Summary
A sub-vendor engaged by HPCL's contractor, and later assigned the contractor's receivables against HPCL, sought appointment of an arbitrator under HPCL's tender arbitration clause. The Supreme Court held that a referral court under Section 11 must be prima facie satisfied that a non-signatory is a veritable party; since the sub-vendor had no privity with HPCL, no consent to assignment was shown and the parties operated on separate orbits, no arbitration agreement existed between them and the Section 11 application was dismissed.
Issues
- Whether the High Court was justified in allowing the Section 11(4) application of a non-signatory sub-vendor and referring its claim against HPCL to arbitration.
- What the scope of the referral court's examination is when a non-signatory invokes an arbitration agreement, and whether the question must always be left to the arbitral tribunal.
- Whether the sub-vendor could invoke HPCL's arbitration clause as a person claiming through or under the contractor by virtue of an assignment of receivables.
Provisions considered
- Section 11(6A), Arbitration and Conciliation Act, 1996The referral court must confine itself to examining the existence of an arbitration agreement; following Interplay and Krish Spinning, this is a prima facie scrutiny of the dealings between the parties and not a laborious inquiry, but it includes examining whether a non-signatory is in the real sense a party to the agreement. (¶¶ 24, 25, 26, 27, 28, 35)
- Section 16, Arbitration and Conciliation Act, 1996The tribunal's power to rule on its own jurisdiction means that a prima facie finding by the referral court that a non-signatory is a veritable party does not bind the tribunal; but this does not require referral where the court finds prima facie that the party is not a veritable party. (¶¶ 25, 27, 28, 34, 35)
- Section 11(4), Arbitration and Conciliation Act, 1996The High Court had allowed the respondent's application under this sub-section and appointed an arbitrator, directing the tribunal to decide arbitrability first; the Supreme Court set this aside and dismissed the application. (¶¶ 2, 17, 23, 43)
Held
- Under Cox and Kings, when a non-signatory seeks to invoke or is sought to be joined to an arbitration agreement, the referral court must prima facie rule on the existence of the agreement and on whether the non-signatory is a veritable party, that is, truly and genuinely a party; it is not deprived of jurisdiction to examine this on the documents. (¶¶ 24, 25, 26)
- A prima facie finding that a non-signatory is a veritable party does not foreclose the arbitral tribunal from concluding otherwise; but where the referral court finds prima facie that the party is not a veritable party, the matter is not to be left to the tribunal, as that would reduce the referral court to an automaton and allow strangers to force arbitration. ASF Buildtech was held to be consistent with this line of authority. (¶¶ 33, 34, 35)
- Where a contractor engages third parties to perform the work, such third parties are not veritable parties unless there is at least prima facie some intent to create a legal relationship between them and the employer; a mere commercial relationship is insufficient. (¶ 36)
- The respondent was not even prima facie a veritable party: HPCL was not party to its back-to-back agreement with the contractor, which barred the respondent's project manager from communicating with HPCL without the contractor's approval; copies of emails marked to HPCL and an escrow account did not suffice; and the parties operated on separate orbits. (¶¶ 30, 32, 36, 40)
- Mere legal or commercial connection does not enable a non-signatory to claim through or under a signatory. The settlement-cum-assignment agreement between the contractor and the respondent transferring receivables against HPCL did not create an arbitration agreement with HPCL, particularly where the prior written consent to assignment required by the tender conditions was not shown. (¶¶ 31, 37, 38, 39, 40)
- Having found no arbitration agreement between the parties, the Court did not decide whether the claim was ex facie time-barred. (¶ 42)
Result
Appeal allowed; High Court order set aside and the Section 11 application dismissed; respondent at liberty to pursue any other remedy available in law; no order as to costs.