Indian supreme court shows pro-arbitration stance in jurisdictional arguments

A three-judge bench delivered the ruling in a recent arbitration petition case before the Supreme Court.

The court also stated that as long as it is satisfied on a ‘prima facie’ basis that the arbitration agreement exists and the conduct of the non-signatory party and other circumstances support an inference that it is a party to the arbitration agreement, then the court does not need to go any further.

International arbitration expert Mohammed Talib of Pinsent Masons said that this is a valuable pro-arbitration judgement, which reaffirms that the court is taking a pro-arbitration and hands-off approach to jurisdictional arguments, such as a non-party being bound by the clause, which should be left to the tribunal.

“It reaffirms that the approach for all preliminary issues of this nature ought not to be examined in a high level of detail by the court and it should not conduct a ‘mini trial’ of the issues,” he said.

Under India’s Arbitration and Conciliation Act 1996, the definition of “parties” includes both signatory and non-signatory parties. The court stated that the requirement of a written agreement does not exclude the possibility of binding non-signatory parties if there is a defined legal relationship between the signatory and non-signatory. The parties’ mutual intention, their relationship, conduct, the nature of the transactions and performance of the contract can all be factors that point to the intention of the non-signatory to be bound by the arbitration agreement, according to the court.

“The ruling highlights the importance of pre-contractual actions, such as active participation in negotiations and discussions on the implementation of the agreement. As shown in this case, those actions might make a non-party still bound by the arbitration agreement,” Talib added.

In its judgment, the court explained that an important factor to be considered by the courts and tribunals is the participation of the non-signatory in the performance of the underlying contract. However, the court clarified that in order to infer the non-signatory party’s consent to be bound by the agreement, their involvement in the negotiation or performance of the contract must be positive, direct and substantial.

In this case, the petitioners, known as the AMP Group, and respondents, referred to as the JRS Group and the SRG Group, are companies and individuals falling under three different groups of companies that conducted various business transactions jointly and co-owned several entities. While the AMP group and JSR group were signatory parties to the arbitration agreement in question, the court concluded that the SRG group, the non-signatory party, was also party to the agreement.