Pratishtha Agarwal and Vidhi Chhabra[1]
Introduction
Arbitration hinges on party autonomy and flexibility, which enable parties to adjust the dispute settlement procedure to their requirements. The Group of Companies Doctrine ("GoCD") embodies these ideas by allowing arbitration terms approved by one party to bind all other parties engaged in the contract's life cycle. The recent case of Cox and Kings Ltd. v. SAP India Pvt. Ltd. broadened the scope of this theory, including more liberal interpretations of implicit consent in arbitration agreements.
This article investigates the developing interpretation of the Group of Companies Doctrine (GoCD) in arbitration, focusing on its applicability in binding non-signatory persons authorised to act as representatives on behalf of the Company. It examines the ramifications of incorporating corporate representatives in arbitration processes, citing recent cases such as Cox & Kings Ltd. v. SAP India Pvt. Ltd. The article compares Indian arbitration methods to international norms from the ICC, SIAC, and LCIA, emphasising the differing conditions for joinder. It highlights the importance of a balanced approach that protects arbitration's integrity while maintaining accountability, fairness, and efficiency.
Background
As non-signatories can be bound to an existing arbitration agreement by their role and common intention, the scope of the GoCD can be further widened to interpret whether or not the company's directors can be made a party to the arbitration.The contention is based on the fact that the arbitration agreements containing the clause are signed by the directors acting as authorised representatives who also make decisions on behalf of the company.
In Vingro Developers Pvt. Ltd. v. Nitya Shree Developers Pvt. Ltd., one of the directors had also signed the Builder Buyer Agreement, which was contended to be construed as an express intention to be added as a party to the Arbitration Agreement. The term ‘parties’ under Section 2(1), read with Section 7 of the Arbitration and Conciliation Act, includes both signatories and non-signatories. The Court observed that the relationship between the Company and its Directors is that of a Principal and Agent under Section 182 of the Indian Contract Act (“ICA”). The company's Director signed the Arbitration Agreement on behalf of the respondent company, thereby establishing an Agency. A simple reading of Section 230 of the ICA clarifies that an agent cannot be personally bound by contracts entered into on behalf of its principal.
Carving out an exception from the Principal-Agent Relationship
The Group of Companies Doctrine can be applied to add different non-signatories as parties to a contract. The principle of the corporate veil seeks to disregard the company's separate personality and attribute the company's acts to those in direct control of the operations of the company.
In Lanuza, Jr. et al. v. BF Corporation, in the Philippines, it was laid down by the Arbitral Tribunal that if the requirements for 'piercing' are present, the court may proceed to take jurisdiction over the directors and officers. In Amravati Peoples’ Co-operative Bank Ltd. v. Giltedege Management Services Ltd., the Bombay High Court reiterated the same and held that the directors of a company would be liable for misappropriation of the company’s funds and other misfeasance but not for the ordinary contractual liability of the company.
The Group of Companies Doctrine can be invoked to add other unconnected parties to the arbitration agreement. A fair inference to that effect would be to carve out an exception to the immunity under Section 230 of the ICA on account of negligence, misrepresentation, malice, or bad faith. Therefore, safeguards must be in place to restrict the creative use of the judgment in Cox and Kings and only bind parties, with the addition of which effective adjudication of disputes could be possible.
Consequences of Impleading Corporative Representatives in Arbitration Proceedings
Impleading corporate representatives such as directors, board members, general counsel or legal head, HR executives etc. can complicate arbitration by introducing new parties with conflicting interests. This may result in more complex legal arguments and procedural concerns. Claimants may sue directors or corporate representatives to hold them personally accountable for activities conducted on the corporation's behalf. This may broaden the possible scope of liability for those persons beyond the corporation itself and result in abuse of doctrines already set in place, such as the ‘doctrine of alter ego’ which is an equitable device used by the courts to prevent abuses by those improperly using the legal shield provided to a corporate entity. Directors and business officials involved in arbitration procedures would suffer personal financial liability or reputational harm, which may also have a bearing on the cost and efficiency of the arbitration proceedings. Impleading directors or corporate representatives may pose issues of conflict of interest, especially if the parties involved have fiduciary obligations to the company. This may limit their capacity to fully engage in the arbitration process without jeopardising their responsibilities to the business. The arbitration procedures involving directors or corporate representatives may influence settlement discussions.
Impleading directors or corporate representatives in arbitration is a ‘necessary evil’. While their involvement may complicate proceedings, it also serves critical functions that justify the potential drawbacks. Arbitration has the potential to deter wrongdoing and promote improved governance practices by holding corporate representatives accountable. This process ensures that accountability is not unjustly shifted to the corporation alone, protecting shareholders and other stakeholders as well. Involving important decision-makers in arbitration also clarifies their legal responsibilities, promoting more open and moral business practices. The advantages of enhanced accountability and governance outweigh the difficulties, making this strategy crucial. Holding directors or corporate representatives accountable for their activities can encourage responsible decision-making inside the organisation. Impleading people can guarantee that accountability is properly dispersed, preventing the company from carrying the entire responsibility for improper conduct. The arbitration procedure can explain their duties and responsibilities by including directors or corporate representatives, allowing for better future governance. It may safeguard shareholders' interests by holding individuals accountable for company decisions.
Comparative View on Impleading Corporate Representatives as a Party in Arbitration Proceedings
The contemporaneous stance in the Indian context on impleading corporate representatives is not attuned to the international standards of multifarious arbitral institutions. Article 7 of the ICC Arbitration Rules, 2021 (hereinafter referred to as: “ICC Rules”) permits for the joinder of the additional parties subject to the provisions contained within Articles 6(3) - 6(7) and 9. An important caveat that shall be highlighted herein is that the ICC Rules for impleading ‘corporate representatives’ as ‘third parties’ shall only be applicable in case “all parties, including the additional party,otherwise agree” and further provide that “no additional party may be joined after the confirmation or appointment of any arbitrator”. It shall also be highlighted that even if a party at the commencement of the arbitration objects to the joinder of an additional party, the arbitral tribunal now has the power and discretion to permit the joinder where the conditions are met pursuant to the ICC Rules.
Furthermore, Rule 7 of the Singapore International Arbitration Centre Arbitration Rules, 2016 (hereinafter referred to as: “SIAC Rules”) provides that for an additional party to be impleaded in the arbitration party, the party shall either be ‘prima facie bound by the arbitration agreement’ or “all parties, including the additional party to be joined, shall have consented to the joinder of the additional party”. Interestingly, the SIAC Rules do not lay impetus on the ‘express consent to joinder’.
Article 22.1(x) of the London Court of International Rules, 2020 (hereinafter referred to as: “LCIA Rules”) goes on a step further to stipulate that the consent of the applicant party and the additional party to joinder shall be ‘expresslywritten in the arbitral agreement’.
Rather interestingly, Article 6(3) of the Swiss Rules, 2021 (hereinafter referred to as: “Swiss Rules”) states that, “a request for joinder shall be decided by the arbitral tribunal after consulting with all of the parties considering all relevant circumstances”. The Swiss Rules pertinently only require ‘consultation with all the parties’. In the absence of the requirement for express consent, the arbitral tribunal has the power to decide whether to allow a joinder based on its considerations after consulting all parties.
While the ICC, SIAC, and LCIA Rules mandate the consent of the parties, after paying due consideration to the structuring of their provisions, it shall be highlighted that they reflect different standards for impleading corporate representatives as a ‘third-party’. The consent requirement of ‘all the parties’ may seem sacrosanct considering the consent-driven nature of the arbitration proceedings. However, from a practical standpoint, the consent threshold is too high to trigger a joinder in practice. In contrast, Swiss Rules are more in line with the advent of impleading third parties since they only require consultation based on all relevant circumstances, which prevents arbitrariness in decision-making, and they have a lower threshold for the parties' consent.
Conclusion
Impleading parties' changing criteria reflects a compromise between consent-driven processes and pragmatism in complicated arbitration cases involving corporate representatives. While international arbitration procedures such as the ICC, SIAC, and LCIA require explicit approval from all parties, which may impede such joinder, Swiss procedures take a more flexible approach by mandating consultation with parties, limiting arbitrariness. However, a significant concern among these variants is preserving the integrity of arbitration while guaranteeing justice and efficiency. Achieving this balance requires a sophisticated awareness of the repercussions of impleading business leaders while also realising the possible complications and the need to hold individuals accountable. There shall be an emphasis on continuously improving arbitration rules to strike a delicate balance between consent-based principles and practical application, thereby increasing the efficacy and legitimacy of the arbitration process.
コメント