2022 (4) TMI 1350 - SC - Indian Laws

Grant of Interim Award - seeking deletion from Arbitral proceedings - second respondent was a party to the arbitration agreement and must be deleted from the array of parties or not - HELD THAT - Counsel for JDIL objected to these documents on the ground of relevance and admissibility but stated that he would cross-examine the witness without prejudice to those contentions. The first Arbitral Tribunal observed that the rival contentions would be decided while disposing of the application under Section 16. ONGC also filed an application for discovery and inspection before the first Arbitral Tribunal and the annexure to the application contained a schedule indicating the disclosures which were sought. The order of the first Arbitral Tribunal notes the submission of ONGC that the applications for discovery and inspection must be decided first and it is only on the completion of the process that JDIL s challenge to jurisdiction under Section 16 could be addressed. The first Arbitral Tribunal deferred a decision on the two applications until the issue of jurisdiction was decided. The net result is that the applications for discovery and inspection which were crucial to ONGC s claim that there existed functional, financial and economic unity between DEPL and JDIL remained to be decided before the application under Section 16 was taken up. There is merit in the submission which was been urged on behalf of the ONGC that the application for discovery and inspection had to be decided before the plea of jurisdiction was adjudicated upon. The failure of the first Arbitral Tribunal to hear the application for discovery and inspection goes to the root of its interim award dated 27 October 2010 holding an absence of jurisdiction qua JDIL. The interim award of the Arbitral Tribunal in the first proceeding, dated 27 July 2010 refers to the documents which were produced by ONGC and to the submission that neither DEPL nor JDIL had led any evidence to controvert the documentary and oral evidence adduced by ONGC. The first Arbitral Tribunal upheld the plea of jurisdiction that JDIL is neither a party to the contract nor had it submitted a bid to ONGC which resulted in the formation of the contract. The Tribunal held that the agreement was only between ONGC and DEPL and that in terms of Section 7, an agreement to arbitrate is between the parties to the agreement. While observing that the arbitration agreement was only between DEPL and ONGC, the Tribunal held that neither was there an arbitration agreement between ONGC and JDIL nor was JDIL a signatory to the agreement between ONGC and DEPL. After noting the documents which were relied upon by ONGC, the Tribunal held that there was no tickle of evidence to indicate that JDIL , a distinct incorporated legal entity, ever played any role to find itself in the contract between JDIL and ONGC. The interim award of the first Arbitral Tribunal stands vitiated because of (i) The failure of the arbitral tribunal to decide upon the application for discovery and inspection filed by ONGC; (ii) The failure of the arbitral tribunal to determine the legal foundation for the application of the group of companies doctrine; and (iii) The decision of the arbitral tribunal that it would decide upon the applications filed by ONGC only after the plea of jurisdiction was disposed of. There was a fundamental failure of the first Arbitral Tribunal to address the plea raised by ONGC for attracting the group of companies doctrine. Moreover, by leaving the application filed by ONGC for discovery and inspection unresolved, the first Arbitral Tribunal failed to allow evidence which may have had a bearing on the issue of whether JDIL could be considered to have an economic unity with DEPL and could hence be made a party to the arbitral proceedings - interim award of the Arbitral Tribunal on the plea raised by JDIL under Section 16 has to be set aside - Appeal allowed.

Summary

Issues Involved:
1. Group of Companies Doctrine
2. Standard for Review of the Interim Arbitral Award

Issue-wise Detailed Analysis:

Group of Companies Doctrine:
The appeal arose from a judgment dated 27 June 2012 by the High Court of Judicature at Bombay, dismissing an appeal under Section 37 of the Arbitration and Conciliation Act, 1996. The case involved Oil & Natural Gas Corporation Limited (ONGC) and Jindal Drilling and Industries Limited (JDIL). ONGC had invoked arbitration against DEPL and JDIL, claiming that both companies belonged to the DP Jindal Group and constituted a single economic entity. They argued that JDIL, though not a signatory, should be compelled to arbitrate based on the group of companies doctrine. The Arbitral Tribunal, however, held that JDIL was not a party to the arbitration agreement and thus could not be compelled to arbitrate. The High Court upheld this decision, noting a lack of evidence showing that JDIL and DEPL had common shareholders or directors, or that JDIL played any role in the contract between DEPL and ONGC.

The Supreme Court analyzed the group of companies doctrine, which allows non-signatory affiliates to be bound by an arbitration agreement if the circumstances demonstrate a mutual intention to bind both signatories and non-signatories. The Court referenced several cases, including Chloro Controls, Cheran Properties, and MTNL, which elaborated on the conditions under which this doctrine could be applied. These conditions include a direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject matter, and whether the agreement is part of a composite transaction.

The Court noted that the Arbitral Tribunal had failed to consider ONGC's application for discovery and inspection of documents, which was crucial for establishing the group of companies doctrine. By not allowing this application, the Tribunal had foreclosed itself from inquiring into whether there was sufficient material to establish the application of the doctrine. This failure was deemed a significant error, as it prevented ONGC from presenting vital evidence that could have supported its claim.

Standard for Review of the Interim Arbitral Award:
The interim award was primarily based on the fact that JDIL was not a party to the contract dated 22 March 2006. The Tribunal held that there must be a written agreement between the parties to submit to arbitration, as per Section 7 of the Act. ONGC's submissions, which included claims of commonality of interest between DEPL and JDIL and the involvement of JDIL executives in the bidding process, were rejected by the Tribunal due to a lack of evidence.

The Supreme Court highlighted that the Tribunal had deferred ONGC's application for discovery and inspection until the issue of jurisdiction was decided. This decision was criticized as it effectively shut out material evidence that ONGC sought to bring on record. The Court emphasized that the failure to consider the application for discovery and inspection went to the root of the process, disabling ONGC from pursuing its fundamental claim based on the group of companies doctrine.

The Court also discussed the standard for reviewing arbitral awards, referencing Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India, which clarified that an award could be set aside if it was based on no evidence or ignored vital evidence. The Court concluded that the interim award of the Arbitral Tribunal was vitiated due to the failure to decide upon the application for discovery and inspection, the failure to determine the legal foundation for the application of the group of companies doctrine, and the decision to defer the application for discovery and inspection until the plea of jurisdiction was disposed of.

Conclusion:
The Supreme Court set aside the interim award of the Arbitral Tribunal dated 27 July 2010 and the judgment of the Single Judge of the Bombay High Court dated 27 June 2012. It directed the reconstitution of the Arbitral Tribunal to decide afresh upon the plea of JDIL regarding the absence of jurisdiction, allowing the parties to lead further evidence or seek the production of further documentary material. The Court also remitted the transferred cases back to the Bombay High Court for disposal in light of the new arbitral proceedings.