Case Brief Shapoorji Pallonji And Co. Pvt. Ltd V. Rattan India Power Ltd & Anr.

Sreejoy Pattnaik, Intern

Shapoorji Pallonji And Co. Pvt. Ltd V. Rattan India Power Ltd & Anr.

Case Citation: 2021 SCC OnLine Del 2875

Bench: Justice Vibhu Bakhru

Date of Decision: 07-04-2021

Facts

In this case, Indiabulls wanted to build a thermal power plant in Amravati, Maharashtra. As a result, it called for tender on the Boiler Turbine Generator Package (hereafter 'BTG Works'), which was an essential part of the project, to achieve the same. As a result, Shapoorji submitted a bid and was awarded the tender. As a result, Shapoorji agreed to the BTG contract with Elena (an Indiabulls wholly-owned subsidiary).

Following that, Shapoorji received a slew of additional orders from Indiabulls. After some time, a disagreement arose regarding the execution of contracts, which prompted Shapoorji to invoke the arbitration clause.

Despite the fact that Shapoorji had invoked the arbitration clause, Indiabulls denied the possibility of any sort of arbitration, claiming that they were never signatories to any BTG contract with Shapoorji. According to Indiabulls, the contract was signed between Elena and Shapoorji, and thus they were never a party to it. As a result, the court attempted to investigate the nuances of the case to determine whether Indiabulls, despite being a non-signatory to the contracts, could be made a party to the arbitration or not.

Issue

whether a non-signatory to an arbitration agreement could be compelled to arbitrate?

The contention of the parties

The petitioner's counsel argued that the parties acted in such a way that they were willing to accept arbitration as a one-step method of resolving disputes. It made no commercial sense for the parties to agree to refer disputes about the main contract to arbitration while excluding disputes about the supplemental and connected contracts.

Mr. Jain, learned senior counsel for Indiabulls, argued that because Indiabulls was not a signatory to the BTG Contract, it could not be compelled to arbitrate. He also claimed that the notice invoking arbitration was a composite notice for four separate contracts and thus invalid. He claimed that because the contracts were separate, a composite notice could not be issued.

Judgment

The court discussed cases in which third-party beneficiaries of a contract may be compelled to arbitrate and referred to the Supreme Court's decision in Chloro Controls (India) Ltd. v. Severn Trent Water Purification, in which the court referred to the Group of Companies doctrine and applied it to compel certain parties to arbitrate in that case.

The court also cited the decision in Mahanagar Telephone Nigam Ltd. v. Canara Bank, in which the following observations were made: The circumstances in which the "group of companies" doctrine could be invoked to bind a non-signatory affiliate of a parent company, or inclusion of a third party to an arbitration if there is a direct relationship between the party which is a signatory to the arbitration agreement; direct subject-matter similarity; the composite nature of the parties transaction.

In the current case, the court held that Indiabulls was a direct beneficiary under the BTG contract because it directly participated in its negotiation and execution and insured itself against contract performance. Under the BTG contract, Indiabulls also paid Shapoorji directly. Elena was also formed specifically by Indiabulls to carry out the BTG contract. The court, on the other hand, rejected Shapoorji's argument that the BoP contract supplemented the BTG contract because the BoP contract lacked an arbitration clause, and Shapoorji had raised a separate final bill for the BoP contract.

The decision is significant because it not only defines the circumstances under which the corporate veil may be pierced but also clarifies that a party compelling a non-signatory to participate in arbitration must show that the non-signatory directly benefited from the contract. By taking such a pragmatic approach, the court once again applied business efficacy principles to commercial contracts.