Summary
Neither service of a notice invoking arbitration under Section 21 of the Arbitration and Conciliation Act, 1996 nor joinder in the Section 11 application is a prerequisite for an arbitral tribunal to exercise jurisdiction over a person. The tribunal's jurisdiction flows from the arbitration agreement, so the proper inquiry under Section 16 is whether the person is a party to that agreement under Section 7, including as a non-signatory bound by conduct (Cox and Kings). The LLP created by the LLP Agreement and its CEO designated under that agreement were held to be parties to the arbitration clause and were directed to be impleaded; the orders of the arbitral tribunal and the High Court holding otherwise were set aside.
Issues
- Whether service of a notice invoking arbitration under Section 21 and joinder in an application under Section 11 of the Arbitration and Conciliation Act, 1996 are prerequisites to impleading a person as a party to arbitral proceedings.
- What is the source of an arbitral tribunal's jurisdiction over a person sought to be impleaded, and what inquiry must the tribunal undertake under Section 16 when deciding whether it has jurisdiction over him.
- Whether respondent no. 2 (the LLP constituted under the LLP Agreement) and respondent no. 3 (its CEO designated under Clause 8 of that agreement), who did not sign the LLP Agreement, are parties to the arbitration agreement in Clause 40 and can be impleaded before the arbitral tribunal.
Provisions considered
- Section 21, Arbitration and Conciliation Act, 1996Arbitral proceedings commence on the date the respondent receives a request to refer the dispute to arbitration, unless otherwise agreed. The Court held that a Section 21 notice is mandatory because it fixes commencement, which governs limitation (Section 43), the applicable law and the precondition for a Section 11 application; but nothing in the provision or the scheme of the Act makes non-service on a person a bar to his later impleadment, just as claims not raised in the notice may still be raised before the tribunal (Praveen Enterprises). (¶¶ 8, 9, 10, 11, 12, 13, 14, 30.2, 40)
- Section 11(6) and (6A), Arbitration and Conciliation Act, 1996When the agreed appointment procedure fails, a party may ask the court to take the necessary measure to secure appointment, and the court confines itself to a prima facie examination of the existence of the arbitration agreement. The Court held that the referral order only constitutes the tribunal and does not limit its terms of reference or conclusively determine who are parties; a prima facie view on non-signatories does not bind the tribunal (Cox and Kings, para 169). (¶¶ 15, 16, 17, 18, 19, 20, 40)
- Section 16, Arbitration and Conciliation Act, 1996Section 16 embodies kompetenz-kompetenz: the tribunal rules on its own jurisdiction, including the existence and validity of the arbitration agreement, who is a party to it and the scope of referable disputes. The Court held that the relevant inquiry on a Section 16 objection to impleadment is whether the person is a party to the arbitration agreement; the tribunal here erred by deciding the objection solely on non-service of the Section 21 notice and non-joinder in the Section 11 application. (¶¶ 18, 22, 24, 26, 27, 28, 39, 40)
- Section 7, Arbitration and Conciliation Act, 1996An arbitration agreement must be in writing but need not be signed; under Section 7(4)(b) a non-signatory's mutual intention to be bound is ascertained from the record of agreement and its conduct in the formation, performance and termination of the contract, applying the Discovery Enterprises factors holistically (Cox and Kings). The Court applied this to hold that respondent nos. 2 and 3 are bound by Clause 40 of the LLP Agreement. (¶¶ 22, 23, 36, 36.1, 36.2, 37, 38, 39)
- Section 37(2)(a), Arbitration and Conciliation Act, 1996The appeal arose from the High Court's dismissal of an appeal under Section 37(2)(a) against the tribunal's order accepting the Section 16 plea. The Court noted it was not confined to the Section 34 grounds but must give due deference to the grounds that weighed with the tribunal in declining jurisdiction (Discovery Enterprises). (¶¶ 5, 34)
Held
- A notice invoking arbitration under Section 21 is mandatory, unless the parties agree otherwise, because it fixes the date of commencement of arbitral proceedings, which determines limitation for the substantive claims and for the Section 11 application, the law applicable to the arbitration, and is a precondition for invoking the court's jurisdiction under Section 11. Its other functions, such as informing the respondent of the claims and enabling objections to proposed arbitrators, are incidental. Non-service of the notice on a person who is a party to the arbitration agreement does not denude the tribunal of jurisdiction to implead him during the proceedings. Alupro Building Systems (Delhi HC) is approved on the mandatory nature of the notice but not on the conclusion that non-service nullifies jurisdiction over the person. (¶¶ 9, 10, 11, 12, 14, 30.2, 40)
- The purpose of a Section 11 application is only to constitute the arbitral tribunal when the agreed appointment procedure fails. The referral court undertakes a limited, prima facie examination of the existence of the arbitration agreement and its parties, and its order neither restricts the tribunal's terms of reference nor conclusively decides who can be made party to the arbitration. The fact that a person was not joined in the Section 11 application and not referred by the court does not by itself prevent his later impleadment. (¶¶ 16, 17, 18, 19, 20, 40)
- The arbitral tribunal's jurisdiction over a person derives from his consent to the arbitration agreement under Section 7. The proper inquiry in a Section 16 application on impleadment is therefore whether the person is a party to the arbitration agreement; if so, he can be made party to the proceedings even though he was not served with a Section 21 notice or referred by the court under Section 11. International practice supports an implied power of the tribunal to join parties bound by a multi-party arbitration clause. (¶¶ 22, 23, 24, 25, 26, 40)
- The arbitral tribunal and the High Court adopted an incorrect approach by refusing jurisdiction solely on the grounds of non-service of the notice and non-joinder in the Section 11 application, without examining whether respondent nos. 2 and 3 were parties to the arbitration agreement; the Bombay High Court's decision in Cardinal Energy, which permits impleadment by the tribunal of persons not joined under Section 11, was not properly considered. (¶¶ 27, 28, 33, 33.1, 35)
- Clause 40 of the LLP Agreement expressly covers disputes between the partners inter se and between the partners and the LLP or its administrators. The LLP (respondent no. 2) was created under that agreement and carries on its business, including the ITF Project, on its terms, and the CEO (respondent no. 3) derives his position and duties from Clause 8; by their conduct both consented to the LLP Agreement and are bound by its arbitration clause, respondent no. 3 in his capacity as CEO and not individually. They are parties to the arbitration agreement despite being non-signatories and can be impleaded under Section 16. (¶¶ 37, 38, 39, 40)
Result
Appeal allowed. The Delhi High Court's judgment dated 08.07.2024 in Arb. A. (Comm.) 24/2024 set aside; respondent nos. 2 and 3 directed to be impleaded as parties before the arbitral tribunal and the proceedings to continue from the stage of the tribunal's order dated 15.02.2024, with a request that the hearings be completed and the award passed expeditiously since the claim was filed in 2022. No order as to costs; pending applications disposed of.