India - Non-Signatory Made Party To Arbitration.

Legal News & Analysis - Asia Pacific - India - Dispute Resolution

26 July 2021
 

Matter: Shapoorji Pallonji and Co. Pvt. Limited v. Rattan India Power Limited & Anr.
 

Order dated: 07 April 2021.
 

Summary:
 

Rattan India Power Ltd. (“Rattan”) invited bids to develop a thermal power plant. Shapoorji Pallonji and Co. Pvt. Limited’s (“SP”) bid was accepted. Letter of award was entered between SP and Elena (subsidiary of Rattan) and subsequently a contract was executed. Further, a work order was issued to SP for some civil and structural work by Rattan. Disputes arose between the parties pursuant to which SP sent arbitration notice and called upon Rattan and Elena to jointly nominate an arbitrator. Rattan responded stating that it had not entered into the agreement and therefore, no arbitration agreement existed between Rattan and SP.
 

SP contended that (a) although the contract was signed by Elena, it was on behalf of Rattan; (b) bank guarantees were issued in favour of Rattan; (c) payments were made directly to Rattan. And therefore, even though Rattan had not signed the contract, it would nonetheless be bound by the arbitration clause. On the other hand, Rattan contended that it had entered into an agreement with Elena. Elena had entered sub-contracts with various parties for procurement of material and services.
 

The main issue before the Delhi HC (“DHC”) was whether Rattan can be compelled to arbitrate even though it is not a signatory to the contract. The DHC noted that a non-signatory cannot be compelled to arbitrate on the assumption that the said party has not acceded to arbitration. However, it also noted that the said rule is not without exceptions such as implied consent, agent-principal relations, group of companies doctrine, assignment. The DHC also referred to the judicial decisions of Indian as well as foreign courts.
 

Considering the above, the DHC observed that Rattan (a) fully participated in the formation and was directly involved in the contract; (b) was the beneficiary of the work executed by SP; (c) invited offers for the contract; (d) was provided bank guarantees by SP; (e) made payments to SP; and (f) accepted the revised offer of SP. Further, the officials of Rattan acting on behalf of Elena indicate Rattan’s substantial and dominant direct control over the affairs of Elena. Finally, the DHC compelled Rattan to participate in the arbitration as there was sufficient material to show that Elena is its alter ego of Rattan. 
 

 

For further information, please contact:  


Souvik Ganguly, Partner, Acuity Law

[email protected]