Impleadment of Non-Signatories: Assessing the Arbitral Tribunal’s Authority

This article attempts to break down the issues surrounding the impleadment of non-signatories in arbitration proceedings. The same can be better explained by examining the recent decision rendered by the Delhi High Court in the case of M/s. Arupri Logistics Pvt. Ltd. v. Shri Vilas Gupta & Ors.[1] wherein the Court set aside the order of the Sole Arbitrator dated December 23, 2021, impleading the appellants, non-signatories to the agreement, in the arbitration proceedings. The issue at hand that many have found perplexing was simple – whether the arbitrator is vested with the power to implead a non-signatory into the proceedings in the post-referral stage.

Brief Facts

The respondents were engaged in a family business conducted through the agency of three companies, Taurus India Limited, Taurus Polymers Pvt. Ltd., and Taurus Englobe Ltd. The Memorandum of Family Settlement entered into by the respondents on April 28, 2007, provided for an arbitration clause. In light of the execution of this memorandum, the case pending before the Company Law Board regarding the alleged mismanagement and oppression in the affairs of Taurus India was disposed of.

When the Company Law Board was approached again, a facilitator was appointed for the due implementation of the memorandum’s terms, who came up with an interim arrangement. In the meantime, an agreement for the sale of an industrial plot in Mayapuri was executed for a consideration of Rs. 6.35 Cr., between the appellants, Taurus India Limited and M/s. Arupri Logistics Pvt. Ltd. on October 21, 2010. Later, a conveyance deed was executed on May 23, 2012. The same was done disregarding the terms of the memorandum which provided for the division of the said industrial plot between the respondents (who were categorised into Group I and Group II). However, the validity of the sale was confirmed by the facilitator in May 2013.

These events led to a petition being filed under Section 11 of the Arbitration and Conciliation Act, 1996, before the Delhi High Court following which a Sole Arbitrator was appointed. The said Sole Arbitrator entered upon reference on February 12, 2021. Subsequently, respondent no.1 filed an application for impleading the appellants in November 2021, and the Sole Arbitrator allowed this application on December 23, 2021. Aggrieved by this decision, the appellants approached the Delhi High Court.

Arbitral Tribunal Owes its Origin to Agreement, Institutional Rules and National Statutes

After hearing the parties, the Court expressed that through agreement, the parties cannot confer powers upon the arbitral tribunal “which are otherwise reserved to be exercised by Courts and judicial institutions created by the State”.

Further, the Single Judge Bench of Justice Yashwant Varma clarified that the power to rule on its jurisdiction under Section 16, the power to issue interim measures under Section 17, or the procedural flexibility accorded under Section 19 to not be bound by the provisions of the Civil Procedure Code, 1908, or the Indian Evidence Act, 1872 do not empower the arbitral tribunal to implead parties.

Court’s Power of Impleadment under the Civil Procedure Code

As per Order I Rule 10(2) of the Civil Procedure Code, 1908, the Court may strike out or add parties at any stage of the proceedings. Such an express provision is not contained in the Arbitration and Conciliation Act, 1996. In this context, the Court observed that the Sole Arbitrator overlooked the absence of a provision in the Act that expressly conferred the power to implead parties. Moreover, the hallmark of arbitration, or for that matter, any Alternative Dispute Resolution (ADR) mechanism, lies in the consent of the parties to the dispute. Therefore, the Arbitral Tribunal cannot act against the consent of the parties by impleading them against their will and forcefully subjecting them to its jurisdiction as it would defeat the purpose of arbitration.

Group of Companies and Alter Ego Doctrines

The Court expressed that if the arbitral tribunals had the authority to invoke the doctrines of alter ego or group of companies to implead non-signatories in the proceedings, the same would “not only result in the AT travelling far beyond the contours of the arbitration agreement but negate against the fundamental tenet of arbitration which is founded on consensus and agreement”.

Pertaining to the reliance placed by the respondents on the Court’s decision in GMR Energy Limited vs. Doosan Power Systems India Private Limited & Ors.[2] wherein it was held that the arbitral tribunal could rule on the issue of alter ego, the Court pointed out that the arbitration in the GMR Energy case was covered under Part II of the Act and was being conducted under the Singapore International Arbitration Centre (SIAC) Rules which expressly provided for the joinder of parties.

Analysis

The cyclical nature of proceedings that would arise from this decision of the Delhi High Court remains unaddressed; the aggrieved parties would have to continuously run from pillar to post to seek those remedies which have not been enshrined explicitly. The decision diminishes the power exercised by the arbitral tribunals as the Claimant would have to knock on the doors of the Court in pursuit of such remedies, which ultimately defeats the whole point of arbitration and access to speedier modes of justice. One hopes that the growing effectiveness of arbitration as the preferred mode of dispute resolution would not be affected by the Court’s ruling.

References:

[1] 2023 SCC OnLine Del 4297.

[2] 2017 SCC Online Del 1162.

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Photo by DG-Studio: Arbitration agreement. Legal resolution conflict – Photos by Canva 

The Court expressed that if the arbitral tribunals had the authority to invoke the doctrines of alter ego or group of companies to implead non-signatories in the proceedings, the same would “not only result in the AT travelling far beyond the contours of the arbitration agreement but negate against the fundamental tenet of arbitration which is founded on consensus and agreement”.

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Harmonizing Data Privacy and Mediation: A Progressive Outlook in India's Digital Personal Data Protection Bill, 2023

From inventing the bulb to defying possibilities with the touch of a button, mankind has come a long way in technology to reach where we are today. Globally, there are 5.19 billion internet users[1], and the tremendous volume of data exchanged over cyberspace emphasizes the need to protect sensitive private data from exploitation by institutions. According to UNCTAD[2], 137 out of 194 nations have legislation to protect the data and privacy of their citizens on the internet.

Having legislation and regulating bodies is essential to ensuring devious cyber activities are kept in check. The Indian Legislator has been expeditiously working on the drafting of the Data Protection Law. The recently unveiled Digital Personal Data Protection Bill, 2023, marks a significant milestone in India’s legislative journey, following numerous previous endeavours and extensive consultations with stakeholders from diverse domains, greatly influencing its formulation.

 

Right to Privacy vis-à-vis Puttaswamy Judgment

In the well-known Supreme Court decision of K.S. Puttaswamy v. Union of India[3], which recognized “privacy” as intrinsic to the right to life and liberty, guaranteed by Article 21 of the Indian Constitution, establishing “right to privacy” as a fundamental right, the groundwork for a single statute of legislation for the protection of data in India was laid down in 2017. The Puttaswamy Judgment touches on protections for people in the private realm while primarily addressing the range of rights of a citizen as opposed to the State. The Supreme Court found that the State had a positive burden of upholding and sustaining this dignity and connected the value of privacy to the value of individual dignity. The Puttaswamy Judgment serves as the basis for both establishing a prohibition against privacy-violating State activities and the State’s duty to regulate private contracts and private data sharing in order to protect individual privacy.

 

Timeline of the Bill

The first draft of the Personal Data Protection (PDP) Bill was proposed by the Justice Shrikrishna Committee in 2018. Since then, the legislative process has witnessed a series of turbulent turns, starting with the introduction of the PDP Bill 2019 in the Lok Sabha. The bill was subsequently sent to the Joint Committee for review but was eventually withdrawn in December 2021. The following year, the Ministry of Electronics and Information Technology (MeitY) released another Draft of the Digital Personal Data Protection Bill, (DPDP) 2022, which was made open for public comment in November 2022.[4] However, this version received several criticisms and businesses complained about onerous provisions on cross border data transfer.

Moving on to the present timeframe, the Union Communications, Electronics, and Information Technology Minister Ashwini Vaishnaw on 3rd August, 2023 introduced the new bill in the Lok Sabha during Monsoon session of Parliament.[5] The long journey of the Bill was foreseeable since it is arduous to strike the perfect balance between the Fundamental Right to privacy along with the permissible limitations linked to this entitlement, business feasibility, and the international criteria for being recognized as an appropriate jurisdiction for data processing.

 

The New Road: Mediation

In a progressive step towards strengthening India’s data protection framework, the Digital Personal Data Protection Bill 2023 reflects a notable emphasis on Mediation as an Alternate Dispute Resolution (ADR) mechanism. This emphasis signifies the legislature’s recognition of Mediation as an effective means to address data-related disputes while promoting fair and amicable resolutions.

Comparing the language between the 2022 and 2023 versions of the bill reveals a significant shift in focus. Section 23 of the 2022 bill provided the Board with the discretion to direct parties towards mediation or any other dispute resolution process if deemed appropriate. However, in the 2023 bill, the language has been further refined in Section 33, clearly stating that if the Board believes a complaint may be better resolved through mediation, it can direct the concerned parties to attempt mediation, leaving little room for ambiguity. This explicit inclusion of mediation in the text underlines its growing importance as a preferred ADR mechanism in data protection matters.

Furthermore, the recent passage of the Mediation Bill 2021 by the Rajya Sabha offers additional evidence of the legislature’s dedication to promoting mediation as an integral part of India’s legal landscape. The Mediation Bill seeks to provide a comprehensive regulatory framework for mediation, bolstering its credibility as a legitimate dispute resolution process. With the establishment of the Mediation Council of India and provisions for pre-litigation mediation and legally binding mediated settlement agreements, the Mediation Bill reinforces the government’s commitment to make mediation an acceptable and cost-effective means of resolving disputes.

 

The Balancing Act

The unveiling of the Digital Personal Data Protection Bill, 2023, marks a momentous step in India’s legislative journey towards protecting individuals’ data privacy rights. Drawing inspiration from the landmark Puttaswamy Judgment, which recognized the right to privacy as a fundamental right, the new bill brings redefined concepts and provisions that align with the evolving data protection landscape.

One striking feature of the 2023 bill is its strong emphasis on Mediation as an Alternate Dispute Resolution mechanism. The legislative shift from the 2022 version, coupled with the recent passage of the Mediation Bill 2021 by the Rajya Sabha, showcases the government’s earnest efforts to promote mediation as an effective means of resolving data-related disputes. With the explicit inclusion of mediation in the text and the establishment of the Mediation Council of India, the bill reinforces mediation’s credibility as a preferred method for fair and amicable resolutions.

As India progresses in the digital era, the new Digital Personal Data Protection Bill, 2023, stands as a testament to the nation’s commitment to safeguarding data privacy while actively embracing mediation as an instrumental tool for resolving data disputes. By creating a balance between individual privacy rights and business feasibility, this bill ushers in a new era of data protection in the country, inspiring confidence among its citizens and businesses alike. With the combined efforts of the legislative and mediation frameworks, India is poised to set new standards for data protection and dispute resolution in the global arena.

References:

[1] Internet and social media users in the world 2023, Statista (2023), https://www.statista.com/statistics/617136/digital-population-worldwide/#:~:text=Worldwide%20digital%20population%202023&text=As%20of%20April%202023%2C%20there,population%2C%20were%20social%20media%20users. 

[2] Data Protection and Privacy Legislation Worldwide, United Nations Conference on Trade and Development (2023), https://unctad.org/page/data-protection-and-privacy-legislation-worldwide 

[3] Justice K.S. Puttaswamy (Retd.) & Anr. vs. Union of India & Ors., AIR 2017 SC 4161.

[4] Ministry of Electronics and Information Technology, The Digital Personal Data Protection Bill, 2022,  https://www.meity.gov.in/writereaddata/files/The%20Digital%20Personal%20Data%20Potection%20Bill%2C%202022_0.pdf.

[5] IT Minister Ashwini Vaishnaw introduces Digital Personal Data Protection Bill, 2023 in Lok Sabha, Newsonair.gov.in (2023), https://newsonair.gov.in/Main-News-Details.aspx?id=465464

One striking feature of the 2023 bill is its strong emphasis on Mediation as an Alternate Dispute Resolution mechanism. The legislative shift from the 2022 version, coupled with the recent passage of the Mediation Bill 2021 by the Rajya Sabha, showcases the government’s earnest efforts to promote mediation as an effective means of resolving data-related disputes. 

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Under the Magnifying Glass: Dissecting the Mediation Bill, 2021

Mediation, though a very popular Alternative Dispute Resolution (ADR) technique, is to date, not codified. In December 2021, the Mediation Bill[1] was introduced in Parliament with an objective to promote and facilitate mediation, especially institutional mediation, for the resolution of disputes, commercial or otherwise.

The Bill seeks to enforce agreements providing for mediation and provides for a body for the registration of mediators. One of the main objectives of the Bill is to encourage community mediation and to make online mediation an acceptable and cost-effective process. This article delves into the intricacies of the Mediation Bill, 2021.

What makes the Mediation Bill, 2021 stand out from other ADR-related enactments is the intentional inclusion of “online mediation” under Chapter VII Section 32, thereby paving the way for Online Dispute Resolution (ODR) in the country.

The Bill also gives due importance to the geographical character of ADR mechanisms. Section 17(5) is a significant step towards the inclusivity of parties who prefer the use of their native or regional language. This is a core incentive for those litigants who are unaware or sceptical about trying out ADR to settle their claims. The Bill fosters a trust-building exercise by allowing parties to mediate in the language they feel comfortable enough to communicate in. Consent and comfort of the parties to the mediation remain the hallmark of the Bill.

In India, informal mediations often take place between adversaries to amicably settle claims before taking recourse to litigation. This is often true in cases where family disputes and business disputes involving close relations are at play. The most positive benefit that would arise from the enactment of the Mediation Bill, 2021, is the successful implementation of community mediation[2], which enables the settlement of any dispute likely to affect peace, harmony and tranquillity amongst the residents or families of any area or locality, with the prior mutual consent of the parties to the dispute. It allows a particular class of persons (as mentioned in sub-section 5 to Section 44) to determine the dispute and this model is very similar to that of gram panchayats. Thus, the Mediation Bill, 2021 retains the characteristics of pre-existing indigenous dispute settlement mechanisms.

Yet, all that glitters is not gold and some things are too good to be true. The Mediation Bill, 2021 falls short in numerous instances. The main reason why the Mediation Bill, 2021 is heralded as a revolutionary legislation is the fact that it would significantly reduce the burden on the courts. Parties would have to mandatorily opt for pre-litigation mediation prior to the institution of a suit under Section 6(1). It is to be noted that the proviso to Section 6 states that pre-litigation mediation in matters of commercial disputes of specified value shall be undertaken in accordance with the provisions of Section 12A of the Commercial Courts Act, 2015[3], and the rules made thereunder. This would permanently alter the procedural law in Indian jurisprudence.

One might argue that the mandatory nature of pre-litigation mediation in its essence undermines the voluntary nature of ADR and adds yet another step in the already cumbersome and tedious litigation process. Section 9(3) is testimony to this. It states that the parties shall not be under any obligation to come to a settlement in the mediation when referred by the court upon their consent. The exit route available to parties under Section 20(1) in case of failure of the parties to arrive at a settlement after the completion of the two minimum mandated mediation sittings makes the whole exercise a mere formality and puts mediation as an ADR mechanism on the back burner as compared to the other alternatives of arbitration, conciliation and Lok Adalat. The constitutional validity of the same in light of the fundamental right to have access to justice (under Article 21 of the Constitution) might turn out to be a dangling sword.

Moreover, the numerous powers granted to the Central Government under various provisions of the Bill ultimately fail to uphold one of the most significant pillars of ADR mechanisms: consent of the parties.

Section 2 which deals with the applicability of the Act, confines itself to three instances; (i) all or both parties habitually reside in or are incorporated in or have their place of business in India; or (ii) the mediation agreement provides that any dispute shall be resolved in accordance with the provisions of this Act; or (iii) there is an international mediation. It however restricts the application of the Bill to non-commercial disputes where one of the parties involved is the Central Government or a State Government, or agencies, public bodies, corporations and local bodies, including entities controlled or owned by such Government. How fair and just this exclusion is, remains to be determined.

Section 7(2) of the Bill provides the Central Government with the discretion to decide the matters fit for mediation. By vesting such power in the hands of the Government, the Bill enables a breach of the executive into the jurisdiction of the judiciary. The courts have time and again clarified which disputes can be settled through ADR and are fully entitled to determine the issues which are to be heard and settled by it. Various tests have been laid down in landmark cases such as Booz Allen & Hamilton Inc v. SBI Home Finance Ltd. & Ors.[4],  Vidya Drolia & Ors. v. Durga Trading Corporation[5], and Sukanya Holdings Private Ltd. v. Jayesh H. Pandya & Anr.[6] Whether a dispute is to be referred to ADR largely depends on the facts and circumstances of the case at hand and the discretion of the court. Section 7(2) and Schedule 1 disturb the delicate balance and separation of powers which form part of the basic structure doctrine.

Another aspect which needs to be considered is that in case the mediation fails, the parties would be incurring more costs, as they would be paying for the services of the mediator/mediation institution, along with the subsequent cost of initiating a suit. This defeats yet another characteristic of ADR: cost-effective mechanisms for dispute resolution. This would also result in the wastage of precious time and resources of the parties and would elongate the process unnecessarily.

Under Section 33(1), the Central Government is vested with the power to establish the Mediation Council of India (MCI). If Section 34(1) cl. (a) to (g) are perused carefully, it is apparent that the Central Government has the power to determine and heavily influence the composition of the MCI. Whether or not this would adversely affect the outcome of mediations wherein the Government of India is a party remains unanswered. The provision can be in future tested on the anvil of the Constitution.

In conclusion, the Mediation Bill, 2021 represents a significant step towards formalising mediation as an ADR technique in India. While it introduces commendable features such as community mediation and online dispute resolution, there are inherent challenges. The mandatory pre-litigation mediation may undermine the voluntary nature of ADR, and the extensive powers granted to the Central Government raise concerns about the delicate balance of powers.

References:

1] The Mediation Bill, 2021, Department of Legal Affairs, Ministry of Law and Justice, https://legalaffairs.gov.in/ actsrulespolicies/mediation-bill-2021.

[2] Mediation Bill, 2021, § 44, Bill No. XLIII of 2021 (India).

[3] Commercial Courts Act, 2015, § 12A, No. 4, Acts of Parliament, 2016 (India).

[4] Booz Allen & Hamilton Inc v. SBI Home Finance Ltd. & Others, (2011) 5 SCC 532.

[5] Vidya Drolia & Ors. v. Durga Trading Corporation, 2019 SCCOnLine SC 358.

[6] Sukanya Holdings Private Ltd. v. Jayesh H. Pandya & Anr., (2003) 5 SCC 531.

 

Image Credits:

Photo by Andrii Yalanskyi: Wooden blocks with word Mediator and conflict. Settlement of disputes. Conflict resolution and mediation. Third party, intermediary. Solution problem. – Photos by Canva

One might argue that the mandatory nature of pre-litigation mediation in its essence undermines the voluntary nature of ADR and adds yet another step in the already cumbersome and tedious litigation process. Section 9(3) is testimony to this. It states that the parties shall not be under any obligation to come to a settlement in the mediation when referred by the court upon their consent. The exit route available to parties under Section 20(1) in case of failure of the parties to arrive at a settlement after the completion of the two minimum mandated mediation sittings makes the whole exercise a mere formality and puts mediation as an ADR mechanism on the back burner as compared to the other alternatives of arbitration, conciliation and Lok Adalat. The constitutional validity of the same in light of the fundamental right to have access to justice (under Article 21 of the Constitution) might turn out to be a dangling sword.

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