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TMI Blog2024 (3) TMI 1352X X X X Extracts X X X X X X X X Extracts X X X X ..... yer for impleadment of a non-signatory in the Section 11 Application, the applicability of the doctrine of 'group of companies' by the Sole Arbitrator is excluded. The Arbitrator does have the power/authority to implead the non-signatory if such non-signatory is otherwise liable to be impleaded on the basis of the 'group of companies' doctrine - there are no merit in the submission of Mr. Rustomjee that in the event the issue of joinder of a non-signatory to an Arbitration Agreement is not raised before the Referral Court, the Arbitral Tribunal on its own accord does not have the power to determine this issue and/or allow the impleadment of a non-signatory to an Arbitration Agreement. The Arbitrator under Section 16 of the Arbitration Act has the power to determine issues of jurisdiction which in my view would include whether the Arbitrator has jurisdiction over non-signatories to an Arbitration Agreement. Any such decision taken by the Arbitrator can always be the subject matter of a challenge by the Petitioners in a Petition filed under Section 34 of the Arbitration Act after the final Award is passed. There are no valid grounds raised under Section 34 of the Arbi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vi) The issues were framed by the Arbitral Tribunal on 25th September, 2023 and it is pertinent to refer to the issue Nos. (ii), (iii) and (v), which are as under:- (ii) Whether the Claimants prove that the present arbitration reference relates to properties transferred in favour of Pegasus Ventures Private Ltd. i.e. properties at HMT land and Bondel land as described in Schedule M, N and O of Soc.? (iii) Whether the Claimants prove that the present arbitration reference relates to properties transferred in favour of Cardinal Energy and Infrastructure Private Ltd. i.e. properties at BTM, Bangalore as described in Schedule L of SOC? (v) Whether the Claimants prove that the present arbitration reference relates to properties which fall outside the scope of the said Memorandum of Understanding i.e., properties at Whitefield, Bangalore and Hyderabad ad described in Schedule A and F in SOC? (vii) The Respondent Nos. 1 and 2 filed an Application under Order 1 Rule 10 of the Code of Civil Procedure, 1908 (CPC) on 27th October, 2023 to implead the Petitioners as party Respondents in the Arbitration Proceedings. (viii) The Respondent No. 3 filed its Reply on 8th November, 2023 opposing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties to the proceedings before the Arbitral Tribunal. By adding the Petitioners as party Respondents, the preliminary objections raised by the Respondent No. 3 has been decided conclusively. The Petitioners are constrained to participate in the arbitration proceedings. Such a decision cannot be considered a mere interlocutory order, and is clearly in the nature of an Award. 7. Mr. Rustomjee has submitted that the Arbitral Tribunal has allowed the application for impleadment by placing heavy reliance on the decision of Cox and Kings Ltd. Vs. SPA India Pvt. Ltd. 2023 SCC OnLine SC 1634. The Arbitral Tribunal has held that the decision supports the view that the Arbitral Tribunal has the power to direct joinder of non-signatories to the Arbitration Agreement. He has submitted that it is not disputed that Section 8 or 11 Court may in an appropriate case, decide to leave it to the Arbitral Tribunal to decide whether a non-signatory to the Arbitration Agreement should be joined as a party to the proceedings. However, this does not mean that the Arbitral Tribunal has the power, of its own accord and de hors any Court proceeding, to direct such joinder. Indeed, Cox and Kings(Supra) does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule on its own jurisdiction is a post factor contingency or eventuality. In cases of impleadment of non-signatory/third party by the Arbitral Tribunal, the original reference by the Court in terms of Sections 8, 9 and 11 of the Arbitration Act gets enlarged by adding more parties which were not party/parties to the reference. If such power were to be read anywhere in the whole scheme of the Arbitration Act, the very concept of reference to arbitration loses its sanctity. 13. Mr. Rustomjee has submitted that in the present case, the order of reference by the Section 11 Court dated 23rd November, 2022 did not cover the Petitioners. In fact, the Petitioners were not even made parties to the Section 11 proceedings. The impugned award has the effect of expanding the scope of the reference made by the Section 11 Court, which is impermissible in law. 14. Mr. Rustomjee has relied upon the decision of National Insurance Company Ltd. Vs. Boghara Polyfab Private Ltd.5 wherein in paragraph 22 the Supreme Court identified and segregated the (2009) 1 SCC 267 preliminary issues that may arise for consideration, in an application under Section 11 of the Arbitration Act into the following three cat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that given the limited ambit of Section 34, if this Court is inclined to set aside the Award, no further directions should be passed or liberty granted permitting the contesting Respondents to adopt any particular course of action. 19. Mr. Rahul Sarda, the learned Counsel appearing for the contesting Respondents viz. Respondent Nos. 1 and 2 has submitted that the question that arises before this Court (in addition to challenge to the maintainability of the present Petition) is regarding the power of the Arbitral Tribunal to implead the non-signatories by applying 'Group of Companies' Doctrine. He has submitted that whether the appointment of the Arbitral Tribunal is through the Referral Court or the same is without intervention of the Referral Court i.e. by consent to the parties, the same makes no reference to the legal position viz.-a-viz. the power/remit of an Arbitral Tribunal. He has submitted that the purpose of approaching the Referral Court is not to get an adjudication on merits but only kick-start the process of arbitration by appointment of an Arbitral Tribunal. The application to the Referral Court is made only in a situation where the procedure for appointin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation before the Sole Arbitrator essentially involved 'ruling on any objections with respect to the existence and validity of the Arbitration Agreement' between the Respondent Nos. 1 and 2 and the Petitioners. Hence, the same is expressly covered in the language of Section 16 of the Act. Even otherwise and without prejudice to the above, the said power is specifically vested in an Arbitral Tribunal as enunciated by the Supreme Court in the case of Cox and Kings (Supra). Furthermore, there is no requirement in the statutory provisions in the Act which mandates that the Referral Court ought to specifically grant power/authority/permission to the Arbitral Tribunal to decide impleadment of non-signatories. He has submitted that even the Supreme Court has not in Cox and Kings Ltd. (Supra0 and prior judgments ever held that the Referral Court must specifically empower an Arbitral Tribunal to consider the question whether non-signatories can be impleaded or not. 24. Mr. Sarda has submitted that the non-impleadment of non-signatories in a Section 11 Application could not have excluded the applicability of the doctrine of 'Group of Companies' by the Sole Arbitrator which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon by the Petitioners, has held that 'merits or any claim involved in the arbitration' ought to be left exclusively to the Arbitral Tribunal. He has submitted that reliance placed by the Petitioner on paragraph 22.1 of this judgment to contend that the Section 11 Court will have to decide the issue of impleadment is misplaced. Since paragraph 22.1 (b) is applicable only when a non-signatory makes an application under Section 11 of the Act and not a signatory. When a signatory makes an application under Section 11 of the Arbitration Act, the issue regarding impleadment is to be decided exclusively by the Arbitral Tribunal in terms of paragraph 22.3(ii) of the judgment. 28. Mr. Sarda has submitted that at the Section 11 stage the power to refer the parties to arbitration is exercised only to weed out the deadwood i.e. absolutely meritless and frivolous litigation. This has been held in paragraph 75(b) of Vidya Drolia Ors. Vs. Durga Trading Corporation Civil Appeal No. 2402 of 2019 dated 14th December, 2020. 29. Mr. Sarda has submitted that even if Respondent Nos. 1 and 2 would have impleaded the Petitioners as party Respondents to the Section 11 Application, the Referral C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s found appropriate on facts. 31. Mr. Sarda has placed reliance upon the decision of the Madras High Court in V.G. Santhosam Ors. Vs. Shanthi Gnanasekaram Ors. 2020 SCC OnLine Mad 560 in a case where appointment of the Arbitral Tribunal was made through the Court under Section 11 of the Arbitration Act and a specific argument regarding the authority of the Arbitral Tribunal to implead third parties were raised. The Court held that the Arbitral Tribunal did not have the power available to a Civil Court under Order 1 Rule 10 of the CPC on the factual matrix of the case. However, the ratio is required to be seen from paragraph 101 of the said judgment, wherein the Madras High Court held that though there is no express provision and/or implied provision, the principles laid down by the Supreme Court in the case of Chloro Control (Supra) ought to be followed for impleadment of non-signatories. 32. Mr. Sarda has relied upon the decision of the Karnataka High Court in Alkesh Vinod Shah Ors. Vs. Nitin K. Shah MANU/KA/1065/2021 decided on 25th February, 2021 which was also a case where the appointment of the Arbitral Tribunal was made through the Court under Section 11 of the Arbitration Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is a power, merely because a wrong section is quoted, cannot abrogate the exercise of the power. Therefore, the argument of the Petitioners is academic in nature. 35. Mr. Sarda has submitted that the present Petition is not maintainable since the impugned Order is not an Award/Interim Award. He has placed reliance upon the decision of the Delhi High Court in Goyal MG Gases Pvt. Ltd. Vs. Panama Infrastructure Developers Pvt. Ltd. and Ors. Neutral Citation Number 2023:DHC:2267-DB decided on 29th March, 2023 where the Delhi High Court held that an order passed on an application for impleadment (akin to an application under Order I Rule 10 of CPC) is not an interim award as it does not decide any substantive question of law nor touches upon the merits of the case. This has also been held by a Single Judge of the Delhi High Court in National Highway Authority of India Vs. Lucknow Sitapur Expressway Ltd. 2022 SCC OnLine Del 4527 it has been held that the Petitioners ought to challenge the rejection of their plea regarding the Sole Arbitrator not having jurisdiction qua them, only after the final arbitral Award is made. Therefore the present Petition cannot be filed against impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xity of such a determination, the Referral Court should leave it for the Arbitrator to decide, whether the non-signatory party is indeed a party to the Arbitration Agreement on the basis of the factual evidence and application of legal doctrine. It is necessary to reproduce paragraphs 171 and 172 of the said decision which read as under:- 171. In case of joinder of non-signatory parties to an arbitration agreement, the following two scenarios will prominently emerge : first, where a signatory party to an arbitration agreement seeks joinder of a non-signatory party to the arbitration agreement; and second, where a non-signatory party itself seeks invocation of an arbitration agreement. In both the scenarios, the referral court will be required to prima facie rule on the existence of the arbitration agreement and whether the non-signatory is a veritable party to the arbitration agreement. In view of the complexity of such a determination, the referral court should leave it for the arbitral tribunal to decide whether the non-signatory party is Indeed a party to the arbitration agreement on the basis of the factual evidence and application of legal doctrine. The tribunal can delve into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oneous and against the well-established principles of contract law and corporate law; k. The group of companies doctrine should be retained in the Indian arbitration jurisprudence considering its utility in determining the Intention of the parties in the context of complex transactions Involving multiple parties and multiple agreements; l. At the referral stage, the referral court should leave it for the arbitral tribunal to decide whether the non-signatory is bound by the arbitration agreement; and m. In the course of this judgment, any authoritative determination given by this Court pertaining to the group of companies doctrine should not be interpreted to exclude the application of other doctrines and principles for binding non-signatories to the arbitration agreement. 41. Thus from the conclusions of the Supreme Court, it is clear that the Supreme Court has held that where at a referral stage impleadment of a non-signatory to the Arbitration Agreement is raised, the Referral Court should leave it for the Arbitral Tribunal to decide whether the non-signatory is bound by the Arbitration Agreement. Thus, it is clear that the Arbitral Tribunal has the power to decide whether the no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court to determine whether the Arbitration Agreement exists and/or validity of the Arbitration Agreement and which would include whether the Arbitration Agreement is applicable to non-signatories to the Agreement. The Supreme Court in National Insurance Company Ltd. (Supra) at paragraph 22 has referred to the issues which the Chief Justice or his designate is bound to decide and which includes whether there is an Arbitration Agreement and whether the party who has applied under Section 11 of the Act is a party to such agreement. However, this will not preclude the Arbitral Tribunal from deciding the issue of impleadment of a non-signatory to an Arbitration Agreement, particularly when this issue was not before the Referral Court. Thus, in my view, the Sole Arbitrator in the present case was perfectly justified in determining the issue of whether the Petitioners as non-signatories to the Arbitration Agreement could be impleaded as parties to the arbitration. 45. The aforementioned findings are on the premise that the impugned Order is an interim award. However, one cannot lose sight of the fact that the Arbitrator under Section 16 of the Arbitration Act has the power to determine i ..... 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