MAHANAGAR TELEPHONE NIGAM LTD. versus CANARA BANK & ORS.

[2019] 11 S.C.R.

AMAHANAGAR TELEPHONE NIGAM LTD.

CANARA BANK & ORS.

(Civil Appeal Nos. 6202-6205 of 2019)

BAUGUST 08, 2019

[ABHAY MANOHAR SAPRE AND INDU MALHOTRA, JJ.]

Arbitration and Conciliation Act, 1996:

Arbitration agreement – Existence of valid arbitrationCagreement – Joinder of subsidiary company in arbitral proceedings– On facts, transactions between the appellant and respondent no.1 and its subsidiary, respondent no. 2 – Respondent no. 2 subscribedto the bonds floated by appellant and subsequently transferred theBonds to its holding Company-respondent no. 1 – Case of appellantDthat since respondent no. 2 did not pay the entire sale considerationfor the Bonds, appellant constrained to cancel the allotment of theBonds – Appointment of an arbitrator to settle the dispute througharbitration – Objection by appellant with respect to existence ofvalid arbitration agreement between the parties and objection byrespondent no. 1 to the joining of respondent no. 2 as party toEarbitration since respondent no. 2 was not party to the arbitrationagreement, it could not be impleaded in the proceedings – Held:Agreement between appellant and respondent no. 1 to refer thedisputes to arbitration is evidenced from the documents exchangedbetween the parties, and the proceedings and is final and conclusiveF– Appellant after giving its consent to refer the disputes to arbitrationbefore the High Court, is now estopped from contending that therewas no written agreement to refer the parties to arbitration –Respondent no. 1 had filed its statement of claim before theArbitrator, and appellant filed its reply to the statement of claim,Gand also made counter claim against respondent no. 1, whichwould constitute evidence of the existence of an arbitrationagreement, and the same was not denied by the other party – Asregards an objection to the joinder of respondent No. 2 in arbitralproceedings, it will be futile effort to decide the disputes onlybetween appellant and Respondent no. 1, in the absence of

respondent no. 2, since undisputedly, the original transactionemanated from transaction between appellant and respondent no.2-original purchaser of the Bonds – Disputes arose on thecancellation of the Bonds by appellant on the ground that the entireconsideration was not paid – There is clear and direct nexusbetween the issuance of the Bonds, its subsequent transfer byrespondent No. 2 to respondent no. 1, and the cancellation byappellant, which has led to disputes between the three parties –Thus, respondent no. 2 is necessary and proper party to thearbitration proceedings – Given the tri-patite nature of thetransaction, there can be final resolution of the disputes, only ifall three parties are joined in the arbitration proceedings, to finallyresolve the disputes which have been pending – respondent no. 2has participated in the proceedings before the High Court, and theCommittee on Disputes, was represented by its separate counselbefore the Sole Arbitrator – Respondent no. 1 filed before the HighCourt, had joined respondent No. 2, even though it was joined as aproforma party – objection to respondent No. 2 being impleaded asa party to the arbitration proceedings was raised by Respondentno. 1, and not respondent No. 2 – There is no merit in the objectionraised by Respondent no. 1 opposing the joining of respondent No.2 as party to the dispute. Respondent no. 1 had enclosed DraftArbitration Agreement to appellant, wherein it has clearly statedthat the arbitration would be between three parties i.e. Respondentno. 1 and respondent No. 2 as party of the first part, and appellantas party of the second part – There was implied or tacit consent byrespondent No. 2 to being impleaded in the arbitral proceedings,which is evident from the conduct of the parties – Respondent No. 2has throughout participated in the proceedings before the Committeeon Disputes, before the High Court, before the Sole Arbitrator, andwas represented by its separate counsel before this Court in theinstant appeal – There was clear intention of the parties to bindboth Respondent no. 1, and its subsidiary- respondent No. 2to theproceedings – There can be no final resolution of the disputes, unlessall three parties are joined in the arbitration – Group of Companiesdoctrine is invoked to join respondent No. 2 in the arbitrationproceedings pending before the Sole Arbitrator – Matter remittedto the Sole Arbitrator to continue with the arbitral proceedings.

ABC

AArbitration agreement – Existence of valid arbitrationagreement – Held: Arbitration agreement is the written agreementbetween the parties, to submit their existing, or future disputes ordifferences, to arbitration – Valid arbitration agreement is thefoundation on which the arbitral process is structured – Bindingagreement for disputes to be resolved through arbitration is sine-Bqua-non for referring the parties to arbitration – Essential elementsor attributes of an arbitration agreement is the agreement to refertheir disputes or differences to arbitration, which is expressly orimpliedly spelt out from clause in an agreement, separateagreement, or documents/correspondence exchanged between theCparties – If it can prima facie be shown that parties are ad idem,even though the other party may not have signed formal contract,it cannot absolve him from the liability under the agreement –Intention of the parties must be inferred from the terms of thecontract, conduct of the parties, and correspondence exchanged,to ascertain the existence of binding contract between the partiesD– If the documents on record show that the parties were ad idem,and had actually reached an agreement upon all material terms,then it would be construed to be binding contract – ‘Arbitrationagreement’ must be interpreted so as to give effect to the intentionof the parties, rather than to invalidate it on technicalities.EDoctrines: Group of Companies Doctrine – Invocation of –Held: Group of Companies doctrine can be invoked to bind non-signatory by an arbitration agreement where the conduct of theparties evidences clear intention of the parties to bind both thesignatory as well as the non-signatory parties – Courts and tribunalsFhave invoked this doctrine to join non-signatory member of thegroup, if they are satisfied that the non-signatory company was byreference to the common intention of the parties, necessary partyto the contract – ‘Group of Companies’ doctrine indicates theimplied consent to an agreement to arbitrate, in the context of modernmulti-party business transactions – Doctrine provides that non-Gsignatory may be bound by an arbitration agreement where theparent or holding company, or member of the group of companiesis signatory to the arbitration agreement and the non-signatoryentity on the group has been engaged in the negotiation orperformance of the commercial contract, or made statements

indicating its intention to be bound by the contract, the non-signatorywill also be bound and benefitted by the relevant contracts –Circumstances are if there is direct relationship between the partywhich is signatory to the arbitration agreement; direct commonalityof the subject matter; the composite nature of the transactionbetween the parties.

Partly allowing the appeals, the Court

HELD : PER INDU MALHOTRA, J.

THE EXISTENCE OFAVALID ARBITRATIONAGREEMENT

1.1 valid arbitration agreement constitutes the heart ofan arbitration. An arbitration agreement is the written agreementbetween the parties, to submit their existing, or future disputesor differences, to arbitration. valid arbitration agreement is thefoundation stone on which the entire edifice of the arbitral processis structured. binding agreement for disputes to be resolvedthrough arbitration is sine-qua-non for referring the parties toarbitration. The arbitration agreement need not be in anyparticular form. What is required to be ascertained is the intentionof the parties to settle their disputes through arbitration. Theessential elements or attributes of an arbitration agreement isthe agreement to refer their disputes or differences to arbitration,which is expressly or impliedly spelt out from clause in anagreement, separate agreement, or documents/correspondenceexchanged between the parties. [Paras 9, 9.2][679-A-B, H;680-A]1.2 Section 7(4)(b) of the Arbitration and Conciliation Act,1996 states that an arbitration agreement can be derived fromexchange of letters, telex, telegram or other means ofcommunication, including through electronic means. The 2015Amendment Act inserted the words “including communicationthrough electronic means” in Section 7(4)(b). If it can prima faciebe shown that parties are ad idem, even though the other partymay not have signed formal contract, it cannot absolve him fromthe liability under the agreement. [Para 9.3][680-B-C]

A1.3 Arbitration agreements are to be construed accordingto the general principles of construction of statutes, statutoryinstruments, and other contractual documents. The intention ofthe parties must be inferred from the terms of the contract, conductof the parties, and correspondence exchanged, to ascertain theexistence of binding contract between the parties. If theBdocuments on record show that the parties were ad idem, andhad actually reached an agreement upon all material terms, thenit would be construed to be binding contract. The meaning of acontract must be gathered by adopting common sense approach,and must not be allowed to be thwarted by pedantic and legalisticCinterpretation. commercial document has to be interpreted insuch manner so as to give effect to the agreement, rather thanto invalidate it. An ‘arbitration agreement’ is commercialdocument inter partes, and must be interpreted so as to give effectto the intention of the parties, rather than to invalidate it on

technicalities. In interpreting or construing an arbitrationDagreement or arbitration clause, it would be the duty of the courtto make the same workable within the permissible limits of thelaw. common sense approach has to be adopted to give effectto the intention of the parties to arbitrate the disputes betweenthem. Being commercial contract, the arbitration clause cannotEbe construed with purely legalistic mindset, as in the case of astatute. [Paras 9.4, 9.5, 9.7][680-D-G; 681-D]Enercon (India) Ltd. and Ors. v. Enercon GMBH (2014)5 SCC 1 : [2014] 2 SCR 855 – relied on.

1.4 The agreement between MTNL and Canara Bank toFrefer the disputes to arbitration is evidenced from the documentsexchanged between the parties, and the proceedings. Theagreement between the parties as recorded in judicial Order,is final and conclusive of the agreement entered into betweenthe parties. The appellant-MTNL after giving its consent to referGthe disputes to arbitration before the High Court, is now estoppedfrom contending that there was no written agreement to referthe parties to arbitration. Furthermore, Section 7(4)(c) providesthat there can be an arbitration agreement in the form of exchangeof statement of claims and defense, in which the existence of the

agreement is asserted by one party, and not denied by the other.In the instant case, Canara Bank had filed its Statement of Claimbefore the Arbitrator, and MTNL filed its Reply to the Statementof Claim, and also made Counter Claim against Canara Bank.The statement of Claim and Defence filed before the Arbitratorwould constitute evidence of the existence of an arbitrationagreement, which was not denied by the other party, under s.7(4)(c) of the 1996 Act. [Para 9.9-9.10][683-E; 684-A-B]

Union of India v. DN Revry and Co., (1976) 4 SCC147 : [1977] 1 SCR 483 ; Khardah Company Ltd. v.Raymon and Co. (India) Pvt. Ltd. [1963] 3 SCR 183 ;Savitri Goenka v. Kanti Bhai Damini & Ors., 2009 (1)Arb LR 320 (Del) (DB) ; State of Maharashtra v.Ramdas Shrinivas Nayak (1982) 2 SCC 463 : [1983] 1SCR 8 ; Chitra Kumari v. Union of India (2001) 3 SCC208 - referred to.

JOINDER OF CANFINA IN THE ARBITRALPROCEEDINGS

2.1 As per the principles of contract law, an agreemententered into by one of the companies in group, cannot be bindingon the other members of the same group, as each company is aseparate legal entity which has separate legal rights and liabilities.The parent, or the subsidiary company, entering into anagreement, unless acting in accord with the principles of agencyor representation, will be the only entity in group, to be boundby that agreement. Similarly, an arbitration agreement is alsogoverned by the same principles, and normally, the companyentering into the agreement, would alone be bound by it. [Paras10, 10.2][684-C-F]

2.2 non-signatory can be bound by an arbitrationagreement on the basis of the “Group of Companies” doctrine,where the conduct of the parties evidences clear intention ofthe parties to bind both the signatory as well as the non-signatoryparties. Courts and tribunals have invoked this doctrine to join anon-signatory member of the group, if they are satisfied that the

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Anon-signatory company was by reference to the common intentionof the parties, necessary party to the contract. The ‘Group ofCompanies’ doctrine indicates the implied consent to anagreement to arbitrate, in the context of modern multi-partybusiness transactions. The ‘Group of Companies’ doctrine hasbeen invoked by courts and tribunals in arbitrations, where anBarbitration agreement is entered into by one of the companies inthe group; and the non-signatory affiliate, or sister, or parentconcern, is held to be bound by the arbitration agreement, if thefacts and circumstances of the case demonstrate that it was themutual intention of all parties to bind both the signatories andCthe non-signatory affiliates in the group. The doctrine providesthat non-signatory may be bound by an arbitration agree-mentwhere the parent or holding company, or member of the groupof companies is signatory to the arbitration agreement and thenon-signatory entity on the group has been engaged in the

negotiation or performance of the commercial contract, or madeDstatements indicating its intention to be bound by the contract,the non-signatory will also be bound and benefitted by the relevantcontracts. The circumstances in which the ‘Group of Companies’Doctrine could be invoked to bind the non-signatory affiliate of aparent company, or inclusion of third party to an arbitration, ifEthere is direct relationship between the party which is signatoryto the arbitration agreement; direct commonality of the subjectmatter; the composite nature of the transaction between theparties. ‘composite transaction’ refers to transaction which isinter-linked in nature; or, where the performance of theagreement may not be feasible without the aid, execution, andFperformance of the supplementary or the ancillary agreement,for achieving the common object, and collectively having bearingon the dispute. [Paras 10.3, 10.4][684-F-H; 685-D-G; 686-A-C]

2.3 The Group of Companies Doctrine has been invoked incases where there is tight group structure with strongGorganizational and financial links, so as to constitute singleeconomic unit, or single economic reality. In such situation,signatory and non-signatories have been bound together under

the arbitration agreement. This will apply in particular when thefunds of one company are used to financially support or re-structure other members of the group. [Para 10.5][686-D-E]

2.4 CANFINA was set up as wholly owned subsidiary ofCanara Bank. This is evident from the Report of the JointCommittee to Enquire into Irregularities in Securities andBanking Transactions, 1993. The disputes between the partiesemanated out of the transaction dated 10.02.1992, wherebyCANFINA has subscribed to the bonds floated by MTNL.CANFINA subsequently transferred the Bonds to its holdingCompany-Canara Bank. It is the contention of MTNL, that sinceCANFINA did not pay the entire sale consideration for the Bonds,MTNL eventually was constrained to cancel the allotment of theBonds. [Para 10.7, 10.8][687-A; 688-A-B]

2.5 It will be futile effort to decide the disputes onlybetween MTNL and Canara Bank, in the absence of CANFINA,since undisputedly, the original transaction emanated from atransaction between MTNL and CANFINA-the original purchaserof the Bonds. The disputes arose on the cancellation of the Bondsby MTNL on the ground that the entire consideration was notpaid. There is clear and direct nexus between the issuance ofthe Bonds, its subsequent transfer by CANFINA to Canara Bank,and the cancellation by MTNL, which has led to disputes betweenthe three parties. Therefore, CANFINA is undoubtedly anecessary and proper party to the arbitration proceedings. [Para10.9][688-C-E]

2.6 Given the tri-patite nature of the transaction, there canbe final resolution of the disputes, only if all three parties arejoined in the arbitration proceedings, to finally resolve thedisputes which have been pending for over 26 years now.CANFINA has participated in the proceedings before the HighCourt, and the Committee on Disputes. CANFINA was alsorepresented by its separate counsel before the Sole Arbitrator.Canara Bank filed before the High Court, had joined CANFINAas Respondent No. 2, even though it was joined as proformaparty. CANFINA was represented by Counsel in the Writ

AProceedings before the High Court. The Counsel for CANFINAwas however not present on two dates i.e. on 16.09.2011 and21.10.2011, when the High Court recorded the agreementbetween the parties for reference of disputes to arbitration. MTNLhad submitted before the High Court that Canara Bank shouldagree to take over the liabilities of CANFINA before theBarbitration could commence. The High Court recorded that therewas no necessity of requiring Canara Bank to agree to take overthe liabilities of CANFINA, prior to the arbitration proceedings.This issue would be decided in the arbitration. [Para 10.10][688-E-H; 689-A-B]C

2.7 On the commencement of arbitration proceedings beforethe Sole Arbitrator, notice was issued by the Arbitrator to all thethree parties including CANFINA, which was represented by itsCounsel. The objection to CANFINA being impleaded as partyto the arbitration proceedings was raised by Canara Bank, andDnot CANFINA. There is no merit in the objection raised by CanaraBank opposing the joining of CANFINA as party to the dispute.Canara Bank by letters had enclosed Draft ArbitrationAgreement to MTNL, wherein it clearly stated that the arbitrationwould be between three parties-Canara Bank and CANFINA asparty of the first part, and MTNL as party of the second part.E[Paras 10.11-10.13][689-C-E]2.8 The instant case is one of implied or tacit consent byrespondent No. 2-CANFINA to being impleaded in the arbitralproceedings, which is evident from the conduct of the parties.Respondent No. 2-CANFINA has throughout participated in theFproceedings before the Committee on Disputes, before the HighCourt, before the Sole Arbitrator, and was represented by itsseparate counsel before this Court in the instant appeal. Therewas clear intention of the parties to bind both Canara Bank,and its subsidiary-CANFINA to the proceedings. There can beGno final resolution of the disputes, unless all three parties arejoined in the arbitration. [Para 10.14][689-F-H; 690-A]

2.10 The Group of Companies doctrine is invoked to joinCANFINA i.e. the wholly owned subsidiary of Respondent No. 1-Canara Bank, in the arbitration proceedings pending before theSole Arbitrator. The matter is remitted to the Sole Arbitrator toH

continue with the arbitral proceedings, and conclude the same asexpeditiously as possible. [Para 11][690-A-C]

O.N.G.C. v. Commissioner of Central Excise (1995)Supp. 4 SCC 541; Electronics Corporation of India Ltd.v. Union of India & Ors. (2011) 3 SCC 404 : [2011] 2SCR 971; Chloro Controls India (P) Ltd. v. Severn TrentWaterPurification Inc.,(2013) 1 SCC 641 : [2012]13SCR 402; SEI Adhavan Power Pvt. Ltd. v. Jinneng CleanEnergy Technology Ltd. & Ors. 2018 (4) CTC 46; AmeetLal Chand Shah v. Rishabh Enterprises, (2018) 15 SCC678 : [2018] 6 SCR 1001 – referred to.

Dow Chemical v. Isover-Saint-Gobain 1984 Rev Arb137; 110 JDI 899 (1983) Gary B. Born: InternationalCommercial Arbitration, Vol. I, 2009, pp. 1170-1171 -referred to.

PER ABHAY MANOHAR SAPRE, J: (Supplementing):

HELD: 1.1 The agreement is essentially tri-partiteagreement between the parties, namely, the appellant, respondentno. 1 and CANFINA. This is clear from the documents exchangedbetween the parties, pleadings and orders of the Court. It is alsoclear when one examines the nature of the dispute. It is soinextricably linked between the three parties that it can beeffectively decided only when all the three parties are made partiesto the arbitral proceedings. [Paras 6, 7][691-A-B]

1.2 Once the issue is examined on facts in the light ofrequirements of Section 7(4)(b) and (c) of the Act, there is nohesitation in coming to conclusion that the agreement in questionis, in fact, tri-partite agreement between the three partiesmentioned. It satisfies the requirements of Section 7(4)(b) and(c) of the Act. [Para 8][691-C]

1.3 Since the main object of the arbitral proceedings is todecide the disputes expeditiously and within time frame, thisobject can be achieved only when the disputes are resolved asfar as possible in one arbitral proceedings. In the instant case,this object can be achieved only when all the three parties named

Aare made party in one arbitral proceedings to enable the arbitraltribunal to finally decide the dispute on merits in accordance withlaw. The facts in clear terms, entitles this Court to invoke thewell known doctrine of “Group of Companies” and apply itsprinciple to the facts of this case so as to enable the arbitraltribunal to determine the rights of three parties named. TheBdoctrine “Group of Companies” has its application to arbitralproceedings and, in appropriate cases, it can be so applied. [Paras13, 14][691-H; 692-A-C]

International Arbitration by Redfern and Hunter - SixthEdn pages 141 to 153 - referred to.C

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 6202-6205 Of 2019G

From the Judgment and Order dated 16.09.2011 and 21.10.2011of the High Court of Delhi at New Delhi in CM No. 12230 of 2011 inW.P.(C) No. 560 of 1995 and order dated 05.07.2013 in CM No. 8100of 2012 in W.P. (C) No. 560 of 1995 and dated 10.01.2014 in CM No.324-25 of 2014 in W.P.(C) No. 560 of 1995H

Ms. Madhvi Divan, ASG, Sachin Datta, Sr. Adv., Manoj Gorkela,Ms. Tannishtha Singh, Abinash Agarwal, Sandeep Kumar Singh,Ms. Shashi Kiran, Advs. for the Appellant.

Ameesh Dabass, Viresh B. Saharya. Akshat Agarwal, Ms. SaumyaSinha, A.K. Sharma, Lalit Kumar, Advs. for the Respondents.

The Judgment of the Court was delivered by

INDU MALHOTRA, J.

Leave granted.

1. The present Special Leave Petitions have been filed to challengeOrder dated 16.09.2011 passed in W.P. (C) No. 560 of 1995, Orderdated 21.10.2011 passed in C.M. No. 12230 of 2011, Order dated05.07.2013 passed in C.M. No. 8100 of 2012, and Order dated 10.01.2014passed in C.M. No. 324 and 325 of 2014 by the Delhi High Court.

2. The background facts of the case are as follows :

2.1.In 1992, MTNL floated 17% Non-Cumulative SecuredRedeemable Bonds described as the VI Series (PrivatePlacement) worth Rs. 425 crores. On 10.02.1992, MTNLplaced bonds worth Rs.200 crores with Can Bank FinancialServices Ltd. (hereinafter referred to as “CANFINA”)under an MOU agreement. The bond amount of Rs. 200cores was placed as fixed deposit by MTNL withCANFINA. CANFINA paid back Rs. 50 crores of the fixeddeposit in 1992. The balance fixed deposit amount of Rs.150 crores along with interest was not paid by CANFINAto MTNL. As consequence, MTNL did not service theinterest on bonds. MTNL was of the view that since it didnot receive the entire bond amount of Rs. 200 crores, theentire deal did not go through. Against payment of Rs. 50crores received from CANFINA, MTNL serviced the bondsof approximately Rs. 31 crores to the public. MTNL wasof the view that only sum of Rs.5.41 crores was payableto CANFINA, which was not accepted by CANFINA.

2.2.As per Canara Bank, soon after the bonds were subscribed,there was an out-break of security scam which led to acollapse of the secondary market in shares, security and

DEFG

bonds. There were very few buyers in the secondarymarket. Even such buyers were offering very low pricesfor these bonds. In these circumstances, CANFINA wasfaced with severe liquidity crunch. 2.3. In thesecircumstances, Respondent No. 1 – Canara Bank purchasedthe Bonds issued by MTNL, of the face value of Rs. 80crores, from Respondent No. 2 – CANFINA which is itswholly owned subsidiary.

2.3.In these circumstances, Respondent No. 1 – Canara Bankpurchased the Bonds issued by MTNL, of the face value ofRs. 80 crores, from Respondent No. 2 – CANFINA whichis its wholly owned subsidiary.

2.4.Canara Bank requested for registration of these Bonds withMTNL, and lodged letters of allotment for purchase of thebonds from CANFINA.

2.5.MTNL vide letter dated 14.10.1992 addressed to CanaraBank, refused to transfer the Bonds, on the various groundsmentioned in the letter.

2.6.MTNL by subsequent letter dated 16.02.1993, informedCanara Bank that it had registered part of the face valueof Rs. 40 crores, in favour of CANFINA. The bondinstruments were however retained on the ground thatCANFINA had failed to pay the deposit money of Rs. 150crores, which was payable to MTNL with an accruedinterest of 12% p.a.

2.7.MTNL vide letter dated 20.10.1993, cancelled all the BondsFinter alia on the ground that letters of considerationremained with CANFINA.

2.8.Canara Bank vide its reply dated 13.01.1994 contendedthat it is the holder in due course, and is entitled to have theshares registered in its name, and receive the interest asGand when it fell due.

2.9.MTNL sent statement of accounts by adjusting theproceeds of the cancellation of bonds towards the dues ofCANFINA. It was stated that the bonds and interest

accrued thereon cannot be refunded. MTNL with its letterdated 13.01.1994, attached cheque for Rs. 5,41,17,463 asthe amount payable to Canara Bank.

2.10. Canara Bank, however, returned the cheque vide letterdated 10.02.1994, demanding the restoration and registrationof the bonds.

2.11. Canara Bank filed W.P. (Civil) No. 560 of 1995 before theDelhi High Court to challenge the cancellation of the Bonds,and direction to pay the Interest accrued.

It is relevant to note that CANFINA was joined as aproforma party in the Writ Petition filed by Canara Bank.2.12. The Delhi High Court vide Order dated 09.09.1996 directedthe Union of India to decide the issues between the partiesin light of this Court’s judgment in O.N.G.C. v.Commissioner of Central Excise[1].

The Writ Petition was dismissed on the ground ofavailability of an alternative and efficacious remedybeforethe Company Law Board under Section 111 of theCompanies Act, 1956.

2.13. The proceedings before the Company Law Board came tobe dismissed vide Order dated 26.02.1998, since the remedywas no longer available, as per the amendment of Section111 by the Depositories Act, 1996.

2.14. Canara Bank filed an application for Restoration of the WritPetition, which was restored vide Order dated 12.05.1999.

2.15. Canara Bank made representation to the CabinetSecretary.

On 27.03.2001, meeting was convened by the CabinetSecretariat, Litigation Cell which was presided by theCabinet Secretary, and attended by the representatives ofMTNL, Canara Bank, and CANFINA.

The Committee directed Canara Bank, CANFINA andMTNL to settle the disputes through arbitration by making

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an appropriate reference to the Permanent Machinery ofArbitration, functioning in the Department of PublicEnterprises. The Committee did not permit Canara Bank,CANFINA and MTNL to pursue the litigation in Court.

2.16. The Delhi High Court vide Order dated 30.05.2008 referredBthe disputes between the parties to the Committee onDisputes. The Writ Petition was adjourned sine die. CanaraBank was granted liberty to revive the Petition in the eventthat the Committee on Disputes was unable to resolve thedisputes between the parties.

2.17. The Committee of Disputes held meeting on 16.12.2008,which was attended by the representatives of MTNL,Canara Bank and CANFINA. The Committee, after hearingthe parties, expressed the view that all the three partiesshould take recourse to arbitration in view of the differentinter-linked transactions between them.

The representatives of Canara Bank expressed theapprehension that arbitration by the Permanent Machineryof Arbitration would take much longer than judicial recourse.

The Committee observed that to expedite arbitration,the parties should expeditiously enter into an arbitrationagreement under the Arbitration and Conciliation Act, 1996.

2.18. Pursuant to the meeting held on 16.12.2008, Canara Bankvide its letter dated 05.03.2009 sent draft arbitrationagreement to the Chairman and Managing Director ofMTNL. The draft arbitration agreement sent by CanaraFBank was between Canara Bank and CANFINA on theone side, with MTNL on the other.

2.19. By letter dated 17.03.2010, Canara Bank requested theDeputy Secretary, Cabinet Secretariat to advise MTNL toexecute the arbitration agreement in accordance with theGdirection of the Ministry of Law and Justice.

2.20. The Delhi High Court vide Order dated 01.10.2010 disposedof the pending Writ Petition with the observation that thematter should be resolved by the Committee on Disputes

expeditiously so that the arbitration agreement between theparties is signed as soon as possible.

2.21. The decision in O.N.G.C. v. Commissioner of CentralExcise (supra) came to be overruled by Constitution Benchin Electronics Corporation of India Ltd. v. Union ofIndia & Ors.[2]

Accordingly, Canara Bank moved the Delhi High Courtu/S. 151, CPC for restoration of the disposed of Writ Petition.

2.22. The Delhi High Court restored the Writ Petition, and videOrder dated 16.09.2011 noted that the two principal issueswhich arise for consideration are:

(i)Whether Canara Bank is liable for the acts oromissions of CANFINA; and

(ii)Whether Canara Bank should take over the liabilitiesand admit them in the arbitration agreement itself.

During the course of the proceedings, the parties beforethe Delhi High Court agreed that these issues may bereferred to arbitration. The parties were requested to suggestthe name of sole arbitrator to be appointed on the nextdate of hearing.

2.23. On 21.10.2011, the name of Mr. Justice A.P. Shah (Retd.)was suggested by the Counsel for Canara Bank, which wasaccepted by the Counsel for MTNL.

Accordingly, Mr. Justice A.P. Shah (Retd.) came to beappointed as the Sole Arbitrator.

2.24. On 05.01.2012, the Sole Arbitrator issued notice to all thethree parties i.e. MTNL, Canara Bank, and CANFINA.

2.25. Canara Bank raised an objection to joining CANFINA as aparty to the arbitration. The Arbitrator heard the parties on27.03.2012, on the issue whether CANFINA should bejoined as party to the proceedings.

The learned Arbitrator passed an interim award holdingthat CANFINA had not appeared on 16.09.2011 before theHigh Court, when the disputes were referred to arbitration.CANFINA was not party to the arbitration agreement,and cannot be joined as party to proceedings.

2.26. MTNL filed C.M. No. 8100 of 2012 before the Delhi HighCourt seeking clarification of Order dated 16.09.2011, asto whether CANFINA ought to be impleaded as necessaryparty to the arbitration agreement.

The Delhi Court vide order dated 05.07.2013 dismissedthe application as “not pressed” on the statement made bythe Counsel of MTNL.

2.27. Canara Bank filed its Statement of Claim before the learnedSole Arbitrator on 06.12.2013.

2.28. MTNL filed I.A. Nos. 324 – 325 of 2014 before the DelhiHigh Court for recall of the Orders dated 16.09.2011,21.10.2011 and 05.07.2013 passed in W.P. (C) No. 560 of1995.

2.29. The Delhi High Court vide Order dated 10.01.2014,dismissed the Application for Recall on the ground that theEapplication was identical to the application previously filedby MTNL being C.M. No. 8100 of 2012. Since MTNL hadnot pressed the earlier application, the subsequent applicationbeing identical in nature, could not be considered, and wasdismissed.

2.30. In May 2014, MTNL filed its reply to the Statement of Claimfiled by Canara Bank, and also made Counter-Claimagainst Canara Bank.

3. Aggrieved by the Orders dated 16.09.2011, 21.10.2011,05.07.2013, and 10.01.2014 passed by the Delhi High Court in W.P. (C)GNo. 560 of 1995, C.M. No. 12230 of 2011, C.M. No. 8100 of 2012 andC.M. No. 324 and 325 of 2014 respectively, the Appellant – MTNL filedthe present Special Leave Petition. This Court vide Order dated08.05.2014 issued Notice to all the Respondents, including CANFINAwhich has been joined as Respondent No. 2.

4. Ms. Madhavi Divan, learned ASG appeared on behalf of MTNL,Mr. Ameesh Dabass, learned Counsel appeared for Respondent No. 1– Canara Bank, and Ms. Saumya Sinha, along with Mr. A.K. Sharma,learned Counsels appeared for Respondent No. 2 – CANFINA.

5. The Counsel for the Appellant – MTNL inter alia submittedas under:

5.1.In the absence of written agreement for arbitrationbetween the parties, as stipulated by Section 2(b) r.w. 2(h)and 7(3) of the Arbitration and Conciliation Act, 1996, thearbitration cannot proceed.

5.2.The disputes which were referred to arbitration pertainingto transactions between the Appellant – MTNL on the onehand, and Respondent No. 1 and 2 – Canara Bank andCANFINA on the other hand.

5.3.The arbitration proceeding cannot proceed in the absenceof Respondent No. 2 – CANFINA as the Bonds in questionwere subscribed by Respondent No, 2 – CANFINA, andwere subsequently transferred to its parent Company i.e.Respondent No. 1 – Canara Bank.

In the absence of Respondent No. 2 – CANFINA beingmade party to the arbitration, the arbitral proceedings maybe rendered infructuous.

5.4.The only existing arbitration agreement between the parties,is draft tripartite agreement forwarded by Canara Bankwherein MTNL and CANFINA were both made parties.

5.5.There is no legal relationship or privity of contract betweenthe Appellant – MTNL and Respondent No. 1 – CanaraBank as the disputed Bonds were bought from the Appellant– MTNL by Respondent No. 2 – CANFINA.

The Appellant – MTNL had consented to the disputesbeing referred to arbitration on the understanding that thearbitration would be amongst the three parties.

6. The Counsel for Respondent No. 1 Canara Bank inter aliasubmitted that :

A6.1.The present appeal is not maintainable as the Appellant –MTNL filed the present Appeal after filing its reply to theStatement of Claim and Counter-Claim before the learnedSole Arbitrator, and has therefore submitted itself to thejurisdiction of the learned Sole Arbitrator.

6.2.The only remedy available to Appellant – MTNL was tofile an application under Section 16 of the Arbitration andConciliation Act, 1996.

6.3.Respondent No. 2 – CANFINA was merely joined as aproforma party in the Writ Petition before the Delhi HighCourt, and therefore cannot be made party before thearbitral proceedings.

6.4.At the time of giving consent to arbitration and appointmentof the learned Sole Arbitrator, Respondent No. 2 –CANFINA was not before the Court on 16.09.2011 andD21.10.2011.

6.5.The Appellant – MTNL has not filed any claim againstRespondent No. 2 – CANFINA, and therefore, cannot seekany remedy or relief against Respondent No. 2 – CANFINAat this belated stage. Further, it cannot be allowed to raiseEan issue of impleadment without having any claim againstthe party sought to be impleaded.

7. We have heard the learned Counsel for the parties, and perusedthe pleadings and Written Submissions filed.

8.ISSUESF

There are two issues which have arisen for our consideration : (i)the first issue raised by the Appellant – MTNL with respect to theexistence of valid arbitration agreement between the three parties; (ii)the second issue has been raised by Respondent No. 1 – Canara Bankthat the Order dated 16.09.2011 and 21.10.2011 is between Canara BankGand MTNL. Respondent No. 2 – CANFINA, is not party to thearbitration agreement, and hence cannot be impleaded in the proceedings.

These issues will be dealt with seriatim.

9.THEEXISTENCEOFAVALIDARBITRATIONAGREEMENT

valid arbitration agreement constitutes the heart of an arbitration.An arbitration agreement is the written agreement between the parties,to submit their existing, or future disputes or differences, to arbitration.A valid arbitration agreement is the foundation stone on which the entireedifice of the arbitral process is structured. binding agreement fordisputes to be resolved through arbitration is sine-qua-non for referringthe parties to arbitration.

9.1. Section 7 defines “arbitration agreement” and reads as follows:

7. Arbitration agreement. –

(1) In this Part, “arbitration agreement” means anagreement by the parties to submit to arbitration all orcertain disputes which have arisen or which may arisebetween them in respect of defined legal relationship,whether contractual or not.

(2) An arbitration agreement may be in the form of anarbitration clause in contract or in the form of separateagreement.

(3) An arbitration agreement shall be in writing.

(4) An arbitration agreement is in writing if it is containedin-

(a) document signed by the parties;

(b) An exchange of letters, telex, telegrams or othermeans of telecommunication which provide recordof the agreement; or

(c) An exchange of statements of claim and defence inwhich the existence of the agreement is alleged byone party and not denied by the other.

(5) There reference in contract to document containingan arbitration clause constitutes an arbitration agreement if thecontract is in writing and the reference is such as to make thatarbitration clause part of the contract.

9.2.The arbitration agreement need not be in any particular form.What is required to be ascertained is the intention of theparties to settle their disputes through arbitration. TheH

essential elements or attributes of an arbitration agreementis the agreement to refer their disputes or differences toarbitration, which is expressly or impliedly spelt out from aclause in an agreement, separate agreement, or documents/correspondence exchanged between the parties.

B9.3.Section 7(4)(b) of the 1996 Act, states that an arbitrationagreement can be derived from exchange of letters, telex,telegram or other means of communication, including throughelectronic means. The 2015 Amendment Act inserted thewords “including communication through electronic means”in Section 7(4)(b). If it can prima facie be shown that partiesCare ad idem, even though the other party may not havesigned formal contract, it cannot absolve him from theliability under the agreement[3].

9.4.Arbitration agreements are to be construed according tothe general principles of construction of statutes, statutoryDinstruments, and other contractual documents. The intentionof the parties must be inferred from the terms of thecontract, conduct of the parties, and correspondenceexchanged, to ascertain the existence of binding contractbetween the parties. If the documents on record show thatEthe parties were ad idem, and had actually reached anagreement upon all material terms, then it would beconstrued to be binding contract.

The meaning of contract must be gathered by adoptinga common sense app-roach, and must not be allowed to beFthwarted by pedantic and legalistic interpre-tation.[4]

9.5.A commercial document has to be interpreted in such amanner so as to give effect to the agreement, rather thanto invalidate it. An ‘arbitration agreement’ is commercialdocument inter partes, and must be interpreted so as togive effect to the intention of the parties, rather than toGinvalidate it on technicalities.

3 Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia (P) Ltd., (2015) 13 SCC 477

4 Union of India v.DN Revry and Co.,(1976) 4 SCC 147.

9.6.In Khardah Company Ltd. v. Raymon and Co. (India)Pvt. Ltd.[5], this Court while ascertaining the terms of anarbitration agreement between the parties, held that:

“If on reading of the document as whole, it canfairly be deduced from the words actually used herein,that the parties had agreed on particular term, thereis nothing in law which prevents them from setting upthat term.The terms of contract can be expressed orimplied from what has been expressed. It is in theultimate analysis, question of construction of thecontract.”

(emphasis supplied)

9.7.In interpreting or construing an arbitration agreement orarbitration clause, it would be the duty of the court to makethe same workable within the permissible limits of the law.This Court in Enercon (India) Ltd. and Ors. v. EnerconGMBH[6], held that common sense approach has to beadopted to give effect to the intention of the parties toarbitrate the disputes between them. Being commercialcontract, the arbitration clause cannot be construed with apurely legalistic mindset, as in the case of statute.

9.8.In this case, MTNL raised preliminary objection that therewas no arbitration agreement in writing between the parties,at this stage of the proceedings.

We will first deal with this issue. The agreement betweenMTNL and Canara Bank to refer the disputes to arbitrationis evidenced from the following documents exchangedbetween the parties, and the proceedings :

(i)The Minutes of the Meeting dated 27.03.2001 convenedby the Cabinet Secretariat, wherein all three partieswere present and participated in the proceedings. TheCommittee on Disputes, in the Meeting dated16.12.2008 expressed the view that all the three partiesshould take recourse to arbitration in view of the

6 (2014) 5 SCC 1.

different inter-liked transactions between them. CanaraBank suggested that to expedite the arbitration, it shouldbe conducted under the Arbitration & Conciliation Act,1996. This was accepted by MTNL, and no objectionwas raised.

(ii) Pursuant to the proceedings conducted by the CabinetSecretariat, Canara Bank addressed letters dated05.03.2009 and 17.03.2010 to MTNL, wherein itenclosed draft Arbitration Agreements, wherein allthree parties i.e. Canara Bank, CANFINA and MTNLwould be joined in the arbitration proceedings.

(iii) In the Writ Petition filed by Canara Bank, the DelhiHigh Court vide Order dated 16.09.2011 recorded theconsent of MTNL and Canara Bank to be referred toarbitration by Sole Arbitrator under the 1996 Act.

The relevant extract of the Order dated 16.09.2011passed by the Delhi High Court reads as follows :

“Unfortunately, although the parties had displayedtheir willingness for arbitration, the Committee onDisputes could not resolve the specific clauses ofthe arbitration agreement. Nor have the parties beenable to arrive at consensus with regard to thespecific clauses of the arbitration agreement. Asnoted in the order dated 01.10.2010, according tothe petitioner, it is matter of arbitration as to whetherthe petitioner is liable for the acts or omissions ofCANFINA. However, the respondents were insistingthat the petitioners should agree to take over theliabilities and admit them in the arbitration agreementitself. It has now been agreed by the parties that boththese issues could be made the subject matter of thearbitration,namely, whether the petitioner is liablefor the acts or omissions of CANFINA and whetherthe petitioner is liable to take over the liabilities ofCANFINA. There is no necessity now of requiringthe petitioner to agree to take over the liabilities ofCANFINA prior to the arbitration proceedings

because that itself would not be one of the points tobe decided in the course of arbitration. Even thoughthe learned counsel for the petitioner has placedbefore us the subsequent decisions of the SupremeCourt with regard to the scope and ambit of powersof the Committee on Disputes, we are making thepresent order because the parties themselves haveagreed to go in for arbitration as mode forresolving their disputes.This is welcome because boththe parties are PSUs. The counsel for the partiesshall suggest names of the arbitrators.”

(emphasis supplied)

(iv) Pursuant thereto, MTNL participated in the proceedingsconducted by the Sole Arbitrator, and filed its Claim,and Counter-Claim. No objection was raised beforethe Sole Arbitrator that there was no arbitrationagreement in writing between the parties. The onlyobjection raised was that CANFINA should be joinedas necessary party in the proceedings.

9.9.The agreement between the parties as recorded in judicialOrder, is final and conclusive of the agreement entered intobetween the parties.[7] The Appellant – MTNL after givingits consent to refer the disputes to arbitration before theDelhi High Court, is now estopped from contending thatthere was no written agreement to refer the parties toarbitration.

9.10. An additional ground, for rejecting the preliminary objectionraised by MTNL is based on Section 7(4)(c) of theArbitration and Conciliation Act, 1996.

Section 7(4)(c) provides that there can be an arbitrationagreement in the form of exchange of statement of claimsand defense, in which the existence of the agreement isasserted by one party, and not denied by the other.[8]

7 State of Maharashtra v. Ramdas Shrinivas Nayak (1982) 2 SCC 463.

See also Chitra Kumari v. Union of India (2001) 3 SCC 208.

8 Savitri Goenka v. Kanti Bhai Damini & Ors., 2009 (1) Arb LR 320 (Del) (DB).

In the present case, Canara Bank had filed its Statementof Claim before the Arbitrator, and MTNL filed its Reply tothe Statement of Claim, and also made Counter Claimagainst Canara Bank.

The statement of Claim and Defence filed before theArbitrator would constitute evidence of the existence of anarbitration agreement, which was not denied by the otherparty, under Section 7(4)(c) of the 1996 Act.

In view of the aforesaid discussion, the objection raisedby MTNL is devoid of any merit, and is hereby rejected.

10.JOINDEROFCANFINAINTHEARBITRALPROCEEDINGS

10.1. Canara Bank raised an objection to the joinder of RespondentNo. 2 – CANFINA as party to the arbitration proceedings.

10.2. As per the principles of contract law, an agreement enteredinto by one of the companies in group, cannot be bindingon the other members of the same group, as each companyis separate legal entity which has separate legal rightsand liabilities.

The parent, or the subsidiary company, entering into anagreement, unless acting in accord with the principles ofagency or representation, will be the only entity in group,to be bound by that agreement.

Similarly, an arbitration agreement is also governed bythe same principles, and normally, the company enteringinto the agreement, would alone be bound by it.

10.3. non-signatory can be bound by an arbitration agreementon the basis of the “Group of Companies” doctrine, wherethe conduct of the parties evidences clear intention of theparties to bind both the signatory as well as the non-signatoryparties.

Courts and tribunals have invoked this doctrine to join anon-signatory member of the group, if they are satisfiedthat the non-signatory company was by reference to thecommon intention of the parties, necessary party to thecontract.

10.4. The doctrine of ‘Group of Companies’ had its origins in the1970’s from French arbitration practice. The ‘Group ofCompanies’ doctrine indicates the implied consent to anagreement to arbitrate, in the context of modern multi-partybusiness transactions.

It was first propounded in the case of Dow Chemicalv. Isover-Saint-Gobain,[9] where the arbitral tribunal heldthat:

“… the arbitration clause expressly accepted by certainof the companies of the group should bind the othercompanies which, by virtue of their role in theconclusion, performance, or termination of thecontracts containing said clauses, and in accordancewith the mutual intention of all parties to theproceedings, appear to have been veritable parties tothese contracts or to have been principally concernedby them and the disputes to which they may give rise”.

The ‘Group of Companies’ doctrine has been invokedby courts and tribunals in arbitrations, where an arbitrationagreement is entered into by one of the companies in thegroup; and the non-signatory affiliate, or sister, or parentconcern, is held to be bound by the arbitration agreement, ifthe facts and circumstances of the case demonstrate that itwas the mutual intention of all parties to bind both thesignatories and the non-signatory affiliates in the group.

The doctrine provides that non-signatory may be boundby an arbi-tration agree-ment where the parent or holdingcompany, or member of the group of companies is asignatory to the arbitration agreement and the non-signatoryentity on the group has been engaged in the negotiation orperformance of the commercial contract, or madestatements indicating its intention to be bound by the contract,the non-signatory will also be bound and benefitted by therelevant contracts.[10]

9 1984 Rev Arb 137; 110 JDI 899 (1983).

10 Interim Award in ICC Case No. 4131, IX YB Comm Arb 131 (1984); Award in ICCCase No. 5103, 115 JDI (Clunet) 1206 (1988).See also Gary B. Born: International Commercial Arbitration, Vol. I, 2009, pp. 1170-1171.

The circumstances in which the ‘Group of Companies’Doctrine could be invoked to bind the non-signatory affiliateof parent company, or inclusion of third party to anarbitration, if there is direct relationship between the partywhich is signatory to the arbitration agreement; directcommonality of the subject matter; the composite nature ofthe transaction between the parties.

‘composite transaction’ refers to transaction whichis inter-linked in nature; or, where the performance of theagreement may not be feasible without the aid, execution,and performance of the supplementary or the ancillaryagreement, for achieving the common object, and collectivelyhaving bearing on the dispute.

10.5. The Group of Companies Doc-trine has also been invokedin cases where there is tight group structure with strongorganizational and financial links, so as to constitute singleeconomic unit, or single econo-mic reality. In such asituation, signatory and non-signatories have been boundtogether under the arbitration agreement. This will apply inparticular when the funds of one company are used tofinancially support or re-structure other members of thegroup.[11]

10.6. The ‘Group of Companies’ doctrine has been invoked andapplied by this Court in Chloro Controls India (P) Ltd. v.Severn Trent Water Purification Inc.,[12 ]with respect toan international commercial agreement. Recently, this Courtin Ameet Lal Chand Shah v. Rishabh Enterprises,[13]invoked the Group of Companies doctrine in domesticarbitration under Part I of the 1996 Act.

11 ICC Case No.4131 of 1982, ICC Case No. 5103 of 1988.12 (2013) 1 SCC 641.

The Madras High Court has invoked the Group of Companies Doctrine in foreignseated arbitration in SEI Adhavan Power Pvt. Ltd. v. Jinneng Clean Energy TechnologyLtd. & Ors. 2018(4) CTC 46.

13 (2018) 15 SCC 678.

H14 Report, Presented to the Lok Sabha on 21st December 1993.

10.7. Coming to the facts of the present case, CANFINA wasset up as wholly owned subsidiary of Canara Bank. Thisis evident from the Report of the Joint Committee to Enquireinto Irregularities in Securities and Banking Transactions,1993,[14] which states as follows :

“Canbank Financial Services Ltd.

6.14CANFINA was set up as wholly owned subsidiaryof Canara Bank and it commenced its operation withits Head Office at Bangalore on 1stJune, 1987.Itsauthorized and paid up capital are Rs. 50 crores andRs. 10 crores respectively. It was staffed mostly bepersonnel from Canara Bank and has branches atAhmedabad, Bombay, Calcutta, Hyderabad, Madrasand New Delhi besides Bangalore. As the Boardcomprised mostly of senior executives of Canara Bankand its Chief Executive is also senior official of thatbank (on deputation) the company functioned underthe umbrella of the parent bank; besides it submitsperiodical returns on its functioning to the Board ofCanara Bank for information.

6.15 The activities authorized to be conducted by theCompany are equipment leasing, merchant-banking,venture capital and consultancy services. The Company,initially deployed major portion of its owned fundsand deposits in equipment leasing business and obtainedthe classification of an ‘Equipment leasing company’from the Department of Finance Companies of RBI; thisclassification entitles the company to mobilize publicdeposits to the extent of ten time its owned funds.

6.25The Committee hope that the nature and extent ofthe financial assistance being provided by Canara Bankto its subsidiaries are such as could be justified onprudent commercial norms.Further the parent bankcannot be absolved of the responsibility for variousirregularities of its subsidiary. “

(emphasis supplied)

10.8. The disputes between the parties emanated out of thetransaction dated 10.02.1992, whereby CANFINA hassubscribed to the bonds floated by MTNL. CANFINAsubsequently transferred the Bonds to its holding Company– Canara Bank. It is the contention of MTNL, that sinceCANFINA did not pay the entire sale consideration for theBonds, MTNL eventually was constrained to cancel theallotment of the Bonds.

10.9. It will be futile effort to decide the disputes only betweenMTNL and Canara Bank, in the absence of CANFINA,since undisputedly, the original transaction emanated froma transaction between MTNL and CANFINA – the originalpurchaser of the Bonds. The disputes arose on thecancellation of the Bonds by MTNL on the ground that theentire consideration was not paid.

There is clear and direct nexus between the issuanceof the Bonds, its subsequent transfer by CANFINA toCanara Bank, and the cancellation by MTNL, which hasled to disputes between the three parties.

Therefore, CANFINA is undoubtedly necessary andproper party to the arbitration proceedings.

10.10.Given the tri-patite nature of the transaction, there can be afinal resolution of the disputes, only if all three parties arejoined in the arbitration proceedings, to finally resolve thedisputes which have been pending for over 26 years now.

It is of relevance to note that CANFINA has participatedin the proceedings before the High Court, and the Committeeon Disputes. CANFINA was also represented by itsseparate Counsel before the Sole Arbitrator. Canara Bankin CWP No. 560 of 1995 filed before the Delhi High Court,had joined CANFINA as Respondent No. 2, even though itwas joined as proforma party. CANFINA was representedby Counsel in the Writ Proceedings before the Delhi HighCourt. The Counsel for CANFINA was however notpresent on two dates i.e. on 16.09.2011 and 21.10.2011,when the High Court recorded the agreement between theparties for reference of disputes to arbitration. MTNL had

submitted before the Delhi High Court that Canara Bankshould agree to take over the liabilities of CANFINA beforethe arbitration could commence. The High Court recordedthat there was no necessity of requiring Canara Bank toagree to take over the liabilities of CANFINA, prior to thearbitration proceedings. This issue would be decided in thearbitration.

10.11. On the commencement of arbitration proceedings beforethe Sole Arbitrator, notice was issued by the Sole Arbitratorto all the three parties including CANFINA, which wasrepresented by its Counsel.

10.12.We find that the objection to CANFINA being impleadedas party to the arbitration proceedings was raised byCanara Bank, and not CANFINA.

10.13.We do not find any merit in the objection raised by CanaraBank opposing the joining of CANFINA as party to thedispute. Canara Bank vide letters dated 05.03.2009 and17.03.2010 had enclosed Draft Arbitration Agreement toMTNL, wherein it has clearly stated that the arbitrationwould be between three parties i.e. Canara Bank andCANFINA as party of the first part, and MTNL as party ofthe second part.

It is incomprehensible why Canara Bank is now objectingto the impleadment of CANFINA in the arbitrationproceedings. There is no justifiable ground advanced bythe Counsel for Canara Bank to oppose the impleadmentof CANFINA in the arbitration proceedings.

10.14.The present case is one of implied or tacit consent byRespondent No. 2 – CANFINA to being impleaded in thearbitral proceedings, which is evident from the conduct ofthe parties. We find that Respondent No. 2 – CANFINAhas throughout participated in the proceedings before theCommittee on Disputes, before the Delhi High Court, beforethe Sole Arbitrator, and was represented by its separateCounsel before this Court in the present appeal. There wasa clear intention of the parties to bind both Canara Bank,and its subsidiary – CANFINA to the proceedings. In this

CDE

Acase, there can be no final resolution of the disputes, unlessall three parties are joined in the arbitration.

11. In view of the aforesaid discussion, the present appeals arepartly allowed. We invoke the Group of Companies doctrine, to joinRespondent No. 2 – CANFINA i.e. the wholly owned subsidiary ofBRespondent No. 1 – Canara Bank, in the arbitration proceedings pendingbefore the Sole Arbitrator.

The matter is remitted to the Sole Arbitrator to continue with thearbitral proceedings, and conclude the same as expeditiously as possible.We have, however, expressed no opinion on the merits of the dispute.

CPending applications, if any, are disposed of accordingly.

ABHAY MANOHAR SAPRE, J.

1. I have had the advantage of going through an elaborate, wellDconsidered and scholarly drafted judgment proposed by my esteemedSister Justice Indu Malhotra.

2. I entirely agree with the reasoning and the conclusion, whichmy erudite Sister has drawn, which are based on remarkably articulateprocess of reasoning. However, having regard to the nature of theEcontroversy involved in these appeals, I wish to add few words ofmine.

3. As rightly observed by my learned Sister in para 8, followingtwo questions arise for consideration in these appeals:

4. One, whether the arbitration agreement in question is bi-Fparty agreement between the MTNL(appellant herein) and Canara Bank(respondent No. 1) or it is tri-partite agreement between the MTNL,Canara Bank and CANFINA (respondent No. 2) and, if so, whether theagreement satisfies the conditions laid down in Section 7(4)(b) and (c)of the Arbitration and Conciliation Act, 1996 (hereinafter referred to asG“the Act”) so as to enable the arbitral tribunal to decide the disputewhich has arisen between these parties in relation to the agreement.

5. Second, if the answer to the first question is that the agreementin question is tri-partite agreement, whether CANFINA is also anecessary party to the arbitral proceedings for deciding the rights of theHparties inter se in relation to the dispute.

6. In my considered opinion also, the agreement in question isessentially tri-partite agreement between the parties, namely, MTNL,Canara Bank and CANFINA. Indeed, this is clear from the documentsexchanged between the parties, pleadings and orders of the Court.

7. It is also clear when one examines the nature of the dispute. Itis so inextricably linked between the three parties that it can be effectivelydecided only when all the three parties are made parties to the arbitralproceedings.

8. Once we examine the issue on facts in the light of requirementsof Section 7(4)(b) and (c) of the Act, we have no hesitation in coming toa conclusion that the agreement in question is, in fact, tri-partiteagreement between the three parties mentioned above. In my view, itsatisfies the requirements of Section 7(4)(b) and (c) of the Act.

9. This issue is extensively dealt with by my learned Sister in thelight of law laid down by this Court in several decisions and I agree withher reasoning.

10. Somewhat similar question also arose in internationalarbitrations as to when there are more than two parties in dispute thenhow such dispute should be dealt with in the arbitral proceedings- whetherit should be dealt with in one arbitral proceedings between one set ofparties or it should be dealt with in separate or parallel arbitrationproceedings.

11. This question was succinctly dealt with by the learned Authors-Alan Redfern and Martin Hunter in their book on “InternationalArbitration”. (see - Redfern and Hunter on International Arbitration- sixth edition-under the heading ‘J’ “Multiparty Arbitrations” (a)to (e) 2.212 to 2.247 pages 141 to 153).

12. The learned authors examined the aforementioned question inthe context of ICC and AAA Rules, decisions rendered by English Courtof appeal and the reports of ICC Commission on multi-party arbitration.They opined that subject to the terms of the agreement and any rulesframed in that behalf, it is desirable that such disputes should be resolvedas far as possible in one arbitral proceedings to avoid any inconsistentfindings and parallel arbitral proceedings.

13. Since the main object of the arbitral proceedings is to decidethe disputes expeditiously and within time frame, this object can be

Aachieved only when the disputes are resolved as far as possible in onearbitral proceedings. In this case, this object can be achieved only whenall the three parties named above are made party in one arbitralproceedings to enable the arbitral tribunal to finally decide the dispute onmerits in accordance with law.

B14. As rightly observed by my learned Sister, the undisputed factsbrought on record, in clear terms, entitles this Court to invoke the wellknown doctrine of “Group of Companies” and apply its principle to thefacts of this case so as to enable the arbitral tribunal to determine therights of three parties named above. In my considered view, one cannotdispute the legal proposition the doctrine “Group of Companies” hasCits application to arbitral proceedings and, in appropriate cases, it can beso applied (See-Redfern and Hunter on International Arbitration -Sixth Edition - 1.115 page 33, 2.42- 2.51 pages 85 to 88)

15. In view of what I have said above, I respectfully agree withthe reasoning and the conclusion of my learned sister.D

Nidhi Jain

Appeals partly allowed.