Non- Signatories may also be bound by an Arbitration Agreement – HIGH COURT OF BOMBAY

High Court of Bombay held in Rakesh S Kathotia and Anr vs Milton Global Limited and Ors

High Court of Bombay held in Rakesh S Kathotia and Anr vs Milton Global Limited and Ors (2014 SCCOnlineBom 1119), that the sister Companies who are not signatories may be bound by an arbitration agreement signed by the group, even though they were not signatories to the said arbitration agreement. Brief Facts Under the Joint Venture Agreement (JVA), the Subhkam Group and the Vaghani Group jointly constituted Milton Global Limited, a joint venture company (JVC) with each holding 49.99% and 50.01% respectively. The management of JVC was vested in a board of directors to be appointed by the Subhkam Group and Vaghani Group. Under the JVA, the Subhkam Group and the Vaghani Group were defined as follows respectively: - "The Subhkam Group shall mean Mr Rakesh S Kathotia and such other entities controlled by him or his immediate relatives or his group companies directly or indirectly." - "The Vaghani Group shall mean Milton Plastics Limited Mr Dineshkumar Ishwarlal Vaghani, Mr Kanaiyalal Ishwarlal Vaghani, Mr Chirnajiv Ishwarlal Vaghani, Mr Nilesh Ishwarlal Vaghani and Mr Madhup Bansilal Vaghani and their immediate relatives taken together and such other entities controlled by them or their immediate relatives directly or indirectly." A single judge dismissed the Arbitration Petition seeking interim relief filed solely on the ground that there was no identity of the parties to the JVA and parties against whom the interim measured were sought. The same was further challenged before a division bench. Issues The primary issue involved here is whether a non-signatory to an arbitration agreement can be added as a party and whether such non-signatory will be bound by the agreement. Judgement The Bombay High Court held the parties to the JVA were not merely named as individuals or entities and concluded that the agreement was executed between the ‘Vaghani Group’ and the ‘Subhkam Group’ as defined under the JVA. The Court observed that the terms and phraseology contained in the agreement cannot be ignored so as to render it meaningless. A commercial document should be interpreted having regard to words and phraseology therein and no term / phrase should be treated as meaningless, especially if they are consistent with the other parts of the agreement. It relied upon the Supreme Court’s Judgement in Cholro Controls India Private Limited v. Severn Trent Water Purification Inc & Ors whereby an arbitration agreement entered into by a company being one within a group of companies, can bind its non¬signatory affiliates or sister or parent concerns if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates. In the light of the aforesaid reasons, the Court held that, even non-signatories to an arbitration agreement will be bound by it and that they can be added as a party.

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