The author is Parv Lodha, a final year student at Government Law College, University of Mumbai.
The impleadment of non-signatories to arbitral proceedings has been (and still is), a controversial question that the Indian jurisprudence has been confronted with. The question of impleading a non-signatory is dealt with, by Civil Courts (“CCs”), by looking into the existence of a direct relationship between the non-signatory and a signatory, the direct commonality of the subject-matter and whether the agreement among the parties would constitute a composite transaction. While these factors are governed by settled law, to the exception of whether the ‘group of companies’ doctrine would warrant impleadment – a question which has been referred by the Supreme Court to a larger bench, what has not been a consistent practice across High Courts (“HCs”) is whether this power of impleadment can be exercised by the Arbitral Tribunal (“AT”) itself or whether such a decision can only be made by CC.
Prevailing Practice in India
There has been considerable diversity and inconsistency in opinions expressed by HCs, on the subject of whether an AT can implead a non-signatory. The Bombay High Court (“BHC”) in ONGC v. Jindal Drilling, expressed the view that an AT had no power to lift the corporate veil and such a power could only be exercised by CC. The same view was expressed by the BHC, four years later, in Nod Bearings v. Bhairav Bearing Corporation.
The Gujarat High Court (“GHC”), on the other hand, has followed a different line of reasoning. In IVRCL v. Alkor Petroo, the GHC refused to get into the question of whether an entity’s impleadment was justified because the matter was “at large” before the AT. In IMC v. Board of Trustees of Deendayal Port Trust, the GHC took an even more determined stance by observing that any civil or commercial dispute that could be decided by CC, could also be decided by an AT. By expressing its disagreement with the BHC in ONGC (supra), the GHC claimed that unless a dispute was expressly held to be beyond the ambit of arbitration, there was nothing in law that prevented an AT from deciding on it. Nonetheless, the GHC had excellently restrained itself from giving in to interventionist tendencies.
However, unlike the GHC, BHC and MHC, the DHC has been rather inconsistent with its views. It was in Balmer Lawrie v. Saraswathi Chemicals that the DHC held that arbitration, being a consensual process, could not be imposed on non-signatories by the arbitrator as it would exceed the scope of the arbitrator’s influence. However, a few years later, the DHC in Vistrat Real Estates v. Asian Hotels North held that the impleadment of a third-party was covered by the Doctrine of Competence-Competence and that the arbitrator could decided on such impleadment. A year later, in Arupri Logistics v. Vilas Gupta, the DHC held that an AT could not exercise powers of impleadment and by doing so, it would be “arrogating” to itself powers that were solely vested in judicial authorities.
Going by the majority of the judgments mentioned above and the latest judgment of the DHC – Arpuri (supra), it can be clearly seen that, to the exception of the GHC, HCs strictly do not allow an AT to implead a non-signatory. The reason for such a view by HCs has more to do with the absence of a specific statutory provision empowering an AT to implead, than it does with any distrust in the wisdom of an AT. In Abhibus (supra), for example, the MHC observes that,
“…in the absence of any trace of power being vested in the AT in the scheme of the A & C Act, 1996, to implead a non-signatory… to the arbitration, this Court is constrained to hold that the AT’s decision though well founded on the facts and materials, cannot be countenanced in law.”
Such a view, however, is not in line with the international standard. In Arpuri (supra), reference was made to Article 7 of the ICC Arbitration Rules, 2021 which allows a party to the arbitration to make a “Request for Joinder” to the Secretariat. Similar rules are found in the arbitration centres of Singapore, Hong Kong and London. However, after referring to these Rules, the DHC observed that,
“…the power to implead or to permit an intervention by a third-party is either governed by a special provision made in that respect…”
It can, therefore, be seen that it is the absence of any statutory empowerment that is preventing Courts from acknowledging the power of an AT to implead.
Need for Parliament to Step In
The history of arbitration law has shown that Parliament has stepped in to amend law when judgments passed by the Supreme Court or a HC expand the scope of judicial power or limit the scope of an AT’s power. Even the Supreme Court in Duro Felguera v. Gangavaram Port has identified this trend:
“59. The scope of the power under Section 11(6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. (2005) 8 SCC 618 and Boghara Polyfab (2009) 1 SCC 267 , (2009) 1 SCC (Civ) 117. This position continued till the amendment brought about in 2015... The legislative policy and purpose is essentially to minimise the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected.”
Moreover, in a situation where HCs are in disagreement with each other, the need for Parliament to step in becomes even more urgent to bring about consistency in law throughout the country. Alternatively, even the Supreme Court could settle the law but such a route would run the risk of having a judgment restrictive of the AT’s power to implead being passed, a law not in line with international standards.
Therefore, Parliament needs to amend Section 16 of the Arbitration & Conciliation Act, 1996, which deals with the jurisdiction and competence of the arbitrator and empower ATs with the authority to implead non-signatories. Such an amendment could be done by the insertion of a new sub-section which exclusively deals with impleadment of non-signatories. This would not only prevent avoidable judicial procedures and ease the process of arbitration but will also make the practice in India compatible with that followed internationally.
However, even then, Parliament must be careful not to give a free-hand to the arbitrator and must make impleadment conditional. The current practice requires certain grounds to be present for impleadment of non-signatories, which must be incorporated into the statute. Additionally, the non-signatory must also be given an opportunity to make its case for non-impleadment before the arbitrator and a mandatory requirement must be made on the arbitrator to give a speaking order or a detailed reply to such submission made by the non-signatory. Nonetheless, the right to assail an arbitral award under Section 34, if passed after unjustified impleadment, would always be available to the non-signatory under Section 16(6).
A sample insertion that could be made to Section 16, is given below:
The AT may rule on the impleadment or the joinder to the arbitration proceedings, of a non-signatory to the arbitration agreement if it is of the opinion that the continuance of the arbitral proceedings or the making of an arbitral award in the absence of such non-signatory or in the absence of any representation from such non-signatory would be impossible, and if there is in existence:
a) A direct relationship, relevant to the dispute, between the non-signatory and a signatory, or
b) A commonality of the subject-matter of the arbitration between the non-signatory and a signatory, or
c) A composite transaction, the execution or performance of which, has required or witnessed the involvement of the non-signatory.
Provided the non-signatory in question must be given a reasonable opportunity to be heard inasmuch as its opposition, if any, to the impleadment or joinder is concerned and a speaking order or detailed reply must be given by the AT to such representation, either agreeing or disagreeing with the views of the non-signatory in question.
The need for timely amendments by Parliament to keep up with changing trends in arbitration becomes imperative for a growing economy like India that seeks to attract foreign investments and consequently, cross-border disputes. The recognition of the breadth of an AT’s power to implead non-signatories as per the international standard can be inferred from judgments like Aloe Vera of America v. Asianic Food(s) of the Singapore HC and Telenor Mobile Communications v. Storm of the United States District Court, S.D. New York, which acknowledges the powers of an AT to implead non-signatories. In order to make the most of arbitration as an alternative dispute resolution method, flexibility in procedure becomes imperative to keep up with the speediness that modern economies demand.