ASF Buildtech Private Limited v. Shapoorji Pallonji and Company Private Limited

ASF Buildtech Private Limited v. Shapoorji Pallonji and Company Private Limited

is a party to the arbitration agreement, such non-signatory party can apply for interim measures under Section 9 of the Arbitration Act. Establishing the legal basis for the application of the group of companies doctrine in the definition of “party” under Section 2(1)(h) read with Section 7 of the Arbitration Act resolves the anomality pointed out by Chief Justice Ramana.”

45. The net effect of the aforesaid is that at the time when the decision of Chloro Controls (supra) occupied the field, the applicability of various principles of determining mutual consent was confined only to Section(s) 8 and 45 of the Act, 1996, which empowered only the courts to make a reference to arbitration. In the same manner, since the definition of “party” in Section 2(1)(h) of the Act, 1996 was understood to be at significant variance from Section(s) 8 and 45 of the Act, 1996, more particularly the expression “any person claiming through or under” with the former being construed to be much narrow in scope and include only the signatories to the arbitration agreement, there was misconceived assumption, that the authority and jurisdiction of an arbitral tribunal was only limited to this narrowly misconstrued definition of “party”, unlike that of the courts who had been endowed with the power and jurisdictional reach to even non- signatories by virtue of the enlarged meaning of “party”, couched in the very language of Section(s) 8 and 45 of the Act, 1996. Thus, it was assumed and rather wrongly, that an arbitral tribunal does not itself have the power to lift the corporate veil or apply the doctrine of ‘Group of Companies’ and by extension to implead a non-signatory to partake in arbitration by taking recourse to these principles of implied mutual consent.

46. However, as discussed, the decision of Cox and Kings (I) (supra) has made it abundantly clear that the legal basis for the application of the ‘Group of Companies’ doctrine or any other principle for determining mutual consent is in the definition of “party” under Section 2(1)(h) read with the meaning of “arbitration agreement” under Section 7 of the Act, 1996. Since both the aforesaid provisions are not confined in their scope to either the courts or the arbitral tribunal, and rather exists ubiquitously on the statute book and is common or indifferent to both the courts and arbitral tribunals, there cannot be any gainsaying that even the arbitral tribunal now after the decision of Cox and Kings (I) (supra) could be said to be

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clothed with the power to take recourse to the various principles for determining mutual consent, and thereby implead a non-signatory to the arbitration, if such person is found to be bound to the arbitration agreement.

III. Decision of Krish Spinning and the Judicial Rectification of the second misconception emanating from SBP & Co.

47. As discussed in the foregoing paragraphs, the second reason why the various High Courts were hesitant from recognizing the arbitral tribunal’s power to implead a non-signatory on its own accord, stemmed from the understanding and position of law that existed then as regards the scope and extent of judicial scrutiny of the courts which was required at the referral stage under Section 11 of the Act, 1996, before the subject matter could be referred to arbitration and an arbitral tribunal be constituted.

48. In Konkan Railway Corpn. Ltd. v. Rani Construction (P) Ltd. reported in (2002) 2 SCC 388, a five-Judge Bench of this Court observed that the power exercised by the referral court under Section 11 of the Act, 1996 is an administrative power and thus the Chief Justice or his designate do not have to decide any preliminary issue at that stage. Any issue pertaining to non-arbitrability, validity and existence of the arbitration agreement ought to be decided by the arbitrator.

49. The aforesaid view occupied the field till the seven-Judge Bench decision of this Court in SBP & Co. (supra) which held that the power conferred upon the Chief Justice or his designate under Section 11 of the Act, 1996 is a judicial power and not merely an administrative power. It held that being a judicial power, the Chief Justice or his designate had the right to decide all preliminary issues at the referral stage under Section 11(6) of the Act, 1996, and that the power of the arbitral tribunal to rule on its own jurisdiction under Section 16 would come into the picture only when the parties go before the arbitral tribunal without recourse to the courts either under Sections 8 or 11 respectively of the Act, 1996.

50. The ultimate effect of the ratio of SBP & Co. (supra) was that the scope for interference available to the referral courts when acting under Section 11 of the Act, 1996 was substantially expanded, and the referral courts were not only empowered but also expected to

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conduct mini trials and indulge in the appreciation of evidence on various issues concerned with the subject matter of arbitration.

51. Overtime, the decision of SBP & Co. (supra) insofar as the extent of judicial scrutiny that was required under Section 11 of the Act, 1996 was concerned, proved to be counter serving as the enlarged scope of judicial interference at the referral stage induced significant delays in the process of appointment of arbitrators and constitution of arbitral tribunals, thereby rendering the very framework of arbitration in India, ineffective, unviable and cumbersome.

52. The Law Commission of India in its 246th Report taking note of the aforesaid problem inter-alia suggested that the scope of interference under Section(s) 8 and 11 respectively of the Act, 1996 should be restricted to a prima-facie satisfaction of the existence and validity of the arbitration agreement. It further opined that except in cases where the court finds that no arbitration agreement exists or is null and void, the ordinary approach of the courts under Section 11 of the Act, 1996 should be to appoint an arbitrator and refer the parties to arbitration, leaving all issues including those which it has prima- facie determined for final adjudication by the arbitral tribunals. The relevant observations read as under: - “33. It is in this context, the Commission has recommended amendments to sections 8 and 11 of the Arbitration and Conciliation Act, 1996. The scope of the judicial intervention is only restricted to situations where the Court/ Judicial Authority finds that the arbitration agreement does not exist or is null and void. In so far as the nature of intervention is concerned, it is recommended that in the event the Court/Judicial Authority is prima facie satisfied against the argument challenging the arbitration agreement, it shall appoint the arbitrator and/or refer the parties to arbitration, as the case may be. The amendment envisages that the judicial authority shall not refer the parties to arbitration only if it finds that there does not exist an arbitration agreement or that it is null and void. If the judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration, and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. However, if the judicial authority concludes

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that the agreement does not exist, then the conclusion will be final and not prima facie. [...]”

53. The aforesaid recommendations of the Commission were taken note of by the Parliament and accordingly Section 11 sub-section (6A) came to be inserted in the Act, 1996 by way of the Arbitration and Conciliation (Amendment) Act, 2015. As per the said provision, the referral courts in exercise of their jurisdiction under Section 11 were now required to only look into one aspect — the existence of an arbitration agreement — nothing more, nothing less. All other issues were now to be invariably left for the final determination by the arbitral tribunal. [See: Duro Felguera, S.A. v. Gangavaram Port Ltd. reported in (2017) 9 SCC 729]

54. A two-Judge Bench of this Court in Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd. reported in (2020) 2 SCC 455 held that the issue of limitation being a mixed question of law and fact should be best left to the tribunal to decide and that the referral court should restrict its examination only to the existence of an arbitration agreement between the parties.

55. Then came the decision of this Court in Vidya Drolia & Ors v. Durga Trading Corporation reported in (2021) 2 SCC 1, which inter-alia held that although Section(s) 8 and 11 of the Act, 1996 are at some variance inasmuch as the former requires the referral courts to determine the “validity” of an arbitration agreement whereas the latter requires determining only the “existence”, yet since both the provisions are complementary to each other insofar as they both deal with the power of courts to refer the parties to arbitration, the aspect of “existence” as specified under Section 11 should be seen construed along with the aspect of “validity” as specified under Section 8. It held that both the provisions insofar as the standard of scrutiny by the referral courts is concerned, ought to be compositely construed, irrespective of whether the jurisdiction is being exercised by the courts under Section 8 or 11 of the Act, 1996. Accordingly, it held that the exercise of power of prima facie judicial review to examine the existence of arbitration agreement also includes going into the validity of the arbitration agreement and even objections as to the arbitrability of the subject-matter. It also held that the referral court, while exercising its powers under Section(s) 8 and 11 respectively of the Act, 1996 is empowered, to enter scrutiny for determining and ultimately knocking down ex facie meritless, frivolous and dishonest

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litigation so as to ensure expeditious and efficient disposal at the referral stage and prevent unnecessary subjugation to arbitration. The relevant observations read as under: - “147.4. Most jurisdictions accept and require prima facie review by the court on non-arbitrability aspects at the referral stage. 147.5. Sections 8 and 11 of the Arbitration Act are complementary provisions as was held in Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] The object and purpose behind the two provisions is identical to compel and force parties to abide by their contractual understanding. This being so, the two provisions should be read as laying down similar standard and not as laying down different and separate parameters. Section 11 does not prescribe any standard of judicial review by the court for determining whether an arbitration agreement is in existence. Section 8 states that the judicial review at the stage of reference is prima facie and not final. Prima facie standard equally applies when the power of judicial review is exercised by the court under Section 11 of the Arbitration Act. Therefore, we can read the mandate of valid arbitration agreement in Section 8 into mandate of Section 11, that is, “existence of an arbitration agreement”. 147.6. Exercise of power of prima facie judicial review of existence as including validity is justified as a court is the first forum that examines and decides the request for the referral. Absolute “hands off” approach would be counterproductive and harm arbitration, as an alternative dispute resolution mechanism. Limited, yet effective intervention is acceptable as it does not obstruct but effectuates arbitration.

xxx xxx xxx 147.11. The interpretation appropriately balances the allocation of the decision-making authority between the court at the referral stage and the arbitrators’ primary jurisdiction to decide disputes on merits. The court as the judicial forum of the first instance can exercise prima

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facie test jurisdiction to screen and knock down ex facie meritless, frivolous and dishonest litigation. Limited jurisdiction of the courts ensures expeditious, alacritous and efficient disposal when required at the referral stage.” “148. Section 43(1) of the Arbitration Act states that the Limitation Act, 1963 shall apply to arbitrations as it applies to court proceedings. Sub-section (2) states that for the purposes of the Arbitration Act and Limitation Act, arbitration shall be deemed to have commenced on the date referred to in Section 21. Limitation law is procedural and normally disputes, being factual, would be for the arbitrator to decide guided by the facts found and the law applicable. The court at the referral stage can interfere only when it is manifest that the claims are ex facie time-barred and dead, or there is no subsisting dispute. All other cases should be referred to the Arbitral Tribunal for decision on merits. Similar would be the position in case of disputed “no-claim certificate” or defence on the plea of novation and “accord and satisfaction”. [...] (Emphasis supplied)

56. The final conclusion of this Court in Vidya Drolia (supra) read as under: - “154.1. Ratio of the decision in Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] on the scope of judicial review by the court while deciding an application under Sections 8 or 11 of the Arbitration Act, post the amendments by Act 3 of 2016 (with retrospective effect from 23-10-2015) and even post the amendments vide Act 33 of 2019 (with effect from 9-8-2019), is no longer applicable. 154.2. Scope of judicial review and jurisdiction of the court under Sections 8 and 11 of the Arbitration Act is identical but extremely limited and restricted. 154.3. The general rule and principle, in view of the legislative mandate clear from Act 3 of 2016 and Act 33 of 2019, and the principle of severability and competence competence, is that the Arbitral Tribunal is the preferred first authority to determine and decide all questions of

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non arbitrability. The court has been conferred power of “second look” on aspects of non-arbitrability post the award in terms of sub-clauses (i), (ii) or (iv) of Section 34(2)(a) or sub-clause (i) of Section 34(2)(b) of the Arbitration Act. 154.4. Rarely as a demurrer the court may interfere at Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agreement is non-existent, invalid or the disputes are non-arbitrable, though the nature and facet of non-arbitrability would, to some extent, determine the level and nature of judicial scrutiny. The restricted and limited review is to check and protect parties from being forced to arbitrate when the matter is demonstrably “non arbitrable” and to cut off the deadwood. The court by default would refer the matter when contentions relating to non arbitrability are plainly arguable; when consideration in summary proceedings would be insufficient and inconclusive; when facts are contested; when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings. This is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the Arbitral Tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism.” (Emphasis supplied)

57. As is clear from the aforesaid extract, Vidya Drolia (supra) held that although the arbitral tribunal is the preferred first authority to determine the questions pertaining to non-arbitrability, yet the referral court may exercise its limited jurisdiction to refuse reference to arbitration in cases which are ex-facie frivolous and where it is certain that the disputes are non-arbitrable.

58. What can be discerned from the aforesaid is that while the enlarged scope and extent of judicial intervention at the referral stage as held in SBP & Co. (supra) was legislatively overruled by the insertion of Section 11 sub-section (6A) in the Act, 1996, the avowed legislative intent of minimal judicial intervention was still far from being achieved, partly due to the misconception created in the position of law as regards ambit of scrutiny under Section 11

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of the Act, 1996 by Vidya Drolia (supra). Although, Vidya Drolia (supra) predominantly found favour with the principal of minimal interference at the stage of Section 11 sub-section (6) petitions by referral courts in light of the introduction of Section 11sub-section (6A) to the Act, 1996, yet it still proceeded in a somewhat wrong direction on two counts; first, by conflating the scope and standard of scrutiny by the referral courts under Section 8 with that under Section 11 and secondly, by carving out an exceptional category of cases in which interference by the referral court was permissible, that being disputes where it is manifestly and ex-facie certain that the arbitration agreement is non-existent, invalid or the dispute is meritless or non-arbitrable.

59. The precarious situation that was created by Vidya Drolia (supra) is evident from the subsequent decisions of this Court in DLF Home Developers Ltd. v. Rajapura Homes (P) Ltd. reported in (2021) 16 SCC 743 and BSNL v. Nortel Networks (India) (P) Ltd., reported in (2021) 5 SCC 738 and a catena of other decisions wherein it was held that while undertaking a prima facie review under Section 11 of the Act, 1996, the interference of the courts in certain aspects and merits of the subject-matter may be warranted in exceptional cases, to weed out any frivolous or vexatious claims and prevent wastage of public and private resources.

60. The next chapter in the saga of scope and ambit of Section 11 of the Act, 1996 came in the form of the seven-Judge Bench decision of this Court in In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899 reported in 2023 INSC 1066 wherein one of us (J.B. Pardiwala J.) as part of the Bench, undertook a comprehensive analysis of Section(s) 8 and 11 respectively of the Act, 1996 and, inter alia, made poignant observations about the nature of the power vested in the Courts insofar as the aspect of appointment of arbitrator is concerned. It held that the referral court, be it the High Court or the Supreme Court under Section 11 of the Act, 1996 shall examine only the existence of a prima facie arbitration agreement and not any other issues. The relevant observations read as under: - “185. The corollary of the doctrine of competence- competence is that courts may only examine whether an arbitration agreement exists on the basis of the prima

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facie standard of review. The nature of objections to the jurisdiction of an arbitral tribunal on the basis that stamp- duty has not been paid or is inadequate is such as cannot be decided on a prima facie basis. Objections of this kind will require a detailed consideration of evidence and submissions and a finding as to the law as well as the facts. Obligating the court to decide issues of stamping at the Section 8 or Section 11 stage will defeat the legislative intent underlying the Arbitration Act.

186. The purpose of vesting courts with certain powers under Sections 8 and 11 of the Arbitration Act is to facilitate and enable arbitration as well as to ensure that parties comply with arbitration agreements. The disputes which have arisen between them remain the domain of the arbitral tribunal (subject to the scope of its jurisdiction as defined by the arbitration clause). [...]

209. The above extract indicates that the Supreme Court or High Court at the stage of the appointment of an arbitrator shall “examine the existence of a prima facie arbitration only pertain to the validity of the arbitration agreement, but also include any other issues which are a consequence of unnecessary judicial interference in the arbitration proceedings. Accordingly, the “other issues” also include examination and impounding of an unstamped instrument by the referral court at the Section 8 or Section 11 stage. The process of examination, impounding, and dealing with an unstamped instrument under the Stamp Act is not a timebound process, and therefore does not align with the stated goal of the Arbitration Act to ensure expeditious and time-bound appointment of arbitrators. [...]” (Emphasis supplied)

61. In SBI General Insurance Co. Ltd. v. Krish Spinning, reported in 2024 INSC 532 one of us (J.B. Pardiwala J.) taking note of the state of flux surrounding the legal position on the scope and extent of judicial scrutiny permissible under Section 11 of the Act, 1996, held that the courts at the referral stage should not venture into contested questions involving complex facts. It was held that the

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observations made in Vidya Drolia (supra) insofar as it allowed the referral courts under Section 11 of the Act, 1996 to intervene and refuse appointment of an arbitrator in matters that were ex-facie meritless, frivolous, vexatious or deadwood, no longer could be said to hold field in view of the observations made in the subsequent and larger bench decision of In Re: Interplay (supra). The relevant observations read as under: - “98. What follows from the negative facet of arbitral autonomy when applied in the context of Section 16 is that the national courts are prohibited from interfering in matters pertaining to the jurisdiction of the arbitral tribunal, as exclusive jurisdiction on those aspects vests with the arbitral tribunal. The legislative mandate of prima facie determination at the stage of Sections 8 and 11 respectively ensures that the referral courts do not end up venturing into what is intended by the legislature to be the exclusive domain of the arbitral tribunal.

xxx xxx xxx

113. Referring to the Statement of Objects and Reasons of the Arbitration and Conciliation (Amendment) Act, 2015, it was observed in In Re: Interplay (supra) that the High Court and the Supreme Court at the stage of appointment of arbitrator shall examine the existence of a prima facie arbitration agreement and not any other issues. [...]

114. In view of the observations made by this Court in In Re: Interplay (supra), it is clear that the scope of enquiry at the stage of appointment of arbitrator is limited to the scrutiny of prima facie existence of the arbitration agreement, and nothing else. For this reason, we find it difficult to hold that the observations made in Vidya Drolia (supra) and adopted in NTPC v. SPML (supra) that the jurisdiction of the referral court when dealing with the issue of “accord and satisfaction” under Section 11 extends to weeding out ex-facie non-arbitrable and frivolous disputes would continue to apply despite the subsequent decision in In Re: Interplay (supra).

xxx xxx xxx

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125. We are also of the view that ex-facie frivolity and dishonesty in litigation is an aspect which the arbitral tribunal is equally, if not more, capable to decide upon the appreciation of the evidence adduced by the parties. We say so because the arbitral tribunal has the benefit of going through all the relevant evidence and pleadings in much more detail than the referral court. If the referral court is able to see the frivolity in the litigation on the basis of bare minimum pleadings, then it would be incorrect to doubt that the arbitral tribunal would not be able to arrive at the same inference, most likely in the first few hearings itself, with the benefit of extensive pleadings and evidentiary material.”

62. Krish Spinning (supra) further held that, the scope of Section 8 is markedly different from the scope of Section 11 of the Act, 1996 as although, both provisions deal with the power of the courts to refer the parties to arbitration, yet the reason why Section 8 envisages a more stricter test of determining the “validity” of the arbitration agreement as opposed to mere “existence” under Section 11 is owed to the fact that, Section 8 specifically enables the commencement or continuation of arbitration during the pendency of an application under the said provision, thus, there is no inherent danger or harm to subjecting the substantive rights of the parties to arbitrate in a state of limbo or worse, remediless, if the courts themselves decide to proceed in determining the validity of the arbitration agreement while the arbitral tribunal simultaneously continues with the substantive claims. However, Section 11 on the other hand, is the very first step in commencement of arbitration proceedings, no arbitration proceedings can commence or continue unless the application under the said provision is decided. Furthermore, the determination by a judicial authority under Section 8 of the Act, 1996 can be assailed by way of an appeal under Section 37, however, a determination under Section 11 of the Act, 1996 is not appealable, thus, the approach which the courts are expected to undertake under Section 8 viz-à- viz Section 11, must be reflective of these nuanced differences in the scope of these provisions. Thus, it held that the observations of Vidya Drolia (supra) in conflating the nature of the test envisaged under Section 8 of the Act, 1996 with that under Section 11, cannot be said to be a good law. The relevant observations read as under: -

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“108. Section 11 of the Act, 1996 is provided to give effect to the mutual intention of the parties to settle their disputes by arbitration in situations where the parties fail to appoint an arbitrator(s). The parameters of judicial review laid down for Section 8 differ from those prescribed for Section 11. The view taken in SBP & Co. (supra) and affirmed in Vidya Drolia (supra) that Sections 8 and 11 respectively of the Act, 1996 are complementary in nature was legislatively overruled by the introduction of Section 11(6-A) in 2015. Thus, although both these provisions intend to compel parties to abide by their mutual intention to arbitrate, yet the scope of powers conferred upon the courts under both the sections are different.

109. The difference between Sections 8 and 11 respectively of the Act, 1996 is also evident from the scope of these provisions. Some of these differences are: i. While Section 8 empowers any ‘judicial authority’ to refer the parties to arbitration, under Section 11, the power to refer has been exclusively conferred upon the High Court and the Supreme Court. ii. Under Section 37, an appeal lies against the refusal of the judicial authority to refer the parties to arbitration, whereas no such provision for appeal exists for a refusal under Section 11. iii. The standard of scrutiny provided under Section 8 is that of prima facie examination of the validity and existence of an arbitration agreement. Whereas, the standard of scrutiny under Section 11 is confined to the examination of the existence of the arbitration agreement. iv. During the pendency of an application under Section 8, arbitration may commence or continue and an award can be passed. On the other hand, under Section 11, once there is failure on the part of the parties in appointing the arbitrator as per the agreed procedure and an application is preferred, no arbitration proceedings can commence or continue.

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110. The scope of examination under Section 11(6-A) is confined to the existence of an arbitration agreement on the basis of Section 7. The examination of validity of the arbitration agreement is also limited to the requirement of formal validity such as the requirement that the agreement should be in writing.

xxx xxx xxx

123. The power available to the referral courts has to be construed in the light of the fact that no right to appeal is available against any order passed by the referral court under Section 11 for either appointing or refusing to appoint an arbitrator. Thus, by delving into the domain of the arbitral tribunal at the nascent stage of Section 11, the referral courts also run the risk of leaving the claimant in a situation wherein it does not have any forum to approach for the adjudication of its claims, if it Section 11 application is rejected.

124. Section 11 also envisages a time-bound and expeditious disposal of the application for appointment of arbitrator. One of the reasons for this is also the fact that unlike Section 8, once an application under Section 11 is filed, arbitration cannot commence until the arbitral tribunal is constituted by the referral court. This Court, on various occasions, has given directions to the High Courts for expeditious disposal of pending Section 11 applications. It has also directed the litigating parties to refrain from filing bulky pleadings in matters pertaining to Section 11. [...]”

63. Accordingly, Krish Spinning (supra) held that the scope of enquiry at the referral stage under Section 11 of the Act, 1996 is confined to a prima facie determination of the existence of the arbitration agreement, and does not permit a contested or laborious enquiry into all other issues including the conclusive existence of such arbitration agreement, which is for the arbitral tribunal alone to ‘rule’ under Section 16. Under Section 11, the referall court’s enquiry is limited to examining whether the application under the said provision is filed before the correct court or not, the said application is within limitation or not in light of the decision of M/s Arif Azim Co. Ltd. v.

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M/s Aptech Ltd. reported in 2024 INSC 155, and to the prima-facie existence of an arbitration agreement. Such an approach gives true meaning to the legislative intent underlying Section 11 sub-section (6A) of the Act, 1996 and also to the view taken in In Re: Interplay (supra). The relevant ovservations read as under: - “111. The use of the term ‘examination’ under Section 11(6-A) as distinguished from the use of the term ‘rule’ under Section 16 implies that the scope of enquiry under section 11(6-A) is limited to a prima facie scrutiny of the existence of the arbitration agreement, and does not include a contested or laborious enquiry, which is left for the arbitral tribunal to ‘rule’ under Section 16. The prima facie view on existence of the arbitration agreement taken by the referral court does not bind either the arbitral tribunal or the court enforcing the arbitral award.

xxx xxx xxx

133. Thus, we clarify that while determining the issue of limitation in exercise of the powers under Section 11(6) of the Act, 1996, the referral court should limit its enquiry to examining whether Section 11(6) application has been filed within the period of limitation of three years or not. The date of commencement of limitation period for this purpose shall have to be construed as per the decision in Arif Azim (supra). As a natural corollary, it is further clarified that the referral courts, at the stage of deciding an application for appointment of arbitrator, must not conduct an intricate evidentiary enquiry into the question whether the claims raised by the applicant are time barred and should leave that question for determination by the arbitrator. Such an approach gives true meaning to the legislative intention underlying Section 11(6-A) of the Act, and also to the view taken in In Re: Interplay (supra).

64. When the decision of this Court in Chloro Controls (supra) came, the position of law as regards the standard of scrutiny expected by the referral courts was governed by the decision of SBP Co. (supra), which as already discussed, was premised on the rudimentary understanding that the arbitral tribunals are not empowered to determine issues as regards the validity and existence of the

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arbitration agreement and whether the claims are time-barred or vexatious due to the non-applicability of Section 16 in instances of court referred arbitrations. The understanding which stemmed from SBP Co. (supra) was that the referral courts were required to conduct mini trials and indulge in the appreciation of evidence on the aforesaid issues, even though they were inextricably linked with the substantive merits of the subject-matter.

65. Accordingly, when Chloro Controls (supra) held that a non-signatory to the arbitration agreement may be bound by the arbitration agreement by the doctrine of ‘Group of Companies’, the test which it laid down for applying the said doctrine had been evolved, squarely keeping in mind the decision of SBP Co. (supra). Which is why, Chloro Controls (supra) held that before a non- signatory can be held to be bound by the arbitration agreement, the referral courts would have to make a determination of all issues fundamental to making a reference to arbitration including the issue whether a non- signatory could be said to be bound by the arbitration agreement. The net effect of the aforesaid was that, arbitral tribunals were deemed to be incompetent to identify and implead a non-signatory to the arbitration agreement on its own accord, as it was understood from SBP Co. (supra), that such duty had been cast only upon the referral courts to determine.

66. However, with the subsequent developments, particularly in light of two key decisions of this Court being In Re: Interplay (supra) and Krish Spinning (supra), it is no more res-integra, that the extent of scrutiny of the referralcourts under Section 11 of the Act, 1996 is extremely narrow, and confined to only one aspect i.e., the prima-facie determination of the “existence” of the arbitration agreement. Krish Spinning (supra) has categorically held that only those questions which inextricably attacks or questions the “existence” of the arbitration agreement, should be looked into by the referral courts, that only for the purpose of a prima-facie satisfaction, all other questions, particularly mixed questions of law and fact fall within the exclusive jurisdiction of the arbitral tribunal, and cannot be looked into by the referral court, even for a prima-facie determination. Questions which involve examination of contested question of facts and appreciation of evidence, should be left to the arbitral tribunals to decide, as it is equally, if not more capable to decide such questions, as it has the benefit of going through all the

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relevant evidence and pleadings in much more detail than the referral courts. Although the aforesaid observations were in the context of “accord and satisfaction” yet, the principles laid therein, would, nevertheless apply with equal force to all other issues entrenching upon the exercise of jurisdiction under Section 11 of the Act, 1996. The relevant observations read as under: - “115. The dispute pertaining to the “accord and satisfaction” of claims is not one which attacks or questions the existence of the arbitration agreement in any way. As held by us in the preceding parts of this judgment, the arbitration agreement, being separate and independent from the underlying substantive contract in which it is contained, continues to remain in existence even after the original contract stands discharged by “accord and satisfaction”.

116. The question of “accord and satisfaction”, being a mixed question of law and fact, comes within the exclusive jurisdiction of the arbitral tribunal, if not otherwise agreed upon between the parties. Thus, the negative effect of competence-competence would require that the matter falling within the exclusive domain of the arbitral tribunal, should not be looked into by the referral court, even for a prima facie determination, before the arbitral tribunal first has had the opportunity of looking into it.

xxx xxx xxx

125. We are also of the view that ex-facie frivolity and dishonesty in litigation is an aspect which the arbitral tribunal is equally, if not more, capable to decide upon the appreciation of the evidence adduced by the parties. We say so because the arbitral tribunal has the benefit of going through all the relevant evidence and pleadings in much more detail than the referral court. If the referral court is able to see the frivolity in the litigation on the basis of bare minimum pleadings, then it would be incorrect to doubt that the arbitral tribunal would not be able to arrive at the same inference, most likely in the first few hearings itself, with the benefit of extensive pleadings and evidentiary material.”

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67. Thus, the archaic understanding that an arbitral tribunal is incapable or incompetent to identify and implead a non-signatory to the arbitration agreement on its own accord, is not the correct position of law, in view of the decisions of this Court in In Re: Interplay (supra) and Krish Spinning (supra). We find, that the limited nature and scope of inquiry which the referral courts are expected to undertake as regards the “existence” of the arbitration agreement, would as a logical sequitur obligate the arbitral tribunal also to look into this question. Such a question, by no stretch, can be regarded as falling within the exclusive domain or jurisdiction of the referral courts, so as to render any examination of it by the arbitral tribunal a usurpation of the referral courts authority and duty.

c. How Cox and Kings (I) contemplates determination of mutual intention of Non-Signatories to arbitration agreements.

68. However, even though an arbitral tribunal undoubtedly would be empowered to identify and implead a non-signatory to the arbitration agreement on its own, yet the question still remains, if the arbitral tribunal could be considered to be the appropriate forum for deciding this issue? In other words, whether, the issue that a non-signatory is bound by the arbitration agreement could be termed to be a question which inextricably attacks or questions the “existence” of the arbitration agreement, and thus, should be looked into by the referral courts?

69. The seminal importance of the aforesaid question lies in the contention that has been vehemently put forward before us by the appellants herein. It has been contended that when the application under Section 11 of the Act, 1996 was filed by the respondent no. 1 herein, the appellant herein was never made a party. In fact, in the entire application under Section 11, the respondent no. 1 never imputed any allegations or put forth any claims against the appellants herein, which would suggest its intention to implead the appellant herein in the arbitration proceedings, or that it is bound by the arbitration agreement. In such circumstances, it was contended by the appellant herein, that in the absence of the appellant herein being a party to the application under Section 11 and in the absence of the referral court directing or leaving the question of impleadment of the appellant for the arbitral tribunal to decide, the appellant herein

p. 1672

could not have been impleaded to the arbitration proceedings by the arbitral tribunal.

70. To put it simply, the argument of the appellant herein is that, where the non- signatory is a party to the application under Section 11 of the Act, 1996, the referral court must first make a prima-facie determination as to whether such non-signatory is bound by the arbitration agreement or not, before leaving the conclusive determination of such question to the arbitral tribunal. Conversely, where the non-signatory sought to be enjoined in arbitration is not a party to the application under Section 11, the referral court must give leave or direct the arbitral tribunal to examine whether such non-signatory is bound by the arbitration agreement or not, before it can be impleaded by the arbitral tribunal on its own accord.

71. In other words, the question that has been canvassed before us for our consideration is whether, the question that a non-signatory is bound by the arbitration agreement could be termed to be a question which inextricably attacks or questions the “existence” of the arbitration agreement, such that in the absence of any examination or application of mind by the referral court to such question would render the very arbitration proceedings that has been commenced pursuant to the application under Section 11 of the Act, 1996 to be non-est, insofar as such non-signatory is concerned.

I. The nature and extent of the test laid down in Cox and Kings (I) for determining Non-Signatories who are bound by the arbitration agreements.

72. In order to answer the aforesaid question, we must once again look into the decision of this Court in Cox and Kings (I) (supra), to ascertain the nature of the question whether a non-signatory is bound by the arbitration agreement or not, and the manner in which the referral courts and the arbitral tribunal are expected to tackle such a question.

73. Cox and Kings (I) (supra) after an exhaustive examination of the question of existence or applicability of the ‘Group of Companies’ doctrine in a particular case, is fundamentally a fact-intensive exercise that involves a nuanced determination of the consent of parties from diverse factual elements and circumstances. The said doctrine and by extension any other principle for determining mutual consent, broadly

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ASF Buildtech Private Limited v. Shapoorji Pallonji and Company Private Limited

requires ascertaining the intention of the parties by analysing the factual circumstances surrounding the contractual arrangements, particularly factors such as the level of involvement of the non- signatory in the negotiation, conclusion (sic execution), performance or termination of the contract, to what extent such conduct may be indicative its position as a veritable party to the arbitration agreement and common intention to be bound by it. Thus, it was held that the primary test for ascertaining the applicability of the ‘Group of Companies’ doctrine lies in the determination of the intention of the parties, which is to be inferred from the surrounding factual matrix, or in other words, the inquiry or test is, by its very nature, predominantly factual. The relevant observations read as under: -

96. [...] The level of the non-signatory party’s involvement was to the extent of making the other party believe that it was a veritable party to the contract, and the arbitration agreement contained under it. Therefore, the group of companies doctrine is applied to ascertain the intentions of the parties by analysing the factual circumstances surrounding the contractual arrangements.

101. [...] Rather, the courts need to determine: first, the existence of a group of companies; and second, the conduct of the signatory and non-signatory parties which indicate their common intention to make the non-signatory a party to the arbitration agreement.95 Thus, the group of companies doctrine is similar to other consent based doctrines such as agency, assignment, assumption, and guarantee to the extent that it is ordinarily applied as a means of identifying the common intention of the parties to bind the non- signatory to the arbitration agreement.

102. [...] Thus, the existence of a group, of companies is a factual element that the court or tribunal has to consider when analysing the consent of the parties. It inevitably adds an extra layer of criteria to an exercise which at its core is preponderant on determining the consent of the parties in case of complex transactions involving multiple parties and agreements.

105. In multi-party agreements, the courts or tribunals will have to examine the corporate structure to determine

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whether both the signatory and non signatory parties belong to the same group. This evaluation is fact specific and must be carried out in accordance with the appropriate principles of company law. Once the existence of the corporate group is established, the next step is the determination of whether there was a mutual intention of all the parties to bind the non-signatory to the arbitration agreement.

109. [...] The primary test to apply the group of companies doctrine is by determining the intention of the parties on the basis of the underlying factual circumstances. The application of the group of companies doctrine will serve to stymie satellite litigation by non-signatory members of the corporate group, thereby ensuring the efficacy of the agreement between the parties.

74. From above, it is manifest that the test for determining the applicability of the ‘Group of Companies’ doctrine is intrinsically factual in nature, necessitating a close and context-specific inquiry. However, Cox and Kings (I) (supra) did not merely stop at just establishing the factual nature of such an exercise, but further proceeded to expound, the extent and depth in which the aforementioned factual factors must be determined in the course of such exercise by laying down the threshold standards for determining the applicability of the said doctrine. Placing reliance on one another decision of this Court in Oil and Natural Gas Corporation Ltd. v. Discovery Enterprises Pvt. Ltd. reported in (2022) 8 SCC 42, it held that the test for determining applicability of the ‘Group of Companies’ doctrine envisages a cumulative and holistic determination of the factual aspects such as the relationship between and among the legal entities within the corporate group structure, their underlying contractual obligations, the commonality of the subject matter and the composite nature of the transactions undertaken, and their overall participation in the project / subject- matter for achieving a common purpose. The relevant observations read as under: - “110. In Discovery Enterprises (supra), this Court refined and clarified the cumulative factors that the courts and tribunals should consider in deciding whether a company within a group of companies is bound by the arbitration agreement:

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“40. In deciding whether a company within a group of companies which is not a signatory to arbitration agreement would nonetheless be bound by it, the law considers the following factors: (i) The mutual intent of the parties; (ii) The relationship of a non-signatory to a party which is a signatory to the agreement; (iii) The commonality of the subject-matter; (iv) The composite nature of the transactions; and (v) The performance of the contract.”

75. Cox and Kings (I) (supra) observed that doctrines such as ‘Group of Companies’ being a consent-based theory, as a necessary implication requires that the inquiry must not be superficial or perfunctory but must instead involve a comprehensive and holistic assessment of the composite relationship among the entities concerned, the underlying transactions, and the attendant circumstances evincing mutual intention to be bound by the arbitration agreement. Endorsing the view taken in Discovery Enterprises (supra), it held that mere incidental involvement in the negotiation or performance of the contract is not sufficient to infer the consent of the non-signatory to be bound by the underlying contract or its arbitration agreement. The evaluation must be indicative that the involvement of the non-signatory was of such manner which was sufficient to lead the other parties to legitimately believe that the non-signatory was a veritable party to the contract. The relevant observations read as under: - “111. Since the group of companies doctrine is a consent based theory, its application depends upon the consideration of a variety of factual elements to establish the mutual intention of all the parties involved. In other words, the group of companies doctrine is a means to infer the mutual intentions of both the signatory and non-signatory parties to be bound by the arbitration agreement. The relationship between and among the legal entities within the corporate group structure and the involvement of the parties in the performance of the underlying contractual obligations

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are indicators to determine the mutual intentions of the parties. The other factors such as the commonality of the subject matter, composite nature of the transactions, and the performance of the contract ought to be cumulatively considered and analysed by courts and tribunals to identify the intention of the parties to bind the non-signatory party to the arbitration agreement. [...]

112. [...] However, we clarify that mere presence of a commercial relationship between the signatory and non- signatory parties is not sufficient to infer “legal relationship” between and among the parties. If this factor is applied solely, any related entity or company may be impleaded even when it does not have any rights or obligations under the underlying contract and did not take part in the performance of the contract. The group of companies doctrine cannot be applied to abrogate party consent and autonomy. The doctrine, properly conceptualised and applied, gives effect to mutual intent and autonomy.

121. Evaluating the involvement of the non-signatory party in the negotiation, performance, or termination of a contract is an important factor for a number of reasons. First, by being actively involved in the performance of a contract, a non-signatory may create an appearance that it is a veritable party to the contract containing the arbitration agreement; second, the conduct of the non signatory may be in harmony with the conduct of the other members of the group, leading the other party to legitimately believe that the non-signatory was a veritable party to the contract; and third, the other party has legitimate reasons to rely on the appearance created by the non-signatory party so as to bind it to the arbitration agreement.

122. [...] Rather, the courts or tribunals should closely evaluate the overall conduct and involvement of the non- signatory party in the performance of the contract. The nature or standard of involvement of the non-signatory in the performance of the contract should be such that the non-signatory has actively assumed obligations or

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ASF Buildtech Private Limited v. Shapoorji Pallonji and Company Private Limited

performance upon itself under the contract. In other words, the test is to determine whether the non- signatory has a positive, direct, and substantial involvement in the negotiation, performance, or termination of the contract. Mere incidental involvement in the negotiation or performance of the contract is not sufficient to infer the consent of the non signatory to be bound by the underlying contract or its arbitration agreement.

127. We are of the opinion that there is a need to seek a balance between the consensual nature of arbitration and the modern commercial reality where a non-signatory becomes implicated in a commercial transaction in a number of different ways. Such a balance can be adequately achieved if the factors laid down under Discovery Enterprises (supra) are applied holistically. For instance, the involvement of the non-signatory in the performance of the underlying contract in a manner that suggests that it intended to be bound by the contract containing the arbitration agreement is an important aspect. Other factors such as the composite nature of transaction and commonality of subject matter would suggest that the claims against the non-signatory were strongly inter- linked with the subject matter of the tribunal’s jurisdiction. Looking at the factors holistically, it could be inferred that the non-signatories, by virtue of their relationship with the signatory parties and active involvement in the performance of commercial obligations which are intricately linked to the subject matter, are not actually strangers to the dispute between the signatory parties.

128. We hold that all the cumulative factors laid down in Discovery Enterprises (supra) must be considered while determining the applicability of the group of companies doctrine. However, the application of the above factors has to be fact- specific, and this Court cannot tie the hands of the courts or tribunals by laying down how much weightage they ought to give to the above factors. This approach ensures that a dogmatic emphasis on express consent is eschewed in favour of a modern approach to consent which focuses on the factual analysis, complexity of commercial

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projects, and thereby increases the relevance of arbitration in multi-party disputes. [...] (Emphasis supplied)

76. Owing to the intrinsic character of the test — being one that entails a fact- intensive inquiry involving a mixed question of fact and law — and further, given the extensive standard it demands, requiring a comprehensive and holistic appraisal of all material facts and attendant circumstances, it may be safely concluded that the arbitral tribunal is the more appropriate and competent forum to adjudicate upon the issue of whether a non-signatory is bound by the arbitration agreement, as the arbitral as it has the innate advantage of going through all the relevant evidence and pleadings in greater depth and detail than the referral court at the pre-reference stage, and as such is uniquely positioned to undertake such a nuanced determination.

II. Determining the “existence” viz-à-viz the intention of parties from “express words” of an Arbitration Agreement.

77. In order to resolve the question whether the issue of a non-signatory being bound by an arbitration agreement could be said to be inextricably intertwined with the determination of the “existence” of the arbitration agreement, it is apposite to once again advert to Cox and Kings (I) (supra), more particularly, as to the manner in which it envisages the identification and determination of the binding effect of an arbitration agreement upon a non-signatory, based on the factual aspects delineated by it, as mentioned in the foregoing paragraphs.

78. Cox and Kings (I) (supra) observed that the “legal relationship of a non- signatory to a party which is a signatory to the agreement” must be analyzed in the context of the underlying substantive contract which contains the arbitration agreement. This may be ascertained either from the duty or relationship attributed to the non-signatory within the underlying contract or may be inferred from its conduct with respect to such contract. If the underlying contract forms basis for a subject-matter common to both the signatory and the non-signatory or any composite transaction by them, then it would be a positive indicum for inferring the consent of the non-signatory to arbitrate with respect to the subject-matter. Transactions by a non-signatory which are interlinked with the underlying contract in such manner,

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ASF Buildtech Private Limited v. Shapoorji Pallonji and Company Private Limited

in the absence of which the performance of the contract may not be feasible, is one another instance for inferring this consent. Placing reliance on Chloro Controls (supra) it observed that factors such as “commonality of the subject- matter” or “composite transaction” would have to be gathered from the conjoint reading of the principal and supplementary agreements on the one hand, and the intention of the parties and their conduct on the other. Amongst these, the participation of the non-signatory in the performance of the underlying contract is the most crucial factor to discern the intention of the parties. “112. Section 7 of the Arbitration Act broadly talks about an agreement by the parties in respect of a defined legal relationship, whether contractual or not. Such a legal relationship must give rise to legal obligations and duties. In a corporate group, a company may have various related companies. The legal relationship must be analysed in the context of the underlying contract containing the arbitration agreement. The nature of the contractual relationship can either be formally encrusted in the underlying contract, or it can also be inferred from the conduct of the signatory and non-signatory parties with respect to such contract. [...]

115. In case of multiple parties, the necessity of a common subject- matter and composite transaction is an important factual indicator. An arbitration agreement arises out of a defined legal relationship between the parties with respect to a particular subject matter. Commonality of the subject matter indicates that the conduct of the non- signatory party must be related to the subject matter of the arbitration agreement. For instance, if the subject matter of the contract underlying the arbitration agreement pertains to distribution of healthcare goods, the conduct of the non-signatory party should also be connected or in pursuance of the contractual duties and obligations, that is, pertaining to the distribution of healthcare goods. The determination of this factor is important to demonstrate that the non-signatory party consented to arbitrate with respect to the particular subject matter.

116. In case of a composite transaction involving multiple agreements, it would be incumbent for the

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courts and tribunals to assess whether the agreements are consequential or in the nature of a follow-up to the principal agreement. This Court in Canara Bank (supra) observed that a composite transaction refers to a situation where the transaction is interlinked in nature or where the performance of the principal agreement may not be feasible without the aid, execution, and performance of the supplementary or ancillary agreements.

117. The general position of law is that parties will be referred to arbitration under the principal agreement if there is a situation where there are disputes and differences “in connection with” the main agreement and also disputes “connected with” the subject- matter of the principal agreement In Chloro Controls (supra), this Court clarified that the principle of “composite performance” would have to be gathered from the conjoint reading of the principal and supplementary agreements on the one hand, and the explicit intention of the parties and attendant circumstances on the other. The common participation in the commercial project by the signatory and non signatory parties for the purposes of achieving a common purpose could be an indicator of the fact that all the parties intended the non- signatory party to be bound by the arbitration agreement. [...]”

118. The participation of the non-signatory in the performance of the underlying contract is the most important factor to be considered by the courts and tribunals. The conduct of the non- signatory parties is an indicator of the intention of the non- signatory to be bound by the arbitration agreement. The intention of the parties to be bound by an arbitration agreement can be gauged from the circumstances that surround the participation of the non signatory party in the negotiation, performance, and termination of the underlying contract containing such agreement. The UNIDROIT Principle of International Commercial Contract, 201698 provides that the subjective intention of the parties could be ascertained by having regard to the following circumstances:

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ASF Buildtech Private Limited v. Shapoorji Pallonji and Company Private Limited

(a) preliminary negotiations between the parties; (b) practices which the parties have established between themselves; (c) the conduct of the parties subsequent to the conclusion of the contract; (d) the nature and purpose of the contract; (e) the meaning commonly given to terms and expressions in the trade concerned; and (f) usages. (Emphasis supplied)

79. What can be discerned from the above is that, the entire exercise of determining whether a non-signatory is bound by an arbitration agreement, in contradistinction to the narrow question of the “existence” of the arbitration agreement, necessitates a far more expansive inquiry. This inquiry transcends the limited question of the mere “existence” as it entails an interpretation of the scope and contours of the principal agreement, an assessment of the commercial understanding between the parties, examination of the nature and purpose underlying the principal contract, and the character of the transactions and conduct of the parties viz-à-viz the object and wisdom of the parties underlying contractual arrangement. Such an exercise mandates a detailed and comparative evaluation of the substantive provisions of both the principal and supplementary agreements, and not merely of the arbitration agreement or clause in isolation.

80. The determination of the “existence” of an arbitration agreement, by contrast, is confined to examining the formal validity of the arbitration agreement or the arbitration clause itself, where only the arbitration agreement or clause, as the case may be has to be looked into. It does not require delving into the broader legal relationships emerging from the underlying contractual framework. Cox and Kings (I) (supra) specifically mandates a holistic appraisal of the principal and supplementary agreements in tandem with the parties’ intention and conduct, thereby demanding an inquiry far more extensive than that required for the mere establishment of the existence of the arbitration agreement.

p. 1682

81. Thus, by no stretch of imagination can the issue of whether a non- signatory is bound by the arbitration agreement be characterized as one that is either significant or sine qua non to the determination of the arbitration agreement’s “existence”. The former necessitates a substantive examination of the entire contractual relationship, whereas the latter is a limited exercise directed only at confirming the formal validity of the arbitration agreement itself. Such a question is not one of “existence” of the arbitration agreement, but one of interpretation and scope of the principle agreement.

82. In this regard, reliance may be placed on the concurring opinion of P.S. Narasimha J. in Cox and Kings (I) (supra), who observed that the existence of an arbitration agreement qua a non-signatory is a matter of interpretation and construction of the written material in terms of Section 7(4)(b) from which a non-signatory’s consent and intention can be deciphered. For ascertaining the true meaning of the express words, the court or tribunal may look into the surrounding circumstances such as nature and object of the contract and the conduct of the parties during the formation, performance, and discharge of the contract. The relevant observations read as under: - “52. [...] An arbitration agreement, being a contract, must necessarily be in writing, as against an oral agreement, but need not be signed by the parties. The written arbitration agreement can be in the form of a document signed by the parties, or be evidenced in the record of agreement. Section 7(4)(b) prescribes the written material from which a non-signatory’s consent and intention can be deciphered by a court or arbitral tribunal.

53. The existence of an arbitration agreement with a non signatory is a matter of interpretation and construction. The express words employed by the parties enable the court to ascertain the intention of the parties and their agreement to resolve disputes through arbitration. For ascertaining the true meaning of the express words, the court or tribunal may look into the surrounding circumstances such as nature and object of the contract and the conduct of the parties during the formation, performance, and discharge of the contract. While interpreting and constructing the contract, courts or tribunals may adopt well established principles,

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ASF Buildtech Private Limited v. Shapoorji Pallonji and Company Private Limited

which aid and assist proper adjudication and determination. The Group of Companies doctrine is one such principle. It may be adopted by courts or arbitral tribunals while interpreting the record of agreement to determine whether the non signatory company is a party to it.

54. Although the application of the Group of Companies doctrine in India has until now been independent of Section 7, its juxtaposition with Section 7(4)(b) case- law shows that the inquiry under both is premised on determining the mutual intention of parties to submit to arbitration. The mutual intention of the parties is discernible from their conduct in the performance of the contract and this inquiry is common to Section 7(4)(b) jurisprudence and the Group of Companies doctrine. Even the precedents on the doctrine, national and international, look to additional factors beyond the non-signatory being in the same group of companies, such as commonality of subject-matter, composite nature of transaction, and interdependence of the performance of the contracts to determine mutual intent.”

83. The subsequent observations of P.S. Narasimha J. in his concurring opinion in Cox and Kings (I) (supra) are of significance, and read as under: - “55. Since the fundamental issue before the court or tribunal under Section 7(4)(b) and the Group of Companies doctrine is the same, the doctrine can be subsumed within Section 7(4)(b). Consequently, the record of agreement that evidences conduct of the non-signatory in the formation, performance, and termination of the contract and surrounding circumstances such as its direct relationship with the signatory parties, commonality of subject matter, and composite nature of transaction, must be comprehensively used to ascertain the existence of the arbitration agreement with the non-signatory. In this inquiry, the fact of a no signatory being a part of the same group of companies will strengthen its conclusion. In this light, there is no difficulty in applying the Group of Companies doctrine as it would be statutorily anchored in Section 7 of the Act.”

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84. From the above exposition of law, it can be seen that this Court in Cox and Kings (I) (supra) recognized that there exists a fine but pertinent distinction between determining the “existence” of an arbitration agreement and determining the intention of the parties from the “express words” used in the arbitration agreement, when dealing with the question whether a non- signatory is bound by the arbitration agreement or not. The former only deals with determining whether an arbitration agreement exists and is present in the record of agreement or the written materials as delineated under Section 7 sub- section (4)(b) of the Act, 1996. The latter, in contrast, involves construction and interpretation of the “express words” that has been used in such material from the surrounding circumstances such as nature and object of the contract and the conduct of the parties during the formation, performance, and discharge of the contract, and how the arbitration agreement fits within the broader contractual framework.

85. Once the referral court, identifies an arbitration agreement that satisfies the formal requirements of Section 7 of the Act, 1996, either from the record of agreement or the written materials under sub-section (4), the “existence” of the arbitration agreement is said to have been established, even though, its binding nature qua the non-signatory may not be established, as it is entirely possible for a referral court to arrive at finding that prima-facie there exists an arbitration agreement in terms of Section 7 of the Act, 1996 without resolving the question of whether a non-signatory is bound by such arbitration agreement or not, as it depends on additional factors beyond mere existence.

86. Once, the “existence” of the arbitration agreement is said to have been established, the condition stipulated in terms of Section 11 sub- section (6A) of the Act, 1996, is said to have been fulfilled, and the referral courts have no option but to refer the dispute to arbitration, notwithstanding whether the intention of a non-signatory as a veritable partly to such agreement is established or not. Apart from the pre- condition of examining the “existence” of an arbitration agreement, Section 11 of the Act, 1996 does not either contemplate or require determination of the “defined legal relationship” in terms of Section 7, nor does it mandate an assessment of the futuro intention of the parties, whether signatories or non-signatories, from the “express words” of the arbitration agreement. This limited inquiry does not

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ASF Buildtech Private Limited v. Shapoorji Pallonji and Company Private Limited

extend to the substantive legal consequences or implications of such arbitration agreement. The question of whether a non-signatory is bound by the arbitration agreement is entirely separate from the question of its “existence.” The latter is a relatively straightforward, procedural determination based on the formal presence of the agreement, whereas the former involves a substantive and contextual inquiry into the mutual intent of the parties, which may be examined by the arbitral tribunal.

87. What follows from this is that, the question whether a non-signatory is bound by the arbitration agreement is completely independent of the question concerning the “existence” of an arbitration agreement. The two inquiries — while related — are distinct in nature and function. The “existence” of an arbitration agreement pertains solely to its formal presence in the contractual documentation, as per the requirements under the Act, 1996 and once established, it obligates the referral of the dispute to arbitration. By contrast, the question of whether a non-signatory is bound by the arbitration agreement involves a more nuanced determination of the parties’ intentions, contractual relationships, and the broader context of the agreement, which is not confined to the formal text of the arbitration clause alone.

88. Thus, even in the absence of the non-signatory being made a party to the proceedings before the referral court, and where the question of its impleadment has neither been raised nor addressed or left open to the arbitral tribunal by the referral court, the arbitral tribunal would be full empowered to examine this issue in the first instance and determine whether any non- signatory is bound by the arbitration agreement based on the factual circumstances of the case, and if necessary, implead such non-signatory to the arbitration proceedings.

89. P.S. Narasimha J. in his concurring opinion in Cox and Kings (I) (supra), observed that the exercise of determining the binding nature of an arbitration agreement qua a non-signatory is an inquiry pertaining to the interpretation and construction of the agreement for determining the mutual intention, and not the existence of such agreement. We are conscious of the fact that, at paragraph 55, P.S. Narasimha J. observed that the inquiry is to “ascertain the existence of the arbitration agreement with the non-signatory” Semantically, the exercise may well be said to be one for determining the “existence” of an arbitration agreement with the non-signatory, however, the

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aforesaid observations cannot be singled out and construed devoid of its context. It must be seen in light of the observations made in the majority opinion at paragraphs 102 and 103, wherein this issue of “existence of the arbitration agreement with the non-signatory” or to put it simply, whether the non-signatory is a veritable party to the arbitration agreement or not, was described as an “extra layer of criteria” and that such an exercise is only to “discern the true “party” in interest”. The relevant observations read as under: - “102. [...] Thus, the existence of a group of companies is a factual element that the court or tribunal has to consider when analysing the consent of the parties. It inevitably adds an extra layer of criteria to an exercise which at its core is preponderant on determining the consent of the parties in case of complex transactions involving multiple parties and agreements.

103. [...] the group of companies doctrine helps in decoding the layered structure of commercial arrangements to unravel the true intention of the parties to bind someone who is not formally a signatory to the contract, but has “assumed” the obligation to be bound by the actions of a signatory. This court explained the purport of the doctrine to discern the “true” party in interest [...]” (Emphasis supplied)

90. This is further fortified from the fact that, Cox and Kings (I) (supra) in its subsequent paragraphs, more particularly paragraph no. 164, while discussing the scope of Section 11 of the Act, 1996, distinctively refers to and treats the criterion of “existence of arbitration agreement” and “veritable party to the arbitration agreement”, as two separate and independent inquiries, thereby underscoring that the determination of the existence of an arbitration agreement stands apart from the assessment of whether a non-signatory can be bound to it.

91. In Ajay Madhusudan Patel & Ors. v. Jyotrindra S. Patel & Ors. reported in 2024 INSC 710, this Court comprising one of us, (J.B. Pardiwala J.) further brought this distinction into perspective by observing that the issue concerning the “existence of the arbitration agreement qua the non-signatory” is, in substance an issue of “consent”, as it involves determining the manifestation of consent of

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parties or entities through their actions and conduct of exchange of documents (sic or otherwise) in terms of Section 7 sub-section (4) of the Act, 1996, and not one of “existence of arbitration agreement” simpliciter, as such an issue inter-alia requires examination and thorough consideration of the underlying contract in addition to the arbitration agreement. The relevant observations read as under: - “66. It is well settled that an arbitration agreement, in order to qualify as a valid agreement, has to satisfy the requirements stipulated under Section 7 of the Act, 1996 along with the principles of law under the Indian Contract Act, 1872. Having regard to the submissions of both the Respondent Groups i.e., JRS and SRG, it can be said that they have raised manifold objections to the present petition, however, none of those objections question or deny the existence of the arbitration agreement under which the arbitration has been invoked by the Petitioner AMP Group. In fact, the JRS Group has no objection to resolve the disputes with the AMP Group by way of arbitration. Their primary objection is only that the SRG Group cannot be a part of the arbitration proceedings. Therefore, the requirement of prima facie existence of an arbitration agreement, as stated under Section 11 of the Act, 1996 is satisfied.

67. However, the core issue that falls for our consideration is whether the SRG Group, being a non-signatory to the FAA can also be referred to arbitration and whether they are “veritable” parties to the arbitration agreement.

68. [...] Persons or entities who have not formally signed the arbitration agreement or the underlying contract containing the arbitration agreement may also intend to be bound by the terms of the agreement. Further, the requirement of a written agreement under Section 7 of the Act, 1996 does not exclude the possibility of binding non-signatory parties if there is a defined legal relationship between the signatory and non-signatory parties. Therefore, the issue as to who is a “party” to an arbitration agreement is primarily an issue of consent. Actions or conduct could be an indicator of the consent of a party to be bound by

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the arbitration agreement. This aspect is also evident from a reading of Section 7(4)(b) which emphasises on the manifestation of the consent of persons or entities through actions of exchanging documents.” (Emphasis supplied)

92. Thus, what has been conveyed in so many words by Ajay Madhusudan Patel (supra) is that the inquiry into whether a non- signatory is bound by an arbitration agreement is not, in its essence, an inquiry into the formal or juridical existence of the arbitration agreement itself. It is an exercise of determining the functional concept of consent within the existing arbitration agreement rather than the existence of the arbitration agreement itself. It is to cull out and discern the intention of various parties — whether signatories or otherwise — in relation to their willingness to be bound by the arbitration mechanism embedded in the contract.

93. Put differently, although notionally the exercise of determining ‘existence of the arbitration agreement qua the non-signatory’, may, on the surface appear to be concerned with the arbitration agreement or clause in question, yet one must be mindful that the actual focus of such exercise lies in determining the existence of consent of the parties through fact patterns to such arbitration agreement or clause and not vice-versa. It is the existence of mutual consent to arbitrate — not the formal existence of the arbitration agreement — that is the heart of this inquiry.

94. There runs no umbilical cord between the exercise of determining the “existence of the arbitration agreement” and determining its “existence qua the non-signatory”. The latter is an independent and substantive determination that falls outside the narrow and circumscribed domain of the referral court’s singular obligation under Section 11 sub-section (6A) of the Act, 1996 and as such cannot be conflated to be one pertaining to or attacking the “existence” of an arbitration.

95. Even if it is assumed for a moment that the referral court in its jurisdiction under Section 11 of the Act, 1996 has the discretion to determine whether a non-signatory is a veritable party to the arbitration agreement or not, by virtue of Cox and Kings (I) (supra), the referral court should only refrain but rather loathe the exercise of such discretion. Any discretion which is conferred upon any authority, be

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it referral courts must be exercised reasonably and in a fair manner. Fairness in this context does not just extend to a non-signatory’s rights and its apprehension of prejudice, fairness also demands that the arbitration proceedings is given due time to gestate so that the entire dispute is holistically decided. Any determination even if prima-facie by a referral court on such aspects would entail an inherent risk of frustrating the very purpose of resolution of dispute, if the referral courts opine that a non-signatory in question is not a veritable party. On the other hand, the apprehensions of prejudice can be properly mitigated by leaving such question for the arbitral tribunal to decide, as such party can always take recourse to Section 16 of the Act, 1996 and thereafter in appeal under Section 37, and where it is found that such party was put through the rigmarole of arbitration proceedings vexatiously, both the tribunal and the courts, as the case may be, should not only require that all costs of arbitration insofar as such non- signatory is concerned be borne by the party who vexatiously impleaded it, but the arbitral tribunal would be well within its powers to also impose costs.

III. Decision of Cox and Kings (II) and Ajay Madhusudan and the scope of Section 11 of the Act, 1996 for joinder of non- signatories to arbitration proceedings.

96. The aforesaid may be looked at from one another angle. This Court in Cox and Kings (I) (supra) also discussed the role and scope of jurisdiction of the referral courts and arbitral tribunals under Section(s) 11 and 16 of the Act, 1996, particularly in the context of binding a non-signatory to the arbitration agreement. It reiterated that under Section 11, the referral court only has to determine the prima-facie existence of an arbitration agreement. Whereas, the issue of determining parties to an arbitration agreement is quite distinct from “existence” of the arbitration agreement, as such issue goes to the very root of the jurisdiction competence of the arbitral tribunal, and thus, empowered to decide the same under Section

16. Placing reliance on the decision of this Court in Shin-Etsu Chemical Co Ltd v. Aksh Optifibre Ltd. reported in, (2005) 7 SCC 234, it held that the referral court should not unnecessarily interfere with arbitration proceedings, and rather allow the arbitral tribunal to exercise its primary jurisdiction for deciding such issues. The relevant observations read as under: -

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“157. When deciding the referral issue, the scope of reference under both Sections 8 and 11 is limited. Where Section 8 requires the referral court to look into the prima facie existence of a valid arbitration agreement, Section 11 confines the court’s jurisdiction to the existence of the examination of an arbitration agreement.

158. Section 16 of the Arbitration Act enshrines the principle of competence competence in Indian arbitration law. The provision empowers the arbitral tribunal to rule on its own jurisdiction, including any ruling on any objections with respect to the existence or validity of arbitration agreement. Section 16 is an inclusive provision which comprehends all preliminary issues touching upon the jurisdiction of the arbitral tribunal. The doctrine of competence competence is intended to minimize judicial intervention at the threshold stage. The issue of determining parties to an arbitration agreement goes to the very root of the jurisdictional competence of the arbitral tribunal.

161. The above position of law leads us to the inevitable conclusion that at the referral stage, the court only has to determine the prima facie existence of an arbitration agreement. If the referral court cannot decide the issue, it should leave it to be decided by the arbitration tribunal. unnecessarily interfere with arbitration proceedings, and rather allow the arbitral tribunal to exercise its primary jurisdiction. In Shin-Etsu Chemical Co Ltd v. Aksh Optifibre Ltd,125 this Court observed that there are distinct advantages to leaving the final determination on matters pertaining to the validity of an arbitration agreement to the tribunal [...]” (Emphasis supplied)

97. Cox and Kings (I) (supra) further observed that in case of joinder of non- signatory parties to an arbitration agreement, the referral court will be required to prima-facie rule on the existence of the arbitration agreement and whether the non-signatory is a veritable party to the arbitration. However, it further clarified that, due to the inherent complexity in determining whether the non- signatory is indeed a veritable party, the referral court should leave this question

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for the arbitral tribunal to decide as it can delve into the factual and circumstantial evidence along with its legal aspects for deciding such an issue. The relevant observations read as under: - “163. [...] Thus, when a non-signatory person or entity is arrayed as a party at Section 8 or Section 11 stage, the referral court should prima facie determine the validity or existence of the arbitration agreement, as the case may be, and leave it for the arbitral tribunal to decide whether the non signatory is bound by the arbitration agreement.

164. In case of joinder of non-signatory parties to an arbitration agreement, the following two scenarios will prominently emerge: first, where a signatory party to an arbitration agreement seeks joinder of a non-signatory party to the arbitration agreement; and second, where a non-signatory party itself seeks invocation of an arbitration agreement. In both the scenarios, the referral court will be required to prima facie rule on the existence of the arbitration agreement and whether the non-signatory is a veritable party to the arbitration agreement. In view of the complexity of such a determination, the referral court should leave it for the arbitral tribunal to decide whether the non signatory party is indeed a party to the arbitration agreement on the basis of the factual evidence and application of legal doctrine. The tribunal can delve into the factual, circumstantial, and legal aspects of the matter to decide whether its jurisdiction extends to the non-signatory party. In the process, the tribunal should comply with the requirements of principles of natural justice such as giving opportunity to the non-signatory to raise objections with regard to the jurisdiction of the arbitral tribunal. This interpretation also gives true effect to the doctrine of competence- competence by leaving the issue of determination of true parties to an arbitration agreement to be decided by arbitral tribunal under Section 16.” (Emphasis supplied)

98. Thus, even if it is assumed for a moment, that the question whether a non- signatory is a veritable party to the arbitration agreement is

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intrinsically connected with the issue of “existence” of arbitration agreement, the referral courts should still nevertheless, leave such questions for the determination of the arbitral tribunal to decide, as such an interpretation gives true effect to the doctrine of competence- competence enshrined under Section 16 of the Act, 1996.

99. This hands-off approach of referral courts in relation to the question of whether a non-signatory is a veritable party to the arbitration agreement or not was reiterated in Cox and Kings (II), wherein one of us, (J.B. Pardiwala J.), observed that once an arbitral tribunal stands constituted, it becomes automatically open to all parties to raise any preliminary objections, including preliminary objections touching upon the jurisdiction of such tribunal, and to seek an early determination thereof. Consequently, the issue of impleadment of a non-signatory was deliberately left for the arbitral tribunal to decide, after taking into consideration the evidence adduced before it by the parties and the principles enunciated under Cox and Kings (I) (supra).

100. Similarly, in Ajay Madhusudan (supra) it was held that since a detailed examination of numerous disputed questions of fact was required for determining whether the non-signatory is a veritable party to the arbitration agreement, the same cannot be examined in the limited jurisdiction under Section 11 of the Act, 1996 as it would tantamount to a mini trial. Accordingly, the arbitral tribunal was found to be the appropriate forum for deciding the said issue on the basis of the evidence that may be adduced by the parties.

101. This approach is necessitated by the inherent complexity involved in determining whether a non-signatory qualifies as a veritable party to the arbitration agreement, a determination that hinges upon a multiplicity of factual aspects and demands a high threshold of satisfaction based on a cumulative and holistic evaluation of the entire factual matrix. Such an intricate and evidence-driven exercise makes the arbitral tribunal the most appropriate forum to adjudicate the matter, as it possesses the institutional advantage of conducting a comprehensive scrutiny of all evidences and materials adduced by the parties.

102. Furthermore, the legislative intent underlying Section 11 of the Act, 1996 — particularly sub-section (6A) — is to ensure the expeditious disposal of applications for the appointment of arbitrators. This

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legislative objective militates against referral courts undertaking any elaborate or detailed factual inquiry, which would inevitably delay proceedings. Prudence thus dictates that the referral courts confine themselves to a prima-facie examination of the existence of the arbitration agreement and leave substantive determinations, such as the binding nature of non-signatories, to the arbitral tribunal. An additional and equally compelling consideration is that the power exercised by the referral courts under Section 11 of the Act, 1996 is judicial in nature. Consequently, referral courts must refrain from embarking upon an intricate evidentiary inquiry or making final determinations on matters that are within the jurisdiction of the arbitral tribunal. Any premature adjudication or opinion by the referral court would not only usurp the tribunal’s role as the forum of first instance for dispute resolution but could also cause irremediable prejudice. In particular, if the referral court were to refuse impleadment of a non-signatory, there would be no statutory right of appeal available to challenge such a refusal. In contrast, determinations made by the arbitral tribunal — including on issues of jurisdiction and impleadment — are amenable to challenge under Section 16 of the Act, 1996 and, thereafter, under Section 37. Accordingly, the better course of action is for referral courts to refrain altogether from delving, into the issue of whether a non-signatory is a veritable party to the arbitration agreement, and to leave such matters for the arbitral tribunal to decide in the first instance.

103. At this juncture, it would be apposite to refer to the three-judge Bench decision of this Court in Pravin Electricals Pvt Ltd v. Galaxy Infra and Engineering Pvt Ltd. reported in (2021) 5 SCC 671. In the said decision, this Court was called upon to determine the existence of an arbitration agreement on the basis of the documentary evidence produced by the parties. Although, this Court prima-facie opined that there was no conclusive evidence to infer the existence of a valid arbitration agreement between the parties, yet it referred the dispute along with the issue of existence of the arbitration agreement to the arbitral tribunal to decide after conducting a detailed examination of documentary evidence and cross-examination of witnesses. Thus, even where the referrals courts either find that there is no arbitration agreement in “existence” or as a logical sequitur never embarked upon determining such “existence”, for whatever reasons, the matter should still nevertheless be referred to arbitration.

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104. It is not difficult to comprehend why the above approach, endorsed in Pravin Electricals (supra) ought to be adopted and followed. The rationale behind this, as explained in Krish Spinning (supra), is that there exists no right to appeal under the Act, 1996 against an order passed by the referral court under Section 11 for either appointing or refusing to appoint an arbitrator. Any refusal for appointment runs the risk of leaving the claimant in a situation wherein it does not have any forum to approach for the adjudication of its claims, if it Section 11 application is rejected. However, on the contrary, appointment of an arbitrator causes no prejudice, as all these issues can again be espoused by leading cogent evidence and material before the arbitral tribunal under Section 16 of the Act, 1996 and thereafter, in appeal under Section 37.

105. Cox and Kings (I) (supra) at paragraph 164, observes that in case of joinder of non-signatory parties to an arbitration agreement, two scenarios will prominently emerge; first, where a signatory party to an arbitration agreement seeks joinder of a non-signatory party and second, where a non-signatory party itself seeks invocation of an arbitration agreement. It then holds that in both scenarios the referral court (emphasis) will be required to prima facie rule on the existence of the arbitration agreement and whether the non-signatory is a veritable party.

106. However, this by no stretch means that all issues or instances of joinder or impleadment of a non-signatory will have to be first brought before the referral court, who in turn may leave it for the arbitral tribunal to decide. It by no stretch precludes a scenario where the issue of joinder of a non-signatory although never brought before the referral court, yet is later raised for the first time before the arbitral tribunal. We say so, because the aforesaid decision of Pravin Electricals (supra) where this Court referred the matter to the arbitral tribunal despite prima-facie opining that there is no existence of arbitration agreement was approvingly referred to by Cox and Kings (I) (supra) to hold that “If the referral court cannot decide the issue, it should leave it to be decided by the arbitration tribunal”. The natural corollary to the aforesaid is that, where the referral court is either unable to decide the issue as to whether, the non-signatory is a veritable party to the arbitration agreement, or finds in its opinion that such non-signatory is not a veritable party, or in the extreme alternative, had no occasion to decide such an

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issue, still it would be open for the arbitral tribunal to look into the issue and decide the same.

107. The only thing the arbitral tribunal needs to be mindful of when deciding such an issue is that it adheres to the principles of natural justice by affording the non-signatory a fair opportunity to raise objections with regard to the jurisdiction of the arbitral tribunal, earnestly makes an endeavour to determine this issue at the earliest possible stage to prevent any grave prejudice being occasioned to such non-signatory, makes all possible efforts — whether by way of imposition of costs or through other appropriate measures —to mitigate and deter the possibility of any abuse by the signatories who might seek to coerce or arm twist the non-signatory by frivolously or vexatiously subjecting it to arbitration, and lastly, that its decision is grounded in the factors and threshold requirements laid down in Cox and Kings (I) (supra) as explained by us.

108. Moreover, one must not lose sight of the fact that, the provision of Section 11 of the Act, 1996 only comes into the picture where there has been a failure in appointment of an arbitrator. Could it be said that where, the signatories have consensually appointed an arbitrator in terms of the arbitration agreement, then in such cases, the arbitral tribunal that has been so constituted, would not be empowered to implead a non-signatory as-well, merely because, the referral court did not either determine the ‘existence of the arbitration agreement qua the non-signatory’ or did not leave such question for determination of the arbitral tribunal, even though no such occasion had arisen for the referral court to do so? The answer to the aforesaid, must be an emphatic “no”. Arguendo even if one were to proceed on a stretch and rather strained construction of the law, that where a notice of invocation is served by a party to both the signatories and the non- signatories, pursuant to which an arbitral tribunal has been constituted consensually by the signatories, yet there would still be a failure in appointment of an arbitrator inasmuch as the non- signatory has not agreed to appoint and arbitrator, and the only recourse here would be to prefer to move a referral court under Section 11 of the Act, 1996, the aforesaid contention, merits outright rejection. Not only does it reflect a hyper-technical and overly dogmatic approach to the procedural framework of arbitration — which is to be construed in a manner that facilitates, rather than frustrates, party autonomy and consensual resolution — but it also fundamentally misunderstands

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the legislative purpose and limited procedural function of Section 21 of the Act, 1996, which we shall now discuss, in the later parts of this judgment.

ii. Arbitral Tribunal has the authority and power to implead Non- Signatories to the arbitration agreement on its own accord.

a. There is no inhibition in the scheme of Act, 1996 which precludes the Arbitral Tribunal from impleading a Non- Signatory on its own accord.

109. From the above exposition of law, it can be seen that there is nothing within the scheme of the Act, 1996, which prohibits or restrains an arbitral tribunal from, impleading a non-signatory to the arbitration proceedings on its own accord. So long as such impleadment is undertaken upon a consideration of the applicable legal principles — including, but not limited to, the doctrines of ‘group of companies’, ‘alter ego’, ‘composite transaction’, and the like — the arbitral tribunal is fully empowered to summon the non-signatory to participate in the arbitration. This autonomy stems from the broad jurisdiction conferred upon arbitral tribunals under the Act, 1996 to rule upon their own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement, as enshrined under Section 16. The impleadment of a non-signatory, being fundamentally a question of jurisdiction and consent, falls squarely within the province of the tribunal’s powers, free from any statutory prohibition.

110. The aversion towards recognizing such power of the arbitral tribunal to implead a non-signatory, that previously prevailed, had stemmed from two major misconceptions – a lack of power being vested on the arbitral tribunal and a corresponding entrustment of this duty to implead a non-signatory to the referral courts alone. (i) First, the initial understanding of Chloro Controls (supra) that the legal basis for the doctrine of ‘group of companies’ and other alike principles for determining mutual consent was only under the provisions which empowered the courts to make a reference to arbitration i.e., under Section(s) 8 and 45 of the Act, 1996, was construed to mean that only the courts have the power to resort to and apply the aforesaid principles for determining mutual consent. Similarly, the unaltered general

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