2022 (2) TMI 444 - HC - Indian Laws

Court appoints Sole Arbitrator under Arbitration Act; Group of Companies Doctrine binds non-signatories

Ashav Advisory LLP Versus Patanjali Ayurveda Limited & Ors.

The court found prima facie evidence of the existence of an arbitration agreement, allowing the petitioner's request for the appointment of a Sole ... Prayer for appointment of Sole Arbitrator to adjudicate the disputes among the parties - existence of an arbitration agreement between the parties - Section 11 of the Arbitration and Conciliation Act, 1996 - HELD THAT:- It prima facie, appears that the intention of the parties was to carry out the transaction under the MOUI in the re-negotiated form while accepting all other attendant agreements. It is for this reason all ICDs, Share-Pledge Agreements and Deeds of Guarantees, which were executed on 25.11.2019, were incorporated as part of the MOU-II. There is no reason to exclude the Arbitration Agreement, which was also executed on the same date, from the scope of incorporation by reference under Clause 15 of the MOU-II - It is also the respondents’ case that the question as to the existence of the Arbitration Agreement must be left open for the Arbitral Tribunal to decide. The Court will decline appointment of an arbitrator if it finally concludes that an arbitration agreement does not exist. However, the Court needs only to be prima facie satisfied as to the existence of an arbitration agreement for the arbitrator to be appointed - this Court is prima facie satisfied as to the existence of an arbitration agreement. Thus, this Court considers it apposite to allow the present petition. It is, however, clarified that this would not preclude the respondents from contesting the existence of an arbitration agreement before the Arbitral Tribunal. Justice (Retd.) Aftab Alam, a former Judge of the Supreme Court, is appointed as the Sole Arbitrator to adjudicate the disputes between the parties subject to the learned Sole Arbitrator making the necessary disclosure as required under Section 12(1) of the A&C Act and not being ineligible under Section 12(5) of the A&C Act. The parties are at liberty to approach the learned Sole Arbitrator for further proceedings. Petition allowed. Issues Involved:1. Existence of an Arbitration Agreement.2. Connection between MOU-I and MOU-II.3. Applicability of the Group of Companies Doctrine.4. Inclusion of Non-Signatories in Arbitration.5. Validity of Notice Invoking Arbitration.Detailed Analysis:1. Existence of an Arbitration Agreement:The petitioner filed under Section 11 of the Arbitration and Conciliation Act, 1996, seeking the appointment of a Sole Arbitrator to adjudicate disputes. The respondents contested the existence of an arbitration agreement, arguing that the disputes pertain to MOU-II, which does not explicitly incorporate the arbitration clause from MOU-I. However, the court noted that Clause 15 of MOU-I, which contains the arbitration agreement, would survive the termination of MOU-I. The court emphasized that the scope of examination under Section 11 is limited to the existence of an arbitration agreement, and it found prima facie evidence that such an agreement exists.2. Connection between MOU-I and MOU-II:The court examined whether MOU-I and MOU-II are connected. The petitioner argued that MOU-II is an extension of the understanding under MOU-I. The respondents contended that MOU-I and MOU-II are separate agreements with different commercial understandings. The court found that both MOUs are interconnected, as MOU-II fleshed out details for acquiring shares of RSIL, initially contemplated in MOU-I. The court noted that the investment under MOU-I was to be converted into equity shares of RSIL, indicating a continuity of the transaction.3. Applicability of the Group of Companies Doctrine:The respondents argued that DYMT and PGN, being non-signatories to MOU-I, cannot be compelled to arbitrate. The court referred to the Group of Companies doctrine, which allows non-signatories to be bound by an arbitration agreement if they are part of a cohesive group acting for a common purpose. The court found that DYMT and PGN are part of the 'P Group,' which had a common objective of financing the corporate resolution of RSIL. The court noted that the same individuals controlled all entities involved, indicating a single group acting in concert.4. Inclusion of Non-Signatories in Arbitration:The court addressed whether non-signatories DYMT and PGN could be compelled to arbitrate. It found that DYMT and PGN, although not signatories to MOU-I, are signatories to MOU-II. The court noted that all documents executed on 25.11.2019, including the arbitration agreement in MOU-I, were incorporated into MOU-II. The court concluded that the intention of the parties was to carry forward the transaction under MOU-I in a re-negotiated form, including all attendant agreements.5. Validity of Notice Invoking Arbitration:The respondents claimed that the notice invoking arbitration was vague and non-est. The court rejected this argument, stating that it is sufficient for a party to indicate the disputes sought to be referred to arbitration. The court found that Ashav had clearly indicated its entitlement to acquire equity shares in RSIL, and the notice was valid.Conclusion:The court was prima facie satisfied with the existence of an arbitration agreement and allowed the petition. Justice (Retd.) Aftab Alam was appointed as the Sole Arbitrator to adjudicate the disputes, subject to necessary disclosures and eligibility under the Arbitration and Conciliation Act, 1996. The court clarified that the respondents could still contest the existence of the arbitration agreement before the Arbitral Tribunal.