No Patent Or Inherent Lack Of Jurisdiction Of Arbitral Tribunal In Impleading Non-Signatory Party To Agreement: Karnataka High Court

The Karnataka High Court has clarified that there is no patent or inherent lack of jurisdiction of an Arbitral Tribunal in impleading a non-signatory party to the agreement.

The Court clarified thus in a Writ Petition seeking to set aside an Order of the Arbitral Tribunal, which by majority allowed an Application filed by the claimants.

A Division Bench comprising Justice Jayant Banerji and Justice Umesh M. Adiga observed, “We find from perusal of the impugned majority order of the Arbitral Tribunal that all the relevant factors prescribed in Cox & Kings Ltd. relating to impleadment of the non-signatory party, Mantri Developers, were duly considered by it. The Arbitral Tribunal is empowered to decide on its jurisdiction. The provisions of Section 2 (1) (h) of the Act, 1996 read with Section 16 thereof leave no room for doubt with regard to the authority of the Arbitrator to decide on its jurisdiction which is precisely what has been done by the Arbitral Tribunal by majority in the impugned order. So there is neither patent lack of jurisdiction nor inherent lack of jurisdiction of the Arbitral Tribunal in impleading the petitioner Mantri Developers which is a non-signatory party to the JDA.”

Senior Advocate Basavaraj S. appeared for the Petitioner, while Senior Advocates K.G. Raghavan and Dhananjay Joshi appeared for the Respondents.

Brief Facts

The Claimants (Respondents) had sought impleadment of Mantri Developers Pvt. Ltd. (Petitioner) under Section 2(1)(h) read with Section 7 of the Arbitration and Conciliation Act, 1996 (A&C Act). The Arbitral Tribunal by majority, allowed the application, directing impleadment of Mantri Developers on the ground that even though it is non-signatory to the arbitration agreement, it has by its action and conduct consented to be bound by the arbitration agreement. The Tribunal relied upon the Judgment of the Supreme Court in the case of M/s. ONGC Limited v. Discovery Enterprises Pvt. Ltd. (2022), which was approved in the Judgment of the Supreme Court in Cox and Kings Ltd. v. SAP India Pvt. Ltd. (2024)

Reasoning

The High Court in the above regard, said, “Starting from the first agreement on 26.06.2010, the subsequent agreements leading up to the JDA and even later agreements reflect common participation by Mantri Developers and Castles Vista with the claimants for the purpose of achieving a common purpose, which is the success of the Project of the claimants which is reflective of the mutual intent to be bound by the agreement to arbitrate. Mantri Developers has actively assumed obligations and performance under the agreements upon itself. Even otherwise, Mantri Developers has an enormous financial exposure in the Project of the claimants.”

The Court noted that there is a clear legal relationship between the Petitioner-Mantri Developers and the Claimants/Respondents.

“Mantri developers has veritably consented to be bound by the JDA despite it not being a signatory to the agreement. After the execution of the JDA, the joint letter issued on 25.10.2010 by Mantri Developers, and by ISKCON Charities to Gokulam Homeowners reflects that the claimants were under the legitimate belief that the non-signatory Mantri Developers was a veritable party to the JDA”, it added.

The Court further observed that it is mentioned in the joint letter that handing over the development to Mantri Developers frees ISKCON missionaries to focus on the Krishna Lila Park and that Mantri Developers have committed to transfer substantial benefits of development to support the setting up of the Krishna Lila Park.

“It was stated in the joint letter that with the strong endorsement from the Mantri Brand, Homeowners at Gokulam can be assured of distinctive homes to boost of world class quality with superior amenities and facilities. In that joint letter, Mantri Developers projected that Mantri brand name also brings with it value appreciation for the investment of the home buyers”, it also said.

Conclusion

The Court was of the view that the reliance on and affirmation of the cumulative factors that the Courts and Tribunals should consider in deciding whether a company within a group of companies is bound by the arbitration agreement, as laid down in the Judgment in Discovery Enterprises, in the landmark Judgment of the Supreme Court in Cox & Kings Ltd., are mandatorily required to be followed.

“Thus we find no reason to interfere in the impugned majority order of the Arbitral Tribunal in exercise of our jurisdiction under Article 226/227 of the Constitution”, it concluded.

Accordingly, the High Court dismissed the Writ Petition.

Cause Title- Mantri Developers Pvt. Ltd. v. Gokulam Shelters Private Limited & Ors. (Case Number: WP No. 36101 of 2024)

Appearance:

Petitioner: Senior Advocate Basavaraj S. and Advocate Jaithra J. Narayan.

Respondents: Senior Advocates K.G. Raghavan, Dhananjay Joshi, Advocates Pradeep Naik, and Anish Acharya.

Click here to read/download the Judgment