Arbitration and Conciliation Act, 1996 — Section 11(6) read with Section 11(9) —Dispute over a contractual agreement — The main issue is whether the contract was breached and if so, what remedies are available —The petitioner argues that the respondent failed to fulfill their obligations under the contract —The respondent contends that they met all contractual requirements and that any issues were due to the petitioner’s actions —The court ruled in favor of the petitioner, finding that the respondent breached the contract —The court based its decision on the evidence presented, which showed that the respondent did not meet the contractual terms —The court applied principles of contract law, focusing on the obligations and duties outlined in the agreement —The court awarded damages to the petitioner and ordered the respondent to fulfill their contractual obligations.

2024 INSC 710

SUPREME COURT OF INDIA

FULL BENCH

AJAY MADHUSUDAN PATEL AND OTHERS — Appellant

Vs.

JYOTRINDRA S. PATEL AND OTHERS — Respondent

( Before : Dr. Dhananjaya Y. Chandrachud , CJI., J.B. Pardiwala and Manoj Misra, JJ. )

Arbitration Petition No. 19 of 2024

Decided on : 20-09-2024

A. Arbitration and Conciliation Act, 1996 — Section 11(6) read with Section 11(9) —Dispute over a contractual agreement — The main issue is whether the contract was breached and if so, what remedies are available —The petitioner argues that the respondent failed to fulfill their obligations under the contract —The respondent contends that they met all contractual requirements and that any issues were due to the petitioner’s actions —The court ruled in favor of the petitioner, finding that the respondent breached the contract —The court based its decision on the evidence presented, which showed that the respondent did not meet the contractual terms —The court applied principles of contract law, focusing on the obligations and duties outlined in the agreement —The court awarded damages to the petitioner and ordered the respondent to fulfill their contractual obligations.

B. Arbitration and Conciliation Act, 1996 — Section 11(6) read with Section 11(9) —Dispute over a contractual agreement — Scope of jurisdiction of the referral court under Section 11(6) of — The court’s jurisdiction is limited to examining the existence of an arbitration agreement and whether the party applying for arbitration is a party to such an agreement — Any other preliminary issues should be left to the arbitral tribunal to decide.

C. Arbitration and Conciliation Act, 1996 — Non-signatory parties to an arbitration agreement — A non-signatory party can be bound by an arbitration agreement if there is a defined legal relationship between the signatory and non-signatory parties, and the non-signatory party’s conduct indicates their intention to be bound by the agreement — The court should consider factors such as the non-signatory party’s participation in the negotiation, performance, or termination of the underlying contract, and whether their involvement was positive, direct, and substantial.

D. Arbitration and Conciliation Act, 1996 — Prima facie examination of non-signatory parties — At the referral stage, the court should only conduct a prima facie examination of whether the non-signatory party is a veritable party to the arbitration agreement — A detailed examination of the non-signatory party’s involvement should be left to the arbitral tribunal.

E. Arbitration and Conciliation Act, 1996 — Nomenclature of the agreement — The nomenclature of an agreement (e.g., “Family Arrangement Agreement”) is not determinative of its character — The court should consider the substance of the agreement and the parties’ conduct to determine whether a non-signatory party can be bound by the arbitration agreement.

JUDGMENT

J. B. Pardiwala, J. – For the convenience of exposition, this judgment is divided in the following parts:

INDEX

1. The present petition has been filed under Section 11(6) read with Section 11(9) of the Arbitration and Conciliation Act, 1996 (hereinafter, “the Act, 1996”) seeking appointment of a Sole Arbitrator to adjudicate the disputes between the Petitioners and the Respondents in terms of Clauses 7.2 and 7.3 respectively of the Family Arrangement Agreement dated 28.02.2020 (hereinafter, “the FAA”) read with the Amendment Agreement dated 15.05.2020 (hereinafter, “Amendment to the FAA”) entered into between the petitioner AMP Group and respondent JRS Group.

2. Since the Petitioner No. 13 i.e., Silvercity Management Ltd. is a company incorporated outside India having its office at 17, Bond Street, St. Helier, Jersey, JE2, 3NP, an island in the English Channel, northwest of France and the Petitioner No. 14 i.e., Hiral Ashit Patel is an individual, who is a citizen and resident of Canada, the dispute between the Parties falls within the definition of an international commercial arbitration under Section 2(1)(f) of the Act, 1996.

A. FACTUAL MATRIX

3. For convenience, the Parties involved in the present petition and the respective groups of which they form a part of are tabulated below:

4. The Petitioners herein are collectively referred to as the “AMP Group”. The Petitioner Nos. 1 to 9 & 14 respectively are individuals and family members of Mr. Ashit Patel, who are a part of the AMP Group in the FAA. The Petitioner Nos. 10 to 13 respectively are companies described as a part of the AMP Group in the FAA. The Petitioner No. 13 is a company incorporated outside India and the Petitioner No. 14 is a resident of a foreign country.

5. The Respondents are divided into two groups i.e., “JRS Group” consisting of Respondents 1 to 6, 14 & 15 and “SRG Group” consisting of Respondents 7 to 13, 16 & 17. The Millenium Estates Pvt. Ltd. (hereinafter, “Millenium”) and Deegee Software Pvt. Ltd. (hereinafter, “Deegee”) are Respondent 7 and 8 companies respectively. The Respondents 9 to 17 are all either Directors or Shareholders of Respondent 7 and 8 companies. Therefore, the Respondents comprise of individuals, Companies and Shareholders and Directors of the respective companies dealt with under the FAA.

6. Apart from the Petitioners and Respondents aforementioned, a few other individuals find a repeated mention in the facts of the present petition. First, Mr. Ashit M. Patel who is the Power of Attorney Holder of Petitioner Nos. 1 to 9 and 14 of the AMP Group. He is the co-brother of Respondent No.1. Secondly, Mr. Kalpesh Parmar, a Chartered Accountant who represented the interests of the JRS Group during the negotiations leading up to the FAA, the implementation of the FAA and the first round of mediation. He is alleged to have also represented the interests of the SRG Group during the same. In the last, Mr. Pankaj Agarwal, an employee of Deegee.

7. Mr. Ashit Patel representing the AMP Group and Mr. Jyotrindra S. Patel (Respondent No.1) of the JRS Group are co-brothers and married in the same family. The two groups were jointly engaged in various businesses and co-owned several entities. Subsequently, the SRG Group had joined hands with the AMP Group and JRS Group in two entities i.e. Millenium and Deegee. SRG Group presently holds 40% equity shares in Millenium.

8. It is the case of the Petitioners that between 2013 & 2019, various disputes arose between the AMP Group on one side and the JRS and SRG Groups on the other which led to the filing of several proceedings before various forums including the National Company Law Tribunal (hereinafter, “NCLT”) at New Delhi, Mumbai and Ahmedabad by the AMP Group. The same are still pending before the respective forums. It is pertinent to note that, of the aforesaid disputes, the respondent No.9 of the SRG Group is one of the respondents in CP/383/2017 pertaining to Deegee, filed by the AMP Group before the NCLT at Mumbai.

9. The Best Value Chem. Ltd. (hereinafter, “BVC”) is an entity involved in the business of manufacturing aroma chemicals co-owned by the AMP and JRS Groups. The Premji Group had initiated a proposal to buyout BVC and indicated that the deal could only go through if the litigations filed against BVC were withdrawn. Therefore, the parties thought it fit to resolve all the issues between them once and for all with the understanding that the AMP Group would completely takeover various entities and that the JRS and SRG Groups would co-own other entities.

10. During negotiations that preceded the execution of the FAA, the following events/communications took place;

11. Subsequently, the FAA dated 28.02.2020 was entered into between the AMP Group and JRS Group. The terms of the FAA impose several obligations on the AMP and JRS Groups in pursuance of the settlement contemplated therein.

12. It is pertinent to observe that the present petition relates primarily to the dispute arising from specific clauses wherein the SRG Group is also required to undertake certain steps and actions specified viz, (a) Clause 2.1.4 read with Schedule 7 on Millenium Exit (presently AMP Group holds 36% while SRG Group holds 40%) where AMP Group is required to exit and SRG Group is required to purchase additional shares; (b) Clause 2.1.5 requiring Amendment of Lease Deed executed between Millenium, the Lessor and Aurosagar Estates Pvt. Ltd. (hereinafter, “Aurosagar”), the Lessee and; (c) Clause 2.1.6 read with Schedule 8 on Deegee Exit where JRS and SRG Groups are required to completely exit and AMP Group would purchase the shares. The relevant clauses of the FAA are reproduced hereinbelow:

xxx xxx xxx

SCHEDULE 7

MILLENIUM EXIT

SCHEDULE 8

DEEGEE EXIT

13. Post the execution of the FAA and in pursuance of the implementation thereof, the following communications were exchanged:

14. An Amendment to the FAA was executed between the AMP Group and JRS Group on 15.05.2020. The clauses relevant to the present dispute are reproduced hereinbelow:

xxx xxx xxx

15. In continuation of the implementation of the FAA, the following communications were exchanged;

16. Several items under the FAA were pending implementation including the finalisation and execution of SPAs for Millenium and Deegee at the end of the SRG Group. Therefore, vide email dated 20.12.2021 sent to the JRS Group, the AMP Group nominated Mr. Upen Shah as the AMP Group’s representative in compliance with clause 7.1.2 of the FAA for amicable resolution of the issues arising out of the FAA between the AMP and JRS Groups. Vide reply email dated 26.12.2021, the JRS Group named Mr. Sanket Jain and/or Mr. Kalpesh Parmar as their representative. Clause 7.1.2 is reproduced hereinbelow:

17. The first round of mediation was held between the representatives of the AMP and JRS Groups on 19.01.2022. However, the discussions on the issues did not lead to any conclusion. While the minutes of the same were shared with Mr. Kalpesh Parmar, he denied its contents and stated that the draft minutes do not correctly record the events which occurred at the meeting.

18. For the purpose of initiating the second round of mediation, an email dated 06.05.2022 was sent by the JRS Group to the AMP Group invoking Clause 7.1.2 and they nominated Mr. Anuj Trivedi or Mr. Kalpesh Parmar to act as their representatives. In response to the same, on 23.05.2022, the AMP Group nominated Mr. Keyur Gandhi and/or Mr. Upen Shah and/or Mr. Nihar Mehta as their representatives. The first mediation meeting was convened on 13.06.2022. The second mediation meeting was convened on 23.07.2022 wherein it was stated by the petitioners that the AMP and JRS Groups were agreeable to hold a joint meeting with SRG for the purpose of resolving the major issues pertaining to Millenium and Deegee.

19. In the midst of mediation, on 17.10.2022, the JRS Group sent a WhatsApp message to the AMP Group stating that (a) the JRS Group had a meeting with the SRG Group, (b) SRG and Millenium were ready to purchase the stake of AMP Group in Millenium at the price agreed in the FAA, (c) SRG would exit from Deegee subject to a payment of Rs. 25 crore as compensation considering its contribution to the growth of Deegee. The contents of the message are reproduced hereinbelow:

20. Further on 21.11.2022, the JRS Group sent another WhatsApp message to the AMP Group stating that it had spoken to the SRG Group and that if the AMP Group was not ready to recognise SRG’s contribution in the growth of Deegee, it would be difficult for them to agree with the AMP Group on any point. The contents of the message are reproduced hereinbelow:

21. Vide email dated 16.05.2023 sent to the AMP Group, Mr. Kalpesh Parmar conveyed that he would discuss with SRG and try to resolve all matters pertaining to Deegee and would also intimate the outcome of his discussion. It was also conveyed that Millenium can be simultaneously worked out once Deegee is settled. The contents of the email are reproduced hereinbelow:

22. Since mediation between the parties yielded no result, the JRS Group sent an Arbitration Notice dated 11.12.2023 to the AMP Group invoking Clauses 7.2 and 7.3 respectively contained in the FAA dated 28.02.2020 read with the Amendment to the FAA dated 15.05.2020. The JRS Group, in the said notice, alleged, inter alia, that while the JRS Group had fulfilled its obligations under the FAA, the AMP Group had failed to discharge and take appropriate steps in compliance of its obligations. On account of such failure, the JRS Group was unable to fulfil its corresponding obligations and hence, disputes had arisen between the parties. They nominated Justice Kalpesh S. Jhaveri (Former Chief Justice, High Court of Orissa) to act as the sole arbitrator to resolve and adjudicate the disputes only between the AMP Group and JRS Group, in accordance with the FAA. The arbitration clause contained in the FAA is reproduced hereinbelow:

23. On 12.01.2024, the AMP Group gave its reply to the aforesaid notice and sent it to both the JRS and SRG Groups. The AMP Group, while denying the contents of the Arbitration Notice, alleged, inter alia, that, it is the JRS Group that had failed to perform their part of the obligations under various pretext despite the AMP Group pursuing the same. It stated that the assertion on the part of the JRS Group that SRG Group was not bound by the terms of the FAA since it is not a signatory to the said document was completely contrary to what had been represented to AMP during the negotiations and at the time of execution of the FAA and further the same was made only for the purpose of raising an extra monetary demand of Rs. 25 crore which was never contemplated under the FAA. It was further stated that Mr. Kalpesh Parmar and the JRS Group had represented the SRG Group at all stages including the mediation process. The appointment of Justice Akil Kureshi (Former Chief Justice, High Court of Rajasthan) was suggested as an arbitrator for adjudication of all disputes arising under the FAA between the AMP, JRS and SRG Groups.

24. On 09.02.2024 and 10.02.2024 respectively, the JRS Group and SRG Group responded to the reply to the Arbitration Notice sent by the AMP Group.

25. Upon failure to reach an agreement on the appointment of the Sole Arbitrator within 30 days, the Petitioner AMP Group has filed the present Arbitration Petition No. 19 of 2024 before this Court.

B. SUBMISSIONS ON BEHALF OF THE PETITIONER (AMP GROUP)

26. Mr. Darius Khambata, the learned senior counsel appearing on behalf of the petitioners submitted that although the SRG Group is not a signatory to the FAA dated 28.02.2020 which contains the arbitration clause, yet it is a veritable party to the arbitration agreement since they participated in the negotiations leading up to the FAA and continued to talk with the parties on the issues pertaining to the implementation of the FAA.

27. It was submitted that the successful implementation of the FAA was contingent on the involvement and action of the SRG Group and it was the intention and understanding of all the parties, including the SRG Group, that they would adhere to, and act on the terms of the FAA. The same was submitted to be evident through the following:

28. The Counsel submitted that the execution of the terms of the FAA required the involvement and action of the SRG Group while also benefitting them. It was submitted that a perusal of the following clauses and schedules of the FAA would indicate that the transaction was one of separation of shareholding and businesses of the three groups viz AMP, JRS and SRG:

29. The counsel submitted that the Share Purchase Agreements (SPAs) were to be executed to facilitate the implementation of Clauses 2.1.4 and 2.1.6 respectively of the FAA and the SRG Group would have been a party to the SPAs. This is evident from the draft SPAs and the same were forwarded specifically to the respondent No.9 vide email dated 27.11.2020. That according to the dispute resolution clause contained in Clauses 7.1 and 7.2 respectively, disputes between or amongst any of the parties in connection with or arising out of the Transaction Documents can be amicably resolved and upon its failure, be resolved by arbitration. The term “Transaction Documents” is defined as “means this Agreement, the Escrow Agreement and any and every document executed in connection with the transaction contemplated under or in connection with this Agreement” and also includes the SPAs to be executed inter alia the SRG Group, the drafts of which were forwarded to the SRG Group on 27.11.2020.

30. It was submitted that the AMP Group has conducted the due diligence of the Respondent No. 8 Company i.e., Deegee as contemplated in Clause 2.1.6(b) of the FAA with the full knowledge and consent of the SRG Group. The same is evident vide emails dated 01.07.2020, 23.10.2020, 10.04.2021 and 15.04.2021 respectively. This demonstrated that the FAA had also been partly implemented qua the SRG Group which is in management of the said company.

31. One another submission made by the counsel was that the nomenclature of the agreement i.e., “Family Arrangement Agreement” is irrelevant. In addition to that, the description and obligation of the parties under the FAA is also irrelevant since most cases of non-signatory parties will involve agreements, the terms of which do not expressly include the non-signatory. In support of the aforesaid, the counsel placed reliance on the decision of this Court in Sasan Power Ltd. vs. North American Coal Corporation (India) Private Ltd. reported in (2016) 10 SCC 813 where it was settled that the nomenclature of an agreement is not determinative of its character.

32. The counsel submitted that while on many occasions the representatives of JRS Group were there to take care of the interests, suggestions and comments of the SRG Group, it was understood by all the parties that the SRG Group although not a signatory to the FAA yet would be a part of the execution of and compliance of the terms and conditions thereof. Therefore, there was commonality of subject matter and composite transactions, in view of which SRG is a veritable party liable to be referred to arbitration.

33. By placing a strong reliance on the decision of this Court in Cox and Kings Ltd. vs. SAP India Pvt. Ltd. reported in (2024) 4 SCC 1, the counsel submitted that the settled position is that the referral court should leave it for the Arbitral Tribunal to decide whether the non-signatory party is indeed a party to the arbitration agreement on the basis of factual evidence and application of legal doctrine. He submitted that the Delhi and Bombay High Courts have consistently taken a view to refer the parties, including the nonsignatories to arbitration in DLF Ltd. vs. PNB Housing Finance Ltd. reported in (2024) SCC OnLine Del 2165, Moneywise Financial Services (P) Ltd. vs. Dilip Jain reported in (2024) SCC OnLine Del 1896 and Cardinal Energy and Infra Structure Pvt. Ltd. vs. Subramanya Construction & Development Co. Ltd. reported in (2024) SCC OnLine Bom 964 by relying on this Court’s decision in Cox and Kings (supra).

34. The counsel finally submitted that it is critical to refer even the non-signatory to arbitration since otherwise there is a risk that the non-signatory may not appear before the Arbitral Tribunal and disregard its award as beyond jurisdiction. In any event, the arbitrability of disputes qua the SRG Group can always be considered by the Arbitral Tribunal

C. SUBMISSIONS ON BEHALF OF THE RESPONDENT (JRS GROUP)

35. Ms. Anushree Prashit Kapadia the learned counsel appearing on behalf of the Respondent JRS Group submitted that while the JRS Group has no objection to the adjudication of disputes with the AMP Group by arbitral proceedings presided by the Sole arbitrator nominated by the AMP Group, the SRG Group cannot be a part of the arbitration proceedings as they are not party to the FAA. It was also submitted that the FAA contained the definition of “Parties” and the SRG Group is not defined in the FAA. The AMP Group and JRS Group are family members, whereas, the SRG Group is not part of the family.

36. The counsel submitted that the various clauses of the FAA indicate that the FAA binds only the AMP and JRS Groups. Clauses 2.1.4 and 2.1.6 respectively wherein the SRG Group is mentioned do not cast any obligations on the SRG Group since it merely states that “Parties shall execute… ” & “Parties shall ensure…”. There is also no exchange of consideration with the SRG Group in the FAA.

37. The counsel submitted that neither the JRS Group nor the chartered accountant, Mr. Kalpesh Parmar have ever represented the SRG Group, acted on their behalf or received any authority or power from the SRG Group. There is no evidence on record or otherwise to the contrary.

38. The counsel submitted that Clause 8.1 of the FAA on “Entire Agreement” categorically states that the FAA superseded any and all prior oral and written agreements. Therefore, the case of the AMP Group that SRG Group was effectively a part of the negotiations and is privy to the transactions is inconsequential.

39. The counsel finally submitted that the AMP Group and JRS Group have fulfilled part of their respective obligations under the FAA and are in a position to fully execute the FAA without the presence or role of the SRG Group. Clause 8.7 dealing with Partial Validity empowers the severance of invalid or unenforceable provisions of the FAA.

D. SUBMISSIONS ON BEHALF OF THE RESPONDENT (SRG GROUP)

40. Mr. Huzefa Ahmadi, the learned senior counsel appearing on behalf of the Respondent SRG Group submitted that the present petition is merely a device to embroil strangers into an agreement entered into between two groups of the same family since the SRG Group is admittedly neither a party nor signatory or confirming party to the FAA or the alleged arbitration agreement contained therein. The AMP and JRS Groups who are signatories thereto are ad idem about the terms of the FAA, including their mutual intention to refer the disputes arising from it to arbitration. Had the SRG Group been involved in the negotiations leading to the signing of the FAA, or participated therein, or expressed its inclination to be bound by the arbitration agreement, the same would have been recorded in the FAA.

41. The counsel submitted that the fact that the FAA had always been intended to operate inter se the AMP and JRS Groups is borne from a bare perusal of the clauses of the FAA itself which only confers rights or fastens obligations upon the said Groups.

42. The counsel submitted that the arbitration clause contained in the FAA by itself makes a reference only to the parties to the FAA inasmuch as it sets out the negotiation or dispute resolution mechanism or appointment procedure to be followed by the parties alone, and importantly, the factum that the AMP and JRS Groups shall continue to perform their respective obligations under the FAA, subject to the termination of the FAA. At no point does the arbitration agreement make any reference to the SRG Group nor does it fasten any obligations to be performed by it.

43. It was further submitted that there is no defined legal relationship between the SRG Group and the petitioners to justify the application of Section 7(1) of the Act, 1996. In other words, there is no ‘arbitration agreement’ between them either in the form of an arbitration clause in a contract or in the form of a separate agreement in terms of sub-sections (2) to (5) of section 7 of the Act, 1996. In fact, there is no contract at all between them and consequently, there is no privity of contract between the Petitioners and SRG Group in any manner whatsoever.

44. It was also submitted that bringing non-signatories within the scope of the arbitration agreement is an exception and not the rule. In support of this, the counsel relied on the decision of this Court in Cox & Kings (supra). Further, it was submitted that a dual test has to be satisfied to compel the SRG Group to be a party to the present arbitration proceedings i.e., (a) SRG Group should be shown to have agreed to the underlying contract and (b) SRG Group should also be shown to have agreed to be bound by the arbitration agreement. Both the conditions are not satisfied. A vague awareness of the JRS and AMP Groups being in negotiations or the mere marking of emails relating thereto to a member of the SRG Group cannot imply consent. It was submitted that the SRG Group is neither a consensual or non-consensual participant in the arbitration proceedings arising out of the FAA nor have any of the aforementioned consensual or non-consensual theories been invoked by the petitioners. To compel a party to arbitration in respect of a family arrangement despite the fact that they are not a member of the family would sound the death knell to the concept of party autonomy and freedom of contract.

45. The counsel submitted that apart from co-ownership or common shareholding in Millenium and Deegee, the SRG Group has no business relationship or dealings or common interest with either of the other groups. Since the subject-matter in question is with respect to the implementation of the FAA, there is no doubt that the same can be effectively implemented without the participation of the SRG Group in the arbitration proceedings.

Without prejudice to the above, the counsel submitted that severing the only two sub-clauses that merely make a reference to the SRG Group, without placing any obligation thereupon i.e., Clauses 2.1.4 and 2.1.6 would in no way impact the implementation of the FAA.

46. It was submitted that the negotiations leading to the signing of the FAA were initiated at the behest of one Premji Group in the BVC deal that took place between the Premji Group, the JRS Group and other shareholders. Surprisingly, despite disputes having arisen regarding a similar exit of the JRS Group from BVC, neither BVC nor the Premji Group have been roped in as participants in the FAA. However, the AMP Group, for reasons best known to itself, has sought participation of the SRG Group on the feeble pretext of ensuring exits from Millenium and Deegee.

47. The counsel also submitted that the SRG Group was not a party to the mediation proceedings since vide email dated 20.12.2021, the AMP Group invoked mediation as per clause 7.1.2 of the FAA only against the JRS Group for resolving disputes between themselves. It has been admitted in the same email that the AMP Group had no contact with the SRG Group regarding any SPAs for Millenium and Deegee or otherwise and the AMP Group even castigated the JRS Group for pushing pending obligations inter se the parties on the SRG Group when “the SRG group is not even a party to the FAA”. The minutes of the 1st mediation meeting dated 19.01.2022 also reflect that the same was not attended by the members or representatives of the SRG Group. The counsel further submitted that when the negotiations were resumed for the second time vide email dated 23.05.2022, the SRG Group neither attended nor was represented in the same.

48. The counsel submitted that the SRG Group at no point of time, appointed, engaged or authorised, either the JRS Group or Mr. Kalpesh Parmar to undertake any actions or make any representations on its behalf or bind it to any agreement that has been entered into by and between the AMP and JRS Groups either expressly or impliedly. It was submitted that even as per the petitioners’ own case, the so called joint meeting dated 14.01.2020 that was arranged by Mr. Kalpesh Parmar was done so by him representing the JRS Group and “was attended by Mr. Ashit Patel for AMP Group and Respondent No.9 of the SRG Group”. Therefore, the petitioners cannot blow hot and cold and allege that Mr. Parmar also attended in the capacity of a representative of the SRG Group. Further, the JRS Group itself nominated Mr. Kalpesh Parmar as its representative for mediation vide email dated 26.12.2021 and therefore, it is not proper for the petitioners to contend that the SRG Group was represented by Mr. Kalpesh Parmar or the JRS Group.49. The counsel submitted that the Notice invoking arbitration sent by the JRS Group on 11.12.2023 was not addressed to the SRG Group. Only in the Reply to the Arbitration Notice issued by the AMP Group on 12.01.2024, the SRG Group was marked and this is the first instance that the AMP Group alluded to the SRG Group as a participant in the FAA and that to after a span of almost 4 years. This, according to him, was clearly an afterthought.

50. The counsel in the last submitted that, in the facts of the present case, even the prima facie threshold required to be met to warrant joinder of non-parties to arbitral proceedings, either by the referral court or by an arbitral tribunal, has not been met.

E. ANALYSIS

51. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is whether the SRG Group, being a non-signatory to the FAA, should also be referred to arbitration along with the AMP and JRS Groups?

i. Scope of jurisdiction of the referral court under Section 11(6) of the Act, 1996

52. A plethora of decisions have deliberated upon the scope of the Court’s jurisdiction and the role to be played by the referral court in the appointment of an arbitrator. The position on this question was starkly different prior to and post the 2015 Amendment to the 1996, Act.

53.A seven-Judge Bench of this Court in SBP & Co. vs. Patel Engg. Ltd. reported in (2005) 8 SCC 618, held that the power under Section 11 of the Act, 1996 was not an administrative but a judicial power. Therefore, it was opined that the Chief Justice or his designate under Section 11(6) had the right to decide preliminary issues including his own jurisdiction, to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. The relevant observations are reproduced hereinbelow:

54. While further reinforcing the view taken in SBP & Co. (supra), this Court in National Insurance Company Limited vs. Boghara Polyfab Private Ltd reported in (2009) 1 SCC 267 identified and segregated the three categories of preliminary issues that may arise for consideration in an application under Section 11 as follows:

55. On a closer look at the categories delineated in the aforesaid decision, it can be seen that the issues in the first category have to be mandatorily decided by the Chief Justice or his designate under Section 11 of the Act, 1996. This included the question whether there is an arbitration agreement and whether the party that has applied under Section 11 is also a party to such an agreement.

56. Later, on the suggestion of the 246th Report of the Law Commission of India, Section 11(6A) was inserted through the 2015 Amendment to the Act, 1996. The wide jurisdiction afforded to the referral courts by the decisions in SBP & Co (supra) and Boghara Polyfab (supra) was legislatively overruled by virtue of the non-obstante clause incorporated in Section 11(6A). Although the 2019 Amendment to the Act, 1996 omitted Section 11(6A), such an omission was not notified and therefore Section 11(6A) still remains in force and reads thus:

57. The crucial question that arose for consideration by this Court in Duro Felguera S.A. vs. Gangavaram Port Limited reported in (2017) 9 SCC 729 was the effect of the change introduced by the 2015 Amendment to the Act, 1996 which inserted Section 11(6A). The Court held that all that needs to be looked into is whether the agreement contained a Clause which provides for arbitration pertaining to the disputes which have arisen between the parties to the agreement i.e., the existence of the arbitration agreement, nothing more, nothing less. The relevant observations are extracted hereinbelow:

58. A two Judge-Bench of this Court in Garware Wall Ropes Ltd. vs. Coastal Marine Constructions & Engineering Ltd. reported in (2019) 9 SCC 209 considered the effect of Section 11(6A) which confined the jurisdiction of the Court to examine the “existence of an arbitration agreement” on an arbitration agreement contained in an unstamped document or contract. The Court was of the opinion that its enquiry as to whether a compulsorily stampable document, which contains the arbitration clause, is duly stamped or not, is only an enquiry into whether such an arbitration agreement exists in law and this does not in any manner amount to deciding “preliminary question(s)” that arise between the parties. However, in deciding so, the Court maintained that a referral court must confine itself to the question of existence of the arbitration agreement and observed as thus:

59. Once again, a three-judge bench of this Court in Vidya Drolia and Ors. vs. Durga Trading Corporation reported in (2021) 2 SCC 1 held that Sections 8 and 11 respectively must be read as laying down a similar standard on the scope of the referral court’s powers. It was stated that the questions as regards the existence and validity being intertwined, an arbitration agreement does not exist if it is illegal or does not satisfy mandatory legal requirements. The decision endorsed the application of a prima facie test in examining the existence and validity of an arbitration agreement both under Sections 8 and 11. This prima facie examination was not a full review but a primary first review to weed out manifest and ex-facie non-existent and invalid arbitration agreements and non-arbitrable disputes. However, it was clarified that the Court should not get lost in thickets and decide debatable questions of fact. The relevant extract is reproduced hereinbelow:

60. Vidya Drolia (supra) while speaking in the context of Section 8 also pointed out that jurisdictional issues like whether certain parties are bound by the arbitration agreement must be left to the arbitral tribunal since they involve complicated factual questions and observed as thus:

61. A Constitution Bench of this Court in In Re: Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899 reported in (2024) 6 SCC 1, stated that an arbitration agreement contained in an unstamped or insufficiently stamped contract would not be non-existent in law as stated in Garware Wall Ropes (supra). It also clarified the position taken in Vidya Drolia (supra) and stated that the parameters for judicial review under Sections 8 and 11 respectively were different. The scope of examination under Section 11(6) should be confined to the “existence of the arbitration agreement” under Section 7 of the Act, 1996. Similarly, the “validity of an arbitration agreement” must be restricted to the requirement of formal validity such as the requirement that the agreement be in writing. Substantive objections pertaining to existence and validity on the basis of evidence must therefore be left to the arbitral tribunal. Moreover, it was stated that the expression “examination” under Section 11 does not connote or imply a laborious or contested inquiry. On the other hand, Section 16 provides that the arbitral tribunal can “rule” on its jurisdiction, including the existence and validity of an arbitration agreement. It was also stated that any prima facie opinion rendered by the Court under Section 11 need not bind the arbitral tribunal. The relevant observations are extracted hereinbelow:

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62.This very Bench in SBI General Insurance Co. Ltd. vs. Krish Spinning reported in (2024) SCC OnLine SC 1754 dealt with the scope and standard of judicial scrutiny in an application made under Section 11(6) of the Act, 1996 specifically when a plea of “accord and satisfaction” is taken by the defendant. It was observed that in a scenario where the Courts delve into the domain of the arbitral tribunal at the Section 11 stage and reject the application, there is a risk of leaving the claimant forum-less for the adjudication of its claims. It was stated that a detailed examination at this stage would also be counterproductive to the objective of expediency in deciding a Section 11 application and simplification of pleadings. It was also stated that even if ex-facie frivolity is made out by the referral court, the arbitral tribunal has the benefit of extensive pleadings and evidentiary material and therefore, it would be incorrect to doubt that the arbitral tribunal would not be able to arrive at a similar conclusion. The relevant observations are reproduced hereinbelow:

63. The recent Constitution Bench decision of this Court in Cox and Kings Limited vs. SAP India Private Limited and Another reported in (2024) 4 SCC 1, specifically dealt with the question of impleading a non-signatory as a party in the arbitration proceedings and the corresponding scope of enquiry at the referral stage. It was held therein that Section 16 is an inclusive provision which comprehends all preliminary issues touching upon the jurisdiction of the arbitral tribunal and the issue of determining parties to an arbitration agreement goes to the very root of the jurisdictional competence of the arbitral tribunal. The relevant observations are reproduced hereinbelow:

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64. Therefore, on the pivotal issue whether the non-signatories can be referred to arbitration, this Court took the view that the referral court is required to prima facie rule on the existence of the arbitration agreement and whether the non-signatory party is a veritable party to the arbitration agreement. However, recognising the complexity of such a determination, the arbitral tribunal was considered the proper forum since it can decide whether the non-signatory is a party to the arbitration agreement on the basis of factual evidence and application of legal doctrine. In this process, the non- signatory must also be given an opportunity to raise objections regarding the jurisdiction of the arbitral tribunal in accordance with the principles of natural justice.

65. The position of law that emerges from the aforesaid discussion can be summarized as follows;

ii. Whether on a prima facie view, the SRG Group being a non-signatory to the FAA, can be referred to arbitration?

66. It is well settled that an arbitration agreement, in order to qualify as a valid agreement, has to satisfy the requirements stipulated under Section 7 of the Act, 1996 along with the principles of law under the Indian Contract Act, 1872. Having regard to the submissions of both the Respondent Groups i.e., JRS and SRG, it can be said that they have raised manifold objections to the present petition, however, none of those objections question or deny the existence of the arbitration agreement under which the arbitration has been invoked by the Petitioner AMP Group. In fact, the JRS Group has no objection to resolve the disputes with the AMP Group by way of arbitration. Their primary objection is only that the SRG Group cannot be a part of the arbitration proceedings. Therefore, the requirement of prima facie existence of an arbitration agreement, as stated under Section 11 of the Act, 1996 is satisfied.

67. However, the core issue that falls for our consideration is whether the SRG Group, being a non-signatory to the FAA can also be referred to arbitration and whether they are “veritable” parties to the arbitration agreement.

68. This Court in Cox and Kings (supra) held that the definition of “parties” under Section 2(1)(h) read with Section 7 of the Act, 1996 includes both the signatory as well as non-signatory parties. Persons or entities who have not formally signed the arbitration agreement or the underlying contract containing the arbitration agreement may also intend to be bound by the terms of the agreement. Further, the requirement of a written agreement under Section 7 of the Act, 1996 does not exclude the possibility of binding non-signatory parties if there is a defined legal relationship between the signatory and non-signatory parties. Therefore, the issue as to who is a “party” to an arbitration agreement is primarily an issue of consent. Actions or conduct could be an indicator of the consent of a party to be bound by the arbitration agreement. This aspect is also evident from a reading of Section 7(4)(b) which emphasises on the manifestation of the consent of persons or entities through actions of exchanging documents. The relevant observations made in Cox and Kings (supra) are extracted hereinbelow:

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69. The fact that a non-signatory did not put pen to paper may be an indicator of its intention to not assume any rights, responsibilities or obligations under the arbitration agreement. However, the courts and tribunals should not adopt a conservative approach to exclude all persons or entities who intended to be bound by the underlying contract containing the arbitration agreement through their conduct and their relationship with the signatory parties. The mutual intent of the parties, relationship of a non-signatory with a signatory, commonality of the subject matter, composite nature of the transactions and performance of the contract are all factors that signify the intention of the non-signatory to be bound by the arbitration agreement.

70. An important factor to be considered by the Courts and Tribunals is the participation of the non-signatory in the performance of the underlying contract. In this regard, it was observed in Cox and Kings (supra) as follows:

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71. It is evident that the intention of the parties to be bound by an arbitration agreement can be gauged from the circumstances that surround the participation of the non-signatory party in the negotiation, performance, and termination of the underlying contract containing such an agreement. Further, when the conduct of the non-signatory is in harmony with the conduct of the others, it might lead the other party or parties to legitimately believe that the non-signatory was a veritable party to the contract containing the arbitration agreement. However, in order to infer consent of the non-signatory party, their involvement in the negotiation or performance of the contract must be positive, direct and substantial and not be merely incidental. Thus, the conduct of the non-signatory party along with the other attending circumstances may lead the referral court to draw a legitimate inference that it is a veritable party to the arbitration agreement.

72. Of the several entities pertaining to which settlement is contemplated under the FAA dated 28.02.2020 executed between the AMP Group and JRS Group, clauses 2.1.4 and 2.1.6 relate to Millenium and Deegee which are Respondent Nos. 7 and 8 companies respectively. It is an undisputed fact that Respondent Nos. 7 and 8 companies are themselves a part of the SRG Group. Therefore, prima facie without the joinder of the SRG Group, which includes Millenium and Deegee, there may not be a complete and effective resolution of the disputes arising out of the FAA between the AMP and JRS Groups.

73. Clause 2.1.4 read with Schedule 7 of the FAA prima facie indicates that the petitioners i.e., the AMP Group has to exit from the Respondent No.7 company i.e. Millenium where they hold Class A equity shares amounting to 36%. According to the procedure contemplated therein, during Phase 1 of the Millenium exit, the SRG Group (which already holds 40% shares in Millenium) is supposed to additionally purchase approx. 11% of the shares in Millenium held by the AMP Group. It is stated therein that the JRS Group would provide the necessary funding to SRG Group to purchase the aforementioned shares. In Phase 2, Millenium would buy back the balance shares of the AMP Group i.e., approx. 25% from the funds to be received from Respondent No. 8 company i.e. Deegee.

74. Clause 2.1.6 read with Schedule 8 prima facie indicates that the JRS Group and SRG Group would completely exit from the Respondent No. 8 Company i.e., Deegee. The proceeds received by the AMP Group from the sale of its shares in Millenium as per Phase 1 of the Millenium exit would be brought into Deegee by the AMP Group. AMP Group is also required to bring further funds into Deegee to pay off the entire loan provided by Millenium to Deegee along with interest at the rate of 14.5% compounded annually. Simultaneously with the repayment of loans to Millenium as aforesaid, Deegee is also required to pay off the entire loan provided by the JRS Group and SRG Group with interest at the rate of 14.5% compounded annually. Subsequently, the shares of Deegee held by the JRS Group and SRG Group would be transferred completely to the AMP Group.

75. In short, while the AMP Group is supposed to exit from Millenium and acquire shares in Deegee, the JRS and SRG Groups are supposed to exit from Deegee and, the SRG Group would acquire shares in Millenium. It is also provided that agreements are to be executed with or by the SRG Group to record and finalize the understanding with respect to the exit of AMP Group from Millenium and the exit of JRS and SRG Groups from Deegee. Recognising the interdependent nature of the transactions contemplated with respect to Millenium and Deegee, clause 2.1.4(a) also states that the exit of Millenium and Deegee should be endeavoured to be undertaken simultaneously on the same day.

76. Further Clause 2.1.7 requires the AMP Group to irrevocably and unconditionally withdraw all litigations including CP/383/2017 filed in connection with Deegee by the AMP Group before the NCLT at Mumbai wherein Respondent No.9 of the SRG Group is one of the respondents.

77. All that has been stated aforesaid gives an impression, though prima facie, that the SRG Group may be connected to the FAA and forms part of the settlement contemplated therein. However, this aspect should be looked into more closely by the Arbitral Tribunal.

78. Moreover, on the question whether the non-signatory party i.e., the SRG Group intended or consented to be bound by the arbitration agreement or the underlying contract containing the arbitration agreement through their acts or conduct, elaborate submissions have been made on behalf of all three groups, by placing reliance on the terms of the agreement, several email exchanges etc. On bare perusal of the email exchanges produced by the petitioner, it appears prima facie that several contested questions of fact, including but not limited to those hereinbelow, need to be first resolved:

79. A detailed examination of numerous disputed questions of fact are imperative in deciding whether the SRG Group participated in the negotiation and performance of the underlying contract and can be bound by the arbitration agreement. At the cost of repetition, we may state that under our limited jurisdiction afforded under Section 11(6) of the Act, 1996 we should not conduct a mini trial and delve into contested or disputed questions of fact. This has been categorically laid down in several decisions of this Court including Vidya Drolia (supra) and Krish Spinning (supra). Further, it is also the case of the SRG Group that a dual test needs to be satisfied before it is compelled to be a party to the present arbitration proceedings i.e., (a) SRG Group should be shown to have agreed to the underlying contract and (b) SRG Group should also be shown to have agreed to be bound by the arbitration agreement. We are of the considered view that the same requires a much more detailed examination of the evidence that may be adduced by the parties which can only be gone into by the Arbitral Tribunal.

80. Therefore, considering the complexity involved in the determination of the question whether the SRG Group is a veritable party to the arbitration agreement or not, we are of the view that it would be appropriate for the arbitral tribunal to take a call on the question after taking into consideration the evidence that may be adduced by the parties before it and the application of the legal doctrine as elaborated in the decision in Cox and Kings (supra).

81. We also prima facie find force in the contention of the petitioner AMP Group that the nomenclature of the agreement is not determinative of its character as held by this Court in Sasan Power Ltd. (supra). Therefore, the fact that the underlying contract is called the “Family Arrangement Agreement” by itself may not preclude the impleadment of the SRG Group in arbitration.

82. Once the arbitral tribunal is constituted, it shall be open for the respondents to raise all the available objections in law, and it is only after (and if) the preliminary objections are rejected that the tribunal shall proceed to adjudicate the claims of the Petitioners.

F. CONCLUSION

83. In view of the aforesaid, the present petition is allowed. We appoint Mr. Akil Kureshi (Former Chief Justice, High Court of Rajasthan) to act as the sole arbitrator. The fees of the arbitrator including other modalities shall be fixed in consultation with the parties.

84. It is made clear that all the rights and contentions of the parties are left open for adjudication by the learned arbitrator.

85. Pending application(s), if any, shall stand disposed of.