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 ANITA MALHOTRA 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 Rs. 425 crores. On 10.02.1992, MTNL
placed bonds worth Rs.200 crores with Can Bank Financial
Services Ltd. (hereinafter referred to as “CANFINA”) under
an MOU agreement. The bond amount of Rs. 200 cores was
placed as fixed deposit by MTNL with CANFINA. CANFINA
paid back Rs. 50 crores of the fixed deposit in 1992. The
balance fixed deposit amount of Rs. 150 crores along with
interest was not paid by CANFINA to MTNL. As a
consequence, MTNL did not service the interest on bonds.
MTNL was of the view that since it did not receive the entire
bond amount of Rs. 200 crores, the entire deal did not go
through. Against payment of Rs. 50 crores received from
CANFINA, MTNL serviced the bonds of approximately Rs. 31
crores to the public. MTNL was of the view that only a sum
of Rs.5.41 crores was payable to CANFINA, which was not
accepted by CANFINA.
2.2. As per Canara Bank, soon after the bonds were subscribed,
there was an out-break of a security scam which led to a
collapse of the secondary market in shares, security and
bonds. There were very few buyers in the secondary market.
Even such buyers were offering very low prices for these
bonds. In these circumstances, CANFINA was faced with a
severe liquidity crunch.
2.3. In these circumstances, Respondent No. 1 – Canara Bank
purchased the Bonds issued by MTNL, of the face value of
Rs. 80 crores, from Respondent No. 2 – CANFINA which is
its wholly owned subsidiary.
2.4. Canara Bank requested for registration of these Bonds with
MTNL, and lodged letters of allotment for purchase of the
bonds from CANFINA.
2.5. MTNL vide letter dated 14.10.1992 addressed to Canara
Bank, refused to transfer the Bonds, on the various grounds
mentioned in the letter.
2.6. MTNL by a subsequent letter dated 16.02.1993, informed
Canara Bank that it had registered a part of the face value
of Rs. 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 Rs. 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 Rs. 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 Excise1.
The Writ Petition was dismissed on the ground of
availability of an alternative and efficacious remedy before 1 (1995) Supp. 4 SCC 541.
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
26.02.1998, since the remedy was no longer available, as
per the amendment of Section 111 by the Depositories Act,
1996.
2.14. Canara Bank filed an application for
Restoration of the Writ Petition, which was restored vide
Order dated 12.05.1999.
2.15. Canara Bank made a representation
to the Cabinet Secretary.
On 27.03.2001, a meeting was convened by the
Cabinet Secretariat, Litigation Cell which was presided by
the Cabinet Secretary, and attended by the representatives
of MTNL, Canara Bank, and CANFINA.
The Committee directed Canara Bank, CANFINA and
MTNL to settle the disputes through arbitration by making
an appropriate reference to the Permanent Machinery of
Arbitration, functioning in the Department of Public
Enterprises. The Committee did not permit Canara Bank,
CANFINA and MTNL to pursue the litigation in Court.
dated 30.05.2008 referred the disputes between the parties
to the Committee on Disputes. The Writ Petition was
adjourned sine die. Canara Bank was granted liberty to
revive the Petition in the event that the Committee on
Disputes was unable to resolve the disputes between the
parties.
2.17. The Committee of Disputes held a
meeting on 16.12.2008, which was attended by the
representatives of MTNL, Canara Bank and CANFINA. The
Committee, after hearing the parties, expressed the view
that all the three parties should take recourse to arbitration
in view of the different inter-linked transactions between
them.
The representatives of Canara Bank expressed the
apprehension that arbitration by the Permanent Machinery
of Arbitration would take much longer than judicial
recourse.
The Committee observed that to expedite arbitration,
the parties should expeditiously 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.
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.2
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 requested to
suggest the name of a sole arbitrator to be appointed on the
next date of hearing.
2.23. On 21.10.2011, the name of Mr.
Justice A.P. Shah (Retd.) was suggested by the Counsel for
Canara Bank, which was accepted by the Counsel for
MTNL.
Accordingly, Mr. Justice A.P. Shah (Retd.) came to be
appointed as the Sole Arbitrator.
2.24. On 05.01.2012, the Sole Arbitrator
issued notice to all the three parties i.e. MTNL, Canara
Bank, and CANFINA.
2.25. Canara Bank raised an objection to
joining CANFINA as a party to the arbitration. The
Arbitrator heard the parties on 27.03.2012, on the issue
whether CANFINA should be joined as a party to the
The learned Arbitrator passed an interim award
holding that CANFINA had not appeared on 16.09.2011
before the High Court, when the disputes were referred to
arbitration. CANFINA was not a party to the arbitration
agreement, and cannot be joined as a party to proceedings.
2.26. MTNL filed C.M. No. 8100 of 2012
before the Delhi High Court seeking clarification of Order
dated 16.09.2011, as to whether CANFINA ought to be
impleaded as a necessary party to the arbitration
agreement.
The Delhi Court vide order dated 05.07.2013
dismissed the application as “not pressed” on the statement
made by the Counsel of MTNL.
2.27. Canara Bank filed its Statement of
Claim before the learned Sole Arbitrator on 06.12.2013.
2.28. MTNL filed I.A. Nos. 324 – 325 of
2014 before the Delhi High Court for recall of the Orders
dated 16.09.2011, 21.10.2011 and 05.07.2013 passed in
W.P. (C) No. 560 of 1995.
dated 10.01.2014, dismissed the Application for Recall on
the ground that the application was identical to the
application previously filed by MTNL being C.M. No. 8100 of
2012. Since MTNL had not pressed the earlier application,
the subsequent application being identical in nature, could
not 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 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 parent Company i.e. Respondent No. 1 – Canara Bank. In the absence of Respondent No. 2 – CANFINA being made a party to the arbitration, the arbitral proceedings may be rendered infructuous. 5.4. The only existing arbitration agreement between the parties, is a draft tripartite agreement forwarded by Canara Bank wherein MTNL and CANFINA were both made parties. 5.5. There is no legal relationship or privity of contract between the Appellant – MTNL and Respondent No. 1 – Canara Bank as the disputed Bonds were bought from the Appellant – MTNL by Respondent No. 2 – CANFINA. The Appellant – MTNL had consented to the disputes being referred to arbitration on the understanding that the arbitration would be amongst the three parties.
6.The Counsel for Respondent No. 1 Canara Bank inter alia submitted that : 6.1. The present appeal is not maintainable as the Appellant – MTNL filed the present Appeal after filing its reply to the Statement of Claim and Counter-Claim before the learned Sole Arbitrator, and has therefore submitted itself to the jurisdiction of the learned Sole Arbitrator. 6.2. The only remedy available to Appellant – MTNL was to file an application under Section 16 of the Arbitration and Conciliation Act, 1996. 6.3. Respondent No. 2 – CANFINA was merely joined as a proforma party in the Writ Petition before the Delhi High Court, and therefore cannot be made a party before the arbitral proceedings. 6.4. At the time of giving consent to arbitration and appointment of the learned Sole Arbitrator, Respondent No. 2 – CANFINA was not before the Court on 16.09.2011 and 21.10.2011. 6.5. The Appellant – MTNL has not filed any claim against Respondent No. 2 – CANFINA, and therefore, cannot seek any remedy or relief against Respondent No. 2 – CANFINA at this belated stage. Further, it cannot be allowed to raise an issue of impleadment without having any claim against the party sought to be impleaded.
7.We have heard the learned Counsel for the parties, and perused the pleadings and Written Submissions filed.
8.ISSUES There are 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 to submit to arbitration all
or certain disputes which have arisen or which may
arise between them in respect of a defined legal
relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of
an arbitration clause in a contract or in the form of a
separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is
contained in
(a) A document signed by the parties;
(b) An exchange of letters, telex, telegrams or other
means of telecommunication which provide a
record of the agreement; or
(c) An exchange of statements of claim and defence
in which the existence of the agreement is alleged by
one party and not denied by the other.
(5) There reference in a contract to a document
containing an arbitration clause constitutes an
arbitration agreement if the contract is in writing and
the reference is such as to make that arbitration
clause part of the contract.
9.2. The arbitration agreement need not be in any particular
form. What is required to be ascertained is the intention of
the parties to settle their disputes through arbitration. The
essential elements or attributes of an arbitration agreement
is the agreement to refer their disputes or differences to
arbitration, which is expressly or impliedly spelt out from a
clause in an agreement, separate agreement, or
documents/correspondence exchanged between the parties.
9.3. Section 7(4)(b) of the 1996 Act, states that an arbitration
agreement can be derived from exchange of letters, telex,
telegram or other means of communication, including
through electronic means. The 2015 Amendment Act
inserted the words “including communication through
electronic means” in Section 7(4)(b). If it can prima facie be
shown that parties are ad idem, even though the other party
may not have signed a formal contract, it cannot absolve
him from the liability under the agreement3.
9.4. Arbitration agreements are to be construed according to the
general principles of construction of statutes, statutory
instruments, and other contractual documents. The
intention of the parties must be inferred from the terms of
the contract, conduct of the parties, and correspondence
exchanged, to ascertain the existence of a binding contract
between the parties. If the documents on record show 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
3 Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia (P) Ltd., (2015) 13 SCC 477
allowed to be thwarted by a pedantic and legalistic interpre
tation.4
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.5, 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 ultimate analysis, a question
of construction of the contract.”
9.7. In interpreting or construing an arbitration agreement or
arbitration clause, it would be the duty of the court to make
the same workable within the permissible limits of the law.
4 Union of India v. DN Revry and Co., (1976) 4 SCC 147. 5 [1963] 3 SCR 183.
This Court in Enercon (India) Ltd. and Ors. v. Enercon
GMBH6, held that a common sense approach has to be
adopted to give effect to the intention of the parties to
arbitrate the disputes between them. Being a commercial
contract, the arbitration clause cannot be construed with a
purely legalistic mindset, as in the case of a statute.
9.8. In this case, MTNL raised a preliminary objection that there
was no arbitration agreement in writing between the parties,
at this stage of the proceedings.
We will first deal with this issue. The agreement
between MTNL and Canara Bank to refer the disputes to
arbitration is evidenced from the following documents
exchanged between the parties, and the proceedings :
(i) The Minutes of the Meeting dated 27.03.2001
convened by the Cabinet Secretariat, wherein all three
parties were present and participated in the
proceedings. The Committee on Disputes, in the
Meeting dated 16.12.2008 expressed the view that all
the three parties should take recourse to arbitration in
view of the different inter-liked transactions between
them. Canara Bank suggested that to expedite the
arbitration, it should be conducted under the
Arbitration & Conciliation Act, 1996. This was
accepted by MTNL, and no objection was raised.
(ii) Pursuant to the proceedings conducted by the Cabinet
Secretariat, Canara Bank addressed letters dated
05.03.2009 and 17.03.2010 to MTNL, wherein it
enclosed a draft Arbitration Agreements, wherein all
three parties i.e. Canara Bank, CANFINA and MTNL
would be joined in the arbitration proceedings.
(iii) In the Writ Petition filed by Canara Bank, the Delhi
High Court vide Order dated 16.09.2011 recorded the
consent of MTNL and Canara Bank to be referred to
arbitration by a Sole Arbitrator under the 1996 Act.
The relevant extract of the Order dated
16.09.2011 passed by the Delhi High Court reads as
follows :
“Unfortunately, although the parties had
displayed their willingness for arbitration, the
Committee on Disputes could not resolve the
specific 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 making the present order
because the parties themselves have agreed to go
in for arbitration as a mode for resolving their
disputes. This is welcome because both the
parties are PSUs. The counsel for the parties shall
suggest names of the arbitrators.”
(iv) Pursuant thereto, MTNL participated in the
proceedings conducted by the Sole Arbitrator, and filed
its Claim, and Counter-Claim. No objection was raised
before the Sole Arbitrator that there was no arbitration
agreement in writing between the parties. The only
objection raised was that CANFINA should be joined as
a necessary party in the proceedings.
9.9. The agreement between the parties as recorded in a judicial
Order, is final and conclusive of the agreement entered into
between the parties.7 The Appellant – MTNL after giving its
consent to refer the disputes to arbitration before the Delhi
High Court, is now estopped from contending that there was
no written agreement to refer the parties to arbitration.
9.10. An additional ground, for rejecting the preliminary objection
raised by MTNL is based on Section 7(4)(c) of the Arbitration
and Conciliation Act, 1996.
Section 7(4)(c) provides that there can be an
arbitration agreement in the form of exchange of statement
of claims and defense, in which the existence of the
7 State of Maharashtra v. Ramdas Shrinivas Nayak (1982) 2 SCC 463.
See also Chitra Kumari v. Union of India (2001) 3 SCC 208.
agreement is asserted by one party, and not denied by the
other.8
In the present case, Canara Bank had filed its
Statement of Claim before the Arbitrator, and MTNL filed its
Reply to the Statement of Claim, and also made a Counter
Claim against Canara Bank.
The statement of Claim and Defence filed before the
Arbitrator would constitute evidence of the existence of an
arbitration agreement, which was not denied by the other
party, under Section 7(4)(c) of the 1996 Act.
In view of the aforesaid discussion, the objection raised
by MTNL is devoid of any merit, and is hereby rejected.
10.JOINDER OF CANFINA IN THE ARBITRAL PROCEEDINGS
10.1. Canara Bank raised an objection to the joinder of
Respondent No. 2 – CANFINA as a party to the arbitration
10.2. As per the principles of contract law, an agreement entered
into by one of the companies in a group, cannot be binding
8Savitri Goenka v. Kanti Bhai Damini & Ors., 2009 (1) Arb LR 320 (Del) (DB).
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’ 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.
Isover-Saint-Gobain,9 where the arbitral tribunal held that:
“… the arbitration clause expressly accepted by certain of
the companies of the group should bind the other
companies which, by virtue of their role in the conclusion,
performance, or termination of the contracts containing
said clauses, and in accordance with the mutual intention
of all parties to the proceedings, appear to have been
veritable parties to these contracts or to have been
principally concerned by them and the disputes to which
they may give rise”.
The ‘Group of Companies’ doctrine has been invoked by
courts and tribunals in arbitrations, where an arbitration
agreement is entered into by one of the companies in the
group; and the non-signatory affiliate, or sister, or parent
9 1984 Rev Arb 137; 110 JDI 899 (1983).
concern, is held to be bound by the arbitration agreement,
if the facts and circumstances of the case demonstrate that
it was the mutual intention of all parties to bind both the
signatories and the non-signatory affiliates in the group.
The doctrine provides that a non-signatory may be
bound by an arbitration agreement where the parent or
holding company, or a member of the group of companies is
a signatory to the arbitration agreement and the non
signatory entity on the group has been engaged in the
negotiation or performance of the commercial contract, or
made statements indicating its intention to be bound by the
contract, the non-signatory will also be bound and
benefitted by the relevant contracts.10
The circumstances in which the ‘Group of Companies’
Doctrine could be invoked to bind the non-signatory affiliate
of a parent company, or inclusion of a third party to an
arbitration, if there is a direct relationship between the
10 Interim Award in ICC Case No. 4131, IX YB Comm Arb 131 (1984); Award in ICC Case No. 5103, 115 JDI (Clunet) 1206 (1988). See also Gary B. Born: International Commercial Arbitration, Vol. I, 2009, pp. 1170-1171.
party which is a signatory to the arbitration agreement;
direct commonality of the subject matter; the composite
nature of the transaction 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.11
11ICC 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.,12 with respect to an
international commercial agreement. Recently, this Court
in Ameet Lal Chand Shah v. Rishabh Enterprises,13 invoked
the Group of Companies doctrine in a domestic arbitration
under Part I of the 1996 Act.
10.7. Coming to the facts of the present case, CANFINA was set
up as a wholly owned subsidiary of Canara Bank. This is
evident from the Report of the Joint Committee to Enquire
into Irregularities in Securities and Banking Transactions,
1993,14 which states as follows :
“Canbank Financial Services Ltd.
6.14 CANFINA was set up as a wholly owned
subsidiary of Canara Bank and it commenced its
operation with its Head Office at Bangalore on 1 st
June, 1987. Its authorized and paid up capital are
Rs. 50 crores and Rs. 10 crores respectively. It was
staffed mostly be personnel from Canara Bank and
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. & Ors.2018 (4) CTC 46. 14 Report, Presented to the Lok Sabha on 21st December, 1993.
has branches at Ahmedabad, Bombay, Calcutta,
Hyderabad, Madras and New Delhi besides
Bangalore. As the Board comprised mostly of senior
executives of Canara Bank and its Chief Executive is
also a senior official of that bank (on deputation) the
company functioned under the umbrella of the
parent bank; besides it submits periodical returns on
its functioning to the Board of Canara Bank for
information.
6.15 The activities authorized to be conducted by
the Company are equipment leasing, merchant
banking, venture capital and consultancy services.
The Company, initially deployed a major portion of
its owned funds and deposits in equipment leasing
business and obtained the classification of an
‘Equipment leasing company’ from the Department
of Finance Companies of RBI; this classification
entitles the company to mobilize public deposits to
the extent of ten time its owned funds. …
6.25 The Committee hope that the nature and extent
of the financial assistance being provided by Canara
Bank to its subsidiaries are such as could be
justified on prudent commercial norms. Further the
parent bank cannot be absolved of the responsibility
for various irregularities of its subsidiary. ”
10.8. The disputes between the parties emanated out of the
transaction dated 10.02.1992, whereby CANFINA has
subscribed to the bonds floated 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 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 the
Delhi High Court. The Counsel for CANFINA was however
not present on two dates i.e. on 16.09.2011 and
21.10.2011, when the High Court recorded the agreement
between the parties for reference of disputes to arbitration.
MTNL had submitted before the Delhi High Court that
Canara Bank should agree to take over the liabilities of
CANFINA before the arbitration could commence. The High
Court recorded that there was no necessity of requiring
Canara Bank to agree to take over the liabilities of
CANFINA, prior to the arbitration proceedings. This issue
would be decided in the arbitration.
10.11. On the commencement of arbitration proceedings
before the Sole Arbitrator, notice was issued by the Sole
Arbitrator to all the three parties including CANFINA, which
was represented by its Counsel.
10.12. We find that the objection to CANFINA being impleaded
as a party to the arbitration proceedings was raised by
Canara Bank, and not CANFINA.
10.13. We do not find any merit in the objection raised by
Canara Bank opposing the joining of CANFINA as a party to
the dispute. Canara Bank vide letters dated 05.03.2009 and
17.03.2010 had enclosed a Draft Arbitration Agreement to
MTNL, wherein it has clearly stated that the arbitration
would be between three parties i.e. Canara Bank and
CANFINA as party of the first part, and MTNL as party of the
second part.
It is incomprehensible why Canara Bank is now
objecting to the impleadment of CANFINA in the arbitration
proceedings. There is no justifiable ground advanced by the
Counsel for Canara Bank to oppose the impleadment of
CANFINA in the arbitration proceedings.
10.14. 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.
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. (ABHAY MANOHAR SAPRE) (INDU MALHOTRA) New Delhi August 8, 2019. REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL Nos.6202-6205 OF 2019 (Arising out of S.L.P.(C) Nos.13573-13676 of 2014) Mahanagar Telephone Nigam Ltd. ….Appellant(s) VERSUS Canara Bank & Ors. ….Respondent(s) J U D G M E N T
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. 1 1
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 No. 1) or it is a tri-partite agreement between the MTNL, Canara Bank and CANFINA (respondent No. 2) and, if so, whether the agreement satisfies the conditions laid down in Section 7(4)(b) and (c) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) so as to enable the arbitral tribunal to 2 2 decide the dispute which has arisen between these parties in relation to the agreement.
5.Second, if the answer to the first question is that the agreement in question is a tri-partite agreement, whether CANFINA is also a necessary party to the arbitral proceedings for deciding the rights of the parties inter se in relation to the dispute.
6.In my considered opinion also, the agreement in question is essentially a tri-partite agreement between the parties, namely, MTNL, Canara Bank and CANFINA. Indeed, this is clear from the documents exchanged between the parties, pleadings and orders of the Court.
7.It is also clear when one examines the nature of the dispute. It is so inextricably linked between the three parties that it can be effectively decided only when all the three parties are made parties to the arbitral proceedings. 3 3
8.Once we examine the issue on facts in the light of requirements of Section 7(4)(b) and (c) of the Act, we have no hesitation in coming to a conclusion that the agreement in question is, in fact, a tri partite agreement between the three parties mentioned above. In my view, it satisfies the requirements of Section 7(4)(b) and (c) of the Act.
9.This issue is extensively dealt with by my learned Sister in the light of law laid down by this Court in several decisions and I agree with her reasoning.
10.Somewhat similar question also arose in international arbitrations as to when there are more than two parties in a dispute then how such dispute should be dealt with in the arbitral proceedings whether 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 4 4
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. 5 5
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 view, one cannot dispute the legal proposition the doctrine “Group of Companies” has its application to arbitral 6 6 proceedings and, in appropriate cases, it can be so applied (See-Redfern and Hunter on International Arbitration - Sixth Edition - 1.115 page 33, 2.42 2.51 pages 85 to 88)
15.In view of what I have said above, I respectfully agree with the reasoning and the conclusion of my learned sister. [ABHAY MANOHAR SAPRE] New Delhi; August 08, 2019 7 7