Virtuous Energy Private Limited v. Smart Power Grid Limited & Anr.

13. Since the disputes between the parties persisted, the petitioner issued notices dated 30.08.2021 to the respondents, invoking arbitration as per clause 28 of the work orders for adjudication of disputes between the parties. However, respondent no.1 failed to respond whereas respondent no.2 vide letters dated 22.09.2021 refuted the aforesaid invocation notice primarily on the premise that there was no privity of contract between the petitioner and respondent no.2. The letter dated 22.09.2021 reads as under:-

14. In the above circumstances, the petitioner has approached this Court, through the present petition, seeking the appointment of a sole arbitrator to adjudicate the dispute between the parties.

15. In the present proceedings, notice was issued by the Court on 16.08.2024. However, since none appeared on behalf of the respondent no.1, the Court vide order dated 18.11.2024 granted petitioner with a liberty to take fresh steps to serve the respondent no.1. An affidavit of service dated 06.12.2024 has been filed by the petitioner wherein it has been brought out that the petitioner has taken requisite steps to serve the respondent no.1 at its known address/es via speed post/s. The aforesaid communication is stated to be delivered on 04.12.2024 to the office of respondent no.1 situated in Noida, Uttar Pradesh whereas communication sent to the office of respondent no.1 situated at Delhi returned with a notation “Item returned, as Addressee left without instructions”.

16. It is stated that the respondent no.1 was also served via email at esselinfra2019@gmail.com (as mentioned on the Master Data of the company), and the same has not bounced back. However, the communications delivered via dasti order on behalf of the petitioner remained unserved.

17. Section 3 of the A&C Act contemplates that a written communication is deemed to have been received if it is sent to the addressee’s last known place of business or mailing address by any means which provides a record of the attempt to deliver it. In the present case, the petitioner has made numerous attempts to effect service on the respondent no.1 and has thereby discharged its onus to effect service on the respondent no.1.

18. In the circumstances, the present petition is taken up for hearing and disposal, despite no appearance on behalf of the respondent no.1.

19. Learned counsel on behalf of the petitioner submitted that the respondents have been part of Essel Group and had a common majority shareholder i.e., Essel Infraprojects Ltd. It is stated that there has existed a strong organizational and financial link which clearly indicates that the respondents could be considered as a ‘Single Economic Entity’. It is further stated that even after 49% of the shareholding of respondent no.2 were transferred to M/s Sekura Energy Ltd., the remaining shareholding still remained with Essel Group.

SUBMISSIONS ON BEHALF OF THE PETITIONER

20. Learned counsel on behalf of the petitioner contends that the respondent no.2 is a veritable party to the work orders issued by the respondent no.1 inasmuch as the respondent no.2 was the direct beneficiary of the contract in question. It is stated that the predominant obligation in terms of clauses 2 and 4 of the Technical Specifications of LoA (hereinafter referred as ‘Technical Specifications’) was towards respondent no.2 and not respondent no.1. It is further submitted that as per clause 1.[1] of the Technical Specifications, the respondent no.2 has been defined as the “Owner” and in terms of clause 8 of the Technical Specifications, release of payments to the petitioner were consequential to various certifications issued by the respondent no.2. In this regard, reliance is placed upon “Direct Benefits Estoppel Theory” discussed by this Court in DLF Limited vs PNB Housing Finance Limited, MANU/DE/2237/2024.

21. It is further submitted that email/communication dated 11.09.2019 received by the petitioner from officials of the Finance and Accounts Department, Essel Infraprojects Ltd. confirmed that the aforesaid outstanding amounts were to be paid by respondent no.2. It is further submitted that the ‘no claim’ letters dated 28.05.2019 (back-dated), were countersigned by the respondent no.2 and the said respondent expressly undertook the obligation to pay the dues of the petitioner on behalf of the respondent no.1. By placing reliance on judgment rendered by this Court in RBCL Piletech Infra vs Bhola Singh Jaiprakash Construction Ltd, MANU/DE/4804/2024, the petitioner contends that where payments are dependent on certification by a third party/ non-signatory, the non-signatory can also be referred to arbitration by a referral court.

SUBMISSIONS ON BEHALF OF THE RESPONDENT No.2

22. Learned counsel on behalf of the respondent no.2 submits that the respondent no.2 is neither a party to the arbitration agreement relied upon nor related to the disputes agitated by the petitioner. It is further stated that the petitioner has failed to place on record any correspondence or communications/documents to demonstrate that there exists any privity of contract between the petitioner and respondent no.2.

23. It is submitted that the reliance placed by the learned counsel of the petitioner on Technical Specifications is misplaced inasmuch as it outlines the scope of services to be rendered in the contract executed between the petitioner and respondent no.1.

24. It is stated that the respondent no.2 has never agreed to the terms and conditions specified in the Technical Specifications. Furthermore, the actual certificate of completion of work has also been issued by the respondent no.1.

25. It is stated that the respondent no.2 appointed respondent no.1 as its contractor for carrying out the O&M of the transmission system under a separate contract. Respondent no.1 at its own discretion sub-contracted the aforesaid contracted work to the petitioner by way of the LoAs and subsequent work orders, to which respondent no.2 was not a party. Thus, the respondent no.2 was only liable to make payments to respondent no.1, which it has already paid in full and for which respondent no.1 has also issued a no-dues certificate dated 28.05.2019 to the respondent no.2.

26. It is submitted that the ‘direct beneficiary estopple theory’ is not applicable in the present petition inasmuch as any project/contract which involves execution of different parts of the work through sub-contractor/s, would inevitably have interference of the owner/s during the execution of the said contract. However, the same cannot be construed to conclude that owner/s is deriving direct benefits from the sub-contracted party. It is further submitted that under the sub-contract it was the respondent no.1 who was obligated to pay the petitioner and evidently, the petitioner never raised any invoices upon respondent no.2.

27. It is submitted that there exists no connection between the shareholders and management of respondent nos.[1] and 2 pursuant to the transferring of shareholdings of the respondent no.2 to M/s Sekura Energy Ltd. It is further stated that the respondents have an independent corporate existence and are functionally, financially and economically neither interconnected nor intertwined.

28. The existence and authenticity of ‘no claim’ letter dated 28.05.2019 (allegedly back-dated) and email/communications dated 11.09.2019 exchanged between the petitioner and officials of Essel Infraprojects Ltd, prior to the issuance of the aforesaid letters is strenuously controverted by the learned counsel on behalf of the respondent no.2. It is contended that respondent no.2 neither authorized any person to execute any document pursuant to the change of management nor there is record or reference to any correspondence or email by which the said purported counter-signed letters appear to have been agreed to or sent to the petitioner by the respondents, particularly respondent no.2.

29. It is further submitted that the facts and circumstances alleged by the petitioner would require a detailed and elaborate examination of the facts, each of which would require to be proved by leading oral evidence, which clearly is outside the purview of a referral court under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred as ‘the A&C Act’).

30. The legal position is now well settled that although normally, only formal signatories to an arbitration agreement will be bound by it, in certain circumstances, non-signatories may become bound therewith in certain situations.

REASONING AND CONCLUSION

31. Various tests and legal theories are applied to determine whether a non-signatory is to be bound by an arbitration agreement.

32. In Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. and Others, (2013) 1 SCC 641 and Cox and Kings Limited v. SAP India Private Limited and Another, (2024) 4 SCC 1, it has been recognized that consent-based theories such as agency, novation, assignment, operation of law, merger and succession and third-party beneficiaries can be applied to bind non-signatories to an arbitration agreement. Further, non-consensual theories such as alter ego and estoppel have also been applied to bind a non-signatory to an arbitration agreement. The Group of Companies Doctrine has also been applied in certain situations to bind non-signatories to an arbitration agreement.

33. In ONGC Ltd. v. Discovery Enterprises (P) Ltd., 2022 8 SCC 42 the Supreme Court has taken note of the fact that there are at least two distinct estoppel doctrines that apply in the non-signatories context, that is, ‘the direct benefits’ estoppel theory and the ‘intertwined’ estoppel theory. It is noticed that ‘intertwined estoppel theory’ looks at the nature of the disputes between the signatories and the non-signatories and in particular whether “issues the non-signatories seeking to resolve in arbitration are intertwined with the agreement with estoppel (signatory party) signed”. The relevant observations of the Supreme Court in ONGC Ltd. (supra) are reproduced as under:- “37. Gary B. Born in his treatise on International Commercial Arbitration indicates that“ The principal legal basis for holding that a non-signatory is bound (and benefited) by an arbitration agreement … include both purely consensual theories (e.g., agency, assumption, assignment) and nonconsensual theories (e.g. estoppel, alter ego).”

38. Explaining the application of the alter ego principle in arbitration, Born also notes: “Authorities from virtually all jurisdictions hold that a party who has not assented to a contract containing an arbitration clause may nonetheless be bound by the clause if that party is an ‘alter ego’ of an entity that did execute, or was otherwise a party to, the agreement. This is a significant, but exceptional, departure from the fundamental principle … that each company in a group of companies (a relatively modern concept) is a separate legal entity possessed of separate rights and liabilities. *** “the group of companies doctrine is akin to principles of agency or implied consent, whereby the corporate affiliations among distinct legal entities provide the foundation for concluding that they were intended to be parties to an agreement, notwithstanding their formal status as non-signatories.”

39. Recently, John Fellas elaborated on the principle of binding a non signatory to an arbitration agreement from the lens of the doctrine of estoppel. He situated the rationale behind the application of the principle of direct estoppel against competing considerations of party autonomy and consent in interpreting arbitration agreements. Fellas observed that nonsignatory parties can be bound by the principle of direct estoppel to prohibit such a party from deriving the benefits of a contract while disavowing the obligations to arbitrate under the same: “There are at least two distinct types of estoppel doctrine that apply in the non-signatory context: “the direct benefits” estoppel theory and the “intertwined” estoppel theory. The direct benefits theory bears the hallmark of any estoppel doctrine-prohibiting a party from taking inconsistent positions or seeking to “have it both ways” by “relying] on the contract when it works to its advantage and ignoring] it when it works to its disadvantage.” Tepper Realty Co. v. Mosaic Tile Co. The direct benefits doctrine reflects that core principle by preventing a party from claiming rights under a contract but, at the same time, disavowing the obligation to arbitrate in the same contract. *** By contrast, the intertwined estoppel theory looks not to whether any benefit was received by the non-signatory, but rather at the nature of the dispute between the signatory and the non-signatory, and, in particular whether “the issues the non-signatory is seeking to resolve in arbitration are intertwined with the agreement that the estoppel [signatory party] has signed….the intertwined estoppel theory has as its central aim the perseveration of the efficacy of the arbitration process is clear when one looks at the typical fact pattern of an intertwined estoppel case.”

34. In Cox & Kings Limited v. SAP India Private Limited and Another (supra), a Five-judge Bench of the Supreme Court while taking note of the observations in ONGC Ltd. v. Discovery Enterprises (P) Ltd. (supra) has also observed that “the doctrine of arbitral estoppel suggests that a party is estopped from denying its obligation to arbitrate when it received a “direct benefit” from a contract containing an arbitration agreement”. (Paragraph

59)

35. This Court in Shapoorji Pallonji and Co. Pvt. Ltd. v. Rattan India Power Ltd., (2021) 281 DLT 246 has expressly noticed that several jurisdictions have drawn heavily on the principle of estoppel to include nonsignatories within the sweep of an arbitration agreement. Particularly so, when the rights created in favour of the non-signatories are pursuant to the benefits derived under the main agreement containing the arbitration clause. In this regard reference may be made to paragraph 30 of the judgment in case of Shapoorji Pallonji (supra) wherein it has been observed as under:

36. It is well settled that the scope of determining impleadment of nonsignatories to an arbitration by a referral Court is confined to asserting, prima facie the existence of an arbitration agreement and whether the nonsignatory party is a veritable party to the arbitration agreement. In circumstances where complexity is involved in such a determination, the same is best to be left for consideration by an Arbitral Tribunal. The aforesaid view has been rendered by a Constitution Bench of the Supreme Court in Cox and Kings Ltd. vs SAP India (P) Ltd (supra) as under:

a party to the arbitration agreement on the basis of the factual evidence and application of legal doctrine. The Tribunal can delve into the factual, circumstantial, and legal aspects of the matter to decide whether its jurisdiction extends to the non-signatory party. In the process, the Tribunal should comply with the requirements of principles of natural justice such as giving opportunity to the non-signatory to raise objections with regard to the jurisdiction of the Arbitral Tribunal. This interpretation also gives true effect to the doctrine of competence competence by leaving the issue of determination of true parties to an arbitration agreement to be decided by the Arbitral Tribunal under Section 16.”

37. Further, Cox & Kings (supra) also clearly acknowledges that “the issue of binding a non-signatory to an arbitration agreement is more of a fact specific aspect” (paragraph 60) and in this light, has clearly laid down that once existence of an arbitration agreement is established, the referral court can leave it to the Arbitral Tribunal to decide whether impleadment of nonsignatory parties is warranted on application of the parameters laid down in Chloro Control India (supra), ONGC Ltd.(supra) & Cox & Kings (supra).

38. Furthermore, considering the dicta laid down by the Supreme Court in Cox and Kings Ltd. vs SAP India (P) Ltd (supra) a Three-judge Bench of the Supreme Court in Ajay Madhusudan Patel and Others v. Jyotrindra S. Patel and Others, 2024 SCC OnLine SC 2597 held that when a detailed examination of disputed questions of facts are necessary to determine whether a non-signatory is bound by the arbitration agreement, it should be left for a duly constituted arbitral tribunal to consider and a referral court should refrain from conducting ‘mini trials’ and delving into contested or disputed questions of facts. Relevant portion of the said judgment reads as under: - “79. A detailed examination of numerous disputed questions of fact are imperative in deciding whether the SRG Group participated in the negotiation and performance of the underlying contract and can be bound by the arbitration agreement. At the cost of repetition, we may state that under our limited jurisdiction afforded under Section 11(6) of the Act, 1996 we should not conduct a mini trial and delve into contested or disputed questions of fact. This has been categorically laid down in several decisions of this Court including Vidya Drolia (supra) and Krish Spinning (supra). Further, it is also the case of the SRG Group that a dual test needs to be satisfied before it is compelled to be a party to the present arbitration proceedings i.e., (a) SRG Group should be shown to have agreed to the underlying contract and (b) SRG Group should also be shown to have agreed to be bound by the arbitration agreement. We are of the considered view that the same requires a much more detailed examination of the evidence that may be adduced by the parties which can only be gone into by the Arbitral Tribunal.

80. Therefore, considering the complexity involved in the determination of the question whether the SRG Group is a veritable party to the arbitration agreement or not, we are of the view that it would be appropriate for the arbitral tribunal to take a call on the question after taking into consideration the evidence that may be adduced by the parties before it and the application of the legal doctrine as elaborated in the decision in Cox and Kings (supra).”

39. In the present case, there is no controversy as regards existence of the arbitration agreement in the work orders issued in favor of the petitioner by the respondent no.1. As such, there is no impediment in constituting an arbitral tribunal for adjudicating the disputes between the petitioner and respondent no.1 as mandated in terms of the judgments of the Supreme Court in SBI General Insurance Co. Ltd. vs. Krish Spinning, 2024 INSC 532 and Interplay between Arbitration Agreements under the Arbitration & Conciliation Act, 1996 & the Indian Stamp Act, 1899, In re, 2023 SCC OnLine SC 1666.

40. As regards the issue whether the respondent no.2 is veritable party to the arbitration agreement by virtue of (i) being a group company; (ii) by virtue of being a direct beneficiary of the contractual mechanism (iii) assumption of contractual obligations under the work order/s (by the respondent no.2) by virtue of correspondence – are all aspects which require an intricate factual analysis and determination.

41. In terms of the judgment of Supreme Court in Cox and Kings Ltd. vs SAP India (P) Ltd (supra) and Ajay Madhusudan Patel and Others v. Jyotrindra S. Patel and Others (supra), the aforesaid aspects are necessarily required to be considered by a duly constituted arbitral tribunal.

42. In the circumstances, on a prima facie conspectus, there is no impediment to constituting an arbitral tribunal in these proceedings. The issue as to whether the respondent no.2 can be brought within the sweep of the proposed arbitration would necessarily be decided by the learned arbitrator in accordance with law, upon consideration of the relevant factual conspectus.

43. Needless to say, it shall be open to the respondent no.2 to raise appropriate jurisdictional objections which shall be duly considered by the Arbitral Tribunal in accordance with law.

44. Accordingly, Mr. Ravinder Aggarwal, Advocate (Mob. No.: + 91

9810056263) is appointed as the Sole Arbitrator to adjudicate the disputes between the parties.

45. The reference under each work order shall be independent of each other. However, the learned Arbitrator may hold common sittings for the sake of convenience.

46. The learned Sole Arbitrator may proceed with the arbitration proceedings subject to furnishing to the parties requisite disclosure as required under Section 12 of the A&C Act.

47. It is directed that the arbitration shall take place under the aegis of and as per the rules of the Delhi International Arbitration Centre (DIAC).

48. All rights and contentions of the parties in relation to the claims/counter claims are kept open, to be decided by the learned Sole Arbitrator on their merits, in accordance with law.

49. Needless to say, nothing in this order shall be construed as an expression of opinion of this Court on the merits of the case.

50. The present petition stands disposed of in the above terms.

SACHIN DATTA, J JULY 8, 2025