Impleadment of Non-Signatories in Arbitration: Power of the Arbitrator vis-à-vis Non-Signatories to an Arbitration Agreement

Introduction:

Two relevant questions often arise: whether the signature to an arbitration agreement is mandatory to make it binding between the parties, and the power of the arbitrator vis-à-vis the impleadment of a non-signatory to an arbitration agreement.

Often, this question is raised regarding whether the mandatory signature of each party is required to make an arbitration agreement workable or binding between the parties. The second issue relates to the impleadment of non-signatories, that is, a party who has not signed the agreement in question but is sought to be brought within the four corners of the arbitration proceedings. This situation frequently arises where the parent company of a multinational corporation operating in India is sought to be impleaded in arbitration proceedings.

Although the aforesaid issues involve a mixed question of law and fact and must therefore be dealt with in a prudent manner, it is important to refer to the detailed judgment pronounced by our Apex Court in the well-known matter of Cox & Kings Ltd. v. SAP India Pvt. Ltd. The origin of the matter before the Apex Court began around the year 2022. Thereafter, the dispute was referred to a larger bench to consider certain pertinent questions. The same were dealt with and answered by the Hon’ble Bench with certain conclusions, which provide important guidance in resolving the issue.

Key Conclusions of the Supreme Court

1. An agreement to refer disputes to arbitration must be in written form, as against an oral agreement, but it need not necessarily be signed by the parties.

Under Section 7(4)(b), a court or arbitral tribunal will determine whether a non-signatory is a party to an arbitration agreement by interpreting the express language employed by the parties in the record of the agreement, coupled with the surrounding circumstances relating to the formation, performance, and discharge of the contract. While interpreting and construing the contract, courts or tribunals may adopt well-established principles which aid proper adjudication and determination. The Group of Companies doctrine is one such principle.

1. The Group of Companies doctrine is also premised on ascertaining the intention of the non-signatory to be a party to an arbitration agreement.

Such intention may be gathered from additional factors such as:

• Direct relationship with the signatory parties
• Commonality of subject matter
• Composite nature of the transaction
• Performance of the contract
• Since the purpose of the inquiry by a court or arbitral tribunal under Section 7(4)(b) and the Group of Companies doctrine is the same, the doctrine can be subsumed within Section 7(4)(b) to enable a court or arbitral tribunal to determine the true intention and consent of the non-signatory parties to refer the matter to arbitration. Thus, the doctrine is subsumed within the statutory regime of Section 7(4)(b) for the purpose of certainty and systematic development of the law.

1. The expression “claiming through or under” in Sections 8 and 45 is intended to provide a derivative right, and it does not enable a non-signatory to become a party to the arbitration agreement. The decision in Chloro Controls tracing the Group of Companies doctrine through the phrase “claiming through or under” in Sections 8 and 45 was held to be erroneous. The expression “party” in Section 2(1)(h) and Section 7 is distinct from “persons claiming through or under them.”

Practical Observation

In practice, it is often observed that arbitration clauses are inserted in agreements in a routine copy-and-paste manner without proper application of mind. In many cases, the parties practically intended in the transaction may differ from the actual signatories to the agreement. Therefore, a cautious and well-considered approach is necessary, particularly considering the possible invocation of the Group of Companies doctrine.

To sum up, please keep in mind:

1. In commercial practice, arbitration clauses are typically incorporated into written contracts and signed by the parties. However, disputes often arise when one of the parties denies being bound by the arbitration clause due to the absence of a signature. Our courts have consistently held that the essence of an arbitration agreement lies in the intention of the parties to resolve disputes through arbitration, rather than merely the formality of signatures. For instance, courts have recognized arbitration agreements arising from:

–        Exchange of emails,
–        Purchase orders and invoices,
–        Correspondence acknowledging contractual terms.

Thus, the existence of an arbitration agreement must be determined based on the totality of the circumstances and documentary evidence, rather than the mechanical requirement of signatures.

1. Lastly, a more complex issue arises when a party who has not signed the arbitration agreement is sought to be impleaded in arbitration proceedings. In modern corporate transactions, business arrangements often involve multiple entities belonging to the same corporate group. In such cases, disputes may arise regarding whether a non-signatory affiliate, subsidiary, or parent company can be made a party to arbitration. This issue has been addressed by our Apex Court through the Group of Companies Doctrine. (refer Cox & Kings Ltd. v. SAP India Pvt. Ltd.) . As cross-border transactions and complex corporate structures become increasingly common, the role of arbitral tribunals in determining the participation of non-signatories will continue to remain a significant aspect of arbitration practice in India.

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