Further, the Hon’ble Court in Chloro Controls interpreted that the phrase “claiming through or under” in Sections 8 and 45 of the Act refers to non-signatory parties that are subsidiary companies to the signatory parties. While the referral courts were empowered to implead non-signatories, arbitral tribunals were not authorised to do the same. A similar position was also taken by the Hon’ble Delhi High Court in Arupri Logistics Pvt. Ltd. v. Vilas Gupta and Ors.,^[6] wherein the Court observed that arbitral tribunals are not conferred with the power to implead, by any statute or rules, akin to Order I Rule 10 of the Code of Civil Procedure, 1908 or the Arbitration and Conciliation Act, 1996. The power to implead was acknowledged to inhere in courts and judicial authorities only^[7] and an arbitral tribunal seeking to implead a party and compelling it to join the arbitration proceedings would be travelling far beyond the contours of the arbitration agreement.^[8]

Clarification of Stance Provided in Cox and Kings II

The Hon’ble Supreme Court in Cox and Kings II overruled Chloro Controls to the extent that first, the Court in the latter had erred in holding that impleadment of non-signatories as subsidiaries would fall under “any party or persons claiming through or under” appearing in section 8 and section 45 of the Act. The Hon’ble Court in Cox and Kings II clarified that the ‘group of companies’ doctrine is based on determining ‘mutual intention’ to join the non-signatory as a ‘veritable’ party to the arbitration agreement. Further, that the legal basis for application of the ‘group of companies’ doctrine is the definition of “party” under Section 2(1)(h) read with Section 7 of the Act.^[9]

Second, the Hon’ble Court also held that at the referral stage, the courts can only determine the prima facie existence of an arbitration agreement and then assess whether the non-signatory is a ‘veritable’ party to the arbitration agreement or not. In contrast to the past discourse, the final decision on impleadment of the non-signatory was left to the arbitral tribunal.^[10] Therefore, in addition to modifying the position in Chloro Controls, Cox and Kings II changed the position with respect to the arbitral tribunal’s power of impleadment.

Post-Cox and Kings II : Further Clarifications

Post Cox and Kings II, various courts have furthered the discourse on application of the ‘group of companies’ doctrine to implead non-signatory parties, especially with respect to powers of referral courts and impleadment of non-signatories by arbitral tribunals and the referral court’s interference in the process as provided under Cox and Kings II.

The Supreme Court in Ajay Madhusudan Patel v. Jyotrindra S. Patel,^[11] (“Ajay Madhusudan”) while considering an application under Section 11(6) of the Act for impleadment of a non-signatory party, placed reliance on a series of judgements and noted that upon the 2015 Amendment to the Act, section 11(6A) was introduced, limiting the power of referral courts under section 11(6) of the Act to only examine the existence of an arbitration agreement.^[12] The Court in consonance with Cox and Kings II concluded that given the prima facie nature of section 11(6) of the Act, specifically on the question of impleadment of a non-signatory, the referral court is only required to prima facie rule on the existence of the arbitration agreement and whether the non-signatory party is a ‘veritable’ party to the arbitration agreement. Additionally, the Hon’ble Court clarified that if the determination of whether the non-signatory is a ‘veritable’ party to the arbitration agreement is factually complex, the referral court should not conduct a mini trial by looking into the evidence and it would be appropriate for the arbitral tribunal to take a call on this question as well.^[13] A similar stance was taken by the Delhi High Court in Esri R&D Center India Private Limited v. Ambience Towers Private Limited, which limited the referral court’s prima facie right to the availability of enough material on record to arrive at a prima facie finding,^[14] and concluded that given the mixed facts in the matter, even a prima facie finding by the referral court would not be appropriate and an in-depth, evidence-led determination was required to be undertaken by the arbitral tribunal for impleadment of a third-party to the arbitration proceedings.^[15]

Further, the Hon’ble Bombay High Court (“Bombay HC”) in Cardinal Energy & Infra Structure (P) Ltd. v. Subramanya Construction & Development Co.^[16] noted that even if the issue of impleadment does not arise before the Referral Court or is not addressed by the same, the Arbitral Tribunal still has the power to determine issues of jurisdiction under Section 16 of the Act, that includes whether the Arbitrator has jurisdiction over non-signatories to the Arbitration Agreement.^[17] Therefore, an arbitral tribunal’s power to implead a non-signatory party is not ancillary to a referral court’s determination of whether the non-signatory is a ‘veritable’ party and should be referred to the tribunal to be impleaded. The Bombay HC, in fact, has interpreted Cox and Kings II to state that, “when a question of impleadment of a non- signatory to the arbitration agreement is raised, the Referral Court should leave it for the Arbitral Tribunal”^[18] (Emphasis added)

Conclusion and Analysis :

To conclude, Cox and Kings II has empowered arbitral tribunals to determine impleadment of non-signatory parties to arbitration proceedings, with the precursor being the referral court’s prima facie determination of the non-signatory’s ‘veritable’ party status. A question may be raised against the very necessity of the referral court’s determination, given that the arbitral tribunal ought to make the same determination upon analysis of the factual matrix. A prima facie determination of a non-signatory’s ‘veritable’ party status may not necessarily aid the tribunal’s competency, and post Ajay Madhusudan, the referral court has to also decide whether the facts of the matter are complex and necessitate the arbitration tribunal’s assessment before prima facie determining the ‘veritable’ party status of the non-signatory.

Therefore, although Cox and Kings II has significantly clarified the position on an arbitral tribunal’s power to implead non-signatories to the arbitration proceedings, the referral court’s prima facie analysis is made dependent on the subjective analysis of the complexity of facts in a given case.

Footnote

[1] (2024) 4 SCC 1.

[2] Id., Para 164.

[3] Sukanya Holdings v. Jayesh H Pandya, (2003) 5 SCC 531; Indowind Energy Ltd v. Wescare (India) Ltd, (2010) 5 SCC 306.

[4] (2013) 1 SCC 641.

[5] Id., Para 40.

[6] 2023 SCC OnLine Del 4297, Para 93.

[7] Id., Para 93-95.

[8] Id.

[9] (2024) 4 SCC 1, Para 153.

[10] Id., Para 164.

[11] 2024 SCC OnLine SC 2597.

[12] Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899 (2024) 6 SCC 1; Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1; Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engineering Ltd. (2019) 9 SCC 209; SBI General Insurance Co. Ltd. v. Krish Spinning 2024 SCC OnLine SC 1754.

[13] 2024 SCC OnLine SC 2597, Para 79.

[14] ESRI R&D Center India Private Limited v. Ambience Towers Private Limited and Ors., 2024 SCC OnLine Del 4614, Para 55.

[15] Id., Para 64 and 65.

[16] 2024 SCC OnLine Bom 964.

[17] Id., Para 42.

[18] Vardhaman Builders v. Narendra Balasaheb Ghatge and Ors., Comm. Arbitration Application No.165 of 2023, Para 39.

This article was originally published in Legal Era on 28 December 2024 Co-written by: Smarika Singh, Partner; Saifur Rahman Faridi, Partners; Jasneet Jolly, Associate; Astha Rath, Associate. Click here for original article

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