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In , the Supreme Court heard an application to appoint a sole arbitrator in an international commercial arbitration that arose under a family arrangement agreement (FAA) and applied the tests laid down in (Cox & Kings) when allowing the joinder to the arbitration of non-signatories to the FAA, although the case of Cox & Kings relates to the group of companies doctrine.

The petitioners were several entities and individuals collectively referred to as the AMP group. The respondents, also consisting of several individuals and entities, were divided into two groups, the JRS and the SRG groups. The representatives of the AMP and JRS groups were brothers-in-law in the same family. Those two groups jointly engaged in various businesses and co-owned several entities. Thereafter, the SRG group joined the AMP and JRS groups in a number of businesses and held 40% of the equity shares in one such entity, Millenium.

The dispute arose regarding the FAA and its amendments entered into by the AMP and the JRS groups. Although the SRG group was not a party to the FAA, the agreement set out actions to be taken in respect of Millenium that then required the SRG group to carry out certain steps. The AMP group contended that the SRG group participated in the negotiation and implementation of the FAA as well as the mediation talks when disputes arose under the FAA. To support its claim, the AMP group relied on correspondence in which the representative of the SRG group expressly stated that although the SRG group was not a signatory to the FAA, it was willing to honour its terms.

Accordingly, the AMP group argued that the SRG group was a veritable party to the arbitration as laid down in Cox & Kings. The AMP group contended that the successful implementation of the FAA depended on the participation of the SRG group. The AMP group claimed that failure to include the SRG group in the arbitration would risk the SRG group being able to disregard any award that was ultimately made.

To the contrary, the JRS and the SRG group contended that the SRG group was not, on the face of it, a party to the FAA nor defined as one in its terms. Relying on the entire agreement clause, the JRS group argued that the AMP group’s reliance on correspondence with the SRG group was misplaced and could not amount to implied consent. The SRG group contended that the FAA could be effectively implemented without the SRG group’s participation and that the clauses referring to the SRG group could be severed.

The court was aware of the fact that its role as a referral court was limited because of the decision in SBI General Insurance Company Limited v Krish Spinning that an adverse order at the referral stage could leave a claimant without a forum in which to pursue its remedy. Cox & Kings had decided that section 16 of the Arbitration Act, 1996, was an inclusive provision granting the arbitral tribunal wide decision-making powers, including whether a non-signatory should be joined in the arbitration. However, the court relied on Cox & Kings to hold that the tribunal would not be able to make that decision in the absence of the non-signatories because of the complexity of the evidence. The SRG group had also participated in the negotiation and performance of the FAA. The court came to a preliminary conclusion that the SRG group was required to act under the FAA and, therefore, may be connected to it.

The court held that instead of taking a conservative approach and excluding parties intending to be bound by the underlying contract, courts must consider the intentions of the parties, their relationships, the commonalities of the subject matter as well as the interconnection of transactions and the performance of the contract.

The court’s inclusive approach is welcome. This case is a classic example of how and why non-signatories may be joined as parties in the context of India, where several businesses may be family-controlled and owned. Parties should therefore be cautious when corresponding and while negotiating and performing contracts because of the possibility they will become involved in arbitration even though they were not signatories to the arbitration agreement.

Sneha Jaisingh is a partner and Yash Arora is an associate at Bharucha & Partners.