In the matter of Cheran Properties Limited v. Kasturi and Sons Limited and Ors., a 3 Judge Bench of the Supreme Court, headed by Chief Justice Dipak Misra passed a judgment on 24th April 2018 on the question of binding of arbitral award on a non-signatory to the Arbitration Agreement. In the Civil Appeal filed by the appellants, an arbitration agreement was entered into between KC Palanisamy (KCP), KSL and SPIL and a company by the name of Hindcorp Resorts Pvt. Ltd. (Hindcorp). Later on disputes arose between the parties resulting in the commencement of arbitral proceedings. Under the terms of the award, a direction was issued under which KCP and SPIL were required to return documents of title and share certificates contemporaneously with KSL paying an amount of Rs 3,58,11,000 together with interest at 12% p.a. on a sum of Rs 2.55 crores. KCP challenged the award of the arbitral tribunal under Section 34 of the Arbitration and Conciliation Act, 1996 on the ground that the arbitral award could not be executed against the appellant which is admittedly not a signatory to the agreement.

Submissions were made on the applicability of Section 7, 9, 11, 34 and 35 of the Arbitration and Conciliation Act for the purpose of understanding the position of a non-signatories’ liability to an Arbitration Award.

 

After conclusion of the submissions of the respective Counsel, the Court made reference to the ‘Group of Companies’ doctrine in the Chloro Controls case which states that:

“…….This doctrine has developed in the international context, whereby an arbitration agreement entered into by a company, being one within a group of companies, can bind its non-signatory affiliates or sister or parent concerns, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates. This theory has been applied in a number of arbitrations so as to justify a tribunal taking jurisdiction over a party who is not a 19 signatory to the contract containing the arbitration agreement.

This evolves the principle that a non-signatory party could be subjected to arbitration provided these transactions were with group of companies and there was a clear intention of the parties to bind both, the signatory as well as the non-signatory parties. In other words, “intention of the parties” is a very significant feature which must be established before the scope of arbitration can be said to include the signatory as well as the non-signatory parties.”

On the issue of a written arbitration agreement, the Court held that the mandate to have a written agreement is to exclude the jurisdiction of national courts. Where parties have agreed to resolve their disputes by arbitration, they seek to substitute a private forum for dispute resolution in place of the adjudicatory institutions constituted by the state. Hence, the Court remarked that the evolving body of academic literature as well as adjudicatory trends indicate that in certain situations, an arbitration agreement between two or more parties may operate to bind other parties as well.

Eventually, the Apex Court dismissed the appeals stating that the appellant was not a party to the arbitral proceedings will not conclude the question as to whether the award can be enforced against it on the ground that it claims under a party.

 

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Judgment: Cheran Properties Limited Versus Kasturi And Sons Limited and Others