'Group of Companies' Doctrine Not Applicable When The Party Is Not Referred To Arbitration: Kerala High Court

In this case, the petitioner challenged an order of attachment of his vehicle made by an Arbitration Tribunal. The arbitration rose out of a hire-purchase agreement made between a finance company and the former owners of the vehicle. There was a default in repayment of the loan taken from the company. Though the agreement was regarding the vehicle, it was not specifically made a security. The parties, after the notice for arbitration proceedings was issued, sold the vehicle to the petitioner. They did not reveal about the sale to the Arbitral Tribunal. After the ownership was transferred to the petitioner, in pursuance of the order of the Tribunal, the vehicle was attached.

The finance company argued that the petitioner claims his title through the former owners of the vehicle and by adopting 'group of companies' doctrine, the order of attachment can be considered valid.

Justice C. Jayachandran however held that the doctrine would not be applicable in this case. The doctrine applies to Section 45 of the Arbitration and Conciliation Act whereby a judicial authority is competent to refer even persons claiming through or under any party of the arbitration agreement to the proceedings. Applying 'groups of company doctrine', the judicial authority can refer persons who has given a 'constructive consent' to the arbitration agreement. Here, the petitioner was not referred to the arbitration. He does not have any connection with the arbitration agreement. Therefore neither 'group of companies' doctrine or Section 45 of the Arbitration Act validates the attachment of petitioner's property.

“The situation in the instant facts is different, since the petitioner is a complete stranger. He is not privy to or have any connection with the basic contract between the 3^rd respondent and respondents 4 and 5.”

The Court observed that when an order under Order XXXVIII Rule 5 of Civil Procedure Code is passed for attaching the property before passing the judgment, the property should be in the name of the defendant in the suit. Moreover, it is expressly mentioned in Order XXXVIII Rule 10 that such an attachment cannot affect the rights of third parties.

The Court rejected the respondent's contention that the writ is not maintainable as the petitioner should have moved under the Arbitration and Conciliation Act to challenge the order of arbitration. There is a statutory remedy under Section 27 of the Act to challenge arbitral awards. The Court held that the Tribunal passed the order without jurisdiction. The Court held that if the arbitral award is wholly without jurisdiction, it can be challenged by way of writ petition and existence of an alternate remedy does not bar that right.

The Court said that the company can proceed with its application to implead the petitioner in the arbitral proceedings and this judgment would not act as an impediment to that.

Counsel for the Petitioner: Advocates P. K. Sreevalsakrishnan, S. Unnikrishnan, K. R. Prathish, Manasi M., Giffin Shaloo

Counsel for the Respondent: Advocates C. Harikumar, N. K. Shyju, Sandra Sunny, Arun Kumar M. A., Gireesh Pankajakshan

Case No: WP(C) 31882/ 2022

Case Title: Saneesha M. S. v The Village Officers and Others

Citation: 2024 LiveLaw (Ker) 497