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TMI Blog2019 (8) TMI 576X X X X Extracts X X X X X X X X Extracts X X X X ..... ce fixed deposit amount of Rs. 150 crores along with interest was not paid by CANFINA to MTNL. As a consequence, MTNL did not service the interest on bonds. MTNL was of the view that since it did not receive the entire bond amount of Rs. 200 crores, the entire deal did not go through. Against payment of Rs. 50 crores received from CANFINA, MTNL serviced the bonds of approximately Rs. 31 crores to the public. MTNL was of the view that only a sum of Rs. 5.41 crores was payable to CANFINA, which was not accepted by CANFINA. 2.2. As per Canara Bank, soon after the bonds were subscribed, there was an out-break of a security scam which led to a collapse of the secondary market in shares, security and bonds. There were very few buyers in the secondary market. Even such buyers were offering very low prices for these bonds. In these circumstances, CANFINA was faced with a severe liquidity crunch. 2.3. In these circumstances, Respondent No. 1 - Canara Bank purchased the Bonds issued by MTNL, of the face value of Rs. 80 crores, from Respondent No. 2 - CANFINA which is its wholly owned subsidiary. 2.4. Canara Bank requested for registration of these Bonds with MTNL, and lodged letters of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank made a representation to the Cabinet Secretary. On 27.03.2001, a meeting was convened by the Cabinet Secretariat, Litigation Cell which was presided by the Cabinet Secretary, and attended by the representatives of MTNL, Canara Bank, and CANFINA. The Committee directed Canara Bank, CANFINA and MTNL to settle the disputes through arbitration by making an appropriate reference to the Permanent Machinery of Arbitration, functioning in the Department of Public Enterprises. The Committee did not permit Canara Bank, CANFINA and MTNL to pursue the litigation in Court. 2.16. The Delhi High Court vide Order dated 30.05.2008 referred the disputes between the parties to the Committee on Disputes. The Writ Petition was adjourned sine die. Canara Bank was granted liberty to revive the Petition in the event that the Committee on Disputes was unable to resolve the disputes between the parties. 2.17. The Committee of Disputes held a meeting on 16.12.2008, which was attended by the representatives of MTNL, Canara Bank and CANFINA. The Committee, after hearing the parties, expressed the view that all the three parties should take recourse to arbitration in view of the different inter-link ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice to all the three parties i.e. MTNL, Canara Bank, and CANFINA. 2.25. Canara Bank raised an objection to joining CANFINA as a party to the arbitration. The Arbitrator heard the parties on 27.03.2012, on the issue whether CANFINA should be joined as a party to the proceedings. The learned Arbitrator passed an interim award holding that CANFINA had not appeared on 16.09.2011 before the High Court, when the disputes were referred to arbitration. CANFINA was not a party to the arbitration agreement, and cannot be joined as a party to proceedings. 2.26. MTNL filed C.M. No. 8100 of 2012 before the Delhi High Court seeking clarification of Order dated 16.09.2011, as to whether CANFINA ought to be impleaded as a necessary party to the arbitration agreement. The Delhi Court vide order dated 05.07.2013 dismissed the application as "not pressed" on the statement made by the Counsel of MTNL. 2.27. Canara Bank filed its Statement of Claim before the learned Sole Arbitrator on 06.12.2013. 2.28. MTNL filed I.A. Nos. 324 - 325 of 2014 before the Delhi High Court for recall of the Orders dated 16.09.2011, 21.10.2011 and 05.07.2013 passed in W.P. (C) No. 560 of 1995. 2.29. The Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant - MTNL by Respondent No. 2 - CANFINA. The Appellant - MTNL had consented to the disputes being referred to arbitration on the understanding that the arbitration would be amongst the three parties. 6. The Counsel for Respondent No. 1 Canara Bank inter alia submitted that : 6.1. The present appeal is not maintainable as the Appellant - MTNL filed the present Appeal after filing its reply to the Statement of Claim and Counter-Claim before the learned Sole Arbitrator, and has therefore submitted itself to the jurisdiction of the learned Sole Arbitrator. 6.2. The only remedy available to Appellant - MTNL was to file an application under Section 16 of the Arbitration and Conciliation Act, 1996. 6.3. Respondent No. 2 - CANFINA was merely joined as a proforma party in the Writ Petition before the Delhi High Court, and therefore cannot be made a party before the arbitral proceedings. 6.4. At the time of giving consent to arbitration and appointment of the learned Sole Arbitrator, Respondent No. 2 - CANFINA was not before the Court on 16.09.2011 and 21.10.2011. 6.5. The Appellant - MTNL has not filed any claim against Respondent No. 2 - CANFINA, and therefore, ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract. 9.2. The arbitration agreement need not be in any particular form. What is required to be ascertained is the intention of the parties to settle their disputes through arbitration. The essential elements or attributes of an arbitration agreement is the agreement to refer their disputes or differences to arbitration, which is expressly or impliedly spelt out from a clause in an agreement, separate agreement, or documents/correspondence exchanged between the parties. 9.3. Section 7(4)(b) of the 1996 Act, states that an arbitration agreement can be derived from exchange of letters, telex, telegram or other means of communication, including through electronic means. The 2015 Amendment Act inserted the words "including communication through electronic means" in Section 7(4)(b). If it can prima facie be shown that parties are ad idem, even though the other party may not have signed a formal contract, it cannot absolve him from the liability under the agreement Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia (P) Ltd.,(2015) 13 SCC 477. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will first deal with this issue. The agreement between MTNL and Canara Bank to refer the disputes to arbitration is evidenced from the following documents exchanged between the parties, and the proceedings : (i) The Minutes of the Meeting dated 27.03.2001 convened by the Cabinet Secretariat, wherein all three parties were present and participated in the proceedings. The Committee on Disputes, in the Meeting dated 16.12.2008 expressed the view that all the three parties should take recourse to arbitration in view of the different inter-liked transactions between them. Canara Bank suggested that to expedite the arbitration, it should be conducted under the Arbitration & Conciliation Act, 1996. This was accepted by MTNL, and no objection was raised. (ii) Pursuant to the proceedings conducted by the Cabinet Secretariat, Canara Bank addressed letters dated 05.03.2009 and 17.03.2010 to MTNL, wherein it enclosed a draft Arbitration Agreements, wherein all three parties i.e. Canara Bank, CANFINA and MTNL would be joined in the arbitration proceedings. (iii) In the Writ Petition filed by Canara Bank, the Delhi High Court vide Order dated 16.09.2011 recorded the consent of MTNL and Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Union of India (2001) 3 SCC 208 The Appellant - MTNL after giving its consent to refer the disputes to arbitration before the Delhi High Court, is now estopped from contending that there was no written agreement to refer the parties to arbitration. 9.10. An additional ground, for rejecting the preliminary objection raised by MTNL is based on Section 7(4)(c) of the Arbitration and Conciliation Act, 1996. Section 7(4)(c) provides that there can be an arbitration agreement in the form of exchange of statement of claims and defense, in which the existence of the agreement is asserted by one party, and not denied by the other. Savitri Goenka v. Kanti Bhai Damini & Ors., 2009 (1) Arb LR 320 (Del) (DB). In the present case, Canara Bank had filed its Statement of Claim before the Arbitrator, and MTNL filed its Reply to the Statement of Claim, and also made a Counter Claim against Canara Bank. The statement of Claim and Defence filed before the Arbitrator would constitute evidence of the existence of an arbitration agreement, which was not denied by the other party, under Section 7(4)(c) of the 1996 Act. In view of the aforesaid discussion, the objection raised by MTNL is devoid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the group; and the non-signatory affiliate, or sister, or parent concern, is held to be bound by the arbitration agreement, if the facts and circumstances of the case demonstrate that it was the mutual intention of all parties to bind both the signatories and the non-signatory affiliates in the group. The doctrine provides that a non-signatory may be bound by an arbitration agreement where the parent or holding company, or a member of the group of companies is a signatory to the arbitration agreement and the non-signatory entity on the group has been engaged in the negotiation or performance of the commercial contract, or made statements indicating its intention to be bound by the contract, the non-signatory will also be bound and benefitted by the relevant contracts.Interim Award in ICC Case No. 4131, IX YB Comm Arb 131 (1984); Award in ICC Case No. 5103, 115 JDI (Clunet) 1206 (1988). See also Gary B. Born: International Commercial Arbitration, Vol. I, 2009, pp. 1170-1171. The circumstances in which the 'Group of Companies' Doctrine could be invoked to bind the non-signatory affiliate of a parent company, or inclusion of a third party to an arbitration, if there is a direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lore. As the Board comprised mostly of senior executives of Canara Bank and its Chief Executive is also a senior official of that bank (on deputation) the company functioned under the umbrella of the parent bank; besides it submits periodical returns on its functioning to the Board of Canara Bank for information. 6.15 The activities authorized to be conducted by the Company are equipment leasing, merchant-banking, venture capital and consultancy services. The Company, initially deployed a major portion of its owned funds and deposits in equipment leasing business and obtained the classification of an 'Equipment leasing company' from the Department of Finance Companies of RBI; this classification entitles the company to mobilize public deposits to the extent of ten time its owned funds. 6.25 The Committee hope that the nature and extent of the financial assistance being provided by Canara Bank to its subsidiaries are such as could be justified on prudent commercial norms. Further the parent bank cannot be absolved of the responsibility for various irregularities of its subsidiary. " (emphasis supplied) 10.8. The disputes between the parties emanated out of the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Sole Arbitrator to all the three parties including CANFINA, which was represented by its Counsel. 10.12. We find that the objection to CANFINA being impleaded as a party to the arbitration proceedings was raised by Canara Bank, and not CANFINA. 10.13. We do not find any merit in the objection raised by Canara Bank opposing the joining of CANFINA as a party to the dispute. Canara Bank vide letters dated 05.03.2009 and 17.03.2010 had enclosed a Draft Arbitration Agreement to MTNL, wherein it has clearly stated that the arbitration would be between three parties i.e. Canara Bank and CANFINA as party of the first part, and MTNL as party of the second part. It is incomprehensible why Canara Bank is now objecting to the impleadment of CANFINA in the arbitration proceedings. There is no justifiable ground advanced by the Counsel for Canara Bank to oppose the impleadment of CANFINA in the arbitration proceedings. 10.14. 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 procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. In my considered opinion also, the agreement in question is essentially a tri-partite agreement between the parties, namely, MTNL, Canara Bank and CANFINA. Indeed, this is clear from the documents exchanged between the parties, pleadings and orders of the Court. 7. It is also clear when one examines the nature of the dispute. It is so inextricably linked between the three parties that it can be effectively decided only when all the three parties are made parties to the arbitral proceedings. 8. Once we examine the issue on facts in the light of requirements of Section 7(4)(b) and (c) of the Act, we have no hesitation in coming to a conclusion that the agreement in question is, in fact, a tri-partite agreement between the three parties mentioned above. In my view, it satisfies the requirements of Section 7(4)(b) and (c) of the Act. 9. This issue is extensively dealt with by my learned Sister in the light of law laid down by this Court in several decisions and I agree with her reasoning. 10. Somewhat similar question also arose in international arbitrations as to when there are more than two parties in a dispute then how such dispute should be dealt with in the arbitral pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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