# MAHANAGAR TELEPHONE NIGAM LTD v. CANARA BANK & ORS

- **Citation:** [2019] 11 S.C.R. 660
- **Court:** Supreme Court of India
- **Decided:** 2019-08-08
- **Case number:** Civil Appeal Nos. 6202-6205 of 2019
- **Bench:** Abhay Manohar Sapre, Indu Malhotra
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mahanagar-telephone-nigam-ltd-v-canara-bank-ors-33086
- **Pages:** 33

## Headnote

Arbitration and Conciliation Act, 1996:
Arbitration agreement - Existence of valid arbitration
agreement - Joinder of subsidiary company in arbitral proceedings
- On facts, transactions between the appellant and respondent no.
1 and its subsidiary, respondent no. 2 - Respondent no. 2 subscribed
to the bonds floated by appellant and subsequently transferred the
Bonds to its holding Company-respondent no. 1 - Case of appellant
that since respondent no. 2 did not pay the entire sale consideration
for the Bonds, appellant constrained to cancel the allotment of the
Bonds - Appointment of an arbitrator to settle the dispute through
arbitration - Objection by appellant with respect to existence of
valid arbitration agreement between the parties and objection by
respondent no. 1 to the joining of respondent no. 2 as party to
arbitration since respondent no. 2 was not party to the arbitration
agreement, it could not be impleaded in the proceedings - Held:
Agreement between appellant and respondent no. 1 to refer the
disputes to arbitration is evidenced from the documents exchanged
between the parties, and the proceedings and is final and conclusive
- Appellant after giving its consent to refer the disputes to arbitration
before the High Court, is now estopped from contending that there
was no written agreement to refer the parties to arbitration -
Respondent no. 1 had filed its statement of claim before the
Arbitrator, and appellant filed its reply to the statement of claim,
and also made a counter claim against respondent no. 1, which
would constitute evidence of the existence of an arbitration
agreement, and the same was not denied by the other party - As
regards an objection to the joinder of respondent No. 2 in arbitral
proceedings, it will be a futile effort to decide the disputes only
between appellant and Respondent no. 1, in the absence of
 [2019] 11 S.C.R. 660
660
A
B
C
D
E
F
G
H
661
respondent no. 2, since undisputedly, the original transaction
emanated from a transaction between appellant and respondent no.
2-original purchaser of the Bonds - Disputes arose on the
cancellation of the Bonds by appellant on the ground that the entire
consideration was not paid - There is a clear and direct nexus
between the issuance of the Bonds, its subsequent transfer by
respondent No. 2 to respondent no. 1, and the cancellation by
appellant, which has led to disputes between the three parties -
Thus, respondent no. 2 is a necessary and proper party to the
arbitration proceedings - Given the tri-patite nature of the
transaction, there can be a final resolution of the disputes, only if
all three parties are joined in the arbitration proceedings, to finally
resolve the disputes which have been pending - respondent no. 2
has participated in the proceedings before the High Court, and the
Committee on Disputes, was represented by its separate counsel
before the Sole Arbitrator - Respondent no. 1 filed before the High
Court, had joined respondent No. 2, even though it was joined as a
proforma party - objection to respondent No. 2 being impleaded as
a party to the arbitration proceedings was raised by Respondent
no. 1, and not respondent No. 2 - There is no merit in the objection
raised by Respondent no. 1 opposing the joining of respondent No.
2 as a party to the dispute. Respondent no. 1 had enclosed a Draft
Arbitration Agreement to appellant, wherein it has clearly stated
that the arbitration would be between three parties i.e. Respondent
no. 1 and respondent No. 2 as party of the first part, and appellant
as party of the second part - There was implied or tacit consent by
respondent No. 2 to being impleaded in the arbitral proceedings,
which is evident from the conduct of the parties - Respondent No. 2
has throughout participated in the proceedings before the Committee
on Disputes, before the High Court, before the Sole Arbitrator, and
was represented by its separate counsel before this Court in the
instant appeal - There was a clear intent

## Text

_Characters 0–39,412 of 66,186. This is a partial read: ask again with offset=39412 for what follows._

A
B
C
D
E
F
G
H
660
SUPREME COURT REPORTS
[2019] 11 S.C.R.
MAHANAGAR TELEPHONE NIGAM LTD.
v.
CANARA BANK & ORS.
(Civil Appeal Nos. 6202-6205 of 2019)
AUGUST 08, 2019
[ABHAY MANOHAR SAPRE AND INDU MALHOTRA, JJ.]
Arbitration and Conciliation Act, 1996:
Arbitration agreement - Existence of valid arbitration
agreement - Joinder of subsidiary company in arbitral proceedings
- On facts, transactions between the appellant and respondent no.
1 and its subsidiary, respondent no. 2 - Respondent no. 2 subscribed
to the bonds floated by appellant and subsequently transferred the
Bonds to its holding Company-respondent no. 1 - Case of appellant
that since respondent no. 2 did not pay the entire sale consideration
for the Bonds, appellant constrained to cancel the allotment of the
Bonds - Appointment of an arbitrator to settle the dispute through
arbitration - Objection by appellant with respect to existence of
valid arbitration agreement between the parties and objection by
respondent no. 1 to the joining of respondent no. 2 as party to
arbitration since respondent no. 2 was not party to the arbitration
agreement, it could not be impleaded in the proceedings - Held:
Agreement between appellant and respondent no. 1 to refer the
disputes to arbitration is evidenced from the documents exchanged
between the parties, and the proceedings and is final and conclusive
- Appellant after giving its consent to refer the disputes to arbitration
before the High Court, is now estopped from contending that there
was no written agreement to refer the parties to arbitration -
Respondent no. 1 had filed its statement of claim before the
Arbitrator, and appellant filed its reply to the statement of claim,
and also made a counter claim against respondent no. 1, which
would constitute evidence of the existence of an arbitration
agreement, and the same was not denied by the other party - As
regards an objection to the joinder of respondent No. 2 in arbitral
proceedings, it will be a futile effort to decide the disputes only
between appellant and Respondent no. 1, in the absence of
 [2019] 11 S.C.R. 660
660
A
B
C
D
E
F
G
H
661
respondent no. 2, since undisputedly, the original transaction
emanated from a transaction between appellant and respondent no.
2-original purchaser of the Bonds - Disputes arose on the
cancellation of the Bonds by appellant on the ground that the entire
consideration was not paid - There is a clear and direct nexus
between the issuance of the Bonds, its subsequent transfer by
respondent No. 2 to respondent no. 1, and the cancellation by
appellant, which has led to disputes between the three parties -
Thus, respondent no. 2 is a necessary and proper party to the
arbitration proceedings - Given the tri-patite nature of the
transaction, there can be a final resolution of the disputes, only if
all three parties are joined in the arbitration proceedings, to finally
resolve the disputes which have been pending - respondent no. 2
has participated in the proceedings before the High Court, and the
Committee on Disputes, was represented by its separate counsel
before the Sole Arbitrator - Respondent no. 1 filed before the High
Court, had joined respondent No. 2, even though it was joined as a
proforma party - objection to respondent No. 2 being impleaded as
a party to the arbitration proceedings was raised by Respondent
no. 1, and not respondent No. 2 - There is no merit in the objection
raised by Respondent no. 1 opposing the joining of respondent No.
2 as a party to the dispute. Respondent no. 1 had enclosed a Draft
Arbitration Agreement to appellant, wherein it has clearly stated
that the arbitration would be between three parties i.e. Respondent
no. 1 and respondent No. 2 as party of the first part, and appellant
as party of the second part - There was implied or tacit consent by
respondent No. 2 to being impleaded in the arbitral proceedings,
which is evident from the conduct of the parties - Respondent No. 2
has throughout participated in the proceedings before the Committee
on Disputes, before the High Court, before the Sole Arbitrator, and
was represented by its separate counsel before this Court in the
instant appeal - There was a clear intention of the parties to bind
both Respondent no. 1, and its subsidiary- respondent No. 2to the
proceedings - There can be no final resolution of the disputes, unless
all three parties are joined in the arbitration - Group of Companies
doctrine is invoked to join respondent No. 2 in the arbitration
proceedings pending before the Sole Arbitrator - Matter remitted
to the Sole Arbitrator to continue with the arbitral proceedings.
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK
A
B
C
D
E
F
G
H
662
SUPREME COURT REPORTS
[2019] 11 S.C.R.
Arbitration agreement - Existence of valid arbitration
agreement - Held: Arbitration agreement is the written agreement
between the parties, to submit their existing, or future disputes or
differences, to arbitration - Valid arbitration agreement is the
foundation on which the arbitral process is structured - Binding
agreement for disputes to be resolved through arbitration is a sinequa-non for referring the parties to arbitration - Essential elements
or attributes of an arbitration agreement is the agreement to refer
their disputes or differences to arbitration, which is expressly or
impliedly spelt out from a clause in an agreement, separate
agreement, or documents/correspondence exchanged between the
parties - If it can prima facie be shown that parties are ad idem,
even though the other party may not have signed a formal contract,
it cannot absolve him from the liability under the agreement -
Intention of the parties must be inferred from the terms of the
contract, conduct of the parties, and correspondence exchanged,
to ascertain the existence of a binding contract between the parties
- If the documents on record show that the parties were ad idem,
and had actually reached an agreement upon all material terms,
then it would be construed to be a binding contract - 'Arbitration
agreement' must be interpreted so as to give effect to the intention
of the parties, rather than to invalidate it on technicalities.
Doctrines: Group of Companies Doctrine - Invocation of -
Held: Group of Companies doctrine can be invoked to bind a nonsignatory by an arbitration agreement where the conduct of the
parties evidences a clear intention of the parties to bind both the
signatory as well as the non-signatory parties - Courts and tribunals
have invoked this doctrine to join a non-signatory member of the
group, if they are satisfied that the non-signatory company was by
reference to the common intention of the parties, a necessary party
to the contract - 'Group of Companies' doctrine indicates the
implied consent to an agreement to arbitrate, in the context of modern
multi-party business transactions - Doctrine provides that a nonsignatory may be bound by an arbitration agreement where the
parent or holding company, or a member of the group of companies
is a signatory to the arbitration agreement and the non-signatory
entity on the group has been engaged in the negotiation or
performance of the commercial contract, or made statements
A
B
C
D
E
F
G
H
663
indicating its intention to be bound by the contract, the non-signatory
will also be bound and benefitted by the relevant contracts -
Circumstances are if there is a direct relationship between the party
which is a signatory to the arbitration agreement; direct commonality
of the subject matter; the composite nature of the transaction
between the parties.
Partly allowing the appeals, the Court
HELD : PER INDU MALHOTRA, J.
THE EXISTENCE OF A VALID ARBITRATION
AGREEMENT
1.1 A valid arbitration agreement constitutes the heart of
an arbitration. An arbitration agreement is the written agreement
between the parties, to submit their existing, or future disputes
or differences, to arbitration. A valid arbitration agreement is the
foundation stone on which the entire edifice of the arbitral process
is structured. A binding agreement for disputes to be resolved
through arbitration is a sine-qua-non for referring the parties to
arbitration. The arbitration agreement need not be in any
particular form. What is required to be ascertained is the intention
of the parties to settle their disputes through arbitration. The
essential elements or attributes of an arbitration agreement is
the agreement to refer their disputes or differences to arbitration,
which is expressly or impliedly spelt out from a clause in an
agreement, separate agreement, or documents/correspondence
exchanged between the parties. [Paras 9, 9.2][679-A-B, H;
680-A]
1.2 Section 7(4)(b) of the Arbitration and Conciliation Act,
1996 states that an arbitration agreement can be derived from
exchange of letters, telex, telegram or other means of
communication, including through electronic means. The 2015
Amendment Act inserted the words "including communication
through electronic means" in Section 7(4)(b). If it can prima facie
be shown that parties are ad idem, even though the other party
may not have signed a formal contract, it cannot absolve him from
the liability under the agreement. [Para 9.3][680-B-C]
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK
A
B
C
D
E
F
G
H
664
SUPREME COURT REPORTS
[2019] 11 S.C.R.
1.3 Arbitration agreements are to be construed according
to the general principles of construction of statutes, statutory
instruments, and other contractual documents. The intention of
the parties must be inferred from the terms of the contract, conduct
of the parties, and correspondence exchanged, to ascertain the
existence of a binding contract between the parties. If the
documents on record show that the parties were ad idem, and
had actually reached an agreement upon all material terms, then
it would be construed to be a binding contract. The meaning of a
contract must be gathered by adopting a common sense approach,
and must not be allowed to be thwarted by a pedantic and legalistic
interpretation. A commercial document has to be interpreted in
such a manner so as to give effect to the agreement, rather than
to invalidate it. An 'arbitration agreement' is a commercial
document inter partes, and must be interpreted so as to give effect
to the intention of the parties, rather than to invalidate it on
technicalities. In interpreting or construing an arbitration
agreement or arbitration clause, it would be the duty of the court
to make the same workable within the permissible limits of the
law. A common sense approach has to be adopted to give effect
to the intention of the parties to arbitrate the disputes between
them. Being a commercial contract, the arbitration clause cannot
be construed with a purely legalistic mindset, as in the case of a
statute. [Paras 9.4, 9.5, 9.7][680-D-G; 681-D]
Enercon (India) Ltd. and Ors. v. Enercon GMBH (2014)
5 SCC 1 : [2014] 2 SCR 855 - relied on.
1.4 The agreement between MTNL and Canara Bank to
refer the disputes to arbitration is evidenced from the documents
exchanged between the parties, and the proceedings. The
agreement between the parties as recorded in a judicial Order,
is final and conclusive of the agreement entered into between
the parties. The appellant-MTNL after giving its consent to refer
the disputes to arbitration before the High Court, is now estopped
from contending that there was no written agreement to refer
the parties to arbitration. Furthermore, Section 7(4)(c) provides
that there can be an arbitration agreement in the form of exchange
of statement of claims and defense, in which the existence of the
A
B
C
D
E
F
G
H
665
agreement is asserted by one party, and not denied by the other.
In the instant case, Canara Bank had filed its Statement of Claim
before the Arbitrator, and MTNL filed its Reply to the Statement
of Claim, and also made a Counter Claim against Canara Bank.
The statement of Claim and Defence filed before the Arbitrator
would constitute evidence of the existence of an arbitration
agreement, which was not denied by the other party, under s.
7(4)(c) of the 1996 Act. [Para 9.9-9.10][683-E; 684-A-B]
Union of India v. DN Revry and Co., (1976) 4 SCC
147 : [1977] 1 SCR 483 ; Khardah Company Ltd. v.
Raymon and Co. (India) Pvt. Ltd. [1963] 3 SCR 183 ;
Savitri Goenka v. Kanti Bhai Damini & Ors., 2009 (1)
Arb LR 320 (Del) (DB) ; State of Maharashtra v.
Ramdas Shrinivas Nayak (1982) 2 SCC 463 : [1983] 1
SCR 8 ; Chitra Kumari v. Union of India (2001) 3 SCC
208 - referred to.
JOINDER OF CANFINA IN THE ARBITRAL
PROCEEDINGS
2.1 As per the principles of contract law, an agreement
entered into by one of the companies in a group, cannot be binding
on the other members of the same group, as each company is a
separate legal entity which has separate legal rights and liabilities.
The parent, or the subsidiary company, entering into an
agreement, unless acting in accord with the principles of agency
or representation, will be the only entity in a group, to be bound
by that agreement. Similarly, an arbitration agreement is also
governed by the same principles, and normally, the company
entering into the agreement, would alone be bound by it. [Paras
10, 10.2][684-C-F]
2.2 A non-signatory can be bound by an arbitration
agreement on the basis of the "Group of Companies" doctrine,
where the conduct of the parties evidences a clear intention of
the parties to bind both the signatory as well as the non-signatory
parties. Courts and tribunals have invoked this doctrine to join a
non-signatory member of the group, if they are satisfied that the
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK
A
B
C
D
E
F
G
H
666
SUPREME COURT REPORTS
[2019] 11 S.C.R.
non-signatory company was by reference to the common intention
of the parties, a necessary party to the contract. The 'Group of
Companies' doctrine indicates the implied consent to an
agreement to arbitrate, in the context of modern multi-party
business transactions. The 'Group of Companies' doctrine has
been invoked by courts and tribunals in arbitrations, where an
arbitration agreement is entered into by one of the companies in
the group; and the non-signatory affiliate, or sister, or parent
concern, is held to be bound by the arbitration agreement, if the
facts and circumstances of the case demonstrate that it was the
mutual intention of all parties to bind both the signatories and
the non-signatory affiliates in the group. The doctrine provides
that a non-signatory may be bound by an arbitration agree-ment
where the parent or holding company, or a member of the group
of companies is a signatory to the arbitration agreement and the
non-signatory entity on the group has been engaged in the
negotiation or performance of the commercial contract, or made
statements indicating its intention to be bound by the contract,
the non-signatory will also be bound and benefitted by the relevant
contracts. The circumstances in which the 'Group of Companies'
Doctrine could be invoked to bind the non-signatory affiliate of a
parent company, or inclusion of a third party to an arbitration, if
there is a direct relationship between the party which is a signatory
to the arbitration agreement; direct commonality of the subject
matter; the composite nature of the transaction between the
parties. A 'composite transaction' refers to a transaction which is
inter-linked in nature; or, where the performance of the
agreement may not be feasible without the aid, execution, and
performance of the supplementary or the ancillary agreement,
for achieving the common object, and collectively having a bearing
on the dispute. [Paras 10.3, 10.4][684-F-H; 685-D-G; 686-A-C]
2.3 The Group of Companies Doctrine has been invoked in
cases where there is a tight group structure with strong
organizational 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
A
B
C
D
E
F
G
H
667
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. [Para 10.5][686-D-E]
2.4 CANFINA was set up as a wholly owned subsidiary of
Canara Bank. This is evident from the Report of the Joint
Committee to Enquire into Irregularities in Securities and
Banking Transactions, 1993. The disputes between the parties
emanated out of the transaction dated 10.02.1992, whereby
CANFINA has subscribed to the bonds floated by MTNL.
CANFINA subsequently transferred the Bonds to its holding
Company-Canara Bank. It is the contention of MTNL, that since
CANFINA did not pay the entire sale consideration for the Bonds,
MTNL eventually was constrained to cancel the allotment of the
Bonds. [Para 10.7, 10.8][687-A; 688-A-B]
2.5 It will be a futile effort to decide the disputes only
between MTNL and Canara Bank, in the absence of CANFINA,
since undisputedly, the original transaction emanated from a
transaction between MTNL and CANFINA-the original purchaser
of the Bonds. The disputes arose on the cancellation of the Bonds
by MTNL on the ground that the entire consideration was not
paid. There is a clear and direct nexus between the issuance of
the Bonds, its subsequent transfer by CANFINA to Canara Bank,
and the cancellation by MTNL, which has led to disputes between
the three parties. Therefore, CANFINA is undoubtedly a
necessary and proper party to the arbitration proceedings. [Para
10.9][688-C-E]
2.6 Given the tri-patite nature of the transaction, there can
be a final resolution of the disputes, only if all three parties are
joined in the arbitration proceedings, to finally resolve the
disputes which have been pending for over 26 years now.
CANFINA has participated in the proceedings before the High
Court, and the Committee on Disputes. CANFINA was also
represented by its separate counsel before the Sole Arbitrator.
Canara Bank filed before the High Court, had joined CANFINA
as Respondent No. 2, even though it was joined as a proforma
party. CANFINA was represented by Counsel in the Writ
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK
A
B
C
D
E
F
G
H
668
SUPREME COURT REPORTS
[2019] 11 S.C.R.
Proceedings before the High Court. The Counsel for CANFINA
was however not present on two dates i.e. on 16.09.2011 and
21.10.2011, when the High Court recorded the agreement
between the parties for reference of disputes to arbitration. MTNL
had submitted before the High Court that Canara Bank should
agree to take over the liabilities of CANFINA before the
arbitration could commence. The High Court recorded that there
was no necessity of requiring Canara Bank to agree to take over
the liabilities of CANFINA, prior to the arbitration proceedings.
This issue would be decided in the arbitration. [Para 10.10][688E-H; 689-A-B]
2.7 On the commencement of arbitration proceedings before
the Sole Arbitrator, notice was issued by the Arbitrator to all the
three parties including CANFINA, which was represented by its
Counsel. The objection to CANFINA being impleaded as a party
to the arbitration proceedings was raised by Canara Bank, and
not CANFINA. There is no merit in the objection raised by Canara
Bank opposing the joining of CANFINA as a party to the dispute.
Canara Bank by letters had enclosed a Draft Arbitration
Agreement to MTNL, wherein it clearly stated that the arbitration
would be between three parties-Canara Bank and CANFINA as
party of the first part, and MTNL as party of the second part.
[Paras 10.11-10.13][689-C-E]
2.8 The instant case is one of implied or tacit consent by
respondent No. 2-CANFINA to being impleaded in the arbitral
proceedings, which is evident from the conduct of the parties.
Respondent No. 2-CANFINA has throughout participated in the
proceedings before the Committee on Disputes, before the High
Court, before the Sole Arbitrator, and was represented by its
separate counsel before this Court in the instant appeal. There
was a clear intention of the parties to bind both Canara Bank,
and its subsidiary-CANFINA to the proceedings. There can be
no final resolution of the disputes, unless all three parties are
joined in the arbitration. [Para 10.14][689-F-H; 690-A]
2.10 The Group of Companies doctrine is invoked to join
CANFINA i.e. the wholly owned subsidiary of Respondent No. 1Canara Bank, in the arbitration proceedings pending before the
Sole Arbitrator. The matter is remitted to the Sole Arbitrator to
A
B
C
D
E
F
G
H
669
continue with the arbitral proceedings, and conclude the same as
expeditiously as possible. [Para 11][690-A-C]
O.N.G.C. v. Commissioner of Central Excise (1995)
Supp. 4 SCC 541; Electronics Corporation of India Ltd.
v. Union of India & Ors. (2011) 3 SCC 404 : [2011] 2
SCR 971; Chloro Controls India (P) Ltd. v. Severn Trent
WaterPurification Inc.,(2013) 1 SCC 641 : [2012]13
SCR 402; SEI Adhavan Power Pvt. Ltd. v. Jinneng Clean
Energy Technology Ltd. & Ors. 2018 (4) CTC 46; Ameet
Lal Chand Shah v. Rishabh Enterprises, (2018) 15 SCC
678 : [2018] 6 SCR 1001 - referred to.
Dow Chemical v. Isover-Saint-Gobain 1984 Rev Arb
137; 110 JDI 899 (1983) Gary B. Born: International
Commercial Arbitration, Vol. I, 2009, pp. 1170-1171 -
referred to.
PER ABHAY MANOHAR SAPRE, J: (Supplementing):
HELD: 1.1 The agreement is essentially a tri-partite
agreement between the parties, namely, the appellant, respondent
no. 1 and CANFINA. This is clear from the documents exchanged
between the parties, pleadings and orders of the Court. It is also
clear when one examines the nature of the dispute. It is so
inextricably linked between the three parties that it can be
effectively decided only when all the three parties are made parties
to the arbitral proceedings. [Paras 6, 7][691-A-B]
1.2 Once the issue is examined on facts in the light of
requirements of Section 7(4)(b) and (c) of the Act, there is no
hesitation in coming to a conclusion that the agreement in question
is, in fact, a tri-partite agreement between the three parties
mentioned. It satisfies the requirements of Section 7(4)(b) and
(c) of the Act. [Para 8][691-C]
1.3 Since the main object of the arbitral proceedings is to
decide the disputes expeditiously and within a time frame, this
object can be achieved only when the disputes are resolved as
far as possible in one arbitral proceedings. In the instant case,
this object can be achieved only when all the three parties named
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK
A
B
C
D
E
F
G
H
670
SUPREME COURT REPORTS
[2019] 11 S.C.R.
are made party in one arbitral proceedings to enable the arbitral
tribunal to finally decide the dispute on merits in accordance with
law. The facts in clear terms, entitles this Court to invoke the
well known doctrine of "Group of Companies" and apply its
principle to the facts of this case so as to enable the arbitral
tribunal to determine the rights of three parties named. The
doctrine "Group of Companies" has its application to arbitral
proceedings and, in appropriate cases, it can be so applied. [Paras
13, 14][691-H; 692-A-C]
International Arbitration by Redfern and Hunter - Sixth
Edn pages 141 to 153 - referred to.
Case Law Reference
In the Judgment of Justice Indu Malhotra
(1995) Supp. 4 SCC 541
referred to
Para 2.12
[2011] 2 SCR 971
referred to
Para 2.21
[2014] 12 SCR 488
referred to
Para 9.3
[1977] 1 SCR 483
referred to
Para 9.4
[1963] 3 SCR 183
referred to
Para 9.6
[2014] 2 SCR 855
relied on
Para 9.7
[1983] 1 SCR 8
referred to
Para 9.9
(2001) 3 SCC 208
referred to
Para 9.9
2009 (1) Arb LR 320 (Del) (DB) referred to
Para 9.10
[2012] 13 SCR 402
referred to
Para 10.6
2018 (4) CTC 46
referred to
Para 10.6
[2018] 6 SCR 1001
referred to
Para 10.7
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 62026205 Of 2019
From the Judgment and Order dated 16.09.2011 and 21.10.2011
of the High Court of Delhi at New Delhi in CM No. 12230 of 2011 in
W.P.(C) No. 560 of 1995 and order dated 05.07.2013 in CM No. 8100
of 2012 in W.P. (C) No. 560 of 1995 and dated 10.01.2014 in CM No.
324-25 of 2014 in W.P.(C) No. 560 of 1995
A
B
C
D
E
F
G
H
671
Ms. Madhvi Divan, ASG, Sachin Datta, Sr. Adv., Manoj Gorkela,
Ms. Tannishtha Singh, Abinash Agarwal, Sandeep Kumar Singh,
Ms. Shashi Kiran, Advs. for the Appellant.
Ameesh Dabass, Viresh B. Saharya. Akshat Agarwal, Ms. Saumya
Sinha, A.K. Sharma, Lalit Kumar, Advs. for the Respondents.
The Judgment of the Court was delivered by
INDU MALHOTRA, J.
Leave granted.
1. The present Special Leave Petitions have been filed to challenge
Order dated 16.09.2011 passed in W.P. (C) No. 560 of 1995, Order
dated 21.10.2011 passed in C.M. No. 12230 of 2011, Order dated
05.07.2013 passed in C.M. No. 8100 of 2012, and Order dated 10.01.2014
passed in C.M. No. 324 and 325 of 2014 by the Delhi High Court.
2. The background facts of the case are as follows :
2.1.
In 1992, MTNL floated 17% Non-Cumulative Secured
Redeemable Bonds described as the VI Series (Private
Placement) worth Rs. 425 crores. On 10.02.1992, MTNL
placed bonds worth Rs.200 crores with Can Bank Financial
Services Ltd. (hereinafter referred to as "CANFINA")
under an MOU agreement. The bond amount of Rs. 200
cores was placed as fixed deposit by MTNL with
CANFINA. CANFINA paid back Rs. 50 crores of the fixed
deposit in 1992. The balance fixed deposit amount of Rs.
150 crores along with interest was not paid by CANFINA
to MTNL. As a consequence, MTNL did not service the
interest on bonds. MTNL was of the view that since it did
not receive the entire bond amount of Rs. 200 crores, the
entire deal did not go through. Against payment of Rs. 50
crores received from CANFINA, MTNL serviced the bonds
of approximately Rs. 31 crores to the public. MTNL was
of the view that only a sum of Rs.5.41 crores was payable
to CANFINA, which was not accepted by CANFINA.
2.2.
As per Canara Bank, soon after the bonds were subscribed,
there was an out-break of a security scam which led to a
collapse of the secondary market in shares, security and
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK
A
B
C
D
E
F
G
H
672
SUPREME COURT REPORTS
[2019] 11 S.C.R.
bonds. There were very few buyers in the secondary
market. Even such buyers were offering very low prices
for these bonds. In these circumstances, CANFINA was
faced with a severe liquidity crunch. 2.3. In these
circumstances, Respondent No. 1 - Canara Bank purchased
the Bonds issued by MTNL, of the face value of Rs. 80
crores, from Respondent No. 2 - CANFINA which is its
wholly owned subsidiary.
2.3.
In these circumstances, Respondent No. 1 - Canara Bank
purchased the Bonds issued by MTNL, of the face value of
Rs. 80 crores, from Respondent No. 2 - CANFINA which
is its wholly owned subsidiary.
2.4.
Canara Bank requested for registration of these Bonds with
MTNL, and lodged letters of allotment for purchase of the
bonds from CANFINA.
2.5.
MTNL vide letter dated 14.10.1992 addressed to Canara
Bank, refused to transfer the Bonds, on the various grounds
mentioned in the letter.
2.6.
MTNL by a subsequent letter dated 16.02.1993, informed
Canara Bank that it had registered a part of the face value
of Rs. 40 crores, in favour of CANFINA. The bond
instruments were however retained on the ground that
CANFINA had failed to pay the deposit money of Rs. 150
crores, which was payable to MTNL with an accrued
interest of 12% p.a.
2.7.
MTNL vide letter dated 20.10.1993, cancelled all the Bonds
inter alia on the ground that letters of consideration
remained with CANFINA.
2.8.
Canara Bank vide its reply dated 13.01.1994 contended
that it is the holder in due course, and is entitled to have the
shares registered in its name, and receive the interest as
and when it fell due.
2.9.
MTNL sent a statement of accounts by adjusting the
proceeds of the cancellation of bonds towards the dues of
CANFINA. It was stated that the bonds and interest
A
B
C
D
E
F
G
H
673
accrued thereon cannot be refunded. MTNL with its letter
dated 13.01.1994, attached a cheque for Rs. 5,41,17,463 as
the amount payable to Canara Bank.
2.10. Canara Bank, however, returned the cheque vide letter
dated 10.02.1994, demanding the restoration and registration
of the bonds.
2.11. Canara Bank filed W.P. (Civil) No. 560 of 1995 before the
Delhi High Court to challenge the cancellation of the Bonds,
and a direction to pay the Interest accrued.
It is relevant to note that CANFINA was joined as a
proforma party in the Writ Petition filed by Canara Bank.
2.12. The Delhi High Court vide Order dated 09.09.1996 directed
the Union of India to decide the issues between the parties
in light of this Court's judgment in O.N.G.C. v.
Commissioner of Central Excise1.
The Writ Petition was dismissed on the ground of
availability of an alternative and efficacious remedy
beforethe Company Law Board under Section 111 of the
Companies Act, 1956.
2.13. The proceedings before the Company Law Board came to
be dismissed vide Order dated 26.02.1998, since the remedy
was no longer available, as per the amendment of Section
111 by the Depositories Act, 1996.
2.14. Canara Bank filed an application for Restoration of the Writ
Petition, which was restored vide Order dated 12.05.1999.
2.15. Canara Bank made a representation to the Cabinet
Secretary.
On 27.03.2001, a meeting was convened by the Cabinet
Secretariat, Litigation Cell which was presided by the
Cabinet Secretary, and attended by the representatives of
MTNL, Canara Bank, and CANFINA.
The Committee directed Canara Bank, CANFINA and
MTNL to settle the disputes through arbitration by making
1 (1995) Supp. 4 SCC 541.
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK
[INDU MALHOTRA, J.]
A
B
C
D
E
F
G
H
674
SUPREME COURT REPORTS
[2019] 11 S.C.R.
an appropriate reference to the Permanent Machinery of
Arbitration, functioning in the Department of Public
Enterprises. The Committee did not permit Canara Bank,
CANFINA and MTNL to pursue the litigation in Court.
2.16. The Delhi High Court vide Order dated 30.05.2008 referred
the disputes between the parties to the Committee on
Disputes. The Writ Petition was adjourned sine die. Canara
Bank was granted liberty to revive the Petition in the event
that the Committee on Disputes was unable to resolve the
disputes between the parties.
2.17. The Committee of Disputes held a meeting on 16.12.2008,
which was attended by the representatives of MTNL,
Canara Bank and CANFINA. The Committee, after hearing
the parties, expressed the view that all the three parties
should take recourse to arbitration in view of the different
inter-linked transactions between them.
The representatives of Canara Bank expressed the
apprehension that arbitration by the Permanent Machinery
of Arbitration would take much longer than judicial recourse.
The Committee observed that to expedite arbitration,
the parties should expeditiously enter into an arbitration
agreement under the Arbitration and Conciliation Act, 1996.
2.18. Pursuant to the meeting held on 16.12.2008, Canara Bank
vide its letter dated 05.03.2009 sent a draft arbitration
agreement to the Chairman and Managing Director of
MTNL. The draft arbitration agreement sent by Canara
Bank was between Canara Bank and CANFINA on the
one side, with MTNL on the other.
2.19. By letter dated 17.03.2010, Canara Bank requested the
Deputy Secretary, Cabinet Secretariat to advise MTNL to
execute the arbitration agreement in accordance with the
direction of the Ministry of Law and Justice.
2.20. The Delhi High Court vide Order dated 01.10.2010 disposed
of the pending Writ Petition with the observation that the
matter should be resolved by the Committee on Disputes
A
B
C
D
E
F
G
H
675
expeditiously so that the arbitration agreement between the
parties is signed as soon as possible.
2.21. The decision in O.N.G.C. v. Commissioner of Central
Excise (supra) came to be overruled by a Constitution Bench
in Electronics Corporation of India Ltd. v. Union of
India & Ors.2
Accordingly, Canara Bank moved the Delhi High Court
u/S. 151, CPC for restoration of the disposed of Writ Petition.
2.22. The Delhi High Court restored the Writ Petition, and vide
Order dated 16.09.2011 noted that the two principal issues
which arise for consideration are:
(i)
Whether Canara Bank is liable for the acts or
omissions of CANFINA; and
(ii)
Whether Canara Bank should take over the liabilities
and admit them in the arbitration agreement itself.
During the course of the proceedings, the parties before
the Delhi High Court agreed that these issues may be
referred to arbitration. The parties were requested to suggest
the name of a sole arbitrator to be appointed on the next
date of hearing.
2.23. On 21.10.2011, the name of Mr. Justice A.P. Shah (Retd.)
was suggested by the Counsel for Canara Bank, which was
accepted by the Counsel for MTNL.
Accordingly, Mr. Justice A.P. Shah (Retd.) came to be
appointed as the Sole Arbitrator.
2.24. On 05.01.2012, the Sole Arbitrator issued notice to all the
three parties i.e. MTNL, Canara Bank, and CANFINA.
2.25. Canara Bank raised an objection to joining CANFINA as a
party to the arbitration. The Arbitrator heard the parties on
27.03.2012, on the issue whether CANFINA should be
joined as a party to the proceedings.
2 (2011) 3 SCC 404.
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK
[INDU MALHOTRA, J.]
A
B
C
D
E
F
G
H
676
SUPREME COURT REPORTS
[2019] 11 S.C.R.
The learned Arbitrator passed an interim award holding
that CANFINA had not appeared on 16.09.2011 before the
High Court, when the disputes were referred to arbitration.
CANFINA was not a party to the arbitration agreement,
and cannot be joined as a party to proceedings.
2.26. MTNL filed C.M. No. 8100 of 2012 before the Delhi High
Court seeking clarification of Order dated 16.09.2011, as
to whether CANFINA ought to be impleaded as a necessary
party to the arbitration agreement.
The Delhi Court vide order dated 05.07.2013 dismissed
the application as "not pressed" on the statement made by
the Counsel of MTNL.
2.27. Canara Bank filed its Statement of Claim before the learned
Sole Arbitrator on 06.12.2013.
2.28. MTNL filed I.A. Nos. 324 - 325 of 2014 before the Delhi
High Court for recall of the Orders dated 16.09.2011,
21.10.2011 and 05.07.2013 passed in W.P. (C) No. 560 of
1995.
2.29. The Delhi High Court vide Order dated 10.01.2014,
dismissed the Application for Recall on the ground that the
application was identical to the application previously filed
by MTNL being C.M. No. 8100 of 2012. Since MTNL had
not pressed the earlier application, the subsequent application
being identical in nature, could not be considered, and was
dismissed.
2.30. In May 2014, MTNL filed its reply to the Statement of Claim
filed by Canara Bank, and also made a Counter-Claim
against Canara Bank.
3. Aggrieved by the Orders dated 16.09.2011, 21.10.2011,
05.07.2013, and 10.01.2014 passed by the Delhi High Court in W.P. (C)
No. 560 of 1995, C.M. No. 12230 of 2011, C.M. No. 8100 of 2012 and
C.M. No. 324 and 325 of 2014 respectively, the Appellant - MTNL filed
the present Special Leave Petition. This Court vide Order dated
08.05.2014 issued Notice to all the Respondents, including CANFINA
which has been joined as Respondent No. 2.
A
B
C
D
E
F
G
H
677
4. Ms. Madhavi Divan, learned ASG appeared on behalf of MTNL,
Mr. Ameesh Dabass, learned Counsel appeared for Respondent No. 1
- Canara Bank, and Ms. Saumya Sinha, along with Mr. A.K. Sharma,
learned Counsels appeared for Respondent No. 2 - CANFINA.
5. The Counsel for the Appellant - MTNL inter alia submitted
as under:
5.1.
In the absence of a written agreement for arbitration
between the parties, as stipulated by Section 2(b) r.w. 2(h)
and 7(3) of the Arbitration and Conciliation Act, 1996, the
arbitration cannot proceed.
5.2.
The disputes which were referred to arbitration pertaining
to transactions between the Appellant - MTNL on the one
hand, and Respondent No. 1 and 2 - Canara Bank and
CANFINA on the other hand.
5.3.
The arbitration proceeding cannot proceed in the absence
of Respondent No. 2 - CANFINA as the Bonds in question
were subscribed by Respondent No, 2 - CANFINA, and
were subsequently transferred to its parent Company i.e.
Respondent No. 1 - Canara Bank.
In the absence of Respondent No. 2 - CANFINA being
made a party to the arbitration, the arbitral proceedings may
be rendered infructuous.
5.4.
The only existing arbitration agreement between the parties,
is a draft tripartite agreement forwarded by Canara Bank
wherein MTNL and CANFINA were both made parties.
5.5.
There is no legal relationship or privity of contract between
the Appellant - MTNL and Respondent No. 1 - Canara
Bank as the disputed Bonds were bought from the Appellant
- MTNL by Respondent No. 2 - CANFINA.
The Appellant - MTNL had consented to the disputes
being referred to arbitration on the understanding that the
arbitration would be amongst the three parties.
6. The Counsel for Respondent No. 1 Canara Bank inter alia
submitted that :
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK
[INDU MALHOTRA, J.]
A
B
C
D
E
F
G
H
678
SUPREME COURT REPORTS
[2019] 11 S.C.R.
6.1.
The present appeal is not maintainable as the Appellant -
MTNL filed the present Appeal after filing its reply to the
Statement of Claim and Counter-Claim before the learned
Sole Arbitrator, and has therefore submitted itself to the
jurisdiction of the learned Sole Arbitrator.
6.2.
The only remedy available to Appellant - MTNL was to
file an application under Section 16 of the Arbitration and
Conciliation Act, 1996.
6.3.
Respondent No. 2 - CANFINA was merely joined as a
proforma party in the Writ Petition before the Delhi High
Court, and therefore cannot be made a party before the
arbitral proceedings.
6.4.
At the time of giving consent to arbitration and appointment
of the learned Sole Arbitrator, Respondent No. 2 -
CANFINA was not before the Court on 16.09.2011 and
21.10.2011.
6.5.
The Appellant - MTNL has not filed any claim against
Respondent No. 2 - CANFINA, and therefore, cannot seek
any remedy or relief against Respondent No. 2 - CANFINA
at this belated stage. Further, it cannot be allowed to raise
an issue of impleadment without having any claim against
the party sought to be impleaded.
7. We have heard the learned Counsel for the parties, and perused
the pleadings and Written Submissions filed.
8. ISSUES
There are two issues which have arisen for our consideration : (i)
the first issue raised by the Appellant - MTNL with respect to the
existence of a valid arbitration agreement between the three parties; (ii)
the second issue has been raised by Respondent No. 1 - Canara Bank
that the Order dated 16.09.2011 and 21.10.2011 is between Canara Bank
and MTNL. Respondent No. 2 - CANFINA, is not a party to the
arbitration agreement, and hence cannot be impleaded in the proceedings.
These issues will be dealt with seriatim.
A
B
C
D
E
F
G
H
679
9. THE EXISTENCE OF A VALID ARBITRATION AGREEMENT
A valid arbitration agreement constitutes the heart of an arbitration.
An arbitration agreement is the written agreement between the parties,
to submit their existing, or future disputes or differences, to arbitration.
A valid arbitration agreement is the foundation stone on which the entire
edifice of the arbitral process is structured. A binding agreement for
disputes to be resolved through arbitration is a sine-qua-non for referring
the parties to arbitration.
9.1. Section 7 defines "arbitration agreement" and reads as follows:
7. Arbitration agreement.