TaxTMI 
TaxTMI 
2026 (3) TMI 1142
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....ed was renewed from time to time. The reconstituted partnership deed contained an arbitration agreement under clause 25 thereof, which is quoted below:- "THAT all matters of differences/dispute relating to the said partnership affairs shall be referred to arbitration according to and subject to the prevailing provisions of the Arbitration Act, or as amended from time to time." 2. According to Mr. Chowdhury, learned senior Advocate, pursuant to the final amendment to the reconstituted deed, vide an agreement dated April 6, 2023, the petitioner and the respondent Nos. 1 and 2 had the following shares in the partnership business:- "(a) Petitioner : 47.5% (b) Respondent No. 1 : 47.5% (c) Respondent No. 2 : 5%" 3. Mr. Chowdhury alleged that the respondent No. 1 acted in an unfair, unjust, disloyal and inequitable manner and denied the right of petitioner as a partner of the said firm. The respondent No. 1 was siphoning off the assets of the firm. The respondent No. 3, was nothing, but the alter ego of the respondent No 1. The respondent no. 1 was also poaching the clients, customers, employees, staff and workmen of the firm, thereby promoting th....
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.... poach any client or employee or staff of the firm, or take any other step to render the MOU infructuous. However, there were violations of the terms. The respondent no. 3 used the same user id of the said firm. Further, the registered office of the respondent no. 3 was the same as the office of the respondent no. 4. The business of the firm was usurped by the respondent No. 1. The respondent No. 3 was running a parallel business. The respondent No. 1 severed all relationship with the petitioner vis-à-vis the firm. The petitioner was kept away from all such business related activities of the firm. It was further alleged that the respondent No. 1 continued to act unjustly and unfairly against the interest of the firm. 6. Thus, disputes cropped up between the parties, and the petitioner filed an application under Section 9 of the Arbitration and Conciliation Act, 1996 for various interim reliefs. The application under Section 9 came up for hearing before the High Court. The following order was passed:- "...... 7. Although the law provides that any difference arising as to ordinary matters connected with the business may be decided by a majority of the part....
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.... Exports' as well. The submission of Mr. Chowdhury, learned Senior Advocate that, Green Bridge Exports Private Limited has been using the premises and the assets of Ashoka Exports, shall be decided on the next date." 8. The petitioner issued a notice under Section 21 of the Arbitration and Conciliation Act, invoking clause 25 of the reconstituted Partnership Deed, and nominated a retired Chief Justice to act as the sole arbitrator for adjudication of the claims of the petitioner. Mr. Jishnu Chowdhury submitted that this was a fit case for appointment of an arbitrator, in view of the disputes between the parties. The corporate veil of the respondent No. 3 should be pierced, to appreciate the role and involvement of the respondent No. 3 in the dispute which had arisen. 9. Mr. Jishnu Chowdhury relied on the following decisions:- (i) Cox and Kings Limited vs Sap India Private Limited and Anr. reported in (2024) 4 SCC 1 (ii) Oil and Natural Gas Corporation Limtied vs Discovery Enterprises private Limited and Anr. reported in (2022) 8 SCC 42 (iii) Cox and Kings Limited vs Sap India Private Limited and Anr. reported in (2025) 1 SCC 611, ....
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....ion agreement. Moreover, the respondent No. 3 was not a party to the injunction application, but had been craftily added as a respondent in this application. This attempt of the petitioner to drag the respondent No. 3 to an arbitral proceeding, was nothing but a ploy to harass and the respondent No. 3 and hinder its business. 13. Mr. Mookherjee learned senior Advocate further submitted that the decisions relied upon by Mr. Jishnu Chowdhury were under the group companies doctrine. In those decisions, the central issue was whether a company who was not a signatory to an arbitration agreement should be referred to arbitration, being a part or constituent of the same group. In all such decisions, it had been recognized that the group companies' doctrine was a consent-based doctrine for identifying the real intention of the parties to bind the non-signatory corporate entities to an arbitration agreement. Mr. Mookherjee referred to paragraphs 85 to 94 of the decisions reported in Cox and Kings Limited vs. Sap India Private Limited and Another reported in (2024) 4 SCC 1 in support of his contentions. 14. It was urged that, in the case in hand, the respondent No. 3 had not expres....
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....ed personal covenants which were relevant only to the partners of the respondent no. 4. 16. Moreover, the Hon'ble Apex Court had specifically held in the decision of Cox and Kings (supra) that the referral court should, prima facie, come to a finding that the non-signatory was a veritable party before referring such non-signatory to arbitration. 17. Considered the rival contentions of the parties. The petitioner and the respondent nos. 1 and 2 are partners of a firm registered under the Indian Partnership Act, The partnership is governed by the Reconstituted Partnership Deed dated April 1, 2009. Clause 19 provides that each partner shall be just and faithful to each other in all transactions relating to the partnership and shall at all times be responsible to give the other a just and faithful account of the partnership business. Clause 21 provides that no partner shall, without the consent in writing of the other partner, start a similar or identical type of business like that of the firm. Clause 25 provides that all matters of dispute relating to the affairs of the partnership, shall be referred to arbitration, according to and subject to the prevailing provisions of the Ar....
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....ve agreed to devise modalities within 2 years (31.03.2027) so as the business of Promo is also divided equally between them." 19. Both parties, keeping the future in mind had amicably decided to split the existing business of manufacture and export of jute, cotton, jute bags as per the agreed terms and conditions. The MOU provided that Ashoka Exports, that is the respondent no. 4, would remain a partnership firm. The petitioner and the respondent no. 1 would be equal partners. M/s Preview Barter Private (PBL) Limited which was a 5% partner, would retire and all the investments of PBL would be returned back. The respondent no. 4 would remain in existence till both the parties mutually decided to wind up the respondent no. 4. and the winding up process would start within a maximum of 2 years. Therefore, the existing domestic and export clients of the respondent no. 4 would be divided between both the parties as per the list attached to the MOU, except M/s Promogift and M/s Promoline of Italy, which would remain in the joint partnership of Ashoka Exports. The business of Promo would be divided equally between the parties as per value and profit and would be executed by the parties ....
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....no. 4, during the subsistence of the firm, by not only poaching the customers and obtaining the purchase orders, but also by taking away the men and machinery of the partnership business. The respondent no. 3 was functioning from the same premises as that of the respondent no. 4 and also using the same user id. The referral Court cannot delve deeper into the issues and hold a mini-trial, but refer the dispute to arbitration, leaving it open to the learned Arbitrator to decide on the issue of mis-joinder of the respondent No. 3. The learned arbitrator has the jurisdiction to decide who can be impleaded and who cannot. The arbitrator can also add a party or delete a party. The learned arbitrator can impose cost if he finds that a non-signatory has been unnecessarily dragged into the proceeding. Any firm opinion of the referral court on the issue of mis-joinder runs the risk of frustrating the arbitration agreement, thereby, causing serious prejudice to the claimant. The allegations also revolve around the mode and manner in which the respondent No. 3 had derived benefits from the business of the firm, thereby, being bound by the doctrine of estoppel. 22. In Cox and Kings (supra), ....
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....implied consent, whereby the corporate affiliations among distinct legal entities provide the foundation for concluding that they were intended to be parties to an agreement, notwithstanding their formal status as non-signatories [Id, p. 1450]." 39. Recently, John Fellas elaborated on the principle of binding a non-signatory to an arbitration agreement from the lens of the doctrine of estoppel. He situated the rationale behind the application of the principle of direct estoppel against competing considerations of party autonomy and consent in interpreting arbitration agreements. Fellas observed that non-signatory parties can be bound by the principle of direct estoppel to prohibit such a party from deriving the benefits of a contract while disavowing the obligations to arbitrate under the same: "There are at least two distinct types of estoppel doctrine that apply in the non-signatory context: "the direct benefits" estoppel theory and the "intertwined" estoppel theory. The direct benefits theory bears the hallmark of any estoppel doctrine-prohibiting a party from taking inconsistent positions or seeking to "have it both ways" by "rely[ing] on the contract when it ....
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....Referral Courts must be exercised reasonably and in a fair manner. Fairness in this context does not just extend to a non-signatory's rights and its apprehension of prejudice, fairness also demands that the arbitration proceedings is given due time to gestate so that the entire dispute is holistically decided. Any determination even if prima facie by a Referral Court on such aspects would entail an inherent risk of frustrating the very purpose of resolution of dispute, if the Referral Courts opine that a non-signatory in question is not a veritable party. On the other hand, the apprehensions of prejudice can be properly mitigated by leaving such question for the Arbitral Tribunal to decide, as such party can always take recourse to Section 16 of the 1996 Act and thereafter in appeal under Section 37, and where it is found that such party was put through the rigmarole of arbitration proceedings vexatiously, both the Tribunal and the courts, as the case may be, should not only require that all costs of arbitration insofar as such non-signatory is concerned be borne by the party who vexatiously impleaded it, but the Arbitral Tribunal would be well within its powers to also impose ....
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.... of Companies' doctrine, when determining whether a non-signatory may be bound by an arbitration agreement. 113. It is well within the jurisdiction of the Arbitral Tribunal to decide the issue of joinder and non-joinder of parties and to assess the applicability of the Group of Companies Doctrine. Neither in Cox and Kings (I) (supra) nor in Ajay Madhusudhan (supra), this Court has said that it is only the reference courts that are empowered to determine whether a non-signatory should be referred to arbitration. The law which has developed over a period of time is that both 'courts and tribunals' are fully empowered to decide the issues of impleadment of a non-signatory and Arbitral Tribunals have been held to be preferred forum for the adjudication of the same. 114. In the case of Ajay Madhusudhan (supra), this Court, placing reliance on Cox and Kings (I) (supra), has expressly held that Section 16 is an inclusive provision which comprehends all preliminary issues touching upon the jurisdiction of the arbitral tribunal and the issue of determining parties to an arbitration agreement goes to the very root of the jurisdictional competence of the arbitral tribunal. ....
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....ibunal would have the power to implead them as parties to the arbitration proceedings in exercise of its jurisdiction under Section 16 of the Act, 1996. The relevant observations read as under:- "24. As briefly stated above, the determination of who is a party to the arbitration agreement falls within the domain of the arbitral tribunal as per Section 16 of the ACA. Section 16 embodies the doctrine of kompetenz-kompetenz, i.e., that the arbitral tribunal can determine its own jurisdiction. The provision is inclusive and covers all jurisdictional questions, including the existence and validity of the arbitration agreement, who is a party to the arbitration agreement. and the scope of disputes referrable to arbitration under the agreement. Considering that the arbitral tribunal's power to make an award that binds the parties is derived from the arbitration agreement, these jurisdictional issues must necessarily be decided through an interpretation of the arbitration agreement itself. Therefore, the arbitral tribunal's jurisdiction must be determined against the touchstone of the arbitration agreement. * * * 118. Furthermore, the legislative intent u....