IMPLEADING NON-SIGNATORIES TO AN ARBITRATION AGREEMENT BY THE ARBITRATORAN EVOLVING SUBJECT

In this article, I intend to share my thoughts on a recent judgment of the Hon'ble Supreme Court in the case of ASF Buildtech Pvt Limited Vs Shapoorji Pallonji and Company Private Limited [LSI-488-SC-2025-(NDEL)] where the Hon’ble Supreme Court upheld the power of the Arbitrator to implead a non-signatory.

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This view is in harmony with the overall mandate that for Arbitration to remain a viable and effective alternative dispute resolution mechanism, it is imperative to ensure that commercial reality does not outgrow this mechanism. Furthermore, there is no gainsay in reiterating that the mechanisms of arbitration must be sufficiently elastic to accommodate the complexities of multi-party and multi-contract arrangements without compromising foundational principles such as consent and party autonomy. Moreover, it is not a settled proposition in jurisprudence that the approach of Courts and Tribunals must be responsive to the emerging commercial practices and expectations of the parties who submit themselves to it.

The Hon'ble Court, without mincing words, was pleased to hold as follows:

“We are of the considered opinion, that recognition of the power of joinder or impleadment of a nonsignatory by an arbitral tribunal is a necessary intendment of the express provisions of Section(s) 2(1)(h) and 7 and the overall scheme and object of the Act, 1996 as well as the fundamental cannons of the law of arbitration of providing an effective alternative dispute resolution mechanism.”

1. Tracing back into time

The Hon’ble Supreme Court in the landmark judgment in the case of Chloro Controls India Private Limited Vs Severn Trent Water Purification Inc (2013)1 SCC 641 was called upon to determine an arbitration reference in case of multi-party agreements where performance of the ancillary agreements was substantially dependent upon effective execution of the principal agreement. The Hon'ble Court held that in exceptional cases involving composite transactions with multi-party agreements, a non-signatory could be subjected to arbitration by virtue of the 'group of companies' doctrine, provided there was a clear intention of the parties to bind both the signatory as well as non-signatory parties to the arbitration agreement.