1) The singular question involved in this application filed
under Sections 11(5), 11(9) and 11(12)(a) of the Arbitration
and Conciliation Act, 1996 (for short “the Act”) seeking
appointment of a sole arbitrator, is whether respondent No.2 a
company established under the laws of Belgium, having its
principal place of business at Nijverheldsstraat 3, 2530
Boechout, Belgium, could be impleaded in the proposed
arbitration proceedings despite the fact that it is a non
signatory party to the agreement dated 1st May, 2014,
executed between the applicant and respondent No.1 a
company established under the Companies Act, 2013 merely
because it (respondent No.2) is one of the group companies of
which respondent No.1 also is a constituent. The legal position
as to when a nonsignatory
to an arbitration agreement can be
impleaded and subjected to arbitration proceedings is no more
res integra. In the case of Chloro Controls India Private
Limited Vs. Severn Trent Water Purification Inc. and
Ors.,1 a threeJudge
Bench of this Court opined that
ordinarily, an arbitration takes place between the persons who
have been parties to both the arbitration agreement as well as
the substantive contract underlying it. Invoking the doctrine
of “group of companies”, it went on to observe that an
arbitration agreement entered into by a company, being one
within a group of corporate entities, can, in certain
circumstances, bind its nonsignatory
affiliates.
2) In paragraph 23 of this
decision, the Court, after analysing the earlier decisions and
including the doctrine expounded in Chloro Controls India
Private Limited (supra), concluded as follows:
“23. As the law has evolved, it has recognised that modern
business transactions are often effectuated through multiple
layers and agreements. There may be transactions within a
group of companies. The circumstances in which they have
entered into them may reflect an intention to bind both
signatory and nonsignatory
entities within the same group.
In holding a nonsignatory
bound by an arbitration
agreement, the court approaches the matter by attributing to
the transactions a meaning consistent with the business
sense which was intended to be ascribed to them. Therefore,
factors such as the relationship of a nonsignatory
to a party
which is a signatory to the agreement, the commonality of
subjectmatter
and the composite nature of the transaction
weigh in the balance. The group of companies doctrine is
essentially intended to facilitate the fulfilment of a mutually
held intent between the parties, where the circumstances
indicate that the intent was to bind both signatories and
nonsignatories.
The effort is to find the true essence of the
business arrangement and to unravel from a layered
structure of commercial arrangements, an intent to bind
someone who is not formally a signatory but has assumed
the obligation to be bound by the actions of a signatory.”
3)
In the backdrop of the averments in the application and
the correspondence exchanged between the parties adverted to
by the applicant, it is obvious that the thrust of the claim of
the applicant is that Mr. Frederik Reynders was acting for and
on behalf of respondent No.2, as a result of which the
respondent No.2 has assented to the arbitration agreement.
This basis has been completely demolished by respondent
No.2 by stating, on affidavit, that Mr. Frederik Reynders was
in no way associated with respondent No.2 and was only an
employee of respondent No.1, who acted in that capacity
during the negotiations preceding the execution of agreement.
Thus, respondent No.2 was neither the signatory to the
arbitration agreement nor did have any causal connection with
the process of negotiations preceding the agreement or the
execution thereof, whatsoever. If the main plank of the
applicant, that Mr. Frederik Reynders was acting for and on
behalf of respondent No.2 and had the authority of respondent
No.2, collapses, then it must necessarily follow that
respondent No.2 was not a party to the stated agreement nor
had it given assent to the arbitration agreement and, in
absence thereof, even if respondent No.2 happens to be a
constituent of the group of companies of which respondent
No.1 is also a constituent, that will be of no avail. For, the
burden is on the applicant to establish that respondent No.2
had an intention to consent to the arbitration agreement and
be party thereto, maybe for the limited purpose of enforcing
the indemnity clause 9 in the agreement, which refers to
respondent No.1 and the supplier group against any claim of
loss, damages and expenses, howsoever incurred or suffered
by the applicant and arising out of or in connection with
matters specified therein. That burden has not been
discharged by the applicant at all. On this finding, it must
necessarily follow that respondent No.2 cannot be subjected to
the proposed arbitration proceedings.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
PETITION FOR ARBITRATION (CIVIL) NO. 65 OF 2016
Reckitt Benckiser (India) Private Limited Vs Reynders Label Printing India Private Limited
A.M. Khanwilkar, J.
Dated:July 01, 2019.
Print Page
under Sections 11(5), 11(9) and 11(12)(a) of the Arbitration
and Conciliation Act, 1996 (for short “the Act”) seeking
appointment of a sole arbitrator, is whether respondent No.2 a
company established under the laws of Belgium, having its
principal place of business at Nijverheldsstraat 3, 2530
Boechout, Belgium, could be impleaded in the proposed
arbitration proceedings despite the fact that it is a non
signatory party to the agreement dated 1st May, 2014,
executed between the applicant and respondent No.1 a
company established under the Companies Act, 2013 merely
because it (respondent No.2) is one of the group companies of
which respondent No.1 also is a constituent. The legal position
as to when a nonsignatory
to an arbitration agreement can be
impleaded and subjected to arbitration proceedings is no more
res integra. In the case of Chloro Controls India Private
Limited Vs. Severn Trent Water Purification Inc. and
Ors.,1 a threeJudge
Bench of this Court opined that
ordinarily, an arbitration takes place between the persons who
have been parties to both the arbitration agreement as well as
the substantive contract underlying it. Invoking the doctrine
of “group of companies”, it went on to observe that an
arbitration agreement entered into by a company, being one
within a group of corporate entities, can, in certain
circumstances, bind its nonsignatory
affiliates.
2) In paragraph 23 of this
decision, the Court, after analysing the earlier decisions and
including the doctrine expounded in Chloro Controls India
Private Limited (supra), concluded as follows:
“23. As the law has evolved, it has recognised that modern
business transactions are often effectuated through multiple
layers and agreements. There may be transactions within a
group of companies. The circumstances in which they have
entered into them may reflect an intention to bind both
signatory and nonsignatory
entities within the same group.
In holding a nonsignatory
bound by an arbitration
agreement, the court approaches the matter by attributing to
the transactions a meaning consistent with the business
sense which was intended to be ascribed to them. Therefore,
factors such as the relationship of a nonsignatory
to a party
which is a signatory to the agreement, the commonality of
subjectmatter
and the composite nature of the transaction
weigh in the balance. The group of companies doctrine is
essentially intended to facilitate the fulfilment of a mutually
held intent between the parties, where the circumstances
indicate that the intent was to bind both signatories and
nonsignatories.
The effort is to find the true essence of the
business arrangement and to unravel from a layered
structure of commercial arrangements, an intent to bind
someone who is not formally a signatory but has assumed
the obligation to be bound by the actions of a signatory.”
3)
In the backdrop of the averments in the application and
the correspondence exchanged between the parties adverted to
by the applicant, it is obvious that the thrust of the claim of
the applicant is that Mr. Frederik Reynders was acting for and
on behalf of respondent No.2, as a result of which the
respondent No.2 has assented to the arbitration agreement.
This basis has been completely demolished by respondent
No.2 by stating, on affidavit, that Mr. Frederik Reynders was
in no way associated with respondent No.2 and was only an
employee of respondent No.1, who acted in that capacity
during the negotiations preceding the execution of agreement.
Thus, respondent No.2 was neither the signatory to the
arbitration agreement nor did have any causal connection with
the process of negotiations preceding the agreement or the
execution thereof, whatsoever. If the main plank of the
applicant, that Mr. Frederik Reynders was acting for and on
behalf of respondent No.2 and had the authority of respondent
No.2, collapses, then it must necessarily follow that
respondent No.2 was not a party to the stated agreement nor
had it given assent to the arbitration agreement and, in
absence thereof, even if respondent No.2 happens to be a
constituent of the group of companies of which respondent
No.1 is also a constituent, that will be of no avail. For, the
burden is on the applicant to establish that respondent No.2
had an intention to consent to the arbitration agreement and
be party thereto, maybe for the limited purpose of enforcing
the indemnity clause 9 in the agreement, which refers to
respondent No.1 and the supplier group against any claim of
loss, damages and expenses, howsoever incurred or suffered
by the applicant and arising out of or in connection with
matters specified therein. That burden has not been
discharged by the applicant at all. On this finding, it must
necessarily follow that respondent No.2 cannot be subjected to
the proposed arbitration proceedings.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
PETITION FOR ARBITRATION (CIVIL) NO. 65 OF 2016
Reckitt Benckiser (India) Private Limited Vs Reynders Label Printing India Private Limited
A.M. Khanwilkar, J.
Dated:July 01, 2019.
