What Delhi High Court has to say on A Non-Signatory to the Arbitral Tribunal ?

In a landmark decision on September 11, 2024, the Delhi High Court, presided by Justice C. Harishankar, held that an arbitral tribunal has the authority to implead a non-signatory to the arbitration agreement into arbitral proceedings. This decision arises from the appeal in Indraprastha Power Generation Company Ltd v. Hero Solar Energy Private Limited, where the court delved into whether a non-signatory could be involved in arbitration, with particular reference to the power vested in the arbitral tribunal.

Case Background

The dispute originated from a project for the design, manufacture, and supply of a Grid Connected Rooftop Solar Power System under the Renewable Energy Services Companies (RESCO) scheme. The appellant, Indraprastha Power Generation Company Ltd, had issued a Request for Selection of Bidders (RFS) for the project, which was awarded to the respondent, Hero Solar Energy Private Limited. A purchase order amounting to INR 17.75 crores was issued, and the project was subsidized through Central Finance Assistance (CFA) provided by the Ministry of New and Renewable Energy (MNRE).

The respondent initiated arbitral proceedings against the appellant due to non-payment of 30% of the subsidy. In response, the appellant moved the tribunal seeking to implead MNRE, the authority responsible for providing the subsidy, as a necessary party in the arbitration. The appellant's argument rested on the claim that MNRE's actions, particularly the release of CFA, played a crucial role in the appellant's ability to disburse the subsidy.

Tribunal’s Rejection and Appeal

The arbitral tribunal rejected the application to implead MNRE, stating that MNRE was a non-signatory to the arbitration agreement and had not engaged in any direct involvement in the underlying contractual obligations. Dissatisfied with this outcome, the appellant approached the Delhi High Court under Section 37 of the Arbitration and Conciliation Act, 1996.

Submissions by the Parties

Appellant’s Submissions:

• The appellant argued that MNRE’s subsidy formed the core issue in the dispute. It contended that the liability to disburse 30% of the subsidy to the respondent was contingent upon MNRE’s release of CFA.

• The appellant emphasized that it acted merely as the executing agency and had no independent liability towards the respondent.

• The appellant cited previous cases such as RBCL Piletech Infra v. Bholasingh Jaiprakash Construction Ltd and Cox and Kings Ltd v. Sap India Pvt Ltd (Cox and Kings I) to support their claim for impleadment of a non-signatory.

  
  

Respondent’s Submissions:

• The respondent countered that the arbitral tribunal lacked the power to implead non-signatories into the proceedings. It argued that this power rested solely with the referral court under Section 11 of the Arbitration and Conciliation Act.

• The respondent relied on a prior judgment in Arupri Logistics Pvt Ltd v. Vilas Gupta, asserting that only the referral court, at the stage of Section 11(6), could decide on the inclusion of non-signatories in the arbitration.

Court’s Analysis and Observations

Justice Harishankar’s judgment drew upon an extensive analysis of precedent cases, particularly Cox and Kings Ltd v. Sap India Pvt Ltd (Cox and Kings II) and Vidya Drolia v. Durga Trading Corporation. The bench acknowledged that while previous rulings, such as Arupri Logistics, limited the powers of arbitral tribunals, the Cox and Kings II ruling paved the way for a more flexible interpretation of an arbitral tribunal's authority in complex multi-party disputes.

The court emphasized that in Cox and Kings II, the Supreme Court recognized that certain jurisdictional questions, including whether non-signatories are bound by an arbitration agreement, are often factually complex and thus more appropriately resolved by the arbitral tribunal. The court further highlighted that the Vidya Drolia judgment endorsed the principle of group-company doctrine and good faith in cases where multi-party arbitration involves non-signatories.

Ultimately, the court held that the arbitral tribunal may implead non-signatories who could potentially be bound by the outcome of the arbitration. This decision solidified the tribunal's discretion to determine whether a non-signatory should be included in the proceedings based on the facts and circumstances of the case.

Legal Framework and Implications

The judgment marks a significant shift in the understanding of the powers of an arbitral tribunal under the Arbitration and Conciliation Act, 1996. By upholding the arbitral tribunal's power to implead non-signatories, the court has reinforced the flexibility and autonomy of arbitration as a dispute resolution mechanism, even in complex, multi-party scenarios.

The ruling also aligns with the evolving jurisprudence on the group-company doctrine and the binding effect of arbitration agreements on parties who may not have directly signed the agreement but are involved in the performance or execution of the contract. The court’s reliance on Vidya Drolia and Cox and Kings II further establishes that arbitration tribunals are competent to address questions of jurisdiction, particularly when non-signatories' involvement is contested.

Conclusion

The Delhi High Court's decision in Indraprastha Power Generation Company Ltd v. Hero Solar Energy Private Limited affirms the arbitral tribunal’s authority to implead non-signatories in arbitration proceedings, thereby granting greater autonomy and scope to arbitration. This judgment is expected to have far-reaching implications, particularly in cases where non-signatories play a pivotal role in the underlying dispute but are not direct parties to the arbitration agreement. The decision reinforces arbitration as a flexible, efficient dispute resolution process capable of addressing complex, multi-party disputes within the legal framework.

This case underscores the importance of balancing procedural fairness with practical realities in arbitration, ensuring that all relevant parties can be held accountable for their roles in the dispute.