The Arbitral Tribunal May Implead A Non-Signatory To The Arbitral Proceedings: Delhi High Court

Facts: The appellant issues a Request for Selection of Bidders (RFS) for the design, manufacture, supply, and erection of Grid Connected Roof Top Solar Power System installed on selected rooftops in Delhi under Renewable Energy Services Companies (RESCO). The respondent was the successful bidder and a purchase order of Rs. 17.75 cr was placed. Subsidy in the form of Central Finance Assistance (CFA) was provided by the (MNRE) for the project. In GNCTD, the project was undertaken by Energy Efficiency and Renewable Energy Management (EE&REM) and implemented by the appellant. The respondent initiated arbitral proceedings against the appellant for the non-payment of 30% of the entire subsidy.

The appellant moved an application before the tribunal seeking impleadment of MNRE as a party. The appellant argued that the MNRE provided the subsidy for the project, and the appellant was an executing agency. The tribunal was of the opinion that the MNRE, being a non-signatory to the arbitration agreement, did not show any connection or positive act at any time during the continuation of the agreement and thereby rejected the application. The appellant approached the High Court challenging the impugned order.

Submissions by the Parties:

The appellant made the following submissions:

1. The subsidy, being the subject matter of the dispute, was released by the MNRE to the appellant, and subsequently it was transferred to the respondent. The appellant on the receipt of the CFA from the MNRE would be liable for the disbursement of the subsidy to the Respondent and not otherwise. The EE&REM and in turn, the appellant were the executing agencies of the MNRE, and there was no independent liability owed towards the respondent.
2. The appellant sought to implead the MNRE, a non-signatory to the arbitration agreement, in the arbitral proceedings as the liability of the appellant to disburse 30% CFA to the respondent was dependent on the receiving CFA from the MNRA. The appellant placed reliance on RBCL Piletech Infra v. Bholasingh Jaiprakash Construction Ltd, HLS Asia Ltd v. Geopetrol International Inc, and Cox and Kings Ltd v. Sap India Pvt Ltd (Cox and Kings I) requesting the Court to impleade MNRE as a non-signatory to the arbitral agreement

The respondent made the following submissions:

1. Relying upon a a Coordinate Single Bench Judgement in Arupri Logistics Pvt Ltd v. Vilas Gupta, the Arbitral Tribunal cannot add parties. The judgments relied upon by the appellant are at the stage of referring the disputes to arbitration by the High Court under Section 11(6). The power to include non-signatories as parties to the arbitration vest solely in the referral Court under Section 11(6). The Arbitral Tribunal do not have the power to add parties who had not been subjected to arbitration by the referral Court and who are non-signatories to the arbitration agreement.

Analysis of the Court:

The bench observed that in Arupri Logistics, a coordinate bench has held that an arbitral tribunal cannot add or remove parties, or proceed on principles similar to that of Order I Rule 10 of CPC. This power vests solely in Court, and it is only the Referral Court, at the stage of Section 11 (6) can join non-signatories to the arbitral proceedings. The tribunal is bound to adjudicate the dispute between the parties present before it.

However, after the decision in Arupri Logistics, the Constitution Bench of the Supreme Court in Cox and Kings II endorses the view of Vidya Drolia v. Durga Trading Corporation. In Vidya Drolia, the jurisdictional issues regarding whether certain parties had been bound by a specific arbitration, based on the group-company doctrine, good faith, or other principles in a multi-party arbitration, had raised complex factual issues, which had been more appropriately left to the tribunal to address. Cox and Kings-II further refers to the decision in Deutsche Post Bank Home Finance Ltd v. Taduri Sridhar, which is not the correct position of law post the decision in Chloro Controls . The referral court should prima facie determine the validity or existence of the arbitration agreement, and leave it for the Arbitral Tribunal to decide whether the non-signatory is bound by the agreement.

The Court after perusing the passages of Cox and Kings-II, further observed that at the Section 11 Court should leave the decision as to whether a non-signatory to the arbitration agreement should be bound by it to the Arbitral Tribunal. Consequently, if the Arbitral Tribunal found that a non-signatory was bound by the arbitration agreement, it was required to include such a non-signatory in the arbitration proceedings. The Arbitral Tribunal may implead non-signatories to the arbitral proceedings who may be bound by the outcome of the proceedings.

.Case Title: Indraprastha Power Generation Company Ltd v. Hero Solar Energy Private Limited

Citation: 2024 LiveLaw (Del) 996

Case Number: Arb. A. (Comm) 46/2024

Counsel for the Appellant: Mr. Chandra Prakash, Advocate.

Consel for the Respondent: Mr. Sanjoy Ghose, Sr. Advocate with Mr. Yash Srivastava, Ms. Satakshi Sood, Mr. Rohan Mandal, Ms. Naimish Verma and Ms. Rashmi Priya, Advocates.

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