2024 (2) TMI 1431 - HC - Indian Laws

Seeking appointment of an Arbitrator in terms of Clause 27 of the Master Loan Agreement - Impleadment of respondent Nos. 3 to 5 in the arbitration proceedings - signatory to the arbitration agreement - HELD THAT - Admittedly, in the present case, the respondent Nos.1 and 2 are the parties to the Loan Agreement and there cannot be any doubt with regard to the Loan Agreement being valid and binding between the petitioner and the respondent Nos. 1 and 2. The respondent Nos. 3 to 5 are a veritable party to the Loan Agreement as they are connected with the loan documents and form part of the loan transaction as in one way or the other, they have assured the petitioner regarding the execution of the loan documents and provided a security to the petitioner towards the loan transaction. Further, the fact that whether the respondent Nos. 3 to 5 can be bound by the Loan Agreement and can be impleaded as parties to the arbitral proceedings is left open for the to Arbitral Tribunal decide. Also, the Arbitral Tribunal will also decide whether M/s SMC Global Securities Limited is a proper and necessary party to the arbitral proceedings. Justice Ali Mohammad Magray (Retd.) (Chief Justice of J K) is appointed as a Sole Arbitrator to adjudicate the disputes between the parties - The arbitration will be held under the aegis of the Delhi International Arbitration Centre, Delhi High Court, Sher Shah Road, New Delhi hereinafter, referred to as the DIAC ). The remuneration of the learned Arbitrator shall be in terms of the Fourth Schedule of the Arbitration Conciliation Act, 1996. Petition allowed.

Summary

Issues:
1. Appointment of an Arbitrator in terms of Clause 27 of the Master Loan Agreement.
2. Impleadment of respondent Nos. 3 to 5 in the arbitration proceedings.
3. Interpretation of the arbitration clause in the Loan Agreement.
4. Application of the group of companies doctrine in arbitration jurisprudence.
5. Determination of existence of a valid arbitration agreement.
6. Jurisdiction of the court in referral stage under Sections 8 and 11 of the Arbitration Act.

Analysis:

1. The petition sought the appointment of an Arbitrator as per Clause 27 of the Loan Agreement due to the respondents' failure to pay outstanding dues, invoking arbitration through a loan recall notice.

2. The petitioner argued for impleading respondent Nos. 3 to 5 in the arbitration, citing their connection to the Loan Agreement and reliance on the Cox & Kings Ltd. v. SAP India (P) Ltd. judgment.

3. Respondent's counsel contended that only signatories to the arbitration agreement can participate, and impleading non-signatories would necessitate involving other related entities.

4. The judgment discussed the group of companies doctrine, emphasizing the inclusion of both signatory and non-signatory parties under the Arbitration Act, with the court leaving the determination of non-signatory party's binding to the arbitral tribunal.

5. The court clarified that at the referral stage, the court's role is limited to determining the prima facie existence of an arbitration agreement, leaving detailed examination to the arbitral tribunal, as seen in Pravin Electricals Pvt Ltd. v. Galaxy Infra and Engineering Pvt Ltd.

6. The judgment highlighted the importance of allowing the arbitral tribunal to decide on the involvement of non-signatory parties, based on factual evidence and legal doctrine, without undue interference from the referral court, in line with the doctrine of competence-competence.

7. Ultimately, the court referred the parties to arbitration for resolving their disputes arising from the Loan Agreement, appointing a Sole Arbitrator and specifying the procedural details for the arbitration proceedings, while keeping all rights and contentions open for adjudication by the arbitrator.