ASF Buildtech Private Limited vs Shapoorji Pallonji and Company Private Limited

Held: Cox and Kings (I) held that the approach adopted by Chloro Controls, so far as infusing or reading the doctrine of ‘Group of Companies’ into the expression “a party to an arbitration agreement or any person claiming through or under him” is concerned, was incorrect – Cox and Kings (I) made a significant shift from the original understanding and legal basis of the doctrine of ‘group of companies’ and other allied principles of determining mutual consent in Chloro Controls – It held that the legal basis for the application of the ‘Group of Companies’ doctrine lies in the very definitions of “party” and “arbitration agreement” under Section(s) 2(1)(h) and Section 7, respectively, and not in the expression “claiming through or under” in Section(s) 8 and 45 of the Act, 1996 – Since both the aforesaid provisions i.e. Section 2(1)(h) read with Section 7 of the Act, 1996 are not confined in their scope to either the courts or the arbitral tribunal, and rather exists ubiquitously on the statute book and is common or indifferent to both the courts and arbitral tribunals, there cannot be any gainsaying that even the arbitral tribunal now after the decision of Cox and Kings (I) could be said to be clothed with the power to take recourse to the various principles for determining mutual consent, and thereby implead a non-signatory to the arbitration, if such person is found to be bound to the arbitration agreement. [Paras 42, 44, 46] Arbitration and Conciliation Act, 1996 – Decision of Krish Spinning and the Judicial Rectification of the second misconception emanating from SBP & Co.:

Held: The understanding which stemmed from SBP Co. was that the referral courts were required to conduct mini trials and indulge in the appreciation of evidence on the aforesaid issues, even though they were inextricably linked with the substantive merits of the subject-matter – However, with the subsequent developments, particularly in light of two key decisions of this Court being In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899, 2023 INSC 1066 and SBI General Insurance Co. Ltd. v. Krish Spinning, 2024 INSC 532, it is no more res-integra, that the extent of scrutiny of the referral courts u/s.11 of the Act, 1996 is extremely narrow, and confined to only one aspect i.e., the prima-facie determination of the “existence” of the arbitration agreement – Krish Spinning has categorically held that only those questions which inextricably attacks or questions the “existence” of the arbitration agreement, should be looked into by the referral courts, that only for the purpose of a prima-facie satisfaction, all other questions, particularly mixed questions of law and fact fall within the exclusive jurisdiction of the arbitral tribunal, and cannot be looked into by the referral court, even for a prima-facie determination. [Paras 64 and 66] Arbitration and Conciliation Act, 1996 – s.11 – Extent of scrutiny by the Referral Courts and jurisdiction of the Arbitral Tribunal: Held: In light of two key decisions of this Court being In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899, 2023 INSC 1066 and SBI General Insurance Co. Ltd. v. Krish Spinning, 2024 INSC 532, it is no more res-integra, that the extent of scrutiny of the referral courts u/s.11 of the Act, 1996 is extremely narrow, and confined to only one aspect i.e., the prima-facie determination of the “existence” of the arbitration agreement – Krish Spinning has categorically held that only those questions which inextricably attacks or questions the “existence” of the arbitration agreement, should be looked into by the referral courts, that only for the purpose of a prima-facie satisfaction, all other questions, particularly mixed questions of law and fact fall within the exclusive jurisdiction of the arbitral tribunal, and cannot be looked into by the referral court, even for a prima-facie determination – Questions which involve examination of contested question of facts and appreciation of evidence, should be left to the arbitral tribunals to decide, as it is equally, if not more capable to decide such questions, as it has the benefit of going through all the relevant evidence and pleadings in much more detail than the referral courts. [Para 66] Arbitration and Conciliation Act, 1996 – Whether the archaic understanding that an arbitral tribunal is incapable or incompetent to identify and implead a non-signatory to the arbitration agreement on its own accord, is the correct position of law:

Held: The archaic understanding that an arbitral tribunal is incapable or incompetent to identify and implead a non-signatory to the arbitration agreement on its own accord, is not the correct position of law, in view of the decisions of this Court in In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899, 2023 INSC 1066 and SBI General Insurance Co. Ltd. v. Krish Spinning, 2024 INSC 532 – The limited nature and scope of inquiry which the referral courts are expected to undertake as regards the “existence” of the arbitration agreement, would as a logical sequitur obligate the arbitral tribunal also to look into this question – Such a question, by no stretch, can be regarded as falling within the exclusive domain or jurisdiction of the referral courts, so as to render any examination of it by the arbitral tribunal a usurpation of the referral courts authority and duty. [Paras 67, 68] Arbitration and Conciliation Act, 1996 – The nature and extent of the test laid down in Cox and Kings (I) for determining NonSignatories who are bound by the arbitration agreements: Held: Cox and Kings (I) after an exhaustive examination of the question of existence or applicability of the ‘Group of Companies’ doctrine in a particular case, is fundamentally a fact-intensive exercise that involves a nuanced determination of the consent of parties from diverse factual elements and circumstances – The said doctrine and by extension any other principle for determining mutual consent, broadly requires ascertaining the intention of the parties by analysing the factual circumstances surrounding the contractual arrangements, particularly factors such as the level of involvement of the non signatory in the negotiation, conclusion (sic execution), performance or termination of the contract, to what extent such conduct may be indicative its position as a veritable party to the arbitration agreement and common intention to be bound by it – Thus, it was held that the primary test for ascertaining the applicability of the ‘Group of Companies’ doctrine lies in the determination of the intention of the parties, which is to be inferred from the surrounding factual matrix, or in other words, the inquiry or test is, by its very nature, predominantly factual – Owing to the intrinsic character of the test—being one that entails a fact intensive inquiry involving a mixed question of fact and law—and further, given the extensive standard it demands, requiring a comprehensive and holistic appraisal of all material facts and attendant circumstances, it may be safely concluded that the arbitral tribunal is the more appropriate and competent forum to adjudicate upon the issue of whether a nonsignatory is bound by the arbitration agreement, as the arbitral as it has the innate advantage of going through all the relevant evidence and pleadings in greater depth and detail than the referral court at the pre-reference stage, and as such is uniquely positioned to undertake such a nuanced determination. [Paras 73,76] Arbitration and Conciliation Act, 1996 – Appropriate forum to adjudicate upon the issue of whether a non-signatory is bound by the arbitration agreement:

Held: The arbitral tribunal is the more appropriate and competent forum to adjudicate upon the issue of whether a non-signatory is bound by the arbitration agreement, as the arbitral as it has the innate advantage of going through all the relevant evidence and pleadings in greater depth and detail than the referral court at the pre-reference stage, and as such is uniquely positioned to undertake such a nuanced determination. [Para 76] Arbitration and Conciliation Act, 1996 – Determining the “existence” viz-à-viz the intention of parties from “express words” of an Arbitration Agreement:

Held: Once the referral court, identifies an arbitration agreement that satisfies the formal requirements of Section 7 of the Act, 1996, either from the record of agreement or the written materials under sub-section (4), the “existence” of the arbitration agreement is said to have been established, even though, its binding nature qua the non-signatory may not be established, as it is entirely possible for a referral court to arrive at finding that prima-facie there exists an arbitration agreement in terms of Section 7 of the Act, 1996 without resolving the question of whether a non-signatory is bound by such arbitration agreement or not, as it depends on additional factors beyond mere existence – Once, the “existence” of the arbitration agreement is said to have been established, the condition stipulated in terms of Section 11 sub-section (6A) of the Act, 1996, is said to have been fulfilled, and the referral courts have no option but to refer the dispute to arbitration, notwithstanding whether the intention of a non-signatory as a veritable partly to such agreement is established or not – The question of whether a non-signatory is bound by the arbitration agreement is entirely separate from the question of its “existence”– The latter is a relatively straightforward, procedural determination based on the formal presence of the agreement, whereas the former involves a substantive and contextual inquiry into the mutual intent of the parties, which may be examined by the arbitral tribunal. [Paras 85, 86]

Arbitration and Conciliation Act, 1996 – Decision of Cox and Kings (II) and Ajay Madhusudan and the scope of Section 11 of the Act, 1996 for joinder of non-signatories to arbitration proceedings:

Held: This hands-off approach of referral courts in relation to the question of whether a non-signatory is a veritable party to the arbitration agreement or not was reiterated in Cox and Kings (II), observed that once an arbitral tribunal stands constituted, it becomes automatically open to all parties to raise any preliminary objections, including preliminary objections touching upon the jurisdiction of such tribunal, and to seek an early determination thereof – Consequently, the issue of impleadment of a non-signatory was deliberately left for the arbitral tribunal to decide, after taking into consideration the evidence adduced before it by the parties and the principles enunciated under Cox and Kings (I) – Similarly, in Ajay Madhusudan it was held that since a detailed examination of numerous disputed questions of fact was required for determining whether the non-signatory is a veritable party to the arbitration agreement, the same cannot be examined in the limited jurisdiction u/s.11 of the Act, 1996 as it would tantamount to a mini trial – An additional and equally compelling consideration is that the power exercised by the referral courts under Section 11 of the Act, 1996 is judicial in nature – Consequently, referral courts must refrain from embarking upon an intricate evidentiary inquiry or making final determinations on matters that are within the jurisdiction of the arbitral tribunal – The better course of action is for referral courts to refrain altogether from delving, into the issue of whether a non-signatory is a veritable party to the arbitration agreement, and to leave such matters for the arbitral tribunal to decide in the first instance.[Paras 99, 100, 102]

Arbitration and Conciliation Act, 1996 – There is no inhibition in the scheme of Act, 1996 which precludes the Arbitral Tribunal from impleading a Non-Signatory on its own accord: Held: Even in the absence of an express provisions in the Act, 1996 empowering the arbitral tribunal to implead or join a party who is otherwise bound by the arbitration agreement, the arbitral tribunal does possess such power by virtue of the doctrine of implied powers, as long as the same is in tandem with the scheme of Act, 1996 i.e., as long as the parties had either expressly or impliedly consented to the arbitration agreement as held in Cox and Kings (I). [Para 127]

Arbitration and Conciliation Act, 1996 – Doctrine of KompetenzKompetenz and the Jurisdictional Reach of an Arbitral Tribunal: Held: Section 16 of the Act, 1996, which enshrines the principle of “kompetenz kompetenz” could be said to be one such provision when seen in light of the object of the Act, 1996, which requires the courts to adopt a pragmatic and ‘always speaking’ approach in its interpretation – Section 16 of the Act, 1996 empowers the arbitral tribunal to rule on its own jurisdiction – The policy rationale underlying this provision is two-fold: first, to respect and uphold the intention of the parties to resolve their disputes through arbitration by empowering the forum they have contractually chosen; and second, to prevent a fragmentation of proceedings through premature judicial intervention, which can frustrate the efficacy of arbitration by causing delays and fostering multiplicity of litigation – The negative aspect of competence-competence is aimed at restricting the interference of the courts at the referral stage by preventing the courts from examining the issues pertaining to the jurisdiction of the arbitral tribunal before the arbitral tribunal itself has had the opportunity to entertain them and to also enable the arbitral tribunal to exercise necessary powers without any dependency upon the national courts, with the courts taking a back-seat and being permitted to review the exercise of power of the arbitral tribunal and its decision at a later stage. [Paras 132, 133, 134] Arbitration and Conciliation Act, 1996 – Requirement of Notice of Invocation u/s.21 of the Act, 1996:

Held: The marginal note appended to Section 21 of the Act, 1996 makes it abundantly clear, that the notice to be issued thereunder is for the purpose of “commencement of arbitration proceedings” – Section 21 is procedural rather than jurisdictional—it does not serve to create or validate the arbitration agreement itself, nor is it a precondition for the existence of the tribunal’s jurisdiction, but merely operates as a statutory mechanism to ascertain the date of initiation for reckoning limitation. [Para 145] Arbitration and Conciliation Bill, 2024 – Ameliorating the position of law as regards the power of impleadment or joinder of an arbitral tribunal – Consideration of:

Held: The new Bill has taken no steps whatsoever, for ameliorating the position of law as regards the power of impleadment or joinder of an arbitral tribunal – What is expressly missing in the Arbitration and Conciliation Act, 1996 is still missing in the Arbitration and Conciliation Bill, 2024, despite a catena of decisions of this Court as-well as the various High Courts, highlighting the need for statutory recognition of such power in order to obviate all possibilities of confusion – As observed in Gayatri Balasamy, any uncertainty in the law of arbitration would be an anathema to business and commerce – This Court urges, the Department of Legal Affairs, Ministry of Law and Justice to take a serious look at the arbitration regime that is prevailing in India and bring about necessary changes while the Arbitration and Conciliation Bill, 2024 is still being considered. [Para 170]