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2019 (7) TMI 65 - SC - Indian LawsAppointment of a sole arbitrator - whether respondent No.2 a company established under the laws of Belgium, having its principal place of business at Nijverheldsstraat 3, 2530 Boechout, Belgium, could be impleaded in the proposed arbitration proceedings despite the fact that it is a non-signatory party to the agreement dated 1st May, 2014, executed between the applicant and respondent No.1 a company established under the Companies Act, 2013 merely because it (respondent No.2) is one of the group companies of which respondent No.1 also is a constituent? HELD THAT - In the backdrop of the averments in the application and the correspondence exchanged between the parties adverted to by the applicant, it is obvious that the thrust of the claim of the applicant is that Mr. Frederik Reynders was acting for and on behalf of respondent No.2, as a result of which the respondent No.2 has assented to the arbitration agreement. This basis has been completely demolished by respondent No.2 by stating, on affidavit, that Mr. Frederik Reynders was in no way associated with respondent No.2 and was only an employee of respondent No.1, who acted in that capacity during the negotiations preceding the execution of agreement. Thus, respondent No.2 was neither the signatory to the arbitration agreement nor did have any causal connection with the process of negotiations preceding the agreement or the execution thereof, whatsoever. If the main plank of the applicant, that Mr. Frederik Reynders was acting for and on behalf of respondent No.2 and had the authority of respondent No.2, collapses, then it must necessarily follow that respondent No.2 was not a party to the stated agreement nor had it given assent to the arbitration agreement and, in absence thereof, even if respondent No.2 happens to be a constituent of the group of companies of which respondent No.1 is also a constituent, that will be of no avail. The burden is on the applicant to establish that respondent No.2 had an intention to consent to the arbitration agreement and be party thereto, maybe for the limited purpose of enforcing the indemnity clause 9 in the agreement, which refers to respondent No.1 and the supplier group against any claim of loss, damages and expenses, howsoever incurred or suffered by the applicant and arising out of or in connection with matters specified therein. That burden has not been discharged by the applicant at all. Suffice it to observe that the application must fail against respondent No.2 and on that conclusion, no relief can be granted to the applicant who has invoked the jurisdiction of this Court on the assumption that it is a case of international commercial arbitration. Despite that, respondent No.1 through counsel has urged that as the subject agreement between the applicant and respondent No.1 contains an arbitration clause (clause 13) and since disputes have arisen between them, the respondent No.1 would agree to the appointment of a sole arbitrator by this Court for conducting arbitration proceedings between the applicant and respondent No.1, as domestic commercial arbitration. The arbitration application is dismissed as against respondent No.2 - However, we appoint Mr. Justice Badar Durrez Ahmed (Former Chief Justice, Jammu Kashmir High Court) as the sole arbitrator to conduct domestic commercial arbitration at New Delhi, between the applicant and respondent No.1 on the terms and conditions as specified in the Act of 1996.
Issues Involved:
1. Whether respondent No.2, a non-signatory to the arbitration agreement, can be impleaded in the arbitration proceedings. 2. Examination of the correspondence and mutual intention to bind both signatory and non-signatory parties. 3. The role and authority of Mr. Frederik Reynders in the negotiation process. 4. The implications of the group of companies doctrine on the arbitration agreement. 5. The distinction between domestic and international commercial arbitration in this context. Detailed Analysis: 1. Whether respondent No.2, a non-signatory to the arbitration agreement, can be impleaded in the arbitration proceedings: The core issue is whether respondent No.2, a Belgian company, can be subjected to arbitration despite not being a signatory to the agreement dated 1st May 2014. The court referenced the legal position established in Chloro Controls India Private Limited Vs. Severn Trent Water Purification Inc. and Ors., and Cheran Properties Limited Vs. Kasturi and Sons Limited and Ors., which allows non-signatories to be bound by arbitration agreements under certain conditions. The court emphasized that the doctrine of “group of companies” could bind non-signatory affiliates if the intention to bind them is evident. 2. Examination of the correspondence and mutual intention to bind both signatory and non-signatory parties: The court scrutinized the correspondence between the parties to determine if there was a mutual intention to bind respondent No.2 to the arbitration agreement. The applicant claimed that respondent No.2 was involved in the negotiations and aware of the indemnity clause, thus implying assent to the arbitration agreement. However, respondent No.2 refuted these claims, stating it had no involvement in the negotiation, execution, or performance of the agreement and that there was no privity of contract with the applicant. 3. The role and authority of Mr. Frederik Reynders in the negotiation process: The applicant asserted that Mr. Frederik Reynders acted on behalf of respondent No.2 during the negotiations. However, respondent No.2 clarified that Mr. Frederik Reynders was an employee of respondent No.1 and had no authority to represent or bind respondent No.2. This assertion was crucial as the applicant's claim heavily relied on Mr. Frederik Reynders' alleged role. 4. The implications of the group of companies doctrine on the arbitration agreement: The court noted that while respondent No.1 and respondent No.2 are part of the Reynders Label Printing Group, they are separate legal entities. The burden was on the applicant to prove that respondent No.2 intended to be bound by the arbitration agreement. The court found that the applicant failed to establish this intention, as respondent No.2 was not involved in the negotiations or execution of the agreement. 5. The distinction between domestic and international commercial arbitration in this context: Since respondent No.2 was not a party to the arbitration agreement, the arbitration could not be considered international commercial arbitration. The court concluded that the dispute between the applicant and respondent No.1 should be resolved through domestic commercial arbitration. Respondent No.1 agreed to the appointment of a sole arbitrator for this purpose. Conclusion: The court dismissed the application against respondent No.2, stating that it cannot be subjected to the proposed arbitration proceedings. However, the court appointed Mr. Justice Badar Durrez Ahmed as the sole arbitrator to conduct domestic commercial arbitration between the applicant and respondent No.1 in New Delhi. The application was disposed of in these terms, with no costs awarded. Order: The arbitration application is dismissed as against respondent No.2. Mr. Justice Badar Durrez Ahmed is appointed as the sole arbitrator for conducting domestic commercial arbitration between the applicant and respondent No.1. All pending interim applications are also disposed of.
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