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Can a non-signatory be bound by an arbitration agreement? Part 2
The doctrine implies that a non-signatory party could be subjected to arbitration provided the transaction was with a group of companies, and there was a clear intention of the parties to bind both, the signatory as well as the non-signatory parties. In other words, ‘intention of the party is a very significant feature that must be established before the scope of arbitration can be said to include the signatory as well as non-signatory parties.
Just for joining a non-signatory was spelled out as follows:
“a non-signatory or third party could be subjected to arbitration without the prior consent, but this would only be in exceptional cases. The court will examine these exceptions from the touchstone of direct relation to the party signatory to the arbitration agreement, directly commonality of Deep subject matter, and the agreement between the parties being a composite transaction. The transaction should be of a composite nature where the performance of the mother agreement may not be feasible without aid, execution, and performance of the supplementary or ancillary agreements, for achieving the common object and collectively having bearing on the dispute. Besides all this, the court would have to examine whether a composite reference of such parties would serve the ends of justice. Once this exercise is completed and the “answer is the same in the affirmative, the reference of even non-signatory parties would fall within the exception afore-discussed.”
In cases of the composite transaction and multiple agreements, the intention of the parties to refer non-signatories to arbitration can be discerned if the agreements are so interlinked that you need a composite performance can discharge the mutual obligations of the parties.
In Cheran Properties Limited V. Kasturi And Sons Limited & Ors[1], the issue before the court was whether a non-signatory, who was the nominee of one of the parties, would be bound by the arbitral award. The court held that the circumstances in which the agreement was entered into would reflect the intention to bind both signatories and non-signatories’ entities within the same group. Factors such as the relationship of a non-signatory to a signatory to the agreement, the commonality of the subject matter, and the composite nature of the transaction are to be taken into consideration. The effort to find the true essence of the business agreement, and to unravel from a layered structure of the commercial arrangement, The intent of bind a party who is not formally a signatory, but has assumed the obligation to be bound by the actions of the signatory. The court held that the award was enforceable even against a non-signatory nominee. Section 35 of the 1996 Act provides that a person, who claims under a party, is bound by the award. The award was held to be binding on the nominee as he was a person claiming under a party to the agreement.
The doctrine was essentially intended to facilitate the fulfillment of a mutual held intent between the parties, where the circumstances indicated that the intent was to bind both signatories and non-signatories. The effort must be to find the true essence of the business and enjoyment and unrevealed from a layered structure of the commercial arrangement, the intent to bind a party who is not formally a signatory to the agreement but has assumed the obligation of the signatory.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.
- Can a non-signatory be bound by an arbitration agreement? Part 2
- Non-Signatory
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