Bangalore District Court
In 1. Alabama Design Consultants vs In 1. Ms.Payal Sandhu Khurana on 28 February, 2023
1 Com.A.P.No.127 and 128/2022
In the Court of LXXXIV Addl. City Civil and Sessions
Judge (CCH-85 Commercial Court) Bengaluru
Dated this the 28th day of February 2023
Present: Smt.H.R.Radha B.A.L., LL.M.
LXXXIV Addl. City Civil and Sessions Judge,
(CCH-85 - Commercial Court)
Bengaluru
Com.A.P.No.127/2022
&
Com.A.P.No.128/2022
Petitioners in 1. Alabama Design Consultants
Com.A.P.127/2022 LLP, having its registered office at
No.325, 4th Cross, OMBR Layout,
Banaswadi, Bengaluru - 560043,
rep. by its Designated Partner,
Mr.Udaya Shankar Krishnappa
2. SDSS Management Services
LLP, having its registered office at
3C-137, 3rd Cross, 2nd Main, Kasturi
Nagar, Bengaluru - 560043, rep.
by its Authorized Signatory
Mr.Sumeet Mahajan
3. Mr.Udaya Shankar Krishnappa,
R/at No.332 B, Flat No.301,
Archita 3, 18th Cross, Ideal Home
Colony, Raja Rajeshwari Nagar,
Bengaluru - 560098
(By Sri.Tejas S.R., Adv.)
and
2 Com.A.P.No.127 and 128/2022
Respondents in 1. Ms.Payal Sandhu Khurana, R/at
Com.A.P.127/2022 Q503, Rohan Jharokha Apartments,
Phase 2, Yemalur Main Road,
Behind HAL Airport, Bengaluru -
560 037
2. Adrianse India Pvt. Ltd., having
its registered office at B-37,
Geetanjali Enclave, New Delhi -
110017, rep. by its Director
(R1 by Sri.Sarah Abraham, Adv.
R2 by Sri.M.B.Anirudh, Adv.)
3. Justice (Retd.) Anand Byra Reddy,
R/at Villa No.3, Luminaire (a gated
community), 39, BDA Main Road,
Jeevan Bhimanagar, Bengaluru -
560 075
------
Petitioners in Adrianse India Pvt. Ltd., having its
Com.A.P.128/2022 registered office at B-37, Geetanjali
Enclave, New Delhi - 110 017, rep.
by its Authorized representative
Mr.Wajid Pasha
(By Sri.G.N.Hegde, Senior Counsel for
Sri.M.B.Anirudh, Adv.)
Vs
Respondents in 1. Ms.Payal Sandhu Khurana, R/at
Com.A.P.128/2022 Q503, Rohan Jharokha Apartments,
Phase 2, Yemalur Main Road, Behind
HAL Airport, Bengaluru - 560037
2. Alabama Design Consultants LLP,
having its registered office at No.325,
4th Cross, OMBR Layout, Banaswadi,
Bengaluru - 560043, rep. by its
Designated Partner, Mr.Udaya
Shankar Krishnappa
3 Com.A.P.No.127 and 128/2022
3. SDSS Management Services LLP,
having its registered office at No.325,
4th Cross, OMBR Layout, Banaswadi,
Bengaluru - 560043, rep. by its
Authorized signatory Mr.Deepak
Nagraj
4. Mr.Udaya Shankar Krishnappa,
R/at No.332 B, Flat No.301, Archita 3,
18th Cross, Ideal Home Colony, Raja
Rajeshwari Nagar, Bengaluru - 560
098
(R1 by Smt.Sarah Abraham, Adv. and
R2 to R4 by Sri.Tejas S.R., Adv.)
5. Justice (Retd.) Anand Byra Reddy,
R/at Villa No.3, Luminaire (a gated
community), 39, BDA Main Road,
Jeevan Bhimanagar, Bengaluru - 560
075
Date of Institution 30.11.2022
Nature of the petition U/s 34 of the Arbitration and
Conciliation Act, 1996
Date on which judgment
pronounced 28.02.2023
Total Duration Years Months Days
00 02 29
LXXXIV Addl. City Civil and Sessions Judge
(CCH-85 Commercial Court) Bengaluru
4 Com.A.P.No.127 and 128/2022
COMMON JUDGMENT
These petitions U/s 34 of the Arbitration and
Conciliation Act, 1996 ('the Act' for short) are filed by the
respondents 1 to 3 and 4 in the Arbitration Case
No.329/2022 respectively for setting aside the order dated
20.11.2022 passed by the learned sole arbitrator ('the
Arbitral Tribunal' for short). As such, they are taken up for
disposal by common judgment for convenience and to avoid
divergent findings.
2. The parties are referred as per their original rank
before the Arbitral Tribunal for clarity.
3. Brief facts leading to filing of the petition are that the
claimant initiated arbitration proceedings challenging her
expulsion from the 1st respondent LLP partnership and
sought for declaration that the same is null and void; that
she should be reinstated and for a direction to the 1 st
respondent to pay Rs.4,88,88,000/- towards exist value with
interest at 18% p.a. and the respondents 1 to 3, to pay
Rs.1,50,00,000/- towards damages with interest at 18% p.a.
She also sought for appointment of an independent
Chartered Accountant to audit the 1st respondent's books of
accounts and an independent valuer for evaluating the 1 st
5 Com.A.P.No.127 and 128/2022
respondent LLP's 70% holding in the 4th respondent.
4. The respondents 1 to 3 filed statement of defence with
counter claim contending amongst various other defence,
that the 4th respondent, a company is sought to be included
as a party without following due procedure and the said
respondent was not a party to the arbitration agreement
under the main LLP agreement dated 25.07.2019; the order
of dismissal of Com.A.A.No.90/2021 filed by the claimant U/s
9 of the Act for the same reason, has attained finality. The
claimant did not array the 4th respondent as a party to the
petition U/s 11 of the Act and there is no indication of the
claimant issuing notice of arbitration to the said respondent
before initiating this proceedings.
5. The claimant too filed her reply claiming that the 4 th
respondent is a necessary party to the proceedings; the 1 st
respondent is the 70% shareholder in the 4th respondent
company. The Directors of the 4 th respondent are the
partners of the 1st respondent and therefore, the doctrine of
Group Companies applies.
6. Based on such pleadings, the Arbitral Tribunal raised the
points for determination apart from other points on merits
6 Com.A.P.No.127 and 128/2022
of the claim and the counter claim:
1. Whether the claimant can include
Respondent no.4, M/s Alabama India
Pvt. Ltd., (AIPL) as a party to this
arbitration, before this Tribunal,
without the said party being
included in the reference by the
Hon'ble High Court of Karnataka, to
this dispute? And without being
impleaded by this Tribunal?
2. Whether the claimant proves that
this would have jurisdiction over
Respondent no.4?
7. On an application filed by the respondents 1 to 3, the
Arbitral Tribunal treated the above points as preliminary
points, recorded evidence thereon and after hearing the
claimant and respondents 1 to 3, the impugned order dated
29.11.2022 came to be passed.
8. Aggrieved by the Arbitral Tribunal answering the
preliminary points for determination in the affirmative the
respondents 1 to 3 have filed Com.A.P.127/2022 and the 4 th
respondent has filed Com.A.P.128/2022 challenging the
impugned order on the ground that it is in vilolation of the
principles of natural justice; no notice was issued to the 4 th
respondent before ordering their impleadment. The
7 Com.A.P.No.127 and 128/2022
allegations of motives and designs on the part of the 4 th
respondent is adjudicated without hearing them and the
impugned order is therefore perverse. The scope of
adjudication by arbitration is limited to the terms of LLP
between the partners of the 1st respondent, the partners
and the 1st respondent, and it cannot extend to third parties.
The order of impleadment is opposed to the law laid down
by the Hon'ble Supreme Court as to when a non signatory
can be impleaded. The Arbitral Tribunal has acted contrary
to the public policy of Indian Law despite noticing that the
claimant had failed to serve notice U/s 21 of the Act on the
4th respondent. The impugned order lacks justifiable reasons
as required U/s 31(3) of the Act and therefore, patently
illegal.
9. The claimant, specifically contends in the statement
of objections, that the impugned order is passed on an IA
filed by the respondents 1 to 3 U/s 19 and 23 of the Act and
it is neither a final award nor interim award within the
meaning of Sec.2(c) of the Act. Nor does the same
determines the rights and liabilities of the 4 th respondent
and therefore, the petition is not maintainable. This court
can interfere only when the exercise of power by the
8 Com.A.P.No.127 and 128/2022
Arbitral Tribunal is unconscionable or palpably arbitrary and
the scope of judicial interference is minimal in view of Sec.5
of the Act. Impleading a party to arbitration proceedings is a
jurisdictional issue. In a petition U/s 11 of the Act, only the
existence or otherwise of the arbitration agreement can be
considered as provided under Sub Sec.(6A) but not the issue
of jurisdiction. The principal of Kompetenz-Kompetenz U/s
16 of the Act clothes the Arbitral Tribunal, the power to rule
on its own jurisdiction. By applying mind to the evidence on
the intricate connection between the 1 st respondent and the
4th respondent; and the 1st respondent's intention to acquire
100% shareholdings of the 4th respondent on or before
31.03.2025, the Arbitral Tribunal has directed impleadment
of the 4th respondent, acting well within the powers U/s 17
of the Act. The dispute relates to the claimant's 15% share
holding in the 1st respondent LLP and the exact value of the
same can be determined by referring to the shareholding in
the 4th respondent and no prejudice is caused to the
impleaded respondent; they are a necessary party to the
proceedings. The Arbitral Tribunal has provided enough
safeguard to protect the rights of the said respondent as
evident from the minutes of meeting dated 30.11.2022 and
also the opportunity to explain their stand by filing the
9 Com.A.P.No.127 and 128/2022
statement of defence. These petitions should be dismissed
as they are filed only to delay the arbitration proceedings.
10. Heard arguments.
11. The learned counsel for the respondents relies upon
the following judgments in the context of -
(a) Any point of dispute between the parties which
is to be answered by the Arbitral Tribunal can be
the subject matter of interim arbitral award and
the same is amenable to challenge U/s 34 of the
Act and not Sec.37(2)(a) of the Act.
(i) Indian Farmer Fertilizer Co-
operative Ltd. Vs Bhadra Products
reported in (2018) 2 SCC 534;
(ii) Elior Participations SCA Vs
Sanjay Kumar & Ors (Com.S.5/2022
dated 30.09.2022) (KAR);
(b) Invocation of arbitration in terms of Sec.21 of
the Act is a sine qua non for commencement of
the arbitration proceedings.
Anacon Process Control Pvt. Ltd. Vs
Gammon India Ltd. reported in
(2016) SCC Online Bombay 10076;
(c) Doctrine of lifting the corporate veil / alter ego
doctrine are applied to ignore corporate
personality and hold directors, shareholders and
officers responsible for the obligations of the
corporate entity, only in cases where it is found
10 Com.A.P.No.127 and 128/2022
that corporate form is being used to perpetuate a
fraud, circumvent statute or for a wrongful
purpose.
Sudhir Gopi Vs Indira Gandhi
National Open University & Anr.
reported in 2017 SCC Online Del
8345;
(d) A non signatory / third party can be subjected
to arbitration without prior consent only in
exceptional cases and the court has to examine
these exceptions from the touchstone of direct
relationship with the signatory party, direct
commonality of subject matter and the agreement
between the parties being a composite
transaction, i.e. where performance of the mother
agreement may not be feasible without aid,
execution and performance of the
supplementary / ancillary agreements, for
achieving the common object and collectively
having bearing on the dispute.
(i) Chloro Controls India (P) Ltd. Vs
Severn Trent Water Purification Inc
& Ors. reported in (2013) 1 SCC 641;
(ii) Cheran Properties Ltd. Vs
Kasturi & Sons Ltd. & Ors. reported
in (2018) 16 SCC 413;
(iii) Ameet Lal Chand Shah & Ors Vs
Rishabh Enterprises & Anr reported
in (2018) 15 SCC 678;
(iv) Cox and Kings Ltd. Vs SAP
India Pvt. Ltd. & Anrs. reported in
(2022) 8 SCC 1;
(v) Mahanagar Telephone Nigam
Ltd. Vs Canara Bank & Ors. reported
11 Com.A.P.No.127 and 128/2022
in (2020) 12 SCC 767;
(e) The exercise of power of impleadment of non
signatory/third party by the Arbitral Tribunal would
amount to varying the terms of reference itself.
(i) Sukanya Holdings Pvt. Ltd. Vs
Jayaesh H.Pandya reported in (2003)
5 SCC 531;
(ii) Reckitt Benckiser (India) Pvt.
Ltd. Vs Reynders Label Printing
India Pvt. Ltd. & Anr. reported in
(2019) 7 SCC 62;
(iii) Abhi Bus Services India Pvt.
Ltd. & Ors. Vs Pallavan Transport
Consultancies Services Ltd. & Ors.
reported in 2022 SCC Online Mad
796;
(iv) Simran Sodhi Vs Sandeep
Singh reported in 2022/DHC/004740
(f) Arbitral Tribunal is not a court of law; its
functions are not judicial functions and therefore,
it can pass orders only pertaining to the subject
matter of reference.
(i) PSA Sical Terminals (P) Ltd. Vs
Board of Trustees of
V.O.Chidambranar Port Trust
Tuticorin reported in 2021 SCC
Online 508;
(g) Principles of natural justice is a fundamental
juristic principle in Indian Law contained in Ss.18
and 34(2)(a)(iii) of the Act and its breach continue
to be the ground of challenge of an award.
(i) Ssangyong Engineering &
Construction Company Ltd. Vs
12 Com.A.P.No.127 and 128/2022
National Highways Authority of
India (NHAI) reported in (2019) 15
SCC 131;
(ii) Associate Builders Vs Delhi
Development Authority reported in
(2015) 3 SCC 49
12. The learned counsel for the claimant relies upon the
following judgments in the context of-
(a) The legislative intent underlying the Act is
party autonomy and minimal judicial intervention
in arbitral proceedings. By Sec.11(6A) of the Act,
power as elaborated in some of the judgments
requiring the court to decide all issues at
threshold including jurisdiction, existence of
arbitration agreement, limitation etc., is
legislatively overruled. Now the court is required
to examine only existence of arbitration
agreement; all other preliminary issues are left to
be decided by the arbitrator U/s 16 of the Act.
Uttarakhand Purv Sainik Kalyan
Nigam Ltd. Vs Northern Coal Field
Ltd. reported in (2020) 2 SCC 455
(b) Reference can be made without prior consent
of non signatory third parties by invoking Group of
Companies doctrine or composite performance
doctrine.
(i) Chloro Controls India (P) Ltd. Vs
Severn Trent Water Purification Inc
& Ors. reported in (2013) 1 SCC 641;
13 Com.A.P.No.127 and 128/2022
(ii) Cheran Properties Ltd. Vs
Kasturi & Sons Ltd. & Ors. reported
in (2018) 16 SCC 413;
(iii) Mahanagar Telephone Nigam
Ltd. Vs Canara Bank & Ors. reported
in (2020) 12 SCC 767;
(c) Mutual intent of parties, relationship of an non
signatory party with a signatory party,
commonality of the subject matter, composite
nature of the transaction and performance of
contract are the deciding factors to conclude
whether a non signatory company within a Group
of Companies is bound by the arbitration
agreement or not.
Oil and Natural Gas Corporation
Ltd. Vs Discovery Enterprises Pvt.
Ltd. & Anr. reported in (2022) 8 SCC
42
(d) If the expression of the Arbitral Tribunal on
any matter is not to be treated as expression on
merits of the case, then such an order cannot be
treated as interim award which is amenable to
challenge U/s 34 of the Act.
Punita Bharadwaj Vs Rashmi Juneja
reported in MANU/DE/3266/2022
13. In light of the grounds urged and the rival contentions
of the parties, the points that arise for the consideration of
the court are:
14 Com.A.P.No.127 and 128/2022
1. Whether the petition U/s 34 of the
Act is maintainable against the
impugned order dated 20.11.2022?
2. Whether the 4th respondent
establishes that the impugned order is
contrary to the fundamental policy of
Indian Law?
3. Whether the respondents have made
out the grounds U/s 34 of the Act for
setting aside the impugned order/award,
as prayed?
4. What order?
14. My findings on the above points are :
Point No.1: In the affirmative
Point No.2: In the affirmative
Point No.3: In the affirmative
Point No.4: As per the final order for following
REASONS
15. Before taking up the points for discussion, it is
essential to know the circumstances under which the 4 th
respondent was ordered to be impleaded in the arbitration
proceedings.
16. The 1st respondent is an LLP engaged in the business
of construction, design, engineering, project management
and related services etc. The claimant was inducted as a
15 Com.A.P.No.127 and 128/2022
partner with 15% capital contribution under the first
supplementary agreement dated 30.07.2019; and she is
also a qualified architect. The 3rd respondent is also a
partner in the 1st respondent having 15% of the capital
contribution. The 2nd respondent is also an LLP, dealing with
the business of providing management consultation and
allied services. The claimant was asked to resign from the
1st respondent LLP on 06.07.2020. She was also asked to
resign from the Directorship of the 4 th respondent, a private
limited company. On 25.11.2020, Clause 13 of the main LLP
agreement dated 25.07.2019 relating to "expulsion of
partners" was amended incorporating the changes to
Clause 13 of the main LLP agreement. The claimant
resisting the amendment to Clause 13 and 6 of second and
third supplementary agreements, demanded for settlement
of her claim in terms of main LLP and issued notice dated
05.05.2021 U/s 21 invoking Clause 34 of main LLP
agreement to the respondents 1 to 3.
17. In Com.A.A.No.90/2021 filed by the claimant against
respondents 1 to 4, the Commercial Court (CCH-87), by
order dated 13.12.2021 restrained the respondents 1 to 3
from giving effect to the amendment to Clauses 6 and 13 of
16 Com.A.P.No.127 and 128/2022
the main LLP or altering capital structure of the 1 st
respondent in any manner but dismissed the petition as
against the 4th respondent observing that they were not
parties to the arbitration agreement. The claimant has not
challenged the findings in Com.A.A.90/2021.
18. Further, the claimant initiated proceedings U/s 11 of
the Act in CMP No.358/2002 before the Hon'ble High Court
against the respondents 1 to 3. The same came to be
allowed by order dated 22.06.2022 and the Arbitral Tribunal
was constituted to resolve the disputes between the
claimant and the respondents 1 to 3.
19. However, the claimant submitted the claim against the
respondents 1 to 4 for declaration that the notice dated
26.05.2022 to expel her from the 1 st respondent LLP as null
and void, to set aside the same as well as the amendment
to Clauses 13 and 6 of main LLP; for recovery of
Rs.4,88,88,000/- with interest from the 1 st respondent and
Rs.1,50,00,000/- with interest as damages from the
respondents 1 to 3; to value the 1st respondent's 70%
holding in the 4th respondent and to appoint an Chartered
Account to audit the books of account of 1 st respondent LLP.
The respondents 1 to 3 filed the statement of defence
17 Com.A.P.No.127 and 128/2022
contending that the claim against the 4th respondent is not
maintainable as the said respondent is a non signatory to
arbitration agreement.
20. Therefore, the Arbitral Tribunal raised points 1 and 2
with regard to the 4th respondent being a necessary party
and and its jurisdiction over the said respondent. The
respondents 1 to 3 filed IA3 to determine points 1 and 2 as
preliminary points. The Arbitral Tribunal accordingly
considered these points as preliminary points, recorded
evidence and permitted the claimant to implead the 4 th
respondent as a party to arbitration proceedings vide the
impugned order by answering the preliminary points in the
affirmative.
21. Point No.1: The learned counsel for the respondents
argue that by answering points 1 and 2 in the affirmative,
the Arbitral Tribunal has finally concluded that it has
jurisdiction over the 4th respondent and thereby answered
the point of dispute between the parties and assumed
jurisdiction, in spite of observing that Group Companies
Doctrine cannot be applied to the respondents. Therefore,
the impugned order is an interim award, amenable to
challenge U/s 34 of the Act.
18 Com.A.P.No.127 and 128/2022
22. Per contra, the learned counsel for the claimant
strongly argues that the respondents 1 to 3 are majority
shareholders of the 4th respondent; and the impugned order
was passed by treating points 1 and 2 as preliminary points
at the instance of the said respondents; the impleadment
being subject to final award, there is no final determination
of the rights and liabilities of the 4th respondent.
23. Relying on the judgment in Associate Builders Vs
Delhi Development Authority cited supra, the learned
counsel for the claimant submits that only when the doors
are completely closed, the ground U/s 34(2)(a)(iii) of the Act
can be invoked and not otherwise. Since the Arbitral
Tribunal has made it clear that the impleadment of the 4 th
respondent is subject to final award, the impugned order
cannot be qualified as an interim award and the petition is
not maintainable.
24. In reply, the learned counsel for the respondents
drawing attention to the minutes of meeting produced by
the claimant, urges that the impugned order is not interim
order on the IA filed by the respondents 1 to 3 but, it is an
interim award. Only after allowing IA3, the Arbitral Tribunal
recorded evidence of the claimant treating points 1 and 2 as
19 Com.A.P.No.127 and 128/2022
preliminary points, heard arguments and passed the
impugned order answering Point No.2 in the affirmative
holding that it has jurisdiction over the 4 th respondent and
therefore, the impugned order is an interim award.
25. In Indian Farmers Fertilizer Co-operative Ltd. Vs
Bhadra Products reported in (2018) 2 SCC 534 relied
upon by the respondents, it is held that by virtue of
Sec.31(6) r/w Sec.2(1)(c) of the Act the Arbitral Tribunal has
the discretion and the jurisdiction to pass an interim arbitral
award extending to any matter with respect to which it may
pass a final award. The expression "matter" is held to be
wide in nature and to subsume issues at which the parties
are in dispute and any point of dispute between the parties
which has to be answered by the Arbitral Tribunal can be
the subject matter of interim award.
26. In Punita Bhardwaj Vs Rashmi Juneja reported in
MANU/DE/3266/2022, relied upon by by the claimant,
rejection of amendment sought at a belated stage is held to
be not an expression on the merits of the case. In my
opinion this judgment may also not be of any help to the
claimant. Because, the Arbitral Tribunal while answering
Point No.2 has conclusively held that it has jurisdiction over
20 Com.A.P.No.127 and 128/2022
the 4th respondent, a non signatory to the arbitration
agreement. Under such circumstances, it cannot be said
that the order is not final merely because impleadment is
stated to be subject to final award.
27. Further, when the findings on preliminary point 1 and
2 clothes the impugned order with the characteristic of
finality by conclusively answering the same against the 4 th
respondent, I am unable to accept the argument that it is
only an interim order U/s 17 of the Act. Since there remains
nothing to be decided with regard to the rights / obligations
of the 4th respondent at the final adjudication, I do find force
in the submission of the respondents that the impugned
order amounts to interim award U/s 2(c) of the Act.
28. When the Arbitral Tribunal has assumed jurisdiction
over the 4th respondent by answering the preliminary Point
No.2 in the affirmative and having regard to the judgment
of our Hon'ble High Court in the case of Eliors Participations
SCA cited supra, holding that an order permitting
impleadment of a non signatory by invoking alter ego
principle amounts to interim award amenable to challenge
U/s 34 of the Act, the point for consideration is answered in
the affirmative holding that this petition U/s 34 of the Act is
21 Com.A.P.No.127 and 128/2022
maintainable.
29. Point No.2: There is no dispute that the respondents
1 and 2 are LLPs and the claimant was a partner of the 1 st
respondent. The LLP agreement provided for resolution of
disputes that may arise between the partners or the
partners and the LLP by arbitration. The claimant is
challenging her expulsion from the LLP, damages from
respondents 1 and 2 and for setting aside the amendment
to supplementary LLP agreements.
30. Ex.C1 is the share purchase agreement dated
18.03.2019 between respondents 1 and 4 and Adrianse
Group International Ltd. It is not the claimant's case that the
4th respondent is a signatory to the LLP or that she was a
party to Ex.C1. She last worked as Principal Architect of the
4th respondent in 2020 and she may be having some dispute
with regard to termination of her services by the 4 th
respondent. The same however cannot be the subject
matter of dispute with the 1st respondent.
31. Further, in the presence of the claimant's specific case
that the 1st respondent LLP is a major shareholder in the 4 th
respondent, a private limited company incorporated under
22 Com.A.P.No.127 and 128/2022
the Companies Act and she has not sought any relief
against the 4th respondent, I am unable to accept the
argument of the claimant that the Doctrine of Group
Companies ought to be applied.
32. When Cw1 admits categorically that she does not have
arbitration agreement with the 4th respondent and the said
respondent was not arrayed as a party to Sec.11
proceedings and notice of arbitration was also not issued,
the question of invoking Group Companies Doctrine does
not arise. Because a non signatory can be subjected to
arbitration only if the transactions were with Group of
Companies [Chrolo Controls India (P) Ltd Vs Severn
Trent Water Purification Inc. reported in (2013) 1 SCC
641].
33. That apart, though the contention of the claimant with
regard to applicability of the doctrine of lifting the corporate
veil was not accepted, the Arbitral Tribunal has directed
impleadment of the 4th respondent by observing that the
question of applicability of Group of Companies Doctrine
and the 1st respondent being an entity claiming through or
under the 4th respondent cannot be determined readily and
the motives and designs as asserted by the claimant and
23 Com.A.P.No.127 and 128/2022
denied by the respondents 1 to 3 are to be adjudicated on
the basis of evidence. The Arbitral Tribunal has come to this
conclusion despite noticing that the claimant had not taken
recourse to due process while impleading the 4th respondent
as a party to the proceedings.
34. In ONGC Vs Discovery Enterprises Pvt. Ltd. &
Anrs. reported in (2022) 8 SCC 42 it is held in para 40
that in deciding whether a company within a group of
companies which is not a signatory to arbitration agreement
would nonetheless be bound by it, the law considers the
following factors: (i) The mutual intent of the parties; (ii) The
relationship of a non-signatory to a party which is a
signatory to the agreement; (iii) The commonality of the
subject matter; (iv) The composite nature of the
transaction; and (v) The performance of the contract.
35. It is not the case of the claimant that the factual
matrix of the case can be explained or proved only in the
presence of the 4th respondent. On the other hand, her
claim and the value of the 1st respondent's shares in the 4th
respondent can still be established without impleading the
4th respondent. The respondents 1 and 2 LLPs may be
having shareholdings in several companies, but it does not
24 Com.A.P.No.127 and 128/2022
mean that the value of the claimant's share in the two LLPs
can be determined or ascertained only in the presence of all
such companies.
36. If at all there was an intention to make the 4 th
respondent being a non signatory, as a party to the
arbitration agreement, the claimant ought to have issued
notice of arbitration in the first instance setting out her
claim and also made it a party to the proceedings U/s 11 of
the Act. Admittedly, the claimant has kept quite after
dismissal of Com.A.A. against the 4 th respondent on the
ground that it is a non signatory to arbitration agreement
and thereby allowed the said finding to attain finality.
37. The ratio in Mahanagar Telephone Nigam Ltd. Vs
Canara Bank & Ors. reported in (2020) 12 SCC 767
relied upon by the claimant is of no avail because it was in
relation to a case where Canfina, a wholly owned subsidiary
of Canara Bank had subscribed to the bonds floated by
MTNL which were subsequently transferred to the holding
company, Canara Bank. Therefore, in the absence of
Canfina, the dispute between MTNL and Canara Bank in
relation to the original transaction could not have been
decided. Canfina did not raise any objection for being
25 Com.A.P.No.127 and 128/2022
impleaded as a party to the arbitration proceedings, but
such objection was raised by Canara Bank. Under such
circumstances, the Group of Companies doctrine was
invoked holding that there was clear intention of the parties
to bind both canara bank and its subsidiary. Here, the 4 th
respondent is also objecting their impleadment to the
arbitration proceedings and admittedly they are not the
subsidiary company of the 1st respondent. Therefore, I am
unable to accept the argument of the claimant that the
Group Companies doctrine applies.
38. Even at the cost of repetition, Cw1's evidence on the
preliminary points makes it clear that she had not issued
notice of arbitration to or made the 4 th respondent a party
to CMP proceedings. Nor has she sought for any relief
against the said respondent. Even the Arbitral Tribunal did
not issue notice of hearing on the preliminary points or
called upon the 4th respondent show cause as to why it
should not be impleaded in the proceedings, before passing
the impugned order.
39. In the case of Abhibus Services India Pvt. Ltd. &
Ors Vs Pallavan Transport Consultancies Services Ltd.
cited supra, the Hon'ble High Court of Madras while setting
26 Com.A.P.No.127 and 128/2022
aside the order permitting impleadment of a non signatory
to the arbitration agreement in the arbitration proceedings,
has held that the Arbitral Tribunal is not clothed with power
or the jurisdiction to implead third parties having regard to
concept of arbitration and the scheme of the Act
particularly, the definition clause of 'party' in Sec.2(1)(h) of
the Act. If at all any non signatory party could be impleaded
as a consequence of the evolving legal concept namely
'Group of Companies' doctrine, only the court has the power
and jurisdiction to examine whether impleadment of a third
party is legally permissible and their presence in the
arbitration proceedings is proper and necessary or not on
the basis of facts and circumstances of the case.
40. No doubt, the Arbitral Tribunal has the power to rule
on its own jurisdiction including existence of or the validity
of arbitration agreement U/s 16 of the Act. It may embark
upon an enquiry into the issues raised by the parties to the
dispute. Examining whether a non signatory to the
arbitration agreement is a necessary party to the arbitration
proceedings would fall within the jurisdiction of the arbitral
tribunal, only when the party to the proceedings U/s 11 of
the Act, on reference to arbitration takes up the defence
27 Com.A.P.No.127 and 128/2022
that he is not a necessary party.
41. For the forgoing reasons and having regard to the ratio
laid down in the various judgments relied upon by the
parties, I am of the considered opinion that the Arbitral
Tribunal could not have assumed jurisdiction over a non
signatory to arbitration agreement specially in the presence
of the claimant's admission that she neither issued notice of
arbitration to the 4th respondent nor made the said
respondent as a party to proceedings U/Sec.11 of the Act.
42. Merely because the 1st respondent is a shareholder of
the 4th respondent and the points 1 and 2 were heard
preliminarily at its instance, the argument of the claimant
that the same serves as sufficient notice of hearing on the
4th respondent and not issuing notice to the said respondent
is only a procedural irregularity, cannot be accepted. The
fundamental policy of Indian Law, audi alteram partem is
violated by the Arbitral Tribunal by directing impleadment
of the 4th respondent without even hearing them on the
preliminary points. Therefore, the point for consideration is
accordingly answered in the affirmative.
28 Com.A.P.No.127 and 128/2022
43. Point No.3: Sec.18 of the Act provides that each
party shall be given the opportunity to present his case and
Sec.34(2)(a)(iii) of the Act provides for setting aside the
arbitral award if the party making the application
establishes on the basis of the record of the Arbitral Tribunal
that he was not given proper notice of the appointment of
arbitrator or the arbitral proceedings or was otherwise
unable to present his case.
44. As discussed earlier, the act of the Arbitral Tribunal in
assuming jurisdiction over a non signatory party to the
arbitration agreement without affording an opportunity of
hearing, amounts to patent illegality, considering that the
claimant had even not issued notice of arbitration or made
them a party to the CMP proceedings. Therefore the point
for consideration is answered in the affirmative holding that
the impugned order is liable to be set aside on the grounds
U/s 34(2)(a)(iii), 34(2)(b)(ii) and 34(2A) of the Act.
45. Point No.4: In the result, I pass the following:
ORDER
The petitions U/Sec.34 of the Arbitration and Conciliation Act is hereby allowed.
29 Com.A.P.No.127 and 128/2022
The interim award/order dated 20.11.2022 passed by the Arbitral Tribunal directing impleadment of the 4th respondent in Arbitration Case No.329/2022 is hereby set aside.
Keep the original in Com.A.P.No.127/2022 and the copy in Com.A.P.No.128/2022.
Issue copy to the parties through e-mail as provided U/o XX Rule 1 of CPC, if email ID is furnished.
(Dictated to the stenographer, transcribed and typed by her, corrected and then pronounced by me in the open court on this the 28th day of February 2023) (H.R.Radha) LXXXIV Addl. City Civil and Sessions Judge, (CCH-85 Commercial Court) Bengaluru