Arbitration - A non-signatory party can be bound by an arbitration agreement

Bombay High Court Upholds Arbitral Award Against Rajasthan State Co-op Oil Seed Growers Federation Ltd. The court ruled that the federation was a "veritable party" to the arbitration agreement, despite being a non-signatory, due to its role in the underlying contracts.

The Bombay High Court has dismissed the appeal filed by Rajasthan State Co-op Oil Seed Growers Federation Ltd. (Tilam Sangh) challenging the arbitral award that held them liable for payments to B.G. Shirke Construction Technology Pvt. Ltd. The court found that Tilam Sangh, despite not being a signatory to the arbitration agreement, was a "veritable party" due to its involvement in the project and the interconnected nature of the contracts.

In a detailed judgment, Justice Somasekhar Sundaresan highlighted that the participation of Tilam Sangh in the negotiation and performance of the underlying contract, and its role in appointing the Project Management Consultant (PMC), National Heavy Engineering Co-operative Ltd. (NHEC), demonstrated implied consent to be bound by the arbitration agreement. The court emphasized that the law allows non-signatories to be bound by arbitration agreements when their conduct indicates such consent.

The court also addressed the issue of NHEC's liability, ruling that as a consultant, NHEC could not be held liable for payment obligations owed by Tilam Sangh. The court upheld the partial setting aside of the arbitral award that excised NHEC's joint liability, aligning with the principles established in the recent Supreme Court judgment in Gayatri Balasamy.

Justice Sundaresan reiterated the importance of respecting the finality of arbitral awards and cautioned against casual interference, stating that only in cases of implausible findings should courts intervene. The court found that the district court's decision to sever NHEC's liability was not a modification but a permissible excision that did not undermine the rest of the arbitral award.

This judgment reaffirms the legal position that entities deeply involved in a contractual project can be held accountable under arbitration agreements, even if not direct signatories, thereby upholding the principles of commercial efficacy and party autonomy in arbitration proceedings.

Bottom Line:

Determination of privity of contract and implied consent of a non-signatory to an arbitration agreement based on the conduct, negotiation, and participation in the performance of the underlying contract.

Statutory provision(s): Arbitration and Conciliation Act, 1996 Sections 34, 37

Rajasthan State Co-op Oil Seed Growers Federation Ltd. v. B.G. Shirke Construction Technology Pvt. Ltd., (Bombay) : Law Finder Doc Id # 2803743