2025 (11) TMI 1429 - SC - Indian Laws

Petition under Sections 11(6) and 11(12)(a) rejected; Benin-seated arbitration governed by Part II, issue estoppel applied

Balaji Steel Trade Versus Fludor Benin S.A. & Ors.

SC dismissed the petition under Section 11(6) read with Section 11(12)(a) of the Arbitration and Conciliation Act, 1996, holding that the disputes arise ... Seeking appointment of a sole arbitrator for a composite reference of disputes - existence of valid and enforceable arbitration agreement between the parties or not - underlying arbitration under the principal agreement is an international commercial arbitration seated in a foreign country - appliacbility of bar of estoppel - invocation of group of companies doctrine - HELD THAT:- The very nature of the present dispute is that of an “international commercial arbitration” as defined under Section 2(1)(f) of the 1996 Act, respondent no. 1 being a corporation incorporated under the laws of Benin. This statutory characterisation necessarily triggers the application of Part II of the 1996 Act when the arbitration is foreign-seated, and not Part I. Section 2(2) makes the position explicit by providing that Part I applies only where the place of arbitration is in India; consequently, recourse to Section 11, located within Part I, is available solely in respect of India-seated arbitrations. The disputes raised by the petitioner arise squarely from the BSA, and the parties’ chosen forum for their adjudication is arbitration in Benin. Accordingly, the invocation of Part I and the present request under Section 11(6) of the 1996 Act is fundamentally misconceived, legally untenable, and contrary to the statutory scheme as well as the autonomy of the parties’ contractual design. Another consideration which cannot be lost sight of is that petitioner’s attempt to resist the Benin arbitration before the Delhi High Court failed in light of the judgment dated 08.11.2024 whereby the High Court allowed respondent no. 1’s application under Section 45 and dismissed the antiarbitration injunction suit filed by the petitioner - The High Court, after a detailed examination of the contractual framework, arrived at a categorical finding that the BSA and its Addendum form the principal and operative contractual matrix between the petitioner and respondent no. 1, and that the arbitration clause contained therein represents the parties’ deliberate and binding choice of dispute resolution. It held that the Sales Contracts and HSSAs, being independent and self-contained arrangements with respondent nos. 2 and 3 respectively, do not, and cannot, supersede, modify, or dilute the arbitration agreement in the BSA, nor do they create a composite dispute capable of attracting a unified arbitral mechanism under Indian law. Findings of High Court of Delhi as ‘Issue Estoppel’: Importantly, these findings relating to (i) the autonomy and separateness of the contractual frameworks, (ii) the absence of any common arbitration agreement across respondents, and (iii) the impossibility of construing the BSA as having been novated by the later consignment-based contracts, are findings of jurisdictional fact. Once such jurisdictional facts have been adjudicated by a competent court, they cannot be reopened in subsequent proceedings between the same parties. The petitioner, having unsuccessfully canvassed the very same assertions before the High Court, is now barred by issue estoppel from reagitating those issues in a slightly altered statutory setting. The doctrine applies with full force even though the present proceeding is under Section 11 and the earlier one was under Section 45, for the identity of the issue, namely the operative agreement, the seat of arbitration, and the scope of the respective arbitration clauses, remains the same - The group of companies doctrine, as recognised in Indian law, is not an automatic talisman for impleading every corporate entity of a group into arbitral proceedings. This Court in Cox & Kings [2023 (12) TMI 427 - SUPREME COURT (LB)] was at pains to emphasise that the doctrine is applied sparingly and only where there is compelling evidence of mutual intention of all the parties concerned to bind a non-signatory to an arbitration agreement. Such intention may be inferred from direct participation in negotiation, performance of contract, or from the role played in the overall transaction. However, a mere overlap of shareholding, or the fact that entities belong to the same corporate family, is not by itself sufficient. The reliance placed by the petitioner on group of companies doctrine is misplaced - Arbitration Petition filed u/s 11(6) read with Section 11(12)(a) of the Act, 1996 is hereby dismissed. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether a petition under Section 11(6) read with Section 11(12)(a) of the Arbitration and Conciliation Act, 1996 is maintainable where the underlying arbitration under the principal agreement is an international commercial arbitration seated in a foreign country (Benin). (2) Whether the arbitration clauses contained in the subsequent Sales Contracts and High Seas Sale Agreements (HSSAs) apply to, or can novate/supersede, the arbitration agreement in the Buyer and Seller Agreement (BSA) and its Addendum, and whether the BSA arbitration clause designates Benin as the juridical seat. (3) Whether the initiation and culmination of arbitration proceedings in Benin under the BSA preclude a parallel or fresh arbitral process in India on the same disputes. (4) Whether findings of the High Court, while dismissing an anti-arbitration injunction suit under Section 45 of the 1996 Act, operate as issue estoppel in subsequent Section 11 proceedings between the same parties regarding the same contractual framework and arbitration agreements. (5) Whether the 'group of companies' doctrine can be invoked to bind non-signatory group entities to the arbitration agreement in the BSA and justify a composite reference of disputes against all respondents in a single arbitration seated in India. 2. ISSUE-WISE DETAILED ANALYSIS Issue (1): Maintainability of Section 11(6) petition in the context of foreign-seated international commercial arbitration Legal framework (a) Section 2(1)(f) of the Arbitration and Conciliation Act, 1996 defines 'international commercial arbitration'. (b) Section 2(2) provides that Part I of the Act applies where the place of arbitration is in India. (c) Precedents relied upon include Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. (BALCO), Mankastu Impex, BGS SGS SOMA JV, and PASL Wind Solutions, which affirm that Part I does not apply to foreign-seated arbitrations and that courts of the seat exercise supervisory jurisdiction. Interpretation and reasoning (a) The dispute arises under the BSA between an Indian entity and a company incorporated under the laws of Benin, squarely falling within the definition of 'international commercial arbitration' in Section 2(1)(f). (b) Article 11 of the BSA stipulates that arbitration 'will take place in Benin,' and Article 5 of the Addendum provides that the BSA shall be 'construed, governed and interpreted in accordance with the laws of Benin.' (c) Reading these clauses together, the Court held that the parties clearly intended Benin to be the juridical seat of arbitration with Benin law as the curial law, not merely a venue of hearings. (d) Once Benin is the seat, Section 2(2) mandates that Part I of the 1996 Act (including Section 11) has no application; the supervisory jurisdiction lies with Benin courts. (e) The Court rejected the contention that subsequent contracts showing an intention to arbitrate in India could alter the seat of arbitration under the BSA, because those contracts are distinct and ancillary. Conclusions (a) The arbitration under the BSA is an international commercial arbitration seated in Benin and governed by the law of Benin. (b) Part I of the 1996 Act, including Section 11, stands excluded and Indian courts have no jurisdiction to appoint an arbitrator for this foreign-seated arbitration. (c) The Section 11(6) petition is therefore fundamentally misconceived and not maintainable. Issue (2): Applicability and effect of arbitration clauses in Sales Contracts and HSSAs, and alleged novation/supersession of BSA arbitration clause Legal framework (a) Principles on determination of 'seat' of arbitration as articulated in Mankastu Impex and BGS SGS SOMA JV - where the designated 'place' without contrary indicia is treated as juridical seat. (b) Section 62 of the Indian Contract Act, 1872 on novation: substitution of a new contract requires clear intention; original contract need not be performed once novated. (c) Balasore Alloys Ltd. v. Medima LLC, recognising that where multiple contracts exist, the arbitration clause in the 'mother agreement' governs unless unequivocally displaced. Interpretation and reasoning (a) The BSA (with its Addendum) is characterised as the 'mother agreement' defining the long-term commercial relationship, supply framework, pricing, and the self-contained dispute resolution mechanism (arbitration 'in Benin' under Benin law). (b) The Sales Contracts (with respondent no. 2) and HSSAs (with respondent no. 3) are found to be subsequent, consignment-specific and limited-purpose contracts, each:    (i) dealing with discrete shipments;    (ii) having their own independent commercial terms; and    (iii) containing separate arbitration clauses - Sales Contracts under the 1996 Act with place at New Delhi; HSSAs under the Indian Arbitration Act, 1940. (c) These subsequent contracts neither refer to, nor incorporate, nor expressly substitute or supersede the BSA or its arbitration clause. (d) The Court held that novation under Section 62 cannot be inferred in the absence of clear language of substitution or cross-reference; the BSA continues to govern the overall supply arrangement. (e) Disputes pleaded by the petitioner - including alleged short supply and performance failures - were traced to obligations under the BSA and Addendum, not to breaches of the limited consignments under the Sales Contracts or HSSAs, which had in any event concluded. (f) Consequently, the arbitration clauses in those subsequent contracts cannot override, displace or affect the arbitration agreement in the BSA; nor do they create 'contrary indicia' negating Benin as the juridical seat for BSA disputes. Conclusions (a) There is no novation or supersession of the BSA or its arbitration clause by the Sales Contracts or HSSAs. (b) The Sales Contracts and HSSAs are independent, ancillary arrangements confined to their own consignments; their arbitration clauses govern only disputes 'arising out of or relating to' those specific agreements. (c) Disputes emanating from the BSA and Addendum must be resolved exclusively through arbitration in Benin as agreed in the BSA; Indian-seated arbitration clauses in the Sales Contracts and HSSAs are inapplicable to such disputes. Issue (3): Effect of initiation and culmination of Benin arbitration on the present Section 11 proceedings Legal framework (a) Doctrine of kompetenz-kompetenz: arbitral tribunal's power to rule on its own jurisdiction under the applicable curial law. (b) Territorial principle of arbitration law: courts of the seat exercise supervisory jurisdiction; foreign supervisory courts cannot assume parallel oversight. Interpretation and reasoning (a) Respondent no. 1 invoked arbitration under Article 11 of the BSA before the Chamber of Commerce in Benin. (b) The Benin Commercial Court, applying the Benin Arbitration Act, appointed a sole arbitrator and thus constituted a tribunal in accordance with the parties' chosen curial framework. (c) The arbitral tribunal ruled affirmatively on its own jurisdiction and proceeded to hear the disputes arising from the BSA. (d) A final, reasoned award was rendered on 21.05.2024 in those proceedings. (e) The Court held that once the agreed arbitral process has been invoked, conducted, and culminated in an award, the same disputes cannot be re-agitated by initiating a fresh arbitral process in another jurisdiction. (f) Allowing a parallel India-seated arbitration on the same subject matter would undermine finality of arbitration, contravene the kompetenz-kompetenz principle exercised by the Benin tribunal, and violate the territorial allocation of supervisory jurisdiction to the courts of the seat (Benin). Conclusions (a) The Benin arbitration, commenced and concluded under the BSA, has already adjudicated the very disputes which the petitioner seeks to submit to a new arbitral tribunal in India. (b) Initiation of a parallel arbitral process in India in respect of the same subject matter is impermissible and contrary to the fundamental principles governing arbitration. (c) This furnishes an additional ground for rejecting the Section 11 petition. Issue (4): Operation of issue estoppel arising from the Delhi High Court's decision dismissing the anti-arbitration injunction suit Legal framework (a) Doctrine of res judicata and issue estoppel as explained in Hope Plantations Ltd. v. Taluk Land Board, Peermade:    (i) once an issue necessary for decision has been finally determined, parties are estopped from re-litigating that issue in subsequent proceedings;    (ii) extends beyond Section 11 CPC and applies as a matter of general legal principle and public policy. (b) Anil v. Rajendra: refusal to refer parties to arbitration in one proceeding can create issue estoppel against seeking reference under Section 11(6) on the same issue. (c) Section 45 of the 1996 Act (reference to arbitration in respect of foreign awards) under which the High Court had acted. Interpretation and reasoning (a) The High Court, in dismissing the anti-arbitration injunction suit and allowing the application under Section 45, made categorical findings that:    (i) the BSA and Addendum are the principal and operative contract between the parties;    (ii) the arbitration clause in the BSA and Article 5 of the Addendum represent the binding choice of dispute resolution, with Benin as the place of arbitration;    (iii) the Sales Contracts and HSSAs are distinct, independent contracts with different parties, scope, and arbitration clauses, enforceable separately and not incorporating or modifying the BSA regime;    (iv) disputes in question arise from the BSA and Addendum and must be adjudicated under Article 11 of the BSA before arbitration in Benin;    (v) the BSA and Addendum are not null, void, inoperative, or incapable of being performed. (b) These determinations were characterised by the Court as findings of 'jurisdictional fact' essential to the High Court's decision under Section 45. (c) The Court held that the very same issues - operative agreement, seat of arbitration, and relationship between BSA, Sales Contracts, and HSSAs - are sought to be re-agitated in the present Section 11 proceedings. (d) Applying the doctrine of issue estoppel, the Court held that once such issues have been finally decided by a competent court between the same parties, they cannot be reopened in subsequent proceedings, even though the latter arise under a different statutory provision (Section 11 instead of Section 45). Conclusions (a) The findings of the Delhi High Court on the nature of the BSA, the Addendum, the separateness of the Sales Contracts and HSSAs, and Benin as the agreed forum, operate as issue estoppel against the petitioner. (b) The petitioner is barred from re-litigating these issues in the present Section 11 proceedings. (c) This estoppel, combined with the statutory framework, reinforces the conclusion that the petition is untenable. Issue (5): Applicability of the 'group of companies' doctrine to bind non-signatories and support a composite arbitration in India Legal framework (a) Group of companies doctrine as clarified in Cox & Kings:    (i) doctrine applies narrowly, requiring compelling evidence of mutual intention to bind a non-signatory;    (ii) intention may be inferred from active participation in negotiation, performance, or overall transaction structure;    (iii) mere common shareholding, common Directors, or belonging to the same corporate group is insufficient. Interpretation and reasoning (a) The petitioner sought a composite reference of disputes against all respondents by asserting that they formed part of a common corporate group and that supplies were made on instructions of the BSA counterparty. (b) The Court reiterated that each of the entities is a separate legal person, and commonality of ownership or control within a group (TGI Group) does not by itself justify binding all entities to a single arbitration agreement. (c) There was no evidence on record that respondent nos. 2 and 3:    (i) participated in negotiation of the BSA arbitration clause;    (ii) intended to be bound by the BSA or to submit disputes under it to arbitration in Benin;    (iii) agreed, expressly or impliedly, to a unified dispute resolution mechanism encompassing all contracts. (d) On the contrary, Sales Contracts and HSSAs contained their own distinct arbitration clauses, jurisdictional choices, and were structured as independent arrangements, indicating that each contract's arbitration clause was intended to be self-contained. (e) The contention that performance 'by conduct' under BSA by group entities justified their joinder under the BSA arbitration clause was rejected as contrary to the strict requirements of Cox & Kings. Conclusions (a) The preconditions for invoking the group of companies doctrine are not satisfied. (b) Respondent nos. 2 and 3, being non-signatories to the BSA, cannot be compelled to arbitrate under the BSA arbitration clause, nor can they be forcibly joined into a composite arbitration covering BSA, Sales Contracts, and HSSAs. (c) The reliance on the group of companies doctrine to ground jurisdiction under Section 11(6) and to support a composite India-seated arbitration is misplaced and rejected. Overall Disposition The Court held that: (i) the BSA with its Addendum is the mother agreement providing for international commercial arbitration seated in Benin and governed by Benin law; (ii) Part I of the 1996 Act, including Section 11, does not apply; (iii) subsequent Sales Contracts and HSSAs neither novate nor supersede the BSA arbitration agreement; (iv) the Benin arbitration has already culminated in a final award; (v) findings of the Delhi High Court in earlier proceedings give rise to issue estoppel; and (vi) the group of companies doctrine is inapplicable. Consequently, the Section 11(6) petition is dismissed, with parties left to bear their own costs.