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.