ROLE OF COURTS IN THE ARBITRAL PRO C ESS IN INDIA

Introduction:- The intendment of the Act of 1996 is to give

more freedom to Arbitrators and to minimize the supervisory role
of Courts in the arbitral process. Section 5 is a clear recognition
of the policy of least judicial intervention underlying the intention
of the legislatures'll The Legislature intended to limit and define
the role of the Court as only to provide assistance to the Tribunal
and limited intervention against the orders and award. The Act
provides when Courts can intervene, after an arbitral clause has
been invoked. This is a clear departure from the Act of 1940.
The 1940 Act required the Courts intervention from the stage
when one of the parties did not agree to the appointment
procedure. Under the 1940 Act. a specific power was conferred
on the Courts under Section 34 to stay a suit. This provision was
interpreted to mean that the Court, in cases of fraud and
complicated issues of fact and law need not direct the parties to
arbitration^'’^ There is no such power under the 1996 Act, but
judicial interpretation has conferred power on the Judicial
Authority or the Chief Justice to decide the jurisdictional issues^'’^
It is for this reason that the Supreme Court in Shin-Estu
Chemical Co.^'’® observed that decisions rendered under the
Arbitral Act 1940 or under the Foreign Awards (R&E) Act should

Union of India v. Popular Construction Co (2001) 8 SCC 470.

Abdul Kadir Shamsuddin Buhere v. Madhav Prabhakar Oak AIR
1962 SC 406
Patel Engineers (2005) 8 SCC 618
Shih-Estu Chemical Co. Ltd v. Aksh Optifibres Ltd. (2005) 7 SCC
234.
be considered with caution as the Act purports to bring a new
approach to Arbitration.

Section 5 starts with a non-obstance clause

"Notwithstanding anything contained in any other law for the time
being in force, in nfiatters governed by this Part, no judicial
authority shall intervene except where so provided in this Part’.
Section 5 limits itself to domestic arbitrations and International
Commercial Arbitration where the Seat is India. The object of the
Act in limiting the intervention by the Court in the arbitral process,
is expeditious resolution of dispute so that trade and commerce is
not affected. By agreeing to an arbitration agreement, the parties
seek to avoid judicial intervention although the Court may render
its assistance when sought throughout the arbitration, for
example, in the appointment of arbitrators, interim measures, and
summons to witnesses. It also has a supervisory jurisdiction in
hearing appeals against orders, listed in Section 37. Although the
trend is to keep this intervention to a minimum, Courts are
necessary to the arbitration process as otherwise it would be
incomplete. ‘Judicial recourse in procedural matters is only to be
allowed if the matter is significant importance for the protection of
the unity of law, the consistency of law or the development of law.
An appeal over an arbitral procedural decision in the area of
procedural direction is not one such case, it would also contradict
the spirit and objective of arbitration’^'*'^.

Judicial pronouncements to some extent reflect what the

Court perceives to be lacuna in the provisions of the Act. Some

Sigward Jarvin - “To what extent are procedural decisions of

arbitrators subjecet to court review - Improving the efficiency of
arbitration agreement and awards”. (40 years of Application of New
York Convention. Page 373 -Kluwer Law International.
judgments have proceeded to legislate to create remedies,
notwithstanding the mandate of Section 5. Such intervention has
its due share of critics who contend that this approach is solely
because Courts fear that their powers will be eroded. By judicial
interpretation an additional remedy has been made available from
a challenge to an order passed by the Tribunal in respect of which
an appeal is filed under Section 37 of the Act^'*® even though the
Supreme Court recognized that the provisions of the Code of Civil
Procedure are specifically not made applicable. The Court, at the
same time noted that there is no express prohibition against
application of the Code to a proceedings arising before a Civil
Court and then proceeded to observe that “when there is no
express exclusion, we cannot by inference hold that the Code is
not applicable.” The Supreme Court also recognized that a
Second Appeal does not lie from an order of the Court, but noted
that Appeal under Section 37 lies to a Court which is not a person
designata and in such situation the proceedings before such
Court will have to be controlled by the provisions of the Code.
Therefore, the remedy by way of Revision under Section 115 of
the Code will not amount to judicial intervention nor prohibited by
Part I of the Act. The Court in so holding did not recognize that
the revisional jurisdiction is an aspect of appellate Jurisdiction
conferred by Statue^^^ The effect is that the revisional jurisdiction
is available only against orders passed by a Court subordinate to
High Court. This judgment requires reconsideration as it defeats
the fundamental object of the Act set out in Section 5, which is
least judicial intervention.

ITl Limited vs. Siemens Communication Network, (2002) 5 SCO 510

Shankar Ramchandra Abyhankar v. Krishnaji Dattatraya Bapat

(1970) 1 SCR 222
 It would have been simple if the jurisdictional areas of the
arbitral tribunal and the Court was clearly distinguished.
However, as Lord Mustiil goes on to state: “In real life the position
is not so clear cut. Very few commentators would now assert that
the legitimate function of the Court entirely ceases when the
arbitrators receive the file and conversely very few would doubt
that there is a point at which the Court tal<es on a purely
subordinate role. But when does his happen? And what is the
position at the further end of the process. Does the Court retake
the baton only if and when invited to enforce the Award, or does it
have functions to be exercised at an earlier stage, if something
has gone wrong with the arbitration, by setting aside the award or
intervention in some other way?^^°.

The legislative intent under Section 5 was to restrict judicial

intervention other than as provided in the part. Would this
exclude the High Courts invoking its extraordinary jurisdiction,
under Article 226 or 227, if otherwise available? In my opinion
the extra-ordinary jurisdiction of the High Court conferred by
Articles 226 and 227 of the Constitution of India cannot be
excluded, if the “Arbitral Tribunal” is considered as a body of
persons discharging quasi judicial functions. Arbitration is now
recognized as alternative Disputes Resolution IVIechanism as
reflected in Section 89 of the Code of Civil Procedure, 1908,
partly discharging the judicial functions of the State.

Interestingly, the Act of 1996, has provided for court

assistance in enforcing the orders of the Tribunal on failure by the
parties to comply with its directions. Section 27(5) reads as

Redfern and Martin Hunter 4^^ Edn. Pages 330-331

under:- “Persons failing to attend in accordance with such
process, or making any other fault, or refusing to give their
evidence, or guilty of any contempt to the arbitral tribunal during
the conduct of arbitral proceedings, shall be subject to the like
disadvantages, penalties and punishments by order of the Court
on the representation of the arbitral tribunal as they would incur
for the like offences is suits tried before the Court". The draftsmen
appear to have borrowed this provision from “Section 43(2) of
Arbitral Act, 1940 as the IVlodel Law made no such provision.
Section 5 cannot bar a Constitutional Remedy^^\ if available.

The Bombay High Court in Anuptech Equipment (P) Ltd.

vs. Ganpati Co-operative Housing Society Ltd^^^ had occasion
to consider the issue in the context of termination of proceedings
under Section 25(a) of the 1996 Act. The Tribunal terminated the
proceedings as the claimant failed to file their statement of claim
within the time granted. Such termination the Court held is not an
award including an interim award considering the expressions
used in the Act, though an award includes an interim award. An
interim award, under the 1996 Act, must satisfy the requirement
of Section 31. All orders or decisions thus would not fall within the
expression “award” and consequently, section 34 would not be
attracted^^l In Anuptech (supra), proceedings were terminated
under Section 25(a) of the Act. Such termination was held not be
an award, as against such a decision, there was no remedy
available to an aggrieved person under the Act either under

L Chandra Kumar v. Union of India (1997) 3 SCC 261.

AIR 1999Bom.296
H.G. Bajaj vs. Sharedeal Financial Consultants (P) Ltd. AIR 2003
Bom. 296
Section 34 (challenge to an award) or 37 (an appeal against an
Order). Consequently, it was held that when the remedy is not
available to an aggrieved person, and as it is a cardinal principle
of Indian jurisprudence that no party should be left without a
remedy the Court could in exercise of its extra-ordinary
jurisdiction under Article 226 of the Constitution of India, intervene
as it involves civil rights of the parties, as though the arbitral
tribunal may not have all the trappings of quasi-judicial body,
nonetheless was “other person under Article 12 of the
Constitution of India to whom a writ could be issued.” This view
has been followed by Division Bench of the same High Court in
Dowell Leasing and Finance Ltd. V. Radheshyam B.
Khandelwal & Others^^^

This aspect has also been noted by Sigward Jarvin^^^ who

while considering the Model Law observed that Article 25(c) of the
Model Law is understood to mean ‘that there is no power to
render "a default award” and it was considered as inappropriate
under most common law (and civil law) for an arbitrator to enjoy
the summary power enjoyed by Court in rendering default
judgment for procedural violation by a party. Unless, there is a
clear power for the Courts of law to set aside a default arbitral
award, there might be a case of giving powers to the Court of law
to set aside the arbitral decision, to proceed to make a default
award

2009(1) BCR 765

355 “To what extent are procedural decision sof arbitrators subject to
court review - Improving the efficiency of arbitration agreement and
awards”. (40 years of Application of New York Convention Page 373 -
Kluwer Law International
 Professor P.M. Baxi^^^ in a critical analysis of Anuptech
observed that the judgment opens a new window to which the
Court could look at the arbitral process. Two important
consequences were seen underlying the judgment, (a) Parties
dissatisfied with the interlocutory order or with the final order
passed by the Arbitrator will now be able to approach the High
Court and invoke its writ jurisdiction in the case fit for writ
jurisdiction. This procedure will run parallel to the procedure,
which is othenwise available under the Arbitration and Conciliation
Act, 1996. In reality, it was observed that a writ is not issued if an
alternative is available, but in practice this principle has been
departed from, and (b) The grounds on which .the writ can be
issued, are not necessarily identical with the grounds for
challenging the award under Section 34(2) of the Act, 1996. The
scope of judicial control on an award, which has been kept narrow
in Section 34 of the Act, 1996 would get considerable widened.

The only remedy available would be, if such termination is

treated as an ‘award’ by a suitable amendment in such a situation
it could be brought within the wider expression of Section
34(2)(a)(iii) ‘unable to present his case’, or Section 37(2) is
amended to incorporate the right to appeal.

Party Autonomy of Arbitral Procedure:-

Party autonomy is one of the basic elements of the arbitral

proceedings. Herrmann asserted thus: The most fundamental
principle underlying the model law is that of the autonomy of the

356
(2001 (3) Commercial Law General 49)
parties to agree on the “rules of the game”. Such recognition of
the freedom of the parties is not merely a consequence of the fact
that arbitration rests on the agreement of the parties but also the
result of policy consideration geared to international practice^^’.
One of the frustrations inherent in municipal laws is that such
laws may have mandatory provisions that are not universal in
nature. Such provisions produce unexpected and sometimes
undesired consequences. The principle of party autonomy is
intended to prevent such frustrations. Accordingly Article 19(1) of
the Model Law provides thus: Subject to the provisions of this law,
the parties are free to agree on the procedures to be followed by
the arbitral tribunal in conducting the proceedings^^®. The freedom
of the parties to choose the laws and the rules that govern their
contract is however not absolute. In appropriate cases, the courts
may intervene. Prior to the adoption of the model law, there were
national procedural laws that were inappropriate or inadequate for
international commercial arbitration. There was therefore the
need to detach arbitral proceedings from these local laws.
According to Herrmann: Article 19 which grants freedom to the
parties to agree on the procedure and, failing agreement
empowers the arbitral tribunal to conduct the proceedings as
considered appropriate may be called the "Magna Carta of
Arbitral Procedure’’ It is the central provision and clearest
expression of what may be regarded as the most salient feature
and greatest benefit of the Model Law for international cases:

G Herrmann, “The UNCITRAL Model Law on International

Commercial Arbitration: Introduction and General Provisions” in P
Sarcevic (ed) Essays on International Commercial Arbitration (Graham
&Trotman Limited, 1989) p 9,
Although there is no express provision on this under the Act, the
principle permeates the Act. Compare Section 1(b) of the English
Arbitration Act 1996.
detachment from the traditional local procedural law^^^ It is
apposite to assert that where parties agree to adopt the rules of
an established arbitral institution, they should bear in mind that
there are those that can be modified in fulP^° and others that have
limitations on modifications.^^’ These two principles are referred
in the Commission’s Report as the ‘fundamental principle’’^^^ of
Party Autonomy. They are equal treatment of the parties and the
opportunity to present one’s case. A violation of these principles
result in an award being set aside under Section 34(1)(a)(i)(iii).

Enforcing the Arbitral Agreement:- An agreement validly

entered into produces important legal effects for the parties, as
well as national Courts and Arbitrators. The effects of arbitration
agreement are both positive and negative. Positive effects
include the objection to participate and co-operate in good faith in
the arbitration of disputes pursuant to the parties arbitration
agreement while the negative effect includes the objection not to
pursue the resolution of the disputes that are subject to arbitration
in national courts or similar legal forms^^^ Once the judicial
authority arrives at a conclusion that there is a valid subsisting
arbitration agreement it can exercise jurisdiction to proceed
further to constitute the Tribunal pursuant to the law laid down by
the Supreme Court in Patei Engineers Ltd^^'*. In arbitral
proceedings where the seat of arbitration is India, the judicial

G Herrmann, “The UNCITRAL Model Law on International

Commercial Arbitration: Introduction and General Provisions" in P
Sarcevic (ed) Essays on International Commercial Arbitration (Graham
&Trotman Limited, 1989)at 12
For example the UNCITRAL Arbitration Rules
For example the Rules of the ICC Court of Arbitration
A/40/17 para 16 at in Binder Para 5.007.
Gary Born para 8.02 A(1) pg. 1253.
authority before enforcing tlie arbitral agreement has to decide
jurisdictional challenges as to the existence or invalidity of the
underlying contract or of the arbitral agreement contained therein.
The issue is, however, more controversial when a suit is filed and
an application is moved to direct parties to arbitration under
Section 45 in a case of International Commercial arbitration.
There are two co-ordinate Bench judgments of the Supreme
Court in the field. In Shln-Etsu^®^ the majority (two Judges) took
the view that the exercise of jurisdictional issues has to be done
prima facie and if the predicates are satisfied then to direct the
parties to arbitration where all issues can be decided. Another
coordinate Bench in Chloro Controls^^^ without referring the
matter to a larger Bench took the view that jurisdictional issues
must be finally decided. In my opinion, the decision in Shin-Estu
represents the correct view as it supports party autonomy, and
international approach to the issue where all issues are left for
determination by the Tribunal.

The Power to grant interim measures:- The Act provides for

grant of interim protection both by the Arbitral Tribunal (Section
17 and the Court (Section 9). In the comments on Article 9, in the
report submitted to the 18*^ Session of U.N. ‘it was understood
that Article 9 itself did not regulate what interim measure or
protection were available to a party. It merely expressed the
principle that the request for any Court measure available under a
given legal system and granting of such measure by a Court of
the State was compatible with the fact, of the parties having
agreed to settle their dispute by arbitration’^^l Para 97 notes ‘that
understanding also provided to answer the question whether
Article 9 would prevent parties from excluding in the Agreement
resort to Court for all or certain interim measures. The Articles
should not be read as precluding such exclusion agreement, it
should also not be read as positively giving effect to any such
exclusion agreement’^^®. The Commission finally agreed that the
Model law should not embody a resolution for such conflict and it
was a matter for each State to decide in accordance with these
principles and laws pertaining to the competence of these Court
and the legal effects of Court decisions. A number of adopting
jurisdictions made useful additions to Article 9, by listing the
details and types of Court ordered interim measures that are
allowed under their law^^^. Section 9 of the 1996 Act has
departed from the language of Clause 9. The interim measures
that can be ordered have to be seen in the context of what is as
set out in Section 9.

Section 9 of the Act allows the party to seek interim conservative

measures before, during or even after passing an Award. See
Sundaram Finance Ltd. vs. NEPC India Ltd^’“. The Court held,
that a party can seek relief even before issuance of notice of
commencing arbitration proceedings as long as it “manifests
intention to arbitrate”. This interpretation has enabled a party to
get interim relief including exparte to protect assets so that the
final Award is not frustrated. Though the Supreme Court had
used the expression “manifest intention”, the Court had been wise
in the interpretation of what may amount to manifest intention to

Report of the Eighteenth Session (1985)

(A/40/17) Fortieth Session Supplement No. 17
Peter Binder Para.2.099.
(1999)2 5 0 0 479.
arbitrate. The Court, however, has put parties to terms by
directing them to invoice .arbitration by way of conditional direction
to the continuation of the interim reiief. Section 9 while conferring
power on the Court for granting interim measure provides that the
Court shall have the same powers, for making orders as it has for
the purpose of and in relation to any proceeding before it. A
question thus arises whether the Civil Court before whom an
application for interim relief is made will have to apply the tests for
interim relief as set out in the Code of Civil Procedure 1908. A
Division Bench of the High Court of Bombay in National
Shipping Company of SA vs. Sentrans Industries Llmited^^\
observed that the Civil Court was not circumscribed by the
provisions of Order XXXVlll Rule 5 of the Code of Civil
Procedure. Some other High Courts have held that the provisions
of the Code would be applicable. The Supreme Court in Percept
D’ Mark (India) Pvt. Ltd. vs. Zahir Khan” ^ observed that while
granting an injunction the Court was bound to consider the
principles of balance of convenience and irreparable injury as
required to be considered while granting injunction under Order
XXXIX OF THE Code of Civil Procedure. In Adhunik Steel v.
Orissa Mlnerals^'^^ the Supreme Court disapproved the
contention that Section 9 should be read independent of
provisions of C.P.C., contained in Section 94 or of the provisions
of the Specific Relief Act or of the well known principles governing
grant of an interim injunction.

Can a Court grant interim relief during the pendency of an

application for setting aside of an Award and before the Award is

(2004) 1 Arb. L.R. 409 (Bombay - DB),

[2006 (4) SCO 227]
(2007) 7 SCO 125
actually enforced under Section 36 of the Act. Once an Award is
challenged under Section 34, the Award becomes inexecutable.
The question, however, is whether as the Court has power to
grant interim relief in favour of the party in whose favour the
award was passed. The Supreme Court in National Aluminum
Company Ltd. vs. Pressteel & Fabrication (P) Ltd.^’'* observed
that the Court is not entitled to pass any interim order for securing
the amount awarded by the Award or part thereof or otherwise.
Once the award is challenged there is no discretion left in the
Court to pass any interlocutory order in regard to the said award
except to adjudicate on the correctness of the claim made by the
applicant therein. The Bombay High Court in Ltd. v. Narmada
Cement Co. Ltd^^^ had taken a view that considering the
language of Section 9, an Award which is challenged does not
cease to be an Award, though it remains unexecutable and
cannot, therefore, be' enforced in terms of Section 36.
Considering the express language of Section 9, it will therefore be
open to a Court to grant interim relief.

Control of Courts over the arbitral process:- Section 14(1)

reads as under:- "The mandate of an Arbitrator shall terminate i f -
(a) becomes de jure orde facto unable to perform his functions or
for other reasons fails to act without undue delay.
(b) He withdraws from his office or the parties agree to the
termination of his mandate". Any dispute arising therefrom can be
decided under Section 14(2) of the 1996 Act, which reads as
under;- “If a controversy remains concerning any of the grounds
referred to in clause (a) of sub-section (1) a party may unless

(2004) 1 Arb. LR . 67 (SC),

2002(2) Ar.LR 47 (Bom)
otherwise agreed by the parties, apply to the Court to decide on
the termination of the mandate

A reading of Section 14(1)(a) will indicate the situations in

which the mandate of an Arbitrator stands terminated. The first
situation refers to an Arbitrator’s legal incapacity to perform his
functions and relates to the circumstances which disentitles an
Arbitrator in law for continuing in office, as for instance, in the
case of incapacity, bankruptcy or conviction for criminal offence or
the like. The second situation is when the Arbitrator is unable to
perform his functions on account of physical disability, such as
continuous ill health disenabling him from discharging his duties
as an Arbitrator. The third situation is an Arbitrator’s failure to act
without undue delay.

When can an Arbitrator be said to suffer from de jure

inability. As per Section 14, the mandate of an Arbitrator shall
terminate, if he becomes de facto or de jure unable to perform his
functions. De jure inability of an Arbitrator refers to his legal
inability to perform his functions. The expression ‘de jure’ covers
variety of situations. ‘Such situations of legal inability relate to
circumstances under which the Arbitrator is by law, barred from
continuing in his office for reasons such as incapacity, bankruptcy
and conviction in criminal offence^’^’. De jure impossibility
referred to in Section 14(1)(a) is the impossibility which occurs
due to the factors personal to Arbitrator and de facto impossibility
occurs due to the factors beyond the control of the Arbitrator. If
the Tribunal is constituted contrary to Section 10, the Arbitrator de
jure will not be able to perform those functions. In that event, the

A.L. Okekerifere - Appointment and Challenge of Arbitrators under

the Unicitral Model Law - Part I; “Challenge” (2000) 1 INT ALR 17
parties can move the Court for decision whether the mandate is
terminated or not^^l

De jure impossibility is nothing but impossibility in law. Bias

vitiates the entire judicial/arbitration process and renders the
entire proceedings nugatory. If the Arbitrator is biased, he is de
jure unable to perform his functions within the meaning of Section
1 4 » 3 7 8 j g g ^ Q Q f l^ jg g of an Arbitrator would really
not come up before a Court for consideration during the course of
arbitral proceedings under Section 14, though it may form a
ground under Section 34 to challenge an award. Under Section
12(3) an Arbitrator can be challenged if circumstances exists that
give rise to justifiable doubts as to his independence or
impartiality. The challenge, however, in terms of Section 13(2)
must be by way of a challenge before the arbitral Tribunal and it is
for the Tribunal to decide the challenge. If the challenge is not
successful, the Arbitral Tribunal shall continue the arbitral
proceedings and make an arbitral Award^^^ That challenge in the
case where the Arbitrator rejects the objections will have to be
taken as a ground in a challenge to the Award under Section 34.
The object seems to be to allow the arbitral proceedings to be
concluded at the earliest. The issue of de facto and
unreasonable delay are factual issues and depend on the facts of
each case. There can be no universal proposition as to when it
can be said, that an Arbitrator de facto is not in a position to
conduct the arbitral proceedings, or for other reasons fails to act
without undue delay.

Ashalata S. Lahoti vs. Hiralal L. Liladhar 1999(3) Ar.LR.463

National Highway Authority of India vs. K.K. Saren 2009 (3) Arb.
L.R. 241
Hamsukhlal H. Doshi vs. Justice M .L Pendse 2001 (1) Arb. L.R. 87
Bom.)
 Section 37 is another provision whereby the Court
exercises control over the arbitral proceedings unlike assistance
rendered in the course of arbitration proceedings. The Appellate
power is co-extensive with the original power. As such the Court
can either set aside an order of the Tribunal under Section 17 by
granting interim measure or in the case of refusal, itself grant a
measure. Though Section 37(3) expressly bars a Second Appeal
nevertheless in ITI v Siemens Public Commission Network
, the Supreme Court has held that a Revision would lie as
discussed earlier. This gives rise to a complex situation. Where
the Appellate Court is the District Court the Revision would lie to
the High Court, but where the High Court is the Appellate Court
then no revision would lie to the same Court as it cannot exercise
revisionary jurisdiction on its own order. The Supreme Court in
holding that a Revision would lie under Section 115 of the Code
of Civil Procedure, has not considered this aspect. Considering
the general scheme of the Act, the mandate of Section 5 and
least judicial intervention in the arbitration process, the Supreme
Court in creating yet another remedy available to a section of
applicants has to an extent acted contrary to the Parliamentary
intent and the object of the Model Law. The Court ought to have
posed to itself, the question whether it could interpret a remedy to
a class of litigants under the Act, which otherwise is not expressly
provided by the Act.

Court Assistance in taking evidence:- Section 27 expressly

provides for Court assistance in securing presence of a witness
who cannot otherwise be produced by any party before the
Tribunal. As there is no power in the Tribunal to secure presence
of a witness before it, on its own, the Tribunal has to move the
Court or direct the party with its approval to move the Court. This
approval is a formal consent or concurrence based on the
Tribunal’s assumption whether that evidence is required. As to
whether the witness should be summoned or not, is for the Court
which decides the application to satisfy itself. Under Section 27, it
is the Court which ultimately decides whether a witness should be
summoned. In Aids Care Organization vs National Aids
Organization^*’ the court has described the scope of this section
as:- The section enables a party to the arbitration to apply with
the approval of the arbitration tribunal to the court for assistance
in taking evidence. The court assistance is only in executing the
request. It has no power to direct on its own that evidence be
provided even if the request in that regard is made by party. The
request should be made with the approval of the arbitral tribunal”.

There appears to be a conflict amongst the courts on the

nature of power to be exercised under Section 27 of the Act.

In IVI/s. Hindustan Petroleum Corporation Ltd. vs. Ashok

Kumar Garg^*^ the Delhi Court was considering as to what would
mean “approval” under Section 27. A learned Judge of the Delhi
High Court observed that under Section 27 in order to facilitate
the exercise of power by the Court and also so that the Court is
not inundated with unnecessary requests, a condition of prior
approval of the Arbitral Tribunal is envisaged under Section 27 of
the Act. The Court then in paras 13 and 15 observed that while
granting approval it would be for the Arbitral Tribunal to exercise
its mind to decide whether such an application ought to be

(2010) 3 Raj 327 (Del)

AIR 2006 Delhi 365
presented by the petitioner before the Court. On the other hand a
learned Single Judge of the Bombay High Court in Rasiklal
Ratilal vs. Fancy Corporation Limited and Anr^*l, has
observed that under the scheme of Section 27 of the Arbitration &
Conciliation Act. 1996, the Court after hearing the parties may
pass appropriate orders for summoning witnesses (documents)
and it is the jurisdiction or power of the court. The courts
assistance is restricted only to the extent of giving directions to
produce documents or summoning witnesses.

It is the Researchers opinion that the Bombay decision

correctly reflects the intent of Section 27. It is for the Court
according to the rules for taking evidence, to examine the
application and issue process to the witness in the same manner
as If the court was trying the suit. This would require the court to
exercise powers in accordance with order XVI of the civil
procedure code 1908. Order XVI envisages that in case a party
seeks its assistance to summon a witness, the court may for
reasons to be recorded permit summoning of such a witness.
This section achieves to maintain a balance between on the one
hand the tribunal itself or permitting a party to seek courts
assistance. A Tribunal cannot bind a court and therefore
advisedly it is for the Court to ultimately exercise its discretion.
This way the Tribunal retains control over the Arbitral
proceedings.

JOINDER OF PARTIES - is there an express or implied provision

to add a party to the arbitral proceedings. In domestic arbitration,
no court has yet held, that there is such a power and the obvious
reason is that only parties to ttie arbitral agreement can be
directed to proceed with the arbitral route, which they have
chosen, if any of the parties elect to do so. The Supreme Court
held affirming the judgment of the Bombay High Court, that only
parties to the Arbitration agreement can be directed to
arbitrations^^^ Resourceful parties to avoid the arbitral route,
choose to add parties, who are not necessary to the proceedings
but may be proper. It is open to the court in such a case on an
application, if there be an arbitral clause to distinguish between
necessary parties and proper parties and strike out the proper
parties and direct parties to arbitration if they are parties to the
agreement. In commercial matters involving a contract it is
debatable whether the issue of proper parties will ever arise. In
International Commercial arbitration however, the Supreme Court
in Chloro Controls^^^ has applied the ‘Group of Companies’
doctrine to add parties, who may not be parties to an arbitration
agreement. This judgment will be discussed later. Section 45 of
the Arbitration Act states as under: “....... Judiciai authority, when
seized of an action in a matter in respect of which the parties
have made an agreement referred to in section 44, shall, at the
request of one of the parties or any person claiming through or
under him, refer the parties to arbitration...... "

The Supreme Court has interpreted this to mean that not

only the parties, but their subsidiaries and affiliates could be
made parties to an arbitration if the intention of parties was to so
bind those subsidiaries. The Supreme Court noted that arbitration
usually takes place between the persons who are parties to an

Sukhanya Holdings v. Jayesh H. Pandya & Anr. (2003) 5 SCO 531

(2013) 1 8 0 0 641
arbitration agreement and therefore it can only refer those parties
to the agreement to arbitration. However, in some circumstances,
it might happen that the claim is made against or by someone
who is not originally named as a party. Though in such cases the
court stated that a heavy onus lies on that party to show that, in
fact and in law, it is claiming through or under the signatory party
as contemplated under Section 45 of the 1996 Act. By adopting
this approach the Supreme Court has purported to introduce the
‘Group of Companies Doctrine’ into India. While this represents a
major step in the evolution of Arbitration Law in India, the nature
of the doctrine set out and its compatibility and applicability under
the Indian Arbitration Act 1996 will have to be examined.

What is the Group of Companies Doctrine? To analyse the

principles enunciated in Chloro controls, it would be first useful to
understand the nature of the Group of Companies Doctrine as it
has evolved in International Arbitration Law. The Group of
Companies doctrine is a principle that states that a company can
be said to be a party to an arbitration agreement even if it is not a
signatory to the said agreement. According to Wilske, for the
doctrine to be applied, the company being made a party to the
arbitration agreement must be part of the same corporate group,
or affiliate group as that of the signatory.^^^ Further the non­
signatory company should somehow be involved in the
conclusion, performance or the termination of the contract in
dispute. Born has stated that a better, and more common,
approach to the group of company’s doctrine has been to
ascertain the parties' objective intentions in entering into a

Wilske, Stephan, Shore, Laurence Ahrens, Jan-Mlchae! The Group

Of Companies’ Doctrine - Where Is It Heading? American Review Of
international Arbitration, Vol. 17 (2006): 74
particular transaction, and specifically to determine whether a
specific non-signatory was intended to be bound (and benefited
by the agreement in question).^^^ Properly understood, the group
of companies doctrine;' thus rests on the presumption that
commercial parties within corporate groups engaged in a
business transaction will ordinarily desire when entering into a
contract that their arbitration agreements provide efficient,
centralized dispute resolution mechanisms for all disputes relating
to a particular transaction.

The group of company’s doctrine is a modern expansion of

the principles that parties to the arbitration agreement are bound
by that agreement. Its development has been necessitated by the
increasingly complex nature of corporate groups which spread
their activities throughout the globe. A distinctive feature of this
doctrine is therefore that it has its origin in transnational practise
and has therefore been specifically created in the arbitration
context, and is not ordinarily invoked outside arbitration. The
doctrine became firmly established after the arbitration award in
Interim Award in ICC Case No. 4131, between Dow Chemical
Company ("Dow"), together with several of its subsidiaries, and
Isover Saint Gobain ("Isover"),^*^ which was upheld by the
Paris Court of Appeal. In this case the ICC tribunal guided by
what it considered to be international trade usages and custom
suggested that the group of companies doctrine provided that
arbitration clause expressly accepted by certain of the companies
of the group should bind the other companies which by virtue of

Gary B. Bom, International Commercial Arbitration 1153-1178

(2009)

3^° Ix Y.B. Comm. Arb. 131 (1984)

their role in Vne conciusion performance or termination of tine
contract containing tine said clauses and in accordance witti the
mutual intention of all the parties in the proceedings.

Amongst national legal orders, the doctrine first originated

in France in the early 1970’s,^®^ in an attempt to overcome the
rigidity of the old French Civil Procedure Code. French Courts
developed an approach according to which international
arbitration clauses were declared to be independent not only from
the main contract but also from the natural legal systems and
were said to be governed solely by international trade usages and
the parties agreement. Over the next few decades, the doctrine
migrated to a number of other jurisdictions. Canadian courts
have also upheld arbitral awards that applied the group of
companies’ doctrine.^^” The Spanish Supreme Court has
accepted the doctrine in ITSA v. Satcan & BBVA^^K

A number of jurisdictions have however expressly rejected

the application of this doctrine. English courts have made clear
that the doctrine “forms no part of English law” and the existence
of a group of companies is insufficient to extend arbitration
agreements to non-signatories.^^^ Likewise the doctrine has no
standing in the German legal system^^^ and the Dutch legal
system with Dutch courts having annulled arbitral awards where

Stephan Wilske, Laurence Shore & Jan-Michael Ahrens, The

• “Group Of Companies Doctrine" - Where Is It Heading?, 17 Am. Rev.
Int’l Arb. 73, 75 (2006).
Trans-Pacific Shipping Co. V. Atlantic & Orient Trust Co., 2005 Fc
311
Bernard Hanotiau, Complex Arbitrations: Multiparty, Multicontract,
Multi-lssueand Class Actions ^ 107-108 (2006)
Peterson Farms Inc. V. C&M Farming Ltd [2004] 1 Lloyd's Rep. 603
(Q.B.)
Jens-Peter Lachmann, Handbuch Fur Die Schiedsgerichtspraxis Dr.
Otto Schmidt, Cologne, 3rd Ed. 2008 § 510
the group of companies’ doctrine was relied to hold a non-
signatory party to an arbitration agreement.Further this
doctrine has faced criticism even in France, the country where the
doctrine first emerged.^”

Other jurisdictions have not clearly adopted a uniform

position towards the doctrine. Courts in the United States have
considered “economic integration” of corporations in establishing
jurisdiction over foreign corporations whose subsidiaries were
active in the United States.^^^ This has been in part because of
the federal rules favouring arbitration.^’’ Other American courts
have taken a contrary stance and as the rule currently stands the
group of companies doctrine is not recognized in the American
system^’^ Similarly, Swiss courts have been divided on this issue
and in some cases have held the doctrine to have no room in
their domestic laws.^’’ However, there is growing opinion that
Swiss Courts have now “considerably relaxed [their]

Judgment Of 20 January 2006, 004/174hr (Netherlands Hoge

Raad) (Requiring That Agreement To Arbitrate Be Clear And
Unequivocal And Affirming Annulment Of Arbitral Award Binding Non-
Signatory Affiliates).
^^^Rubellin-Devichi, Jacquelinel’arbitrage Et Les Tiers lii - Le Droit De
L’arbitrage Revue De L’ Arbitrage 1988, Pp. 515
Blumberg, Phillip I.Strasser, Kurt. A Georga Kopulus, Nicholas
L.Gouvin, Eric. J , The Law Of Corporate Groups; Jurisdiction,
Practice, And Procedure Aspen Publishers, Welters Kluwer, 2007,P
67
John Townsed, Non-Signatories In International Arbitration: An
American Perspecetive”, In Albert Jan Van Den Berg, International
Arbitration 2006: Back To Basics? (Alphen Aan Den Rijn (The
Netherlands): Kluwer Law International, 2007) 359
Sarhank Group V. Oracle Us, Docket No. 02-9383
Judgment Of 29 January 1996, 14 Asa Bull. 496 (Swiss Federal
Tribunal) (1996) (Rejecting Arguments That Non-Signatory Parent
Company Was Subject To Arbitration Clause, Principally On Veil-
Piercing/Alter Ego Grounds).
jurisprudence” on the topic.'*°° Despite the lack of unified
definition and application it is agreed today that in several
jurisdictions, companies forming part of a larger corporate body
may under certain circumstances be regarded as a single legal
entity for the purposes of an arbitration agreement.'’”*

Appiication of the Group of Confipanies Doctrine:- Even in

jurisdictions where this doctrine is accepted, its application is not
uniform. A number of issues have arisen in connection with the
doctrine’s application and it remains unclear as to what conditions
must be present in a given case in order to justify the doctrine’s
application.

The Nature o f the Doctrine in D o w The Dow Chemicals case

is the leading precedent on the Group of Companies doctrine. In
Dow Chemicals a dispute arose between Dow Chemical
Company ("Dow"), together with several of its subsidiaries, and
Isover Saint Gobain ("Isover") in respect to fulfillment of
distribution contracts.'*”^ In that case there were a number of
contracts between Isover, and several 100% subsidiaries, Dow
(though not Dow itself) ICC arbitration clauses. After disputes
arose out of the said contracts Dow and three of its subsidiaries
to commenced ICC arbitration proceedings, which were
challenged by Isover on the ground that Dow was not a signatory
to the arbitration agreement. The arbitral tribunal upheld the
rights of Dow and its subsidiaries to invoke the arbitration clause.

Judgment Of 29 Januaiy 1996, 14 Asa Bull. 496

Gary B. Born, Intemational Commercial Arbitration 1153-1178

Bernard Hanotiau, Complex Arbitration,Multiparty,Muiitcontract

Issue And Class Actions,Kluwer Law International ,351
Ix Y.B. Comm. Arb. 131 (1984).
The tribunal applied what it referred to as general principles of
international arbitration law'‘”^ stating:
"Dow Chemical France at the time of signature of the 1965
contracts as well as the negotiations which led to the 1968
contract appeared to be at the center of the organization of the
contractual relationship with the companies succeeded by the
present Defendant. Moreover, this relationship could not have
been formed without the approval of the American parent
company, which owned the trademarks under which the relevant
products were to be marketed in France . . . I t is indisputable ...
that Dow Chemical Company has and exercises absolute control
over its subsidiaries having either signed the relevant contracts
or, like Dow Chemical France, effectively and individually
participated in their conclusion, their performance, and their
termination. Thus, based on the fact that the role [of the Dow
group] “in the conclusion, performance, or termination of the
contracts containing said clauses, and in accordance with the
mutual intention of all parties to the proceedings” the Tribunal
found that they “appear to have been veritable parties to these
contracts or to have been principally concerned by them and the
disputes to which they may give rise"^°^

The core jurisprudential reasoning was that, "irrespective of

the distinct juridical identity of each of its members, a group of
companies constitutes one and the same economic reality (une
realite economique unique)." Being a composite ‘reality’ or
transaction, it therefore could be inferred that the parties had
intended to bind each other to the Arbitration agreement even if

IxY.B. Comm. Arb. At 133.

Ix Y.B. Comm. Arb. At 135.
Ix Y.B. Comm. Arb. At 135.
they were not signatories. Tliis award was uplield by the Paris
Cour d’appeal, and has since been referred to in a number of
subsequent awards and decisions.'*”’

in the Dow Case the ICC tribunal extended arbitration

agreements to non-signatory companies of the group taking into
account the following factors, which according to Brekoulakis are
indicators of the non-signatory companies consent to
arbitration'*”*:

1) the existence of the group of companies that constituted one

and the same economic reality

2) the active role that the non-signatory companies of the

group played in the conclusion performance, and
termination of the contracts containing arbitration clauses
and

3) mutual intention of the parties to consider the group as a

unity bound by the arbitration agreement.

However, it should be noted that the arbitral tribunal had

neither established any priority of the conditions of the doctrine
application nor explained the scope and consequences of the
absence of one or some of such conditions. These principles

Award In Icc Case No. 5103, 115 J.D.I. (Clunet) 1206 (1988); Partial
Award In Icc Case No. 5894, 2(2) Icc Ct. Bull. 25 (1991); Final Award
In Icc Case No. 6519, 2(2) Icc Ct. Bull. 34 (1991); Interim Award In Icc
Case No. 6610, Xix Y.B. Comm. Arb. 162 (1994); Jarvin, The Group Of
Companies Doctrine, In The Arbitration Agreement - Its Multifold
Critical Aspects 181 (Asa Special Series No. 8 1994).
Stavros L. Brekoulakis, Third Parties In International Commercial
Arbitration 1|5.01-5.02 (2010)
have thereafter been considerably developed by subsequent
judicial and academic analysis, and the same is analyzed below:

1- The “economic reality" test:- In order for the group of

companies’ doctrine to apply, it is essential to show the existence
of a group of companies that constitute the same economic
reality. This means that that tribunals will require signatory
companies and the non-signatory companies to establish a tight
group structure and strong organization and financial links The
ICC in both the Dow Chemicals as well as a much later judgment
took a similar stand and attached strong importance to the fact
that the signatory company had exercised absolute control over
its subsidiaries/”^ In another important decision the ICC placed
reliance on the fact that the parties mutual obligations were
inexorably linked and that the parent companies played a
dominant role vis-a-vis their subsidiaries which were bound to
abide by the formers commercial and financial decisions.'*'”
However, this should not be read to mean that percentage of
ownership is determinative of the existence of a tight group
structure. In some cases, subsidiaries were bound by the
arbitration clause signed by its parent company owning only 51
percent of the non-signatory subsidiary while in other cases,
arbitral tribunals refused to bind non-signatories owning 99
percent of the s u b sid ia ry .It remains uncertain if a tight

Icc Partial Award Of 27 January 1989, Unpublished, Quoted In Kis

France Sa V. Sa Societe Generale, Cour D’appel De Paris, Judgment
Of 31 October 1989, 16 Ybca 145, 145-146
Icc Partial Award Of 27 January 1989, Unpublished, Quoted in Kis
France Sa V. Sa Societe Generale, Cour D’appel De Paris, Judgment
Of 31 October 1989, 16 Ybca 145, 145-146

Stavros L. Brekoulakis, Third Parties In international Commercial

Arbitration p5.17 (2010), p 5.17 (Referring To The ICC Case No. 8910
Of 1998,
corporate structure could be said to exist if the controlling
shareholding is less that 50%. Much would turn on the facts of the
individual case, and the level of control over the subsidiary would
be the determining factor.

Other indicia of a single economic reality would be where

funds of one company are used to financially support or
restructure other members of the group. The complex integrated
nature of the business can also point to a single economic reality.
Further, as held The ICC tribunal in Petersons farm Case, the
complex integrated nature of the business can also point to a
412
single economic reality had relied on such an approach .
Similarly, the sharing of intellectual property rights, assets,
financial and human resources would also indicate the existence
of a single economic entity. Arbitral tribunals worldwide have
relied on such a rule.'*'^ In fact in Dow Chemical’s itself the parent
Dow Chemicals Company was accepted as a true party to each
of the contracts containing arbitration agreements by reason of its
ownership of the trademark under which the products were
marketed and absence of a license agreement governing their
use.

2. The non-sianaton/’s role in the conclusion, performance,

and/or termination of the contracts containing arbitration
clauses.:- It is generally agreed that the existence of a group of
companies is not by itself sufficient to make the application of the

Case No. 7155 Of 1993, Icc Collection Of Arbitral Awards 1996-

2000, 454 (J. Arnaldez, Y. Derains &D. Hascher Eds., 2003) (Where
Subsidiary Company W as Created At A Later Stage And Did Not Take
Part In The Negotiation Or Conclusion Of The Contract)
Sarhank Group V. Oracle Us, Docket No. 02-9383
group of company’s doctrine and the extension of the arbitration
agreement to the non-signatories possible.'*''* Additional
conditions such as the non-signatory company of the group
having to be involved in the conclusion, performance, and/or
termination of the contracts containing arbitration clauses and
involvement of the non-signatory company of the group in an
active manner are required.'*'^ In Sponsor A.B. v. Lestrade the
Court of Appeal particularly stressed the importance of the role
played by non-signatory Sponsor A.B. in the conclusion of the
purchase undertaking and extended the arbitration clause to this
company by holding that “it also appears that where Sponsor AB
has played an important role in the conclusion of the purchase
undertaking, it has equally played an important role in the non­
execution of the purchase undertaking. Therefore, the third party
in question is only an appearance of a third party and in fact
appears to be the soul, inspirer and, in a word, the brains of the
contracting party”.'*'® Further in ICC Case No. 11160 the arbitral
tribunal extended the arbitration agreement to non-signatory
parent company taking into account that: (I) at Initial stages of
tender and the signature of the disputed contract all working and
legal relationships of the claimant in connection with project were
with the non-signatory company; (ii) the negotiations for the
contract were also made with the same company: (iii) at least at
the beginning of the contract performance payments under the

Emmanuel Gaillard And John Savage, On International

Commercial Arbitration (The Hague; Kluwer Law International. 1999 At
500,
Pietro Ferrario, The Group Of Companies Doctrine In International
Commercial Arbitration: Is These Any Reason For This Doctrine To
Exist?, 26(5) J. Int’l Arb. 647, 647-672 (2009)

Sponsor A.B. V. Lestrade, Cour D’appel De Pau, Judgment Of 26

November 1986, Rev. Arb. 153, 156 (1998)
264
contract were made by the non-signatory; (iv) the executives of
signatory subsidiary and non-signatory parent responsible for the
project were the same; and (v) the meetings in connection with
the project were held in the UK where headquarters of the non­
signatory parent are located, not in Caracas where signatory
companies were incorporated.

However at the same time, it is still highly disputed whether

the active involvement must be shown in one or some or all
stages of the contract. Park had stated that Dow Chemical award
used the conjunction “or” when referring to negotiation,
performance or termination stages. He further supports the
approach emphasizing the importance of a non-signatory
company’s involvement at the time of the contract’s creation
(negotiation and conclusion) as well as its execution
(performance) leaving aside the termination stage.'*^* Brekoulakis,
however, highlights that active involvement at the negotiation
stage is the most relevant factor which may lead to binding a non­
signatory company of the group."**^ The Sao Paulo State Court of
Appeals Trelleborg v. Anel supported this view and by a
unanimous decision enforced an agreement to arbitrate against a
non-signatory Trelleborglndustri AB (Sweeden) considering its
“active participation,” “clear involvement" and “interest in the
outcome” of the acquisition negotiations. Born however argues
that the group of companies doctrine may be applied even where
the non-signatory becarhe involved only at later contract stages

417
ICC Case No. 11160 Of 2002, 16(2) Icc Bull 99, 101 (2005).

William W. Park, Non-Signatories And International Contracts: An

Arbitrator’s Dilemma, In Multiple Party Actions In Internation arbitration
111.11-1.72(2009.
Stavros L. Brekoulakis, Third Parties In International Commercial
Arbitration H5.39 (2010)
“as an instance of a non-signatory’s assumption of contractual
obligations’"*^”

The group of companies doctrine however applies only to

those non-signatories that were involved in the conclusion,
performance and or termination of the contracts. Thus if a
company, though a member of a corporate group does not meet
the above criteria, the doctrine would not apply to it. In ICC Case
no. 6519 of 199155 a signatory company, the majority
shareholder of the three non-signatory companies, entered into a
contract containing an ICC arbitration clause. One of the non­
signatory companies was directly concerned by the contract and
effectively took part in the negotiations that led to its conclusion.
Two other non-signatories were, however, unrelated to the
contract, but merely affiliated in terms of shareholding. The issue
arose as regards whether all three non-signatories are bound by
the arbitration agreement. The arbitral tribunal held that the
arbitration clause can only be applied to the companies of group
A which did effectively take part in the negotiations which led to
the signature of the Protocol or which are directly concerned by it,
to the exclusion of those’which were nothing but instruments of a
financial transaction between the hands of a majority shareholder.

3) Mutual intention to arbitrate the dispute:- Born has stated that

the group of companies doctrine “depends on the intentions of the

Trelleborg V. Anel, Sao Paulo State Court Of Appeals, Appeal No.

267.450.4/6-00, 7th Chamber Of Private Law, Reporting Justice
Constanga Gonzaga, Decided On May 24, 2006
parties."''^' Brekoulakis further maintains that “the group structure
and the active involvement of the non-signatories in the
negotiation and execution of the particular contract must be such
as to suggest that the non-signatory and the signatory party
intended to arbitrate.” Further he suggests that it is necessary to
question (i) whether the group has acted in a way to lead its
contractor “to genuinely believe that the non-signatory member of
the group was actually a party to the contract, notwithstanding the
fact that it had not signed it”, and (ii) whether the non-signatory
adopted “the behaviour of a ‘genuine party’ that confused or
misled the co-contractor”."*^^

However, despite this emphasis that the doctrine places on

the parties’ mutual intention to bind the non-signatory. Born states
that the doctrine should not be limited to cases where a clear cut
intention to bind the non-signatory can be established. To support
his view, Born refers, to cases where the activities of the group
were conducted in a way that led the contracting party to some
confusion or misunderstanding as to who the true parties to the
agreement were. In such circumstances, even in the absence of
the non-signatory’s intention to be bound by the arbitration
agreement, an arbitral tribunal may hold a non-signatory to be
bound by the arbitration agreement.

The Difference between Piercing the Corporate Veil and

Group of Companies:- Another doctrine that is also used to join
Third Parties to an arbitration Agreement is the doctrine of

Emmanuel Gaillard And John Savage, On International

Commercial Arbitration (The Hague: Kluwer Law International, 1999 At
500,
Stavros L. Brekoulakis, Third Parties In International Commercial
Arbitration p5.46 (2010)
Gary B. Born, International Commercial Arbitration 1177 (2009)
Piercing the Corporate Veil. While understanding the concept of
the Group of Companies enunciated by the Supreme Court, it
would be important to keep the distinction between these two
doctrines in mind. The most important distinction between the
two doctrines is related to the element of the consent test
employed by the group of companies’ doctrine.''^'^ The group of
ij

companies doctrine is consent based; that is, in order to allow

application of the doctrine arbitral tribunals and courts require
evidence of the parties’ consent (usually implied) to arbitrate their
dispute. The piercing of the corporate veil is an equitable doctrine
which was developed by common law courts to evade the limited
liability principle where its application would amount to some
injustice towards the complainant. As Born has stated, the
consequence of the veil-piercing is that one entity is deemed
either non-existent or merely an unincorporated part of another
entity. No further intentions of the parties are tested rather the
focus is made on the relationship between the companies and
elements of fraud, wrong or other injustice involved,'*^^ which is
not inherent in the group of companies doctrine.

Brekoulakis has suggested additional important procedural

differences between the two doctrines. Since the very essence of
the piercing the corporate veil doctrine is to disregard corporate
form and to hold the controlling company liable for acts and
omissions of the controlled company (that is, liable instead of the
controlled company), Brekoulakis expresses the view that the
claimant should only be able to request the tribunal to assume
jurisdiction over the non-signatory controlling company instead of

BORN, at 1172 (stressing that presence of consent is a

“fundamental difference” between the two doctrines).
^25 Born at 1154
the controlled company rather than in addition to it.'*^® In contrast,
the group of companies’ doctrine is used as a means of
identifying the true parties to arbitration, which does not disturb
the legal personality of the entities in question.'*^’ Therefore, a
clamant that relies on the group of companies doctrine may well
request the joinder since in this case the basis would be the non­
signatory’s consent to the arbitration agreement contained in the
main contract in addition to the signatory’s consent, which has
signed the contract anyway.'*^*

Another, though relatively minor difference between the two

doctrines, is the requirement of a corporate group existence.
While the group of companies doctrine is centred around the
corporate group so tightly connected that it can be considered to
constitute one and the same economic reality (unity), the piercing
of the corporate veil doctrine does not require presence of the
corporate group. The latter doctrine can be applicable even with
respect to individual shareholders or managers of the corporation.

Finally, while the piercing of the corporate veil doctrine,

whether developed by courts or introduced by legislators, forms
part of national laws of many major jurisdictions, the group of
companies doctrine was introduced by arbitration tribunals
applying a national principles a^’^^nd is still either negatively

BREKOULAKIS, at p5.89
^27 Born at 1172
^28 BREKOULAKIS, af p5.89-5.90.
The possibility to extend arbitration agreement to third parties
depends on the law applicable to the arbitration agreement. For
instance, England is still reluctant to disregard corporate entity on the
basis of the discussed doctrines and allows it only in exceptional
circumstances. E.g., Peterson Farms Inc v. C&M Farming Ltd [2004]
EWHC 121, p 62 (Comm) (the court stating that “[the group of
companies] doctrine....forms no part of English law”). Commentators
treated or generally ignored by national courts, which makes its
application generally much riskier than that of the piercing the
corporate veil.

Thus, the above analysis shows that the group of

companies and piercing of the corporate veil doctrines have
different focuses and require different fact patterns to be proved.
The presence of certain facts vital for one doctrine can be
absolutely irrelevant for another, the best examples being the
requirement of active involvement of the non-signatory in the ,
conclusion, performance and/or termination of contracts
containing arbitration clauses present in the group of companies
test versus fraud or wrong requirement which forms no part of the
group of companies doctrine test but is very important in most
veil-piercing tests.

The Group of Companies Doctrine Enunciated in Chloro

Controls:- In Chloro Controls, the court held that an arbitration
agreement entered into by a company, being one within a group
of companies, can bind its non-signatory affiliates or sister or
parent concerns, if the circumstances demonstrate that the
mutual intention of all the parties was to bind both the signatories
and the non-signatory affiliates. Explaining the Group of
companies’ doctrine the court stated that a non-signatory party
could be subjected to arbitration, provided these transactions
were with group of companies and there was a clear intention of
the parties to bind both, the signatory as well as the non-signatory

from many other jurisdictions, including the Russian Federation and

Ukraine, ascertain the absence of the said doctrines in these
jurisdictions, though, acknowledging availability of various statutory
exceptions to the limited liability of a corporate entity.
parties. In other words, intention of the parties is a very significant
feature, which must be established before the scope of arbitration
can be said to include the signatory as well as the non-signatory
parties.

The court stated that a non-signatory or third party could be

subjected to arbitration without their prior consent only in
exceptional cases when the transaction is of such composite
nature that the performance of rnother agreement may not be
feasible without aid, execution and performance of the
supplementary or ancillary agreements, for achieving the
common object and collectively having bearing on the dispute.

However, in allowing a claim to be made against or by

someone who is not originally named as a party, the court stated
that it will have to examine such pleas with greater caution and by
definite reference to the language of the contract and intention of
the parties. In the case of composite transactions and multiple
agreements, would be possible to invoke such principle in
accepting the pleas of non-signatory parties for reference to
arbitration. Where the agreements are consequential and in the
nature of a follow-up to the principal or mother agreement, the
latter containing the arbitration agreement and such agreements
being so intrinsically inter-mingled or inter-dependent that it is
their composite performance which shall discharge the parties of
their respective mutual obligations and performances, this would
be a sufficient indicator of intent of the parties to refer signatory
as well as non-signatory parties to arbitration. The principle of
composite performance would have to be gathered from the
conjoint reading of the principal and supplementary agreements
on the one hand and the explicit intention of the parties and the
attendant circumstances on the other. While these references are
largely limited to the specific facts in Chloro Controls, they still
provide some insight into the criteria to be applied while
determining when a third party can be made party to the
arbitration proceedings.

Thus, to sum up in dealing with issues of referring a person

claiming through or under the signatory to the arbitration
agreement to arbitration the courts could consider certain
important factors such as:

• Direct relationship to the party signatory to the arbitration

agreement;

• Direct commonality of the subject matter;

• Agreement between parties being a composite transaction;

• Transaction should be of composite nature where

performance of principal agreement may not be feasible
without the aid, execution and performance of the
supplementary or ancillary agreements, for achieving the
common object and collectively having bearing on the
dispute; and

• Whether a composite reference of such parties would serve

the ends of justice.

Is the Group of Companies Doctrine the only way in which

Third Parties can be made party to the Arbitration? The Court
then cited the principle applied under the English Law called the
272
Group of Companies Doctrine, and cited a number of English
Cases. However, it may be pointed out that all of these cases
referred to the concept of ‘piercing the corporate veil’ rather than
the Group of Companies. In fact as stated earlier in Peterson
Farms, the English Courts held that “the Group of Companies
Doctrine forms no part of English Law". That was also the view in
DAC report. It therefore appears that the Supreme Court has
included the doctrine of Piercing the Corporate Veil as also
applicable to Arbitration Law in India. This conclusion is bolstered
by the equitable considerations introduced by the Court in the
analysis - the doctrine is to be applied only where it would meet
the ends of justice. It therefore appears that the reading of article
45 by the Supreme Court possibly encompasses a wide range of
situations where Third Parties can be made a party to the
Arbitration. This includes of course, the Group of Companies
Doctrine, the doctrine of Piercing the Corporate Veil, and could
also possibly include situations such as contracts of Agency.

The desirability of the Group of Companies Doctrine. As

pointed out in the Chloro Controls decision (in some places
inaccurately), there is a divergence of the judicial opinion in
various countries as to the acceptability of the Group of
Companies Doctrine. As stated above, countries such as France
have fully embraced the group of companies doctrine. The said
doctrine is justified on the basis that if intention of the parties was
to bind other members of the same corporate group to arbitration,
Courts and Tribunals must give effect to such an intention. Given
the complex nature of international transactions, and the myriad
layers of subsidiary companies involved, even if such intention is
not explicit on the fact of the agreement, the court can impute an
intention to bind such a third party to arbitration.
 On the other hand, countries like England have rejected the
doctrine of group of companies (the Supreme Court in Chloro
controls incorrectly stated that England accepted the Group of
Companies doctrine.). In Peterson Farms, the English Courts held
that "the Group of Companies doctrine ... forms no part of English
law."*^° This objection is premised on the basis that parties
knowingly structure their transactions to submit to or avoid certain
liabilities, including arbitration. If a third party is not a signatory to
the arbitration agreement, it can be inferred that such a party was
never bound to arbitrate. From a policy standpoint, the question
relating to the desirability of the Group of Companies Doctrine
ultimately boils down to a clear policy decision. How much
flexibility must there be while determining the parties’ intention to
be bound by arbitration? The French view permits the tribunal
greater autonomy in looking at various factors, while the English
view is certainly is premised largely on the premise that the actual
contract is indicative of the parties’ intentions.

This view is in the context of International Commercial

Arbitration and not domestic arbitration where the ratio of
Sukhanya Holdings'*^* continues to hold the field. The only issue
in my opinion which Was in issue in Chloro controls was,
interpreting Section 45 and what is the meaning to be assigned to
the words ‘at the request of one of the parties or any person
claiming through or under him’. These words would necessarily
have to be read with section 7 of the 1996 Act which uses the
words ‘an agreement by the parties to the arbitration agreement

Peterson Farms Inc. v. C&M Farming Ltd [2004] 1 Lloyd's Rep. 603
^Q.B.). See also In re Scaplake [1978] 2 Lloyd's Rep. 380 (Q.B.).
Sukhanya Holdings v. Jayesh H. Pandya & Anr. (2003) 5 SCO 531
in writing’ and the subject matter of the agreement and disputes
arising from that agreement. These words normally interpreted
would have meant “Successors or legal representatives’ of the
signatories to the agreement. As an illustration in a merger of
one company with another or principal and agent. In relation to
the group of Companies Doctrine, quoting from the proceedings
of the working group of the UNCITRAL Commission. Binder
States'^^^ “it was considered that this particular fact situation
raised issues which were too difficult to achieve wide acceptance
by a harmonized rule. It was therefore dropped from the list and
not discussed further.’’ Given that the Indian Act has not made
deviations from the Model Law, it would therefore be inaccurate to
state that Section 45 includes the Group of Companies Doctrine.
Further, the theory has been developed on the basis of the
language of Section 45. Section 45 is a power in the Court. If the
judgment is followed it would only apply when a judicial authority
is seized of an action. It would not apply when the parties directly
approach the Tribunal, except in institutional arbitrations where
there may be a provision for joinder by consent. The judgment
has not taken into consideration this aspect. The judgment is one
more instance of judicial legislation by the Supreme Court.

In P.R. Shah Shares and Stock Broker v. B.H.H.

Securities (P) Ltd'‘^l the Supreme Court, did not add parties but
e>

Joined parties to two agreements one of whom was not common,

in one common arbitration, to avoid multiplicity of proceedings,
conflicting decisions and to avoid injustice. Sections 8, 11 & 45
are machinery Provisions'^^'^ but in the absence of rules which

Peter Binder
enable joinder the basis for tfiis approacli in arbitration is
debatable. Arbitral proceedings are voluntary in nature between
parties to the arbitration agreement. In the absence of specific
provision in the relevant act under the misplaced concept of
multiplicity, courts should not club proceedings, unless all the
parties to the arbitration agreement agree.

Deciding a challenge to an Order/Award.:- The Act does not

define the words “Award” “Order” or “decision” used in the Act.
While considering these terms used in the Act, the expression
“order” has a distinct connotation from the expression ‘Award”.
The Supreme Court in Sushant Chemicals vs. Oriental
Carbons'’^^ has held that the decision on a matter which does not
in any manner relate to a dispute considering the agreement is
not an Award or Interim Award liable to Appeal under Section 37.
All orders/ decisions are not Awards. The Bombay High Court has
held that it is only a decision/order which satisfies the
requirements of Section 31, which is an Award. All others are
orders and decisions in the course of proceedings deciding the
procedural issues or terminating the arbitral proceedings on the
ground that the submission does not fall within the terms of
agreement or that there is no agreement or that there is no
dispute to be adjudicated. Harinarayan G. Bajaj v. Sharedeal
Financial Consultatins Private Ltd'^^^ In principle, an Award is
a final determination of a particular issue or claim in the
arbitration. It may be contrasted with orders and directions which
address the procedural mechanisms to be adopted in the
reference."*^^

AIR 2001 S.C. 1219

2003 (2) Ar.LR 359
Russell on Arbitration, 22"*^ Edn, para 6.001 pp.228 - 229
 Section 34 contains an exhaustive list of grounds on whicii
an Award may be set aside. Tlie Section itself encapsulates the
challenges to an award as formulated under the Model law. The
Challenges are as contained in Section 34 (2)(a) and Section
34(2)(b). The challenge to an award on the ground of public
policy has already been dealt with in Chapter V. The other
ground in Section 34(2)(b) is if the dispute is not arbitrable in
other words is not capable of settlement by arbitration under the
law for the time being in force. Considering the provisions for
arbitration provided in Section 10(A) of the Industrial Disputes
Act, no recourse can be had to an arbitration under the 1996 Act,
even if there be a clause for arbitration in the employment
contract. What claims are non-arbitrable have been explained by
the Supreme Court in Booz Allen''^®. The Court held that rights in
rem are non-arbitrable. Challenges, therefore, that are available
are incapacity of a party, the arbitration agreement is not valid
under the law to which the parties have subjected or under the
law for the time being in force, this exercise is when the parties
approach the Tribunal in a case or arbitration having seat in India
without the intervention of either of Section 8, 11, 45 or 53. The
party making application being not given proper notice of
appointment of the Arbitrator or of the arbitral proceedings or was
otherwise unable to present his case, or the arbitral Award deals
with a dispute not contemplated by or not falling within the terms
of submission to arbitration or it contains decision on matters
beyond the scope of’’submission to arbitration. An Award
emanating from International Commercial Arbitration held outside
India cannot be challenged under Section 34 . See Balco''^^.

(2011)5 8 0 0 532
(2012) 9 S.O. 545
 Explaining the scope of section 34, the Supreme Court has
observed in Mag International vs. Burns Standard Company
Limited'’'*” as under:-

The 1996 Act mal<es provisions for the supervisory role of

Courts for the review of arbitral Award only to ensure
fairness. Intervention of the Court envisaged in a few
circumstances only like, in case of fraud or bias by the
Arbitrator, violation of natural justice, etc. The Court cannot
correct errors of the Arbitrators. It can only quash the
Award leaving the parties free to begin the arbitration again
if it is desired. The supervisory role of the Court at
minimum can be justified as parties to the agreement make
a conscious decision to exclude the Courts jurisdiction by
opting for arbitration as they prefer the expedite and finality
offered by it”

In Fiza Developers vs. AlViCI (l)(P) Limited'*'" the court

observed that when procedure under Section 34 defers from
regular civil suits in a significant aspect. The application under
Section 34 are summary proceedings giving opportunity to
applicant to prove the existence of any of the grounds specified in
Section 34(2) and to the respondent to raise objections. The
scope of enquiry under Section 34 proceedings is restricted to
consideration whether if any or all the grounds mentioned in
Section 34(2) exist for setting the Award.

(2006) 11 SCO 181

2009 17 SCO 796
 Even under the Act of 1940 in a matter of challenge to an
Award the Courts were in favour of protecting the sanctity of the
Award. In Union of India vs. Ralia Ram'*'*^ the Court held “Court
should approach the Award with a desire to support it if that is
reasonably possible rather than to destroy if. Award should be
construed liberally and favourably according to the real intention
of the arbitrator because they are made by the Judges of the
parties by their own choosing. Govardhan Das vs. Lachmki
Ram'*'*^ “Courts will not sit as Courts of Appeal to consider the
correctness of the Award on merits in respect of matters of fact or
even of law. Hindustan Constructions Company vs.
Government of Orissa'’'’^ In dealing with an application for
setting aside an arbitral Award, the Court has not to consider
whether the Award on eividence was justified. An appraisement
of evidence by the Arbitrator is never a matter which the Court
questions and considers. Sudarsan Trading vs. Government of
Kerala & Anr."*"^^

By including the ‘public policy challenge to an award made

where the seat or arbitration is India and by ‘holding patent
illegality’ as an additional head of public policy the court has in
fact permitted a challenge to the award if it is contrary to the
substantive law of India or trade, usages and customs governing
the contract as set out in Section 28.

Enforcement of Foreign Awards in India:- The Act of

1996 has repealed the Arbitration (Protocol and Convention) Act,
1937 and the Foreign Awards (Recognition of Enforcement) Act,

a ir1963 S.C. 1677

AIR 1954 S.C. 689
AIR 1995 S.C. 2189
AIR 1989 S.C. 896
1961 and in the Act, Enforcement of Foreign Awards is covered
by Part II of the Act. Sections 44 to 52 deal with enforcement of
New York Convention Awards, Sections 53 to 60 relate to
Geneva Convention Awards. Non-Convention Award can also be
enforced under the general law but not under the 1996 Act.
Section 44 defines a New York Convention Award and Section 53
a Geneva Convention Award. The condition which must be
satisfied to qualify as a foreign award are that the Award should
have been made in pursuance of the Agreement in writing for
arbitration to be governed by the New York Convention on the
recognition and enforcement of arbitral award 1958 and similarly
under the Geneva Convention under Section 57. An Award is
‘foreign’ not merely because it is made in the territory of foreign
State, but because it is made in such a territory of an arbitration
Agreement not governed by the law of india'*'*^.

What constitutes a foreign arbitral award varies amongst

the countries according to their respective laws. A country
generally adopts either the qualitative tests or territorial
(geographical) tests to determine whether an award is foreign'"'^
.The New York Convention supplies two different criterion for
determining whether an arbitral award should be regarded as
foreign or domestic. The first employs a territorial concept; the
convention shall apply to “arbitral awards” made in the territory of
a State other than the State where recognition and enforcement
of such awards are sought”. The second criterion provides that “it
shall also apply to arbitral awards not considered as domestic
awards in the State where recognition and enforcement are

National Thermal Power Corporation vs. Singer Company 1992 (3)

s e e 568 para 38
Edward Chukwuelneke Okeke “Judicial Review, Foreign Arbitral
Awards, Ben Boon or Boon Doggie?”, 10 N.Y. INT-l-L-Foreign Rev.29]
sought”. (Article V(e) of “New York Convention on the recognition
and enforcement of foreign territorial award under Section
48(1 )(e) of the Arbitration & Conciliation Act, 1996. France on the
other hand adopts the qualitative test where the nationality of an
award and consequently the applicability of the New York
Convention are determined by the Lex fori.

In the case of Sumitomo Heavy Industries Limited vs.

ONGC Ltd'*'*®, it was held that an award under an Agreement
governed by laws of India was not a foreign award even if, it was
made in a foreign territory. In Fuerst Day Lawson'*'*^ the
Supreme Court held that for enforcement of foreign award there is
no need to take separate proceedings one for deciding the
enforceability of the award to make it a Rule of the Court or
decree and the other to take up execution thereafter to one
proceeding. The Court enforcing a foreign award can deal with
the entire matter.

A non-convention foreign award can be enforced in India by

usual method by which Civil rights are enforced i.e. by a law suit.
However, a non-convention award rendered abroad to furnish a
cause of action for filing a suit must have become final according
to the law of the country where it is rendered. If that law gives
finality only to the judgment passed on an award, and not to the
award itself, the later furnishes no cause of action for a suit in
lndia^^«.

AIR 1998 S C 825

Fuerst Day Lawson Ltd. v. Jindal Exports Ltd. (2001) 6 SCO 356

Badat & Co. vs. East India Trading Company, 1964 S.C. 538.
281
 The enforcement of an award can be refused if the party
opposing enforcement proves that the party to the Agreement
was under the law applicable to them under some incapacity.
The Court may also refuse enforcement if the opposing party is
able to prove that he was unable to present his case or it was not
given proper notice of the appointment of the arbitrator or had no
notice of the arbitral proceedings. Procedural irregularities can
lead to refusal of enforcement of foreign award. The Supreme
Court in Renusgar Power Company Ltd. vs. General Electric
Company''^' held that enforcement of foreign award would be
refused on the ground that it is contrary to public policy or such
enforcement would be contrary to (a) fundamental policy of Indian
Law (b) the interest of India and (c) justice or morality. This was
the narrow view of public policy taken by the Indian Supreme
Court in Renusagar. In the enforcement of foreign awards under
the 1996 Act, the narrovy principle of public policy enunciated in
Renusagar has been followed'*^^.

In International Commercial Arbitration, a foreign award is

not regarded as contrary to public policy, merely because the
arbitral procedure is different from that prescribed in domestic
arbitration or because an Indian party has found it difficult to
defend proceedings many thousands of miles away from his
ordinary place of business. A foreign award is not regarded as
unenforceable merely because the Indian party cannot
conveniently assimilate and produce all his evidence before the
foreign arbitral Tribunal due to the reluctance of witness in India
to undertake the journey abroad (to depose to material facts) or

AIR 1994 8 .0 . 860

See Foreign Arbitral Awards in India; problems; Pitfalls and
Progress. F.S. Nariman, Journal of International Arbitration, Vol.6 Issue
1, 1989
because of non-availability or inadequacy of foreign exchange or
because the foreign award does not contain reasons, or awards
>453.1
the maximum amounts stipulated in the contract as damages'*

In Saxby vs. Fulton in the Court of AppeaI'‘^^ Buckley

J., has summed up the principle as under:- “Coming then to the
question of public policy, I cannot see that it is contrary to public
policy for the English Courts to recognize a debt contracted for
the purpose of Wagering aboard in a place where such wagering
was legal. The case o f Kaufmen vs. Gorson^®® affords one of
the best illustrations on the law on this point. In the present case
there is nothing in Kaufmen vs. Gorson there was a great
deal to lead this Court to refuse to enforce the contract on the
ground that, although it was valid by the law of the country in
which it was made, it was in contravention of an essential
principle of justice or morality. The English Courts will not lend
their aid to enforce such a contract. But a betting or gambling
contract in a country where betting or gaming is recognized by the
law cannot be said to be contrary to the essential principles of
morality or justice.”

In Westcare Investment Inc. vs. Jugoimport - Spdr

Holding Co. Ltd., & Ors.,'*^^ an award obtained in Geneva was
sought to be enforced in England. The contract was for sale of
military equipments to Kuwait. Before the Tribunal it was
contended that the arrangement was contrary to public policy

See Foreign Arbitral Awards in India; problems; Pitfalls and

Progress. F.S. Nariman, Journal of International Arbitration, Vol.6 Issue
1,1989
909) 2 KB 208,
(1909) KB 208
Ibid
[1 9 9 8 )3 W .L R . 770]
because it has been for procuring sales by fraud through bribery
or alternatively by illicit personal gain of other kinds. It was
contended that it will be contrary to English public policy to
enforce the award. It was contented that it was the intention of
the parties that the plaintiff would exercise personal influence
over Kuwaiti officials and other contentions. The contention was
rejected on the ground that once the matter was in issue before
the Tribunal and was decided by the Tribunal it was inappropriate
to retry the issue. The Court held that public policy of sustaining
international arbitration awards outweighed the public policy of
discouraging international commercial corruption. The Court then
observed that even if it was shown that a contract was contrary to
public policy in Kuwait, enforcement of the awards which was
valid under the curial law ‘would not offend international comity so
as to be contrary to English public policy’.

In Renusagar the Supreme Court observed:-

“In view of the absence of a workable definition of

“International Public Policy....it will be difficult to construe
public policy as used in Article V of the New York
Convention to main international public policy. Hence as
used in Indian Foreign Awards Act, the expression ‘means
the doctrine of public policy as applied by the Courts in
India and must be construed “narrowly”’.

Professor Pryles states that Internationa! public policy is the

public policy applied in a particular State, by its Courts, in
connection with the recognition and enforcement of foreign laws,
judgments and arbitral awards. It is in general, much narrower
than domestic public policy and is only employed in exceptional
and clear cases to defeat the application of a foreign law
judgment or arbitral award. The International Law Association in
its “FINAL REPORT ON PUBLIC POLICY AS A BAR TO
ENFORCEMENT OF INTERNATIONAL ARBITRAL AWARD’
stated in para 11 as follows:-

“In these Recommendations, the expression “International

Public Policy” is to be understood in the sense given to it in
the field of private international law; namely that part of the
public policy of the State which, if violated, would prevent a
party from invoking a foreign law or foreign judgment or
foreign award. It is not to be understood, in these
Recommendations, as referring to a public policy which is
common to many States (which is better referred to as
“transnational public policy” or to public policy which is part
of public international law. International public policy is
generally considered to be narrow in scope than domestic
public policy"*^*.”

Can an award which is set aside be enforced in another

country. In Hilmarton Limited vs. Omnium De Traitement Et
valorisation {OTV)'^^’ the French Court enforced the award that
had been set aside in Switzerland. In Chromalloy Aeroservlces
INC vs. Arab Republic of Egypt"*^” the US Federal Court for the
District of Columbia enforced an award that had been set aside in
Egypt explicitly holding that Article V of New York Convention was

Reflections on Transnational Policy - Michael Pryles Journal of

International Arbitration 24 (1), 1-8, 2007, 2007 Kluwer Law
International printed in the Netherlands
1994 Year Book of Commercial Arbitration page 663,
[939 F Supp. 1907 (ODC) 1996 Note in F.N. at page 653
merely permissive wliereas Article VII was mandatory'*^'. Courts
in India have had no occasion to consider this aspect of law.

The challenges available against recognition and

enforcement of foreign awards are subject to limited Judicial
Review. These challenges however, enable a court in an
enforcing State, to set aside truly perverse awards as Born has
put it "The ancient adage that “absolute power corrupts absolutely
has force in this context as in others. Simply put a limited
measure of substantive judicial review arguably serves to
safeguard the integrity of the arbitral process by permitting
annulment of truly pen/erse decisions and by providing arbitrators
with an enhanced incentive to do the job properly’'^^^

461
[See Redfern & Hunter, 5*^ Edition pages 651-653

462
Gary Bom p.3357 2"'^ Edn.