Non-Signatory Developer Can Be Impleaded In Arbitration If Conduct Shows Intent To Be Bound: Karnataka High Court

The Karnataka High Court has refused to interfere with an arbitral tribunal's decision impleading a non signatory company in arbitration proceedings holding that where conduct, agreements and commercial involvement of a party demonstrates clear intent to be bound by the arbitration agreement, the Group of Companies would apply. A Division Bench of Justice Jayant Banerji and Justice Umesh M Adiga dismissed a writ petition filed by Mantri Developers Pvt. Ltd., challenging a majority order of the arbitral tribunal that allowed its impleadment despite it being a non-signatory to the Joint Development Agreement (JDA). Background: The dispute arose out of a real estate development project initially undertaken by Mantri Developers (“Petitioner”) which entered into a framework agreement with ISKCON Charities and Indian Heritage Foundation for development of land. Subsequently, Mantri Developers nominated and assigned its rights and obligations through a series of agreements and supplementary agreements to its group entity, Castles Vista Pvt. Ltd. Castles Vista executed a Joint Development Agreement (“JDA”) with Gokulam Shelters Pvt. Ltd. containing an arbitration clause. The arbitration clause was invoked after disputes arose between Gokulam Shelters and Castles Vista. The claimants sought impleadment of Mantri Developer Pvt. Ltd on the ground that it was the original developer and held more than 99% shares in Castles Vista. Mantri Developers was further alleged to have executed corporate guarantees and participated in negotiations and consistently projected itself being responsible for the project. Relying on the Supreme Court's judgment in ONGC Limited v. Discovery Enterprises Pvt. Ltd, the arbitral tribunal allowed the application. Aggrieved, Mantri Developers had approached the High Court under Articles 226/227 of the Indian Constitution contending that the arbitral tribunal lacked jurisdiction to implead a non-signatory party. Mantri Developers argued that It had assigned all rights and obligations to Castles Vista under a supplementary agreement and that it was not a signatory to the JDA. Findings: The court at the outset reiterated the principle of minimal judicial interference in arbitral proceedings and held that interference under Articles 226/227 of the Indian Constitution is permissible only where the order challenged suffers from patent lack of jurisdiction. Relying on SBP & Co. v. Patel Engineering, the court held that the writ jurisdiction cannot be invoked to derail arbitration. On merits, the court found sufficient materials indicating the participation of Mantri Developers in the project observing that “Mantri Developers is closely involved in various stages of the project which was being developed along with the claimants despite execution of the SSA and the JDA. It has an abiding and deep rooted interest in the success of the project as envisaged in the agreement dated 26.06.2010 as well as in the subsequent agreements.” It further noted that Mantri Developers negotiated the original framework agreements, retained branding rights, executed various documents including corporate guarantees, loan and hypothecation. The court further noted that it projected itself as a developer in joint communications issued to homebuyers. All this shows, the court ruled, that it had pervasive and substantial involvement in the development of the project. It observed that “It is not disputed by the petitioner-Mantri Developers that it owns its subsidiary company, Castles Vista. In the agreement dated 26.06.2010, Mantri Developers agreed that reference to it shall mean and include its successors in interest, nominees and assigns, and the said agreement has an arbitration clause. The intention of Mantri Developers is clearly to be bound by the agreements entered into between the claimants on one hand, and LMRPL, Mantri Castles Private Limited and Castles Vista on the other hand. Mantri Developers is intimately connected with Castles Vista for ensuring revenue for the project…” The court referred to the Supreme Court's judgment in Discovery Enterprises where the Apex Court laid down five factors to be considered to bind a non-signatory under the Group of Companies doctrine. These include mutual intent, the relationship between the signatory and non-signatory, commonality of subject matter, the composite nature of the transactions and performance of the contract. The judgment in Discovery Enterprises was further authoritatively reaffirmed in Cox and Kings. On examining the impugned order, the court held that the tribunal had considered all the above factors and was competent to rule its jurisdiction under sections 2(1)(h) read with 16 of the Arbitration Act. Consequently, the court found no infirmity in the impugned in impleading Mantri Developers despite its status as a non-signatory. The court concluded:...

Non-Signatory Developer Can Be Impleaded In Arbitration If Conduct Shows Intent To Be Bound: Karnataka High Court

Mohd Malik Chauhan

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