Non-signatory arbitration and letters of comfort: surrounding conduct can bind group entities, but a guarantee needs an enforceable default promise.

Non-signatories were referred to arbitration because the surrounding documents, correspondence and transaction structure showed mutual intent, common control, cross-shareholding and participation in a composite commercial arrangement, so the Group of Companies doctrine was applied. Letters dated 26 June 2018 were construed as letters of comfort, not guarantees, because they did not contain an enforceable promise to discharge the borrower's liability on default as required for a contract of guarantee. The interim relief controversy under Section 9 was not finally decided by the Court; it was directed to be dealt with by the arbitral forum, and the prior interim protection continued until the arbitrator decided the pending applications.

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Issues: (i) Whether the non-signatory respondents could be referred to arbitration on the basis of the surrounding documents, correspondence and the Group of Companies doctrine; (ii) Whether the letters dated 26 June 2018 constituted guarantees or only letters of comfort; (iii) Whether the interim protection sought under Section 9 could be granted as claimed, and whether the petition should instead be treated as an application before the arbitrator.

Issue (i): Whether the non-signatory respondents could be referred to arbitration on the basis of the surrounding documents, correspondence and the Group of Companies doctrine.

Analysis: The arbitration clauses in the credit arrangement letter and the facility agreement governed the transaction between the petitioner and the borrowing company. The Court applied the settled principles governing reference of non-signatories, including mutual intent, relationship of the non-signatory with the signatory, commonality of subject matter, composite nature of the transaction, and performance of the contract. It also held that the Group of Companies doctrine, though referred to a larger bench, continues to operate until overruled. On the facts, the Court found substantial indicia of common control, cross-shareholding, related-party admissions, and the letters issued in June 2018 describing the borrower as part of the same group and showing participation in the transaction.

Conclusion: The non-signatory respondents were held referable to arbitration along with the signatory borrower.

Issue (ii): Whether the letters dated 26 June 2018 constituted guarantees or only letters of comfort.

Analysis: The Court read the letters as commercial documents and applied the contractual test under Section 126 of the Indian Contract Act, 1872. It held that the letters did not contain an undertaking to discharge the borrower's liability upon default in the manner required of a guarantee, and therefore did not answer to the legal character of a contract of guarantee. At the same time, the Court found that the letters were not devoid of legal effect; they reflected promissory assurances given in a commercial setting and formed part of the material supporting reference of disputes to arbitration.

Conclusion: The letters were held to be letters of comfort and not guarantees.

Issue (iii): Whether the interim protection sought under Section 9 could be granted as claimed, and whether the petition should instead be treated as an application before the arbitrator.

Analysis: The Court declined to keep the interim controversy pending before itself after appointing the arbitrator. It held that the Section 9 petition, insofar as the interim monetary and injunctive reliefs were concerned, should be dealt with by the learned arbitrator, and the pending applications were to be considered in that forum. The prior interim directions were continued only until the arbitrator decided those applications.

Conclusion: The Section 9 petition was not finally adjudicated on merits by the Court and was directed to be treated as an application before the arbitrator.

Final Conclusion: The disputes were referred to arbitration, a sole arbitrator was appointed, and the interim relief controversy was shifted to the arbitral forum for decision along with the pending applications.

Ratio Decidendi: A non-signatory may be referred to arbitration where the surrounding circumstances show mutual intent, composite dealings, and a direct relationship with the signatory sufficient to attract the Group of Companies doctrine, but a letter of comfort will not become a guarantee unless it contains an enforceable promise to discharge the debtor's liability on default.

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