OIL AND NATURAL GAS CORPORATION LTD. V. M/S DISCOVERY ENTERPRISES PVT. LTD.

COURT: The Supreme Court of India

CORAM: Dr.Dhananjaya Y Chandrachud, Surya Kant, Vikram Nath, J.

DATE OF JUDGEMENT: 27 April 2022

FACTS

The appeal arises from a judgment dated 27 June 2012 of the High Court of Judicature at Bombay by which an appeal under Section 37 of the Arbitration and Conciliation Act, 1996 has been dismissed. Oil & Natural Gas Corporation Limited instituted an appeal against an interim award dated 27 October 2010 of the Arbitral Tribunal holding that the second respondent – Jindal Drilling and Industries Limited was not a party to the arbitration agreement and must be deleted from the array of parties. The interim award was challenged in an appeal which was dismissed by the impugned judgment.

ISSUES RAISED

Whether the non-signatory company can be impleaded under arbitral proceedings?

JUDGMENT

The Hon’ble Supreme Court while taking assistance of the precedents from its judgement in Indowind Energy Ltd. v. Wescare (I) Ltd. &Anr., (2010) 5 SCC 306; Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. &Ors., (2013) 1 SCC 641; Cheran Properties Ltd. v. Kasturi & Sons Ltd. &Ors., (2018) 16 SCC 413, MTNL v. Canara Bank &Ors., (2020) 12 SCC 767; AmeetLalchand Shah &Ors. v. Rishabh Enterprises &Anr, (2018) 15 SCC 678; DuroFelguera v. Gangavaram Port Limited, (2017) 9 SCC 729 and Reckitt Benckiser (India) P Ltd. v. Reynders Label Printing, (2019) 7 SCC 62 noted as follows:

26. In deciding whether a company within a group of companies which is not a signatory to arbitration agreement would nonetheless be bound by it, the law considers the following factors:

  • the mutual intent of the parties;
  • the relationship of a non-signatory to a party which is a signatory to the agreement;
  • the commonality of the subject matter;
  • the composite nature of the transaction; and
  • the performance of the contract.

Based on the above, the Hon’ble Supreme Court held that ONGC’s attempt at the joinder of JDIL to the proceedings was rejected without adjudication of its application for discovery and inspection of documents to prove the necessity for such a joinder. The Supreme Court of India expounded on the group of companies doctrine in the present case deriving from the ratio held in Chloro case (supra).

In regards the power of a court to review the interim award especially where the Arbitral Tribunal holds that it lacks jurisdiction in an application under Section 16 of the A&C Act, the Hon’ble Supreme Court noted as follows:

In the exercise of the appellate jurisdiction, the court must have due deference to the grounds which have weighed with the tribunal in holding that it lacks jurisdiction having regard to the object and spirit underlying the statute which entrusts the arbitral tribunal with the power to rule on its own jurisdiction. The decision of the tribunal that it lacks jurisdiction is not conclusive because it is subject to an appellate remedy under Section 37(2)(a). However, in the exercise of this appellate power, the court must be mindful of the fact that the statute has entrusted the arbitral tribunal with the power to rule on its own jurisdiction with the purpose of facilitating the efficacy of arbitration as an institutional mechanism for the resolution of disputes.

Thereafter, in toto, the Hon’ble Supreme Court in the present matter primarily noted that the Arbitral Tribunal’s decision to defer the application filed by ONGC for discovery and inspection till the disposal of application filed by JDIL under Section 16 of the A&C Act was erroneous as ONGC’s application was intended to facilitate them in its plea that there existed functional, financial, and economic unity between the two companies.

In view of the aforesaid, the Hon’ble Supreme Court set aside the interim award dated 27 July 2010; and also set aside the subsequent judgment of the Single Judge of the Bombay High Court dated 27 June 2012 dismissing ONGC’s appeal under Section 37 against the said interim award. The Hon’ble Supreme Court further remitted the matter back to the Arbitral Tribunal which is to be re-constituted. As far as the transferred cases in regards the arbitral proceedings initiated by JDIL again ONGC were concerned, the Hon’ble Supreme court remitted them back to the Hon’ble Bombay High Court where they will be held in abeyance and remain adjourned sine die until the Arbitral Tribunal which is reconstituted to decide its jurisdiction in reference to the plea of JDIL in the arbitral proceedings initiated by ONGC decides the said question. In effect, the appeal of ONGC in the aforesaid special leave petition was allowed as per the above directions.

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