M/S K.D. Ganesha Hospital Pvt. Ltd vs Dr. Dushyant Thaman And Ors

M/S K.D. GANESHA HOSPITAL PVT. LTD. ...PETITIONER

Versus

DR. DUSHYANT THAMAN AND OTHERS ...RESPONDENTS

CORAM : HON'BLE MS. JUSTICE LAPITA BANERJI

Present : Mr. Aditya Grover, Advocate and Mr. Sukhandeep Singh, Advocate for or the petitioner. petitioner

LAPITA BANERJI, J.(ORAL)

J.

In the present petition filed under Article 227 of the Constitution

of India, the petitioner-company petitioner has challenged the order dated November 18,

2024 (Annexure P-1) P passed by the learned Sole Arbitrator under Section 16

of the Arbitration and Conciliation Act, 1996 (for short ''the 1996 Act').

2. The petitioner-company petitioner company challenged the jurisdiction of the llearned

Arbitrator on the ground that it has been improperly impleaded as a party. The

reference was made to the Memorandum of Understanding (MOU) dated July

25, 2008. The said memorandum was signed inter se between six shareholders

of the company.

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3. Learned counsel appearing on behalf of the petitioner submits Learned

that the petitioner was neither a signatory to the MOU nor was it bound in any

manner. The shareholders of the company had signed the MOU in their

individual capacity and there was no board resolut resolution which had

acknowledged or adopted the aforesaid MOU. It is argued that vide a

resolution dated November 06, 2008, the remunerations of the board

members/directors were fixed. The said resolution was passed by the Board of

Directors and pursuant to the same, the directors were getting their

remuneration since November, 2008. Reliance eliance is placed upon a decision of the

Supreme Court dated July 25, 2023 reported in 2023 INSC 650 Vinod Kumar

Sachdeva (Dead) through LRs Vs. Ashok Kumar Sachdeva and others others.

Relying ying on the said judgment, it is argued that since the MOU has not been

executed by the company itself, no reference to the arbitral proceedings could

have been made by the Civil Court. The order of the trial Court and also the

Single Judge of the High Court Court was set aside in the aforesaid judgment judgment, as the

company was not a party.

4. Issue notice of motion.

5. Mr. D.S. Gandhi, Advocate appears on behalf of respondents

No.1 and 2 and submits that the petitioner-company petitioner company is a necessary party party,

although the MOU has been executed only among amongst the shareholders. The said

MOU deals with the company's company internal governance and also distribution of

the remuneration to the directors. He refers to the Constitution Bench

judgment of the Supreme Court reported repor in 2023 INSC 1051 and 2024(4) SCC

1 Cox and Kings Ltd. Vs. SAP India Pvt. Ltd. and another to submit that

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the definition of the term "parties" under Section 2(1)(h) and Section 7 of the

1996 Act has been elucidated in the same. The conclusions arrived at by the

Supreme Court are as follows:-

follows:

"a. The definition of "parties" under Section 2(1)(h) read with section 7 of the Arbitration Act includes both the signatory as well as non non-

signatory parties;

b. Conduct of the non-signatory non signatory parties could be an indi indicator of their consent to be bound by the arbitration agreement;

c. The requirement of a written arbitration agreement under section 7 does not exclude the possibility of binding non non-signatory parties;

d. Under the Arbitration Act, the concept of a "party" is distinct and different from the concept of 'persons claiming through or under" a party to the arbitration agreement;

e. The underlying basis for the application of the group of companies doctrine rests on maintaining the corporate separateness of the ggroup companies while determining the common intention of the parties to bind the non-signatory non signatory party to the arbitration agreement;

f. The principle of alter ego or piercing the corporate veil cannot be the basis for the application of the group of companie companies doctrine;

g. The group of companies doctrine has an independent existence as a principle of law which stems from a harmonious reading of Section 2(1)(h) along with Section 7 of the Arbitration Act;

h. To apply the group of companies doctrine, the courts or tribunals, as the case may be, have to consider all the cumulative factors laid down in Discovery Enterprises (supra). Resultanlty, the principle of sing single economic unit cannot be the sole basis for invoking the group of companies doctrine;

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i. The persons persons "claiming through or under" can only assert a right in a derivative capacity;

j. The approach of this Court in Chloro Controls (supra) to the extent that it traced the group of companies doctrine to the phrase "claiming through or under" is erroneous and and against the well well-established principles of contract law and corporate law;

k. The group of companies doctrine should be retained in the Indian arbitration jurisprudence considering its utility in determining the intention of the parties in the context of complex transactions involving multiple parties and multiple agreements;

l.. At the referral stage, the referral court should leave it for the arbitral tribunal to decide whether the non-signatory non signatory is bound by the arbitration agreement; and

m. In the course course of this judgment, any authoritative determination given by this Court pertaining to the group of companies doctrine should not be interpreted to exclude the application of other doctrines and principles for binding non-signatories non signatories to the arbitration agre agreement."

(Emphasis supplied)

6. Therefore, he submits that the definition of "parties" will include

both signatories and non-signatories non signatories to the agreement. The requirement of a

written arbitration agreement under Section 7 of the 1996 Act does not ex exclude

the possibility of binding non-signatory non signatory parties and conduct of the non non-

signatory parties could be an indicator to the consent of being bound by the

arbitration agreement.

7. After hearing learned counsel for the parties and perusing the

material placed on record, this Court finds that the learned Arbitrator has come

to the conclusion that the distribution of remuneration is governed by MOU

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and it directly affects the petitioner-company petitioner company's operational and moral

responsibility. The petitioner-company petitione company may not have for formally signed the

MOU or passed the resolution explicitly adopting it it, but the nature of the

MOU between the shareholders inherently binds the company in the matter matters of

internal governance. The company being the vehicle for impleme implementing

remuneration decisions decision could not be considered to be a mere bystander. Its role

in facilitating payments payment and executing decisions from the MOU would indicate

the intrinsic connection of the company to the agreement. Learned Arbitrator

further held that that the remuneration payable to the directors is a core aspect of

corporate rate operations and the petitioner-company petition company could not divorce itself from

the implementation simply because it had not formally executed the MOU.

Relying on the ratio of the decision in Cox and Kings Ltd. (supra), he came

to the conclusion that the petitioner should be im impleaded as a party for

effective adjudication of disputes dispute in the proceedings.

8. Learned Arbitrator also distinguished the judgment of Vinod

Kumar Sachdeva (supra) cited by the petitioner. He held that in that case, the

MOU was exclusively executed between the two brothers and outlined how

the family properties were to be liquidated for the purpose of payment of

business liability. The company was not a party to the MOU and there was no

evidence of any operational link between the com company and the parties to the

MOU. No o responsibility could have been imposed on the company with regard

to the obligations under the MOU. Therefore, the Supreme Court held that the

company could not be subjected to arbitration proceedings as it was neither the

signatory nor had any direct connection connection to the terms of the MOU. Learned

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Arbitrator distinguished the facts of the present case with that of Vinod

Kumar Sachdeva (supra).

9. He held that the t petitioner-company company in the present case was

directly concerned with the disbursement of the rem remuneration of the directors

who had executed the MOU. The said MOU directly impacts the operational

functions of the company. The MOU in the he present case governed the

corporate rate obligations particularly the obligation of the disbursement of

remuneration to the the directors. Therefore, he held that a clear, operational and

legal nexus was established between the petitioner petitioner-company and the

signatories to the MOU. The remuneration structure outline outlined in the MOU

could not be implemented without the direct and active involvement of the

petitioner-company company as the company is the entity responsible for paying the

remuneration of the directors. Therefore, the learned Arbitrator held that the

petitioner-company company was a necessary party to the arbitration proceedings and

the application lication under Section 16 of the 1996 Act, seeking dismissal of the

proceedings against the petitioner-company, petitioner was dismissed.

10. To the mind of this Court the learned Arbitrator has correctly

delineated the facts and appreciated the law in holding that it was the

obligation of the petitioner-company petitioner company to disburse the remuneration of the

directors. Therefore, the company could not be removed from its moral and

operational obligations. While answering the issue whether a non-signatory

can be a party to the arbitration agreement in the facts and circumstances of

the present case, the agreement on record coupled with the surrounding

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circumstances of the formation, performance and discharge of the contract contract, has

correctly been taken into account.

11. The he learned Arbitrator has discussed in detail how the petitioner-

company is intrinsically connected with the obligation to be performed under

the MOU. This his Court finds no illegality or perversity in passing of the

impugned order dated November 18, 2024. Both the parties have relied on the

unreported judgment dated June 09, 2023 passed in M.D. Creations and

others Vs. Ashok Kumar Gupta by a Coordinate Bench of the High Court of

Calcutta on the issue of maintainability of the present petition. It appears from

thee said judgment that even though a petition under Article 227 of the

Constitution of India, India challenging an order passed under Section 16 of the

1996 Act is maintainable, the same can only be challenged in case there is a

patent lack of inherent jurisdiction jurisdiction or the learned Arbitrator acted in "bad

faith". In the present petition, the question of inherent lack of jurisdiction

cannot be raised as the existence of MOU/agreement MOU/agreement between the parties has

been admitted. Therefore, it cannot be said that the learned Arbitrator

inherently lacked lack jurisdiction to continue with the arbitration proceedings.

Furthermore, no exceptional circumstance or question of "bad faith" has been

raised by the parties.

parties. No material on record has been brought to show any

exceptional circumstance circ or that the learned Arbitrator acted in "bad faith".

12. In such circumstances, there is no reason to interfere with the

well reasoned order passed by the learned Arbitrator under Section 16 of the

1996 Act. Consequently, CR-923-2025 CR is dismisse dismissed.

13. Connected application(s), if any, shall also stand disposed of.

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14. Needless to mention that all the observations made hereinabove

are only for the purpose of adjudication of the present petition under Article

227 of the Constitution of India and this Court has not made any observation

on the merits of the disputes, pending pending adjudication before the learned

Arbitrator.

(LAPITA BANERJI) JUDGE

13.02.2025 Prince

Whether speaking/reasoned : Yes/No Whether reportable : Yes/No

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