Tax Management India. Com
                        Law and Practice: A Digital eBook ...

Category of Documents

TMI - Tax Management India. Com
Case Laws Acts Notifications Circulars Classification Forms Manuals SMS News Articles
Highlights
D. Forum
What's New

Share:      

        Home        
 

TMI Blog

Home List
← Previous Next →

2019 (8) TMI 576

..... availability of remedy to file an application under Section 16 of the Arbitration and Conciliation Act, 1996 - HELD THAT:- 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. The present case is one of implied or tacit consent by Respondent No. 2 - CANFINA to being impleaded in the arbitral proceedings, which is evident from the conduct of the parties. We find that Respondent No. 2 - CANFINA has throughout participated 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. Appeal allowed in part. - CIVIL APPEAL NOS. 6202-6205 OF 2019 (Arising out of SLP (Civil) No. 13573-13576 of 2014) - 8-8-2019 - ABHAY M .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... anara Bank that it had registered a part of the face value of ₹ 40 crores, in favour of CANFINA. The bond instruments were however retained on the ground that CANFINA had failed to pay the deposit money of ₹ 150 crores, which was payable to MTNL with an accrued interest of 12% p.a. 2.7. MTNL vide letter dated 20.10.1993, cancelled all the Bonds inter alia on the ground that letters of consideration remained with CANFINA. 2.8. Canara Bank vide its reply dated 13.01.1994 contended that it is the holder in due course, and is entitled to have the shares registered in its name, and receive the interest as and when it fell due. 2.9. MTNL sent a statement of accounts by adjusting the proceeds of the cancellation 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 cance .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... tiously enter into an arbitration agreement under the Arbitration and Conciliation Act, 1996. 2.18. Pursuant to the meeting held on 16.12.2008, Canara Bank vide its letter dated 05.03.2009 sent a draft arbitration agreement to the Chairman and Managing Director of MTNL. The draft arbitration agreement sent by Canara Bank was between Canara Bank and CANFINA on the one side, with MTNL on the other. 2.19. By letter dated 17.03.2010, Canara Bank requested the Deputy Secretary, Cabinet Secretariat to advise MTNL to execute the arbitration agreement in accordance with the direction 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... be considered, and was dismissed. 2.30. In May 2014, MTNL filed its reply to the Statement of Claim filed by Canara Bank, and also made a Counter-Claim against Canara Bank. 3. Aggrieved by the Orders dated 16.09.2011, 21.10.2011, 05.07.2013, and 10.01.2014 passed by the Delhi High Court in W.P. (C) No. 560 of 1995, C.M. No. 12230 of 2011, C.M. No. 8100 of 2012 and C.M. No. 324 and 325 of 2014 respectively, 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 pertain .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... two issues which have arisen for our consideration : (i) the first issue raised by the Appellant - MTNL with respect to the existence of a valid arbitration agreement between the three parties; (ii) the second issue has 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 .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... w that the parties were ad idem, 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 is in the ulti .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... gard 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 making the present order because the parties themselves have agreed to go in for arbitration as a mode fo .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... gal 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 had its origins in the 1970 s from French arbitration practice. The Group of Companies doctrine indicates the implied consent to an agreement to arbitrate, in the context of modern multi-party business transactions. It was first propounded in the case of Dow Chemical v. Is .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... ng 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 Pvt. Ltd. v. Jinneng Clean Energy Technology Ltd. & O₹ 2018 (4) CTC 46. with respect to an international commercial agreement. Recently, this Court in Ameet Lal Chand Shah v. Rishabh Enterprises, (2018) 15 SCC 678 invoked the Group of Companies doctrine in a domestic arbitration under Part I of the 1996 Act. 10.7. Coming to the facts of t .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... ction 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 been pending for over 26 years now. It is of relevance to note that CANFINA has participated in the proceedings before the High Court, and the Committee on Disputes. CANFINA was also represented by its separate Counsel before the Sole Arbitrator. Canara Bank in CWP No. 560 of 1995 filed before the Delhi High Court, had joined CANFINA as Respondent No. 2, even though it was joined as a proforma party. CANFINA was represented by Counsel in the Writ Proceedings before .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... 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 proposed by my esteemed Sister Justice Indu Malhotra. 2. I entirely agree with the reasoning and the conclusion, which my erudite Sister has drawn, which are based on remarkably articulate process of reasoning. However, having regard to the nature of the controversy involved in these appeals, I wish to add a few words of mine. 3. As rightly observed by my learned Sister in para 8, following two questions arise for consideration in these appeals: 4. One, whether the arbitration agreement in question is a bi-party agreement between the MTNL(appellant herein) and Canara Bank (respondent N .....

X X X X X X X

Full Text of the Document

X X X X X X X

..... he 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 expeditiously and within a time frame, this object can be achieved only when the disputes are resolved as far as possible in one arbitral proceedings. In this case, this object can be achieved only when all the three parties named above are made party in one arbitral proceedings to enable the arbitral tribunal to finally decide the dispute on merits in accordance with law. 14. As rightly observed by my learned Sister, the undisputed facts brought on record, in clear terms, entitles this Court to invoke the well known doctrine of Group of Companies and apply its principle to the facts of this case so as to enable the arbitral tribunal to determine the rights of three parties named above. In my considered vie .....

X X X X X X X

Full Text of the Document

X X X X X X X

 

 

← Previous Next →

 

 

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || Database || Members || Refer Us ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.
|| Blog || Site Map - Recent || Site Map ||