Notice U/S 21 A&C Act Is Not Mandatory Against Each Company: Delhi HC

The Court, batch of proceedings challenges the orders dated 23rd May 2023 and 17th October 2023 passed by the Sole Arbitrator. On 23rd May 2023, the Sole Arbitrator dismissed BCSPL's Section 16 application and allowed SPCPL's application for condonation of delay in filing its SoC. On 17th October 2023, the Sole Arbitrator rejected the Section 16 applications filed by AISPL and ABPL, maintaining their inclusion in the arbitration proceedings. This case involves two appeals filed under Section 37(2) of the 1996 Act, being Arb. A. (Comm.) 4/2024 and Arb. A. (Comm.) 5/2024, and one petition under Section 14 of the 1996 Act being O.M.P. (T) (Comm.) 4/2024, all arising from the Sole Arbitrator's orders. The parties involved in these proceedings include BCSPL, SPCPL, AISPL, and ABPL.

Facts of the Dispute:

The disputes among the parties originated from the order dated 22nd July 2022, passed by the Court in a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (the “1996 Act”), appointing a Sole Arbitrator to adjudicate disputes between Black Canyon SEZ Pvt. Ltd. (“BCSPL”) and Shapoorji Pallonji and Company Pvt. Ltd. (“SPCPL”). The matter began with a Works Contract executed on 21st November 2016 between ASF Insignia SEZ Pvt. Ltd. (“AISPL”) and SPCPL for developing a building in Gurgaon, Haryana, followed by a Supplementary Works Contract on 9th February 2018. Subsequently, a Novation Agreement dated 17th April 2018 was executed among AISPL, BCSPL, and SPCPL, transferring all rights, claims, liabilities, obligations, and duties from AISPL to BCSPL. A Settlement Agreement dated 24th July 2020, entered into between BCSPL and SPCPL due to the COVID-19 pandemic, addressed the costs and claims of SPCPL to be paid by BCSPL. Furthermore, AISPL issued a Letter of Comfort on 17th April 2018 to SPCPL, assuring that if BCSPL failed to make payments for certified works, AISPL would ensure prompt payment.

The entities in the ASF group, including AISPL, BCSPL, and ABPL, are under the same management and appear to have been substituted in the contract for convenience. A Co-Development Agreement dated 14th November 2017 was executed between AISPL and BCSPL, requiring BCSPL to keep AISPL fully informed about the project. The initial arbitration petition under Section 11(6) of the 1996 Act involved BCSPL and SPCPL. Following the petition, several disputes arose related to the Works Contract, Novation Agreement, and Settlement Agreement. AISPL was subsequently impleaded in the arbitration proceedings by an order dated 23rd May 2023. AISPL challenged this impleadment through an application under Section 16 of the 1996 Act on 4th July 2023, which was rejected by the Sole Arbitrator on 17th October 2023. AISPL filed its Statement of Defence (SoD) on 29th November 2023, reiterating its objection to the impleadment. Additionally, ABPL received notice from the Sole Arbitrator on 23rd May 2023 regarding SPCPL’s Statement of Claim (SoC) and filed its Section 16 application on 3rd July 2023, arguing it was a separate legal entity with no involvement in the dispute. The Sole Arbitrator rejected ABPL’s application on 17th October 2023, justifying ABPL’s inclusion based on the Group of Companies Doctrine (“GoCD”) and the Single Economic Entity Doctrine.

The Sole Arbitrator's order dated 23rd May 2023 dismissed BCSPL's Section 16 application and allowed SPCPL's delayed SoC filing. The unusual procedure followed before the Sole Arbitrator saw SPCPL file a counterclaim against BCSPL, subsequently impleading AISPL and ABPL without seeking leave. BCSPL filed a petition under Section 14 of the 1996 Act, seeking termination of the Sole Arbitrator’s mandate based on several orders passed between 7th July 2023 and 17th October 2023. SPCPL filed its SoD on 23rd January 2023 without a Counter Claim, later filing a SoC on 14th February 2023, naming BCSPL, AISPL, and ABPL as respondents. BCSPL challenged the Sole Arbitrator’s jurisdiction through a Section 16 application on 3rd March 2023, which was dismissed on 23rd May 2023.

On 7th July 2023, the Sole Arbitrator bifurcated the proceedings into two cases: 
•    Case-1, involving disputes from BCSPL’s SoC with SPCPL as the sole respondent;
•    Case-2, involving disputes from SPCPL’s SoC with BCSPL, AISPL, and ABPL as respondents.

On 7th August 2023, the Sole Arbitrator deferred the decision on consolidation of the cases until the formulation of issues.

Court’s holding and analysis

The issues before consideration of the court were two fold- 
1.    Whether the ld. Sole Arbitrator’s mandate is liable to be terminated; 
2.    Whether labelling/designation as Case No.1 and Case No.2 and the dismissal of Section 16 applications filed by ASPL and ABPL deserves to be interfered with?

Re Issue 1 - 
After careful consideration of the grounds presented for seeking termination of the mandate of the ld. Sole Arbitrator, the Court finds them without merit. The contention that the ld. Arbitrator exceeded jurisdiction by bifurcating the proceedings into Case No.1 and Case No.2 without proper notice under Section 21 of the 1996 Act, is dismissed as specious. The initial order permitting the impleadment of AISPL and ABPL fell within the Single Judge’s discretion and adhered to procedural norms.

The Court affirms that the ld. Sole Arbitrator acted within his authority in allowing counterclaims under Section 23(2A) of the 1996 Act, which permits such actions in arbitral proceedings. This discretion is rooted in the procedural flexibility inherent in arbitral proceedings, distinct from the rigidities of the Civil Procedure Code, 1908. Arbitral proceedings, guided by principles of party autonomy and procedural fairness, permit the filing of counterclaims and the impleadment of additional parties as respondents, provided they are connected to the subject matter of the dispute.

The cohesive involvement of the ASF Group in contractual matters, akin to principles elucidated in Dow Chemical v. Isover Saint Gobain (Interim Award, ICC Case No. 4131, 23rd September, 1982), supports their inclusion in the arbitration. The aforementioned case recognizes that entities within a closely-knit corporate group may be bound by arbitration agreements if involved in negotiations, performance, or termination of contracts. The decision in Dow Chemicals (supra) has been affirmed recently by the Supreme Court in Cox and Kings Ltd. v. SAP India Pvt. Ltd. (2023 SCC Online SC 1634). Therefore, the Court concludes that the ld. Sole Arbitrator’s mandate remains valid, and the petition under Section 14 seeking termination is dismissed.

Re Issue 2 - 
The Court has thoroughly considered the multifaceted dimensions of whether the labelling/designation as Case No.1 and Case No.2, along with the dismissal of Section 16 applications by ASPL and ABPL, warrants interference. It is unequivocal that under Section 21 of the 1996 Act, a separate notice invoking arbitration is mandatory for SPCPL to maintain its claim against AISPL and ABPL. However, such notice is dispensable when the claim is filed as a counterclaim pursuant to a court order, as in the present instance following the order dated 22nd July, 2022, which allowed claims and counterclaims by BCSPL and SPCPL. The Court affirms that AISPL and ABPL's inclusion as respondents in the arbitral proceedings is legally sound under the Group of Companies doctrine elucidated in Cox and Kings (supra), which recognizes their substantial involvement and commonality in contractual obligations related to the Black Canyon project. The Court finds no basis to interfere with the ld. Sole Arbitrator's orders, as they align with the principles of procedural efficiency and avoidance of contradictory findings.

Therefore, the delineation of Case No.1 and Case No.2 is deemed unnecessary, and AISPL and ABPL are rightfully impleaded as Respondent Nos. 2 and 3.

Regarding the procedural aspect, the Court expressed reluctance to interfere with the ld. Sole Arbitrator's decisions, which were grounded in principles of procedural efficiency and avoidance of contradictory findings. The Court highlighted that bifurcating the proceedings into Case No.1 and Case No.2 was unnecessary given the interrelated nature of the claims and counterclaims involving BCSPL, AISPL, and ABPL. Consequently, the Court directed that the proceedings before the ld. Sole Arbitrator should be treated as a single unified case, ensuring comprehensive adjudication of all claims and counterclaims in a cohesive manner.

Accordingly, the petitions were disposed of in the terms outlined above.

Parties to the Dispute

Parties 
•    Asf Buildtech Private Limited- Through: Dr. Amit George, Mr. Vaibhav Jain, Mr. Shashank Pandey & Mr. Rayadurgam Bharat. 
•    Asf Insignia Sez Pvt Ltd- Through: Mr. Sanyat Lodha. 
•    Shapoorji Pallonji And Company Private Limited- Through: Mr. Saurav Agrawal, Ms. Aakanksha Kaul, Mr. Aman Sahani, Mr. Anshuman Chowdhary, Mr. Satya Sabharwal, Ms. Rhea Borkotoky & Mr. Akash Saxena.  
•    Black Canyon Sez Private Limited- Through: Mr. Tejas Karia, Ms. Avlokita Rajvi, Mr. Ramakrishna Veerendra & Mr. Mahir Amir.

Relevant Paragraphs from the judgement:

Sec 21 notice is not mandatory against each company of the GoC doctrine.

78. Moreover, arbitral proceedings are not strictly governed by the rigors of the CPC. Counterclaims can be filed by the Respondent in an arbitral proceeding, as clearly allowed by Section 23(2A) of the 1996 Act. The issue is only whether the counterclaim has to be restricted to the claimant alone or can other parties be impleaded as Respondents in the counterclaim.

The nature of the disputes in the present case would show that from the initial Works Contract to the Novation Agreement, the Settlement Agreement, and the Comfort Letter, the role of ASF Group, AISPL, and ABPL is not clearly delineated.

Arbitrator can add companies as parties basis GoC doctrine even during arbitration.

79. The entities may be separate on paper, but ASF Group appears to be one cohesive entity as is evident from the documents placed on record. In this context, the GoCD and the Single Economic Entity Doctrines, as laid down in cases like Cox and Kings (supra), and Dow Chemical v. Isover Saint Gobain (Interim Award, ICC Case No. 4131, 23rd  September, 1982) support the view that all entities within a closely-knit corporate group can be bound by the arbitration agreement if they are involved in the contract’s negotiation, performance, or termination.

Arupri is no longer good law

95. In regard to the decision in Arupri (supra), the said decision was rendered prior to the decision of the Supreme Court in Cox and Kings (supra), wherein the Supreme Court has discussed the law relating to GoCD and impleadment of non-signatories comprehensively. Further the Bombay High Court in Cardinal Energy and Infra Structure Private Ltd. v. Subramanya Construction and Development Co. Ltd. (MANU/MH/2164/2024) has observed that the decisions in Abhibus (supra) and Arupri (supra) were rendered prior to the decision of the Supreme Court in Cox and Kings (Supra) which has changed the law with regard to impleadment of non-signatories to the arbitration agreement.