Can non-signatories be compelled to arbitrate in Domestic Arbitrations?

Payal Chawla and Hina Shaheen

This article was first published in Bar and Bench on 22.08.2017

On July 24, 2017, the Supreme Court, in the matter of Ameet Lal Chand v. Rishabh Enterprises [SLP (C) 16798/2017], was pleased to issue notice. The judgment in this matter is likely to have far reaching consequences.

In addition to arbitrability of fraud, the apex court is likely to decide whether the law laid down in Sukanya Holdings (P) Ltd v. Jayesh H. Pandya [(2003) 5 SCC 531] is still good law and whether the principle laid down by Chloro Controls India Private Ltd. vs. Severn Trent Water Purification Inc. [(2013) 1 SCC 641]  of referring non-signatories to arbitration can apply to domestic arbitrations and international commercial arbitration held in India (domestic arbitrations).

The facts in the Ameet Lal Chand in brief are that several agreements in regard to a connected project were executed. Some agreements had an arbitration clause; others did not. Rishabh Enterprises (i.e. one of the parties), through its sole proprietor, preferred a suit before the Delhi High Court against various parties. Some of the defendants were not parties to any of the agreements. The defendants preferred an application under s.8 of the Arbitration and Conciliation Act, 1996 (ACA) inter alia alleging that all agreements had to be treated as part of one transaction and therefore, were arbitrable in accordance with the express provisions contained in three agreements. In this context, the defendants relied on Chloro Controls. According to the plaintiffs that existence of an arbitration clause in some of the agreements could not per se drag the dispute arising out of the principal agreement into arbitration when no such stipulation was agreed to by the parties and that the cause of action could not be split so as to refer the dispute that could be treated, from those that could not, and non-signatories could not be covered by any arbitration clause.

The single judge inter alia found no application of Chloro Controls to the said facts and circumstances and held that bifurcation of causes of action was not permissible in the context of Sukanya Holdings. In appeal before the division bench, the defendants submitted that the language of the present s.8 and s.45 was in pari materia, which renders Sukanya Holdings academic and irrelevant. Rejecting the argument, the court was of the opinion “that mere identity of language between two provisions that may be similarly worded cannot lead the court to hold that same considerations prevail”. The court also held, “If …. the suit involves adjudication of the role played by parties who are not signatories to the arbitration agreement, it has to continue because ‘prima facie no valid arbitration agreement exists’ between such non parties and others, who are parties”. The matter is now pending appeal before the Supreme Court.

In this article, we make the case that the power to compel non-signatories to arbitrate by court is a power restricted only to s.45 of the ACA, and does not extend to domestic arbitration and ICA. This power to compel has no statutory recognition, but was enunciated by a three-judge bench in the case of Chloro Controls, citing various international jurisprudential theories on judicial determination and liberally construing the language of s.45. It appears from recent amendments, that s.8 was made in pari materia to s.45. However, a closer perusal of s.8 and its interaction with other provisions of the ACA, make a compelling case that the power to compel non-signatories to arbitration, as alluded to in Chloro Controls, has no application to domestic arbitration.

Therefore, non-signatories can participate only by express or implied consent, not by compulsion of judicial authorities. The fact that the definition of ‘party’ in s.2(1)(h) was not amended, despite recommendations of the Law Commission, fortifies this view.

History of multi-party arbitrations

Sukanya Holdings had held causes of action cannot be bifurcated and arbitration could be restricted only to the ‘parties’ to the arbitration agreement. Therefore, any person who was not a ‘party’ to the arbitration agreement could not be brought into an arbitration. The issue of multi-party arbitration once again came up for consideration before the Supreme Court and this time before a three-judge bench in Chloro Controls. The court in Chloro Controls decisively held in favour of multi-party arbitrations.

The decision in Sukanya Holdings was in the context of a domestic arbitration while Chloro Controls was in relation to foreign awards. Therefore, despite the judgement of Chloro Controls, Sukanya Holdings continued to govern the law in respect of domestic arbitrations.

The Ratio and import of Chloro Controls

While much has been made of multi-party arbitrations post the judgement in Chloro Controls, it is important to revisit its ratio and its import.

The facts in Chloro Controls involved a dispute between an Indian and foreign party. There was a network of several inter-linked agreements, each dealing with a different aspect of the commercial relationship between the parties. The Shareholders Agreement was the principal or parent agreement. The Shareholders Agreement had an arbitration clause, which provided for London as the seat of arbitration and English law as the governing law. The other agreements included an International Distributor Agreement (jurisdiction of court in Pennsylvania), Managing Director’s Agreement (no arbitration clause), Financial and Technical Know-how License (ICC arbitration London), Export Sales Agreement (AAA arbitration in Pennsylvania), Trademark Registered User License Agreement (No arbitration clause). Not all these agreements had the same parties, but were part of a composite transaction, all stemming from the Shareholders Agreement or the mother agreement.

A suit was filed by Plaintiff (Severn Trent Water Purification) before a single judge. Defendant No. 1 (Chloro Controls) filed an application (notice of motion) under s.8 of the ACA. During the hearing, it was conceded by Defendant No. 1, that the same be treated under s.45. The single judge relying on Sukanya Holdings held that different parties are signatories to different agreements and several parties to the suit are not parties to the agreements and that bifurcation of the subject matter of the suit is not contemplated, splitting of cause of action is not permissible, therefore jurisdiction under s.8/45 cannot be exercised.

In appeal, it was submitted on behalf of the Appellant/defendant that if Sukanya Holdings was made applicable to each and every case it would defeat ‘legislative policy in favour of a reference of disputes to arbitration where the parties have entered into a private bargain in that behalf [2010 SCC OnLine Bom 319; para 22]. The Appellant/defendant’s counsel went on to argue that Defendants 6 to 11 being directors against whom no relief is claimed were neither necessary nor proper parties. The Plaintiff, Defendant Nos. 1, 2 and 5 which were parties to the arbitration agreement along-with Defendant Nos. 3 and 4 (non-signatory parties) should be referred to arbitration, provided that Defendant Nos. 3 and 4 consent to the arbitration. The division bench of the High Court of Bombay overruled the Single Judge’s order holding, ‘Under these circumstances, in our considered opinion, the law laid down by the Apex Court in the case of Sukanya Holdings (supra) and relied upon by the learned Single Judge is not applicable in the facts of the case in hand. The concept of separation of parties, separation of reliefs or separation of cause in the suit on making a reference to arbitration would not arise in the instant case. Hence, the application filed by the appellant under section 45 of the Act must succeed’.

Agreeing with the decision of the division bench, the Supreme Court held that the facts in Chloro Controls fell within the ambit of s.45, which was different from s.8. The court referred to Sukanya Holdings, but did not over-rule it. Instead, the court held, ‘the expression ‘person claiming through or under’ appearing in s.45 could be given a liberal interpretation and ‘would mean and take within its ambit multiple and multiparty agreement, though in exceptional cases’.

A liberal view it certainly was. From a bare perusal of s.45 such an interpretation is not apparent on the script of the language. S.45 reads, ‘Power of judicial authority to refer parties to arbitration. —Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.’ [Emphasis supplied]

On a plain reading of the section, it appears that the request for arbitration must be from one of the parties or any person claiming through or under him. But, once such a request is made the court can then only refer the ‘parties’ (i.e. parties to the arbitration agreement) to arbitration. It appears that the court was aware of the limitations imposed by the language and therefore liberally construes it, and justifies such an interpretation by using the expression ‘liberal’ over half a dozen times.  According to the court s.45 has to be read in conjunction with s.44 and Article II (1) and (3) of the New York Convention, and when so read the words person claiming through or under a party to an arbitration agreement can mean non-signatories.

According to the court:

  1. the words ‘agreement referred to in section 44’ would include ‘an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies..’, which in turn would mean an ‘agreement in writing …. in respect of defined legal relationship, whether contractual or not, concerning a subject-matter capable of settlement by arbitration.’
  2. there is an inextricable nexus between the scope of the concept of ‘legal relationship’ (as incorporated in Article II(1) of the New York Convention)  and the expression ‘any person claiming through or under him’ (appearing in Section 45 of the 1996 Act)  and therefore they need to be read in conjunction.

Once they are so read, it will be evident that the expression “legal relationship” connotes the relationship of the party with the person claiming through or under him. A person may not be signatory to an arbitration agreement, but his cause of action may be directly relatable to that contract and thus, he may be claiming through or under one of those parties’.

The ratio (in regard to non-signatory parties) laid down in Chloro Controls was that non-signatory parties to agreements that constitute a composite transaction could seek to be referred to arbitration provided they satisfy the pre-requisites of ss.44 and 45 read with Schedule I of the ACA. Heavy onus lies on the party to show that in fact and in law, it is claiming under or through a signatory party, as contemplated under s.45. The court was vested with the power to delete the names of parties, who are neither necessary nor proper, to the proceedings before the court. The ‘discretion of the Court has to be exercised in exceptional, limiting, befitting and cases of necessity and very cautiously’ and normally only parties to the arbitration agreement could be referred to arbitration. The court referred to Sukanya Holdings, but did not overrule it.

Obiter in Chloro Controls

The above analysis would not be complete without some introspection to the court’s observation, that reference of such non-signatory can be a result of implied or specific consent or judicial determination. [Emphasis supplied]

In support of its observations on ‘implied consent’ and ‘judicial determination’ the court relies on two broad theories:

  1. The first theory is that of implied consent, third party beneficiaries, guarantors, assignment and other transfer mechanisms of contractual rights. This theory relies on the discernible intentions of the parties and, to a large extent, on good faith principle.
  2. The second theory includes the legal doctrines of of agent-principal relations, apparent authority, piercing of veil (also called the “alter-ego”), joint venture relations, succession and estoppel. They do not rely on the parties’ intention but rather on the force of applicable law. This is what the court presumably meant by judicial determination.

The expression specific consent and implied consent requires no elaboration, but it would be important to understand the context of the phrase ‘judicial determination’, which appears to mantle unto the court the power to compel non-signatories to arbitrate.

The five theories the court mentions in regard to reference of non-signatories to arbitration by a judicial determination, have been encapsulated in the matter of Thomson-csf, S.a., v. American Arbitration Association [64 F.3d 773 (2d Cir. 1994)] as: 1) incorporation by reference or incorporation theory; 2) assumption; 3) agency; 4) veil-piercing/alter ego; and 5) estoppel.

Incorporation theory: is one where a non-signatory may compel arbitration against a party to an arbitration agreement when that party has entered into a separate contractual relationship with the non-signatory which incorporates the existing arbitration clause [Import Export Steel Corp. v. Mississippi Valley Barge Line Co., 351 F.2d 503, 505-506 (2d Cir. 1965)].

Assumption theory: a non-signatory party may be bound by an arbitration clause if its subsequent conduct indicates its assuming the obligation to arbitrate [Gvozdenovic v. United Air Lines, Inc., 933 F.2d 1100, 1105 (2d Cir.)].

Agency theory: A non-signatory to an arbitration agreement may also be bound by the law of agency, if such agency can be proved contractually and its intention to arbitrate can be ascertained in the absence of a signed agreement. In a recent case of Québec Inc. (Team Productions) v. Bieber, the Quebec Superior Court held that in a contract signed between the agent of Mr. Justin Bieber and Team Productions, Mr. Bieber a non-signatory would be bound by the arbitration.

Veil-piercing/alter ego theory: Under this theory, the veil could be pierced to hold a corporation legally accountable for the actions of the other, albeit, as a general rule a corporate relationship alone in itself is not sufficient to bind a non-signatory to an arbitration agreement [Keystone Shipping, 782 F. Supp. at 30-31]. The veil can be pierced in “in two broad situations: to prevent fraud or other wrong, or where a parent dominates and controls a subsidiary” [Carte Blanche (Singapore) Pte., Ltd. v. Diners Club Int’l, Inc., 2 F.3d 24, 26 (2d Cir. 1993)]. A parent corporation and its subsidiary lose their distinct corporate identities when their conduct demonstrates a virtual abandonment of separateness.

Estoppel theory: Under this theory, if a party knowingly receives the benefits of a contract, it is estopped from denying it’s obligation to arbitrate [Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d Cir. 1993)].

The court in Chloro Controls, also details the “Group of Companies Doctrine”, whereby a non-signatory party could be subjected to arbitration provided these transactions were with group of companies and there was a clear intention of the parties to bind both, the signatory as well as the non-signatory parties. The court recognises ‘intention of the parties’ in such situations is a very significant feature and in such event a non-signatory or third party could be subjected to arbitration without their prior consentbut this would only be in exceptional casesThe Court will examine these exceptions from the touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject matter and the agreement between the parties being a composite transaction. The court recognised that this doctrine does not have universal acceptance in international jurisprudence, barring the exception of France and the United States.

Whilst, the court in Chloro Controls painstakingly expounded the various jurisprudential theories relating to non-signatory reference to arbitrations by various countries, it would be important to mention that each of these theories relate to judicial determination, whereby a judicial authority can direct a non-signatory to participate in an arbitration, without the express/implied consent of such non-signatory or the parties to the arbitration agreement. The treatise whilst detailed are largely academic, since the court’s observations in this regard were obiter dicta, as the non-signatories in Chloro Controls had both consented to arbitration.

Aftermath of Chloro Controls

Despite the observations of the court in Chloro Controls being obiter in relation to compelling non-signatories to enjoin in the arbitration and were restricted only to s.45, the judgement in Chloro Controls was relied on by several courts even in the context of domestic arbitrations.

In 2012, the Hon’ble Delhi High Court, in the matter of HLS Asia Ltd. v. M/s. Geopetrol International [2012 SCC OnLine Del 5833], in a (pre-amended) s.37 appeal against an interim award passed by an arbitrator, reversed the arbitrator’s decision whereby the arbitrator had accepted the plea of NTPC, in a domestic arbitration, that it be deleted as a party from the arbitration proceedings since it was not a signatory to the contract. The court relying on Chloro Controls, using its power of judicial determination, allowed an appeal under s. 37 against the interim award, and directed the individual members of the consortium, who though not parties to the contract, but part of the consortium as being necessary parties to the arbitral proceedings, to submit themselves to the arbitral proceedings. It remains unclear how the court arrived at this finding, since the wording ‘or any person claiming through or under him’ are conspicuously absent from s.37. Further being a domestic arbitration, the order was clearly in the teeth of the decision of Sukanya Holdings. More importantly, there is nothing in the ACA to suggest that the arbitrator (as opposed to a judicial authority) has the power to direct non-signatories to arbitrate when such non-signatories have not consented to arbitration [see Balmer Lawrie & Company Ltd. vs Saraswathi Chemicals; EA(OS) No. 340/2013 in Ex.P.280/2012, decided on 17.03.2017 held – ‘persons who are not party to the arbitration agreement cannot be proceeded against by an arbitral tribunal’].

A year later in H.D.I.L. v. Mumbai International Airport Private Limited [2013 SCC OnLine Bom 1513] disagreeing with HLS Asia, the division bench of the Bombay High Court held that it was a ‘incorrect reading’ of Chloro Controls to say that it ‘elucidates a general principle to be applied’ and instead only ‘in a given factual matrix it is sometimes possible to consolidate a number of arbitral claims to avoid multiplicity and to ensure consistency of result’.

There are, however, some other examples, pre-amendment, albeit in my view incorrect, but nonetheless important to highlight, where the High courts have eluded to having the power to direct non-signatories to arbitration in domestic arbitrations applying the principles laid down in Chloro Controls. In the matter of Rakesh S. Kathotia & Anr vs Milton Global Ltd. [2014 SCC OnLine Bom 1119], the division bench of the Bombay High Court, while agreeing with the single judge that a s.9 was not maintainable in view of the delay, and further correctly espousing that s.9 would be ordinarily maintainable against third parties and that the language of the arbitral clause under challenge was wide enough to include other persons of their respective group, voyages, into an unnecessary discourse on the application of Chloro Controls to the matter at hand, which was a domestic arbitration. Then there is the case of Jitender Singh and Others vs Viyom Networks Ltd. [2014 SCC OnLine Raj 215], where the High Court of Rajasthan, Jaipur Bench, quotes Chloro Controls in extenso including para 94 thereof, and thereafter refers the non-signatory to arbitration, albeit, on the basis of express consent by such non-signatory.

Amendment of ACA & s.8 – Enjoining non-signatories in domestic arbitration

The ACA was amended on January 1, 2016 (w.e.f 23.10.2015) (“amended ACA”). In s.8, the words ‘a party to the arbitration agreement or any person claiming through or under him’ were included to replace the word ‘party’. The inclusion of these words obviate that domestic arbitrations[1] are now in line with the ratio of Chloro Controls in so far as non-signatories to arbitration agreements are concerned. It is now permissible under s.8 for non-signatories to enjoin in an arbitration.

This then begs the next questions –

  • is Sukanya Holdings still good law? And if so, to what extent? And,
  • does the power of judicial determination extend even to domestic arbitrations?

Sukanya Holdings is still good law

Sukanya Holdings laid down two broad propositions of law, which were as follows:

  1. Bifurcation of the causes of action as a procedure is not contemplated under the ACA and the words ‘a matter’ indicate entire subject matter of the suit should be subject to arbitration agreement.
  2. A s.8 application would not be sustainable in a suit as to a matter which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement.

As regards the aspect of bifurcation of causes of action, Sukanya Holdings is still good law. This aspect was neither over-ruled by Chloro Controls, nor has the Amended ACA made any reference to this aspect. Therefore, bifurcation of causes of action is not permissible under law. This was also fortified by the division bench of the Delhi High Court in Ameet Lalchand Shah v. Rishabh Enterprises.

Non-signatories cannot be compelled to arbitrate in domestic arbitrations

Now, coming to the issue of compelling non-signatories to arbitration, on first blush, as mentioned above, with the inclusion of the words “or any person claiming through or under him”, after the words “party to an arbitration agreement”, the legislature appears to lean in favour of multiparty arbitrations in the context of domestic arbitrations for composite transactions. However, in our view, the scope of reference of non-signatories to arbitration by a judicial authority of under s.8 is limited and more restricted as compared to s.45 for the following reasons:

  1. 8 unlike s.45 is independent of the New York Convention: As mentioned above, the court in Chloro Controls had elaborated on international jurisprudential theories primarily to demonstrate that a judicial authority had the power to direct non-signatories to arbitrate by a judicial finding or what the court called judicial determination in certain instances. The court justified the incorporation of these international jurisprudential theories into s.45 on the basis of the concept of ‘legal relationship’ as incorporated in Article II(1) of the New York Convention. Even whilst the court’s observations were obiter, even assuming that the court under s.45 in view of Article II(1) of the New York Convention has the power of judicial determination, such power would not extend to s.8. and consequently to domestic arbitration, for the reason, that in contrast to s.45 which appears in part II of the ACA, s.8 appears in part I, to which Article II(1) of the New York Convention has no application. No such wording exists in s.8. While amending s.8 the legislature did not add the words ‘an arbitral award on differences between persons arising out of legal relationships” or words similar thereto. While the words ‘in respect of a defined legal relationship, whether contractual or not’ do exist in s.7, they are preceded by the words, ‘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..”, leaving no room for the inclusion of non-signatories. [Emphasis supplied]
  2. 8 cannot be given a liberal interpretation: Further, from a bare perusal of s.8, it appears that while an application for reference to arbitration can be made by a non-signatory that claims through or under a party to an arbitration agreement, arbitration can only be amongst ‘parties’ to the arbitration. While the language of s. 8 to this extent is in pari materia with s.45, the latter is not limited by the definition of ‘party’ embodied in s.2(1)(h), which, as stated above, is limited only to part I. It would not be out of place to mention that the court in Chloro Controls, frequently, avers to having given s.45 a ‘liberal interpretation’, which would not be available to s.8. In contrast s.8 uses the words ‘arbitration agreement’, which are defined in s.7 and limits the same only to ‘an agreement by the parties’. Therefore, in the absence of explicit wording, it will not be possible for a judicial authority under s.8 to compel a non-signatory to arbitration by judicial determination.
  3. The Law Commission’s recommendations were not incorporated in the amendments: The Law Commission was aware of the above differences between s.45 and s.8 and therefore recommends at para 64 of the 246th Law Commission Report, the definition of s.2(1)(h) be amended to read “’party’ means a party to an arbitration agreement or any person claiming or through or under such party” to ‘cure the anomaly’. The Law Commission in the 246th Law Commission Report specifically states, “..the definition of the word “party” in section 2(1)(h) …… cannot be read restrictively to imply a mere “signatory” to an arbitration agreement, since there are many situations and contexts where even a “non-signatory” can be said to be a “party” to an arbitration agreement. This was recognized by the Hon’ble Supreme Court in Chloro Controls v. Severn Trent Water Purification,…..’ (2013) 1 SCC 641, where the Hon’ble Supreme Court ….. discussed the scope of the relevant doctrines on the basis of which “non-signatories” could be said to be bound by the arbitration agreement, including in cases of inter-related contracts, group of companies doctrine etc.”. The Law Commission was acutely aware of the need to link s.8 to s.7 and therefore observes, “The Arbitration and Conciliation Act, 1996 under section 7 borrows the definition of the “arbitration agreement” from the corresponding provision at article 7 of the UNCITRAL Model Law which in turn borrows this from article II of the New York Convention.”. This link could have been bridged by simply amending the definition of ‘party’ under s.2(1)(h).

But s.2(1)(h) continues un-amended

Despite the above lucid explanation and recommendation of the Law Commission, the legislature in its wisdom, chose not to amend s.2(1)(h) and ‘party’ continues to be defined as “’party’ means a party to an arbitration agreement”. In the recent case of Geo Miller v. BUIDCO [2016 SCC OnLine Del 6248] meaning of ‘party’ came up for adjudication. Distinguishing the facts from the case in Automation Technologies v. Unitech Ltd. [2009 (1) R.A.J. 444 (Del.).], the court held that under s.2(1)(h) the meaning of ‘party’ was restricted to party to an arbitration agreement. The decision of the single judge was affirmed by the division bench and the supreme court also declined to intervene [Special Leave to Appeal (C) No(s).7749/2017, vide an order dated 24/03/2017].

The legislature instead chose only to insert the expansive wording in s.8 alone. Therefore, whilst the legislature clearly indicated its desire for multiparty composite transactions to be extended to non-signatories, from a conjoint reading of s.2(1)(h) and s.8, it appears that reference of a non-signatory to arbitration can be made only with the consent of such non-signatory.

A rather anomalous situation

The words any person claiming through or under are not only conspicuously absent from s.2(1)(h) but also from ss. 7, 9, 11, 34, thereby creating a rather anomalous situation in Part-I of the ACA. Potentially, while any person claiming through or under could be referred to arbitration, but would have no right to seek reliefs under s. 9 [see Firm Ashok Traders v. Gurumukh Das Saluja; (2004) 3 SCC 155], s.11 [see Indian Instt. of Planning and MGMT. v. AK and I Advertising Pvt. Ltd; 2015 SCC OnLine SC 1400]; or s.34 [see Florentine Estates of India Limited v. CREF Finance Limited; 2004 SCC OnLine Del 224; Vasantha Ramanan v. Official Liquidator; 2003 SCC OnLine Mad 997; Chennai Container Terminal Pvt. Ltd. v. Union of India; 2007 SCC OnLine Mad 506] independent of the party under whom such person is claiming through or under. In terms of s. 35 an award is binding on all the parties that have been referred to the arbitration including those “persons claiming through or under” the parties to the arbitration agreement.

While the non-obstante clause at the inception of s.2 which reads ‘unless the context otherwise requires, gives the courts interpretative latitude [see Chennai Container Terminal Pvt. Ltd. v. Union of India; 2007 SCC OnLine Mad 506], for now, Geo Miller holds the fort.

Another aspect to consider is that the words any person claiming through or under are also absent in s. 48, to which the non-obstante clause appearing in s.2 would have no application since it applies only to Part I, leaving such non-signatories hapless in bringing enforcement independently.

Conclusion

To conclude, it is important to mention that reference of non-signatories to arbitration is largely a concept of international commercial arbitration to ensure that parties to an arbitration agreement are not subjected to hostile foreign jurisdictions, where they have clearly intended to arbitrate merely because of non-signatories that are, albeit proper, but not necessary, parties to the dispute. Further, the general principle of arbitration continues to be consensual amongst parties and those referred to arbitration. The power of judicial determination is intended to be one of exception, and most jurisdictions, when required, draw from the New York Convention.

It appears that the Law Commission seemed to favour the proposition laid down in Chloro Controls. That being the case, the Law Commission ought to have recommended an amendment to s.45 to clearly reflect that non-signatories can be referred to arbitration by judicial determination based on the various international theories. This could have been done by the inclusion of an explanation to s.45. This was necessary since the view on judicial determination was obiter in Chloro Controls and it was also evident that the court liberally stretched the wording of s.45 to read the reference of non-signatories to arbitration.

The Law Commission also appears to have desired that the power of judicial determination in respect of non-signatories be extended to domestic arbitration. But wrongly or rightly, the amendments do not reflect that intention. So unless the legislature does not confer such power to the judicial authorities, non-signatories in domestic arbitrations, cannot be compelled to arbitrate, as has been rightly held by the division bench of the Hon’ble Delhi High Court in Ameet Lal Chand.

Lastly, without amending the relevant provisions, it would be rather inequitable to non-signatories to refer them to arbitration, without affording them corresponding rights available to signatories.

Payal Chawla is the founder of JusContractus, a Delhi based full service law firm, with primary focus on arbitrations. Ms. Hina Shaheen is an advocate at JusContractus. For feedback, contact payalchawla@juscontractus.com. 

This article is for informational purposes only, and is not intended to provide, and should not be relied on for, legal advice. Readers are advised to seek independent legal advice in relation to their particular facts and circumstances.

The original article can be viewed by following the link:

https://www.barandbench.com/columns/non-signatories-domestic-arbitrations

Leave a Reply