Non-signatory to agreement can be subjected to arbitration without prior consent only in exceptional cases: Delhi High Court

The Delhi High Court on Monday held that a non-signatory or third party to an agreement can be subjected to arbitration without their prior consent, only in exceptional cases [A ES Engineers Pvt Ltd v. Ugro Capital Limited].

While recording this finding, Justice V Kameswar Rao added that courts are required to examine these exceptions from various touchstones.

"The Court shall examine these exceptions from the touchstone of direct relationship to the parties signatory to the arbitration agreement, direct commonality of the subject matter and the agreement between the parties being a composite transaction where performance of the principal or mother agreement may not be feasible without the aid and performance of the supplementary or ancillary agreement for achieving the common object and collectively have a bearing on the dispute," the order elaborated.

The Court was hearing a case where the appointment of an arbitrator was being sought by the petitioner in terms of a Master Service Agreement (MSA) executed between the two respondents.

The petitioner was not a signatory to this MSA. However, the petitioner submitted that a Facility Agreement (FA) was executed between them and the first respondent. Thus, the first respondent was demanding money owed by the second respondent from the petitioner. Therefore, it was contended that the FA cannot be severed from the MSA.

It was the petitioner's stand that the nature of both agreements was such that they were interdependent and the disputes involved needed to be decided together by reading both agreements jointly.

On examining the facts of the case, the single-judge opined that the petitioner could not invoke arbitration since they are not a party to the agreement.

"The arbitration clause in the MSA would only govern the disputes between respondent No.1 and respondent No.2 and not a dispute between the petitioner and respondent No.1."

It was noted that the MSA makes no reference to the petitioner and the FA was an independent agreement between the first respondent and petitioner.

"Therefore, the petitioner cannot enunciate the MSA as a mother agreement, and the arbitration under Clause 13 therein, cannot be invoked as the petitioner is not a signatory to it."

With this, the petitioner's plea seeking appointment of a three-member arbitral tribunal to adjudicate its dispute with the respondents was dismissed.

Advocates Sonam Gupta, Devansh Arya, Saumay Kapoor, and Bahuli Sharma appeared for the petitioner while the respondents were represented by Advocates Amit George, Nitesh Mehra, Amol Acharya, Anumeha Singhai, Rayadurgam, Hitakshi Mehra, Ekta Rai and Aadil Khan.

[Read Judgment]