Unpacking the Emerging Procedural Complexities Post the Judgment of Cox & Kings

Introduction

A 5-Judge Bench of the Supreme Court of India delivered a landmark judgment in Cox & Kings Ltd. v. SAP India (P) Ltd.¹, determining that non-signatories to an arbitration agreement can be joined as a party in arbitration proceedings by the courts and Arbitral Tribunals through the application of the doctrine of the group of companies. The substantive validity and applicability of the judgment have been extensively discussed. However, the judgment has left some procedural issues unaddressed, which are now being raised before the Arbitral Tribunals and the courts. This article aims to analyse these unaddressed procedural issues that have emerged in the wake of the decision in Cox & Kings Ltd.²

In re cardinal energy³

A question was raised before the Single Judge of the Bombay High Court regarding whether the Arbitral Tribunal has the power on its own to join a non-signatory entity to the arbitration proceeding without such power being expressly endowed to it by the referral court at the time of reference under Section 11⁴ of the Arbitration and Conciliation Act, 1996⁵?

Before addressing the question, the Single Judge examined the context in which the Supreme Court delivered the decision in Cox & Kings⁶. The Single Judge noted that in Cox & Kings⁷, the Supreme Court dealt with a situation where an application under Section 11(6) of the Act was filed before a referral court with a prayer to join a non-signatory as a party to the arbitration agreement. Thus, in this background, the Supreme Court ruled that the referral court must initially determine the questions about the prima facie existence and/or validity of an arbitration agreement and then assess whether the non-signatory is a veritable party to the arbitration agreement. If the determination of these questions is complex, then it should be left to the Arbitral Tribunal to first determine the existence of a valid arbitration agreement and then, based on the facts and applicable doctrines, decide whether to join a non-signatory as a party to an arbitration agreement.

While addressing the question, the Single Judge relying on paras 171 and 172 of Cox & Kings⁸ held that the Arbitral Tribunal does have the power and authority to implead a non-signatory as a party to the arbitration agreement by applying the group of companies doctrine. Further, the Single Judge noted that merely absence of no prayer for impleading a non-signatory party in an application filed under Section 11 of the Act, will not oust the jurisdiction of the Arbitral Tribunal from determining on merits, the applicability of the doctrine of “group of companies” to join a non-signatory as a party to the arbitration agreement.

In re ASF Buildtech Pvt. Ltd.⁹

On 4-7-2024, a Single Judge of the Delhi High Court addressed the issue of whether a separate notice invoking arbitration under Section 21¹⁰ of the Act is required to be served by a signatory party to maintain its claims against non-signatory parties?

While answering the question, the Single Judge emphasised upon the established precedent that a notice under Section 21 of the Act is mandatory for the commencement of arbitration proceedings and raising claims thereto. However, the Single Judge held that a Section 21 notice is not needed for a non-signatory, if a party is filing the claim in form of a is counterclaim in proceedings qua which the court has already referred the matter to an Arbitral Tribunal under Section 11 of the Act. In simple words, if a respondent before the Arbitral Tribunal seeks to implead non-signatory entity for which a reference has already been made by the Court under Section 11 of the Act, then the respondent is not required to serve a Section 21 notice to non-signatory entity. This reasoning of the Single Judge is largely based on the complex facts of the case.

In the facts of this case, Black Canyon SEZ (P) Ltd. (BCSPL) (the claimant) filed a petition under Section 11 of the Act against Shapoorji Pallonji and Co. (P) Ltd. (SPCPL) (the respondent) to resolve disputes arising from the settlement agreement. It was clear that claims of the claimant and counterclaims of the respondent were within the jurisdiction of the Arbitral Tribunal. However, claims/counterclaims regarding ASF Insignia SEZ (P) Ltd. (AISPL) and ASF Buildtech (P) Ltd. (ABPL) (the non-signatory parties to the settlement agreement), were raised by SPCPL before the Arbitral Tribunal without serving Section 21 notice to AISPL and ABPL. The Single Judge, upon a constructive interpretation of the order passed by the referral court under Section 11 of the Act, concluded that AISPL and ABPL are part of the ASF Group (the parent company) and the reference to ASF by the Section 11 court pertains to the cohesive group of ASF companies, effectively including AISPL and ABPL. Thus, the Single Judge inter alia found no grounds to overturn decision of the Arbitral Tribunal impleading AISPL and ABPL without a Section 21 notice served upon them.¹¹

Interestingly, the judgment in Cox & Kings¹² is silent on the requirements of issuing a notice invoking arbitration in terms of Section 21 to join a non-signatory as a party to the arbitration agreement. This aspect has been addressed for the first time in ASF Buildtech¹³. However, ASF Buildtech¹⁴ does not answer the question that whether a non-signatory can be joined as a party in an arbitration agreement if no reference by the Court under Section 11 has been made to it? On a presumption, the reasonable answer would be that a non-signatory cannot be joined as a party to the arbitration agreement if it has not received a Section 21 notice. The presumption is based on the judgment of the Delhi High Court in Alupro Building Systems (P) Ltd. v. Ozone Overseas (P) Ltd.¹⁵ which mandates a notice invoking arbitration under Section 21 of the Act is to be received by the respondent in order to commence the arbitration proceeding.

The judgment of Alupro Building¹⁶ has been reaffirmed by various Single and Division Bench of the High Courts. Thus, applying the ratio laid down in Alupro Building¹⁷, Arbitral Tribunals cannot assume jurisdiction over a non-signatory entity unless a Section 21 notice has been received, even if there is a strong case for joining the non-signatory entity.

Some additional uncertain issues

If there is no court reference under Section 11 for a non-signatory entity, and a party files an application during arbitration to join such non-signatory, is the Arbitral Tribunal required to issue a notice to the non-signatory to allow them to raise objections to the Tribunal’s jurisdiction, or can the Tribunal, on its own, direct the non-signatory to join the arbitration without offering such an opportunity?

In Cox & Kings¹⁸, the Supreme Court held that the Arbitral Tribunal, when determining its jurisdiction over a non-signatory, must adhere to the principles of natural justice. This includes providing the non-signatory with the opportunity to raise objections regarding the jurisdiction of the Arbitral Tribunal. The consequences of the Arbitral Tribunal failing to meet this requirement are yet to be fully examined by the courts. Further, this situation is complicated by the fact that the broad principles of the Code of Civil Procedure, 1908¹⁹ applies to arbitration. On the basis of the principles of CPC laid down under Order 1 Rule 10²⁰ CPC, a civil court is not necessarily obliged to offer an opportunity to the third party for raising jurisdictional objections before impleading it either as a necessary or proper party. The civil courts can directly implead a third party in a suit at any stage if it is essential for the effective adjudication.

Another lingering question raised in Cardinal Energy²¹ is whether under which section of the Act, an application should be filed to join/implead as a non-signatory entity to an arbitration agreement, and under which section of the Act, the order of the Arbitral Tribunal to join/implead a non-signatory entity can be challenged before the Court?

In Cox & Kings²², the Supreme Court clarified that the question to join/implead a non-signatory entity to an arbitration agreement is to be decided by the Arbitral Tribunal under Section 16²³ of the Act. Section 16 enshrines the principle of competence-competence in Indian arbitration law, empowering the Arbitral Tribunal to rule on its own jurisdiction, including any objections to the existence or validity of the arbitration agreement as well as the issue joinder/impleadment of non-signatory entity to the arbitration agreement.

In Arupri Logistics (P) Ltd. v. Vilas Gupta²⁴, a judgment passed prior to Cox & Kings²⁵, the Single Bench of the Delhi High Court ruled that an order by the Arbitral Tribunal to join/implead a non-signatory as a party to the arbitration agreement is akin to an order passed by it under Section 17²⁶ of the Act and is therefore appealable to the Court under Section 37 of the Act. However, the judgment in Arupri Logistics²⁷, has been implicitly overruled by the judgment of Cox & Kings²⁸. The Single Judge in ASF Buildtech²⁹ has clarified that the decision in Arupri Logistics³⁰ cannot be considered because it was rendered prior to Cox & Kings³¹.

Nonetheless, Cardinal Energy³², a decision rendered after Cox & Kings³³, the Single Judge categorially held that the Arbitral Tribunal has the power under Section 16 of the Act to determine whether it has jurisdiction to join/implead non-signatory as a party to an arbitration agreement. Thus, any decision made by the Arbitral Tribunal joining or declining to join a non-signatory as a party to an arbitration agreement under Section 16 of the Act can always be the subject-matter of a challenge in a petition filed under Section 34³⁴ of the Act, after the final award is passed.

Conclusion

The Supreme Court’s affirmation of the group of companies doctrine in Cox & Kings Ltd.³⁵ marks a significant development in Indian arbitration law. However, cases like Cardinal Energy³⁶ and ASF Buildtech³⁷ highlight the ongoing procedural challenges that courts and Arbitral Tribunals face regarding the joinder or impleadment of non-signatories to an arbitration agreement. As we move forward, it is essential for both courts and Arbitral Tribunals to approach these issues with caution. The procedural implications of Cox & Kings³⁸ will likely be further refined through future judicial interpretations, with courts playing a critical role in resolving these lingering questions and providing the clarity needed for Arbitral Tribunals to effectively address the joinder of non-signatories in arbitration agreements.