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IMPLEADING FOREIGN COMPANY IN AN ARBITRATION PROCEEDING

IMPLEADING FOREIGN COMPANY IN AN ARBITRATION PROCEEDING

IN THE SUPREME COURT OF INDIA

RECKITT BENCKISER (INDIA) PVT LTD v. REYNDERS LABEL PRINTING (INDIA) PVT LTD & ANR

                               2019 SCC OnLine SC 809                 dated: 1.07.2019

FACTS

In this case, the Respondents are constituents of a group of companies known as “Reynders Label Printing Group”.

Respondent No. 1 and the Applicant had signed an agreement dated 1st May, 2014. Disputes arose between both the parties and pursuant to which notice of arbitration was issued.

The parties could not agree on a common arbitrator and hence a Section 11 application was filed.

It is the contention of the Applicant that it should be considered an international commercial arbitration by impleading the foreign company, from the same group of companies involved in the negotiation process of the Contract as Respondent No. 2 and hence this Application has been filed before the Supreme Court.               

ISSUE BEFORE THE SC

The sole issue that came for consideration before the Hon’ble Apex Court was:

Whether the foreign company can be impleaded in the arbitration proceedings and consider the arbitration as international commercial arbitration?

OBSERVATION                                                                                                                                                                                               

To conclusively determine the first issue, the Court considered the arguments of both the parties in grave detail.

The Court took note of both the parties’ submissions and also considered relevant case laws relied on by both the parties.

The Applicant had relied upon emails of one Mr. Frederik Reynders who was involved in the negotiation process of the agreement between them and Respondent No. 1. The Applicant assumed that Mr. Frederik was an employee of Respondent No. 2 and hence Respondent No. 2 must be impleaded as a party in the arbitration proceedings.

It was also mentioned by Applicant in it’s submissions that Respondent No. 2 is the foreign holding company of Respondent No. 1.

This assumption of Mr. Frederick being an employee of Respondent No. 2 was denied by them in their Affidavit. Respondent No. 2 also clarified that it was not the holding company whereas both Respondents were part of the same group of companies having a common holding company.

Thus, the Court having taken the above facts into consideration observed that:

Thus, respondent No.2 was neither the signatory to the arbitration agreement nor did have any causal connection with the process of negotiations preceding the agreement or the execution thereof, whatsoever. If the main plank of the applicant, that Mr. Frederik Reynders was acting for and on behalf of respondent No.2 and had the authority of respondent No.2, collapses, then it must necessarily follow that respondent No.2 was not a party to the stated agreement nor had it given assent to the arbitration agreement and, in absence thereof, even if respondent No.2 happens to be a constituent of the group of companies of which respondent No.1 is also a constituent, that will be of no avail.

The Supreme Court also opined that the Applicant had the burden to prove that both the Respondents were connected in order to implead Respondent No. 2 in the arbitration proceedings and appoint an arbitrator for an international commercial arbitration. However, the Applicant was unable to do the same.

CONCLUDING VIEW                                                                                                                                                                                     

The Supreme Court, at the outset had observed that it was only going to justify the existence of a valid arbitration agreement under Section 11.

The Supreme Court concluded that both the Respondents were not connected to each other and were only part of the same group of companies. Hence, the arbitration would be governed according to it being a domestic commercial arbitration.

The Supreme Court, on getting to know the facts of the case held that they had no jurisdiction to appoint an arbitrator for a domestic arbitration under the Arbitration and Conciliation Act, 1996. However, to save time they went on to appoint an arbitrator for a domestic commercial arbitration regardless.

For the above reasons, the Supreme Court held the following:

13. ……. The arbitration application is dismissed as against respondent No.2. However, we appoint Mr. Justice Badar Durrez Ahmed (Former Chief Justice, Jammu & Kashmir High Court) as the sole arbitrator to conduct domestic commercial arbitration at New Delhi, between the applicant and respondent No.1 on the terms and conditions as specified in the Act of 1996.

REASON OF JURISPRUDENCE

 The Court accepted the Respondent’s reliance on the case of Godhra Electricity Co. Ltd & Another v. State of Gujarat & Another [(1975) 1 SCC 199].

The Apex Court on basing its findings on the judgment, held as under:

The respondent No.2 has justly relied upon the exposition in Godhra Electricity Co. Ltd. and Anr. v. State of Gujarat and Anr. to buttress the argument that post negotiations in law would not bind the respondent No.2 qua the arbitration agreement limited between applicant and respondent No.1. In any case, even this plea is based on the assumption that Mr. Frederik Reynders was associated with and had authority to transact on behalf of respondent No.2, which assertion has been refuted and rebutted by respondent No.2. It is clearly stated that Mr. Frederik Reynders was neither connected to nor had any authority of respondent No.2, but was only an employee of respondent No.1 and acted only in that capacity.”

The Supreme Court thus found that post negotiations involvement will not make the party to be impleaded in the arbitration proceedings.                                   

AMLEGALS REMARKS

In the present case, the Court clarified that only because a person/company is involved in the negotiation stage, it does not open a gateway to implead the party in the arbitration proceedings; even when they are a part of the same group of companies.

This judgment can be a guiding light to various future instances where the Applicant decides to coerce and/or create pressure on the Respondent by trying to make the Respondent’s familiar parties a party to the arbitration proceedings.             

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