Delhi High Court Rules On Non-Signatory’s Inclusion In Arbitral Proceedings

Delhi High Court Rules On Non-Signatory’s Inclusion In Arbitral Proceedings

Justice C. Hari Shankar of the Delhi High Court clarified that including a non-signatory in arbitral proceedings is not solely dependent on their association with the same group of companies as the signatory. The bench emphasized that a non-signatory may be included if there is a contractual relationship that makes them partially or wholly responsible for obligations towards the claimants.

The dispute originated between RBCL Piletech Infra (the petitioner) and Bholasingh Jaiprakash Construction Ltd. (BJCL), stemming from a work order executed between them. National Thermal Power Corporation (NTPC) and Bharat Heavy Electrical Ltd. (BHEL) were also involved. NTPC was the site owner, while BHEL contracted BJCL for construction work at NTPC’s site. BJCL subcontracted part of the work to the petitioner.

The petitioner claimed it incurred costs, including idling charges and damages, which it argued were owed by the respondents. The work order provided for arbitration by a sole arbitrator appointed by mutual consent. The petitioner issued a notice under Section 21 of the Arbitration Act, requesting the appointment of an arbitrator. BJCL agreed to arbitration, but NTPC and BHEL opposed their inclusion, claiming no direct contractual relationship with the petitioner.

The High Court held that non-signatories could be included in arbitration based on their contractual obligations towards the claimant, beyond mere corporate group affiliations. Citing the Supreme Court's decision in Ameet Lalchand Shah v. Rishabh Enterprises and O.N.G.C. v. Discovery Enterprises Pvt Ltd., the Court reinforced that inclusion can be justified by a contractual relationship linking the non-signatory to the obligations in dispute.

The Court examined the clauses in the contract between BJCL and BHEL and found that Clauses 21 and 28 of the Work Order provided a prima facie case for including BHEL in the arbitration. Clause 21 linked the petitioner’s payment to BJCL's receipt of payment from BHEL, and Clause 28 indemnified BJCL from paying the petitioner if BHEL withheld payments due to the petitioner’s actions.

Regarding NTPC, the Court found no prima facie case for including NTPC based on the contract clauses, except for Clause 12, related to water supply, and left the decision open for the arbitral tribunal.

The High Court referred the dispute to arbitration and appointed Anant V. Palli as the arbitrator, while directing that the matter proceed with respect to the inclusion of BHEL. The Court did not find sufficient grounds to include NTPC at this stage but allowed the possibility for the petitioner to argue its case before the tribunal.