M.P. Road Development Corporation Ltd. ... vs M/S Essel Bhind Mihona Gopalpur Toll ... on 15 September, 2025

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Madhya Pradesh High Court

M.P. Road Development Corporation Ltd. ... vs M/S Essel Bhind Mihona Gopalpur Toll ... on 15 September, 2025

1. The instant Misc. Petition under Article 227 of the Constitution of India is preferred being crestfallen by the order dated 08/08/2024 (Annexure P/1) passed by M.P. Madhyastham Adhikaran, Bhopal whereby application filed by respondents under Section 17-A of the M.P. Madhyastham Adhikaran Adhiniyam, 1983 r/w Order 7 Rule 1 CPC with a prayer that reference petition be dismissed against respondent no.2 and respondent No.2/ Bank be directed to be deleted from the array of respondents.

2 . Precisely stated facts of the case are that subsequent to NIT dated 03/09/2008 towards augmenting of existing road from Lahar Junction to Mihona to Gopalpur on the section of S.H.No.2 and 45 in the State by two Signature Not Verified Signed by: VARSHA CHATURVEDI Signing time: 10-10-2025 05:59:51 PM NEUTRAL CITATION NO. 2025:MPHC-GWL:23722 2 MP-4945-2024 laning and subsequent two laning plus project on BOT basis in the State of MP, concession agreement dated 07/08/2009 was executed with M/s Essel Bhind Mohona Gopalpura Roads Ltd. Mumbai and consequent to which as per clause 40.3 of the Concession Agreement, Substitution Agreement amongst Madhya Pradesh Road Development Corporation, M/s Essel Bhind Mohona, Gopalpur Roads Ltd. and the State Bank of India (the lender representative) was executed on 25th May, 2010.

3. That apart, from the concession agreement Schedule to concession agreement Part IV enumerates about Escrow Agreement, Substitution Agreement, Tripartite Agreement and State Support Agreement. The concessionaire failed to project the right as per Concession Agreement and its schedule 12, therefore, matter went into correspondence and thereafter into filing of case before Madhya Pradesh Madhyastham Adhikaran.

4 . Procedure for substitution is provided in Substitution Agreement whereby MPRDC and Concessionaire agree that on or after the date of Notice of Financial Default or the date of representation to the MPRDC under Clause 3.3.2, as the case may be, the Lenders' Representative may, without prejudice to any of the other rights or remedies of the Senior Lender, invite, negotiate and procure offers, either by private negotiations or public auction or tenders for the take over and transfer of the Project. It appears that stipulated period of completion was 24 months including rainy season, whereas concession period was of 20 years provided that in case two laning is not undertaken for any reason, the concession period shall be deemed to be 15 years.

Signature Not Verified Signed by: VARSHA CHATURVEDI Signing time: 10-10-2025 05:59:51 PM

NEUTRAL CITATION NO. 2025:MPHC-GWL:23722 3 MP-4945-2024

5. Clause 17.9.2 of the Concession Agreement describes that MPDRC has the right, and the Concessionaire hereby expressly grants to MPRDC the right, to recover the costs and Damages specified in Clause 17.9.1 directly from the Escrow Accounts as if such costs and Damages were O & M Expenses. However, an application was preferred by respondent no.2/ Bank for deletion of its name, which was allowed and application for amendment under Order 6 Rule 17 CPC preferred by the petitioner was dismissed. Therefore, the instant petition is preferred.

6 . It is the submission of learned counsel for the petitioner that impugned order is passed in a slip shod manner ignoring the fact that Substitution Agreement gives authority to the Bank to nominate any company and therefore, the Bank has direct interest in the matter. He relied upon the judgment of the Supreme Court in the case of Cox and Kings Limited Vs. Sap India Private Limited and Another (2024) 4 SCC 1 and Mahanagar Telephone Nigam Limited Vs. Canara Bank and Others, (2020) 12 SCC 767.

7. Learned counsel for the respondents opposed the prayer and referred the order dated 23rd November, 2025 passed in AC No.50/2021 (M/s MBL Highway Development Company Vs. M.P. Road Development Corporation and Another) at Principal Seat Jabalpur and submits that 'Substitution Agreement' and 'Escrow Agreement' are not part of the concession agreement in view of specific exclusion under the definition of Project Agreements and therefore, they would not be covered within the definition of 'Works Contract' and the parties to the said agreement cannot resort to the Signature Not Verified Signed by: VARSHA CHATURVEDI Signing time: 10-10-2025 05:59:51 PM NEUTRAL CITATION NO. 2025:MPHC-GWL:23722 4 MP-4945-2024 remedy for Arbitral Tribunal under the Adhiniyam, 1983.

8. Heard the learned counsel for the parties and perused the documents appended thereto.

9. In the case in hand, petitioner/ MPRDC is aggrieved by the fact that respondent No.2/ Bank has been directed to be deleted from the array of respondents. A composite transaction refers to a transaction which is interlinked in nature or where the performance of the agreement may not be feasible without the aid, execution and performance of the supplementary or the ancillary agreement for achieving the common object, and collectively having a bearing on the dispute.

1 0 . In the case of MTNL (supra) , when the joinder of CANFINA owned subsidiary of Canara Bank in the arbitral proceedings, question of joinder was raised, then the Supreme Court has given guidance in following manner:-

"10.1 Canara Bank raised an objection to the joinder of Respondent No. 2 - CANFINA as a party to the arbitration proceedings.

10.2. As per the principles of contract law, an agreement entered into by one of the companies in a group, cannot be binding on the other members of the same group, as each company is a separate legal entity which has separate legal rights and liabilities. The parent, or the subsidiary company, entering into an agreement, unless acting in accord with the principles of agency or representation, will be the only entity in a group, to be bound by that agreement.

Similarly, an arbitration agreement is also governed by the same principles, and normally, the company entering into the agreement, would alone be bound by it.

10.3. A nonsignatory can be bound by an arbitration agreement on the basis of the "Group of Companies" doctrine, where Signature Not Verified Signed by: VARSHA CHATURVEDI Signing time: 10-10-2025 05:59:51 PM NEUTRAL CITATION NO. 2025:MPHC-GWL:23722 5 MP-4945-2024 the conduct of the parties evidences a clear intention of the parties to bind both the signatory as well as the nonsignatory parties.

Courts and tribunals have invoked this doctrine to join a non‐ signatory member of the group, if they are satisfied that the non‐ signatory company was by reference to the common intention of the parties, a necessary party to the contract.

10.4. The doctrine of 'Group of Companies' had its origins in the 1970's from French arbitration practice. The 'Group of Companies' doctrine indicates the implied consent to an agreement to arbitrate, in the context of modern multiparty business transactions. It was first propounded in Dow Chemical v. Isover Saint G obain, where the arbitral tribunal held that:

"... the arbitration clause expressly accepted by certain of the companies of the group should bind the other companies which, by virtue of their role in the conclusion, performance, or termination of the contracts containing said clauses, and in accordance with the mutual intention of all parties to the proceedings, appear to have been veritable parties to these contracts or to have been principally concerned by them and the disputes to which they may give rise".

10.5. The 'Group of Companies' doctrine has been invoked by courts and tribunals in arbitrations, where an arbitration agreement is entered into by one of the companies in the group; and the nonsignatory affiliate, or sister, or parent concern, is held to be bound by the arbitration agreement, if the facts and circumstances of the case demonstrate that it was the mutual intention of all parties to bind both the signatories and the nonsignatory affiliates in the group. The doctrine provides that a nonsignatory may be bound by an arbitration agreement where the parent or holding company, or a member of the group of companies is a signatory to the arbitration agreement and the nonsignatory entity on the group has been engaged in the negotiation or performance of the commercial contract, or made statements indicating its intention to be bound by the contract, the nonsignatory will also be bound and benefitted by the relevant contracts.

10.6. The circumstances in which the 'Group of Companies' Doctrine could be invoked to bind the nonsignatory affiliate Signature Not Verified Signed by: VARSHA CHATURVEDI Signing time: 10-10-2025 05:59:51 PM NEUTRAL CITATION NO. 2025:MPHC-GWL:23722 6 MP-4945-2024 of a parent company, or inclusion of a third party to an arbitration, if there is a direct relationship between the party which is a signatory to the arbitration agreement; direct commonality of the subject matter; the composite nature of the transaction between the parties.

A 'composite transaction' refers to a transaction which is inter‐ linked in nature; or, where the performance of the agreement may not be feasible without the aid, execution, and performance of the supplementary or the ancillary agreement, for achieving the common object, and collectively having a bearing on the dispute.

10.7. The Group of Companies Doctrine has also been invoked in cases where there is a tight group structure with strong organizational and financial links, so as to constitute a single economic unit, or a single economic reality. In such a situation, signatory and nonsignatories have been bound together under the arbitration agreement. This will apply in particular when the funds of one company are used to financially support or res tructure other members of the group.

10.8. The 'Group of Companies' doctrine has been invoked and applied by this Court in Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc.,with respect to an international commercial agreement. Recently, this Court in Ameet Lal Chand Shah v. Rishabh Enterprises,invoked the Group of Companies doctrine in a domestic arbitration under Part I of the 1996 Act.

10.9 Coming to the facts of the present case, CANFINA was set up as a wholly owned subsidiary of Canara Bank. This is evident from the Report of the Joint Committee to Enquire into Irregularities in Securities and Banking Transactions, 1993, which states as follows :

"Canbank Financial Services Ltd.

6.14 CANFINA was set up as a wholly owned subsidiary of Canara Bank and it commenced its operation with its Head Office at Bangalore on 1st June, 1987.

Its authorized and paid up capital are Rs.50 crores and Rs. 10 crores respectively. It was staffed mostly be personnel from Canara Bank and has branches at Ahmedabad, Bombay, Calcutta, Hyderabad, Madras and New Delhi besides Bangalore. As the Board comprised mostly of senior Signature Not Verified Signed by: VARSHA CHATURVEDI Signing time: 10-10-2025 05:59:51 PM NEUTRAL CITATION NO. 2025:MPHC-GWL:23722 7 MP-4945-2024 executives of Canara Bank and its Chief Executive is also a senior official of that bank (on deputation) the company functioned under the umbrella of the parent bank; besides it submits periodical returns on its functioning to the Board of Canara Bank for information. 6.15 The activities authorized to be conducted by the Company are equipment leasing, merchantbanking, venture capital and consultancy services. The Company, initially deployed a major portion of its owned funds and deposits in equipment leasing business and obtained the classification of an 'Equipment leasing company' from the Department of Finance Companies of RBI; this classification entitles the company to mobilize public deposits to the extent of ten time its owned funds.

6.25 The Committee hope that the nature and extent of the financial assistance being provided by Canara Bank to its subsidiaries are such as could be justified on prudent commercial norms. Further the parent bank cannot be absolved of the responsibility for various irregularities of its subsidiary." (emphasis supplied) 10.10. The disputes between the parties emanated out of the transaction dated 10.02.1992, whereby CANFINA has subscribed to the bonds floated by MTNL. CANFINA subsequently transferred the Bonds to its holding Company - Canara Bank. It is the contention of MTNL, that since CANFINA did not pay the entire sale consideration for the 31 Bonds, MTNL eventually was constrained to cancel the allotment of the Bonds.

10.11. It will be a futile effort to decide the disputes only between MTNL and Canara Bank, in the absence of CANFINA, since undisputedly, the original transaction emanated from a transaction between MTNL and CANFINA - the original purchaser of the Bonds. The disputes arose on the cancellation of the Bonds by MTNL on the ground that the entire consideration was not paid.

There is a clear and direct nexus between the issuance of the Bonds, its subsequent transfer by CANFINA to Canara Bank, and the cancellation by MTNL, which has led to disputes between the three parties.

Therefore, CANFINA is undoubtedly a necessary and proper party to the arbitration proceedings.

Signature Not Verified Signed by: VARSHA CHATURVEDI Signing time: 10-10-2025 05:59:51 PM

NEUTRAL CITATION NO. 2025:MPHC-GWL:23722 8 MP-4945-2024 10.12. Given the tripatite nature of the transaction, there can be a final resolution of the disputes, only if all three parties are joined in the arbitration proceedings, to finally resolve the disputes which have been pending for over 26 years now. It is of relevance to note that CANFINA has participated in the proceedings before the High Court, and the Committee on Disputes. CANFINA was also represented by its separate Counsel before the Sole Arbitrator. Canara Bank in CWP No. 560 of 1995 filed before the Delhi High Court, had joined CANFINA as Respondent No.2, even though it was joined as a proforma party. CANFINA was represented by Counsel in the Writ Proceedings before the Delhi High Court. The Counsel for CANFINA was however not present on two dates i.e. on 16.09.2011 and 21.10.2011, when the High Court recorded the agreement between the parties for reference of disputes to arbitration. MTNL had submitted before the Delhi High Court that Canara Bank should agree to take over the liabilities of CANFINA before the arbitration could commence. The High Court recorded that there was no necessity of requiring Canara Bank to agree to take over the liabilities of CANFINA, prior to the arbitration proceedings. This issue would be decided in the arbitration.

10.13. On the commencement of arbitration proceedings before the Sole Arbitrator, notice was issued by the Sole Arbitrator to all the three parties including CANFINA, which was represented by its Counsel.

10.14. We find that the objection to CANFINA being impleaded as a party to the arbitration proceedings was raised by Canara Bank, and not CANFINA."

11 . In the said case, 'Doctrine of Group of Companies' as well as concept of 'Composite Transaction' are being discussed.

12. It appears to this Court that these aspects deserve consideration in the fact situation and same appears to be ignored by the Madhyastam Tribunal while passing the impugned order. Once, respondent No.2/Bank is part of Substitution Agreement, therefore, whether it falls under 'Composite Signature Not Verified Signed by: VARSHA CHATURVEDI Signing time: 10-10-2025 05:59:51 PM NEUTRAL CITATION NO. 2025:MPHC-GWL:23722 9 MP-4945-2024 Transaction' or not has not been explained by the Madhyastam Tribunal in specific terms.

13. In the attending facts and circumstance of the case, this petition stands allowed. Impugned order dated 08/08/2024 (Annexure P/1) passed by M.P. Madhyastham Adhikaran, Bhopal is hereby set aside. Petitioner is permitted to amend the pleadings regarding Substitution Agreement alongwith documents placed as part of the record, thereafter, the Madhyastam Tribunal shall decide the same keeping in view the judgment of the judgment of the Supreme Court as referred above and the arguments raised by the parties in accordance with law.

14. With the aforesaid, the Misc. Petition stands disposed of.

                                 (ANAND PATHAK)                              (PUSHPENDRA YADAV)
                                     JUDGE                                          JUDGE
                           VC




Signature Not Verified
Signed by: VARSHA
CHATURVEDI
Signing time: 10-10-2025
05:59:51 PM

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