2019 (8) TMI 576 - SC - Indian Laws

Arbitration agreement - group company - binding of the agreement on the subsidiary company - draft tripartite agreement forwarded by Canara Bank wherein MTNL and CANFINA were both made parties - availability of remedy to file an application under Section 16 of the Arbitration and Conciliation Act, 1996 - HELD THAT - A non-signatory can be bound by an arbitration agreement on the basis of the Group of Companies doctrine, where the conduct of the parties evidences a clear intention of the parties to bind both the signatory as well as the non-signatory parties. The present case is one of implied or tacit consent by Respondent No. 2 CANFINA to being impleaded in the arbitral proceedings, which is evident from the conduct of the parties. We find that Respondent No. 2 CANFINA has throughout participated in the proceedings before the Committee on Disputes, before the Delhi High Court, before the Sole Arbitrator, and was represented by its separate Counsel before this Court in the present appeal. There was a clear intention of the parties to bind both Canara Bank, and its subsidiary CANFINA to the proceedings. In this case, there can be no final resolution of the disputes, unless all three parties are joined in the arbitration. Appeal allowed in part.

Summary

Issues Involved:
1. Existence of a valid arbitration agreement between the parties.
2. Joinder of CANFINA in the arbitral proceedings.

Detailed Analysis:

1. Existence of a Valid Arbitration Agreement:

A valid arbitration agreement is fundamental to the arbitration process. It is defined under Section 7 of the Arbitration and Conciliation Act, 1996, which states that an arbitration agreement must be in writing and can be derived from various forms of communication, including letters, telegrams, or electronic means. The intention of the parties to arbitrate their disputes is crucial.

9.1 and 9.2: The arbitration agreement need not be in a specific form but must clearly indicate the parties' intention to resolve disputes through arbitration. This can be inferred from agreements, separate documents, or correspondence exchanged between the parties.

9.3: Section 7(4)(b) allows an arbitration agreement to be derived from an exchange of letters or other means of communication.

9.4 and 9.5: The intention of the parties must be inferred from the terms of the contract, conduct of the parties, and correspondence exchanged. A commercial document should be interpreted to give effect to the agreement rather than invalidate it.

9.6 and 9.7: The Supreme Court has emphasized a common sense approach to interpreting arbitration agreements, focusing on the intention of the parties rather than a purely legalistic interpretation.

9.8: In this case, the agreement between MTNL and Canara Bank to refer disputes to arbitration is evidenced by several documents and proceedings, including the Minutes of the Meeting convened by the Cabinet Secretariat and letters exchanged between the parties.

9.9: The agreement recorded in a judicial order is final and conclusive. MTNL, having consented to arbitration before the Delhi High Court, is now estopped from contending there was no written agreement.

9.10: Section 7(4)(c) of the Arbitration and Conciliation Act, 1996, provides that an arbitration agreement can be inferred from an exchange of statements of claims and defense. MTNL's participation in the arbitration proceedings and filing of claims and counter-claims constitutes evidence of an arbitration agreement.

Conclusion on Issue 1: The objection raised by MTNL regarding the absence of a written arbitration agreement is devoid of merit and is rejected.

2. Joinder of CANFINA in the Arbitral Proceedings:

10.1 and 10.2: Canara Bank objected to the joinder of CANFINA in the arbitration proceedings. However, each company in a group is a separate legal entity, and an agreement entered into by one company is not binding on others unless acting as an agent or representative.

10.3 and 10.4: The "Group of Companies" doctrine allows a non-signatory to be bound by an arbitration agreement if the conduct of the parties evidences a clear intention to bind both signatory and non-signatory parties. This doctrine originated in French arbitration practice and has been applied in various international and domestic arbitration cases.

10.5: The doctrine has been invoked in cases with a tight group structure, strong organizational and financial links, or where the funds of one company support other group members.

10.6: The Supreme Court has applied the "Group of Companies" doctrine in several cases, including Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc. and Ameet Lal Chand Shah v. Rishabh Enterprises.

10.7 and 10.8: CANFINA, a wholly-owned subsidiary of Canara Bank, was involved in the original transaction with MTNL. The disputes arose from the cancellation of bonds by MTNL, which were initially subscribed by CANFINA and later transferred to Canara Bank.

10.9: Resolving disputes only between MTNL and Canara Bank, without CANFINA, would be futile. The disputes are inter-linked, and CANFINA is a necessary and proper party to the arbitration proceedings.

10.10 to 10.12: CANFINA participated in proceedings before the High Court and the Committee on Disputes. The objection to CANFINA's joinder was raised by Canara Bank, not CANFINA itself.

10.13 and 10.14: Canara Bank's objection to CANFINA's joinder is incomprehensible, given its previous communications suggesting a tripartite arbitration agreement. CANFINA's participation in various proceedings indicates implied consent to arbitration.

Conclusion on Issue 2: The "Group of Companies" doctrine is invoked to join CANFINA in the arbitration proceedings. The matter is remitted to the Sole Arbitrator to continue and conclude the arbitral proceedings expeditiously.

Separate Judgment:

Abhay Manohar Sapre, J.:

1 to 5: Justice Sapre agrees with the reasoning and conclusion of Justice Malhotra, emphasizing the nature of the controversy and the necessity of a tri-partite arbitration agreement.

6 to 9: The agreement is a tri-partite agreement between MTNL, Canara Bank, and CANFINA, satisfying the requirements of Section 7(4)(b) and (c) of the Arbitration and Conciliation Act, 1996.

10 to 13: Multiparty disputes should be resolved in one arbitral proceeding to avoid inconsistent findings and parallel proceedings. The doctrine of "Group of Companies" applies to this case, binding all three parties to the arbitration.

14: The doctrine of "Group of Companies" has its application in arbitral proceedings and can be applied in appropriate cases.

15: Justice Sapre agrees with the reasoning and conclusion of Justice Malhotra, emphasizing the necessity of including all three parties in the arbitration proceedings for a final resolution of the disputes.