Non-Signatories Can Be Included In Arbitration Beyond Group Company Ties: Delhi High Court

The Delhi High Court bench of Justice C. Hari Shankar has held the inclusion of a non-signatory in arbitral proceedings is not solely dependent on the non-signatory being part of the same group of companies as the signatory.

The bench further clarified that a non-signatory can be included in arbitration if there is a contractual relationship that makes the non-signatory partially or wholly responsible for obligations towards the claimants.

Brief Facts:

The matter pertained to disputes arising primarily between RBCL Piletech Infra (Petitioner) and Respondent 1, Bholasingh Jaiprakash Construction Ltd. (BJCL). These disputes stem from a Work Order executed between them. Respondent 2 was National Thermal Power Corporation (NTPC), the site owner, and Respondent 3 was Bharat Heavy Electrical Ltd. (BHEL) which contracted BJCL to undertake certain construction work at the NTPC site. BJCL then subcontracted part of this work to the Petitioner.

The Petitioner claimed to have incurred idling charges, damages, and other costs, which it argued were payable by the Respondents. The Work Order provided for the resolution of disputes through arbitration by a sole arbitrator appointed by mutual consent of the parties. The Petitioner, invoking Section 21 of the Arbitration Act, addressed a notice to the Respondents and called for the appointment of a sole arbitrator to arbitrate the disputes. BJCL and BHEL opposed this notice while NTPC did not respond.

Consequently, the Petitioner approached the High Court under Section 11(6) of the Arbitration Act and sought the court's intervention to appoint an arbitrator for the disputes between the parties. BJCL agreed to refer the disputes to arbitration. However, NTPC and BHEL opposed their inclusion in the arbitration proceedings and argued that they have no privity of contract with the Petitioner. It contended that the Work Order was a bilateral agreement solely between the Petitioner and BJCL with neither NTPC nor BHEL being parties to it.

Observations by the High Court:

The High Court held that inclusion of a non-signatory is not limited to cases involving corporate groupings. It referred to the decision of the Supreme Court in Ameet Lalchand Shah v. Rishabh Enterprises where it was held that a non-signatory involved in interconnected agreements aimed at achieving a common commercial goal could be included in arbitration. Further, it held that a non-signatory can be included based on a contractual relationship that makes them responsible for obligations towards the claimant (referred to O.N.G.C. v. Discovery Enterprises Pvt Ltd.).

Examining the clauses in the contract between BJCL and BHEL, the High Court found that Clause 33 didn't suffice to include BHEL in the arbitral proceedings. The clause merely stipulated that the technical specifications and conditions of the BJCL-BHEL contract apply to the subcontract with the Petitioner.

However, the High Court noted that the Clauses 21 and 28 of the Work Order presented a prima facie case for including BHEL. Clause 21 tied the Petitioner's payment to BJCL's receipt of payment from BHEL for the work accepted and certified by BHEL. This, according to the High Court, established that the Petitioner's entitlement to payment was contingent upon BHEL's approval and subsequent payment to BJCL. Clause 28 further supported this by indemnifying BJCL from releasing any payment to the Petitioner if BHEL withholds or retains payments due to reasons attributable to the Petitioner.

Regarding NTPC, the High Court found no direct contractual responsibility towards the Petitioner, apart from Clause 12, which was related to water supply for construction. Therefore, the High Court did not find a prima facie case for including NTPC at this stage but left it open for the Petitioner to argue NTPC's inclusion before the arbitral tribunal.

Therefore, the High Court decided to refer the dispute to arbitration and appointed Anant V. Palli as the arbitrator.

Case Title: Rbcl Piletech Infra Vs Bholasingh Jaiprakash Construction Limited & Ors.

Case Number: ARB.P. 1108/2023

Advocate for the Petitioner: Ms. Tanya Karnwal, Mr. Harshit Batra

Advocate for the Respondent: Mr. Animesh Sinha, Mr. Shubham Budhiraja and Ms. Ishita Pandey, Advs. for R-2 Mr. K.K. Tyagi, Adv. for R-3

Date of Judgment: 22.07.2024

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