Whether an Arbitrator can implead non-signatory or third party to the arbitration

On 26th July 2023, the Delhi High Court (J. Yashwant Varma) in??Arupri Logistics Pvt Ltd Vs.?Shri Vilas Gupta and Ors.[1] Concurred with the Madras High Court Judgments in Abhibus[2] and V.G. Santhosam[3]to hold that an arbitrator has no authority or jurisdiction to implead parties who were not signatories to the arbitration agreement.

?In this case, the appellants had challenged the jurisdiction of an Arbitral Tribunal (AT) to join and implead non-signatories to an arbitration agreement after a court has referred disputes. Their challenge was based on the absence of a specific provision in the Arbitration and Conciliation Act, 1996 (the Act) that grants the AT the power to implead non-signatories. They also argued that the doctrines of "alter ego" or "group of companies," which allow courts to join third parties, cannot be independently adopted by an AT.

On the other hand, the respondents contend that the provisions of the Act should be interpreted in a way that empowers the AT to effectively and conclusively resolve all disputes. They further argued that the Act supports granting the AT all the powers that courts possess, making the power to implead inherently vest in the AT.

The Court, while negating the AT's power to implead third parties, examined the maintainability of the appeal under S.37 of the Act against the impleadment order of the AT. The Court reviewed the works of literature and rules of various international arbitration rules, including the Swiss, ICC Arbitration, HKIAC, LCIA, and SIAC. The Court also examined the doctrines of "alter ego" or "group of companies," which allow courts to join third parties.

Findings of the Court:

Maintainability of appeal:

·??????Since the Arbitrator has invoked jurisdiction and impleaded the appellants, the source of this jurisdiction must be found within the statutory provisions. While the Act does not explicitly empower the AT to join parties, it is assumed that such power exists. Previous decisions have recognised the power to implead based on Section 17 of the Act.

·??????Section 19 of the Act does not provide a source of power for the AT to implead parties but only pertains to determining procedural rules. The Court rejects the argument that the AT's power to implead can be derived from Section 19.

·??????The power to implead is specific to courts under the CPC, and it is not inherent in Section 151 of the CPC, which deals with inherent powers. The Act does not expressly confer the power to implead on the AT.

·??????Once the AT assumes the authority to join the appellants in the arbitration proceedings under the Act, the provisions of Section 37 become relevant. The respondent cannot argue that the power to implead exists with the AT despite the Act not explicitly granting such authority, while simultaneously claiming that the appeals filed against the AT's decision to join the appellants are not maintainable.

·??????Even if the Court concludes that neither Section 17 nor Section 19 can be interpreted as a source of the power to implead, it will not affect the appellants' right to appeal the AT's decision.

·??????Despite the lack of an explicit provision, the Court presumes that the AT proceeded with impleadment based on Section 17. Therefore, the appeals are considered maintainable, and the objection to their maintainability is negated.

Authority Of AT And Inherent Powers Of Courts

·??????ATs are private forums established through agreements between parties and do not possess inherent powers like national courts. Their authority is derived solely from the parties' agreement and is limited by the applicable law.

·??????The power to implead cannot be inferred from Sections 16 or 17 of the Arbitration and Conciliation Act. Therefore, ATs cannot have the inherent power to implead non-signatory parties, and their authority is restricted to what is explicitly granted by the applicable law.

POWER TO IMPLEAD - WHETHER A CONCOMITANT OF SECTION 17 OF the Act

·??????Section 17 of the Act does not explicitly grant the authority to implead non-signatories. The power to frame interim measures in clause (e) cannot be extended to include impleadment, as it primarily deals with temporary measures, while impleadment involves permanently joining a party to the proceedings.

·??????The Court also rejects the argument that the amendment to Section 17 in 2016, which empowers ATs to grant interim measures at par with courts under Section 9, includes the power to implead. The purpose of the amendment was to reduce interim relief applications in courts, and both Section 17 and Section 9 still focus on interim measures, not impleadment.

·??????The Court aligns with the Madras High Court's view in Abhibus and V.G. Santhosam that Section 17 does not confer the power to implead non-signatory parties.

A “PARTY’’ UNDER THE A&C ACT 1996

·??????The Court notes that the agreement to arbitrate is based on the consent of parties, as stated in Section 2(1)(h) of the Arbitration and Conciliation Act. The Law Commission of India had recommended an expansive amendment to the definition of "party" in its report, recognising that in certain contexts, a "party" could include not just signatories but also persons "claiming through or under" them.

·??????However, despite various amendments to the Act, Section 2(1)(h) remained unchanged, and the meaning of "party" was expanded only in Sections 8 and 45, which pertain to judicial authorities, not arbitration tribunals (ATs). Therefore, for ATs, the definition of "party" in Section 2(1)(h) would apply.

Third Parties To Arbitration Agreements - An International Perspective

·??????The Court discusses various international arbitration rules, including the Swiss, ICC Arbitration, HKIAC, LCIA, and SIAC Rules. These rules have provisions for the joinder of additional parties in arbitration proceedings.

·??????For example, under the Swiss Rules, Article 6(3) stipulates that any request for a joinder or intervention after the constitution of the arbitral tribunal will be decided after due consultation with all parties and considering relevant circumstances.

·??????Similarly, the ICC Arbitration Rules, in Article 6(4), provide that the Court shall decide whether and to what extent the arbitration shall proceed when a request for a joinder is made. The decision considers factors like prima facie satisfaction that an arbitration agreement under the Rules may exist and whether the joinder can be compatible with the claims already made.

·??????The HKIAC Rules, in Article 27, grant the arbitral tribunal or HKIAC the power to allow an additional party to be joined in the arbitration if the party is prima facie bound by the arbitration agreement or if all parties, including the additional party, expressly agree.

·??????The LCIA Rules, in Article 22, also grant the arbitral tribunal the power to allow third persons to be joined in the arbitration, provided they have expressly consented to such a joinder.

·??????The SIAC Rules, in Rule 7, allow a party or non-party to apply for joinder of additional parties before or after the constitution of the tribunal, with certain criteria being satisfied, such as the additional party being prima facie bound by the arbitration agreement or all parties agreeing to the joinder.

These rules demonstrate that the power to join additional parties in international arbitration proceedings is generally governed by specific provisions in the rules or by the agreement of all parties involved.

The judgement also refers to a Privy Council case (Bay Hotel & Resort Ltd and Another vs Cavalier Construction Co Ltd and Another) discussing the joinder of parties in arbitration. The Privy Council emphasised that arbitration is consensual, and a non-signatory party may be bound to an arbitration agreement if dictated by the ordinary principles of contract and agency.

Furthermore, the judgment cites Gary B. Born's work on International Commercial Arbitration, which emphasises that while arbitration is based on consent, there are circumstances in which the arbitration agreement may bind non-signatory entities.

Overall, the discussion highlights that while arbitration agreements typically involve only signatories to the contract, there are circumstances where non-signatory parties may be joined in the arbitration proceedings based on specific conditions and consent.

GROUP OF COMPANIES AND ALTER EGO DOCTRINES - THE INDIAN PANORAMA

·??????The Court acknowledges that the group of companies and alter ego doctrines have been discussed in previous Supreme Court decisions such as Chloro Controls and Cheran Properties. However, the Court points out that a recent case, Cox & Kings Ltd. v. SAP India (P) Ltd., raised questions about the applicability of these doctrines and is awaiting a decision from a larger bench of the Supreme Court.

·??????Nevertheless, the Court concludes that the previous cases mainly dealt with situations where courts were asked to apply these doctrines to bind non-signatory parties to arbitration agreements. The fundamental question remains whether an arbitration tribunal (AT) can invoke these doctrines. The Court firmly believes that an AT cannot exercise such a power

critical points in the judgment

·??????An Arbitral Tribunal (AT) is established primarily through an agreement between parties to resolve their disputes through arbitration outside the national courts.

·??????The powers of the AT are derived from the arbitration agreement, institutional rules (if any), and statutory laws governing arbitration in the respective country.

·??????An AT cannot arrogate powers reserved for courts and judicial institutions. It must follow the provisions of the applicable statutes.

·??????The AT cannot invoke the alter ego or group of companies' principles to join or implead parties who have not agreed to its jurisdiction. Doing so would go against the fundamental principle of arbitration, which requires consensus and agreement between the parties.

·??????The AT cannot exercise powers akin to Order I Rule 10 of the Civil Procedure Code (CPC), which allows national courts to add or substitute parties to a lawsuit.

·??????The Court affirms that the principles enunciated in a previous decision (Sudhir Gopi[4]) are binding and endorses those principles.

?#Arbitration #ArbitrationTribunal #NonSignatoryParties #Jurisdiction #DelhiHighCourt #MadrasHighCourt #Abhibus #VGSanthosam #ArbitrationAgreement #ApplicableLaw #AlterEgoDoctrine #GroupOfCompaniesDoctrine #Arbitratorspowerstoimplead #InterimMeasures #ArbitrationRules #InternationalArbitration #GaryBBorn #Consent #ArbitralTribunal #CoxAndKingsVsSAPIndia #CivilProcedureCode #MaintainabilityOfAppeal #ArbitrationLaw #impleadmentofthirdparties #ArbitrationProcedures

***

[1] https://164.100.69.66/jsearch/

[2] Abhibus Services India Pvt. Limited and Ors. Vs.: Pallavan Transport Consultancies Services Ltd. and Ors. (04.02.2022 - MADHC) : MANU/TN/0665/2022

[3] V.G. Santhosam and Ors. Vs. Shanthi Gnanasekaran and Ors. (24.02.2020 - MADHC) : MANU/TN/1637/2020

[4] Sudhir Gopi vs. Indira Gandhi National Open University and Anr. 2017 SCC Online Del 8345, where one of the questions which arose was whether the group of companies doctrine could be resorted to by an AT to implead a party. The Court answered that question in the negative