The Hon’ble Delhi High Court in M/s Arupri Logistics Pvt. Ltd v Shri Vilas Gupta & Ors.[i], has held that an arbitral tribunal, in the absence of any specific power to implead, does not have the authority or jurisdiction to implead parties to arbitral proceedings. The power to implead cannot be inferred from Sections 16, 17 or 19 of the Arbitration and Conciliation Act, 1996 (“the Act”). Further, the arbitral tribunal does not have any residual inherent powers under the Act either, which enables it to implead third parties in the interest of justice. The Hon’ble Court noted that the arbitral tribunal owes its origin principally to well recognised and identifiable sources such as the agreement between the parties, institutional rules or national statutes, therefore, the parties or the tribunal cannot vest itself with powers that are otherwise reserved to be exercised by courts and judicial institutions.
Brief Background
The dispute in the present case revolves around the sale of an industrial plot to the Appellants vide a sale agreement entered into between M/s Taurus India (in which Respondents Nos. 4 to 7 are directors) and M/s Arpuri Logistics Pvt. Ltd., dated October 21, 2010. It was alleged that the sale was contrary to a family settlement, being the Memorandum of Family Settlement dated April 28, 2007 (“MFS”), which was executed between all the Respondents. Thereafter, arbitration was invoked as per the terms of the MFS by sending a notice under Section 21 of the Act. After the parties failed to agree upon the constitution of the arbitral tribunal, a petition was filed under Section 11 of the Act before the Hon’ble Delhi High Court. The said petition was allowed with a Sole Arbitrator being appointed. The appellants were not arrayed as parties in those proceedings. Thereafter, the sole arbitrator passed an interim order to maintain status quo between the parties.
Subsequently, an application was moved by Respondent No.1 before the Sole Arbitrator, seeking impleadment of the present Appellants. By way of order dated December 23, 2021, the Sole Arbitrator, by placing reliance on the judgment of the Hon’ble Supreme Court in Chloro Controls India Pv.t Ltd. v Severn Trent Water Purification Inc and others (2013) (1) SCC 641, allowed the said application on the ground that the Appellants ought to be impleaded considering that they have a vital interest in the matter and will be affected by the arbitral proceedings. Further, their exclusion will cause them prejudice and will not serve the ends of justice. Therefore, the Appellants were held to be necessary parties and were impleaded in the arbitral proceedings. This order of the Sole Arbitrator was challenged by the Appellants under Section 37 of the Act before the Hon’ble Delhi High Court, in which the present judgment was passed.
Key Findings of the Hon’ble Delhi High Court
No provision of the Act confers any power on the arbitral tribunal to implead third parties
The Hon’ble Court has observed that the power to implead non-signatories stands conferred upon courts, specifically in terms of Order 1 Rule 10 of the Civil Procedure Code, 1905 (“CPC”). The said power has been introduced in the CPC to enable the court to either strike out the name of parties or join parties whose presence in its opinion is necessary to enable it to effectively adjudicate upon and settle all questions involved. However, what needs to be remembered is that the power to implead stands vested by way of a specific provision and the said power is not understood to exist by way of exercise of inherent powers under Section 151 of the Code.
Since there was no clarity on which section of the Act the application to implead third parties came to be filed before the Sole Arbitrator, the Ld. Single Judge went on to examine various provisions of the Act, specifically Sections 16, 17 and 19 of the Act, to hold that none of these provisions confer any jurisdiction on the arbitral tribunal to implead third parties and the exercise of powers under these sections is limited to the contours of the agreement between the parties.
With respect to Section 16, the Ld. Single Judge held that the power to rule on jurisdiction or raise objections with respect to the existence/ validity of an arbitration agreement cannot possibly be recognised as a source of power to implead parties. In so far as Section 17 is concerned, none of the interim measures of protection under clauses (a) to (e) of Section 17(1)(ii) deal with or confer authority upon the arbitral tribunal to join non-signatories. Further, the power to implead cannot be read into Section 17(1)(ii)(e) of the Act merely because post amendment by Act 3 of 2016, the arbitral tribunal stands empowered to grant interim measures at power with what stands vested in courts in terms of Section 9 of the Act. One must not lose sight of the fact that both Section 17 and Section 9 of the Act continue to deal with interim measures. The power to join a non-signatory and thus subject it to the ultimate decision and award that may be rendered by the arbitral tribunal cannot be conceived to be a component of the power to frame interim orders under Section 17 of the Act. The manner of conducting arbitral proceedings, which is also recognised under Section 19 of the Act, cannot be stretched to be read as a source of power for the arbitral tribunal to join parties.
Meaning of “party” under the Act
In terms of the Arbitration and Conciliation (Amendment) Act, 2015, the phrase “a party to the arbitration agreement or any person claiming through or under him” has been incorporated only under Section 8 and 45 of the Act, which deal with powers conferred on a judicial authority. Per contra, Section 2(1)(h) of the Act has remain unchanged. Therefore, as far as the arbitral tribunal is concerned, the provisions of Section 2(1)(h) will apply, which defines “party” as a party to the agreement and hence, cannot include non-signatories.
Group of Companies and Alter Ego Doctrines
The Hon’ble Court analysed the decisions of the Hon’ble Supreme Court in Cox & Kings v SAP India[ii], Chloro (Supra) and Cheran Properties Ltd. v Kasturi & Sons Ltd.[iii], to hold that the said cases essentially dealt with cases where courts were called upon to invoke theories of Group of Companies and Alter Ego and hold parties, who even though may not have been signatories to the arbitration agreement, to be bound by the same. In fact, some of the decisions noted in Cox & Kings (Supra) had been rendered in the context of Section 45 of the Act, which specifically employs the expression “any person claiming through or under him”. However, the aforesaid judgments do not answer whether an arbitral tribunal would be justified in invoking these doctrines. Further, if the arbitral tribunal was recognised to have the authority to invoke Alter Ego or Group of Companies principle, it may result in the arbitral tribunal seeking to exercise authority over a party and compelling it to join the proceedings even though it has not consented to be subject to the jurisdiction of such tribunal, which is against the fundamental tenets of arbitration i.e. consensus and agreement between parties.
The Hon’ble Court ultimately concluded that an arbitral tribunal cannot arrogate to itself powers that are neither conferred by statute or rules governing arbitration, nor can it take recourse to inherent powers, which are inherent in courts and judicial authorities only. The Act incorporates no provision which could be even remotely read as being the repository of power for the arbitral tribunal to implead. Further, the Act, wherever it intended to expand the meaning to the word “party” has done so by introducing specific provisions in that respect. Accordingly, the impugned order dated December 23, 2021, passed by the Sole Arbitrator in exercise of power under Order 1 Rule 10 of the CPC was set aside, since it was passed without bearing in mind that the Act confers no authority upon the arbitral tribunal to wield powers akin to Order 1 Rule 10 of the CPC as specifically conferred on national courts.
Analysis
While it is true that an arbitral tribunal under the Act may not be empowered to permit joinder of non-signatories and in the absence of the said power, such joinder may have implications on the basic tenets of arbitration i.e. party autonomy and consent. However, the joinder of such third parties may be crucial in certain cases to prevent parallel arbitral proceedings, multiple awards as well as ensuring arbitral tribunal autonomy.
Arbitration proceedings can be complex and involve multiple agreements with multiple parties and a particular arbitral agreement may not be able to foresee such issues. Thus, such complexities require statute and/ or institutional rules, as the case may be, to include broader provisions on joinder. For instance, under various institutional rules such as the Hong Kong International Arbitration Centre Administered Rules, 2018, as well as the London Court of International Arbitration, a procedure is prescribed for joinder of non-signatories, which includes such non-signatories being given notice (albeit the parties consenting to such joinder) and thus, preserving the sanctity of the arbitral proceedings. Similar rules remain to be introduced in the Indian scenario.
The present case has ventured into unchartered territory on defining the powers of an arbitral tribunal on joinder of non-signatories in India, where the law still remains to be settled either by the apex court or by way of statute. However, it remains to be seen whether the present judgment will be seen as a step back in India’s move towards a pro-arbitration regime.
[i] Arb A. No. 5/2022
[ii] (2022) 8 SCC 1
[iii] (2019) 1 SCC (Civ) 486
