2021 (4) TMI 1281 - HC - Indian Laws

Execution of the works and rendering of services - contract for Civil and Structural work for the Balance of Plant (BoP Works) - whether prima facie an arbitration agreement exists between Indiabulls and Shapoorji in respect of the BTG Contract for execution of BTG Works and BoP Contract for execution of the BoP Works? - HELD THAT - In the present case, it is evident that Indiabulls had fully participated in the formation of the BTG Contract. It is material to note that the thermal power plant in question was being developed by Indiabulls as its undertaking. Undisputedly, Indiabulls is a beneficiary of the works being executed by Shapoorji. Whether a non-signatory is a direct beneficiary of the contract containing the arbitration clause is material in determining whether the said beneficiary can be compelled to arbitrate even though it is not a signatory to the Agreement. However, this is coupled with the condition that such benefit should be direct and not indirect - In the present case, Indiabulls (and not Elena) had invited offers for BTG Works. Shapoorji had submitted its bid (revised offer) directly to Indiabulls pursuant to the invitation issued by Indiabulls. The said bid was accepted and such acceptance constituted a binding contract. Concededly, on Shapoorji's bid (revised offer) being accepted, it was no longer open for Shapoorji to resile from its commitments. In this view, there is ample evidence to show that Indiabulls had directly participated in the negotiations and formation of the contract for execution of the BTG Works even though it was not a signatory to the BTG Contract that was executed subsequently. There is also ample material on record to show that Indiabulls had a direct involvement in the BTG Contract. It is not disputed that in terms of Clause 6 of the LoA, Shapoorji was obliged to provide Bank Guarantees to Indiabulls. It is also not disputed that in terms of the LoA, Shapoorji had furnished Bank Guarantees against the advances received as well as a Performance Bank Guarantee and the same were in favour of Indiabulls and not Elena. Thus, Indiabulls had secured itself against performance of the BTG Contract by Shapoorji - It is also not disputed that Indiabulls had directly issued Letters of Credit to Shapoorji and made certain payments to Shapoorji, which were due under the BTG Contract. In the given facts, this Court finds it difficult to accept that Indiabulls can avoid its obligation to arbitrate even though it has been a direct beneficiary of the BTG contract and to some extent been directly involved with Shapoorji in negotiating and execution of the contract. There is material on record to impute that Indiabulls is a party to the arbitration agreement. There is also merit in Mr. Mukhopadhyay's contention that since Shapoorji had made a revised offer to Indiabulls and it is not disputed that the same was accepted, it must follow that the resultant contract was also made with Indiabulls. Clearly, a third party cannot accept an offer to constitute binding contractual obligations and it is not disputed before this Court that the LoA did give rise to a contract that bound Shapoorji to the terms contained therein. The LoA was accepted by Shapoorji. Thus, it also agreed to the terms thereof which are stated above, which included a specific condition that it would enter into a formal contract agreement with Indiabulls - Estoppel principles have frequently been applied by Courts in the United States of America to hold that a party is bound by the arbitration clause associated with the substantive contractual agreement. Whether the relationship between Indiabulls and Elena and their conduct, is sufficient to compel Indiabulls to be a party to the arbitration regarding the disputes raised by Shapoorji? - HELD THAT - This Court is inclined to accept the contention that Elena is a Special Purpose Vehicle and it would be apposite to treat Elena as an extended division of Indiabulls as it is not involved in any other business other than executing the projects for Indiabulls. Although it is contended that Elena is an independent contractor and was awarded three separate contracts by Indiabulls, there is no material on record to indicate that Elena and Indiabulls function as independent and separate organisations. On the contrary, there is material to indicate that Elena is not organized and staffed separately and is independent of Indiabulls. This Court is of the view that it would be apposite to compel Indiabulls to arbitrate as there is sufficient material to show that Elena is its alter ego. This is evident from the fact that Elena's name has been mentioned in parenthesis against the name of Indiabulls in the LoA. The shareholding pattern confirms that Indiabulls does exercise complete control as a shareholder over Elena. The fact that the officials of Indiabulls acted on behalf of Elena also indicate that Indiabulls exercises substantial and dominant direct control over the affairs of Elena. Elena had appointed Justice C.K. Prasad as its nominee arbitrator. He would also be considered as the nominee Arbitrator of Indiabulls. He, along with the learned Arbitrator nominated by Shapoorji, shall nominate the third Arbitrator to constitute an Arbitral Tribunal within a further period of two weeks from date, failing which the parties are at liberty to approach this Court for appointment of the third Arbitrator. Petition allowed.

Summary

Issues Involved:
1. Existence of an arbitration agreement between the petitioner (Shapoorji) and Indiabulls for the BTG Contract.
2. Whether disputes related to the BoP Contract can be referred to arbitration.
3. Applicability of the Group of Companies doctrine and principles of estoppel to bind Indiabulls to the arbitration agreement.
4. Appointment of an arbitrator for the disputes.

Detailed Analysis:

1. Existence of an Arbitration Agreement Between Shapoorji and Indiabulls for the BTG Contract:
The court examined whether an arbitration agreement existed between Shapoorji and Indiabulls for the BTG Contract. It was noted that the BTG Contract was signed by Shapoorji and Elena, with Elena referred to as the 'Employer'. The General Conditions of the Contract (GCC) defined 'Employer' as Elena Power & Infrastructure Limited, and 'Owner' as Indiabulls. The court highlighted that Indiabulls had invited bids for the BTG Works, Shapoorji submitted its bid directly to Indiabulls, and the bid was accepted by Indiabulls, forming a binding contract. The LoA, issued on Indiabulls' letterhead but signed by Elena, required Shapoorji to enter into a formal contract with Indiabulls. The court found that Indiabulls had a direct involvement in the BTG Contract, including issuing Letters of Credit and making payments to Shapoorji. The court concluded that Indiabulls was a direct beneficiary of the BTG Contract and had participated in its formation, thereby binding Indiabulls to the arbitration agreement.

2. Whether Disputes Related to the BoP Contract Can Be Referred to Arbitration:
Shapoorji argued that the BoP Contract was supplemental to the BTG Contract and thus covered by the arbitration clause in the BTG Contract. However, the court noted that the BoP Contract was awarded to another agency (Gannon Dunkerley & Co. Ltd.) and later offloaded to Shapoorji. The BoP Contract did not include an arbitration clause and was treated separately from the BTG Contract, as evidenced by separate final bills submitted by Shapoorji for the BTG and BoP Works. The court concluded that there was no agreement to refer disputes related to the BoP Contract to arbitration.

3. Applicability of the Group of Companies Doctrine and Principles of Estoppel to Bind Indiabulls to the Arbitration Agreement:
The court discussed various legal principles under which non-signatories could be bound by arbitration agreements, including implied consent, agency, estoppel, and the Group of Companies doctrine. The court found that Indiabulls and Elena shared common resources, office space, and personnel, indicating that Elena was an alter ego of Indiabulls. The court also noted that Indiabulls had directly benefited from and participated in the BTG Contract. The court applied the principles of estoppel, noting that Indiabulls had accepted the benefits of the BTG Contract and was therefore estopped from denying its obligation to arbitrate. The court concluded that Indiabulls was bound by the arbitration agreement under the Group of Companies doctrine and principles of estoppel.

4. Appointment of an Arbitrator for the Disputes:
The court noted that Elena had appointed Justice C.K. Prasad as its nominee arbitrator and directed that he would also be considered the nominee arbitrator of Indiabulls. The court instructed that Justice C.K. Prasad and the arbitrator nominated by Shapoorji should jointly nominate the third arbitrator to constitute the Arbitral Tribunal within two weeks, failing which the parties could approach the court for the appointment of the third arbitrator.

Conclusion:
The court allowed the petition, holding that Indiabulls was bound by the arbitration agreement for the BTG Contract and should be referred to arbitration. However, disputes related to the BoP Contract were not referred to arbitration due to the absence of an arbitration clause in that contract. The court directed the formation of an Arbitral Tribunal to adjudicate the disputes related to the BTG Contract.