Ajay Madhusudan Patel & Ors. v. Jyotrindra S. Patel & Ors

Ajay Madhusudan Patel & Ors. v. Jyotrindra S. Patel & Ors. ¹

(On Factors that Signify Intention of Non-Signatory to be bound by the Arbitration Agreement

– Yogitha Jammula²

The Hon’ble Supreme Court in Ajay Madhusudan Patel³ while appointing a sole arbitrator, reiterated factors that signify the intention of a non-signatory to be bound by the Arbitration Agreement. The factors as laid down in Cox and Kings⁴ being – mutual intent of parties, relationship of a non-signatory with a signatory, commonality of subject matter, composite nature of transaction(s) and performance of contract.

The factual matrix involves three companies: AMP, JRS, and SRG who were common shareholders in Millenium Estates and Deegee Software. AMP and JRS had entered into a Family Arrangement Agreement (FAA), which also referenced SRG, to resolve disputes, separate their shareholding and define exit strategies. When disputes arose vis-à-vis execution of the FAA, SRG, not being a signatory, disputed its obligations under the agreement. AMP initiated arbitration against both JRS and SRG while SRG challenged its proposed inclusion in the Arbitral proceedings, arguing that as a non-signatory it would not be bound by the FAA.

The crux of the dispute boiled down to whether the SRG Group being a non-signatory to the FAA could be referred to arbitration?

Before addressing the issue of non-signatory joinder, the Court outlined the scope of a referral court’s jurisdiction U/S. 11(6) of the Act as propounded in Cox and Kings⁵ – a referral court is empowered only to primarily assess the existence of an arbitration agreement and whether a non-signatory is a veritable party to it.⁶ As pronounced in Vidya Drolia⁷ in case of complexity in determining whether a non-signatory is a veritable party or not, the same shall be left to be determined by the arbitral tribunal. The final determination regarding the non-signatory’s inclusion rests solely with the arbitral tribunal.

In light of disputed facts and counter-allegations, relying on Vidya Drolia⁸, the court concluded that the arbitral tribunal was best equipped to decide whether SRG is to be considered a party to the arbitration or not and refrained from adjudicating on the same based on the factors laid down in Cox and Kings⁹. In determining the existence of the arbitration agreement the court noted that the only point of contention between the parties was regarding non-signatory joinder and as such neither parties disputed or raised any objections regarding the existence of the arbitration agreement, affirming its existence. Directing the arbitral tribunal to adjudicate the petitioner’s claims only after addressing the preliminary objections raised by the respondents, the Court allowed the petition, appointing an arbitrator.

References

1. 2024 INSC 710.
2. Legal Researcher & Associate, Karavadi & Associates.
3. Supra note 1.
4. Cox & Kings Ltd. vs. SAP India (P) Ltd., (2022) 8 SCC 1.
5. Supra.
6. Supra note 4, para 164.
7. Vidya Drolia and Ors. v. Durga Trading Corporation, (2021) 2 SCC 1.
8. Supra note 7.
9. Supra note 4.