When parties enter into an agreement and the same consists of an arbitration clause and a dispute arises out of the said agreement; the normal course of action is to refer the dispute in accordance with the arbitration clause in the agreement. However, there are instances when various parties working towards a single commercial transaction execute various agreements amongst themselves for the implementation and execution of a common commercial transaction but only one or two of the multiple agreements executed consists of an arbitration clause.

What is the remedy when a dispute regarding the common commercial transaction emanates between those various parties who have executed the numerous agreements?

Can they all be referred to Arbitration?

Or will there arise a situation where some parties could settle their disputes through Arbitration and some would have to seek remedies through public fora since they do not have an arbitration clause in the Agreement they executed?

These issues are no longer res-integra. The Hon’ble Supreme Court lately had an opportunity to deal with the above controversy by focusing on the issue of referring to arbitration a non-signatory party in the case of Ameet Lalchand Shah & Others v. Rishabh Enterprises & Another1 (hereinafter referred to as “The Rishabh Enterprises Case”) while providing interpretation to Section 8 of the Arbitration & Conciliation Act, 1996 as amended by the Arbitration & Conciliation (Amendment) Act, 2015 (hereinafter referred to as the “Act”).

While the apex court had laid down similar rules in the case of Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. and Others2 (hereinafter referred to as “The Chloro Case”) but the principles dealing with the aspect that a nonsignatory to an arbitration agreement could be referred to arbitration had not yet been crystallized within the domestic arbitration sphere. The Hon’ble Court had held in the Chloro Case, that where the nature of agreement is inter-mingled so or is contingent upon the discharge of responsibilities by other parties who are not party to the main agreement, it would be a sufficient indicator to refer the parties to arbitration and thus, it had allowed interconnected parties to be referred to arbitration as the parties were part of one composite transaction.

As similar situation arose in the Rishabh Enterprises case, where the First Respondent (Rishabh Enterprises), entered into four agreements for the commissioning of the Photovoltaic Solar Plant at Dongri, Raksa, District Jhansi, Uttar Pradesh, however, one of them did not contain an arbitration clause.

Disputes arose between the parties when Rishabh Enterprises raised allegations of fraud and misrepresentation against Astonfield Renewables that it had induced Rishabh Enterprises to purchase the Photovoltaic products for a huge amount based upon which Rishabh Enterprises preferred a civil suit against the Appellants before the Hon’ble Delhi High Court levelling various allegations including fraud and misrepresentation. On receipt of notice, the Appellants preferred an application under Section 8 of the Act to refer the disputes to arbitration. The Hon’ble Delhi High Court, dismissed the application under Section 8 of the Act to which the Appellants preferred an appeal before the Hon’ble Supreme Court.

In view of the above mentioned brief factual matrix, one of the issues before the Hon’ble Apex Court related to whether the principles laid down in The Chloro case could be applied to refer non-signatories to domestic arbitrations under Section 8 of the Act since the issue in The Chloro case dealt with referring non-signatories to arbitration under Section 45 of the Act.

The Hon’ble Supreme Court discussed the amendments made to Section 8 of the Act and also the proposals made by the Law Commission in its 246th Report, whereby it was proposed that a prima facie existence of an arbitration agreement should be sufficient to refer the parties toarbitration unless the arbitration clause is null and void. Though, not stated expressly, the Hon’ble Supreme Court applied the principle in The Chloro case and analysed the facts in the context of the said principle. It was held that though there were different agreements involving several parties, it was for a single commercial project, i.e. the commissioning of the Photovoltaic Solar Plant project. On a detailed examination of all the Agreements, the Hon’ble Apex Court held that all the four agreements were interconnected and could be traced back to the main agreement which was the Equipment Lease Agreement and the remaining three agreements were ancillary agreements being intertwined within themselves and with the main agreement.

Hence, it was held that even though the Sale and Purchase Agreement between Rishabh Enterprise and Astonfield did not contain an arbitration clause, it was integrally executed by and between the parties to give effect to one purpose that was the commissioning of the solar plant and thus, was connected to the other agreements.

The Hon’ble Supreme Court based its findings on the principle of “the facts and intention of the parties” and concluded that all the parties could be covered by the arbitration clause in the main agreement i.e. Equipment Lease Agreement. It was further held that, in cases, where the agreements are inter-connected and several parties are involved in a single commercial project executed through several agreements, all the parties can be made amenable to arbitration. This would hold true even where one of the agreements does not contain an arbitration clause or a party to one agreement is a third party to another agreement.

With this recent judgment, it has become clear that regardless of conventional and deep-rooted principles of contract law, non-signatories to an agreement can on occasions be bound by certain obligations contained in the said agreement. Thus, the investigation requires more than a superficial examination of whether the individual/party against whom a contractual pre-requisite is sought to be enforced has signed the subject agreement. In fact, as held by the Hon’ble Supreme Court if the agreements have been entered into by the parties with a view to achieve a common commercial transaction and the said agreements areinter-connected then disputes emanating under such Agreements can be dealt with in cohesion. The absence of an arbitration clause from an agreement which is interconnected with other agreements should not be a hindrance to treat the dispute under that agreement separately vis-à-vis the other inter-connected agreements which contain an arbitration clause. Hence, this latest judgment has paved the path for a more equitable approach to referring parties to Arbitration to settle their disputes and is a clear reflection of a pro-arbitration approach that both the legislature and the judiciary have been adopting in the recent past.