TaxTMI 
TaxTMI 
2025 (12) TMI 704
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....in Comm. Arbitration Application No. 125/2025. By the said order, the learned Single Judge allowed the Section 11(4)-Application filed under the Arbitration and Conciliation Act, 1996 (for short the "A&C Act) of the respondent-BCL Secure Premises Pvt. Ltd. (hereinafter referred to as the "BCL") and appointed an arbitrator to adjudicate upon the disputes and differences between the parties herein. Aggrieved, the appellant-Hindustan Petroleum Corporation Ltd. (for short 'Corporation') is in appeal. 3. The facts giving rise to the appeal are as follows: 4. The appellant-Corporation floated a tender for design, supply, installation, integration, testing, commissioning and post-commissioning warranty support services of Tank Truck Locking System (for short the "TTLS"). 5. The tender conditions had a specific clause stating that the contractor shall not be entitled to sublet, transfer or assign, the work under the contract without the prior consent of the owner obtained in writing. The relevant clauses of the tender conditions are set out hereinbelow:- "2.6 The "Contract" between the Owner and the Contractor shall mean and include all documents like enquiry, tender subm....
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....lish language." 6. On 20.08.2013, the appellant issued a purchase order in favour of the successful tenderer-M/s AGC Networks Ltd (for short "AGC") (presently known as Black Box Limited) and AGC duly accepted the purchase order by a letter of acceptance on 21/22.08.2013. On 08.09.2016, the appellant issued a notice to AGC with regard to non-functioning of Electro Magnetic Locking System [for short 'EMLS'] at Pilot locations of Vashi and Manmad. Further, on 02.02.2017, the appellant issued a show cause notice to AGC for unsatisfactory performance of EMLS at the said two locations. 7. On 14.06.2018, the respondent-BCL informed the appellant that they were working as sub-vendor of AGC and were entitled to receive 94% of the payment due. On 25.06.2018, appellant informed AGC that since it could not complete the project successfully, no payment was due to them. On 26.06.2018, appellant informed respondent-BCL in reply to BCL's letter dated 14.06.2018 stating that the appellant had not entered into any contract with BCL and as such no payments are due to BCL from the appellant. Thereafter, a series of proceedings ensued between the respondent-BCL and the AGC. 8. On 27.07.2018, a....
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....reement BCL has reviewed all the annexures, fully understood HPCL's requirement and has agreed to bear all costs take full responsibility and to Indemnify AGC in case of this Pilot Project not being successful and resultant cancellation of contract by HPCL. 4. OBLIGATIONS OF "BCL" 4.1 "BCL" shall provide a Project Manager at its own cost and towards the successful completion of the entire HPCL TTLS project The Project Manager shall be responsible for the communication and co-ordination between BCL/AGC/HPCL. However, the Project Manager mentioned herein above shall not make any such communication/co-ordination with HPCL without obtaining the prior written approval from AGC." 11. ARBITRATION Any and all dispute(s) or difference(s) between the parties hereto arising out of or relating to this agreement and which is not amicably settled between the parties within 60 (Sixty) days from the date of such dispute or difference, the same shall be referred for arbitration to such person as may be appointed by the parties hereto and the same shall be adjudicated in accordance with the Arbitration and Re-Conciliation Act 1996 and its latest amendments. ....
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....n Act, 1996 read with its subsequent amendments and the Rules framed thereunder. The Arbitration shall be conducted at New Delhi. The Arbitration proceedings shall be conducted in English language. The decision of the arbitral tribunal shall be binding on the Parties." D. That BCL has entered into the position of AGC and can agitate all pending claims with the appellant and a claim was raised to the tune of Rs. 3,00,01,810/- along with 18% interest. 14. The Arbitration Clause for Indian Bidders issued in the tender of the appellant was invoked vide legal notice dated 28.08.2024. 15. On 26.09.2024, appellant sent a reply denying the contentions made by BCL setting out the following grounds:- A. There was no privity of contract between the appellant and BCL. B. The claim amount and assignment agreement were unfounded, false and denied. C. That the purported assignment agreement was not valid in law as no prior written consent was obtained from HPCL by AGC. D. There was no valid purchase order between HPCL and BCL. 16. BCL issued another notice dated 12.11.2024 and followed it up with a petition under Section 11(4) of the A&C Act b....
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....nto series of litigation with AGC, and the court below had not made any reference to it in the impugned order. Learned Solicitor General contends that the claim was also ex facie time-barred and it is manifest from the record. Learned Solicitor General contends that at the Section 11 stage that the court has an obligation to prima facie examine whether the dispute is arbitrable and even applying that limited test, the records reveal that the dispute was not arbitrable. Learned Solicitor General extensively relied on Clauses 3.17 and 5 of the General Terms and Conditions of Works Contract to contend that there was express prohibition to sub-let, sub-contract or assign the work or any share of interest thereof without the prior consent of the owner obtained in writing. 21. Refuting the submissions, Mr. Nalin Kohli, learned Senior Advocate, appearing for the respondent contended that the test whether a non-signatory would be bound by an arbitration agreement entails a fact-intensive inquiry involving a mixed question of fact and law and, therefore, the arbitral tribunal would be the more appropriate forum to carry out the said inquiry. Mr. Kohli, learned Senior Advocate, further co....
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....tion before the Courts or tribunals is whether a non-signatory consented to be bound by the arbitration agreement. To determine whether a non-signatory is bound by an arbitration agreement, the Courts and tribunals apply typical principles of contract law and corporate law. The legal doctrines provide a framework for evaluating the specific contractual language and the factual settings to determine the intentions of the parties to be bound by the arbitration agreement. [Gary Born, International Arbitration Law and Practice, (3rd Edn., 2021) at p. 1531.] 101. A formalistic construction of an arbitration agreement would suggest that the decision of a party to not sign an arbitration agreement should be construed to mean that the mutual intention of the parties was to exclude that party from the ambit of the arbitration agreement. Indeed, corporate entities have the commercial and contractual freedom to structure their businesses in a manner to limit their liability. However, there have been situations where a corporate entity deliberately made an effort to be not bound by the underlying contract containing the arbitration agreement, but was actively involved in the negotiati....
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....to raise objections with regard to the jurisdiction of the Arbitral Tribunal. This interpretation also gives true effect to the doctrine of competence-competence by leaving the issue of determination of true parties to an arbitration agreement to be decided by the Arbitral Tribunal under Section 16. 170.12. At the referral stage, the referral court should leave it for the Arbitral Tribunal to decide whether the non-signatory is bound by the arbitration agreement." (Emphasis supplied) 25. A careful reading of the above passage reveals that the referral court should be prima facie satisfied that there exists an arbitration agreement and as to whether the non-signatory is a veritable party. It further holds that even if the referral court prima facie arrives at the satisfaction that the non-signatory is a veritable party, the Arbitral Tribunal is not denuded of its jurisdiction to decide whether the non-signatory is indeed a party to the arbitration agreement on the basis of factual evidence and application of legal doctrine. The Court further reinforces this proposition by holding that as to whether the non-signatory is bound would be for the Arbitral Tribunal to....
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....d) 28. This principle was reiterated lucidly in SBI General Insurance Company Limited vs. Krish Spinning (2024) 12 SCC 1, wherein this Court (speaking through one of us, J.B. Pardiwala J.) observed as under:- 113. The scope of examination under Section 11(6-A) is confined to the existence of an arbitration agreement on the basis of Section 7. The examination of validity of the arbitration agreement is also limited to the requirement of formal validity such as the requirement that the agreement should be in writing. 114. The use of the term "examination" under Section 11(6-A) as distinguished from the use of the term "rule" under Section 16 implies that the scope of enquiry under Section 11(6-A) is limited to a prima facie scrutiny of the existence of the arbitration agreement, and does not include a contested or laborious enquiry, which is left for the Arbitral Tribunal to "rule" under Section 16. The prima facie view on existence of the arbitration agreement taken by the Referral Court does not bind either the Arbitral Tribunal or the Court enforcing the arbitral award. 115. The aforesaid approach serves a twofold purpose - firstly, it allows the Refe....
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....L and AGC. 32. On the facts of this case, it is clear that the appellant and the respondent have been operating on separate orbits. It has not been established even prima facie that there was any intention to bind BCL to the contract between HPCL and AGC. 33. Mr. Nalin Kohli, learned Senior Advocate, made a strenuous effort to sustain the impugned judgment by relying on the judgment of this Court in ASF Buildtech Private Limited vs. Shapoorji Pallonji and Company Private Limited (2025) 9 SCC 76, to contend that the Referral Court should leave the matter to the Arbitral Tribunal to decide the issue. We have carefully examined the judgment of this Court in ASF Buildtech (Supra), authored by one of us J.B. Pardiwala J. We hold that the judgment of this Court in ASF Buildtech (Supra) is in harmony with the judgments of this Court in Interplay (Supra), Krish Spinning (Supra), Cox & Kings (Supra), Ajay Madhusudan Patel (Supra) and ASF Buildtech (Supra) does not sing any discordant note. For the sake of convenience, the following crucial Paragraphs in ASF Buildtech (Supra) are extracted hereinbelow: - "110. Even if it is assumed for a moment that the Referral Court in its j....
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....signatory person or entity is arrayed as a party at Section 8 or Section 11 stage, the Referral Court should prima facie determine the validity or existence of the arbitration agreement, as the case may be, and leave it for the Arbitral Tribunal to decide whether the non-signatory is bound by the arbitration agreement. 169. In case of joinder of non-signatory parties to an arbitration agreement, the following two scenarios will prominently emerge: first, where a signatory party to an arbitration agreement seeks joinder of a non-signatory party to the arbitration agreement; and second, where a non-signatory party itself seeks invocation of an arbitration agreement. In both the scenarios, the Referral Court will be required to prima facie rule on the existence of the arbitration agreement and whether the non-signatory is a veritable party to the arbitration agreement. In view of the complexity of such a determination, the Referral Court should leave it for the Arbitral Tribunal to decide whether the non-signatory party is indeed a party to the arbitration agreement on the basis of the factual evidence and application of legal doctrine. The Tribunal can delve into the factual....
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....nal from concluding to the contrary after an intensive inquiry. 35. This does not mean that where the Referral Court finds prima facie a party is not a veritable party still the matter is left to the Arbitral Tribunal. To hold so, would relegate the Referral Court to the status of a monotonous automation. Further, to countenance such an extreme proposition would lead to disastrous consequences, where absolute strangers could walk into the Referral Court and contend that the matter has to perforce go to the Arbitral Tribunal for a decision on the veritable nature of the party. We are not prepared to accept such an extreme proposition. 36. It could happen that one party having undertaken a contract from the other may engage one or more third parties like in the present case. In such a scenario, if there is nothing even prima facie to show that there was any semblance of an intent to effect legal relationship between that party and the party originally granting the contract and/or to indicate that such a third party was a veritable party, such parties cannot be found to be veritable parties. The following pertinent observations from Cox and Kings (Supra) are relevant: - ....
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....ah Company Limited vs. Raymon & Co. 1963 3 SCR 183 wherein this Court held as under:- "The law of the subject is well settled and might be stated in simple terms. An assignment of a contract might result by transfer either of the rights or of the obligations thereunder. But there is a well-recognised distinction between these two classes of assignments. As a rule obligations under a contract cannot be assigned except with the consent of the promise, and when such consent is given, it is really a novation resulting in substitution of liabilities. On the other hand rights under a contract are assignable unless the contract is personal in its nature the rights are incapable of assignment either under the law or under an agreement between the parties." 40. Applying the consensual theory or the non-consensual theory, the respondent has not established its case to show even prima facie the existence of an arbitration agreement between HPCL and the respondent. Reference to copies of group emails being marked to HPCL or the creation of an escrow account on account of the contract between AGC and the respondent BCL, fall far short of making out of a prima facie case. We have als....