Non-parties to an Arbitration Agreement cannot be made party to an Arbitration, Delhi High Court [Read Judgment]

The Delhi High Court recently held that a non-party to the arbitration agreement cannot be made party to an arbitration. Justice Navin Chawla passed a judgment to this effect while dismissing two appeals under Section 37 of the Arbitration and Conciliation Act, 1996..While doing so, the Court distinguished the case from the two recent Supreme Court judgments of Ameet Lalchand Shah and Cheran Properties Ltd, regarding the inclusion of non-parties to arbitration. .One of the appellants, Cox & Kings (C&K) had entered into a Joint Venture Agreement (JVA) with the Indian Railway Catering and Tourism Corporation (IRCTC) on December 10, 2008 for running the ‘Maharajas’ Express’, a luxury tourist train. For the purpose of running the luxury train, C&K and IRCTC formed a Joint Venture Company, namely Royale India Rail Tours Ltd (RIRTL), the other appellant in the case. The Articles of Association (AoA) of RIRTL were executed on November 24, 2008. Both the JVA and the AoA contained similarly worded arbitration clauses and mentioned the parties therein as C&K and IRCTC. Notably, RIRTL did not sign the agreements and was not named as a party in either of the arbitration clauses. After disputes emerged between the parties, the matter was eventually referred to arbitration in 2011. The refusal of the arbitral tribunal to arraign RIRTL in the proceedings before it thereafter led the appellants, i.e. C&K and RIRTL, to approach the Delhi High Court. The appellants were challenging the order of the arbitral tribunal allowing IRCTC’s application under Section 16 of the Arbitration and Conciliation Act, 1996 (Arbitration Act), to delete RIRTL as a party from the proceedings. This application was moved on the ground that RIRTL was not a party to the arbitration agreements (which were only between C&K and IRCTC)..Read: Latest news & Judgments on Arbitration.C&K’s argument was that RIRTL had become a party to the JVA by conduct. They also argued that by virtue of the amended Section 8 of the Arbitration Act, non-parties could be included in the arbitration. To buttress this argument, reliance was placed on the recent Supreme Court decisions in Ameet Lalchand Shah & Ors v Rishabh Enterprises and Cheran Properties Ltd v Kasturi and Sons Limited. Further, it was argued that by operation of Section 36 of the Companies Act, 1956, RIRTL was bound by all of the articles in the AoA, including its arbitration clause..However, their pleadings contained an admission that the only parties to the JVA and the arbitration clause were C&K and IRCTC. IRCTC’s main contention was that the arbitration clauses were clear that RIRTL was not a party to the JVA and the arbitration clause. Moreover, it was contended that the requirements under Section 7 of the Arbitration Act had not been fulfilled by RIRTL. Further, there were no disputes raised by C&K under the AoA against RIRTL. .The Delhi High Court concurred with the IRCTC’s stance and upheld the Tribunal’s order, finding that,.That the arbitration clause and the admissions in the pleadings showed that the arbitration agreement was only between IRCTC and C&K. Therefore RIRTL could not be made a party to the arbitration. In other words, non-parties cannot be made parties to an arbitration proceeding.C&K and RIRTL could not refute IRCTC’s submission that there can be no arbitration since there is no dispute under the provisions of the AoA.The Court also distinguished the two judgments relied upon by C&K and RIRTL, namely Ameet Lalchand Shah and Cheran Properties Ltd, on facts, and has held them to be inapplicable to the present case,.All the appeals were thus dismissed with costs of Rs 1 lac each imposed on C&K and RIRTL for their respective appeals..Senior advocates Sudipto Sarkar and Joy Basu appeared for IRCTC in the case, assisted by advocates Saurav Agarwal, Madhav Misra, Ayush Gupta, Kanak Bose and Arjun Masters. .Senior advocate Rajiv Nayar appeared for C&K assisted by advocates Rishi Agarwala, Karan Luthra, Nithya Kohli, Saurabh Seth, and KV Singh. Senior advocate Abhinav Vasisht appeared for RIRTL assisted by advocates Abhimanyu Mahajan and Anubha Goyal..Read the Judgment: