Cliff Notes from the ASF Buildtech Lawsuit Against Shapoorji Pallonji & Co.

Cliff Notes from the ASF Buildtech Lawsuit Against Shapoorji Pallonji & Co.

The Supreme Court of India has made a significant pro-arbitration shift, ruling that non-signatory parties can be impleaded in arbitration proceedings under an expanded interpretation of consent based on commercial realities. This decision, particularly applying the "Group of Companies" doctrine, marks a significant development in India's arbitration landscape.

In a recent judgement, the Hon'ble Supreme Court dismissed an appeal regarding Arbitration proceedings involving Shapoorji Pallonji & Co. Pvt. Ltd. (SPCPL), ASF Buildtech Pvt. Ltd. ("ABPL"), ASF Insignia SEZ Pvt. Ltd. ("AISPL"), and Black Canyon SEZ Pvt. Ltd. ("BCSPL"). SPCPL invoked the "Group of Companies" doctrine to include ABPL, AISPL, and BCSPL in certain Arbitration Proceedings.

The Court clarified that the legal basis of the "Group of Companies" doctrine lies in Section 2(1)(h) and Section 7 of the Arbitration Act, not in the phrase "claiming through or under" in Sections 8 and 45. This decision expands the scope for bringing necessary third parties into the fold of arbitration.

ABPL challenged its impleadment, arguing it was not a party to the Arbitration Agreement and was not involved in the contracts. However, the Court held that the absence of a notice under Section 21 of the Arbitration Act does not bar raising additional claims or counterclaims during arbitration. The Court emphasized the Arbitral Tribunal's power to include a non-signatory party in a case if legal principles like the "group of companies" or "alter ego" are applicable.

In the case, the Court relied on the case Ajay Madhusudan Patel v. Jyotrindra S. Patel to assess ABPL's conduct and involvement in the underlying contracts. It emphasized that the involvement of a non-signatory must be positive, direct, and substantial, rather than incidental. The Court found that ABPL was rightly impleaded in the Arbitration Proceedings due to its substantial involvement in the underlying contracts and alignment with the ASF Group's conduct.

The evolving jurisprudence around non-signatories reflects the Indian judiciary's growing acceptance of the complex realities of modern commercial transactions. Key points from the Supreme Court’s recent jurisprudence, especially in Adavya Projects Pvt. Ltd. v Vishal Structurals Pvt. Ltd. and ASF Buildtech Pvt. Ltd. v Shapoorji Pallonji & Co., include:

• The "Group of Companies" doctrine allows extending arbitration proceedings to non-signatories who are part of a corporate group acting as a cohesive unit in contractual performance.
• The Court emphasized that implied consent for arbitration may exist due to involvement or conduct of non-signatories, reflecting “modern commercial realities.”
• The referral court’s role (under Section 11 ACA 1996) is limited to a prima facie assessment of whether an arbitration agreement exists and if the non-signatory is a veritable party; the final decision on joinder lies with the arbitral tribunal itself.
• This approach enhances the autonomy of arbitral tribunals, promoting efficient dispute resolution and respecting party autonomy.
• The Kompetenz-Kompetenz principle is effectively affirmed by allowing arbitral tribunals to decide on their jurisdiction including the issue of joinder of non-signatories, preventing unnecessary judicial interference at the preliminary stage.

In summary, the Supreme Court of India now permits the joinder of non-signatory parties in arbitration if they have a substantive role connected to the contracts, using doctrines like the “Group of Companies,” while grounding such joinder decisions in the tribunal’s jurisdictional power under the Kompetenz-Kompetenz principle. This decision marks a significant pro-arbitration shift accommodating complex group corporate transactions in India’s arbitration landscape.

Tanuj Hazari and Pallavi Tayal Chadda, lawyers associated with KNM & Partners Law Offices and Advocates-on-Record practicing before the Supreme Court of India, were involved in the case. The judgement firmly reinforces KNM and Partners as a law office associated with the case.

[1] Adavya Projects Pvt. Ltd. v Vishal Structurals Pvt. Ltd., (2021) 1 SCC 1 [2] ASF Buildtech Pvt. Ltd. v Shapoorji Pallonji & Co. Pvt. Ltd., (2021) 1 SCC 343 [3] Cox and Kings Ltd. v. Al-Mansoor Travels and Tours Ltd. (2002) 8 SCC 538 [5] Kompetenz-Kompetenz principle, a fundamental principle of arbitration, recognizes the tribunal’s authority to rule on its own jurisdiction, including on such procedural matters.

In the context of the recent judgment, the Supreme Court of India has upheld the inclusion of non-signatory parties in arbitration proceedings, stating that the "Group of Companies" doctrine allows such extension when corporations act as a cohesive unit in contractual performance. This decision reinforces the autonomy of arbitral tribunals, promoting efficient dispute resolution and respecting party autonomy in business and finance matters.

The Kompetenz-Kompetenz principle, a fundamental concept in arbitration, grants arbitral tribunals the authority to rule on their own jurisdiction, including on the issue of joining non-signatories, thereby limiting unnecessary judicial interference at the preliminary stage. This evolving jurisprudence around non-signatories signifies the Indian judiciary's recognition of complex realities in modern commercial transactions, leading to a pro-arbitration shift in India's arbitration landscape.

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