"Confirming Party" To A Contract, Who Is Not Signatory To The Arbitration Clause, Can Invoke Arbitration: Delhi High Court

The Delhi High Court has ruled that a confirming party to a Contract, who is not bound by the terms of the Contract and on whom no liability is affixed under the Contract, can be referred to arbitration even if he is not a signatory to the arbitration clause contained in the Contract. The Single Bench of Justice Neena Bansal Krishna held that the fact that the party had signed the Agreement containing an arbitration clause, implied that it had consented to refer all the disputes under the Agreement to arbitration and that the party's implied consent to the arbitration clause could be inferred. A Memorandum of Understanding (MoU) was executed between the respondent no.1- Dowager Maharanis Residential Accommodation Welfare & Amenities Trust, and the petitioner no.1- Ansal Properties & Infrastructure Ltd., for commercial development of a property. A collaboration agreement was executed between the parties and the possession of the property was handed over to petitioner no.1 for undertaking development of the property. The project failed to materialise due to failure to obtain statutory clearances. Subsequently, a Joint Venture Agreement (JV Agreement) was entered into between the respondent no.1, respondent no. 2- Ambience Hospitality Management Pvt. Ltd., and the petitioner no. 2- Prime Maxi Promotion Services Pvt. Ltd., for renovation and development of the said property. The petitioner no.1 was made the confirming party to the JV Agreement. After the respondent no.1 revoked the possession of the said property and evicted the petitioners from the property, the petitioner no. 1 filed a suit before the Commercial Court, Jaipur seeking possession of the property. The respondent no. 1, disputing the maintainability of the suit, filed an application under Section 8 of the Arbitration & Conciliation Act, 1996 (A&C Act), contending that there was a binding arbitration agreement between the parties. The Commercial Court allowed the application and dismissed the suit. Subsequently, the petitioner no. 1 invoked the arbitration clause contained in the JV Agreement, alleging that the respondent no.1 failed to fulfil its obligations in terms of the JV Agreement. After the respondent no. 1 rejected the request for arbitration and refused to nominate any arbitrator, the petitioner no. 1 filed a petition under Section 11(6) of the A&C Act before the Delhi High Court for appointment of a Sole Arbitrator. The respondent no. 1 trust submitted before the High Court that the petitioner no.1 was only a confirming party to the JV Agreement and that it had no rights or obligations under the JV Agreement. The respondent no. 1 added that the petitioner no. 1 was expressly kept out of the arbitration clause contained in the agreement. Hence, it argued that the petitioner no. 1 cannot be termed as a signatory and it cannot claim the benefit of the arbitration clause. Further, it averred that the notice invoking the arbitration clause was only addressed to respondent no.1 and not to respondent no. 2 and thus, the notice of invocation was bad in law. Perusing the JV Agreement, the Court noted that the definition of the term "Parties", as contained in the JV Agreement, only specified the petitioner no. 2 and the respondents 1 and 2 as the parties to the JV Agreement. The Court ruled that a non-signatory to an arbitration agreement cannot be compelled to arbitrate and it cannot be assumed that it has acceded to arbitration. However, the bench added that the said rule is not inflexible and that surrounding circumstances and documents must be considered to ascertain whether the non-signatory party had acceded to arbitration. Referring to the twin tests laid down by the Supreme Court in Chloro Controls India (P) Ltd. versus Severn Trent Water Purification Inc. (2012), the High Court observed that a non-signatory to an arbitration agreement can be compelled to arbitrate by invoking the Theory of Implied Consent. Additionally, the theory involving the legal doctrines of agent- principal relations, piercing of the veil, apparent authority or estoppel can be used to refer a non-signatory to arbitration. "These twin tests have been laid down, which have been applied in various cases. In the present case, even if the confirming party was not bound by the terms of the Contract in the sense that there was no liability affixed for it under the Contract but the very fact that it has signed the JV Agreement containing the Arbitration Clause, implies that it consented to all the disputes being decided through arbitration and the implied consent to the arbitration clause can be inferred", the Court said. The Court observed that in the suit filed by the petitioner no. 1 before the Commercial Court, the respondent no. 1 had itself raised an objection regarding the maintainability of the suit on the ground that there was a binding arbitration agreement between...

"Confirming Party" To A Contract, Who Is Not Signatory To The Arbitration Clause, Can Invoke Arbitration: Delhi High Court

Parina Katyal

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"Confirming Party" To A Contract, Who Is Not Signatory To The Arbitration Clause, Can Invoke Arbitration: Delhi High Court

Parina Katyal

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