TMI Blog2019 (8) TMI 576X X X X Extracts X X X X X X X X Extracts X X X X ..... nk, and its subsidiary CANFINA to the proceedings. In this case, there can be no final resolution of the disputes, unless all three parties are joined in the arbitration. Appeal allowed in part. - CIVIL APPEAL NOS. 6202-6205 OF 2019 (Arising out of SLP (Civil) No. 13573-13576 of 2014) - - - Dated:- 8-8-2019 - ABHAY MANOHAR SAPRE And INDU MALHOTRA, JJ. JUDGMENT Indu Malhotra, J. Leave granted. 1. The present Special Leave Petitions have been filed to challenge Order dated 16.09.2011 passed in W.P. (C) No. 560 of 1995, Order dated 21.10.2011 passed in C.M. No. 12230 of 2011, Order dated 05.07.2013 passed in C.M. No. 8100 of 2012, and Order dated 10.01.2014 passed in C.M. No. 324 and 325 of 2014 by the Delhi High Court. 2. The background facts of the case are as follows : 2.1. In 1992, MTNL floated 17% Non-Cumulative Secured Redeemable Bonds described as the VI Series (Private Placement) worth ₹ 425 crores. On 10.02.1992, MTNL placed bonds worth ₹ 200 crores with Can Bank Financial Services Ltd. (hereinafter referred to as CANFINA ) under an MOU agreement. The bond amount of ₹ 200 cores was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of bonds towards the dues of CANFINA. It was stated that the bonds and interest accrued thereon cannot be refunded. MTNL with its letter dated 13.01.1994, attached a cheque for ₹ 5,41,17,463 as the amount payable to Canara Bank. 2.10. Canara Bank, however, returned the cheque vide letter dated 10.02.1994, demanding the restoration and registration of the bonds. 2.11. Canara Bank filed W.P. (Civil) No. 560 of 1995 before the Delhi High Court to challenge the cancellation of the Bonds, and a direction to pay the Interest accrued. It is relevant to note that CANFINA was joined as a proforma party in the Writ Petition filed by Canara Bank. 2.12. The Delhi High Court vide Order dated 09.09.1996 directed the Union of India to decide the issues between the parties in light of this Court s judgment in O.N.G.C. v. Commissioner of Central Excise (1995) Supp. 4 SCC 541. The Writ Petition was dismissed on the ground of availability of an alternative and efficacious remedy before the Company Law Board under Section 111 of the Companies Act, 1956. 2.13. The proceedings before the Company Law Board came to be dismissed vide Order dated 26.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection of the Ministry of Law and Justice. 2.20. The Delhi High Court vide Order dated 01.10.2010 disposed of the pending Writ Petition with the observation that the matter should be resolved by the Committee on Disputes expeditiously so that the arbitration agreement between the parties is signed as soon as possible. 2.21. The decision in O.N.G.C. v. Commissioner of Central Excise (supra) came to be overruled by a Constitution Bench in Electronics Corporation of India Ltd. v. Union of India Ors. (2011) 3 SCC 404. Accordingly, Canara Bank moved the Delhi High Court u/S. 151, CPC for restoration of the disposed of Writ Petition. 2.22. The Delhi High Court restored the Writ Petition, and vide Order dated 16.09.2011 noted that the two principal issues which arise for consideration are: (i) Whether Canara Bank is liable for the acts or omissions of CANFINA; and (ii) Whether Canara Bank should take over the liabilities and admit them in the arbitration agreement itself. During the course of the proceedings, the parties before the Delhi High Court agreed that these issues may be referred to arbitration. The parties were reques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espectively, the Appellant MTNL filed the present Special Leave Petition. This Court vide Order dated 08.05.2014 issued Notice to all the Respondents, including CANFINA which has been joined as Respondent No. 2. 4.Ms. Madhavi Divan, learned ASG appeared on behalf of MTNL, Mr. Ameesh Dabass, learned Counsel appeared for Respondent No. 1 Canara Bank, and Ms. Saumya Sinha, along with Mr. A.K. Sharma, learned Counsels appeared for Respondent No. 2 CANFINA. 5. The Counsel for the Appellant MTNL inter alia submitted as under: 5.1. In the absence of a written agreement for arbitration between the parties, as stipulated by Section 2(b) r.w. 2(h) and 7(3) of the Arbitration and Conciliation Act, 1996, the arbitration cannot proceed. 5.2. The disputes which were referred to arbitration pertaining to transactions between the Appellant MTNL on the one hand, and Respondent No. 1 and 2 Canara Bank and CANFINA on the other hand. 5.3. The arbitration proceeding cannot proceed in the absence of Respondent No. 2 CANFINA as the Bonds in question were subscribed by Respondent No, 2 CANFINA, and were subsequently transferred to its paren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been raised by Respondent No. 1 Canara Bank that the Order dated 16.09.2011 and 21.10.2011 is between Canara Bank and MTNL. Respondent No. 2 CANFINA, is not a party to the arbitration agreement, and hence cannot be impleaded in the proceedings. These issues will be dealt with seriatim. 9. THE EXISTENCE OF A VALID ARBITRATION AGREEMENT A valid arbitration agreement constitutes the heart of an arbitration. An arbitration agreement is the written agreement between the parties, to submit their existing, or future disputes or differences, to arbitration. A valid arbitration agreement is the foundation stone on which the entire edifice of the arbitral process is structured. A binding agreement for disputes to be resolved through arbitration is a sine-qua-non for referring the parties to arbitration. 9.1. Section 7 defines arbitration agreement and reads as follows : 7. Arbitration agreement. (1) In this Part, arbitration agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m, and had actually reached an agreement upon all material terms, then it would be construed to be a binding contract. The meaning of a contract must be gathered by adopting a common sense approach, and must not be allowed to be thwarted by a pedantic and legalistic interpretation Union of India v. DN Revry and Co., (1976) 4 SCC 147. 9.5. A commercial document has to be interpreted in such a manner so as to give effect to the agreement, rather than to invalidate it. An arbitration agreement is a commercial document inter partes, and must be interpreted so as to give effect to the intention of the parties, rather than to invalidate it on technicalities. 9.6. In Khardah Company Ltd. v. Raymon and Co. (India) Pvt. Ltd. [1963] 3 SCR 183, this Court while ascertaining the terms of an arbitration agreement between the parties, held that: If on a reading of the document as a whole, it can fairly be deduced from the words actually used herein, that the parties had agreed on a particular term, there is nothing in law which prevents them from setting up that term. The terms of a contract can be expressed or implied from what has been expressed. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ific clauses of the arbitration agreement. Nor have the parties been able to arrive at a consensus with regard to the specific clauses of the arbitration agreement. As noted in the order dated 01.10.2010, according to the petitioner, it is a matter of arbitration as to whether the petitioner is liable for the acts or omissions of CANFINA. However, the respondents were insisting that the petitioners should agree to take over the liabilities and admit them in the arbitration agreement itself. It has now been agreed by the parties that both these issues could be made the subject matter of the arbitration, namely, whether the petitioner is liable for the acts or omissions of CANFINA and whether the petitioner is liable to take over the liabilities of CANFINA. There is no necessity now of requiring the petitioner to agree to take over the liabilities of CANFINA prior to the arbitration proceedings because that itself would not be one of the points to be decided in the course of arbitration. Even though the learned counsel for the petitioner has placed before us the subsequent decisions of the Supreme Court with regard to the scope and ambit of powers of the Committee on Disputes, we are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the principles of contract law, an agreement entered into by one of the companies in a group, cannot be binding on the other members of the same group, as each company is a separate legal entity which has separate legal rights and liabilities. The parent, or the subsidiary company, entering into an agreement, unless acting in accord with the principles of agency or representation, will be the only entity in a group, to be bound by that agreement. Similarly, an arbitration agreement is also governed by the same principles, and normally, the company entering into the agreement, would alone be bound by it. 10.3. A non-signatory can be bound by an arbitration agreement on the basis of the Group of Companies doctrine, where the conduct of the parties evidences a clear intention of the parties to bind both the signatory as well as the non-signatory parties. Courts and tribunals have invoked this doctrine to join a non-signatory member of the group, if they are satisfied that the non-signatory company was by reference to the common intention of the parties, a necessary party to the contract. 10.4. The doctrine of Group of Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion between the parties. A composite transaction refers to a transaction which is inter-linked in nature; or, where the performance of the agreement may not be feasible without the aid, execution, and performance of the supplementary or the ancillary agreement, for achieving the common object, and collectively having a bearing on the dispute. 10.5. The Group of Companies Doctrine has also been invoked in cases where there is a tight group structure with strong organizational and financial links, so as to constitute a single economic unit, or a single economic reality. In such a situation, signatory and non-signatories have been bound together under the arbitration agreement. This will apply in particular when the funds of one company are used to financially support or re-structure other members of the group. ICC Case No. 4131 of 1982, ICC Case No. 5103 of 1988. 10.6. The Group of Companies doctrine has been invoked and applied by this Court in Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641 The Madras High Court has invoked the Group of Companies Doctrine in a foreign seated arbitration in SEI Adhavan Power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by MTNL. CANFINA subsequently transferred the Bonds to its holding Company Canara Bank. It is the contention of MTNL, that since CANFINA did not pay the entire sale consideration for the Bonds, MTNL eventually was constrained to cancel the allotment of the Bonds. 10.9. It will be a futile effort to decide the disputes only between MTNL and Canara Bank, in the absence of CANFINA, since undisputedly, the original transaction emanated from a transaction between MTNL and CANFINA the original purchaser of the Bonds. The disputes arose on the cancellation of the Bonds by MTNL on the ground that the entire consideration was not paid. There is a clear and direct nexus between the issuance of the Bonds, its subsequent transfer by CANFINA to Canara Bank, and the cancellation by MTNL, which has led to disputes between the three parties. Therefore, CANFINA is undoubtedly a necessary and proper party to the arbitration proceedings. 10.10. Given the tri-patite nature of the transaction, there can be a final resolution of the disputes, only if all three parties are joined in the arbitration proceedings, to finally resolve the disputes which have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the proceedings before the Committee on Disputes, before the Delhi High Court, before the Sole Arbitrator, and was represented by its separate Counsel before this Court in the present appeal. There was a clear intention of the parties to bind both Canara Bank, and its subsidiary CANFINA to the proceedings. In this case, there can be no final resolution of the disputes, unless all three parties are joined in the arbitration. 11. In view of the aforesaid discussion, the present appeals are partly allowed. We invoke the Group of Companies doctrine, to join Respondent No. 2 CANFINA i.e. the wholly owned subsidiary of Respondent No. 1 Canara Bank, in the arbitration proceedings pending before the Sole Arbitrator. The matter is remitted to the Sole Arbitrator to continue with the arbitral proceedings, and conclude the same as expeditiously as possible. We have, however, expressed no opinion on the merits of the dispute. Pending applications, if any, are disposed of accordingly. JUDGMENT Abhay Manohar Sapre, J. 1. I have had the advantage of going through an elaborate, well considered and scholarly drafted judgment propos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l arbitrations as to when there are more than two parties in a dispute then how such dispute should be dealt with in the arbitral proceedingswhether it should be dealt with in one arbitral proceedings between one set of parties or it should be dealt with in separate or parallel arbitration proceedings. 11. This question was succinctly dealt with by the learned Authors-Alan Redfern and Martin Hunter in their book on International Arbitration . (see - Redfern and Hunter on International Arbitration - sixth edition-under the heading J Multiparty Arbitrations (a) to (e) 2.212 to 2.247 pages 141 to 153). 12. The learned authors examined the aforementioned question in the context of ICC and AAA Rules, decisions rendered by English Court of appeal and the reports of ICC Commission on multi-party arbitration. They opined that subject to the terms of the agreement and any rules framed in that behalf, it is desirable that such disputes should be resolved as far as possible in one arbitral proceedings to avoid any inconsistent findings and parallel arbitral proceedings. 13. Since the main object of the arbitral proceedings is to decide the disputes expeditio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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