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14 February 2022, Monday

2 years ago

Intention and conduct of parties relevant for incorporation of an arbitration agreement by reference. Group of companies doctrine applies even in a case involving unincorporated entities (trust), and notice of arbitration need not set all claims: Delhi Hi

31 January 2022 | Ashav Advisory LLP v. Patanjali Ayurveda Limited & others | Arb P No 905 of 2021 | Delhi High Court | Vibhu Bakhru J | 2022 SCC OnLine Del 328

The Delhi High Court has appointed a sole arbitrator in a case that involved arguments on the incorporation of the arbitration agreement by reference and joinder of non-signatories by applying the group of companies doctrine.

The dispute revolved around two memoranda of understanding—MOU I and MOU II— executed among the parties. MOU I was executed on 25 November 2019 and had an arbitration clause. Several other agreements were executed on this date. MOU II was executed a few days later on 09 December 2019, and had a clause stating that “ … all other documents executed on 25th November 2019 shall form part of this MOU.” Two other entities were added to the MOU—both trusts under the Patanjali group.

On considering the matter:

  1. The court ruled that it is not necessary for a party invoking arbitration to set out all claims in the notice of arbitration under Section 21 ACA. It is sufficient if the disputes sought to be referred is indicated. The court found that the requirement was met in the case, and therefore, rejected the argument that the notice was vague and non-est.
  2. The court found that the MOUs were not unconnected, and the dispute arose in connection with both MOUs. The issue arose because the respondents’ case was the petitioner wanted the constitution of a tribunal under the MOU-I, but the dispute arose under MOU II: hence, a tribunal constituted under the MOU-II could not be referred to a tribunal under MOU I.
  3. The argument that MOU-I was terminated was also rejected, applying the doctrine of severability, which was also provided in MOU-I.
  4. The argument that the MOU-II did not incorporate the arbitration clause of MOU-I was also rejected considering the language of incorporation and the intention and conduct of the parties (to carry forward MOU-I’s transaction). [citing MR Engineers (2009) 7 SCC 696]
  5. The court accepted the petitioner’s argument that the two other parties of MOU-II could be compelled to arbitrate based on the group of companies doctrine. Note here that the MOU-I had an arbitration clause, and three respondents were parties to it. This left two respondents who were parties to MOU-II. The court rejected the respondents’ contention that the group of companies doctrine applied only to incorporated entities—and not trusts. In addition, it found that the respondents together had an identity and were a group and had transacted with the petitioner as a group.

Read the decision here.

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Categories: Appointment of Arbitrators | Arbitration Agreement | Arbitration Agreement in Writing | Binding Non Signatory to Arbitration | Chloro Controls | Competence Competence | Competence of Arbitral Tribunal to Rule on its Jurisdiction | Composite Transaction | Construction of Arbitration Agreement | Doctrine of Group of Companies | Existence of Arbitration Agreement | Form of Arbitration Agreement | Formal Validity of Arbitration Agreement | Incorporation | Incorporation by Reference | Incorporation of Arbitration Agreement | Interpretation of Arbitration Agreement | Joinder of Non Signatories | Kompetenz Kompetenz | MTNL | Necessary Party | Notice of Arbitration | Proper Party | Section 11 (6A) ACA | Section 11 ACA | Section 21 ACA | Section 7 (5) ACA | Section 7 ACA | Vidya Drolia

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