Consolidation of Arbitration Proceedings – Global Infonet v. Lenovo and Ors.

Introduction

The Delhi High Court’s recent judgment in Global Infonet v. Lenovo and Ors.[1] (“Global Infonet”) is significant in the context of consolidation of arbitration proceedings. A Single Judge of the High Court allowed an application filed under Section 8 of the Arbitration and Conciliation Act, 1996 (“1996 Act”) seeking reference to arbitration, proceedings that technically arose out of three separate and distinct arbitration agreements between different parties.

The Court observed that all three arbitration agreements were part of three underlying distribution agreements which made up a single economic transaction between multiple parties. The Court thus did two things: (a) following now settled law, it rejected objections that an application for reference to arbitration could not be filed in a Suit which had parties who were not signatories to all the arbitration agreements; and (b) it effectively consolidated potentially three arbitration proceedings into one single arbitration.

Brief Background

Global Infonet had entered into three separate distribution agreements with Lenovo and two other parties. Arguing that its counterparties were colluding with each other so as to undermine its business, Global filed a Suit seeking damages. The defendants filed separate applications seeking to refer the dispute to arbitration.

All three distribution agreements had separate arbitration clauses:

SeatNumber of arbitratorsCourt
Agreement 1Bangalore3Bangalore
Agreement 2Mumbai1Mumbai
Agreement 3Bangalore3Bangalore (by implication)

Judgment

The High Court referred to A. Ayasamy v. A. Paramasivam[2] and Chloro Controls v. Severn Trent[3] (“Chloro Controls”) and observed that Courts should actively take a pro-arbitration stance and find means which gave effect to the intention of the parties to arbitrate. Referring to Chloro Controls in particular, the Court observed that Indian law recognised that non-signatories to a particular arbitration agreement could be still be held bound by arbitration. The Court then relied on Cheran Properties v. Kasturi and Sons[4] (“Cheran Properties”)  and held that Courts may refer parties to separate arbitration agreements to a single arbitration proceeding if the following tests were satisfied:

a.       Existence of a relationship between the parties;

b.      Commonality of subject matter of the dispute; and

c.       The underlying agreements between the various parties being referable to one single economic transaction.

Crucially, the Court relied on the Plaint itself to observe that the Global Infonet’s case was that the defendants were liable jointly and severally on account of having colluded with one another to breach their obligations under the respective underlying agreements. In fact, Global Infonet had itself stated that the transactions with the defendants were closely inter-related and inter-dependant.

Based on these averments in the Plaint, the Court observed that Global Infonet could not now object to being referred to arbitration. Consequently, the Court referred all parties to a single arbitration proceeding seated in Bangalore. The Court recorded the Defendant No. 2’s no-objection in terms of the seat being Bangalore as Agreement No. 2 had provided for Mumbai as the seat.

Analysis

Multi-contract and multi-party arbitrations make for complicated and often convoluted procedural issues. While institutional rules are now increasingly providing a solution by offering consolidation of arbitration proceedings, parties are often left clutching at straws in ad-hoc proceedings. In such circumstances, the role of Courts in consolidating arbitration proceedings becomes important. The 1996 Act does not expressly provide for consolidation of arbitration proceedings and there is thus a lack of clarity on this area in India.

In the circumstances, the judgment in Global Infonet is indeed important. However, while the High Court’s conclusion cannot be faulted, the High Court could have provided better doctrinal basis for reaching this conclusion.

The Court’s reliance on Chloro Controls for the proposition of non-signatories being bound by arbitration was possibly misplaced. Chloro had dealt with the group of companies doctrine on the basis of which the Court had held non-signatories to an arbitration agreement but being part of the same group of companies as parties to that agreement could be held bound by arbitration. The Court’s reliance on Cheran Properties was more apposite. However, while Cheran Properties did deal with the concept of a single economic transaction, this was in the context of persons being bound by an arbitral award under Section 35 of the 1996 Act. The Court relied on the wording of Section 35 itself which stated that an arbitral award was binding not only on parties but on persons claiming under them.  In fact, at para 21 of the judgment, the Supreme Court had observed that it was not dealing with a situation under Sections 8/45 of the 1996 Act, which was, on the other hand, the context in which Global Infonet was being decided.

The two judgments of the Supreme Court that the High Court could have relied on are Ameer Lal Chand Shah v. Rishabh Enterprises[5] (“Ameer Lal Chand Shah”)  and P. R. Shah v. B.H.H. Securities[6] (“P.R. Shah”):

a.        In Ameer Lal Chand Shah, the Supreme Court had referred parties to separate but related agreements to arbitration, notwithstanding the fact that one agreement did not even an arbitration clause. The rationale in this case was that all the agreements related to a single economic project viz. commissioning of a solar power plant.

b.      P R Shah is more explicit although it was rendered in the context of institutional arbitration. The Supreme Court held that if A had a claim against B and C and A had separate arbitration agreements with B and C, there was no reason why A could not have a joint arbitration against both B and C. The Court reasoned that otherwise there would be multiplicity of proceedings with the attendant risk of conflicting decisions.

The underlying principles behind consolidation of arbitration proceedings are set out in Ameer Lal Chand Shah and P.R. Shah and the High Court’s reasoning would have had better basis if these two judgments had been referred to. Nevertheless, in spite of the issues noted above, the High Court’s judgment in Global Infonet is noteworthy – it demonstrates that even in the context of ad-hoc arbitration proceedings, Indian Courts may consolidate arbitration proceedings in appropriate circumstances.

Authors:
Vijayendra Pratap Singh, Senior Partner
Abhijnan Jha, Senior Associate

[1] Judgment dated July 25, 2019, in C.S.(Comm.) No. 658 of 2017 (Jayant Nath, J.)
[2] (2016) 10 SCC 386
[3] (2013) 1 SCC 641
[4] (2018) 16 SCC 413
[5] AIR 2018 SC 3041- This was cited by the Defendants but not referred to in the Court’s judgment.
[6] (2012) 1 SCC 594

Date: October 21, 2019