19th July 2019
The Supreme Court of India on 1st July,2019 delivered the judgment in the case of Reckitt Benckiser (India) Private Limited v. Reynders Label Printing India Private Limited and Anr[1]. The question poised before the Court was whether a Foreign group company (Respondent No. 2 in the Clause Title) which was part of the same group as its Indian Affiliate, could be made a party to the arbitration under an agreement to which it was not a signatory. The applicant and the Respondent No. 1 (Indian Affiliate) were parties to the Agreement and a petition had been made to implead the Foreign Group Company to the proposed arbitration although it was not a signatory to the agreement.
Link to the Judgment is here:
Hon’ble Justice Khanwilkar in his judgment made it clear that this issue was “no longer res integra” and relied upon the principles laid down in the case of Chloro Controls India Private Limited Vs. Severn Trent Water Purification Inc. and Ors.[2], wherein a three-Judge Bench of the Apex Court opined that ordinarily, an arbitration takes place between persons who have been parties to both the arbitration agreement as well as the substantive contract underlying it. Invoking the doctrine of “group of companies”, the Court in the Chloro Controls case(Supra) went on to further observe that an arbitration agreement entered into by a company, being one within a group of corporate entities, can, in certain circumstances, bind its non-signatory affiliates.
Accordingly, the Supreme Court of India while placing reliance on Chloro Controls(Supra) went on to examine whether it was manifest from the indisputable correspondence exchanged between the parties, culminating in the agreement dated 1st May, 2014, that the transactions between the applicant and Respondent No.1 were essentially with the group of companies and whether there was a clear intention of the parties to bind both the signatory as well as non-signatory parties (Respondent No.1 and Respondent No.2, respectively).
Notably, the Applicant during the course of proceedings made two assertions, namely that the Respondent No. 2 was the parent company of the Respondent No 1 and that the negotiations in finalising the Agreement were made by a Mr. Frederick Reynders who was a promoter of Respondent No. 2. Thereafter the court examined the Counter affidavit and the communication exchanged between the parties and came to the conclusion that the Respondent No. 2 was not the parent company of Respondent No. 1 but both the companies were rather part of the same group of companies. Secondly, Mr. Frederick Reynders was not a promoter of Respondent No. 2 but rather an employee of Respondent No. 1 on behalf of whom he made the negotiations. The Applicant had also made an assertion during its rejoinder that Mr. Frederick Reynders was taking instructions from Respondent No. 2. As per the facts of the present case the only causal connection that the Respondent No. 2 had to this agreement was that the group companies of Respondent No. 1 had agreed to indemnify the Applicant for losses caused to them. Once it has been held that the Respondent no. 2 had no intention to be part of the Agreement the onus falls on the applicant to show that the Respondent no. 2 had an intention to arbitrate albeit for a limited purpose of enforcing the indemnity clause. This burden had not been discharged by the applicant and hence the Supreme Court was not inclined to allow the application to implead Respondent No. 2.
Having established that Mr. Reynders was not connected to the Respondent No. 2 and only acted in his capacity as a representative of the Respondent No. 1, the Supreme Court stated that in such a situation it was irrelevant that the Respondent No. 2 was part of the same group company as Respondent No. 1 as the burden was on the Claimant to establish that Respondent No.2 had an intention to consent to the arbitration agreement and be party thereto, maybe for the limited purpose of enforcing the indemnity clause in the agreement, which refers to Respondent No.1 and the supplier group against any claim of loss, damages and expenses, howsoever incurred or suffered by the applicant and arising out of or in connection with matters specified therein.
Based on the affidavit and the communications between the parties, the Court dismissed the arguments of the Applicant that there existed a clear and mutual intention of the parties to extend the arbitration clause to the non-signatory foreign group company. Hence the Hon’ble Supreme Court of India did not allow the Foreign Group Company, which was not a signatory to the agreement containing the arbitration clause, to be impleaded in the arbitration between the two signatory parties to the agreement.
Hence this case should be a guide to parties and arbitral Tribunals as to what factors are relevant for a non-signatory Foreign Group Company to be impleaded in an arbitration in which its Indian affiliate is a signatory.
The thumb rule for impleading foreign group companies which are non- signatories to the arbitration agreement is to check whether there was a clear and mutual intention of the parties to bind not only the signatory but the non-signatory parties as well.
[1] Reckitt Benckiser (India) Private Limited v. Reynders Label Printing India Private Limited and Anr. Petition for Arbitration (Civil) NO. 65 OF 2016, Supreme Court of India
[2] (2013) 1 SCC 641 - https://sci.gov.in/jonew/judis/39605.pdf