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Judgment
The present application under Section 11(6) of the Arbitration and Conciliation Act 1996 (hereinafter referred to as 'the Act of 1996' for the sake of brevity) has been filed for appointment of Arbitrator for resolution of dispute arose between the parties in respect of non-payment of the supplies made by the applicant pursuant to the agreement dated 13.09.2019.
It is submitted by learned counsel for the applicant that tender inviting authority i.e respondent/non-applicant had invited tender to supply medicines, through the respondent, to all the departments and the agencies of the Government of Madhya Pradesh. The bid of the applicant has been selected and the agreement has been executed with the applicant for supply of the medicines through the respondent to all the departments and the agencies of the State Government.
It is submitted that Clause 18 of the agreement dated 02.03.2019 Annexure P/7 provides for imposition of liquidated damages and other penalties. According to said clause, if the contractor delays to supply the medicines, then according to the terms of agreement, penalty can be imposed. It is submitted that the contractor has delayed the supplies and therefore, penalties were imposed through various letters Annexure A/1 to A/4, which the applicant has contradicted on the ground that due to COVID period the supply chain could not be maintained and therefore, the delay has been caused which is bonafide in nature and the penalty imposed on the applicant is not justifiable which created a dispute which has not been decided amicably by the parties despite several efforts.
It is submitted that the applicant made communications dated 20.10.2021 Annexure A/11, dated 15.06.2022 Annexure A/12, dated 09.02.2023 Annexure A/15 and dated 07.06.2023 Annexure A/16 to the non-applicant, but of no avail, therefore, the applicant was constrained to invoke the arbitration clause of the agreement by issuing notice dated 18.11.2023 Annexure A/21.
It is submitted that the agreement dated 02.03.2019 Annexure A/7 contains an arbitration clause i.e. clause No.23, according to which, in case of a dispute or difference arising between the purchaser and a supplier relating to any matter arising out of or connected with the agreement, such dispute or difference shall be settled in accordance with the Arbitration and Conciliation Act, 1996 and the venue of arbitration shall be at Bhopal. It is submitted that it is clear from the Clause that any dispute arising in connection with the agreement is arbitrable and can be resolved by applying the provisions of the Act of 1996, therefore, the present application has been filed to appoint an Arbitrator to resolve the dispute arose between the parties because of imposition of penalty caused due to delay in supply.
Per contra, learned counsel for the non-applicant has objected to the arbitrability of the dispute and appointment of an arbitrator on the ground that as the non-applicant is only a tender inviting agency. The purchase orders were made on the portal of the non-applicant by different government agencies and the departments, who have imposed the penalty for delayed supply, therefore, those departments and agencies are necessary party and in absence of those parties, the arbitrator cannot be appointed to resolve the dispute.
It is submitted by referring to clause 17 that the non-applicant is not the purchaser. It is submitted that purchaser i.e. any government agency on the portal of the non-applicant could make an order for supply of the medicines but as the non-applicant is only intermediary portal, the non-applicant is not obliged to make payment or to revoke penalty, therefore, no fruitful award can be passed against the non-applicant in absence of those departments or agencies who have made orders on the portal of the non-applicant. It is further submitted that the Hon'ble Apex Court in the case of Cox and Kings Ltd. vs. SAP India Pvt. Ltd. [SLP (C) No.8607 of 2022] has categorically held in regard to the doctrine of Group of Companies, wherein it is held that the intention of the parties forming a group of companies is to be gathered from the recital of the agreement and respective obligations agreed by the parties. If in the agreement it contains that the performance of the agreement is to be done by any sister company or any ancillary of the party who has executed the agreement, then all companies are to be made party, as the applicant has not filed the application against the department or the agencies who have imposed the penalty, no direction for appointment of an arbitrator can be issued under Section 11(6) of the Act of 1996.
Heard learned counsel for the parties and perused the record.
From perusal of the agreement Annexure A/6 dated 13.09.2019, it is found that agreement has been executed by the non-applicant with the applicant. The agreement also contain a stipulation that the terms contained in the tender documents is the part of the agreement. The said tender document has been filed as Annexure A/7 which contain stipulation in clause 17 that for supply of medicine, the bill has to be raised by the applicant against the purchasers who may not be party to the agreement. As per clause 18, if the delay is caused in supply of the medicines, the penalty shall be imposed by purchaser on the supplier, who may not be a party to the agreement. Clause 23(1) speaks about negotiations and efforts to resolve the dispute between purchaser and supplier. Clause 24 speaks about the provision of appeal in case any order is passed by the tendering authority.
From bare perusal of the Clause 17, 18 and 23 and also the preamble of the agreement dated 13.09.2019 Annexure P/6, it is found that the agreement has been shaped and designed by the parties to include all the other stake holders i.e. the purchasers in the agreement. As the agreement has been signed by the non-applicant, therefore, the non-applicant is a necessary party, however, those purchasers who have not been made party but as against them dispute arise because of imposition of penalty, they are also party to it and included in the said dispute alongwith the non-applicant.
The doctrine of the Group of Companies has been elaborated by the Hon'ble Apex Court in the case of Cox and Kings Ltd. (supra). The relevant paragraphs which deals with the principle of Group of Companies are read as under :
53.The existence of an arbitration agreement with a non-signatory is a matter of interpretation and construction. The express words employed by the parties enable the court to ascertain the intention of the parties and their agreement to resolve disputes through arbitration. For ascertaining the true meaning of the express words, the court or tribunal may look into the surrounding circumstances such as nature and object of the contract and the conduct of the parties during the formation, performance, and discharge of the contract. While interpreting and constructing the contract, courts or tribunals may adopt well-established principles, which aid and assist proper adjudication and determination. The Group of Companies doctrine is one such principle. It may be adopted by courts or arbitral tribunals while interpreting the record of agreement to determine whether the non-signatory company is a party to it.
54.Although the application of the Group of Companies doctrine in India has until now been independent of Section 7, its juxtaposition with Section 7(4)(b) case-law shows that the inquiry under both is premised on determining the mutual intention of parties to submit to arbitration. The mutual intention of the parties is discernible from their conduct in the performance of the contract and this inquiry is common to Section 7(4)(b) jurisprudence and the Group of Companies doctrine. Even the precedents on the doctrine, national and international, look to additional factors beyond the non-signatory being in the same group of companies, such as commonality of subject-matter, composite nature of transaction, and interdependence of the performance of the contracts to determine mutual intent.
55.Since the fundamental issue before the court or tribunal under Section 7(4)(b) and the Group of Companies doctrine is the same, the doctrine can be subsumed within Section 7(4)(b). Consequently, the record of agreement that evidences conduct of the non-signatory in the formation, performance, and termination of the contract and surrounding circumstances such as its direct relationship with the signatory parties, commonality of subject-matter, and composite nature of transaction, must be comprehensively used to ascertain the existence of the arbitration agreement with the non-signatory. In this inquiry, the fact of a non-signatory being a part of the same group of companies will strengthen its conclusion. In this light, there is no difficulty in applying the Group of Companies doctrine as it would be statutorily anchored in Section 7 of the Act.
E. Conclusion
56.In view of the above, while concurring with the judgment of the learned Chief Justice, my conclusions are as follows:
I. An agreement to refer disputes to arbitration must be in a written form, as against an oral agreement, but need not be signed by the parties. Under Section 7(4)(b), a court or arbitral tribunal will determine whether a non-signatory is a party to an arbitration agreement by interpreting the express language employed by the parties in the record of agreement, coupled with surrounding circumstances of the formation, performance, and discharge of the contract.While interpreting and constructing the contract, courts or tribunals may adopt well-established principles, which aid and assist proper adjudication and determination. The Group of Companies doctrine is one such principle.
II. The Group of Companies doctrine91 is also premised on ascertaining the intention of the non-signatory to be party to an arbitration agreement. The doctrine requires the intention to be gathered from additional factors such as direct relationship with the signatory parties, commonality of subject-matter, composite nature of the transaction, and performance of the contract.
III. Since the purpose of inquiry by a court or arbitral tribunal under Section 7(4)
and the Group of Companies doctrine is the same, the doctrine can be subsumed within Section 7(4)(b) to enable a court or arbitral tribunal to determine the true intention and consent of the non-signatory parties to refer the matter to arbitration. The doctrine is subsumed within the statutory regime of Section 7(4)(b) for the purpose of certainty and systematic development of law.
IV. The expression “claiming through or under” in Sections 8 and 45 is intended to provide a derivative right; and it does not enable a non-signatory to become a party to the arbitration agreement. The decision in Chloro Controls (supra) tracing the Group of Companies doctrine through the phrase “claiming through or under” in Sections 8 and 45 is erroneous. The expression ‘party’ in Section 2(1)(h) and Section 7 is distinct from “persons claiming through or under them”. This answers the remaining questions referred to the Constitution Bench.
From the above enunciation of law, it is abundantly clear that those companies who have not been made party to the agreement but are the group companies of the parent company, is a party.
An arbitration agreement must be recorded in writing but need not be signed by all the parties. A court or arbitral tribunal has to determine whether a non-signatory is a party to an arbitration agreement by interpreting recital of the agreement. The Group of Companies doctrine is also based on ascertaining the intention of the non-signatory to be party to an arbitration agreement. The doctrine requires the intention to be gathered from direct relationship with the signatory parties. The doctrine enables a court or arbitral tribunal to determine the true intention and consent of the non-signatory parties to refer the matter to arbitration.
In the present case, the non-applicant has executed an agreement on behalf of the state agencies and the departments. In such case, those agencies being not party to the agreement, their participation is inclusive in the agreement, therefore, the arbitration clause, as mentioned in the agreement is also applicable to them. The non-applicant as a representative had executed an agreement by writing the preamble that "on behalf of all the state agencies" becomes a necessary party, therefore, in the opinion of the Court, arbitrability of the dispute is not disputed and as the parties have agreed to resolve the dispute through arbitration, the mandate can be issued by this Court in the present matter to resolve the dispute by appointment of an arbitrator which shall include all the other departments as well as the agencies alongwith the non-applicant by applying the doctrine of group of companies. Therefore, the application is allowed.
It is observed that when the statement of claim is filed the applicant shall also clearly mention the dispute between the parties through state agencies and those parties be also made party for effective execution of the award along with the non-applicant.
With the consent of learned counsel for the parties and considering the list of empanelled Arbitrators issued by the M.P. Arbitration Centre, Jabalpur, following order is passed:
Shri Alok Verma, Former Judge, High Court of M.P. , Address -R/o Akar, HIG I/463, Arvind Vihar, Baghmogaliya, Bhopal (M.P.) 462043 Contact No.79748-54407 and 94250-07479, Email [email protected], who has consented in terms of Section 11(8) of the Act of 1996, is appointed as sole Arbitrator to resolve the dispute between the parties in the case.
Arbitrator shall issue the notices and fix the date and suitable venue for arbitration. Said arbitration will take place at Bhopal.
Parties are directed to deposit necessary charges and fees as per M.P. Arbitration Center (Domestic and International) Rule, 2019.
Director of Madhya Pradesh Arbitration Centre, Domestic and International, Jabalpur (M.P.D.I.A.C.) shall communicate the decision of this Court to the Sole Arbitrator.
Other provisions of Section 15(3)(4) of the Arbitration and Conciliation Act, 1996 will apply to substitute Arbitrator.
With aforesaid directions, the Arbitration Case is disposed of.