Non-signatory can't be made party to arbitration merely because it is ultimate beneficiary: Delhi High Court

The Delhi High Court recently held that a non-signatory to a contract cannot be made a party to an arbitration proceeding merely because it is the ultimate beneficiary of the project or the principal entity [M/s Ramacivil India Construction Pvt Ltd v Central Public Works Department & Anr]. .Justice Harish Vaidynathan Shankar said that if the mere status of a principal entity or project beneficiary were to suffice for impleadment, virtually every arbitration arising out of a layered or delegated public work would witness the compulsory addition of such entities at multiple tiers.This would unsettle the carefully structured regime of party autonomy underlying the Arbitration and Conciliation Act, the Court said. “This Court is unable to accept that the status of an “ultimate beneficiary” can constitute the governing test for impleadment in arbitral proceedings. Arbitration, being consensual in nature, cannot be expanded to include entities solely because they derive indirect advantage or bear institutional interest in the project,” the Bench held..Justice Shankar made the observations while setting aside orders that allowed the Indian Institute of Management at Jammu (IIM Jammu) to be impleaded in an arbitration dispute between private contractor Ramacivil India Construction and the Central Public Works Department (CPWD).The Court allowed three chamber appeals filed by Ramacivil India Construction challenging the Joint Registrar’s decision to add IIM Jammu as a party to proceedings under Sections 9 and 11 of the Arbitration and Conciliation Act, 1996.The dispute arose from a contract for the construction and maintenance of the academic block at IIM Jammu’s proposed campus. While IIM Jammu had entered into a Memorandum of Understanding (MoU) with CPWD in 2019 for execution of the project, the tender and subsequent agreement were executed exclusively between CPWD and the contractor.The Joint Registrar had held that IIM Jammu was a necessary party, citing its role as the project’s ultimate beneficiary and funding authority as well as its involvement in review meetings and quality inspections.However, the contractor argued that there was no privity of contract between it and IIM Jammu and that the arbitration clause was contained solely in its agreement with CPWD..After considering the case, the High Court agreed with the contractor’s arguments. It warned that accepting the Registrar’s reasoning would have “far-reaching consequences”, potentially converting layered public works projects into sprawling multi-party arbitrations. .Senior Advocate Anurag Ahluwalia with advocates Avinash Trivedi, Ritika Trivedi, Anurag Kaushik, Rhythem Nagpal, Jatin Arora, Rahul Aggarwal, Rishank Gola and Aryan Sangwan appeared for Ramacivil India Construction.Central Government Standing Counsel Vikram Jetly with advocates Laavanya Kaushik, Shreya Jetly and Khyaati Bansal appeared for the CPWD. IIM Jammu was represented by Senior Advocate Sandeep Sharma as well as advocates Praveen Kumar Jain, Rashmi Kumari, Yash Chauhan, Anchal Yadav and Aditya Rathi. .[Read Judgment].Follow Bar and Bench channel on WhatsAppDownload the Bar and Bench Mobile app for instant access to the latest legal news.