Arbitral tribunal can make non-signatories parties to arbitration: Supreme Court

Non-signatories to an arbitration agreement can be impleaded by arbitral tribunal as party to arbitration if their conduct and role in the underlying transaction demonstrate a clear intention to be bound by the arbitration clause, the Supreme Court ruled on Friday..A Bench of Justices JB Pardiwala and R Mahadevan held that after the 2023 judgment of the top court in Cox and Kings (I), arbitral tribunals are empowered to determine whether a non-signatory is bound by the arbitration agreement and they can proceed to implead such a party based on conduct, relationships or intent, especially when the issue was not conclusively decided at the referral stage. "Such party can be impleaded and arrayed in the arbitration proceedings if any claim or counterclaim is made against such party by the claimant in statement of claims or counter-claims, or by even amending the memo of parties of the putative statement of claims counter-claims filed by it, provided that such party is found to be bound by the arbitration agreement either by virtue of it being a signatory, or where such party is a non-signatory, in terms of the decision of Cox and Kings (I)," the Court said.Therefore, it dismissed an appeal by ASF Buildtech Pvt Ltd (ABPL), which had challenged its impleadment as a party in an arbitration initiated by Shapoorji Pallonji and Company Pvt Ltd (SPCPL). The Court upheld the Delhi High Court’s order that affirmed the arbitral tribunal’s decision to join ABPL as party to the proceedings despite it not being a signatory to the arbitration agreement.“There is no inhibition in the scheme of the Act, 1996 which precludes the arbitral tribunal from impleading a non-signatory on its own accord,” the Court held..The arbitration originated from disputes arising out of a settlement agreement dated July 24, 2020, executed between SPCPL and Black Canyon SEZ Pvt Ltd (BCSPL), a company within the ASF Group. SPCPL filed counterclaims not only against BCSPL but also against ASF Insignia SEZ Pvt Ltd (AISPL) and ABPL, invoking the “group of companies doctrine” to justify their impleadment.The arbitral tribunal rejected the objections raised byby ABPL and AISP under Section 16 of the Arbitration and Conciliation Act, 1996 They had argued that as non-signatories, they could not be made parties to the arbitration. The High Court dismissed ABPL’s appeal under Section 37, prompting the present appeal before the Supreme Court..In its judgment, the Court dismantled a misconception in Indian arbitration— that arbitral tribunals do not have the power to implead non-signatories and that such power lies exclusively with referral courts under Section 8 or Section 11 of the Arbitration and Conciliation Act.“A misconception plagued the position of law that an arbitral tribunal does not have the authority or power to implead a non-signatory… and that only courts are empowered to do so,” the Court noted..It clarified that after the judgment in Cox and Kings (I), arbitral tribunals are empowered to implead non-signatories as parties to arbitration.The Court reaffirmed Section 16 of the Arbitration Act as encompassing all jurisdictional questions, including whether a person is bound by the arbitration agreement.“Section 16 of the Act, 1996 which empowers the arbitral tribunal to determine its own jurisdiction, is an inclusive provision that covers all jurisdiction question including the determination of who is a party to the arbitration agreement, and thus, such a question would be one which falls within the domain of the arbitral tribunal” the Court held.It emphasised that this power is not contingent on express statutory mention and is a necessary implication of the scheme and object of the Act..The judgment clarified that the legal foundation for applying the 'Group of Companies' doctrine stems from Section 2(1)(h) read with Section 7 of the Arbitration and Conciliation Act, 1996. These provisions, unlike those specifically empowering courts, extend equally to both courts and arbitral tribunals.“We are of the considered opinion, that recognition of the power of joinder or impleadment of a non-signatory by an arbitral tribunal is a necessary intendment of the express provisions of Section(s) 2(1)(h) and 7 and the overall scheme and object of the Act, 1996 as well as the fundamental cannons of the law of arbitration of providing an effective alternative dispute resolution mechanism," the judgment stated..On procedural concerns, the Court ruled that non-issuance of a Section 21 notice to a non-signatory does not nullify an arbitral tribunal's jurisdiction over such party.The judgment explained that while Section 21 serves important procedural functions related to limitation periods and commencement dates, it does not constrain the tribunal's substantive jurisdiction to implead parties bound by the arbitration agreement.“The scope and object of Section 21 of the Act, 1996 in contrast to Section 23 as explained by us in the foregoing paragraphs, mere non-service of a notice of invocation on a party would not nullify the arbitral tribunal’s jurisdiction over such party..,” the Court made it clear..It also clarified that an arbitral tribunal's jurisdiction is derived not from the act of appointment but from the arbitration agreement itself. The arbitration agreement operates as the foundational source of jurisdiction, with the tribunal's constitution merely activating jurisdiction that already exists."The arbitral tribunal is not a creature of mere procedural will but of substantive legal consequence flowing from the arbitration agreement. To hold otherwise would be to invert the fundamental cannons of law of arbitration which treats the arbitration agreement as the cornerstone of arbitral competence,” the Court said..Applying these principles, the Court dismissed the appeal by ASF Buildtech Private Limited, finding that despite being a non-signatory, the appellant was correctly impleaded by the arbitral tribunal based on evidence of mutual intent and substantial involvement in the negotiations performance and termination of the various contracts..ASF Buildtech was represented by Senior Advocate Devadatt Kamat with Advocates Dr Amit George, Anindita Mitra, Harsh Pandey and Hruday Bajentri..Shapoorji Pallonji was represented by Advocates Aakanksha Kaul, Saurav Agrawal, Salvador Santosh Rebello, Aman Sahani, Anshuman Chowdhary, Rhea Borkotoky, Akash Saxena, Kritika, Ashima Chopra, Prachi Dubey and Pooja Gill..Blackstone Canyon SEZ was represented by Senior Advocate Jayant Mehta with Advocates SS Shroff, Shruti Sabharwal, Avlokita Rajvi, Lakshya Khanna, Vikramaditya Sanghi and Sanskriti Sinha..ASF SEZ was represented by Advocates Sanyat Lodha and Sanjana Saddy..[Read Judgment]