In its recent decision in Indraprastha Power Generation Company Limited v. Hero Solar Energy Private Limited (IPGCL v Hero Solar), the Delhi High Court held that following the Supreme Court’s judgment in Cox and Kings Limited v. SAP India Private Limited and Another (Cox and Kings II), it can be argued that an arbitral tribunal has the power to implead third parties into an arbitration.

This judgment comes soon after the Bombay High Court’s decision in Cardinal Energy and Infrastructure Private Limited v. Subramanya Construction and Development Company Limited (Cardinal Energy), where the Court categorically held that post Cox and Kings II, an arbitrator had the power to implead a non-signatory.

The judgements of the Delhi and Bombay High Courts in IPGCL v Hero Solar and Cardinal Energy are significant because in Cox and Kings II, the Supreme Court settled the law on the conditions for impleading a non-signatory to an arbitration. However, the judgment in Cox and Kings II was in the context of the referral court’s power to implead a non-signatory. The High Courts have now taken things one step further and held that even an arbitral tribunal can implead a non-signatory if the requisite conditions are met.

This article analyses the judgments in IPGCL v Hero Solar and Cardinal Energy and summarises why they are a step in the right direction in arbitration jurisprudence.

IPGCL v Hero Solar case

IPGCL issued a request for selection of bidders for the design, manufacture, supply, erection, testing and commissioning of a Grid Connected Roof Top Solar Power System to be installed at various places in Delhi (the project). Hero Solar was the successful bidder.

For the project, the Ministry of New and Renewable Energy (MNRE) provided a subsidy for installing solar power systems on government buildings. The Delhi government's Energy Efficiency and Renewable Management took up the project, implementing it through IPGCL.

Hero Solar initiated arbitration proceedings, alleging that IPGCL failed to release the subsidy amount.

IPGCL applied to the arbitral tribunal seeking to implead MNRE as a party to the arbitration, arguing that the Ministry was providing the subsidy and IPGCL was merely a channelising agency. However, the arbitral tribunal rejected IPGCL's application.

The Court relied heavily on the judgment in Cox and Kings II, in particular, the Supreme Court’s endorsement of the following view taken in Vidya Drolia v. Durga Trading Corporation:

“239…Jurisdictional issues concerning whether certain parties are bound by a particular arbitration, under group-company doctrine or good faith, etc. in a multi-party arbitration raises complicated factual questions, which are best left for the tribunal to handle.”

The Court also referred to the procedure, set out in Cox and Kings II, that the referral court should adopt when dealing with a prayer to implead a non-signatory. The relevant portion is reproduced below:

“171…the referral court will be required to prima facie rule on the existence of the arbitration agreement and whether the non-Signatory is a veritable party to the arbitration agreement. In view of the complexity of such a determination, the referral court should leave it for the Arbitral Tribunal to decide whether the non-signatory party is indeed a party to the arbitration agreement on the basis of the factual evidence and application of legal doctrine. The tribunal can delve into the factual, circumstantial, and legal aspects of the matter to decide whether its jurisdiction extends to the non-signatory party.”

The Court opined that the cited paragraphs indicate that the referral court should let the arbitral tribunal decide if a non-signatory to the arbitration agreement should be bound by it. Further, the natural corollary would be that if the arbitral tribunal was to find that an arbitration agreement binds a non-signatory, it would necessarily have the power to implead the non-signatory to the proceedings.

Cardinal Energy case

In Cardinal Energy, the Bombay High Court dealt with a case where the non-signatory, Cardinal Energy and Infrastructure Private Limited, challenged the arbitral tribunal’s interim award impleading it in the arbitration.

The primary argument raised by Cardinal Energy in the High Court was that when it was not a party to the proceedings under Section 11 of the Arbitration and Conciliation Act, 1996 before the referral court, the arbitral tribunal did not have the power to implead it without such power being expressly granted by the referral court to the tribunal.

The Court considered several judgments cited by the petitioner in support of its argument that the arbitral tribunal lacked the power to implead a non-signatory, including the judgement of the Delhi High Court in Arupri Logistics Private Limited v. Vilas Gupta and the Madras High Court verdict in Abhibus Services India Private Limited v. Pallavan Transport Consultancy Services Limited. However, the Court eventually held that the Supreme Court's decision in Cox and Kings II had changed the legal position and since the judgments cited by Cardinal Energy were rendered before Cox and Kings II, their ratios would no longer apply.

Referring specifically to paragraphs 171 and 172 of the majority judgment in Cox and Kings II, the Court held that the arbitral tribunal is not precluded from determining the issue of impleading non-signatories, even if this issue was not raised before the referral court in the application seeking appointment of the arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996. The Court emphasised that merely because there was no prayer to implead the non-signatory before the referral court, it does not prevent the arbitral tribunal from applying the "Group of Companies" doctrine to decide whether a non-signatory ought to be impleaded in the arbitration.

Notably, the Court also pointed out that a party aggrieved by an arbitral tribunal’s decision to implead it has a remedy to challenge the final award under Section 34 of the Arbitration and Conciliation Act, 1996.

Why these judgments are a step forward

The judgments in IPGCL v Hero Solar and Cardinal Energy align with the ratio of the Supreme Court’s judgement in Cox and Kings II, in which it was held that an arbitral tribunal is competent to determine its jurisdiction over a non-signatory and, as far as possible, the Court should not interfere.

A judicial pronouncement confirming the powers of an arbitral tribunal to implead a non-signatory was essential to improve arbitration’s efficiency as a dispute resolution mechanism. This is because it is very common for businesses to operate using multiple related legal entities while only one of them signs the contract. In case of a dispute, some or all the related entities may need to be impleaded for the arbitral tribunal to render an effective award. However, if the non-signatory is not impleaded in the application before the court seeking the appointment of an arbitrator, then a party should not have to go back to court to do so.

Equally, a non-signatory whose rights would be affected by the outcome of an arbitration should be allowed to seek to be impleaded before the arbitral tribunal itself. Requiring an order from the referral court to implead a third party would obviously delay the arbitration. More importantly, as rightly held in Cox and Kings II, the arbitral tribunal is the appropriate authority to examine the factual and legal aspects to decide whether a non-signatory should be impleaded.

Furthermore, as pointed out by the Bombay High Court in Cardinal Energy, the Arbitration and Conciliation Act, 1996 provides sufficient safeguards to ensure that a party wrongly impleaded in an arbitration can get necessary relief from the court. However, while adjudicating an application to implead a non-signatory, an arbitral tribunal must adhere to the principles of natural justice, such as providing the non-signatory a notice and an opportunity for a hearing, as failing to do so may render the award liable to be set aside.

The Delhi and Bombay High Courts Court have correctly interpreted the changed legal position post Cox and Kings II, and the judgments in IPGCL v Hero Solar and Cardinal Energy are welcome advances in arbitration jurisprudence. However, as noted earlier, an arbitral tribunal adjudicating an application seeking to implead a non-signatory must be careful to ensure that it follows the principles of natural justice and properly applies the ‘Group of Companies’ doctrine in letter and spirit.

Dushyant Krishnan is a lawyer based in Mumbai.