The Delhi High Court (“Delhi HC”) in RBCL Piletch Infra v. Bholasingh Jaiprakash Construction Limited, (ARB. P. 1108/2023, judgement dated July 22, 2024) has held that a non-signatory can be included in arbitration proceedings if there is a contractual relationship that makes the non-signatory wholly or partially responsible for obligations towards the claimants. 

Brief Facts:

The petition in present case was filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Act”) for reference of the dispute which primarily had arisen between RBCL Piletech Infra (“RBCL”) and Bholasingh Jaiprakash Construction Ltd. (“BJCL”/”Respondent No. 1”) with respect to a Work Order executed between them. National Thermal Power Corporation (“NTPC”), Respondent No. 2 was the owner of the project site. Bharat Heavy Electrical Ltd. (“BHEL”), Respondent No. 3,  was undertaking the project work and had sub-contracted certain construction work on the site belonging to NTPC to BJCL.

Over the course of the project the RBCL claims to have incurred certain damages, idling charges etc. which their claimed from all the Respondents.

RBCL invoked the arbitration clause contained in the Work Order by issuing a notice to BJCL and to NTPC and BHEL (even though they were not parties to the arbitration agreement), raising various claims. The notice was opposed by BJCL and BHEL whereas the NTPC did not respond to it. Subsequently, BJCL agreed for the dispute to be referred to arbitration. However, NTPC and BHEL opposed their inclusion in the arbitral proceedings submitting that there is a lack of privity of contract with RBCL and that the Work Order is a bilateral agreement between the RBCL and BJCL. RBCL, therefore, approached the Court under Section 11(6) of the 1996 Act, seeking appointment of an arbitrator to arbitrate the disputes between the parties.

Issue:

Whether NTPC and BHEL, are liable to be included in the proposed arbitral proceedings sought to be initiated by RBCL? 

Submissions of the Parties:

RBCL’s Submissions:

(a) RBCL relied on certain specific clauses of the Work Order (Clauses 21, 28 and 33) in order to contend that BHEL should be included in the arbitration.

(b) They further relied on the  Supreme Court’s judgment in Chloro Controls India Private Limited v. Severn Trent Water Purification Inc (2013) 1 SCC 641 for urging that a third party non-signatory to an arbitration agreement can be included in the arbitral proceedings.

(c) Section 21 notice issued by the RBCL along with one specific clause of the Work Order referring to NTPC were relied on for NTPC’s inclusion in the arbitral proceedings. The fact that issuing of the gate passes to enable RBCL to enter the project site was the responsibility of the NTPC was also brought to the Court’s attention. 

The Respondent’s Submissions:

(a) NTPC and BHEL urged that the work Order is a bilateral agreement between the RBCL and BJCL.

(b) There exists no privity of contract between the RBCL and BHEL or NTPC.

Consideration of Submissions by the Court:

The Court noted that the issue of a third-party non-signatory an arbitration agreement can be included in the arbitral proceeding is a settled law.

The Court referred to the Supreme Court’s decision in Ameet Lalchand Shah v. Rishabh Enterprises, (2018) 15 SCC 678 wherein it was held that non-signatory being a party to an inter-connected agreement, which was executed to achieve a common commercial goal was rightly included as a party in arbitration.

The Court noted that one of the circumstances which would justify the inclusion of a non-signatory to an arbitration agreement in arbitral proceedings is a contractual relationship which makes a non-signatory responsible to some extent towards the claimants.

The Court also referred to another Apex Court’s decision in O.N.G.C v. Discovery Enterprises Private Limited (2022) 8 SCC 42 wherein it was held that a non-signatory may be bound to be included in the arbitral proceedings by the operation of the principles of assignment, agency and succession. 

The Court then examined the Clauses of the Work Order in the light of this legal position and found that the Clauses of the Work Order executed between the parties that envisage the release of payments to the RBCL, make it evident that such payments would not be released without the approval of BHEL. Hence, the RBCL rightly seeks the inclusion of BHEL in the arbitral proceedings. 

With reference to NTPC the court observed that there is no direct covenant in the Work Order making NTPC responsible towards the RBCL. The court examined the notice issued by RBCL attempting conciliation of proceedings and concluded that in absence of a contractual responsibility on part of NTPC towards RBCL and the mere fact that RBCL has included NTPC in an omnibus fashion in the allegations contained in the Section 21 notice and also the fact that RBCL claimed the demanded amounts jointly and severally from all the Respondents does not warrant the inclusion on the NTPC in arbitral proceedings. 

Decision of the Court:

Based on the clauses of Work Order assessed in the light of the principles laid down by the Supreme Court in this regard, the Court held that BHEL owing to its role in RBCL being paid for its work is liable to be made a party to arbitral proceedings sought to be initiated by the RBCL.

On the other hand, since NTPC had no contractual obligation towards RBCL, no case for NTPC to be included in the arbitration proceedings is made out.

However, the RBCL is not disentitled to argue that NTPC is a necessary party before the Arbitral Tribunal. 

Conclusion:

Apart from the group of companies’ doctrine, a third party can be made a party to the arbitration proceedings if there exists a contractual relationship which makes them responsible for obligations towards the claimant. 

Please find attached a copy of judgment. 

This update has been contributed by Murtaza Kachwalla (Partner).

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