Joining of Third parties in International Commercial Arbitration involving public contracts: Hon’ble Supreme Court affirms Hon’ble Kerala High Court’s judgment

The Hon’ble Supreme Court was faced with an interesting question of whether Principal State Contractor- who issued the bid for a public contract, is a necessary non-signatory 3rdparty in a dispute arbitration between the Private Consortium members who were executing the public contract.

In the order under challenge before the Hon’ble Supreme Court, the Division Bench of the Hon’ble Kerala High Court had exercised its Writ Jurisdiction under Articles 226/227 andheld that the State entity which awarded the contract is an approving authority for all payments and hence the dispute arbitration between the Lead member and other members of the executing consortium would require the presence of State Entity as a party.

Aggrieved, the State Entity as well as the Claimant consortium member filed respective Special Leave Petitions before the Hon’ble Supreme Court. Upon notice, the Hon’ble Supreme Court heard the matter in detail as it involved an interesting question of involving non-signatories to arbitration in an International Commercial Arbitration proceeding.

Appearing for the respective petitioners, Ld. Senior Counsel Ritin Rai and Advocate Raghenth Basant had stressed that the State Entity and the Consortium member had no privity of contract between them and in any case arbitration matters should not be interrupted by filing Petitions under Article 227. It was also pleaded that when there is a contractual bar against direct recoveries by consortium claimant from third party public entity, such an impleadment was not permissible. They placed reliance on the decisions of the decisions of the Hon’ble Supreme Court in Deep Industries v ONGC 2019 SCC Online SC 1602 & Bhaven Construction v Executive Engineer (2022) 1 SCC 75.

In response, appearing for the Common Respondent Private Consortium Leader, Krishnamohan Menon, Advocate on Record, assisted by Dania Nayyar, Advocate submitted that such 3rd party inclusion in interconnected consortium contracts is the only way to make an arbitration fruitful and that in case of non-exercise of vested jurisdiction or absence of it, interference under Article 227 is permissible. It was pleaded that this was necessary to avoid a future clash of simultaneous arbitrations. It was also pressed that when the consortium member admits interconnectivity in its pleadings in lower forums, it cannot plead the opposite in a higher forum. Reliance in this regard was placed on SREI Infrastructure Finance v Tuff Drilling (2018) 11 SCC 470 and Chloro Controls (India) Pvt. Ltd. V Severn Trent Water Purification Inc. (2013) 1 SCC 541.

The Hon’ble Supreme Court was pleased to dismiss the petitions and affirm the order of the Hon’ble Kerala High Court. This eases the procedural hurdles in infrastructural arbitrations and opens doors for consolidated resolution of disputes in an expeditious manner.

[Reference: Common Final Order Dt. 5.4.22 passed by the Hon’ble Supreme Court in M/s Enzen Global Solutions Pvt. Ltd. V M/s KEPCO KDN Co. Ltd. & Anr. SLP (c) No. 4154/20 with SLP (C) No. 8873/20]

Copy of Order is avilable here.

Leave a comment