equipment and Material Supply Contract (1-2-2012);
and (ii) Engineering, Installation and Commissioning Contract (1-2-2012)
and the Rishabh's Sale and Purchase Agreement with Astonfield (5-3-
2012) are ancillary agreements which led to the main purpose of
commissioning the Photovoltaic Solar Plant at Dongri, Raksa, District
Jhansi, Uttar Pradesh by Dante Energy (lessee). Even though, the Sale
and Purchase Agreement (5-3-2012) between Rishabh and Astonfield does
Page No.165/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
not contain arbitration clause, it is integrally connected with the
commissioning of the Solar Plant at Dongri, Raksa, District Jhansi, U.P.
by Dante Energy. Juwi India, even though, not a party to the suit and even
though, Astonfield and Appellant 1 Ameet Lalchand Shah are not
signatories to the main agreement viz. Equipment Lease Agreement (14-3-
2012), it is a commercial transaction integrally connected with
commissioning of Photovoltaic Solar Plant at Dongri, Raksa, District
Jhansi, U.P. Be it noted, as per Clause (v) of Article 4, parties have agreed
that the entire risk, cost of the delivery and installation shall be at the cost
of the Rishabh (lessor). Here again, we may recapitulate that engineering
and installation is to be done by Juwi India. What is evident from the facts
and intention of the parties is to facilitate procurement of equipments, sale
and purchase of equipments, installation and leasing out the equipments to
Dante Energy. The dispute between the parties to various agreements
could be resolved only by referring all the four agreements and the parties
thereon to arbitration.
25. Parties to the agreements, namely, Rishabh and Juwi India:
(i) Equipment and Material Supply Agreement; and (ii) Engineering,
Installation and Commissioning Contract and the parties to Sale and
Purchase Agreement between Rishabh and Astonfield are one and the same
as that of the parties in the main agreement, namely, Equipment Lease
Agreement (14-3-2012). All the four agreements are inter-connected. This
is a case where several parties are involved in a single commercial project
(Solar Plant at Dongri) executed through several agreements/contracts. In
such a case, all the parties can be covered by the arbitration clause in the
main agreement i.e. Equipment Lease Agreement (14-3-2012).
Page No.166/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
26. Since all the three agreements of Rishabh with Juwi India and
Astonfield had the purpose of commissioning the Photovoltaic Solar Plant
project at Dongri, Raksa, District Jhansi, Uttar Pradesh, the High Court
was not right in saying that the Sale and Purchase Agreement (5-3-2012)
is the main agreement. The High Court, in our view, erred in not keeping
in view the various clauses in all the three agreements which make them as
an integral part of the principal agreement, namely, Equipment Lease
Agreement (14-3-2012) and the impugned order of the High Court cannot
be sustained.
64. In the above matter, the Hon'ble Supreme Court, after adverting
to the three different agreements involving several parties with reference to a
single commercial project, ultimately, held that the various clauses in all the
three agreements are all integral part of the principal agreement. The Court,
eventually set aside the order passed by the High Court which refused to
recognise that all the three agreements are integral part of the principal
agreement.
65. In a later judgment of the Hon'ble Supreme Court reported in
2020 (12) SCC 767 (MTNL vs. Canara Bank & others), the Hon'ble
Page No.167/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Supreme Court, after referring to various sub-clauses of Section 7 of the Act,
1996, has held that the non-signatory can be bound by the Arbitration
agreement on the basis of the "Group of Companies" doctrine. The Honble
Supreme Court has also held that the Court has invoked this doctrine to join
a non-signatory member of the group, as a necessary party to the arbitration.
The learned arbitral Tribunal has relied upon this decision for ordering the
impleadment of the appellants herein. The relevant discussion and the
conclusion reached by the Hon'ble Supreme Court as found in paragraph
Nos. 9.1 to 10.8 are extracted hereunder:
9.1. Section 7 defines “arbitration agreement” and reads as
follows:
“7. Arbitration agreement.—(1) In this Part, “arbitration
agreement” means an agreement by the parties to submit to arbitration all
or certain disputes which have arisen or which may arise between them in
respect of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration
clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in—
(a) a document signed by the parties;
Page No.168/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
(b) an exchange of letters, telex, telegrams or other means of
telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the
existence of the agreement is alleged by one party and not denied by the
other.
(5) The reference in a contract to a document containing an
arbitration clause constitutes an arbitration agreement if the contract is in
writing and the reference is such as to make that arbitration clause part of
the contract.”
9.2.The arbitration agreement need not be in any particular
form. What is required to be ascertained is the intention of the parties to
settle their disputes through arbitration. The essential elements or
attributes of an arbitration agreement is the agreement to refer their
disputes or differences to arbitration, which is expressly or impliedly spelt
out from a clause in an agreement, separate agreement, or
documents/correspondence exchanged between the parties.
9.3. Section 7(4)(b) of the 1996 Act, states that an arbitration
agreement can be derived from exchange of letters, telex, telegram or
other means of communication, including through electronic means. The
2015 Amendment Act inserted the words “including communication
through electronic means” in Section 7(4)(b). If it can prima facie be
shown that parties are ad idem, even though the other party may not have
signed a formal contract, it cannot absolve him from the liability under the
agreement [Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia (P)
Ltd., (2015) 13 SCC 477 : (2016) 1 SCC (Civ) 733] .
9.4. Arbitration agreements are to be construed according to the
Page No.169/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
general principles of construction of statutes, statutory instruments, and
other contractual documents. The intention of the parties must be inferred
from the terms of the contract, conduct of the parties, and correspondence
exchanged, to ascertain the existence of a binding contract between the
parties. If the documents on record show that the parties were ad idem,
and had actually reached an agreement upon all material terms, then it
would be construed to be a binding contract. The meaning of a contract
must be gathered by adopting a common sense approach, and must not be
allowed to be thwarted by a pedantic and legalistic interpretation. [Union
of India v. D.N. Revri & Co., (1976) 4 SCC 147]
9.5. A commercial document has to be interpreted in such a
manner so as to give effect to the agreement, rather than to invalidate it.
An “arbitration agreement” is a commercial document inter partes, and
must be interpreted so as to give effect to the intention of the parties,
rather than to invalidate it on technicalities.
9.6. In Khardah Co. Ltd. v. Raymon & Co. (India) (P) Ltd.
[Khardah Co. Ltd. v. Raymon & Co. (India) (P) Ltd., (1963) 3 SCR 183 :
AIR 1962 SC 1810] , this Court while ascertaining the terms of an
arbitration agreement between the parties, held that : (AIR p. 1820, para
30)
“30.….If on a reading of the document as a whole, it can fairly be deduced
from the words actually used therein, that the parties had agreed on a
particular term, there is nothing in law which prevents them from setting
up that term. The terms of a contract can be express or implied from what
has been expressed. It is in the ultimate analysis a question of construction
of the contract.”
Page No.170/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
9.7. In interpreting or construing an arbitration agreement or
arbitration clause, it would be the duty of the court to make the same
workable within the permissible limits of the law. This Court in Enercon
(India) Ltd. v. Enercon GmbH [Enercon (India) Ltd., (2014) 5 SCC 1 :
(2014) 3 SCC (Civ) 59] , held that a common sense approach has to be
adopted to give effect to the intention of the parties to arbitrate the
disputes between them. Being a commercial contract, the arbitration
clause cannot be construed with a purely legalistic mindset, as in the case
of a statute.
9.8. In this case, MTNL raised a preliminary objection that there
was no arbitration agreement in writing between the parties, at this stage
of the proceedings. We will first deal with this issue. The agreement
between MTNL and Canara Bank to refer the disputes to arbitration is
evidenced from the following documents exchanged between the parties,
and the proceedings:
9.8.1. The minutes of the meeting dated 27-3-2001 was convened
by the Cabinet Secretariat, wherein all three parties were present and
participated in the proceedings. The Committee on Disputes, in the
meeting dated 16-12-2008 expressed the view that all the three parties
should take recourse to arbitration in view of the different interlinked
transactions between them. Canara Bank suggested that to expedite the
arbitration, it should be conducted under the Arbitration and Conciliation
Act, 1996. This was accepted by MTNL, and no objection was raised.
9.8.2. Pursuant to the proceedings conducted by the Cabinet
Secretariat, Canara Bank addressed letters dated 5-3-2009 and 17-3-2010
to MTNL, wherein it enclosed a draft arbitration agreement, wherein all
Page No.171/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
three parties i.e. Canara Bank, CANFINA and MTNL would be joined in the
arbitration proceedings.
9.8.3.In the writ petition filed by Canara Bank, the Delhi High
Court vide order dated 16-9-2011 [Canara Bank v. MTNL, 2011 SCC
OnLine Del 5705] recorded the consent of MTNL and Canara Bank to be
referred to arbitration by a sole arbitrator under the 1996 Act. The
relevant extract of the order dated 16-9-2011 [Canara Bank v. MTNL,
2011 SCC OnLine Del 5705] passed by the Delhi High Court reads as
follows : (SCC OnLine Del para 2)
“2. Unfortunately, although the parties had displayed their
willingness for arbitration, the Committee on Disputes could not resolve
the specific clauses of the arbitration agreement. Nor have the parties been
able to arrive at a consensus with regard to the specific clauses of the
arbitration agreement. As noted in the order dated 1-10-2010 [ONGC v.
CCE, 1995 Supp (4) SCC 541] , according to the petitioner, it is a matter
of arbitration as to whether the petitioner is liable for the acts or
omissions of CANFINA. However, the respondents were insisting that the
petitioners should agree to take over the liabilities and admit them in the
arbitration agreement itself. It has now been agreed by the parties that
both these issues could be made the subject-matter of arbitration, namely,
whether the petitioner is liable for the acts or omissions of CANFINA and
whether the petitioner is liable to take over the liabilities of CANFINA. There
is no necessity now of requiring the petitioner to agree to take over the
liabilities of CANFINA prior to the arbitration proceedings because that itself
would be one of the points to be decided in the course of arbitration. Even
though the learned counsel for the petitioner has placed before us the
Page No.172/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
subsequent decisions of the Supreme Court with regard to the scope and
ambit of powers of the Committee on Disputes, we are making the present
order because the parties themselves have agreed to go in for arbitration
as a mode for resolving their disputes. This is welcome because both the
parties are PSUs. The counsel for the parties shall suggest names of the
arbitrators.”
9.8.4. Pursuant thereto, MTNL participated in the proceedings
conducted by the sole arbitrator, and filed its claim, and counterclaim. No
objection was raised before the sole arbitrator that there was no
arbitration agreement in writing between the parties. The only objection
raised was that CANFINA should be joined as a necessary party in the
proceedings.
9.9. The agreement between the parties as recorded in a judicial
order, is final and conclusive of the agreement entered into between the
parties. [State of Maharashtra v. Ramdas Shrinivas Nayak, (1982) 2 SCC
463 : 1982 SCC (Cri) 478. See also Chitra Kumari v. Union of India,
(2001) 3 SCC 208] The appellant MTNL after giving its consent to refer
the disputes to arbitration before the Delhi High Court, is now estopped
from contending that there was no written agreement to refer the parties to
arbitration.
9.10. An additional ground, for rejecting the preliminary
objection raised by MTNL is based on Section 7(4)(c) of the Arbitration
and Conciliation Act, 1996. Section 7(4)(c) provides that there can be an
arbitration agreement in the form of exchange of statement of claims and
defence, in which the existence of the agreement is asserted by one party,
Page No.173/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
and not denied by the other. [Savitri Goenkav. Kanti Bhai Damani, 2009
SCC OnLine Del 177 : (2009) 1 Arb LR 320] In the present case, Canara
Bank had filed its statement of claim before the arbitrator, and MTNL filed
its reply to the statement of claim, and also made a counterclaim against
Canara Bank. The statement of claim and defence filed before the
arbitrator would constitute evidence of the existence of an arbitration
agreement, which was not denied by the other party, under Section 7(4)(c)
of the 1996 Act. In view of the aforesaid discussion, the objection raised by
MTNL is devoid of any merit, and is hereby rejected.
10.Joinder of CANFINA in the arbitral proceedings
10.1.Canara Bank raised an objection to the joinder of
Respondent 2 CANFINA as a party to the arbitration proceedings.
10.2. As per the principles of contract law, an agreement entered
into by one of the companies in a group, cannot be binding on the other
members of the same group, as each company is a separate legal entity
which has separate legal rights and liabilities. The parent, or the
subsidiary company, entering into an agreement, unless acting in accord
with the principles of agency or representation, will be the only entity in a
group, to be bound by that agreement. Similarly, an arbitration agreement
is also governed by the same principles, and normally, the company
entering into the agreement, would alone be bound by it.
10.3. A non-signatory can be bound by an arbitration agreement
on the basis of the “group of companies” doctrine, where the conduct of
the parties evidences a clear intention of the parties to bind both the
signatory as well as the non-signatory parties. Courts and Tribunals have
invoked this doctrine to join a non-signatory member of the group, if they
Page No.174/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
are satisfied that the non-signatory company was by reference to the
common intention of the parties, a necessary party to the contract.
10.4. The doctrine of “group of companies” had its origins in the
1970s from French arbitration practice. The “group of companies”
doctrine indicates the implied consent to an agreement to arbitrate, in the
context of modern multi-party business transactions. It was first
propounded in Dow Chemical v. Isover-Saint-Gobain [Dow Chemical v.
Isover-Saint-Gobain, 1984 Rev Arb 137 : (1983) 110 JDI 899] , where the
arbitral Tribunal held that:
“… the arbitration clause expressly accepted by certain of the
companies of the group should bind the other companies which, by virtue
of their role in the conclusion, performance, or termination of the
contracts containing said clauses, and in accordance with the mutual
intention of all parties to the proceedings, appear to have been veritable
parties to these contracts or to have been principally concerned by them
and the disputes to which they may give rise.”
10.5. The group of companies doctrine has been invoked by
courts and Tribunals in arbitrations, where an arbitration agreement is
entered into by one of the companies in the group; and the non-signatory
affiliate, or sister, or parent concern, is held to be bound by the arbitration
agreement, if the facts and circumstances of the case demonstrate that it
was the mutual intention of all parties to bind both the signatories and the
non-signatory affiliates in the group. The doctrine provides that a non-
signatory may be bound by an arbitration agreement where the parent or
holding company, or a member of the group of companies is a signatory to
the arbitration agreement and the non-signatory entity on the group has
Page No.175/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
been engaged in the negotiation or performance of the commercial
contract, or made statements indicating its intention to be bound by the
contract, the non-signatory will also be bound and benefitted by the
relevant contracts. [ Interim award in ICC Case No. 4131 of 1982, IX YB
Comm Arb 131 (1984); Award in ICC Case No. 5103 of 1988, 115 JDI
(Clunet) 1206 (1988). See also Gary B. Born : International Commercial
Arbitration, Vol. I, 2009, pp. 1170-1171.]
10.6. The circumstances in which the “group of companies”
doctrine could be invoked to bind the non-signatory affiliate of a parent
company, or inclusion of a third party to an arbitration, if there is a direct
relationship between the party which is a signatory to the arbitration
agreement; direct commonality of the subject-matter; the composite nature
of the transaction between the parties. A “composite transaction” refers to
a transaction which is interlinked in nature; or, where the performance of
the agreement may not be feasible without the aid, execution, and
performance of the supplementary or the ancillary agreement, for
achieving the common object, and collectively having a bearing on the
dispute.
10.7. The group of companies doctrine has also been invoked in
cases where there is a tight group structure with strong organisational and
financial links, so as to constitute a single economic unit, or a single
economic reality. In such a situation, signatory and non-signatories have
been bound together under the arbitration agreement. This will apply in
particular when the funds of one company are used to financially support
or restructure other members of the group. [ ICC Case No. 4131 of 1982,
ICC Case No. 5103 of 1988.]
Page No.176/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
10.8. The “group of companies” doctrine has been invoked and
applied by this Court in Chloro Controls (India) (P) Ltd. v. Severn Trent
Water Purification Inc. [Chloro Controls (India) (P) Ltd. v. Severn Trent
Water Purification Inc., (2013) 1 SCC 641 : (2013) 1 SCC (Civ) 689The
Madras High Court has invoked the group of companies doctrine in a
foreign seated arbitration in SEI Adhavan Power (P) Ltd. v. Jinneng Clean
Energy Technology Ltd., 2018 SCC OnLine Mad 13299 : (2018) 4 CTC
464.] , with respect to an international commercial agreement. Recently,
this Court in Ameet Lalchand Shah v. Rishabh Enterprises [Ameet
Lalchand Shah v. Rishabh Enterprises, (2018) 15 SCC 678 : (2019) 1 SCC
(Civ) 308] , invoked the group of companies doctrine in a domestic
arbitration under Part I of the 1996 Act.
In the above case, the main company namely Canara Bank raised objection
for joining its subsidiary company as a party to the arbitration proceedings.
In that context, the Hon'ble Supreme Court held that it was a case where the
'group of companies' doctrine could be applied and held that the reference in
respect of the subsidiary company was also legally valid, though not a
signatory to the arbitration agreement.
66. It is relevant to mention the last of the three decisions referred to
above have been rendered post amendment to Section 8(1) of the Act in
Page No.177/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
2016 which had come into effect from 23.10.2015. After the decision of the
Hon'ble Supreme Court in Chloro Controls India Pvt. Ltd. Case, which
primarily considered the enforcement of the foreign award in terms of
Section 45 of the Act, the ratio has been imported and applied in domestic
arbitrations as well. The last three decisions which have been referred to
would vouch for the evolution of the legal principle on the aspect of non-
signatory being made a party to the arbitration proceedings by applying the
'group of companies' doctrine in domestic arbitration as well.
67. As stated above, in view of the modern business transactions and
multi layered agreements and contracts, there are situations where the
companies join together and enter into a contract for execution of a project.
In the evolving business context, the 'Group of Companies' doctrine has
gained traction, earlier with reference to multi national contracts and the
doctrine has been applied progressively in domestic arbitrations as well. In
the backdrop of the above development on the conceptional widening of
application of the rule of adding non-signatory as party to meet the
Page No.178/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
requirement of the present day transactions involving multiple companies
jointly, the Law Commission in its 246th report dated August 2014 has
recommended inter alia amendment to section 8 to bring it on par with
section 45.
68. This Court, earlier referred to Section 8 of the Act and the
amendment which was effected in 2016. The amendment to Section 8 is to
be seen as it reads today.
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 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.
69. Before the substitution by the amended Act 2016, sub clause (1)
read as under:
Page No.179/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
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 so
applies not later than when submitted his right statement on the substance
of the dispute, refer the parties to arbitration.
70. There is a conscious widening of the amplitude of section 8 to
bring it on par with section 45 of the Act. Therefore, today, it is possible to
refer any party to the arbitration, be it signatory or non-signatory, on a
prima facie consideration. In such view of the matter, the arguments placed
on the definition clause of section 2 (1)(h) by the learned counsel may not
carry much conviction with this Court in the present times. As on date, in
terms of section 8(1) and also, the legal principle laid down by the Courts
with reference to "Group of Companies" doctrine, it is legally permissible
for making a non-signatory as a party to the arbitral proceedings. This legal
position thus, is beyond any pale of negotiation or contest. However, the
Courts have only cautioned that impleadment of non-signatory must be only
in exceptional circumstances and such exceptional circumstances have also
Page No.180/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
been illustrated by the Courts.
71. As a matter of fact, after the amendment to Section 8(1) of the
Act 1996, there may not be any peremptory requirement to look out any
legal precedents in order to hold that non-signatory to an arbitration
agreement can also be made a party to the arbitration. However, it is
imperative to refer to few decisions which dealt with the issue after the
evolution of the concept of "Group Companies" doctrine which has its origin
only in the recent past. The concept became more pronounced in the ruling
of the Hon'ble Supreme Court of India in 2013 (1) SCC 641 (Chloro
Controls India Pvt. Ltd. vs. Severn Trent Water Purification inc.). That
was a case where the Hon'ble Supreme Court was dealing with the
international arbitration with reference to Section 45 of the Act. As regards
the controversy relating to the non-signatory to be made as party the Court
has reasoned in paragraph No.95 which is extracted hereunder.
95. The language of Section 45 has wider import. It refers to the
request of a party and then refers to an arbitral Tribunal, while under
Section 8(3) it is upon the application of one of the parties that the court
Page No.181/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
may refer the parties to arbitration. There is some element of similarity in
the language of Section 8 and Section 45 read with Article II(3). The
language and expressions used in Section 45, “any person claiming
through or under him” including in legal proceedings may seek reference
of all parties to arbitration. Once the words used by the legislature are of
wider connotation or the very language of the section is structured with
liberal protection then such provision should normally be construed
liberally.
The observation of the Hon'ble Supreme Court in the above said paragraph
would obviate any opaque or obscure understanding on the said
controversy. When section 45 has been accorded with liberal construct, with
reference to non-signatory being made a party in the arbitral proceedings, on
the basis of the “Group of Companies” doctrine, after 2016 amendment to
section 8(1), the same reasoning holds good for application of the said
doctrine in domestic arbitrations as well.
72. In fact, even earlier to the Amendment Act 2016, when the
decision was rendered by the Hon'ble Supreme Court in Chloro Controls'
case, application of 'Group of Companies' doctrine became legally
permissible, though in exceptional cases. This could be seen from the ruling
Page No.182/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
of the Hon'ble Supreme Court in paragraph Nos. 69, 71 to 73 which have
been extracted supra. After the amendment in 2016 to section 8(1), the
lurking doubts in the legal minds stood clarified and it is too late in the day
to contest that the non-signatory cannot be made a party to an arbitration at
all. The unambiguous and unequivocal legal position today is that non-
signatory can be made a party to the arbitration, provided that the party
which is seeking to implead itself or a party which is seeking to implead a
non-signatory has to satisfy the judicial authority, their interest in the
arbitration being directly and intrinsically concerned with the outcome of
the arbitration proceedings. The Courts, on a prima facie consideration can
refer non-signatory also the arbitration by exercise of its power in pending
matter, be it under Sections 8, 9 or 11 as the case may be. The contention
that non-signatory cannot be made as party to the arbitral proceedings is no
more valid and to be overruled as being antiquated, and to be discredited as
old fashioned opposition in today's contextual legal developments on the
subject matter.
Page No.183/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
73. It is needless to mention here that reference to the arbitration
proceedings is aimed at resolution of all connected disputes qua parties and
to avoid multiplicity of proceedings and litigation. That being the essence of
consideration, when more than one party is concerned with the dispute in
the arbitration, by reason of its direct involvement in the dispute or in the
contracts and the agreement which gave rise to the dispute, it is immaterial
that whether that party is in fact, signatory to the arbitration agreement or
not. Today, in the modern commercial contracts, a hyper-technical objection
cannot be successfully raised namely, that one of the parties to the
agreement is in fact not the signatory to the arbitration agreement and as
such cannot be made party to the arbitral proceedings. Such pedantic view
would be ante thesis to the contemporary commercial contracts involving
participation of multiple companies in execution of large scale contracts or
projects. For that matter, any project be it medium, large or even small may
require participation of more than one company with a specialised domain
expertise for effective and all round execution of the project.
Page No.184/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
74. There is a phenomenal shift in the legal focus after the
development of “Group of Companies” doctrine. It is not the form of the
agreement, but it is the substance that should be looked into. The ultimate
consideration of the Courts is to see the nature of participation of the non-
signatory companies/entities in the contract/agreement and the extent of its
involvement. From the fact, if it could be gathered, companies though
different and independent entities have forged partnership and coming
together for a common commercial business venture, unless any specific
clause is incorporated in the agreement providing for reference to arbitration,
the parties forging alliance/ partnership are to deemed to have implicitly and
essentially given consent for arbitration. However, the Courts are cautioned
not to exercise such power to add non-signatory to the arbitral proceedings
as a matter of routine, but as a matter of exception to the rule. The caution is
necessary in view of the fundamental legal principle that reference to
arbitration proceedings is the result of consent of parties and no party
without its consent could be pitchforked into the proceedings. When
exception is chiselled out from the rule, the courts naturally need to be
Page No.185/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
circumspect, in dealing with impleadment of non-signatory to the arbitral
proceedings.
75. Now reverting to the present case, after the Chloro Controls
India Pvt. Ltd. case, and subsequent to the amendment to Section 8(1) of
the Act 2016, a few decisions have been cited and relevant paragraphs have
also been extracted supra.
76. This Court would like to draw a particular observation as
contained in para 10.6 in the judgment of the Hon'ble Supreme Court in
MTNL vs. Canara Bank & others (2020 (12) SCC 767) which is
reproduced hereunder once again.
10.6. The circumstances in which the “group of
companies” doctrine could be invoked to bind the non-
signatory affiliate of a parent company, or inclusion of a
third party to an arbitration, if there is a direct
relationship between the party which is a signatory to the
arbitration agreement; direct commonality of the subject-
matter; the composite nature of the transaction between
the parties. A “composite transaction” refers to a
transaction which is interlinked in nature; or, where the
Page No.186/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
performance of the agreement may not be feasible without
the aid, execution, and performance of the supplementary
or the ancillary agreement, for achieving the common
object, and collectively having a bearing on the dispute.
77. The above quintessence observation of the Hon'ble Supreme
Court would be the single guiding principle that the Court should bear in
mind while referring non-signatory to the arbitral proceedings. This Court,
in fact, has referred to two other decisions, post 2016 amendment to section
8(1) in 2018 (16) SCC 413 (Cheran Properties Ltd. vs. Kasthuri & Sons)
and 2018 (15) SCC 678 (Ameet Lalchand Shah v. Rishabh Enterprises).
In those cases, the Hon'ble Supreme Court expressed similar views
consistent with the concept of "Group of Companies" doctrine.
78. This Court is also impelled once again to refer to paragraph 92 to
94 of the judgment of Chloro Controls India (P) Ltd case for the sake of
clarity hereunder.
92.To the contra, Mr Salve, learned Senior counsel
appearing for Respondent 1, contended that the expressions
Page No.187/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
“parties to arbitration”, “any person claiming through or under
him” and “at the request of one of the parties” appearing in
Section 45 are wide enough to include some or all the parties and
even non-signatory parties for the purposes of making a reference
to arbitration. It is also the contention that on the true
construction of Sections 44, 45 and 46 of the 1996 Act, it is not
possible to accept the contention of the appellant that all the
parties to an action have to be parties to the arbitration agreement
as well as the court proceedings. This would be opposed to the
principle that parties should be held to their bargain of
arbitration. The court always has the choice to make appropriate
orders in exercise of inherent powers to bifurcate the reference or
even stay the proceedings in a suit pending before it till the
conclusion of the arbitration proceedings or otherwise. According
to Mr Salve, if the interpretation advanced by Mr Nariman is
accepted, then mischief will be encouraged which would frustrate
the arbitration agreement because a party not desirous of going to
arbitration would initiate civil proceedings and add non-signatory
as well as unnecessary parties to the suit with a view to avoid
arbitration. This would completely frustrate the legislative object
underlining (sic underlying) the 1996 Act. Non-signatory parties
can even be deemed to be parties to the arbitration agreement and
may successfully pray for referral to arbitration.
93. As noticed above, the legislative intent and essence of
the 1996 Act was to bring domestic as well as international
commercial arbitration in consonance with the UNCITRAL Model
Page No.188/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Rules, the New York Convention and the Geneva Convention. The
New York Convention was physically before the legislature and
available for its consideration when it enacted the 1996 Act.
Article II of the Convention provides that each contracting State
shall recognise an agreement and submit to arbitration all or any
differences which have arisen or which may arise between them in
respect of a defined legal relationship, whether contractual or not
concerning a subject-matter capable of settlement by arbitration.
Once the agreement is there and the court is seized of an action in
relation to such subject-matter, then on the request of one of the
parties, it would refer the parties to arbitration unless the
agreement is null and void, inoperative or incapable of
performance.
94. Still, the legislature opted to word Section 45
somewhat dissimilarly. Section 8 of the 1996 Act also uses the
expression “parties” simpliciter without any extension. In
significant contradistinction, Section 45 uses the expression “one
of the parties or any person claiming through or under him” and
“refer the parties to arbitration”, whereas the rest of the language
of Section 45 is similar to that of Article II(3) of the New York
Contention. The court cannot ignore this aspect and has to give
due weightage to the legislative intent. It is a settled rule of
interpretation that every word used by the legislature in a
provision should be given its due meaning. To us, it appears that
the legislature intended to give a liberal meaning to this
expression.
Page No.189/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
79. The arguments advanced as referred to by the Hon'ble Supreme
Court and reasoning of the Hon'ble Supreme Court in paragraph Nos. 92
and 94 above would crystalize the legal position leaving no room for
entertaining any doubt. When the Hon'ble Supreme Court made an
observation as above that there is a dissimilarity in the use of expression in
Section 8 and Section 45, the dissimilarity being removed post 2016
amendment to section 8(1), the section has been brought on par with
section 45, providing latitude to the courts to add non-signatory as parties to
the arbitral proceedings.
80. In the earlier part of this decision, order of the learned arbitral
Tribunal from paragraph 23 to 50 have been extracted supra with the view
to highlight how the Tribunal has incisively considered all the facts,
materials and the case laws and the comprehensive findings recorded
therein. It does not require a profound appreciation of the facts, to
conclude that the appellants herein have been part of the entire transactions
Page No.190/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
from the stage of fulfilling the pre-bid requirements and till the final
acceptance of the contract/ agreement and the issuance of the work order.
The relationship of the appellants with the lead partner in the execution of
the subject project is intertwined and the completion of the project is fully
dependant on the sharing of the domain knowledge, their technical
participation among the three companies, on the ground. When these
appellants intrinsically had been part of the agreement/ contract, the
attempt by the appellants to extricate themselves from the contractual
obligations on the basis of their antiquated plea that they being non-
signatory to the arbitration agreement is to be rejected in considering the
established fact of that these appellants herein have been integral part of the
work contract/agreement and therefore they are necessary and proper parties
to the proceedings.
81. The learned arbitral Tribunal has analytically recorded every
document that was executed by the appellants herein towards fulfilment of
the contractual requirements and the clauses of those documents executed by
Page No.191/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
these appellants have been appreciated by the learned arbitral Tribunal
which have also been extracted supra. The nature of transaction and the
participation of these appellants and their involvement in the composite
project would on all fours come within the framework of the ruling of the
Hon'ble Supreme Court in paragraph 73 in Chloro Controls India (P) Ltd.
Case (2013 (1) SCC 641). The said paragraph has also been extracted by
the learned arbitral Tribunal in paragraph No.52 of the order.
82. The learned counsel for the appellants strongly urged that in the
arbitration agreement, the appellants have been defined as sub contractors in
terms of clause 1.8.4 of the contract agreement dated 03.04.2013 and hence,
cannot be construed as parties to the agreement. This Court is unable to
countenance such submission in the light of the above ruling of the Honb'le
Supreme Court and also considering the entirety of the facts and
circumstances of the case. Merely because that these appellants have been
defined as sub contractors in the contract agreement, the appellant
Companies cannot claim that they are not privy to the contract per se and
Page No.192/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
therefore, not liable to be added as parties. The arguments of the learned
counsel in this regard may not also be valid when the sub- clause is read
carefully, which is extracted herein below.
"1.8.4. SUB CONTRACTORS
SI shall not subcontract (to other parties not forming part
of proposed consortium with M/s. Ingeneri Technologies Solutions
PVT. Ltd, Hyderabad, Abhibus Services India Limited, Hyderabad
and Analogics Tech India Private Limited, Hyderabad if any or
other than the named Sub Contractors) any work related to the
ETM Project unless otherwise agreed by the STU.
The above expression "sub contractor" was with reference to unnamed sub
contractors and not with reference to the appellants herein. The clause
factually contemplates prohibition of sub contracting to third parties other
than the parties forming part of the consortium which did not in substance
mean, the appellants herein have been relegated to the status of sub-
contractors,and therefore they are outside the entire framework of the
contract agreement. As stated above, it is not the description of the party or
a formal affixture of signature is relevant or crucial but the relationship of
the parties ought to be understood beyond the peripheral realm of the sedate
Page No.193/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
description of the parties. In this connection,it is relevant to extract section 7
of the Arbitration and Conciliation Act,1996.
7. Arbitration agreement. —
(1) In this Part, “arbitration agreement” means an agreement by
the parties to submit to arbitration all or certain disputes which have
arisen or which may arise between them in respect of a defined legal
relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration
clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in—
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of
telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the
existence of the agreement is alleged by one party and not denied by the
other.
(5) The reference in a contract to a document containing an
arbitration clause constitutes an arbitration agreement if the contract is in
writing and the reference is such as to make that arbitration clause part of
the contract.
83. From the combined reading of the above sub-clauses in the
section, deduction as to any explicit or implicit agreement to arbitration
Page No.194/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
must stem from the nature of the document executed by the parties. In this
case, there is no denial of the fact that these appellants have been part of the
principal contract agreement dated 03.04.2013 and the award of contract
was actuated only because of the fact that the appellants and the claimant
submitted their bid as consortium for execution of the project in tandem.
Merely because the lead partner alone has signed the contract agreement
containing an arbitration clause, these appellants cannot plead that they have
nothing to do with the agreement with a sole view to avoid being impleaded
as parties to the arbitration proceedings. Such stand taken on behalf of the
appellants herein is nothing but self serving, an attempt to craftily disengage
themselves from the contractual obligations.
84. As a matter of fact, in the teeth of the power of attorney executed
by the appellants herein as part of the requirement of the contract
agreement, particularly with reference to its contents which had been
extracted in para 37 of the order of the learned arbitral Tribunal, it does not
lie in the mouth of these appellants to contend that they are not party to the
Page No.195/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
arbitration agreement. These appellants having executed the power of
attorney to the lead partner to represent them and agreed to ratify the acts,
deeds and things lawfully done by the lead partner and all acts, deeds and
things done by the attorney shall always be deemed to have been done by
them / consortium. They cannot selectively seek to crawl out of the
arbitration proceedings initiated at the instance of their very lead partner.
Their contention that they are only defined as a sub-contractor in the
contract agreement dated 03.04.2013 in Clause 1.8.4. appears to be too
legally naïve for its acceptance by the Court in the overall facts and the
circumstances of the case.
85. One other contention which has been seriously advanced by the
learned counsel, that these appellants are not "group companies" as they are
neither affiliate or subsidiary of the lead partner company, the claimant.
They being independent companies, cannot be dubbed as "group company"
for the purpose of application of the 'Group of Companies' doctrine. The
contention has been specifically incorporated in this Aide Memoire dated
Page No.196/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
09.10.2021 filed before this Court. The said contention is a reflection of
complete misreading of the doctrine of 'group of companies' evolved by the
Courts. The meaning of 'Group of Companies' and 'Group Companies' is
clearly distinguishable and understandable even in common parlance. It is
quite strange that on behalf of the appellant such twisted interpretation has
been to the doctrine. The contention therefore is liable to be rejected as
being an attempt to obfuscate and to distort the true legal principle.
86. In the entirety of the facts and circumstances of the case read
with the rulings of the Courts as discussed above, this Court factually has no
hesitation to hold that these appellants are proper and necessary parties to
the arbitral proceedings, though being non-signatory to the agreement. The
facts and the materials clearly demonstrate without any modicum of doubt,
that as the lead partner, the claimant deemed to have represented the
interests of the appellants herein also in the arbitration proceedings and in
the bargain if any liability or claim/ counter claim arising under the terms
of the same contract agreement, intrinsically linked to the claim of the
Page No.197/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
claimant, the appellants herein have to necessarily face any counter claims
by other parties to the contract,namely the State Corporations herein.
87. While concluding as above, a correlated issue has been raised as
to whether the appellants herein could be impleaded only in the counter
claim alone and on that account the impleadment is valid in law or not?
According to the learned counsel, when these appellants have not chosen to
make any claim against the State Corporations, the counter claim by the
Corporation against them cannot be countenanced in law at all is the one
more dimension to the challenge in these applications. This Court is unable
to appreciate as to the legality of such argument for the reason as set forth
below.
88. Merely because the claimant has not chosen to make the other
two member companies of the consortium as parties to the arbitration
proceedings, it does not preclude the State Corporations, the respondents
before the arbitral Tribunal from coming up with their counter claims against
Page No.198/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
the claimant as well as against the other two consortium members. The right
to make counter claims against all the members of the consortium cannot
stand negated in view of the fact that the lead partner, while raising a claim
against the respondent Corporations has not chosen to have the other two
members of the consortium as being part of its claim.
89. As stated above, when the contract agreement contemplated a
comprehensive execution of the project as a consequence of the participation
of all the three member companies of the consortium, any rights and
liabilities arising from the understanding, all the three companies are
necessarily to be made part of the dispute resolution to avoid multiplicity of
proceedings. When the counter claim arising out of the perceived non-
performance of the parties or violation of the terms of the contract
agreement, according to the aggrieved parties (State Corporations) such
parties cannot be driven to seek a separate reference for the purpose of
enforcing their claim arising out of the same contract agreement. Such
scenario would be antithetical to the letter and spirit of the dispute
Page No.199/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
resolution mechanism envisaged in the scheme of the A & C Act, 1996. A
comprehensive resolution of the dispute qua parties is the underlying
principle of arbitration which cannot be lost sight of. In these circumstances,
this Court does not find the argument plausible or valid but on the other
hand, finds the same a desperate plea to avoid being part of the dispute
resolution for serving their own ends.
90. One other important issue has been raised on behalf of the
appellants is whether there was a valid commencement of the arbitration
proceedings against the appellants herein without any notice being issued
under section 21 of the Act, 1996 or not . In this regard, a decision of the
Hon'ble Delhi High Court has been referred to in the matter of Aulpro
Building Systems Pvt.Limited Vs. Ozone Overseas Pvt. Limited (2018 (3)
RAJ 94 (Delhi)).
91. No doubt compliance with section 21 is held to be mandatory for
commencement of arbitration, by the Delhi High Court. However, as far as
Page No.200/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
the case on hand is concerned, when the lead partners approached this Court
under section 9 of the Arbitration Act and in the said proceedings, it was
agreed to refer the dispute to arbitration and consent was given to that effect
by the lead partner to the proceedings, in the opinion of this Court, such
consent was deemed to have been given on behalf of the consortium. In the
least, it should be construed that consent is binding on the other member
companies of the consortium. On the basis of the consent given by the
claimant, the petitioner before this Court in O.A.Nos. 317, 318, 319, 320,
321, 322, 323 & 324 of 2020 & A.Nos.1704, 1705 & 1706 of 2020, the
matter was referred to the arbitration, appointing a former Hon'ble Judge of
the Supreme Court of India, by its order dated 17.09.2020.
92. After the reference was made by consent of parties, it is not open
to the appellants herein to disown the relationship with their lead partner
only in respect of the counter claims made against them, on the ground that
there was no valid commencement of arbitration proceedings as against
them. The objections as raised above may not be valid and sustainable as the
Page No.201/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
arbitration proceedings qua parties are already under way, the counter claim
by the respondents to the claim is very much integral part of the same
proceedings. Therefore, the question of issuance of notice under section 21
of the A & C Act in respect of the counter claim did not arise at all, as there
cannot be any fresh commencement of arbitral proceedings qua the same
parties to the agreement.
93. Compliance with section 21 of the Act 1996, arises at the pre-
reference stage to the arbitration. Insistence on this compliance is a
redundant formality after reference of the dispute to the arbitration, in the
face of the counter claim being interlinked and intrinsically connected with
the claim in the dispute. If this Court were to accept the said contention of
the learned counsel for the appellants herein, the respondents to the claim
before the arbitral Tribunal would be forced to approach the judicial
authority/ court again after giving notice under section 21 and thereafter,
there will be one more reference and constitution of one more arbitral
Tribunal leading to multiplicity of proceedings for the same inter connected
Page No.202/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
causes of action. Such scenario has to be mandatorily avoided in an
alternate dispute resolution mechanism as held by the Courts consistently.
Therefore, the objection towards non-compliance with Section 21 cannot be
countenanced in law and the decision relied on by the learned counsel as
above may not have any application to this case.
94. As a matter of fact, on behalf of the State Corporations
application (I.A.No.2/2002) has been filed. What is sought in the I.A. is
permission to take notice on the appellants herein insofar as the counter
claim is concerned. It is interesting to note that from the averments
contained in the I.A. filed by the State Corporations, it could be seen that at
the very first available instance, the objection had been raised on behalf of
the Corporations for non-joinder of necessary parties in the claim. However,
no steps had been taken by the claimant in that regard forcing the State
Corporations to file the I.A. for joinder of necessary parties. It is useful to
refer to the averments contained in the application filed on behalf of the
State Corporations in I.A.No.2/2020 from paragraphs Nos.4 to 8.
Page No.203/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
"4. The applicants herein submit that the first respondent herein
had initiated the present arbitration proceedings without arraying the 2nd
and 3rd respondent herein as parties to the proceedings and filed interim
application and claim petition.
5. The applicants submit that the Agreements with the respective
STUs, were executed by the 1st respondent on behalf of all the consortium
members i.e. on behalf of the 2nd and 3rd respondent also. The
Arbitration Agreement i.e. Cl. 1.9 has been invoked and pursuance to the
same, the present arbitration proceedings are initiated at the instance of
the 1st respondent herein. The first respondent had initiated the present
arbitration in its individual capacity without arraying or representing the
other two consortium members. The applicants had in the first instance
i.e., in their Reply statement to the sec.17 applicant, being the first
pleading of the applicant, had raised the issue of non-joinder of necessary
parties. However, no steps to implead the respondents 2 & 3 herein has
been made by the 1st respondent herein in both their interim application
and the main claim statement.
6. The applicants state that the term "Agreement" had been
defined in Clause 1.1.1.(a) of the Contract Agreement, to mean the
Contract Agreement dated 05.04.2013 together with all Schedules,
contents and specifications of the Part I of the RFP,
corrigendum/amendments and LOA & Work order given to the claimant.
The Consortium consisting of all the 3 respondent participated in the open
Tender called for by PTCS in 2013, for implementing the ETM (Electronic
Ticket Machine) Project in all STUs. After detailed scrutiny of the
Page No.204/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
combined technical aspects and their demonstration, the PTCS selected
the System Integrator (SI) Lead Consortium and then PTCS issued the
Letter of Acceptance (LOA) dated 28/02/2013 & Common work order on
behalf of all STUs on 13/03/2013 and to treat the PTCS's work order to
implement the Project in all STUs and for all purposes.
7. Based on the combined technical, financial, similar domain
experience in the field and capacity of all the three consortium partners,
as per Clause. 2.2.6, 2.2.7 & 2.2.8 of the RFP, the contract was awarded
to the Consortium. M/s.Analogics (the ETM Supplier) had exited from the
consortium on 09/11/2018 and M/s.Abhibus (Software & backend server
support) had already left from the consortium on 11/01/2017. As the two
companies have already left the consortium, there is no Consortium
functioning since 11/01/2017. The said facts came to the knowledge of the
applicants from the reply letters issued by the other consortium members
in reply to the show cause notice during August 2020. Hence, the 1st
respondent had now lost the chance of continuing their claim against the
applicants in its representative capacity on behalf of the respondents No.2
& 3.
8. It is respectfully submitted that for the reasons stated above the
respondents 2 & 3 are proper and necessary parties to the counter claim
filed by the applicants herein and as such they are arrayed as respondents
2 & 3 in the counter claim. In terms of Sec.2(h) of the Arbitration and
Conciliation Act, 1996 party means party to an arbitration agreement.
The arbitration agreement for the present case is contained in Cl.19 and
the said agreement which has been executed by the consortium consisting
of all the 3 respondent and signed by the 1st respondent who had
Page No.205/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
represented the other 2 members (Respondent No.2 & 3); hence in all
practical purposes, all the 3 respondents are party to the arbitration
agreement. By applying the principles u/s.17 (e) and 19(3) in the light of
the above facts, it is just and necessary to issue notice on the 2nd and 3rd
respondent for the Counter Claim filed by the applicants herein. Serious
prejudice, hardship and loss will be caused to the applicants, if due notice
is not served on the respondents 2 & 3."
95. From the above averments, the stand of the State Corporations
was made clear and unambiguous that the claimant had failed to make the
appellants herein as parties to the arbitration proceedings. That being the
case, failure on the part of the claimant to make other consortium members
as parties to the arbitral proceedings cannot perforce the respondents (State
Corporations) to abandon their counter claim against the claimant as well as
other parties to the contract, namely, the appellants herein. The adverse
consequence of the wanton default by the claimant company cannot be
allowed to befall the State Corporations. When one party to the contract is
making a claim against the other party to the contract, it is certainly
permissible that the other party confronted with their claim can equally
Page No.206/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
come up with counter claim by duly adding necessary parties for
resolution of the complete dispute arising out of the same contract
agreement.
96. Now at the risk of repetition reverting to the contention of the
learned counsel for the appellant once again that the definition of 'party' to
an arbitration agreement under section 2(1)(h) is narrow and constricted
and as such it does not provide scope for wide and expansive interpretation
to include any other party other than the party to the signatory to the
Arbitration agreement. A reference had been made in that regard to the
246th Law Commission report dated August 2004, wherein the commission
had recommended to add words "or any other person claiming through or
under such party" after the words " party to an arbitration agreement". When
series of amendments was made in 2016 in the Principal Act (Act 3 of
2016), this recommendation of the Law Commission was not accepted and
no change was brought about in the section. According to the learned
counsel, the Section ought to be read in the restricted sense and on which
Page No.207/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
construction of the provision, the appellants herein cannot be made parties
at all, being non-signatories to the arbitration agreement.
97. The above submission may look attractive on a first blush on a
precipitative understanding, if sub-clause and section 2(1)(h) is to be read
in isolation. But what is to be examined fundamentally is the entire scheme
of the Act, 1996. After the introduction of the amendments in 2016,
particularly, with reference to Section 8(1) of the Act, the definition of
Section 2(1)(h) has to be read in conjunction with the amended Section 8(1)
of the Act. Section 2(1)(h) merely defines the meaning of 'party' and it does
not define or clarify who is construed as party to the agreement. Moreover
the Hon'ble Supreme Court in the decision reported in 2015(13) SCC 477
(Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia Private Ltd.),
has categorically held after referring to section 7 and its sub clauses, has
held that “ in order to constitute an arbitral agreement, it need not be signed
by all the parties.” The Court further held that if it can be prima facie shown
that the parties are at ad idem, then the mere fact of one party not signing
Page No.208/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
the agreement cannot absolve him from the liability under the agreement.
The legal expression in the judgement is “construing an arbitral agreement,
the Court should seek to give effect to the intention of the parties. The Court
held that party to an agreement need not mean a signatory to the agreement
98. In the case of Enercon (India) Ltd. v. Enercon GmbH [Enercon
(India) Ltd., (2014) 5 SCC 1 , it has been held by the Hon'ble Supreme Court
that a Court has to adopt a pragmatic approach instead of taking a pedantic
position while interpreting or construing an arbitration agreement or
arbitration clauses. In the light of the rulings of the Supreme Court, the
Courts have to interpret the placid and prosaic definition of Section 2(1)(h)
liberally with reference to the totality of the facts and circumstances
touching upon the relationship of the parties, be it signatory or non-signatory
to the agreement. The interpretation and construction of the provision ought
to advance the purpose and intent of the Act in tune with the emerging times.
This Court is therefore of the view that the conventional submission relating
to Section 2(1)(h) may not be valid any more.
Page No.209/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
99. Therefore, the Court's endeavour is oriented towards harmonious
construction of the section in the light of the various laws laid down by the
Hon'ble Supreme Court and to provide thrust and purpose in furtherance of
the spirit of the A & C Act, 1996.
100. Now returning to the most important challenge touching upon
the kernel of the issue of jurisdiction and power of arbitral Tribunal in
adding parties during the course of the proceedings who are non-signatories
to the arbitration agreement, this Court would have to consider two aspects
emerging from the challenge.
i) Whether arbitral Tribunal has the power to implead a party in
exercise of its power under section 17 of the Act in the first place? or
ii) Whether the power to implead is otherwise traceable within the
overall frame work or the scheme of the Act or not?
101. As far as the first aspect is concerned, this Court has already
concluded that Section 17 could be invoked or applied for impleading non-
Page No.210/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
signatory. But for the sake of continuity and amplification, it is once again
dealt with as under. In regard to the first issue, the learned counsel for the
appellants contended that hypothetically if such power is to be conceded, the
exercise of power under Section 17 for impleadment of third party cannot be
countenanced in law. The learned counsel, however did not make any
submission whether any other provision of the Act could be substituted in
order to legally sanctify the impugned order, otherwise. But while dealing
with the challenge, this Court has to inevitably look for and examine any
other provision in the Act for drawing legal support to uphold the exercise
of power by the learned Tribunal.
102. As far as the first limb of contention is concerned, section 17 is
a mirror image of Section 9 of the A & C Act,1996. both these Sections
contemplate interim measures to be ordered by the Court or the arbitral
Tribunal. The scope of both the sections does not pose any difficulty for this
Court to embark on a needless exercise of demystifying and elucidating the
transitory nature of application of Section 17 .
103. Section 17 is open to be invoked by the parties only on certain
Page No.211/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
contingencies as provided in its sub-clauses. Section 17, as a whole, read as
under:
17. Interim measures ordered by arbitral Tribunal
(1) A party may, during the arbitral proceedings, apply to
the arbitral Tribunal—
(i) for the appointment of a guardian for a
minor or person of unsound mind for the purposes
of arbitral proceedings; or
(ii) for an interim measure of protection in
respect of any of the following matters, namely:—
(a) the preservation, interim custody or sale
of any goods which are the subject-matter of the
arbitration agreement;
(b) securing the amount in dispute in the
arbitration;
(c) the detention, preservation or inspection
of any property or thing which is the subject-matter
of the dispute in arbitration, or as to which any
question may arise therein and authorising for any
of the aforesaid purposes any person to enter upon
any land or building in the possession of any party,
or authorising any samples to be taken, or any
observation to be made, or experiment to be tried,
which may be necessary or expedient for the
purpose of obtaining full information or evidence;
Page No.212/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
(d) interim injunction or the appointment of
a receiver;
(e) such other interim measure of protection
as may appear to the arbitral Tribunal to be just and
convenient,
and the arbitral Tribunal shall have the same power
for making orders, as the court has for the purpose
of, and in relation to, any proceedings before it.
(2) Subject to any orders passed in an appeal under section
37, any order issued by the arbitral Tribunal under this section
shall be deemed to be an order of the Court for all purposes and
shall be enforceable under the Code of Civil Procedure, 1908 (5 of
1908), in the same manner as if it were an order of the Court.
104. As far as I.A.No.2/2020 filed by the State Corporation is concerned,
the same has been filed under Section 17(ii)(e) r/w 19(3) of the Act, 1996.
Section 17(ii) (e), though provide a blanket and wide power for the arbitral
Tribunal to pass order/ direction as an interim measure or protection to be
just and convenient, the invocation of the sub-clause by the arbitral Tribunal
is intended to serve as an interim protection qua parties before the Tribunal.
By no stretch of legal standard, such provision could be invoked and
resorted to for adding a non-signatory to the arbitration, that too, in a
Page No.213/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
counter claim. Adding a party to the counter claim amounted to bringing
about an additional reference for adjudication which can never be termed as
an interim measure or protection so as for the Tribunal to have recourse to
Section 17(ii)(e).
105. In the considered opinion of this Court, invocation of section 17
r/w section 19(3) of the Act is misconceived and amounted to traversing
beyond the application of the Section. Section 19, as a matter of fact deals
with the determination of rules of procedure and the section and its sub
clauses read as under:
19. Determination of rules of procedure
(1) The arbitral Tribunal shall not be bound by the Code
of Civil Procedure, 1908 (5 of 1908) or the Indian Evidence Act,
1872 (1 of 1872).
(2) Subject of this Part, the parties are free to agree on
the procedure to be followed by the arbitral Tribunal in conducting
its proceedings.
(3) Failing any agreement referred to in sub-section (2),
the arbitral Tribunal may subject to this Part, conduct the
proceedings in the manner it considers appropriate.
Page No.214/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
(4) The power of the arbitral Tribunal under sub-section
(3) includes the power to determine the admissibility, relevance,
materiality and weight of any evidence.
The Interlocutory Application filed by invoking section 17(ii)(e) and 19(3)
in the considered view of this Court may not be procedurally correct as the
sub clauses in the section cannot overstep beyond the scope and the ambit of
the section as defined and applied. The impleadment of third party, non
signatory is to be held as outside the frame work of the above Sections and
therefore, the impleadment ordered by exercise of power under these
sections is not valid in law from the point of view of grave procedural
infirmity.
106. Be that as it may, leaving aside the procedural infirmity, as
stated above , more important consideration of this Court is as to whether
the arbitral Tribunal could said to have been enjoined with power to
implead non-signatory in terms of the scheme of the Act or not at all? While
examining the challenge what comes to the attention of this Court is Section
16 of the Act. This Section provide authority to the arbitral Tribunal to rule
Page No.215/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
on its own jurisdiction. The Section and its sub-clauses read as under.
16. Competence of arbitral Tribunal to rule on its
jurisdiction.
(1) The arbitral Tribunal may rule on its own jurisdiction,
including ruling on any objections, with respect to the existence or
validity of the arbitration agreement, and for that purpose,-
(a) an arbitration clause which forms part
of a contract shall be treated as an agreement
independent of the other terms of the contract, and
(b) a decision by the arbitral Tribunal that
the contract is null and void shall not entail ipso jure
the invalidity of the arbitration clause.
(2) A plea that the arbitral Tribunal does not have
jurisdiction shall be raised not later than the submission of the
statement of defence, however, a party shall not be precluded from
raising such a plea merely because that he has appointed, or
participated in the appointment of, an arbitrator.
(3) A plea that the arbitral Tribunal is exceeding the
scope of its authority shall be raised as soon as the matter alleged
to be beyond the scope of its authority is raised during the arbitral
proceedings.
(4) The arbitral Tribunal may, in either of the cases
referred to in sub-section (2) or sub-section (3) admit a later plea
if it considers the delay justified.
(5) The arbitral Tribunal may, in either of the cases
Page No.216/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
referred to in sub-section (2) or sub-section (3), and, where the
arbitral Tribunal takes a decision rejecting the plea, continue with
the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may
make an application for setting aside such an arbitral award in
accordance with section 34.
107. The scope and application of section 16 is clearly defined and
the same is beyond any pale of doubt. The arbitral Tribunal is conferred with
competence to rule on its own jurisdiction. The power of the arbitral
Tribunal has been further strengthened and amplified after the amendment
to the Act in 2016 in respect of Section 11(6-A). After the amendment, the
Hon'ble Supreme Court and High Courts have held that the Courts' have
been assigned a very restricted and limited jurisdiction in referring the
matter to arbitration. After the amendment, the Courts have to refer to
arbitration any dispute on a peripheral, prima facie consideration only,
unlike earlier, the Courts were to pronounce the validity of the arbitration
agreement at the pre-referal stage. Once, on a prima facie finding, a
reference is made, all objections can be raised before the arbitral Tribunal
Page No.217/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
by the parties including the maintainability of the arbitration and the
Tribunal is invested with the power to examine the objections and rule on its
own jurisdiction.
108. In the final sum up, the Court cannot leave out the latest all
encompassing ruling of the Hon'ble Supreme Court on the subject matter.
The judgment reported in 2021 (2) SCC 1 - Vidya Drolia Vs. Durga
Trading Corpn. has exhaustively analysed the relevant amendments to the
Act, particularly, with reference to Sections 8 and 11 and held as to how the
jurisdiction of the Court at the threshold level is limited only to refer the
matter to the arbitration and nothing more. The relevant observations of the
Hon'ble Supreme Court as found in paragraphs 146, 147, 154, 229, 232,
233, 234, 238 and 239 are extracted hereunder.
146. We now proceed to examine the question, whether
the word “existence” in Section 11 merely refers to contract
formation (whether there is an arbitration agreement) and
excludes the question of enforcement (validity) and therefore the
latter falls outside the jurisdiction of the court at the referral stage.
On jurisprudentially and textualism it is possible to differentiate
Page No.218/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
between existence of an arbitration agreement and validity of an
arbitration agreement. Such interpretation can draw support from
the plain meaning of the word “existence”. However, it is equally
possible, jurisprudentially and on contextualism, to hold that an
agreement has no existence if it is not enforceable and not binding.
Existence of an arbitration agreement presupposes a valid
agreement which would be enforced by the court by relegating the
parties to arbitration. Legalistic and plain meaning interpretation
would be contrary to the contextual background including the
definition clause and would result in unpalatable consequences. A
reasonable and just interpretation of “existence” requires
understanding the context, the purpose and the relevant legal
norms applicable for a binding and enforceable arbitration
agreement. An agreement evidenced in writing has no meaning
unless the parties can be compelled to adhere and abide by the
terms. A party cannot sue and claim rights based on an
unenforceable document. Thus, there are good reasons to hold that
an arbitration agreement exists only when it is valid and legal. A
void and unenforceable understanding is no agreement to do
anything. Existence of an arbitration agreement means an
arbitration agreement that meets and satisfies the statutory
requirements of both the Arbitration Act and the Contract Act and
when it is enforceable in law.
147.1. In Garware Wall Ropes Ltd. [Garware Wall Ropes
Ltd. v. Coastal Marine Constructions & Engg. Ltd., (2019) 9 SCC
209 : (2019) 4 SCC (Civ) 324], this Court had examined the
Page No.219/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
question of stamp duty in an underlying contract with an
arbitration clause and in the context had drawn a distinction
between the first and second part of Section 7(2) of the Arbitration
Act, albeit the observations made and quoted above with reference
to “existence” and “validity” of the arbitration agreement being
apposite and extremely important, we would repeat the same by
reproducing para 29 thereof : (SCC p. 238)
“29. This judgment in Hyundai Engg. case [United India
Insurance Co. Ltd. v. Hyundai Engg. & Construction Co. Ltd.,
(2018) 17 SCC 607 : (2019) 2 SCC (Civ) 530] is important in that
what was specifically under consideration was an arbitration
clause which would get activated only if an insurer admits or
accepts liability. Since on facts it was found that the insurer
repudiated the claim, though an arbitration clause did “exist”, so
to speak, in the policy, it would not exist in law, as was held in that
judgment, when one important fact is introduced, namely, that the
insurer has not admitted or accepted liability. Likewise, in the facts
of the present case, it is clear that the arbitration clause that is
contained in the sub-contract would not “exist” as a matter of law
until the sub-contract is duly stamped, as has been held by us
above. The argument that Section 11(6-A) deals with “existence”,
as opposed to Section 8, Section 16 and Section 45, which deal
with “validity” of an arbitration agreement is answered by this
Court's understanding of the expression “existence” in Hyundai
Engg. case [United India Insurance Co. Ltd. v. Hyundai Engg. &
Construction Co. Ltd., (2018) 17 SCC 607 : (2019) 2 SCC (Civ)
Page No.220/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
530] , as followed by us.”
Existence and validity are intertwined, and arbitration agreement
does Invalid agreement is no agreement.
147.6. Exercise of power of prima facie judicial review of
existence as including validityis justified as a court is the first
forum that examines and decides the request for the referral.
Absolute “hands off” approach would be counterproductive and
harm arbitration, as an alternative dispute resolution mechanism.
Limited, yet effective intervention is acceptable as it does not
obstruct but effectuates arbitration.
147.7. Exercise of the limited prima facie review does not
in any way interfere with the principle of competence-competence
and separation as to obstruct arbitration proceedings but ensures
that vexatious and frivolous matters get over at the initial stage.
154.3. The general rule and principle, in view of the
legislative mandate clear from Act 3 of 2016 and Act 33 of 2019,
and the principle of severability and competence-competence, is
that the arbitral Tribunal is the preferred first authority to
determine and decide all questions of non-arbitrability. The court
has been conferred power of “second look” on aspects of non-
arbitrability post the award in terms of sub-clauses (i), (ii) or (iv)
of Section 34(2)(a) or sub-clause (i) of Section 34(2)(b) of the
Arbitration Act.
Page No.221/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
229. This brings us to the question of what prima facie
case means, as is required to determine the non-existence of a
valid arbitration agreement under Section 8 of the Act. The
meaning and scope of “prima facie” has greatly varied in common
law as well as the civil law systems. Immediately, at least two
meanings can be attributed to this term. First, it means a party is
said to have established a prima facie case when he has satisfied
his burden of producing evidence. The second meaning postulates
that a party has established a prima facie case only when he has
made such a strong showing that he is entitled to a presumption in
his favour. Shin-Etsu case [Shin-Etsu Chemical Co. Ltd. v. Aksh
Optifibre Ltd., (2005) 7 SCC 234] , categorically laid that prima
facie test is to be adopted under Section 45 of the Act (prior to the
2015 Amendment). The Court was of the opinion that prima facie
determination was seen as the view of court, which can again be
gone into by the Tribunal.
232. The difference of statutory language provided under
the amended Section 8, which states “refer the parties to
arbitration unless it finds that prima facie no valid arbitration
agreement exists” in comparison with the amended Section 11(6-
A), creates disparities which need to be ironed out. While the Court
in Shin-Etsu case [Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre
Ltd., (2005) 7 SCC 234] and Duro Felguera case [Duro Felguera,
S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729 : (2017) 4 SCC
(Civ) 764] recommended for finding a valid arbitration agreement
on a prima facie basis qua Section 11, however, the negative
Page No.222/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
language used under the amended Section 8 mandates for
referring a matter to arbitration unless the court prima facie finds
that no valid arbitration exists. It is to be noted that a finding of
non-existence of arbitration agreement is final subject to the
appeal process only, without further scope for arbitral Tribunal to
decide anything as there can be no further reference. If that be the
case, then the usage of phrase “prima facie” stands at odds with
the established precedents on prima facie standards. In this
context, we can only stress on the requirement of quality legislative
drafting protocols to eliminate such complications.
233. From the aforesaid discussion, we can conclude that
the respondent-defendant has to establish a prima facie case of
non-existence of valid arbitration agreement, wherein it is to be
summarily portrayed that a party is entitled to such a finding. If a
party cannot satisfy the court of the same on the basis of
documents produced, and rather requires extensive examination of
oral and documentary production, then the matter has to be
necessarily referred to the Tribunal for full trial. Such limited
jurisdiction vested with the court, is necessary at the pre-reference
stage to appropriately balance the power of the Tribunal with
judicial interference.
234. The amendment to the aforesaid provision was
meant to cut the deadwood in extremely limited circumstances,
wherein the respondent is able to ex facie portray non-existence of
Page No.223/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
valid arbitration agreement, on the documents and the pleadings
produced by the parties. The prima facie view, which started its
existence under Section 45 through Shin-Etsu case [Shin-Etsu
Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234] , has
been explicitly accommodated even under domestic arbitration by
the 2015 Amendment with appropriate modifications.
238. At the cost of repetition, we note that Section 8 of the
Act mandates that a matter should not (sic) be referred to an
arbitration by a court of law unless it finds that prima facie there is
no valid arbitration agreement. The negative language used in the
section is required to be taken into consideration, while analysing
the section. The court should refer a matter if the validity of the
arbitration agreement cannot be determined on a prima facie
basis, as laid down above. Therefore, the rule for the court is
“when in doubt, do refer”.
239. Moreover, the amendment to Section 8 now rectifies
the shortcomings pointed out in Chloro Controls case [Chloro
Controls (India) (P) Ltd. v. Severn Trent Water Purification Inc.,
(2013) 1 SCC 641 : (2013) 1 SCC (Civ) 689] with respect to
domestic arbitration. Jurisdictional issues concerning whether
certain parties are bound by a
particular arbitration, under group-company doctrine or good
faith, etc., in a multi-party arbitration raises complicated factual
questions, which are best left for the Tribunal to handle. The
Page No.224/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
amendment to Section 8 on this front also indicates the legislative
intention to further reduce the judicial interference at the stage of
reference.
109. The wide scope of section 16 conferring power on arbitral
Tribunal to rule on its own jurisdiction may be trifle tempting to the Tribunal
to assume jurisdiction to implead non-signatory or third party to the arbitral
proceedings on an expansive reading of the section. If such power is
traceable to the Section without any modicum of doubt, the impleadment of
the appellants herein can always be upheld by substituting the power
exercised by the arbitral Tribunal under section 17 to that of Section 16 of
the Act, rectifying the anomaly in the application of the provision of the A &
C Act, 1996. But whether such power could said to be read into the section
is the most relevant and pivotal consideration of this Court as there is no
other provision that directs conferment of power of the Tribunal apart from
section 17.
110. In examining the overarching issue engaging the legal minds,
Page No.225/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
finding insufficient legal support, this Court has to do tight rope walking as
that of a funambulist, balancing the discourse to the reach a verdict on the
virgin legal terrain. Although the Court is conscious of the progressive
development of law in the recent years, transcending beyond the rigid
construct of the provisions of the Act, by evolving “Group of Companies”
doctrine, nonetheless the substratum and the bedrock on which the edifice
(arbitral Tribunal) is conceptualised and established cannot be lost sight of,
in favour of expediency.
111. The fundamental essence of referring a dispute to arbitration is
consent between parties to the dispute. Such being the underlying principle,
the Court could ill-afford to abandon the foundational, architecture and
embark upon an adventurous deconstruction and clothe the Tribunal with
any power outside the framework of the Act. In the progressive times, a
perceptive shift and change is essential, but in the name of expediency, the
scheme of the Act, 1996, cannot be read or interpreted to the point of
undermining the very essence of the concept of arbitration and the Act,
Page No.226/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
solely with a view to hold that the Tribunal has inherent power by
implication, for ordering impleadment of non-signatory. While interpreting
the scheme of the A & C Act, 1996, on the aspect of power of impleadment
of non-signatory to the arbitral proceedings by the Tribunal, in the realm of
the private law remedies, the court need to be circumspect and wary. The
arbitral Tribunal is not a creature of the statute in the sense that the Tribunal
as contemplated in the Act is not in any institutional form. It owes its
existence only on a reference by the Court under the statute. The Tribunal in
its circumscribed transitional existence owes its birth and extinction by
operation of the provisions by the A & C Act, 1996. In that legal context the
interpretation of the statutory scheme ought to be within its strict contours of
the Act.
112. No doubt, lately the Hon'ble Supreme Court heralded and
opened up new vistas by propounding 'Group of Companies' doctrine paving
way for adding non-signatory as party in the arbitration proceedings in
consideration of international awards with to reference to section 45 of the
Page No.227/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
A & C Act 1996 (Chloro Controls India (P) Ltd.) 2013(1) SCC 641. The
doctrine subsequently applied in domestic arbitration as well by later
decisions of the Courts as discussed supra. By amending Section 8(1) in
2016, the statute enjoined upon the Courts the power to add non-signatory
in the domestic arbitrations as well. After the said amendment and the slew
of decisions rendered in the recent past could leave no room for any doubt
that today a non-signatory to the arbitration agreement can be party to the
arbitration if in the opinion of the Court such course could avoid
multiplicity of claims, litigations, a timely expeditious comprehensive
resolution of the dispute among all the parties connected thereto.
113. The Courts have travelled from a narrow, constricted and
pedantic judicial outlook of the past to a liberal judicial disposition,
adopting latitudinarian approach to be in tune with and stay relevant in the
contemporary business world and transactions. Having explicated the
emerging legal scenario on the subject matter, the lurking legal concern
which is yet to attain pellucidity free from obscurity in the opinion of the
Page No.228/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Court, is the availability of power to order impleadment of third party non-
signatory by arbitral Tribunal even within the framework of the exceptional
circumstances as propounded by the Courts and in terms of the scheme of
the A & C Act 1996.
114. In order to reach clarity on the subject, it is imperative to refer
to a few case laws of very recent origin touching upon the core area of
concern which have not been cited before this Court in this proceedings.
However, before adverting to the case laws, it is very useful to refer to an
essay written on the topic on Perspective- Extension of Arbitration
Agreements to Non-signatories - A Global Perspective reported in 5 IJAL
35 (2016). The essay analytically traced the march of law both on the
international and the national arenas. A reference to excerpts from the essay
by the authors would throw light on the nucleus of the issue under
consideration.
I. Introduction
Founded on the principle of I'autonomie dela volonté, arbitration law finds
its sanction in the consent of parties. This is so much so that the Supreme
Page No.229/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Court of Texas has described “consent” as the “first
principle” of arbitration. This consent is found in
the arbitration agreement entered into by the parties. It is for this reason
that the position of non-signatories to arbitration agreements has
led to much debate in the arbitration world.
The importance of consent in arbitration proceedings may be gauged by
the adumbration of the United States [“U.S.”] Supreme Court in Stolt-
Nielsen v. Animal Feeds International Corpn.2 wherein it stated
that arbitration “is a matter of consent, not coercion”. Accordingly, when
interpreting an arbitration agreement, efforts must be made to give
effect to the parties' common intention rather than being restricted to the
literal wordings used in the agreement.
Further, arbitration agreements are to be interpreted in good faith.
Therefore, to ascertain and respect the common intention of the parties, the
consequences of the commitments the parties may be considered as having
been reasonably and legitimately envisaged.4 While there are numerous
impediments that may arise as regards the
enforcement of arbitration agreements, the focus of this article is on the
enforceability of arbitration agreements on non-signatories.
To this end, this article seeks to analyse the position of law on the
touchstone of the following:
a. The formalistic requirements of a valid and
binding arbitration agreement as per (a) the New York Convention on the
Recognition and Enforcement of Foreign arbitral Awards, 1958 [the
“NYC”]; and (b) UNCITRAL Model Law on International
Commercial Arbitration, 1985 [the “Model Law”];
b. The position taken by national courts with respect to the
enforcement of arbitration agreements as against non-signatories;
c. The enforcement of awards where non-signatories have been
joined to the proceedings;
d. The position of ‘third party beneficiaries’ with
respect to arbitration agreements; and
e. The position of third parties during the conduct of arbitral proceedings.
F. India
Page No.230/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
The Indian law pertaining to the position of non-signatories has evolved
drastically over the years. The Arbitration & Conciliation Act, 1996 [the
“Act”] which governs arbitrations in India has recently undergone
significant changes in view of the Arbitration & Conciliation (Amendment)
Act, 2015 [the “Amendment Act”]. The authors will first discuss
the arbitration law as it stood prior to the Amendment Act and then deal
with the Amendment Act and its implications.
Section 2(1)(h) of the Act defines a “party” as “a party to
an arbitration agreement”. Section 8 of the Act also empowers
courts to refer parties to arbitration where a valid arbitration agreement
between the parties exists, in the realm of domestic arbitration. The
definition of an arbitration agreement under Section 7 of the Act, in turn,
mirrors that of the Model Law. Section 7 reads as follows:
1. In this Part, ‘arbitration agreement’ means an agreement by the
parties to submit to arbitration all or certain disputes which have arisen or
which may arise between them in respect of a defined legal relationship,
whether contractual or not.
2. An arbitration agreement may be in the form of an arbitration clause
in a contract or in the form of a separate agreement.
3. An arbitration agreement shall be in writing.
4. An arbitration agreement is in writing if it is contained in-
a. a document signed by the parties;
b. an exchange of letters, telex, telegrams or other
means of telecommunication which provide a record of the agreement; or
c. an exchange of statements of claim and defence in which the
existence of the agreement is alleged by one party and not denied by the
other.
5. The reference in a contract to a document containing
an arbitration clause constitutes an arbitration agreement if the contract is
in writing and the reference is such as to make that arbitration clause
part of the contract.
Page No.231/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Much like the Model Law, therefore, an arbitration agreement may
extend to a non-signatory but it would have to be formalized by non-
conventional means, i.e. other than in writing. The Supreme Court of India
considered the position of non-signatories to arbitration agreements for
the first time in Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya28 In that
case, Sukanya Holdings attempted to enforce an arbitration agreement
against inter alia non-signatories by filing an application under Section
8 of the Act before the Bombay High Court. However, in view of the fact
that not all the parties were signatories to the arbitration agreement, the
Bombay High Court rejected the application. While doing so, the Court
remarked that arbitration was a viable option only as against some of the
parties and the Act did not confer any power on the judiciary to add non-
signatories to arbitration agreements. Sukanya Holdings then preferred an
appeal against the order of the Bombay High Court before the Supreme
Court of India. This appeal was dismissed and it was held that
“[where], however, a suit is commenced — “as to a matter” which lies
outside the arbitration agreement and is also between some of the parties
who are not parties to the arbitration agreement, there is no
question of application of S. 8.”
Consistent with Sukanya Holdings30 the Supreme Court of India has
declined to appoint an arbitrator under Section 11 of the Act where a non-
signatory was proposed to be added to the arbitration proceedings
in Indowind Energy Ltd. v. Wescare (India) Ltd.31 The judgment of the
Supreme Court was notwithstanding that the non-signatory was an alter-
ego of the signatory and they shared a registered office. Applying strict
rules of construction to various provisions of the Act, the Supreme Court
held that the existence of an arbitration agreement between the
parties to the dispute and covering the dispute was fundamental to the
invocation of arbitration. The Supreme Court further held that
an arbitration agreement will only satisfy the ‘writing’ requirement if it is
contained in a document signed by the parties, in an exchange of letters,
Page No.232/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
telex, telegrams or other means of telecommunication which
provide a record of the agreement, in an exchange of statements of claim
and defence in which the existence of an arbitration agreement is alleged
and not denied or in a contract between the parties which incorporates by
reference another document containing an arbitration clause. The Supreme
Court did not, therefore provide any leeway to the parties to extend the
operation of an arbitration agreement to non-signatories, save and except
for arbitration agreements incorporated by reference.
The Supreme Court of India has applied the Sukanya Holdings' reasoning
even when deciding petitions under Section 45 of the Act, which
pertains to the enforcement of arbitration agreements under the NYC i.e. in
cases of international commercial arbitration. Illustratively, in Sumitomo
Corpn. v. CDS Financial Services (mauritius) Ltd. the Supreme Court
declined to refer non-signatories to arbitration stating that any
reference to arbitration necessarily had to be between ‘parties’ as defined
by Section 2(1)(h) of the Act. The error in this decision lies in the
wording of Section 45 itself which provides for
reference to arbitration upon a request of “one of the parties or any
person claiming through or under him”. The only basis available for
refusing referral under Section 45 is if the agreement in question is
found to be null and void, inoperative or incapable of being performed.
None of these carve outs were attracted in the case at hand.
A Division Bench of the Supreme Court, however, remedied the injustice
caused by the Sumitomo case in Chloro Controls India (P) Ltd. v. Severn
Trent Water Purification Inc. The main consideration before the Supreme
Court in Chloro Controls was to define the ambit of Section 45 of the Act
and to determine whether a composite reference to arbitration under
Section 45 was permissible under multiple arbitration agreements
(some of which contain an arbitration clause) and where there is no
identity of parties. At the outset the Supreme Court noted that the wording
Page No.233/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
employed in Section 45 of the Act was on the same lines as that in Article
II of the NYC and at a substantial variance to the wording of Section
8 of the Act. This is so, since both Section 45 and Article II of the NYC
permit reference upon a request being made by a party or “any person”
claiming “through or under” it whereas Section 8 merely refers to a party
simpliciter. The use of the term “any person” was construed as evincing
the intention of the legislature to broaden the scope of Section 45. Further
the Supreme Court stressed that it was mandatory for
courts to make a reference as requested, subject only to the arbitration
agreement being agreement “null and void, inoperative or
incapable of being performed” owing to the use of the word “shall” in
Section 45.
To tackle the involvement of multiple parties and multiple contracts, the
Supreme Court analyzed the case of Abu Dhabi Gas Liquefaction Co.
Ltd. v. Eastern Bechtel Corpn. Where separate agreements (containing
incompatible arbitration clauses) had been executed with a contractor
and a subcontractor, and disputes arose between both the agreements, the
Abu Dhabi Gas Liquefaction Co. instituted separate actions against
each of the contractor and the sub-contractor. When both the disputes
came before the English Court of Appeal, Lord Denning remarked on the
imminent possibility of the two Tribunals arriving at incompatible
conclusions and stated that “…it is most undesirable that there should be
inconsistent findings by two separate arbitrators on virtually the selfsame
question, such as causation. It is very desirable that everything should be
done to avoid such a circumstance”. The Supreme Court reiterated the
need to avoid multiplicity of litigation and the application of the
principle of ‘one - stop action’. Turning then to the language employed in
Section 44 of the Act (as also Article 1(3) of the NYC), which qualifies all
“differences between persons arising out of legal relationships, whether
contractual or not, considered as commercial under the law in force in
India” as amenable to arbitration, the Supreme Court further expanded
Page No.234/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
the scope of arbitration agreements.
In essence, the Chloro Controls case is a high watermark of judicial
insistence in the sphere of extension of arbitration agreements to non-
signatories. The Supreme Court, applying the group of companies
doctrine, examined the proximity of the relationship between the parties. It
was recognized that even though multiple agreements had been entered
into, they all formed part of one composite transaction and the
performance of one was intrinsically linked to the others. It was for these
reasons that the Supreme Court permitted a single reference to arbitration.
However, while doing so the Supreme Court also added the caveat that
each case would have to be decided on its peculiar factual matrix and no
straitjacket formula could be arrived at.
The subsequent Amendment Act, which substantially amends
the arbitration regime in India and is aimed at reformation of the
Indian arbitration law at power with global standards to ensure an
effective, speedy mechanism to resolve disputes, is noteworthy.
In relation to non-signatories, taking heed from the Supreme Court
in Chloro Controls the wording “party to an arbitration agreement” under
Section 8(1) of the Act was amended to include any party claiming through
or under such party to an arbitration agreement. Section 8(1) now
provides:
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.
Page No.235/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
[…]
Thus now, an arbitration agreement may extend to non-signatories too in
domestic or Indian seated international arbitrations if they are claiming
through or under a signatory.
VII. Conclusion
Much can be said about the position of national legislations as regards the
position of non-signatories to arbitration agreements, but for the present
suffice it to say that a general trend is emerging in
favor of extending arbitration agreements to non-signatories. The only
bar to such extension is that the parties must have intended it to be so and
that an arbitration agreement was concluded by the parties either expressly
or impliedly.
Much of the uncertainty behind the reluctance of courts allowing non-
signatories to be joined to arbitration proceedings can be traced to their
having resort to a strict approach to interpret the arbitration agreement.
As the Supreme Court of India observed in Enercon (India) Ltd. v. Enercon
GMBH72 “courts have to adopt a pragmatic approach and not a pedantic
or technical approach while interpreting or construing
an arbitration agreement or arbitration clause.”. The Supreme Court,
relying upon a gamut of Indian as well as foreign cases, concluded that
courts must arrive at an interpretation which gives effect to the parties'
intention to arbitrate, rather than one that defeats it. While the
opinion of courts cannot be forcibly harmonized, it is imperative that an
approach conducive to arbitration is adopted. This is largely
necessitated to ensure that the rights of parties (who may be non-
signatories) who have obtained an award in their favour, possibly
against non-signatories, are not defeated at the enforcement stage. One
way in which this conflict could be avoided would be if there was an
international instrument governing the
position of non-signatories to arbitration agreements. Having said that,
national courts would also have to maintain a precarious balance between
not getting embroiled in interpreting an arbitration agreement
in a formalistic and technical way and importing consent to arbitrate
Page No.236/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
where, in fact, none existed. After all, “like consummated
romance, arbitration rests on consent”73, and such consent must be
evident whether in the arbitration agreement or by the conduct of the
parties.
The above write up anatomised the relevant provisions of the Act and the
fundamental concept of arbitration, as evolved over the years and
authoritatively concluded that arbitration agreement may extend to non-
signatories too, today. However, the article has also cautioned that the
Courts have to maintain a precarious balance of not going overboard while
adopting a liberal construct of the arbitration agreement, not importing
consent to arbitrate when factually none existed. The article concluded with
a aphorism "Like consummated romance, arbitration rests on consent".
Truly re-enforcing the substratum of the concept of arbitration.
115. As far as the latest case laws are concerned, the following
decisions have dealt with the subject relating to the impleadment of non-
signatory to arbitration proceedings. The first of the decisions is reported in
2021 SCC Online Delhi 1279 (Amazon COM NV Investment Holdings
LLC v. Future Coupons Private Limited and Ors.), considered the very
Page No.237/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
same issue that is under critical lens of this Court in the present appeals and
the Court held that impleadment by the arbitral Tribunal is permissible. The
questions framed and the reasons of the Court are extracted hereunder.
3. Respondent No. 2 has raised two objections. The first objection is that
there is no arbitration agreement between the petitioner and respondent
No. 2; and the Emergency Arbitrator has misapplied the concept of Group
of Companies doctrine to implead respondent No. 2. According to
respondent No. 2, the Group of Companies doctrine applies only in
proceedings under Section 8 of the Arbitration and Conciliation Act for
transfer of proceedings pending in Court to arbitration where the plaintiff
claims through a person who is a party to an arbitration agreement.
According to respondent No. 2, Group of Companies doctrine cannot be
invoked to implead respondent No. 2.
................
20. Future Retail Limited (respondent No. 2) raised an objection before the
Emergency Arbitrator that respondent No. 2 was not signatory to the
FCPL - SHA, and therefore, cannot be drawn into the arbitration
proceedings. The learned Arbitrator rejected this objection after a detailed
analysis of the submissions. Relevant portions of the interim order are
reproduced hereunder:
……………..
B. Indian Law on a Tribunal's Jurisdiction over Non-Signatories
111. Two distinct issues arise in analysing FRL's jurisdictional objection.
First, is it essential under Indian law for an arbitration agreement to be in
writing? Second, are only signatories, invariably, the proper parties to an
arbitration agreement?
112. The Supreme Court of India in Chloro Controls
India Private Ltd. v. Severn Trent Water Purification Inc. (2013) 1 SCC
641 (“Chloro”) noted that:
[o]nce it is determined that a valid arbitration agreement exists, it is a
Page No.238/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
different step to establish which parties are bound by it [and that] The
third parties, who are not explicitly mentioned in an arbitration agreement
made in writing, may enter into its ratione persone scope.
113. The Respondents accept that Section 25.2.1 of the FCPL SHA
constitutes a valid arbitration agreement. The issue that arises is whether
FRL is bound by that arbitration agreement in Section 25.2.1 of the FCPL
SHA, and, therefore, de jure a “party” to this arbitration under Indian
law.
114. FRL initially relied heavily on the decision rendered by a two-judge
bench of the Supreme Court of India in Indowind Energy Ltd. v. Wescare
(India) Limited (2010) 5 SCC 306 (“Indowind”).
115. However, Indian law has made consequential strides since that
decision. Non-signatories may now be bound by an arbitration agreement
if the circumstances compellingly show that it was the mutual intention of
all the parties to bind both signatories to the arbitration agreement as well
as certain non-signatory entities.
In Chloro, a three-judge bench of the Supreme Court of India held that a
“non-signatory or third party could be subjected to arbitration without
their prior consent, but this would be in exceptional cases.”
116. As the Claimant points out, in Cheran Properties Ltd. v. Kasturi and
Sons Ltd. (2018) 16 SCC 413 (“Cheran”), another three-judge bench of
the Supreme Court of India more recently emphasised that the Section 7
requirement of the Indian Arbitration Act 1996 that an arbitration
agreement must be in writing, does not exclude the possibility of binding
third parties who may not be signatories to an agreement between two
contracting entities. After specifically considering the earlier judgment
in Indowind, it noted that the law has evolved. The Court explicitly noted
“that in certain situations, an arbitration agreement between two or more
parties may operate to bind other parties as well.”
117. MTNL v. Canara Bank 2019 SCC OnLine SC 995 (“MTNL”), a
decision of a two-judge bench of the Supreme Court of India, given in
2019, reaffirmed that a “non-signatory can be bound by an arbitration
agreement on the basis of the Group of Companies doctrine, where the
conduct of the parties evidences a clear intention of the parties to bind
both the signatory as well as the non-signatory parties.”
118. The jurisprudence developed by the Supreme Court on the issues of
Page No.239/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
non-signatories to an arbitration agreement is consistent with the
definition of the term “party” under the Indian Arbitration Act 1996.
Under Section 2(1)(h) of the Indian Arbitration Act 1996, a ‘party’ is
defined as a ‘party to the arbitration agreement’ and, crucially, not as a
‘signatory’ to the arbitration agreement. In Govind Rubber Ltd. v. Louis
Dreyfus Commodities Asia Private Ltd. (2015) 13 SCC 477, the Supreme
Court reiterated the importance of this distinction and emphasized that
“in order to constitute an arbitration agreement, it need not be signed by
all the parties.”
.....................
2. Analysing the Submissions
130. Over the course of the last decade, the Supreme Court has
conspicuously been at the forefront of a growing international consensus
on how and when arbitral Tribunals might legitimately exercise
jurisdiction over intimately related parties involved in closely connected
transactions. This is a sensible and pragmatic approach as it centralises
in a single forum all the relevant parties that are intimately connected to
the disputed transaction. It allows affiliated entities who have been
intimately involved in negotiations and the performance of contracts to be
subjected to and/or benefit from the presence of an arbitration clause
entered into by another affiliate. This saves time and costs, hinders
dilatory tactics, and precludes conflicting findings that may arise from
satellite litigation in multiple forums. As a matter of business common-
sense, it stands to reason that affiliated commercial parties would
ordinarily intend that intertwined disputes with a counterparty be resolved
in one forum, for reasons of efficiency and certainty.
131. In the three seminal decisions mentioned above, the Supreme Court
set out the criteria that would satisfy a consent-based enquiry that seeks to
ascertain whether a non-signatory ought to be brought within the scope of
an arbitration clause it has not expressly acceded to. In the watershed
decision of Chloro, the Supreme Court ruled:
73. A non-signatory or a third party could be subjected to arbitration
without their prior consent, but this would only be in exceptional
cases. The court will examine these exceptions from the touchstone of
direct relationship to the party signatory to the arbitration agreement,
direct commonality of the subject-matter and the agreement between the
Page No.240/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
parties being a composite transaction. The transaction should be of a
composite nature where performance of the mother agreement may not be
feasible without the aid, execution and performance of the supplementary
or ancillary agreements, for achieving the common object, and collectively
having bearing on the dispute. Besides all this, the court would have to
examine whether a composite reference of such parties would serve the
ends of justice. Once this exercise is completed and the court answers the
same in the affirmative, the reference of even non-signatory parties would
fall within the exception afore-discussed.
…
76. The Court will have to examine such pleas with greater caution and by
definite reference to the language of the contract and intention of the
parties. In the case of composite transactions and multiple agreements, it
may again be possible to invoke such principle in accepting the pleas of
non-signatory parties for reference to arbitration. Where the agreements
are consequential and in the nature of a follow-up to the principal or
mother agreement, the latter containing the arbitration agreement and
such agreements being so intrinsically intermingled or interdependent that
it is their composite performance which shall discharge the parties of their
respective mutual obligations and performances, this would be sufficient
indicator of intent of the parties to refer signatory as well as non-
signatory parties to arbitration. 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 the attendant circumstances on the other.
…
78. In India, the law has been construed more liberally, towards accepting
incorporation by reference. In Vessel M.V. Baltic Confidence v. State
Trading Corpn. of India Ltd., the Court was considering the question as to
whether the arbitration clause in a charter party agreement was
incorporated by reference in the bill of lading and what the intention of the
parties to the bill of lading was. The primary document was the bill of
lading, which, if read in the manner provided in the incorporation clause
thereof, would include the arbitration clause of the charter party
agreement. The Court observed that while ascertaining the intention of the
parties, attempt should be made to give meaning and effect to the
incorporation clause and not to invalidate or frustrate it by giving it a
Page No.241/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
literal, pedantic and technical reading.
(Emphasis supplied)
132. In Cheran, the Supreme Court held (per Dr.
Chandrachud (sic) SCJ):
23. As the law has evolved, it has recognised that modern business
transactions are often effectuated through multiple layers and agreements.
There may be transactions within a group of companies. The circumstances
in which they have entered into them may reflect an intention to bind both
signatory and non-signatory entities within the same group. In holding a
non-signatory bound by an arbitration agreement, the court approaches the
matter by attributing to the transactions a meaning consistent with the
business sense which was intended to be ascribed to them. Therefore,
factors such as the relationship of a non-signatory to a party which is a
signatory to the agreement, the commonality of subject-matter and the
composite nature of the transaction weigh in the balance. The group of
companies doctrine is essentially intended to facilitate the fulfilment of a
mutually held intent between the parties, where the circumstances indicate
that the intent was to bind both signatories and nonsignatories. The effort
is to find the true essence of the business arrangement and to unravel from
a layered structure of commercial arrangements, an intent to bind someone
who is not formally a signatory but has assumed the obligation to be bound
by the actions of a signatory.
…
25. Does the requirement, as in Section 7, that an arbitration
agreement be in writing exclude the possibility of binding third parties who
may not be signatories to an agreement between two contracting entities?
The evolving body of academic literature as well as adjudicatory trends
indicate that in certain situations, an arbitration agreement between two or
more parties may operate to bind other parties as well.
…
27. Gary B. Born in his treatise on International Commercial
Arbitration indicates that:
The principal legal bases for holding that a non-signatory is bound (and
Page No.242/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
benefited) by an arbitration agreement … include both purely consensual
theories (e.g., agency, assumption, assignment) and non- & consensual
theories (e.g. estoppel, alter ego).
Explaining the application of the alter ego principle in
arbitration, Born notes:
Authorities from virtually all jurisdictions hold that a party who has not
assented to a contract containing an arbitration clause may nonetheless be
bound by the clause if that party is an ‘alter ego’ of an entity that did
execute, or was otherwise a party to, the agreement. This is a significant,
but exceptional, departure from the fundamental principle … that each
company in a group of companies (a relatively modern concept) is a
separate legal entity possessed of separate rights and liabilities.
28. Explaining group of companies doctrine, Born states:
the doctrine provides that a non-signatory may be bound by an arbitration
agreement where a group of companies exists and the parties have engaged
in conduct (such as negotiation or performance of the relevant contract) or
made statements indicating the intention assessed objectively and in good
faith, that the non-signatory be bound and benefited by the relevant
contracts.”
While the alter ego principle is a rule of law which disregards the effects of
incorporation or separate legal personality, in contrast the group of
companies doctrine is a means of identifying the intentions of parties and
does not disturb the legal personality of the entities in question. In other
words:
“the group of companies doctrine is akin to principles of agency or implied
consent, whereby the corporate affiliations among distinct legal entities
provide the foundation for concluding that they were intended to be parties
to an agreement, notwithstanding their formal status as non-signatories.”
[emphasis in italics and underlined added]
133. More recently, just last year, the Supreme Court
in MTNL further clarified the position:
10.3 A non-signatory can be bound by an arbitration agreement on the
basis of the “Group of Companies” doctrine, where the conduct of the
parties evidences a clear intention of the parties to bind both the signatory
as well as the non-signatory parties.
Page No.243/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Courts and Tribunals have invoked this doctrine to join a non-signatory
member of the group, if they are satisfied that the non-signatory company
was by reference to the common intention of the parties, a necessary party
to the contract.
10.4 …..
The ‘Group of Companies’ doctrine has been invoked by courts and
Tribunals in arbitrations, where an arbitration agreement is entered into by
one of the companies in the group; and the non-signatory affiliate, or
sister, or parent concern, is held to be bound by the arbitration agreement,
if the facts and circumstances of the case demonstrate that it was the
mutual intention of all parties to bind both the signatories and the non-
signatory affiliates in the group.
The doctrine provides that a non-signatory may be bound by an arbitration
agreement where the parent or holding company, or a member of the group
of companies is a signatory to the arbitration agreement and the non-
signatory entity on the group has been engaged in the negotiation or
performance of the commercial contract, or made statements indicating its
intention to be bound by the contract, the non-signatory will also be bound
and benefitted by the relevant contracts.
The circumstances in which the ‘Group of Companies’ Doctrine could
be invoked to bind the non-signatory affiliate of a parent company, or
inclusion of a third party to an arbitration, if there is a direct
relationship between the party which is a signatory to the arbitration
agreement; direct commonality of the subject matter; the composite
nature of the transaction between the parties.
A ‘composite transaction’ refers to a transaction which is inter-linked in
nature; or, where the performance of the agreement may not be feasible
without the aid, execution, and performance of the supplementary or the
ancillary agreement, for achieving the common object, and collectively
having a bearing on the dispute.
….
10.9. It will be a futile effort to decide the disputes only between MTNL and
Canara Bank, in the absence of CANFINA, since undisputedly, the original
transaction emanated from a transaction between MTNL and CANFINA -
the original purchaser of the Bonds. The disputes arose on the cancellation
of the Bonds by MTNL on the ground that the entire consideration was not
Page No.244/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
paid.
There is a clear and direct nexus between the issuance of the Bonds, its
subsequent transfer by CANFINA to Canara Bank, and the cancellation by
MTNL, which has led to disputes between the three parties.
Therefore, CANFINA is undoubtedly a necessary and proper party to the
arbitration proceedings.
10.10. Given the tri-partite (sic) nature of the transaction, there can be a
final resolution of the disputes, only if all three parties are joined in the
arbitration proceedings, to finally resolve the disputes which have been
pending for over 26 years now.
[emphasis in italics and bold italics added]
134. It is evident from the passages cited above that the Supreme Court has
adopted a broad common sense and pragmatic approach in formulating
this criteria. The minutiae of the terms of the subject contracts, even though
not insignificant, should not constrain an adjudicatory body from
determining which parties are within the scope of the contested arbitration
clause. All the circumstances are to be considered when there is a
composite transaction involving affiliated entities who are intimately
involved in the same transaction.
135. It is clearly not enough that the non-signatory party whom a claimant
seeks to include in arbitration proceedings is from the same group of
companies or an affiliate. It is only in exceptional cases, where there exists
the closest of connections between the parties as well as an indivisibility of
the transaction(s) in question, that a non-signatory ought to be included in
an arbitration. This requires a consent-based enquiry to ascertain the
existence and degree of relational intimacy as well as the presence of an
indivisible community of interests to resolve the dispute through a single
common modality.
.............
163. Summary of Principles laid down by the Supreme Court on
the Group of Companies doctrine
163.1 As the law has evolved, it has recognised that modern business
transactions are often effectuated through multiple layers and agreements.
There may be transactions within a Group of Companies. The
circumstances in which they have entered into them may reflect an intention
Page No.245/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
to bind both signatory and non-signatory entities within the same group.
163.2 The Group of Companies doctrine is essentially intended to facilitate
the fulfilment of a mutually held intent between the parties, where the
circumstances indicate that the intent was to bind both signatories and non-
signatories. The effort is to find the true essence of the business
arrangement and to unravel from a layered structure of commercial
arrangements, an intent to bind someone who is not formally a signatory
but has assumed the obligation to be bound by the actions of a signatory.
163.3 Group of Companies doctrine can be invoked to bind a non-
signatory entity where a Group of Companies exist and the parties have
engaged in conduct, such as negotiation or performance of the relevant
contract or made statements indicating the intention assessed objectively
and in good faith, that the non-signatory be bound and benefited by the
relevant contracts.
163.4 The Group of Companies doctrine will bind a non-signatory entity
where an arbitration agreement is entered into by a company, being one
within a group of companies, if the circumstances demonstrate that the
mutual intention of all the parties was to bind both the signatories and the
non-signatory affiliates.
163.5 A non-signatory party can be subjected to arbitration where there
was a clear intention of the parties to bind both, the signatory as well as
the non-signatory parties who are part of Group of Companies. In other
words, “intention of the parties” is a very significant feature which must be
established before the scope of arbitration can be said to include the
signatory as well as the non-signatory parties.
163.6 Direct relationship to the party signatory to the arbitration
agreement, direct commonality of the subject-matter and the agreement
between the parties being a composite transaction. The transaction should
be of a composite nature where performance of the mother agreement may
not be feasible without aid, execution and performance of the
supplementary or ancillary agreements, for achieving the common object
and collectively having bearing on the dispute. Besides all this, the Court
has to examine whether a composite reference of such parties would serve
the ends of justice.
163.7 Where the agreements are consequential and in the nature of a
follow-up to the principal or mother agreement, the latter containing the
Page No.246/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
arbitration agreement and such agreements being so intrinsically
intermingled or interdependent that it is their composite performance which
shall discharge the parties of their respective mutual obligations and
performances, this would be a sufficient indicator of intent of the parties to
refer signatory as well as non-signatory parties to arbitration. 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 the attendant
circumstances on the other.
163.8 While ascertaining the intention of the parties, attempt should be
made to give meaning and effect to the incorporation clause and not to
invalidate or frustrate it by giving it a literal, pedantic and technical
reading.
163.9 Tests laid down by the Supreme Court to bind a non-signatory of an
arbitration agreement on the basis of Group of Companies doctrine:
163.9.1 The conduct of the parties reflect a clear intention of the parties to
bind both the signatory as well as the non-signatory parties.
163.9.2 The non-signatory company is a necessary party with reference to
the common intention of the parties.
163.9.3 The non-signatory entity of the group has been engaged in the
negotiation or performance of the contract.
163.9.4 The non-signatory entity of the group has made statements
indicating its intention to be bound by the contract.
163.9.5 A direct relationship between the signatory to the arbitration
agreement and the non-signatory entity of the group; direct commonality of
the subject-matter and composite nature of transaction between the parties.
163.9.6 The performance of the agreement may not be feasible without the
aid, execution and performance of the supplementary or ancillary
agreement for achieving the common object.
163.9.7 There is tight group structure with strong organizational and
financial links so as to constitute a single economic unit or a single
economic reality.
163.9.8 The funds of one company are used to financially support or
restructure other members of the group.
Page No.247/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
163.9.9 The composite reference of disputes of fresh parties would serve
the ends of justice.
..................
184. With respect to the Group of Companies doctrine applied by
the Emergency Arbitrator, the respondents have urged that the Group of
Companies doctrine applies only to Section 8 of the Arbitration and
Conciliation Act, when the Court has to transfer the proceedings to
Arbitrator. This submission of the respondent is contrary to the well settled
law laid down by the Supreme Court. In Cheran Properties (supra), the
Supreme Court invoked Group of Companies doctrine to enforce an award
against an entity which was neither a signatory to the arbitration
agreement nor a party in the arbitration proceedings, meaning thereby,
even if the Emergency Arbitrator had not impleaded respondent No. 2, the
interim order of the Emergency Arbitrator is enforceable against
respondent No. 2 before this Court.
185. The law relating to the Group of Companies doctrine is well
settled by the Supreme Court which is binding on all the parties. In that
view of the matter, raising a plea contrary to the well settled law is a very
serious matter and as it creates confusion in the administration of justice
and shall undermine the law laid down by the Supreme Court. In Nidhi
Kaushik v. Union of India, (2013) 203 DLT 722, BHEL raised pleas
contrary to the well settled law by the Supreme Court. In NDMC v.
Prominent Hotels Limited, (2015) 222 DLT 706, the petitioner raised pleas
contrary to the well settled law declared by the Supreme Court. In both
these cases, this Court held the conduct of the litigants to be contemptuous
and the action was initiated against the litigants. Reference be made to
paras 13, 24 and 26.2 of the Division Bench judgment of this Court in
Nidhi Kaushik (supra).
116. As could be seen above, the Delhi High Court has extensively
dealt with the issue with reference to the emerging legal principle on the
Page No.248/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
subject matter. In para 163 extracted supra, summary of the principles
evolved by the Hon'ble Supreme Court on the "Group of Companies"
doctrine has been comprehensively elucidated. The High Court with
reference to the facts of that case has upheld the impleading of non-signatory
therein by the Emergency Arbitrator on the basis of the "Group of
Companies" doctrine. In that case, a contention was raised that "Group of
Companies" doctrine applies only to Section 8 proceedings, when the Court
has to transfer the proceedings to arbitrator. The Court however appeared to
have not been impressed with the said important contention.
117. The above ruling of the High Court may appear to be an answer
to the challenge in the appeals. But on perusing the entire judgment, this
Court finds the complete focus of the Court was with reference to the
principal objection raised therein whether non-signatory can be made a party
to the arbitration proceedings in the teeth of the well settled 'Group of
Companies' doctrine. The Court's attention centered around the application
of the said doctrine and it found fault with the objection being raised
Page No.249/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
contrary to the well settled law by the Hon'ble Supreme Court. The Court
dismissed the objection holding that the same creates confusion in the
administration of justice and the application of the "Group of Companies"
doctrine is now well settled. But the Court, despite a very relevant and
pointed contention raised that the doctrine can have application only in
Section 8 proceedings has not chosen to address the same with reference to
the power and jurisdiction of the Tribunal to apply the doctrine. The Court
did not go as far as tracing the source of power of the Tribunal within the
scheme of the A & C Act, 1996 for impleading a third party to the
proceedings.
118. But the pivotal question raised here is the power and
jurisdiction to order impleadment which finds no definite answer in the
above judgment or for that matter in the entire legal landscape, pointing
towards any authoritative judicial pronouncement.
119. It is interesting to learn that the above judgment of the Delhi
Page No.250/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
High Court eventually landed on the lap of the Hon'ble Supreme Court in
Civil Appeal Nos.4492-4493 of 2021. The Hon'ble Supreme Court in its
decision dated 06.08.2021 did not go into the validity of the impleadment
ordered by the Emergency Arbitrator in that case as the issue placed for
consideration was in relation to the interpretation of Section 17 of the A & C
Act,1996. In the entire judgment of the Hon'ble Supreme Court, not a
reference could be found as to any arguments being advanced on the
availability of power to the arbitrator under the provisions of A & C Act,
1996 for impleadment of non-signatory in the arbitral proceedings, nor the
Supreme Court specifically dealt with the issue on its own, either.
120. These is one more decision on the issue rendered by the Gujarat
High Court dated 28.09.2018 in Special Civil Application No.5694 of 2018
(Imc Limited vs Board Of Trustees Of Deendayal Port Trust). The
Division Bench of the High Court agreed with the single Judge order,
finding no infirmity in the impleadment of the parties to the arbitration
proceedings by the Tribunal. The relevant portions of the factual
Page No.251/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
narrative, the observations and the ruling of the Court are extracted
hereunder.
2. The factual matrix of the case which relates to filing of
this appeal, in brief, is as under:
2.1 The 1st respondent Kandla Port Trust (renamed as
Deendayal Port Trust - referred to as "the DPT" hereinafter) is a
Major Port constituted under Section 3A of the Major Port Trusts
Act, 1963. Vide Resolution 08.12.2005, 1st respondent - Trust has
decided to develop Berth Nos.13 to 16 by private participation on
Build, Operate and Transfer ("BOT" basis). Acting on the
Resolution, notice inviting tenders was published inviting bids
from the prospective parties for the respective berths in two-stage
process for selection. Request for Qualification provided the
eligibility criteria for enabling a prospective bidder to participate
in the process for the said project, while awarding of concession
was to be evaluated on the financial bids of the prospective
bidders. The prospective bidders were expected to evaluate the
feasibility of facilities and the project before placing the bid.
2.2 Pursuant to notice inviting tenders, the appellant -
M/s.IMC Limited submitted its bid for licence of Berth No.15. The
bid of the appellant-Company was accepted and a Letter of Intent
for Award of Concession was issued to M/s.IMC Limited on
07.12.2010. Vide communication dated 27.01.2011, the appellant-
Page No.252/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
Company was conveyed by the 1st respondent - DPT that it was
required to form a Special Purpose Vehicle ("SPV").
2.3 The appellant - IMC constituted Special Purpose
Vehicle (SPV) i.e. JRE Infra Private Limited - the 2nd respondent
herein (hereinafter referred to as "JRE" or "SPV") which has
executed the Concession Agreement with the Concessioning
Authority. The Concession Agreement has an arbitration clause,
as a part of the dispute resolution mechanism. Disputes having
arisen, the 1st respondent alleging breach of agreement, invoked
arbitration clause and initiated arbitration proceedings. Learned
arbitral Tribunal, comprising of Justice (Retd.) R.C.Lahoti,
Former Chief Justice of India (Presiding Arbitrator), Justice
(Retd.) J.M.Panchal and Justice (Retd.) A.R.Dave (Presiding
Arbitrators), is constituted. 2.4 Broadly, the claims made by
the first respondent - DPT / claimant can be categorised for non-
payment of licence fees, non-payment of liquidated damages, non-
payment of remuneration of independent engineer, non-payment
of royalty as agreed, non-payment/ non-reimbursement of taxes
and duties, losses and damages caused to the 1st respondent and
non-payment of cost towards assessing the replacement cost. The
2nd respondent- JRE filed Statement of Defence in the arbitration
proceedings and also preferred Counter Claim. On completion of
pleadings, before recording evidence, the 1 st respondent - DPT
moved an application for impleadment of appellant - IMC as a
Page No.253/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
party to the arbitration proceedings. The 2nd respondent,
opposed the prayer for impleadment on many grounds. The
learned arbitral Tribunal, by considering the respective pleas of
the 1st respondent and 2nd respondent and by considering the
clauses in the agreement, by prima-facie accepting the case of the
1st respondent, allowed the application for impleadment, and, at
the first instance, the learned arbitral Tribunal on 14.03.2018,
has passed the following order:
"1. The claimant's Application dated 7.3.2018 for
impleading IMC Limited as party to the proceeding
has been heard at length. After hearing the learned
Senior counsel for the parties, the Tribunal has
formed an opinion that the Application deserves to be
allowed. Accordingly, the application allowed.
Reasons would follow.
2. As a consequence of the impleadment having been
allowed as above, the claimant seeks leave of the
Tribunal for moving an Application to amend the
statement of claim. Let the Application be filed within
one week from today. The present respondent may file
reply/ objections within a week thereafter.
3. The Tribunal would meet on 12.04.2018, at 11:30
AM for hearing and deciding the applicatino for
amendment."
Thereafter, reasons are placed on record by order dated
26.03.2018. Paragraphs 22 to 25 of the order read as under:
……………
2.6 The appellant-Company, which has responded
Page No.254/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
to Request for Qualification ("RFQ") and Request for Proposal
("RFP"), has filed the Special Civil Application under Articles 226
and 227 of the Constitution of India with the prayer, inter alia,
that an appropriate Writ, order or direction may be issued for
quashing and setting aside the order dated 14.03.2018 (with the
reasons as recorded on 26.03.2018) passed by the learned
arbitral Tribunal on various grounds.
2.7 In the Special Civil Application, mainly it was the case
of the appellant herein that the impugned order was passed by the
learned arbitral Tribunal without issuing any prior notice and
opportunity and as such, same was passed in violation of the
principles of natural justice. It was also the case of the appellant
that there was no arbitration agreement between the appellant -
Company and the 1st respondent - DPT and no notice was issued
under Section 21 of the Arbitration and Conciliation Act, 1996
(hereinafter referred to as "the Arbitration Act" for short).
Further, it was also the case of the appellant that the plea of the
1st respondent - DPT that the appellant is an alter ego of
respondent No.2 was considered and accepted and order of
impleadment was ordered without any basis. It was also the case
of the appellant that no case was made out for lifting the
corporate veil and all the documents relating to bid, namely RFQ
and RFP constituted prelude to a contract and the learned
arbitral Tribunal has committed an error by looking into such
Page No.255/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
documents and ordering impleadment of the appellant as party-
respondent in the arbitral proceedings. As such, it was the case of
the appellant that the order impugned in the petition is erroneous
and suffers from grave infirmities, resulting in irreparable harm
and prejudice caused to the appellant, as such, there is no
alternative remedy except to question the same by way of a writ
petition.
2.8 The aforesaid petition was taken up for hearing at the
stage of admission by the learned Single Judge and the 1 st
respondent - DPT has contested the matter. In the defence to
contest the relief sought for in the petition, it was the case of the
1st respondent that the appellant - Company was qualified
applicant for participation in the bid, as per the terms of the RFQ,
as such, it was issued RFP and a Letter of Award for developing
15th Multi Purpose Cargo Berth was issued by the 1st respondent
to the appellant - IMC which was accepted by the IMC. It was also
the case of the 1st respondent that the 2nd respondent - JRE is a
Special Purpose Vehicle which is incorporated as per the terms
and conditions of the bid and if all the terms and conditions of the
Concession Agreement were considered, coupled with the terms
and conditions of RFQ and RFP, it is clear that the appellant is an
alter ego of the 2nd respondent Company. The petition was also
defended on the ground that a Special Civil Application itself is
not maintainable under Article 226 of the Constitution of India as
Page No.256/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
the learned arbitral Tribunal is constituted pursuant to the terms
of the Agreement, as such, in absence of any public functions
which are being discharged by the learned arbitral Tribunal, no
petition can be maintained under Articles 226 or 227 of the
Constitution of India against an order passed by the learned
arbitral Tribunal.
2.9 Considering the rival submissions made on behalf of
the parties and material placed on record, the learned Single
Judge has held that the appellant is a primary bidder who has
taken up the project and who has been awarded the contract and
thereafter the 2nd respondent - JRE is created as a Special
Purpose Vehicle and the appellant is, in fact, an alter ego of the
2nd respondent. It is further held that corporate veil could be
lifted or not has to be considered by the Tribunal keeping in mind
the underlying object and purpose of the Arbitration Act. The
learned Single Judge has also held that even though Concession
Agreement may not have been signed by the appellant, it would
not make any change so far as the impleadment of the petitioner
is concerned and it cannot pose itself as a third party merely
because it is not a signatory to the agreement. Placing reliance on
the judgments of Hon'ble Supreme court in the case of Chloro
Controls India Private Limited v. Severn Trent Water Purification
Inc. And Others reported in (2013)1 SCC 641 and also in the case
of A. Ayyasamy v. A. Paramasivam And Others reported in
Page No.257/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
(2016)10 SCC 386, the learned Single Judge has held that the
word `party' in the agreement is to be considered in broader
concept or by understanding the lifting of corporate veil. Further,
the learned Single Judge, while holding that the Arbitration
Act has been enacted to provide a mechanism of framework to
settle the disputes and any narrow or restricted interpretation
which frustrates the object cannot be accepted, has rejected the
plea of the appellant. At the same time, the learned Single Judge
has held that petition under Articles 226 and 227 of the
Constitution of India is maintainable against the orders passed by
the learned arbitral Tribunal. By not accepting the plea of the
appellant that the order passed by the learned arbitral Tribunal is
in violation of principles of natural justice and without issuing
notice as contemplated under Section 21 of the Arbitration Act,
the learned Single Judge has dismissed the petition. However, the
learned Single Judge has observed that the observations made
are only for the purpose of deciding the petition prima-facie and
all the contentions are left open to be considered by the learned
arbitral Tribunal.
………………
13. Reverting to the facts of the case on hand, it is to be
noticed that the order passed by the learned arbitral Tribunal
clearly records that opinion expressed is prima-facie and subject
to objections and remedies available under the Arbitration Act to
Page No.258/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
the impleaded respondent, i.e. the appellant herein. If the
appellant claims that it is not a party to the agreement, as such it
cannot be impleaded as party respondent in the arbitration
proceedings, it is always open for it to move an application
under Section 16 of the Arbitration Act to rule on its jurisdiction.
In view of such remedy and further remedies available under the
law, by ordering impleadment, we are of the opinion that no
prejudice is caused to the appellant. Whether notice is required to
be issued to a party before ordering impleadment, or not, is a
matter which depends on facts and circumstances of each case. If
a strong case is made out for impleadment, it is always open for
the Courts and Tribunals to order impleadment and to give an
opportunity before deciding the main claim. In that view of the
matter and having gone through the case law on the subject as
referred above, we are of the view that the order of the learned
arbitral Tribunal cannot be said to be not in conformity with law
merely on the ground that appellant was not issued notice before
passing the order of its impleadment. Even the learned Single
Judge has also rightly rejected the plea of the appellant for
quashing the order of the learned arbitral Tribunal on the
aforesaid ground.
121. From the above extracted portions, it could be seen that the
Page No.259/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
challenge before the High Court principally was on its merits that the
impleadment was ordered by the Tribunal without any basis. Further
contention is that there was no prior notice or opportunity was given or
afforded and the impleadment was ordered in violation of the principles of
natural justice etc. However, the central theme of this judicial discussion was
not part of the consideration before the High Court. The above decisions are
referred to in order to highlight the fact that Courts did not have any
problem of the arbitral Tribunal ordering impleadment of non-signatory as
parties to the arbitral proceedings presumably on the basis of the 'Group of
Companies' doctrine. But again none of the legal precedents appear to have
focussed steadfastly on the momentus issue of availability of the power to
the Tribunal within the frame work of the Act. Ostensibly, the Courts
appear to have taken it for granted that such power is inherently available,
in the absence of any strong opposition raised therein, questioning the
jurisdiction and the power of the Tribunal with reference to the Act, 1996.
122. In the face of the fundamental jurisdictional question being
Page No.260/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
raised inter alia on behalf of the appellants herein, this Court has already
dealt with the scope of Section 17 of the Act. The section after amendment in
2016 has become a mirror image of Section 9 of the Act. It may therefore be
plausible to argue that the arbitral Tribunal is vested with all the powers and
jurisdiction enjoyed by the Courts under Section 9 of the A & C Act, 1996.
After the amended Act 2016, the scope of Section 17 has considerably been
widened, conferring the same power as enjoined upon the Courts under
section 9. But did amendment to Section 17 make any quintessence change
as to the fundamental character and status of the arbitral Tribunal to the
extent of conferring the power on the Tribunal to implead non-
signatory/third parties in arbitration proceedings? The answer could only be
in the negative.
123. As concluded earlier in the judgment, the scope and the ambit
of Section 17 are to be understood within the contours of its explicit
language. After the amendment, the role of the referral courts at the
threshold stage has been limited to prima facie consideration and in such
Page No.261/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
consideration any doubt arises then, simply relegate as the doctrine goes
“when in doubt do refer”. In order to avoid flooding of applications before
the Courts under section 9, amendment to section 17 became necessary in
keeping with the UNCITRAL Model Law and adopting the rule of priority in
favour of the Arbitration. But it does not automatically follow that arbitral
Tribunal can also exercise the residual or inherent power exclusively vest in
the Courts. Therefore, it is to be held that even after widening of the scope of
Section 17, the Tribunal cannot said to be vested with the power of
impleadment of third party/non-signatory.
124. Now coming to the most crucial consideration of the Court on
the competence of the Tribunal is Section 16. This section was introduced
after the Original Act, 1940 was replaced by the present 1996 Act. The
disability suffered by the arbitration earlier was rectified and the Tribunal
henceforth is clothed with the power to rule on its own jurisdiction. The
evolution of the principles of competence-competence has been statutorily
recognised in Section 16. The effect of the section are two fold. One, it saved
the precious time of the Courts at the initial look- referal stage and all forms
Page No.262/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
of challenge are referred to the Tribunal to rule, including the testing of the
validity of arbitration agreement. A peculiar jurisdiction conferred upon the
Tribunal to minimise the time spent on arbitration related challenges before
the Courts at the pre-referal stage.
125. The conferment of power on the Tribunal of ruling on its own
jurisdiction, is to advance the cause of arbitration in order to avoid the same
being stultified by the vested interests. In the said legal and the statutory
backdrop, it is once again plausible to contend that when the Tribunal can
rule on its own jurisdiction, the power to implead non-signatory/ third party
may well come within the sweep of the principle competence-competence.
Ruling on its own jurisdiction pre-supposes existence of the Tribunal in the
first place. The Tribunal owes its existence through operation of sections 8, 9
or 11 of the A & C Act,1996. The power to rule on its own jurisdiction is a
post facto contingency or eventuality. Only as a legal consequence of the
reference, the Tribunal is given a life (jurisdiction) either defective or valid to
rule on it. It can preside over its own destiny only with reference to the
Page No.263/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
“reference” and not rule on non-reference.
126. In cases of impleadment of non-signatory/ third party by the
Tribunal the original reference by the Court in terms of Sections 8, 9 or 11
gets enlarged by adding more parties who were not party/ parties to the
reference. If such power is to be read anywhere in the whole scheme of Act
as it stands today, the very concept of 'reference' to arbitration loses its
sanctity. As long as the Tribunal does not enjoy any status of institution both
in its form and substance, the power either patent or residual enjoyed by the
Courts in terms of the provisions of the Act, cannot said to be enjoined upon
the Tribunal. The arbitral Tribunal in the existing framework is authorised to
rule on its jurisdiction but it cannot create a jurisdiction for itself. In
substance, the exercise of power of impleadment of non-signatory/third party
by the Tribunal would amount to vary the terms of the reference itself. Such
overreach is antithetical to the concept and transitional edifice of arbitral
Tribunal as envisaged in the scheme of the Act. By no liberal stretch of legal
standards, ephemeral Tribunal can be said to enjoy any residual power,
Page No.264/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
which power can only stated to be the attribute of a permanent judicial
institution. Being created for a specific assignment and purpose, the Tribunal
cannot said to have any inherent or implied power which could be read into
the scheme of A & C Act, 1996.
127. A very careful reading of the Chapter IV and Section 16, the
competence to rule on its own jurisdiction stems from the reference made by
the judicial authority/Court under sections 8, 9 and 11 of the Act, as the case
may be. It is legally possible for the arbitrator to hold and conclude that it
has no jurisdiction over the matter and refuse to arbitrate i.e., in respect of a
particular reference, dispute. But as far as the dispute arising between 'A'
party and a third party, though with reference to the same contractual
agreement, the arbitral Tribunal cannot be said to be having any legal
existence at all. As far as such a dispute is concerned, the arbitral Tribunal
is still born and not acquired the jurisdiction in the first place to rule on its
own jurisdiction. In the conceptional framework, the arbitral Tribunal is not
even a creature of the Statute for it assume the power in the absence of
Page No.265/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
specific provision in the Act, clothing it with the authority. The arbitral
Tribunal is a void mechanism and non-existent, unless and until the Courts
bring its existence in the eye of law on a reference and the Court can also
write its obituary as well, terminating its mandate in terms of the scheme of
the Act.
128. This Court is unable to fathom out any section which can even
remotely said to be conferring the power of impleadment on the arbitral
Tribunal. In fact as rightly contended by the learned counsel for the
appellants herein, there is no residuary power vested in the arbitral Tribunal
to implead the third party to the arbitration. In fact, such a power has never
been contemplated in the Act at all, pre or post amendment. The Tribunal
owes its creation only to the reference by the judicial authority/court under
sections 8, 9 or under section 11 of the Act. Once, the arbitral Tribunal
comes into existence on the terms of reference, such terms of reference
cannot be expanded or elongated during the course of the arbitration. There
is a subtle distinction between ruling on its own referred jurisdiction after
Page No.266/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
reference and conferring expanded or non-existent jurisdiction upon itself
by exercise of the assumed power of impleadment.
129. Such power cannot be construed as incidental to the powers
that are enjoined upon the Tribunal in the Scheme of A & C Act, 1996, for
the essential reason that the underlying concept of arbitration is 'consent'.
Whether there is explicit or implicit consent in terms of 2(1) (h) and Section
7 of the Act is for the Courts to rule on a prima facie consideration first,
while exercising its jurisdiction under Section 8, 9 or 11 at the referal stage.
In the event of non-signatory is referred to the arbitration on such
consideration, the Tribunal gets an opportunity to apply the doctrine
competence-competence in terms of Section 16. Any decision of the Tribunal
is subject to appeal to the Court, as per Section 37. The competence
bestowed upon the Tribunal to render a decision even on the fundamental
plea of validity of its jurisdiction and its exercise of jurisdiction or exercise
of the scope of the authority as provided in sub sections 2 and 3 of the
Section 16 must be with reference to the terms of the arbitration agreement
Page No.267/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
qua parties and not outside the arbitration agreement. But on the other hand,
the consideration whether a non-signatory to the arbitration agreement could
be added in the arbitral proceedings obviously falls outside the expressed
terms of the agreement and the prima facie ruling is contingent as being part
of such consideration at the pre-referal stage.
130. The last but not the least, it is relevant to mention here,
regarding a decision of the learned Judge of this Court which was relied on
by the learned counsel for the appellants. The decision reported in 2020(5)
MLJ 198 (V.G.Santhosam and Ors. vs. Shanthi Gnanasekaran and Ors.)
wherein the learned Judge has clearly held by striking the right chord that
arbitral Tribunal cannot said to be enjoying inherent power as in the case of
the Courts. The learned Judge in para 101 of the judgment has also held that
there is no express or implied provision traceable to the Act conferring upon
the Tribunal such power to implead a third party. However while holding as
such, he also concluded that in the event of necessity for effective
adjudication of the dispute, an arbitrator has to follow the principle laid
Page No.268/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
down by the Hon'ble Supreme Court in Chloro Controls India (P) Ltd. The
succinct findings of the learned Judge as found in paragraphs 99 to 102 are
extracted hereunder.
99. The spirit of the order passed by the Arbitrator with
reference to the Arbitration Act is to be considered by this Court.
The above findings would reveal that the Arbitrator has made an
initiation C.M.A.Nos.4465, 4467 to 4469 of 2019 to decide the
legal rights of the parties, including the rights of the first
respondent. The Arbitrator in express terms held that the
impleadment of party, provisions contained in the Code of Civil
Procedure through Order 1, Rule 10 gives a wide power to a Court
and in our context, the same must apply to an Arbitral Tribunal.
Such a conclusion arrived by the Arbitral Tribunal is undoubtedly
an exercise of inherent power, which is impermissible in law. The
power which is not contemplated under the Arbitration Act, cannot
be exercised by the Arbitral Tribunal. The power being statutory in
character, the inherent power is not vested. While-so, the
Arbitrator cannot invoke the provisions of the Code of Civil
Procedure for the purpose of impleading a third person into the
arbitral proceedings and he is bound to be strict with reference to
the contracted Arbitration Agreement as well as the parties to the
Arbitration Agreement and the adjudication must be within the
Page No.269/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
parameters of the disputes raised between the parties to the
Arbitration Agreement.
100. The decision of the Hon'ble Supreme Court of India in
the case of Chloro Controls India (P) Ltd, cited supra, has got a
restricted implication, as in the opening paragraph itself, the Apex
Court, clarified the scope of widening of arbitral proceedings.
The C.M.A.Nos.4465, 4467 to 4469 of 2019 Supreme court in
unambiguous terms held that a third party cannot be impleaded as
a party to the arbitral proceedings. Only on exceptional
circumstances, where there is multiple, multi-party agreements
with intrinsically interlinked causes of action, more so, where
performance of ancillary agreements is substantially dependent
upon effective execution of the principal agreement. Thus, there
must be a link between the Principal Arbitration Agreement and an
ancillary agreement if any. The circumstances mostly would arise
in business transactions between the Multinational Companies in
international arbitration proceedings under Section 45 of the
Arbitration act. Thus, such exceptional circumstances is a rare
occasion as far as the domestic Arbitration Agreements are
concerned. But however, the parties, who are filing such an
application must establish such intrinsically interlinked causes of
action for the purpose of participating in the arbitral adjudication.
101. There is no express provision available for
impleadment of a third party in the Arbitration Act. Even there is
Page No.270/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
no implied provision, which is traceable under the Act. In the
absence of any provision when the Arbitrator is impleading a
person for an effective adjudication of the disputes under
the Arbitration Act, then C.M.A.Nos.4465, 4467 to 4469 of 2019
the principles laid down by the Supreme Court in the case of
Chloro Controls India (P) Ltd, cited supra, is to be followed.
102. In the order impugned, the Arbitrator arrived a
conclusion that the impleadment of the first respondent will help to
secure a comprehensive adjudication of the extent to which the
heirs of the parents, who were partners during the respective
lifetime could claim right or not. Such a broad exercise of power
invoked by the Arbitrator for the purpose of determining the civil
rights of a person is beyond the scope of the provisions of
the Arbitration Act. If the Arbitrator is appointed under
the Arbitration Act is allowed to decide the civil rights of a person,
who is otherwise not a party to the Arbitration Agreement, then the
Arbitrator would be exercising the inherent power conferred to the
Civil Court, which is not contemplated.
131. Although the learned Judge has rightly held that arbitral
Tribunal does not enjoy inherent power but eventually a latitude is provided
to the arbitral Tribunal towards impleadment of third party in certain
Page No.271/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
circumstances as indicated in para 101 extracted above. Once it is
categorically held that the Tribunal cannot said to have inherent power like
the Courts, the power of impleadment cannot also said to be conferred upon
the Tribunal on the basis of judge made law, in the absence of any trace of
such power in the entire scheme of the Act. If the Tribunal could order
impleadment of third party on certain circumstances, though illustrated by
the Honble Supreme Court, but the circumstances, again depend on each
reference and the nature of dispute qua parties. The arbitral Tribunal sans
institutional edifice, cannot be clothed with open ended leeway or discretion
to implead third party, as that would pave way for unfettered, undefined
exercise of power by the Tribunal, paving way for vagaries to creep into the
decision making process in the course of the arbitration.
132. An arbitrator may not necessarily be a Judge with legal
experience, endowed with professional competence. Any individual can be
appointed as arbitrator on the basis of consent of parties. In such scenario
powers exercisable by the Tribunal ought to be well defined and
Page No.272/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
circumscribed by the Act itself. Till that time, it is only the Courts that enjoy
residuary and inherent power, which can take the initial call on impleadment
of non-signatory as party to the arbitral proceedings.
133. In the conspectus of the elongated judicial discourse, this
Court, finds on merits that the appellants herein are necessary and proper
parties to the arbitral proceedings. But in the absence of any trace of power
being vested in the arbitral Tribunal in the scheme of the A & C Act, 1996,
to implead a non-signatory/ third party to the arbitration, this Court is
constrained to hold that the arbitral Tribunal's decision though well founded
on the facts and materials, cannot be countenanced in law. Therefore,the
C.M.As. are allowed and the impleadment orders in all the I.As dated
05.01.2021 are hereby set aside.
134. While allowing the C.M.As, this Court ought not to lose sight
of the fact that the State Corporations are stated to be reeling under grave
financial strain and are unable to withstand any protracted litigations in
Page No.273/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
respect of the claim made against them in the pending arbitral proceedings.
In the said circumstances, a memo has been filed and the contents of the
same have also been extracted supra in the preamble portion of the
judgment. Considering the depleted financial resources of all the State
Corporations, it is open to the State Corporations to go ahead with defending
their claim against the claimant for the present and request the Tribunal for
expeditious completion of the proceedings or else it can seek an amicable
settlement to avoid being enmeshed in the litigation for long, resulting in
further depletion of its limited resources.
135. In the event of proceeding with the arbitration, the learned
arbitral Tribunal is requested to complete the proceedings as expeditiously as
possible as it deems fit in respect of the claim by the claimant as against the
respondent State Corporations. As regards the counter claim is concerned,
such right is sought to be reserved by the State Corporations vide their
memo dated 08.10.2021. It is open to the Corporations to take a decision to
press for the counter claim or to await further outcome in the pending
Page No.274/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
arbitration proceedings.
136. Before parting with these appeals, after the amendment to
section 8(1) and the universal acceptance of the "Group of Companies"
doctrine an express provision could be inserted in the existing A & C Act,
1996 conferring power on the arbitral Tribunal to implead non-
signatory/third party to arbitral proceedings in a given circumstance. In any
event as it stands today any order of the Tribunal passed in terms of Section
16 or Section 17 is appealable under Section 37 of the Act. The parties
affected by any decision of the Tribunal in this regard have a remedy before
the competent court. By bringing an express provision in the Act could be in
tune with the evolving liberal legal standards adopted by the Courts in the
realm of arbitration. The legal uncertainty on this cardinal issue has been
hanging fire for some time giving rise to divergent views. A suitable
amendment will set at rest the conflict of legal opinions on this vital issue.
137. No costs. Consequently, connected miscellaneous petitions are
closed.
Page No.275/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
04.02.2022
Speaking/Non-speaking
Internet : Yes/No
Index : Yes/No
vsi
V.PARTHIBAN, J.
vsi
Pre-delivery judgment in
C.M.A.Nos.408, 701, 702, 858,
859, 861, 862, 890 & 892 of 2021
Page No.276/277
https://www.mhc.tn.gov.in/judis
C.M.A.Nos.408 of 2021 etc.
04.02.2022
Page No.277/277
https://www.mhc.tn.gov.in/judis
