Joinder in Question: Is India Ready to Let Arbitral Tribunals Decide?

[Ira and Vedant are students at Hidayatullah National Law University.]

Recently, in ASF Buildtech Private Limited v. Shapoorji Pallonji and Company Private Limited (ASF Buildtech), the Supreme Court has made it clear that arbitral tribunals in India do have the power to bring non-signatories into arbitration proceedings. The court emphasized that once an arbitral tribunal is constituted, all jurisdictional and factual issues, including the status of non-signatories, should be resolved by the tribunal. Court intervention must be only under the limited scope of review permitted by Section 34 of the Arbitration and Conciliation Act 1996 (Act).

Additionally, the court strongly criticized the central government for not including this important point in the proposed Arbitration and Conciliation (Amendment) Bill 2024 (Bill). It warned that leaving this issue unresolved in the legislation could lead to confusion and delays in arbitration. This decision reinforces the growing idea that arbitral tribunals are best suited to decide who is bound by an arbitration agreement.

The comments of the apex court point towards strengthening the efficiency and independence of arbitration in India, especially in complex commercial matters involving multiple parties. The authors aim to explain why it is important for the law to clearly state that arbitral tribunals have the power to include non-signatories in arbitration. The authors also look at the practical problems that might come up because of gaps or confusion in the current legal framework.

Clarifying the Arbitral Tribunal’s Authority to Implead Non-Signatories Post Cox and Kings 

The legal foundation for such joinders of non-signatories is based on evolving jurisprudence, not on express statutory language. This gives way to judicial uncertainties.  It was in this context; the court urged the Union to give statutory recognition to the arbitral tribunal's power to implead or join non-signatories. A quick glance at the evolving jurisprudence on the matter post Cox and Kings Limited v. SAP India Private Limited (Cox and Kings) is enough to observe the aforementioned uncertainties.

In Cox and Kings, the Supreme Court redefined the framework for the joinder of non-signatories in arbitration by clarifying the respective roles of referral courts and arbitral tribunals. The court held that at the referral stage, under Sections 8 or 11 of the Act, the court is only required to undertake a prima facie examination of the status of non-signatories. However, questions involving a detailed factual inquiry of the same must be left to the arbitral tribunal.

Despite Cox and Kings, until ASF Buildtech the High Courts were still divided on the powers of the arbitral tribunal to implead non-signatories. For example, the Bombay High Court in Cardinal Energy and Infra Structure Private Limited v. Subramanya Construction and Development Company Limited (Cardinal Energy) held that it is not necessary that the issue of joining a non-signatory be raised before the referral court under Section 11. The arbitral tribunal is vested with the authority to determine this issue and permit the impleadment of a non-signatory at a later stage.

Contrastingly, the Delhi High Court in Adavya Projects (Private) Limited v. Vishal Structurals (Private) Limited, (Adavya Projects) has reiterated the earlier views of Arupri Logistics (Private) Limited v. Vilas Gupta, where it was held that impleadment of parties is a power vested only in the sovereign judiciary, and not in an adjudicatory body exercising powers born out of consent. The divide in judicial opinion, even after Cox and Kings highlights the urgent need for legislative clarity.

While Cox and Kings confirmed that arbitral tribunals can decide whether to include non-signatories by looking into the facts, conflicting High Court decisions like Adavya Projects and Cardinal Energy show that confusion still remains. Tribunals may have the power, but how that power is defined and applied by courts is still unclear. At times, this uncertainty risks weakening key principles of arbitration as shown below. This makes legislative intervention all the more important.

Protecting the Referral Court’s Prima Facie Rulings

Another concern has come up due to the lack of clear law. In the appeal against the Delhi High Court’s decision in Adavya Projects, the Supreme Court seemed to downplay the role of the referral court’s prima facie ruling. The referral court’s prima facie review acts as an important safeguard for non-signatories to argue that they are not bound by the arbitration agreement.

At this early stage, the non-signatory has a chance to present its case, and the court can decide whether it should be excluded from the arbitration. However, if the non-signatory is brought into the case only after the arbitral tribunal is formed, it loses this early protection.

In such cases, if the arbitral tribunal determines that a non-signatory is a party to the arbitration, the only recourse available is to challenge this finding after the final award is rendered. This procedural limitation raises significant concerns, as it may compel a non-signatory to undergo the entire arbitration process before being able to contest its inclusion. This approach arguably undermines procedural efficiency and fairness, especially when compared to the practice in many other jurisdictions that permit early judicial review of jurisdictional decisions.

This tricky situation for non-signatories comes from the Supreme Court’s ruling in Cox & Kings, which said that only a ‘party’ to the arbitration agreement can ask the court for interim relief. This means a non-signatory can only request such help after the arbitrator has officially decided that they are part of the arbitration. Until then, non-signatories have no way to seek early protection, making their position uncertain and challenging.

The legislature can play a crucial role by explicitly defining the scope and process for impleading non-signatories, including establishing a clear framework for early judicial review. Introducing provisions that allow non-signatories to challenge their inclusion before the arbitral tribunal is constituted would provide essential safeguards and prevent unnecessary arbitration costs. Additionally, the law could grant non-signatories limited rights to seek interim relief.

Potential Legislative Reforms to Demarcate the Tribunal’s Powers

The court’s criticism of the Bill serves as an excellent opportunity for the legislature to bring Indian arbitration practices in line with international standards. Jurisdictions like the USA and Singapore have recognized the arbitral tribunal’s power to implead non-signatories. Their rationale is hinged on the principle of kompetenz-kompetenz that empowers the tribunals to determine their own jurisdiction.

To bring parity, the legislature could consider amending Section 16 of the Act to specifically allow tribunals to implead non-signatories. This can be done by adding a new sub-section dedicated to the impleadment of such parties. Such a move would streamline arbitration and reduce unnecessary court intervention.

The ICC Arbitration Rules 2021 provide a valuable reference point by introducing a two-tier mechanism for the joinder of third parties. Where a tribunal has been constituted, it decides on the joinder; if not, the ICC Secretariat makes the determination. This structured separation of powers not only maintains procedural balance but also ensures that the rights of non-signatories are protected at every stage. Adopting a similar framework in India could help prevent excessive expansion of tribunal authority, as seen in Advaya Projects.

While amending Section 16, the legislature may adopt a liberal phrasing after giving reference to Article 6.3 of the Swiss Rules of International Arbitrations 2021, where the tribunal must take “into account all relevant circumstances” to take its decision on joinder of a third party.

However, considering India’s restrictive approach to the powers of the tribunal, the narrow phrasing of the Arbitration Rules of the SCC Arbitration Institute 2023 may offer a more suitable adoption. The SCC rules give the SCC’s Board of Directors, which may be the equivalent of a referral court, the responsibility to ensure that the tribunal “does not manifestly lack jurisdiction over the dispute between the parties, including any additional party”.

Whatever the case may be, any amendment allowing impleadment of non-signatories must make party autonomy the central safeguard. Tribunals should be required to demonstrate a clear and direct intent to arbitrate from the non-signatory and not merely an inferred association. This can be established through conduct, commercial involvement, or established legal doctrines like estoppel or the group of companies. Codifying this high threshold would prevent tribunals from loosely expanding their jurisdiction based on vague notions of equity or efficiency.

Conclusion

In conclusion, clear legislative reform is essential to resolve the existing uncertainties around the power of arbitral tribunals to implead non-signatories. Amending the Act to explicitly define the tribunal’s authority, while setting reasonable conditions for impleadment, will enhance arbitration’s efficiency and fairness. Providing non-signatories with the right to early judicial review and a meaningful opportunity to oppose joinder will protect their interests and uphold core arbitration principles. Such reforms will align India’s arbitration framework with international best practices, promoting greater confidence in arbitration as a reliable dispute resolution mechanism.