SC answers: Whether a non signatory Company can be impleaded in Arbitration Proceedings, Read Judgement

July 1, 2019:

Bench observed, by invoking the doctrine of “group of companies”, an arbitration agreement entered into by a company, being one within a group of corporate entities, can, in certain circumstances, bind its non-­signatory affiliates.

Supreme Court Bench of Justice AM Khanwilkar and Justice Ajay Rastogi was hearing a Petition titled, Reckitt Benckiser (India) Private Limited  vs Reynders Label Printing India Private Limited and Anr where in the legal issue raised for adjudication was an application filed under Sections 11(5), 11(9) and 11(12)(a) of the Arbitration and Conciliation Act, 1996 for seeking appointment of a sole arbitrator.

Peculiar fact was whether respondent No.2 ­ a company established under the laws of Belgium, having its principal place of business at Belgium, could be impleaded in the proposed arbitration proceedings despite the fact that it is a non­ signatory party to the agreement dated 1st May, 2014, executed between the applicant and respondent No.1 ­ a company established under the Companies Act, 2013 ­ merely because it (respondent No.2) is one of the group companies of which respondent No.1 also is a constituent.

While exploring the avenues of the Legal issue Bench observed-

''The legal position as to when a non­-signatory to an arbitration agreement can be impleaded and subjected to arbitration proceedings is no more res integra. In the case of Chloro Controls India Private Limited Vs. Severn Trent Water Purification Inc. and Ors. (2013) 1 SCC 641,a three ­Judge Bench of this Court opined that ordinarily, an arbitration takes place between the persons who have been parties to both the arbitration agreement as well as the substantive contract underlying it. Invoking the doctrine of “group of companies”, it went on to observe that an arbitration agreement entered into by a company, being one within a group of corporate entities, can, in certain circumstances, bind its non-­signatory affiliates. That exposition has been followed and applied by another three Judge Bench of this Court in Cheran Properties Limited Vs. Kasturi and Sons Limited and Ors. (2018) 16 SCC 413 ...............

Keeping in mind the exposition in Chloro Controls (supra) and Cheran Properties (supra), the crucial question is whether it is manifest from the indisputable correspondence exchanged between the parties, culminating in the agreement dated 1st May, 2014, that the transactions between the applicant and respondent No.1 were essentially with the group of companies and whether there was a clear intention of the parties to bind both the signatory as well as non-­signatory parties (respondent No.1 and respondent No.2, respectively). In other words, whether the indisputable circumstances go to show that the mutual intention of the parties was to bind both the signatory as well as the non-­signatory parties, namely, respondent No.1 and respondent No.2, respectively, qua the existence of an arbitration agreement between the applicant and the said respondents.

In the wake of the amended Section 11(6) read with Section 11(6A) of the Act, the enquiry by this Court must confine itself to the examination of existence of an arbitration agreement. No more and no less.''

After hearing both the sides Bench went on to dismiss the Petition while concluding that-

''Respondent No.2 was neither the signatory to the arbitration agreement nor did have any causal connection with the process of negotiations preceding the agreement or the execution thereof, whatsoever.....................respondent No.2 was never involved in the negotiation process concerning the stated agreement dated 1st May, 2014..............no relief can be granted to the applicant as against respondent No.2.''

However with consent of Parties other than Respondent no. 2, Bench appoint Mr. Justice Badar Durrez Ahmed (Former Chief Justice, Jammu & Kashmir High Court) as the sole arbitrator to conduct domestic commercial arbitration at New Delhi, between the applicant and respondent No.1 on the terms and conditions as specified in the Act of 1996.

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