RADIANT HITECH ENGINEERING PVT. LTD. v. FRACIS D ALMEIDA

in one Plant-Tech Industrial Services Limited ("Plant-Tech" in short), had entered into several independent share purchase agreements with its erstwhile share holders. The instant petition is in respect of the disputes, which have arisen under one such share purchase agreement dated 31.08.2021 entered with respondent No.1, the erstwhile shareholder who held shares of Plant-Tech aggregating to 14.94%. Under the above noted share purchase agreement, the petitioner acquired the share holding of respondent No.1 in Plant-Tech for a consideration of Rs.9,95,68,000/-.

2. The share purchase agreement at Clause 10.1, contains non- compete clause, which is the bone of contention of the petitioner. Under the said clause, respondent No.1 is prohibited for the period of 10 years from carrying on or engaging in any business, directly or indirectly (through any family members affiliates or otherwise), which competes with the whole or any part of the business or activity of Plant-Tech. There is also a prohibition under clause 10.1(ii) on respondent No.1 to solicit from any client/ consumer, business of the type carried out by Plant-Tech. Clause 10.1(iii) further records a consensus of both the parties that the restrictions contained in the non-compete clause are reasonable for the

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legitimate protection of the business and goodwill of Plant-Tech and in the event such covenants are breached by Respondent No.1, the petitioner would be entitled to a restraining order.

3. The contention of the petitioner is that the petitioner has discovered that the Company by the name of LMR Oils Private Limited ("LMR Oils" in short), respondent No.2, has been set up in breach of the non-compete clause of the share purchase agreement, which is engaged in the same business as that of Plant-Tech and is a direct market competitor. The entire share holding of LMR Oils is held by respondents No.3 to 5, who are wife and two children of respondent No.1. It is stated that LMR Oils was incorporated on 17.02.2017 and the land was taken on lease by LMR Oils under a lease deed dated 17.06.2018 to set up its unit. It is further contended that, in fact, while respondent No.1 was negotiating his exit from Plant-Tech on one side, LMR Oils was being parallelly set up with the money received by the sale of his share in Plant- Tech by respondent No.1. The factum of existence of LMR Oils was deliberately suppressed by the petitioner at the time of entering into the share purchase agreement. It is further submitted that on 29.08.2018, which is two days prior to the execution of the share purchase agreement, the Memorandum of Association of LMR

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Oils was amended to bring within the scope of its business, the very same services, which are offered by Plant-Tech such as Industrial tank cleaning, crude oil tank cleaning, petroleum product tank cleaning, above ground and underground tank cleaning, hazardous material tank cleaning, processing and recovery of valuables such as petroleum products such as crude oil, slop oil, bitumen and other similar items of commercial value from hazardous wastes, petroleum sludge, manufacture of stationary and mobile vacuum units for industrial services etc. discharge chamber, grit blasting, cooling towers cleaning, fire hydrant tank and pits cleaning, mechanical and piping U.H.P. sucker service. The memorandum of understanding was further amended on 07.05.2020 to once again add services/ activities, which are in direct competition with the business of Plant-Tech.

4. On 12.08.2019, the petitioner issued a legal notice to respondent No.1 alleging inter alia that the respondent No.1 has been advising, aiding and assisting his son and company i.e. LMR Oils in contravention of the share purchase agreement. Notice dated 22.03.2021 had further been issued calling upon respondent No.1 to cease and desist from directly or indirectly carrying on businesses, which would be competing with the business of the

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petitioner M/s.Radiant Hitech Engineering Pvt. Ltd. Respondent No.1, in his reply, had pointed out that respondent No.2, LMR Oils, is a distant corporate entity and respondent No.1 was neither advising nor engaging with the said company. On 30.07.2021, the petitioner instituted proceedings before the Commercial Court at Vadodara, namely, Commercial Civil Miscellaneous Application No.20 of 2021 under section 9 of the Arbitration and Conciliation Act,1996 ("the Arbitration Act" in short) seeking interim direction, wherein respondents No.2 to 5 have been impleaded as parties.

5. A notice dated 24.08.2021 invoking arbitration clause under the share purchase agreement was sent to the respondents,which is stated to have been duly served at their address. As there is failure on the part of the respondents to appoint an Arbitrator, the instant petition has been filed with the assertion stating that serious disputes have arisen between the parties pertaining to breach of the non-compete clause contained in the share purchase agreement, which is to be referred to the Arbitrator.

6. It is argued by the learned counsel for the petitioner that non- compete clause binds not only to respondents No.1, but his family members and affiliates. The clauses of the share purchase agreement show a mutual intention of all the parties herein to be

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bound by the terms of the agreement. Impleading respondents No.3 to 5, in the arbitration proceedings as third party beneficiaries is necessary in facts and circumstances of the present case. The decisions of the Apex Court in Chloro Controls India Private Limited vs. Severn Trent Water Purification Inc., (2013) 1 SCC 641, Purple Medical Solutions Pvt. Ltd. Vs MIV Therapeutics Inc & anr., (2015) 15 SCC 622, RV Solutions Pvt.Ltd vs. Ajay Kumar Dixit and others, 2019 SCC OnLine Del 6531 and Ameet Lalchand Shah and others vs. Rishabh Enterprises and another, (2018) 15 SCC 678, have been placed to assert that the non- signatory or third party to the arbitration agreement may be referred to the arbitral Tribunal so that the parties have their disputes collectively resolved by the process of arbitration. The intention of the parties to bind them with the arbitration clause can be gathered from the language employed therein. It was argued that the legal doctrine of piercing of veil, joint venture relations etc. has to be applied to see as to whether an arbitration agreement becomes inoperative or incapable of being performed, if not all parties are bound by the arbitration agreement. All the parties bound by the agreement, whether signatory or non-signatory to the arbitration agreement, shall be referred to arbitration.

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7. It is argued that under the Group of companies doctrine, an arbitration agreement entered into by a company within the Group of companies can bind its non-signatory and affiliates, if the circumstances demonstrate that mutual intention of the parties was to bind both the signatories as well as non-signatory parties.

8. With reference to R.V.Solutions Pvt. Limited (supra), it is submitted that a non-signatory or third party, could be subjected to arbitration without there being prior consent. The Court will examine, such cases from the touchstone of direct relationship of the party signatory to the arbitration agreement, direct commonality of the subject matter and the agreement between the parties being a composite transaction. Joinder of non-signatory parties to arbitration is not unknown to the arbitration jurisprudence.

9. Referring to the decision of the Apex Court in Purple Medical Solutions Pvt. Ltd.(supra), it was vehemently contended by learned Senior Counsel for the petitioner that the second respondent (respondent No.2) is an 'alter ego' of the first respondent (respondent No.1). The second respondent is merely a corporate veil of the first respondent. All acts/deeds/transactions are performed by the second respondent on behalf of the first

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respondent. It is, thus, contended that the appointment of an Arbitrator to be made by the Court should not only be for the first respondent but also for all other respondents, namely, respondents No.2 to 5, being company and its Directors working with the aid and assistance of the first respondent.

10.Principles reiterated in Ameet Lalchand Shah and others (supra) are pressed into service to argue that all ancillary disputes ought to refer to arbitration to decide them at one platform. 11.Reliance has also been placed on the decision of the Apex Court in the case of Oil and Natural Gas Corporation Limited vs. Discovery Enterprises Private Limited and another, (2022) 8 SCC 42, to argue that if the circumstances surrounding the negotiation, execution of the agreement, show that the mutual intention of all the parties was to bind non-signatories, the Group of companies doctrine would have to be applied to see the "economic reality"

being veil piercing.

12.Shri Kamal Trivedi, learned Senior Counsel appearing for and on behalf of respondents No.2 to 5, however, relied on the decisions of the Apex Court in Reckitt Benckiser (India) Private Limited vs. Reynders Label Printing India Private Limited and another, (2019) 7 SCC 62, Vatsala Jagannathan and another vs. Tristar

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Accommodations Limited, 2023 SCC OnLine Mad 308, Cox and Kings Limited vs. SAP India Private Limited and another, (2022)

8 SCC 1, M/s. Arupri Logistics Pvt. Ltd.vs. Shri Vilas Gupta and others decided in Arb.A.5/2002, I.A. 3270/2022 decided on 24.07.2023, Vatsala Jagannathan and another (supra), to assert that respondents No.2 to 5 cannot be asked to join and be impleaded as parties, who have neither been signatories to an arbitration agreement nor can be said to be bound by the non- compete clause. The submission is that even otherwise at the stage of referral, respondents No.2 to 5 cannot be forced to join in the arbitration proceedings, arising out of the share purchase agreement dated 31.08.2018. It is argued that respondent No.2 is a separate legal entity which came into being much prior to the execution of the share purchase agreement dated 31.08.2018 as it was incorporated on 17.02.2017. The contention of the petitioner that respondent No.2 is an alter ego of respondent No.1 and respondent no.1 is advising or engaged with respondent No.2 company, is without any basis. The fact regarding existence of respondent No.2 LMR Oils were not relevant to be disclosed at the time of entering into share purchase agreement. The submission is that non-compete clause 10.1 of the agreement in question in no

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way binds respondents No.2 to 5 to force them to participate in the arbitration proceedings. At the referral stage, within the limited scope of jurisdiction under Section 11(6) of the Arbitration Act, it may not be permissible for this Court to refer the non-signatory parties ( respondents No.2 to 5) to the arbitral Tribunal, forcing them to participate in the proceedings with which they have no concern at all.

13.Heard learned counsel for the parties and perused the record. 14.In light of the submissions made by the learned counsels for the parties, this Court is required to consider the decisions of the Apex Court in dealing with the issue of invocation of arbitral reference making a non-signatory party to the agreement, to be impleaded in the proposed arbitration proceedings. The doctrine "Group of companies" developed in international context, whereby the arbitration agreement entered into by a company, being one within the Group of companies, can bind its non-signatory affiliates or sister or parent concerns, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates, has been developed by the Apex Court Court in Chloro Controls India Private Limited (supra), wherein it is held that a non-signatory party could be subjected to

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arbitration provided there was a clear intention of the parties to bind both signatory as well as non-signatory parties. In other words, "intention of the parties" is a very significant feature which must be established before the scope of arbitration can be said to include the signatory as well as non-signatory parties. A non- signatory or third party could be subjected to arbitration without their previous consent only in exceptional cases. The Court will examine these exceptions from the touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject matter and the agreement between the parties being a composite transaction. It is held that the transaction should be of composite nature, where the purpose 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. The Court would, thus, have to examine whether a composite reference of such parties would serve the ends of justice. Once this exercise is completed and the Court answers the same in the affirmative, the reference of even non-signatory parties would fall within the exception aforesaid. The questions framed by the Apex Court in Chloro Controls India Private Limited (supra) of

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invocation of arbitral reference in multiple multi-party agreements with intrinsically interlinked causes of action, more so, where performance of ancillary agreements is substantially dependent upon effective execution of the principal agreement and further what is the ambit and scope of section 45 of the Arbitration Act, have been answered in the following manner:

"165. Having dealt with all the relevant issues in law, now we would provide answer to the questions framed by us in the beginning of the judgment as follows :

Answer

165.1 Section 45 is a provision falling under Chapter I of Part II of the 1996 Act which is a self-contained Code. The expression 'person claiming through or under' would mean and take within its ambit multiple and multi-party agreements, though in exceptional case. Even non-signatory parties to some of the agreements can pray and be referred to arbitration provided they satisfy the pre-requisites under Sections 44 and 45 read with Schedule I. Reference of non- signatory parties is neither unknown to arbitration jurisprudence nor is it impermissible.

165.2 In the facts of a given case, the Court is always vested with the power to delete the name of the parties who are neither necessary nor proper to the proceedings before the Court. In the cases of group companies or where various agreements constitute a composite transaction like mother agreement and all other agreements being ancillary to and for effective and complete implementation of the Mother Agreement, the court may have to make reference to arbitration even of the disputes existing between signatory or even non-signatory parties. However, the discretion of the Court has to be exercised in exceptional, limiting, befitting and cases of necessity and very cautiously."

15.In Reckitt Benckiser (India) Private Limited (supra), a case of

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international commercial arbitration, the question was as to whether a non-signatory company could be impleaded in the proposed arbitration proceedings despite the fact that it is not a non-signatory party to the agreement executed between the applicant and the respondent therein, merely because, the company proposed to be impleaded, is one of the Group companies of which the respondent therein was also a constituent. The Apex Court, referring to Chloro Controls India Private Limited (supra), has observed that keeping in mind the exposition, the crucial question is whether it is manifest from the indisputable correspondences exchanged between the parties, culminating into agreement that the transactions between the applicant and the respondent therein were essentially with the Group of companies and whether there was a clear intention of the parties to bind both the signatory as well as non-signatory parties. In other words, whether the indisputable circumstances go to show that the mutual intention of the parties was to bind both the signatory as well as the non-signatory parties, qua the existence of an arbitration agreement between the applicant and the respondent therein. It is further noted that in wake of the amendment, section 11(6) read with section 11(6-A) of the Act, the enquiry by this Court must confine itself to the examination of

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existence of an arbitration agreement. No more or no less. It was noted therein that the agreement was only between the applicant and the respondent therein, which would give rise to domestic and commercial arbitration. In light of the above, it was further noted that the non-signatory therein was not a party to the said agreement nor it had given an assent to the arbitration agreement and in absence thereof, even if the non-signatory happened to be a constituent of Group of companies of which respondent (signatory) is also a constituent, that will be of no avail. The burden is on the applicant to establish that non-signatory had an intention to consent to the arbitration agreement and be party thereto. The burden has to be discharged by the applicant itself. Arbitration Application under section 11(5), 11(9) and 11(12)(a) of the Arbitration Act was, accordingly, rejected with the conclusion that no relief can be granted to the applicant, who has invoked the jurisdiction of the Apex Court on the assumption that it is a case of international commercial arbitration.

16.In Cox and Kings Limited (supra), the Apex Court was called upon to examine " Group of companies doctrine", in particular, whether the principles of party autonomy under the arbitration law and corporate personality in company law have been adequately

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safeguarded in outlining the scope and applicability of the doctrine being followed at present in Indian jurisprudence. The Apex Court therein was dealing with the Arbitration Application under Section 11(6) and Section 11(12)(a) of the Arbitration Act. It has gone though long line of decisions dealing with the group of company doctrine, the important one being Chloro Controls India Private Limited (supra). It was noted that the Apex Court in Chloro Controls India Private Limited (supra), noticing the distinction in language under Section 45 and Section 8 of the Arbitration Act, the Court was of the firm opinion that there must be legal relationship between the non-signatory and the party to the arbitration agreement. While expounding on the legal relationship, the Apex Court in Chloro Controls India Private Limited (supra) accepted the "Group of companies" doctrine as a sufficient basis to establish this legal relationship. However, while expounding on the ingredients of doctrine itself, the Court brought in the intention of the parties as to whether they were ad idem to treat a non-signatory as being a party to the arbitration agreement. It was observed by the Apex Court in Chloro Controls India Private Limited (supra) that this postulation conflates a contractual understanding of the

"Group of companies doctrine", which has evolved within the

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framework of arbitration, without alluding to contractual principles. An attempt was made by the Court to find a basis for reading the "Group of companies doctrine" within the language of Section 45 of the Arbitration Act and further following the ratio in

Chloro Controls India Private Limited (supra), 246^thLaw Commission Report recommended an amendment to Section 2(1)

(h) and 8 of the Arbitration Act to modify the definition of 'party' under Part I of the Arbitration Act, to "a party to an arbitration agreement or any person claiming or through or under such party"

to cure the anomaly pointed out by this Court in Chloro Controls India Private Limited (supra). Section 8(1) of the Arbitration Act was, accordingly, amended by the Act 3 of 2016 to incorporate the above recommendations.

17.It was then noticed that the cases following Chloro Controls India Private Limited (supra), namely, Ameet Lalchand Shah and others (supra) and Reckitt Benckiser (India) Private Limited

(supra) and Cheran Properties Ltd. vs. Kasturi & Sons Ltd, (2018)

16 SCC 413, have been decided by the Apex Court, without referring to the ambit of the phrase "claiming through or under" as occurring under section 8 of the Arbitration Act. It was, thus, observed that:-

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"40. The ratio of the Chloro Control (supra) case alludes to the subjective intention of parties to be bound by arbitration agreement when the parties have clearly not been signatory to the agreement. Reconciling the two is difficult and requires exposition by this Court.

41. It may be noted that the doctrine, as expounded, requires the joining of nonsignatories as 'parties in their own right'. This joinder is not premised on nonsignatories 'claiming through or under'. Such a joinder has the effect of obliterating the commercial reality, and the benefits of keeping subsidiary companies distinct. Concepts like single economic entity are economic concepts difficult to be enforced as principles of law.

42. The areas which were left open by this Court in Chloro Control (supra) case has created certain broadbased understanding of this doctrine which may not be suitable and would clearly go against distinct legal identities of companies and party autonomy itself. The aforesaid exposition in the above case clearly indicates an understanding of the doctrine which cannot be sustainable in a jurisdiction which respects party autonomy. There is a clear need for having a relook at the doctrinal ingredients concerning the group of companies doctrine."

18.It was further observed in paragraphs No.49,50, 51 that:-

"49. An arbitration agreement may be binding on parties, whether signatories or non-signatories, provided there is sufficient legal basis to bind them. Most legal bases for binding non signatories to an arbitration agreement are of contractual origin, like agency, etc. Jurisprudence has shown that arbitration being a creature of contract, does not sit very well in binding nonsignatories. Expounding on the same, Professor William Park, in one of his key works, captures the dilemma while attaching a nonsignatory to the arbitral process as under:

"For arbitrators, motions to join non signatories create a tension between two principles: maintaining arbitration's consensual nature, and maximizing an award's practical effectiveness by binding related persons. Pushed to the limit of their logic, each goal points in an opposite direction. Resolving the tension usually implicates the two doctrines discussed below: implied consent and disregard of corporate personality…

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The term "nonsignatory" remains useful for what might be called "lessthanobvious" parties to an arbitration clause: individuals and entities that never put pen to paper, but still should be part of the arbitration under the circumstances of the relevant business relationship. The label does little harm if invoked merely for ease of expression, to designate someone whose right or obligation to arbitrate may be real but not selfevident...

Most significantly, the fact that a "non signatory" might be bound to arbitrate does not dispense with the need for an arbitration agreement. Rather, it means only that the agreement takes its binding force through some circumstance other than the formality of signature."

50. It is evident from the discussion above that the group of companies doctrine must be applied with caution and mere fact that a non- signatory is a member of a group of affiliated companies will not be sufficient to claim extension of the arbitration agreement to the non- signatory. In this context Gary Born6 notes as under:

"GROUP OF COMPANIES" DOCTRINE Another significant, but controversial, basis for binding non- signatories to an arbitration agreement is the "group of companies" doctrine. Under this principle, nonsignatories of a contract may be deemed parties to the associates arbitration clause based on factors which are often roughly comparable to those relevant to an alter ego analysis. In particular, where a company is a part of a corporate group, is subject to the control of (or controls) a corporation affiliate that has executed a contract and is involved in the negotiation or performance of that contract, then that company may in some circumstances invoke or be subject to an arbitration clause contained in that contract, notwithstanding the fact that it has not executed the contract itself.

Unlike other bases for binding a non signatory to an arbitration agreement (such as agency, alter ego, estoppel, third party beneficiary, or assignment), the group of companies doctrine was developed specifically in the arbitration context and is not typically invoked outside that context. At least thus far, the group of companies doctrine has also been explicitly accepted sin only a limited number of jurisdictions (in particular, as discussed below, France). In part for that reason, the doctrine has given rise to substantial controversy.

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Gary B Born also refers (in footnotes 222 and 223) to the fact that only a small number of jurisdictions France and India, appear to have applied the group of companies doctrine in the context of International Arbitration and to the prevalent criticism of the group of companies doctrine.

51. In view of the aforesaid discussion, we feel it appropriate to refer the aspect of interpretation of 'claiming through or under' as occurring in amended section 8 of the Arbitration Act qua the doctrine of group of companies to a larger Bench to provide clarity on this aspect. The law laid down in Chloro Control (supra) and the cases following it, appear to have been based, more on economics and convenience rather than law. This may not be a correct approach. The Bench doubts the correctness of the law laid down in Chloro Control (supra) and cases following it."

19. Matter is ultimately referred to the larger Bench to expound the intricacies of "Group of companies doctrine" and answer the questions in paragraph No.54 as under:

"54. In view of the above discussion, we deem it appropriate to refer this matter to a larger Bench to expound on the intricacies of the Group of Companies doctrine and answer the following questions:

54.1(a) Whether phrase " claiming through or under" in Sections 8 and 11 could be interpreted to include "Group of Companies" doctrine?

54.2(b) Whether the "Group of Companies" doctrine as expounded by Chloro Controls case and subsequent judgements are valid in law?

20.In his concurring decision, Hon'ble Mr. Justice Surya Kant, as a the Member of the Bench, has further deliberated on the "Group of companies doctrine in foreign jurisprudence": "Evolution of the Group of companies doctrine in India" to notice that though

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Section 8 of the Arbitration Act was amended through Act 3 of 2016 to give legislative effect to the decision, the Legislature in its wisdom did not amend the definition of Section 2(1)(h) of the Arbitration Act. It was noticed that the importance of the Group of companies doctrine in modern commercial transactions post amendment provisions, has further been expounded by the Apex Court in Cheran Properties Ltd.(supra), observations wherein were noted in paragraph No.80 as under:-

"23…. The effort is to find the true essence of the business arrangement and to unravel from a layered structure of commercial arrangements, an intent to bind someone who is not formally a signatory but has assumed the obligation to be bound by the actions of a signatory."

21. It was considered that in MTNL vs. Canara Bank, (2020) 12 SCC 767,where the question for joinder of a company, which was non- signatory to the agreement, but wholly owned subsidiary of Canara Bank was considered. The Apex Court, upon considering the nature of transaction involved and the conduct of the parties, has held that the said case was a case of "tacit or implied consent" and accordingly, the proposed subsidiary was necessary to join the arbitral proceedings. The principle propounded in paragraph No.107 therein were noted in Paragraph N.82 in Cox and Kings

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Limited (supra) as under:

"10.7 The group of companies doctrine has also been invoked in cases where there is tight group structure with strong organisational and financial links, so as to constitute a single economic unit, or a single economic reality. In such a situation, signatory and non-signatories have been bound together under the arbitration agreement. This will apply in particular when the funds of one company are used to financially support or restructure other members of the group." 22.The decision of the Apex Court in Oil and Natural Gas Corporation Limited (supra) has further been noted to record in paragraph No.83, which may be extracted hereunder:

" 83.A three judge bench of this Court (in which I was a member), has in a very recent decision dated 27.04.2022 in Oil and Natural Gas Corporation Ltd. v. M/s Discovery Enterprises Pvt. Ltd. & Anr, reiterated the deep rooted existence of the Doctrine in the Indian context. The Court held that the following factors may be considered when deciding whether a nonsignatory company within a group of companies would be bound by the arbitration agreement:

"i) The mutual intent of the parties;

(ii) The relationship of a nonsignatory to a party which is a signatory to the agreement;

(iii) The commonality of the subject matter;

(iv) The composite nature of the transaction; and

(v) The performance of the contract." 23.The observations in the concurring judgement of Hon'ble Mr. Justice Surya Kant in paragraph No.93,94,95,96,97, 98 and 99 are relevant to be noted hereinunder:

93. From the analysis above, it appears that joining a third party to arbitration based on the convergence of a group of companies as a

"single economic unit" is no longer the norm under the Group of Companies Doctrine. Instead, the standard is premised primarily on implied consent drawn from the acts and conduct of an entity within the group of companies. Where a closely knit group exists, the interpretation of a third party's intent to be bound to the arbitration

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would be construed from facts and circumstances specific to that group and the manner in which it functions. This maintains the separate legal personality of the nonsignatory and joins it to the arbitration proceedings on the basis of its implied acceptance to be bound.

94. It must be emphasized that the Doctrine is an exception to the general rule of arbitration. However, where the facts of a case indicate that the intention of the parties was to bind the nonsignatory, the Courts, after exercising due care and caution, will be justified in invoking the Doctrine to do substantial and complete justice. After the 2016 amendment to the Act, this Court has continued to acknowledge and apply the Doctrine in exceptional cases. When all of these factors are viewed in consonance, it emerges that the Doctrine has found firm footing in Indian jurisprudence.

95. This is not without reason. On a practical front, the Doctrine is a means of grappling with complex multiparty business transactions which necessarily involve more than two parties, even if these additional parties do not finally and formally sign the contract. To that extent, the Doctrine helps to ensure that arbitration as a dispute resolution mechanism is able to adapt to this reality. Failure to do so would make arbitration an ineffective dispute resolution forum as parties which are important for the complete and proper resolution of the dispute will be left out of the adjudication.

96. The Doctrine also ensures that multiplicity of proceedings are avoided. A party may be involved in the negotiation and even performance of an agreement but still be able to circumvent the arbitral process on the ground that it did not sign the contract. Such a party would then have to be proceeded against in court.

97. There are additional benefits of having the Group of Companies Doctrine in Indian jurisprudence. These arise from the peculiar circumstances and manner in which Indian business entities transact with each other and establish commercial relations. A large chunk of Indian business houses are composed of family run entities or groups. The individuals running these entities often occupy multiple roles in different companies within the group. Thus, the commonality in terms of key managerial personnel and the preponderance of family members occupying these positions moulds the way these companies conduct business. Entering into commercial transactions involves informal understandings based on familiarity with persons who run the overall group of companies even if not the specific entity with which a contract is formally executed.

98. In this scenario it becomes even more relevant to have a doctrine such as the Group of Companies in Indian arbitration law. A third party

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outside the group of companies may transact with a subsidiary due to its faith in the bona fides and commercial knowhow of the parent. The third party in question relies upon the stature or presence of the larger parent company, either due to its reputation or personal familiarity with its promoters, directors or executives.

99. The Doctrine itself may also provide greater stimulus for business with new entities that are starting out. Due to the aforementioned peculiarities in Indian business relations, newer companies have significant difficulty in gaining traction. One of the means by which such companies can then gain a foothold is by being part of a large (often family held) group of companies. These new entities are then able to feed off the goodwill or relations that the larger group has with the rest of the business world. Given that the connection to the larger group is intrinsic to the way in which business is conducted, arbitration law must acknowledge and address this reality." 24.It is, thus, concluded in paragraph No.102 in Cox and Kings Limited (supra) that the important consideration similar to Company law principles such as alter ego, is not actual intent of the party as the non-signatory may be acting duplicitously to represent itself as the driver of the contract while avoiding any liabilities arising from it by not signing the contract. Hence, what the theory examines is what intent the non-signatory has conveyed to a reasonable party in the same position as the contracting entity. The decisive factor is the extent to which the contracting party has placed "trust" in the other party, reasonably, and on the basis of the non-signatory's actions.

25.Considering the above principles, it is evident that to refer a non- signatory to the arbitration proceedings, would require

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consideration on the factors, namely:- (i) mutual intent of the parties; (ii) relationship of a non-signatory to a party, which is a signatory to the agreement; (iii) the commonality of the subject matter; (iv) the composite nature of the transaction;(v) and the performance of the contract.

To invoke these factors in the facts and circumstances of the present case, a factual inquiry needs to be made, which may require leading of evidence, both oral and documentary and appreciation thereof.

26. As regards the jurisdiction of this Court in the present petition, the same is confined within the ambit of Section 11 of the Arbitration Act. In Vidya Drolia vs Durga Trading Corporation, (2021) 2 SCC 1, the Apex has delineated the threshold standard of reference to arbitration. The aforesaid case laid down that when an application is made under Section 11 of the Arbitration Act, considering the scope of judicial intervention, the Courts are only required to look into the prime existence of an arbitration agreement. The scope of judicial interference at the referral stage is limited. It was considered in Cox and Kings Limited (supra) that at the stage of inquiry under Section 11(6) of the Arbitration Act, the Court may not have an occasion to explore the jurisprudential

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basis of Group of companies doctrine and required ingredients to refer a "nonsignatory" to arbitration.

27.The scope of inquiry , under Section 11(6) of the Arbitration Act, by the referral Court has been crystallized by the Apex Court in

NTPC vs. M/s. SPML Infra Ltd., 2023 SCC OnLine SC 389

holding that limited scrutiny through the eye of needle is necessary and compelling. It has been held therein that referral jurisdiction of the Courts under Section 11(6) of the Act is very narrow and inheres two inquires. The primary inquiry is about the existence and the validity of an arbitration agreement, which also includes an inquiry as to the parties to the agreement and the applicant's privity to the said agreement. These are matters which require a thorough examination by the referral Court. The secondary inquiry that may arise at the reference stage itself is with respect to the non- arbitrability of the dispute.

28.From the above discussion, it is evident that required ingredients to refer "non-signatory" to arbitration, namely, respondents No.2 to 5 herein, to apply the doctrine of alter ego as pressed into service by learned Senior counsel for the petitioner, a detailed factual inquiry is required to be made, which is not possible within the scope of judicial interference at the referral stage. In view of the above, in

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the facts and circumstances of the instant case, this Court reaches at an irresistible conclusion the inquiry into the question as to whether non-signatories, namely respondents No.2 to 5 would be bound by the arbitration agreement, shall have to be made by the arbitral Tribunal applying the principles laid down by the Apex Court for making such an inquiry.

At this stage, non-signatories, namely, respondents No.2 to 5 cannot be referred to the arbitration proceedings solely by reading of non-compete clause, which is the subject matter of consideration herein.

29. This Court, therefore, refers only the parties to the share purchase agreement, namely, the petitioner and respondent No.1 herein to the Arbitrator, leaving it open for the Arbitrator to decide the applicability of the doctrine of alter ego to seek the impleadment of non-signatories, respondents No.2 to 5 in the arbitration proceedings.

30. Both the learned Senior Counsels for the parties agreed to the extent that the Arbitrator is competent to make this inquiry. The parties, however, have not been able to reach at an agreement to the name of an Arbitrator for resolving the disputes arising out of the said contract, I proceed to pass following :

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O R D E R

(i) Petition is ALLOWED.

(ii) Mr.Anil R. Dave, Former Judge, Supreme Court of India is appointed as sole Arbitrator to resolve the disputes between the parties in accordance with the Arbitration Centre (Domestic and International), High Court of Gujarat Rules, 2021. Both the parties would be governed by said Rules.

(iii) Registry is directed to communicate this order to the sole arbitrator forthwith by speed post.

(iv) No order as to costs.

(SUNITA AGARWAL, CJ )

SUDHIR

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