In a pivotal ruling, a three-judge bench of the Supreme Court comprising Chief Justice D.Y. Chandrachud, Justice J.B. Pardiwala, and Justice Manoj Misra has held that non-signatories to an arbitration agreement can be compelled to arbitrate if their conduct demonstrates an intention to be bound by the terms of the agreement. The judgment, delivered in Arbitration Petition No. 19 of 2024, addresses the inclusion of the SRG Group in arbitration proceedings initiated under a Family Arrangement Agreement (FAA) involving the AMP and JRS Groups.
Case Background
The dispute originated from a Family Arrangement Agreement dated February 28, 2020, which sought to resolve the business conflicts between the AMP Group (Ajay Madhusudan Patel and others) and the JRS Group (Jyotrindra S. Patel and others). The SRG Group, although not a formal signatory to the FAA, was involved in the execution and performance of the agreement, particularly concerning their interests in Millenium Estates Pvt. Ltd. and Deegee Software Pvt. Ltd.
The AMP Group, represented by senior advocate Mr. Darius Khambata, sought to include the SRG Group in the arbitration proceedings, arguing that their active involvement and representations during the FAA’s negotiation and implementation demonstrated an intention to be bound by the arbitration clause. The SRG Group, however, represented by senior counsel Mr. Huzefa Ahmadi, contested their inclusion, asserting that they had not consented to be part of the FAA or its arbitration clause.
Legal Issues Addressed
1. Inclusion of Non-Signatories in Arbitration:
The Court had to determine whether the SRG Group, despite not being formal signatories, could be bound to the arbitration agreement. The primary question was whether their conduct indicated an intention to adhere to the FAA’s terms, thus justifying their inclusion in the arbitration.
2. Doctrine of ‘Group of Companies’:
The AMP Group argued for the application of the ‘Group of Companies’ doctrine, which allows for the inclusion of non-signatories in arbitration if they are directly involved in the agreement’s performance. Evidence was presented showing the SRG Group’s participation in meetings and decisions crucial to the FAA’s execution.
3. Jurisdiction of Referral Courts under Section 11 of the Arbitration Act:
The Court also examined the jurisdictional limits under Section 11(6) of the Arbitration and Conciliation Act, 1996, particularly whether the Court should include non-signatories based on prima facie evidence of their intention to arbitrate.
Key Observations of the Court
1. Conduct Over Formal Signatures:
The Court stressed that the essence of an arbitration agreement is not limited to formal signatures but extends to the parties’ conduct. If a party’s conduct shows an intention to be bound by the agreement, they can be included in arbitration.
2. Composite Reference to Arbitration:
The judgment highlighted the necessity of a composite reference to arbitration in cases involving multiple parties and interlinked disputes to avoid fragmented proceedings and ensure a comprehensive resolution.
3. Referral Court’s Jurisdiction:
The ruling clarified that post the 2015 Amendment, the referral court’s role under Section 11(6) is to ascertain the existence of an arbitration agreement and not to engage in a detailed examination of the parties’ relationship, leaving more complex issues to the arbitral tribunal.
Decision
The Supreme Court, delivering the judgment, ruled that the SRG Group could be included in the arbitration proceedings. The Court emphasized:
“The conduct of the SRG Group, evidenced through various communications and their active involvement in the execution of the FAA, clearly reflects an intention to be bound by its terms. Their exclusion from arbitration would frustrate the purpose of the agreement”
The Court noted that while the SRG Group was not a formal signatory, their substantial role in the performance of the FAA’s terms, including discussions on share transfers and business decisions, indicated their implicit consent to the agreement.
Parties and Representation
– Petitioners (AMP Group): Ajay Madhusudan Patel & Others.
– Respondents (JRS Group): Jyotrindra S. Patel & Others.
– Respondents (SRG Group): Samarjitsinh R. Gaekwad & Others.
– Counsel for Petitioners: Mr. Darius Khambata, Senior Advocate.
– Counsel for JRS Group: Ms. Anushree Prashit Kapadia, Advocate.
– Counsel for SRG Group: Mr. Huzefa Ahmadi, Senior Advocate.
