Tavin Sethi || Student of Campus Law Centre ( tavin.sethi01@protonmail.com )
|| Dec 8, 2022 ||
Arbitration has been the favored mode of dispute resolution for quite a time now. Especially regarding commercial disputes.
Contractual relations are frequently multifaceted. These relations are getting more complex with time. And hence these complex relations have some specific dispute resolution needs.
Since the contracts aren’t veritably frequently between only two parties or for that matter not indeed in a single contractual document.
There are multiple ways to address similar specific requirements first is allowing inclusion of impacted parties in the main arbitration (joinder) and second is incorporating two separate arbitration proceedings into one (consolidation). [1]
In this blog, the author takes up the issue of joinder and specifically regarding the joinder of non-signatories.
Joinder of non-signatories to the arbitration
The major events which changed the trend in this regard are the (i) “The case of Chloro Control”[2], (ii) “246th Law Commission Report”[3] and (iii) “amendment of “Arbitration and Conciliation Act” (hereinafter “A&C Act”) in 2015”[4].
The leading case on this is Chloro Controls India v. Severn Trent Water Purification [5] case.
The court ruled that in extraordinary circumstances, a non-signatory or third party could be brought into arbitration without their prior consent if they meet the criteria of “claiming through or under a party to the arbitration agreement.” To ascertain such cases the court has laid down a threefold test or the mutual intentions test:
- a requirement of having a direct relation to the party signing the arbitration agreement;
- a requirement that the subject matter be directly related; and
- a requirement that the agreement between the parties be a composite transaction.[6]
Plus cases where ‘group of company’ (Dow Chemical Case)[7] doctrine is applicable.
When contrasting the text of Sections 45 and 8 of the A&C Act, the Supreme Court ruled that “in Section 45, the expression ‘any person’ clearly refers to the legislative intent of enlarging the scope of the words beyond ‘the parties’ who are signatory to the arbitration agreement”[8]. This helps to reach to the conclusion that a party who is “claiming through or under” a party to the arbitration agreement is on the same footing as a party to the agreement and hence can be lawfully added to the arbitration.
The said “Law Commission Report” recommended amendment in “Section 8” of the A&C Act[9] to add “person claiming through or under a party”. “2015 amendment”[10] followed the report in this regard. This would mean that now reference could be made “by a party to an arbitration agreement or any person claiming through or under him” as par with the Chloro Controls Judgement.[11]
Another relevant judgment is “P.R.Shah Shares & Stock Brokers v. B.H.H. Securities”[12] in which it was held that such joinders can happen as otherwise, it would lead to “multiplicity of proceedings, conflicting decisions, and cause injustice”[13]. In this judgement, the question of whether the party asking to be added is “claiming through or under a party to the arbitration agreement” was not considered necessary by the court.
Conclusion
The situation at present is such that the enforcement of awards (in cases of joinder of non-signatory), where such a reference has been made by court order, is unlikely to be denied. However, the same is not the case where an arbitral tribunal or an institution makes such reference, in such scenarios the treatment has been inconsistent.
While there are some cases like P.R. Shah[14] and “Sterna India Oil and Gas v. Nandini Impex”[15] in which the courts have accepted such reference by arbitral tribunals, on the other hand, there are some cases which even suggest that arbitral tribunals don’t even have the power to order consolidation/joinder. The leading case here is “V.G. Santhosam v. Shanthi Gnanasekaran”[16] where the high court set aside an award in which the tribunal had permitted the joinder of a party’s legal heir. The arbitral tribunal is not permitted to implead non-signatories to the arbitration agreement in the proceedings, the court ruled.
So, it is fairly clear that the Indian Courts have leaned towards favoring the joinder of non-signatories to a single arbitration but such reference has to be made by the courts, and whether arbitral tribunals have such a power or not remains a topic to be taken up on another day.
[1] Budihal, V. M. (n.d.). Chapter 3: Multiparty and Multi-contract Arbitrations’, in M.H., Dushyant Dave, et al.(eds), “Arbitration in India” 49-72 (Kluwer Law International, 2021).
[2] Chloro Controls India v. Severn Trent Water Purification, (2013) 1 SCC 641.
[3] Law Commission of India, “246th Report on Amendments to the Arbitration and Conciliation Act, 1996” (August 2014).
[4] The Arbitration and Conciliation Act, 1996.
[5] (2013) 1 SCC 641 .
[6] (2013) 1 SCC 641.
[7] Dow Chemical Company v. Isover Saint Gobain, ICC Case no. 4131 of 1982; (2013) 1 SCC 641.
[8] (2013) 1 SCC 641.
[9] “Arbitration and Conciliation Act, 1996, s. 8”.
[10] “Arbitration and Conciliation(Amendment) Act, 2015”.
[11] Ibid.
[12] “P.R.Shah Shares & Stock Brokers v. B.H.H. Securities”, (2012) 1 SCC 594.
[13] (2012) 1 SCC 594.
[14] (2012) 1 SCC 594.
[15] “Sterna India Oil and Gas v. Nandini Impex , MANU/DE/1694/2020”.
[16] “V.G. Santhosam v. Shanthi Gnanasekaran , MANU/TN/1637/2020”.
ADR Society, CLC 
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