Invoking the doctrine of “group of companies”, it went on to observe that an arbitration agreement entered into by a company, being one within a group of corporate entities, can, in certain circumstances, bind its non-signatory affiliates
|Case name:||Reckitt Benckiser (India) Private Limited Versus Reynders Label Printing India Private Limited and Anr.|
|Case number:||PETITION FOR ARBITRATION (CIVIL) NO. 65 OF 2016|
|Court:||THE SUPREME COURT OF INDIA|
|Bench:||A.M. Khanwilkar J. Ajay Rastogi J.|
|Decided on:||July 01, 2019|
|Relevant Act/Sections:||The arbitration and conciliation act|
- BRIEF FACTS & ISSUE BEFORE THE COURT:
Whether respondent No.2 a company established under the laws of Belgium, having its principal place of business at Belgium, could be impleaded in the proposed arbitration proceedings despite the fact that it is a non-signatory party to the agreement dated 1st May, 2014, executed between the applicant and respondent No.1 a company established under the Companies Act, 2013 merely because it (respondent No.2) is one of the group companies of which respondent No.1 also is a constituent?
- RATIO OF THE COURT
- In the case of Chloro Controls India Private Limited Vs. Severn Trent Water Purification Inc. and Ors. a three JudgeBench of this Court opined thatordinarily, an arbitration takes place between the persons who have been parties to both the arbitration agreement as well asthe substantive contract underlying it. Invoking the doctrineof “group of companies”, it went on to observe that anarbitration agreement entered into by a company, being onewithin a group of corporate entities, can, in certaincircumstances, bind its non-signatoryaffiliates.
- In the wake of the amended Section 11(6) read withSection 11(6A) of the Act, the enquiry by this Court mustconfine itself to the examination of existence of an arbitrationagreement. No more and no less.
- In the backdrop of the averments in the application and the correspondence exchanged between the parties adverted to by the applicant, it is obvious that the thrust of the claim of the applicant is that Mr. Frederik Reynders was acting for and on behalf of respondent No.2, as a result of which the respondent No.2 has assented to the arbitration agreement. This basis has been completely demolished by respondent No.2 by stating, on affidavit, that Mr. Frederik Reynders was in no way associated with respondent No.2 and was only an employee of respondent No.1, who acted in that capacity during the negotiations preceding the execution of agreement.
- Thus, respondent No.2 was neither the signatory to the arbitration agreement nor did have any causal connection with the process of negotiations preceding the agreement or the execution thereof, whatsoever. If the main plank of the applicant, that Mr. Frederik Reynders was acting for and on behalf of respondent No.2 and had the authority of respondent No.2, collapses, then it must necessarily follow that respondent No.2 was not a party to the stated agreement nor had it given assent to the arbitration agreement and, in absence thereof, even if respondent No.2 happens to be a constituent of the group of companies of which respondent No.1 is also a constituent, that will be of no avail.
- For, the burden is on the applicant to establish that respondent No.2 had an intention to consent to the arbitration agreement and be party thereto, maybe for the limited purpose of enforcing the indemnity clause 9 in the agreement, which refers to respondent No.1 and the supplier group against any claim of loss, damages and expenses, howsoever incurred or suffered by the applicant and arising out of or in connection with matters specified therein. That burden has not been discharged by the applicant at all. On this finding, it must necessarily follow that respondent No.2 cannot be subjected to the proposed arbitration proceedings.
- Considering the averments in the application under consideration, it is not necessary for us to enquire into the fact as to which other constituent of the group of companies, of which the respondents form a part, had participated in the negotiation process.
- Suffice it to observe that respondent No.2 was never involved in the negotiation process concerning the stated agreement dated 1st May, 2014. On this finding, the application must fail as against respondent No.2 and as a consequence whereof, the provisions for making reference to the sole arbitrator, on the assumption that it is an international commercial arbitration, cannot be taken forward. As respondent No.1 is a company having been established under the provisions of the Indian Companies Act and having its registered office in India, the applicant can pursue its remedy against respondent No.1 for appointment of a sole arbitrator to conduct arbitration proceedings, as a domestic commercial arbitration.
- DECISION HELD BY COURT:
The arbitration application is dismissed as against respondent No.2. However, we appoint Mr. Justice Badar Durrez Ahmed (Former Chief Justice, Jammu & Kashmir High Court) as the sole arbitrator to conduct domestic commercial arbitration at New Delhi, between the applicant and respondent No.1 on the terms and conditions as specified in the Act of 1996.
Application stands disposed of in the above terms. No costs. All pending interim applications are also disposed of.