Supreme Court of India
Cox And Kings Ltd vs Sap India Pvt. Ltd on 9 September, 2024
Author: Dhananjaya Y. Chandrachud
Bench: Dhananjaya Y. Chandrachud
2024 INSC 670 REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
ARBITRATION PETITION NO. 38 OF 2020
COX & KINGS LTD. …PETITIONER
VERSUS
SAP INDIA PVT. LTD. & ANR. …RESPONDENTS
JUDGMENT
Signature Not Verified
Digitally signed by
Sanjay Kumar
Date: 2024.09.09
14:37:19 IST
Reason:
J. B. PARDIWALA, J.:
1. Cox & Kings Ltd. (hereinafter referred to as the “petitioner”) has filed the
present petition in terms of Section 11(6) read with Section 11(12)(a) of
the Arbitration & Conciliation Act, 1996 (for short “the Act, 1996”),
seeking appointment of an arbitrator for the adjudication of disputes and
claims in terms of clause 15.7 of the Services General Terms and
Conditions Agreement dated 30.10.2015 entered into between the
Petitioner and SAP India Pvt. Ltd. (hereinafter referred to as the
“respondent no. 1”)
A. FACTUAL MATRIX
2. The petitioner is a company registered under the Companies Act, 1956 and
is engaged in the business of providing tourism packages and hospitality
services to its customers.
3. Respondent no. 1 is also a company registered under the Companies Act,
1956 and is engaged in the business of providing business software
solution services. It is a wholly-owned subsidiary of SAP SE GMBH
(Germany) (hereinafter referred to as the “respondent no. 2”), a company
incorporated under the laws of Germany.
Arbitration Petition No. 38/2020 Page 1 of 26
4. The petitioner and respondent no. 1 entered into a SAP Software End User
License Agreement & SAP Enterprise Support Schedule (for short
“License Agreement”) on 14.12.2010 under which the petitioner was
made a licensee of certain Enterprise Resource Planning (“ERP”) software
developed and owned by the respondents. The License Agreement is a
mandatory pre-requisite for all customers of the respondents who intend to
enter into any software agreement with the respondents.
5. It is the case of the petitioner that while it was developing its own software
for e-commerce operations in 2015, it was approached by respondent no. 1
who recommended their ‘Hybris Solution’ (hereinafter referred to as the
“SAP Hybris Software”) for use by the petitioner. It is the case of the
petitioner that respondent no. 1 had, at the relevant point in time,
represented that the SAP Hybris Software would be suitable and 90%
compatible to the requirements of the petitioner. It was further represented
that the customisation of the balance 10% would take about 10 months
from the date of execution of an agreement and that the customisation of
the SAP Hybris Software would take lesser time than the time the petitioner
may take in developing its own technological solution.
Arbitration Petition No. 38/2020 Page 2 of 26
6. The transaction for the purchase, customisation and use of the SAP Hybris
Software was divided into three separate agreements entered into between
the petitioner and respondent no. 1:
i. First, Software License and Support Agreement Software Order
Form no. 3 (for short “Order Form no. 3”) dated 30.10.2015 for
the purchase of SAP Hybris Software License by the petitioner.
ii. Second, the Services General Terms and Conditions Agreement (for
short “GTC agreement”) dated 30.10.2015 containing the terms
and conditions governing the implementation of the SAP Hybris
Software.
iii. Third, SAP Global Service and Support Agreement, Order Form no.
1 dated 16.11.2015 (for short “Order Form no. 1”) which was
executed pursuant to the signing of the GTC agreement and
contained the terms of payment between the parties for the services
being rendered.
7. It is the case of the petitioner that as it had already entered into the License
Agreement with respondent no. 1 in 2010, it was not required to do so again
for the purpose of purchasing the SAP Hybris Software. The GTC
agreement, Order Form no. 3 and Order Form no. 1 were all executed
pursuant to the License Agreement. The said three agreements are ancillary
Arbitration Petition No. 38/2020 Page 3 of 26
to the License Agreement and have a similar underlying commercialpurpose.
8. It is pertinent to note that in terms of Clause 15.7 of the GTC agreement,
in the event of any dispute, the parties agreed to resolve their disputes
through arbitration. Clause 15.7 of GTC agreement reads as under:
“15.7 Dispute Resolution: In the event of any dispute or
difference arising out of the subject matter of this Agreement,
the Parties shall undertake to resolve such disputes amicably.
If disputes and differences cannot be settled amicably then
such disputes shall be referred to bench of three arbitrators,
where each party will nominate one arbitrator and the two
arbitrators shall appoint a third arbitrator. Arbitration award
shall be binding on both parties. The arbitration shall be held
in Mumbai and each party will bear the expenses of their
appointed arbitrator. The expense of the third arbitrator shall
be shared by the parties. The arbitration process will be
governed by the Arbitration & Conciliation Act, 1996.”
9. Certain issues arose between the parties regarding the timely completion
and implementation of the SAP Hybris Software. After several queries
from the petitioner, respondent no. 1 vide e-mail dated 24.04.2016,
informed about certain challenges in the execution of the SAP Hybris
Software project. Thereafter, a series of emails were exchanged between
respondent no. 1 and the petitioner regarding the completion of the project.
Arbitration Petition No. 38/2020 Page 4 of 26
10. Subsequently, as there was no response from respondent no. 1 to the e-
mails sent by the petitioner, the latter, vide e-mail dated 31.08.2016
contacted respondent no. 2, i.e., the German parent company of respondent
no. 1 and apprised them of the issues being faced by the petitioner in the
execution and delivery of the SAP Hybris Software. Respondent no. 2 was
informed of the various shortcomings in the execution of the project and
the negative ramifications being caused to the petitioner’s business as a
result thereof. In response to the concerns raised by the petitioner,
respondent no. 2, vide e-mail dated 01.09.2016, assured to provide a
framework for resolution of the challenges and completion of the project.
11. Respondent no. 2 vide email dated 07.10.2016 assured the petitioner that
it would monitor the execution of the project and requested the petitioner
for an opportunity to agree on the revised plan and delivery. As per the
minutes of the meeting dated 14.11.2016, one of the suggestions given by
respondent no. 2 as part of the revised proposal for the execution of the
project was that a substantial part of the project work would be outsourced
to the more experienced global team, and one representative of respondent
no. 2 would overlook the progress of the project at the execution level.
Arbitration Petition No. 38/2020 Page 5 of 26
12. Unable to resolve the issues, the contract for the SAP Hybris Software
project ultimately came to be rescinded on 15.11.2016. In response to this,
respondent no. 2, vide e-mail dated 23.11.2016, requested the petitioner for
one last opportunity to complete the project, which the petitioner declined
vide email dated 24.11.2016.
13. Respondent no. 2, vide email dated 09.12.2016 sent to the petitioner,
communicated that there were shortcomings at the petitioner’s end as well
and the respondents could not be said to be solely responsible for the
collapse of the SAP Hybris Software project.
14. Despite several correspondences and meetings, the matter could not be
settled amicably between the parties. On 29.10.2017, respondent no. 1
issued a notice invoking arbitration under Clause 15.7 of the GTC
agreement for the alleged wrongful termination of the contract between the
parties and non-payment of Rs. 17 Crore. Upon failure of the petitioner to
nominate an arbitrator in response to the aforesaid notice, a Section 11(6)
petition was instituted by respondent no. 1 before the Bombay High Court.
The said petition came to be allowed vide order dated 30.11.2018 and an
arbitral tribunal was constituted to adjudicate the disputes between the
Arbitration Petition No. 38/2020 Page 6 of 26
parties. The petitioner filed its Statement of Defence and counterclaims on
31.07.2019 for an amount of Rs. 45,99,71,098/-.
15. It may not be out of place to state at this stage that respondent no. 2 was
not made a party to the aforesaid arbitration proceedings. In the course of
the said proceedings, the petitioner filed an application under Section 16 of
the Act, 1996 before the arbitral tribunal, contending that the four
agreements entered into between the parties were part of a composite
transaction and for this reason the agreements should be made a part of a
singular proceeding.
16. During the pendency of the aforesaid application, on 22.10.2019, the
NCLT, Mumbai admitted an application filed under Section 7 of the
Insolvency and Bankruptcy Code, 2016 (for short “the Insolvency Code”)
against the petitioner and appointed an Interim Resolution Professional.
Vide Public Announcement dated 25.10.2019, the Interim Resolution
Professional ordered for the commencement of the Corporate Insolvency
Resolution Process (‘CIRP’). On 05.11.2019, the NCLT passed an order
adjourning the arbitration proceedings sine die due to initiation of the
CIRP.
Arbitration Petition No. 38/2020 Page 7 of 26
17. Meanwhile, upon seeking permission of the Interim Resolution
Professional, the petitioner sent a fresh notice to the respondents on
07.11.2019 invoking arbitration under Clause 15.7 of the GTC agreement.
Pertinently, the petitioner arrayed respondent no. 2 in the said arbitration
notice. The petitioner appointed Dr. Justice Arijit Pasayat, former Judge of
this Court, as its nominated arbitrator and called upon the respondents to
appoint their arbitrator for the constitution of the tribunal. However, upon
failure of the respondents to appoint an arbitrator in terms of the said
notice, the petitioner has preferred the present petition.
B. REFERENCE ORDER
18.This petition was heard by a three-Judge Bench of this Court. By an order
dated 06.05.2022, Chief Justice N.V Ramana (as he then was) speaking for
himself and Justice A.S. Bopanna doubted the correctness of the
application of the Group of Companies doctrine by the Indian courts. Chief
Justice Ramana criticised the approach of a three-Judge Bench of this Court
in Chloro Controls India (P) Ltd v. Severn Trent Water Purification Inc
reported in (2013) 1 SCC 641 which relied upon the phrase “claiming
through or under” appearing in Section 45 of the Act, 1996 to adopt the
Group of Companies doctrine. He noted that the subsequent decisions of
Arbitration Petition No. 38/2020 Page 8 of 26
this Court read the doctrine into Sections 8 and 35 of the Act, 1996 without
adequately examining the interpretation of the phrase “claiming through or
under” appearing in those provisions. He also observed that economic
concepts such as tight group structure and single economic unit alone
cannot be utilized to bind a non-signatory to an arbitration agreement in
the absence of an express consent. Consequently, he referred the matter to
the larger bench to seek clarity on the interpretation of the phrase “claiming
through or under” appearing under Sections 8, 35 and 45 respectively of
the Act, 1996. The following two questions were formulated by him for
reference:
i. Whether the phrase “claiming through or under” in Sections 8 and
11 respectively of the Act, 1996 could be interpreted to include the
Group of Companies doctrine; and
ii. Whether the Group of Companies doctrine as expounded by Chloro
Controls (supra) and subsequent judgments is valid in law?
19. Justice Surya Kant, in a separate opinion, observed that the decisions of
this Court before Chloro Controls (supra) adopted a restrictive approach
by placing undue emphasis on formal consent. Justice Surya Kant traced
the evolution of the Group of Companies doctrine to observe that it had
gained a firm footing in Indian jurisprudence. However, he opined that this
Arbitration Petition No. 38/2020 Page 9 of 26
Court has adopted inconsistent approaches while applying the doctrine in
India, which needed to be clarified by a larger bench. Accordingly, he
highlighted the following questions of law for determination by the larger
Bench:
i. Whether the Group of Companies Doctrine should be read into
Section 8 of the Act, 1996 or whether it can exist in Indian
jurisprudence independent of any statutory provision;
ii. Whether the Group of Companies Doctrine should continue to be
invoked on the basis of the principle of ‘single economic reality’;
iii. Whether the Group of Companies Doctrine should be construed as a
means of interpreting implied consent or intent to arbitrate between
the parties; and
iv. Whether the principles of alter ego and/or piercing the corporate veil
can alone justify pressing the Group of Companies Doctrine into
operation even in the absence of implied consent?
C. SUBMISSIONS ON BEHALF OF THE APPELLANT
20. Mr. Hiroo Advani, the learned counsel appearing on behalf of the
petitioner, submitted at the outset that the GTC agreement, Order Form no.
1, Order Form no. 3 and the License Agreement are interlinked and form
Arbitration Petition No. 38/2020 Page 10 of 26
part of a composite transaction. The said four agreements cannot be
performed in isolation and have to be read coherently for achieving the
common object underlying the agreements.
21.The counsel submitted that respondent no. 1 is indisputably a fully owned
subsidiary of respondent no. 2 and the customisation of the SAP Hybris
Software to meet the requirements of the petitioner was not feasible
without the aid, execution and performance of respondent no. 2. He
submitted that for such reason, it could be said that there exists a direct
commercial relationship between the petitioner and both the respondents.
22. The counsel further submitted that the various emails exchanged between
the petitioner and respondent no. 2 are indicative of the intention of
respondent no. 2 to monitor the execution of the SAP Hybris Software
project and to ensure the compliance of the contractual obligations on
behalf of respondent no. 1. The counsel adverted to the contents of many
such emails in support of his contention.
23. The counsel placed reliance on certain clauses of the License Agreement,
Order Form no. 3 and GTC agreement to submit that although respondent
no. 2 may not have been a signatory to the agreements, yet it had been
Arbitration Petition No. 38/2020 Page 11 of 26
entrusted with certain liabilities and obligations under the agreements
entered into between the petitioner and respondent no. 1, thereby making
it a veritable party to the transaction.
24. In the last, the counsel submitted that as per the decision of the
Constitution Bench of this Court in Cox and Kings Ltd. v. SAP India Pvt.
Ltd. & Anr. reported in 2023 INSC 1051 the court at the stage of referral
is only required to look prima facie into the validity and existence of an
arbitration agreement and should leave the questions relating to the
involvement of the non-signatory to the arbitral tribunal.
D. SUBMISSIONS ON BEHALF OF THE RESPONDENTS
25. Mr. Ritin Rai, the learned senior counsel appearing on behalf of the
respondents made the following submissions which can be broadly divided
into four categories:
i. Contentions and claims sought to be raised by the petitioner are
pending adjudication before another arbitral tribunal constituted
under the same dispute resolution clause
Arbitration Petition No. 38/2020 Page 12 of 26
• The same contentions and claims as sought to be advanced in thepresent petition have already been raised and are pending
adjudication before an arbitral tribunal constituted under the GTC
Agreement. In the said proceedings, the Bombay High Court
appointed an arbitrator and the same was affirmed by this Court.
• The claims of the petitioner pertaining to the GTC agreement read
with Order Form no. 1 (collectively referred to as the “Service
Agreement”) are already sub-judice and cannot be permitted to be
reagitated. The petitioner has already filed its counterclaims for an
amount of Rs. 45,99,71,098/- before the arbitral tribunal presided
by Justice Madan B. Lokur (Retd.).
• Allowing parallel arbitration proceedings emanating from the same
agreement and transaction would entail a risk of conflicting
judgments on the same subject matter including the analogous set
of facts in evidence. As such, the principles of res sub-judice and
res judicata would be attracted to the second arbitration proceedings
and consequently the present petition.
ii. Respondent no. 2 has neither impliedly nor explicitly consented to
the arbitration agreement between the petitioner and respondent
no. 1
Arbitration Petition No. 38/2020 Page 13 of 26
• The agreements in question have been executed only between thepetitioner and respondent no. 1. Respondent no. 2 is not a signatory
to any of the agreements between the petitioner and respondent no.
1.
• Respondent no. 2 has been unnecessarily and disingenuously made
a party to the present proceedings. Not a single limb of the
transaction between the petitioner and respondent no. 1 was to be
performed by or has been performed by respondent no. 2.
Respondent no. 2 was never part of the negotiation process between
the petitioner and respondent no. 1. Respondent no. 2 did not by its
conduct, agree, either impliedly or explicitly, to be bound by the
terms and conditions of the agreements between respondent no. 1
and the petitioner.
• It is preposterous to suggest that by trying to address the concerns
of a customer of the subsidiary company (who had voluntarily
reached out), respondent no. 2 would become liable under the
contracts executed solely between the petitioner and respondent no.
1.
• Respondent no. 2 entered the fray only when the petitioner, of its
own accord, approached it and levelled certain allegations and
Arbitration Petition No. 38/2020 Page 14 of 26
raised issues concerning the SAP Hybris Software project with itsmanagement in August, 2016.
• There is nothing on record either in the contractual framework or
otherwise to indicate that the project was to be performed by
respondent no. 2. The only communication with respondent no. 2 in
respect of the SAP Hybris Software project arose after the escalation
emails in August, 2016 where the petitioner itself requested the
management of respondent no. 2 company to help with the alleged
issues plaguing the SAP Hybris Software project. It was neither the
intention of the petitioner nor that of respondent no. 1 to bind
respondent no. 2 to the agreements.
• The references to respondent no. 2 in the License Agreement only
indicate that respondent no. 1 has obtained a license from
respondent no. 2. No part of the License Agreement between the
petitioner and respondent no. 1 was to be performed by respondent
no. 2 and it is only in such circumstances that the parties chose not
to make respondent no. 2 a party thereto. The references to
respondent no. 2 in the License Agreement are standard references
used by global software licensing companies. These references
cannot bind a foreign owner of such licenses. Any finding to the
Arbitration Petition No. 38/2020 Page 15 of 26
contrary would completely upset the well-established commercialpractice in this sector and would set a dangerous precedent.
iii. Claims raised by the petitioners are beyond the ambit of Clause
15.7 of the GTC agreement
• There exists no commonality between the four agreements entered
into between the petitioner and respondent no. 1. The contention of
the petitioner that the four agreements form part of a “single
composite transaction” is incorrect as the License Agreement and
Order Form no. 3 bear no significance to the implementation of the
software, which is covered by the Services Agreement comprising
of the GTC agreement and Order Form no. 1. Implementation is an
exercise de hors the purchase of the license of the software.
• The claims raised by the petitioner are beyond the ambit of the
Services Agreement. As the License Agreement read with Order
Form no. 3 is distinct and independent from the Services
Agreement, it naturally follows that the arbitration agreement
contained under the GTC agreement read with Order Form no. 1
does not apply to the License Agreement read with Order Form no.
3.
Arbitration Petition No. 38/2020 Page 16 of 26
• As the arbitration clause under the License Agreement read with
Order Form no. 3 has not been invoked till date by either of the
parties, it stands to reason that any alleged claims pertaining to the
License Agreement read with Order Form no. 3 as mentioned in the
notice of arbitration are time-barred and cannot be adjudicated
upon. On this ground alone, the present Petition is liable to be
dismissed.
iv. The present petition is not bona fide and the petitioners have
suppressed material facts from this Court
• The present proceedings are a belated and misconceived attempt on
the part of the petitioner to inflate amounts that it claims are due
from respondent no. 1 and respondent no. 2. This is sought to be
done by the petitioner to portray and provide a false view of its
financial position to the creditors and subvert the due process of law
through colourable actions. The petitioner is indulging in forum-
shopping by once again attempting to appoint an arbitrator under
the GTC agreement, a right which both the Bombay High Court and
this Court, in two separate lengthy proceedings, under Sections 11
and 14 respectively of the Act, 1996, had decisively held to be
forfeited by the petitioner for all times to come.
Arbitration Petition No. 38/2020 Page 17 of 26
• The petitioner failed to disclose that respondent no. 1 had
challenged the notice of arbitration before the NCLT, Mumbai.
E. SUBMISSIONS ON BEHALF OF THE INTERVENOR,
UNCITRAL NATIONAL COORDINATION COMMITTEE FOR
INDIA (UNCCI)
26. Mr George Pothan Poothicote and Ms Manisha Singh, the learned counsel
appearing on behalf of the intervenors in I.A. no. 69863 of 2023, made the
following submissions:
i. UNCITRAL Model Law on International Commercial Arbitration
(“model law”) was amended in 2006 to address the concerns about
the formal requirements necessary for constituting an arbitration
agreement. The amendment was adopted by the United Nations
General Assembly vide Resolution 61/33 dated 04.12.2006. Post the
amendment, Article 7 of the model law provides two options to the
member states – the first option requires the arbitration agreement to
be in the form of a clause in a contract or a separate agreement, both
of which must be in writing; the second option is silent on the
requirement of a written agreement and thus the contract law
applicable in a specific jurisdiction remains available for the
Arbitration Petition No. 38/2020 Page 18 of 26
determination of the level of consent necessary for a party to becomebound by an arbitration agreement allegedly made by reference.
Section 7 of the Act, 1996 is similar to (but not the same as) the first
option.
ii. As per the Constitution Bench decision in Cox and Kings (supra),
the court, at the referral stage, is not bound to go into the merits of
the case to decide if the non-signatory is bound by the arbitration
agreement. On the contrary, the referral court should leave it to the
arbitral tribunal to decide such an issue.
F. ANALYSIS
27. Having heard the learned counsel appearing for the parties and having
gone through the materials on record, the short question that falls for our
consideration is whether the application of the petitioner for the
appointment of an arbitrator deserves to be allowed.
28. On the scope of powers of the referral court at the stage of Section 11(6),
it was observed by us in Lombardi Engg. Ltd. v. Uttarakhand Jal Vidyut
Nigam Ltd. reported in 2023 INSC 976 as follows:
“26. Taking cognizance of the legislative change, this Court
in Duro Felguera, S.A. v. Gangavaram Port Ltd. [Duro
Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729 :Arbitration Petition No. 38/2020 Page 19 of 26
(2017) 4 SCC (Civ) 764] , noted that post 2015 Amendment,
the jurisdiction of the Court under Section 11(6) of the 1996
Act is limited to examining whether an arbitration agreement
exists between the parties — “nothing more, nothing less.””
(Emphasis supplied)
29. A Constitution Bench of this Court in In Re: Interplay Between
Arbitration Agreements under the Arbitration and Conciliation Act, 1996
and the Stamp Act, 1899 reported in 2023 INSC 1066, speaking through
one of us (Dr. D.Y. Chandrachud, CJI), considered the scope of judicial
interference by the referral court in a Section 11 application. A few relevant
observations made therein are reproduced hereinbelow:
“81. One of the main objectives behind the enactment of the
Arbitration Act was to minimise the supervisory role of
Courts in the arbitral process by confining it only to the
circumstances stipulated by the legislature. For instance,
Section 16 of the Arbitration Act provides that the Arbitral
Tribunal may rule on its own jurisdiction “including ruling
on any objection with respect to the existence or validity of
the arbitration agreement”. The effect of Section 16, bearing
in view the principle of minimum judicial interference, is that
judicial authorities cannot intervene in matters dealing with
the jurisdiction of the Arbitral Tribunal. Although Sections 8
and 11 allow Courts to refer parties to arbitration or appoint
arbitrators, Section 5 limits the Courts from dealing with
substantive objections pertaining to the existence and validity
of arbitration agreements at the referral or appointment
stage. A Referral Court at Section 8 or Section 11 stage can
only enter into a prima facie determination. The legislative
mandate of prima facie determination ensures that the
Referral Courts do not trammel the Arbitral Tribunal’s
authority to rule on its own jurisdiction.”Arbitration Petition No. 38/2020 Page 20 of 26
30. In a recent decision in SBI General Insurance Co. Ltd. v. Krish Spinning
reported in 2024 INSC 532, it was observed by us that the arbitral tribunal
is the preferred first authority to look into the questions of arbitrability and
jurisdiction, and the courts at the referral stage should not venture into
contested questions involving complex facts. A few relevant paragraphs of
the said decision are extracted hereinbelow:
“98. What follows from the negative facet of arbitral
autonomy when applied in the context of Section 16 is that
the national courts are prohibited from interfering in matters
pertaining to the jurisdiction of the arbitral tribunal, as
exclusive jurisdiction on those aspects vests with the arbitral
tribunal. The legislative mandate of prima facie
determination at the stage of Sections 8 and 11 respectively
ensures that the referral courts do not end up venturing into
what is intended by the legislature to be the exclusive domain
of the arbitral tribunal.
xxx xxx xxx
114. In view of the observations made by this Court in In Re:
Interplay (supra), it is clear that the scope of enquiry at the
stage of appointment of arbitrator is limited to the scrutiny of
prima facie existence of the arbitration agreement, and
nothing else. […]
xxx xxx xxx
125. We are also of the view that ex-facie frivolity and
dishonesty in litigation is an aspect which the arbitral
tribunal is equally, if not more, capable to decide upon the
appreciation of the evidence adduced by the parties. We say
so because the arbitral tribunal has the benefit of going
through all the relevant evidence and pleadings in much more
detail than the referral court. If the referral court is able to
see the frivolity in the litigation on the basis of bare minimum
pleadings, then it would be incorrect to doubt that the arbitral
tribunal would not be able to arrive at the same inference,Arbitration Petition No. 38/2020 Page 21 of 26
most likely in the first few hearings itself, with the benefit of
extensive pleadings and evidentiary material.”
(Emphasis supplied)
31. Further, on the scope of enquiry at the referral stage for the determination
of whether a non-signatory can be impleaded as a party in the arbitration
proceedings, it was observed by the Constitution Bench in Cox and Kings
(supra) as follows:
“158. Section 16 of the Arbitration Act enshrines the
principle of competence-competence in Indian arbitration
law. The provision empowers the Arbitral Tribunal to rule on
its own jurisdiction, including any ruling on any objections
with respect to the existence or validity of arbitration
agreement. Section 16 is an inclusive provision which
comprehends all preliminary issues touching upon the
jurisdiction of the Arbitral Tribunal. [Uttarakhand Purv
Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd.,
(2020) 2 SCC 455 : (2020) 1 SCC (Civ) 570] The doctrine of
competence-competence is intended to minimise judicial
intervention at the threshold stage. The issue of determining
parties to an arbitration agreement goes to the very root of
the jurisdictional competence of the Arbitral Tribunal.
xxx xxx xxx
160. In Pravin Electricals (P) Ltd. v. Galaxy Infra & Engg.
(P) Ltd. [Pravin Electricals (P) Ltd. v. Galaxy Infra & Engg.
(P) Ltd., (2021) 5 SCC 671 : (2021) 3 SCC (Civ) 307] , a
Bench of three Judges of this Court was called upon to decide
an appeal arising out of a petition filed under Section 11(6)
of the Arbitration Act for appointment of sole arbitrator. The
issue before the Court was the determination of existence of
an arbitration agreement on the basis of the documentary
evidence produced by the parties. This Court prima facie
opined that there was no conclusive evidence to infer the
Arbitration Petition No. 38/2020 Page 22 of 26
existence of a valid arbitration agreement between the
parties. Therefore, the issue of existence of a valid arbitration
agreement was referred to be decided by the Arbitral
Tribunal after conducting a detailed examination of
documentary evidence and cross-examination of witnesses.
161. The above position of law leads us to the inevitable
conclusion that at the referral stage, the Court only has to
determine the prima facie existence of an arbitration
agreement. If the referral court cannot decide the issue, it
should leave it to be decided by the Arbitral Tribunal. The
referral court should not unnecessarily interfere with
arbitration proceedings, and rather allow the Arbitral
Tribunal to exercise its primary jurisdiction. In Shin-Etsu
Chemical Co. Ltd. v. Aksh Optifibre Ltd. [Shin-Etsu
Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234],
this Court observed that there are distinct advantages to
leaving the final determination on matters pertaining to the
validity of an arbitration agreement to the Tribunal : (Shin-
Etsu Chemical Co. case [Shin-Etsu Chemical Co.
Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234] , SCC p. 267,
para 74)
“74. … Even if the Court takes the view that the arbitral
agreement is not vitiated or that it is not valid, inoperative
or unenforceable, based upon purely a prima facie view,
nothing prevents the arbitrator from trying the issue fully
and rendering a final decision thereupon. If the arbitrator
finds the agreement valid, there is no problem as the
arbitration will proceed and the award will be made.
However, if the arbitrator finds the agreement invalid,
inoperative or void, this means that the party who wanted
to proceed for arbitration was given an opportunity of
proceeding to arbitration, and the arbitrator after fully
trying the issue has found that there is no scope for
arbitration.”
xxx xxx xxx
164. In case of joinder of non-signatory parties to an
arbitration agreement, the following two scenarios will
prominently emerge: first, where a signatory party to an
arbitration agreement seeks joinder of a non-signatory party
to the arbitration agreement; and second, where a non-
Arbitration Petition No. 38/2020 Page 23 of 26
signatory party itself seeks invocation of an arbitration
agreement. In both the scenarios, the referral court will be
required to prima facie rule on the existence of the
arbitration agreement and whether the non-signatory is a
veritable party to the arbitration agreement. In view of the
complexity of such a determination, the referral court should
leave it for the Arbitral Tribunal to decide whether the non-
signatory party is indeed a party to the arbitration agreement
on the basis of the factual evidence and application of legal
doctrine. The Tribunal can delve into the factual,
circumstantial, and legal aspects of the matter to decide
whether its jurisdiction extends to the non-signatory party. In
the process, the Tribunal should comply with the
requirements of principles of natural justice such as giving
opportunity to the non-signatory to raise objections with
regard to the jurisdiction of the Arbitral Tribunal. This
interpretation also gives true effect to the doctrine of
competence-competence by leaving the issue of
determination of true parties to an arbitration agreement to
be decided by the Arbitral Tribunal under Section 16.
165. In view of the discussion above, we arrive at the
following conclusions:
………
(l) At the referral stage, the referral court should leave it for
the Arbitral Tribunal to decide whether the non-signatory is
bound by the arbitration agreement […]”
(Emphasis supplied)
32. As discussed above, the respondents have raised a number of objections
against the present petition, however, none of the objections raised question
or deny the existence of the arbitration agreement under which the
arbitration has been invoked by the petitioner in the present case. Thus, the
requirement of prima facie existence of an arbitration agreement, as
stipulated under Section 11 of the Act, 1996, is satisfied.
Arbitration Petition No. 38/2020 Page 24 of 26
33. Once the arbitral tribunal is constituted, it shall be open for the respondents
to raise all the available objections in law, and it is only after (and if) the
preliminary objections are considered and rejected by the tribunal that it
shall proceed to adjudicate the claims of the petitioner.
34. Further, on the issue of impleadment of respondent no. 2, which is not a
signatory to the arbitration agreement, elaborate submissions have been
made on both the sides, placing reliance on terms of the agreements, email
exchanges, etc. In view of the complexity involved in the determination of
the question as to whether the respondent no. 2 is a party to the arbitration
agreement or not, we are of the view that it would be appropriate for the
arbitral tribunal to take a call on the question after taking into consideration
the evidence adduced before it by the parties and the application of the
legal doctrine as elaborated in the decision in Cox and Kings (supra).
35. In view of the aforesaid, the present petition is allowed. We appoint Shri
Justice Mohit S. Shah, former Chief Justice of the High Court of Judicature
at Bombay to act as the sole arbitrator. The fees of the arbitrator including
other modalities shall be fixed in consultation with the parties.
Arbitration Petition No. 38/2020 Page 25 of 26
36. It is made clear that all the rights and contentions of the parties are left
open for adjudication by the learned arbitrator.
37. Pending application(s), if any, shall stand disposed of.
…………………………………….CJI
(Dr. Dhananjaya Y. Chandrachud)
………………………………………J.
(J.B. Pardiwala)
………………………………………J.
(Manoj Misra)
New Delhi;
9th September, 2024
Arbitration Petition No. 38/2020 Page 26 of 26