Full Judgment Text
REPORTABLE
2025 INSC 616
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5823 OF 2025
(Arising out of Special Leave Petition (C) No. 21286 of 2024)
ASF BUILDTECH PRIVATE LIMITED ...APPELLANT(S)
VERSUS
SHAPOORJI PALLONJI AND COMPANY
PRIVATE LIMITED ...RESPONDENT(S)
J U D G M E N T
Signature Not Verified
Digitally signed by
VISHAL ANAND
Date: 2025.05.02
14:20:15 IST
Reason:
J.B. PARDIWALA, J.:
For the convenience of exposition, this judgment is divided in the following parts: -
INDEX
A. FACTUAL MATRIX .................................................................................... 3
B. SUBMISSIONS OF THE PARTIES ........................................................... 7
i. Submissions on behalf of the Appellant ................................................... 7
ii. Submissions on behalf of the Respondent No. 1 .................................... 12
C. ANALYSIS .................................................................................................. 15
i. Whether the Arbitral Tribunal has the power to Implead / Join Non-
Signatories to the Arbitration Agreement? .......................................... 15
a. Contradictory Views of different High Courts on the subject ............. 16
I. Decisions holding that the Arbitral Tribunal does not have the power
to Implead a non-signatory to the Arbitration Agreement .............. 16
Decisions holding that the Arbitral Tribunal has the power to
II.
Implead a non-signatory to the Arbitration Agreement .................. 41
b. Evolution of the law on referral or joinder of Non-Signatories to
arbitration proceedings and the Aversion to the power of Arbitral
Tribunals to implead a Non-Signatory ................................................ 62
I. Decision of Chloro Controls and the Arbitration and Conciliation
(Amendment) Act, 2015 ................................................................. 62
II. Decision of Cox and Kings (I) and the Judicial Rectification of the
first misconception by Chloro Controls. ......................................... 77
III. Decision of Krish Spinning and the Judicial Rectification of the
second misconception emanating from SBP & Co ......................... 89
Special Leave Petition (C) No. 21286 of 2024 Page 1 of 190
c. How Cox and Kings (I) contemplates determination of mutual
intention of Non-Signatories to arbitration agreements ..................... 108
I. The nature and extent of the test laid down in Cox and Kings (I) for
determining Non-Signatories who are bound by the arbitration
agreements. ................................................................................... 110
II. Determining the “existence” viz-à-viz the intention of parties from
“express words” of an Arbitration Agreement .............................. 116
III. Decision of Cox and Kings (II) and Ajay Madhusudan and the scope
of Section 11 of the Act, 1996 for joinder of non-signatories to
arbitration proceedings. ................................................................ 131
ii. Arbitral Tribunal has the authority and power to implead Non-
Signatories to the arbitration agreement on its own accord. ............. 141
a. No inhibition in the scheme of Act, 1996 which precludes the Arbitral
Tribunal from impleading a Non-Signatory on its own accord ............. 141
b. Doctrine of Kompetenz-Kompetenz and the Jurisdictional Reach of an
Arbitral Tribunal ................................................................................ 156
c. Requirement of Notice of Invocation under Section 21 ........................ 163
D. CONCLUSION .......................................................................................... 188
Special Leave Petition (C) No. 21286 of 2024 Page 2 of 190
1. Leave Granted.
2. This appeal arises from the judgment and order passed by the High court of
Delhi dated 4th July, 2024 in Arb. A. (Comm.) No. 4/2024 & I.As. 2124/2024-
25/2024, Arb. A. (Comm.) No. 5/2024 & I.A. 2197/2024 and O.M.P.
(T)(Comm.) 4/2024 by which the High Court dismissed the appeals filed by
the appellant herein under Section 37 of the Arbitration and Conciliation Act,
1996 (for short, the “ Act, 1996 ”) and thereby affirmed the order passed by
the Arbitral Tribunal rejecting the challenge made by the appellant herein to
its jurisdiction on the ground that the appellant being a non-signatory to the
arbitration agreement could not have been impleaded in the array of parties
and join the arbitration proceedings.
3. It appears that the High Court decided two appeals filed under Section 37(2)
of the 1996 Act. The present appeal arises from the order passed by the High
Court in Arb. A. (Comm.) No. 4 of 2024.
A. FACTUAL MATRIX
4. The Respondent No. 1, Shapoorji Pallonji & Co. Pvt. Ltd. (“ SPCPL ”) is the
Respondent No.1/counter claimant before the Arbitrator. The Respondent No.
3 (Black Canyon SEZ Pvt. Ltd. or “ BCSPL ”) initiated arbitration against
SPCPL in relation to Settlement Agreement dated 24.07.2020.
Special Leave Petition (C) No. 21286 of 2024 Page 3 of 190
5. SPCPL filed its Counter-Claim against BCSPL as well as the appellant herein
(ASF Buildtech Pvt. Ltd or “ ABPL ”) and Respondent No.2 (ASF Insignia
SEZ Pvt. Ltd or “ AISPL ”), which constituted and formed part of the ‘ASF
Group’. SPCPL has pleaded before the Arbitrator that BCSPL, ASIPL and
ABPL being a part of the ASF Group are bound by the Arbitration Agreement
contained in the Works Contract dated 21.11.2016 on the basis of the Group
of Companies Doctrine.
6. BCSPL, ABPL, and AISPL respectively filed separate Section 16
Applications before the Arbitrator seeking rejection of SPCPL’s counter claim
to the extent it is against AISPL and ABPL. By the Arbitrator’s Orders dated
23.05.2023 and 17.10.2023 respectively (“ Tribunal’s First Order ”and
‘Tribunal’s Second Order’ respectively), the Arbitrator dismissed the said
Applications, inter alia holding that, in order to decide whether or not the
inclusion of AISPL and ABPL amongst the party-Respondents on basis of
such doctrine is correct on basis of facts narrated by SPCPL, some crucial
aspects as regards the role and conduct of AISPL and ABPL, would need
adjudication as questions mixed of facts and law, which cannot be holistically
determined without first arraying them as parties.
Special Leave Petition (C) No. 21286 of 2024 Page 4 of 190
7. In such circumstances referred to above, the matter was taken to the High
Court. The High Court, after an exhaustive consideration of all the relevant
aspects of the matter, disposed of the appeal in the following terms: -
“96. In the present case, a perusal of the impugned orders shows
that the Ld. Sole Arbitrator has conflated the issue of the
applicability of the Group of Companies doctrine & alter ego
doctrine, and thus has resorted to piercing the corporate veil. All
three could not have been combined in the manner in which the
Ld. Sole Arbitrator has done. However, there are certain facts
which are relevant:
i) That the ASF Group is one cohesive group in which AISPL,
ABPL and BCSPL are part of the group. There is no distinct
management dealing with the activities of these three
companies. The correspondence on record shows that
whether in respect of demobilization or other performances
under the contracts, AISPL is backing BCSPL, ASF Group
is also standing as guarantee for BCSPL. The Comfort
Letter given by ASPL is evidence of this. Thus, in effect,
though there are three distinct incorporated legal entities,
the group is functioning as one unit. The initial work order
was with AISPL. Claims raised relate to periods even prior
to the Novation Agreement where AISPL would be a
necessary and a relevant party.
ii) Non-payment of dues is also another claim of SPCPL qua
which AISPL gave a Comfort Letter.
iii) ABPL is the holding company and is part of the ASF Group.
The order dated 22nd July, 2022 uses the expression ASF
which includes ABPL as its part of ASF. Thus, the Ld. Sole
Arbitrator ought to have simply applied GoCD as enshrined
in the Cox and Kings (supra) to entertain the claims filed by
the SPCPL.
97. In the overall scheme of things, therefore, the delineation of
Case No.1 and Case No.2 was wholly unnecessary. The
impleadment of AISPL and ABPL is in accordance with law,
though the Ld. Sole Arbitrator used different reasons for
dismissing the Section 16 applications. In effect, the Ld. Sole
Arbitrator has held that claims can be maintained against AISPL
Special Leave Petition (C) No. 21286 of 2024 Page 5 of 190
and ABPL. In these facts and circumstances, the Court disposes
of the three petitions in the following terms:
i) AISPL and ABPL are impleaded as Respondent Nos. 2 and
3 in the arbitral proceedings.
ii) The SoC filed by SPCL is treated as counterclaim against
BCSPL, AISPL and ABPL.
iii) The delineation of Case No. 1 and Case No.2 was wholly
unnecessary and is set aside.
iv) For all practical purposes, the case pending before the Ld.
Sole Arbitrator shall be treated as one case arising out of
reference order dated 22nd July, 2022.
v) There is no legal incapacity in the Ld. Sole Arbitrator to
deal with the claims and counterclaims and the mandate of
the Ld. Arbitrator does not deserves to be terminated.
vi) The Ld. Sole Arbitrator was correct in his observation that,
for reasons of financial and strategic convenience,
BCSPL’s attempt was to restrict the counterclaim only to
BCSPL and not to AISPL & ABPL. Considering that AISPL
and the ASF Group had assumed responsibility for
payments to be made to SPCPL and for the implementation
of the project, as evidenced by the Comfort Letter and
various emails exchanged, their impleadment was
necessary for a comprehensive adjudication of the matter.
vii) In view of the fact that SPCPL has no objection to its claim
petition being treated as a counterclaim to the BCSPL’s
claim, it is ordered that both cases shall be treated as a
single reference and a single dispute. The claims of BCSPL
and the counterclaim of SPCPL shall be adjudicated by the
Ld. Sole Arbitrator after framing issues. No bifurcation
would be permissible.
viii) Evidence shall be led first by BCSPL, AISPL and ABPL and
thereafter SPCPL in their respective claims and
counterclaims.
98. Let the present order be communicated to the Ld. Sole
Arbitrator by the Registry. The above two appeals and the Section
14 petition are disposed of in the above terms. All pending
applications are disposed of.”
8. In such circumstances referred to above, the appellant is here before this Court
with the present appeal.
Special Leave Petition (C) No. 21286 of 2024 Page 6 of 190
B. SUBMISSIONS OF THE PARTIES
i. Submissions on behalf of the Appellant
9. In the written submissions filed on behalf of the appellant herein, it is
submitted as under: -
“ A. Introductory Submissions :
2. At the outset, it is respectfully submitted that there is not even a
shred of material to show any involvement whatsoever, much less
prima facie, regarding the involvement of ABPL in the
negotiation, performance or termination of the subject agreements
which are the subject matter of the arbitral proceedings.
Accordingly, the tests laid down by this Hon’ble Court in Para 71
of Ajay Madhusudan Patel & Ors. v. Jyotrindra S. Patel & Ors. ,
2024 SCC OnLine SC 2597, for making ABPL a ‘veritable party’
is not at all fulfilled. As a matter of fact, the Arbitral Tribunal and
the High Court have sought to rope in ABPL on three counts,
namely:
(i) that ABPL is the holding company of Black Canyon SEZ
Private Limited (“BCSPL” / “Respondent No. 2”) and ASF
Insignia SEZ Pvt. Ltd. (“AISPL” / “Respondent No. 3”);
(ii) there is common management between ABPL and BCSPL
(Impugned Judgment at Pg. 47-48 of the Petition, and
(iii) the branding / logo used by BCSPL is the common logo of
‘ASF Group’ (Impugned Judgment at Pg. 67-68 of the Petition.
3. It is submitted that none of the aforesaid three aspects relied
upon the Arbitral Tribunal and the High Court can be the ground
for arraying a non-signatory as a ‘veritable party’. If such
contention is accepted, every holding company will have to be
necessarily arrayed as a ‘veritable party’ which is completely
against the dictum of Oil and Natural Gas Corporation Ltd v.
Discovery Enterprises Pvt. Ltd. , (2022) 8 SCC 42; Cox and Kings
Ltd. v. SAP India Pvt. Ltd. & Anr. , 2023 SCC Online SC 1634
and Ajay Madhusudan Patel (supra).
B. Essential Questions of Law
Special Leave Petition (C) No. 21286 of 2024 Page 7 of 190
4. The important questions of law falling for kind consideration of
this Hon’ble Court in the present Special Leave Petition are:
a. Whether the Petitioner, who is not a signatory to the arbitration
agreement, could be joined as a party Respondent by the Counter
Claimant (“SPCPL”/ “Respondent No. 1” ) in its ‘Separate
Statement of Claim’, without the referral court under section 11
of the Arbitration and Conciliation Act, 1996 ( “Act” ) directing as
such, and without any leave of the Ld. Arbitral Tribunal being
sought in this regard?
b. If so, could the same be done by directly issuing notice for filing
of statement of defense to the Counter Claim (wrongly styled as
‘Separate Statement of Claim’) without a prior opportunity being
granted to the Petitioner to contest such joinder as a party
Respondent?
c. Whether such joinder as a party Respondent could be carried
out in contravention of the principles laid down in Oil and
Natural Gas Corporation (supra); Cox and Kings (supra) and
Ajay Madhusudan Patel (supra) as regards the parameters for
invocation of group of companies doctrine?
d. Whether merely because the Petitioner is stated to be the
holding company for BCSPL and AISPL; all group companies
have the same domain name/website and the email signature
states ‘ASF Group’, the same would suffice to satisfy the tests for
invocation of the group of companies doctrine for joinder of the
Petitioner to the array of respondents?
C. ABPL not a party to the dispute
5. ABPL was not a party or had any involvement in the following:
(i) Negotiations for executing Work Contract dated 21 November
2016; (ii) Works Contract dated 21 November 2016; (iii)
Supplementary Works Contract dated 9 February 2018; (iv)
Novation Agreement on 17 April 2018; (v) Letter of Comfort dated
17 April 2018; (vi) Addendum No. 1 dated 27 February 2019 to
the Works Contract; (vii) Settlement Agreement dated 24 July
2020; (viii) Notice invoking arbitration dated 24 January 2022;
(ix) Reply to Notice invoking arbitration dated 4 March 2022,
where SPCPL itself did not make ABPL a party in this reply; (x)
Section 11 proceedings before the High Court of Delhi; and (xi)
BCSPL’s statement of claim dated 31 October 2022. A table on
stages of disputes and involvement of parties therein is annexed
herewith as Schedule A. The same leads to an inescapable
conclusion that the involvement of the Petitioner herein in the
Special Leave Petition (C) No. 21286 of 2024 Page 8 of 190
negotiation or performance of the contract was neither positive,
nor direct and substantial, in fact it was not even incidental.
6. It is for the first time that ABPL was made a party to the
proceedings by direct joinder as a respondent to the SPCPL’s
counter claim or ‘statement of claim’ dated 14 February 2023,
without obtaining any leave from the Arbitral Tribunal in this
regard and merely on account of being a holding company of
BCSPL.
D. No material whatsoever to show ABPL’s direct involvement
7. There is not even a single correspondence or transactional
document to show the involvement of ABPL qua the negotiation
towards, execution of or discussions towards Works Contract, the
Novation Agreement, the Letter of Comfort and the Settlement
Agreement in question.
8. Even SPCPL, in the Reply, had only limited its contention for
inclusion of a non-signatory to AISPL and not to ABPL.
9. Further, even the order of the High Court of Delhi in the Section
11 Application under the Act records that SPCPL had only
insisted on making AISPL as a party and there is not even a
whisper about ABPL. Further, the reference to ASF in the said
order is clearly a reference to AISPL who was the original
contracting party and not to ASG Group.
10. As per the law laid down by this Hon’ble Court in Ajay
Madhusudan Patel & Ors. v. Jyotrindra S. Patel & Ors ., 2024
SCC OnLine SC 2597 (Para 71), this Hon’ble Court has held that:
“71. It is evident that the intention of the parties to be bound by
an arbitration agreement can be gauged from the circumstances
that surround the participation of the non-signatory party in the
negotiation, performance, and termination of the underlying
contract containing such an agreement. Further, when the
conduct of the non-signatory is in harmony with the conduct of the
others, it might lead the other party or parties to legitimately
believe that the non-signatory was a veritable party to the contract
containing the arbitration agreement. However, in order to infer
consent of the non-signatory party, their involvement in the
negotiation or performance of the contract must be positive,
direct and substantial and not be merely incidental. Thus, the
conduct of the non-signatory party along with the other attending
Special Leave Petition (C) No. 21286 of 2024 Page 9 of 190
circumstances may lead the referral court to draw a legitimate
inference that it is a veritable party to the arbitration agreement.”
(emphasis supplied)
11. It is most humbly submitted that in the facts and circumstances
of the present case, which have been altogether ignored by the Ld.
Arbitral Tribunal and the High Court, there is neither any finding
nor any material to support the inference that that the involvement
of the Petitioner herein in the negotiation or performance of the
contract was either positive, direct and substantial, in fact, it was
not even incidental.
12. It is prima facie evident that ABPL is not a party to the
Agreements and a mini trial is not required to determine the same.
Additionally, the arbitral tribunal while directly issuing a notice
to ABPL for filing of statement of defence to the ‘statement of
claim’ filed by SPCPL had not gone into such questions in depth,
thus indicating that no evidence was taken into consideration to
implead ABPL without the leave of the arbitral tribunal in this
regard; and by way of a procedure unknown to arbitration law
inasmuch as a separate statement of claim was entertained by the
arbitral tribunal, contrary to established procedure that there can
only be a counter claim by respondent, i.e., SPCPL.
E. Patent errors in the Impugned Judgment
13. The analysis by the High Court in the Impugned Judgment
begins at Page 43 of the Petition wherein the High Court notices
the: (a) Works Contract; (b) Novation Agreement; (c) Settlement
agreement; (d) Letter of Comfort. Notably, in any of the aforesaid
paragraphs, ABPL is neither involved nor mentioned.
14. In Para 66, the High Court notes that there is common
management between ABPL and BCSPL, and in Para 70, an email
dated 9 December 2020 is noted to conclude that because one of
the personnel of BCSPL had used the same domain name, and
there was a logo of ASF Group/ASF Insignia, therefore, ABPL
being part of the ASF group and the holding company of BCSPL
and AISPL was to be included as a party to the arbitration
proceedings.
15. The five factors laid down by this Hon’ble Court in Oil and
Natural Gas Corporation (supra), are thereafter discussed in
Para 91-94. It is relevant to note that none of the said paragraphs
Special Leave Petition (C) No. 21286 of 2024 Page 10 of 190
show any direct involvement of ABPL, in so far as the transaction
in question is concerned.
16. The only reason due to which ABPL has been allowed to be
continued as a party to the arbitration proceedings is because
ABPL is a holding company of BCSPL, which is completely
contrary to the law laid down by this Hon’ble Court in Cox and
Kings (supra) and Oil and Natural Gas Corporation (supra).
17. Merely because a company is a holding company, it cannot,
by itself, be a ground to implead the holding company in an
arbitration proceeding. To do so would result in disastrous
consequences, where the mere factum of the company being a
holding company would expose the holding company to litigations
initiated against its subsidiary. This would completely militate
against and obliterate the fundamental principle of separate
corporate personality.
18. It is submitted that none of the five ingredients laid down by
this Hon’ble Court in Oil and Natural Gas Corporation (supra)
and affirmed, in Cox and Kings (supra) (Para 170) are prima
facie satisfied, in the facts of the present case.
19. Further, the High Court in Para 97(viii) of the Impugned
Judgment has further patently erred in exceeding the jurisdiction
under Section 37 of the Act and suo motu directing that evidence
shall be inter alia led by ABPL prior to SPCPL in whose counter-
claim ABPL has been arrayed as a party Respondent. Pertinently,
the said aspect was neither a submission nor in issue before the
High Court.”
10. In such circumstances referred to above, Mr. Devadatt Kamat, the learned
senior counsel appearing on behalf of the appellant herein submitted that
there being merit in his appeal, the same may be allowed and the impugned
order passed by the High Court may be set aside.
Special Leave Petition (C) No. 21286 of 2024 Page 11 of 190
ii. Submissions on behalf of the Respondent No. 1
11. In the written submissions filed on behalf of the respondent No. 1 herein, it is
submitted as under: -
“II. Questions of law involved
5. The present SLP broadly gives rise to three questions of law for
the kind consideration of the Hon’ble Court:
a. Whether the Arbitrator could have issued notice to parties
(AISPL and ABPL) arrayed in SPCPL’s Counter Claim?
b. Whether AISPL and ABPL ought to be removed from the array
of parties at the threshold stage before the complete pleadings or
evidence are before the Arbitrator? c. Whether the Arbitrator’s
Orders rejecting ABPL’s Section 16 Applications without finally
deciding the legal or factual role and liability of ABPL ought to
be interfered with before the final Arbitral Award is rendered?
6. It is submitted that the three issues are not distinct and rather
inter-linked inasmuch as the underlying premise pertains to the
Arbitrator’s power to adjudicate on matters in respect of non-
signatories, both procedurally and substantively. It is SPCPL’s
case that all three issues have already been answered in SPCPL’s
favour by the Hon’ble Supreme Court in in Cox and Kings Ltd. v.
SAP India Pvt. Ltd. & Anr . and Ajay Madhusudhan Patel & Ors.
v. Jyotrindra S. Patel & Ors.
III. The present SLP is ABPL’s fourth bite at the cherry
7. SPCPL has succeeded on the issues presently agitated on three
prior occasions–
a) First, in BCSPL’s Section 16 Application dated 03.03.2023
seeking removal of AISPL and ABPL from the array of parties,
which was rejected by the Tribunal’s First Order dated
23.05.2023 with detailed reasoning.
b) Second, in AISPL and ABPL’s Section 16 Applications dated
03.07.2023 seeking their own removal from the array of parties,
which was rejected by the Tribunal’s Second Order dated
17.10.2023 with detailed reasoning;
c) Third, before the High Court, where BCSPL filed a Petition u/s
14 seeking removal of the Arbitrator, while ABPL and AISPL
preferred Appeals u/s 37, culminating in the common Impugned
Judgement dated 04.07.2024 (‘Impugned Judgement’) rejecting
the said challenge with detailed reasoning.
Special Leave Petition (C) No. 21286 of 2024 Page 12 of 190
Only ABPL remains aggrieved and has sought to challenge the
Impugned Judgement by way of the present SLP.
13. ABPL has sought to mis-categorize SPCPL’s case against
ABPL as merely being against the holding company of AISPL and
BCSPL. However, this is ex-facie misconceived and contrary to
the record, inasmuch as SPCPL has specifically pleaded that the
entire negotiation, performance and termination of the Works
Contract dated 21.11.2024 was with the ASF Group, though in the
name of its SPV, AISPL to develop the SEZ. It was represented
and assured to SPCPL throughout that AISPL had the entire
support, backing and strength of the ASF Group of Companies.
14. This representation and assurance to SPCPL was backed
by, rather than being premised (as sought to be alleged by ABPL),
the fact that the BCSPL, AISPL and ABPL represented themselves
to the world at large as the ‘ASF Group’, functioning with the
same staff & officials, using common website 13
(www.asfinfrastructure.com) and domain email IDs
(@asfinfrastructure.com). ABPL, as also AISPL and BCSPL, is
part of the ASF Group. Even behind the scenes, ABPL is the
holding company of BCSPL and AISPL, with 81.01% and 100%
shareholding, respectively. All the three ASF Group companies
have common directors and also share a common registered
address. It is SPCPL’s case that the commonality of resources of
the ASF Group (i.e., the promoters, the directors, the
shareholding, the officials, the financial and commercial backing,
technical and IT systems etc) is not a coincidence or a by-product
and rather is by design.
15. At all times, in the ASF Group’s dealing with SPCPL,
BCSPL/AISPL/ABPL were acting as single economic unit and
were together directly, substantially and actively involved in the
negotiation and performance of the subject Works Contract and
Settlement Agreement. It is further SPCPL’s case that
BCSPL/AISPL/ABPL and/or ASF Group are inextricably linked
and the ASF Group as a whole maintained operational control
over the performance of the Works Contract and Settlement
Agreement between the parties.
16. There was no distinction between ABPL, AISPL and BCSPL
insofar as the negotiation and performance of the Subject
Contracts was concerned. For instance, the Novation Agreement
Special Leave Petition (C) No. 21286 of 2024 Page 13 of 190
dated 17.04.2018 was executed on behalf of the Petitioner by one
ASF official Sh. Vinod Kumar Bhartiya. The same ASF official had
earlier attended the pre-bid meeting held on 30.01.2016 in
relation to the Works Contract in the stated capacity of AVP
(Commercial) of the ‘ASF Group’. Item 2.1 of the Minutes states
‘ASF Project Team’ and bidders were introduced. The same ASF
official had thereafter also attended the Meeting held on
02.06.2016 for LOI Civil Works of Building B1 awarded to SPCPL
on behalf of ‘AISPL’.
17. Similarly, Minutes of Meeting dated 25.10.2016 i.e., after the
Meeting held on 02.06.2016 recording Mr. Bhartiya to have
attended on behalf of AISPL, reflects his attendance on behalf of
the ‘ASF Group’. Agenda items 1 & 2 of the aforementioned
Minutes of Meeting also show ‘ASF’ as having agreed to the
change requested by SPCPL.
18. The Comfort Letter issued to SPCPL dated 17.04.2018 (on the
same day as the Novation Agreement) acknowledges that ‘AISPL
and BCSPL are the group companies of ASF group and both
companies are under the management & control of the same set
of management/owners.’ and that AISPL had
‘nominated/appointed its associate company Black Canyon SEZ
Pvt. Ltd. (“BCSPL”) as a Co-Developer with regard to Black
Canyon Private Campus Land, Black Canyon Building and its
allied structure...”. Subsequently, in a clear admission of all
liabilities being jointly and severally shared between BCSPL,
AISPL and ABPL, Sh. Anil Sharma, Vice President (Projects),
ASF Group vide his email dated 02.06.2021 conveyed the
commitment of ‘ASF management’ to release outstanding dues to
SPCPL.
19. Even Clause 5 of the Settlement Agreement dated 24.07.2020
(‘the Settlement Agreement’) expressly records that the cost of
materials ‘taken over by ASF’ from SPCPL, as mutually
determined, would form part of the outstanding dues of SPCPL.
Even the Statement of Accounts annexed to the Settlement
Agreement, on the basis of which monies were to be disbursed to
SPCPL records TDS value debited by ‘ASF’, not by BCSPL or
AISPL.
20. In the Section 16 application filed by ABPL 21 , ABPL
admitted that “ABPL is a part of the ASF group of companies, and
Special Leave Petition (C) No. 21286 of 2024 Page 14 of 190
Respondents No.1 [BCSPL] and 2 [AISPL] are associate
companies of ABPL.”
12. In such circumstances referred to above, Ms. Aakanksha Kaul, the learned
counsel prayed that there being no merit in this appeal, the same may be
dismissed.
C. ANALYSIS
13. Having heard the learned counsel appearing for the parties and having gone
through the materials on record, the only question that falls for our
consideration is whether an arbitral tribunal has the authority or power to
implead or join a non-signatory to the arbitration agreement as a party to the
arbitration proceedings?
i. Whether the Arbitral Tribunal has the power to Implead / Join Non-
Signatories to the Arbitration Agreement?
14. One of the principle contentions raised by the appellants herein for the purpose
of assailing the Impugned Judgment is that the petitioner company being a
non-signatory to the arbitration agreement was never made a party to the
proceedings before the referral court under Section 11 of the Act, 1996 by
virtue of which the arbitral tribunal came to be constituted. No notice of
invocation was issued either to the appellant company herein. In such
circumstances, it was submitted that the appellant company; a non-signatory
to the arbitration agreement could not have been joined as a party after the
Special Leave Petition (C) No. 21286 of 2024 Page 15 of 190
referral stage i.e., after the constitution of the arbitral tribunal solely on the
basis of the averments made in the counter-claim / statement of claim of the
respondent no. 1 herein. In other words, it was contended that after the
culmination of the referral stage in terms of Section 11 of the Act, 1996, the
arbitral tribunal has no power whatsoever to implead or join a non-signatory
to the arbitration agreement and that such power vests only with the referral
court that too prior to the arbitral tribunal coming into existence.
a. Contradictory Views of different High Courts on the subject.
15. Before we proceed to answer the aforesaid contention canvassed on behalf of
the appellant, it would be appropriate to first refer to the decisions of various
High Courts and the cleavage of opinion that have been expressed as regards
the scope and power of an arbitral tribunal to implead or join a non-signatory
to an arbitration agreement.
I. Decisions holding that the Arbitral Tribunal does not have the power to
Implead a non-signatory to the Arbitration Agreement.
16. The question whether an arbitral tribunal can implead a non-signatory to an
arbitration agreement or not came to be examined for the first time by the
Bombay High Court in Oil and Natural Gas Corporation Ltd. v. Jindal
Drilling and Industries Ltd. reported in (2015) SCC OnLine Bom 1707 ,
wherein the petitioners therein had entered into separate and independent
contracts with the respondents therein as-well as one ‘DEPL’; an off-shoot
Special Leave Petition (C) No. 21286 of 2024 Page 16 of 190
company of the respondents therein. When the respondents therein demanded
payment of its dues under its own contract, the petitioners refused payment on
the ground that DEPL previously owed them a certain sum of money, and
since it was an off-shoot of the respondents, the amount owed to the
respondents had been adjusted against DEPL’s liability. The dispute came to
be referred to arbitration and award was passed against the petitioners
directing them to repay the outstanding dues to the respondents. The award
came to be challenged before the Bombay High Court, wherein it was
contended by the petitioners that the arbitral tribunal ought to have lifted the
corporate veil to find out whether DEPL formed part of the respondent
companies or not. The Bombay High Court inter-alia held that an arbitral
tribunal does not have the power to lift the corporate veil and that only the
courts have such power. In such circumstances, it held that since DEPL was
not a party to the arbitration proceedings between the petitioner and the
respondents, and the tribunal having no power to pierce the corporate veil, the
High Court upheld the award. The relevant observations read as under: -
“47. The petitioners had canvassed before the arbitral tribunal
that the arbitral tribunal shall lift the corporate veil to find out
that the said DEPL and the respondents herein were forming part
of the said Jindal Group and were one and the same entity and
thus the respondents were liable for the liabilities of the said
DEPL. In my view, the arbitral tribunal has no power to lift the
corporate veil. Only a Court can lift the corporate veil of a
company if the strongest case is made out. In my view, the prayer
of the petitioners for lifting the corporate veil of the said DEPL
was itself not maintainable in the arbitration proceedings. The
said DEPL was not a party to these proceedings. Be that as it may,
Special Leave Petition (C) No. 21286 of 2024 Page 17 of 190
a perusal of the arbitral award clearly indicates that the arbitral
tribunal has refused to lift the corporate veil after considering the
evidence produced by both the parties and has rendered finding
of fact that no such case was made out by the petitioners for lifting
the corporate veil which are not perverse and thus cannot be
interfered with by this Court under Section 34 of the Arbitration
Act.”
(Emphasis supplied)
17. In Balmer Lawrie & Co. Ltd. v. Saraswathi Chemicals Proprietors
Saraswathi Leather reported in (2017) SCC OnLine Del 7519 , the Delhi
High Court was inter-alia dealing with the question whether an arbitral award
can be enforced against non-parties to the arbitration. The awardee therein
sought amendment of the execution petition in order to implead the directors
of the judgment-debtor on the ground that they had siphoned off the assets and
hence ought to be held responsible to satisfy the arbitral award. In this context,
the Delhi High Court observed that an arbitral award cannot be enforced
against non-parties to the arbitration. This in its opinion was because, an
arbitral tribunal draws its jurisdiction only from the arbitration agreement, and
an arbitral tribunal cannot proceed against persons who are not a party to such
agreement, and as such any award rendered by it would not be binding upon
non-parties to the arbitration agreement. It further observed that although in
exceptional circumstances, non-signatories who are otherwise bound by the
arbitration agreement may be compelled to arbitrate and thereby be liable for
any award passed therein, yet such a course can only be adopted by the courts
and an arbitral tribunal cannot lift the corporate veil and proceed against non-
Special Leave Petition (C) No. 21286 of 2024 Page 18 of 190
parties, as arbitration is always consensual and confined to the arbitration
agreement and as such an arbitral tribunal cannot enlarger its jurisdiction to
non-parties. The relevant observations read as under: -
“13. In the first instance, it is doubtful whether this Court could
enforce the arbitral award against non parties to the arbitration
agreement. It is trite law that an arbitral tribunal draws its
jurisdiction from the agreement between the parties and persons
who are not party to the arbitration agreement cannot be
proceeded against by an arbitral tribunal. Thus, an arbitral
award made by an arbitral tribunal against any person who is not
a party to the arbitration agreement would be wholly without
jurisdiction and unenforceable. There may be exceptional cases
where a court may compel persons who are not signatories to an
arbitration agreement to arbitrate provided it is established that
the non-signatory(ies) are either claiming through signatory(ies)
or there was clear intention to be bound as parties (see : Chloro
Controls India Private Limited v. Severn Trent Water Purification
Inc : (2013) 1 SCC 641). However an arbitrator cannot lift the
corporate veil and proceed against non parties. An arbitration is
consensual. It is based on the agreement between parties. The
arbitrator derives his jurisdiction to adjudicate disputes from the
consent of parties, therefore, he is not in a position to enlarge the
scope of his influence and extend his jurisdiction to non-parties by
exercise of his limited jurisdiction based on the consent of parties.
14. Though a court can lift the corporate veil, the same can be
done only in extraordinary circumstances and by due adjudicatory
process. It is trite law that an executing court cannot go behind
thedecree; it must be enforced as it is. Thus, it is not open for a
petitioner to claim that although the decree is against one entity it
must be enforced against another. However, there may be cases
where it is found that the assets of the judgement debtor have been
secreted, siphoned off, or by a fraudulent device ostensibly placed
outside the control of the judgement debtor, in an endeavour to
frustrate the enforcement of the decree. In such cases, the court is
not powerless to extend its reach to third parties to enforce the
decree; however this is limited for recovering the assets of the
judgement debtor. In the event a corporate facade is used to
perpetuate such fraud, the corporate veil may be lifted.”
Special Leave Petition (C) No. 21286 of 2024 Page 19 of 190
(Emphasis supplied)
18. In yet another decision of the Delhi High Court in Sudhir Gopi v. Indira
Gandhi National Open University & Anr. reported in (2017) SCC OnLine
Del 8345 , placing reliance on Oil and Natural Gas Corporation (supra) and
Balmer Lawrie (supra) it was held that an arbitral tribunal does not have the
jurisdiction to lift the corporate veil and pass an award against non-signatories
to an arbitration agreement. It observed that consent of parties is the
cornerstone of arbitration and it is from such arbitration agreement that the
arbitral tribunal derives its jurisdiction to render an award. It further held that
in exceptional cases, the non-signatories can be compelled to arbitrate, but that
it is only the courts who are empowered to refer them to arbitrate and that the
arbitral tribunals have no power or jurisdiction to do so as its jurisdiction is
confined by the arbitration agreement. The relevant observations read as
under: -
“11. “Like consummated romance, arbitration rests on consent”.
The agreement between parties to resolve their disputes by
arbitration is the cornerstone of arbitration. The arbitral tribunal
derives its jurisdiction from the consent of parties (other than
statutory arbitrations). In absence of such consent, the arbitral
tribunal would have no jurisdiction to make an award and the
award so rendered would, plainly, be of no value. [...]
xxx xxx xxx
16. There may be cases where courts can compel non signatory
(ies) to arbitrate. These may be on grounds of (a) implied consent
and/or (b) disregard of corporate personality. In cases of implied
consent, the consent of non signatory (ies) to arbitrate is inferred
Special Leave Petition (C) No. 21286 of 2024 Page 20 of 190
from the conduct and intention of the parties. Thus, in cases where
it is apparent that the non-signatory (ies) intended to be bound by
the arbitration agreements, the courts have referred such non-
signatories to arbitration.
xxx xxx xxx
20. The courts would, undoubtedly, have the power to determine
whether in a given case the corporate veil should be pierced and
the persons behind the corporate façade be held accountable for
the obligations of the corporate entity. However as stated earlier,
an arbitral tribunal, has no jurisdiction to lift the corporate veil;
its jurisdiction is confined by the arbitration agreement - which
includes the parties to arbitration - and it would not be permissible
for the arbitral tribunal to expand or extend the same to other
persons.
xxx xxx xxx
35. Arbitration agreement can be extended to non-signatories in
limited circumstances; first, where the Court comes to the
conclusion that there is an implied consent and second, where
there are reasons to disregard the corporate personality of a
party, thus, making the shareholder(s) answerable for the
obligations of the company. In the present case, the arbitral
tribunal has proceeded to disregard the corporate personality of
UEIT. The arbitral tribunal has lifted the corporate veil only for
the reason that UEIT's business was being conducted by Mr.
Sudhir Gopi who was also the beneficiary of its business being the
absolute shareholder (barring a single share held by Mr. Fikri) of
UEIT. This is clearly impermissible and militates against the law
settled since the nineteenth century. Any party dealing with the
limited liability company is fully aware of the limitations of
corporate liability. Business are organised on the fundamental
premise that a company is an independent juristic entity
notwithstanding that its shareholders and directors exercise the
ultimate control on the affairs of the company. In law, the
corporate personality cannot be disregarded. Undisputedly, there
are exceptions to this rule and the question is whether this case
falls within the scope of any exceptions.
Special Leave Petition (C) No. 21286 of 2024 Page 21 of 190
36. A corporate veil can be pierced only in rare cases where the
Court comes to the conclusion that the conduct of the shareholder
is abusive and the corporate façade is used for an improper
purpose, for perpetuating a fraud, or for circumventing a statute.”
(Emphasis supplied)
19. The Madras High Court in V.G. Santhosam v. Shanthi Gnanasekaran
reported in 2020 SCC OnLine Mad 560 , was called upon to examine whether
an arbitral tribunal has the jurisdiction to pass an order impleading a non-
signatory to an arbitration agreement, with a view to enable such non-
signatory to participate in the arbitration proceedings. In the said case, there
was a dispute amongst the partners of a firm which came to be referred to
arbitration. In the arbitration proceedings the respondent therein filed an
application for her impleadment on the ground that she is the legal heir of one
of the erstwhile partners and thus entitled to his share into the firm. The arbitral
tribunal allowed the application and impleaded the respondent by taking
recourse to the powers provided under Order I Rule 10 of the Code of Civil
Procedure, 1908 (for short, the “ CPC ”). In appeal, the Madras High Court
held as follows: -
(i) First, that there is no express provision under the Act, 1996 that allows
for impleadment of a third-party, and as such any order of impleadment
by an arbitral tribunal can at best be considered to be an interim measure
in terms of Section 17 of the Act, 1996. However, since Section 17
contemplates exercise of only those powers provided within the scope
Special Leave Petition (C) No. 21286 of 2024 Page 22 of 190
of the arbitral proceedings and by extension within the ambit of Act,
1996, the order of the arbitral tribunal in impleading a third-person
unconnected with the dispute between the parties of arbitration was
impermissible and in violation of the scheme of the Act, 1996. Placing
reliance on Section 2(h) and 7 of the Act, 1996 respectively, the High
Court held that since “ party ” has been defined to mean only a party to
the “ arbitration agreement ”, the arbitral tribunal in exercise of its
powers under Section 17 could not have impleaded the respondent
therein, who was not a party to the arbitration agreement. The relevant
observations read as under: -
“60. Section 17 of the Arbitration and Conciliation Act,
1996, provides interim measures ordered by the Arbitral
Tribunal. The impleading petition is entertained under
Section 17(1)(ii)(e), which states that “such other interim
measure of protection as may appear to the arbitral
tribunal to be just and convenient”. By invoking the said
provision of Law, the Tribunal can pass any order
regarding interim measures. There is no express provision
for impleadment in the Act. In the absence of any such
express provision, the Arbitrator impliedly could entertain
the impleading petition only under Section 17(1)(ii)(e) of
the Arbitration and Conciliation Act, 1996. However, the
said provision indicates that the power is to be exercised
within the ambit of the Act and cannot be extended so as to
exercise an inherent power by invoking the Code of Civil
Procedure. Thus, the very findings of the Arbitrator by
exercising wide powers under Order I, Rule 10 of the Code
of Civil Procedure, he entertained the impleading petition
is absolutely untenable and beyond the scope of the arbitral
proceedings as well as the Act itself. Any interim measure
is to be granted within the scope of the arbitral proceedings
and not beyond the dispute raised between the parties for
arbitration. Therefore, the very exercise of power to
Special Leave Petition (C) No. 21286 of 2024 Page 23 of 190
implead a third person who is unconnected with the
Partnership Deed is improper and in violation of the very
Scheme of the Act itself.
61. It is pertinent to note that Section 2(h) of the Arbitration
Act defines “Party means a party to an Arbitration
Agreement”. When the definition for the word ‘Party’ is
provided under the Act, then no other party other than the
party to the “Arbitration Agreement” is entitled to
participate in the arbitral proceedings. The term
‘Arbitration Agreement’ is defined under Section 2(b) as an
agreement referred to in Section 7 of the Act. Section 7(1)
of the Act, stipulates that 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.” Thus, the Arbitrator has
committed an error in interpreting the scope of the Act and
allowed the impleading petition in violation of the very
Scheme and the provisions of the Act.
63. Section 2(1)(b) of the Act defines ‘Arbitration
Agreement’ as an agreement referred to in Section 7 and
Section 7 provides that an Arbitration Agreement is an
agreement between the parties to submit all or any of the
disputes to be adjudicated by an Arbitrator in respect of
their definite legal relationship whether contractual or not.
Section 7 contemplates that the agreement should be in
writing and signed by the parties. Therefore, a non-
signatory or a third party could not be subjected to
arbitration. Only in exceptional cases like the case whether
the rights of the parties are flowing under the Arbitration
Agreement, third parties could be subjected to arbitration.
The Court is required to examine the exceptions from the
touchstone of direct relationship of the party signatories to
the contract.”
(Emphasis supplied)
(ii) Secondly, that Section 16 of the Act, 1996 cannot be interpreted in such
a manner to allow any third-party to the arbitration agreement to have
Special Leave Petition (C) No. 21286 of 2024 Page 24 of 190
itself impleaded and get its rights or dispute adjudicated. It held that
Section 16 contemplates the competence of the Arbitral Tribunal to only
rule on its jurisdiction as regards the existence or validity of the
arbitration agreement, and cannot enter upon adjudication on the civil
rights of the parties.
“78. The sole object of the Arbitration Act is to resolve the
disputes as expeditiously as possible with the minimum
intervention of the Court of Law. The scope of Alternative
Dispute Resolution (ADR) cannot be expanded so as to
usurp the inherent powers of Civil Courts. Section 16
cannot be interpreted so as to entertain an application from
any person, who is a third party to the Arbitration
Agreement for the purpose of arbitral adjudications and
competence of the Arbitral Tribunal to Rule of its
Jurisdiction would indicate that 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, the Tribunal
may consider the facts and the terms and conditions of the
agreement. Section 16(2) states that “a plea that the
Arbitral Tribunal does not have jurisdiction shall be raised
not later than the submission of the statement of defence”.
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 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.
Special Leave Petition (C) No. 21286 of 2024 Page 25 of 190
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 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.
105. [...] However, such Alternative Dispute Resolution
processes would not confer any power to the Arbitrator to
decide the civil rights of a third person, who is not a party
to the Arbitration Agreement. Alternative Dispute
Resolution mechanism would not provide any competency
to exercise the inherent power conferred to the competent
Civil Court of Law. The Alternative Dispute Resolution
processes with reference to the Statute is to be exercised
within the ambit of the provisions and not to decide the civil
rights of the citizen. In such an event, we are converting the
Alternative Dispute Resolution System as the Court of Law
Special Leave Petition (C) No. 21286 of 2024 Page 26 of 190
and such a practice would be dangerous as the Arbitrators
are appointed based on contract basis and by consent of the
parties and the remuneration to the Arbitrator is also paid
by the parties to the Arbitration Agreement. When the
Arbitrators are receiving their remuneration from the
parties to the Arbitration Agreement, which is contractual
in nature, they are bound to act as a neutral person between
the parties to the agreement and resolve the disputes raised
between those parties. In the event of allowing the
Arbitrator to exercise the powers beyond the scope of the
Arbitration Act, then the Arbitrator would be exercising the
inherent powers of the Court, so as to grant the relief to a
person, who is not a party to the Arbitration Agreement and
the very nature of the arbitration proceedings do not permit
such a situation.
(Emphasis supplied)
(iii) Lastly, that an arbitrator is a statutory creature of the Act, 1996 and its
scope, powers and jurisdiction is confined all but to the statutory
provisions of the said Act. An arbitrator cannot travel beyond the statute
and the arbitration agreement in such a manner so as to usurp the
jurisdiction of civil courts. As such an arbitral tribunal cannot exercise
the inherent powers conferred upon national courts such as under Order
I Rule 10 of the CPC, and is bound to function only within the scope of
the Act, 1996 and adjudicate disputes between parties to the
“ arbitration agreement ” in terms of the said Act. A power which is not
contemplated under the Act, 1996 cannot be exercised by an arbitral
tribunal. It observed that if such concept of power to impleadment is
provided to the arbitrator then not only would it lead to widening the
scope of arbitration proceeding but also would defeat the very purpose
Special Leave Petition (C) No. 21286 of 2024 Page 27 of 190
of the Act, 1996 i.e., the adjudication between the consenting parties to
the arbitration agreement with a defined contractual legal relationship.
The relevant observations read as under: -
“77. The above proposition of law laid down by the Courts
would reveal that the Arbitrator cannot exercise an
inherent power conferred to the Civil Courts under the
Code of Civil Procedure. The Arbitrator is bound to
function within the scope and ambit of the Act and resolve
the disputes between the contracted parties to the
Arbitration Agreement as defined under the Act. Travelling
beyond the scope of the Act is impermissible and if such an
exercise is made, then the same would result in exercise of
excess jurisdiction and finally the Arbitrator would be
functioning as a Civil Court, which is not intended under
the provisions of the Arbitration and Conciliation Act,
1996. When the Arbitrator is appointed under the Statute,
scope, powers and jurisdiction shall be within the
provisions of the said Statute. The Arbitrator is not
empowered to travel beyond the scope of such powers and
in the event of such an exercise, the same would cause
prejudice to either of the parties to the Arbitration
Agreement and this apart, certain common civil rights
cannot be decided by the Arbitrator.
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.
Special Leave Petition (C) No. 21286 of 2024 Page 28 of 190
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.
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.
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 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
Special Leave Petition (C) No. 21286 of 2024 Page 29 of 190
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.
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.”
(Emphasis supplied)
20. In Arupri Logistics Pvt. Ltd. v. Vilas Gupta & Ors. reported in (2023) SCC
OnLine Del 4297 a family arrangement had been drawn between the
respondents therein whereby their business holdings and properties were
bifurcated into two distinct groups. Sometime thereafter, dispute cropped up
between the two respondent groups as regards a parcel of land alleged to have
been sold to the appellants therein in violation of the terms of the family
arrangement and without proper authorization. Since, the family arrangement
contained an arbitration clause, a sole arbitrator was appointed by the referral
Special Leave Petition (C) No. 21286 of 2024 Page 30 of 190
court to resolve the said dispute between the respondent groups therein. The
appellants therein were never arrayed as parties in the proceedings before the
referral court, and it was only when one of the respondents therein moved an
application before the arbitral tribunal for seeking impleadment of the
appellants therein, that they were arrayed in the arbitration proceeding. The
Sole arbitrator allowed the said application and impleaded the appellants
therein. In appeal, the Delhi High Court held that the arbitral tribunal’s power
to implead does not flow from the provisions of the Act and that it being a
creature of the Act, 1996 and the arbitration agreement cannot assume powers
other than those conferred upon it. It can neither join or delete parties that were
never referred to arbitration by the referral court. The said decision is in four-
parts: -
(i) First, although Section 19 of the Act, 1996 permits the arbitral tribunal
to formulate the procedure to be followed in accordance with the CPC
yet it does not mean that all powers that are ordinarily vested in a
national court by the CPC could also be said to have been conferred
upon the arbitration tribunal which have otherwise not been provided
by the statute. The power to implead has been explicitly conferred upon
a court in terms of Order I Rule 10, and in the absence of any such
provision in the Act, 1996, the power to conduct proceedings under
Section 19 sub-section (3) of the Act, 1996 can neither be construed as
a source of power of the arbitral tribunal to join parties nor can such
Special Leave Petition (C) No. 21286 of 2024 Page 31 of 190
power be readily inferred due to its nature of militating against the very
consensual scheme of arbitration. The relevant observations read as
under: -
“58. As this Court reads Section 19(1), it finds that all that
the said provision purports to achieve is to unfetter an AT
from the rigors of procedure as embodied in the two statutes
noticed above. While it may still be open for the AT to seek
guidance and regulate its procedure bearing in mind the
underlying principles flowing through the provisions of
the CPC or the Evidence Act, that would not be liable to be
read as either conferring additional powers upon an AT or
arming it with the plethora of powers that may be otherwise
specifically conferred upon courts in terms of those statutes.
59. The power to implead stands conferred upon a court
specifically in terms of Order I Rule 10 of the CPC. The
aforesaid power is introduced in the CPC to enable the
court to either strike out the name of parties or join parties
whose presence in its opinion is necessary in order to
enable it to effectively adjudicate upon and settle all
questions involved. What needs to be remembered is that
the power to implead stands vested in a court under
the CPC by virtue of an express conferral of power in terms
of Order I Rule 10(2). The power to implead and join has
not been understood to exist in Section 151 of the CPC and
which deals with inherent powers.
60. The position which emerges from the aforesaid
discussion is that the power to implead is one which stands
specifically conferred by virtue of a provision duly
incorporated in the CPC. The power stands placed in the
hands of a court in order to enable it to effectively resolve
disputes and arrive at a just settlement of questions that
stand raised before it. However, and contrary to the above,
the Act fails to incorporate a power to implead insofar as
the AT is concerned. The power to conduct proceedings in
a manner considered appropriate and which is recognised
by Section 19(3) also cannot possibly be stretched to be
read as a source of the authority of an AT to join parties.
Special Leave Petition (C) No. 21286 of 2024 Page 32 of 190
61. It is relevant to note that the discretion conferred on an
AT to formulate the procedure to be followed in
proceedings which it proposes to initiate cannot be
extended to contemplate joinder of persons who are not
signatories to an arbitration agreement. This more so since
the joinder of parties which may otherwise not be
signatories to an arbitration agreement raises substantive
issues. The impleadment of a party in arbitral proceedings
results in that individual or entity becoming bound by an
award, interim or final, that may be rendered by the AT
even though it may have never consented to seek resolution
of questions by that tribunal. The impleadment of a party
unilaterally by the AT thus results in a non-signatory being
subjected to the authority of that tribunal and accepting its
right to adjudicate upon disputes even though it may have
never consented to subject itself to the authority of the said
AT. This would clearly militate against the principle of
“party consent” which forms the very foundation of
arbitration.”
(Emphasis supplied)
(ii) Secondly, an arbitral tribunal owes its existence to the arbitration
agreement and is essentially a designated private forum for resolving
the disputes between the parties to such agreement and as such is
detached from the hierarchy of ‘courts’. Its genesis flows from the
arbitration agreement and upon its constitution, the arbitral tribunal is
governed by such agreement and the contours of the Act, 1996 only.
The idea of vesting of inherent powers have been recognized only for
adjudicatory institutions such as national court’s whose genesis and by
extension their powers flows from their right to act as a matter of justice
and hence, the vesting of such powers to meet the ends of justice.
However, an arbitration tribunal cannot be equated to a national court
Special Leave Petition (C) No. 21286 of 2024 Page 33 of 190
since it derives its power to adjudicate from an express and private
conferral of authority by parties through an agreement, and thus, there
can be no vesting of an inherent power. Any authority that has been
conferred upon the arbitral tribunal by the parties can only be exercised
within the confines of the Act, 1996. The relevant observations read as
under: -
“63. [...] an AT owes its genesis to parties resolving to
confer authority on a person or an institution to render an
award and adjudicate upon disputes that may arise. While
the courts may intervene by virtue of the provisions of
Section 11 of the Act, they do so only in cases where parties
are unable to agree upon the constitution of an AT.
However, even where the courts do constitute an AT by
virtue of Section 11, the person or institution so designated
remains a private forum which springs into existence
principally in light of the agreement of parties and their
resolve to have their disputes decided by that tribunal.
64. An AT constituted either upon consensus of parties or
consequent to intervention by courts remains a forum
outside the ordinary hierarchy of legal institutions on which
the justice dispensation system of our nation rests. It owes
its genesis to the agreement between the parties and upon
its constitution comes to be governed by the provisions of
the Act. It is thus not an adjudicatory institution which can
claim to be vested with inherent powers.
65. Inherent powers are those which have been recognised
to inhere in courts forming part of the formal hierarchy of
legal institutions and which may be compendiously referred
to as national courts. AT's thus constitute forums outside
the circuit of national courts and remain to be institutions
which owe their existence principally to the agreement
between parties. [...]
66. [...] An AT remains an institution which comes to be
constituted merely on the basis of a private agreement
Special Leave Petition (C) No. 21286 of 2024 Page 34 of 190
between parties. It must also be remembered that the
inherent power recognised to exist in courts flows from
their right to act ex debito justitiae. The power to do so has
always been recognised to exist in national courts with
Section 151 of the CPC merely recognizing and reaffirming
that power inhering in courts. [...]
67. What the Court seeks to highlight is the superior powers
which are recognised to exist in national courts as opposed
to ATs’ generally. Statutes while according recognition to
the inherent powers recognised to exist in national courts
accept such a supervening power inhering in those courts
and which enables them to pass such orders as would
subserve the ends of justice. AT's on the other hand derive
the power to adjudicate based on an express conferral of
authority by parties to an agreement. Even where parties
confer a power on the AT to arbitrate, that conferral must
be within the contours of the applicable law. [...]”
(Emphasis supplied)
(iii) Thirdly, it held that the power to implead a party could also not be said
to flow from either Section(s) 16 or 17 of the Act, 1996 respectively.
The doctrine of kompetenz-kompetenz enshrined in Section 16 that
enables the arbitral tribunal to rule on any jurisdictional objection such
as the existence or validity of the arbitration agreement is confined or
limited only to the objections raised by the parties before it by virtue of
the arbitration agreement. It cannot be regarded as a source of power to
implead parties. Similarly, the power to pass interim measures under
Section 17 of the Act, 1996 cannot possibly encompass the power to
implead or join a third-party to the arbitration proceedings, as such
impleadment or joinder are not interim or interlocutory in nature, since
Special Leave Petition (C) No. 21286 of 2024 Page 35 of 190
the exercise of such power in essence also makes the third-party to be
bound by all other subsequent findings and the ultimate award of the
tribunal that may be rendered apart from the ‘interim order’. The
relevant observations read as under: -
“68. We also find ourselves unable to recognize the power
to implead as flowing from Sections 16 or 17 of the Act.
Section 16 as is manifest from its plain language empowers
the AT to rule on its own jurisdiction. It is in essence an
adoption of the kompetenz-kompetenz principle as
recognized to inhere in AT's. The power to rule on
jurisdiction or on objections with respect to the existence or
validity of the arbitration agreement cannot possibly be
recognized as a source of power to implead parties. It is
essentially concerned with the right of the AT to rule on any
jurisdictional objection that may be raised by parties before
it. The authority to render a decision on a jurisdictional
question or challenge that may be raised cannot be
stretched to infer a power to join parties to the arbitration
proceedings.
69. Insofar as Section 17 is concerned, none of the interim
measures of protections which are spelt out in clauses (a)
to (e) of Section 17(1)(ii) deal with or confer authority upon
the AT to join non-signatories. At least none of those
clauses explicitly speak of a power to implead. The power
to frame an interim measure which may be considered to
be “just and convenient” and which is spoken of in clause
(e) also cannot be justifiably extended as embodying a
power to implead. This since Section 17 fundamentally
deals with “interim measures”. The impleadment or the
joinder of a party to arbitral proceedings cannot be
construed to be an order which may be termed as either
interim or interlocutory. This since the moment a party is
joined in the proceedings, it becomes bound by the award
which may be ultimately rendered by the AT.
70. This Court also finds itself unable to recognize a power
to implead being liable to be read in Section 17 merely
because post its amendment by Act 3 of 2016 the AT now
Special Leave Petition (C) No. 21286 of 2024 Page 36 of 190
stands empowered to grant interim measures at par with the
power which stands vested in courts in terms of Section 9 of
the Act. The clear intent underlying the amendment to
Section 17 is to enable AT's to frame interim measures from
a position of equivalence with courts. The amendment to
Section 17 appears to have been motivated solely by the felt
need to save courts from being deluged with applications
for interim relief. However, one must not lose sight of the
fact that both Section 17 as well as Section 9 continue to
deal with interim measures. The power to join a party and
thus subject it to the ultimate decision and award that may
be rendered by the AT cannot be conceived to be a
component of the power to frame interim orders under
Section 17. The Court in this respect concurs with the view
expressed by the Madras High Court and reflected in Paras
127-134 of Abhibus as well as the legal position as
enunciated and explained in Paras 81 and 99 of V.G.
Santhosam.
(Emphasis supplied)
(iv) Lastly, it observed that although various principles such as ‘alter ego’
or ‘group of companies’ have been recognized to compel a third-party
to partake in the arbitration proceedings, yet such principles have been
invoked only in the context of Section(s) 8 or 45 of the Act, 1996
respectively which empowers a judicial authority to make a reference
to arbitration. Since both these provisions uses the phrase “a party to
the arbitration agreement or any person claiming through or under
him” unlike Section 2(1)(h) that defines “ party” to include only “ a
party to an arbitration agreement ”, it necessarily meant that it is only
the courts that have the power to refer even a non-signatory to
Special Leave Petition (C) No. 21286 of 2024 Page 37 of 190
arbitration by resorting to such principles. However, an arbitral tribunal
is only limited to adjudicate between parties to an arbitration agreement
in terms of Section 2(1)(h) of the Act, 1996. The relevant observations
read as under: -
“72. Although that Report was submitted in August 2014
and various amendments have been introduced in the Act
thereafter, Section 2(1)(h) has remained unchanged. The
meaning to be ascribed to the word “party” as appearing
in the Act at different places has come to be expanded only
in Section 8 which in terms of the Arbitration and
Conciliation (Amendment) Act, 2015 incorporates the
phrase “a party to the arbitration agreement or any person
claiming through or under him”. The only other provision
in which the word “parties” was further extended is Section
45 which too incorporates the phrase “or any person
claiming through or under him”. However, and
significantly, both Sections 8 and 45 deal with powers
conferred on a “judicial authority” as opposed to an AT.
Insofar as the AT is concerned therefore, it would be the
provisions of Section 2(1)(h) alone which would apply.
91. However, and while the decision of the larger Bench is
still awaited, this Court finds that the various decisions
rendered on the subject and as were noticed in Cox &
Kings essentially related to cases where courts were called
upon to invoke those theories and hold parties, who even
though may not have been signatories to the arbitration
agreement, to be bound by the same. In fact, some of the
decisions which were noticed in Cox & Kings had been
rendered in the context of Section 45 which, as was noticed
above, specifically employs the expression “any person
claiming through or under him”. The more fundamental
question which remains to be answered by the Court is
whether an AT would be justified in invoking those
doctrines. This Court is of the firm opinion for reasons
which are set out hereinafter that such a power cannot be
recognised to inhere in an AT.”
(Emphasis supplied)
Special Leave Petition (C) No. 21286 of 2024 Page 38 of 190
Accordingly, the Delhi High Court concluded that since an arbitral
tribunal owes its origin to the arbitration agreement providing for resolution
of disputes between the parties to such agreement in a private forum outside
the ordinary hierarchy of judicial authorities, the arbitration agreement alone,
along with the intended applicable statutory laws constitute the body of laws
within which the arbitral tribunal may exercise its powers. The arbitral tribunal
cannot arrogate to itself powers which are neither conferred by the statute or
the rules which govern the arbitration nor can it take recourse to inherent
powers that ordinarily vests within a judicial authority. Even in exceptional
cases where the scope of arbitration may be expanded to include even non-
signatories, any such power to do so has been expressly conferred by the
legislature only upon courts within the Act, 1996 by appropriate legislative
insertions to the term “ party ”. The relevant observations read as under: -
“92. As was held hereinbefore, the AT owes its origin principally
to well recognised and identifiable sources. The principal source
would be the agreement in terms of which parties may have
resolved for all disputes being referred to an AT and thus choose
a forum falling outside the circuit of national courts and the
ordinary hierarchy of judicial authorities. The other would be
rules framed by a body where the agreement contemplates
institutional arbitration. Last but not the least would be the
statutory laws framed by countries which are intended to govern
and regulate ATs’. The agreement, institutional rules or national
statutes would thus constitute the code or the body of laws
specifying the powers that may be available to be exercised by the
AT. As was pertinently observed by Redfern and Hunter, parties
cannot by agreement invest powers upon an AT which are
Special Leave Petition (C) No. 21286 of 2024 Page 39 of 190
otherwise reserved to be exercised by courts and judicial
institutions created by the State.
93. What needs to be emphasised is that an AT cannot arrogate to
itself powers which are neither conferred by the statute or the
rules which govern the arbitration nor can it take recourse to
inherent powers, which as has been found hereinabove, are
acknowledged to inhere in courts and judicial authorities only.
The AT, cannot, therefore, expropriate for itself powers which are
vested solely in judicial institutions. It remains bound by the
provisions of the statutes which prevail and which in this case
undisputedly is the Act. In the absence of a power of impleadment
having been conferred upon the AT in terms thereof, it would have
no authority or jurisdiction to join or implead parties to the
proceedings. The Court has already found that the power to
implead cannot be sustained or traced to Sections 16 or 17 or 19
of the Act. In fact, the Act incorporates no provision which could
be even remotely considered as being liable to be read as being
the repository of the power of the AT to implead.
94. The Act, wherever it was intended to expand the meaning to
be ascribed to the word “party” has done so by introducing
specific provisions in that respect. Even where such recourse was
taken, the power has come to be conferred upon a judicial
authority. If the AT were recognised to have the authority to
invoke the alter ego or group of companies principles, it would
undoubtedly result in the Court recognising a power vesting in the
AT to compel the presence of a party who had never, at least
ostensibly, agreed or conceded to its jurisdiction or authority to
decide. Such a party would necessarily be one who had not even
made party to the proceedings by the referral court. This would
clearly result in the AT seeking to exercise authority over a party
and compelling it to join the proceedings even though it may have
never been ad idem on disputes being resolved by way of
arbitration. This would not only result in the AT travelling far
beyond the contours of the arbitration agreement but negate
against the fundamental tenet of arbitration which is founded on
consensus and agreement. The Court for all the aforesaid reasons,
thus, finds itself unable to countenance the position as taken by
the Sole Arbitrator in the present case.
95. Quite apart from the Court having found for reasons
aforenoted that the AT stands conferred with no authority to
Special Leave Petition (C) No. 21286 of 2024 Page 40 of 190
implead or join parties, a reading of the impugned order would
clearly appear to indicate that the Sole Arbitrator has proceeded
to join the appellants on considerations which are recognized to
constitute the basis for the exercise of power under Order I Rule
10 of the CPC. However, the Sole Arbitrator has failed to bear in
mind that the Act confers no authority upon an AT to wield powers
akin to Order I Rule 10 of the CPC as specifically conferred on
national courts. We have also found for reasons aforenoted that
Section 19(2) cannot be read as enabling the AT to adopt Order I
Rule 10 of the CPC.”
(Emphasis supplied)
Decisions holding that the Arbitral Tribunal has the power to Implead
II.
a non-signatory to the Arbitration Agreement.
21. While on one hand the Delhi High Court along with the Bombay High Court
and the Madras High Court have taken the view that it is only the courts who
have the power to implead a non-signatory to partake in arbitration and that
such power is not vested in an arbitral tribunal, the High Court of Gujarat on
the other hand, speaking through Akhil Kureshi J. (as he then was) in IVRCL
Ltd. v. Gujarat State Petroleum Corporation Ltd. reported in 2015 GUJHC
31651 DB observed albeit in the context of scope of Section 9 of the Act,
1996, more particularly whether an injunction would be maintainable against
a non-signatory, that it is no longer res-integra that even a non-signatory to an
arbitral agreement can be subjected to arbitration proceedings. Placing
reliance on the decision of this Court in Chloro Controls (supra), it was held
that the courts have recognized various instances where even a non-signatory
to an arbitration agreement can be allowed to be joined in the arbitration
Special Leave Petition (C) No. 21286 of 2024 Page 41 of 190
proceedings by way of principle of alter-ego, apparent authority, agency or
group of companies etc. It observed that such instances are premised on the
‘implied consent’ of the third-party to the arbitration agreement and thus, it
would be futile to say that a non-signatory to an arbitration agreement can be
compelled to submit to the jurisdiction of the arbitral tribunal so validly
constituted. In the last, it observed that whether a particular case is a fit one
for enjoining a third-party on the aforesaid principles would be for the arbitral
tribunal to determine, being the appropriate forum by examining the facts of
each case, an exercise which is neither possible nor proper for the courts to
embark upon. The relevant observations read as under: -
“13. It is no longer res integra that in given set of circumstances,
even a non-signatory to an arbitral agreement can be subjected to
arbitration proceedings. Such instances may be rare and may
arise in special facts of the case and would ordinarily provide an
exception to the normal rule, that only a signatory to the arbitral
proceedings can be compelled to submit to the jurisdiction of the
arbitral tribunal. Nevertheless, instances have been recognized by
Courts where either on the ground of piercing corporate veil as
one entity found to be the alter ego of the other or some such
similar ground, even a non-signatory entity to an arbitration
agreement is allowed to be joined in the arbitration proceedings.
As noted, in case of Chloro Controls (I) P. Ltd. (supra), the law
on the point was discussed at length by 3 Judge Bench of the
Supreme Court and it was concluded that various legal basis may
be applied to bind a non-signatory to an arbitration agreement.
Such instances would be of that of implied consent, third party
beneficiaries, guarantors, assignment and other transfer
mechanisms of contractual rights. Such theory relies on the
discernible intentions of the parties and to a large extent, on good
faith principle. The second stream of cases would be included in
the legal doctrines of agent-principal relations, apparent
authority, piercing of veil, joint venture relations, succession and
estoppel. It was observed that this principle does not rely on the
Special Leave Petition (C) No. 21286 of 2024 Page 42 of 190
parties’ intention but rather on the force of the applicable law. It
would therefore be futile to argue that in no case, a non-signatory
to an arbitration agreement can be compelled to submit to the
jurisdiction of the arbitral tribunal so validly constituted. Whether
in the present case, facts are such that any of the principles cited
above or any other recognized by judicial precedent would apply
or not is neither possible nor proper on our part to comment upon.
Entire issue is pending before the appropriate forum. We would
therefore not be justified in allowing the appeal and vacating the
injunction only on this ground.”
(Emphasis supplied)
22. Similarly in IMC Ltd. v. Board of Trustees of Denndayal Port Trust reported
in (2018) SCC OnLine Guj 4972 , the Gujrat High Court placing reliance on
IVRCL Ltd (supra) held that there is nothing in the Act, 1996 which precludes
or prohibits an arbitral tribunal from lifting the corporate-veil and pursuant
thereto impleading even a non-signatory to arbitration proceedings.
Expressing its disagreement with the views of the Bombay High Court and the
Delhi High Court in Sudhir Gopi (supra) and Oil and Natural Gas
Corporation Ltd (supra) respectively, it held that except for a limited sphere
of fields involving disputes which are non-arbitrable, the arbitral tribunal is
well-empowered to take up all other disputes and issues thereto which would
necessarily also include the issue of lifting the corporate veil to enjoin a non-
signatory to the arbitration. Whether a case is made out for impleading a third-
party (sic non-signatory) or not would be a matter for the arbitral tribunal
being the proper designated forum for adjudication of disputes, keeping in
mind the facts of each case and the position of law. It further observed that
Special Leave Petition (C) No. 21286 of 2024 Page 43 of 190
both the recognition of such power of an arbitral tribunal AND the non-
issuance of a notice of invocation in terms of Section 21 of the Act, 1996 to
the third-party sought to be impleaded will hardly occasion any prejudice, as
it is always open to such a third-party to challenge its impleadment by way of
an application under Section 16 of the Act, 1996. The relevant observations
read as under: -
“23. 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 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.
xxx xxx xxx
45. On hearing the response on the said issues by the learned
Senior Counsel Shri Mihir Thakore and keeping in view of the
provisions of the Arbitration Act, 1996, as also the judgment of the
Hon'ble Supreme Court in the case of A. Ayyasamy v. A.
Special Leave Petition (C) No. 21286 of 2024 Page 44 of 190
Paramasivam reported in (2016) 10 SCC 386, we are not in
agreement with the view taken by the learned Single Judges in the
aforesaid judgments in Sudhir Gopi v. Indira Gandhi National
Open University reported in 2017 SCC OnLine Del 8345 and Oil
and Natural Gas Corporation Ltd. v. Jindal Drilling and
Industries Limited reported in 2015 SCC OnLine Bom 1707.
There is nothing in law which prohibits an Arbitral Tribunal from
lifting the corporate veil on the basis of doctrine of alter ego. The
Arbitral Tribunal has a right to take up all disputes which a Court
can undertake, except certain disputes generally treated as non-
arbitrable, viz. (i) patent, trade marks and copyright, (ii) anti-
trust/competition laws, (iii) insolvency/winding up, (iv)
bribery/corruption, (v) fraud, (vi) criminal matters.
The Arbitration and Conciliation Act, 1996, does not make any
provision excluding any category of disputes treating them as non-
arbitratble but the Courts have held that certain kinds of disputes
may not be capable of adjudication through means of arbitration.
This issue is elaborately considered by the Hon'ble Supreme Court
in the case of A. Ayyasamy v. A. Paramasivam reported in (2016)
10 SCC 386. [...]
xxx xxx xxx
47. Further, in the case of IVRCL Limited v. Gujarat State
Petroleum Corporation Limited - First Appeal No. 1714 of 2015
and other allied appeals, decided on 08-13/10/2015, a Division
Bench of this Court held that it is no longer res-integra that in a
given set of circumstances, even a non-signatory to an arbitral
agreement can be subjected to arbitration proceedings. It is
further observed that instances have been recognized by Courts
where on the ground of piercing corporate veil, as one entity being
found to be an alter ego of the other or on similar grounds, even
a non-signatory entity to an arbitration agreement is allowed to
be joined in the arbitration proceedings. The Division Bench has
disapproved the argument that, in no case, a non-signatory to the
arbitration agreement can be compelled to submit to the
jurisdiction of the Arbitral Tribunal validly constituted.
48. In view of the aforesaid judgments of the Hon'ble Supreme
Court and Division Bench of this Court, we are not in agreement
with the submission made by Shri S.N. Soparkar, learned Senior
Counsel for the appellant, that the learned Arbitral Tribunal has
no jurisdiction to examine the issue by lifting the corporate veil
Special Leave Petition (C) No. 21286 of 2024 Page 45 of 190
and further, on facts, no case is also made out to examine the claim
of alter ego by lifting the corporate veil. Whether a case is made
out for impleading a third party by applying the doctrine of lifting
of corporate veil, is a matter which is to be examined having
regard to facts of each case and keeping in mind the concept of
group Companies. [...] ”
(Emphasis supplied)
23. In NOD Bearing Pvt. Ltd. v. Bhairav Bearing Corporation reported in (2019)
SCC OnLine Bom 366 the facts germane for our discussion are that an
agreement for supply of ball bearings was entered into between the petitioner
therein and one KBIL group. For facilitation of distribution of these goods,
the petitioner therein entered into a dealership agreement with the respondent
therein, pursuant to which a certificate of distribution came to be issued to the
respondent therein by KBIL. Due to various issues as regards the fulfilment
of supply of goods, the KBIL and the petitioner therein terminated the
certificate of distribution and the dealership agreement, respectively with the
respondent therein. Aggrieved by the aforesaid, the respondent therein
initiated arbitration against the petitioner therein inter-alia for the purpose of
challenging the aforesaid termination and claiming damages therefrom.
Before the arbitral tribunal one of the key issues canvassed by the petitioner
therein was that the arbitration suffers from a mis-joinder or non-joinder of
parties inasmuch as KBIL had not been impleaded. It contended that the
dealership agreement entered into by it with the respondent therein was only
in the capacity of an agent of the KBIL, and thus any claims arising out of the
Special Leave Petition (C) No. 21286 of 2024 Page 46 of 190
same must be made against the principal alone i.e., KBIL, who has not been
made a party to the arbitration proceedings. The aforesaid contention came to
be rejected by the arbitral tribunal and ultimately an award was passed against
the petitioner therein. In appeal, the Bombay High Court upholding the
decision of the sole arbitrator held that construction and determination of the
scope of agreement so as to determine which parties are necessary to the
proceedings is a matter strictly within the jurisdiction of the arbitrator. It
further observed that as long as the interpretation of the agreement by the
arbitrator is reasonable, the courts would refrain from interfering with the
same merely because another view is possible. Although the Bombay High
Court did not make any observations as regards the power of tribunal to
implead or join a non-signatory, yet its observations as to the scope of
jurisdiction of the arbitral tribunal, more particularly for determining whether
there exists any principal-agent relationship nevertheless is of significance,
which we shall discuss in more detail in the latter parts of this judgment. The
relevant observations read as under: -
“4. Learned Counsel for the Petitioner submits that dealership
agreement, which gave rise to the Respondent's claim, was
entered into by the Petitioner as an agent of KBIL. Learned
Counsel submits that the Petitioner having disclosed in the
dealership agreement its principal and its express authority to
name a dealer whilst acting for the principal, namely, KBIL, the
Respondent's dealership is not a sub-agency of the Petitioner, but
an agency of the principal itself, namely, KBIL. Learned Counsel
relies on Section 194 read with Section 230 of the Contract Act in
this behalf. Based on this contention, it is further submitted that
the claim being in respect of a contract of agency as between the
Special Leave Petition (C) No. 21286 of 2024 Page 47 of 190
Respondent and KBIL, the latter was a necessary party for any
adjudication concerning the agreement. [...]
xxx xxx xxx
5. The learned arbitrator rejected the Petitioner's submissions on
the ground that the dealership agreement between the Petitioner
and the Respondent was on a principal to principal basis; though
this agreement was in pursuance of its entitlement to appoint
dealers under its main contract of distributorship with KBIL and
this agreement conferred upon KBIL certain rights, in essence, it
was an agreement between the Petitioner and the Respondent. The
arbitrator considered various circumstances to arrive at this
conclusion. The arbitrator inter alia observed that under the
dealership agreement, the Respondent was required to place a
purchase order on, and purchase bearings from, the Petitioner
and prices were required to be separately agreed between the
Respondent and the Petitioner from time to time. After considering
various clauses of the dealership agreement (in particular,
clauses 3(b), 5(a) to (c), 6(a), 7(a), (d), 10, 11(f) and 13 thereof),
the arbitrator held that a holistic reading of the agreement did not
show that the Petitioner was merely acting as an agent of KBIL,
whilst entering into the dealership agreement with the
Respondent. The arbitrator relied on the case of Coats Viyella
India Ltd. v. India Cement Ltd. in this behalf. In Coats Viyella
India Ltd., the Supreme Court, after considering the agreement as
a whole, had held that under the agreement, a privity of contract
of the appellant was only with the respondent and there was no
liability on the other party, who was claimed to be the principal,
to make payment to the appellant; the agreement was on a
principal to principal basis between the appellant and the
respondent, the rights and liabilities of the appellant arising only
under the agreement. Based on the material placed before the
learned arbitrator and a reasonable interpretation of the
dealership agreement and application of law, the arbitrator came
to his conclusion that the Petitioner did not act merely as an agent
on behalf of KBIL in entering into the dealership agreement and
since the Respondent's case was that the Petitioner's acts had
directly resulted in the Respondent suffering losses, the
proceedings did not suffer from any mis-joinder or non-joinder of
necessary party so as to vitiate the proceedings. This conclusion
is clearly a possible view based on the material placed before the
learned arbitrator. Construction of a contract is a matter strictly
Special Leave Petition (C) No. 21286 of 2024 Page 48 of 190
within the jurisdiction of the arbitrator, and so long as the
arbitrator construes it on a reasonable interpretation and his
construction denotes a possible view, there is nothing for the
challenge court to interfere with under Section 34 of
the Arbitration and Conciliation Act, 1996 (“Act”).
6. There is no denial of the proposition of law laid down by the
Supreme Court or our court in the cases cited by learned Counsel
for the Petitioner. Prem Nath Motors Limited's case (supra)
basically considers the effect of Section 230 of the Contract Act.
In that case, it was held that the agent had acted on behalf of a
disclosed principal and there was no contract to the contrary
placed before the court so as to make the agent liable for the act
of the disclosed principal. Even in Vivek Automobiles
Limited (supra), the court applied the same principle. The
principle of law enunciated by the Supreme Court in these cases
merely implies that an agent is not responsible for the acts of a
disclosed principal except in case of a contract to the contrary.
The real question in the present case is whether, in so far as the
agency agreement between the Petitioner and the Respondent is
concerned, the Petitioner could be said to be merely acting as an
agent of a disclosed principal, namely, KBIL, or was the
agreement entered into by the Petitioner acting in its own rights
as a principal. On a reasonable construction of the agreement, the
arbitrator found that it was the latter case and not the former. The
arbitrator held that the relevant clauses of the agreement
indicated that the agreement of dealership was entered into by the
Petitioner not as an agent of KBIL, but in its individual capacity
on a principal to principal basis. That conclusion, as I have noted
above, is a possible view based on a reasonable interpretation of
the agreement.”
(Emphasis supplied)
24. A similar view was taken by the Delhi High Court in Vistrat Real Estates Pvt.
Ltd. v. Asian Hotels North Ltd. reported in (2022) SCC OnLine Del 1139
wherein the issue before the court was whether the petitioner therein was
entitled to initiate arbitration against a third-party who was not a signatory to
the arbitration agreement. The Delhi High Court placing reliance on Chloro
Special Leave Petition (C) No. 21286 of 2024 Page 49 of 190
Controls (supra), held that in exceptional cases pertaining to either the
principle of ‘composite performance’ or ‘implied authority’. even a third party
who is not a signatory to the arbitration agreement can be joined in arbitration.
It further held that at the stage of appointment of an arbitrator in terms of
Section 11 of the Act, 1996, the courts are required only to make a prima-facie
determination as regards the validity or existence of the arbitration agreement
only. Once it is found that there is a valid arbitration agreement in existence,
all other issues including whether any relief can be claimed against a third-
party or the necessity for impleading such third party would be a matter to be
looked into only by the arbitral tribunal by virtue of the powers devolved upon
it by the principle of ‘ kompetenz-kompetenz ’. The relevant observations read
as under: -
“11. Hon'ble Supreme Court in the decision reported as (2013) 1
SCC 641 Chrolo Controls India Private Ltd. v. Severn Trent
Water Purification Inc. though dealing with an international
arbitration under Section 45 of the Act, held that even third parties
who are not signatories to the arbitration agreement can be joined
in arbitration. It laid down categories where the third parties can
be impleaded to the arbitration and held that the expression
‘claiming through them’ should be construed strictly. [...]
12. The decision in Chrolo Controls (supra) clearly holds that in
exceptional cases applying the principle of “composite
performance” or implied authority, even a third party who is not
a signatory to the arbitration agreement can be joined in
arbitration.
13. Hon'ble Supreme Court in Vidya Drolia (supra) further
considering the issue as to who would decide the non-arbitrability
of the claim held that there cannot be a straightforward universal
answer. Reiterating the law laid down in Shin Etsu Chemical Co.
Special Leave Petition (C) No. 21286 of 2024 Page 50 of 190
Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234, it was held that the
correct approach to the review of the arbitration agreement is
restricted to prima facie finding that there exists an arbitration
agreement that is not null and void, inoperative or incapable of
being performed. The key rationale for holding that the courts’
review of the arbitration agreement should be limited to a prima
facie standard is the principle of competence-competence.
Further, if the courts are empowered to fully scrutinise the
arbitration agreement, an arbitral proceeding would have to be
stayed until such time that the court seized of the matter renders a
decision on the arbitration agreement. This would defeat the credo
and ethos of the Arbitration and Conciliation Act which is to
enable expeditious arbitration without avoidable intervention by
the judicial authorities. The rule of priority in favour of the
arbitrators is counterbalanced by the courts’ power to review the
existence and validity of the arbitration agreement at the end of
the arbitral process. It was further held that if on a bare perusal
of the agreement it is found that a particular dispute is not
relatable to the arbitration agreement, then, perhaps the court
may decide the relief sought for by a party in a Section 11 petition.
However, if there is a contestation with regard to the issue as to
whether the dispute falls within the realm of the arbitration
agreement, then the best course would be to allow the arbitrator
to form a view in the matter.
14. Therefore, once a valid arbitration agreement exists between
the parties, the issue whether the petitioner is entitled to any relief
in the absence of a third party to the agreement or that third party
is required to be impleaded in the proceedings, is covered by the
Doctrine of Competence-Competence and it will be for the
Arbitrator to decide the said issue. Thus, the issue whether in the
absence of a third party, the petitioner can claim the refundable
security deposit would be for the learned Arbitrator to
determine.”
(Emphasis supplied)
25.
In Cardinal Energy and Infra Structure Pvt. Ltd. v. Subramanya
Construction and Development Co. Ltd. reported in (2024) SCC OnLine
Bom 964 , the Bombay High Court diverging from the views expressed in its
earlier decision of Oil and Natural Gas Corporation Ltd. (supra) and the
Special Leave Petition (C) No. 21286 of 2024 Page 51 of 190
decision of the Madras High Court in V.G. Santhosam (supra), held that the
arbitral tribunal does have the power or authority to implead a non-signatory
even if such impleadment was never sought at the referral stage. The said
decision is in three-parts: -
(i) First, placing reliance on the decision of this Court in Cox and Kings
(I) (supra), it held that the question whether a non-signatory is bound
by the arbitration agreement or not, is for the arbitral tribunal to decide
and not the referral court. Thus, even if the non-signatory was not
impleaded at the time of filing of application under Section 11 of the
Act, 1996, it would be incorrect to say that the same would exclude the
arbitral tribunal from impleading such party by applying the ‘group of
companies’ doctrine on its own accord. The relevant observations read
as under: -
“40. The Sole Arbitrator has referred to the decision of the
Supreme Court in Cox and Kings (Supra) where the
Supreme Court has enunciated the ‘Group of Companies’
doctrine and in particular the impleadment of a non-
signatory to an Arbitration Agreement in arbitral
proceedings based on such doctrine. The Supreme Court in
the said decision has considered a case where an
Application was made to the Referral Court to join a non-
signatory to the Arbitration Agreement and it was in such
scenario that the Supreme Court held that, the Referral
Court is required to prima facie rule on the existence of the
Arbitration Agreement and whether the nonsignatories is a
veritable party to the Arbitration Agreement. The Supreme
Court has held that in view of the complexity of such a
determination, the Referral Court should leave it for the
Arbitrator to decide, whether the non-signatory party is
indeed a party to the Arbitration Agreement on the basis of
Special Leave Petition (C) No. 21286 of 2024 Page 52 of 190
the factual evidence and application of legal doctrine. It is
necessary to reproduce paragraphs 171 and 172 of the said
decision [...]
41. Thus from the conclusions of the Supreme Court, it is
clear that the Supreme Court has held that where at a
referral stage impleadment of a non-signatory to the
Arbitration Agreement is raised, the Referral Court should
leave it for the Arbitral Tribunal to decide whether the non-
signatory is bound by the Arbitration Agreement. Thus, it is
clear that the Arbitral Tribunal has the power to decide
whether the non-signatory is bound by the Arbitration
Agreement and to implead the non-signatory if answered in
the affirmative.
42. I do not find from a reading of the decision of the
Supreme Court in Cox and Kings Ltd. (Supra) that merely
by there being no prayer for impleadment of a non-
signatory in the Section 11 Application, the applicability of
the doctrine of ‘group of companies’ by the Sole Arbitrator
is excluded. [...]”
(Emphasis supplied)
(ii) The arbitral tribunal being the appropriate forum to determine the issue
as to joinder of a non-signatory to an arbitration agreement, would
undoubtedly have the power to implead such non-signatory. Although,
at the referral stage the court is bound to decide whether there is an
arbitration agreement and whether the parties before it are bound by
such agreement or not, yet this does not preclude the arbitral tribunal
from deciding these issues after the proceedings have commenced on
its own accord, particularly when such issues were not conclusively
decided by the courts in the first instance. The relevant observations
read as under: -
Special Leave Petition (C) No. 21286 of 2024 Page 53 of 190
“42. [...] The Arbitrator does have the power/authority to
implead the non-signatory if such non-signatory is
otherwise liable to be impleaded on the basis of the ‘group
of companies’ doctrine. Thus, the Supreme Court has infact
considered that the Arbitral Tribunal is the appropriate
forum to determine the issue as to joinder of a non-
signatory to an Arbitration Agreement. I thus find no merit
in the submission of Mr. Rustomjee that in the event the
issue of joinder of a non-signatory to an Arbitration
Agreement is not raised before the Referral Court, the
Arbitral Tribunal on its own accord does not have the
power to determine this issue and/or allow the impleadment
of a non-signatory to an Arbitration Agreement. I do not
find there to be any estoppel on the Arbitral Tribunal
determining this issue.
xxx xxx xxx
44. There have been submissions made by Mr. Rustomjee
on the power of the Referral Court to determine whether the
Arbitration Agreement exists and/or validity of the
Arbitration Agreement and which would include whether
the Arbitration Agreement is applicable to non-signatories
to the Agreement. The Supreme Court in National
Insurance Company Ltd. (Supra) at paragraph 22 has
referred to the issues which the Chief Justice or his
designate is bound to decide and which includes 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. However, this will not preclude the
Arbitral Tribunal from deciding the issue of impleadment of
a non-signatory to an Arbitration Agreement, particularly
when this issue was not before the Referral Court. Thus, in
my view, the Sole Arbitrator in the present case was
perfectly justified in determining the issue of whether the
Petitioners as non-signatories to the Arbitration Agreement
could be impleaded as parties to the arbitration.
(Emphasis supplied)
Special Leave Petition (C) No. 21286 of 2024 Page 54 of 190
(iii) Thirdly, it observed that although the power of impleadment cannot be
traced to any provision of the Act, 1996, yet such power has been
recognized to exist with the arbitral tribunal by virtue of the law
expounded by Cox and Kings (I) (supra). It then held that such power
to implead can be traced to the arbitral tribunal’s power to determine its
own jurisdiction under Section 16 of the Act, 1996, which includes the
power to determine whether the arbitral tribunal has jurisdiction over
non-signatories to the arbitration agreement in question. Moreover,
under the scheme of Act, 1996, it is always open to the parties to
challenge such impleadment by leading evidence on these issues before
the arbitrator and thereafter before the courts by taking recourse to
Section 34 of the Act, 1996 after the award is passed. The relevant
observations read as under: -
“43. I further find much substance in the argument of Mr.
Sarda on behalf of the Respondent Nos. 1 and 2 that the
Arbitral Tribunal is obliged to follow the law laid down by
the Supreme Court and/or judge made law. This would be
the case despite the Arbitral Tribunal not having specific
power to consider an application for impleadment and/or
the power of the Civil Court under Order I Rule 10 of
the CPC. The Delhi High Court in Abhibus Services India
Private Ltd. (Supra), paragraph 136 has the recognized
concept of judge made law. However, it has been held that
in the absence of any trace of such power in the entire
scheme of the Act, the power of impleadment cannot be said
to be conferred upon the Tribunal on the basis of judge
made law. This decision of the Delhi High Court was prior
to the decision of the Supreme Court in Cox and
Kings (Supra) which in my view has changed the law with
regard to impleadment of non-signatories to the Arbitration
Special Leave Petition (C) No. 21286 of 2024 Page 55 of 190
Agreement on the ‘group of companies’ doctrine and has
left it to the Arbitral Tribunal to determine this issue.
xxx xxx xxx
45. The aforementioned findings are on the premise that the
impugned Order is an interim award. However, one cannot
lose sight of the fact that the Arbitrator under Section 16 of
the Arbitration Act has the power to determine issues of
jurisdiction which in my view would include whether the
Arbitrator has jurisdiction over nonsignatories to an
Arbitration Agreement. Any such decision taken by the
Arbitrator can always be the subject matter of a challenge
by the Petitioners in a Petition filed under Section 34 of the
Arbitration Act after the final Award is passed. Further, I
do not find merit in the submission of Mr. Rustomojee that
the aforesaid points for determination namely, issue Nos.
(ii), (iii) and (v) which have been extracted above have been
finally determined. It is always open for the Petitioners to
lead evidence on these issues and invite final adjudication
by the learned Sole Arbitrator on these issues. The decisions
of the Delhi High Court in National Highway Authority of
India (Supra) and Goyal MG Gases Pvt. Ltd. (Supra) are
apposite.”
(Emphasis supplied)
26. Similarly, the Delhi High Court in Indraprastha Power Generation Co. Ltd.
v. Hero Solar Energy Pvt. Ltd. reported in (2024) SCC OnLine Del 6080
held that although Arupri Logistics (supra) when it was rendered was correct
in holding that an arbitral tribunal cannot join or delete parties, or proceed on
principles akin to Order I Rule 10 of the CPC, and that such power vests only
with the courts, yet after the decisions of this Court in Cox and Kings (I)
(supra) and Cox and Kings (II) (supra), it is crystal clear that arbitral tribunals
do indeed have the power to implead a non-signatory. It observed that since,
Special Leave Petition (C) No. 21286 of 2024 Page 56 of 190
Cox and Kings (II) (supra) has held that the question whether a non-signatory
is bound by the arbitration agreement or not should be left to the arbitral
tribunals to decide, the obvious corollary to the aforesaid would be that if the
arbitral tribunal were to arrive at a finding that such non-signatory is indeed
bound by the arbitration agreement, it would necessarily have to include (sic
implead) such party to the arbitration proceedings. Accordingly, it held that
the arbitral tribunal would possess the jurisdiction to implead non-signatories
who may be bound by the outcome of the arbitral proceedings, if there exists
some kind of connection or positive act or conduct by the non-signatory that
would indicate its connection to the contractual duties of the signatories. The
relevant observations read as under: -
“20. In Arupri Logistics, as Mr. Ghose correctly points out, a
coordinate Bench of this Court has clearly held that an Arbitral
Tribunal cannot join or delete parties, or proceed on principles
akin to Order I Rule 10 of the Code of Civil Procedure 1908. The
power to join or delete parties in a proceeding, it is held, vests
only in Court. As such, it is only the Referral Court which, at the
stage of referring the dispute to arbitration, can join non-
signatories to the arbitral proceedings. The Arbitral Tribunal is
bound to decide the issue inter se the parties who are before it and
cannot carry out any addition or deletion thereto.
21. Arupri Logistics thus, holds that an Arbitral Tribunal cannot
add parties to the proceedings before it, and that the jurisdiction
to do so vests only in the referral Court.
22. After the decision was rendered by the Coordinate Bench
in Arupri Logistics, however, the Constitution Bench of the
Supreme Court has rendered its decision in Cox and Kings-II on
6 December 2023, and the issue of whether an Arbitral Tribunal
can join parties may once again be debatable after the said
decision. [...]
Special Leave Petition (C) No. 21286 of 2024 Page 57 of 190
xxx xxx xxx
24. These passages indicate that the Section 11 Court should
leave, to the Arbitral Tribunal, the decision as to whether a non-
signatory to the arbitration agreement should be bound by it. The
corollary would obviously be that if the Arbitral Tribunal were to
find that a nonsignatory is bound by arbitration agreement, it
would necessarily have to include such non-signatory in the
arbitration proceedings. Following Cox and Kings-II, therefore,
it may be possible to argue that an Arbitral Tribunal does possess
the jurisdiction to implead non-signatories who may be bound by
the outcome of the arbitral proceedings.
26. The impugned order of the Arbitral Tribunal has observed
that, in the above passages from Cox and Kings-I as endorsed
in Cox and Kings-II, a non-signatory could be impleaded in
arbitral proceedings only if there is some kind of connection or
positive act by the conduct of the non-signatory subsequent to the
execution of the contract, or participation by the non-signatory in
the negotiation, performance or termination of the contract
indicating a connection in the contractual duties of the parties.
[ ]”
27. In yet another decision of the Delhi High Court in KKH Finvest Private Ltd.
v. Jonas Haggard & Ors. reported in (2024) SCC OnLine Del 7254 although
the issue primarily entailed whether the non-signatories therein could be
regarded as a ‘veritable party’ to the arbitration agreement and thus, be
referred to arbitration or not, yet the observations therein could be said to be a
trail blazer on the issue of whether the arbitral tribunal has the power to
implead a non-signatory or not. It observed that as per the decision of this
Court in Ajay Madhusudan Patel (supra), at the stage of deciding an
application under Section 11 of the Act, 1996, the referral courts are only
required to prima-facie determine if the non-signatories are a veritable party
Special Leave Petition (C) No. 21286 of 2024 Page 58 of 190
to the arbitration clause or not. It held that as per Cox and Kings (I) (supra)
the definition of “ party ” under Section 2(1)(h) of the Act, 1996 is inclusive of
both signatories and non-signatories, provided that such non-signatory
actively participates in the performance of a contract, and its actions align with
those of the other members of the group. Furthermore, the court, taking note
of the contradictory views expressed by two coordinate benches in Arupri
Logistics (supra) and Indraprastha Power Generation Co. Ltd. (supra),
observed that since the findings of a referral court is only limited to a bird’s
eye view of whether a non-signatory is a veritable party or not, the issue of
whether such party can be impleaded and made part of the arbitration
proceedings or not ought to be decided by the arbitral tribunal based on the
pleadings and arguments. The relevant observations read as under: -
“75. Hence, at this stage, this Court being a referral court is only
required to take a prima facie view on whether there exists an
arbitration agreement and whether the respondents who are non-
signatories to the MoS are veritable parties to the arbitration
agreement.
xxx xxx xxx
78. In cases where impleadment of non-signatories to arbitration
proceedings is necessary, courts have delineated various
approaches. It can be achieved via : a) consent-based theories,
which emphasize identifying the mutual intent of the parties and
include concepts like agency, implied consent, and the assignment
or transfer of contractual rights; and b) non-consensual theories,
which are rooted in equity and encompass doctrines such as alter
ego/piercing the corporate veil, estoppel, succession, and
apparent authority [refer to Cox & Kings (supra), para 192]. At
this stage and as a referral court, as per Ajay Madhusudan
Patel (supra), the test is whether prima facie the respondents are
Special Leave Petition (C) No. 21286 of 2024 Page 59 of 190
veritable parties to the MoS containing the arbitration clause.
This has been dealt with in detail in Issue I.
79. It is settled position of law that the definition of parties under
the 1996 Act [as envisaged under Section 2(1)(h)] is inclusive of
both signatories and non-signatories. The Hon'ble Supreme Court
in Cox & Kings Ltd. v. SAP India (P) Ltd., (2024) 4 SCC
1 observed that if a nonsignatory party actively participates in the
performance of a contract, and its actions align with those of the
other members of the group, it gives the impression that the non-
signatory is a “veritable” party to the contract which contains the
arbitration agreement. Based on this impression, the other party
may reasonably assume that the non-signatory is indeed a
veritable party to the contract and bind it to the arbitration
agreement. [...]
80. Thus, the assessment required to be undertaken by this Court
- to give prima facie observations on whether the respondents are
veritable parties or not - is primarily an assessment regarding the
conduct, role, and involvement of the non-signatory in the
underlying contract i.e. the MoS. At the outset, it is to be noted
that the term “veritable parties” applies to both persons and
entities [refer to Cox & Kings (supra), para 96]. In order to assess
the same, this Court is required to consider factors such as mutual
intent, relationship between the signatories and non-signatories,
commonality of subject matter, composite nature of transactions
and performance of the contract.
81. The intention of the parties to be bound by an arbitration
agreement is to be gathered from the circumstances surrounding
the involvement of a non-signatory party in the negotiation,
performance, and termination of the underlying contract
containing the agreement. If the non-signatory's actions align with
those of the signatories, it could reasonably lead the signatories
to believe that the non-signatory was a veritable party to the
contract containing the arbitration clause. To infer the non-
signatory's consent, its participation/involvement in the
negotiation or performance of the contract must be positive,
direct, and substantial, rather than merely incidental. The burden
of proof to establish the same lies on the party seeking to implead
the non-signatories to the arbitration proceedings, in this case, the
petitioners.
Special Leave Petition (C) No. 21286 of 2024 Page 60 of 190
xxx xxx xxx
101. Two coordinate benches of this Court have taken contrary
views on whether the arbitral tribunal is vested with the power to
implead parties in arbitration proceedings. While Arupri
Logistics (P) Ltd. v. Vilas Gupta, 2023 SCC OnLine Del
4297 holds that the arbitral tribunal lacks the jurisdiction to
implead, Indraprastha Power Generation Co. Ltd. v. Hero Solar
Energy (P) Ltd., 2024 SCC OnLine Del 6080 holds that
following Cox and Kings (supra), such jurisdiction may be
conferred upon the arbitral tribunal. Since I have referred
respondent Nos. 2 to 5 to arbitration, the only issue that remains
to be adjudicated is whether respondent Nos. 2 to 5 are, in fact,
proper and necessary parties. The same shall be decided by the
arbitrator in accordance with law. The finding of the referral
court which takes a bird's eye view and does not go into minute
details is only for the purpose of referring the parties to
arbitration. The respondents will be at liberty to agitate this issue
before the arbitrator, who shall take an independent view based
on the pleadings and arguments of the parties.”
(Emphasis supplied)
28. What is discernible from the aforesaid is that despite the wide recognition of
the doctrinal principles of ‘group of companies’, ‘alter-ego’, agency, implied
consent, assignment or transfer of contractual rights, estoppel, ‘apparent
authority’ etc. to law of arbitration, the High Courts throughout the country
remained averse to accepting the application of these principles by the arbitral
tribunals. Even after the decision of this Court in Chloro Controls (supra)
allowing non-signatories to an arbitration agreement to be referred and
enjoined to arbitration on the basis of their conduct, role, and involvement in
the underlying contract, the High Courts consistently held that such power to
Special Leave Petition (C) No. 21286 of 2024 Page 61 of 190
refer or implead a non-signatory was only available to the courts and not to
the arbitral tribunals. It is only after the decision of this Court in in Cox and
Kings (I) (supra), that the position of law as regards the power of an arbitral
tribunal to implead a non-signatory underwent a significant change, whereby
many High Courts which had earlier refused to recognize such power of the
arbitral tribunal, came around to recognizing it.
b. Evolution of the law on referral or joinder of Non-Signatories to
arbitration proceedings and the Aversion to the power of Arbitral
Tribunals to implead a Non-Signatory.
29. For a better exposition, it would be apposite to first understand the evolution
of the law pertaining to the referral or joinder of even non-signatories to an
arbitration agreement as a party to the arbitration proceedings. In other words,
to better cull out the reasons for why there existed a divergence of views
among various High Courts and the general reluctance to recognise the arbitral
tribunal’s power — as opposed to that of a court — in impleading such non-
signatories to arbitration proceedings.
I. Decision of Chloro Controls and the Arbitration and Conciliation
(Amendment) Act, 2015.
30. It all started with the three-Judge Bench decision of this Court in Chloro
Controls (supra) when this Court was called upon to determine an arbitral
Special Leave Petition (C) No. 21286 of 2024 Page 62 of 190
reference in case of multi-party agreements where performance of the
ancillary agreements was substantially dependent upon effective execution of
the principal agreement. This Court held that in exceptional cases involving
composite transactions with multi-party agreements, a non-signatory could be
subjected to arbitration by virtue of the ‘group of companies’ doctrine,
provided there was a clear intention of the parties to bind both the signatory
as well as non-signatory parties to the arbitration agreement. It observed that
although the scope of am arbitration agreement is limited to the parties who
entered into it, yet the doctrine of ‘group of companies’ has found favour albeit
in a limited sense both under the English Law which was the original genesis
of the Act, 1996 and under the international commercial arbitration landscape,
particularly in the United States and French jurisdictions. The relevant
observations read as under: -
“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
Special Leave Petition (C) No. 21286 of 2024 Page 63 of 190
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 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.”
31. The aversion or misconception that loomed before the various High Courts as
regards the inhibition of an arbitral tribunal to resort to the principles of ‘group
of companies’, ‘alter-ego’, agency etc. or to put it more simply, to implead a
non-signatory to the arbitration proceedings on its own accord can be deftly
traced to two pertinent observations that were made in Chloro Controls
(supra).
32.
Apart from the aforesaid reasons of economic reality and judicial comity
justifying the recognition of ‘group of companies’ in the modern regime of the
law of arbitration including that of India, Chloro Controls (supra) further
Special Leave Petition (C) No. 21286 of 2024 Page 64 of 190
reinforced the genesis of recognizing this doctrine within the scheme of Act,
1996 by tracing it to Section 45 of the Act, more particularly the expression
“ parties or any person claiming through or under him ” used therein. It held
that the aforesaid language of Section 45 reflects a legislative intent of
enlarging the scope beyond “parties” who are signatories to the arbitration
agreement to include non-signatories. It observed that Section 8 of the Act,
1996 does not import the same expression; “ parties or any person claiming
through or under him ” which can be found in Section 45 and simpliciter uses
the expression “ parties ” without any extension, even though Section 8 is a
contemporary counter-part of Section 45 for the purpose of domestic
arbitrations under Part I. This clearly indicates that the legislature consciously
and deliberately opted to incorporate the aforesaid expression to give the
provision a wider import to encourage arbitration and bring it in tune with the
prevalent best international practices. Thus, this very ostensible legislative
intent cannot be ignored by the courts and must be given due weightage. The
relevant observations read as under: -
“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
Special Leave Petition (C) No. 21286 of 2024 Page 65 of 190
require 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.
xxx xxx xxx
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 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.
Special Leave Petition (C) No. 21286 of 2024 Page 66 of 190
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.
96. Examined from the point of view of the legislative object and
the intent of the framers of the statute i.e. the necessity to
encourage arbitration, the court is required to exercise its
jurisdiction in a pending action, to hold the parties to the
arbitration clause and not to permit them to avoid their bargain
of arbitration by bringing civil action involving multifarious
causes of action, parties and prayers.”
(Emphasis supplied)
33. However, this rudimentary understanding of the expression “ parties ” and
“ parties or any person claiming through or under him ” in Section(s) 8 and 45
of the Act, 1996 respectively by Chloro Controls (supra) for the import of the
doctrine of ‘group of companies’ into the Act, 1996 was one of the two-fold
reasons that eventually convoluted the position of law as regards impleadment
of non-signatories, which we shall further discuss.
34. After having established the foundational basis of the doctrine of ‘group of
companies’ in the Act, 1996, Chloro Controls (supra) then proceeded to
explain the manner in which the aforesaid doctrine is to be applied. Since any
Special Leave Petition (C) No. 21286 of 2024 Page 67 of 190
application under Section 45 of the Act, 1996 for appointment of an arbitrator
would be governed by Section 11 sub-section (6) of the Act, it as a natural
corollary would necessarily entail the adjudication and disposal of objections
contemplated thereunder, more particularly the 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 as mandated by
sub-section (7) of Section 11 of the Act. For the aforesaid proposition, reliance
was placed on the seven-Judge Bench decision of this Court in SBP & Co. v.
Patel Engg. Ltd. reported in (2005) 8 SCC 618 and the subsequent decision
of Shree Ram Mills Ltd. v. Utility Premises (P) Ltd. reported in (2007) 4 SCC
599 which held that the primarily it is for the courts to decide all preliminary
issues at the referral stage under Section 11(6) of the Act, and the principle of
kompetenz-kompetenz enshrined in Section 16 empowering the arbitral
tribunal to rule on its own jurisdiction, applies only when the parties go before
the tribunal without having taken recourse to Section(s) 8 or 11 respectively
of the Act, 1996 or where these issues are explicitly left open to the arbitral
tribunal to decide by the referral court. Accordingly, Chloro Controls (supra)
held that Section 45 of the Act, 1996 which envisages the same test as
Section(s) 8 and 11 of the Act, insofar as the preliminary determination for
making a reference to an arbitral tribunal is concerned, would as a natural
corollary to the ratio of SBP & Co. (supra) contemplate the determination of
all fundamental issues for making such reference by the courts, including the
Special Leave Petition (C) No. 21286 of 2024 Page 68 of 190
issue whether a non-signatory could be said to be bound by the arbitration
agreement. In the last, it further observed that even the legislative intent
behind Section 45 of the Act, 1996, without any ambiguity contemplates
determination of these issues in the very first instance by the judicial forum,
evident from the absence of any provision analogous to Section 16 of the Act,
1996 in Part II of the Act. The relevant observations read 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.,
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. [...]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. wherein, while referring to the judgment in SBP
21
& Co. particularly the above paragraph (para 39) of SBP case ,
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. [...] Thus, the Bench while explaining the
judgment of this Court in SBP & Co. 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.
xxx xxx xxx
121. [...] The expressions “Chief Justice does not in strict sense
decide the issue” or “is prima facie satisfied”, will have to be
construed in the facts and circumstances of a given case. Where
Special Leave Petition (C) No. 21286 of 2024 Page 69 of 190
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, 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
jurisdiction and cannot be reopened before the Arbitral Tribunal.
[...]
xxx xxx xxx
128. [ ] 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 are conscious of the fact that the above
dictum of the Court in SBP case 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 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.
Special Leave Petition (C) No. 21286 of 2024 Page 70 of 190
xxx xxx xxx
130. [ ] The more important aspect as far as Chapter I of Part II
of the 1996 Act is concerned, is the absence of any provision like
Section 16 appearing in Part I of the same Act. Section 16
contemplates that the arbitrator may determine its own
jurisdiction. Absence of such a provision in Part II Chapter I is
suggestive of the requirement for the court to determine the
ingredients of Section 45, at the threshold itself. It is expected of
the court to answer the question of validity of the arbitration
agreement, if a plea is raised that the agreement containing the
arbitration clause or the arbitration clause itself is null and void,
inoperative or incapable of being performed. Such determination
by the court in accordance with law would certainly attain finality
and would not be open to question by the Arbitral Tribunal, even
as per the principle of prudence. It will prevent multiplicity to
litigation and reagitating of same issues over and over again. The
underlining (sic underlying) principle of finality in Section 11(7)
would be applicable with equal force while dealing with the
interpretation of Sections 8 and 45. Further, it may be noted that
even the judgment of this Court in SBP & Co. takes a view in
favour of finality of determination by the Court despite the
language of Section 16 in Part I of the 1996 Act. Thus, there could
hardly be any possibility for the Court to take any other view in
relation to an application under Section 45 of the 1996 Act. Since,
the categorisation referred to by this Court in National Insurance
Co. Ltd. is founded on the decision by the larger Bench of the
Court in SBP & Co., we see no reason to express any different
view. The categorisation falling under para 22.1 of National
Insurance Co. case would certainly be answered by the Court
before it makes a reference while under para 22.2 of that case, the
Court may exercise its discretion and decide the dispute itself or
refer the dispute to the Arbitral Tribunal. Still, under the cases
falling under para 22.3, the Court is expected to leave the
determination of such dispute upon the Arbitral Tribunal itself.
But wherever the Court decides in terms of categories mentioned
in paras 22.1 and 22.2, the decision of the Court is unreviewable
by the Arbitral Tribunal.
xxx xxx xxx
Special Leave Petition (C) No. 21286 of 2024 Page 71 of 190
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.
xxx xxx xxx
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.
(Emphasis supplied)
35.
This rudimentary understanding and legislative position of the extent of
judicial scrutiny and determination at the referral stage in terms of Section 11
of the Act, 1996, could be said to be the second reason why arbitral tribunals
were not found to be empowered to identify and implead a non-signatory to
the arbitration agreement.
36. In the aftermath of Chloro Controls (supra), the Law Commission of India in
th
its 246 Report observed that a party to an arbitration agreement does not
necessarily mean only the signatory to such agreement, and that
internationally it has been widely accepted that even non-signatories may be
parties to the arbitration agreement. It further took note of the decision of
Chloro Controls (supra), more particularly how this Court has recognized this
concept in the phrase “ claiming through or under ” in Section 45 of the Act,
Special Leave Petition (C) No. 21286 of 2024 Page 72 of 190
1996. However, noticing the absence of the same expression in the
corresponding provision of Section 8 and other relevant provisions where the
context requires recognition of non-signatories, the Law Commission
suggested that Section 2(1)(h) of the Act, 1996 which defines “ party ” be
amended and the phrase “ person claiming through or under such party ” be
inserted to cure this anomaly. The relevant observations read as under: -
“62. However, a party does not necessarily mean only the
“signatory” to the arbitration agreement. In appropriate contexts,
a “party” means not just a signatory, but also persons “claiming
through or under” such signatory – for instance, successors-of-
interest of such parties, alter-ego’s of such parties etc. This is
particularly true in the case of unincorporated entities, where the
issue of “personality” is usually a difficult legal question and
raises a host of other issues. This principle is recognized by the
New York Convention, 1985 which in article II (1) recognizes an
agreement between parties “in respect of a defined legal
relationship, whether contractual or not.”
63. The Arbitration and Conciliation Act, 1996 under section 7
borrows the definition of the “arbitration agreement” from the
corresponding provision at article 7 of the UNCITRAL Model Law
which in turn borrows this from article II of the New York
Convention. However, the definition of the word “party” in
section 2(1)(h) refers to a “party” to mean “a party to an
arbitration agreement.” This cannot be read restrictively to imply
a mere “signatory” to an arbitration agreement, since there are
many situations and contexts where even a “non-signatory” can
be said to be a “party” to an arbitration agreement. This was
recognized by the Hon’ble Supreme Court in Chloro Controls v.
Severn Trent Water Purification, (2013) 1 SCC 641, where the
Hon’ble Supreme Court was dealing with the scope and
interpretation of section 45 of the Act and, in that context,
discussed the scope of the relevant doctrines on the basis of which
“non-signatories” could be said to be bound by the arbitration
agreement, including in cases of inter-related contracts, group of
companies doctrine etc.
Special Leave Petition (C) No. 21286 of 2024 Page 73 of 190
64. This interpretation given by the Hon’ble Supreme Court
follows from the wording of section 45 of the Act which recognizes
the right of a “person claiming through or under [a party]” to
apply to a judicial authority to refer the parties to arbitration. The
same language is also to be found in section 54 of the Act. This
language is however, absent in the corresponding provision of
section 8 of the Act. It is similarly absent in the other relevant
provisions, where the context would demand that a party includes
also a “person claiming through or under such party”. To cure
this anomaly, the Commission proposes an amendment to the
definition of “party” under section 2 (h) of the Act.”
(Emphasis supplied)
37. Based on the suggestions made by the Law Commission, the legislature
promptly introduced the Arbitration and Conciliation (Amendment) Act, 2015
whereby inter-alia although Section 8 sub-section (1) of the Act, 1996 was
amended and the phrase “ a party to an arbitration agreement or any person
claiming through or under him ” was inserted yet for reasons unknown, the
suggestion for amending Section 2(1)(h) of the Act by the Law Commission
did not see the light of day.
38. At this juncture it would be apposite to briefly explain the object of Section(s)
8 and 45 of the Act, 1996 respectively and the nature of the said provisions.
Section(s) 8 and 45 of the Act, 1996 empowers the parties who have
approached the courts with a subject-matter which is covered by an arbitration
agreement to refer such dispute to an arbitral tribunal, with the only difference
between the two being that the former pertains to domestic arbitrations
whereas the latter deals with international arbitrations in terms of the New
Special Leave Petition (C) No. 21286 of 2024 Page 74 of 190
York Convention. In essence, it entitles any party that is before a court or
judicial forum to seek a reference to arbitration subject to the conditions laid
down in the subsequent sub-sections. As held in Hema Khattar v. Shiv Khera
reported in (2017) 7 SCC 716 , Section(s) 8 and 45 of the Act, 1996 are
peremptory in nature that obligates the courts to refer the parties to arbitration
where there is an arbitration agreement.
39. Since Chloro Controls (supra) recognized the applicability of the principles
of ‘group of companies’, (sic) ‘alter-ego’, agency etc. for enjoining a non-
signatory to the arbitration proceedings only from an interpretation of the
phrase “ a party to an arbitration agreement or any person claiming through
or under him ” which by virtue of the Arbitration and Conciliation
(Amendment) Act, 2015, found place only in Section(s) 8 and 45 of the Act,
1996, which as discussed above deals with only the power of the courts or
judicial authorities to make a reference to arbitration, and no such phrase was
inserted in the substantive definition of “ party ” in Section 2(1)(h), the net
effect of the decision of Chloro Controls (supra) and the Arbitration and
Conciliation (Amendment) Act, 2015 was that only the courts by virtue of
Section(s) 8 and 45 of the Act, 1996 were empowered to implead a non-
signatory to the arbitration proceedings, and not the arbitral tribunals. The
omission of amending Section 2(1)(h) of the Act, 1996 further fortified the
notion that the exercise of authority and power by the arbitral tribunal would
Special Leave Petition (C) No. 21286 of 2024 Page 75 of 190
continue to be confined to the ordinary substantive definition of “ party ” under
the said provision and not by the enlarged understanding of the term “party …
or any person claiming through or under him” as used for the courts under
Section(s) 8 and 45 of the Act, 1996, except where an arbitral tribunal has
been constituted specifically by the courts. This along with the standard of
scrutiny that was expected by the referral courts under Section 11 of the Act,
1996 in terms of SBP & Co. (supra) meant that, unless a non-signatory is
referred to arbitration by a court after a thorough application of mind and after
a final determination by such referral courts as to whether the non-signatory
is said to bound by the arbitration agreement or not, no non-signatory can be
subjected to arbitration.
40. Thus, due to the aforesaid, a misconception plagued the position of law that
an arbitral tribunal does not have the authority or power to implead a non-
signatory to the arbitration proceedings, and that only the courts are
empowered to do so. It was largely in this backdrop that the decisions of Oil
and Natural Gas Corporation Ltd. (supra), Balmer Lawrie & Co. Ltd.
(supra), Sudhir Gopi (supra), V.G. Santhosam (supra) and other decisions of
various different High Courts came to be rendered.
Special Leave Petition (C) No. 21286 of 2024 Page 76 of 190
II. Decision of Cox and Kings (I) and the Judicial Rectification of the first
misconception by Chloro Controls.
41.
In Cox and Kings (I) (supra) a five-Judge Bench of this Court wherein one of
us (J.B. Pardiwala J.) was part of the Bench were called upon to determine the
validity and applicability of the ‘Group of Companies’ doctrine in the
jurisprudence of Indian arbitration. This Court after an extensive examination
of the international practices and the scheme of Act, 1996 held that the ‘Group
of Companies’ doctrine was invariably a part of the larger arbitration
framework that has been developing across the world and was in tune with the
avowed object of the Act, 1996 which aims to make the Indian arbitration law
more responsive to the contemporary requirements. The relevant observations
read as under: -
“128. [...] This approach ensures that a dogmatic emphasis on
express consent is eschewed in favour of a modern approach to
consent which focuses on the factual analysis, complexity of
commercial projects, and thereby increases the relevance of
arbitration in multi-party disputes. Moreover, it is also keeping in
line with the objectives of the Arbitration Act which aims to make
the Indian arbitration law more responsive to the contemporary
requirements.
148. [...] The group of companies doctrine has important utility in
determining the mutual intention of the parties in the context of
complex transactions involving multiple parties and multiple
agreements. Moreover, the doctrine has been substantively
entrenched in the Indian arbitration jurisprudence. We are aware
of the fact that the group of companies doctrine has not found
favor in some other jurisdictions, including in English law.
However, we deem it appropriate to retain the doctrine which has
held the field in Indian jurisprudence though by firmly
establishing it within the realm of the mutual consent or the mutual
Special Leave Petition (C) No. 21286 of 2024 Page 77 of 190
intent of the parties to a commercial bargain. This will ensure on
the one hand that Indian arbitration law retains a sense of
dynamism so as to respond to contemporary challenges. At the
same time, structuring the doctrine in the manner suggested so as
to ground it in settled principles governing the elucidation of
mutual intent is necessary. This will ensure that the doctrine has
a jurisprudential foundation in party autonomy and consent to
arbitrate.”
42. Cox and Kings (I) (supra) further held that the approach adopted by Chloro
Controls (supra), so far as infusing or reading the doctrine of ‘Group of
Companies’ into the expression “ a party to an arbitration agreement or any
person claiming through or under him ” is concerned, was incorrect. It held
that the words “ any person ” in Section 45 of the Act, 1996 by itself does not
connote a wider import to the term “party”. The aforesaid phrase cannot be
singled out and construed devoid of the context provided in the subsequent
phrase “ claiming through or under ”. It held that the entire expression only
refers and includes persons / parties acting in a derivative capacity such as in
the instances of successors in interest or assignees of any such interest that
have been devolved upon them by the original signatories / parties. The import
of the expression “ a party to an arbitration agreement or any person claiming
through or under him ” only refers to that persons which it is deriving its claim
or right by virtue of it standing in the shoes of the original signatory party. The
expression “ claiming through or under ” can only bind those third parties who
irrespective of being a non-signatory to the arbitration agreement are
nevertheless bound by it, by virtue of them substituting the signatory party in
Special Leave Petition (C) No. 21286 of 2024 Page 78 of 190
their derivative capacity. However, the ‘Group of Companies’ doctrine
functions on a completely different tangent whereby, a non-signatory is held
bound by the arbitration agreement in its own individual capacity AND in
addition to the signatories on the basis of mutual consent, regardless of
whether they may have derived any rights or benefits from the signatories and
independent of the identity of the signatories. It observed that since consent
forms the cornerstone of arbitration, merely because any party shares certain
interests or benefits from a contract, they would not be covered under the
expression “ claiming through or under ” just because they happen to share a
legal or commercial relationship. Thus, Chloro Controls (supra) to the extent
that it traced the group of companies doctrine to the phrase “claiming through
or under” was held to be erroneous and against the well-established principles
of contract and commercial law. The relevant observations read as under: -
“137. The word “claim” is of very extensive significance
embracing every species of legal demand. In the ordinary sense,
it means to demand as one’s own or as one’s right.114 A “claim”
also means assertion of a cause of action.115 The expression
“through” connotes “by means of, in consequence of, by reason
of.”116 The term “under” is used with reference to an inferior or
subordinate position. P Ramanatha Aiyar’s Law Lexicon defines
“claiming under” or “claiming under him” to denote a person
putting forward a claim under derived rights.117 When the above
definitions are read harmoniously, it gives rise to an inference that
a person “claiming through or under” is asserting their legal
demand or cause of action in an intermediate or derivative
capacity. We can also conclude that a person “claiming through
or under” has inferior or subordinate rights in comparison to the
party from which it is deriving its claim or right. Therefore, a
person “claiming through or under” cannot be a “party” to an
Special Leave Petition (C) No. 21286 of 2024 Page 79 of 190
arbitration agreement on its own terms because it only stands in
the shoes of the original signatory party.
144. The first proposition of law relies on the construction of the
expression “any person” to conclude that the language of Section
45 has wider import. However, the expression “any person”
cannot be singled out and construed devoid of its context. The
context, in terms of Section 8 and 45, is provided by the subsequent
phrase – “claiming through or under”. Therefore, such “any
persons” are acting only in a derivative capacity. Since an
arbitration agreement excludes the jurisdiction of national courts,
it is essential that the parties consent, either expressly or
impliedly, to submit their dispute to the arbitral tribunal.
145. The second and third proposition of law states that a non-
signatory party may claim through or under a signatory party by
virtue of its legal or commercial relationship with the latter.
However, this proposition is contrary to the common law position
as evidenced in Sancheti (supra) and Tanning Research
Laboratories (supra) according to which a mere legal or
commercial connection is not sufficient to allow a non-signatory
to claim through or under a party to the arbitration agreement.
[...] Therefore, even though a subsidiary derives interests or
benefits from a contract entered into by the company within a
group, they would not be covered under the expression “claiming
through or under” merely on the basis that it shares a legal or
commercial relationship with the parties.
146. [...] The group of companies doctrine is founded on the
mutual intention of the parties to determine if the non-signatory
entity within a group could be made a party to the arbitration
agreement in its own right. Such non-signatory entity is not
“claiming through or under” a signatory party. As mentioned
above, the phrase “claiming through or under” is used in the
context of successors in interest that act in a derivative capacity
and substitute the signatory party to the arbitration agreement. To
the contrary, the group of companies doctrine is used to bind the
non-signatory to the arbitration agreement so that it can agitate
the benefits and be subject to the burdens that it derived or is
conferred in the course of the performance of the contract. The
doctrine can be used to bind a non-signatory party to the
arbitration agreement regardless of the phrase “claiming through
Special Leave Petition (C) No. 21286 of 2024 Page 80 of 190
or under” as appearing in Sections 8 and 45 of the Arbitration
Act.
147. In Chloro Controls (supra), this Court joined the non-
signatory entities as parties to the arbitration agreement in their
own rights on the basis that they were signatories to ancillary
agreements which were closely interlinked with the performance
of the principal agreement containing the arbitration agreement.
This Court in Chloro Controls (supra) reasoned that the non
signatory entities, being part of the same corporate group as the
signatory parties, were subsidiaries in interest or subsidiary
companies, and therefore were “claiming through or under” the
signatory parties. As held above, the phrase “claiming through or
under” only applies to entities acting in a derivative capacity and
not with respect to joinder of parties in their own right. Therefore,
we hold that the approach of this Court in Chloro Controls (supra)
to the extent that it traced the group of companies doctrine to the
phrase “claiming through or under” is erroneous and against the
well-established principles of contract and commercial law. As
observed above, the existence of the group of companies doctrine
is intrinsically found on the principle of the mutual intent of
parties to a commercial bargain.”
(Emphasis supplied)
43. Cox and Kings (I) (supra) observed that the correct legal basis for the
application of the doctrine of ‘group of companies’ (sic and other allied
principles of mutual consent) can be found in the Act, 1996 from a conjoint
reading of the provisions of Section(s) 2(1)(h) and 7, respectively. The
aforesaid may be understood as under: -
(i) First, it observed that Section 7 of the Act, 1996 which defines an
“ Arbitration Agreement ” lays down in sub-section (4) the various
circumstances where a legal relationship is said to exist of such nature
as if there is an agreement in writing for arbitration. Section 7 more
Special Leave Petition (C) No. 21286 of 2024 Page 81 of 190
particularly sub-section (4)(b) provides the circumstances where the
existence of an arbitration agreement can be inferred from various
documents that indicate a manifestation of consent of persons or entities
through their actions of exchanging documents, even if there is no
formal agreement executed between such persons in the conventional
sense. Similarly, Section 7 sub-section (4)(c) which provides that if
there is an assertion of the existence of an arbitration agreement by one
party which was never denied or disputed by the other, then such
agreement would be considered a valid arbitration agreement, is one
another provision that lays down the circumstances when the existence
of an arbitration agreement may be assumed based on the conduct of a
person or entity. The relevant observations read as under: -
“70. Section 2(h) of the Arbitration Act defines a “party”
to mean a party to an arbitration agreement. Section 7
defines an arbitration agreement to mean 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.” Section 7 requires
that an arbitration agreement has to be in writing. Section
7 indicates the circumstances in which it is regarded as an
agreement in writing. Such an agreement may be embodied
in a document, an exchange of communications, including
in the electronic form, or in a statement of claim which is
not traversed in the defence. In Vidya Drolia v. Durga
Trading Corporation, this Court observed that a legal
relationship means a relationship which gives rise to legal
obligations and duties, and confers a right. Such a right
may be contractual or non-contractual. In case of a non-
contractual legal relationship, the cause of action arises in
tort, restitution, breach of statutory duty, or some other
non-contractual cause of action. Thus, the legislative intent
Special Leave Petition (C) No. 21286 of 2024 Page 82 of 190
underlying Section 7 suggests that any legal relationship,
including relationships where there is no contract between
the persons or entities, but whose actions or conduct has
given rise to a relationship, could form a subject matter of
an arbitration agreement under Section 7. [...]
72. Section 7(4)(b) provides the second circumstance,
according to which an arbitration agreement is in writing
if it is contained in an exchange of letters, telex, telegrams
or other means of telecommunication including
communication through electronic means which provide a
record of the agreement. According to this provision, the
existence of an arbitration agreement can be inferred from
various documents duly approved by the parties.60 Section
7(4)(b) dispenses with the conventional sense of an
agreement as a document with signatories. Rather, it
emphasizes on the manifestation of the consent of persons
or entities through their actions of exchanging documents.
However, the important aspect of the said provision lies in
the fact that the parties should be able to record their
agreement through a documentary record of evidence. In
Great Offshore Ltd. v. Iranian Offshore Engineering and
Construction Company, this Court observed that Section
7(4)(b) requires the court to ask whether a record of
agreement is found in the exchange of letters, telex,
telegrams, or other means of telecommunication.61 Thus,
the act of agreeing by the persons or entities has to be
inferred or derived by the courts or tribunals from the
relevant documents and communication, neither of which
can be equated with a conventional contract.
73. The third circumstance is provided under Section
7(4)(c), according to which an arbitration agreement is in
writing if it is contained in 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. A two-
Judge Bench of this Court clarified in S N Prasad v. Monnet
Finance Limited62 that there will be an “exchange of
statements of claim and defence” for the purposes of
Section 7(4)(c) if there is an assertion of the existence of an
arbitration agreement in any suit, petition or application
filed before any court or tribunal, and if there is no denial
of it in the defence, counter, or written statement. Thus, in
Special Leave Petition (C) No. 21286 of 2024 Page 83 of 190
the third circumstance the court proceeds on the
assumption that the conduct of the person or entity in not
denying the existence of an arbitration agreement leads to
the conclusive proof of its existence. [...]”
(ii) Secondly, it found that Section 7 of the Act, 1996 is unique in nature
inasmuch as it has two distinct features; (I) that sub-section (1) provides
that for there to be a valid arbitration agreement, there must exists a
defined legal relationship to arbitration, and (II) that sub-section (4)
goes one step beyond the traditional understanding of legal relationship,
by laying down circumstances where mutual intention of creating such
legal relationship to arbitrate may be assumed or gathered from the
conduct of the parties. The relevant observations read as under: -
“73. [...] All the three circumstances contained in Section
7(4) are geared towards determining the mutual intention
of the parties to be bound by the arbitration agreement.
74. Section 7 of the Arbitration Act contains two aspects: a
substantive aspect and a formal aspect. The substantive
aspect is contained is Section 7(1) which allows parties to
submit disputes arising between them in respect of a defined
legal relationship to arbitration. The legal relationships
between and among parties could either be contractual or
non-contractual. For legal relations to be contractual in
nature, they ought to meet the requirements of the Indian
contract law as contained in the Contract Act. It has been
shown in the preceding paragraphs that a contract can
either be express or implied, which is inferred on the basis
of action or conduct of the parties. Thus, it is not necessary
for the persons or entities to be signatories to a contract to
enter into a legal relationship – the only important aspect
to be determined is whether they intended or consented to
enter into the legal relationship by the dint of their action
or conduct.”
Special Leave Petition (C) No. 21286 of 2024 Page 84 of 190
(iii) Thirdly, it observed that Section 7 sub-section (3) of the Act, 1996
stipulates that where there is a record of agreement to arbitrate, then
there would be no requirement for having a written arbitration
agreement. Furthermore, Section 2(h) read with Section 7 of the Act,
1996 also places no requirement that the “party” to an arbitration
agreement must be a signatory to such agreement. The natural corollary
to the aforesaid would be that an arbitration agreement may be entered
into in any form, for example orally or tacitly, as long as the content of
the agreement is recorded. It eliminates the requirement of the signature
of parties or an exchange of messages between the parties. Thus what
emanates is that even non-signatories can be regarded as a “party” to an
arbitration agreement. The relevant observations read as under: -
“75. The second aspect is contained in Section 7(3) which
stipulates the requirement of a written arbitration
agreement. A written arbitration agreement need not be
signed by the parties if there is a record of agreement.63
The mandatory requirement of a written arbitration
agreement is merely to ensure that there is a clearly
established record of the consent of the parties to refer their
disputes to arbitration to the exclusion of the domestic
courts.
76. Section 2(h) read with Section 7 does not expressly
require the “party” to be a signatory to an arbitration
agreement or the underlying contract containing the
arbitration agreement. [...] The above provision states that
an arbitration agreement may be entered into in any form,
for example orally or tacitly, as long as the content of the
agreement is recorded. It eliminates the requirement of the
Special Leave Petition (C) No. 21286 of 2024 Page 85 of 190
signature of parties or an exchange of messages between
the parties.”
44. Accordingly, Cox and Kings (I) (supra) made a significant shift from the
original understanding and legal basis of the doctrine of ‘group of companies’
and other allied principles of determining mutual consent in Chloro Controls
(supra). It held that the legal basis for the application of the ‘Group of
Companies’ doctrine lies in the very definitions of “ party ” and “ arbitration
agreement” under Section(s) 2(1)(h) and Section 7, respectively, and not in
the expression “ claiming through or under ” in Section(s) 8 and 45 of the Act,
1996. The relevant observations read as under: -
“78. Reading Section 7 of the Arbitration Act in view of the above
discussion gives rise to the following conclusions: first,
arbitration agreements arise out of a legal relationship between
or among persons or entities which may be contractual or
otherwise; second, in situations where the legal relationship is
contractual in nature, the nature of relationship can be
determined on the basis of general contract law principles; third,
it is not necessary for the persons or entities to be signatories to
the arbitration agreement to be bound by it; fourth, in case of non-
signatory parties, the important determination for the courts is
whether the persons or entities intended or consented to be bound
by the arbitration agreement or the underlying contract
containing the arbitration agreement through their acts or
conduct; fifth, the requirement of a written arbitration agreement
has to be adhered to strictly, but the form in which such agreement
is recorded is irrelevant; sixth, the requirement of a written
arbitration agreement does not exclude the possibility of binding
non signatory parties if there is a defined legal relationship
between the signatory and non-signatory parties; and seventh,
once the validity of an arbitration agreement is established, the
court or tribunal can determine the issue of which parties are
bound by such agreement.
Special Leave Petition (C) No. 21286 of 2024 Page 86 of 190
79. It is presumed that the formal signatories to an arbitration
agreement are parties who will be bound by it. However, in
exceptional cases persons or entities who have not signed or
formally assented to a written arbitration agreement or the
underlying contract containing the arbitration agreement may be
held to be bound by such agreement. As mentioned in the
preceding paragraphs, the doctrine of privity limits the imposition
of rights and liabilities on third parties to a contract. Generally,
only the parties to an arbitration agreement can be subject to the
full effects of the agreement in terms of the reliefs and remedies
because they consented to be bound by the arbitration agreement.
Therefore, the decisive question before the courts or tribunals is
whether a non-signatory consented to be bound by the arbitration
agreement. To determine whether a non-signatory is bound by an
arbitration agreement, the courts and tribunals apply typical
principles of contract law and corporate law. The legal doctrines
provide a framework for evaluating the specific contractual
language and the factual settings to determine the intentions of the
parties to be bound by the arbitration agreement.
xxx xxx xxx
153. The group of companies doctrine is based on determining the
mutual intention to join the non-signatory as a “veritable” party
to the arbitration agreement. Once a tribunal comes to the
determination that a non-signatory is a party to the arbitration
agreement, such non-signatory party can apply for interim
measures under Section 9 of the Arbitration Act. Establishing the
legal basis for the application of the group of companies doctrine
in the definition of “party” under Section 2(1)(h) read with
Section 7 of the Arbitration Act resolves the anomality pointed out
by Chief Justice Ramana.”
45. The net effect of the aforesaid is that at the time when the decision of Chloro
Controls (supra) occupied the field, the applicability of various principles of
determining mutual consent was confined only to Section(s) 8 and 45 of the
Act, 1996, which empowered only the courts to make a reference to
arbitration. In the same manner, since the definition of “ party ” in Section
Special Leave Petition (C) No. 21286 of 2024 Page 87 of 190
2(1)(h) of the Act, 1996 was understood to be at significant variance from
Section(s) 8 and 45 of the Act, 1996, more particularly the expression “ any
person claiming through or under” with the former being construed to be
much narrow in scope and include only the signatories to the arbitration
agreement, there was misconceived assumption, that the authority and
jurisdiction of an arbitral tribunal was only limited to this narrowly
misconstrued definition of “ party ”, unlike that of the courts who had been
endowed with the power and jurisdictional reach to even non-signatories by
virtue of the enlarged meaning of “ party ”, couched in the very language of
Section(s) 8 and 45 of the Act, 1996. Thus, it was assumed and rather wrongly,
that an arbitral tribunal does not itself have the power to lift the corporate veil
or apply the doctrine of ‘Group of Companies’ and by extension to implead a
non-signatory to partake in arbitration by taking recourse to these principles
of implied mutual consent.
46. However, as discussed, the decision of Cox and Kings (I) (supra) has made it
abundantly clear that the legal basis for the application of the ‘Group of
Companies’ doctrine or any other principle for determining mutual consent is
in the definition of “ party ” under Section 2(1)(h) read with the meaning of
“arbitration agreement” under Section 7 of the Act, 1996. Since both the
aforesaid provisions are not confined in their scope to either the courts or the
arbitral tribunal, and rather exists ubiquitously on the statute book and is
Special Leave Petition (C) No. 21286 of 2024 Page 88 of 190
common or indifferent to both the courts and arbitral tribunals, there cannot
be any gainsaying that even the arbitral tribunal now after the decision of Cox
and Kings (I) (supra) could be said to be clothed with the power to take
recourse to the various principles for determining mutual consent, and thereby
implead a non-signatory to the arbitration, if such person is found to be bound
to the arbitration agreement.
Decision of Krish Spinning and the Judicial Rectification of the second
III.
misconception emanating from SBP & Co.
47. As discussed in the foregoing paragraphs, the second reason why the various
High Courts were hesitant from recognizing the arbitral tribunal’s power to
implead a non-signatory on its own accord, stemmed from the understanding
and position of law that existed then as regards the scope and extent of judicial
scrutiny of the courts which was required at the referral stage under Section
11 of the Act, 1996, before the subject matter could be referred to arbitration
and an arbitral tribunal be constituted.
48. In Konkan Railway Corpn. Ltd. v. Rani Construction (P) Ltd. reported in
(2002) 2 SCC 388 , a five-Judge Bench of this Court observed that the power
exercised by the referral court under Section 11 of the Act, 1996 is an
administrative power and thus the Chief Justice or his designate do not have
to decide any preliminary issue at that stage. Any issue pertaining to non-
Special Leave Petition (C) No. 21286 of 2024 Page 89 of 190
arbitrability, validity and existence of the arbitration agreement ought to be
decided by the arbitrator.
49. The aforesaid view occupied the field till the seven-Judge Bench decision of
this Court in SBP & Co. (supra) which held that the power conferred upon the
Chief Justice or his designate under Section 11 of the Act, 1996 is a judicial
power and not merely an administrative power. It held that being a judicial
power, the Chief Justice or his designate had the right to decide all preliminary
issues at the referral stage under Section 11(6) of the Act, 1996, and that the
power of the arbitral tribunal to rule on its own jurisdiction under Section 16
would come into the picture only when the parties go before the arbitral
tribunal without recourse to the courts either under Sections 8 or 11
respectively of the Act, 1996.
50. The ultimate effect of the ratio of SBP & Co. (supra) was that the scope for
interference available to the referral courts when acting under Section 11 of
the Act, 1996 was substantially expanded, and the referral courts were not only
empowered but also expected to conduct mini trials and indulge in the
appreciation of evidence on various issues concerned with the subject matter
of arbitration.
51.
Overtime, the decision of SBP & Co. (supra) insofar as the extent of judicial
scrutiny that was required under Section 11 of the Act, 1996 was concerned,
Special Leave Petition (C) No. 21286 of 2024 Page 90 of 190
proved to be counter serving as the enlarged scope of judicial interference at
the referral stage induced significant delays in the process of appointment of
arbitrators and constitution of arbitral tribunals, thereby rendering the very
framework of arbitration in India, ineffective, unviable and cumbersome.
th
52. The Law Commission of India in its 246 Report taking note of the aforesaid
problem inter-alia suggested that the scope of interference under Section(s) 8
and 11 respectively of the Act, 1996 should be restricted to a prima-facie
satisfaction of the existence and validity of the arbitration agreement. It further
opined that except in cases where the court finds that no arbitration agreement
exists or is null and void, the ordinary approach of the courts under Section 11
of the Act, 1996 should be to appoint an arbitrator and refer the parties to
arbitration, leaving all issues including those which it has prima-facie
determined for final adjudication by the arbitral tribunals. The relevant
observations read as under: -
“33. It is in this context, the Commission has recommended
amendments to sections 8 and 11 of the Arbitration and
Conciliation Act, 1996. The scope of the judicial intervention is
only restricted to situations where the Court/Judicial Authority
finds that the arbitration agreement does not exist or is null and
void. In so far as the nature of intervention is concerned, it is
recommended that in the event the Court/Judicial Authority is
prima facie satisfied against the argument challenging the
arbitration agreement, it shall appoint the arbitrator and/or refer
the parties to arbitration, as the case may be. The amendment
envisages that the judicial authority shall not refer the parties to
arbitration only if it finds that there does not exist an arbitration
agreement or that it is null and void. If the judicial authority is of
the opinion that prima facie the arbitration agreement exists, then
Special Leave Petition (C) No. 21286 of 2024 Page 91 of 190
it shall refer the dispute to arbitration, and leave the existence of
the arbitration agreement to be finally determined by the arbitral
tribunal. However, if the judicial authority concludes that the
agreement does not exist, then the conclusion will be final and not
prima facie. [...]”
53. The aforesaid recommendations of the Commission were taken note of by the
Parliament and accordingly Section 11 sub-section (6A) came to be inserted
in the Act, 1996 by way of the Arbitration and Conciliation (Amendment) Act,
2015. As per the said provision, the referral courts in exercise of their
jurisdiction under Section 11 were now required to only look into one aspect
— the existence of an arbitration agreement — nothing more, nothing less.
All other issues were now to be invariably left for the final determination by
the arbitral tribunal. [See: Duro Felguera, S.A. v. Gangavaram Port Ltd .
reported in (2017) 9 SCC 729 ]
54. A two-Judge Bench of this Court in Uttarakhand Purv Sainik Kalyan Nigam
Ltd. v. Northern Coal Field Ltd. reported in (2020) 2 SCC 455 held that the
issue of limitation being a mixed question of law and fact should be best left
to the tribunal to decide and that the referral court should restrict its
examination only to the existence of an arbitration agreement between the
parties.
55. Then came the decision of this Court in Vidya Drolia & Ors v. Durga Trading
Corporation reported in (2021) 2 SCC 1 , which inter-alia held that although
Special Leave Petition (C) No. 21286 of 2024 Page 92 of 190
Section(s) 8 and 11 of the Act, 1996 are at some variance inasmuch as the
former requires the referral courts to determine the “ validity ” of an arbitration
agreement whereas the latter requires determining only the “ existence ”, yet
since both the provisions are complementary to each other insofar as they both
deal with the power of courts to refer the parties to arbitration, the aspect of
“ existence ” as specified under Section 11 should be seen construed along with
the aspect of “ validity ” as specified under Section 8. It held that both the
provisions insofar as the standard of scrutiny by the referral courts is
concerned, ought to be compositely construed, irrespective of whether the
jurisdiction is being exercised by the courts under Section 8 or 11 of the Act,
1996. Accordingly, it held that the exercise of power of prima facie judicial
review to examine the existence of arbitration agreement also includes going
into the validity of the arbitration agreement and even objections as to the
arbitrability of the subject-matter. It also held that the referral court, while
exercising its powers under Section(s) 8 and 11 respectively of the Act, 1996
is empowered, to enter scrutiny for determining and ultimately knocking down
ex facie meritless, frivolous and dishonest litigation so as to ensure expeditious
and efficient disposal at the referral stage and prevent unnecessary subjugation
to arbitration. The relevant observations read as under: -
“147.4. Most jurisdictions accept and require prima facie review
by the court on non-arbitrability aspects at the referral stage.
147.5. Sections 8 and 11 of the Arbitration Act are complementary
provisions as was held in Patel Engg. Ltd. [SBP & Co. v. Patel
Special Leave Petition (C) No. 21286 of 2024 Page 93 of 190
Engg. Ltd., (2005) 8 SCC 618] The object and purpose behind the
two provisions is identical to compel and force parties to abide by
their contractual understanding. This being so, the two provisions
should be read as laying down similar standard and not as laying
down different and separate parameters. Section 11 does not
prescribe any standard of judicial review by the court for
determining whether an arbitration agreement is in existence.
Section 8 states that the judicial review at the stage of reference is
prima facie and not final. Prima facie standard equally applies
when the power of judicial review is exercised by the court under
Section 11 of the Arbitration Act. Therefore, we can read the
mandate of valid arbitration agreement in Section 8 into mandate
of Section 11, that is, “existence of an arbitration agreement”.
147.6. Exercise of power of prima facie judicial review of
existence as including validity is 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.
xxx xxx xxx
147.11. The interpretation appropriately balances the allocation
of the decision-making authority between the court at the referral
stage and the arbitrators' primary jurisdiction to decide disputes
on merits. The court as the judicial forum of the first instance can
exercise prima facie test jurisdiction to screen and knock down ex
facie meritless, frivolous and dishonest litigation. Limited
jurisdiction of the courts ensures expeditious, alacritous and
efficient disposal when required at the referral stage.”
“148. Section 43(1) of the Arbitration Act states that the
Limitation Act, 1963 shall apply to arbitrations as it applies to
court proceedings. Sub-section (2) states that for the purposes of
the Arbitration Act and Limitation Act, arbitration shall be
deemed to have commenced on the date referred to in Section 21.
Limitation law is procedural and normally disputes, being factual,
would be for the arbitrator to decide guided by the facts found and
the law applicable. The court at the referral stage can interfere
only when it is manifest that the claims are ex facie time-barred
and dead, or there is no subsisting dispute. All other cases should
Special Leave Petition (C) No. 21286 of 2024 Page 94 of 190
be referred to the Arbitral Tribunal for decision on merits. Similar
would be the position in case of disputed “no-claim certificate”
or defence on the plea of novation and “accord and satisfaction”.
[...]
(Emphasis supplied)
56. The final conclusion of this Court in Vidya Drolia (supra) read as under: -
“154.1. Ratio of the decision in Patel Engg. Ltd. [SBP & Co. v.
Patel Engg. Ltd., (2005) 8 SCC 618] on the scope of judicial
review by the court while deciding an application under Sections
8 or 11 of the Arbitration Act, post the amendments by Act 3 of
2016 (with retrospective effect from 23-10-2015) and even post
the amendments vide Act 33 of 2019 (with effect from 9-8-2019),
is no longer applicable.
154.2. Scope of judicial review and jurisdiction of the court under
Sections 8 and 11 of the Arbitration Act is identical but extremely
limited and restricted.
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.
154.4. Rarely as a demurrer the court may interfere at Section 8
or 11 stage when it is manifestly and ex facie certain that the
arbitration agreement is non-existent, invalid or the disputes are
non-arbitrable, though the nature and facet of non-arbitrability
would, to some extent, determine the level and nature of judicial
scrutiny. The restricted and limited review is to check and protect
parties from being forced to arbitrate when the matter is
demonstrably “non arbitrable” and to cut off the deadwood. The
court by default would refer the matter when contentions relating
to non arbitrability are plainly arguable; when consideration in
summary proceedings would be insufficient and inconclusive;
when facts are contested; when the party opposing arbitration
Special Leave Petition (C) No. 21286 of 2024 Page 95 of 190
adopts delaying tactics or impairs conduct of arbitration
proceedings. This is not the stage for the court to enter into a mini
trial or elaborate review so as to usurp the jurisdiction of the
Arbitral Tribunal but to affirm and uphold integrity and efficacy
of arbitration as an alternative dispute resolution mechanism.”
(Emphasis supplied)
57. As is clear from the aforesaid extract, Vidya Drolia (supra) held that although
the arbitral tribunal is the preferred first authority to determine the questions
pertaining to non-arbitrability, yet the referral court may exercise its limited
jurisdiction to refuse reference to arbitration in cases which are ex-facie
frivolous and where it is certain that the disputes are non-arbitrable.
58. What can be discerned from the aforesaid is that while the enlarged scope and
extent of judicial intervention at the referral stage as held in SBP & Co. (supra)
was legislatively overruled by the insertion of Section 11 sub-section (6A) in
the Act, 1996, the avowed legislative intent of minimal judicial intervention
was still far from being achieved, partly due to the misconception created in
the position of law as regards ambit of scrutiny under Section 11 of the Act,
1996 by Vidya Drolia (supra). Although, Vidya Drolia (supra) predominantly
found favour with the principal of minimal interference at the stage of Section
11 sub-section (6) petitions by referral courts in light of the introduction of
Section 11sub-section (6A) to the Act, 1996, yet it still proceeded in a
somewhat wrong direction on two counts; first, by conflating the scope and
Special Leave Petition (C) No. 21286 of 2024 Page 96 of 190
standard of scrutiny by the referral courts under Section 8 with that under
Section 11 and secondly, by carving out an exceptional category of cases in
which interference by the referral court was permissible, that being disputes
where it is manifestly and ex-facie certain that the arbitration agreement is
non-existent, invalid or the dispute is meritless or non-arbitrable.
59. The precarious situation that was created by Vidya Drolia (supra) is evident
from the subsequent decisions of this Court in DLF Home Developers Ltd. v.
Rajapura Homes (P) Ltd. reported in (2021) 16 SCC 743 and BSNL v. Nortel
Networks (India) (P) Ltd. , reported in (2021) 5 SCC 738 and a catena of other
decisions wherein it was held that while undertaking a prima facie review
under Section 11 of the Act, 1996, the interference of the courts in certain
aspects and merits of the subject-matter may be warranted in exceptional
cases, to weed out any frivolous or vexatious claims and prevent wastage of
public and private resources.
60. The next chapter in the saga of scope and ambit of Section 11 of the Act, 1996
came in the form of the seven-Judge Bench decision of this Court in In Re:
Interplay Between Arbitration Agreements under the Arbitration and
Conciliation Act 1996 and the Indian Stamp Act 1899 reported in 2023 INSC
1066 wherein one of us (J.B. Pardiwala J.) as part of the Bench, undertook a
comprehensive analysis of Section(s) 8 and 11 respectively of the Act, 1996
Special Leave Petition (C) No. 21286 of 2024 Page 97 of 190
and, inter alia , made poignant observations about the nature of the power
vested in the Courts insofar as the aspect of appointment of arbitrator is
concerned. It held that the referral court, be it the High Court or the Supreme
Court under Section 11 of the Act, 1996 shall examine only the existence of a
prima facie arbitration agreement and not any other issues. The relevant
observations read as under: -
“185. The corollary of the doctrine of competence-competence is
that courts may only examine whether an arbitration agreement
exists on the basis of the prima facie standard of review. The
nature of objections to the jurisdiction of an arbitral tribunal on
the basis that stamp-duty has not been paid or is inadequate is
such as cannot be decided on a prima facie basis. Objections of
this kind will require a detailed consideration of evidence and
submissions and a finding as to the law as well as the facts.
Obligating the court to decide issues of stamping at the Section 8
or Section 11 stage will defeat the legislative intent underlying the
Arbitration Act.
186. The purpose of vesting courts with certain powers under
Sections 8 and 11 of the Arbitration Act is to facilitate and enable
arbitration as well as to ensure that parties comply with
arbitration agreements. The disputes which have arisen between
them remain the domain of the arbitral tribunal (subject to the
scope of its jurisdiction as defined by the arbitration clause). [...]
209. The above extract indicates that the Supreme Court or High
Court at the stage of the appointment of an arbitrator shall
“examine the existence of a prima facie arbitration only pertain
to the validity of the arbitration agreement, but also include any
other issues which are a consequence of unnecessary judicial
interference in the arbitration proceedings. Accordingly, the
“other issues” also include examination and impounding of an
unstamped instrument by the referral court at the Section 8 or
Section 11 stage. The process of examination, impounding, and
dealing with an unstamped instrument under the Stamp Act is not
a timebound process, and therefore does not align with the stated
Special Leave Petition (C) No. 21286 of 2024 Page 98 of 190
goal of the Arbitration Act to ensure expeditious and time-bound
appointment of arbitrators. [...]”
(Emphasis supplied)
61. In SBI General Insurance Co. Ltd. v. Krish Spinning , reported in 2024 INSC
532 one of us (J.B. Pardiwala J.) taking note of the state of flux surrounding
the legal position on the scope and extent of judicial scrutiny permissible
under Section 11 of the Act, 1996, held that the courts at the referral stage
should not venture into contested questions involving complex facts. It was
held that the observations made in Vidya Drolia (supra) insofar as it allowed
the referral courts under Section 11 of the Act, 1996 to intervene and refuse
appointment of an arbitrator in matters that were ex-facie meritless, frivolous,
vexatious or deadwood, no longer could be said to hold field in view of the
observations made in the subsequent and larger bench decision of In Re:
Interplay (supra). The relevant observations read as under: -
“98. What follows from the negative facet of arbitral autonomy
when applied in the context of Section 16 is that the national
courts are prohibited from interfering in matters pertaining to the
jurisdiction of the arbitral tribunal, as exclusive jurisdiction on
those aspects vests with the arbitral tribunal. The legislative
mandate of prima facie determination at the stage of Sections 8
and 11 respectively ensures that the referral courts do not end up
venturing into what is intended by the legislature to be the
exclusive domain of the arbitral tribunal.
xxx xxx xxx
113. Referring to the Statement of Objects and Reasons of the
Arbitration and Conciliation (Amendment) Act, 2015, it was
observed in In Re: Interplay (supra) that the High Court and the
Supreme Court at the stage of appointment of arbitrator shall
Special Leave Petition (C) No. 21286 of 2024 Page 99 of 190
examine the existence of a prima facie arbitration agreement and
not any other issues. [...]
114. In view of the observations made by this Court in In Re:
Interplay (supra), it is clear that the scope of enquiry at the stage
of appointment of arbitrator is limited to the scrutiny of prima
facie existence of the arbitration agreement, and nothing else. For
this reason, we find it difficult to hold that the observations made
in Vidya Drolia (supra) and adopted in NTPC v. SPML (supra)
that the jurisdiction of the referral court when dealing with the
issue of “accord and satisfaction” under Section 11 extends to
weeding out ex-facie non-arbitrable and frivolous disputes would
continue to apply despite the subsequent decision in In Re:
Interplay (supra).
xxx xxx xxx
125. We are also of the view that ex-facie frivolity and dishonesty
in litigation is an aspect which the arbitral tribunal is equally, if
not more, capable to decide upon the appreciation of the evidence
adduced by the parties. We say so because the arbitral tribunal
has the benefit of going through all the relevant evidence and
pleadings in much more detail than the referral court. If the
referral court is able to see the frivolity in the litigation on the
basis of bare minimum pleadings, then it would be incorrect to
doubt that the arbitral tribunal would not be able to arrive at the
same inference, most likely in the first few hearings itself, with the
benefit of extensive pleadings and evidentiary material.”
62. Krish Spinning (supra) further held that, the scope of Section 8 is markedly
different from the scope of Section 11 of the Act, 1996 as although, both
provisions deal with the power of the courts to refer the parties to arbitration,
yet the reason why Section 8 envisages a more stricter test of determining the
“validity” of the arbitration agreement as opposed to mere “existence” under
Section 11 is owed to the fact that, Section 8 specifically enables the
commencement or continuation of arbitration during the pendency of an
Special Leave Petition (C) No. 21286 of 2024 Page 100 of 190
application under the said provision, thus, there is no inherent danger or harm
to subjecting the substantive rights of the parties to arbitrate in a state of limbo
or worse, remediless, if the courts themselves decide to proceed in determining
the validity of the arbitration agreement while the arbitral tribunal
simultaneously continues with the substantive claims. However, Section 11
on the other hand, is the very first step in commencement of arbitration
proceedings, no arbitration proceedings can commence or continue unless the
application under the said provision is decided. Furthermore, the
determination by a judicial authority under Section 8 of the Act, 1996 can be
assailed by way of an appeal under Section 37, however, a determination
under Section 11 of the Act, 1996 is not appealable, thus, the approach which
the courts are expected to undertake under Section 8 viz-à-viz Section 11, must
be reflective of these nuanced differences in the scope of these provisions.
Thus, it held that the observations of Vidya Drolia (supra) in conflating the
nature of the test envisaged under Section 8 of the Act, 1996 with that under
Section 11, cannot be said to be a good law. The relevant observations read as
under: -
“108. Section 11 of the Act, 1996 is provided to give effect to the
mutual intention of the parties to settle their disputes by
arbitration in situations where the parties fail to appoint an
arbitrator(s). The parameters of judicial review laid down for
Section 8 differ from those prescribed for Section 11. The view
taken in SBP & Co. (supra) and affirmed in Vidya Drolia (supra)
that Sections 8 and 11 respectively of the Act, 1996 are
complementary in nature was legislatively overruled by the
introduction of Section 11(6-A) in 2015. Thus, although both these
Special Leave Petition (C) No. 21286 of 2024 Page 101 of 190
provisions intend to compel parties to abide by their mutual
intention to arbitrate, yet the scope of powers conferred upon the
courts under both the sections are different.
109. The difference between Sections 8 and 11 respectively of the
Act, 1996 is also evident from the scope of these provisions. Some
of these differences are:
i. While Section 8 empowers any ‘judicial authority’ to refer
the parties to arbitration, under Section 11, the power to
refer has been exclusively conferred upon the High Court
and the Supreme Court.
ii. Under Section 37, an appeal lies against the refusal of the
judicial authority to refer the parties to arbitration,
whereas no such provision for appeal exists for a refusal
under Section 11.
iii. The standard of scrutiny provided under Section 8 is that of
prima facie examination of the validity and existence of an
arbitration agreement. Whereas, the standard of scrutiny
under Section 11 is confined to the examination of the
existence of the arbitration agreement.
iv. During the pendency of an application under Section 8,
arbitration may commence or continue and an award can
be passed. On the other hand, under Section 11, once there
is failure on the part of the parties in appointing the
arbitrator as per the agreed procedure and an application
is preferred, no arbitration proceedings can commence or
continue.
110. The scope of examination under Section 11(6-A) is confined
to the existence of an arbitration agreement on the basis of Section
7. The examination of validity of the arbitration agreement is also
limited to the requirement of formal validity such as the
requirement that the agreement should be in writing.
xxx xxx xxx
123. The power available to the referral courts has to be construed
in the light of the fact that no right to appeal is available against
any order passed by the referral court under Section 11 for either
appointing or refusing to appoint an arbitrator. Thus, by delving
into the domain of the arbitral tribunal at the nascent stage of
Section 11, the referral courts also run the risk of leaving the
claimant in a situation wherein it does not have any forum to
Special Leave Petition (C) No. 21286 of 2024 Page 102 of 190
approach for the adjudication of its claims, if it Section 11
application is rejected.
124. Section 11 also envisages a time-bound and expeditious
disposal of the application for appointment of arbitrator. One of
the reasons for this is also the fact that unlike Section 8, once an
application under Section 11 is filed, arbitration cannot
commence until the arbitral tribunal is constituted by the referral
court. This Court, on various occasions, has given directions to
the High Courts for expeditious disposal of pending Section 11
applications. It has also directed the litigating parties to refrain
from filing bulky pleadings in matters pertaining to Section 11.
[...]”
63. Accordingly, Krish Spinning (supra) held that the scope of enquiry at the
referral stage under Section 11 of the Act, 1996 is confined to a prima facie
determination of the existence of the arbitration agreement, and does not
permit a contested or laborious enquiry into all other issues including the
conclusive existence of such arbitration agreement, which is for the arbitral
tribunal alone to ‘rule’ under Section 16. Under Section 11, the referall court’s
enquiry is limited to examining whether the application under the said
provision is filed before the correct court or not, the said application is within
limitation or not in light of the decision of M/s Arif Azim Co. Ltd. v. M/s
Aptech Ltd. reported in 2024 INSC 155 , and to the prima-facie existence of
an arbitration agreement. Such an approach gives true meaning to the
legislative intent underlying Section 11 sub-section (6A) of the Act, 1996 and
also to the view taken in In Re: Interplay (supra). The relevant ovservations
read as under: -
Special Leave Petition (C) No. 21286 of 2024 Page 103 of 190
“111. The use of the term ‘examination’ under Section 11(6-A) as
distinguished from the use of the term ‘rule’ under Section 16
implies that the scope of enquiry under section 11(6-A) is limited
to a prima facie scrutiny of the existence of the arbitration
agreement, and does not include a contested or laborious enquiry,
which is left for the arbitral tribunal to ‘rule’ under Section 16.
The prima facie view on existence of the arbitration agreement
taken by the referral court does not bind either the arbitral
tribunal or the court enforcing the arbitral award.
xxx xxx xxx
133. Thus, we clarify that while determining the issue of limitation
in exercise of the powers under Section 11(6) of the Act, 1996, the
referral court should limit its enquiry to examining whether
Section 11(6) application has been filed within the period of
limitation of three years or not. The date of commencement of
limitation period for this purpose shall have to be construed as
per the decision in Arif Azim (supra). As a natural corollary, it is
further clarified that the referral courts, at the stage of deciding
an application for appointment of arbitrator, must not conduct an
intricate evidentiary enquiry into the question whether the claims
raised by the applicant are time barred and should leave that
question for determination by the arbitrator. Such an approach
gives true meaning to the legislative intention underlying Section
11(6-A) of the Act, and also to the view taken in In Re: Interplay
(supra).
64. When the decision of this Court in Chloro Controls (supra) came, the position
of law as regards the standard of scrutiny expected by the referral courts was
governed by the decision of SBP Co. (supra), which as already discussed, was
premised on the rudimentary understanding that the arbitral tribunals are not
empowered to determine issues as regards the validity and existence of the
arbitration agreement and whether the claims are time-barred or vexatious due
to the non-applicability of Section 16 in instances of court referred
Special Leave Petition (C) No. 21286 of 2024 Page 104 of 190
arbitrations. The understanding which stemmed from SBP Co. (supra) was
that the referral courts were required to conduct mini trials and indulge in the
appreciation of evidence on the aforesaid issues, even though they were
inextricably linked with the substantive merits of the subject-matter.
65. Accordingly, when Chloro Controls (supra) held that a non-signatory to the
arbitration agreement may be bound by the arbitration agreement by the
doctrine of ‘Group of Companies’, the test which it laid down for applying the
said doctrine had been evolved, squarely keeping in mind the decision of SBP
Co. (supra). Which is why, Chloro Controls (supra) held that before a non-
signatory can be held to be bound by the arbitration agreement, the referral
courts would have to make a determination of all issues fundamental to
making a reference to arbitration including the issue whether a non-signatory
could be said to be bound by the arbitration agreement. The net effect of the
aforesaid was that, arbitral tribunals were deemed to be incompetent to
identify and implead a non-signatory to the arbitration agreement on its own
accord, as it was understood from SBP Co. (supra), that such duty had been
cast only upon the referral courts to determine.
66.
However, with the subsequent developments, particularly in light of two key
decisions of this Court being In Re: Interplay (supra) and Krish Spinning
(supra), it is no more res-integra , that the extent of scrutiny of the referral
Special Leave Petition (C) No. 21286 of 2024 Page 105 of 190
courts under Section 11 of the Act, 1996 is extremely narrow, and confined to
only one aspect i.e., the prima-facie determination of the “existence” of the
arbitration agreement. Krish Spinning (supra) has categorically held that only
those questions which inextricably attacks or questions the “existence” of the
arbitration agreement, should be looked into by the referral courts, that only
for the purpose of a prima-facie satisfaction, all other questions, particularly
mixed questions of law and fact fall within the exclusive jurisdiction of the
arbitral tribunal, and cannot be looked into by the referral court, even for a
prima-facie determination. Questions which involve examination of contested
question of facts and appreciation of evidence, should be left to the arbitral
tribunals to decide, as it is equally, if not more capable to decide such
questions, as it has the benefit of going through all the relevant evidence and
pleadings in much more detail than the referral courts. Although the aforesaid
observations were in the context of “accord and satisfaction” yet, the
principles laid therein, would, nevertheless apply with equal force to all other
issues entrenching upon the exercise of jurisdiction under Section 11 of the
Act, 1996. The relevant observations read as under: -
“115. The dispute pertaining to the “accord and satisfaction” of
claims is not one which attacks or questions the existence of the
arbitration agreement in any way. As held by us in the preceding
parts of this judgment, the arbitration agreement, being separate
and independent from the underlying substantive contract in
which it is contained, continues to remain in existence even after
the original contract stands discharged by “accord and
satisfaction”.
Special Leave Petition (C) No. 21286 of 2024 Page 106 of 190
116. The question of “accord and satisfaction”, being a mixed
question of law and fact, comes within the exclusive jurisdiction
of the arbitral tribunal, if not otherwise agreed upon between the
parties. Thus, the negative effect of competence-competence
would require that the matter falling within the exclusive domain
of the arbitral tribunal, should not be looked into by the referral
court, even for a prima facie determination, before the arbitral
tribunal first has had the opportunity of looking into it.
xxx xxx xxx
125. We are also of the view that ex-facie frivolity and dishonesty
in litigation is an aspect which the arbitral tribunal is equally, if
not more, capable to decide upon the appreciation of the evidence
adduced by the parties. We say so because the arbitral tribunal
has the benefit of going through all the relevant evidence and
pleadings in much more detail than the referral court. If the
referral court is able to see the frivolity in the litigation on the
basis of bare minimum pleadings, then it would be incorrect to
doubt that the arbitral tribunal would not be able to arrive at the
same inference, most likely in the first few hearings itself, with the
benefit of extensive pleadings and evidentiary material.”
67. Thus, the archaic understanding that an arbitral tribunal is incapable or
incompetent to identify and implead a non-signatory to the arbitration
agreement on its own accord, is not the correct position of law, in view of the
decisions of this Court in In Re: Interplay (supra) and Krish Spinning (supra).
We find, that the limited nature and scope of inquiry which the referral courts
are expected to undertake as regards the “existence” of the arbitration
agreement, would as a logical sequitur obligate the arbitral tribunal also to
look into this question. Such a question, by no stretch, can be regarded as
falling within the exclusive domain or jurisdiction of the referral courts, so as
Special Leave Petition (C) No. 21286 of 2024 Page 107 of 190
to render any examination of it by the arbitral tribunal a usurpation of the
referral courts authority and duty.
c. How Cox and Kings (I) contemplates determination of mutual
intention of Non-Signatories to arbitration agreements.
68. However, even though an arbitral tribunal undoubtedly would be empowered
to identify and implead a non-signatory to the arbitration agreement on its
own, yet the question still remains, if the arbitral tribunal could be considered
to be the appropriate forum for deciding this issue? In other words, whether,
the issue that a non-signatory is bound by the arbitration agreement could be
termed to be a question which inextricably attacks or questions the “existence”
of the arbitration agreement, and thus, should be looked into by the referral
courts?
69. The seminal importance of the aforesaid question lies in the contention that
has been vehemently put forward before us by the appellants herein. It has
been contended that when the application under Section 11 of the Act, 1996
was filed by the respondent no. 1 herein, the appellant herein was never made
a party. In fact, in the entire application under Section 11, the respondent no.
1 never imputed any allegations or put forth any claims against the appellants
herein, which would suggest its intention to implead the appellant herein in
the arbitration proceedings, or that it is bound by the arbitration agreement. In
Special Leave Petition (C) No. 21286 of 2024 Page 108 of 190
such circumstances, it was contended by the appellant herein, that in the
absence of the appellant herein being a party to the application under Section
11 and in the absence of the referral court directing or leaving the question of
impleadment of the appellant for the arbitral tribunal to decide, the appellant
herein could not have been impleaded to the arbitration proceedings by the
arbitral tribunal.
70. To put it simply, the argument of the appellant herein is that, where the non-
signatory is a party to the application under Section 11 of the Act, 1996, the
referral court must first make a prima-facie determination as to whether such
non-signatory is bound by the arbitration agreement or not, before leaving the
conclusive determination of such question to the arbitral tribunal. Conversely,
where the non-signatory sought to be enjoined in arbitration is not a party to
the application under Section 11, the referral court must give leave or direct
the arbitral tribunal to examine whether such non-signatory is bound by the
arbitration agreement or not, before it can be impleaded by the arbitral tribunal
on its own accord.
71. In other words, the question that has been canvassed before us for our
consideration is whether, the question that a non-signatory is bound by the
arbitration agreement could be termed to be a question which inextricably
attacks or questions the “existence” of the arbitration agreement, such that in
the absence of any examination or application of mind by the referral court to
Special Leave Petition (C) No. 21286 of 2024 Page 109 of 190
such question would render the very arbitration proceedings that has been
commenced pursuant to the application under Section 11 of the Act, 1996 to
be non-est, insofar as such non-signatory is concerned.
The nature and extent of the test laid down in Cox and Kings (I) for
I.
determining Non-Signatories who are bound by the arbitration
agreements.
72. In order to answer the aforesaid question, we must once again look into the
decision of this Court in Cox and Kings (I) (supra), to ascertain the nature of
the question whether a non-signatory is bound by the arbitration agreement or
not, and the manner in which the referral courts and the arbitral tribunal are
expected to tackle such a question.
73. Cox and Kings (I) (supra) after an exhaustive examination of the question of
existence or applicability of the ‘Group of Companies’ doctrine in a particular
case, is fundamentally a fact-intensive exercise that involves a nuanced
determination of the consent of parties from diverse factual elements and
circumstances. The said doctrine and by extension any other principle for
determining mutual consent, broadly requires ascertaining the intention of the
parties by analysing the factual circumstances surrounding the contractual
arrangements, particularly factors such as the level of involvement of the non-
signatory in the negotiation, conclusion (sic execution), performance or
Special Leave Petition (C) No. 21286 of 2024 Page 110 of 190
termination of the contract, to what extent such conduct may be indicative its
position as a veritable party to the arbitration agreement and common intention
to be bound by it. Thus, it was held that the primary test for ascertaining the
applicability of the ‘Group of Companies’ doctrine lies in the determination
of the intention of the parties, which is to be inferred from the surrounding
factual matrix, or in other words, the inquiry or test is, by its very nature,
predominantly factual. The relevant observations read as under: -
96. [...] The level of the non-signatory party’s involvement was to
the extent of making the other party believe that it was a veritable
party to the contract, and the arbitration agreement contained
under it. Therefore, the group of companies doctrine is applied to
ascertain the intentions of the parties by analysing the factual
circumstances surrounding the contractual arrangements.
101. [...] Rather, the courts need to determine: first, the existence
of a group of companies; and second, the conduct of the signatory
and non-signatory parties which indicate their common intention
to make the non-signatory a party to the arbitration agreement.95
Thus, the group of companies doctrine is similar to other consent
based doctrines such as agency, assignment, assumption, and
guarantee to the extent that it is ordinarily applied as a means of
identifying the common intention of the parties to bind the non-
signatory to the arbitration agreement.
102. [...] Thus, the existence of a group, of companies is a factual
element that the court or tribunal has to consider when analysing
the consent of the parties. It inevitably adds an extra layer of
criteria to an exercise which at its core is preponderant on
determining the consent of the parties in case of complex
transactions involving multiple parties and agreements.
105. In multi-party agreements, the courts or tribunals will have
to examine the corporate structure to determine whether both the
signatory and non signatory parties belong to the same group.
This evaluation is fact specific and must be carried out in
accordance with the appropriate principles of company law. Once
Special Leave Petition (C) No. 21286 of 2024 Page 111 of 190
the existence of the corporate group is established, the next step is
the determination of whether there was a mutual intention of all
the parties to bind the non-signatory to the arbitration agreement.
109. [...] The primary test to apply the group of companies
doctrine is by determining the intention of the parties on the basis
of the underlying factual circumstances. The application of the
group of companies doctrine will serve to stymie satellite
litigation by non-signatory members of the corporate group,
thereby ensuring the efficacy of the agreement between the
parties.
74. From above, it is manifest that the test for determining the applicability of the
‘Group of Companies’ doctrine is intrinsically factual in nature, necessitating
a close and context-specific inquiry. However, Cox and Kings (I) (supra) did
not merely stop at just establishing the factual nature of such an exercise, but
further proceeded to expound, the extent and depth in which the
aforementioned factual factors must be determined in the course of such
exercise by laying down the threshold standards for determining the
applicability of the said doctrine. Placing reliance on one another decision of
this Court in Oil and Natural Gas Corporation Ltd. v. Discovery Enterprises
Pvt. Ltd. reported in (2022) 8 SCC 42, it held that the test for determining
applicability of the ‘Group of Companies’ doctrine envisages a cumulative
and holistic determination of the factual aspects such as the relationship
between and among the legal entities within the corporate group structure,
their underlying contractual obligations, the commonality of the subject matter
and the composite nature of the transactions undertaken, and their overall
Special Leave Petition (C) No. 21286 of 2024 Page 112 of 190
participation in the project / subject-matter for achieving a common purpose.
The relevant observations read as under: -
“110. In Discovery Enterprises (supra), this Court refined and
clarified the cumulative factors that the courts and tribunals
should consider in deciding whether a company within a group of
companies is bound by the arbitration agreement:
“40. In deciding whether a company within a group of
companies which is not a signatory to arbitration
agreement would nonetheless be bound by it, the law
considers the following factors:
(i) The mutual intent of the parties;
(ii) The relationship of a non-signatory to a party
which is a signatory to the agreement;
(iii) The commonality of the subject-matter;
(iv) The composite nature of the transactions; and
(v) The performance of the contract.”
75. Cox and Kings (I) (supra) observed that doctrines such as ‘Group of
Companies’ being a consent-based theory, as a necessary implication requires
that the inquiry must not be superficial or perfunctory but must instead involve
a comprehensive and holistic assessment of the composite relationship among
the entities concerned, the underlying transactions, and the attendant
circumstances evincing mutual intention to be bound by the arbitration
agreement. Endorsing the view taken in Discovery Enterprises (supra), it held
that mere incidental involvement in the negotiation or performance of the
contract is not sufficient to infer the consent of the non-signatory to be bound
by the underlying contract or its arbitration agreement. The evaluation must
be indicative that the involvement of the non-signatory was of such manner
Special Leave Petition (C) No. 21286 of 2024 Page 113 of 190
which was sufficient to lead the other parties to legitimately believe that the
non-signatory was a veritable party to the contract. The relevant observations
read as under: -
“111. Since the group of companies doctrine is a consent based
theory, its application depends upon the consideration of a variety
of factual elements to establish the mutual intention of all the
parties involved. In other words, the group of companies doctrine
is a means to infer the mutual intentions of both the signatory and
non-signatory parties to be bound by the arbitration agreement.
The relationship between and among the legal entities within the
corporate group structure and the involvement of the parties in
the performance of the underlying contractual obligations are
indicators to determine the mutual intentions of the parties. The
other factors such as the commonality of the subject matter,
composite nature of the transactions, and the performance of the
contract ought to be cumulatively considered and analysed by
courts and tribunals to identify the intention of the parties to bind
the non-signatory party to the arbitration agreement. [...]
112. [...] However, we clarify that mere presence of a commercial
relationship between the signatory and non-signatory parties is
not sufficient to infer “legal relationship” between and among the
parties. If this factor is applied solely, any related entity or
company may be impleaded even when it does not have any rights
or obligations under the underlying contract and did not take part
in the performance of the contract. The group of companies
doctrine cannot be applied to abrogate party consent and
autonomy. The doctrine, properly conceptualised and applied,
gives effect to mutual intent and autonomy.
121. Evaluating the involvement of the non-signatory party in the
negotiation, performance, or termination of a contract is an
important factor for a number of reasons. First, by being actively
involved in the performance of a contract, a non-signatory may
create an appearance that it is a veritable party to the contract
containing the arbitration agreement; second, the conduct of the
non signatory may be in harmony with the conduct of the other
members of the group, leading the other party to legitimately
believe that the non-signatory was a veritable party to the
contract; and third, the other party has legitimate reasons to rely
Special Leave Petition (C) No. 21286 of 2024 Page 114 of 190
on the appearance created by the non-signatory party so as to bind
it to the arbitration agreement.
122. [...] Rather, the courts or tribunals should closely evaluate
the overall conduct and involvement of the non-signatory party in
the performance of the contract. The nature or standard of
involvement of the non-signatory in the performance of the
contract should be such that the non-signatory has actively
assumed obligations or performance upon itself under the
contract. In other words, the test is to determine whether the non-
signatory has a positive, direct, and substantial involvement in the
negotiation, performance, or termination of the contract. Mere
incidental involvement in the negotiation or performance of the
contract is not sufficient to infer the consent of the non signatory
to be bound by the underlying contract or its arbitration
agreement.
127. We are of the opinion that there is a need to seek a balance
between the consensual nature of arbitration and the modern
commercial reality where a non-signatory becomes implicated in
a commercial transaction in a number of different ways. Such a
balance can be adequately achieved if the factors laid down under
Discovery Enterprises (supra) are applied holistically. For
instance, the involvement of the non-signatory in the performance
of the underlying contract in a manner that suggests that it
intended to be bound by the contract containing the arbitration
agreement is an important aspect. Other factors such as the
composite nature of transaction and commonality of subject
matter would suggest that the claims against the non-signatory
were strongly inter-linked with the subject matter of the tribunal’s
jurisdiction. Looking at the factors holistically, it could be
inferred that the non-signatories, by virtue of their relationship
with the signatory parties and active involvement in the
performance of commercial obligations which are intricately
linked to the subject matter, are not actually strangers to the
dispute between the signatory parties.
128. We hold that all the cumulative factors laid down in
Discovery Enterprises (supra) must be considered while
determining the applicability of the group of companies doctrine.
However, the application of the above factors has to be fact-
specific, and this Court cannot tie the hands of the courts or
tribunals by laying down how much weightage they ought to give
Special Leave Petition (C) No. 21286 of 2024 Page 115 of 190
to the above factors. This approach ensures that a dogmatic
emphasis on express consent is eschewed in favour of a modern
approach to consent which focuses on the factual analysis,
complexity of commercial projects, and thereby increases the
relevance of arbitration in multi-party disputes. [...]
(Emphasis supplied)
76. Owing to the intrinsic character of the test — being one that entails a fact-
intensive inquiry involving a mixed question of fact and law — and further,
given the extensive standard it demands, requiring a comprehensive and
holistic appraisal of all material facts and attendant circumstances, it may be
safely concluded that the arbitral tribunal is the more appropriate and
competent forum to adjudicate upon the issue of whether a non-signatory is
bound by the arbitration agreement, as the arbitral as it has the innate
advantage of going through all the relevant evidence and pleadings in greater
depth and detail than the referral court at the pre-reference stage, and as such
is uniquely positioned to undertake such a nuanced determination.
II. Determining the “existence” viz-à-viz the intention of parties from
“express words” of an Arbitration Agreement.
77. In order to resolve the question whether the issue of a non-signatory being
bound by an arbitration agreement could be said to be inextricably intertwined
with the determination of the “existence” of the arbitration agreement, it is
apposite to once again advert to Cox and Kings (I) (supra), more particularly,
as to the manner in which it envisages the identification and determination of
Special Leave Petition (C) No. 21286 of 2024 Page 116 of 190
the binding effect of an arbitration agreement upon a non-signatory, based on
the factual aspects delineated by it, as mentioned in the foregoing paragraphs.
78. Cox and Kings (I) (supra) observed that the “legal relationship of a non-
signatory to a party which is a signatory to the agreement” must be analyzed
in the context of the underlying substantive contract which contains the
arbitration agreement. This may be ascertained either from the duty or
relationship attributed to the non-signatory within the underlying contract or
may be inferred from its conduct with respect to such contract. If the
underlying contract forms basis for a subject-matter common to both the
signatory and the non-signatory or any composite transaction by them, then it
would be a positive indicum for inferring the consent of the non-signatory to
arbitrate with respect to the subject-matter. Transactions by a non-signatory
which are interlinked with the underlying contract in such manner, in the
absence of which the performance of the contract may not be feasible, is one
another instance for inferring this consent. Placing reliance on Chloro
Controls (supra) it observed that factors such as “commonality of the subject-
matter” or “composite transaction” would have to be gathered from the
conjoint reading of the principal and supplementary agreements on the one
hand, and the intention of the parties and their conduct on the other. Amongst
these, the participation of the non-signatory in the performance of the
Special Leave Petition (C) No. 21286 of 2024 Page 117 of 190
underlying contract is the most crucial factor to discern the intention of the
parties.
“112. Section 7 of the Arbitration Act broadly talks about an
agreement by the parties in respect of a defined legal relationship,
whether contractual or not. Such a legal relationship must give
rise to legal obligations and duties. In a corporate group, a
company may have various related companies. The legal
relationship must be analysed in the context of the underlying
contract containing the arbitration agreement. The nature of the
contractual relationship can either be formally encrusted in the
underlying contract, or it can also be inferred from the conduct of
the signatory and non-signatory parties with respect to such
contract. [...]
115. In case of multiple parties, the necessity of a common subject-
matter and composite transaction is an important factual
indicator. An arbitration agreement arises out of a defined legal
relationship between the parties with respect to a particular
subject matter. Commonality of the subject matter indicates that
the conduct of the non-signatory party must be related to the
subject matter of the arbitration agreement. For instance, if the
subject matter of the contract underlying the arbitration
agreement pertains to distribution of healthcare goods, the
conduct of the non-signatory party should also be connected or in
pursuance of the contractual duties and obligations, that is,
pertaining to the distribution of healthcare goods. The
determination of this factor is important to demonstrate that the
non-signatory party consented to arbitrate with respect to the
particular subject matter.
116. In case of a composite transaction involving multiple
agreements, it would be incumbent for the courts and tribunals to
assess whether the agreements are consequential or in the nature
of a follow-up to the principal agreement. This Court in Canara
Bank (supra) observed that a composite transaction refers to a
situation where the transaction is interlinked in nature or where
the performance of the principal agreement may not be feasible
without the aid, execution, and performance of the supplementary
or ancillary agreements.
Special Leave Petition (C) No. 21286 of 2024 Page 118 of 190
117. The general position of law is that parties will be referred to
arbitration under the principal agreement if there is a situation
where there are disputes and differences “in connection with” the
main agreement and also disputes “connected with” the subject-
matter of the principal agreement In Chloro Controls (supra), this
Court clarified that the principle of “composite performance”
would have to be gathered from the conjoint reading of the
principal and supplementary agreements on the one hand, and the
explicit intention of the parties and attendant circumstances on the
other. The common participation in the commercial project by the
signatory and non signatory parties for the purposes of achieving
a common purpose could be an indicator of the fact that all the
parties intended the non-signatory party to be bound by the
arbitration agreement. [...]”
118. The participation of the non-signatory in the performance of
the underlying contract is the most important factor to be
considered by the courts and tribunals. The conduct of the non-
signatory parties is an indicator of the intention of the non-
signatory to be bound by the arbitration agreement. The intention
of the parties to be bound by an arbitration agreement can be
gauged from the circumstances that surround the participation of
the non signatory party in the negotiation, performance, and
termination of the underlying contract containing such agreement.
The UNIDROIT Principle of International Commercial Contract,
201698 provides that the subjective intention of the parties could
be ascertained by having regard to the following circumstances:
(a) preliminary negotiations between the parties;
(b) practices which the parties have established between
themselves;
(c) the conduct of the parties subsequent to the conclusion of the
contract;
(d) the nature and purpose of the contract;
(e) the meaning commonly given to terms and expressions in the
trade concerned; and
(f) usages.
(Emphasis supplied)
79. What can be discerned from the above is that, the entire exercise of
determining whether a non-signatory is bound by an arbitration agreement, in
Special Leave Petition (C) No. 21286 of 2024 Page 119 of 190
contradistinction to the narrow question of the "existence" of the arbitration
agreement, necessitates a far more expansive inquiry. This inquiry transcends
the limited question of the mere "existence" as it entails an interpretation of
the scope and contours of the principal agreement, an assessment of the
commercial understanding between the parties, examination of the nature and
purpose underlying the principal contract, and the character of the transactions
and conduct of the parties viz-à-viz the object and wisdom of the parties
underlying contractual arrangement. Such an exercise mandates a detailed and
comparative evaluation of the substantive provisions of both the principal and
supplementary agreements, and not merely of the arbitration agreement or
clause in isolation.
80. The determination of the "existence" of an arbitration agreement, by contrast,
is confined to examining the formal validity of the arbitration agreement or
the arbitration clause itself, where only the arbitration agreement or clause, as
the case may be has to be looked into. It does not require delving into the
broader legal relationships emerging from the underlying contractual
framework. Cox and Kings (I) (supra) specifically mandates a holistic
appraisal of the principal and supplementary agreements in tandem with the
parties' intention and conduct, thereby demanding an inquiry far more
extensive than that required for the mere establishment of the existence of the
arbitration agreement.
Special Leave Petition (C) No. 21286 of 2024 Page 120 of 190
81. Thus, by no stretch of imagination can the issue of whether a non-signatory is
bound by the arbitration agreement be characterized as one that is either
significant or sine qua non to the determination of the arbitration agreement’s
“existence”. The former necessitates a substantive examination of the entire
contractual relationship, whereas the latter is a limited exercise directed only
at confirming the formal validity of the arbitration agreement itself. Such a
question is not one of “existence” of the arbitration agreement, but one of
interpretation and scope of the principle agreement.
82.
In this regard, reliance may be placed on the concurring opinion of P.S.
Narasimha J. in Cox and Kings (I) (supra), who observed that the existence
of an arbitration agreement qua a non-signatory is a matter of interpretation
and construction of the written material in terms of Section 7(4)(b) from which
a non-signatory’s consent and intention can be deciphered. For ascertaining
the true meaning of the express words, the court or tribunal may look into the
surrounding circumstances such as nature and object of the contract and the
conduct of the parties during the formation, performance, and discharge of the
contract. The relevant observations read as under: -
“52. [...] An arbitration agreement, being a contract, must
necessarily be in writing, as against an oral agreement, but need
not be signed by the parties. The written arbitration agreement
can be in the form of a document signed by the parties, or be
evidenced in the record of agreement. Section 7(4)(b) prescribes
the written material from which a non-signatory’s consent and
intention can be deciphered by a court or arbitral tribunal.
Special Leave Petition (C) No. 21286 of 2024 Page 121 of 190
53. The existence of an arbitration agreement with a non signatory
is a matter of interpretation and construction. The express words
employed by the parties enable the court to ascertain the intention
of the parties and their agreement to resolve disputes through
arbitration. For ascertaining the true meaning of the express
words, the court or tribunal may look into the surrounding
circumstances such as nature and object of the contract and the
conduct of the parties during the formation, performance, and
discharge of the contract. While interpreting and constructing the
contract, courts or tribunals may adopt well established
principles, which aid and assist proper adjudication and
determination. The Group of Companies doctrine is one such
principle. It may be adopted by courts or arbitral tribunals while
interpreting the record of agreement to determine whether the non
signatory company is a party to it.
54. Although the application of the Group of Companies doctrine
in India has until now been independent of Section 7, its
juxtaposition with Section 7(4)(b) case-law shows that the inquiry
under both is premised on determining the mutual intention of
parties to submit to arbitration. The mutual intention of the parties
is discernible from their conduct in the performance of the
contract and this inquiry is common to Section 7(4)(b)
jurisprudence and the Group of Companies doctrine. Even the
precedents on the doctrine, national and international, look to
additional factors beyond the non-signatory being in the same
group of companies, such as commonality of subject-matter,
composite nature of transaction, and interdependence of the
performance of the contracts to determine mutual intent.”
83. The subsequent observations of P.S. Narasimha J. in his concurring opinion
in Cox and Kings (I) (supra) are of significance, and read as under: -
“55. Since the fundamental issue before the court or tribunal
under Section 7(4)(b) and the Group of Companies doctrine is the
same, the doctrine can be subsumed within Section 7(4)(b).
Consequently, the record of agreement that evidences conduct of
the non-signatory in the formation, performance, and termination
of the contract and surrounding circumstances such as its direct
Special Leave Petition (C) No. 21286 of 2024 Page 122 of 190
relationship with the signatory parties, commonality of subject
matter, and composite nature of transaction, must be
comprehensively used to ascertain the existence of the arbitration
agreement with the non-signatory. In this inquiry, the fact of a no
signatory being a part of the same group of companies will
strengthen its conclusion. In this light, there is no difficulty in
applying the Group of Companies doctrine as it would be
statutorily anchored in Section 7 of the Act.”
84. From the above exposition of law, it can be seen that this Court in Cox and
Kings (I) (supra) recognized that there exists a fine but pertinent distinction
between determining the “existence” of an arbitration agreement and
determining the intention of the parties from the “express words” used in the
arbitration agreement, when dealing with the question whether a non-
signatory is bound by the arbitration agreement or not. The former only deals
with determining whether an arbitration agreement exists and is present in the
record of agreement or the written materials as delineated under Section 7 sub-
section (4)(b) of the Act, 1996. The latter, in contrast, involves construction
and interpretation of the “express words” that has been used in such material
from the surrounding circumstances such as nature and object of the contract
and the conduct of the parties during the formation, performance, and
discharge of the contract, and how the arbitration agreement fits within the
broader contractual framework.
Special Leave Petition (C) No. 21286 of 2024 Page 123 of 190
85. Once the referral court, identifies an arbitration agreement that satisfies the
formal requirements of Section 7 of the Act, 1996, either from the record of
agreement or the written materials under sub-section (4), the “existence” of
the arbitration agreement is said to have been established, even though, its
binding nature qua the non-signatory may not be established, as it is entirely
possible for a referral court to arrive at finding that prima-facie there exists an
arbitration agreement in terms of Section 7 of the Act, 1996 without resolving
the question of whether a non-signatory is bound by such arbitration
agreement or not, as it depends on additional factors beyond mere existence.
86.
Once, the “existence” of the arbitration agreement is said to have been
established, the condition stipulated in terms of Section 11 sub-section (6A)
of the Act, 1996, is said to have been fulfilled, and the referral courts have no
option but to refer the dispute to arbitration, notwithstanding whether the
intention of a non-signatory as a veritable partly to such agreement is
established or not. Apart from the pre-condition of examining the “existence”
of an arbitration agreement, Section 11 of the Act, 1996 does not either
contemplate or require determination of the " defined legal relationship " in
terms of Section 7, nor does it mandate an assessment of the futuro intention
of the parties, whether signatories or non-signatories, from the "express
words" of the arbitration agreement. This limited inquiry does not extend to
the substantive legal consequences or implications of such arbitration
Special Leave Petition (C) No. 21286 of 2024 Page 124 of 190
agreement. The question of whether a non-signatory is bound by the
arbitration agreement is entirely separate from the question of its "existence."
The latter is a relatively straightforward, procedural determination based on
the formal presence of the agreement, whereas the former involves a
substantive and contextual inquiry into the mutual intent of the parties, which
may be examined by the arbitral tribunal.
87. What follows from this is that, the question whether a non-signatory is bound
by the arbitration agreement is completely independent of the question
concerning the “existence” of an arbitration agreement. The two inquiries —
while related — are distinct in nature and function. The "existence" of an
arbitration agreement pertains solely to its formal presence in the contractual
documentation, as per the requirements under the Act, 1996 and once
established, it obligates the referral of the dispute to arbitration. By contrast,
the question of whether a non-signatory is bound by the arbitration agreement
involves a more nuanced determination of the parties' intentions, contractual
relationships, and the broader context of the agreement, which is not confined
to the formal text of the arbitration clause alone.
88.
Thus, even in the absence of the non-signatory being made a party to the
proceedings before the referral court, and where the question of its
impleadment has neither been raised nor addressed or left open to the arbitral
Special Leave Petition (C) No. 21286 of 2024 Page 125 of 190
tribunal by the referral court, the arbitral tribunal would be full empowered to
examine this issue in the first instance and determine whether any non-
signatory is bound by the arbitration agreement based on the factual
circumstances of the case, and if necessary, implead such non-signatory to the
arbitration proceedings.
89. P.S. Narasimha J. in his concurring opinion in Cox and Kings (I) (supra),
observed that the exercise of determining the binding nature of an arbitration
agreement qua a non-signatory is an inquiry pertaining to the interpretation
and construction of the agreement for determining the mutual intention, and
not the existence of such agreement. We are conscious of the fact that, at
paragraph 55, P.S. Narasimha J. observed that the inquiry is to “ ascertain the
existence of the arbitration agreement with the non-signatory ” Semantically,
the exercise may well be said to be one for determining the “existence” of an
arbitration agreement with the non-signatory, however, the aforesaid
observations cannot be singled out and construed devoid of its context. It must
be seen in light of the observations made in the majority opinion at paragraphs
102 and 103, wherein this issue of “existence of the arbitration agreement with
the non-signatory” or to put it simply, whether the non-signatory is a veritable
party to the arbitration agreement or not, was described as an “extra layer of
criteria” and that such an exercise is only to “discern the true “party” in
interest”. The relevant observations read as under: -
Special Leave Petition (C) No. 21286 of 2024 Page 126 of 190
“102. [...] Thus, the existence of a group of companies is a factual
element that the court or tribunal has to consider when analysing
the consent of the parties. It inevitably adds an extra layer of
criteria to an exercise which at its core is preponderant on
determining the consent of the parties in case of complex
transactions involving multiple parties and agreements.
103. [...] the group of companies doctrine helps in decoding the
layered structure of commercial arrangements to unravel the true
intention of the parties to bind someone who is not formally a
signatory to the contract, but has “assumed” the obligation to be
bound by the actions of a signatory. This court explained the
purport of the doctrine to discern the “true” party in interest [...]”
(Emphasis supplied)
90.
This is further fortified from the fact that, Cox and Kings (I) (supra) in its
subsequent paragraphs, more particularly paragraph no. 164, while discussing
the scope of Section 11 of the Act, 1996, distinctively refers to and treats the
criterion of “existence of arbitration agreement” and “veritable party to the
arbitration agreement”, as two separate and independent inquiries, thereby
underscoring that the determination of the existence of an arbitration
agreement stands apart from the assessment of whether a non-signatory can
be bound to it.
91. In Ajay Madhusudan Patel & Ors. v. Jyotrindra S. Patel & Ors. reported in
2024 INSC 710 , this Court comprising one of us, (J.B. Pardiwala J.) further
brought this distinction into perspective by observing that the issue concerning
the “existence of the arbitration agreement qua the non-signatory” is, in
Special Leave Petition (C) No. 21286 of 2024 Page 127 of 190
substance an issue of “consent”, as it involves determining the manifestation
of consent of parties or entities through their actions and conduct of exchange
of documents (sic or otherwise) in terms of Section 7 sub-section (4) of the
Act, 1996, and not one of “existence of arbitration agreement” simpliciter, as
such an issue inter-alia requires examination and thorough consideration of
the underlying contract in addition to the arbitration agreement. The relevant
observations read as under: -
“66. It is well settled that an arbitration agreement, in order to
qualify as a valid agreement, has to satisfy the requirements
stipulated under Section 7 of the Act, 1996 along with the
principles of law under the Indian Contract Act, 1872. Having
regard to the submissions of both the Respondent Groups i.e., JRS
and SRG, it can be said that they have raised manifold objections
to the present petition, however, none of those objections question
or deny the existence of the arbitration agreement under which the
arbitration has been invoked by the Petitioner AMP Group. In
fact, the JRS Group has no objection to resolve the disputes with
the AMP Group by way of arbitration. Their primary objection is
only that the SRG Group cannot be a part of the arbitration
proceedings. Therefore, the requirement of prima facie existence
of an arbitration agreement, as stated under Section 11 of the Act,
1996 is satisfied.
67. However, the core issue that falls for our consideration is
whether the SRG Group, being a non-signatory to the FAA can
also be referred to arbitration and whether they are “veritable”
parties to the arbitration agreement.
68. [...] Persons or entities who have not formally signed the
arbitration agreement or the underlying contract containing the
arbitration agreement may also intend to be bound by the terms of
the agreement. Further, the requirement of a written agreement
under Section 7 of the Act, 1996 does not exclude the possibility
of binding non-signatory parties if there is a defined legal
relationship between the signatory and non-signatory parties.
Therefore, the issue as to who is a “party” to an arbitration
Special Leave Petition (C) No. 21286 of 2024 Page 128 of 190
agreement is primarily an issue of consent. Actions or conduct
could be an indicator of the consent of a party to be bound by the
arbitration agreement. This aspect is also evident from a reading
of Section 7(4)(b) which emphasises on the manifestation of the
consent of persons or entities through actions of exchanging
documents.”
(Emphasis supplied)
92. Thus, what has been conveyed in so many words by Ajay Madhusudan Patel
(supra) is that the inquiry into whether a non-signatory is bound by an
arbitration agreement is not, in its essence, an inquiry into the formal or
juridical existence of the arbitration agreement itself. It is an exercise of
determining the functional concept of consent within the existing arbitration
agreement rather than the existence of the arbitration agreement itself. It is to
cull out and discern the intention of various parties — whether signatories or
otherwise — in relation to their willingness to be bound by the arbitration
mechanism embedded in the contract.
93. Put differently, although notionally the exercise of determining ‘existence of
the arbitration agreement qua the non-signatory’, may, on the surface appear
to be concerned with the arbitration agreement or clause in question, yet one
must be mindful that the actual focus of such exercise lies in determining the
existence of consent of the parties through fact patterns to such arbitration
agreement or clause and not vice-versa. It is the existence of mutual consent
Special Leave Petition (C) No. 21286 of 2024 Page 129 of 190
to arbitrate — not the formal existence of the arbitration agreement — that is
the heart of this inquiry.
94. There runs no umbilical cord between the exercise of determining the
“existence of the arbitration agreement” and determining its “existence qua
the non-signatory”. The latter is an independent and substantive determination
that falls outside the narrow and circumscribed domain of the referral court’s
singular obligation under Section 11 sub-section (6A) of the Act, 1996 and as
such cannot be conflated to be one pertaining to or attacking the “existence”
of an arbitration.
95. Even if it is assumed for a moment that the referral court in its jurisdiction
under Section 11 of the Act, 1996 has the discretion to determine whether a
non-signatory is a veritable party to the arbitration agreement or not, by virtue
of Cox and Kings (I) (supra), the referral court should only refrain but rather
loathe the exercise of such discretion. Any discretion which is conferred upon
any authority, be it referral courts must be exercised reasonably and in a fair
manner. Fairness in this context does not just extend to a non-signatory’s
rights and its apprehension of prejudice, fairness also demands that the
arbitration proceedings is given due time to gestate so that the entire dispute
is holistically decided. Any determination even if prima-facie by a referral
court on such aspects would entail an inherent risk of frustrating the very
purpose of resolution of dispute, if the referral courts opine that a non-
Special Leave Petition (C) No. 21286 of 2024 Page 130 of 190
signatory in question is not a veritable party. On the other hand, the
apprehensions of prejudice can be properly mitigated by leaving such question
for the arbitral tribunal to decide, as such party can always take recourse to
Section 16 of the Act, 1996 and thereafter in appeal under Section 37, and
where it is found that such party was put through the rigmarole of arbitration
proceedings vexatiously, both the tribunal and the courts, as the case may be,
should not only require that all costs of arbitration insofar as such non-
signatory is concerned be borne by the party who vexatiously impleaded it,
but the arbitral tribunal would be well within its powers to also impose costs.
III. Decision of Cox and Kings (II) and Ajay Madhusudan and the scope of
Section 11 of the Act, 1996 for joinder of non-signatories to arbitration
proceedings.
96. The aforesaid may be looked at from one another angle. This Court in Cox
and Kings (I) (supra) also discussed the role and scope of jurisdiction of the
referral courts and arbitral tribunals under Section(s) 11 and 16 of the Act,
1996, particularly in the context of binding a non-signatory to the arbitration
agreement. It reiterated that under Section 11, the referral court only has to
determine the prima-facie existence of an arbitration agreement. Whereas, the
issue of determining parties to an arbitration agreement is quite distinct from
“existence” of the arbitration agreement, as such issue goes to the very root of
the jurisdiction competence of the arbitral tribunal, and thus, empowered to
Special Leave Petition (C) No. 21286 of 2024 Page 131 of 190
decide the same under Section 16. Placing reliance on the decision of this
Court in Shin-Etsu Chemical Co Ltd v. Aksh Optifibre Ltd. reported in,
(2005) 7 SCC 234 , it held that the referral court should not unnecessarily
interfere with arbitration proceedings, and rather allow the arbitral tribunal to
exercise its primary jurisdiction for deciding such issues. The relevant
observations read as under: -
“157. When deciding the referral issue, the scope of reference
under both Sections 8 and 11 is limited. Where Section 8 requires
the referral court to look into the prima facie existence of a valid
arbitration agreement, Section 11 confines the court’s jurisdiction
to the existence of the examination of an arbitration agreement.
158. Section 16 of the Arbitration Act enshrines the principle of
competence competence in Indian arbitration law. The provision
empowers the arbitral tribunal to rule on its own jurisdiction,
including any ruling on any objections with respect to the
existence or validity of arbitration agreement. Section 16 is an
inclusive provision which comprehends all preliminary issues
touching upon the jurisdiction of the arbitral tribunal. The
doctrine of competence competence is intended to minimize
judicial intervention at the threshold stage. The issue of
determining parties to an arbitration agreement goes to the very
root of the jurisdictional competence of the arbitral tribunal.
161. The above position of law leads us to the inevitable
conclusion that at the referral stage, the court only has to
determine the prima facie existence of an arbitration agreement.
If the referral court cannot decide the issue, it should leave it to
be decided by the arbitration tribunal. unnecessarily interfere
with arbitration proceedings, and rather allow the arbitral
tribunal to exercise its primary jurisdiction. In Shin-Etsu
Chemical Co Ltd v. Aksh Optifibre Ltd,125 this Court observed
that there are distinct advantages to leaving the final
determination on matters pertaining to the validity of an
arbitration agreement to the tribunal [...]”
(Emphasis supplied)
Special Leave Petition (C) No. 21286 of 2024 Page 132 of 190
97. Cox and Kings (I) (supra) further observed that in case of joinder of non-
signatory parties to an arbitration agreement, the referral court will be required
to prima-facie rule on the existence of the arbitration agreement and whether
the non-signatory is a veritable party to the arbitration. However, it further
clarified that, due to the inherent complexity in determining whether the non-
signatory is indeed a veritable party, the referral court should leave this
question for the arbitral tribunal to decide as it can delve into the factual and
circumstantial evidence along with its legal aspects for deciding such an issue.
The relevant observations read as under: -
“163. [...] Thus, when a non-signatory person or entity is arrayed
as a party at Section 8 or Section 11 stage, the referral court
should prima facie determine the validity or existence of the
arbitration agreement, as the case may be, and leave it for the
arbitral tribunal to decide whether the non signatory is bound by
the arbitration agreement.
164. In case of joinder of non-signatory parties to an arbitration
agreement, the following two scenarios will prominently emerge:
first, where a signatory party to an arbitration agreement seeks
joinder of a non-signatory party to the arbitration agreement; and
second, where a non-signatory party itself seeks invocation of an
arbitration agreement. In both the scenarios, the referral court
will be required to prima facie rule on the existence of the
arbitration agreement and whether the non-signatory is a
veritable party to the arbitration agreement. In view of the
complexity of such a determination, the referral court should leave
it for the arbitral tribunal to decide whether the non signatory
party is indeed a party to the arbitration agreement on the basis
of the factual evidence and application of legal doctrine. The
tribunal can delve into the factual, circumstantial, and legal
aspects of the matter to decide whether its jurisdiction extends to
the non-signatory party. In the process, the tribunal should
comply with the requirements of principles of natural justice such
Special Leave Petition (C) No. 21286 of 2024 Page 133 of 190
as giving opportunity to the non-signatory to raise objections with
regard to the jurisdiction of the arbitral tribunal. This
interpretation also gives true effect to the doctrine of competence-
competence by leaving the issue of determination of true parties
to an arbitration agreement to be decided by arbitral tribunal
under Section 16.”
(Emphasis supplied)
98. Thus, even if it is assumed for a moment, that the question whether a non-
signatory is a veritable party to the arbitration agreement is intrinsically
connected with the issue of “existence” of arbitration agreement, the referral
courts should still nevertheless, leave such questions for the determination of
the arbitral tribunal to decide, as such an interpretation gives true effect to the
doctrine of competence-competence enshrined under Section 16 of the Act,
1996.
99. This hands-off approach of referral courts in relation to the question of
whether a non-signatory is a veritable party to the arbitration agreement or not
was reiterated in Cox and Kings (II) , wherein one of us, (J.B. Pardiwala J.),
observed that once an arbitral tribunal stands constituted, it becomes
automatically open to all parties to raise any preliminary objections, including
preliminary objections touching upon the jurisdiction of such tribunal, and to
seek an early determination thereof. Consequently, the issue of impleadment
of a non-signatory was deliberately left for the arbitral tribunal to decide, after
Special Leave Petition (C) No. 21286 of 2024 Page 134 of 190
taking into consideration the evidence adduced before it by the parties and the
principles enunciated under Cox and Kings (I) (supra).
100. Similarly, in Ajay Madhusudan (supra) it was held that since a detailed
examination of numerous disputed questions of fact was required for
determining whether the non-signatory is a veritable party to the arbitration
agreement, the same cannot be examined in the limited jurisdiction under
Section 11 of the Act, 1996 as it would tantamount to a mini trial. Accordingly,
the arbitral tribunal was found to be the appropriate forum for deciding the
said issue on the basis of the evidence that may be adduced by the parties.
101. This approach is necessitated by the inherent complexity involved in
determining whether a non-signatory qualifies as a veritable party to the
arbitration agreement, a determination that hinges upon a multiplicity of
factual aspects and demands a high threshold of satisfaction based on a
cumulative and holistic evaluation of the entire factual matrix. Such an
intricate and evidence-driven exercise makes the arbitral tribunal the most
appropriate forum to adjudicate the matter, as it possesses the institutional
advantage of conducting a comprehensive scrutiny of all evidences and
materials adduced by the parties.
102.
Furthermore, the legislative intent underlying Section 11 of the Act, 1996 —
particularly sub-section (6A) — is to ensure the expeditious disposal of
Special Leave Petition (C) No. 21286 of 2024 Page 135 of 190
applications for the appointment of arbitrators. This legislative objective
militates against referral courts undertaking any elaborate or detailed factual
inquiry, which would inevitably delay proceedings. Prudence thus dictates
that the referral courts confine themselves to a prima-facie examination of the
existence of the arbitration agreement and leave substantive determinations,
such as the binding nature of non-signatories, to the arbitral tribunal. An
additional and equally compelling consideration is that the power exercised
by the referral courts under Section 11 of the Act, 1996 is judicial in nature.
Consequently, referral courts must refrain from embarking upon an intricate
evidentiary inquiry or making final determinations on matters that are within
the jurisdiction of the arbitral tribunal. Any premature adjudication or opinion
by the referral court would not only usurp the tribunal’s role as the forum of
first instance for dispute resolution but could also cause irremediable
prejudice. In particular, if the referral court were to refuse impleadment of a
non-signatory, there would be no statutory right of appeal available to
challenge such a refusal. In contrast, determinations made by the arbitral
tribunal — including on issues of jurisdiction and impleadment — are
amenable to challenge under Section 16 of the Act, 1996 and, thereafter, under
Section 37. Accordingly, the better course of action is for referral courts to
refrain altogether from delving, into the issue of whether a non-signatory is a
veritable party to the arbitration agreement, and to leave such matters for the
arbitral tribunal to decide in the first instance.
Special Leave Petition (C) No. 21286 of 2024 Page 136 of 190
103. At this juncture, it would be apposite to refer to the three-judge Bench
decision of this Court in Pravin Electricals Pvt Ltd v. Galaxy Infra and
Engineering Pvt Ltd. reported in (2021) 5 SCC 671 . In the said decision, this
Court was called upon to determine the existence of an arbitration agreement
on the basis of the documentary evidence produced by the parties. Although,
this Court prima-facie opined that there was no conclusive evidence to infer
the existence of a valid arbitration agreement between the parties, yet it
referred the dispute along with the issue of existence of the arbitration
agreement to the arbitral tribunal to decide after conducting a detailed
examination of documentary evidence and cross-examination of witnesses.
Thus, even where the referrals courts either find that there is no arbitration
agreement in “existence” or as a logical sequitur never embarked upon
determining such “existence”, for whatever reasons, the matter should still
nevertheless be referred to arbitration.
104. It is not difficult to comprehend why the above approach, endorsed in Pravin
Electricals (supra) ought to be adopted and followed. The rationale behind
this, as explained in Krish Spinning (supra), is that there exists no right to
appeal under the Act, 1996 against an order passed by the referral court under
Section 11 for either appointing or refusing to appoint an arbitrator. Any
refusal for appointment runs the risk of leaving the claimant in a situation
Special Leave Petition (C) No. 21286 of 2024 Page 137 of 190
wherein it does not have any forum to approach for the adjudication of its
claims, if it Section 11 application is rejected. However, on the contrary,
appointment of an arbitrator causes no prejudice, as all these issues can again
be espoused by leading cogent evidence and material before the arbitral
tribunal under Section 16 of the Act, 1996 and thereafter, in appeal under
Section 37.
105. Cox and Kings (I) (supra) at paragraph 164, observes that in case of joinder
of non-signatory parties to an arbitration agreement, two scenarios will
prominently emerge; first, where a signatory party to an arbitration agreement
seeks joinder of a non-signatory party and second, where a non-signatory party
itself seeks invocation of an arbitration agreement. It then holds that in both
scenarios the referral court (emphasis) will be required to prima facie rule
on the existence of the arbitration agreement and whether the non-signatory is
a veritable party.
106. However, this by no stretch means that all issues or instances of joinder or
impleadment of a non-signatory will have to be first brought before the referral
court, who in turn may leave it for the arbitral tribunal to decide. It by no
stretch precludes a scenario where the issue of joinder of a non-signatory
although never brought before the referral court, yet is later raised for the first
time before the arbitral tribunal. We say so, because the aforesaid decision of
Pravin Electricals (supra) where this Court referred the matter to the arbitral
Special Leave Petition (C) No. 21286 of 2024 Page 138 of 190
tribunal despite prima-facie opining that there is no existence of arbitration
agreement was approvingly referred to by Cox and Kings (I) (supra) to hold
that “ If the referral court cannot decide the issue, it should leave it to be
decided by the arbitration tribunal ”. The natural corollary to the aforesaid is
that, where the referral court is either unable to decide the issue as to whether,
the non-signatory is a veritable party to the arbitration agreement, or finds in
its opinion that such non-signatory is not a veritable party, or in the extreme
alternative, had no occasion to decide such an issue, still it would be open for
the arbitral tribunal to look into the issue and decide the same.
107. The only thing the arbitral tribunal needs to be mindful of when deciding such
an issue is that it adheres to the principles of natural justice by affording the
non-signatory a fair opportunity to raise objections with regard to the
jurisdiction of the arbitral tribunal, earnestly makes an endeavour to determine
this issue at the earliest possible stage to prevent any grave prejudice being
occasioned to such non-signatory, makes all possible efforts — whether by
way of imposition of costs or through other appropriate measures —to
mitigate and deter the possibility of any abuse by the signatories who might
seek to coerce or arm twist the non-signatory by frivolously or vexatiously
subjecting it to arbitration, and lastly, that its decision is grounded in the
factors and threshold requirements laid down in Cox and Kings (I) (supra) as
explained by us.
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108. Moreover, one must not lose sight of the fact that, the provision of Section 11
of the Act, 1996 only comes into the picture where there has been a failure in
appointment of an arbitrator. Could it be said that where, the signatories have
consensually appointed an arbitrator in terms of the arbitration agreement,
then in such cases, the arbitral tribunal that has been so constituted, would not
be empowered to implead a non-signatory as-well, merely because, the
referral court did not either determine the ‘existence of the arbitration
agreement qua the non-signatory’ or did not leave such question for
determination of the arbitral tribunal, even though no such occasion had arisen
for the referral court to do so? The answer to the aforesaid, must be an
emphatic “no”. Arguendo even if one were to proceed on a stretch and rather
strained construction of the law, that where a notice of invocation is served by
a party to both the signatories and the non-signatories, pursuant to which an
arbitral tribunal has been constituted consensually by the signatories, yet there
would still be a failure in appointment of an arbitrator inasmuch as the non-
signatory has not agreed to appoint and arbitrator, and the only recourse here
would be to prefer to move a referral court under Section 11 of the Act, 1996,
the aforesaid contention, merits outright rejection. Not only does it reflect a
hyper-technical and overly dogmatic approach to the procedural framework
of arbitration — which is to be construed in a manner that facilitates, rather
than frustrates, party autonomy and consensual resolution — but it also
Special Leave Petition (C) No. 21286 of 2024 Page 140 of 190
fundamentally misunderstands the legislative purpose and limited procedural
function of Section 21 of the Act, 1996, which we shall now discuss, in the
later parts of this judgment.
ii. Arbitral Tribunal has the authority and power to implead Non-
Signatories to the arbitration agreement on its own accord.
a. There is no inhibition in the scheme of Act, 1996 which precludes the
Arbitral Tribunal from impleading a Non-Signatory on its own
accord.
109. From the above exposition of law, it can be seen that there is nothing within
the scheme of the Act, 1996, which prohibits or restrains an arbitral tribunal
from, impleading a non-signatory to the arbitration proceedings on its own
accord. So long as such impleadment is undertaken upon a consideration of
the applicable legal principles — including, but not limited to, the doctrines
of ‘group of companies’, ‘alter ego’, ‘composite transaction’, and the like —
the arbitral tribunal is fully empowered to summon the non-signatory to
participate in the arbitration. This autonomy stems from the broad jurisdiction
conferred upon arbitral tribunals under the Act, 1996 to rule upon their own
jurisdiction, including any objections with respect to the existence or validity
of the arbitration agreement, as enshrined under Section 16. The impleadment
of a non-signatory, being fundamentally a question of jurisdiction and consent,
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falls squarely within the province of the tribunal's powers, free from any
statutory prohibition.
110. The aversion towards recognizing such power of the arbitral tribunal to
implead a non-signatory, that previously prevailed, had stemmed from two
major misconceptions – a lack of power being vested on the arbitral tribunal
and a corresponding entrustment of this duty to implead a non-signatory to the
referral courts alone.
(i) First, the initial understanding of Chloro Controls (supra) that the legal
basis for the doctrine of ‘group of companies’ and other alike principles
for determining mutual consent was only under the provisions which
empowered the courts to make a reference to arbitration i.e., under
Section(s) 8 and 45 of the Act, 1996, was construed to mean that only
the courts have the power to resort to and apply the aforesaid principles
for determining mutual consent. Similarly, the unaltered general
definition of “ party ” under Section 2(1)(h) of the Act, 1996 as opposed
to the wide meaning assigned to the term “ party ” under Section(s) 8 and
45 of the Act, 1996, was misconstrued as a positive indicium that an
arbitral tribunal lacks the power to implead a non-signatory as the scope
and exercise of its jurisdiction is confined to the narrow meaning of
“ party ” under Section 2(1)(h) i.e., only signatories or those specifically
referred to arbitration, whereas the power and jurisdictional reach of the
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courts extends to the wider meaning of “ party ” i.e., “ a party to an
arbitration agreement or any person claiming through or under him ”
under Section(s) 8 and 45 of the Act, 1996 i.e., it extends to even non-
signatories.
(ii) Secondly, the position of law which existed at the time of Chloro
Controls (supra), required the referral courts to make a determination
of all issues fundamental to making a reference to arbitration including
the issue whether a non-signatory could be said to be bound by the
arbitration agreement. Since this primary duty of identifying and then
in turn impleading a non-signatory who is bound by the arbitration
agreement was cast upon the courts, it was presumed that the arbitral
tribunal even if empowered is incapable or incompetent to undertake
this task, as otherwise it would tantamount to usurping the jurisdiction
of the referral courts.
111. Thus, the combined effect of the aforesaid was that an arbitral tribunal could
not, on its own accord, resort to or apply the various principles for determining
mutual consent, and thereby implead a non-signatory since both (i) the power
to do so was presumed lie within the exclusive domain and jurisdiction as-
well as the (ii) the corresponding duty to undertake this exercise was
understood to have been entrusted solely to the referral courts.
Special Leave Petition (C) No. 21286 of 2024 Page 143 of 190
112. However, with the advent of Cox and Kings (I) (supra), the legal foundation
for the application of the ‘Group of Companies’ doctrine, or any analogous
principles designed to determine mutual consent was clarified to exist in the
definition of "party" under Section 2(1)(h) read with the meaning of
“arbitration agreement” under Section 7 of the Act, 1996. Unlike Section(s) 8
and 45 of the Act, 1996, the provisions of Section(s) 2(1)(h) and 7 are not
confined in their applicability to only judicial forums or courts, and rather
extend equally to both courts and arbitral tribunals, as these provisions form
the bedrock of the framework of arbitration under the Act, 1996. The logical
sequitur of this is that arbitral tribunals, too, are vested with the requisite
authority to engage with and apply principles, such as the 'Group of
Companies' doctrine, when determining whether a non-signatory may be
bound by an arbitration agreement.
113. It is well within the jurisdiction of the Arbitral Tribunal to decide the issue of
joinder and non-joinder of parties and to assess the applicability of the Group
of Companies Doctrine. Neither in Cox and Kings (I) (supra) nor in Ajay
Madhusudhan (supra), this Court has said that it is only the reference courts
that are empowered to determine whether a non-signatory should be referred
to arbitration. The law which has developed over a period of time is that both
‘courts and tribunals’ are fully empowered to decide the issues of impleadment
Special Leave Petition (C) No. 21286 of 2024 Page 144 of 190
of a non-signatory and Arbitral Tribunals have been held to be preferred forum
for the adjudication of the same.
114. In the case of Ajay Madhusudhan (supra), this Court, placing reliance on Cox
and Kings (I) (supra), has expressly held that Section 16 is an inclusive
provision which comprehends all preliminary issues touching upon the
jurisdiction of the arbitral tribunal and the issue of determining parties to an
arbitration agreement goes to the very root of the jurisdictional competence of
the arbitral tribunal.
115.
The case of Ajay Madhusudhan (supra) also recognizes that the legal
relationship between the signatory and non-signatory assumes significance in
determining whether the non-signatory can be taken to be bound by the
Arbitration Agreement. This Court also issued a caveat that the ‘courts and
tribunals should not adopt a conservative approach to exclude all persons or
entities who are otherwise bound by the underlying contract containing the
arbitration agreement through their conduct and their relationship with the
signatory parties. The mutual intent of the parties, relationship of a non-
signatory with a signatory, commonality of the subject matter, the composite
nature of the transactions and performance of the contract are all factors that
signify the intention of the non-signatory to be bound by the arbitration
agreement’.
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116. Recently, a coordinate bench of this Court in Adavya Projects Pvt. Ltd. v. M/s
Vishal Strcturals Pvt. Ltd. & Ors. reported in 2025 INSC 507, also held that
an arbitral tribunal under Section 16 of the Act, 1996 has the power to implead
the parties to an arbitration agreement, irrespective of whether they are
signatories or non-signatories, to the arbitration proceedings. This Court
speaking through P.S. Narasimha J. observed that since an arbitral tribunal’s
jurisdiction is derived from the consent of the parties to refer their disputes to
arbitration, any person or entity who is found to be a party to the arbitration
agreement can be made a part of the arbitral proceedings, and the tribunal can
exercise jurisdiction over him. Section 16 of the Act, 1996 which empowers
the arbitral tribunal to determine its own jurisdiction, is an inclusive provision
that covers all jurisdiction question including the determination of who is a
party to the arbitration agreement, and thus, such a question would be one
which falls within the domain of the arbitral tribunal. It further observed that,
although most national legislations do not expressly provide for joinder of
parties by the arbitral tribunal, yet an arbitral tribunal can direct the joinder of
a person or entity, even if no such provision exists in the statute, as long as
such person or entity is a party to the arbitration agreement. Accordingly, this
Court held that since the respondents therein were parties to the underlying
contract and the arbitration agreement, the arbitral tribunal would have the
power to implead them as parties to the arbitration proceedings in exercise of
Special Leave Petition (C) No. 21286 of 2024 Page 146 of 190
its jurisdiction under Section 16 of the Act, 1996. The relevant observations
read as under: -
“24. As briefly stated above, the determination of who is a party
to the arbitration agreement falls within the domain of the arbitral
tribunal as per Section 16 of the ACA. Section 16 embodies the
doctrine of kompetenz-kompetenz, i.e., that the arbitral tribunal
can determine its own jurisdiction. The provision is inclusive and
covers all jurisdictional questions, including the existence and
validity of the arbitration agreement, who is a party to the
arbitration agreement, and the scope of disputes referrable to
arbitration under the agreement. Considering that the arbitral
tribunal’s power to make an award that binds the parties is
derived from the arbitration agreement, these jurisdictional issues
must necessarily be decided through an interpretation of the
arbitration agreement itself. Therefore, the arbitral tribunal’s
jurisdiction must be determined against the touchstone of the
arbitration agreement.
25. This view finds support in the jurisprudence and practice of
international commercial arbitration. It is notable that while most
national legislations do not expressly provide for joinder of
parties by the arbitral tribunal, this must be done with the consent
of all the parties. Gary Born has taken the view that the arbitral
tribunal can direct the joinder of parties when the arbitration
agreement expressly provides for the same. However, he states
that in reality, most arbitration agreements, whether ad hoc or
providing for institutional arbitration, neither expressly preclude
nor expressly permit the arbitral tribunal to join parties. In such
cases, the power must be implied,25 particularly when there is a
multi-party arbitration clause in the same underlying contract that
does not expressly address the joinder of parties in the arbitral
proceedings. He states that: “In these circumstances, there is a
substantial argument that the parties have impliedly accepted the
possibility of consolidating arbitrations under their multi-party
arbitration agreement and/or the joinder or intervention of other
contracting parties into such arbitrations… the parties’ joint
acceptance of a single dispute resolution mechanism, to deal with
disputes under a single contractual relationship, reflects their
agreement on the possibility of a unified proceeding to resolve
their disputes, rather than necessarily requiring fragmented
proceedings in all cases.” Further, in jurisdictions where there is
Special Leave Petition (C) No. 21286 of 2024 Page 147 of 190
no provision in the national arbitration statute authorising the
courts to consolidate arbitrations or to join parties, it is left to the
arbitral tribunal to determine this issue at the first instance.
26. Therefore, as per the legal principles under the ACA as well
as in international commercial arbitration, it is a foundational
tenet that the arbitral tribunal’s jurisdiction is derived from the
consent of the parties to refer their disputes to arbitration, which
must be recorded in an arbitration agreement. The proper judicial
inquiry to decide a jurisdictional issue under Section 16 as to
whether a person/entity can be made a party to the arbitral
proceedings will therefore entail an examination of the arbitration
agreement and whether such person is a party to it. If the answer
is in the affirmative, such person can be made party to the arbitral
proceedings and the arbitral tribunal can exercise jurisdiction
over him as he has consented to the same.
39. [...] Since they are parties to the underlying contract and the
arbitration agreement, the arbitral tribunal has the power to
implead them as parties to the arbitration proceedings while
exercising its jurisdiction under Section 16 of the ACA and as per
the kompetenz-kompetenz principle.”
(Emphasis supplied)
117. As observed in Adavya Projects (supra), Gary Born in his seminal work; the
International Commercial Arbitration, Vol 2 (3rd edn, Kluwer Law
International 2021) as held that consolidation and joinder/intervention may be
ordered by an arbitral tribunal, arbitral institution, as long as the same is
pursuant to parties (unanimous) agreement thereto. He has observed that “ In
almost all cases, the approach taken by national law is that consolidation and
joinder/intervention may be ordered by an arbitral tribunal, arbitral
institution, or a national court, but only pursuant to the parties’ (unanimous)
agreement thereto. If the parties have not so agreed, both the tribunal and
Special Leave Petition (C) No. 21286 of 2024 Page 148 of 190
local courts will lack the authority under national law to order either
consolidation or joinder/intervention .” Since the aspect of joinder of a party
to the arbitration agreement, either signatory or non-signatory stems from a
conjoint reading of Section(s) 2(1)(h) and 7 of the Act, 1996 as explained by
Cox and Kings (I) (supra) and by us in the foregoing paragraphs, even if the
parties are to agree that a tribunal or for that matter a referral court will not
have the power to implead any party to the arbitration proceeding, such an
agreement will only operate to the extent that (i) the arbitration agreement is
not governed by the Act, 1996 i.e., does not fall under Part I of the Act, 1996
and (ii) that such party is not otherwise bound by the arbitration agreement.
This is because such an agreement is an agreement in respect of the rules of
procedure of the arbitration, and as per Section 19 of the Act, 1996, more
particularly sub-section (2), any such agreement is subject to Part I i.e., the
parties are free to agree on the procedure to be followed by the arbitral insofar
as it is not inconsistent with Part I. Since, the legal basis for the joinder or
impleadment of any party who is bound by the arbitration agreement
originates from the substantive provisions of the Act, 1996 i.e., Section(s)
2(1)(h) and 7, respectively, the parties cannot denude the arbitral tribunal of
such power in terms of the non-obstante clause of Section 19(2) of the Act,
1996. Gary Born, further observes that “ this approach is consistent with that
prescribed by the New York Convention and with the general respect for the
parties’ procedural autonomy in international arbitration”. Thus, it
Special Leave Petition (C) No. 21286 of 2024 Page 149 of 190
acknowledges, that such stipulation as to consolidation or joinder is purely
within the realm of procedural autonomy, hence Section 19 of the Act, 1996
which is the source of procedural autonomy will be subject to the conditions
stipulated therein.
118. Further, it is true that the entire scheme of Act, 1996 is silent on the power of
a court or arbitral tribunal to join or implead a party to the arbitration
proceedings. Gary Born argues, that “ In the absence of specific statutory
provisions, the topics of consolidation and joinder/intervention are generally
subject to the Model Law’s basic requirement that arbitration agreements be
recognized and enforced in accordance with the parties’ intentions. That is,
consolidation and joinder/intervention should be both permitted and required
– as an element of the parties’ agreement to arbitrate” The UNCITRAL
Model Law being the genesis of the Act, 1996, even if there is no explicit
statutory provision recognizing such power of impleadment, it nevertheless
should not only be permitted but also required, as long as it is exercised within
the confines of the intention of the parties and the scope of arbitration
agreement, which is exactly what has also been laid down in so many words
by Cox and Kings (I) (supra).
119.
He says that, more often than not arbitration agreements, particularly for ad
hoc arbitration “ will neither expressly preclude nor expressly authorize
Special Leave Petition (C) No. 21286 of 2024 Page 150 of 190
consolidation ”. But, “ there is no reason, however, that an agreement
authorizing (or forbidding) consolidation or joinder/intervention cannot be
implied ... various aspects of an arbitration agreement are routinely implied
(such as confidentiality, a tribunal’s power to order provisional relief or
disclosure, the choice of applicable law and the like”. He accordingly,
advocates that “ The same approach can, and indeed must, be taken to
questions of consolidation and joinder/intervention” where the “ questions of
implied agreement to consolidation and joinder/intervention depend in
substantial part on the structure of the parties’ contractual relations and the
terms of their agreements to arbitrate ”.
120. Thus, the natural corollary to the aforesaid is that even in the absence of any
express statutory provision, such power exists impliedly. In this regard, we
may profitably refer to the recent five Judge-Bench decision of this Court in
Gayatri Balasamy v. M/s ISG Novasoft Technologies Ltd. reported in 2025
INSC 605 , wherein this Court recognized the applicability of the doctrine of
‘implied power’ to the Act, 1996, in the context of Section 34. The majority
opinion held that, the doctrine of implied power may be read into the Act,
1996 for the purpose of effectuating and advancing its object and to avoid
hardship. The relevant observations read as under: -
“The doctrine of implied power is to only effectuate and advance
the object of the legislation, i.e., the 1996 Act and to avoid the
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hardship. It would, therefore, be wrong to say that the view
expressed by us falls foul of express provisions of the 1996 Act.”
121. K.V. Vishwanathn J. in his dissenting opinion in Gayatri Balasamy (supra)
observed that if a statute confers a power and circumscribes its exercise on
certain conditions, any power which is inconsistent with those express
conditions cannot be implied. He observed that the doctrine of implied powers
is invoked to effectuate the final power, where it is impossible to effectuate
the final power for doing something which although not provided in express
terms but nevertheless is required to be done. In such scenarios, the power by
virtue of the doctrine of implied powers will be supplied as a necessary
intendment of the legislation, to advance its object and avoid grave hardship.
The relevant observations read as under: -
“100. Undeterred, an attempt was made to fall back upon the
doctrine of implied powers to somehow vest in Section 34 Court a
power to modify the award. It is well settled that if a statute
conferring a power to be exercised on certain conditions, the
conditions prescribed are normally held to be mandatory and a
power inconsistent with those conditions is impliedly negatived.
No doubt, there is a principle in law that a Court must as far as
possible adopt a construction which effectuates the legislative
intent and purpose and that an express grant of a statutory power
carries with it by necessary implication the authority to use all
reasonable means to make such grant effective.
xxx xxx xxx
102. As is clear, the doctrine of implied powers is invoked to
effectuate the final power. Where it is impossible to effectuate the
final power unless something not authorized in express terms be
also done, in such an event, the power will be supplied by
necessary intendment as an exception. The exceptional situation
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is to advance the object of the legislation under consideration and
to avoid grave hardship.”
122. Reliance was also placed on the decision of Savitri v. Govind Singh Rawat ,
reported in (1985) 4 SCC 337 , wherein it was held that “ Whenever anything
is required to be done by law and it is found impossible to do that thing unless
something not authorised in express terms be also done then that something
else will be supplied by necessary intendment. Such a construction though it
may not always be admissible in the present case however would advance the
object of the legislation under consideration. A contrary view is likely to result
in grave hardship to the applicant, who may have no means passed to subsist
until the final order is passed .” It further, observed that “ Every court must be
deemed to possess by necessary intendment all such powers as are necessary
to make its orders effective. This principle is embodied in the maxim "ubi
aliquid conceditur, conceditur et id sine quo res ipsa esse non potest" (Where
anything is conceded, there is conceded also anything without which the thing
itself cannot exist) ”.
123. What can be discerned from the above is that the recourse to doctrine of
implied powers would be permissible, if without it, it is impossible to
effectuate a final power, and such exercise of implied power would effectuate
and advance the object of the legislation.
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124. Cox and Kings (I) (supra) has elaborately acknowledged the unique
complexities posed by contemporary business transactions to the traditional
framework of arbitration. Historically, arbitration gained prominence in the
context of straightforward and linear bilateral transactions under the
mercantile system of law. While over the past century, the nature of modern
commercial transactions has undergone a profound transformation with the
involvement of multifaceted obligations between multiple parties and
complex contractual structures more sophisticated than the linear parent‐
subsidiary type of organization, that has rendered the traditional dyadic
paradigms of business obsolete, particularly in areas such as construction
contracts, financing transactions, reinsurance contracts, the framework of
arbitration has, to a significant extent remained unchanged, leading to a
mismatch between procedural form and commercial substance.
125. For arbitration to remain a viable and effectively alternative mechanism for
dispute resolution, it is imperative to ensure that commercial reality does not
outgrow this mechanism. The mechanisms of arbitration must be sufficiently
elastic to accommodate the complexities of multi-party and multi-contract
arrangements without compromising foundational principles such as consent
and party autonomy. The approach of courts and arbitral tribunal in particular
Special Leave Petition (C) No. 21286 of 2024 Page 154 of 190
must be responsive to the emerging commercial practices and expectations of
the parties who submit themselves to it.
126. It was in this backdrop and the emerging best international practices that Cox
and Kings (I) (supra) recognized the applicability of the ‘Group of
Companies’ doctrine and other principles of determining mutual consent, to
bind even non-signatories to the arbitration agreement as parties, as long as
they were a veritable party and found to have impliedly consented to such
agreement. The legal basis of these principles were traced to not only the
object of the Act, 1996, but to the substantive provisions of Section(s) 2(1)(h)
and 7 thereto. However, mere recognition of this principles which ultimately
seeks to make the Indian arbitration law more responsive to the contemporary
requirements, would be a farce, if the power to actually effectuate such
principles, is not recognized, merely due to the absence of any explicit
provision in this regard. We are of the considered opinion, that recognition of
the power of joinder or impleadment of a non-signatory by an arbitral tribunal
is a necessary intendment of the express provisions of Section(s) 2(1)(h) and
7 and the overall scheme and object of the Act, 1996 as well as the
fundamental cannons of the law of arbitration of providing an effective
alternative dispute resolution mechanism.
Special Leave Petition (C) No. 21286 of 2024 Page 155 of 190
127. Thus, even in the absence of an express provisions in the Act, 1996
empowering the arbitral tribunal to implead or join a party who is otherwise
bound by the arbitration agreement, the arbitral tribunal does possess such
power by virtue of the doctrine of implied powers, as long as the same is in
tandem with the scheme of Act, 1996 i.e., as long as the parties had either
expressly or impliedly consented to the arbitration agreement as held in Cox
and Kings (I) (supra).
b. Doctrine of Kompetenz-Kompetenz and the Jurisdictional Reach of an
Arbitral Tribunal.
128. The aforesaid may be looked at from one another angle, through the ‘Always
Speaking’ statutory interpretation rule. The said rule dictates that the words of
a statute should be treated as ambulatory, speaking continuously in the present
and conveying a contemporary meaning. This approach entails that if things
not known or understood at the time when the enactment came into force, fall,
on a fair construction, within its words, those things should be held to be
included or intended by the statute. It lays that the context or application of a
statutory expression may change over time, but the meaning of the expression
itself cannot change’. It therefore provides for a statute to be applied to new
circumstances and developments without the need for legislative revision or
amendment. In other words, the core meaning of a statute is fixed but its
Special Leave Petition (C) No. 21286 of 2024 Page 156 of 190
context or application may change which is inherently capable of ‘embracing
future changes in the subject matter.
129. Historically, the rule of interpretation of statutes, was premised on the
understanding that statutes were to be construed in accordance with their
natural meaning as at the date of their enactment. It was based on the Latin
maxim “ contemporanea expositio est optima et fortissima in lege ” which
means “Contemporary exposition is the best and strongest in law”. However,
over time the courts started recognizing the problems underlying this
orthodoxic rule of interpretation. Sir Peter Benson Maxwell, On the
Interpretation of Statutes, ed Frederick Stroud (Sweet and Maxwell, 5th ed,
1912) explained that the use of “ contemporanea expositio est optima et
fortissima in lege ” for interpretation of statutes had largely been abandoned
except perhaps in the construction of ambiguous language used in very old
statutes where the language itself may have had a rather different meaning.
130. The modern approach to statutory interpretation insists that the context be
considered in the first instance, not merely at some later stage when ambiguity
might be thought to arise, and include such things as the existing state of the
law and the mischief which, by legitimate means such as reference to reports
of law reform bodies, one may discern the statute was intended to remedy.
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131. If close consideration of a statutory text in its wider context and by reference
to its purpose establishes that Parliament has deliberately chosen words to
provide for its application to new circumstances and developments then the
application of the ‘always speaking’ approach is judicially required. The
interpretive process with the ‘always speaking’ approach is, in essence, to put
the cart before the horse.
132. Section 16 of the Act, 1996, which enshrines the principle of “ kompetenz-
kompetenz ” could be said to be one such provision when seen in light of the
object of the Act, 1996, which requires the courts to adopt a pragmatic and
‘always speaking’ approach in its interpretation.
133. Section 16 of the Act, 1996 empowers the arbitral tribunal to rule on its own
jurisdiction. The policy rationale underlying this provision is twofold: first, to
respect and uphold the intention of the parties to resolve their disputes through
arbitration by empowering the forum they have contractually chosen; and
second, to prevent a fragmentation of proceedings through premature judicial
intervention, which can frustrate the efficacy of arbitration by causing delays
and fostering multiplicity of litigation.
134. The negative aspect of competence-competence is aimed at restricting the
interference of the courts at the referral stage by preventing the courts from
examining the issues pertaining to the jurisdiction of the arbitral tribunal
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before the arbitral tribunal itself has had the opportunity to entertain them
AND to also enable the arbitral tribunal to exercise necessary powers without
any dependency upon the national courts, with the courts taking a back-seat
and being permitted to review the exercise of power of the arbitral tribunal
and its decision at a later stage.
135. The legislative choice of the word “rule” in Section 16 is both deliberate and
significant. It does not merely suggest that the arbitral tribunal is competent to
“consider” or “review” questions of its jurisdiction, but rather that it is vested
with the authority to decisively adjudicate and pronounce upon such issues. It
connotes that the arbitral tribunal is not only competent to entertain
jurisdictional questions, but also capable — in terms of procedural and
substantive mandate — to exercise necessary power for effectually issuing
binding rulings thereon during the course of the proceedings. It endows the
tribunal with the necessary powers to formulate its ruling. It illustrates the
intention of the legislature to endow the arbitral tribunal with all powers and
jurisdictional reach for effectively deciding its jurisdiction, even where no
challenge is made by either parties, and to exercise the necessary powers for
making such rulings.
136. Redfern and Hunter on International Arbitration (5th edn, Oxford University
Press 2009), have observed that an arbitral tribunal’s jurisdiction is derived
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“ from the will of the parties to the arbitration agreement and therefore joinder
or intervention is generally only possible with the consent of all parties
concerned” and “ such consent may be either express, implied, or by reference
to a particular set of arbitration rules agreed to by the parties that provide for
joinder ” However, “ unlike litigation in state courts, in which third parties can
often be joined to proceedings, the jurisdiction of an arbitral tribunal to allow
for the joinder or intervention of third parties to an arbitration is limited” to
the arbitration agreement and parties bound by it.
137. Adavya Projects (supra) has observed that Section 16 of the Act, 1996 is
inclusive and covers all jurisdictional questions, including the existence and
validity of the arbitration agreement, who is a party to the arbitration
agreement, and the scope of disputes referrable to arbitration under the
agreement and thus, the arbitral tribunal’s jurisdiction must also be determined
against the touchstone of the arbitration agreement.
138. It is often loosely said that an arbitral tribunal does not have any jurisdiction
except what has been conferred by the parties. While the same may on the
surface be correct, however much significance of an arbitral tribunal's
jurisdiction often finds itself lost and obscured due to the semantics of the
above statement. The misconception arises when the acts of party is conflated
with the source of legal authority.
Special Leave Petition (C) No. 21286 of 2024 Page 160 of 190
139. The present case is a classic textbook example of this misconception. What
has ben argued by the appellants herein in so many words, is that since it was
never a party to the proceedings under Section 11 of the Act, 1996 before the
referral court, and the arbitral tribunal was constituted by the referral court
without arraying the appellant herein, the arbitral tribunal had no jurisdiction
later to implead it. The crux of this argument is that, the jurisdiction of the
arbitral tribunal is only confined to the act of the parties and the manner in
which the referral court, had constituted the arbitral tribunal. It stems from a
failure to appreciate that while the parties' conduct may set in motion the
arbitral process, it is not the determinant of the arbitral tribunal’s jurisdiction
in a legal sense. Rather, it is the arbitration agreement itself—once validly
concluded—that creates the jurisdictional foundation upon which the arbitral
edifice rests.
140. It erroneously presumes that jurisdiction is derived solely from the act of
appointment rather than from the arbitration agreement that preceded and
necessitated such appointment. The arbitration agreement, not the referral
court’s order nor the procedural formalities attendant to the tribunal’s
constitution, is the true source of jurisdiction. The act of the referral court in
constituting the arbitral tribunal is but an enabling mechanism to activate a
tribunal whose jurisdiction was already latent in the arbitration agreement
itself. This Court in M/s Arif Azim Co. Ltd. v. M/s Micromax Informatics
Special Leave Petition (C) No. 21286 of 2024 Page 161 of 190
Fze , wherein, one of us (J.B. Pardiwala J.) had had held that referral courts are
only a conduit or means to arbitration, and the sum and substance of the
arbitration has to be derived from the choices of the parties and their intentions
contained in the arbitration agreement.
141. The jurisdiction of an arbitral tribunal is not created by the mere subjective
intent or volition of the parties. Rather, it is the arbitration agreement —a
legally cognisable and objective instrument—that operates as the foundational
source of jurisdiction in the eyes of the law. Just as the creation of a property
automatically vests jurisdiction in the territorial courts competent to
adjudicate over such property, the conclusion of an arbitration agreement ipso
jure brings into existence the jurisdiction of the arbitral tribunal. This
jurisdiction exists in a de jure sense from the moment the arbitration
agreement is validly executed, regardless of whether the tribunal has been
formally constituted.
142. In other words, it is not the tribunal’s subsequent constitution through
procedural steps — whether by the parties themselves or by the intervention
of a court under Section 11 of the Act, 1996 — that bestows jurisdiction upon
it. Rather, such procedural mechanisms merely activate or operationalise a
jurisdiction that is already in existence by virtue of the arbitration agreement.
The arbitral tribunal, upon being constituted, steps into an already established
legal framework of jurisdiction, rooted in the consensual and binding nature
Special Leave Petition (C) No. 21286 of 2024 Page 162 of 190
of the arbitration agreement. The arbitral tribunal is not a creature of mere
procedural will but of substantive legal consequence flowing from the
arbitration agreement. To hold otherwise would be to invert the fundamental
cannons of law of arbitration which treats the arbitration agreement as the
cornerstone of arbitral competence.
143. It was in this background, that Adavya Projects (supra) held, and rightly so,
that the jurisdiction of the arbitral tribunal to implead a person depends on
whether such person is a party to the arbitration agreement.
c. Requirement of Notice of Invocation under Section 21 of the Act, 1996.
144. At this juncture, it would apposite to explain the modalities for the exercise of
such power of joinder / impleadment by an arbitral tribunal. The appellant
herein has vehemently contended that even if it is assumed that it is bound by
the arbitration agreement, the impugned order is nevertheless liable to be set-
aside, inasmuch as the appellant herein has been improperly arrayed as a party
to the arbitration solely on the basis of a separate statement of claim / counter-
claim filed by respondent no. 1, without the issuance of any notice of
invocation as mandated under Section 21 of the Act, 1996. It was argued that
once the arbitral tribunal had been constituted for the dispute between the
respondent no. 1 and 3 herein, if at all the respondent no. 1 was of the opinion
Special Leave Petition (C) No. 21286 of 2024 Page 163 of 190
that the appellant herein was bound by the arbitration agreement, it ought to
have impleaded it by initiating an independent, fresh arbitration proceedings
by first issuing a notice under Section 21 of the Act, 1996, and only thereafter
filing a statement of claim against the appellants herein, rather than proceeding
to implead it directly on the basis of a purported statement of claim in the
arbitration proceedings that had been originally commenced solely between
BCSPL and SPCL, i.e., respondent nos. 1 and 3 respectively, with no prior or
contemporaneous invocation or commencement of arbitration viz-à-viz the
appellant. According to the appellant, this approach not only contravenes the
procedural mandate of the Act, 1996, more particularly, the purpose of Section
21 but also undermines the principles of natural justice and party consent,
which lie at the heart of consensual arbitration.
145. The marginal note appended to Section 21 of the Act, 1996 makes it
abundantly clear, that the notice to be issued thereunder is for the purpose of
“ commencement of arbitration proceedings ”. The substantive provision
further makes it clear that, the date on which a request / notice of invocation
for referring a dispute is received by the respondent, would the date on which
the arbitral proceedings in respect of a particular dispute commences. The
words “particular dispute” assumes significance in the interpretation of this
provision and its underlying object. It indicates that the provision is concerned
only with determining when arbitration is deemed to have commenced for the
specific dispute mentioned in the notice. The language in which the said
Special Leave Petition (C) No. 21286 of 2024 Page 164 of 190
provision is couched is neither prohibitive or exhaustive insofar as reference
of any other disputes which although not specified in the notice of invocation
yet, nonetheless falls within the scope of the arbitration agreement. The term
“particular dispute”, does not mean all disputes, nor does it confine the
jurisdiction of the arbitral tribunal which is said to be one emanating from the
‘arbitration agreement’ to only those disputes mentioned in the notice of
invocation, as it would tantamount to reading a restriction into the jurisdiction
of the arbitral tribunal to the bounds of the notice of invocation instead of the
arbitration agreement. Thus, there is no inhibition under Section 21 of the Act,
1996 for raising any other dispute or claim which is covered under the
arbitration agreement in the absence of any such notice. Section 21 is
procedural rather than jurisdictional — it does not serve to create or validate
the arbitration agreement itself, nor is it a precondition for the existence of the
tribunal's jurisdiction, but merely operates as a statutory mechanism to
ascertain the date of initiation for reckoning limitation.
146. The aforesaid is further fortified from the distinct manner in which the scheme
of the Act, 1996 treats and refers to a ‘notice of invocation’ under Section 21
and the subsequent filing of a ‘statement of claim’ or ‘counter-claim’ under
the Section 23. Section 23 of the Act, 1996 reads as under: -
23. Statements of claim and defence.—
(1) Within the period of time agreed upon by the parties or
determined by the arbitral tribunal, the claimant shall state the
Special Leave Petition (C) No. 21286 of 2024 Page 165 of 190
facts supporting his claim, the points at issue and the relief or
remedy sought, and the respondent shall state his defence in
respect of these particulars, unless the parties have otherwise
agreed as to the required elements of those statements.
(2) The parties may submit with their statements all documents
they consider to be relevant or may add a reference to the
documents or other evidence they will submit.
(2A) The respondent, in support of his case, may also submit a
counterclaim or plead a set-off, which shall be adjudicated upon
by the arbitral tribunal, if such counterclaim or set-off falls within
the scope of the arbitration agreement.
(3) Unless otherwise agreed by the parties, either party may
amend or supplement his claim or defence during the course of the
arbitral proceedings, unless the arbitral tribunal considers it
inappropriate to allow the amendment or supplement having
regard to the delay in making it.
(4) The statement of claim and defence under this section shall be
completed within a period of six months from the date the
arbitrator or all the arbitrators, as the case may be, received
notice, in writing of their appointment.
147. Section 23 sub-section (1) places an obligation upon the claimant to state the
facts supporting his “claim”, the points at issue and the relief or remedy sought
by way of its statement of claim, before the arbitral tribunal. Notably, the
legislature, in the first part of the said sub-section, has deliberately and
consciously used the term “claim” as opposed to “particular dispute”
employed in Section 21 of the Act, 1996. Although, it could said that the term
“particular dispute” under Section 21 connotes a larger umbrella within which
the term “claim” under Section 23 would be subsumed, thereby suggesting
that there is no scope to deviate from what was sought to be referred by the
Special Leave Petition (C) No. 21286 of 2024 Page 166 of 190
notice of invocation, we do not think so. We say so because, the requirement
for providing the points at issue and the relief or remedy sought that exists in
sub-section (1) of Section 23 of the Act, 1996 is patently absent in Section 21
of the Act, 1996, which clearly shows that the scope and object of these two
provisions are at variance to each other. Further this, sub-section does not
stipulate either explicitly or implicitly, that such “claim” must be the same or
in tandem with the “particular dispute” in respect of which the notice of
invocation was issued under Section 21 of the Act, 1996. This distinction in
terminology is neither incidental nor redundant; rather, it reflects a conscious
legislative design to demarcate the procedural objective of Section 21 from
the substantive function served by Section 23. Unlike Section 23, Section 21
does not require any articulation of the relief sought or the framing of issues
—its sole purpose is to indicate when arbitration is deemed to have
commenced, for the limited purpose of computing the limitation period.
148. This is further fortified from the fact that nowhere does the Act, 1996 lay down
any specific format or form of notice under Section 21 of the Act, 1996, or
any strict requirement of the contents to be stipulated therein. This was noticed
by this Court in Milkfood Ltd. v. GMC Ice Cream (P) Ltd. reported in (2004)
7 SCC 288 , wherein it was held that Section 21 of the Act, 1995 must be
construed in tune with its analogous counter-part provisions of Article 21 of
the UNCITRAL Model Law read with Article 3 of the UNCITRAL
Special Leave Petition (C) No. 21286 of 2024 Page 167 of 190
Arbitration Rules and Section 14 of the English Arbitration Act, 1996 wherein
at least the form of notice and strict adherence thereto has become redundant
due to the absence of any specific form or requirement of such notice. The
relevant observations read as under: -
“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. [...]”
149. Similarly, sub-section (2) of Section 23, which enables the respondent to make
a counter-claim or plead set-off, does not envisage any requirement that such
counter-claim or set-off must be in respect of or correspond to the “particular
dispute” in terms of Section 21 of the Act, 1996, thus, suggesting the
legislature’s intention to give a wide import to the term “claim” and by
extension “counter-claim”. In order to further obviate any confusion in respect
of what claims can be raised, Section 23 sub-section (3) goes one step ahead
and stipulates that, unless agreed otherwise by the parties, any party may
amend or supplement its “claim” during the course of the arbitral proceedings,
and further, that such amendment or supplement may be rejected only if the
Special Leave Petition (C) No. 21286 of 2024 Page 168 of 190
arbitral tribunal considers it inappropriate for one and only one reason, that
being, the delay in making or seeking such amendment or supplement. What
can be discerned from the above is that there is no restriction whatsoever, in
the plain words of Section 23 of the Act, 1996, which would be indicative of
an inhibition in raising those claims or counter-claims etc., that have no
bearing with the notice of invocation under Section 21 of the Act, 1996.
150. The language used in Section 23 of the Act, 1996 makes no reference
whatsoever, either explicitly to the provision of Section 21 or the particular
words used thereunder, that would be suggestive of any correlation between
the two provisions. On the contrary, the singular ground that has been
mentioned in Section 23 sub-section (3) upon which an amendment or
supplement of claim may be rejected by the arbitral tribunal i.e., if it is deemed
inappropriate due to delay, is a positive indicium that that no restriction can
be read into the scope of claims that may be raised in the statement of claim
or counter-claim beyond what was stipulated in the notice of invocation under
Section 21 of the Act, 1996. Any limitation or restriction on the scope of a
statement of claim or a counter-claim as the case may be, has to be understood
not from the provision of Section 21 but only from the explicit language used
in Section 23 of the Act, 1996.
Special Leave Petition (C) No. 21286 of 2024 Page 169 of 190
151. Any restriction on the nature or content of claims, counter-claims, or set-offs
in arbitration must be sourced solely from the express language of Section 23
and not from Section 21. Section(s) 21 and 23 of the Act, 1996 although
overlap in some aspects with each other in terms of the claims that would
ordinarily be referred to the tribunal more often than not tend to coincide, yet
they are by no means tethered together in such a manner that neither of them
can survive without one another. The latter serves only a procedural function
and does not condition or limit the tribunal’s jurisdiction to adjudicate claims
that may not have been specifically invoked at the threshold stage. To read
such a limitation into the statutory scheme would run contrary to both the text
and the object of the Act.
152. In Milkfood (supra) this Court was called upon the examine the object
underlying Section 21 of the Act, 1996. This Court after a comprehensive
examination of a catena of decisions, both under the English Law and
pertaining to the Act, 1996, held that the purpose of a notice under Section 21
of the Act, 1996 is for the applicability of the provisions of the Limitation Act,
1963 in terms of Section 43 of the Act, 1996 to the claims sought to be referred
to arbitration and when can an appointment of an arbitrator be sought in terms
of Section 11 of the Act, 1996. It explained that the date when arbitration
proceeding commences would be relevant for the purpose of attracting the
Special Leave Petition (C) No. 21286 of 2024 Page 170 of 190
Limitation Act, 1963 or for the purpose of time bar clauses or for the rules
applicable in terms of the arbitration agreement, such as for setting into motion
the conflict of laws when the proper law of the contract is one law and the law
of the arbitral procedure is another. Lastly, that this “commencement of
arbitration proceeding” by Section 21 of the Act, 1996 would also be relevant
for of applicability of the 1940 Act having regard to Section 85(2)(a). Apart
from the aforesaid, no other relevancy of Section 21 of the Act, 1996 was laid
down by this Court, much less for the purposes of Section 23 thereunder. The
relevant observations read as under: -
“26. The commencement of an arbitration proceeding for the
purpose of applicability of the provisions of the Indian Limitation
Act is of great significance. Even Section 43(1) of the 1996 Act
provides that the Limitation Act, 1963 shall apply to the
arbitration as it applies to proceedings in court. Sub-section (2)
thereof provides that for the purpose of the said section and the
Limitation Act, 1963, an arbitration shall be deemed to have
commenced on the date referred to in Section 21.
29. For the purpose of the Limitation Act an arbitration is deemed
to have commenced when one party to the arbitration agreement
serves on the other a notice requiring the appointment of an
arbitrator. This indeed is relatable to the other purposes also, as,
for example, see Section 29(2) of (English) Arbitration Act, 1950.
30. The date when arbitration proceeding commences would
depend upon various factors and the purposes which it seeks to
achieve. It may be for the purpose of attracting the Limitation Act
or for the purpose of time bar clauses or for the rules applicable
therefor, as, for example, the rules of the International Chamber
of Commerce.
31. The date of commencement of an arbitration also affects the
position under the conflict of laws when the proper law of the
contract is one law and the law of the arbitral procedure is
Special Leave Petition (C) No. 21286 of 2024 Page 171 of 190
another, for then, up to the date of commencement of the
arbitration proceeding, the law of the contract must govern, and
the law of the procedure will only govern thereafter. [...]
32. Sections 14(3) and (5) of the (English) Arbitration Act, 1996
would also show that commencement of arbitral proceeding is not
only for the purpose of limitation but also for the purpose of
considering a case when the parties by their contract agree that
the arbitration must be commenced within a specified time, failing
which the right to arbitration, or indeed the claim itself, is apt to
be barred. Determination of time elements in an arbitration is
provided for in Section 21 of the 1996 Act clearly indicating as to
when such arbitration has officially begun.
72. Keeping in view the fact that in all the decisions, referred to
hereinbefore, this Court has applied the meaning given to the
expression “commencement of the arbitral proceeding” as
contained in Section 21 of the
1996 Act for the purpose of applicability of the 1940 Act having
regard to Section 85(2)(a) thereof, we have no hesitation in
holding that in this case also, service of a notice for appointment
of an arbitrator would be the relevant date for the purpose of
commencement of the arbitration proceeding.”
(Emphasis supplied)
153. Remarkably, Milkfood (supra) observes that both under Article 21 of the
UNCITRAL Model Law and by extension Section 21 of the Act, 1996, what
is necessary in a notice or request under the said proiviosn, is the indication
that the claimant seeks arbitration of the dispute. This Court consciously did
not hold that such indication must be of what all disputes is sought to be
referred to arbitration. The relevant observations read as under: -
“27. Article 21 of the Model Law which was modelled on
Article 3 of the UNCITRAL Arbitration Rules had been adopted
for the purpose of drafting Section 21 of the 1996 Act. Section 3
of the 1996 Act provides for as to when a request can be said to
have been received by the respondent. Thus, whether for the
Special Leave Petition (C) No. 21286 of 2024 Page 172 of 190
purpose of applying the provisions of Chapter II of the 1940 Act
or for the purpose of Section 21 of the 1996 Act, what is necessary
is to issue/serve a request/notice to the respondent indicating that
the claimant seeks arbitration of the dispute.”
(Emphasis supplied)
154. The aforesaid observations of Milkfood (supra) when read in conjunction with
the other observations made therein, more particularly paragraph 32, shows
that this Court consistently held that the purpose of Section 21 of the Act, 1996
is for the determination of various time elements in an arbitration.
155. In State of Goa v. Praveen Enterprises reported in (2012) 12 SCC 581 , this
Court elucidated the limited but important function of Section 21 of the Act,
1996. It held that, in the absence of any contrary stipulation in the arbitration
agreement, the purpose of a notice under Section 21 is only to demarcate the
commencement of arbitral proceedings with respect to a particular dispute.
The issuance of such notice serves primarily to establish a definite point in
time when the arbitral proceedings are in the eyes of law said to have
commenced for the purpose of calculating and reckoning the period of
limitation for the substantive claims therein. It was further held that once
arbitral proceedings have commenced, the claimant is not precluded from
raising additional claims that were not mentioned in the original notice of
invocation under Section 21 of the Act, 1996. Such claims may be introduced
for the first time in the statement of claim, without necessitating a fresh notice
Special Leave Petition (C) No. 21286 of 2024 Page 173 of 190
of invocation. The only caveat, however, is that the limitation period for these
additional claims shall be computed from the date on which they are actually
raised in the proceedings. Similarly, in the case of counter-claims as-well,
there is no need to establish a date of ‘commencement’ by issuing a notice
under Section 21 of the Act, 1996, as the period of limitation would be
reckoned from the date on which the counterclaim is made before the
arbitrator, except where such claim was initially raised by a notice under
Section 21 but subsequently raised as a counter-claim instead. The relevant
observations read as under: -
“ 15. Taking a cue from the said section, the respondent submitted
that arbitral proceedings can commence only in regard to a
dispute in respect of which notice has been served by a claimant
upon the other party, requesting such dispute to be referred to
arbitration; and therefore, a counterclaim can be entertained by
the arbitrator only if it has been referred to him, after a notice
seeking arbitration in regard to such counterclaim. On a careful
consideration we find no basis for such a contention.
16. The purpose of Section 21 is to specify, in the absence of a
provision in the arbitration agreement in that behalf, as to when
an arbitral proceeding in regard to a dispute commences. This
becomes relevant for the purpose of Section 43 of the Act. Sub-
section (1) of Section 43 provides that the Limitation Act, 1963
shall apply to arbitrations as it applies to proceedings in courts.
Sub-section (2) of Section 43 provides that for the purposes of
Section 43 and the Limitation Act, 1963, an arbitration shall be
deemed to have commenced on the date referred to in Section 21
of the Act. Having regard to Section 43 of the Act, any claim made
beyond the period of limitation prescribed by the Limitation Act,
1963 will be barred by limitation and the Arbitral Tribunal will
have to reject such claims as barred by limitation.
xxx xxx xxx
Special Leave Petition (C) No. 21286 of 2024 Page 174 of 190
18. In regard to a claim which is sought to be enforced by filing a
civil suit, the question whether the suit is within the period of
limitation is decided with reference to the date of institution of the
suit, that is, the date of presentation of a plaint. As the Limitation
Act, 1963 is made applicable to arbitrations, there is a need to
specify the date on which the arbitration is deemed to be instituted
or commenced as that will decide whether the proceedings are
barred by limitation or not. Section 3 of the Limitation Act, 1963
specifies the date of institution for suit, but does not specify the
date of “institution” for arbitration proceedings. Section 21 of the
Act supplies the omission. But for Section 21 there would be
considerable confusion as to what would be the date of
“institution” in regard to the arbitration proceedings. It will be
possible for the respondent in an arbitration to argue that the
limitation has to be calculated as on the date on which statement
of claim was filed, or the date on which the arbitrator entered
upon the reference, or the date on which the arbitrator was
appointed by the court, or the date on which the application was
filed under Section 11 of the Act. In view of Section 21 of the Act
providing that the arbitration proceedings shall be deemed to
commence on the date on which “a request for that dispute to be
referred to arbitration is received by the respondent” the said
confusion is cleared. Therefore, the purpose of Section 21 of the
Act is to determine the date of commencement of the arbitration
proceedings, relevant mainly for deciding whether the claims of
the claimant are barred by limitation or not.
19. There can be claims by a claimant even without a notice
seeking reference. Let us take an example where a notice is issued
by a claimant raising disputes regarding Claims A and B and
seeking reference thereof to arbitration. On appointment of the
arbitrator, the claimant files a claim statement in regard to the
said Claims A and B. Subsequently if the claimant amends the
claim statement by adding Claim C [which is permitted under
Section 23(3) of the Act] the additional Claim C would not be
preceded by a notice seeking arbitration. The date of amendment
by which Claim C was introduced, will become the relevant date
for determining the limitation in regard to the said Claim C,
whereas the date on which the notice seeking arbitration was
served on the other party, will be the relevant date for deciding
the limitation in regard to Claims A and B. Be that as it may.
Special Leave Petition (C) No. 21286 of 2024 Page 175 of 190
20. As far as counterclaims are concerned, there is no room for
ambiguity in regard to the relevant date for determining the
limitation. Section 3(2)(b) of the Limitation Act, 1963 provides
that in regard to a counterclaim in suits, the date on which the
counterclaim is made in court shall be deemed to be the date of
institution of the counterclaim. As the Limitation Act, 1963 is
made applicable to arbitrations, in the case of a counterclaim by
a respondent in an arbitral proceeding, the date on which the
counterclaim is made before the arbitrator will be the date of
“institution” insofar as counterclaim is concerned. There is,
therefore, no need to provide a date of “commencement” as in the
case of claims of a claimant. Section 21 of the Act is therefore not
relevant for counterclaims. There is however one exception.
Where the respondent against whom a claim is made, had also
made a claim against the claimant and sought arbitration by
serving a notice to the claimant but subsequently raises that claim
as a counterclaim in the arbitration proceedings initiated by the
claimant, instead of filing a separate application under Section 11
of the Act, the limitation for such counterclaim should be
computed, as on the date of service of notice of such claim on the
claimant and not on the date of filing of the counterclaim.”
(Emphasis supplied)
156. In Adavya Projects (supra) this Court held that the purpose of a notice under
Section 21 of the Act, 1996 is only to fulfilled the various time-related objects
pertaining to the arbitration and the arbitration agreement. The relevant
observation reads as under: -
“11. It is clear that by fixing the date of commencement of arbitral
proceedings by anchoring the same to a notice invoking
arbitration, Section 21 of the ACA fulfils various objects that are
time-related. The receipt of such notice is determinative of the
limitation period for substantive disputes as well as the Section 11
application, and also the law applicable to the arbitration
proceedings.”
(Emphasis supplied)
Special Leave Petition (C) No. 21286 of 2024 Page 176 of 190
157. Adavya Projects (supra) explained the aforesaid object of a notice under
Section 21 of the Act, 1996 in four parts: -
(i) First, that the plain language of Section 21 of the Act, 1996 does not
expressly mandate the claimant to send a notice invoking arbitration to
the respondents, instead what it mandates is the receipt of such notice
for a ‘commencement of arbitral proceedings” in terms of the Act, 1996,
unless agreed otherwise. The relevant observations read as under: -
“9. A plain reading of the provision shows that in the
absence of an agreement between the parties, arbitral
proceedings are deemed to have commenced when the
respondent receives a request to refer disputes to
arbitration. It is clear that Section 21 does not expressly
mandate the claimant to send a notice invoking arbitration
to the respondents. However, the provision necessarily
mandates such notice as its receipt by the respondent is
required to commence arbitral proceedings, unless the
parties have mutually agreed on another date/event for
determining when the arbitral proceedings have
commenced.”
(Emphasis supplied)
(ii) Secondly, placing reliance on Milkfood (supra) it held that the date of
receipt of the Section 21 notice is also used to determine whether a
dispute has been raised within the limitation period as specified in the
Schedule to the Limitation Act, 1963. The relevant observations read as
under: -
“10.1 First, the notice is necessary to determine whether
claims are within the period of limitation or are time-
barred. Section 43(1) of the ACA stipulates that the
Limitation Act, 1963 shall apply to arbitrations as it applies
Special Leave Petition (C) No. 21286 of 2024 Page 177 of 190
to court proceedings. Further, Section 43(2) provides that
for the purpose of the Limitation Act, an arbitration shall
be deemed to have commenced on the date referred to in
Section 21. Hence, the date of receipt of the Section 21
notice is used to determine whether a dispute has been
raised within the limitation period as specified in the
Schedule to the Limitation Act, as held by this Court in
Milkfood Ltd. v. GMC Ice Cream (P) Ltd.5 and State of Goa
v. Praveen Enterprises.”
(Emphasis supplied)
(iii) Thirdly, that as held in Milkfood (supra) the date of receipt of such
notice is also relevant for determining either (1) when the lex-arbitri or
the law governing the arbitration agreement would apply or (2) for
ascertaining the applicability of Arbitration Act, 1940 and Foreign
Awards (Recognition and Enforcement) Act, 1961 to arbitral
proceedings commenced prior to the Act, 1996 in terms of Section
85(2)(a) thereunder. The relevant observations read as under: -
“10.2 Second, the date of receipt of notice is also relevant
to determine the applicable law to the arbitral proceedings.
This can be understood in two senses: (i) When the arbitral
proceedings are governed by a law that is different from the
proper law of the contract, the governing law applies only
after the arbitral proceedings have commenced, as held in
Milkfood Ltd (supra). And, (ii) Section 85(2)(a) of the ACA
provides that the Arbitration Act, 1940 and Foreign Awards
(Recognition and Enforcement) Act, 1961 will apply to
arbitral proceedings that commenced prior to the ACA
coming into force, unless otherwise agreed by the parties.
Hence, the date of invoking arbitration is necessary to
determine which arbitration law applies to the proceedings
as per the decisions in Milkfood Ltd (supra) and Geo-Miller
& Co (P) Ltd. v. Chairman, Rajasthan Vidyut Utpadan
Nigam Ltd. Similarly, the applicability of amendments to
the ACA to arbitral proceedings is determined by reference
Special Leave Petition (C) No. 21286 of 2024 Page 178 of 190
to the date on which such proceedings commenced as per
Section 21.”
(Emphasis supplied)
(iv) Fourthly, in terms of Nortel Networks (supra), it is also relevant for
determining the ‘failure’ on part of any party to the arbitration
agreement in appointment of an arbitrator to avail the remedy under
Section 11 of the Act, 1996 and for the purpose of reckoning the
limitation period for filing an application thereunder for seeking
appointment of the arbitration through a referral court. The relevant
observations read as under: -
“10.3 Third, an application before the High Court or this
Court under Section 11(6) of the ACA for appointment of
arbitrator can be filed only after the respondent has failed
to act as per the appointment procedure in the arbitration
agreement. Hence, invocation of arbitration as provided in
Section 21, and the subsequent failure of the respondent to
appoint its arbitrator or agree to the appointment of a sole
arbitrator as provided in Sections 11(4) and 11(5), are
necessary for invoking the court’s jurisdiction under
Section 11. This is as per the decision of this Court in BSNL
v. Nortel Networks (India) (P) Ltd. Further, the limitation
period within which the Section 11 application must be filed
is also calculated with reference to the date on which the
appointment procedure under the arbitration agreement
fails.”
(Emphasis supplied)
Special Leave Petition (C) No. 21286 of 2024 Page 179 of 190
158. Adavya Projects (supra) placing reliance on Praveen Enterprises (supra)
further held that there is nothing in the wording of the provision or the scheme
of the Act, 1996 that would indicate that a party to an arbitration agreement –
signatory or non-signatory – cannot be impleaded to the arbitral proceedings,
merely because no notice under Section 21 was served on them. Non-service
of the notice under Section 21 and the absence of a dispute being raised against
certain parties therein would not bar their impleadment into the arbitration
proceedings. The relevant observations read as under: -
“12. [...] However, there is nothing in the wording of the provision
or the scheme of the ACA to indicate that merely because such
notice was not served on respondent nos. 2 and 3, they cannot be
impleaded as parties to the arbitral proceedings. The relevant
considerations for joining them as parties to the arbitration will
be discussed at a later stage.
13. At this point, it is important to note this Court’s decision in
State of Goa v. Praveen Enterprises (supra) wherein it was held
that the claims and disputes raised in the notice under Section 21
do not restrict and limit the claims that can be raised before the
arbitral tribunal. The consequence of not raising a claim in the
notice is only that the limitation period for such claim that is
raised before the arbitral tribunal for the first time will be
calculated differently vis-a-vis claims raised in the notice.
However, non inclusion of certain disputes in the Section 21 notice
does not preclude a claimant from raising them during the
arbitration, as long as they are covered under the arbitration
agreement. Further, merely because a respondent did not issue a
notice raising counter-claims, he is not precluded from raising the
same before the arbitral tribunal, as long as such counter-claims
fall within the scope of the arbitration agreement.
14. A similar rationale may be adopted in this case as well,
especially considering the clear purpose served by a Section 21
notice. Extending this logic, non-service of the notice under
Section 21 and the absence of disputes being raised against
Special Leave Petition (C) No. 21286 of 2024 Page 180 of 190
respondent nos. 2 and 3 in the appellant’s notice dated 17.11.2020
do not automatically bar their impleadment as parties to the
arbitration proceedings.
xxx xxx xxx
21. [...] it is clear that not being served with a Section 21 notice
and not being made a party in the Section 11 application are not
sufficient grounds to hold that a person cannot be made party to
arbitral proceedings.”
(Emphasis supplied)
159. It is noteworthy to mention that Adavya Projects (supra) acknowledge that
although the decision of the Delhi High Court in Alupro Building Systems Pvt
Ltd. v. Ozone Overseas Pvt Ltd reported in 2017 SCC OnLine Del 7228 , is
correct insofar as it hold that some the functions that a notice under Section
21 of the Act, 1996 serves inter-alia includes (i) informing the other party as
to the claims, which will enable them to accept or dispute the claims; (ii)
enabling the other party to point out if certain claims are time barred, barred
by law, or untenable, or if there are counter-claims; (iii) for arriving at a
consensus for appointment of arbitrators under the arbitration agreement; (iv)
for proposing an arbitrator, to enable the other party to raise any
objections/issues regarding qualification; (v) or for triggering the court’s
jurisdiction under Section 11 in case the appointment procedure fails; and (vi)
for fixing the date of commencement of arbitration for the purpose of Section
43(1), yet the decision of Alupro Building Systems (supra) cannot be
construed to have held that hat the notice under Section 21 is a mandatory
Special Leave Petition (C) No. 21286 of 2024 Page 181 of 190
requirement before a person can be made party to arbitral proceedings.
Adavya Projects (supra) held that while a notice under Section 21 is
mandatory, the non-service of such notice on a party would not nullify the
arbitral tribunal’s jurisdiction over such party. The other purposes served by
such notice as delineated by Alupro Building Systems (supra) are only
incidental and secondary, and the primary purpose of such notice is only to
the extent of determination of various time elements in an arbitration. The
relevant observations read as under: -
“30. The Delhi High Court in Alupro Building Systems Pvt Ltd. v.
Ozone Overseas Pvt Ltd. allowed an application under Section 34
of the ACA against an award passed by an arbitrator who was
unilaterally appointed by the respondent therein, without issuing
a notice to the petitioner therein under Section 21 of the ACA. The
High Court proceeded to delineate the various functions served by
a Section 21 notice as follows: (i) To inform the other party as to
the claims, which will enable them to accept or dispute the claims;
(ii) To enable the other party to point out if certain claims are time
barred, barred by law, or untenable, or if there are counter-
claims; (iii) For arriving at a consensus for appointment of
arbitrators under the arbitration agreement; (iv) For parties to
inform each other about their proposed arbitrator, to enable the
other party to raise any objections/issues regarding qualification;
(v) To trigger the court’s jurisdiction under Section 11 in case the
appointment procedure fails; and (vi) To fix the date of
commencement of arbitration for the purpose of Section 43(1).
30.1 The decision in Alupro Building Systems (supra) has been
relied on by the High Court in its impugned order to hold that the
notice under Section 21 is a mandatory requirement before a
person can be made party to arbitral proceedings.
30.2 While we agree with the decision insofar as holding that the
notice under Section 21 is mandatory, unless the contract provides
otherwise, we do not agree with the conclusion that non-service of
such notice on a party nullifies the arbitral tribunal’s jurisdiction
Special Leave Petition (C) No. 21286 of 2024 Page 182 of 190
over him. The purpose of the Section 21 notice is clear – by fixing
the date of commencement of arbitration, it enables the
calculation of limitation and it is a necessary precondition for
filing an application under Section 11 of the ACA. The other
purposes served by such notice – of informing the respondent
about the claims, giving the respondent an opportunity to admit
and contest claims and raise counter-claims, and to object to
proposed arbitrators – are only incidental and secondary. We
have already held that the contents of the notice do not restrict the
claims, and any objections regarding limitation and
maintainability can be raised before the arbitral tribunal, and the
ACA provides mechanisms for challenging the appointment of
arbitrators on various grounds. Hence, while a Section 21 notice
may perform these functions, it is not the primary or only
mechanism envisaged by the ACA.”
(Emphasis supplied)
160. In light of the decision of this Court in Adavya Projects (supra) and a catena
of other decisions as-well as the scope and object of Section 21 of the Act,
1996 in contrast to Section 23 as explained by us in the foregoing paragraphs,
mere non-service of a notice of invocation on a party would not nullify the
arbitral tribunal’s jurisdiction over such party, and that such party can be
impleaded and arrayed in the arbitration proceedings if any claim or counter-
claim is made against such party by the claimant in statement of claims or
counter-claims, or by even amending the memo of parties of the putative
statement of claims counter-claims filed by it, provided that such party is
found to be bound by the arbitration agreement either by virtue of it being a
signatory, or where such party is a non-signatory, in terms of the decision of
Cox and Kings (I) (supra) as explained by us.
Special Leave Petition (C) No. 21286 of 2024 Page 183 of 190
161. In the case on hand, as mentioned earlier, the Tribunal has by way of two
separate orders passed in Section 16 Applications filed by BCSPL, in the first
round, and AISPL and ABPL, in the second round ruled on its jurisdiction and
added AISPL and ABPL to the array of parties in the proceedings. This
determination under the principle of ‘ kompetenz-kompetenz ’ enshrined in
Section 16 of the 1996 Act must be permitted to take its course, given that the
arbitral proceedings are in any case nearing conclusion.
162. The High Court in its impugned judgment while upholding the Arbitrator’s
Orders, has rightly held that ABPL, BCSPL and AISPL ‘fall under the same
management, and it appears that the substitution in the contract, took place
merely for convenience...’. Further, ‘all the correspondence is in respect of the
contract with ASF and ASF Group of Companies. There is no differentiation
between BCSPL, AISPL, or ABPL, all of which are part of the ASF Group.’.
In arriving at its conclusion, the High Court correctly applied the test laid
down in Cox and Kings Ltd. (I) (supra), taking note of the communications
exchanged, conduct of the ASF Group officials, active involvement of the
appellant with contractual obligations, intertwined nature of the agreements
involving BCSPL, AISPL, and ABPL and the composite business operations.
Special Leave Petition (C) No. 21286 of 2024 Page 184 of 190
163. The conclusion reached by the Arbitral Tribunal and the High Court is
premised on the following: -
(i) SPCPL had made out a case supported by material, which cannot be
rejected at the preliminary stage, that AISPL and ABPL are inextricably
linked to and operationally holding control over the performance of the
Works Contract and Settlement Agreement which are the subject matter
of the arbitral proceedings.
(ii) SPCPL had rightly invoked the doctrine of Group of Companies to
justify inclusion of the non-signatories.
(iii) Having regard to the chronology of events leading to the execution of
the Settlement Agreement, prima facie, both ASPL and ABPL are
proper parties, if not necessary, even to the claim of BCSPL.
(iv) The High Court, in particular, noted the factor of mutual intent, the
same demonstrated by AISPL and ABPL; substantial involvement in
the negotiations, performance, and termination of the various contracts
entered into between the parties. The continuous use of ASF insignia
and the participation of ASF Group officials in correspondences
indicate that all entities within the ASF Group intended to be bound by
the same arbitration agreement.
(v) AISPL and ABPL, as subsidiaries within the ASF Group, have a direct
relationship with BCSPL. They all have common directors, if not the
same directors. Their interconnected roles in the Black Canyon project,
Special Leave Petition (C) No. 21286 of 2024 Page 185 of 190
as evidenced by their involvement in securing demobilization by
SPCPL and other contractual obligations, highlight this relationship.
(vi) The Works Contract, the Novation Agreement, the Settlement
Agreement, and the Comfort Letter all pertain to the same
redevelopment project of the Black Canyon project. The shared subject
matter across these agreements establishes a ‘commonality’ that
justifies the inclusion of AISPL and ABPL in the arbitration
proceedings. Further, the various transactions entered into the between
the parties must form a cohesive whole, indicating that they cannot be
viewed in isolation. The intertwined nature of the agreements involving
BCSPL, AISPL, and ABPL demonstrates that these transactions form a
composite whole. The responsibilities across the ASF Group entities
reflect a composite business operation.
164. The judicial trend is that all issues should be before the Arbitral Tribunal and
the power under Section 11 sub-section (6A) is restricted to examination of
the existence of an arbitration agreement. The concept of a ‘reference’ as it
existed under the Arbitration Act, 1940 does not find itself in the 1996 Act.
Once the Arbitral Tribunal stands appointed, all disputes and issues are to be
decided by it as a ‘one-stop forum’ for adjudication. [See: Gammon India Ltd.
v. NHAI, reported in 2020 SCC OnLine Del 659 ]
Special Leave Petition (C) No. 21286 of 2024 Page 186 of 190
165. As aforementioned, Section 7(4)(b) of the Act, 1996 provides that an
Arbitration Agreement may be contained in exchange of telecommunication,
such as emails, which provide a record of the principal agreement. Emails
have been exchanged between SPCPL and ASF Group as a whole, where
admission of liability on the part of ASF Group to make payment under the
Settlement Agreement stands established. Clause 12 of the Settlement
Agreement makes the dispute resolution clause of the Works Contract
applicable in the present case.
166. In Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia (P) Ltd. , reported
in (2015) 13 SCC 477 , this Court has held that signature is not a formal
requirement under Section 7(4)(b) or 7(4)(c) or under Section 7(5) of the 1996
Act. This position is further supported by the definition of a ‘party’ in Section
2(h) of the 1996 Act to include a ‘party to an arbitration agreement’ and not a
signatory to an arbitration agreement. Section 7 of the 1996 Act also does not
stipulate a qualification that a party must be a signatory to the arbitration
agreement or the principal agreement containing the arbitration clause. This
was also reiterated in Cox and Kings Ltd. (I) (supra).
167. Even the non-issuance of Section 21 notice on the appellant cannot be said to
be fatal to its impleadment. The principle of consensus ad idem for referring
disputes to arbitral tribunals applies to the signatories to the arbitration
agreement and not non-signatories who are sought to be impleaded.
Special Leave Petition (C) No. 21286 of 2024 Page 187 of 190
168. The decision of this Court in Praveen Enterprises (supra), , on which strong
reliance has been placed on behalf of the ABPL, as already discussed, is
contrary to their contention and rather fortifies SPCPL’s argument in this
regard, where this Court held that a notice under Section 21 of the 1996 Act is
not relevant for counterclaims.
169. We have looked into the other decisions also relied upon by Mr. Kamat in
support of his submissions, however, they are of no avail to the appellant.
D. CONCLUSION
170. Before we close this matter, we would like to say something as regards the
litigation which has unfolded before us. The Arbitration Act was the first
legislative enactment that dealt with arbitration that came into force in 1940.
Fifty years, later, the aforesaid legislation was replaced by the Arbitration and
Conciliation Act, 1996. It has been almost, thirty-years, since the Act, 1996
has remained in force. Various amendments to the Act, 1996 have been made
over the years so as to ensure that arbitration proceedings are conducted and
concluded expeditiously. It is indeed very sad to note that even after these
many years, procedural issues such as the one involved in the case at hand,
have continued to plaque the arbitration regime of India. The Department of
Legal Affairs has now, once again proposed to replace the existing legislation
Special Leave Petition (C) No. 21286 of 2024 Page 188 of 190
on arbitration with the Arbitration and Conciliation Bill, 2024. Unfortunately,
even the new Bill has taken no steps whatsoever, for ameliorating the
position of law as regards the power of impleadment or joinder of an arbitral
tribunal. What is expressly missing in the Act, 1996 is still missing in the
Arbitration and Conciliation Bill, 2024, despite a catena of decisions of this
Court as-well as the various High Courts, highlighting the need for statutory
recognition of such power in order to obviate all possibilities of confusion.
As observed in Gayatri Balasamy (supra), any uncertainty in the law of
arbitration would be an anathema to business and commerce. We urge, the
Department of Legal Affairs, Ministry of Law and Justice to take a serious
look at the arbitration regime that is prevailing in India and bring about
necessary changes while the Arbitration and Conciliation Bill, 2024 is still
being considered.
171. In the overall view of the matter, we are convinced that no error, not to speak
of any error of law, could be said to have been committed by the High Court
in passing the impugned judgment and order.
172. All other legal contentions available to the parties are kept open to be
canvassed before the Arbitral Tribunal.
173. For all the foregoing reasons, this appeal fails and is hereby dismissed.
174. Pending application, if any, also stands disposed of accordingly.
Special Leave Petition (C) No. 21286 of 2024 Page 189 of 190
175. The Registry shall forward one copy each of this judgment to all the High
Courts across the country and the Principal Secretary, Ministry of Law &
Justice.
. .......................................................... J.
(J.B. Pardiwala)
. .......................................................... J.
(R. Mahadevan)
New Delhi;
nd
02 May, 2025
Special Leave Petition (C) No. 21286 of 2024 Page 190 of 190
2025 INSC 616
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5823 OF 2025
(Arising out of Special Leave Petition (C) No. 21286 of 2024)
ASF BUILDTECH PRIVATE LIMITED ...APPELLANT(S)
VERSUS
SHAPOORJI PALLONJI AND COMPANY
PRIVATE LIMITED ...RESPONDENT(S)
J U D G M E N T
Signature Not Verified
Digitally signed by
VISHAL ANAND
Date: 2025.05.02
14:20:15 IST
Reason:
J.B. PARDIWALA, J.:
For the convenience of exposition, this judgment is divided in the following parts: -
INDEX
A. FACTUAL MATRIX .................................................................................... 3
B. SUBMISSIONS OF THE PARTIES ........................................................... 7
i. Submissions on behalf of the Appellant ................................................... 7
ii. Submissions on behalf of the Respondent No. 1 .................................... 12
C. ANALYSIS .................................................................................................. 15
i. Whether the Arbitral Tribunal has the power to Implead / Join Non-
Signatories to the Arbitration Agreement? .......................................... 15
a. Contradictory Views of different High Courts on the subject ............. 16
I. Decisions holding that the Arbitral Tribunal does not have the power
to Implead a non-signatory to the Arbitration Agreement .............. 16
Decisions holding that the Arbitral Tribunal has the power to
II.
Implead a non-signatory to the Arbitration Agreement .................. 41
b. Evolution of the law on referral or joinder of Non-Signatories to
arbitration proceedings and the Aversion to the power of Arbitral
Tribunals to implead a Non-Signatory ................................................ 62
I. Decision of Chloro Controls and the Arbitration and Conciliation
(Amendment) Act, 2015 ................................................................. 62
II. Decision of Cox and Kings (I) and the Judicial Rectification of the
first misconception by Chloro Controls. ......................................... 77
III. Decision of Krish Spinning and the Judicial Rectification of the
second misconception emanating from SBP & Co ......................... 89
Special Leave Petition (C) No. 21286 of 2024 Page 1 of 190
c. How Cox and Kings (I) contemplates determination of mutual
intention of Non-Signatories to arbitration agreements ..................... 108
I. The nature and extent of the test laid down in Cox and Kings (I) for
determining Non-Signatories who are bound by the arbitration
agreements. ................................................................................... 110
II. Determining the “existence” viz-à-viz the intention of parties from
“express words” of an Arbitration Agreement .............................. 116
III. Decision of Cox and Kings (II) and Ajay Madhusudan and the scope
of Section 11 of the Act, 1996 for joinder of non-signatories to
arbitration proceedings. ................................................................ 131
ii. Arbitral Tribunal has the authority and power to implead Non-
Signatories to the arbitration agreement on its own accord. ............. 141
a. No inhibition in the scheme of Act, 1996 which precludes the Arbitral
Tribunal from impleading a Non-Signatory on its own accord ............. 141
b. Doctrine of Kompetenz-Kompetenz and the Jurisdictional Reach of an
Arbitral Tribunal ................................................................................ 156
c. Requirement of Notice of Invocation under Section 21 ........................ 163
D. CONCLUSION .......................................................................................... 188
Special Leave Petition (C) No. 21286 of 2024 Page 2 of 190
1. Leave Granted.
2. This appeal arises from the judgment and order passed by the High court of
Delhi dated 4th July, 2024 in Arb. A. (Comm.) No. 4/2024 & I.As. 2124/2024-
25/2024, Arb. A. (Comm.) No. 5/2024 & I.A. 2197/2024 and O.M.P.
(T)(Comm.) 4/2024 by which the High Court dismissed the appeals filed by
the appellant herein under Section 37 of the Arbitration and Conciliation Act,
1996 (for short, the “ Act, 1996 ”) and thereby affirmed the order passed by
the Arbitral Tribunal rejecting the challenge made by the appellant herein to
its jurisdiction on the ground that the appellant being a non-signatory to the
arbitration agreement could not have been impleaded in the array of parties
and join the arbitration proceedings.
3. It appears that the High Court decided two appeals filed under Section 37(2)
of the 1996 Act. The present appeal arises from the order passed by the High
Court in Arb. A. (Comm.) No. 4 of 2024.
A. FACTUAL MATRIX
4. The Respondent No. 1, Shapoorji Pallonji & Co. Pvt. Ltd. (“ SPCPL ”) is the
Respondent No.1/counter claimant before the Arbitrator. The Respondent No.
3 (Black Canyon SEZ Pvt. Ltd. or “ BCSPL ”) initiated arbitration against
SPCPL in relation to Settlement Agreement dated 24.07.2020.
Special Leave Petition (C) No. 21286 of 2024 Page 3 of 190
5. SPCPL filed its Counter-Claim against BCSPL as well as the appellant herein
(ASF Buildtech Pvt. Ltd or “ ABPL ”) and Respondent No.2 (ASF Insignia
SEZ Pvt. Ltd or “ AISPL ”), which constituted and formed part of the ‘ASF
Group’. SPCPL has pleaded before the Arbitrator that BCSPL, ASIPL and
ABPL being a part of the ASF Group are bound by the Arbitration Agreement
contained in the Works Contract dated 21.11.2016 on the basis of the Group
of Companies Doctrine.
6. BCSPL, ABPL, and AISPL respectively filed separate Section 16
Applications before the Arbitrator seeking rejection of SPCPL’s counter claim
to the extent it is against AISPL and ABPL. By the Arbitrator’s Orders dated
23.05.2023 and 17.10.2023 respectively (“ Tribunal’s First Order ”and
‘Tribunal’s Second Order’ respectively), the Arbitrator dismissed the said
Applications, inter alia holding that, in order to decide whether or not the
inclusion of AISPL and ABPL amongst the party-Respondents on basis of
such doctrine is correct on basis of facts narrated by SPCPL, some crucial
aspects as regards the role and conduct of AISPL and ABPL, would need
adjudication as questions mixed of facts and law, which cannot be holistically
determined without first arraying them as parties.
Special Leave Petition (C) No. 21286 of 2024 Page 4 of 190
7. In such circumstances referred to above, the matter was taken to the High
Court. The High Court, after an exhaustive consideration of all the relevant
aspects of the matter, disposed of the appeal in the following terms: -
“96. In the present case, a perusal of the impugned orders shows
that the Ld. Sole Arbitrator has conflated the issue of the
applicability of the Group of Companies doctrine & alter ego
doctrine, and thus has resorted to piercing the corporate veil. All
three could not have been combined in the manner in which the
Ld. Sole Arbitrator has done. However, there are certain facts
which are relevant:
i) That the ASF Group is one cohesive group in which AISPL,
ABPL and BCSPL are part of the group. There is no distinct
management dealing with the activities of these three
companies. The correspondence on record shows that
whether in respect of demobilization or other performances
under the contracts, AISPL is backing BCSPL, ASF Group
is also standing as guarantee for BCSPL. The Comfort
Letter given by ASPL is evidence of this. Thus, in effect,
though there are three distinct incorporated legal entities,
the group is functioning as one unit. The initial work order
was with AISPL. Claims raised relate to periods even prior
to the Novation Agreement where AISPL would be a
necessary and a relevant party.
ii) Non-payment of dues is also another claim of SPCPL qua
which AISPL gave a Comfort Letter.
iii) ABPL is the holding company and is part of the ASF Group.
The order dated 22nd July, 2022 uses the expression ASF
which includes ABPL as its part of ASF. Thus, the Ld. Sole
Arbitrator ought to have simply applied GoCD as enshrined
in the Cox and Kings (supra) to entertain the claims filed by
the SPCPL.
97. In the overall scheme of things, therefore, the delineation of
Case No.1 and Case No.2 was wholly unnecessary. The
impleadment of AISPL and ABPL is in accordance with law,
though the Ld. Sole Arbitrator used different reasons for
dismissing the Section 16 applications. In effect, the Ld. Sole
Arbitrator has held that claims can be maintained against AISPL
Special Leave Petition (C) No. 21286 of 2024 Page 5 of 190
and ABPL. In these facts and circumstances, the Court disposes
of the three petitions in the following terms:
i) AISPL and ABPL are impleaded as Respondent Nos. 2 and
3 in the arbitral proceedings.
ii) The SoC filed by SPCL is treated as counterclaim against
BCSPL, AISPL and ABPL.
iii) The delineation of Case No. 1 and Case No.2 was wholly
unnecessary and is set aside.
iv) For all practical purposes, the case pending before the Ld.
Sole Arbitrator shall be treated as one case arising out of
reference order dated 22nd July, 2022.
v) There is no legal incapacity in the Ld. Sole Arbitrator to
deal with the claims and counterclaims and the mandate of
the Ld. Arbitrator does not deserves to be terminated.
vi) The Ld. Sole Arbitrator was correct in his observation that,
for reasons of financial and strategic convenience,
BCSPL’s attempt was to restrict the counterclaim only to
BCSPL and not to AISPL & ABPL. Considering that AISPL
and the ASF Group had assumed responsibility for
payments to be made to SPCPL and for the implementation
of the project, as evidenced by the Comfort Letter and
various emails exchanged, their impleadment was
necessary for a comprehensive adjudication of the matter.
vii) In view of the fact that SPCPL has no objection to its claim
petition being treated as a counterclaim to the BCSPL’s
claim, it is ordered that both cases shall be treated as a
single reference and a single dispute. The claims of BCSPL
and the counterclaim of SPCPL shall be adjudicated by the
Ld. Sole Arbitrator after framing issues. No bifurcation
would be permissible.
viii) Evidence shall be led first by BCSPL, AISPL and ABPL and
thereafter SPCPL in their respective claims and
counterclaims.
98. Let the present order be communicated to the Ld. Sole
Arbitrator by the Registry. The above two appeals and the Section
14 petition are disposed of in the above terms. All pending
applications are disposed of.”
8. In such circumstances referred to above, the appellant is here before this Court
with the present appeal.
Special Leave Petition (C) No. 21286 of 2024 Page 6 of 190
B. SUBMISSIONS OF THE PARTIES
i. Submissions on behalf of the Appellant
9. In the written submissions filed on behalf of the appellant herein, it is
submitted as under: -
“ A. Introductory Submissions :
2. At the outset, it is respectfully submitted that there is not even a
shred of material to show any involvement whatsoever, much less
prima facie, regarding the involvement of ABPL in the
negotiation, performance or termination of the subject agreements
which are the subject matter of the arbitral proceedings.
Accordingly, the tests laid down by this Hon’ble Court in Para 71
of Ajay Madhusudan Patel & Ors. v. Jyotrindra S. Patel & Ors. ,
2024 SCC OnLine SC 2597, for making ABPL a ‘veritable party’
is not at all fulfilled. As a matter of fact, the Arbitral Tribunal and
the High Court have sought to rope in ABPL on three counts,
namely:
(i) that ABPL is the holding company of Black Canyon SEZ
Private Limited (“BCSPL” / “Respondent No. 2”) and ASF
Insignia SEZ Pvt. Ltd. (“AISPL” / “Respondent No. 3”);
(ii) there is common management between ABPL and BCSPL
(Impugned Judgment at Pg. 47-48 of the Petition, and
(iii) the branding / logo used by BCSPL is the common logo of
‘ASF Group’ (Impugned Judgment at Pg. 67-68 of the Petition.
3. It is submitted that none of the aforesaid three aspects relied
upon the Arbitral Tribunal and the High Court can be the ground
for arraying a non-signatory as a ‘veritable party’. If such
contention is accepted, every holding company will have to be
necessarily arrayed as a ‘veritable party’ which is completely
against the dictum of Oil and Natural Gas Corporation Ltd v.
Discovery Enterprises Pvt. Ltd. , (2022) 8 SCC 42; Cox and Kings
Ltd. v. SAP India Pvt. Ltd. & Anr. , 2023 SCC Online SC 1634
and Ajay Madhusudan Patel (supra).
B. Essential Questions of Law
Special Leave Petition (C) No. 21286 of 2024 Page 7 of 190
4. The important questions of law falling for kind consideration of
this Hon’ble Court in the present Special Leave Petition are:
a. Whether the Petitioner, who is not a signatory to the arbitration
agreement, could be joined as a party Respondent by the Counter
Claimant (“SPCPL”/ “Respondent No. 1” ) in its ‘Separate
Statement of Claim’, without the referral court under section 11
of the Arbitration and Conciliation Act, 1996 ( “Act” ) directing as
such, and without any leave of the Ld. Arbitral Tribunal being
sought in this regard?
b. If so, could the same be done by directly issuing notice for filing
of statement of defense to the Counter Claim (wrongly styled as
‘Separate Statement of Claim’) without a prior opportunity being
granted to the Petitioner to contest such joinder as a party
Respondent?
c. Whether such joinder as a party Respondent could be carried
out in contravention of the principles laid down in Oil and
Natural Gas Corporation (supra); Cox and Kings (supra) and
Ajay Madhusudan Patel (supra) as regards the parameters for
invocation of group of companies doctrine?
d. Whether merely because the Petitioner is stated to be the
holding company for BCSPL and AISPL; all group companies
have the same domain name/website and the email signature
states ‘ASF Group’, the same would suffice to satisfy the tests for
invocation of the group of companies doctrine for joinder of the
Petitioner to the array of respondents?
C. ABPL not a party to the dispute
5. ABPL was not a party or had any involvement in the following:
(i) Negotiations for executing Work Contract dated 21 November
2016; (ii) Works Contract dated 21 November 2016; (iii)
Supplementary Works Contract dated 9 February 2018; (iv)
Novation Agreement on 17 April 2018; (v) Letter of Comfort dated
17 April 2018; (vi) Addendum No. 1 dated 27 February 2019 to
the Works Contract; (vii) Settlement Agreement dated 24 July
2020; (viii) Notice invoking arbitration dated 24 January 2022;
(ix) Reply to Notice invoking arbitration dated 4 March 2022,
where SPCPL itself did not make ABPL a party in this reply; (x)
Section 11 proceedings before the High Court of Delhi; and (xi)
BCSPL’s statement of claim dated 31 October 2022. A table on
stages of disputes and involvement of parties therein is annexed
herewith as Schedule A. The same leads to an inescapable
conclusion that the involvement of the Petitioner herein in the
Special Leave Petition (C) No. 21286 of 2024 Page 8 of 190
negotiation or performance of the contract was neither positive,
nor direct and substantial, in fact it was not even incidental.
6. It is for the first time that ABPL was made a party to the
proceedings by direct joinder as a respondent to the SPCPL’s
counter claim or ‘statement of claim’ dated 14 February 2023,
without obtaining any leave from the Arbitral Tribunal in this
regard and merely on account of being a holding company of
BCSPL.
D. No material whatsoever to show ABPL’s direct involvement
7. There is not even a single correspondence or transactional
document to show the involvement of ABPL qua the negotiation
towards, execution of or discussions towards Works Contract, the
Novation Agreement, the Letter of Comfort and the Settlement
Agreement in question.
8. Even SPCPL, in the Reply, had only limited its contention for
inclusion of a non-signatory to AISPL and not to ABPL.
9. Further, even the order of the High Court of Delhi in the Section
11 Application under the Act records that SPCPL had only
insisted on making AISPL as a party and there is not even a
whisper about ABPL. Further, the reference to ASF in the said
order is clearly a reference to AISPL who was the original
contracting party and not to ASG Group.
10. As per the law laid down by this Hon’ble Court in Ajay
Madhusudan Patel & Ors. v. Jyotrindra S. Patel & Ors ., 2024
SCC OnLine SC 2597 (Para 71), this Hon’ble Court has held that:
“71. It is evident that the intention of the parties to be bound by
an arbitration agreement can be gauged from the circumstances
that surround the participation of the non-signatory party in the
negotiation, performance, and termination of the underlying
contract containing such an agreement. Further, when the
conduct of the non-signatory is in harmony with the conduct of the
others, it might lead the other party or parties to legitimately
believe that the non-signatory was a veritable party to the contract
containing the arbitration agreement. However, in order to infer
consent of the non-signatory party, their involvement in the
negotiation or performance of the contract must be positive,
direct and substantial and not be merely incidental. Thus, the
conduct of the non-signatory party along with the other attending
Special Leave Petition (C) No. 21286 of 2024 Page 9 of 190
circumstances may lead the referral court to draw a legitimate
inference that it is a veritable party to the arbitration agreement.”
(emphasis supplied)
11. It is most humbly submitted that in the facts and circumstances
of the present case, which have been altogether ignored by the Ld.
Arbitral Tribunal and the High Court, there is neither any finding
nor any material to support the inference that that the involvement
of the Petitioner herein in the negotiation or performance of the
contract was either positive, direct and substantial, in fact, it was
not even incidental.
12. It is prima facie evident that ABPL is not a party to the
Agreements and a mini trial is not required to determine the same.
Additionally, the arbitral tribunal while directly issuing a notice
to ABPL for filing of statement of defence to the ‘statement of
claim’ filed by SPCPL had not gone into such questions in depth,
thus indicating that no evidence was taken into consideration to
implead ABPL without the leave of the arbitral tribunal in this
regard; and by way of a procedure unknown to arbitration law
inasmuch as a separate statement of claim was entertained by the
arbitral tribunal, contrary to established procedure that there can
only be a counter claim by respondent, i.e., SPCPL.
E. Patent errors in the Impugned Judgment
13. The analysis by the High Court in the Impugned Judgment
begins at Page 43 of the Petition wherein the High Court notices
the: (a) Works Contract; (b) Novation Agreement; (c) Settlement
agreement; (d) Letter of Comfort. Notably, in any of the aforesaid
paragraphs, ABPL is neither involved nor mentioned.
14. In Para 66, the High Court notes that there is common
management between ABPL and BCSPL, and in Para 70, an email
dated 9 December 2020 is noted to conclude that because one of
the personnel of BCSPL had used the same domain name, and
there was a logo of ASF Group/ASF Insignia, therefore, ABPL
being part of the ASF group and the holding company of BCSPL
and AISPL was to be included as a party to the arbitration
proceedings.
15. The five factors laid down by this Hon’ble Court in Oil and
Natural Gas Corporation (supra), are thereafter discussed in
Para 91-94. It is relevant to note that none of the said paragraphs
Special Leave Petition (C) No. 21286 of 2024 Page 10 of 190
show any direct involvement of ABPL, in so far as the transaction
in question is concerned.
16. The only reason due to which ABPL has been allowed to be
continued as a party to the arbitration proceedings is because
ABPL is a holding company of BCSPL, which is completely
contrary to the law laid down by this Hon’ble Court in Cox and
Kings (supra) and Oil and Natural Gas Corporation (supra).
17. Merely because a company is a holding company, it cannot,
by itself, be a ground to implead the holding company in an
arbitration proceeding. To do so would result in disastrous
consequences, where the mere factum of the company being a
holding company would expose the holding company to litigations
initiated against its subsidiary. This would completely militate
against and obliterate the fundamental principle of separate
corporate personality.
18. It is submitted that none of the five ingredients laid down by
this Hon’ble Court in Oil and Natural Gas Corporation (supra)
and affirmed, in Cox and Kings (supra) (Para 170) are prima
facie satisfied, in the facts of the present case.
19. Further, the High Court in Para 97(viii) of the Impugned
Judgment has further patently erred in exceeding the jurisdiction
under Section 37 of the Act and suo motu directing that evidence
shall be inter alia led by ABPL prior to SPCPL in whose counter-
claim ABPL has been arrayed as a party Respondent. Pertinently,
the said aspect was neither a submission nor in issue before the
High Court.”
10. In such circumstances referred to above, Mr. Devadatt Kamat, the learned
senior counsel appearing on behalf of the appellant herein submitted that
there being merit in his appeal, the same may be allowed and the impugned
order passed by the High Court may be set aside.
Special Leave Petition (C) No. 21286 of 2024 Page 11 of 190
ii. Submissions on behalf of the Respondent No. 1
11. In the written submissions filed on behalf of the respondent No. 1 herein, it is
submitted as under: -
“II. Questions of law involved
5. The present SLP broadly gives rise to three questions of law for
the kind consideration of the Hon’ble Court:
a. Whether the Arbitrator could have issued notice to parties
(AISPL and ABPL) arrayed in SPCPL’s Counter Claim?
b. Whether AISPL and ABPL ought to be removed from the array
of parties at the threshold stage before the complete pleadings or
evidence are before the Arbitrator? c. Whether the Arbitrator’s
Orders rejecting ABPL’s Section 16 Applications without finally
deciding the legal or factual role and liability of ABPL ought to
be interfered with before the final Arbitral Award is rendered?
6. It is submitted that the three issues are not distinct and rather
inter-linked inasmuch as the underlying premise pertains to the
Arbitrator’s power to adjudicate on matters in respect of non-
signatories, both procedurally and substantively. It is SPCPL’s
case that all three issues have already been answered in SPCPL’s
favour by the Hon’ble Supreme Court in in Cox and Kings Ltd. v.
SAP India Pvt. Ltd. & Anr . and Ajay Madhusudhan Patel & Ors.
v. Jyotrindra S. Patel & Ors.
III. The present SLP is ABPL’s fourth bite at the cherry
7. SPCPL has succeeded on the issues presently agitated on three
prior occasions–
a) First, in BCSPL’s Section 16 Application dated 03.03.2023
seeking removal of AISPL and ABPL from the array of parties,
which was rejected by the Tribunal’s First Order dated
23.05.2023 with detailed reasoning.
b) Second, in AISPL and ABPL’s Section 16 Applications dated
03.07.2023 seeking their own removal from the array of parties,
which was rejected by the Tribunal’s Second Order dated
17.10.2023 with detailed reasoning;
c) Third, before the High Court, where BCSPL filed a Petition u/s
14 seeking removal of the Arbitrator, while ABPL and AISPL
preferred Appeals u/s 37, culminating in the common Impugned
Judgement dated 04.07.2024 (‘Impugned Judgement’) rejecting
the said challenge with detailed reasoning.
Special Leave Petition (C) No. 21286 of 2024 Page 12 of 190
Only ABPL remains aggrieved and has sought to challenge the
Impugned Judgement by way of the present SLP.
13. ABPL has sought to mis-categorize SPCPL’s case against
ABPL as merely being against the holding company of AISPL and
BCSPL. However, this is ex-facie misconceived and contrary to
the record, inasmuch as SPCPL has specifically pleaded that the
entire negotiation, performance and termination of the Works
Contract dated 21.11.2024 was with the ASF Group, though in the
name of its SPV, AISPL to develop the SEZ. It was represented
and assured to SPCPL throughout that AISPL had the entire
support, backing and strength of the ASF Group of Companies.
14. This representation and assurance to SPCPL was backed
by, rather than being premised (as sought to be alleged by ABPL),
the fact that the BCSPL, AISPL and ABPL represented themselves
to the world at large as the ‘ASF Group’, functioning with the
same staff & officials, using common website 13
(www.asfinfrastructure.com) and domain email IDs
(@asfinfrastructure.com). ABPL, as also AISPL and BCSPL, is
part of the ASF Group. Even behind the scenes, ABPL is the
holding company of BCSPL and AISPL, with 81.01% and 100%
shareholding, respectively. All the three ASF Group companies
have common directors and also share a common registered
address. It is SPCPL’s case that the commonality of resources of
the ASF Group (i.e., the promoters, the directors, the
shareholding, the officials, the financial and commercial backing,
technical and IT systems etc) is not a coincidence or a by-product
and rather is by design.
15. At all times, in the ASF Group’s dealing with SPCPL,
BCSPL/AISPL/ABPL were acting as single economic unit and
were together directly, substantially and actively involved in the
negotiation and performance of the subject Works Contract and
Settlement Agreement. It is further SPCPL’s case that
BCSPL/AISPL/ABPL and/or ASF Group are inextricably linked
and the ASF Group as a whole maintained operational control
over the performance of the Works Contract and Settlement
Agreement between the parties.
16. There was no distinction between ABPL, AISPL and BCSPL
insofar as the negotiation and performance of the Subject
Contracts was concerned. For instance, the Novation Agreement
Special Leave Petition (C) No. 21286 of 2024 Page 13 of 190
dated 17.04.2018 was executed on behalf of the Petitioner by one
ASF official Sh. Vinod Kumar Bhartiya. The same ASF official had
earlier attended the pre-bid meeting held on 30.01.2016 in
relation to the Works Contract in the stated capacity of AVP
(Commercial) of the ‘ASF Group’. Item 2.1 of the Minutes states
‘ASF Project Team’ and bidders were introduced. The same ASF
official had thereafter also attended the Meeting held on
02.06.2016 for LOI Civil Works of Building B1 awarded to SPCPL
on behalf of ‘AISPL’.
17. Similarly, Minutes of Meeting dated 25.10.2016 i.e., after the
Meeting held on 02.06.2016 recording Mr. Bhartiya to have
attended on behalf of AISPL, reflects his attendance on behalf of
the ‘ASF Group’. Agenda items 1 & 2 of the aforementioned
Minutes of Meeting also show ‘ASF’ as having agreed to the
change requested by SPCPL.
18. The Comfort Letter issued to SPCPL dated 17.04.2018 (on the
same day as the Novation Agreement) acknowledges that ‘AISPL
and BCSPL are the group companies of ASF group and both
companies are under the management & control of the same set
of management/owners.’ and that AISPL had
‘nominated/appointed its associate company Black Canyon SEZ
Pvt. Ltd. (“BCSPL”) as a Co-Developer with regard to Black
Canyon Private Campus Land, Black Canyon Building and its
allied structure...”. Subsequently, in a clear admission of all
liabilities being jointly and severally shared between BCSPL,
AISPL and ABPL, Sh. Anil Sharma, Vice President (Projects),
ASF Group vide his email dated 02.06.2021 conveyed the
commitment of ‘ASF management’ to release outstanding dues to
SPCPL.
19. Even Clause 5 of the Settlement Agreement dated 24.07.2020
(‘the Settlement Agreement’) expressly records that the cost of
materials ‘taken over by ASF’ from SPCPL, as mutually
determined, would form part of the outstanding dues of SPCPL.
Even the Statement of Accounts annexed to the Settlement
Agreement, on the basis of which monies were to be disbursed to
SPCPL records TDS value debited by ‘ASF’, not by BCSPL or
AISPL.
20. In the Section 16 application filed by ABPL 21 , ABPL
admitted that “ABPL is a part of the ASF group of companies, and
Special Leave Petition (C) No. 21286 of 2024 Page 14 of 190
Respondents No.1 [BCSPL] and 2 [AISPL] are associate
companies of ABPL.”
12. In such circumstances referred to above, Ms. Aakanksha Kaul, the learned
counsel prayed that there being no merit in this appeal, the same may be
dismissed.
C. ANALYSIS
13. Having heard the learned counsel appearing for the parties and having gone
through the materials on record, the only question that falls for our
consideration is whether an arbitral tribunal has the authority or power to
implead or join a non-signatory to the arbitration agreement as a party to the
arbitration proceedings?
i. Whether the Arbitral Tribunal has the power to Implead / Join Non-
Signatories to the Arbitration Agreement?
14. One of the principle contentions raised by the appellants herein for the purpose
of assailing the Impugned Judgment is that the petitioner company being a
non-signatory to the arbitration agreement was never made a party to the
proceedings before the referral court under Section 11 of the Act, 1996 by
virtue of which the arbitral tribunal came to be constituted. No notice of
invocation was issued either to the appellant company herein. In such
circumstances, it was submitted that the appellant company; a non-signatory
to the arbitration agreement could not have been joined as a party after the
Special Leave Petition (C) No. 21286 of 2024 Page 15 of 190
referral stage i.e., after the constitution of the arbitral tribunal solely on the
basis of the averments made in the counter-claim / statement of claim of the
respondent no. 1 herein. In other words, it was contended that after the
culmination of the referral stage in terms of Section 11 of the Act, 1996, the
arbitral tribunal has no power whatsoever to implead or join a non-signatory
to the arbitration agreement and that such power vests only with the referral
court that too prior to the arbitral tribunal coming into existence.
a. Contradictory Views of different High Courts on the subject.
15. Before we proceed to answer the aforesaid contention canvassed on behalf of
the appellant, it would be appropriate to first refer to the decisions of various
High Courts and the cleavage of opinion that have been expressed as regards
the scope and power of an arbitral tribunal to implead or join a non-signatory
to an arbitration agreement.
I. Decisions holding that the Arbitral Tribunal does not have the power to
Implead a non-signatory to the Arbitration Agreement.
16. The question whether an arbitral tribunal can implead a non-signatory to an
arbitration agreement or not came to be examined for the first time by the
Bombay High Court in Oil and Natural Gas Corporation Ltd. v. Jindal
Drilling and Industries Ltd. reported in (2015) SCC OnLine Bom 1707 ,
wherein the petitioners therein had entered into separate and independent
contracts with the respondents therein as-well as one ‘DEPL’; an off-shoot
Special Leave Petition (C) No. 21286 of 2024 Page 16 of 190
company of the respondents therein. When the respondents therein demanded
payment of its dues under its own contract, the petitioners refused payment on
the ground that DEPL previously owed them a certain sum of money, and
since it was an off-shoot of the respondents, the amount owed to the
respondents had been adjusted against DEPL’s liability. The dispute came to
be referred to arbitration and award was passed against the petitioners
directing them to repay the outstanding dues to the respondents. The award
came to be challenged before the Bombay High Court, wherein it was
contended by the petitioners that the arbitral tribunal ought to have lifted the
corporate veil to find out whether DEPL formed part of the respondent
companies or not. The Bombay High Court inter-alia held that an arbitral
tribunal does not have the power to lift the corporate veil and that only the
courts have such power. In such circumstances, it held that since DEPL was
not a party to the arbitration proceedings between the petitioner and the
respondents, and the tribunal having no power to pierce the corporate veil, the
High Court upheld the award. The relevant observations read as under: -
“47. The petitioners had canvassed before the arbitral tribunal
that the arbitral tribunal shall lift the corporate veil to find out
that the said DEPL and the respondents herein were forming part
of the said Jindal Group and were one and the same entity and
thus the respondents were liable for the liabilities of the said
DEPL. In my view, the arbitral tribunal has no power to lift the
corporate veil. Only a Court can lift the corporate veil of a
company if the strongest case is made out. In my view, the prayer
of the petitioners for lifting the corporate veil of the said DEPL
was itself not maintainable in the arbitration proceedings. The
said DEPL was not a party to these proceedings. Be that as it may,
Special Leave Petition (C) No. 21286 of 2024 Page 17 of 190
a perusal of the arbitral award clearly indicates that the arbitral
tribunal has refused to lift the corporate veil after considering the
evidence produced by both the parties and has rendered finding
of fact that no such case was made out by the petitioners for lifting
the corporate veil which are not perverse and thus cannot be
interfered with by this Court under Section 34 of the Arbitration
Act.”
(Emphasis supplied)
17. In Balmer Lawrie & Co. Ltd. v. Saraswathi Chemicals Proprietors
Saraswathi Leather reported in (2017) SCC OnLine Del 7519 , the Delhi
High Court was inter-alia dealing with the question whether an arbitral award
can be enforced against non-parties to the arbitration. The awardee therein
sought amendment of the execution petition in order to implead the directors
of the judgment-debtor on the ground that they had siphoned off the assets and
hence ought to be held responsible to satisfy the arbitral award. In this context,
the Delhi High Court observed that an arbitral award cannot be enforced
against non-parties to the arbitration. This in its opinion was because, an
arbitral tribunal draws its jurisdiction only from the arbitration agreement, and
an arbitral tribunal cannot proceed against persons who are not a party to such
agreement, and as such any award rendered by it would not be binding upon
non-parties to the arbitration agreement. It further observed that although in
exceptional circumstances, non-signatories who are otherwise bound by the
arbitration agreement may be compelled to arbitrate and thereby be liable for
any award passed therein, yet such a course can only be adopted by the courts
and an arbitral tribunal cannot lift the corporate veil and proceed against non-
Special Leave Petition (C) No. 21286 of 2024 Page 18 of 190
parties, as arbitration is always consensual and confined to the arbitration
agreement and as such an arbitral tribunal cannot enlarger its jurisdiction to
non-parties. The relevant observations read as under: -
“13. In the first instance, it is doubtful whether this Court could
enforce the arbitral award against non parties to the arbitration
agreement. It is trite law that an arbitral tribunal draws its
jurisdiction from the agreement between the parties and persons
who are not party to the arbitration agreement cannot be
proceeded against by an arbitral tribunal. Thus, an arbitral
award made by an arbitral tribunal against any person who is not
a party to the arbitration agreement would be wholly without
jurisdiction and unenforceable. There may be exceptional cases
where a court may compel persons who are not signatories to an
arbitration agreement to arbitrate provided it is established that
the non-signatory(ies) are either claiming through signatory(ies)
or there was clear intention to be bound as parties (see : Chloro
Controls India Private Limited v. Severn Trent Water Purification
Inc : (2013) 1 SCC 641). However an arbitrator cannot lift the
corporate veil and proceed against non parties. An arbitration is
consensual. It is based on the agreement between parties. The
arbitrator derives his jurisdiction to adjudicate disputes from the
consent of parties, therefore, he is not in a position to enlarge the
scope of his influence and extend his jurisdiction to non-parties by
exercise of his limited jurisdiction based on the consent of parties.
14. Though a court can lift the corporate veil, the same can be
done only in extraordinary circumstances and by due adjudicatory
process. It is trite law that an executing court cannot go behind
thedecree; it must be enforced as it is. Thus, it is not open for a
petitioner to claim that although the decree is against one entity it
must be enforced against another. However, there may be cases
where it is found that the assets of the judgement debtor have been
secreted, siphoned off, or by a fraudulent device ostensibly placed
outside the control of the judgement debtor, in an endeavour to
frustrate the enforcement of the decree. In such cases, the court is
not powerless to extend its reach to third parties to enforce the
decree; however this is limited for recovering the assets of the
judgement debtor. In the event a corporate facade is used to
perpetuate such fraud, the corporate veil may be lifted.”
Special Leave Petition (C) No. 21286 of 2024 Page 19 of 190
(Emphasis supplied)
18. In yet another decision of the Delhi High Court in Sudhir Gopi v. Indira
Gandhi National Open University & Anr. reported in (2017) SCC OnLine
Del 8345 , placing reliance on Oil and Natural Gas Corporation (supra) and
Balmer Lawrie (supra) it was held that an arbitral tribunal does not have the
jurisdiction to lift the corporate veil and pass an award against non-signatories
to an arbitration agreement. It observed that consent of parties is the
cornerstone of arbitration and it is from such arbitration agreement that the
arbitral tribunal derives its jurisdiction to render an award. It further held that
in exceptional cases, the non-signatories can be compelled to arbitrate, but that
it is only the courts who are empowered to refer them to arbitrate and that the
arbitral tribunals have no power or jurisdiction to do so as its jurisdiction is
confined by the arbitration agreement. The relevant observations read as
under: -
“11. “Like consummated romance, arbitration rests on consent”.
The agreement between parties to resolve their disputes by
arbitration is the cornerstone of arbitration. The arbitral tribunal
derives its jurisdiction from the consent of parties (other than
statutory arbitrations). In absence of such consent, the arbitral
tribunal would have no jurisdiction to make an award and the
award so rendered would, plainly, be of no value. [...]
xxx xxx xxx
16. There may be cases where courts can compel non signatory
(ies) to arbitrate. These may be on grounds of (a) implied consent
and/or (b) disregard of corporate personality. In cases of implied
consent, the consent of non signatory (ies) to arbitrate is inferred
Special Leave Petition (C) No. 21286 of 2024 Page 20 of 190
from the conduct and intention of the parties. Thus, in cases where
it is apparent that the non-signatory (ies) intended to be bound by
the arbitration agreements, the courts have referred such non-
signatories to arbitration.
xxx xxx xxx
20. The courts would, undoubtedly, have the power to determine
whether in a given case the corporate veil should be pierced and
the persons behind the corporate façade be held accountable for
the obligations of the corporate entity. However as stated earlier,
an arbitral tribunal, has no jurisdiction to lift the corporate veil;
its jurisdiction is confined by the arbitration agreement - which
includes the parties to arbitration - and it would not be permissible
for the arbitral tribunal to expand or extend the same to other
persons.
xxx xxx xxx
35. Arbitration agreement can be extended to non-signatories in
limited circumstances; first, where the Court comes to the
conclusion that there is an implied consent and second, where
there are reasons to disregard the corporate personality of a
party, thus, making the shareholder(s) answerable for the
obligations of the company. In the present case, the arbitral
tribunal has proceeded to disregard the corporate personality of
UEIT. The arbitral tribunal has lifted the corporate veil only for
the reason that UEIT's business was being conducted by Mr.
Sudhir Gopi who was also the beneficiary of its business being the
absolute shareholder (barring a single share held by Mr. Fikri) of
UEIT. This is clearly impermissible and militates against the law
settled since the nineteenth century. Any party dealing with the
limited liability company is fully aware of the limitations of
corporate liability. Business are organised on the fundamental
premise that a company is an independent juristic entity
notwithstanding that its shareholders and directors exercise the
ultimate control on the affairs of the company. In law, the
corporate personality cannot be disregarded. Undisputedly, there
are exceptions to this rule and the question is whether this case
falls within the scope of any exceptions.
Special Leave Petition (C) No. 21286 of 2024 Page 21 of 190
36. A corporate veil can be pierced only in rare cases where the
Court comes to the conclusion that the conduct of the shareholder
is abusive and the corporate façade is used for an improper
purpose, for perpetuating a fraud, or for circumventing a statute.”
(Emphasis supplied)
19. The Madras High Court in V.G. Santhosam v. Shanthi Gnanasekaran
reported in 2020 SCC OnLine Mad 560 , was called upon to examine whether
an arbitral tribunal has the jurisdiction to pass an order impleading a non-
signatory to an arbitration agreement, with a view to enable such non-
signatory to participate in the arbitration proceedings. In the said case, there
was a dispute amongst the partners of a firm which came to be referred to
arbitration. In the arbitration proceedings the respondent therein filed an
application for her impleadment on the ground that she is the legal heir of one
of the erstwhile partners and thus entitled to his share into the firm. The arbitral
tribunal allowed the application and impleaded the respondent by taking
recourse to the powers provided under Order I Rule 10 of the Code of Civil
Procedure, 1908 (for short, the “ CPC ”). In appeal, the Madras High Court
held as follows: -
(i) First, that there is no express provision under the Act, 1996 that allows
for impleadment of a third-party, and as such any order of impleadment
by an arbitral tribunal can at best be considered to be an interim measure
in terms of Section 17 of the Act, 1996. However, since Section 17
contemplates exercise of only those powers provided within the scope
Special Leave Petition (C) No. 21286 of 2024 Page 22 of 190
of the arbitral proceedings and by extension within the ambit of Act,
1996, the order of the arbitral tribunal in impleading a third-person
unconnected with the dispute between the parties of arbitration was
impermissible and in violation of the scheme of the Act, 1996. Placing
reliance on Section 2(h) and 7 of the Act, 1996 respectively, the High
Court held that since “ party ” has been defined to mean only a party to
the “ arbitration agreement ”, the arbitral tribunal in exercise of its
powers under Section 17 could not have impleaded the respondent
therein, who was not a party to the arbitration agreement. The relevant
observations read as under: -
“60. Section 17 of the Arbitration and Conciliation Act,
1996, provides interim measures ordered by the Arbitral
Tribunal. The impleading petition is entertained under
Section 17(1)(ii)(e), which states that “such other interim
measure of protection as may appear to the arbitral
tribunal to be just and convenient”. By invoking the said
provision of Law, the Tribunal can pass any order
regarding interim measures. There is no express provision
for impleadment in the Act. In the absence of any such
express provision, the Arbitrator impliedly could entertain
the impleading petition only under Section 17(1)(ii)(e) of
the Arbitration and Conciliation Act, 1996. However, the
said provision indicates that the power is to be exercised
within the ambit of the Act and cannot be extended so as to
exercise an inherent power by invoking the Code of Civil
Procedure. Thus, the very findings of the Arbitrator by
exercising wide powers under Order I, Rule 10 of the Code
of Civil Procedure, he entertained the impleading petition
is absolutely untenable and beyond the scope of the arbitral
proceedings as well as the Act itself. Any interim measure
is to be granted within the scope of the arbitral proceedings
and not beyond the dispute raised between the parties for
arbitration. Therefore, the very exercise of power to
Special Leave Petition (C) No. 21286 of 2024 Page 23 of 190
implead a third person who is unconnected with the
Partnership Deed is improper and in violation of the very
Scheme of the Act itself.
61. It is pertinent to note that Section 2(h) of the Arbitration
Act defines “Party means a party to an Arbitration
Agreement”. When the definition for the word ‘Party’ is
provided under the Act, then no other party other than the
party to the “Arbitration Agreement” is entitled to
participate in the arbitral proceedings. The term
‘Arbitration Agreement’ is defined under Section 2(b) as an
agreement referred to in Section 7 of the Act. Section 7(1)
of the Act, stipulates that 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.” Thus, the Arbitrator has
committed an error in interpreting the scope of the Act and
allowed the impleading petition in violation of the very
Scheme and the provisions of the Act.
63. Section 2(1)(b) of the Act defines ‘Arbitration
Agreement’ as an agreement referred to in Section 7 and
Section 7 provides that an Arbitration Agreement is an
agreement between the parties to submit all or any of the
disputes to be adjudicated by an Arbitrator in respect of
their definite legal relationship whether contractual or not.
Section 7 contemplates that the agreement should be in
writing and signed by the parties. Therefore, a non-
signatory or a third party could not be subjected to
arbitration. Only in exceptional cases like the case whether
the rights of the parties are flowing under the Arbitration
Agreement, third parties could be subjected to arbitration.
The Court is required to examine the exceptions from the
touchstone of direct relationship of the party signatories to
the contract.”
(Emphasis supplied)
(ii) Secondly, that Section 16 of the Act, 1996 cannot be interpreted in such
a manner to allow any third-party to the arbitration agreement to have
Special Leave Petition (C) No. 21286 of 2024 Page 24 of 190
itself impleaded and get its rights or dispute adjudicated. It held that
Section 16 contemplates the competence of the Arbitral Tribunal to only
rule on its jurisdiction as regards the existence or validity of the
arbitration agreement, and cannot enter upon adjudication on the civil
rights of the parties.
“78. The sole object of the Arbitration Act is to resolve the
disputes as expeditiously as possible with the minimum
intervention of the Court of Law. The scope of Alternative
Dispute Resolution (ADR) cannot be expanded so as to
usurp the inherent powers of Civil Courts. Section 16
cannot be interpreted so as to entertain an application from
any person, who is a third party to the Arbitration
Agreement for the purpose of arbitral adjudications and
competence of the Arbitral Tribunal to Rule of its
Jurisdiction would indicate that 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, the Tribunal
may consider the facts and the terms and conditions of the
agreement. Section 16(2) states that “a plea that the
Arbitral Tribunal does not have jurisdiction shall be raised
not later than the submission of the statement of defence”.
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 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.
Special Leave Petition (C) No. 21286 of 2024 Page 25 of 190
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 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.
105. [...] However, such Alternative Dispute Resolution
processes would not confer any power to the Arbitrator to
decide the civil rights of a third person, who is not a party
to the Arbitration Agreement. Alternative Dispute
Resolution mechanism would not provide any competency
to exercise the inherent power conferred to the competent
Civil Court of Law. The Alternative Dispute Resolution
processes with reference to the Statute is to be exercised
within the ambit of the provisions and not to decide the civil
rights of the citizen. In such an event, we are converting the
Alternative Dispute Resolution System as the Court of Law
Special Leave Petition (C) No. 21286 of 2024 Page 26 of 190
and such a practice would be dangerous as the Arbitrators
are appointed based on contract basis and by consent of the
parties and the remuneration to the Arbitrator is also paid
by the parties to the Arbitration Agreement. When the
Arbitrators are receiving their remuneration from the
parties to the Arbitration Agreement, which is contractual
in nature, they are bound to act as a neutral person between
the parties to the agreement and resolve the disputes raised
between those parties. In the event of allowing the
Arbitrator to exercise the powers beyond the scope of the
Arbitration Act, then the Arbitrator would be exercising the
inherent powers of the Court, so as to grant the relief to a
person, who is not a party to the Arbitration Agreement and
the very nature of the arbitration proceedings do not permit
such a situation.
(Emphasis supplied)
(iii) Lastly, that an arbitrator is a statutory creature of the Act, 1996 and its
scope, powers and jurisdiction is confined all but to the statutory
provisions of the said Act. An arbitrator cannot travel beyond the statute
and the arbitration agreement in such a manner so as to usurp the
jurisdiction of civil courts. As such an arbitral tribunal cannot exercise
the inherent powers conferred upon national courts such as under Order
I Rule 10 of the CPC, and is bound to function only within the scope of
the Act, 1996 and adjudicate disputes between parties to the
“ arbitration agreement ” in terms of the said Act. A power which is not
contemplated under the Act, 1996 cannot be exercised by an arbitral
tribunal. It observed that if such concept of power to impleadment is
provided to the arbitrator then not only would it lead to widening the
scope of arbitration proceeding but also would defeat the very purpose
Special Leave Petition (C) No. 21286 of 2024 Page 27 of 190
of the Act, 1996 i.e., the adjudication between the consenting parties to
the arbitration agreement with a defined contractual legal relationship.
The relevant observations read as under: -
“77. The above proposition of law laid down by the Courts
would reveal that the Arbitrator cannot exercise an
inherent power conferred to the Civil Courts under the
Code of Civil Procedure. The Arbitrator is bound to
function within the scope and ambit of the Act and resolve
the disputes between the contracted parties to the
Arbitration Agreement as defined under the Act. Travelling
beyond the scope of the Act is impermissible and if such an
exercise is made, then the same would result in exercise of
excess jurisdiction and finally the Arbitrator would be
functioning as a Civil Court, which is not intended under
the provisions of the Arbitration and Conciliation Act,
1996. When the Arbitrator is appointed under the Statute,
scope, powers and jurisdiction shall be within the
provisions of the said Statute. The Arbitrator is not
empowered to travel beyond the scope of such powers and
in the event of such an exercise, the same would cause
prejudice to either of the parties to the Arbitration
Agreement and this apart, certain common civil rights
cannot be decided by the Arbitrator.
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.
Special Leave Petition (C) No. 21286 of 2024 Page 28 of 190
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.
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.
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 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
Special Leave Petition (C) No. 21286 of 2024 Page 29 of 190
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.
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.”
(Emphasis supplied)
20. In Arupri Logistics Pvt. Ltd. v. Vilas Gupta & Ors. reported in (2023) SCC
OnLine Del 4297 a family arrangement had been drawn between the
respondents therein whereby their business holdings and properties were
bifurcated into two distinct groups. Sometime thereafter, dispute cropped up
between the two respondent groups as regards a parcel of land alleged to have
been sold to the appellants therein in violation of the terms of the family
arrangement and without proper authorization. Since, the family arrangement
contained an arbitration clause, a sole arbitrator was appointed by the referral
Special Leave Petition (C) No. 21286 of 2024 Page 30 of 190
court to resolve the said dispute between the respondent groups therein. The
appellants therein were never arrayed as parties in the proceedings before the
referral court, and it was only when one of the respondents therein moved an
application before the arbitral tribunal for seeking impleadment of the
appellants therein, that they were arrayed in the arbitration proceeding. The
Sole arbitrator allowed the said application and impleaded the appellants
therein. In appeal, the Delhi High Court held that the arbitral tribunal’s power
to implead does not flow from the provisions of the Act and that it being a
creature of the Act, 1996 and the arbitration agreement cannot assume powers
other than those conferred upon it. It can neither join or delete parties that were
never referred to arbitration by the referral court. The said decision is in four-
parts: -
(i) First, although Section 19 of the Act, 1996 permits the arbitral tribunal
to formulate the procedure to be followed in accordance with the CPC
yet it does not mean that all powers that are ordinarily vested in a
national court by the CPC could also be said to have been conferred
upon the arbitration tribunal which have otherwise not been provided
by the statute. The power to implead has been explicitly conferred upon
a court in terms of Order I Rule 10, and in the absence of any such
provision in the Act, 1996, the power to conduct proceedings under
Section 19 sub-section (3) of the Act, 1996 can neither be construed as
a source of power of the arbitral tribunal to join parties nor can such
Special Leave Petition (C) No. 21286 of 2024 Page 31 of 190
power be readily inferred due to its nature of militating against the very
consensual scheme of arbitration. The relevant observations read as
under: -
“58. As this Court reads Section 19(1), it finds that all that
the said provision purports to achieve is to unfetter an AT
from the rigors of procedure as embodied in the two statutes
noticed above. While it may still be open for the AT to seek
guidance and regulate its procedure bearing in mind the
underlying principles flowing through the provisions of
the CPC or the Evidence Act, that would not be liable to be
read as either conferring additional powers upon an AT or
arming it with the plethora of powers that may be otherwise
specifically conferred upon courts in terms of those statutes.
59. The power to implead stands conferred upon a court
specifically in terms of Order I Rule 10 of the CPC. The
aforesaid power is introduced in the CPC to enable the
court to either strike out the name of parties or join parties
whose presence in its opinion is necessary in order to
enable it to effectively adjudicate upon and settle all
questions involved. What needs to be remembered is that
the power to implead stands vested in a court under
the CPC by virtue of an express conferral of power in terms
of Order I Rule 10(2). The power to implead and join has
not been understood to exist in Section 151 of the CPC and
which deals with inherent powers.
60. The position which emerges from the aforesaid
discussion is that the power to implead is one which stands
specifically conferred by virtue of a provision duly
incorporated in the CPC. The power stands placed in the
hands of a court in order to enable it to effectively resolve
disputes and arrive at a just settlement of questions that
stand raised before it. However, and contrary to the above,
the Act fails to incorporate a power to implead insofar as
the AT is concerned. The power to conduct proceedings in
a manner considered appropriate and which is recognised
by Section 19(3) also cannot possibly be stretched to be
read as a source of the authority of an AT to join parties.
Special Leave Petition (C) No. 21286 of 2024 Page 32 of 190
61. It is relevant to note that the discretion conferred on an
AT to formulate the procedure to be followed in
proceedings which it proposes to initiate cannot be
extended to contemplate joinder of persons who are not
signatories to an arbitration agreement. This more so since
the joinder of parties which may otherwise not be
signatories to an arbitration agreement raises substantive
issues. The impleadment of a party in arbitral proceedings
results in that individual or entity becoming bound by an
award, interim or final, that may be rendered by the AT
even though it may have never consented to seek resolution
of questions by that tribunal. The impleadment of a party
unilaterally by the AT thus results in a non-signatory being
subjected to the authority of that tribunal and accepting its
right to adjudicate upon disputes even though it may have
never consented to subject itself to the authority of the said
AT. This would clearly militate against the principle of
“party consent” which forms the very foundation of
arbitration.”
(Emphasis supplied)
(ii) Secondly, an arbitral tribunal owes its existence to the arbitration
agreement and is essentially a designated private forum for resolving
the disputes between the parties to such agreement and as such is
detached from the hierarchy of ‘courts’. Its genesis flows from the
arbitration agreement and upon its constitution, the arbitral tribunal is
governed by such agreement and the contours of the Act, 1996 only.
The idea of vesting of inherent powers have been recognized only for
adjudicatory institutions such as national court’s whose genesis and by
extension their powers flows from their right to act as a matter of justice
and hence, the vesting of such powers to meet the ends of justice.
However, an arbitration tribunal cannot be equated to a national court
Special Leave Petition (C) No. 21286 of 2024 Page 33 of 190
since it derives its power to adjudicate from an express and private
conferral of authority by parties through an agreement, and thus, there
can be no vesting of an inherent power. Any authority that has been
conferred upon the arbitral tribunal by the parties can only be exercised
within the confines of the Act, 1996. The relevant observations read as
under: -
“63. [...] an AT owes its genesis to parties resolving to
confer authority on a person or an institution to render an
award and adjudicate upon disputes that may arise. While
the courts may intervene by virtue of the provisions of
Section 11 of the Act, they do so only in cases where parties
are unable to agree upon the constitution of an AT.
However, even where the courts do constitute an AT by
virtue of Section 11, the person or institution so designated
remains a private forum which springs into existence
principally in light of the agreement of parties and their
resolve to have their disputes decided by that tribunal.
64. An AT constituted either upon consensus of parties or
consequent to intervention by courts remains a forum
outside the ordinary hierarchy of legal institutions on which
the justice dispensation system of our nation rests. It owes
its genesis to the agreement between the parties and upon
its constitution comes to be governed by the provisions of
the Act. It is thus not an adjudicatory institution which can
claim to be vested with inherent powers.
65. Inherent powers are those which have been recognised
to inhere in courts forming part of the formal hierarchy of
legal institutions and which may be compendiously referred
to as national courts. AT's thus constitute forums outside
the circuit of national courts and remain to be institutions
which owe their existence principally to the agreement
between parties. [...]
66. [...] An AT remains an institution which comes to be
constituted merely on the basis of a private agreement
Special Leave Petition (C) No. 21286 of 2024 Page 34 of 190
between parties. It must also be remembered that the
inherent power recognised to exist in courts flows from
their right to act ex debito justitiae. The power to do so has
always been recognised to exist in national courts with
Section 151 of the CPC merely recognizing and reaffirming
that power inhering in courts. [...]
67. What the Court seeks to highlight is the superior powers
which are recognised to exist in national courts as opposed
to ATs’ generally. Statutes while according recognition to
the inherent powers recognised to exist in national courts
accept such a supervening power inhering in those courts
and which enables them to pass such orders as would
subserve the ends of justice. AT's on the other hand derive
the power to adjudicate based on an express conferral of
authority by parties to an agreement. Even where parties
confer a power on the AT to arbitrate, that conferral must
be within the contours of the applicable law. [...]”
(Emphasis supplied)
(iii) Thirdly, it held that the power to implead a party could also not be said
to flow from either Section(s) 16 or 17 of the Act, 1996 respectively.
The doctrine of kompetenz-kompetenz enshrined in Section 16 that
enables the arbitral tribunal to rule on any jurisdictional objection such
as the existence or validity of the arbitration agreement is confined or
limited only to the objections raised by the parties before it by virtue of
the arbitration agreement. It cannot be regarded as a source of power to
implead parties. Similarly, the power to pass interim measures under
Section 17 of the Act, 1996 cannot possibly encompass the power to
implead or join a third-party to the arbitration proceedings, as such
impleadment or joinder are not interim or interlocutory in nature, since
Special Leave Petition (C) No. 21286 of 2024 Page 35 of 190
the exercise of such power in essence also makes the third-party to be
bound by all other subsequent findings and the ultimate award of the
tribunal that may be rendered apart from the ‘interim order’. The
relevant observations read as under: -
“68. We also find ourselves unable to recognize the power
to implead as flowing from Sections 16 or 17 of the Act.
Section 16 as is manifest from its plain language empowers
the AT to rule on its own jurisdiction. It is in essence an
adoption of the kompetenz-kompetenz principle as
recognized to inhere in AT's. The power to rule on
jurisdiction or on objections with respect to the existence or
validity of the arbitration agreement cannot possibly be
recognized as a source of power to implead parties. It is
essentially concerned with the right of the AT to rule on any
jurisdictional objection that may be raised by parties before
it. The authority to render a decision on a jurisdictional
question or challenge that may be raised cannot be
stretched to infer a power to join parties to the arbitration
proceedings.
69. Insofar as Section 17 is concerned, none of the interim
measures of protections which are spelt out in clauses (a)
to (e) of Section 17(1)(ii) deal with or confer authority upon
the AT to join non-signatories. At least none of those
clauses explicitly speak of a power to implead. The power
to frame an interim measure which may be considered to
be “just and convenient” and which is spoken of in clause
(e) also cannot be justifiably extended as embodying a
power to implead. This since Section 17 fundamentally
deals with “interim measures”. The impleadment or the
joinder of a party to arbitral proceedings cannot be
construed to be an order which may be termed as either
interim or interlocutory. This since the moment a party is
joined in the proceedings, it becomes bound by the award
which may be ultimately rendered by the AT.
70. This Court also finds itself unable to recognize a power
to implead being liable to be read in Section 17 merely
because post its amendment by Act 3 of 2016 the AT now
Special Leave Petition (C) No. 21286 of 2024 Page 36 of 190
stands empowered to grant interim measures at par with the
power which stands vested in courts in terms of Section 9 of
the Act. The clear intent underlying the amendment to
Section 17 is to enable AT's to frame interim measures from
a position of equivalence with courts. The amendment to
Section 17 appears to have been motivated solely by the felt
need to save courts from being deluged with applications
for interim relief. However, one must not lose sight of the
fact that both Section 17 as well as Section 9 continue to
deal with interim measures. The power to join a party and
thus subject it to the ultimate decision and award that may
be rendered by the AT cannot be conceived to be a
component of the power to frame interim orders under
Section 17. The Court in this respect concurs with the view
expressed by the Madras High Court and reflected in Paras
127-134 of Abhibus as well as the legal position as
enunciated and explained in Paras 81 and 99 of V.G.
Santhosam.
(Emphasis supplied)
(iv) Lastly, it observed that although various principles such as ‘alter ego’
or ‘group of companies’ have been recognized to compel a third-party
to partake in the arbitration proceedings, yet such principles have been
invoked only in the context of Section(s) 8 or 45 of the Act, 1996
respectively which empowers a judicial authority to make a reference
to arbitration. Since both these provisions uses the phrase “a party to
the arbitration agreement or any person claiming through or under
him” unlike Section 2(1)(h) that defines “ party” to include only “ a
party to an arbitration agreement ”, it necessarily meant that it is only
the courts that have the power to refer even a non-signatory to
Special Leave Petition (C) No. 21286 of 2024 Page 37 of 190
arbitration by resorting to such principles. However, an arbitral tribunal
is only limited to adjudicate between parties to an arbitration agreement
in terms of Section 2(1)(h) of the Act, 1996. The relevant observations
read as under: -
“72. Although that Report was submitted in August 2014
and various amendments have been introduced in the Act
thereafter, Section 2(1)(h) has remained unchanged. The
meaning to be ascribed to the word “party” as appearing
in the Act at different places has come to be expanded only
in Section 8 which in terms of the Arbitration and
Conciliation (Amendment) Act, 2015 incorporates the
phrase “a party to the arbitration agreement or any person
claiming through or under him”. The only other provision
in which the word “parties” was further extended is Section
45 which too incorporates the phrase “or any person
claiming through or under him”. However, and
significantly, both Sections 8 and 45 deal with powers
conferred on a “judicial authority” as opposed to an AT.
Insofar as the AT is concerned therefore, it would be the
provisions of Section 2(1)(h) alone which would apply.
91. However, and while the decision of the larger Bench is
still awaited, this Court finds that the various decisions
rendered on the subject and as were noticed in Cox &
Kings essentially related to cases where courts were called
upon to invoke those theories and hold parties, who even
though may not have been signatories to the arbitration
agreement, to be bound by the same. In fact, some of the
decisions which were noticed in Cox & Kings had been
rendered in the context of Section 45 which, as was noticed
above, specifically employs the expression “any person
claiming through or under him”. The more fundamental
question which remains to be answered by the Court is
whether an AT would be justified in invoking those
doctrines. This Court is of the firm opinion for reasons
which are set out hereinafter that such a power cannot be
recognised to inhere in an AT.”
(Emphasis supplied)
Special Leave Petition (C) No. 21286 of 2024 Page 38 of 190
Accordingly, the Delhi High Court concluded that since an arbitral
tribunal owes its origin to the arbitration agreement providing for resolution
of disputes between the parties to such agreement in a private forum outside
the ordinary hierarchy of judicial authorities, the arbitration agreement alone,
along with the intended applicable statutory laws constitute the body of laws
within which the arbitral tribunal may exercise its powers. The arbitral tribunal
cannot arrogate to itself powers which are neither conferred by the statute or
the rules which govern the arbitration nor can it take recourse to inherent
powers that ordinarily vests within a judicial authority. Even in exceptional
cases where the scope of arbitration may be expanded to include even non-
signatories, any such power to do so has been expressly conferred by the
legislature only upon courts within the Act, 1996 by appropriate legislative
insertions to the term “ party ”. The relevant observations read as under: -
“92. As was held hereinbefore, the AT owes its origin principally
to well recognised and identifiable sources. The principal source
would be the agreement in terms of which parties may have
resolved for all disputes being referred to an AT and thus choose
a forum falling outside the circuit of national courts and the
ordinary hierarchy of judicial authorities. The other would be
rules framed by a body where the agreement contemplates
institutional arbitration. Last but not the least would be the
statutory laws framed by countries which are intended to govern
and regulate ATs’. The agreement, institutional rules or national
statutes would thus constitute the code or the body of laws
specifying the powers that may be available to be exercised by the
AT. As was pertinently observed by Redfern and Hunter, parties
cannot by agreement invest powers upon an AT which are
Special Leave Petition (C) No. 21286 of 2024 Page 39 of 190
otherwise reserved to be exercised by courts and judicial
institutions created by the State.
93. What needs to be emphasised is that an AT cannot arrogate to
itself powers which are neither conferred by the statute or the
rules which govern the arbitration nor can it take recourse to
inherent powers, which as has been found hereinabove, are
acknowledged to inhere in courts and judicial authorities only.
The AT, cannot, therefore, expropriate for itself powers which are
vested solely in judicial institutions. It remains bound by the
provisions of the statutes which prevail and which in this case
undisputedly is the Act. In the absence of a power of impleadment
having been conferred upon the AT in terms thereof, it would have
no authority or jurisdiction to join or implead parties to the
proceedings. The Court has already found that the power to
implead cannot be sustained or traced to Sections 16 or 17 or 19
of the Act. In fact, the Act incorporates no provision which could
be even remotely considered as being liable to be read as being
the repository of the power of the AT to implead.
94. The Act, wherever it was intended to expand the meaning to
be ascribed to the word “party” has done so by introducing
specific provisions in that respect. Even where such recourse was
taken, the power has come to be conferred upon a judicial
authority. If the AT were recognised to have the authority to
invoke the alter ego or group of companies principles, it would
undoubtedly result in the Court recognising a power vesting in the
AT to compel the presence of a party who had never, at least
ostensibly, agreed or conceded to its jurisdiction or authority to
decide. Such a party would necessarily be one who had not even
made party to the proceedings by the referral court. This would
clearly result in the AT seeking to exercise authority over a party
and compelling it to join the proceedings even though it may have
never been ad idem on disputes being resolved by way of
arbitration. This would not only result in the AT travelling far
beyond the contours of the arbitration agreement but negate
against the fundamental tenet of arbitration which is founded on
consensus and agreement. The Court for all the aforesaid reasons,
thus, finds itself unable to countenance the position as taken by
the Sole Arbitrator in the present case.
95. Quite apart from the Court having found for reasons
aforenoted that the AT stands conferred with no authority to
Special Leave Petition (C) No. 21286 of 2024 Page 40 of 190
implead or join parties, a reading of the impugned order would
clearly appear to indicate that the Sole Arbitrator has proceeded
to join the appellants on considerations which are recognized to
constitute the basis for the exercise of power under Order I Rule
10 of the CPC. However, the Sole Arbitrator has failed to bear in
mind that the Act confers no authority upon an AT to wield powers
akin to Order I Rule 10 of the CPC as specifically conferred on
national courts. We have also found for reasons aforenoted that
Section 19(2) cannot be read as enabling the AT to adopt Order I
Rule 10 of the CPC.”
(Emphasis supplied)
Decisions holding that the Arbitral Tribunal has the power to Implead
II.
a non-signatory to the Arbitration Agreement.
21. While on one hand the Delhi High Court along with the Bombay High Court
and the Madras High Court have taken the view that it is only the courts who
have the power to implead a non-signatory to partake in arbitration and that
such power is not vested in an arbitral tribunal, the High Court of Gujarat on
the other hand, speaking through Akhil Kureshi J. (as he then was) in IVRCL
Ltd. v. Gujarat State Petroleum Corporation Ltd. reported in 2015 GUJHC
31651 DB observed albeit in the context of scope of Section 9 of the Act,
1996, more particularly whether an injunction would be maintainable against
a non-signatory, that it is no longer res-integra that even a non-signatory to an
arbitral agreement can be subjected to arbitration proceedings. Placing
reliance on the decision of this Court in Chloro Controls (supra), it was held
that the courts have recognized various instances where even a non-signatory
to an arbitration agreement can be allowed to be joined in the arbitration
Special Leave Petition (C) No. 21286 of 2024 Page 41 of 190
proceedings by way of principle of alter-ego, apparent authority, agency or
group of companies etc. It observed that such instances are premised on the
‘implied consent’ of the third-party to the arbitration agreement and thus, it
would be futile to say that a non-signatory to an arbitration agreement can be
compelled to submit to the jurisdiction of the arbitral tribunal so validly
constituted. In the last, it observed that whether a particular case is a fit one
for enjoining a third-party on the aforesaid principles would be for the arbitral
tribunal to determine, being the appropriate forum by examining the facts of
each case, an exercise which is neither possible nor proper for the courts to
embark upon. The relevant observations read as under: -
“13. It is no longer res integra that in given set of circumstances,
even a non-signatory to an arbitral agreement can be subjected to
arbitration proceedings. Such instances may be rare and may
arise in special facts of the case and would ordinarily provide an
exception to the normal rule, that only a signatory to the arbitral
proceedings can be compelled to submit to the jurisdiction of the
arbitral tribunal. Nevertheless, instances have been recognized by
Courts where either on the ground of piercing corporate veil as
one entity found to be the alter ego of the other or some such
similar ground, even a non-signatory entity to an arbitration
agreement is allowed to be joined in the arbitration proceedings.
As noted, in case of Chloro Controls (I) P. Ltd. (supra), the law
on the point was discussed at length by 3 Judge Bench of the
Supreme Court and it was concluded that various legal basis may
be applied to bind a non-signatory to an arbitration agreement.
Such instances would be of that of implied consent, third party
beneficiaries, guarantors, assignment and other transfer
mechanisms of contractual rights. Such theory relies on the
discernible intentions of the parties and to a large extent, on good
faith principle. The second stream of cases would be included in
the legal doctrines of agent-principal relations, apparent
authority, piercing of veil, joint venture relations, succession and
estoppel. It was observed that this principle does not rely on the
Special Leave Petition (C) No. 21286 of 2024 Page 42 of 190
parties’ intention but rather on the force of the applicable law. It
would therefore be futile to argue that in no case, a non-signatory
to an arbitration agreement can be compelled to submit to the
jurisdiction of the arbitral tribunal so validly constituted. Whether
in the present case, facts are such that any of the principles cited
above or any other recognized by judicial precedent would apply
or not is neither possible nor proper on our part to comment upon.
Entire issue is pending before the appropriate forum. We would
therefore not be justified in allowing the appeal and vacating the
injunction only on this ground.”
(Emphasis supplied)
22. Similarly in IMC Ltd. v. Board of Trustees of Denndayal Port Trust reported
in (2018) SCC OnLine Guj 4972 , the Gujrat High Court placing reliance on
IVRCL Ltd (supra) held that there is nothing in the Act, 1996 which precludes
or prohibits an arbitral tribunal from lifting the corporate-veil and pursuant
thereto impleading even a non-signatory to arbitration proceedings.
Expressing its disagreement with the views of the Bombay High Court and the
Delhi High Court in Sudhir Gopi (supra) and Oil and Natural Gas
Corporation Ltd (supra) respectively, it held that except for a limited sphere
of fields involving disputes which are non-arbitrable, the arbitral tribunal is
well-empowered to take up all other disputes and issues thereto which would
necessarily also include the issue of lifting the corporate veil to enjoin a non-
signatory to the arbitration. Whether a case is made out for impleading a third-
party (sic non-signatory) or not would be a matter for the arbitral tribunal
being the proper designated forum for adjudication of disputes, keeping in
mind the facts of each case and the position of law. It further observed that
Special Leave Petition (C) No. 21286 of 2024 Page 43 of 190
both the recognition of such power of an arbitral tribunal AND the non-
issuance of a notice of invocation in terms of Section 21 of the Act, 1996 to
the third-party sought to be impleaded will hardly occasion any prejudice, as
it is always open to such a third-party to challenge its impleadment by way of
an application under Section 16 of the Act, 1996. The relevant observations
read as under: -
“23. 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 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.
xxx xxx xxx
45. On hearing the response on the said issues by the learned
Senior Counsel Shri Mihir Thakore and keeping in view of the
provisions of the Arbitration Act, 1996, as also the judgment of the
Hon'ble Supreme Court in the case of A. Ayyasamy v. A.
Special Leave Petition (C) No. 21286 of 2024 Page 44 of 190
Paramasivam reported in (2016) 10 SCC 386, we are not in
agreement with the view taken by the learned Single Judges in the
aforesaid judgments in Sudhir Gopi v. Indira Gandhi National
Open University reported in 2017 SCC OnLine Del 8345 and Oil
and Natural Gas Corporation Ltd. v. Jindal Drilling and
Industries Limited reported in 2015 SCC OnLine Bom 1707.
There is nothing in law which prohibits an Arbitral Tribunal from
lifting the corporate veil on the basis of doctrine of alter ego. The
Arbitral Tribunal has a right to take up all disputes which a Court
can undertake, except certain disputes generally treated as non-
arbitrable, viz. (i) patent, trade marks and copyright, (ii) anti-
trust/competition laws, (iii) insolvency/winding up, (iv)
bribery/corruption, (v) fraud, (vi) criminal matters.
The Arbitration and Conciliation Act, 1996, does not make any
provision excluding any category of disputes treating them as non-
arbitratble but the Courts have held that certain kinds of disputes
may not be capable of adjudication through means of arbitration.
This issue is elaborately considered by the Hon'ble Supreme Court
in the case of A. Ayyasamy v. A. Paramasivam reported in (2016)
10 SCC 386. [...]
xxx xxx xxx
47. Further, in the case of IVRCL Limited v. Gujarat State
Petroleum Corporation Limited - First Appeal No. 1714 of 2015
and other allied appeals, decided on 08-13/10/2015, a Division
Bench of this Court held that it is no longer res-integra that in a
given set of circumstances, even a non-signatory to an arbitral
agreement can be subjected to arbitration proceedings. It is
further observed that instances have been recognized by Courts
where on the ground of piercing corporate veil, as one entity being
found to be an alter ego of the other or on similar grounds, even
a non-signatory entity to an arbitration agreement is allowed to
be joined in the arbitration proceedings. The Division Bench has
disapproved the argument that, in no case, a non-signatory to the
arbitration agreement can be compelled to submit to the
jurisdiction of the Arbitral Tribunal validly constituted.
48. In view of the aforesaid judgments of the Hon'ble Supreme
Court and Division Bench of this Court, we are not in agreement
with the submission made by Shri S.N. Soparkar, learned Senior
Counsel for the appellant, that the learned Arbitral Tribunal has
no jurisdiction to examine the issue by lifting the corporate veil
Special Leave Petition (C) No. 21286 of 2024 Page 45 of 190
and further, on facts, no case is also made out to examine the claim
of alter ego by lifting the corporate veil. Whether a case is made
out for impleading a third party by applying the doctrine of lifting
of corporate veil, is a matter which is to be examined having
regard to facts of each case and keeping in mind the concept of
group Companies. [...] ”
(Emphasis supplied)
23. In NOD Bearing Pvt. Ltd. v. Bhairav Bearing Corporation reported in (2019)
SCC OnLine Bom 366 the facts germane for our discussion are that an
agreement for supply of ball bearings was entered into between the petitioner
therein and one KBIL group. For facilitation of distribution of these goods,
the petitioner therein entered into a dealership agreement with the respondent
therein, pursuant to which a certificate of distribution came to be issued to the
respondent therein by KBIL. Due to various issues as regards the fulfilment
of supply of goods, the KBIL and the petitioner therein terminated the
certificate of distribution and the dealership agreement, respectively with the
respondent therein. Aggrieved by the aforesaid, the respondent therein
initiated arbitration against the petitioner therein inter-alia for the purpose of
challenging the aforesaid termination and claiming damages therefrom.
Before the arbitral tribunal one of the key issues canvassed by the petitioner
therein was that the arbitration suffers from a mis-joinder or non-joinder of
parties inasmuch as KBIL had not been impleaded. It contended that the
dealership agreement entered into by it with the respondent therein was only
in the capacity of an agent of the KBIL, and thus any claims arising out of the
Special Leave Petition (C) No. 21286 of 2024 Page 46 of 190
same must be made against the principal alone i.e., KBIL, who has not been
made a party to the arbitration proceedings. The aforesaid contention came to
be rejected by the arbitral tribunal and ultimately an award was passed against
the petitioner therein. In appeal, the Bombay High Court upholding the
decision of the sole arbitrator held that construction and determination of the
scope of agreement so as to determine which parties are necessary to the
proceedings is a matter strictly within the jurisdiction of the arbitrator. It
further observed that as long as the interpretation of the agreement by the
arbitrator is reasonable, the courts would refrain from interfering with the
same merely because another view is possible. Although the Bombay High
Court did not make any observations as regards the power of tribunal to
implead or join a non-signatory, yet its observations as to the scope of
jurisdiction of the arbitral tribunal, more particularly for determining whether
there exists any principal-agent relationship nevertheless is of significance,
which we shall discuss in more detail in the latter parts of this judgment. The
relevant observations read as under: -
“4. Learned Counsel for the Petitioner submits that dealership
agreement, which gave rise to the Respondent's claim, was
entered into by the Petitioner as an agent of KBIL. Learned
Counsel submits that the Petitioner having disclosed in the
dealership agreement its principal and its express authority to
name a dealer whilst acting for the principal, namely, KBIL, the
Respondent's dealership is not a sub-agency of the Petitioner, but
an agency of the principal itself, namely, KBIL. Learned Counsel
relies on Section 194 read with Section 230 of the Contract Act in
this behalf. Based on this contention, it is further submitted that
the claim being in respect of a contract of agency as between the
Special Leave Petition (C) No. 21286 of 2024 Page 47 of 190
Respondent and KBIL, the latter was a necessary party for any
adjudication concerning the agreement. [...]
xxx xxx xxx
5. The learned arbitrator rejected the Petitioner's submissions on
the ground that the dealership agreement between the Petitioner
and the Respondent was on a principal to principal basis; though
this agreement was in pursuance of its entitlement to appoint
dealers under its main contract of distributorship with KBIL and
this agreement conferred upon KBIL certain rights, in essence, it
was an agreement between the Petitioner and the Respondent. The
arbitrator considered various circumstances to arrive at this
conclusion. The arbitrator inter alia observed that under the
dealership agreement, the Respondent was required to place a
purchase order on, and purchase bearings from, the Petitioner
and prices were required to be separately agreed between the
Respondent and the Petitioner from time to time. After considering
various clauses of the dealership agreement (in particular,
clauses 3(b), 5(a) to (c), 6(a), 7(a), (d), 10, 11(f) and 13 thereof),
the arbitrator held that a holistic reading of the agreement did not
show that the Petitioner was merely acting as an agent of KBIL,
whilst entering into the dealership agreement with the
Respondent. The arbitrator relied on the case of Coats Viyella
India Ltd. v. India Cement Ltd. in this behalf. In Coats Viyella
India Ltd., the Supreme Court, after considering the agreement as
a whole, had held that under the agreement, a privity of contract
of the appellant was only with the respondent and there was no
liability on the other party, who was claimed to be the principal,
to make payment to the appellant; the agreement was on a
principal to principal basis between the appellant and the
respondent, the rights and liabilities of the appellant arising only
under the agreement. Based on the material placed before the
learned arbitrator and a reasonable interpretation of the
dealership agreement and application of law, the arbitrator came
to his conclusion that the Petitioner did not act merely as an agent
on behalf of KBIL in entering into the dealership agreement and
since the Respondent's case was that the Petitioner's acts had
directly resulted in the Respondent suffering losses, the
proceedings did not suffer from any mis-joinder or non-joinder of
necessary party so as to vitiate the proceedings. This conclusion
is clearly a possible view based on the material placed before the
learned arbitrator. Construction of a contract is a matter strictly
Special Leave Petition (C) No. 21286 of 2024 Page 48 of 190
within the jurisdiction of the arbitrator, and so long as the
arbitrator construes it on a reasonable interpretation and his
construction denotes a possible view, there is nothing for the
challenge court to interfere with under Section 34 of
the Arbitration and Conciliation Act, 1996 (“Act”).
6. There is no denial of the proposition of law laid down by the
Supreme Court or our court in the cases cited by learned Counsel
for the Petitioner. Prem Nath Motors Limited's case (supra)
basically considers the effect of Section 230 of the Contract Act.
In that case, it was held that the agent had acted on behalf of a
disclosed principal and there was no contract to the contrary
placed before the court so as to make the agent liable for the act
of the disclosed principal. Even in Vivek Automobiles
Limited (supra), the court applied the same principle. The
principle of law enunciated by the Supreme Court in these cases
merely implies that an agent is not responsible for the acts of a
disclosed principal except in case of a contract to the contrary.
The real question in the present case is whether, in so far as the
agency agreement between the Petitioner and the Respondent is
concerned, the Petitioner could be said to be merely acting as an
agent of a disclosed principal, namely, KBIL, or was the
agreement entered into by the Petitioner acting in its own rights
as a principal. On a reasonable construction of the agreement, the
arbitrator found that it was the latter case and not the former. The
arbitrator held that the relevant clauses of the agreement
indicated that the agreement of dealership was entered into by the
Petitioner not as an agent of KBIL, but in its individual capacity
on a principal to principal basis. That conclusion, as I have noted
above, is a possible view based on a reasonable interpretation of
the agreement.”
(Emphasis supplied)
24. A similar view was taken by the Delhi High Court in Vistrat Real Estates Pvt.
Ltd. v. Asian Hotels North Ltd. reported in (2022) SCC OnLine Del 1139
wherein the issue before the court was whether the petitioner therein was
entitled to initiate arbitration against a third-party who was not a signatory to
the arbitration agreement. The Delhi High Court placing reliance on Chloro
Special Leave Petition (C) No. 21286 of 2024 Page 49 of 190
Controls (supra), held that in exceptional cases pertaining to either the
principle of ‘composite performance’ or ‘implied authority’. even a third party
who is not a signatory to the arbitration agreement can be joined in arbitration.
It further held that at the stage of appointment of an arbitrator in terms of
Section 11 of the Act, 1996, the courts are required only to make a prima-facie
determination as regards the validity or existence of the arbitration agreement
only. Once it is found that there is a valid arbitration agreement in existence,
all other issues including whether any relief can be claimed against a third-
party or the necessity for impleading such third party would be a matter to be
looked into only by the arbitral tribunal by virtue of the powers devolved upon
it by the principle of ‘ kompetenz-kompetenz ’. The relevant observations read
as under: -
“11. Hon'ble Supreme Court in the decision reported as (2013) 1
SCC 641 Chrolo Controls India Private Ltd. v. Severn Trent
Water Purification Inc. though dealing with an international
arbitration under Section 45 of the Act, held that even third parties
who are not signatories to the arbitration agreement can be joined
in arbitration. It laid down categories where the third parties can
be impleaded to the arbitration and held that the expression
‘claiming through them’ should be construed strictly. [...]
12. The decision in Chrolo Controls (supra) clearly holds that in
exceptional cases applying the principle of “composite
performance” or implied authority, even a third party who is not
a signatory to the arbitration agreement can be joined in
arbitration.
13. Hon'ble Supreme Court in Vidya Drolia (supra) further
considering the issue as to who would decide the non-arbitrability
of the claim held that there cannot be a straightforward universal
answer. Reiterating the law laid down in Shin Etsu Chemical Co.
Special Leave Petition (C) No. 21286 of 2024 Page 50 of 190
Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234, it was held that the
correct approach to the review of the arbitration agreement is
restricted to prima facie finding that there exists an arbitration
agreement that is not null and void, inoperative or incapable of
being performed. The key rationale for holding that the courts’
review of the arbitration agreement should be limited to a prima
facie standard is the principle of competence-competence.
Further, if the courts are empowered to fully scrutinise the
arbitration agreement, an arbitral proceeding would have to be
stayed until such time that the court seized of the matter renders a
decision on the arbitration agreement. This would defeat the credo
and ethos of the Arbitration and Conciliation Act which is to
enable expeditious arbitration without avoidable intervention by
the judicial authorities. The rule of priority in favour of the
arbitrators is counterbalanced by the courts’ power to review the
existence and validity of the arbitration agreement at the end of
the arbitral process. It was further held that if on a bare perusal
of the agreement it is found that a particular dispute is not
relatable to the arbitration agreement, then, perhaps the court
may decide the relief sought for by a party in a Section 11 petition.
However, if there is a contestation with regard to the issue as to
whether the dispute falls within the realm of the arbitration
agreement, then the best course would be to allow the arbitrator
to form a view in the matter.
14. Therefore, once a valid arbitration agreement exists between
the parties, the issue whether the petitioner is entitled to any relief
in the absence of a third party to the agreement or that third party
is required to be impleaded in the proceedings, is covered by the
Doctrine of Competence-Competence and it will be for the
Arbitrator to decide the said issue. Thus, the issue whether in the
absence of a third party, the petitioner can claim the refundable
security deposit would be for the learned Arbitrator to
determine.”
(Emphasis supplied)
25.
In Cardinal Energy and Infra Structure Pvt. Ltd. v. Subramanya
Construction and Development Co. Ltd. reported in (2024) SCC OnLine
Bom 964 , the Bombay High Court diverging from the views expressed in its
earlier decision of Oil and Natural Gas Corporation Ltd. (supra) and the
Special Leave Petition (C) No. 21286 of 2024 Page 51 of 190
decision of the Madras High Court in V.G. Santhosam (supra), held that the
arbitral tribunal does have the power or authority to implead a non-signatory
even if such impleadment was never sought at the referral stage. The said
decision is in three-parts: -
(i) First, placing reliance on the decision of this Court in Cox and Kings
(I) (supra), it held that the question whether a non-signatory is bound
by the arbitration agreement or not, is for the arbitral tribunal to decide
and not the referral court. Thus, even if the non-signatory was not
impleaded at the time of filing of application under Section 11 of the
Act, 1996, it would be incorrect to say that the same would exclude the
arbitral tribunal from impleading such party by applying the ‘group of
companies’ doctrine on its own accord. The relevant observations read
as under: -
“40. The Sole Arbitrator has referred to the decision of the
Supreme Court in Cox and Kings (Supra) where the
Supreme Court has enunciated the ‘Group of Companies’
doctrine and in particular the impleadment of a non-
signatory to an Arbitration Agreement in arbitral
proceedings based on such doctrine. The Supreme Court in
the said decision has considered a case where an
Application was made to the Referral Court to join a non-
signatory to the Arbitration Agreement and it was in such
scenario that the Supreme Court held that, the Referral
Court is required to prima facie rule on the existence of the
Arbitration Agreement and whether the nonsignatories is a
veritable party to the Arbitration Agreement. The Supreme
Court has held that in view of the complexity of such a
determination, the Referral Court should leave it for the
Arbitrator to decide, whether the non-signatory party is
indeed a party to the Arbitration Agreement on the basis of
Special Leave Petition (C) No. 21286 of 2024 Page 52 of 190
the factual evidence and application of legal doctrine. It is
necessary to reproduce paragraphs 171 and 172 of the said
decision [...]
41. Thus from the conclusions of the Supreme Court, it is
clear that the Supreme Court has held that where at a
referral stage impleadment of a non-signatory to the
Arbitration Agreement is raised, the Referral Court should
leave it for the Arbitral Tribunal to decide whether the non-
signatory is bound by the Arbitration Agreement. Thus, it is
clear that the Arbitral Tribunal has the power to decide
whether the non-signatory is bound by the Arbitration
Agreement and to implead the non-signatory if answered in
the affirmative.
42. I do not find from a reading of the decision of the
Supreme Court in Cox and Kings Ltd. (Supra) that merely
by there being no prayer for impleadment of a non-
signatory in the Section 11 Application, the applicability of
the doctrine of ‘group of companies’ by the Sole Arbitrator
is excluded. [...]”
(Emphasis supplied)
(ii) The arbitral tribunal being the appropriate forum to determine the issue
as to joinder of a non-signatory to an arbitration agreement, would
undoubtedly have the power to implead such non-signatory. Although,
at the referral stage the court is bound to decide whether there is an
arbitration agreement and whether the parties before it are bound by
such agreement or not, yet this does not preclude the arbitral tribunal
from deciding these issues after the proceedings have commenced on
its own accord, particularly when such issues were not conclusively
decided by the courts in the first instance. The relevant observations
read as under: -
Special Leave Petition (C) No. 21286 of 2024 Page 53 of 190
“42. [...] The Arbitrator does have the power/authority to
implead the non-signatory if such non-signatory is
otherwise liable to be impleaded on the basis of the ‘group
of companies’ doctrine. Thus, the Supreme Court has infact
considered that the Arbitral Tribunal is the appropriate
forum to determine the issue as to joinder of a non-
signatory to an Arbitration Agreement. I thus find no merit
in the submission of Mr. Rustomjee that in the event the
issue of joinder of a non-signatory to an Arbitration
Agreement is not raised before the Referral Court, the
Arbitral Tribunal on its own accord does not have the
power to determine this issue and/or allow the impleadment
of a non-signatory to an Arbitration Agreement. I do not
find there to be any estoppel on the Arbitral Tribunal
determining this issue.
xxx xxx xxx
44. There have been submissions made by Mr. Rustomjee
on the power of the Referral Court to determine whether the
Arbitration Agreement exists and/or validity of the
Arbitration Agreement and which would include whether
the Arbitration Agreement is applicable to non-signatories
to the Agreement. The Supreme Court in National
Insurance Company Ltd. (Supra) at paragraph 22 has
referred to the issues which the Chief Justice or his
designate is bound to decide and which includes 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. However, this will not preclude the
Arbitral Tribunal from deciding the issue of impleadment of
a non-signatory to an Arbitration Agreement, particularly
when this issue was not before the Referral Court. Thus, in
my view, the Sole Arbitrator in the present case was
perfectly justified in determining the issue of whether the
Petitioners as non-signatories to the Arbitration Agreement
could be impleaded as parties to the arbitration.
(Emphasis supplied)
Special Leave Petition (C) No. 21286 of 2024 Page 54 of 190
(iii) Thirdly, it observed that although the power of impleadment cannot be
traced to any provision of the Act, 1996, yet such power has been
recognized to exist with the arbitral tribunal by virtue of the law
expounded by Cox and Kings (I) (supra). It then held that such power
to implead can be traced to the arbitral tribunal’s power to determine its
own jurisdiction under Section 16 of the Act, 1996, which includes the
power to determine whether the arbitral tribunal has jurisdiction over
non-signatories to the arbitration agreement in question. Moreover,
under the scheme of Act, 1996, it is always open to the parties to
challenge such impleadment by leading evidence on these issues before
the arbitrator and thereafter before the courts by taking recourse to
Section 34 of the Act, 1996 after the award is passed. The relevant
observations read as under: -
“43. I further find much substance in the argument of Mr.
Sarda on behalf of the Respondent Nos. 1 and 2 that the
Arbitral Tribunal is obliged to follow the law laid down by
the Supreme Court and/or judge made law. This would be
the case despite the Arbitral Tribunal not having specific
power to consider an application for impleadment and/or
the power of the Civil Court under Order I Rule 10 of
the CPC. The Delhi High Court in Abhibus Services India
Private Ltd. (Supra), paragraph 136 has the recognized
concept of judge made law. However, it has been held that
in the absence of any trace of such power in the entire
scheme of the Act, the power of impleadment cannot be said
to be conferred upon the Tribunal on the basis of judge
made law. This decision of the Delhi High Court was prior
to the decision of the Supreme Court in Cox and
Kings (Supra) which in my view has changed the law with
regard to impleadment of non-signatories to the Arbitration
Special Leave Petition (C) No. 21286 of 2024 Page 55 of 190
Agreement on the ‘group of companies’ doctrine and has
left it to the Arbitral Tribunal to determine this issue.
xxx xxx xxx
45. The aforementioned findings are on the premise that the
impugned Order is an interim award. However, one cannot
lose sight of the fact that the Arbitrator under Section 16 of
the Arbitration Act has the power to determine issues of
jurisdiction which in my view would include whether the
Arbitrator has jurisdiction over nonsignatories to an
Arbitration Agreement. Any such decision taken by the
Arbitrator can always be the subject matter of a challenge
by the Petitioners in a Petition filed under Section 34 of the
Arbitration Act after the final Award is passed. Further, I
do not find merit in the submission of Mr. Rustomojee that
the aforesaid points for determination namely, issue Nos.
(ii), (iii) and (v) which have been extracted above have been
finally determined. It is always open for the Petitioners to
lead evidence on these issues and invite final adjudication
by the learned Sole Arbitrator on these issues. The decisions
of the Delhi High Court in National Highway Authority of
India (Supra) and Goyal MG Gases Pvt. Ltd. (Supra) are
apposite.”
(Emphasis supplied)
26. Similarly, the Delhi High Court in Indraprastha Power Generation Co. Ltd.
v. Hero Solar Energy Pvt. Ltd. reported in (2024) SCC OnLine Del 6080
held that although Arupri Logistics (supra) when it was rendered was correct
in holding that an arbitral tribunal cannot join or delete parties, or proceed on
principles akin to Order I Rule 10 of the CPC, and that such power vests only
with the courts, yet after the decisions of this Court in Cox and Kings (I)
(supra) and Cox and Kings (II) (supra), it is crystal clear that arbitral tribunals
do indeed have the power to implead a non-signatory. It observed that since,
Special Leave Petition (C) No. 21286 of 2024 Page 56 of 190
Cox and Kings (II) (supra) has held that the question whether a non-signatory
is bound by the arbitration agreement or not should be left to the arbitral
tribunals to decide, the obvious corollary to the aforesaid would be that if the
arbitral tribunal were to arrive at a finding that such non-signatory is indeed
bound by the arbitration agreement, it would necessarily have to include (sic
implead) such party to the arbitration proceedings. Accordingly, it held that
the arbitral tribunal would possess the jurisdiction to implead non-signatories
who may be bound by the outcome of the arbitral proceedings, if there exists
some kind of connection or positive act or conduct by the non-signatory that
would indicate its connection to the contractual duties of the signatories. The
relevant observations read as under: -
“20. In Arupri Logistics, as Mr. Ghose correctly points out, a
coordinate Bench of this Court has clearly held that an Arbitral
Tribunal cannot join or delete parties, or proceed on principles
akin to Order I Rule 10 of the Code of Civil Procedure 1908. The
power to join or delete parties in a proceeding, it is held, vests
only in Court. As such, it is only the Referral Court which, at the
stage of referring the dispute to arbitration, can join non-
signatories to the arbitral proceedings. The Arbitral Tribunal is
bound to decide the issue inter se the parties who are before it and
cannot carry out any addition or deletion thereto.
21. Arupri Logistics thus, holds that an Arbitral Tribunal cannot
add parties to the proceedings before it, and that the jurisdiction
to do so vests only in the referral Court.
22. After the decision was rendered by the Coordinate Bench
in Arupri Logistics, however, the Constitution Bench of the
Supreme Court has rendered its decision in Cox and Kings-II on
6 December 2023, and the issue of whether an Arbitral Tribunal
can join parties may once again be debatable after the said
decision. [...]
Special Leave Petition (C) No. 21286 of 2024 Page 57 of 190
xxx xxx xxx
24. These passages indicate that the Section 11 Court should
leave, to the Arbitral Tribunal, the decision as to whether a non-
signatory to the arbitration agreement should be bound by it. The
corollary would obviously be that if the Arbitral Tribunal were to
find that a nonsignatory is bound by arbitration agreement, it
would necessarily have to include such non-signatory in the
arbitration proceedings. Following Cox and Kings-II, therefore,
it may be possible to argue that an Arbitral Tribunal does possess
the jurisdiction to implead non-signatories who may be bound by
the outcome of the arbitral proceedings.
26. The impugned order of the Arbitral Tribunal has observed
that, in the above passages from Cox and Kings-I as endorsed
in Cox and Kings-II, a non-signatory could be impleaded in
arbitral proceedings only if there is some kind of connection or
positive act by the conduct of the non-signatory subsequent to the
execution of the contract, or participation by the non-signatory in
the negotiation, performance or termination of the contract
indicating a connection in the contractual duties of the parties.
[ ]”
27. In yet another decision of the Delhi High Court in KKH Finvest Private Ltd.
v. Jonas Haggard & Ors. reported in (2024) SCC OnLine Del 7254 although
the issue primarily entailed whether the non-signatories therein could be
regarded as a ‘veritable party’ to the arbitration agreement and thus, be
referred to arbitration or not, yet the observations therein could be said to be a
trail blazer on the issue of whether the arbitral tribunal has the power to
implead a non-signatory or not. It observed that as per the decision of this
Court in Ajay Madhusudan Patel (supra), at the stage of deciding an
application under Section 11 of the Act, 1996, the referral courts are only
required to prima-facie determine if the non-signatories are a veritable party
Special Leave Petition (C) No. 21286 of 2024 Page 58 of 190
to the arbitration clause or not. It held that as per Cox and Kings (I) (supra)
the definition of “ party ” under Section 2(1)(h) of the Act, 1996 is inclusive of
both signatories and non-signatories, provided that such non-signatory
actively participates in the performance of a contract, and its actions align with
those of the other members of the group. Furthermore, the court, taking note
of the contradictory views expressed by two coordinate benches in Arupri
Logistics (supra) and Indraprastha Power Generation Co. Ltd. (supra),
observed that since the findings of a referral court is only limited to a bird’s
eye view of whether a non-signatory is a veritable party or not, the issue of
whether such party can be impleaded and made part of the arbitration
proceedings or not ought to be decided by the arbitral tribunal based on the
pleadings and arguments. The relevant observations read as under: -
“75. Hence, at this stage, this Court being a referral court is only
required to take a prima facie view on whether there exists an
arbitration agreement and whether the respondents who are non-
signatories to the MoS are veritable parties to the arbitration
agreement.
xxx xxx xxx
78. In cases where impleadment of non-signatories to arbitration
proceedings is necessary, courts have delineated various
approaches. It can be achieved via : a) consent-based theories,
which emphasize identifying the mutual intent of the parties and
include concepts like agency, implied consent, and the assignment
or transfer of contractual rights; and b) non-consensual theories,
which are rooted in equity and encompass doctrines such as alter
ego/piercing the corporate veil, estoppel, succession, and
apparent authority [refer to Cox & Kings (supra), para 192]. At
this stage and as a referral court, as per Ajay Madhusudan
Patel (supra), the test is whether prima facie the respondents are
Special Leave Petition (C) No. 21286 of 2024 Page 59 of 190
veritable parties to the MoS containing the arbitration clause.
This has been dealt with in detail in Issue I.
79. It is settled position of law that the definition of parties under
the 1996 Act [as envisaged under Section 2(1)(h)] is inclusive of
both signatories and non-signatories. The Hon'ble Supreme Court
in Cox & Kings Ltd. v. SAP India (P) Ltd., (2024) 4 SCC
1 observed that if a nonsignatory party actively participates in the
performance of a contract, and its actions align with those of the
other members of the group, it gives the impression that the non-
signatory is a “veritable” party to the contract which contains the
arbitration agreement. Based on this impression, the other party
may reasonably assume that the non-signatory is indeed a
veritable party to the contract and bind it to the arbitration
agreement. [...]
80. Thus, the assessment required to be undertaken by this Court
- to give prima facie observations on whether the respondents are
veritable parties or not - is primarily an assessment regarding the
conduct, role, and involvement of the non-signatory in the
underlying contract i.e. the MoS. At the outset, it is to be noted
that the term “veritable parties” applies to both persons and
entities [refer to Cox & Kings (supra), para 96]. In order to assess
the same, this Court is required to consider factors such as mutual
intent, relationship between the signatories and non-signatories,
commonality of subject matter, composite nature of transactions
and performance of the contract.
81. The intention of the parties to be bound by an arbitration
agreement is to be gathered from the circumstances surrounding
the involvement of a non-signatory party in the negotiation,
performance, and termination of the underlying contract
containing the agreement. If the non-signatory's actions align with
those of the signatories, it could reasonably lead the signatories
to believe that the non-signatory was a veritable party to the
contract containing the arbitration clause. To infer the non-
signatory's consent, its participation/involvement in the
negotiation or performance of the contract must be positive,
direct, and substantial, rather than merely incidental. The burden
of proof to establish the same lies on the party seeking to implead
the non-signatories to the arbitration proceedings, in this case, the
petitioners.
Special Leave Petition (C) No. 21286 of 2024 Page 60 of 190
xxx xxx xxx
101. Two coordinate benches of this Court have taken contrary
views on whether the arbitral tribunal is vested with the power to
implead parties in arbitration proceedings. While Arupri
Logistics (P) Ltd. v. Vilas Gupta, 2023 SCC OnLine Del
4297 holds that the arbitral tribunal lacks the jurisdiction to
implead, Indraprastha Power Generation Co. Ltd. v. Hero Solar
Energy (P) Ltd., 2024 SCC OnLine Del 6080 holds that
following Cox and Kings (supra), such jurisdiction may be
conferred upon the arbitral tribunal. Since I have referred
respondent Nos. 2 to 5 to arbitration, the only issue that remains
to be adjudicated is whether respondent Nos. 2 to 5 are, in fact,
proper and necessary parties. The same shall be decided by the
arbitrator in accordance with law. The finding of the referral
court which takes a bird's eye view and does not go into minute
details is only for the purpose of referring the parties to
arbitration. The respondents will be at liberty to agitate this issue
before the arbitrator, who shall take an independent view based
on the pleadings and arguments of the parties.”
(Emphasis supplied)
28. What is discernible from the aforesaid is that despite the wide recognition of
the doctrinal principles of ‘group of companies’, ‘alter-ego’, agency, implied
consent, assignment or transfer of contractual rights, estoppel, ‘apparent
authority’ etc. to law of arbitration, the High Courts throughout the country
remained averse to accepting the application of these principles by the arbitral
tribunals. Even after the decision of this Court in Chloro Controls (supra)
allowing non-signatories to an arbitration agreement to be referred and
enjoined to arbitration on the basis of their conduct, role, and involvement in
the underlying contract, the High Courts consistently held that such power to
Special Leave Petition (C) No. 21286 of 2024 Page 61 of 190
refer or implead a non-signatory was only available to the courts and not to
the arbitral tribunals. It is only after the decision of this Court in in Cox and
Kings (I) (supra), that the position of law as regards the power of an arbitral
tribunal to implead a non-signatory underwent a significant change, whereby
many High Courts which had earlier refused to recognize such power of the
arbitral tribunal, came around to recognizing it.
b. Evolution of the law on referral or joinder of Non-Signatories to
arbitration proceedings and the Aversion to the power of Arbitral
Tribunals to implead a Non-Signatory.
29. For a better exposition, it would be apposite to first understand the evolution
of the law pertaining to the referral or joinder of even non-signatories to an
arbitration agreement as a party to the arbitration proceedings. In other words,
to better cull out the reasons for why there existed a divergence of views
among various High Courts and the general reluctance to recognise the arbitral
tribunal’s power — as opposed to that of a court — in impleading such non-
signatories to arbitration proceedings.
I. Decision of Chloro Controls and the Arbitration and Conciliation
(Amendment) Act, 2015.
30. It all started with the three-Judge Bench decision of this Court in Chloro
Controls (supra) when this Court was called upon to determine an arbitral
Special Leave Petition (C) No. 21286 of 2024 Page 62 of 190
reference in case of multi-party agreements where performance of the
ancillary agreements was substantially dependent upon effective execution of
the principal agreement. This Court held that in exceptional cases involving
composite transactions with multi-party agreements, a non-signatory could be
subjected to arbitration by virtue of the ‘group of companies’ doctrine,
provided there was a clear intention of the parties to bind both the signatory
as well as non-signatory parties to the arbitration agreement. It observed that
although the scope of am arbitration agreement is limited to the parties who
entered into it, yet the doctrine of ‘group of companies’ has found favour albeit
in a limited sense both under the English Law which was the original genesis
of the Act, 1996 and under the international commercial arbitration landscape,
particularly in the United States and French jurisdictions. The relevant
observations read as under: -
“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
Special Leave Petition (C) No. 21286 of 2024 Page 63 of 190
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 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.”
31. The aversion or misconception that loomed before the various High Courts as
regards the inhibition of an arbitral tribunal to resort to the principles of ‘group
of companies’, ‘alter-ego’, agency etc. or to put it more simply, to implead a
non-signatory to the arbitration proceedings on its own accord can be deftly
traced to two pertinent observations that were made in Chloro Controls
(supra).
32.
Apart from the aforesaid reasons of economic reality and judicial comity
justifying the recognition of ‘group of companies’ in the modern regime of the
law of arbitration including that of India, Chloro Controls (supra) further
Special Leave Petition (C) No. 21286 of 2024 Page 64 of 190
reinforced the genesis of recognizing this doctrine within the scheme of Act,
1996 by tracing it to Section 45 of the Act, more particularly the expression
“ parties or any person claiming through or under him ” used therein. It held
that the aforesaid language of Section 45 reflects a legislative intent of
enlarging the scope beyond “parties” who are signatories to the arbitration
agreement to include non-signatories. It observed that Section 8 of the Act,
1996 does not import the same expression; “ parties or any person claiming
through or under him ” which can be found in Section 45 and simpliciter uses
the expression “ parties ” without any extension, even though Section 8 is a
contemporary counter-part of Section 45 for the purpose of domestic
arbitrations under Part I. This clearly indicates that the legislature consciously
and deliberately opted to incorporate the aforesaid expression to give the
provision a wider import to encourage arbitration and bring it in tune with the
prevalent best international practices. Thus, this very ostensible legislative
intent cannot be ignored by the courts and must be given due weightage. The
relevant observations read as under: -
“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
Special Leave Petition (C) No. 21286 of 2024 Page 65 of 190
require 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.
xxx xxx xxx
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 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.
Special Leave Petition (C) No. 21286 of 2024 Page 66 of 190
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.
96. Examined from the point of view of the legislative object and
the intent of the framers of the statute i.e. the necessity to
encourage arbitration, the court is required to exercise its
jurisdiction in a pending action, to hold the parties to the
arbitration clause and not to permit them to avoid their bargain
of arbitration by bringing civil action involving multifarious
causes of action, parties and prayers.”
(Emphasis supplied)
33. However, this rudimentary understanding of the expression “ parties ” and
“ parties or any person claiming through or under him ” in Section(s) 8 and 45
of the Act, 1996 respectively by Chloro Controls (supra) for the import of the
doctrine of ‘group of companies’ into the Act, 1996 was one of the two-fold
reasons that eventually convoluted the position of law as regards impleadment
of non-signatories, which we shall further discuss.
34. After having established the foundational basis of the doctrine of ‘group of
companies’ in the Act, 1996, Chloro Controls (supra) then proceeded to
explain the manner in which the aforesaid doctrine is to be applied. Since any
Special Leave Petition (C) No. 21286 of 2024 Page 67 of 190
application under Section 45 of the Act, 1996 for appointment of an arbitrator
would be governed by Section 11 sub-section (6) of the Act, it as a natural
corollary would necessarily entail the adjudication and disposal of objections
contemplated thereunder, more particularly the 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 as mandated by
sub-section (7) of Section 11 of the Act. For the aforesaid proposition, reliance
was placed on the seven-Judge Bench decision of this Court in SBP & Co. v.
Patel Engg. Ltd. reported in (2005) 8 SCC 618 and the subsequent decision
of Shree Ram Mills Ltd. v. Utility Premises (P) Ltd. reported in (2007) 4 SCC
599 which held that the primarily it is for the courts to decide all preliminary
issues at the referral stage under Section 11(6) of the Act, and the principle of
kompetenz-kompetenz enshrined in Section 16 empowering the arbitral
tribunal to rule on its own jurisdiction, applies only when the parties go before
the tribunal without having taken recourse to Section(s) 8 or 11 respectively
of the Act, 1996 or where these issues are explicitly left open to the arbitral
tribunal to decide by the referral court. Accordingly, Chloro Controls (supra)
held that Section 45 of the Act, 1996 which envisages the same test as
Section(s) 8 and 11 of the Act, insofar as the preliminary determination for
making a reference to an arbitral tribunal is concerned, would as a natural
corollary to the ratio of SBP & Co. (supra) contemplate the determination of
all fundamental issues for making such reference by the courts, including the
Special Leave Petition (C) No. 21286 of 2024 Page 68 of 190
issue whether a non-signatory could be said to be bound by the arbitration
agreement. In the last, it further observed that even the legislative intent
behind Section 45 of the Act, 1996, without any ambiguity contemplates
determination of these issues in the very first instance by the judicial forum,
evident from the absence of any provision analogous to Section 16 of the Act,
1996 in Part II of the Act. The relevant observations read 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.,
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. [...]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. wherein, while referring to the judgment in SBP
21
& Co. particularly the above paragraph (para 39) of SBP case ,
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. [...] Thus, the Bench while explaining the
judgment of this Court in SBP & Co. 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.
xxx xxx xxx
121. [...] The expressions “Chief Justice does not in strict sense
decide the issue” or “is prima facie satisfied”, will have to be
construed in the facts and circumstances of a given case. Where
Special Leave Petition (C) No. 21286 of 2024 Page 69 of 190
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, 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
jurisdiction and cannot be reopened before the Arbitral Tribunal.
[...]
xxx xxx xxx
128. [ ] 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 are conscious of the fact that the above
dictum of the Court in SBP case 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 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.
Special Leave Petition (C) No. 21286 of 2024 Page 70 of 190
xxx xxx xxx
130. [ ] The more important aspect as far as Chapter I of Part II
of the 1996 Act is concerned, is the absence of any provision like
Section 16 appearing in Part I of the same Act. Section 16
contemplates that the arbitrator may determine its own
jurisdiction. Absence of such a provision in Part II Chapter I is
suggestive of the requirement for the court to determine the
ingredients of Section 45, at the threshold itself. It is expected of
the court to answer the question of validity of the arbitration
agreement, if a plea is raised that the agreement containing the
arbitration clause or the arbitration clause itself is null and void,
inoperative or incapable of being performed. Such determination
by the court in accordance with law would certainly attain finality
and would not be open to question by the Arbitral Tribunal, even
as per the principle of prudence. It will prevent multiplicity to
litigation and reagitating of same issues over and over again. The
underlining (sic underlying) principle of finality in Section 11(7)
would be applicable with equal force while dealing with the
interpretation of Sections 8 and 45. Further, it may be noted that
even the judgment of this Court in SBP & Co. takes a view in
favour of finality of determination by the Court despite the
language of Section 16 in Part I of the 1996 Act. Thus, there could
hardly be any possibility for the Court to take any other view in
relation to an application under Section 45 of the 1996 Act. Since,
the categorisation referred to by this Court in National Insurance
Co. Ltd. is founded on the decision by the larger Bench of the
Court in SBP & Co., we see no reason to express any different
view. The categorisation falling under para 22.1 of National
Insurance Co. case would certainly be answered by the Court
before it makes a reference while under para 22.2 of that case, the
Court may exercise its discretion and decide the dispute itself or
refer the dispute to the Arbitral Tribunal. Still, under the cases
falling under para 22.3, the Court is expected to leave the
determination of such dispute upon the Arbitral Tribunal itself.
But wherever the Court decides in terms of categories mentioned
in paras 22.1 and 22.2, the decision of the Court is unreviewable
by the Arbitral Tribunal.
xxx xxx xxx
Special Leave Petition (C) No. 21286 of 2024 Page 71 of 190
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.
xxx xxx xxx
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.
(Emphasis supplied)
35.
This rudimentary understanding and legislative position of the extent of
judicial scrutiny and determination at the referral stage in terms of Section 11
of the Act, 1996, could be said to be the second reason why arbitral tribunals
were not found to be empowered to identify and implead a non-signatory to
the arbitration agreement.
36. In the aftermath of Chloro Controls (supra), the Law Commission of India in
th
its 246 Report observed that a party to an arbitration agreement does not
necessarily mean only the signatory to such agreement, and that
internationally it has been widely accepted that even non-signatories may be
parties to the arbitration agreement. It further took note of the decision of
Chloro Controls (supra), more particularly how this Court has recognized this
concept in the phrase “ claiming through or under ” in Section 45 of the Act,
Special Leave Petition (C) No. 21286 of 2024 Page 72 of 190
1996. However, noticing the absence of the same expression in the
corresponding provision of Section 8 and other relevant provisions where the
context requires recognition of non-signatories, the Law Commission
suggested that Section 2(1)(h) of the Act, 1996 which defines “ party ” be
amended and the phrase “ person claiming through or under such party ” be
inserted to cure this anomaly. The relevant observations read as under: -
“62. However, a party does not necessarily mean only the
“signatory” to the arbitration agreement. In appropriate contexts,
a “party” means not just a signatory, but also persons “claiming
through or under” such signatory – for instance, successors-of-
interest of such parties, alter-ego’s of such parties etc. This is
particularly true in the case of unincorporated entities, where the
issue of “personality” is usually a difficult legal question and
raises a host of other issues. This principle is recognized by the
New York Convention, 1985 which in article II (1) recognizes an
agreement between parties “in respect of a defined legal
relationship, whether contractual or not.”
63. The Arbitration and Conciliation Act, 1996 under section 7
borrows the definition of the “arbitration agreement” from the
corresponding provision at article 7 of the UNCITRAL Model Law
which in turn borrows this from article II of the New York
Convention. However, the definition of the word “party” in
section 2(1)(h) refers to a “party” to mean “a party to an
arbitration agreement.” This cannot be read restrictively to imply
a mere “signatory” to an arbitration agreement, since there are
many situations and contexts where even a “non-signatory” can
be said to be a “party” to an arbitration agreement. This was
recognized by the Hon’ble Supreme Court in Chloro Controls v.
Severn Trent Water Purification, (2013) 1 SCC 641, where the
Hon’ble Supreme Court was dealing with the scope and
interpretation of section 45 of the Act and, in that context,
discussed the scope of the relevant doctrines on the basis of which
“non-signatories” could be said to be bound by the arbitration
agreement, including in cases of inter-related contracts, group of
companies doctrine etc.
Special Leave Petition (C) No. 21286 of 2024 Page 73 of 190
64. This interpretation given by the Hon’ble Supreme Court
follows from the wording of section 45 of the Act which recognizes
the right of a “person claiming through or under [a party]” to
apply to a judicial authority to refer the parties to arbitration. The
same language is also to be found in section 54 of the Act. This
language is however, absent in the corresponding provision of
section 8 of the Act. It is similarly absent in the other relevant
provisions, where the context would demand that a party includes
also a “person claiming through or under such party”. To cure
this anomaly, the Commission proposes an amendment to the
definition of “party” under section 2 (h) of the Act.”
(Emphasis supplied)
37. Based on the suggestions made by the Law Commission, the legislature
promptly introduced the Arbitration and Conciliation (Amendment) Act, 2015
whereby inter-alia although Section 8 sub-section (1) of the Act, 1996 was
amended and the phrase “ a party to an arbitration agreement or any person
claiming through or under him ” was inserted yet for reasons unknown, the
suggestion for amending Section 2(1)(h) of the Act by the Law Commission
did not see the light of day.
38. At this juncture it would be apposite to briefly explain the object of Section(s)
8 and 45 of the Act, 1996 respectively and the nature of the said provisions.
Section(s) 8 and 45 of the Act, 1996 empowers the parties who have
approached the courts with a subject-matter which is covered by an arbitration
agreement to refer such dispute to an arbitral tribunal, with the only difference
between the two being that the former pertains to domestic arbitrations
whereas the latter deals with international arbitrations in terms of the New
Special Leave Petition (C) No. 21286 of 2024 Page 74 of 190
York Convention. In essence, it entitles any party that is before a court or
judicial forum to seek a reference to arbitration subject to the conditions laid
down in the subsequent sub-sections. As held in Hema Khattar v. Shiv Khera
reported in (2017) 7 SCC 716 , Section(s) 8 and 45 of the Act, 1996 are
peremptory in nature that obligates the courts to refer the parties to arbitration
where there is an arbitration agreement.
39. Since Chloro Controls (supra) recognized the applicability of the principles
of ‘group of companies’, (sic) ‘alter-ego’, agency etc. for enjoining a non-
signatory to the arbitration proceedings only from an interpretation of the
phrase “ a party to an arbitration agreement or any person claiming through
or under him ” which by virtue of the Arbitration and Conciliation
(Amendment) Act, 2015, found place only in Section(s) 8 and 45 of the Act,
1996, which as discussed above deals with only the power of the courts or
judicial authorities to make a reference to arbitration, and no such phrase was
inserted in the substantive definition of “ party ” in Section 2(1)(h), the net
effect of the decision of Chloro Controls (supra) and the Arbitration and
Conciliation (Amendment) Act, 2015 was that only the courts by virtue of
Section(s) 8 and 45 of the Act, 1996 were empowered to implead a non-
signatory to the arbitration proceedings, and not the arbitral tribunals. The
omission of amending Section 2(1)(h) of the Act, 1996 further fortified the
notion that the exercise of authority and power by the arbitral tribunal would
Special Leave Petition (C) No. 21286 of 2024 Page 75 of 190
continue to be confined to the ordinary substantive definition of “ party ” under
the said provision and not by the enlarged understanding of the term “party …
or any person claiming through or under him” as used for the courts under
Section(s) 8 and 45 of the Act, 1996, except where an arbitral tribunal has
been constituted specifically by the courts. This along with the standard of
scrutiny that was expected by the referral courts under Section 11 of the Act,
1996 in terms of SBP & Co. (supra) meant that, unless a non-signatory is
referred to arbitration by a court after a thorough application of mind and after
a final determination by such referral courts as to whether the non-signatory
is said to bound by the arbitration agreement or not, no non-signatory can be
subjected to arbitration.
40. Thus, due to the aforesaid, a misconception plagued the position of law that
an arbitral tribunal does not have the authority or power to implead a non-
signatory to the arbitration proceedings, and that only the courts are
empowered to do so. It was largely in this backdrop that the decisions of Oil
and Natural Gas Corporation Ltd. (supra), Balmer Lawrie & Co. Ltd.
(supra), Sudhir Gopi (supra), V.G. Santhosam (supra) and other decisions of
various different High Courts came to be rendered.
Special Leave Petition (C) No. 21286 of 2024 Page 76 of 190
II. Decision of Cox and Kings (I) and the Judicial Rectification of the first
misconception by Chloro Controls.
41.
In Cox and Kings (I) (supra) a five-Judge Bench of this Court wherein one of
us (J.B. Pardiwala J.) was part of the Bench were called upon to determine the
validity and applicability of the ‘Group of Companies’ doctrine in the
jurisprudence of Indian arbitration. This Court after an extensive examination
of the international practices and the scheme of Act, 1996 held that the ‘Group
of Companies’ doctrine was invariably a part of the larger arbitration
framework that has been developing across the world and was in tune with the
avowed object of the Act, 1996 which aims to make the Indian arbitration law
more responsive to the contemporary requirements. The relevant observations
read as under: -
“128. [...] This approach ensures that a dogmatic emphasis on
express consent is eschewed in favour of a modern approach to
consent which focuses on the factual analysis, complexity of
commercial projects, and thereby increases the relevance of
arbitration in multi-party disputes. Moreover, it is also keeping in
line with the objectives of the Arbitration Act which aims to make
the Indian arbitration law more responsive to the contemporary
requirements.
148. [...] The group of companies doctrine has important utility in
determining the mutual intention of the parties in the context of
complex transactions involving multiple parties and multiple
agreements. Moreover, the doctrine has been substantively
entrenched in the Indian arbitration jurisprudence. We are aware
of the fact that the group of companies doctrine has not found
favor in some other jurisdictions, including in English law.
However, we deem it appropriate to retain the doctrine which has
held the field in Indian jurisprudence though by firmly
establishing it within the realm of the mutual consent or the mutual
Special Leave Petition (C) No. 21286 of 2024 Page 77 of 190
intent of the parties to a commercial bargain. This will ensure on
the one hand that Indian arbitration law retains a sense of
dynamism so as to respond to contemporary challenges. At the
same time, structuring the doctrine in the manner suggested so as
to ground it in settled principles governing the elucidation of
mutual intent is necessary. This will ensure that the doctrine has
a jurisprudential foundation in party autonomy and consent to
arbitrate.”
42. Cox and Kings (I) (supra) further held that the approach adopted by Chloro
Controls (supra), so far as infusing or reading the doctrine of ‘Group of
Companies’ into the expression “ a party to an arbitration agreement or any
person claiming through or under him ” is concerned, was incorrect. It held
that the words “ any person ” in Section 45 of the Act, 1996 by itself does not
connote a wider import to the term “party”. The aforesaid phrase cannot be
singled out and construed devoid of the context provided in the subsequent
phrase “ claiming through or under ”. It held that the entire expression only
refers and includes persons / parties acting in a derivative capacity such as in
the instances of successors in interest or assignees of any such interest that
have been devolved upon them by the original signatories / parties. The import
of the expression “ a party to an arbitration agreement or any person claiming
through or under him ” only refers to that persons which it is deriving its claim
or right by virtue of it standing in the shoes of the original signatory party. The
expression “ claiming through or under ” can only bind those third parties who
irrespective of being a non-signatory to the arbitration agreement are
nevertheless bound by it, by virtue of them substituting the signatory party in
Special Leave Petition (C) No. 21286 of 2024 Page 78 of 190
their derivative capacity. However, the ‘Group of Companies’ doctrine
functions on a completely different tangent whereby, a non-signatory is held
bound by the arbitration agreement in its own individual capacity AND in
addition to the signatories on the basis of mutual consent, regardless of
whether they may have derived any rights or benefits from the signatories and
independent of the identity of the signatories. It observed that since consent
forms the cornerstone of arbitration, merely because any party shares certain
interests or benefits from a contract, they would not be covered under the
expression “ claiming through or under ” just because they happen to share a
legal or commercial relationship. Thus, Chloro Controls (supra) to the extent
that it traced the group of companies doctrine to the phrase “claiming through
or under” was held to be erroneous and against the well-established principles
of contract and commercial law. The relevant observations read as under: -
“137. The word “claim” is of very extensive significance
embracing every species of legal demand. In the ordinary sense,
it means to demand as one’s own or as one’s right.114 A “claim”
also means assertion of a cause of action.115 The expression
“through” connotes “by means of, in consequence of, by reason
of.”116 The term “under” is used with reference to an inferior or
subordinate position. P Ramanatha Aiyar’s Law Lexicon defines
“claiming under” or “claiming under him” to denote a person
putting forward a claim under derived rights.117 When the above
definitions are read harmoniously, it gives rise to an inference that
a person “claiming through or under” is asserting their legal
demand or cause of action in an intermediate or derivative
capacity. We can also conclude that a person “claiming through
or under” has inferior or subordinate rights in comparison to the
party from which it is deriving its claim or right. Therefore, a
person “claiming through or under” cannot be a “party” to an
Special Leave Petition (C) No. 21286 of 2024 Page 79 of 190
arbitration agreement on its own terms because it only stands in
the shoes of the original signatory party.
144. The first proposition of law relies on the construction of the
expression “any person” to conclude that the language of Section
45 has wider import. However, the expression “any person”
cannot be singled out and construed devoid of its context. The
context, in terms of Section 8 and 45, is provided by the subsequent
phrase – “claiming through or under”. Therefore, such “any
persons” are acting only in a derivative capacity. Since an
arbitration agreement excludes the jurisdiction of national courts,
it is essential that the parties consent, either expressly or
impliedly, to submit their dispute to the arbitral tribunal.
145. The second and third proposition of law states that a non-
signatory party may claim through or under a signatory party by
virtue of its legal or commercial relationship with the latter.
However, this proposition is contrary to the common law position
as evidenced in Sancheti (supra) and Tanning Research
Laboratories (supra) according to which a mere legal or
commercial connection is not sufficient to allow a non-signatory
to claim through or under a party to the arbitration agreement.
[...] Therefore, even though a subsidiary derives interests or
benefits from a contract entered into by the company within a
group, they would not be covered under the expression “claiming
through or under” merely on the basis that it shares a legal or
commercial relationship with the parties.
146. [...] The group of companies doctrine is founded on the
mutual intention of the parties to determine if the non-signatory
entity within a group could be made a party to the arbitration
agreement in its own right. Such non-signatory entity is not
“claiming through or under” a signatory party. As mentioned
above, the phrase “claiming through or under” is used in the
context of successors in interest that act in a derivative capacity
and substitute the signatory party to the arbitration agreement. To
the contrary, the group of companies doctrine is used to bind the
non-signatory to the arbitration agreement so that it can agitate
the benefits and be subject to the burdens that it derived or is
conferred in the course of the performance of the contract. The
doctrine can be used to bind a non-signatory party to the
arbitration agreement regardless of the phrase “claiming through
Special Leave Petition (C) No. 21286 of 2024 Page 80 of 190
or under” as appearing in Sections 8 and 45 of the Arbitration
Act.
147. In Chloro Controls (supra), this Court joined the non-
signatory entities as parties to the arbitration agreement in their
own rights on the basis that they were signatories to ancillary
agreements which were closely interlinked with the performance
of the principal agreement containing the arbitration agreement.
This Court in Chloro Controls (supra) reasoned that the non
signatory entities, being part of the same corporate group as the
signatory parties, were subsidiaries in interest or subsidiary
companies, and therefore were “claiming through or under” the
signatory parties. As held above, the phrase “claiming through or
under” only applies to entities acting in a derivative capacity and
not with respect to joinder of parties in their own right. Therefore,
we hold that the approach of this Court in Chloro Controls (supra)
to the extent that it traced the group of companies doctrine to the
phrase “claiming through or under” is erroneous and against the
well-established principles of contract and commercial law. As
observed above, the existence of the group of companies doctrine
is intrinsically found on the principle of the mutual intent of
parties to a commercial bargain.”
(Emphasis supplied)
43. Cox and Kings (I) (supra) observed that the correct legal basis for the
application of the doctrine of ‘group of companies’ (sic and other allied
principles of mutual consent) can be found in the Act, 1996 from a conjoint
reading of the provisions of Section(s) 2(1)(h) and 7, respectively. The
aforesaid may be understood as under: -
(i) First, it observed that Section 7 of the Act, 1996 which defines an
“ Arbitration Agreement ” lays down in sub-section (4) the various
circumstances where a legal relationship is said to exist of such nature
as if there is an agreement in writing for arbitration. Section 7 more
Special Leave Petition (C) No. 21286 of 2024 Page 81 of 190
particularly sub-section (4)(b) provides the circumstances where the
existence of an arbitration agreement can be inferred from various
documents that indicate a manifestation of consent of persons or entities
through their actions of exchanging documents, even if there is no
formal agreement executed between such persons in the conventional
sense. Similarly, Section 7 sub-section (4)(c) which provides that if
there is an assertion of the existence of an arbitration agreement by one
party which was never denied or disputed by the other, then such
agreement would be considered a valid arbitration agreement, is one
another provision that lays down the circumstances when the existence
of an arbitration agreement may be assumed based on the conduct of a
person or entity. The relevant observations read as under: -
“70. Section 2(h) of the Arbitration Act defines a “party”
to mean a party to an arbitration agreement. Section 7
defines an arbitration agreement to mean 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.” Section 7 requires
that an arbitration agreement has to be in writing. Section
7 indicates the circumstances in which it is regarded as an
agreement in writing. Such an agreement may be embodied
in a document, an exchange of communications, including
in the electronic form, or in a statement of claim which is
not traversed in the defence. In Vidya Drolia v. Durga
Trading Corporation, this Court observed that a legal
relationship means a relationship which gives rise to legal
obligations and duties, and confers a right. Such a right
may be contractual or non-contractual. In case of a non-
contractual legal relationship, the cause of action arises in
tort, restitution, breach of statutory duty, or some other
non-contractual cause of action. Thus, the legislative intent
Special Leave Petition (C) No. 21286 of 2024 Page 82 of 190
underlying Section 7 suggests that any legal relationship,
including relationships where there is no contract between
the persons or entities, but whose actions or conduct has
given rise to a relationship, could form a subject matter of
an arbitration agreement under Section 7. [...]
72. Section 7(4)(b) provides the second circumstance,
according to which an arbitration agreement is in writing
if it is contained in an exchange of letters, telex, telegrams
or other means of telecommunication including
communication through electronic means which provide a
record of the agreement. According to this provision, the
existence of an arbitration agreement can be inferred from
various documents duly approved by the parties.60 Section
7(4)(b) dispenses with the conventional sense of an
agreement as a document with signatories. Rather, it
emphasizes on the manifestation of the consent of persons
or entities through their actions of exchanging documents.
However, the important aspect of the said provision lies in
the fact that the parties should be able to record their
agreement through a documentary record of evidence. In
Great Offshore Ltd. v. Iranian Offshore Engineering and
Construction Company, this Court observed that Section
7(4)(b) requires the court to ask whether a record of
agreement is found in the exchange of letters, telex,
telegrams, or other means of telecommunication.61 Thus,
the act of agreeing by the persons or entities has to be
inferred or derived by the courts or tribunals from the
relevant documents and communication, neither of which
can be equated with a conventional contract.
73. The third circumstance is provided under Section
7(4)(c), according to which an arbitration agreement is in
writing if it is contained in 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. A two-
Judge Bench of this Court clarified in S N Prasad v. Monnet
Finance Limited62 that there will be an “exchange of
statements of claim and defence” for the purposes of
Section 7(4)(c) if there is an assertion of the existence of an
arbitration agreement in any suit, petition or application
filed before any court or tribunal, and if there is no denial
of it in the defence, counter, or written statement. Thus, in
Special Leave Petition (C) No. 21286 of 2024 Page 83 of 190
the third circumstance the court proceeds on the
assumption that the conduct of the person or entity in not
denying the existence of an arbitration agreement leads to
the conclusive proof of its existence. [...]”
(ii) Secondly, it found that Section 7 of the Act, 1996 is unique in nature
inasmuch as it has two distinct features; (I) that sub-section (1) provides
that for there to be a valid arbitration agreement, there must exists a
defined legal relationship to arbitration, and (II) that sub-section (4)
goes one step beyond the traditional understanding of legal relationship,
by laying down circumstances where mutual intention of creating such
legal relationship to arbitrate may be assumed or gathered from the
conduct of the parties. The relevant observations read as under: -
“73. [...] All the three circumstances contained in Section
7(4) are geared towards determining the mutual intention
of the parties to be bound by the arbitration agreement.
74. Section 7 of the Arbitration Act contains two aspects: a
substantive aspect and a formal aspect. The substantive
aspect is contained is Section 7(1) which allows parties to
submit disputes arising between them in respect of a defined
legal relationship to arbitration. The legal relationships
between and among parties could either be contractual or
non-contractual. For legal relations to be contractual in
nature, they ought to meet the requirements of the Indian
contract law as contained in the Contract Act. It has been
shown in the preceding paragraphs that a contract can
either be express or implied, which is inferred on the basis
of action or conduct of the parties. Thus, it is not necessary
for the persons or entities to be signatories to a contract to
enter into a legal relationship – the only important aspect
to be determined is whether they intended or consented to
enter into the legal relationship by the dint of their action
or conduct.”
Special Leave Petition (C) No. 21286 of 2024 Page 84 of 190
(iii) Thirdly, it observed that Section 7 sub-section (3) of the Act, 1996
stipulates that where there is a record of agreement to arbitrate, then
there would be no requirement for having a written arbitration
agreement. Furthermore, Section 2(h) read with Section 7 of the Act,
1996 also places no requirement that the “party” to an arbitration
agreement must be a signatory to such agreement. The natural corollary
to the aforesaid would be that an arbitration agreement may be entered
into in any form, for example orally or tacitly, as long as the content of
the agreement is recorded. It eliminates the requirement of the signature
of parties or an exchange of messages between the parties. Thus what
emanates is that even non-signatories can be regarded as a “party” to an
arbitration agreement. The relevant observations read as under: -
“75. The second aspect is contained in Section 7(3) which
stipulates the requirement of a written arbitration
agreement. A written arbitration agreement need not be
signed by the parties if there is a record of agreement.63
The mandatory requirement of a written arbitration
agreement is merely to ensure that there is a clearly
established record of the consent of the parties to refer their
disputes to arbitration to the exclusion of the domestic
courts.
76. Section 2(h) read with Section 7 does not expressly
require the “party” to be a signatory to an arbitration
agreement or the underlying contract containing the
arbitration agreement. [...] The above provision states that
an arbitration agreement may be entered into in any form,
for example orally or tacitly, as long as the content of the
agreement is recorded. It eliminates the requirement of the
Special Leave Petition (C) No. 21286 of 2024 Page 85 of 190
signature of parties or an exchange of messages between
the parties.”
44. Accordingly, Cox and Kings (I) (supra) made a significant shift from the
original understanding and legal basis of the doctrine of ‘group of companies’
and other allied principles of determining mutual consent in Chloro Controls
(supra). It held that the legal basis for the application of the ‘Group of
Companies’ doctrine lies in the very definitions of “ party ” and “ arbitration
agreement” under Section(s) 2(1)(h) and Section 7, respectively, and not in
the expression “ claiming through or under ” in Section(s) 8 and 45 of the Act,
1996. The relevant observations read as under: -
“78. Reading Section 7 of the Arbitration Act in view of the above
discussion gives rise to the following conclusions: first,
arbitration agreements arise out of a legal relationship between
or among persons or entities which may be contractual or
otherwise; second, in situations where the legal relationship is
contractual in nature, the nature of relationship can be
determined on the basis of general contract law principles; third,
it is not necessary for the persons or entities to be signatories to
the arbitration agreement to be bound by it; fourth, in case of non-
signatory parties, the important determination for the courts is
whether the persons or entities intended or consented to be bound
by the arbitration agreement or the underlying contract
containing the arbitration agreement through their acts or
conduct; fifth, the requirement of a written arbitration agreement
has to be adhered to strictly, but the form in which such agreement
is recorded is irrelevant; sixth, the requirement of a written
arbitration agreement does not exclude the possibility of binding
non signatory parties if there is a defined legal relationship
between the signatory and non-signatory parties; and seventh,
once the validity of an arbitration agreement is established, the
court or tribunal can determine the issue of which parties are
bound by such agreement.
Special Leave Petition (C) No. 21286 of 2024 Page 86 of 190
79. It is presumed that the formal signatories to an arbitration
agreement are parties who will be bound by it. However, in
exceptional cases persons or entities who have not signed or
formally assented to a written arbitration agreement or the
underlying contract containing the arbitration agreement may be
held to be bound by such agreement. As mentioned in the
preceding paragraphs, the doctrine of privity limits the imposition
of rights and liabilities on third parties to a contract. Generally,
only the parties to an arbitration agreement can be subject to the
full effects of the agreement in terms of the reliefs and remedies
because they consented to be bound by the arbitration agreement.
Therefore, the decisive question before the courts or tribunals is
whether a non-signatory consented to be bound by the arbitration
agreement. To determine whether a non-signatory is bound by an
arbitration agreement, the courts and tribunals apply typical
principles of contract law and corporate law. The legal doctrines
provide a framework for evaluating the specific contractual
language and the factual settings to determine the intentions of the
parties to be bound by the arbitration agreement.
xxx xxx xxx
153. The group of companies doctrine is based on determining the
mutual intention to join the non-signatory as a “veritable” party
to the arbitration agreement. Once a tribunal comes to the
determination that a non-signatory is a party to the arbitration
agreement, such non-signatory party can apply for interim
measures under Section 9 of the Arbitration Act. Establishing the
legal basis for the application of the group of companies doctrine
in the definition of “party” under Section 2(1)(h) read with
Section 7 of the Arbitration Act resolves the anomality pointed out
by Chief Justice Ramana.”
45. The net effect of the aforesaid is that at the time when the decision of Chloro
Controls (supra) occupied the field, the applicability of various principles of
determining mutual consent was confined only to Section(s) 8 and 45 of the
Act, 1996, which empowered only the courts to make a reference to
arbitration. In the same manner, since the definition of “ party ” in Section
Special Leave Petition (C) No. 21286 of 2024 Page 87 of 190
2(1)(h) of the Act, 1996 was understood to be at significant variance from
Section(s) 8 and 45 of the Act, 1996, more particularly the expression “ any
person claiming through or under” with the former being construed to be
much narrow in scope and include only the signatories to the arbitration
agreement, there was misconceived assumption, that the authority and
jurisdiction of an arbitral tribunal was only limited to this narrowly
misconstrued definition of “ party ”, unlike that of the courts who had been
endowed with the power and jurisdictional reach to even non-signatories by
virtue of the enlarged meaning of “ party ”, couched in the very language of
Section(s) 8 and 45 of the Act, 1996. Thus, it was assumed and rather wrongly,
that an arbitral tribunal does not itself have the power to lift the corporate veil
or apply the doctrine of ‘Group of Companies’ and by extension to implead a
non-signatory to partake in arbitration by taking recourse to these principles
of implied mutual consent.
46. However, as discussed, the decision of Cox and Kings (I) (supra) has made it
abundantly clear that the legal basis for the application of the ‘Group of
Companies’ doctrine or any other principle for determining mutual consent is
in the definition of “ party ” under Section 2(1)(h) read with the meaning of
“arbitration agreement” under Section 7 of the Act, 1996. Since both the
aforesaid provisions are not confined in their scope to either the courts or the
arbitral tribunal, and rather exists ubiquitously on the statute book and is
Special Leave Petition (C) No. 21286 of 2024 Page 88 of 190
common or indifferent to both the courts and arbitral tribunals, there cannot
be any gainsaying that even the arbitral tribunal now after the decision of Cox
and Kings (I) (supra) could be said to be clothed with the power to take
recourse to the various principles for determining mutual consent, and thereby
implead a non-signatory to the arbitration, if such person is found to be bound
to the arbitration agreement.
Decision of Krish Spinning and the Judicial Rectification of the second
III.
misconception emanating from SBP & Co.
47. As discussed in the foregoing paragraphs, the second reason why the various
High Courts were hesitant from recognizing the arbitral tribunal’s power to
implead a non-signatory on its own accord, stemmed from the understanding
and position of law that existed then as regards the scope and extent of judicial
scrutiny of the courts which was required at the referral stage under Section
11 of the Act, 1996, before the subject matter could be referred to arbitration
and an arbitral tribunal be constituted.
48. In Konkan Railway Corpn. Ltd. v. Rani Construction (P) Ltd. reported in
(2002) 2 SCC 388 , a five-Judge Bench of this Court observed that the power
exercised by the referral court under Section 11 of the Act, 1996 is an
administrative power and thus the Chief Justice or his designate do not have
to decide any preliminary issue at that stage. Any issue pertaining to non-
Special Leave Petition (C) No. 21286 of 2024 Page 89 of 190
arbitrability, validity and existence of the arbitration agreement ought to be
decided by the arbitrator.
49. The aforesaid view occupied the field till the seven-Judge Bench decision of
this Court in SBP & Co. (supra) which held that the power conferred upon the
Chief Justice or his designate under Section 11 of the Act, 1996 is a judicial
power and not merely an administrative power. It held that being a judicial
power, the Chief Justice or his designate had the right to decide all preliminary
issues at the referral stage under Section 11(6) of the Act, 1996, and that the
power of the arbitral tribunal to rule on its own jurisdiction under Section 16
would come into the picture only when the parties go before the arbitral
tribunal without recourse to the courts either under Sections 8 or 11
respectively of the Act, 1996.
50. The ultimate effect of the ratio of SBP & Co. (supra) was that the scope for
interference available to the referral courts when acting under Section 11 of
the Act, 1996 was substantially expanded, and the referral courts were not only
empowered but also expected to conduct mini trials and indulge in the
appreciation of evidence on various issues concerned with the subject matter
of arbitration.
51.
Overtime, the decision of SBP & Co. (supra) insofar as the extent of judicial
scrutiny that was required under Section 11 of the Act, 1996 was concerned,
Special Leave Petition (C) No. 21286 of 2024 Page 90 of 190
proved to be counter serving as the enlarged scope of judicial interference at
the referral stage induced significant delays in the process of appointment of
arbitrators and constitution of arbitral tribunals, thereby rendering the very
framework of arbitration in India, ineffective, unviable and cumbersome.
th
52. The Law Commission of India in its 246 Report taking note of the aforesaid
problem inter-alia suggested that the scope of interference under Section(s) 8
and 11 respectively of the Act, 1996 should be restricted to a prima-facie
satisfaction of the existence and validity of the arbitration agreement. It further
opined that except in cases where the court finds that no arbitration agreement
exists or is null and void, the ordinary approach of the courts under Section 11
of the Act, 1996 should be to appoint an arbitrator and refer the parties to
arbitration, leaving all issues including those which it has prima-facie
determined for final adjudication by the arbitral tribunals. The relevant
observations read as under: -
“33. It is in this context, the Commission has recommended
amendments to sections 8 and 11 of the Arbitration and
Conciliation Act, 1996. The scope of the judicial intervention is
only restricted to situations where the Court/Judicial Authority
finds that the arbitration agreement does not exist or is null and
void. In so far as the nature of intervention is concerned, it is
recommended that in the event the Court/Judicial Authority is
prima facie satisfied against the argument challenging the
arbitration agreement, it shall appoint the arbitrator and/or refer
the parties to arbitration, as the case may be. The amendment
envisages that the judicial authority shall not refer the parties to
arbitration only if it finds that there does not exist an arbitration
agreement or that it is null and void. If the judicial authority is of
the opinion that prima facie the arbitration agreement exists, then
Special Leave Petition (C) No. 21286 of 2024 Page 91 of 190
it shall refer the dispute to arbitration, and leave the existence of
the arbitration agreement to be finally determined by the arbitral
tribunal. However, if the judicial authority concludes that the
agreement does not exist, then the conclusion will be final and not
prima facie. [...]”
53. The aforesaid recommendations of the Commission were taken note of by the
Parliament and accordingly Section 11 sub-section (6A) came to be inserted
in the Act, 1996 by way of the Arbitration and Conciliation (Amendment) Act,
2015. As per the said provision, the referral courts in exercise of their
jurisdiction under Section 11 were now required to only look into one aspect
— the existence of an arbitration agreement — nothing more, nothing less.
All other issues were now to be invariably left for the final determination by
the arbitral tribunal. [See: Duro Felguera, S.A. v. Gangavaram Port Ltd .
reported in (2017) 9 SCC 729 ]
54. A two-Judge Bench of this Court in Uttarakhand Purv Sainik Kalyan Nigam
Ltd. v. Northern Coal Field Ltd. reported in (2020) 2 SCC 455 held that the
issue of limitation being a mixed question of law and fact should be best left
to the tribunal to decide and that the referral court should restrict its
examination only to the existence of an arbitration agreement between the
parties.
55. Then came the decision of this Court in Vidya Drolia & Ors v. Durga Trading
Corporation reported in (2021) 2 SCC 1 , which inter-alia held that although
Special Leave Petition (C) No. 21286 of 2024 Page 92 of 190
Section(s) 8 and 11 of the Act, 1996 are at some variance inasmuch as the
former requires the referral courts to determine the “ validity ” of an arbitration
agreement whereas the latter requires determining only the “ existence ”, yet
since both the provisions are complementary to each other insofar as they both
deal with the power of courts to refer the parties to arbitration, the aspect of
“ existence ” as specified under Section 11 should be seen construed along with
the aspect of “ validity ” as specified under Section 8. It held that both the
provisions insofar as the standard of scrutiny by the referral courts is
concerned, ought to be compositely construed, irrespective of whether the
jurisdiction is being exercised by the courts under Section 8 or 11 of the Act,
1996. Accordingly, it held that the exercise of power of prima facie judicial
review to examine the existence of arbitration agreement also includes going
into the validity of the arbitration agreement and even objections as to the
arbitrability of the subject-matter. It also held that the referral court, while
exercising its powers under Section(s) 8 and 11 respectively of the Act, 1996
is empowered, to enter scrutiny for determining and ultimately knocking down
ex facie meritless, frivolous and dishonest litigation so as to ensure expeditious
and efficient disposal at the referral stage and prevent unnecessary subjugation
to arbitration. The relevant observations read as under: -
“147.4. Most jurisdictions accept and require prima facie review
by the court on non-arbitrability aspects at the referral stage.
147.5. Sections 8 and 11 of the Arbitration Act are complementary
provisions as was held in Patel Engg. Ltd. [SBP & Co. v. Patel
Special Leave Petition (C) No. 21286 of 2024 Page 93 of 190
Engg. Ltd., (2005) 8 SCC 618] The object and purpose behind the
two provisions is identical to compel and force parties to abide by
their contractual understanding. This being so, the two provisions
should be read as laying down similar standard and not as laying
down different and separate parameters. Section 11 does not
prescribe any standard of judicial review by the court for
determining whether an arbitration agreement is in existence.
Section 8 states that the judicial review at the stage of reference is
prima facie and not final. Prima facie standard equally applies
when the power of judicial review is exercised by the court under
Section 11 of the Arbitration Act. Therefore, we can read the
mandate of valid arbitration agreement in Section 8 into mandate
of Section 11, that is, “existence of an arbitration agreement”.
147.6. Exercise of power of prima facie judicial review of
existence as including validity is 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.
xxx xxx xxx
147.11. The interpretation appropriately balances the allocation
of the decision-making authority between the court at the referral
stage and the arbitrators' primary jurisdiction to decide disputes
on merits. The court as the judicial forum of the first instance can
exercise prima facie test jurisdiction to screen and knock down ex
facie meritless, frivolous and dishonest litigation. Limited
jurisdiction of the courts ensures expeditious, alacritous and
efficient disposal when required at the referral stage.”
“148. Section 43(1) of the Arbitration Act states that the
Limitation Act, 1963 shall apply to arbitrations as it applies to
court proceedings. Sub-section (2) states that for the purposes of
the Arbitration Act and Limitation Act, arbitration shall be
deemed to have commenced on the date referred to in Section 21.
Limitation law is procedural and normally disputes, being factual,
would be for the arbitrator to decide guided by the facts found and
the law applicable. The court at the referral stage can interfere
only when it is manifest that the claims are ex facie time-barred
and dead, or there is no subsisting dispute. All other cases should
Special Leave Petition (C) No. 21286 of 2024 Page 94 of 190
be referred to the Arbitral Tribunal for decision on merits. Similar
would be the position in case of disputed “no-claim certificate”
or defence on the plea of novation and “accord and satisfaction”.
[...]
(Emphasis supplied)
56. The final conclusion of this Court in Vidya Drolia (supra) read as under: -
“154.1. Ratio of the decision in Patel Engg. Ltd. [SBP & Co. v.
Patel Engg. Ltd., (2005) 8 SCC 618] on the scope of judicial
review by the court while deciding an application under Sections
8 or 11 of the Arbitration Act, post the amendments by Act 3 of
2016 (with retrospective effect from 23-10-2015) and even post
the amendments vide Act 33 of 2019 (with effect from 9-8-2019),
is no longer applicable.
154.2. Scope of judicial review and jurisdiction of the court under
Sections 8 and 11 of the Arbitration Act is identical but extremely
limited and restricted.
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.
154.4. Rarely as a demurrer the court may interfere at Section 8
or 11 stage when it is manifestly and ex facie certain that the
arbitration agreement is non-existent, invalid or the disputes are
non-arbitrable, though the nature and facet of non-arbitrability
would, to some extent, determine the level and nature of judicial
scrutiny. The restricted and limited review is to check and protect
parties from being forced to arbitrate when the matter is
demonstrably “non arbitrable” and to cut off the deadwood. The
court by default would refer the matter when contentions relating
to non arbitrability are plainly arguable; when consideration in
summary proceedings would be insufficient and inconclusive;
when facts are contested; when the party opposing arbitration
Special Leave Petition (C) No. 21286 of 2024 Page 95 of 190
adopts delaying tactics or impairs conduct of arbitration
proceedings. This is not the stage for the court to enter into a mini
trial or elaborate review so as to usurp the jurisdiction of the
Arbitral Tribunal but to affirm and uphold integrity and efficacy
of arbitration as an alternative dispute resolution mechanism.”
(Emphasis supplied)
57. As is clear from the aforesaid extract, Vidya Drolia (supra) held that although
the arbitral tribunal is the preferred first authority to determine the questions
pertaining to non-arbitrability, yet the referral court may exercise its limited
jurisdiction to refuse reference to arbitration in cases which are ex-facie
frivolous and where it is certain that the disputes are non-arbitrable.
58. What can be discerned from the aforesaid is that while the enlarged scope and
extent of judicial intervention at the referral stage as held in SBP & Co. (supra)
was legislatively overruled by the insertion of Section 11 sub-section (6A) in
the Act, 1996, the avowed legislative intent of minimal judicial intervention
was still far from being achieved, partly due to the misconception created in
the position of law as regards ambit of scrutiny under Section 11 of the Act,
1996 by Vidya Drolia (supra). Although, Vidya Drolia (supra) predominantly
found favour with the principal of minimal interference at the stage of Section
11 sub-section (6) petitions by referral courts in light of the introduction of
Section 11sub-section (6A) to the Act, 1996, yet it still proceeded in a
somewhat wrong direction on two counts; first, by conflating the scope and
Special Leave Petition (C) No. 21286 of 2024 Page 96 of 190
standard of scrutiny by the referral courts under Section 8 with that under
Section 11 and secondly, by carving out an exceptional category of cases in
which interference by the referral court was permissible, that being disputes
where it is manifestly and ex-facie certain that the arbitration agreement is
non-existent, invalid or the dispute is meritless or non-arbitrable.
59. The precarious situation that was created by Vidya Drolia (supra) is evident
from the subsequent decisions of this Court in DLF Home Developers Ltd. v.
Rajapura Homes (P) Ltd. reported in (2021) 16 SCC 743 and BSNL v. Nortel
Networks (India) (P) Ltd. , reported in (2021) 5 SCC 738 and a catena of other
decisions wherein it was held that while undertaking a prima facie review
under Section 11 of the Act, 1996, the interference of the courts in certain
aspects and merits of the subject-matter may be warranted in exceptional
cases, to weed out any frivolous or vexatious claims and prevent wastage of
public and private resources.
60. The next chapter in the saga of scope and ambit of Section 11 of the Act, 1996
came in the form of the seven-Judge Bench decision of this Court in In Re:
Interplay Between Arbitration Agreements under the Arbitration and
Conciliation Act 1996 and the Indian Stamp Act 1899 reported in 2023 INSC
1066 wherein one of us (J.B. Pardiwala J.) as part of the Bench, undertook a
comprehensive analysis of Section(s) 8 and 11 respectively of the Act, 1996
Special Leave Petition (C) No. 21286 of 2024 Page 97 of 190
and, inter alia , made poignant observations about the nature of the power
vested in the Courts insofar as the aspect of appointment of arbitrator is
concerned. It held that the referral court, be it the High Court or the Supreme
Court under Section 11 of the Act, 1996 shall examine only the existence of a
prima facie arbitration agreement and not any other issues. The relevant
observations read as under: -
“185. The corollary of the doctrine of competence-competence is
that courts may only examine whether an arbitration agreement
exists on the basis of the prima facie standard of review. The
nature of objections to the jurisdiction of an arbitral tribunal on
the basis that stamp-duty has not been paid or is inadequate is
such as cannot be decided on a prima facie basis. Objections of
this kind will require a detailed consideration of evidence and
submissions and a finding as to the law as well as the facts.
Obligating the court to decide issues of stamping at the Section 8
or Section 11 stage will defeat the legislative intent underlying the
Arbitration Act.
186. The purpose of vesting courts with certain powers under
Sections 8 and 11 of the Arbitration Act is to facilitate and enable
arbitration as well as to ensure that parties comply with
arbitration agreements. The disputes which have arisen between
them remain the domain of the arbitral tribunal (subject to the
scope of its jurisdiction as defined by the arbitration clause). [...]
209. The above extract indicates that the Supreme Court or High
Court at the stage of the appointment of an arbitrator shall
“examine the existence of a prima facie arbitration only pertain
to the validity of the arbitration agreement, but also include any
other issues which are a consequence of unnecessary judicial
interference in the arbitration proceedings. Accordingly, the
“other issues” also include examination and impounding of an
unstamped instrument by the referral court at the Section 8 or
Section 11 stage. The process of examination, impounding, and
dealing with an unstamped instrument under the Stamp Act is not
a timebound process, and therefore does not align with the stated
Special Leave Petition (C) No. 21286 of 2024 Page 98 of 190
goal of the Arbitration Act to ensure expeditious and time-bound
appointment of arbitrators. [...]”
(Emphasis supplied)
61. In SBI General Insurance Co. Ltd. v. Krish Spinning , reported in 2024 INSC
532 one of us (J.B. Pardiwala J.) taking note of the state of flux surrounding
the legal position on the scope and extent of judicial scrutiny permissible
under Section 11 of the Act, 1996, held that the courts at the referral stage
should not venture into contested questions involving complex facts. It was
held that the observations made in Vidya Drolia (supra) insofar as it allowed
the referral courts under Section 11 of the Act, 1996 to intervene and refuse
appointment of an arbitrator in matters that were ex-facie meritless, frivolous,
vexatious or deadwood, no longer could be said to hold field in view of the
observations made in the subsequent and larger bench decision of In Re:
Interplay (supra). The relevant observations read as under: -
“98. What follows from the negative facet of arbitral autonomy
when applied in the context of Section 16 is that the national
courts are prohibited from interfering in matters pertaining to the
jurisdiction of the arbitral tribunal, as exclusive jurisdiction on
those aspects vests with the arbitral tribunal. The legislative
mandate of prima facie determination at the stage of Sections 8
and 11 respectively ensures that the referral courts do not end up
venturing into what is intended by the legislature to be the
exclusive domain of the arbitral tribunal.
xxx xxx xxx
113. Referring to the Statement of Objects and Reasons of the
Arbitration and Conciliation (Amendment) Act, 2015, it was
observed in In Re: Interplay (supra) that the High Court and the
Supreme Court at the stage of appointment of arbitrator shall
Special Leave Petition (C) No. 21286 of 2024 Page 99 of 190
examine the existence of a prima facie arbitration agreement and
not any other issues. [...]
114. In view of the observations made by this Court in In Re:
Interplay (supra), it is clear that the scope of enquiry at the stage
of appointment of arbitrator is limited to the scrutiny of prima
facie existence of the arbitration agreement, and nothing else. For
this reason, we find it difficult to hold that the observations made
in Vidya Drolia (supra) and adopted in NTPC v. SPML (supra)
that the jurisdiction of the referral court when dealing with the
issue of “accord and satisfaction” under Section 11 extends to
weeding out ex-facie non-arbitrable and frivolous disputes would
continue to apply despite the subsequent decision in In Re:
Interplay (supra).
xxx xxx xxx
125. We are also of the view that ex-facie frivolity and dishonesty
in litigation is an aspect which the arbitral tribunal is equally, if
not more, capable to decide upon the appreciation of the evidence
adduced by the parties. We say so because the arbitral tribunal
has the benefit of going through all the relevant evidence and
pleadings in much more detail than the referral court. If the
referral court is able to see the frivolity in the litigation on the
basis of bare minimum pleadings, then it would be incorrect to
doubt that the arbitral tribunal would not be able to arrive at the
same inference, most likely in the first few hearings itself, with the
benefit of extensive pleadings and evidentiary material.”
62. Krish Spinning (supra) further held that, the scope of Section 8 is markedly
different from the scope of Section 11 of the Act, 1996 as although, both
provisions deal with the power of the courts to refer the parties to arbitration,
yet the reason why Section 8 envisages a more stricter test of determining the
“validity” of the arbitration agreement as opposed to mere “existence” under
Section 11 is owed to the fact that, Section 8 specifically enables the
commencement or continuation of arbitration during the pendency of an
Special Leave Petition (C) No. 21286 of 2024 Page 100 of 190
application under the said provision, thus, there is no inherent danger or harm
to subjecting the substantive rights of the parties to arbitrate in a state of limbo
or worse, remediless, if the courts themselves decide to proceed in determining
the validity of the arbitration agreement while the arbitral tribunal
simultaneously continues with the substantive claims. However, Section 11
on the other hand, is the very first step in commencement of arbitration
proceedings, no arbitration proceedings can commence or continue unless the
application under the said provision is decided. Furthermore, the
determination by a judicial authority under Section 8 of the Act, 1996 can be
assailed by way of an appeal under Section 37, however, a determination
under Section 11 of the Act, 1996 is not appealable, thus, the approach which
the courts are expected to undertake under Section 8 viz-à-viz Section 11, must
be reflective of these nuanced differences in the scope of these provisions.
Thus, it held that the observations of Vidya Drolia (supra) in conflating the
nature of the test envisaged under Section 8 of the Act, 1996 with that under
Section 11, cannot be said to be a good law. The relevant observations read as
under: -
“108. Section 11 of the Act, 1996 is provided to give effect to the
mutual intention of the parties to settle their disputes by
arbitration in situations where the parties fail to appoint an
arbitrator(s). The parameters of judicial review laid down for
Section 8 differ from those prescribed for Section 11. The view
taken in SBP & Co. (supra) and affirmed in Vidya Drolia (supra)
that Sections 8 and 11 respectively of the Act, 1996 are
complementary in nature was legislatively overruled by the
introduction of Section 11(6-A) in 2015. Thus, although both these
Special Leave Petition (C) No. 21286 of 2024 Page 101 of 190
provisions intend to compel parties to abide by their mutual
intention to arbitrate, yet the scope of powers conferred upon the
courts under both the sections are different.
109. The difference between Sections 8 and 11 respectively of the
Act, 1996 is also evident from the scope of these provisions. Some
of these differences are:
i. While Section 8 empowers any ‘judicial authority’ to refer
the parties to arbitration, under Section 11, the power to
refer has been exclusively conferred upon the High Court
and the Supreme Court.
ii. Under Section 37, an appeal lies against the refusal of the
judicial authority to refer the parties to arbitration,
whereas no such provision for appeal exists for a refusal
under Section 11.
iii. The standard of scrutiny provided under Section 8 is that of
prima facie examination of the validity and existence of an
arbitration agreement. Whereas, the standard of scrutiny
under Section 11 is confined to the examination of the
existence of the arbitration agreement.
iv. During the pendency of an application under Section 8,
arbitration may commence or continue and an award can
be passed. On the other hand, under Section 11, once there
is failure on the part of the parties in appointing the
arbitrator as per the agreed procedure and an application
is preferred, no arbitration proceedings can commence or
continue.
110. The scope of examination under Section 11(6-A) is confined
to the existence of an arbitration agreement on the basis of Section
7. The examination of validity of the arbitration agreement is also
limited to the requirement of formal validity such as the
requirement that the agreement should be in writing.
xxx xxx xxx
123. The power available to the referral courts has to be construed
in the light of the fact that no right to appeal is available against
any order passed by the referral court under Section 11 for either
appointing or refusing to appoint an arbitrator. Thus, by delving
into the domain of the arbitral tribunal at the nascent stage of
Section 11, the referral courts also run the risk of leaving the
claimant in a situation wherein it does not have any forum to
Special Leave Petition (C) No. 21286 of 2024 Page 102 of 190
approach for the adjudication of its claims, if it Section 11
application is rejected.
124. Section 11 also envisages a time-bound and expeditious
disposal of the application for appointment of arbitrator. One of
the reasons for this is also the fact that unlike Section 8, once an
application under Section 11 is filed, arbitration cannot
commence until the arbitral tribunal is constituted by the referral
court. This Court, on various occasions, has given directions to
the High Courts for expeditious disposal of pending Section 11
applications. It has also directed the litigating parties to refrain
from filing bulky pleadings in matters pertaining to Section 11.
[...]”
63. Accordingly, Krish Spinning (supra) held that the scope of enquiry at the
referral stage under Section 11 of the Act, 1996 is confined to a prima facie
determination of the existence of the arbitration agreement, and does not
permit a contested or laborious enquiry into all other issues including the
conclusive existence of such arbitration agreement, which is for the arbitral
tribunal alone to ‘rule’ under Section 16. Under Section 11, the referall court’s
enquiry is limited to examining whether the application under the said
provision is filed before the correct court or not, the said application is within
limitation or not in light of the decision of M/s Arif Azim Co. Ltd. v. M/s
Aptech Ltd. reported in 2024 INSC 155 , and to the prima-facie existence of
an arbitration agreement. Such an approach gives true meaning to the
legislative intent underlying Section 11 sub-section (6A) of the Act, 1996 and
also to the view taken in In Re: Interplay (supra). The relevant ovservations
read as under: -
Special Leave Petition (C) No. 21286 of 2024 Page 103 of 190
“111. The use of the term ‘examination’ under Section 11(6-A) as
distinguished from the use of the term ‘rule’ under Section 16
implies that the scope of enquiry under section 11(6-A) is limited
to a prima facie scrutiny of the existence of the arbitration
agreement, and does not include a contested or laborious enquiry,
which is left for the arbitral tribunal to ‘rule’ under Section 16.
The prima facie view on existence of the arbitration agreement
taken by the referral court does not bind either the arbitral
tribunal or the court enforcing the arbitral award.
xxx xxx xxx
133. Thus, we clarify that while determining the issue of limitation
in exercise of the powers under Section 11(6) of the Act, 1996, the
referral court should limit its enquiry to examining whether
Section 11(6) application has been filed within the period of
limitation of three years or not. The date of commencement of
limitation period for this purpose shall have to be construed as
per the decision in Arif Azim (supra). As a natural corollary, it is
further clarified that the referral courts, at the stage of deciding
an application for appointment of arbitrator, must not conduct an
intricate evidentiary enquiry into the question whether the claims
raised by the applicant are time barred and should leave that
question for determination by the arbitrator. Such an approach
gives true meaning to the legislative intention underlying Section
11(6-A) of the Act, and also to the view taken in In Re: Interplay
(supra).
64. When the decision of this Court in Chloro Controls (supra) came, the position
of law as regards the standard of scrutiny expected by the referral courts was
governed by the decision of SBP Co. (supra), which as already discussed, was
premised on the rudimentary understanding that the arbitral tribunals are not
empowered to determine issues as regards the validity and existence of the
arbitration agreement and whether the claims are time-barred or vexatious due
to the non-applicability of Section 16 in instances of court referred
Special Leave Petition (C) No. 21286 of 2024 Page 104 of 190
arbitrations. The understanding which stemmed from SBP Co. (supra) was
that the referral courts were required to conduct mini trials and indulge in the
appreciation of evidence on the aforesaid issues, even though they were
inextricably linked with the substantive merits of the subject-matter.
65. Accordingly, when Chloro Controls (supra) held that a non-signatory to the
arbitration agreement may be bound by the arbitration agreement by the
doctrine of ‘Group of Companies’, the test which it laid down for applying the
said doctrine had been evolved, squarely keeping in mind the decision of SBP
Co. (supra). Which is why, Chloro Controls (supra) held that before a non-
signatory can be held to be bound by the arbitration agreement, the referral
courts would have to make a determination of all issues fundamental to
making a reference to arbitration including the issue whether a non-signatory
could be said to be bound by the arbitration agreement. The net effect of the
aforesaid was that, arbitral tribunals were deemed to be incompetent to
identify and implead a non-signatory to the arbitration agreement on its own
accord, as it was understood from SBP Co. (supra), that such duty had been
cast only upon the referral courts to determine.
66.
However, with the subsequent developments, particularly in light of two key
decisions of this Court being In Re: Interplay (supra) and Krish Spinning
(supra), it is no more res-integra , that the extent of scrutiny of the referral
Special Leave Petition (C) No. 21286 of 2024 Page 105 of 190
courts under Section 11 of the Act, 1996 is extremely narrow, and confined to
only one aspect i.e., the prima-facie determination of the “existence” of the
arbitration agreement. Krish Spinning (supra) has categorically held that only
those questions which inextricably attacks or questions the “existence” of the
arbitration agreement, should be looked into by the referral courts, that only
for the purpose of a prima-facie satisfaction, all other questions, particularly
mixed questions of law and fact fall within the exclusive jurisdiction of the
arbitral tribunal, and cannot be looked into by the referral court, even for a
prima-facie determination. Questions which involve examination of contested
question of facts and appreciation of evidence, should be left to the arbitral
tribunals to decide, as it is equally, if not more capable to decide such
questions, as it has the benefit of going through all the relevant evidence and
pleadings in much more detail than the referral courts. Although the aforesaid
observations were in the context of “accord and satisfaction” yet, the
principles laid therein, would, nevertheless apply with equal force to all other
issues entrenching upon the exercise of jurisdiction under Section 11 of the
Act, 1996. The relevant observations read as under: -
“115. The dispute pertaining to the “accord and satisfaction” of
claims is not one which attacks or questions the existence of the
arbitration agreement in any way. As held by us in the preceding
parts of this judgment, the arbitration agreement, being separate
and independent from the underlying substantive contract in
which it is contained, continues to remain in existence even after
the original contract stands discharged by “accord and
satisfaction”.
Special Leave Petition (C) No. 21286 of 2024 Page 106 of 190
116. The question of “accord and satisfaction”, being a mixed
question of law and fact, comes within the exclusive jurisdiction
of the arbitral tribunal, if not otherwise agreed upon between the
parties. Thus, the negative effect of competence-competence
would require that the matter falling within the exclusive domain
of the arbitral tribunal, should not be looked into by the referral
court, even for a prima facie determination, before the arbitral
tribunal first has had the opportunity of looking into it.
xxx xxx xxx
125. We are also of the view that ex-facie frivolity and dishonesty
in litigation is an aspect which the arbitral tribunal is equally, if
not more, capable to decide upon the appreciation of the evidence
adduced by the parties. We say so because the arbitral tribunal
has the benefit of going through all the relevant evidence and
pleadings in much more detail than the referral court. If the
referral court is able to see the frivolity in the litigation on the
basis of bare minimum pleadings, then it would be incorrect to
doubt that the arbitral tribunal would not be able to arrive at the
same inference, most likely in the first few hearings itself, with the
benefit of extensive pleadings and evidentiary material.”
67. Thus, the archaic understanding that an arbitral tribunal is incapable or
incompetent to identify and implead a non-signatory to the arbitration
agreement on its own accord, is not the correct position of law, in view of the
decisions of this Court in In Re: Interplay (supra) and Krish Spinning (supra).
We find, that the limited nature and scope of inquiry which the referral courts
are expected to undertake as regards the “existence” of the arbitration
agreement, would as a logical sequitur obligate the arbitral tribunal also to
look into this question. Such a question, by no stretch, can be regarded as
falling within the exclusive domain or jurisdiction of the referral courts, so as
Special Leave Petition (C) No. 21286 of 2024 Page 107 of 190
to render any examination of it by the arbitral tribunal a usurpation of the
referral courts authority and duty.
c. How Cox and Kings (I) contemplates determination of mutual
intention of Non-Signatories to arbitration agreements.
68. However, even though an arbitral tribunal undoubtedly would be empowered
to identify and implead a non-signatory to the arbitration agreement on its
own, yet the question still remains, if the arbitral tribunal could be considered
to be the appropriate forum for deciding this issue? In other words, whether,
the issue that a non-signatory is bound by the arbitration agreement could be
termed to be a question which inextricably attacks or questions the “existence”
of the arbitration agreement, and thus, should be looked into by the referral
courts?
69. The seminal importance of the aforesaid question lies in the contention that
has been vehemently put forward before us by the appellants herein. It has
been contended that when the application under Section 11 of the Act, 1996
was filed by the respondent no. 1 herein, the appellant herein was never made
a party. In fact, in the entire application under Section 11, the respondent no.
1 never imputed any allegations or put forth any claims against the appellants
herein, which would suggest its intention to implead the appellant herein in
the arbitration proceedings, or that it is bound by the arbitration agreement. In
Special Leave Petition (C) No. 21286 of 2024 Page 108 of 190
such circumstances, it was contended by the appellant herein, that in the
absence of the appellant herein being a party to the application under Section
11 and in the absence of the referral court directing or leaving the question of
impleadment of the appellant for the arbitral tribunal to decide, the appellant
herein could not have been impleaded to the arbitration proceedings by the
arbitral tribunal.
70. To put it simply, the argument of the appellant herein is that, where the non-
signatory is a party to the application under Section 11 of the Act, 1996, the
referral court must first make a prima-facie determination as to whether such
non-signatory is bound by the arbitration agreement or not, before leaving the
conclusive determination of such question to the arbitral tribunal. Conversely,
where the non-signatory sought to be enjoined in arbitration is not a party to
the application under Section 11, the referral court must give leave or direct
the arbitral tribunal to examine whether such non-signatory is bound by the
arbitration agreement or not, before it can be impleaded by the arbitral tribunal
on its own accord.
71. In other words, the question that has been canvassed before us for our
consideration is whether, the question that a non-signatory is bound by the
arbitration agreement could be termed to be a question which inextricably
attacks or questions the “existence” of the arbitration agreement, such that in
the absence of any examination or application of mind by the referral court to
Special Leave Petition (C) No. 21286 of 2024 Page 109 of 190
such question would render the very arbitration proceedings that has been
commenced pursuant to the application under Section 11 of the Act, 1996 to
be non-est, insofar as such non-signatory is concerned.
The nature and extent of the test laid down in Cox and Kings (I) for
I.
determining Non-Signatories who are bound by the arbitration
agreements.
72. In order to answer the aforesaid question, we must once again look into the
decision of this Court in Cox and Kings (I) (supra), to ascertain the nature of
the question whether a non-signatory is bound by the arbitration agreement or
not, and the manner in which the referral courts and the arbitral tribunal are
expected to tackle such a question.
73. Cox and Kings (I) (supra) after an exhaustive examination of the question of
existence or applicability of the ‘Group of Companies’ doctrine in a particular
case, is fundamentally a fact-intensive exercise that involves a nuanced
determination of the consent of parties from diverse factual elements and
circumstances. The said doctrine and by extension any other principle for
determining mutual consent, broadly requires ascertaining the intention of the
parties by analysing the factual circumstances surrounding the contractual
arrangements, particularly factors such as the level of involvement of the non-
signatory in the negotiation, conclusion (sic execution), performance or
Special Leave Petition (C) No. 21286 of 2024 Page 110 of 190
termination of the contract, to what extent such conduct may be indicative its
position as a veritable party to the arbitration agreement and common intention
to be bound by it. Thus, it was held that the primary test for ascertaining the
applicability of the ‘Group of Companies’ doctrine lies in the determination
of the intention of the parties, which is to be inferred from the surrounding
factual matrix, or in other words, the inquiry or test is, by its very nature,
predominantly factual. The relevant observations read as under: -
96. [...] The level of the non-signatory party’s involvement was to
the extent of making the other party believe that it was a veritable
party to the contract, and the arbitration agreement contained
under it. Therefore, the group of companies doctrine is applied to
ascertain the intentions of the parties by analysing the factual
circumstances surrounding the contractual arrangements.
101. [...] Rather, the courts need to determine: first, the existence
of a group of companies; and second, the conduct of the signatory
and non-signatory parties which indicate their common intention
to make the non-signatory a party to the arbitration agreement.95
Thus, the group of companies doctrine is similar to other consent
based doctrines such as agency, assignment, assumption, and
guarantee to the extent that it is ordinarily applied as a means of
identifying the common intention of the parties to bind the non-
signatory to the arbitration agreement.
102. [...] Thus, the existence of a group, of companies is a factual
element that the court or tribunal has to consider when analysing
the consent of the parties. It inevitably adds an extra layer of
criteria to an exercise which at its core is preponderant on
determining the consent of the parties in case of complex
transactions involving multiple parties and agreements.
105. In multi-party agreements, the courts or tribunals will have
to examine the corporate structure to determine whether both the
signatory and non signatory parties belong to the same group.
This evaluation is fact specific and must be carried out in
accordance with the appropriate principles of company law. Once
Special Leave Petition (C) No. 21286 of 2024 Page 111 of 190
the existence of the corporate group is established, the next step is
the determination of whether there was a mutual intention of all
the parties to bind the non-signatory to the arbitration agreement.
109. [...] The primary test to apply the group of companies
doctrine is by determining the intention of the parties on the basis
of the underlying factual circumstances. The application of the
group of companies doctrine will serve to stymie satellite
litigation by non-signatory members of the corporate group,
thereby ensuring the efficacy of the agreement between the
parties.
74. From above, it is manifest that the test for determining the applicability of the
‘Group of Companies’ doctrine is intrinsically factual in nature, necessitating
a close and context-specific inquiry. However, Cox and Kings (I) (supra) did
not merely stop at just establishing the factual nature of such an exercise, but
further proceeded to expound, the extent and depth in which the
aforementioned factual factors must be determined in the course of such
exercise by laying down the threshold standards for determining the
applicability of the said doctrine. Placing reliance on one another decision of
this Court in Oil and Natural Gas Corporation Ltd. v. Discovery Enterprises
Pvt. Ltd. reported in (2022) 8 SCC 42, it held that the test for determining
applicability of the ‘Group of Companies’ doctrine envisages a cumulative
and holistic determination of the factual aspects such as the relationship
between and among the legal entities within the corporate group structure,
their underlying contractual obligations, the commonality of the subject matter
and the composite nature of the transactions undertaken, and their overall
Special Leave Petition (C) No. 21286 of 2024 Page 112 of 190
participation in the project / subject-matter for achieving a common purpose.
The relevant observations read as under: -
“110. In Discovery Enterprises (supra), this Court refined and
clarified the cumulative factors that the courts and tribunals
should consider in deciding whether a company within a group of
companies is bound by the arbitration agreement:
“40. In deciding whether a company within a group of
companies which is not a signatory to arbitration
agreement would nonetheless be bound by it, the law
considers the following factors:
(i) The mutual intent of the parties;
(ii) The relationship of a non-signatory to a party
which is a signatory to the agreement;
(iii) The commonality of the subject-matter;
(iv) The composite nature of the transactions; and
(v) The performance of the contract.”
75. Cox and Kings (I) (supra) observed that doctrines such as ‘Group of
Companies’ being a consent-based theory, as a necessary implication requires
that the inquiry must not be superficial or perfunctory but must instead involve
a comprehensive and holistic assessment of the composite relationship among
the entities concerned, the underlying transactions, and the attendant
circumstances evincing mutual intention to be bound by the arbitration
agreement. Endorsing the view taken in Discovery Enterprises (supra), it held
that mere incidental involvement in the negotiation or performance of the
contract is not sufficient to infer the consent of the non-signatory to be bound
by the underlying contract or its arbitration agreement. The evaluation must
be indicative that the involvement of the non-signatory was of such manner
Special Leave Petition (C) No. 21286 of 2024 Page 113 of 190
which was sufficient to lead the other parties to legitimately believe that the
non-signatory was a veritable party to the contract. The relevant observations
read as under: -
“111. Since the group of companies doctrine is a consent based
theory, its application depends upon the consideration of a variety
of factual elements to establish the mutual intention of all the
parties involved. In other words, the group of companies doctrine
is a means to infer the mutual intentions of both the signatory and
non-signatory parties to be bound by the arbitration agreement.
The relationship between and among the legal entities within the
corporate group structure and the involvement of the parties in
the performance of the underlying contractual obligations are
indicators to determine the mutual intentions of the parties. The
other factors such as the commonality of the subject matter,
composite nature of the transactions, and the performance of the
contract ought to be cumulatively considered and analysed by
courts and tribunals to identify the intention of the parties to bind
the non-signatory party to the arbitration agreement. [...]
112. [...] However, we clarify that mere presence of a commercial
relationship between the signatory and non-signatory parties is
not sufficient to infer “legal relationship” between and among the
parties. If this factor is applied solely, any related entity or
company may be impleaded even when it does not have any rights
or obligations under the underlying contract and did not take part
in the performance of the contract. The group of companies
doctrine cannot be applied to abrogate party consent and
autonomy. The doctrine, properly conceptualised and applied,
gives effect to mutual intent and autonomy.
121. Evaluating the involvement of the non-signatory party in the
negotiation, performance, or termination of a contract is an
important factor for a number of reasons. First, by being actively
involved in the performance of a contract, a non-signatory may
create an appearance that it is a veritable party to the contract
containing the arbitration agreement; second, the conduct of the
non signatory may be in harmony with the conduct of the other
members of the group, leading the other party to legitimately
believe that the non-signatory was a veritable party to the
contract; and third, the other party has legitimate reasons to rely
Special Leave Petition (C) No. 21286 of 2024 Page 114 of 190
on the appearance created by the non-signatory party so as to bind
it to the arbitration agreement.
122. [...] Rather, the courts or tribunals should closely evaluate
the overall conduct and involvement of the non-signatory party in
the performance of the contract. The nature or standard of
involvement of the non-signatory in the performance of the
contract should be such that the non-signatory has actively
assumed obligations or performance upon itself under the
contract. In other words, the test is to determine whether the non-
signatory has a positive, direct, and substantial involvement in the
negotiation, performance, or termination of the contract. Mere
incidental involvement in the negotiation or performance of the
contract is not sufficient to infer the consent of the non signatory
to be bound by the underlying contract or its arbitration
agreement.
127. We are of the opinion that there is a need to seek a balance
between the consensual nature of arbitration and the modern
commercial reality where a non-signatory becomes implicated in
a commercial transaction in a number of different ways. Such a
balance can be adequately achieved if the factors laid down under
Discovery Enterprises (supra) are applied holistically. For
instance, the involvement of the non-signatory in the performance
of the underlying contract in a manner that suggests that it
intended to be bound by the contract containing the arbitration
agreement is an important aspect. Other factors such as the
composite nature of transaction and commonality of subject
matter would suggest that the claims against the non-signatory
were strongly inter-linked with the subject matter of the tribunal’s
jurisdiction. Looking at the factors holistically, it could be
inferred that the non-signatories, by virtue of their relationship
with the signatory parties and active involvement in the
performance of commercial obligations which are intricately
linked to the subject matter, are not actually strangers to the
dispute between the signatory parties.
128. We hold that all the cumulative factors laid down in
Discovery Enterprises (supra) must be considered while
determining the applicability of the group of companies doctrine.
However, the application of the above factors has to be fact-
specific, and this Court cannot tie the hands of the courts or
tribunals by laying down how much weightage they ought to give
Special Leave Petition (C) No. 21286 of 2024 Page 115 of 190
to the above factors. This approach ensures that a dogmatic
emphasis on express consent is eschewed in favour of a modern
approach to consent which focuses on the factual analysis,
complexity of commercial projects, and thereby increases the
relevance of arbitration in multi-party disputes. [...]
(Emphasis supplied)
76. Owing to the intrinsic character of the test — being one that entails a fact-
intensive inquiry involving a mixed question of fact and law — and further,
given the extensive standard it demands, requiring a comprehensive and
holistic appraisal of all material facts and attendant circumstances, it may be
safely concluded that the arbitral tribunal is the more appropriate and
competent forum to adjudicate upon the issue of whether a non-signatory is
bound by the arbitration agreement, as the arbitral as it has the innate
advantage of going through all the relevant evidence and pleadings in greater
depth and detail than the referral court at the pre-reference stage, and as such
is uniquely positioned to undertake such a nuanced determination.
II. Determining the “existence” viz-à-viz the intention of parties from
“express words” of an Arbitration Agreement.
77. In order to resolve the question whether the issue of a non-signatory being
bound by an arbitration agreement could be said to be inextricably intertwined
with the determination of the “existence” of the arbitration agreement, it is
apposite to once again advert to Cox and Kings (I) (supra), more particularly,
as to the manner in which it envisages the identification and determination of
Special Leave Petition (C) No. 21286 of 2024 Page 116 of 190
the binding effect of an arbitration agreement upon a non-signatory, based on
the factual aspects delineated by it, as mentioned in the foregoing paragraphs.
78. Cox and Kings (I) (supra) observed that the “legal relationship of a non-
signatory to a party which is a signatory to the agreement” must be analyzed
in the context of the underlying substantive contract which contains the
arbitration agreement. This may be ascertained either from the duty or
relationship attributed to the non-signatory within the underlying contract or
may be inferred from its conduct with respect to such contract. If the
underlying contract forms basis for a subject-matter common to both the
signatory and the non-signatory or any composite transaction by them, then it
would be a positive indicum for inferring the consent of the non-signatory to
arbitrate with respect to the subject-matter. Transactions by a non-signatory
which are interlinked with the underlying contract in such manner, in the
absence of which the performance of the contract may not be feasible, is one
another instance for inferring this consent. Placing reliance on Chloro
Controls (supra) it observed that factors such as “commonality of the subject-
matter” or “composite transaction” would have to be gathered from the
conjoint reading of the principal and supplementary agreements on the one
hand, and the intention of the parties and their conduct on the other. Amongst
these, the participation of the non-signatory in the performance of the
Special Leave Petition (C) No. 21286 of 2024 Page 117 of 190
underlying contract is the most crucial factor to discern the intention of the
parties.
“112. Section 7 of the Arbitration Act broadly talks about an
agreement by the parties in respect of a defined legal relationship,
whether contractual or not. Such a legal relationship must give
rise to legal obligations and duties. In a corporate group, a
company may have various related companies. The legal
relationship must be analysed in the context of the underlying
contract containing the arbitration agreement. The nature of the
contractual relationship can either be formally encrusted in the
underlying contract, or it can also be inferred from the conduct of
the signatory and non-signatory parties with respect to such
contract. [...]
115. In case of multiple parties, the necessity of a common subject-
matter and composite transaction is an important factual
indicator. An arbitration agreement arises out of a defined legal
relationship between the parties with respect to a particular
subject matter. Commonality of the subject matter indicates that
the conduct of the non-signatory party must be related to the
subject matter of the arbitration agreement. For instance, if the
subject matter of the contract underlying the arbitration
agreement pertains to distribution of healthcare goods, the
conduct of the non-signatory party should also be connected or in
pursuance of the contractual duties and obligations, that is,
pertaining to the distribution of healthcare goods. The
determination of this factor is important to demonstrate that the
non-signatory party consented to arbitrate with respect to the
particular subject matter.
116. In case of a composite transaction involving multiple
agreements, it would be incumbent for the courts and tribunals to
assess whether the agreements are consequential or in the nature
of a follow-up to the principal agreement. This Court in Canara
Bank (supra) observed that a composite transaction refers to a
situation where the transaction is interlinked in nature or where
the performance of the principal agreement may not be feasible
without the aid, execution, and performance of the supplementary
or ancillary agreements.
Special Leave Petition (C) No. 21286 of 2024 Page 118 of 190
117. The general position of law is that parties will be referred to
arbitration under the principal agreement if there is a situation
where there are disputes and differences “in connection with” the
main agreement and also disputes “connected with” the subject-
matter of the principal agreement In Chloro Controls (supra), this
Court clarified that the principle of “composite performance”
would have to be gathered from the conjoint reading of the
principal and supplementary agreements on the one hand, and the
explicit intention of the parties and attendant circumstances on the
other. The common participation in the commercial project by the
signatory and non signatory parties for the purposes of achieving
a common purpose could be an indicator of the fact that all the
parties intended the non-signatory party to be bound by the
arbitration agreement. [...]”
118. The participation of the non-signatory in the performance of
the underlying contract is the most important factor to be
considered by the courts and tribunals. The conduct of the non-
signatory parties is an indicator of the intention of the non-
signatory to be bound by the arbitration agreement. The intention
of the parties to be bound by an arbitration agreement can be
gauged from the circumstances that surround the participation of
the non signatory party in the negotiation, performance, and
termination of the underlying contract containing such agreement.
The UNIDROIT Principle of International Commercial Contract,
201698 provides that the subjective intention of the parties could
be ascertained by having regard to the following circumstances:
(a) preliminary negotiations between the parties;
(b) practices which the parties have established between
themselves;
(c) the conduct of the parties subsequent to the conclusion of the
contract;
(d) the nature and purpose of the contract;
(e) the meaning commonly given to terms and expressions in the
trade concerned; and
(f) usages.
(Emphasis supplied)
79. What can be discerned from the above is that, the entire exercise of
determining whether a non-signatory is bound by an arbitration agreement, in
Special Leave Petition (C) No. 21286 of 2024 Page 119 of 190
contradistinction to the narrow question of the "existence" of the arbitration
agreement, necessitates a far more expansive inquiry. This inquiry transcends
the limited question of the mere "existence" as it entails an interpretation of
the scope and contours of the principal agreement, an assessment of the
commercial understanding between the parties, examination of the nature and
purpose underlying the principal contract, and the character of the transactions
and conduct of the parties viz-à-viz the object and wisdom of the parties
underlying contractual arrangement. Such an exercise mandates a detailed and
comparative evaluation of the substantive provisions of both the principal and
supplementary agreements, and not merely of the arbitration agreement or
clause in isolation.
80. The determination of the "existence" of an arbitration agreement, by contrast,
is confined to examining the formal validity of the arbitration agreement or
the arbitration clause itself, where only the arbitration agreement or clause, as
the case may be has to be looked into. It does not require delving into the
broader legal relationships emerging from the underlying contractual
framework. Cox and Kings (I) (supra) specifically mandates a holistic
appraisal of the principal and supplementary agreements in tandem with the
parties' intention and conduct, thereby demanding an inquiry far more
extensive than that required for the mere establishment of the existence of the
arbitration agreement.
Special Leave Petition (C) No. 21286 of 2024 Page 120 of 190
81. Thus, by no stretch of imagination can the issue of whether a non-signatory is
bound by the arbitration agreement be characterized as one that is either
significant or sine qua non to the determination of the arbitration agreement’s
“existence”. The former necessitates a substantive examination of the entire
contractual relationship, whereas the latter is a limited exercise directed only
at confirming the formal validity of the arbitration agreement itself. Such a
question is not one of “existence” of the arbitration agreement, but one of
interpretation and scope of the principle agreement.
82.
In this regard, reliance may be placed on the concurring opinion of P.S.
Narasimha J. in Cox and Kings (I) (supra), who observed that the existence
of an arbitration agreement qua a non-signatory is a matter of interpretation
and construction of the written material in terms of Section 7(4)(b) from which
a non-signatory’s consent and intention can be deciphered. For ascertaining
the true meaning of the express words, the court or tribunal may look into the
surrounding circumstances such as nature and object of the contract and the
conduct of the parties during the formation, performance, and discharge of the
contract. The relevant observations read as under: -
“52. [...] An arbitration agreement, being a contract, must
necessarily be in writing, as against an oral agreement, but need
not be signed by the parties. The written arbitration agreement
can be in the form of a document signed by the parties, or be
evidenced in the record of agreement. Section 7(4)(b) prescribes
the written material from which a non-signatory’s consent and
intention can be deciphered by a court or arbitral tribunal.
Special Leave Petition (C) No. 21286 of 2024 Page 121 of 190
53. The existence of an arbitration agreement with a non signatory
is a matter of interpretation and construction. The express words
employed by the parties enable the court to ascertain the intention
of the parties and their agreement to resolve disputes through
arbitration. For ascertaining the true meaning of the express
words, the court or tribunal may look into the surrounding
circumstances such as nature and object of the contract and the
conduct of the parties during the formation, performance, and
discharge of the contract. While interpreting and constructing the
contract, courts or tribunals may adopt well established
principles, which aid and assist proper adjudication and
determination. The Group of Companies doctrine is one such
principle. It may be adopted by courts or arbitral tribunals while
interpreting the record of agreement to determine whether the non
signatory company is a party to it.
54. Although the application of the Group of Companies doctrine
in India has until now been independent of Section 7, its
juxtaposition with Section 7(4)(b) case-law shows that the inquiry
under both is premised on determining the mutual intention of
parties to submit to arbitration. The mutual intention of the parties
is discernible from their conduct in the performance of the
contract and this inquiry is common to Section 7(4)(b)
jurisprudence and the Group of Companies doctrine. Even the
precedents on the doctrine, national and international, look to
additional factors beyond the non-signatory being in the same
group of companies, such as commonality of subject-matter,
composite nature of transaction, and interdependence of the
performance of the contracts to determine mutual intent.”
83. The subsequent observations of P.S. Narasimha J. in his concurring opinion
in Cox and Kings (I) (supra) are of significance, and read as under: -
“55. Since the fundamental issue before the court or tribunal
under Section 7(4)(b) and the Group of Companies doctrine is the
same, the doctrine can be subsumed within Section 7(4)(b).
Consequently, the record of agreement that evidences conduct of
the non-signatory in the formation, performance, and termination
of the contract and surrounding circumstances such as its direct
Special Leave Petition (C) No. 21286 of 2024 Page 122 of 190
relationship with the signatory parties, commonality of subject
matter, and composite nature of transaction, must be
comprehensively used to ascertain the existence of the arbitration
agreement with the non-signatory. In this inquiry, the fact of a no
signatory being a part of the same group of companies will
strengthen its conclusion. In this light, there is no difficulty in
applying the Group of Companies doctrine as it would be
statutorily anchored in Section 7 of the Act.”
84. From the above exposition of law, it can be seen that this Court in Cox and
Kings (I) (supra) recognized that there exists a fine but pertinent distinction
between determining the “existence” of an arbitration agreement and
determining the intention of the parties from the “express words” used in the
arbitration agreement, when dealing with the question whether a non-
signatory is bound by the arbitration agreement or not. The former only deals
with determining whether an arbitration agreement exists and is present in the
record of agreement or the written materials as delineated under Section 7 sub-
section (4)(b) of the Act, 1996. The latter, in contrast, involves construction
and interpretation of the “express words” that has been used in such material
from the surrounding circumstances such as nature and object of the contract
and the conduct of the parties during the formation, performance, and
discharge of the contract, and how the arbitration agreement fits within the
broader contractual framework.
Special Leave Petition (C) No. 21286 of 2024 Page 123 of 190
85. Once the referral court, identifies an arbitration agreement that satisfies the
formal requirements of Section 7 of the Act, 1996, either from the record of
agreement or the written materials under sub-section (4), the “existence” of
the arbitration agreement is said to have been established, even though, its
binding nature qua the non-signatory may not be established, as it is entirely
possible for a referral court to arrive at finding that prima-facie there exists an
arbitration agreement in terms of Section 7 of the Act, 1996 without resolving
the question of whether a non-signatory is bound by such arbitration
agreement or not, as it depends on additional factors beyond mere existence.
86.
Once, the “existence” of the arbitration agreement is said to have been
established, the condition stipulated in terms of Section 11 sub-section (6A)
of the Act, 1996, is said to have been fulfilled, and the referral courts have no
option but to refer the dispute to arbitration, notwithstanding whether the
intention of a non-signatory as a veritable partly to such agreement is
established or not. Apart from the pre-condition of examining the “existence”
of an arbitration agreement, Section 11 of the Act, 1996 does not either
contemplate or require determination of the " defined legal relationship " in
terms of Section 7, nor does it mandate an assessment of the futuro intention
of the parties, whether signatories or non-signatories, from the "express
words" of the arbitration agreement. This limited inquiry does not extend to
the substantive legal consequences or implications of such arbitration
Special Leave Petition (C) No. 21286 of 2024 Page 124 of 190
agreement. The question of whether a non-signatory is bound by the
arbitration agreement is entirely separate from the question of its "existence."
The latter is a relatively straightforward, procedural determination based on
the formal presence of the agreement, whereas the former involves a
substantive and contextual inquiry into the mutual intent of the parties, which
may be examined by the arbitral tribunal.
87. What follows from this is that, the question whether a non-signatory is bound
by the arbitration agreement is completely independent of the question
concerning the “existence” of an arbitration agreement. The two inquiries —
while related — are distinct in nature and function. The "existence" of an
arbitration agreement pertains solely to its formal presence in the contractual
documentation, as per the requirements under the Act, 1996 and once
established, it obligates the referral of the dispute to arbitration. By contrast,
the question of whether a non-signatory is bound by the arbitration agreement
involves a more nuanced determination of the parties' intentions, contractual
relationships, and the broader context of the agreement, which is not confined
to the formal text of the arbitration clause alone.
88.
Thus, even in the absence of the non-signatory being made a party to the
proceedings before the referral court, and where the question of its
impleadment has neither been raised nor addressed or left open to the arbitral
Special Leave Petition (C) No. 21286 of 2024 Page 125 of 190
tribunal by the referral court, the arbitral tribunal would be full empowered to
examine this issue in the first instance and determine whether any non-
signatory is bound by the arbitration agreement based on the factual
circumstances of the case, and if necessary, implead such non-signatory to the
arbitration proceedings.
89. P.S. Narasimha J. in his concurring opinion in Cox and Kings (I) (supra),
observed that the exercise of determining the binding nature of an arbitration
agreement qua a non-signatory is an inquiry pertaining to the interpretation
and construction of the agreement for determining the mutual intention, and
not the existence of such agreement. We are conscious of the fact that, at
paragraph 55, P.S. Narasimha J. observed that the inquiry is to “ ascertain the
existence of the arbitration agreement with the non-signatory ” Semantically,
the exercise may well be said to be one for determining the “existence” of an
arbitration agreement with the non-signatory, however, the aforesaid
observations cannot be singled out and construed devoid of its context. It must
be seen in light of the observations made in the majority opinion at paragraphs
102 and 103, wherein this issue of “existence of the arbitration agreement with
the non-signatory” or to put it simply, whether the non-signatory is a veritable
party to the arbitration agreement or not, was described as an “extra layer of
criteria” and that such an exercise is only to “discern the true “party” in
interest”. The relevant observations read as under: -
Special Leave Petition (C) No. 21286 of 2024 Page 126 of 190
“102. [...] Thus, the existence of a group of companies is a factual
element that the court or tribunal has to consider when analysing
the consent of the parties. It inevitably adds an extra layer of
criteria to an exercise which at its core is preponderant on
determining the consent of the parties in case of complex
transactions involving multiple parties and agreements.
103. [...] the group of companies doctrine helps in decoding the
layered structure of commercial arrangements to unravel the true
intention of the parties to bind someone who is not formally a
signatory to the contract, but has “assumed” the obligation to be
bound by the actions of a signatory. This court explained the
purport of the doctrine to discern the “true” party in interest [...]”
(Emphasis supplied)
90.
This is further fortified from the fact that, Cox and Kings (I) (supra) in its
subsequent paragraphs, more particularly paragraph no. 164, while discussing
the scope of Section 11 of the Act, 1996, distinctively refers to and treats the
criterion of “existence of arbitration agreement” and “veritable party to the
arbitration agreement”, as two separate and independent inquiries, thereby
underscoring that the determination of the existence of an arbitration
agreement stands apart from the assessment of whether a non-signatory can
be bound to it.
91. In Ajay Madhusudan Patel & Ors. v. Jyotrindra S. Patel & Ors. reported in
2024 INSC 710 , this Court comprising one of us, (J.B. Pardiwala J.) further
brought this distinction into perspective by observing that the issue concerning
the “existence of the arbitration agreement qua the non-signatory” is, in
Special Leave Petition (C) No. 21286 of 2024 Page 127 of 190
substance an issue of “consent”, as it involves determining the manifestation
of consent of parties or entities through their actions and conduct of exchange
of documents (sic or otherwise) in terms of Section 7 sub-section (4) of the
Act, 1996, and not one of “existence of arbitration agreement” simpliciter, as
such an issue inter-alia requires examination and thorough consideration of
the underlying contract in addition to the arbitration agreement. The relevant
observations read as under: -
“66. It is well settled that an arbitration agreement, in order to
qualify as a valid agreement, has to satisfy the requirements
stipulated under Section 7 of the Act, 1996 along with the
principles of law under the Indian Contract Act, 1872. Having
regard to the submissions of both the Respondent Groups i.e., JRS
and SRG, it can be said that they have raised manifold objections
to the present petition, however, none of those objections question
or deny the existence of the arbitration agreement under which the
arbitration has been invoked by the Petitioner AMP Group. In
fact, the JRS Group has no objection to resolve the disputes with
the AMP Group by way of arbitration. Their primary objection is
only that the SRG Group cannot be a part of the arbitration
proceedings. Therefore, the requirement of prima facie existence
of an arbitration agreement, as stated under Section 11 of the Act,
1996 is satisfied.
67. However, the core issue that falls for our consideration is
whether the SRG Group, being a non-signatory to the FAA can
also be referred to arbitration and whether they are “veritable”
parties to the arbitration agreement.
68. [...] Persons or entities who have not formally signed the
arbitration agreement or the underlying contract containing the
arbitration agreement may also intend to be bound by the terms of
the agreement. Further, the requirement of a written agreement
under Section 7 of the Act, 1996 does not exclude the possibility
of binding non-signatory parties if there is a defined legal
relationship between the signatory and non-signatory parties.
Therefore, the issue as to who is a “party” to an arbitration
Special Leave Petition (C) No. 21286 of 2024 Page 128 of 190
agreement is primarily an issue of consent. Actions or conduct
could be an indicator of the consent of a party to be bound by the
arbitration agreement. This aspect is also evident from a reading
of Section 7(4)(b) which emphasises on the manifestation of the
consent of persons or entities through actions of exchanging
documents.”
(Emphasis supplied)
92. Thus, what has been conveyed in so many words by Ajay Madhusudan Patel
(supra) is that the inquiry into whether a non-signatory is bound by an
arbitration agreement is not, in its essence, an inquiry into the formal or
juridical existence of the arbitration agreement itself. It is an exercise of
determining the functional concept of consent within the existing arbitration
agreement rather than the existence of the arbitration agreement itself. It is to
cull out and discern the intention of various parties — whether signatories or
otherwise — in relation to their willingness to be bound by the arbitration
mechanism embedded in the contract.
93. Put differently, although notionally the exercise of determining ‘existence of
the arbitration agreement qua the non-signatory’, may, on the surface appear
to be concerned with the arbitration agreement or clause in question, yet one
must be mindful that the actual focus of such exercise lies in determining the
existence of consent of the parties through fact patterns to such arbitration
agreement or clause and not vice-versa. It is the existence of mutual consent
Special Leave Petition (C) No. 21286 of 2024 Page 129 of 190
to arbitrate — not the formal existence of the arbitration agreement — that is
the heart of this inquiry.
94. There runs no umbilical cord between the exercise of determining the
“existence of the arbitration agreement” and determining its “existence qua
the non-signatory”. The latter is an independent and substantive determination
that falls outside the narrow and circumscribed domain of the referral court’s
singular obligation under Section 11 sub-section (6A) of the Act, 1996 and as
such cannot be conflated to be one pertaining to or attacking the “existence”
of an arbitration.
95. Even if it is assumed for a moment that the referral court in its jurisdiction
under Section 11 of the Act, 1996 has the discretion to determine whether a
non-signatory is a veritable party to the arbitration agreement or not, by virtue
of Cox and Kings (I) (supra), the referral court should only refrain but rather
loathe the exercise of such discretion. Any discretion which is conferred upon
any authority, be it referral courts must be exercised reasonably and in a fair
manner. Fairness in this context does not just extend to a non-signatory’s
rights and its apprehension of prejudice, fairness also demands that the
arbitration proceedings is given due time to gestate so that the entire dispute
is holistically decided. Any determination even if prima-facie by a referral
court on such aspects would entail an inherent risk of frustrating the very
purpose of resolution of dispute, if the referral courts opine that a non-
Special Leave Petition (C) No. 21286 of 2024 Page 130 of 190
signatory in question is not a veritable party. On the other hand, the
apprehensions of prejudice can be properly mitigated by leaving such question
for the arbitral tribunal to decide, as such party can always take recourse to
Section 16 of the Act, 1996 and thereafter in appeal under Section 37, and
where it is found that such party was put through the rigmarole of arbitration
proceedings vexatiously, both the tribunal and the courts, as the case may be,
should not only require that all costs of arbitration insofar as such non-
signatory is concerned be borne by the party who vexatiously impleaded it,
but the arbitral tribunal would be well within its powers to also impose costs.
III. Decision of Cox and Kings (II) and Ajay Madhusudan and the scope of
Section 11 of the Act, 1996 for joinder of non-signatories to arbitration
proceedings.
96. The aforesaid may be looked at from one another angle. This Court in Cox
and Kings (I) (supra) also discussed the role and scope of jurisdiction of the
referral courts and arbitral tribunals under Section(s) 11 and 16 of the Act,
1996, particularly in the context of binding a non-signatory to the arbitration
agreement. It reiterated that under Section 11, the referral court only has to
determine the prima-facie existence of an arbitration agreement. Whereas, the
issue of determining parties to an arbitration agreement is quite distinct from
“existence” of the arbitration agreement, as such issue goes to the very root of
the jurisdiction competence of the arbitral tribunal, and thus, empowered to
Special Leave Petition (C) No. 21286 of 2024 Page 131 of 190
decide the same under Section 16. Placing reliance on the decision of this
Court in Shin-Etsu Chemical Co Ltd v. Aksh Optifibre Ltd. reported in,
(2005) 7 SCC 234 , it held that the referral court should not unnecessarily
interfere with arbitration proceedings, and rather allow the arbitral tribunal to
exercise its primary jurisdiction for deciding such issues. The relevant
observations read as under: -
“157. When deciding the referral issue, the scope of reference
under both Sections 8 and 11 is limited. Where Section 8 requires
the referral court to look into the prima facie existence of a valid
arbitration agreement, Section 11 confines the court’s jurisdiction
to the existence of the examination of an arbitration agreement.
158. Section 16 of the Arbitration Act enshrines the principle of
competence competence in Indian arbitration law. The provision
empowers the arbitral tribunal to rule on its own jurisdiction,
including any ruling on any objections with respect to the
existence or validity of arbitration agreement. Section 16 is an
inclusive provision which comprehends all preliminary issues
touching upon the jurisdiction of the arbitral tribunal. The
doctrine of competence competence is intended to minimize
judicial intervention at the threshold stage. The issue of
determining parties to an arbitration agreement goes to the very
root of the jurisdictional competence of the arbitral tribunal.
161. The above position of law leads us to the inevitable
conclusion that at the referral stage, the court only has to
determine the prima facie existence of an arbitration agreement.
If the referral court cannot decide the issue, it should leave it to
be decided by the arbitration tribunal. unnecessarily interfere
with arbitration proceedings, and rather allow the arbitral
tribunal to exercise its primary jurisdiction. In Shin-Etsu
Chemical Co Ltd v. Aksh Optifibre Ltd,125 this Court observed
that there are distinct advantages to leaving the final
determination on matters pertaining to the validity of an
arbitration agreement to the tribunal [...]”
(Emphasis supplied)
Special Leave Petition (C) No. 21286 of 2024 Page 132 of 190
97. Cox and Kings (I) (supra) further observed that in case of joinder of non-
signatory parties to an arbitration agreement, the referral court will be required
to prima-facie rule on the existence of the arbitration agreement and whether
the non-signatory is a veritable party to the arbitration. However, it further
clarified that, due to the inherent complexity in determining whether the non-
signatory is indeed a veritable party, the referral court should leave this
question for the arbitral tribunal to decide as it can delve into the factual and
circumstantial evidence along with its legal aspects for deciding such an issue.
The relevant observations read as under: -
“163. [...] Thus, when a non-signatory person or entity is arrayed
as a party at Section 8 or Section 11 stage, the referral court
should prima facie determine the validity or existence of the
arbitration agreement, as the case may be, and leave it for the
arbitral tribunal to decide whether the non signatory is bound by
the arbitration agreement.
164. In case of joinder of non-signatory parties to an arbitration
agreement, the following two scenarios will prominently emerge:
first, where a signatory party to an arbitration agreement seeks
joinder of a non-signatory party to the arbitration agreement; and
second, where a non-signatory party itself seeks invocation of an
arbitration agreement. In both the scenarios, the referral court
will be required to prima facie rule on the existence of the
arbitration agreement and whether the non-signatory is a
veritable party to the arbitration agreement. In view of the
complexity of such a determination, the referral court should leave
it for the arbitral tribunal to decide whether the non signatory
party is indeed a party to the arbitration agreement on the basis
of the factual evidence and application of legal doctrine. The
tribunal can delve into the factual, circumstantial, and legal
aspects of the matter to decide whether its jurisdiction extends to
the non-signatory party. In the process, the tribunal should
comply with the requirements of principles of natural justice such
Special Leave Petition (C) No. 21286 of 2024 Page 133 of 190
as giving opportunity to the non-signatory to raise objections with
regard to the jurisdiction of the arbitral tribunal. This
interpretation also gives true effect to the doctrine of competence-
competence by leaving the issue of determination of true parties
to an arbitration agreement to be decided by arbitral tribunal
under Section 16.”
(Emphasis supplied)
98. Thus, even if it is assumed for a moment, that the question whether a non-
signatory is a veritable party to the arbitration agreement is intrinsically
connected with the issue of “existence” of arbitration agreement, the referral
courts should still nevertheless, leave such questions for the determination of
the arbitral tribunal to decide, as such an interpretation gives true effect to the
doctrine of competence-competence enshrined under Section 16 of the Act,
1996.
99. This hands-off approach of referral courts in relation to the question of
whether a non-signatory is a veritable party to the arbitration agreement or not
was reiterated in Cox and Kings (II) , wherein one of us, (J.B. Pardiwala J.),
observed that once an arbitral tribunal stands constituted, it becomes
automatically open to all parties to raise any preliminary objections, including
preliminary objections touching upon the jurisdiction of such tribunal, and to
seek an early determination thereof. Consequently, the issue of impleadment
of a non-signatory was deliberately left for the arbitral tribunal to decide, after
Special Leave Petition (C) No. 21286 of 2024 Page 134 of 190
taking into consideration the evidence adduced before it by the parties and the
principles enunciated under Cox and Kings (I) (supra).
100. Similarly, in Ajay Madhusudan (supra) it was held that since a detailed
examination of numerous disputed questions of fact was required for
determining whether the non-signatory is a veritable party to the arbitration
agreement, the same cannot be examined in the limited jurisdiction under
Section 11 of the Act, 1996 as it would tantamount to a mini trial. Accordingly,
the arbitral tribunal was found to be the appropriate forum for deciding the
said issue on the basis of the evidence that may be adduced by the parties.
101. This approach is necessitated by the inherent complexity involved in
determining whether a non-signatory qualifies as a veritable party to the
arbitration agreement, a determination that hinges upon a multiplicity of
factual aspects and demands a high threshold of satisfaction based on a
cumulative and holistic evaluation of the entire factual matrix. Such an
intricate and evidence-driven exercise makes the arbitral tribunal the most
appropriate forum to adjudicate the matter, as it possesses the institutional
advantage of conducting a comprehensive scrutiny of all evidences and
materials adduced by the parties.
102.
Furthermore, the legislative intent underlying Section 11 of the Act, 1996 —
particularly sub-section (6A) — is to ensure the expeditious disposal of
Special Leave Petition (C) No. 21286 of 2024 Page 135 of 190
applications for the appointment of arbitrators. This legislative objective
militates against referral courts undertaking any elaborate or detailed factual
inquiry, which would inevitably delay proceedings. Prudence thus dictates
that the referral courts confine themselves to a prima-facie examination of the
existence of the arbitration agreement and leave substantive determinations,
such as the binding nature of non-signatories, to the arbitral tribunal. An
additional and equally compelling consideration is that the power exercised
by the referral courts under Section 11 of the Act, 1996 is judicial in nature.
Consequently, referral courts must refrain from embarking upon an intricate
evidentiary inquiry or making final determinations on matters that are within
the jurisdiction of the arbitral tribunal. Any premature adjudication or opinion
by the referral court would not only usurp the tribunal’s role as the forum of
first instance for dispute resolution but could also cause irremediable
prejudice. In particular, if the referral court were to refuse impleadment of a
non-signatory, there would be no statutory right of appeal available to
challenge such a refusal. In contrast, determinations made by the arbitral
tribunal — including on issues of jurisdiction and impleadment — are
amenable to challenge under Section 16 of the Act, 1996 and, thereafter, under
Section 37. Accordingly, the better course of action is for referral courts to
refrain altogether from delving, into the issue of whether a non-signatory is a
veritable party to the arbitration agreement, and to leave such matters for the
arbitral tribunal to decide in the first instance.
Special Leave Petition (C) No. 21286 of 2024 Page 136 of 190
103. At this juncture, it would be apposite to refer to the three-judge Bench
decision of this Court in Pravin Electricals Pvt Ltd v. Galaxy Infra and
Engineering Pvt Ltd. reported in (2021) 5 SCC 671 . In the said decision, this
Court was called upon to determine the existence of an arbitration agreement
on the basis of the documentary evidence produced by the parties. Although,
this Court prima-facie opined that there was no conclusive evidence to infer
the existence of a valid arbitration agreement between the parties, yet it
referred the dispute along with the issue of existence of the arbitration
agreement to the arbitral tribunal to decide after conducting a detailed
examination of documentary evidence and cross-examination of witnesses.
Thus, even where the referrals courts either find that there is no arbitration
agreement in “existence” or as a logical sequitur never embarked upon
determining such “existence”, for whatever reasons, the matter should still
nevertheless be referred to arbitration.
104. It is not difficult to comprehend why the above approach, endorsed in Pravin
Electricals (supra) ought to be adopted and followed. The rationale behind
this, as explained in Krish Spinning (supra), is that there exists no right to
appeal under the Act, 1996 against an order passed by the referral court under
Section 11 for either appointing or refusing to appoint an arbitrator. Any
refusal for appointment runs the risk of leaving the claimant in a situation
Special Leave Petition (C) No. 21286 of 2024 Page 137 of 190
wherein it does not have any forum to approach for the adjudication of its
claims, if it Section 11 application is rejected. However, on the contrary,
appointment of an arbitrator causes no prejudice, as all these issues can again
be espoused by leading cogent evidence and material before the arbitral
tribunal under Section 16 of the Act, 1996 and thereafter, in appeal under
Section 37.
105. Cox and Kings (I) (supra) at paragraph 164, observes that in case of joinder
of non-signatory parties to an arbitration agreement, two scenarios will
prominently emerge; first, where a signatory party to an arbitration agreement
seeks joinder of a non-signatory party and second, where a non-signatory party
itself seeks invocation of an arbitration agreement. It then holds that in both
scenarios the referral court (emphasis) will be required to prima facie rule
on the existence of the arbitration agreement and whether the non-signatory is
a veritable party.
106. However, this by no stretch means that all issues or instances of joinder or
impleadment of a non-signatory will have to be first brought before the referral
court, who in turn may leave it for the arbitral tribunal to decide. It by no
stretch precludes a scenario where the issue of joinder of a non-signatory
although never brought before the referral court, yet is later raised for the first
time before the arbitral tribunal. We say so, because the aforesaid decision of
Pravin Electricals (supra) where this Court referred the matter to the arbitral
Special Leave Petition (C) No. 21286 of 2024 Page 138 of 190
tribunal despite prima-facie opining that there is no existence of arbitration
agreement was approvingly referred to by Cox and Kings (I) (supra) to hold
that “ If the referral court cannot decide the issue, it should leave it to be
decided by the arbitration tribunal ”. The natural corollary to the aforesaid is
that, where the referral court is either unable to decide the issue as to whether,
the non-signatory is a veritable party to the arbitration agreement, or finds in
its opinion that such non-signatory is not a veritable party, or in the extreme
alternative, had no occasion to decide such an issue, still it would be open for
the arbitral tribunal to look into the issue and decide the same.
107. The only thing the arbitral tribunal needs to be mindful of when deciding such
an issue is that it adheres to the principles of natural justice by affording the
non-signatory a fair opportunity to raise objections with regard to the
jurisdiction of the arbitral tribunal, earnestly makes an endeavour to determine
this issue at the earliest possible stage to prevent any grave prejudice being
occasioned to such non-signatory, makes all possible efforts — whether by
way of imposition of costs or through other appropriate measures —to
mitigate and deter the possibility of any abuse by the signatories who might
seek to coerce or arm twist the non-signatory by frivolously or vexatiously
subjecting it to arbitration, and lastly, that its decision is grounded in the
factors and threshold requirements laid down in Cox and Kings (I) (supra) as
explained by us.
Special Leave Petition (C) No. 21286 of 2024 Page 139 of 190
108. Moreover, one must not lose sight of the fact that, the provision of Section 11
of the Act, 1996 only comes into the picture where there has been a failure in
appointment of an arbitrator. Could it be said that where, the signatories have
consensually appointed an arbitrator in terms of the arbitration agreement,
then in such cases, the arbitral tribunal that has been so constituted, would not
be empowered to implead a non-signatory as-well, merely because, the
referral court did not either determine the ‘existence of the arbitration
agreement qua the non-signatory’ or did not leave such question for
determination of the arbitral tribunal, even though no such occasion had arisen
for the referral court to do so? The answer to the aforesaid, must be an
emphatic “no”. Arguendo even if one were to proceed on a stretch and rather
strained construction of the law, that where a notice of invocation is served by
a party to both the signatories and the non-signatories, pursuant to which an
arbitral tribunal has been constituted consensually by the signatories, yet there
would still be a failure in appointment of an arbitrator inasmuch as the non-
signatory has not agreed to appoint and arbitrator, and the only recourse here
would be to prefer to move a referral court under Section 11 of the Act, 1996,
the aforesaid contention, merits outright rejection. Not only does it reflect a
hyper-technical and overly dogmatic approach to the procedural framework
of arbitration — which is to be construed in a manner that facilitates, rather
than frustrates, party autonomy and consensual resolution — but it also
Special Leave Petition (C) No. 21286 of 2024 Page 140 of 190
fundamentally misunderstands the legislative purpose and limited procedural
function of Section 21 of the Act, 1996, which we shall now discuss, in the
later parts of this judgment.
ii. Arbitral Tribunal has the authority and power to implead Non-
Signatories to the arbitration agreement on its own accord.
a. There is no inhibition in the scheme of Act, 1996 which precludes the
Arbitral Tribunal from impleading a Non-Signatory on its own
accord.
109. From the above exposition of law, it can be seen that there is nothing within
the scheme of the Act, 1996, which prohibits or restrains an arbitral tribunal
from, impleading a non-signatory to the arbitration proceedings on its own
accord. So long as such impleadment is undertaken upon a consideration of
the applicable legal principles — including, but not limited to, the doctrines
of ‘group of companies’, ‘alter ego’, ‘composite transaction’, and the like —
the arbitral tribunal is fully empowered to summon the non-signatory to
participate in the arbitration. This autonomy stems from the broad jurisdiction
conferred upon arbitral tribunals under the Act, 1996 to rule upon their own
jurisdiction, including any objections with respect to the existence or validity
of the arbitration agreement, as enshrined under Section 16. The impleadment
of a non-signatory, being fundamentally a question of jurisdiction and consent,
Special Leave Petition (C) No. 21286 of 2024 Page 141 of 190
falls squarely within the province of the tribunal's powers, free from any
statutory prohibition.
110. The aversion towards recognizing such power of the arbitral tribunal to
implead a non-signatory, that previously prevailed, had stemmed from two
major misconceptions – a lack of power being vested on the arbitral tribunal
and a corresponding entrustment of this duty to implead a non-signatory to the
referral courts alone.
(i) First, the initial understanding of Chloro Controls (supra) that the legal
basis for the doctrine of ‘group of companies’ and other alike principles
for determining mutual consent was only under the provisions which
empowered the courts to make a reference to arbitration i.e., under
Section(s) 8 and 45 of the Act, 1996, was construed to mean that only
the courts have the power to resort to and apply the aforesaid principles
for determining mutual consent. Similarly, the unaltered general
definition of “ party ” under Section 2(1)(h) of the Act, 1996 as opposed
to the wide meaning assigned to the term “ party ” under Section(s) 8 and
45 of the Act, 1996, was misconstrued as a positive indicium that an
arbitral tribunal lacks the power to implead a non-signatory as the scope
and exercise of its jurisdiction is confined to the narrow meaning of
“ party ” under Section 2(1)(h) i.e., only signatories or those specifically
referred to arbitration, whereas the power and jurisdictional reach of the
Special Leave Petition (C) No. 21286 of 2024 Page 142 of 190
courts extends to the wider meaning of “ party ” i.e., “ a party to an
arbitration agreement or any person claiming through or under him ”
under Section(s) 8 and 45 of the Act, 1996 i.e., it extends to even non-
signatories.
(ii) Secondly, the position of law which existed at the time of Chloro
Controls (supra), required the referral courts to make a determination
of all issues fundamental to making a reference to arbitration including
the issue whether a non-signatory could be said to be bound by the
arbitration agreement. Since this primary duty of identifying and then
in turn impleading a non-signatory who is bound by the arbitration
agreement was cast upon the courts, it was presumed that the arbitral
tribunal even if empowered is incapable or incompetent to undertake
this task, as otherwise it would tantamount to usurping the jurisdiction
of the referral courts.
111. Thus, the combined effect of the aforesaid was that an arbitral tribunal could
not, on its own accord, resort to or apply the various principles for determining
mutual consent, and thereby implead a non-signatory since both (i) the power
to do so was presumed lie within the exclusive domain and jurisdiction as-
well as the (ii) the corresponding duty to undertake this exercise was
understood to have been entrusted solely to the referral courts.
Special Leave Petition (C) No. 21286 of 2024 Page 143 of 190
112. However, with the advent of Cox and Kings (I) (supra), the legal foundation
for the application of the ‘Group of Companies’ doctrine, or any analogous
principles designed to determine mutual consent was clarified to exist in the
definition of "party" under Section 2(1)(h) read with the meaning of
“arbitration agreement” under Section 7 of the Act, 1996. Unlike Section(s) 8
and 45 of the Act, 1996, the provisions of Section(s) 2(1)(h) and 7 are not
confined in their applicability to only judicial forums or courts, and rather
extend equally to both courts and arbitral tribunals, as these provisions form
the bedrock of the framework of arbitration under the Act, 1996. The logical
sequitur of this is that arbitral tribunals, too, are vested with the requisite
authority to engage with and apply principles, such as the 'Group of
Companies' doctrine, when determining whether a non-signatory may be
bound by an arbitration agreement.
113. It is well within the jurisdiction of the Arbitral Tribunal to decide the issue of
joinder and non-joinder of parties and to assess the applicability of the Group
of Companies Doctrine. Neither in Cox and Kings (I) (supra) nor in Ajay
Madhusudhan (supra), this Court has said that it is only the reference courts
that are empowered to determine whether a non-signatory should be referred
to arbitration. The law which has developed over a period of time is that both
‘courts and tribunals’ are fully empowered to decide the issues of impleadment
Special Leave Petition (C) No. 21286 of 2024 Page 144 of 190
of a non-signatory and Arbitral Tribunals have been held to be preferred forum
for the adjudication of the same.
114. In the case of Ajay Madhusudhan (supra), this Court, placing reliance on Cox
and Kings (I) (supra), has expressly held that Section 16 is an inclusive
provision which comprehends all preliminary issues touching upon the
jurisdiction of the arbitral tribunal and the issue of determining parties to an
arbitration agreement goes to the very root of the jurisdictional competence of
the arbitral tribunal.
115.
The case of Ajay Madhusudhan (supra) also recognizes that the legal
relationship between the signatory and non-signatory assumes significance in
determining whether the non-signatory can be taken to be bound by the
Arbitration Agreement. This Court also issued a caveat that the ‘courts and
tribunals should not adopt a conservative approach to exclude all persons or
entities who are otherwise bound by the underlying contract containing the
arbitration agreement through their conduct and their relationship with the
signatory parties. The mutual intent of the parties, relationship of a non-
signatory with a signatory, commonality of the subject matter, the composite
nature of the transactions and performance of the contract are all factors that
signify the intention of the non-signatory to be bound by the arbitration
agreement’.
Special Leave Petition (C) No. 21286 of 2024 Page 145 of 190
116. Recently, a coordinate bench of this Court in Adavya Projects Pvt. Ltd. v. M/s
Vishal Strcturals Pvt. Ltd. & Ors. reported in 2025 INSC 507, also held that
an arbitral tribunal under Section 16 of the Act, 1996 has the power to implead
the parties to an arbitration agreement, irrespective of whether they are
signatories or non-signatories, to the arbitration proceedings. This Court
speaking through P.S. Narasimha J. observed that since an arbitral tribunal’s
jurisdiction is derived from the consent of the parties to refer their disputes to
arbitration, any person or entity who is found to be a party to the arbitration
agreement can be made a part of the arbitral proceedings, and the tribunal can
exercise jurisdiction over him. Section 16 of the Act, 1996 which empowers
the arbitral tribunal to determine its own jurisdiction, is an inclusive provision
that covers all jurisdiction question including the determination of who is a
party to the arbitration agreement, and thus, such a question would be one
which falls within the domain of the arbitral tribunal. It further observed that,
although most national legislations do not expressly provide for joinder of
parties by the arbitral tribunal, yet an arbitral tribunal can direct the joinder of
a person or entity, even if no such provision exists in the statute, as long as
such person or entity is a party to the arbitration agreement. Accordingly, this
Court held that since the respondents therein were parties to the underlying
contract and the arbitration agreement, the arbitral tribunal would have the
power to implead them as parties to the arbitration proceedings in exercise of
Special Leave Petition (C) No. 21286 of 2024 Page 146 of 190
its jurisdiction under Section 16 of the Act, 1996. The relevant observations
read as under: -
“24. As briefly stated above, the determination of who is a party
to the arbitration agreement falls within the domain of the arbitral
tribunal as per Section 16 of the ACA. Section 16 embodies the
doctrine of kompetenz-kompetenz, i.e., that the arbitral tribunal
can determine its own jurisdiction. The provision is inclusive and
covers all jurisdictional questions, including the existence and
validity of the arbitration agreement, who is a party to the
arbitration agreement, and the scope of disputes referrable to
arbitration under the agreement. Considering that the arbitral
tribunal’s power to make an award that binds the parties is
derived from the arbitration agreement, these jurisdictional issues
must necessarily be decided through an interpretation of the
arbitration agreement itself. Therefore, the arbitral tribunal’s
jurisdiction must be determined against the touchstone of the
arbitration agreement.
25. This view finds support in the jurisprudence and practice of
international commercial arbitration. It is notable that while most
national legislations do not expressly provide for joinder of
parties by the arbitral tribunal, this must be done with the consent
of all the parties. Gary Born has taken the view that the arbitral
tribunal can direct the joinder of parties when the arbitration
agreement expressly provides for the same. However, he states
that in reality, most arbitration agreements, whether ad hoc or
providing for institutional arbitration, neither expressly preclude
nor expressly permit the arbitral tribunal to join parties. In such
cases, the power must be implied,25 particularly when there is a
multi-party arbitration clause in the same underlying contract that
does not expressly address the joinder of parties in the arbitral
proceedings. He states that: “In these circumstances, there is a
substantial argument that the parties have impliedly accepted the
possibility of consolidating arbitrations under their multi-party
arbitration agreement and/or the joinder or intervention of other
contracting parties into such arbitrations… the parties’ joint
acceptance of a single dispute resolution mechanism, to deal with
disputes under a single contractual relationship, reflects their
agreement on the possibility of a unified proceeding to resolve
their disputes, rather than necessarily requiring fragmented
proceedings in all cases.” Further, in jurisdictions where there is
Special Leave Petition (C) No. 21286 of 2024 Page 147 of 190
no provision in the national arbitration statute authorising the
courts to consolidate arbitrations or to join parties, it is left to the
arbitral tribunal to determine this issue at the first instance.
26. Therefore, as per the legal principles under the ACA as well
as in international commercial arbitration, it is a foundational
tenet that the arbitral tribunal’s jurisdiction is derived from the
consent of the parties to refer their disputes to arbitration, which
must be recorded in an arbitration agreement. The proper judicial
inquiry to decide a jurisdictional issue under Section 16 as to
whether a person/entity can be made a party to the arbitral
proceedings will therefore entail an examination of the arbitration
agreement and whether such person is a party to it. If the answer
is in the affirmative, such person can be made party to the arbitral
proceedings and the arbitral tribunal can exercise jurisdiction
over him as he has consented to the same.
39. [...] Since they are parties to the underlying contract and the
arbitration agreement, the arbitral tribunal has the power to
implead them as parties to the arbitration proceedings while
exercising its jurisdiction under Section 16 of the ACA and as per
the kompetenz-kompetenz principle.”
(Emphasis supplied)
117. As observed in Adavya Projects (supra), Gary Born in his seminal work; the
International Commercial Arbitration, Vol 2 (3rd edn, Kluwer Law
International 2021) as held that consolidation and joinder/intervention may be
ordered by an arbitral tribunal, arbitral institution, as long as the same is
pursuant to parties (unanimous) agreement thereto. He has observed that “ In
almost all cases, the approach taken by national law is that consolidation and
joinder/intervention may be ordered by an arbitral tribunal, arbitral
institution, or a national court, but only pursuant to the parties’ (unanimous)
agreement thereto. If the parties have not so agreed, both the tribunal and
Special Leave Petition (C) No. 21286 of 2024 Page 148 of 190
local courts will lack the authority under national law to order either
consolidation or joinder/intervention .” Since the aspect of joinder of a party
to the arbitration agreement, either signatory or non-signatory stems from a
conjoint reading of Section(s) 2(1)(h) and 7 of the Act, 1996 as explained by
Cox and Kings (I) (supra) and by us in the foregoing paragraphs, even if the
parties are to agree that a tribunal or for that matter a referral court will not
have the power to implead any party to the arbitration proceeding, such an
agreement will only operate to the extent that (i) the arbitration agreement is
not governed by the Act, 1996 i.e., does not fall under Part I of the Act, 1996
and (ii) that such party is not otherwise bound by the arbitration agreement.
This is because such an agreement is an agreement in respect of the rules of
procedure of the arbitration, and as per Section 19 of the Act, 1996, more
particularly sub-section (2), any such agreement is subject to Part I i.e., the
parties are free to agree on the procedure to be followed by the arbitral insofar
as it is not inconsistent with Part I. Since, the legal basis for the joinder or
impleadment of any party who is bound by the arbitration agreement
originates from the substantive provisions of the Act, 1996 i.e., Section(s)
2(1)(h) and 7, respectively, the parties cannot denude the arbitral tribunal of
such power in terms of the non-obstante clause of Section 19(2) of the Act,
1996. Gary Born, further observes that “ this approach is consistent with that
prescribed by the New York Convention and with the general respect for the
parties’ procedural autonomy in international arbitration”. Thus, it
Special Leave Petition (C) No. 21286 of 2024 Page 149 of 190
acknowledges, that such stipulation as to consolidation or joinder is purely
within the realm of procedural autonomy, hence Section 19 of the Act, 1996
which is the source of procedural autonomy will be subject to the conditions
stipulated therein.
118. Further, it is true that the entire scheme of Act, 1996 is silent on the power of
a court or arbitral tribunal to join or implead a party to the arbitration
proceedings. Gary Born argues, that “ In the absence of specific statutory
provisions, the topics of consolidation and joinder/intervention are generally
subject to the Model Law’s basic requirement that arbitration agreements be
recognized and enforced in accordance with the parties’ intentions. That is,
consolidation and joinder/intervention should be both permitted and required
– as an element of the parties’ agreement to arbitrate” The UNCITRAL
Model Law being the genesis of the Act, 1996, even if there is no explicit
statutory provision recognizing such power of impleadment, it nevertheless
should not only be permitted but also required, as long as it is exercised within
the confines of the intention of the parties and the scope of arbitration
agreement, which is exactly what has also been laid down in so many words
by Cox and Kings (I) (supra).
119.
He says that, more often than not arbitration agreements, particularly for ad
hoc arbitration “ will neither expressly preclude nor expressly authorize
Special Leave Petition (C) No. 21286 of 2024 Page 150 of 190
consolidation ”. But, “ there is no reason, however, that an agreement
authorizing (or forbidding) consolidation or joinder/intervention cannot be
implied ... various aspects of an arbitration agreement are routinely implied
(such as confidentiality, a tribunal’s power to order provisional relief or
disclosure, the choice of applicable law and the like”. He accordingly,
advocates that “ The same approach can, and indeed must, be taken to
questions of consolidation and joinder/intervention” where the “ questions of
implied agreement to consolidation and joinder/intervention depend in
substantial part on the structure of the parties’ contractual relations and the
terms of their agreements to arbitrate ”.
120. Thus, the natural corollary to the aforesaid is that even in the absence of any
express statutory provision, such power exists impliedly. In this regard, we
may profitably refer to the recent five Judge-Bench decision of this Court in
Gayatri Balasamy v. M/s ISG Novasoft Technologies Ltd. reported in 2025
INSC 605 , wherein this Court recognized the applicability of the doctrine of
‘implied power’ to the Act, 1996, in the context of Section 34. The majority
opinion held that, the doctrine of implied power may be read into the Act,
1996 for the purpose of effectuating and advancing its object and to avoid
hardship. The relevant observations read as under: -
“The doctrine of implied power is to only effectuate and advance
the object of the legislation, i.e., the 1996 Act and to avoid the
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hardship. It would, therefore, be wrong to say that the view
expressed by us falls foul of express provisions of the 1996 Act.”
121. K.V. Vishwanathn J. in his dissenting opinion in Gayatri Balasamy (supra)
observed that if a statute confers a power and circumscribes its exercise on
certain conditions, any power which is inconsistent with those express
conditions cannot be implied. He observed that the doctrine of implied powers
is invoked to effectuate the final power, where it is impossible to effectuate
the final power for doing something which although not provided in express
terms but nevertheless is required to be done. In such scenarios, the power by
virtue of the doctrine of implied powers will be supplied as a necessary
intendment of the legislation, to advance its object and avoid grave hardship.
The relevant observations read as under: -
“100. Undeterred, an attempt was made to fall back upon the
doctrine of implied powers to somehow vest in Section 34 Court a
power to modify the award. It is well settled that if a statute
conferring a power to be exercised on certain conditions, the
conditions prescribed are normally held to be mandatory and a
power inconsistent with those conditions is impliedly negatived.
No doubt, there is a principle in law that a Court must as far as
possible adopt a construction which effectuates the legislative
intent and purpose and that an express grant of a statutory power
carries with it by necessary implication the authority to use all
reasonable means to make such grant effective.
xxx xxx xxx
102. As is clear, the doctrine of implied powers is invoked to
effectuate the final power. Where it is impossible to effectuate the
final power unless something not authorized in express terms be
also done, in such an event, the power will be supplied by
necessary intendment as an exception. The exceptional situation
Special Leave Petition (C) No. 21286 of 2024 Page 152 of 190
is to advance the object of the legislation under consideration and
to avoid grave hardship.”
122. Reliance was also placed on the decision of Savitri v. Govind Singh Rawat ,
reported in (1985) 4 SCC 337 , wherein it was held that “ Whenever anything
is required to be done by law and it is found impossible to do that thing unless
something not authorised in express terms be also done then that something
else will be supplied by necessary intendment. Such a construction though it
may not always be admissible in the present case however would advance the
object of the legislation under consideration. A contrary view is likely to result
in grave hardship to the applicant, who may have no means passed to subsist
until the final order is passed .” It further, observed that “ Every court must be
deemed to possess by necessary intendment all such powers as are necessary
to make its orders effective. This principle is embodied in the maxim "ubi
aliquid conceditur, conceditur et id sine quo res ipsa esse non potest" (Where
anything is conceded, there is conceded also anything without which the thing
itself cannot exist) ”.
123. What can be discerned from the above is that the recourse to doctrine of
implied powers would be permissible, if without it, it is impossible to
effectuate a final power, and such exercise of implied power would effectuate
and advance the object of the legislation.
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124. Cox and Kings (I) (supra) has elaborately acknowledged the unique
complexities posed by contemporary business transactions to the traditional
framework of arbitration. Historically, arbitration gained prominence in the
context of straightforward and linear bilateral transactions under the
mercantile system of law. While over the past century, the nature of modern
commercial transactions has undergone a profound transformation with the
involvement of multifaceted obligations between multiple parties and
complex contractual structures more sophisticated than the linear parent‐
subsidiary type of organization, that has rendered the traditional dyadic
paradigms of business obsolete, particularly in areas such as construction
contracts, financing transactions, reinsurance contracts, the framework of
arbitration has, to a significant extent remained unchanged, leading to a
mismatch between procedural form and commercial substance.
125. For arbitration to remain a viable and effectively alternative mechanism for
dispute resolution, it is imperative to ensure that commercial reality does not
outgrow this mechanism. The mechanisms of arbitration must be sufficiently
elastic to accommodate the complexities of multi-party and multi-contract
arrangements without compromising foundational principles such as consent
and party autonomy. The approach of courts and arbitral tribunal in particular
Special Leave Petition (C) No. 21286 of 2024 Page 154 of 190
must be responsive to the emerging commercial practices and expectations of
the parties who submit themselves to it.
126. It was in this backdrop and the emerging best international practices that Cox
and Kings (I) (supra) recognized the applicability of the ‘Group of
Companies’ doctrine and other principles of determining mutual consent, to
bind even non-signatories to the arbitration agreement as parties, as long as
they were a veritable party and found to have impliedly consented to such
agreement. The legal basis of these principles were traced to not only the
object of the Act, 1996, but to the substantive provisions of Section(s) 2(1)(h)
and 7 thereto. However, mere recognition of this principles which ultimately
seeks to make the Indian arbitration law more responsive to the contemporary
requirements, would be a farce, if the power to actually effectuate such
principles, is not recognized, merely due to the absence of any explicit
provision in this regard. We are of the considered opinion, that recognition of
the power of joinder or impleadment of a non-signatory by an arbitral tribunal
is a necessary intendment of the express provisions of Section(s) 2(1)(h) and
7 and the overall scheme and object of the Act, 1996 as well as the
fundamental cannons of the law of arbitration of providing an effective
alternative dispute resolution mechanism.
Special Leave Petition (C) No. 21286 of 2024 Page 155 of 190
127. Thus, even in the absence of an express provisions in the Act, 1996
empowering the arbitral tribunal to implead or join a party who is otherwise
bound by the arbitration agreement, the arbitral tribunal does possess such
power by virtue of the doctrine of implied powers, as long as the same is in
tandem with the scheme of Act, 1996 i.e., as long as the parties had either
expressly or impliedly consented to the arbitration agreement as held in Cox
and Kings (I) (supra).
b. Doctrine of Kompetenz-Kompetenz and the Jurisdictional Reach of an
Arbitral Tribunal.
128. The aforesaid may be looked at from one another angle, through the ‘Always
Speaking’ statutory interpretation rule. The said rule dictates that the words of
a statute should be treated as ambulatory, speaking continuously in the present
and conveying a contemporary meaning. This approach entails that if things
not known or understood at the time when the enactment came into force, fall,
on a fair construction, within its words, those things should be held to be
included or intended by the statute. It lays that the context or application of a
statutory expression may change over time, but the meaning of the expression
itself cannot change’. It therefore provides for a statute to be applied to new
circumstances and developments without the need for legislative revision or
amendment. In other words, the core meaning of a statute is fixed but its
Special Leave Petition (C) No. 21286 of 2024 Page 156 of 190
context or application may change which is inherently capable of ‘embracing
future changes in the subject matter.
129. Historically, the rule of interpretation of statutes, was premised on the
understanding that statutes were to be construed in accordance with their
natural meaning as at the date of their enactment. It was based on the Latin
maxim “ contemporanea expositio est optima et fortissima in lege ” which
means “Contemporary exposition is the best and strongest in law”. However,
over time the courts started recognizing the problems underlying this
orthodoxic rule of interpretation. Sir Peter Benson Maxwell, On the
Interpretation of Statutes, ed Frederick Stroud (Sweet and Maxwell, 5th ed,
1912) explained that the use of “ contemporanea expositio est optima et
fortissima in lege ” for interpretation of statutes had largely been abandoned
except perhaps in the construction of ambiguous language used in very old
statutes where the language itself may have had a rather different meaning.
130. The modern approach to statutory interpretation insists that the context be
considered in the first instance, not merely at some later stage when ambiguity
might be thought to arise, and include such things as the existing state of the
law and the mischief which, by legitimate means such as reference to reports
of law reform bodies, one may discern the statute was intended to remedy.
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131. If close consideration of a statutory text in its wider context and by reference
to its purpose establishes that Parliament has deliberately chosen words to
provide for its application to new circumstances and developments then the
application of the ‘always speaking’ approach is judicially required. The
interpretive process with the ‘always speaking’ approach is, in essence, to put
the cart before the horse.
132. Section 16 of the Act, 1996, which enshrines the principle of “ kompetenz-
kompetenz ” could be said to be one such provision when seen in light of the
object of the Act, 1996, which requires the courts to adopt a pragmatic and
‘always speaking’ approach in its interpretation.
133. Section 16 of the Act, 1996 empowers the arbitral tribunal to rule on its own
jurisdiction. The policy rationale underlying this provision is twofold: first, to
respect and uphold the intention of the parties to resolve their disputes through
arbitration by empowering the forum they have contractually chosen; and
second, to prevent a fragmentation of proceedings through premature judicial
intervention, which can frustrate the efficacy of arbitration by causing delays
and fostering multiplicity of litigation.
134. The negative aspect of competence-competence is aimed at restricting the
interference of the courts at the referral stage by preventing the courts from
examining the issues pertaining to the jurisdiction of the arbitral tribunal
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before the arbitral tribunal itself has had the opportunity to entertain them
AND to also enable the arbitral tribunal to exercise necessary powers without
any dependency upon the national courts, with the courts taking a back-seat
and being permitted to review the exercise of power of the arbitral tribunal
and its decision at a later stage.
135. The legislative choice of the word “rule” in Section 16 is both deliberate and
significant. It does not merely suggest that the arbitral tribunal is competent to
“consider” or “review” questions of its jurisdiction, but rather that it is vested
with the authority to decisively adjudicate and pronounce upon such issues. It
connotes that the arbitral tribunal is not only competent to entertain
jurisdictional questions, but also capable — in terms of procedural and
substantive mandate — to exercise necessary power for effectually issuing
binding rulings thereon during the course of the proceedings. It endows the
tribunal with the necessary powers to formulate its ruling. It illustrates the
intention of the legislature to endow the arbitral tribunal with all powers and
jurisdictional reach for effectively deciding its jurisdiction, even where no
challenge is made by either parties, and to exercise the necessary powers for
making such rulings.
136. Redfern and Hunter on International Arbitration (5th edn, Oxford University
Press 2009), have observed that an arbitral tribunal’s jurisdiction is derived
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“ from the will of the parties to the arbitration agreement and therefore joinder
or intervention is generally only possible with the consent of all parties
concerned” and “ such consent may be either express, implied, or by reference
to a particular set of arbitration rules agreed to by the parties that provide for
joinder ” However, “ unlike litigation in state courts, in which third parties can
often be joined to proceedings, the jurisdiction of an arbitral tribunal to allow
for the joinder or intervention of third parties to an arbitration is limited” to
the arbitration agreement and parties bound by it.
137. Adavya Projects (supra) has observed that Section 16 of the Act, 1996 is
inclusive and covers all jurisdictional questions, including the existence and
validity of the arbitration agreement, who is a party to the arbitration
agreement, and the scope of disputes referrable to arbitration under the
agreement and thus, the arbitral tribunal’s jurisdiction must also be determined
against the touchstone of the arbitration agreement.
138. It is often loosely said that an arbitral tribunal does not have any jurisdiction
except what has been conferred by the parties. While the same may on the
surface be correct, however much significance of an arbitral tribunal's
jurisdiction often finds itself lost and obscured due to the semantics of the
above statement. The misconception arises when the acts of party is conflated
with the source of legal authority.
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139. The present case is a classic textbook example of this misconception. What
has ben argued by the appellants herein in so many words, is that since it was
never a party to the proceedings under Section 11 of the Act, 1996 before the
referral court, and the arbitral tribunal was constituted by the referral court
without arraying the appellant herein, the arbitral tribunal had no jurisdiction
later to implead it. The crux of this argument is that, the jurisdiction of the
arbitral tribunal is only confined to the act of the parties and the manner in
which the referral court, had constituted the arbitral tribunal. It stems from a
failure to appreciate that while the parties' conduct may set in motion the
arbitral process, it is not the determinant of the arbitral tribunal’s jurisdiction
in a legal sense. Rather, it is the arbitration agreement itself—once validly
concluded—that creates the jurisdictional foundation upon which the arbitral
edifice rests.
140. It erroneously presumes that jurisdiction is derived solely from the act of
appointment rather than from the arbitration agreement that preceded and
necessitated such appointment. The arbitration agreement, not the referral
court’s order nor the procedural formalities attendant to the tribunal’s
constitution, is the true source of jurisdiction. The act of the referral court in
constituting the arbitral tribunal is but an enabling mechanism to activate a
tribunal whose jurisdiction was already latent in the arbitration agreement
itself. This Court in M/s Arif Azim Co. Ltd. v. M/s Micromax Informatics
Special Leave Petition (C) No. 21286 of 2024 Page 161 of 190
Fze , wherein, one of us (J.B. Pardiwala J.) had had held that referral courts are
only a conduit or means to arbitration, and the sum and substance of the
arbitration has to be derived from the choices of the parties and their intentions
contained in the arbitration agreement.
141. The jurisdiction of an arbitral tribunal is not created by the mere subjective
intent or volition of the parties. Rather, it is the arbitration agreement —a
legally cognisable and objective instrument—that operates as the foundational
source of jurisdiction in the eyes of the law. Just as the creation of a property
automatically vests jurisdiction in the territorial courts competent to
adjudicate over such property, the conclusion of an arbitration agreement ipso
jure brings into existence the jurisdiction of the arbitral tribunal. This
jurisdiction exists in a de jure sense from the moment the arbitration
agreement is validly executed, regardless of whether the tribunal has been
formally constituted.
142. In other words, it is not the tribunal’s subsequent constitution through
procedural steps — whether by the parties themselves or by the intervention
of a court under Section 11 of the Act, 1996 — that bestows jurisdiction upon
it. Rather, such procedural mechanisms merely activate or operationalise a
jurisdiction that is already in existence by virtue of the arbitration agreement.
The arbitral tribunal, upon being constituted, steps into an already established
legal framework of jurisdiction, rooted in the consensual and binding nature
Special Leave Petition (C) No. 21286 of 2024 Page 162 of 190
of the arbitration agreement. The arbitral tribunal is not a creature of mere
procedural will but of substantive legal consequence flowing from the
arbitration agreement. To hold otherwise would be to invert the fundamental
cannons of law of arbitration which treats the arbitration agreement as the
cornerstone of arbitral competence.
143. It was in this background, that Adavya Projects (supra) held, and rightly so,
that the jurisdiction of the arbitral tribunal to implead a person depends on
whether such person is a party to the arbitration agreement.
c. Requirement of Notice of Invocation under Section 21 of the Act, 1996.
144. At this juncture, it would apposite to explain the modalities for the exercise of
such power of joinder / impleadment by an arbitral tribunal. The appellant
herein has vehemently contended that even if it is assumed that it is bound by
the arbitration agreement, the impugned order is nevertheless liable to be set-
aside, inasmuch as the appellant herein has been improperly arrayed as a party
to the arbitration solely on the basis of a separate statement of claim / counter-
claim filed by respondent no. 1, without the issuance of any notice of
invocation as mandated under Section 21 of the Act, 1996. It was argued that
once the arbitral tribunal had been constituted for the dispute between the
respondent no. 1 and 3 herein, if at all the respondent no. 1 was of the opinion
Special Leave Petition (C) No. 21286 of 2024 Page 163 of 190
that the appellant herein was bound by the arbitration agreement, it ought to
have impleaded it by initiating an independent, fresh arbitration proceedings
by first issuing a notice under Section 21 of the Act, 1996, and only thereafter
filing a statement of claim against the appellants herein, rather than proceeding
to implead it directly on the basis of a purported statement of claim in the
arbitration proceedings that had been originally commenced solely between
BCSPL and SPCL, i.e., respondent nos. 1 and 3 respectively, with no prior or
contemporaneous invocation or commencement of arbitration viz-à-viz the
appellant. According to the appellant, this approach not only contravenes the
procedural mandate of the Act, 1996, more particularly, the purpose of Section
21 but also undermines the principles of natural justice and party consent,
which lie at the heart of consensual arbitration.
145. The marginal note appended to Section 21 of the Act, 1996 makes it
abundantly clear, that the notice to be issued thereunder is for the purpose of
“ commencement of arbitration proceedings ”. The substantive provision
further makes it clear that, the date on which a request / notice of invocation
for referring a dispute is received by the respondent, would the date on which
the arbitral proceedings in respect of a particular dispute commences. The
words “particular dispute” assumes significance in the interpretation of this
provision and its underlying object. It indicates that the provision is concerned
only with determining when arbitration is deemed to have commenced for the
specific dispute mentioned in the notice. The language in which the said
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provision is couched is neither prohibitive or exhaustive insofar as reference
of any other disputes which although not specified in the notice of invocation
yet, nonetheless falls within the scope of the arbitration agreement. The term
“particular dispute”, does not mean all disputes, nor does it confine the
jurisdiction of the arbitral tribunal which is said to be one emanating from the
‘arbitration agreement’ to only those disputes mentioned in the notice of
invocation, as it would tantamount to reading a restriction into the jurisdiction
of the arbitral tribunal to the bounds of the notice of invocation instead of the
arbitration agreement. Thus, there is no inhibition under Section 21 of the Act,
1996 for raising any other dispute or claim which is covered under the
arbitration agreement in the absence of any such notice. Section 21 is
procedural rather than jurisdictional — it does not serve to create or validate
the arbitration agreement itself, nor is it a precondition for the existence of the
tribunal's jurisdiction, but merely operates as a statutory mechanism to
ascertain the date of initiation for reckoning limitation.
146. The aforesaid is further fortified from the distinct manner in which the scheme
of the Act, 1996 treats and refers to a ‘notice of invocation’ under Section 21
and the subsequent filing of a ‘statement of claim’ or ‘counter-claim’ under
the Section 23. Section 23 of the Act, 1996 reads as under: -
23. Statements of claim and defence.—
(1) Within the period of time agreed upon by the parties or
determined by the arbitral tribunal, the claimant shall state the
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facts supporting his claim, the points at issue and the relief or
remedy sought, and the respondent shall state his defence in
respect of these particulars, unless the parties have otherwise
agreed as to the required elements of those statements.
(2) The parties may submit with their statements all documents
they consider to be relevant or may add a reference to the
documents or other evidence they will submit.
(2A) The respondent, in support of his case, may also submit a
counterclaim or plead a set-off, which shall be adjudicated upon
by the arbitral tribunal, if such counterclaim or set-off falls within
the scope of the arbitration agreement.
(3) Unless otherwise agreed by the parties, either party may
amend or supplement his claim or defence during the course of the
arbitral proceedings, unless the arbitral tribunal considers it
inappropriate to allow the amendment or supplement having
regard to the delay in making it.
(4) The statement of claim and defence under this section shall be
completed within a period of six months from the date the
arbitrator or all the arbitrators, as the case may be, received
notice, in writing of their appointment.
147. Section 23 sub-section (1) places an obligation upon the claimant to state the
facts supporting his “claim”, the points at issue and the relief or remedy sought
by way of its statement of claim, before the arbitral tribunal. Notably, the
legislature, in the first part of the said sub-section, has deliberately and
consciously used the term “claim” as opposed to “particular dispute”
employed in Section 21 of the Act, 1996. Although, it could said that the term
“particular dispute” under Section 21 connotes a larger umbrella within which
the term “claim” under Section 23 would be subsumed, thereby suggesting
that there is no scope to deviate from what was sought to be referred by the
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notice of invocation, we do not think so. We say so because, the requirement
for providing the points at issue and the relief or remedy sought that exists in
sub-section (1) of Section 23 of the Act, 1996 is patently absent in Section 21
of the Act, 1996, which clearly shows that the scope and object of these two
provisions are at variance to each other. Further this, sub-section does not
stipulate either explicitly or implicitly, that such “claim” must be the same or
in tandem with the “particular dispute” in respect of which the notice of
invocation was issued under Section 21 of the Act, 1996. This distinction in
terminology is neither incidental nor redundant; rather, it reflects a conscious
legislative design to demarcate the procedural objective of Section 21 from
the substantive function served by Section 23. Unlike Section 23, Section 21
does not require any articulation of the relief sought or the framing of issues
—its sole purpose is to indicate when arbitration is deemed to have
commenced, for the limited purpose of computing the limitation period.
148. This is further fortified from the fact that nowhere does the Act, 1996 lay down
any specific format or form of notice under Section 21 of the Act, 1996, or
any strict requirement of the contents to be stipulated therein. This was noticed
by this Court in Milkfood Ltd. v. GMC Ice Cream (P) Ltd. reported in (2004)
7 SCC 288 , wherein it was held that Section 21 of the Act, 1995 must be
construed in tune with its analogous counter-part provisions of Article 21 of
the UNCITRAL Model Law read with Article 3 of the UNCITRAL
Special Leave Petition (C) No. 21286 of 2024 Page 167 of 190
Arbitration Rules and Section 14 of the English Arbitration Act, 1996 wherein
at least the form of notice and strict adherence thereto has become redundant
due to the absence of any specific form or requirement of such notice. The
relevant observations read as under: -
“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. [...]”
149. Similarly, sub-section (2) of Section 23, which enables the respondent to make
a counter-claim or plead set-off, does not envisage any requirement that such
counter-claim or set-off must be in respect of or correspond to the “particular
dispute” in terms of Section 21 of the Act, 1996, thus, suggesting the
legislature’s intention to give a wide import to the term “claim” and by
extension “counter-claim”. In order to further obviate any confusion in respect
of what claims can be raised, Section 23 sub-section (3) goes one step ahead
and stipulates that, unless agreed otherwise by the parties, any party may
amend or supplement its “claim” during the course of the arbitral proceedings,
and further, that such amendment or supplement may be rejected only if the
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arbitral tribunal considers it inappropriate for one and only one reason, that
being, the delay in making or seeking such amendment or supplement. What
can be discerned from the above is that there is no restriction whatsoever, in
the plain words of Section 23 of the Act, 1996, which would be indicative of
an inhibition in raising those claims or counter-claims etc., that have no
bearing with the notice of invocation under Section 21 of the Act, 1996.
150. The language used in Section 23 of the Act, 1996 makes no reference
whatsoever, either explicitly to the provision of Section 21 or the particular
words used thereunder, that would be suggestive of any correlation between
the two provisions. On the contrary, the singular ground that has been
mentioned in Section 23 sub-section (3) upon which an amendment or
supplement of claim may be rejected by the arbitral tribunal i.e., if it is deemed
inappropriate due to delay, is a positive indicium that that no restriction can
be read into the scope of claims that may be raised in the statement of claim
or counter-claim beyond what was stipulated in the notice of invocation under
Section 21 of the Act, 1996. Any limitation or restriction on the scope of a
statement of claim or a counter-claim as the case may be, has to be understood
not from the provision of Section 21 but only from the explicit language used
in Section 23 of the Act, 1996.
Special Leave Petition (C) No. 21286 of 2024 Page 169 of 190
151. Any restriction on the nature or content of claims, counter-claims, or set-offs
in arbitration must be sourced solely from the express language of Section 23
and not from Section 21. Section(s) 21 and 23 of the Act, 1996 although
overlap in some aspects with each other in terms of the claims that would
ordinarily be referred to the tribunal more often than not tend to coincide, yet
they are by no means tethered together in such a manner that neither of them
can survive without one another. The latter serves only a procedural function
and does not condition or limit the tribunal’s jurisdiction to adjudicate claims
that may not have been specifically invoked at the threshold stage. To read
such a limitation into the statutory scheme would run contrary to both the text
and the object of the Act.
152. In Milkfood (supra) this Court was called upon the examine the object
underlying Section 21 of the Act, 1996. This Court after a comprehensive
examination of a catena of decisions, both under the English Law and
pertaining to the Act, 1996, held that the purpose of a notice under Section 21
of the Act, 1996 is for the applicability of the provisions of the Limitation Act,
1963 in terms of Section 43 of the Act, 1996 to the claims sought to be referred
to arbitration and when can an appointment of an arbitrator be sought in terms
of Section 11 of the Act, 1996. It explained that the date when arbitration
proceeding commences would be relevant for the purpose of attracting the
Special Leave Petition (C) No. 21286 of 2024 Page 170 of 190
Limitation Act, 1963 or for the purpose of time bar clauses or for the rules
applicable in terms of the arbitration agreement, such as for setting into motion
the conflict of laws when the proper law of the contract is one law and the law
of the arbitral procedure is another. Lastly, that this “commencement of
arbitration proceeding” by Section 21 of the Act, 1996 would also be relevant
for of applicability of the 1940 Act having regard to Section 85(2)(a). Apart
from the aforesaid, no other relevancy of Section 21 of the Act, 1996 was laid
down by this Court, much less for the purposes of Section 23 thereunder. The
relevant observations read as under: -
“26. The commencement of an arbitration proceeding for the
purpose of applicability of the provisions of the Indian Limitation
Act is of great significance. Even Section 43(1) of the 1996 Act
provides that the Limitation Act, 1963 shall apply to the
arbitration as it applies to proceedings in court. Sub-section (2)
thereof provides that for the purpose of the said section and the
Limitation Act, 1963, an arbitration shall be deemed to have
commenced on the date referred to in Section 21.
29. For the purpose of the Limitation Act an arbitration is deemed
to have commenced when one party to the arbitration agreement
serves on the other a notice requiring the appointment of an
arbitrator. This indeed is relatable to the other purposes also, as,
for example, see Section 29(2) of (English) Arbitration Act, 1950.
30. The date when arbitration proceeding commences would
depend upon various factors and the purposes which it seeks to
achieve. It may be for the purpose of attracting the Limitation Act
or for the purpose of time bar clauses or for the rules applicable
therefor, as, for example, the rules of the International Chamber
of Commerce.
31. The date of commencement of an arbitration also affects the
position under the conflict of laws when the proper law of the
contract is one law and the law of the arbitral procedure is
Special Leave Petition (C) No. 21286 of 2024 Page 171 of 190
another, for then, up to the date of commencement of the
arbitration proceeding, the law of the contract must govern, and
the law of the procedure will only govern thereafter. [...]
32. Sections 14(3) and (5) of the (English) Arbitration Act, 1996
would also show that commencement of arbitral proceeding is not
only for the purpose of limitation but also for the purpose of
considering a case when the parties by their contract agree that
the arbitration must be commenced within a specified time, failing
which the right to arbitration, or indeed the claim itself, is apt to
be barred. Determination of time elements in an arbitration is
provided for in Section 21 of the 1996 Act clearly indicating as to
when such arbitration has officially begun.
72. Keeping in view the fact that in all the decisions, referred to
hereinbefore, this Court has applied the meaning given to the
expression “commencement of the arbitral proceeding” as
contained in Section 21 of the
1996 Act for the purpose of applicability of the 1940 Act having
regard to Section 85(2)(a) thereof, we have no hesitation in
holding that in this case also, service of a notice for appointment
of an arbitrator would be the relevant date for the purpose of
commencement of the arbitration proceeding.”
(Emphasis supplied)
153. Remarkably, Milkfood (supra) observes that both under Article 21 of the
UNCITRAL Model Law and by extension Section 21 of the Act, 1996, what
is necessary in a notice or request under the said proiviosn, is the indication
that the claimant seeks arbitration of the dispute. This Court consciously did
not hold that such indication must be of what all disputes is sought to be
referred to arbitration. The relevant observations read as under: -
“27. Article 21 of the Model Law which was modelled on
Article 3 of the UNCITRAL Arbitration Rules had been adopted
for the purpose of drafting Section 21 of the 1996 Act. Section 3
of the 1996 Act provides for as to when a request can be said to
have been received by the respondent. Thus, whether for the
Special Leave Petition (C) No. 21286 of 2024 Page 172 of 190
purpose of applying the provisions of Chapter II of the 1940 Act
or for the purpose of Section 21 of the 1996 Act, what is necessary
is to issue/serve a request/notice to the respondent indicating that
the claimant seeks arbitration of the dispute.”
(Emphasis supplied)
154. The aforesaid observations of Milkfood (supra) when read in conjunction with
the other observations made therein, more particularly paragraph 32, shows
that this Court consistently held that the purpose of Section 21 of the Act, 1996
is for the determination of various time elements in an arbitration.
155. In State of Goa v. Praveen Enterprises reported in (2012) 12 SCC 581 , this
Court elucidated the limited but important function of Section 21 of the Act,
1996. It held that, in the absence of any contrary stipulation in the arbitration
agreement, the purpose of a notice under Section 21 is only to demarcate the
commencement of arbitral proceedings with respect to a particular dispute.
The issuance of such notice serves primarily to establish a definite point in
time when the arbitral proceedings are in the eyes of law said to have
commenced for the purpose of calculating and reckoning the period of
limitation for the substantive claims therein. It was further held that once
arbitral proceedings have commenced, the claimant is not precluded from
raising additional claims that were not mentioned in the original notice of
invocation under Section 21 of the Act, 1996. Such claims may be introduced
for the first time in the statement of claim, without necessitating a fresh notice
Special Leave Petition (C) No. 21286 of 2024 Page 173 of 190
of invocation. The only caveat, however, is that the limitation period for these
additional claims shall be computed from the date on which they are actually
raised in the proceedings. Similarly, in the case of counter-claims as-well,
there is no need to establish a date of ‘commencement’ by issuing a notice
under Section 21 of the Act, 1996, as the period of limitation would be
reckoned from the date on which the counterclaim is made before the
arbitrator, except where such claim was initially raised by a notice under
Section 21 but subsequently raised as a counter-claim instead. The relevant
observations read as under: -
“ 15. Taking a cue from the said section, the respondent submitted
that arbitral proceedings can commence only in regard to a
dispute in respect of which notice has been served by a claimant
upon the other party, requesting such dispute to be referred to
arbitration; and therefore, a counterclaim can be entertained by
the arbitrator only if it has been referred to him, after a notice
seeking arbitration in regard to such counterclaim. On a careful
consideration we find no basis for such a contention.
16. The purpose of Section 21 is to specify, in the absence of a
provision in the arbitration agreement in that behalf, as to when
an arbitral proceeding in regard to a dispute commences. This
becomes relevant for the purpose of Section 43 of the Act. Sub-
section (1) of Section 43 provides that the Limitation Act, 1963
shall apply to arbitrations as it applies to proceedings in courts.
Sub-section (2) of Section 43 provides that for the purposes of
Section 43 and the Limitation Act, 1963, an arbitration shall be
deemed to have commenced on the date referred to in Section 21
of the Act. Having regard to Section 43 of the Act, any claim made
beyond the period of limitation prescribed by the Limitation Act,
1963 will be barred by limitation and the Arbitral Tribunal will
have to reject such claims as barred by limitation.
xxx xxx xxx
Special Leave Petition (C) No. 21286 of 2024 Page 174 of 190
18. In regard to a claim which is sought to be enforced by filing a
civil suit, the question whether the suit is within the period of
limitation is decided with reference to the date of institution of the
suit, that is, the date of presentation of a plaint. As the Limitation
Act, 1963 is made applicable to arbitrations, there is a need to
specify the date on which the arbitration is deemed to be instituted
or commenced as that will decide whether the proceedings are
barred by limitation or not. Section 3 of the Limitation Act, 1963
specifies the date of institution for suit, but does not specify the
date of “institution” for arbitration proceedings. Section 21 of the
Act supplies the omission. But for Section 21 there would be
considerable confusion as to what would be the date of
“institution” in regard to the arbitration proceedings. It will be
possible for the respondent in an arbitration to argue that the
limitation has to be calculated as on the date on which statement
of claim was filed, or the date on which the arbitrator entered
upon the reference, or the date on which the arbitrator was
appointed by the court, or the date on which the application was
filed under Section 11 of the Act. In view of Section 21 of the Act
providing that the arbitration proceedings shall be deemed to
commence on the date on which “a request for that dispute to be
referred to arbitration is received by the respondent” the said
confusion is cleared. Therefore, the purpose of Section 21 of the
Act is to determine the date of commencement of the arbitration
proceedings, relevant mainly for deciding whether the claims of
the claimant are barred by limitation or not.
19. There can be claims by a claimant even without a notice
seeking reference. Let us take an example where a notice is issued
by a claimant raising disputes regarding Claims A and B and
seeking reference thereof to arbitration. On appointment of the
arbitrator, the claimant files a claim statement in regard to the
said Claims A and B. Subsequently if the claimant amends the
claim statement by adding Claim C [which is permitted under
Section 23(3) of the Act] the additional Claim C would not be
preceded by a notice seeking arbitration. The date of amendment
by which Claim C was introduced, will become the relevant date
for determining the limitation in regard to the said Claim C,
whereas the date on which the notice seeking arbitration was
served on the other party, will be the relevant date for deciding
the limitation in regard to Claims A and B. Be that as it may.
Special Leave Petition (C) No. 21286 of 2024 Page 175 of 190
20. As far as counterclaims are concerned, there is no room for
ambiguity in regard to the relevant date for determining the
limitation. Section 3(2)(b) of the Limitation Act, 1963 provides
that in regard to a counterclaim in suits, the date on which the
counterclaim is made in court shall be deemed to be the date of
institution of the counterclaim. As the Limitation Act, 1963 is
made applicable to arbitrations, in the case of a counterclaim by
a respondent in an arbitral proceeding, the date on which the
counterclaim is made before the arbitrator will be the date of
“institution” insofar as counterclaim is concerned. There is,
therefore, no need to provide a date of “commencement” as in the
case of claims of a claimant. Section 21 of the Act is therefore not
relevant for counterclaims. There is however one exception.
Where the respondent against whom a claim is made, had also
made a claim against the claimant and sought arbitration by
serving a notice to the claimant but subsequently raises that claim
as a counterclaim in the arbitration proceedings initiated by the
claimant, instead of filing a separate application under Section 11
of the Act, the limitation for such counterclaim should be
computed, as on the date of service of notice of such claim on the
claimant and not on the date of filing of the counterclaim.”
(Emphasis supplied)
156. In Adavya Projects (supra) this Court held that the purpose of a notice under
Section 21 of the Act, 1996 is only to fulfilled the various time-related objects
pertaining to the arbitration and the arbitration agreement. The relevant
observation reads as under: -
“11. It is clear that by fixing the date of commencement of arbitral
proceedings by anchoring the same to a notice invoking
arbitration, Section 21 of the ACA fulfils various objects that are
time-related. The receipt of such notice is determinative of the
limitation period for substantive disputes as well as the Section 11
application, and also the law applicable to the arbitration
proceedings.”
(Emphasis supplied)
Special Leave Petition (C) No. 21286 of 2024 Page 176 of 190
157. Adavya Projects (supra) explained the aforesaid object of a notice under
Section 21 of the Act, 1996 in four parts: -
(i) First, that the plain language of Section 21 of the Act, 1996 does not
expressly mandate the claimant to send a notice invoking arbitration to
the respondents, instead what it mandates is the receipt of such notice
for a ‘commencement of arbitral proceedings” in terms of the Act, 1996,
unless agreed otherwise. The relevant observations read as under: -
“9. A plain reading of the provision shows that in the
absence of an agreement between the parties, arbitral
proceedings are deemed to have commenced when the
respondent receives a request to refer disputes to
arbitration. It is clear that Section 21 does not expressly
mandate the claimant to send a notice invoking arbitration
to the respondents. However, the provision necessarily
mandates such notice as its receipt by the respondent is
required to commence arbitral proceedings, unless the
parties have mutually agreed on another date/event for
determining when the arbitral proceedings have
commenced.”
(Emphasis supplied)
(ii) Secondly, placing reliance on Milkfood (supra) it held that the date of
receipt of the Section 21 notice is also used to determine whether a
dispute has been raised within the limitation period as specified in the
Schedule to the Limitation Act, 1963. The relevant observations read as
under: -
“10.1 First, the notice is necessary to determine whether
claims are within the period of limitation or are time-
barred. Section 43(1) of the ACA stipulates that the
Limitation Act, 1963 shall apply to arbitrations as it applies
Special Leave Petition (C) No. 21286 of 2024 Page 177 of 190
to court proceedings. Further, Section 43(2) provides that
for the purpose of the Limitation Act, an arbitration shall
be deemed to have commenced on the date referred to in
Section 21. Hence, the date of receipt of the Section 21
notice is used to determine whether a dispute has been
raised within the limitation period as specified in the
Schedule to the Limitation Act, as held by this Court in
Milkfood Ltd. v. GMC Ice Cream (P) Ltd.5 and State of Goa
v. Praveen Enterprises.”
(Emphasis supplied)
(iii) Thirdly, that as held in Milkfood (supra) the date of receipt of such
notice is also relevant for determining either (1) when the lex-arbitri or
the law governing the arbitration agreement would apply or (2) for
ascertaining the applicability of Arbitration Act, 1940 and Foreign
Awards (Recognition and Enforcement) Act, 1961 to arbitral
proceedings commenced prior to the Act, 1996 in terms of Section
85(2)(a) thereunder. The relevant observations read as under: -
“10.2 Second, the date of receipt of notice is also relevant
to determine the applicable law to the arbitral proceedings.
This can be understood in two senses: (i) When the arbitral
proceedings are governed by a law that is different from the
proper law of the contract, the governing law applies only
after the arbitral proceedings have commenced, as held in
Milkfood Ltd (supra). And, (ii) Section 85(2)(a) of the ACA
provides that the Arbitration Act, 1940 and Foreign Awards
(Recognition and Enforcement) Act, 1961 will apply to
arbitral proceedings that commenced prior to the ACA
coming into force, unless otherwise agreed by the parties.
Hence, the date of invoking arbitration is necessary to
determine which arbitration law applies to the proceedings
as per the decisions in Milkfood Ltd (supra) and Geo-Miller
& Co (P) Ltd. v. Chairman, Rajasthan Vidyut Utpadan
Nigam Ltd. Similarly, the applicability of amendments to
the ACA to arbitral proceedings is determined by reference
Special Leave Petition (C) No. 21286 of 2024 Page 178 of 190
to the date on which such proceedings commenced as per
Section 21.”
(Emphasis supplied)
(iv) Fourthly, in terms of Nortel Networks (supra), it is also relevant for
determining the ‘failure’ on part of any party to the arbitration
agreement in appointment of an arbitrator to avail the remedy under
Section 11 of the Act, 1996 and for the purpose of reckoning the
limitation period for filing an application thereunder for seeking
appointment of the arbitration through a referral court. The relevant
observations read as under: -
“10.3 Third, an application before the High Court or this
Court under Section 11(6) of the ACA for appointment of
arbitrator can be filed only after the respondent has failed
to act as per the appointment procedure in the arbitration
agreement. Hence, invocation of arbitration as provided in
Section 21, and the subsequent failure of the respondent to
appoint its arbitrator or agree to the appointment of a sole
arbitrator as provided in Sections 11(4) and 11(5), are
necessary for invoking the court’s jurisdiction under
Section 11. This is as per the decision of this Court in BSNL
v. Nortel Networks (India) (P) Ltd. Further, the limitation
period within which the Section 11 application must be filed
is also calculated with reference to the date on which the
appointment procedure under the arbitration agreement
fails.”
(Emphasis supplied)
Special Leave Petition (C) No. 21286 of 2024 Page 179 of 190
158. Adavya Projects (supra) placing reliance on Praveen Enterprises (supra)
further held that there is nothing in the wording of the provision or the scheme
of the Act, 1996 that would indicate that a party to an arbitration agreement –
signatory or non-signatory – cannot be impleaded to the arbitral proceedings,
merely because no notice under Section 21 was served on them. Non-service
of the notice under Section 21 and the absence of a dispute being raised against
certain parties therein would not bar their impleadment into the arbitration
proceedings. The relevant observations read as under: -
“12. [...] However, there is nothing in the wording of the provision
or the scheme of the ACA to indicate that merely because such
notice was not served on respondent nos. 2 and 3, they cannot be
impleaded as parties to the arbitral proceedings. The relevant
considerations for joining them as parties to the arbitration will
be discussed at a later stage.
13. At this point, it is important to note this Court’s decision in
State of Goa v. Praveen Enterprises (supra) wherein it was held
that the claims and disputes raised in the notice under Section 21
do not restrict and limit the claims that can be raised before the
arbitral tribunal. The consequence of not raising a claim in the
notice is only that the limitation period for such claim that is
raised before the arbitral tribunal for the first time will be
calculated differently vis-a-vis claims raised in the notice.
However, non inclusion of certain disputes in the Section 21 notice
does not preclude a claimant from raising them during the
arbitration, as long as they are covered under the arbitration
agreement. Further, merely because a respondent did not issue a
notice raising counter-claims, he is not precluded from raising the
same before the arbitral tribunal, as long as such counter-claims
fall within the scope of the arbitration agreement.
14. A similar rationale may be adopted in this case as well,
especially considering the clear purpose served by a Section 21
notice. Extending this logic, non-service of the notice under
Section 21 and the absence of disputes being raised against
Special Leave Petition (C) No. 21286 of 2024 Page 180 of 190
respondent nos. 2 and 3 in the appellant’s notice dated 17.11.2020
do not automatically bar their impleadment as parties to the
arbitration proceedings.
xxx xxx xxx
21. [...] it is clear that not being served with a Section 21 notice
and not being made a party in the Section 11 application are not
sufficient grounds to hold that a person cannot be made party to
arbitral proceedings.”
(Emphasis supplied)
159. It is noteworthy to mention that Adavya Projects (supra) acknowledge that
although the decision of the Delhi High Court in Alupro Building Systems Pvt
Ltd. v. Ozone Overseas Pvt Ltd reported in 2017 SCC OnLine Del 7228 , is
correct insofar as it hold that some the functions that a notice under Section
21 of the Act, 1996 serves inter-alia includes (i) informing the other party as
to the claims, which will enable them to accept or dispute the claims; (ii)
enabling the other party to point out if certain claims are time barred, barred
by law, or untenable, or if there are counter-claims; (iii) for arriving at a
consensus for appointment of arbitrators under the arbitration agreement; (iv)
for proposing an arbitrator, to enable the other party to raise any
objections/issues regarding qualification; (v) or for triggering the court’s
jurisdiction under Section 11 in case the appointment procedure fails; and (vi)
for fixing the date of commencement of arbitration for the purpose of Section
43(1), yet the decision of Alupro Building Systems (supra) cannot be
construed to have held that hat the notice under Section 21 is a mandatory
Special Leave Petition (C) No. 21286 of 2024 Page 181 of 190
requirement before a person can be made party to arbitral proceedings.
Adavya Projects (supra) held that while a notice under Section 21 is
mandatory, the non-service of such notice on a party would not nullify the
arbitral tribunal’s jurisdiction over such party. The other purposes served by
such notice as delineated by Alupro Building Systems (supra) are only
incidental and secondary, and the primary purpose of such notice is only to
the extent of determination of various time elements in an arbitration. The
relevant observations read as under: -
“30. The Delhi High Court in Alupro Building Systems Pvt Ltd. v.
Ozone Overseas Pvt Ltd. allowed an application under Section 34
of the ACA against an award passed by an arbitrator who was
unilaterally appointed by the respondent therein, without issuing
a notice to the petitioner therein under Section 21 of the ACA. The
High Court proceeded to delineate the various functions served by
a Section 21 notice as follows: (i) To inform the other party as to
the claims, which will enable them to accept or dispute the claims;
(ii) To enable the other party to point out if certain claims are time
barred, barred by law, or untenable, or if there are counter-
claims; (iii) For arriving at a consensus for appointment of
arbitrators under the arbitration agreement; (iv) For parties to
inform each other about their proposed arbitrator, to enable the
other party to raise any objections/issues regarding qualification;
(v) To trigger the court’s jurisdiction under Section 11 in case the
appointment procedure fails; and (vi) To fix the date of
commencement of arbitration for the purpose of Section 43(1).
30.1 The decision in Alupro Building Systems (supra) has been
relied on by the High Court in its impugned order to hold that the
notice under Section 21 is a mandatory requirement before a
person can be made party to arbitral proceedings.
30.2 While we agree with the decision insofar as holding that the
notice under Section 21 is mandatory, unless the contract provides
otherwise, we do not agree with the conclusion that non-service of
such notice on a party nullifies the arbitral tribunal’s jurisdiction
Special Leave Petition (C) No. 21286 of 2024 Page 182 of 190
over him. The purpose of the Section 21 notice is clear – by fixing
the date of commencement of arbitration, it enables the
calculation of limitation and it is a necessary precondition for
filing an application under Section 11 of the ACA. The other
purposes served by such notice – of informing the respondent
about the claims, giving the respondent an opportunity to admit
and contest claims and raise counter-claims, and to object to
proposed arbitrators – are only incidental and secondary. We
have already held that the contents of the notice do not restrict the
claims, and any objections regarding limitation and
maintainability can be raised before the arbitral tribunal, and the
ACA provides mechanisms for challenging the appointment of
arbitrators on various grounds. Hence, while a Section 21 notice
may perform these functions, it is not the primary or only
mechanism envisaged by the ACA.”
(Emphasis supplied)
160. In light of the decision of this Court in Adavya Projects (supra) and a catena
of other decisions as-well as the scope and object of Section 21 of the Act,
1996 in contrast to Section 23 as explained by us in the foregoing paragraphs,
mere non-service of a notice of invocation on a party would not nullify the
arbitral tribunal’s jurisdiction over such party, and that such party can be
impleaded and arrayed in the arbitration proceedings if any claim or counter-
claim is made against such party by the claimant in statement of claims or
counter-claims, or by even amending the memo of parties of the putative
statement of claims counter-claims filed by it, provided that such party is
found to be bound by the arbitration agreement either by virtue of it being a
signatory, or where such party is a non-signatory, in terms of the decision of
Cox and Kings (I) (supra) as explained by us.
Special Leave Petition (C) No. 21286 of 2024 Page 183 of 190
161. In the case on hand, as mentioned earlier, the Tribunal has by way of two
separate orders passed in Section 16 Applications filed by BCSPL, in the first
round, and AISPL and ABPL, in the second round ruled on its jurisdiction and
added AISPL and ABPL to the array of parties in the proceedings. This
determination under the principle of ‘ kompetenz-kompetenz ’ enshrined in
Section 16 of the 1996 Act must be permitted to take its course, given that the
arbitral proceedings are in any case nearing conclusion.
162. The High Court in its impugned judgment while upholding the Arbitrator’s
Orders, has rightly held that ABPL, BCSPL and AISPL ‘fall under the same
management, and it appears that the substitution in the contract, took place
merely for convenience...’. Further, ‘all the correspondence is in respect of the
contract with ASF and ASF Group of Companies. There is no differentiation
between BCSPL, AISPL, or ABPL, all of which are part of the ASF Group.’.
In arriving at its conclusion, the High Court correctly applied the test laid
down in Cox and Kings Ltd. (I) (supra), taking note of the communications
exchanged, conduct of the ASF Group officials, active involvement of the
appellant with contractual obligations, intertwined nature of the agreements
involving BCSPL, AISPL, and ABPL and the composite business operations.
Special Leave Petition (C) No. 21286 of 2024 Page 184 of 190
163. The conclusion reached by the Arbitral Tribunal and the High Court is
premised on the following: -
(i) SPCPL had made out a case supported by material, which cannot be
rejected at the preliminary stage, that AISPL and ABPL are inextricably
linked to and operationally holding control over the performance of the
Works Contract and Settlement Agreement which are the subject matter
of the arbitral proceedings.
(ii) SPCPL had rightly invoked the doctrine of Group of Companies to
justify inclusion of the non-signatories.
(iii) Having regard to the chronology of events leading to the execution of
the Settlement Agreement, prima facie, both ASPL and ABPL are
proper parties, if not necessary, even to the claim of BCSPL.
(iv) The High Court, in particular, noted the factor of mutual intent, the
same demonstrated by AISPL and ABPL; substantial involvement in
the negotiations, performance, and termination of the various contracts
entered into between the parties. The continuous use of ASF insignia
and the participation of ASF Group officials in correspondences
indicate that all entities within the ASF Group intended to be bound by
the same arbitration agreement.
(v) AISPL and ABPL, as subsidiaries within the ASF Group, have a direct
relationship with BCSPL. They all have common directors, if not the
same directors. Their interconnected roles in the Black Canyon project,
Special Leave Petition (C) No. 21286 of 2024 Page 185 of 190
as evidenced by their involvement in securing demobilization by
SPCPL and other contractual obligations, highlight this relationship.
(vi) The Works Contract, the Novation Agreement, the Settlement
Agreement, and the Comfort Letter all pertain to the same
redevelopment project of the Black Canyon project. The shared subject
matter across these agreements establishes a ‘commonality’ that
justifies the inclusion of AISPL and ABPL in the arbitration
proceedings. Further, the various transactions entered into the between
the parties must form a cohesive whole, indicating that they cannot be
viewed in isolation. The intertwined nature of the agreements involving
BCSPL, AISPL, and ABPL demonstrates that these transactions form a
composite whole. The responsibilities across the ASF Group entities
reflect a composite business operation.
164. The judicial trend is that all issues should be before the Arbitral Tribunal and
the power under Section 11 sub-section (6A) is restricted to examination of
the existence of an arbitration agreement. The concept of a ‘reference’ as it
existed under the Arbitration Act, 1940 does not find itself in the 1996 Act.
Once the Arbitral Tribunal stands appointed, all disputes and issues are to be
decided by it as a ‘one-stop forum’ for adjudication. [See: Gammon India Ltd.
v. NHAI, reported in 2020 SCC OnLine Del 659 ]
Special Leave Petition (C) No. 21286 of 2024 Page 186 of 190
165. As aforementioned, Section 7(4)(b) of the Act, 1996 provides that an
Arbitration Agreement may be contained in exchange of telecommunication,
such as emails, which provide a record of the principal agreement. Emails
have been exchanged between SPCPL and ASF Group as a whole, where
admission of liability on the part of ASF Group to make payment under the
Settlement Agreement stands established. Clause 12 of the Settlement
Agreement makes the dispute resolution clause of the Works Contract
applicable in the present case.
166. In Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia (P) Ltd. , reported
in (2015) 13 SCC 477 , this Court has held that signature is not a formal
requirement under Section 7(4)(b) or 7(4)(c) or under Section 7(5) of the 1996
Act. This position is further supported by the definition of a ‘party’ in Section
2(h) of the 1996 Act to include a ‘party to an arbitration agreement’ and not a
signatory to an arbitration agreement. Section 7 of the 1996 Act also does not
stipulate a qualification that a party must be a signatory to the arbitration
agreement or the principal agreement containing the arbitration clause. This
was also reiterated in Cox and Kings Ltd. (I) (supra).
167. Even the non-issuance of Section 21 notice on the appellant cannot be said to
be fatal to its impleadment. The principle of consensus ad idem for referring
disputes to arbitral tribunals applies to the signatories to the arbitration
agreement and not non-signatories who are sought to be impleaded.
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168. The decision of this Court in Praveen Enterprises (supra), , on which strong
reliance has been placed on behalf of the ABPL, as already discussed, is
contrary to their contention and rather fortifies SPCPL’s argument in this
regard, where this Court held that a notice under Section 21 of the 1996 Act is
not relevant for counterclaims.
169. We have looked into the other decisions also relied upon by Mr. Kamat in
support of his submissions, however, they are of no avail to the appellant.
D. CONCLUSION
170. Before we close this matter, we would like to say something as regards the
litigation which has unfolded before us. The Arbitration Act was the first
legislative enactment that dealt with arbitration that came into force in 1940.
Fifty years, later, the aforesaid legislation was replaced by the Arbitration and
Conciliation Act, 1996. It has been almost, thirty-years, since the Act, 1996
has remained in force. Various amendments to the Act, 1996 have been made
over the years so as to ensure that arbitration proceedings are conducted and
concluded expeditiously. It is indeed very sad to note that even after these
many years, procedural issues such as the one involved in the case at hand,
have continued to plaque the arbitration regime of India. The Department of
Legal Affairs has now, once again proposed to replace the existing legislation
Special Leave Petition (C) No. 21286 of 2024 Page 188 of 190
on arbitration with the Arbitration and Conciliation Bill, 2024. Unfortunately,
even the new Bill has taken no steps whatsoever, for ameliorating the
position of law as regards the power of impleadment or joinder of an arbitral
tribunal. What is expressly missing in the Act, 1996 is still missing in the
Arbitration and Conciliation Bill, 2024, despite a catena of decisions of this
Court as-well as the various High Courts, highlighting the need for statutory
recognition of such power in order to obviate all possibilities of confusion.
As observed in Gayatri Balasamy (supra), any uncertainty in the law of
arbitration would be an anathema to business and commerce. We urge, the
Department of Legal Affairs, Ministry of Law and Justice to take a serious
look at the arbitration regime that is prevailing in India and bring about
necessary changes while the Arbitration and Conciliation Bill, 2024 is still
being considered.
171. In the overall view of the matter, we are convinced that no error, not to speak
of any error of law, could be said to have been committed by the High Court
in passing the impugned judgment and order.
172. All other legal contentions available to the parties are kept open to be
canvassed before the Arbitral Tribunal.
173. For all the foregoing reasons, this appeal fails and is hereby dismissed.
174. Pending application, if any, also stands disposed of accordingly.
Special Leave Petition (C) No. 21286 of 2024 Page 189 of 190
175. The Registry shall forward one copy each of this judgment to all the High
Courts across the country and the Principal Secretary, Ministry of Law &
Justice.
. .......................................................... J.
(J.B. Pardiwala)
. .......................................................... J.
(R. Mahadevan)
New Delhi;
nd
02 May, 2025
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