Justice Raveendran's decision, in Indowind Energy v. Wescare (I) Ltd. & Anr., AIR 2010 SC 1793, is one which is, without doubt, a well-reasoned opinion in respect of Section 7 of the Arbitration and Conciliation Act, 1996, so long as the frame of reference is the facts of the case itself. From a practitioner's perspective, however, the decision has had some unintended consequences, and is today used extensively by Respondents in Section 11 proceedings under the Arbitration Act seeking to question the existence of an arbitration agreement.
The decision in Indowind states - "It is not in dispute that there can be appointment of an arbitrator if there was any dispute between Wescare and Subuthi. The question is when Indowind is not a signatory to the agreement dated 24.2.2006, whether it can be considered to be a 'party' to the arbitration agreement. In the absence of any document signed by the parties as contemplated under Clause (a) of Sub-section (4) of Section 7, and in the absence of existence of an arbitration agreement as contemplated in Clauses (b) or (c) of Sub-section (4) of Section 7 and in the absence of a contract which incorporates the arbitration agreement by reference as contemplated under Sub-section (5) of Section 7, the inescapable conclusion is that Indowind is not a party to the arbitration agreement. In the absence of an arbitration agreement between Wescare and Indowind, no claim against Indowind or no dispute with Indowind can be the subject- matter of reference to an arbitrator. This is evident from a plain, simple and normal reading of Section 7 of the Act."
This insistence on a signature becomes problematic in a different fact situation. Take, for instance, a scenario where party X enters into an agreement with a Consortium consisting of party A and B. Even the agreement states that A is entering into the Agreement on behalf of the Consortium, with A and B being jointly and severally liable to the extent of their interest in the Consortium. The Consortium is, however, not a separate legal entity in law. In such a scenario, given the language in the decision of Indowind, party B, arrayed as Respondent in a Section 11 petition, may take the objection that it was not a signatory to the agreement, and hence was not a "party" to the arbitration agreement. Commercially, this becomes even more problematic for party X when party A (the signatory) is a foreign party and party B is an Indian party, as X, to actually benefit from the litigation, has only two options:-
i. File a parallel suit against B to the extent of B's liability.
ii. In the event of a favourable award against A, go to A's country of incorporation and attempt to enforce the award in entirety, leaving it to A and B to apportion liability.
In my view, the situation becomes worse if B, for instance, has a hand in the breach of the agreement, as opposed to a situation where A is the Operator and the only person responsible for taking steps under the agreement with X. In this situation, even A has the opportunity to wriggle out of arbitration, by using the ratio in Sukanya Holdings v. Jayesh H. Pandya, (2003) 5 SCC 531, wherein it is stated that a cause of action cannot be bifurcated such that part of it is decided by an arbitral tribunal, and part of it is decided in a civil suit. While Sukanya Holdings was in the context of an application made under Section 8 of the Arbitration and Conciliation Act, 1996, some may argue that the principal can be extrapolated in deciding the arbitrability of a dispute in proceedings under Section 11 of the Arbitration and Conciliation Act.
I feel, therefore, that the principle enunciated in Indowind needs to be clarified and extended to the effect that a non-signatory to an arbitration agreement is deemed to be a signatory where, either expressly or impliedly, the party actually signing the agreement is representing such other party (either as agent or otherwise) for the purpose of the contract.