APEX COURT HELD THAT
Arbitration and Conciliation Act, 1996 — Section 11(6) — Non-signatory to arbitration agreement — Collaborator/Associate under bid contract — Whether entitled to invoke arbitration clause — Held, yes — Collaborator held to be a veritable and inextricable party to contract.
The Supreme Court held that where the bid conditions required collaboration for technical qualification and mandated execution of a Deed of Joint Undertaking (DJU) jointly by the Contractor and Collaborator for successful performance of the contract, the Collaborator became an inseparable and veritable party to the principal contract. The Court held that the arbitration clause contained in the contract between the Employer and Contractor was enforceable by the Collaborator also, particularly when the Employer itself had repeatedly invoked the Collaborator’s obligations under the DJU. (Paras 6, 7, 11)
Arbitration — Non-signatory doctrine — Veritable party test — Application thereof.
The Court reiterated that even non-signatories to an agreement containing an arbitration clause may invoke arbitration if they are veritable parties to the agreement. In the present case, the Collaborator’s technical expertise and experience were indispensable for the Contractor’s eligibility to participate in the bid process, and the DJU formed an inextricable component of the contract structure. Accordingly, the Collaborator was held entitled to invoke arbitration despite not being a direct signatory to the principal contract. (Paras 3, 4, 7, 11)
Contract Law — Deed of Joint Undertaking (DJU) — Joint and several liability — Effect.
The Supreme Court held that the DJU executed jointly by the Contractor and Collaborator imposed joint and several liability for due completion of the project. The Employer itself had invoked the DJU and demanded performance from the Collaborator after the Contractor entered liquidation. Such conduct reaffirmed the contractual status and obligations of the Collaborator under the principal contract. (Paras 4, 9, 10, 11)
Arbitration — Interpretation of notice under Section 21 — Mere request for consent to institutional arbitration — Not admission of absence of arbitration agreement.
The Court rejected the contention that the Collaborator’s request seeking consent for reference of disputes to the Delhi International Arbitration Centre amounted to admission that no arbitration agreement existed. The Court held that the request was only with respect to the arbitral forum and not a request for creation of an arbitration agreement, since the arbitration clause already existed in the underlying contract. (Para 9)
Contract Law — Tripartite agreement executed after contractor’s default — Whether superseded earlier contract — Held, no.
The Supreme Court held that the tripartite agreement executed among the Employer, Contractor and Collaborator after delays in project execution did not extinguish or supersede the earlier contractual arrangement. The agreement merely facilitated direct payment to the Collaborator and reaffirmed the Collaborator’s continuing obligations under the DJU and the principal contract. (Paras 8, 9)
Arbitration and Conciliation Act, 1996 — Section 11(6) — High Court’s refusal to appoint Arbitrator — Set aside.
The Supreme Court held that the High Court erred in rejecting the Section 11(6) petition on the ground of absence of privity of contract. In view of the contractual framework, DJU, subsequent tripartite agreement, and repeated invocation of obligations against the Collaborator, the Collaborator was entitled to invoke the arbitration clause. Accordingly, the impugned judgment was set aside and a sole Arbitrator was appointed. (Paras 11, 12)
Result — Appeal allowed — Sole Arbitrator appointed.
The Supreme Court allowed the appeal, set aside the High Court judgment, and appointed Justice (Retd.) Chakradhari Sharan Singh, former Chief Justice of the Orissa High Court, as sole Arbitrator to adjudicate disputes between the parties, leaving all contentions open to be urged before the Arbitrator. (Paras 12 to 15)
