Summary
In a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 arising from a Family Arrangement Agreement between two groups, the Supreme Court held that whether a non-signatory group, whose companies were central to the agreed exits, is a veritable party to the arbitration agreement involves contested facts best left to the arbitral tribunal under Section 16. Finding the arbitration agreement prima facie in existence, it appointed a sole arbitrator and left the non-signatory's objections open before the tribunal.
Issues
- What is the scope of the referral court's examination under Section 11(6), read with Section 11(6A), of the Arbitration and Conciliation Act, 1996?
- Whether, on a prima facie view, the SRG Group, which did not sign the Family Arrangement Agreement, could be referred to arbitration along with the signatory AMP and JRS Groups as a veritable party to the arbitration agreement.
- Whether the description of the contract as a 'Family Arrangement Agreement' bars impleading a non-family, non-signatory group in the arbitration.
Provisions considered
- Section 11(6) and 11(6A), Arbitration and Conciliation Act, 1996Section 11(6A) confines the referral court to examining the existence of an arbitration agreement, a prima facie inquiry rather than a mini-trial; the Court noted that its omission by the 2019 amendment has not been notified, so it remains in force, and found the arbitration agreement prima facie existed since no respondent denied it. (¶¶ 56, 57, 61, 65, 66, 79)
- Section 7 (including Section 7(4)(b)) read with Section 2(1)(h), Arbitration and Conciliation Act, 1996Following Cox and Kings, 'party' includes signatories and non-signatories; the written-agreement requirement does not exclude binding a non-signatory where there is a defined legal relationship, and consent can be shown by conduct, including exchange of communications. (¶¶ 66, 68, 69)
- Section 16, Arbitration and Conciliation Act, 1996Determining who are the true parties to an arbitration agreement goes to the tribunal's jurisdiction, which the tribunal can rule on after evidence, giving the non-signatory an opportunity to object. (¶¶ 63, 64, 65, 80, 82)
- Section 2(1)(f), Arbitration and Conciliation Act, 1996As one petitioner was a company incorporated in Jersey and another a Canadian citizen and resident, the dispute was an international commercial arbitration, bringing the petition before the Supreme Court. (¶ 2)
Held
- After the 2015 amendment inserting Section 11(6A), which legislatively overruled the wider inquiry permitted by SBP & Co. and Boghara Polyfab, the referral court under Section 11 only examines, prima facie, whether an arbitration agreement exists under Section 7, with validity limited to formal requirements such as writing; substantive objections and contested facts are for the arbitral tribunal under Section 16, and the court must not conduct a mini-trial. (¶¶ 56, 57, 59, 61, 62, 65, 79)
- Where joinder of a non-signatory is sought, the referral court rules prima facie on the existence of the arbitration agreement and whether the non-signatory is a veritable party, but given the complexity of that question it should ordinarily leave it to the tribunal to decide on evidence and the applicable legal doctrine, after hearing the non-signatory's jurisdictional objections. (¶¶ 63, 64, 65)
- Who is a party to an arbitration agreement is essentially a question of consent, which may be inferred from conduct. Mutual intent, the relationship with the signatories, common subject matter, composite transactions and performance of the contract are relevant; the non-signatory's involvement in negotiation, performance or termination must be positive, direct and substantial, not merely incidental. (¶¶ 68, 69, 70, 71)
- No respondent denied the arbitration agreement, and the JRS Group accepted arbitration with the AMP Group, so its prima facie existence was established. Clauses 2.1.4 and 2.1.6 with Schedules 7 and 8, providing for the AMP Group's exit from Millenium and the JRS and SRG Groups' exit from Deegee, both SRG companies, prima facie linked the SRG Group to the settlement, and without its joinder the disputes might not be fully and effectively resolved. (¶¶ 66, 72, 73, 74, 75, 76, 77)
- Whether the SRG Group consented to be bound depended on disputed facts, such as whether a chartered accountant or the JRS Group represented it, whether copying emails to its member without protest implied consent, how valuation documents came to be shared by a Deegee employee, and what its Rs 25 crore exit demand signified. These, and the SRG Group's dual test of consent to both the contract and the arbitration agreement, were left to the arbitral tribunal. (¶¶ 78, 79, 80)
- The name given to an agreement does not determine its character, so calling the contract a 'Family Arrangement Agreement' does not by itself prevent the non-family SRG Group from being impleaded in the arbitration. (¶ 81)
- Once the tribunal is constituted, the respondents may raise all objections available in law, and the tribunal will adjudicate the petitioners' claims only after, and if, those preliminary objections are rejected. (¶¶ 82, 84)
Result
Petition allowed; Mr. Akil Kureshi, former Chief Justice of the High Court of Rajasthan, appointed sole arbitrator, with fees and modalities to be fixed in consultation with the parties; all rights and contentions, including the SRG Group's objection to joinder, left open before the arbitrator.