A five-judge Bench of the
Facts of the Case:
The dispute arose out of software licensing agreements entered into by
Issues:
The underlying issues to be determined by this Court was whether joinder of non-signatories as a 'party' is permissible under the Arbitration Act, the validity of the Doctrine and if joinder of a non-signatory is permissible, under what circumstances?
Findings:
While deciding on the issue of whether a non-signatory can be a 'party' under the Arbitration Act, this Court has emphasised on the age-old principle of party autonomy and mutual consent. The Bench asserted that consensus ad idem between parties formed the foundation of any arbitration, while establishing validity of the arbitration agreement in terms of satisfying all principles of contractual law while fulfilling the scope of Section 7of the Arbitration Act. It was noted that, while a signature is the most explicit way to signify this consent; the absence of a signature did not necessarily denote a lack of consent, especially in cases involving multiple parties. At this juncture, it must be discerned whether non-signatory entities consented to be bound as a 'party' to the arbitration agreement through their actions or conduct and their legal relationship. Thus, the requirement for ensuring written arbitration agreements is merely for establishing record of such consent.
This Court, while adjudicating on the validity of the Doctrine highlighted the fundamentals of corporate law pertaining to 'separate legal entity'. It is a quintessential aspect of corporate law that the
Therefore, the Hon'ble Court drew a distinction between the 'party' and persons 'claiming through or under', as had been propounded in the Chloro Controls case. Sections 2(1)(h) or Section 7 of the Arbitration Act have not used the term 'claiming through or under' as they are based on the principle of party autonomy. The Doctrine has its own independent existence under Indian arbitration jurisprudence, having its foundation rooted in mutual intent of the parties. Consequently, the approach of the Apex Court in Chloro Controls was held to be incorrect, and the Doctrine was disjointed from 'claiming through or under', whereby the latter only vets a derivative capacity in such persons.
Herein, the Court while arriving at its conclusion, also held that it is the arbitral tribunal which is equipped with the power of ascertaining the position of a non-signatory as a 'veritable' party to an arbitration while delving into all aspects of the dispute.
- It is not essential for arbitration agreement to be 'written' and non-signatories may be a "party" based on their conduct;
- The Doctrine has an independent existence under the Arbitration Act. It is a fact-based examination which relies on corporate separateness of group companies while assessing the common intention of the parties;
- "Party" and "persons claiming through or under" are distinctive where the latter's right is merely derivative through the former's rights;
- The finding of Chloro Controls while combining the Doctrine to the phrase "persons claiming through or under" is incorrect;
- The principles laid down in
Oil and Natural Gas Corp. Limited v.Discovery Enterprises Private Limited , [(2022) 8 SCC 42] would serve as a basis for application of the Doctrine.
Please find a copy of the judgment, here.
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