International Commercial

Arbitration
Extending Arbitration Agreement to the Non-
Signatories
• Consent forms the essence of any agreement to arbitrate and this is a
general rule which prevent non-signatories to an arbitration
agreement, which is unwilling to arbitrate, from being compelled to
arbitrate.
• Other view is that thought the arbitration is contractual process, it
does not follow that the agreement to arbitrate only attached those
who have personally signed the written arbitration agreement. If a 3rd
party performs under a contract or in connection with the contract
between the two other parties, then the said party is bound by the
arbitration clause in the original parties agreement
Extending Arbitration Agreement to the Non-
Signatories
• The joinder of the parties to arbitration agreement are allowed by the
arbitration tribunal on the ground of implied conduct and group of
companies doctrine
• Operation of an arbitration agreement may be extended to bind non-
signatories, if it appears from the conduct of the parties and the
surrounding facts and circumstances that the common intention of the
parties was that the non-signatory be bound
• Group of Companies Doctrine – a non signatory company may benefit
from or be bound by an arbitration agreement entered into by another
group entity to which it belongs because of its role in the transaction of
the contract and its relationship to the contracting entity
Group of Companies Doctrine
• In ICC case No. 6519 of 1991, the contract was signed by A (the signatory), the
majority shareholder of B, C, D, entered into a contract having ICC arbitration
clause. Corporation B was directly concerned by the agreement and had taken
steps in order to convene a general assembly to modify it and thereby took
part in the negotiations that led to the conclusion of the contract while C and
D were not directly linked to the contract.
• Arbitral Tribunal Observed – “As things stand, the arbitration clause can only
be applied to the companies of group A which did effectively took part in
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 shareholders”
Group of Doctrine - MTNL v Canara Bank
and Ors 2019
• MTNL v Canara Bank and Ors Civil Appeal No 6202-6205 of 2019(SLP
(Civil) No. 13573-13576 of 2014)
• The Supreme Court ruled that a non-signatory can be bound by an
arbitration agreement on the basis of the “Group of Companies”
doctrine, where the conduct of the parties evidences a clear
intention of the parties to bind both the signatory as well as the
non-signatory parties.
MTNL v Canara Bank and Ors
• The Court held that the arbitration agreement need not be in any particular form. What is
required to be ascertained is the intention of the parties to settle their disputes through
arbitration. The essential elements or attributes of an arbitration agreement is the
agreement to refer their disputes or differences to arbitration, which is expressly or
impliedly spelt out from a clause in an agreement, separate agreement, or
documents/correspondence exchanged between the parties, the Court said.
• Section 7(4)(b) of the 1996 Act, states that an arbitration agreement can be derived from
the exchange of letters, telex, telegram or other means of communication, including
through electronic means. The 2015 Amendment Act inserted the words “including
communication through electronic means” in Section 7(4)(b). Thus, the Court opined
that if it can prima facie be shown that parties are ad idem (meeting of
mind), even though the other party may not have signed a formal contract,
it cannot absolve him from the liability under the agreement.
MTNL v Canara Bank and Ors
• In the instant case, the agreement between MTNL and Canara Bank to refer the disputes to was arbitration
is evidenced from the following documents exchanged between the parties, and the proceedings”
• The Minutes of the Meeting dated March 27, 2001, convened by the Cabinet Secretariat, wherein all
three parties(CANFINA) were present and participated in the proceedings.
• The Committee on Disputes, in the Meeting dated December 16, 2008, expressed the view that all the
three parties should take recourse to arbitration. Canara Bank suggested that to expedite the arbitration, it
should be conducted under the Arbitration & Conciliation Act, 1996. This was accepted by MTNL, and no
objection was raised.
• In the Writ Petition filed by Canara Bank, the Delhi High Court by an order dated September 16, 2011,
recorded the consent of MTNL and Canara Bank to be referred to arbitration by a Sole Arbitrator under the
1996 Act.
• Pursuant thereto, MTNL participated in the proceedings conducted by the sole arbitrator, and filed its
Claim, and Counter-Claim. No objection was raised before the Sole Arbitrator that there was no arbitration
agreement in writing between the parties. The only objection raised was that CANFINA should be joined as
a necessary party in the proceedings.
• Thus, the Court rejected the submission of MTNL that there was no valid arbitration agreement.
MTNL v Canara Bank and Ors
• The Court at the outset noted the general principle of contract law, as per which an agreement entered
into by one of the companies in a group, cannot be binding on the other members of the same group, as
each company is a separate legal entity which has separate legal rights and liabilities.
• The parent, or the subsidiary company, entering into an agreement, unless acting in accord with the
principles of agency or representation, will be the only entity in a group, to be bound by that agreement.
Similarly, an arbitration agreement is also governed by the same principles, and normally, the company
entering into the agreement would alone be bound by it.
• However, a non-signatory can be bound by an arbitration agreement on the basis of the “Group of
Companies” doctrine, where the conduct of the parties evidences a clear intention of the parties to bind
both the signatory as well as the non-signatory parties.
• Courts and tribunals have invoked this doctrine to join a non-signatory member of the group if they are
satisfied that the non-signatory company was by reference to the common intention of the parties, a
necessary party to the contract, the Supreme Court observed.
• “The doctrine provides that a non-signatory may be bound by an arbitration agreement where the parent or
holding company, or a member of the group of companies is a signatory to the arbitration agreement and
the non-signatory entity on the group has been engaged in the negotiation or performance of the
commercial contract, or made statements indicating its intention to be bound by the contract, the non-
signatory will also be bound and benefitted by the relevant contracts.”
Alter Ego Theory
• One method by which a non-signatory is compelled to arbitrate is
through alter ego/ piercing the corporate veil.
• This situation arises when an entity fixes up an international transaction
and then uses a subsidiary body under him to sign the contract and
perform the duties therein. It is said that one entity is alter ego of the
other party
• The subsidiary in this types of cases often defaults on its obligations and
duties which leads to the other party to the contract, to ask for damages
for the breach of contract, as the subsidiary have no assets. The only
option left would be to initiate arbitration against the parent entity
Doctrine of Estoppel
• The doctrine of Estoppel is expanded to cover the situations where a
non-signatory who is beneficiary to the contract, evades liability.
• In International Paper Co. v. Schwabedissen & Anlagen GMBH, the
court stated that – In arbitration context, the doctrine recognizes that
a party may be estopped from asserting the lack of his signature on a
written contract precludes the enforcement of the contract’s
arbitration clause when he has consistently maintained other
provisions of the same contract should be enforced to benefit him.
Doctrine of Estoppel
• There are two types of equitable estoppel used by the courts regarding
compulsion of Arbitration
• First, a non-signatory may be equitably estopped from litigating a claim
against a signatory if the specific claim encompasses on the right and
obligations that flows from a contract
• Second, court may allow a non-signatory to compel a signatory to
arbitrate because the claims are “intimately founded in and intertwined
with the underlying contract obligations” and “the close relationship
between the entities involved, as well as the relationship of the alleged
wrongs to the non-signatory’s obligations and duties in the contract.
Third Party Beneficiary
• A third party beneficiary can be bound to arbitrate in a contract
dispute of the third party was an intended beneficiary.
• The court requires a party to show with “specific clarity” that the
contracting parties had intended to confer benefits upon the third-
party non-signatory. A party can do this by showing evidences that
the contract mentions the non-signatory or it is for his benefit or one
or both the signatory owe a duty to the non-signatory. The third party
beneficiary is one who directly and intentionally benefits from an
agreement.
Principle of Agency
• A principal is bound to the arbitration agreement signed by its parties.
• A non-signatory may be bound by an arbitration agreement to which
its agent is a signatory when the signatory agent acted within the
principal’s actual, implied, or apparent authority
Enforcement of Arbitration Agreement
• Agreement to arbitrate is qualified to be executed – The Geneva
protocol provided that, the national courts of all states under it ”shall
refer the parties on the application of either of them to the decision
of the arbitrators”, if a dispute to which this protocol applies is
submitted before such national court.
• Article 8 of UNCITRAL Model Law provides for the same.
• It is well settled that an agreement to arbitrate must be given effect
internationally and not just in the place where the agreement was
made
Establishment of Arbitral Tribunal
• Once the decision to opt for arbitration has taken place, a notice or
request for arbitration is delivered to the opposite party the next step
is to establish the arbitration tribunal.
• Fundamentally it is the duty of the arbitral tribunal to act impartially
and to judicially determine the dispute between parties. Such
resolution of disputes should be in accordance to arbitration
agreement between parties and the law.
Choice and Appointment of the Arbitrator
• Usually there are three arbitrators appointed to determine the dispute. One
arbitrator is appointed by the claimant and one arbitrator by the
respondent. A chairman will then be appointed by the two party appointed
arbitrators, or by an arbitral institution or by the parties themselves.
• A5.6(LCIA) In the case of a three-member Arbitral Tribunal, the Chairman
(who shall be neither party-nominated, nor nominated by the parties’
nominees or by any third party) shall in all cases be selected by the LCIA
Court.
• Model Law expects the parties to agree on an arbitrator, failing which the
appointment will be made by the appointing authority or the court.
Methods of Appointing an Arbitral Tribunal
• By the agreement between parties
• Submission to an arbitral Institution
• Submission to a professional Institution
• Extension of the existing arbitrators
• Submission to a trade or any other association
• Referral to National Courts(Patel Engineering Case)
By Agreement between the Parties
• It allows parties to submit their dispute to an arbitrator of their own choice.
The parties may agree for “Sole Arbitrator” or “Three Arbitrator System”
• Submission to an Arbitral Institution – Arbitral Institutions are governed by
their own set of rules and have distinctive mechanism for the appointment
of arbitrators.
• The UNCITRAL Rules of Arbitration A-8 provides that either party may
propose the name of arbitrator. UNCITRAL system envisages the presence
of appointment authority to function where the parties cannot agree on an
appointee. UNCITRAL Rules provide that if the parties have not nominated
an appointing authority then they can ask the Secretary general of
permanent court of Arbitration to designate an appointing authority.
Submission to an Arbitral Institution
• Where parties entrust the appointment of the arbitrators to an
appointing authority, they exercise their appointment rights and powers
indirectly. The Appointing Authority would be acting as an agent of a
disclosed principal in making the appointments. It does not act in its
name but in the name of the parties.
• The appointing authority’s mandate is to appoint the arbitrators. Its
mandate terminate once it has made the appointments.
• In ICC Rules where parties fails to appoint an arbitrator within 30 days
from the communication of the request for arbitration to the opposite
party, the arbitrator will be suo moto appointed by the ICC’s Court. The
LCIA, WIPO & ICDR rules
Submission to a Professional Institution
• Here in the heads of the professional Institution are chosen and
agreed on by both the parties to discharge the duty of appointing the
arbitrator
• Adopting a List System –each party put forward a list of three or four
suitable arbitrators and these lists are exchanged.
• Submission to a Trade Union or any other association – Here either
the arbitration clause provides for appointment to be made by a trade
association or in other cases where such a clause does not exist, the
parties may later on agree that appointment will be made via this
method
• Referral to National Courts -
Powers and Duties of an Arbitral Tribunal
• Powers of Arbitral Tribunal
1. Power to Rule on its own Jurisdiction – Competence Competence
2. Power to Decide all procedural and evidential matters
3. Power Conferred by parties
• Duties of Arbitral Tribunal
1. Duties Imposed by the parties
2. Duties Imposed by law
3. Ethical Duties
Challenge and Termination of Authority of
Arbitrators
• Challenge – A successful challenge results in an order for removal of
the arbitrator reasons for challenge could be
• Required Qualifications
• Impartial and Not Interested
• Have required time to settle the dispute
• Termination – by operation of law – due Death and Termination by
act of arbitrator – by Resignation
Arbitrability under Indian Law
• N. Radhakrishan v. M/S Maestro Enginners (2010) – where serious
fraud or serious malpractices are alleged, the matter can only be
settled by the court.
• Booz Allen and Hamilton v. SBI Home Finance Ltd. (2011) – Term
arbitrability had different meanings in different contexts
• Disputes capable of being adjudicated through arbitration
• Disputes covered by the arbitration agreement
• Disputes parties have referred to arbitration
Arbitrability under Indian Law
• Non- arbitrable disputes includes –
• Disputes relating to rights and liabilities which give rise to or arise out of criminal
offence
• Matrimonial disputes relating to divorce, judicial separation, restitution of conjugal
rights or child custody
• Guardianship matters, insolvency and winding up, Testamentary matters & Eviction
and tenancy matters
• But SC in Swiss Timing Limited v. Organizing Committee, Commonwealth Games,
Delhi(2010) and World Sports Grp(Mauritius) Ltd. V. MSM Satellite(Singapore) Pte.
Ltd held that allegation of fraud are not a bar to refer parties to a foreign seated
arbitration and that only exception to refer parties to foreign seated arbitration are
those which are specified in section 45 of the Act
Substantive Validity of International
Arbitration Agreement S-45, A-II & A-V(2)
(a)
• Some special rules of unenforceability apply to some categories of
Disputes. These rules are reflected in language of A II and A V(2)(a) of
the NY convention
• “Null and Void”, “Inoperative” or “Incapable of Being Performed”
• Unconscionability and Duress
• Fraudulent Inducement and Fraud
• Impossibility and Frustration
• Illegality
Substantive Validity of International
Arbitration Agreement
• Lack of Capacity
• Termination and Repudiation
• Waiver of Right to Arbitrate
• Inconvenient Arbitral Seat
• Non-compliance with Pre-arbitration Procedural Requirements
Arbitrability under Indian Law
• The decision of SC in A Ayyasamy v. A Paramasivam & Ors, has
clarified that simple allegation of fraud can be referred to arbitration
• SC held that – allegation of fraud are arbitrable unless they are
serious and complex in nature,
• Unless fraud is alleged against the arbitration agreement, there is no
impediment in arbitrability of fraud
• Decision in A Ayyasamy doesnot over rule the decision of
N.Radhakrishan but makes a distinction between serious and simple
fraud.