2019 INSC 0657
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 6202­6205 OF 2019
(Arising out of SLP (Civil) No. 13573­13576 of 2014)
Mahanagar Telephone Nigam Ltd. …Appellant
Versus
Canara Bank & Ors.              …Respondents
J U D G M E N T
INDU MALHOTRA, J.
Leave granted.
1. The   present   Special   Leave   Petitions   have   been   filed   to
challenge  Order  dated 16.09.2011  passed in  W.P. (C) No. 560
1

of 1995, Order dated 21.10.2011 passed in C.M. No. 12230 of
2011,   Order   dated   05.07.2013   passed   in   C.M.   No.   8100   of
2012,   and   Order   dated   10.01.2014   passed   in   C.M.   No.   324
and 325 of 2014 by the Delhi High Court.
2. The background facts of the case are as follows : 
2.1. In   1992,   MTNL   floated   17%   Non­Cumulative   Secured
Redeemable   Bonds   described   as   the   VI   Series   (Private
Placement)   worth   Rs.   425   crores.   On   10.02.1992,   MTNL
placed bonds worth Rs.200 crores with Can Bank Financial
Services   Ltd.   (hereinafter   referred   to   as   “CANFINA”)   under
an MOU agreement.  The bond amount of Rs. 200 cores was
placed   as   fixed   deposit   by   MTNL   with   CANFINA.   CANFINA
paid   back   Rs.   50   crores   of   the   fixed   deposit   in   1992.     The
balance   fixed   deposit   amount   of   Rs.   150   crores   along   with
interest   was   not   paid   by   CANFINA   to   MTNL.   As   a
consequence,   MTNL   did   not   service   the   interest   on   bonds.
MTNL was of the view that since it did not receive the entire
bond   amount   of   Rs.   200   crores,   the   entire   deal   did   not   go
through.   Against   payment   of   Rs.   50   crores   received   from
2

CANFINA, MTNL serviced the bonds of approximately Rs. 31
crores to the public.  MTNL was of the view that only a sum
of   Rs.5.41   crores   was   payable   to   CANFINA,   which   was   not
accepted by CANFINA. 
2.2. As per Canara Bank, soon after the bonds were subscribed,
there   was   an   out­break   of   a   security   scam   which   led   to   a
collapse   of   the   secondary   market   in   shares,   security   and
bonds. There were very few buyers in the secondary market.
Even   such   buyers   were   offering   very   low   prices   for   these
bonds.   In   these   circumstances,   CANFINA   was   faced   with   a
severe liquidity crunch.
2.3. In   these   circumstances,   Respondent   No.   1   –   Canara   Bank
purchased   the   Bonds   issued   by   MTNL,   of   the   face   value   of
Rs.   80   crores,   from   Respondent   No.   2   –   CANFINA   which   is
its wholly owned subsidiary. 
2.4.  Canara Bank requested for registration of these Bonds with
MTNL,   and   lodged   letters   of   allotment   for   purchase   of   the
bonds from CANFINA. 
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2.5. MTNL   vide   letter   dated   14.10.1992   addressed   to   Canara
Bank, refused to transfer the Bonds, on the various grounds
mentioned in the letter.
2.6. MTNL   by   a   subsequent   letter   dated   16.02.1993,   informed
Canara Bank that it had registered a part of the face value
of   Rs.   40   crores,   in   favour   of   CANFINA.   The   bond
instruments   were   however   retained   on   the   ground   that
CANFINA   had   failed   to   pay   the   deposit   money   of   Rs.   150
crores, which was payable to MTNL with an accrued interest
of 12% p.a.
2.7. MTNL   vide   letter dated 20.10.1993, cancelled all the Bonds
inter   alia   on   the   ground   that   letters   of   consideration
remained with CANFINA. 
2.8. Canara   Bank   vide   its   reply   dated   13.01.1994   contended
that   it   is   the   holder   in   due   course,   and   is   entitled   to   have
the shares registered in its name, and receive the interest as
and when it fell due.
2.9. MTNL   sent   a   statement   of   accounts   by   adjusting   the
proceeds   of   the   cancellation   of   bonds   towards   the   dues   of
4

CANFINA. It was stated that the bonds and interest accrued
thereon   cannot   be   refunded.   MTNL   with   its   letter   dated
13.01.1994,   attached   a   cheque   for   Rs.   5,41,17,463   as   the
amount payable to Canara Bank. 
2.10. Canara Bank, however, returned the cheque  vide  letter
dated   10.02.1994,   demanding   the   restoration   and
registration of the bonds. 
2.11. Canara   Bank   filed   W.P.   (Civil)   No.   560   of   1995   before
the   Delhi   High   Court   to   challenge   the   cancellation   of   the
Bonds, and a direction to pay the Interest accrued. 
It   is   relevant   to   note   that   CANFINA   was   joined   as   a
proforma party in the Writ Petition filed by Canara Bank. 
2.12. The   Delhi   High   Court   vide   Order   dated   09.09.1996
directed the Union of India to decide the issues between the
parties   in   light   of   this   Court’s   judgment   in   O.N.G.C.   v.
Commissioner of Central Excise 1
.  
The   Writ   Petition   was   dismissed   on   the   ground   of
availability   of   an   alternative   and   efficacious   remedy   before
1  (1995) Supp. 4 SCC 541.
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the   Company   Law   Board   under   Section   111   of   the
Companies Act, 1956.
2.13.  The proceedings before the Company
Law   Board   came   to   be   dismissed   vide   Order   dated
26.02.1998,   since   the   remedy   was   no   longer   available,   as
per the amendment of Section 111 by the Depositories Act,
1996. 
2.14.   Canara Bank filed an application for
Restoration   of   the   Writ   Petition,   which   was   restored   vide
Order dated 12.05.1999. 
2.15. Canara   Bank   made   a   representation
to the Cabinet Secretary.
On   27.03.2001,   a   meeting   was   convened   by   the
Cabinet   Secretariat,   Litigation   Cell   which   was   presided   by
the   Cabinet   Secretary,   and   attended   by   the   representatives
of MTNL, Canara Bank, and CANFINA.
      The   Committee   directed   Canara   Bank,   CANFINA   and
MTNL   to   settle   the   disputes   through   arbitration   by   making
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an   appropriate   reference   to   the   Permanent   Machinery   of
Arbitration,   functioning   in   the   Department   of   Public
Enterprises.   The   Committee   did   not   permit   Canara   Bank,
CANFINA and MTNL to pursue the litigation in Court. 
2.16. The   Delhi   High   Court   vide   Order
dated 30.05.2008 referred the disputes between the parties
to   the   Committee   on   Disputes.   The   Writ   Petition   was
adjourned   sine   die.   Canara   Bank   was   granted   liberty   to
revive   the   Petition   in   the   event   that   the   Committee   on
Disputes   was   unable   to   resolve   the   disputes   between   the
parties. 
2.17.   The   Committee   of   Disputes   held   a
meeting   on   16.12.2008,   which   was   attended   by   the
representatives   of   MTNL,   Canara   Bank   and   CANFINA.   The
Committee,   after   hearing   the   parties,   expressed   the   view
that all the three parties should take recourse to arbitration
in   view   of   the   different   inter­linked   transactions   between
them.  
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            The   representatives   of   Canara   Bank   expressed   the
apprehension   that  arbitration   by   the   Permanent   Machinery
of   Arbitration   would   take   much   longer   than   judicial
recourse. 
The Committee observed that to expedite arbitration,
the   parties   should   expeditiously   enter   into   an   arbitration
agreement under the Arbitration and Conciliation Act, 1996.
 
2.18. Pursuant   to   the   meeting   held   on
16.12.2008,   Canara   Bank   vide   its   letter   dated   05.03.2009
sent   a   draft   arbitration   agreement   to   the   Chairman   and
Managing Director of MTNL. The draft arbitration agreement
sent   by   Canara   Bank   was   between   Canara   Bank   and
CANFINA on the one side, with MTNL on the other.  
2.19. By   letter   dated   17.03.2010,   Canara
Bank   requested   the   Deputy   Secretary,   Cabinet   Secretariat
to   advise   MTNL   to   execute   the   arbitration   agreement   in
accordance   with   the   direction   of   the   Ministry   of   Law   and
Justice. 
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2.20. The   Delhi   High   Court   vide   Order
dated 01.10.2010 disposed of the pending Writ Petition with
the   observation   that   the   matter   should   be   resolved   by   the
Committee on Disputes expeditiously so that the arbitration
agreement   between   the   parties   is   signed   as   soon   as
possible. 
2.21.   The   decision   in   O.N.G.C.   v.
Commissioner of Central Excise  (supra) came to be overruled
by   a   Constitution   Bench   in   Electronics   Corporation   of   India
Ltd. v. Union of India & Ors. 2
 
Accordingly, Canara Bank moved the Delhi High Court
u/S.   151,   CPC   for   restoration   of   the   disposed   of   Writ
Petition. 
2.22. The   Delhi   High   Court   restored   the
Writ   Petition,   and   vide   Order   dated   16.09.2011   noted   that
the two principal issues which arise for consideration are: 
2  (2011) 3 SCC 404.
9

(i) Whether   Canara   Bank   is   liable   for   the   acts   or
omissions of CANFINA; and
(ii) Whether   Canara   Bank   should   take   over   the   liabilities
and admit them in the arbitration agreement itself.
During   the   course   of   the   proceedings,   the   parties
before the Delhi High Court agreed that these issues may be
referred   to   arbitration.   The   parties   were   requested   to
suggest the name of a sole arbitrator to be appointed on the
next date of hearing. 
2.23.   On   21.10.2011,   the   name   of   Mr.
Justice A.P. Shah (Retd.) was suggested by the Counsel for
Canara   Bank,   which   was   accepted   by   the   Counsel   for
MTNL. 
Accordingly,   Mr.   Justice   A.P.   Shah   (Retd.)   came   to   be
appointed as the Sole Arbitrator. 
2.24.   On   05.01.2012,   the   Sole   Arbitrator
issued   notice   to   all   the   three   parties   i.e.   MTNL,   Canara
Bank, and CANFINA. 
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2.25. Canara   Bank   raised   an   objection   to
joining   CANFINA   as   a   party   to   the   arbitration.   The
Arbitrator   heard   the   parties   on   27.03.2012,   on   the   issue
whether   CANFINA   should   be   joined   as   a   party   to   the
proceedings. 
The   learned   Arbitrator   passed   an   interim   award
holding   that   CANFINA   had   not   appeared   on   16.09.2011
before   the   High   Court,   when   the   disputes   were   referred   to
arbitration.   CANFINA   was   not   a   party   to   the   arbitration
agreement, and cannot be joined as a party to proceedings. 
2.26. MTNL   filed   C.M.   No.   8100   of   2012
before   the   Delhi   High   Court   seeking   clarification   of   Order
dated   16.09.2011,   as   to   whether   CANFINA   ought   to   be
impleaded   as   a   necessary   party   to   the   arbitration
agreement. 
The   Delhi   Court   vide   order   dated   05.07.2013
dismissed the application as “not pressed” on the statement
made by the Counsel of MTNL. 
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2.27. Canara   Bank   filed   its   Statement   of
Claim before the learned Sole Arbitrator on 06.12.2013. 
2.28. MTNL   filed   I.A.   Nos.   324   –   325   of
2014   before   the   Delhi   High   Court   for   recall   of   the   Orders
dated   16.09.2011,   21.10.2011   and   05.07.2013   passed   in
W.P. (C) No. 560 of 1995.
2.29. The   Delhi   High   Court   vide   Order
dated   10.01.2014,   dismissed   the   Application   for   Recall   on
the   ground   that   the   application   was   identical   to   the
application previously filed by MTNL being C.M. No. 8100 of
2012.   Since   MTNL   had   not   pressed   the   earlier   application,
the  subsequent  application  being   identical in  nature,  could
not be considered, and was dismissed.
2.30.   In May 2014, MTNL filed its reply to
the   Statement   of   Claim   filed   by   Canara   Bank,   and   also
made a Counter­Claim against Canara Bank. 
3. Aggrieved   by   the   Orders   dated   16.09.2011,   21.10.2011,
05.07.2013,   and   10.01.2014   passed   by   the   Delhi   High   Court
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in W.P. (C) No. 560 of 1995, C.M. No. 12230 of 2011, C.M. No.
8100 of 2012 and C.M. No. 324 and 325 of 2014 respectively,
the  Appellant  – MTNL filed the present  Special Leave Petition.
This   Court   vide   Order   dated   08.05.2014   issued   Notice   to   all
the Respondents, including CANFINA which has been joined as
Respondent No. 2.
4. Ms. Madhavi Divan, learned ASG appeared on behalf of MTNL,
Mr. Ameesh Dabass, learned Counsel appeared for Respondent
No. 1 – Canara Bank, and Ms. Saumya Sinha, along with Mr.
A.K. Sharma, learned Counsels appeared for Respondent No. 2
– CANFINA.
5. The Counsel for  the Appellant  – MTNL   inter alia   submitted as
under:
5.1. In   the   absence   of   a   written   agreement   for   arbitration
between   the   parties,   as   stipulated   by   Section   2(b)   r.w.   2(h)
and   7(3)   of   the   Arbitration   and   Conciliation   Act,   1996,   the
arbitration cannot proceed.
5.2. The disputes which were referred to arbitration pertaining to
transactions   between   the   Appellant   –   MTNL   on   the   one
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hand,   and   Respondent   No.   1   and   2   –   Canara   Bank   and
CANFINA on the other hand.
5.3. The arbitration proceeding cannot proceed in the absence of
Respondent No. 2 – CANFINA as the Bonds in question were
subscribed   by   Respondent   No,   2   –   CANFINA,   and   were
subsequently   transferred   to   its   parent   Company   i.e.
Respondent No. 1 – Canara Bank. 
In   the   absence   of   Respondent   No.   2   –   CANFINA   being
made   a   party   to   the   arbitration,   the   arbitral   proceedings
may be rendered infructuous. 
5.4. The only existing arbitration agreement between the parties,
is   a   draft   tripartite   agreement   forwarded   by   Canara   Bank
wherein MTNL and CANFINA were both made parties. 
5.5. There is no legal relationship or  privity of contract between
the Appellant – MTNL and Respondent No. 1 – Canara Bank
as   the   disputed   Bonds   were   bought   from   the   Appellant   –
MTNL by Respondent No. 2 – CANFINA. 
14

The   Appellant   –   MTNL   had   consented   to   the   disputes
being   referred   to   arbitration   on   the   understanding   that   the
arbitration would be amongst the three parties. 
6. The   Counsel   for   Respondent   No.   1   Canara   Bank   inter   alia
submitted that : 
6.1. The   present   appeal   is   not   maintainable   as   the   Appellant   –
MTNL   filed   the   present   Appeal   after   filing   its   reply   to   the
Statement   of   Claim   and   Counter­Claim   before   the   learned
Sole   Arbitrator,   and   has   therefore   submitted   itself   to   the
jurisdiction of the learned Sole Arbitrator. 
6.2. The   only   remedy   available   to   Appellant   –   MTNL   was   to   file
an   application   under   Section   16   of   the   Arbitration   and
Conciliation Act, 1996. 
6.3. Respondent   No.   2   –   CANFINA   was   merely   joined   as   a
proforma   party   in   the   Writ   Petition   before   the   Delhi   High
Court,   and   therefore   cannot   be   made   a   party   before   the
arbitral proceedings. 
15

6.4. At the time of giving consent to arbitration and appointment
of the learned Sole Arbitrator, Respondent No. 2 – CANFINA
was not before the Court on 16.09.2011 and 21.10.2011. 
6.5. The   Appellant   –   MTNL   has   not   filed   any   claim   against
Respondent   No.   2   –   CANFINA,   and   therefore,   cannot   seek
any remedy or relief against Respondent No. 2 – CANFINA at
this belated stage. Further, it cannot be allowed to raise an
issue of impleadment without having any claim  against the
party sought to be impleaded. 
7. We   have   heard   the   learned   Counsel   for   the   parties,   and
perused the pleadings and Written Submissions filed.  
8. ISSUES   
There   are   two   issues   which   have   arisen   for   our
consideration   :   (i)   the   first   issue   raised   by   the   Appellant   –
MTNL   with   respect   to   the   existence   of   a   valid   arbitration
agreement between the three parties; (ii) the second issue has
been   raised   by   Respondent   No.   1   –   Canara   Bank   that   the
Order   dated   16.09.2011   and   21.10.2011   is   between   Canara
Bank and MTNL. Respondent No. 2 – CANFINA, is not a party
16

to   the   arbitration   agreement,   and   hence   cannot   be   impleaded
in the proceedings.
These issues will be dealt with  seriatim.
9. THE   EXISTENCE   OF   A   VALID   ARBITRATION   AGREEMENT   
A   valid   arbitration   agreement   constitutes   the   heart   of   an
arbitration. An arbitration agreement is the written agreement
between   the   parties,   to   submit   their   existing,   or   future
disputes   or   differences,   to   arbitration.   A   valid   arbitration
agreement   is   the   foundation   stone   on   which   the   entire  edifice
of   the   arbitral   process   is   structured.   A   binding   agreement   for
disputes   to   be   resolved   through   arbitration   is   a   sine­qua­non
for referring the parties to arbitration. 
9.1. Section   7   defines   “arbitration   agreement”   and   reads   as
follows :
7. Arbitration agreement. –
(1)   In   this   Part,   “arbitration   agreement”   means   an
agreement by the parties to submit to arbitration all
or certain disputes which have arisen or which may
arise   between   them   in   respect   of   a   defined   legal
relationship, whether contractual or not.
(2)   An   arbitration   agreement   may   be   in   the   form   of
an arbitration clause in a contract or in the form of a
separate agreement.
(3) An arbitration agreement shall be in writing.
17

(4)   An   arbitration   agreement   is   in   writing   if   it   is
contained in­
(a) A document signed by the parties;
(b) An exchange of letters, telex, telegrams or other
means   of   telecommunication   which   provide   a
record of the agreement; or
(c) An exchange of statements of claim and defence
in which the existence of the agreement is alleged by
one party and not denied by the other.
(5)   There   reference   in   a   contract   to   a   document
containing   an   arbitration   clause   constitutes   an
arbitration agreement if the contract is in writing and
the   reference   is   such   as   to   make   that   arbitration
clause part of the contract.
9.2. The   arbitration   agreement   need   not   be   in   any   particular
form.  What is required to be ascertained is the intention of
the   parties   to   settle   their   disputes  through   arbitration.   The
essential elements or attributes of an arbitration agreement
is   the   agreement   to   refer   their   disputes   or   differences   to
arbitration, which is expressly or impliedly spelt out from a
clause   in   an   agreement,   separate   agreement,   or
documents/correspondence exchanged between the parties.
9.3. Section   7(4)(b)   of   the   1996   Act,   states   that   an   arbitration
agreement   can   be   derived   from   exchange   of   letters,   telex,
telegram   or   other   means   of   communication,   including
through   electronic   means.   The   2015   Amendment   Act
18

inserted   the   words   “including   communication   through
electronic means” in Section 7(4)(b). If it can   prima facie   be
shown that parties are  ad idem , even though the other party
may   not   have   signed   a   formal   contract,   it   cannot   absolve
him from the liability under the agreement 3
.
9.4. Arbitration agreements are to be construed according to the
general   principles   of   construction   of   statutes,   statutory
instruments,   and   other   contractual   documents.   The
intention   of   the   parties   must   be   inferred   from   the   terms   of
the   contract,   conduct   of   the   parties,   and   correspondence
exchanged,   to   ascertain   the   existence  of   a  binding   contract
between   the   parties.   If  the   documents   on   record   show   that
the   parties   were   ad   idem ,   and   had   actually   reached   an
agreement   upon   all   material   terms,   then   it   would   be
construed to be a binding contract.
The   meaning   of   a   contract   must   be   gathered   by
adopting   a   common   sense   app roach,   and   must   not   be
3   Govind Rubber Ltd.  v.  Louis Dreyfus Commodities Asia (P) Ltd. , 
(2015) 13 SCC 477
19

allowed to be thwarted by a pedantic and legalistic interpre ­
tation. 4
9.5.   A   commercial   document   has   to   be   interpreted   in   such   a
manner so as to give effect to the agreement, rather than to
invalidate   it.         An   ‘arbitration   agreement’   is   a   commercial
document  inter partes , and must be interpreted so as to give
effect   to   the   intention   of   the   parties,   rather   than   to
invalidate it on technicalities.
9.6. In   Khardah   Company   Ltd.   v.   Raymon   and   Co.   (India)   Pvt.
Ltd. 5
,     this   Court   while   ascertaining   the   terms   of   an
arbitration agreement between the parties, held that:
“ If   on   a   reading   of   the   document   as   a   whole,  it   can
fairly   be   deduced   from   the   words   actually   used
herein,   that   the   parties   had   agreed   on   a   particular
term,   there   is   nothing   in   law   which   prevents   them
from   setting   up   that   term.   The   terms   of   a   contract
can   be   expressed   or   implied   from   what   has   been
expressed.   It   is   in   the   ultimate   analysis,   a   question
of construction of the contract.”
(emphasis supplied)
9.7. In   interpreting   or   construing   an   arbitration   agreement   or
arbitration clause, it would be the duty of the court to make
the same workable within the permissible limits of the law.
4   Union of India  v.  DN Revry and Co . ,   (1976) 4 SCC 147. 
5  [1963] 3 SCR 183.
20

This   Court   in   Enercon   (India)   Ltd.   and   Ors.   v.   Enercon
GMBH 6
,   held   that   a   common   sense   approach   has   to   be
adopted   to   give   effect   to   the   intention   of   the   parties   to
arbitrate   the   disputes   between   them.   Being   a   commercial
contract, the arbitration clause cannot be construed with a
purely legalistic mindset, as in the case of a statute.
9.8. In this case, MTNL raised a preliminary objection that there
was no arbitration agreement in writing between the parties,
at this stage of the proceedings.
We   will   first   deal   with   this   issue.   The   agreement
between   MTNL   and   Canara   Bank   to   refer   the   disputes   to
arbitration   is   evidenced   from   the   following   documents
exchanged between the parties, and the proceedings :
(i) The   Minutes   of   the   Meeting   dated   27.03.2001
convened by the Cabinet Secretariat, wherein all three
parties   were   present   and   participated   in   the
proceedings.   The   Committee   on   Disputes,   in   the
Meeting   dated   16.12.2008   expressed   the   view   that   all
6   (2014) 5 SCC 1.
21

the three parties should take recourse to arbitration in
view   of   the   different   inter­liked   transactions   between
them.   Canara   Bank   suggested   that   to   expedite   the
arbitration,   it   should   be   conducted   under   the
Arbitration   &   Conciliation   Act,   1996.   This   was
accepted by MTNL, and no objection was raised.
(ii) Pursuant to the proceedings conducted by the Cabinet
Secretariat,   Canara   Bank   addressed   letters   dated
05.03.2009   and   17.03.2010   to   MTNL,   wherein   it
enclosed   a   draft   Arbitration   Agreements,   wherein   all
three   parties   i.e.   Canara   Bank,   CANFINA   and   MTNL
would be joined in the arbitration proceedings.
(iii) In   the   Writ   Petition   filed   by   Canara   Bank,   the   Delhi
High   Court   vide   Order   dated   16.09.2011   recorded   the
consent   of   MTNL   and   Canara   Bank   to   be   referred   to
arbitration by a Sole Arbitrator under the 1996 Act.  
The   relevant   extract   of   the   Order   dated
16.09.2011   passed   by   the   Delhi   High   Court   reads   as
follows :
22

“Unfortunately,   although   the   parties   had
displayed   their   willingness   for   arbitration,   the
Committee   on   Disputes   could   not   resolve   the
specific   clauses   of   the   arbitration   agreement.   Nor
have   the   parties   been   able   to   arrive   at   a
consensus   with   regard   to   the   specific   clauses   of
the   arbitration   agreement.   As   noted   in   the   order
dated 01.10.2010, according to the petitioner, it is
a matter of arbitration as to whether the petitioner
is   liable   for   the   acts   or   omissions   of   CANFINA.
However,  the  respondents   were  insisting  that   the
petitioners should agree to take over the liabilities
and admit them in the arbitration agreement itself.
It   has   now   been   agreed   by   the   parties   that   both
these   issues   could   be   made   the   subject   matter   of
the   arbitration,   namely,   whether   the   petitioner   is
liable   for   the   acts   or   omissions   of   CANFINA   and
whether   the   petitioner   is   liable   to   take   over   the
liabilities   of   CANFINA.   There   is   no   necessity   now
of requiring the petitioner to agree to take over the
liabilities   of   CANFINA   prior   to   the   arbitration
proceedings   because   that   itself   would   not   be   one
of   the   points   to   be   decided   in   the   course   of
arbitration.   Even   though   the   learned   counsel   for
the petitioner has placed before us the subsequent
decisions of the Supreme Court with regard to the
scope   and   ambit   of   powers   of   the   Committee   on
Disputes,   we   are   making   the   present   order
because   the parties themselves have agreed to go
in   for   arbitration   as   a   mode   for   resolving   their
disputes.   This   is   welcome   because   both   the
parties are PSUs. The counsel for the parties shall
suggest names of the arbitrators.”  
(emphasis supplied)
 
(iv) Pursuant   thereto,   MTNL   participated   in   the
proceedings conducted by the Sole Arbitrator, and filed
its Claim, and Counter­Claim. No objection was raised
23

before the Sole Arbitrator that there was no arbitration
agreement   in   writing   between   the   parties.   The   only
objection raised was that CANFINA should be joined as
a necessary party in the proceedings.
9.9. The agreement between the parties as recorded in a judicial
Order, is final and conclusive of the agreement entered into
between   the  parties. 7
  The   Appellant   –   MTNL   after   giving   its
consent to refer the disputes to arbitration before the Delhi
High Court, is now estopped from contending that there was
no written agreement to refer the parties to arbitration. 
9.10. An additional ground, for rejecting the preliminary objection
raised by MTNL is based on Section 7(4)(c) of the Arbitration
and Conciliation Act, 1996.
Section   7(4)(c)   provides   that   there   can   be   an
arbitration agreement in the form  of exchange of statement
of   claims   and   defense,   in   which   the   existence   of   the
7   State of Maharashtra  v.  Ramdas Shrinivas Nayak  (1982) 2 SCC 463.
See also  Chitra Kumari  v.  Union of India  (2001) 3 SCC 208.
24

agreement   is   asserted   by   one   party,   and   not   denied   by   the
other. 8
In   the   present   case,   Canara   Bank   had   filed   its
Statement of Claim before the Arbitrator, and MTNL filed its
Reply   to   the   Statement  of   Claim,   and   also   made   a   Counter
Claim against Canara Bank.
The   statement   of   Claim   and   Defence   filed   before   the
Arbitrator   would   constitute   evidence   of   the   existence   of   an
arbitration   agreement,   which   was   not   denied   by   the   other
party, under Section 7(4)(c) of the 1996 Act.
In view of the aforesaid discussion, the objection raised
by MTNL is devoid of any merit, and is hereby rejected.
10. JOINDER   OF   CANFINA   IN   THE   ARBITRAL   PROCEEDINGS   
10.1. Canara   Bank   raised   an   objection   to   the   joinder   of
Respondent   No.   2   –   CANFINA   as   a   party   to   the   arbitration
proceedings.
10.2.  As per the principles of contract law, an agreement entered
into by one of the companies in a group, cannot be binding
8 Savitri Goenka  v.  Kanti Bhai Damini & Ors. ,   2009 (1) Arb LR 320 (Del) (DB) .
25

on the other members of the same group, as each company
is a separate legal entity which has separate legal rights and
liabilities.  
The   parent,   or   the   subsidiary   company,   entering   into
an agreement, unless acting in accord with the principles of
agency or representation, will be the only entity in a group,
to be bound by that agreement. 
Similarly, an arbitration agreement is also governed by
the   same   principles,   and   normally,   the   company   entering
into the agreement, would alone be bound by it. 
10.3. A  non­signatory  can  be bound  by   an  arbitration agreement
on   the   basis   of   the   “Group   of   Companies”   doctrine,   where
the conduct of the parties evidences a clear intention of the
parties   to   bind   both   the   signatory   as   well   as   the   non­
signatory parties.
Courts and tribunals have invoked this doctrine to join
a   non­signatory   member   of   the   group,   if   they   are   satisfied
that   the   non­signatory   company   was   by   reference   to   the
26

common   intention   of   the   parties,   a   necessary   party   to   the
contract.
10.4. The doctrine of ‘Group of Companies’ had  its origins in the
1970’s   from   French   arbitration   practice.   The   ‘Group   of
Companies’   doctrine   indicates   the   implied   consent   to   an
agreement to arbitrate, in the context of modern multi­party
business transactions. 
It was first propounded in the case of  Dow Chemical   v.
Isover­Saint­Gobain , 9
 where the arbitral tribunal held that:
“… the arbitration clause expressly accepted by certain of
  the   companies   of   the   group   should   bind   the   other
companies  which,  by  virtue  of  their  role  in  the  conclusion,
performance,   or   termination   of   the   contracts   containing
said clauses, and in accordance with the mutual intention
of   all   parties   to   the   proceedings,   appear   to   have   been
veritable   parties   to   these   contracts   or   to   have   been
principally   concerned   by   them   and   the   disputes   to   which
they may give rise”.
The   ‘Group   of   Companies’   doctrine   has   been   invoked   by
courts   and   tribunals   in   arbitrations,   where   an   arbitration
agreement   is   entered   into   by   one   of   the   companies   in   the
group;   and   the   non­signatory   affiliate,   or   sister,   or   parent
9 1984 R ev  A rb  137; 110 JDI 899 (1983) .
27

concern, is held to be bound by the arbitration agreement,
if the facts and circumstances of the case demonstrate that
it   was   the   mutual   intention   of   all   parties   to   bind   both   the
signatories and the non­signatory affiliates in the group. 
T he   doctrine   provides   that   a   non­signatory   may   be
bound   by   an   arbi tration   agree ment   where   the   parent   or
holding company, or a member of the  group of companies  is
a   signatory   to   the   arbitration   agreement   and   the   non­
signatory   entity   on   the   group   has   been   engaged   in   the
negotiation   or   performance   of   the   commercial   contract,   or
made statements indicating  its  intention  to be bound by the
contract,   the   non­signatory   will   also   be   bound   and
benefitted by the relevant contracts. 10
The circumstances in which the ‘Group of Companies’
Doctrine could be invoked to bind the non­signatory affiliate
of   a   parent   company,   or   inclusion   of   a   third   party   to   an
arbitration,   if   there   is   a   direct   relationship   between   the
10     Interim   Award   in   ICC   Case   No.   4131,   IX   YB   Comm   Arb   131   (1984);
Award in ICC Case No. 5103, 115 JDI (Clunet) 1206 (1988). 
See   also   Gary   B.   Born:   International   Commercial   Arbitration ,   Vol.   I,
2009, pp. 1170­1171.
28

party   which   is   a   signatory   to   the   arbitration   agreement;
direct   commonality   of   the   subject   matter;   the   composite
nature of the transaction between the parties. 
A ‘composite transaction’ refers to a transaction which
is   inter­linked   in   nature;   or,   where   the   performance   of   the
agreement   may   not   be   feasible   without   the   aid,   execution,
and   performance   of   the   supplementary   or   the   ancillary
agreement,   for   achieving   the   common   object,   and
collectively having a bearing on the dispute.
10.5. The Group of Companies Doc trine has also been invoked in
cases   where   there   is   a   tight   group   structure   with   strong
organizational   and   financial   links,   so   as   to   constitute   a
single economic unit, or a single econo mic reality. In such a
situation,   signatory   and   non­signatories   have   been   bound
together under the arbitration agreement. This will apply in
particular   when   the   funds   of   one   company   are   used   to
financially   support   or   re­structure   other   members   of   the
group. 11
11 ICC  C ase No.   4131 of 1982, ICC  C ase No. 5103 of 1988 .
29

10.6. The   ‘Group   of   Companies’   doctrine   has   been   invoked   and
applied   by   this   Court   in   Chloro   Controls   India   (P)   Ltd.   v.
Severn   Trent   Water   Purification   Inc., 12
  with   respect   to   an
international   commercial   agreement.     Recently,   this   Court
in   Ameet Lal Chand Shah   v.   Rishabh Enterprises, 13
  invoked
the Group of Companies doctrine in a domestic arbitration
under Part I of the 1996 Act.  
10.7. Coming   to   the   facts   of   the   present   case,   CANFINA   was   set
up   as   a   wholly   owned   subsidiary   of   Canara   Bank.   This   is
evident from the Report of the Joint Committee to Enquire
into   Irregularities   in   Securities   and   Banking   Transactions,
1993, 14
 which states as follows :
“ Canbank Financial Services Ltd. 
6.14   CANFINA   was   set   up   as   a   wholly   owned
subsidiary   of   Canara   Bank   and   it   commenced   its
operation   with   its   Head   Office   at   Bangalore   on   1    st
June,   1987.   Its   authorized   and   paid   up   capital   are
Rs. 50 crores and  Rs. 10 crores respectively. It was
staffed  mostly be   personnel   from   Canara  Bank  and
12  (2013) 1 SCC 641.
The Madras High Court has invoked the Group of Companies Doctrine
in   a   foreign   seated   arbitration   in   SEI   Adhavan   Power   Pvt.   Ltd.   v.   Jinneng
Clean Energy Technology Ltd. & Ors. 2018   (4) CTC 46.
13  (2018) 15 SCC 678.
14   Report, Presented to the Lok Sabha on 21 st
 December, 1993.
30

has   branches   at   Ahmedabad,   Bombay,   Calcutta,
Hyderabad,   Madras   and   New   Delhi   besides
Bangalore.   As the Board comprised mostly of senior
executives of Canara Bank and its Chief Executive is
also a senior official of that bank (on deputation) the
company   functioned   under   the   umbrella   of   the
parent bank; besides it submits periodical returns on
its   functioning   to   the   Board   of   Canara   Bank   for
information.  
6.15   The   activities   authorized   to   be   conducted   by
the   Company   are   equipment   leasing,   merchant­
banking,   venture   capital   and   consultancy   services.
The   Company,   initially   deployed   a   major   portion   of
its   owned   funds   and   deposits   in   equipment   leasing
business   and   obtained   the   classification   of   an
‘Equipment   leasing   company’   from   the   Department
of   Finance   Companies   of   RBI;   this   classification
entitles   the   company   to   mobilize   public   deposits   to
the extent of ten time its owned funds. 
…
6.25   The Committee hope that the nature and extent
of the financial assistance being provided by Canara
Bank   to   its   subsidiaries   are   such   as   could   be
justified   on   prudent   commercial   norms.   Further   the
parent bank cannot be absolved of the responsibility
for various irregularities of its subsidiary. ”
(emphasis supplied)
10.8. The   disputes   between   the   parties   emanated   out   of   the
transaction   dated   10.02.1992,   whereby   CANFINA   has
subscribed   to   the   bonds   floated   by   MTNL.   CANFINA
subsequently transferred the Bonds to its holding Company
–   Canara   Bank.   It   is   the   contention   of   MTNL,   that   since
CANFINA   did   not   pay   the   entire   sale   consideration   for   the
31

Bonds,   MTNL   eventually   was   constrained   to   cancel   the
allotment of the Bonds. 
10.9. It will  be a futile  effort  to  decide the  disputes  only  between
MTNL and Canara Bank, in the absence of CANFINA, since
undisputedly,   the   original   transaction   emanated   from   a
transaction   between   MTNL   and   CANFINA   –   the   original
purchaser   of   the   Bonds.   The   disputes   arose   on   the
cancellation  of  the   Bonds   by   MTNL   on   the   ground   that  the
entire consideration was not paid. 
There is a clear and direct nexus between the issuance
of   the   Bonds,   its   subsequent   transfer   by   CANFINA   to
Canara Bank, and the cancellation by MTNL, which has led
to disputes between the three parties. 
Therefore,   CANFINA   is   undoubtedly   a   necessary   and
proper party to the arbitration proceedings. 
10.10. Given   the   tri­patite   nature   of   the   transaction,   there
can   be   a   final   resolution   of   the   disputes,   only   if   all   three
parties   are   joined   in   the   arbitration   proceedings,   to   finally
32

resolve   the   disputes   which   have   been   pending   for   over   26
years now.
It   is   of   relevance   to   note   that   CANFINA   has
participated   in   the   proceedings   before   the   High   Court,   and
the Committee on Disputes. CANFINA was also represented
by   its   separate   Counsel   before   the   Sole   Arbitrator.   Canara
Bank   in   CWP   No.   560   of   1995   filed   before   the   Delhi   High
Court,   had   joined   CANFINA   as   Respondent   No.   2,   even
though   it   was   joined   as   a   proforma   party.   CANFINA   was
represented   by   Counsel   in   the   Writ   Proceedings   before   the
Delhi   High   Court.   The   Counsel   for   CANFINA   was   however
not   present   on   two   dates   i.e.   on   16.09.2011   and
21.10.2011,   when   the   High   Court   recorded   the   agreement
between  the  parties  for  reference  of  disputes  to   arbitration.
MTNL   had   submitted   before   the   Delhi   High   Court   that
Canara   Bank   should   agree   to   take   over   the   liabilities   of
CANFINA  before   the   arbitration   could   commence.   The   High
Court   recorded   that   there   was   no   necessity   of   requiring
Canara   Bank   to   agree   to   take   over   the   liabilities   of
33

CANFINA,   prior   to   the   arbitration   proceedings.   This   issue
would be decided in the arbitration.
10.11. On   the   commencement   of   arbitration   proceedings
before   the   Sole   Arbitrator,   notice   was   issued   by   the   Sole
Arbitrator to all the three parties including CANFINA, which
was represented by its Counsel.
10.12. We find that the objection to CANFINA being impleaded
as   a   party   to   the   arbitration   proceedings   was   raised   by
Canara Bank, and not CANFINA. 
10.13. We   do   not   find   any   merit   in   the   objection   raised   by
Canara Bank opposing the joining of CANFINA as a party to
the dispute. Canara Bank  vide  letters dated 05.03.2009 and
17.03.2010   had   enclosed   a   Draft   Arbitration   Agreement   to
MTNL,   wherein   it   has   clearly   stated   that   the   arbitration
would   be   between   three   parties   i.e.   Canara   Bank   and
CANFINA as party of the first part, and MTNL as party of the
second part.
34

It   is   incomprehensible   why   Canara   Bank   is   now
objecting to the impleadment of CANFINA in the arbitration
proceedings. There is no justifiable ground advanced by the
Counsel   for   Canara   Bank   to   oppose   the   impleadment   of
CANFINA in the arbitration proceedings.
10.14. The   present   case   is   one   of  implied   or   tacit   consent   by
Respondent   No.   2   –   CANFINA   to   being   impleaded   in   the
arbitral   proceedings,   which   is   evident   from   the   conduct   of
the  parties. We find that  Respondent  No. 2 – CANFINA has
throughout   participated   in   the   proceedings   before   the
Committee on Disputes, before the Delhi High Court, before
the   Sole   Arbitrator,   and   was   represented   by   its   separate
Counsel before this Court in the present appeal. There was
a   clear   intention   of   the   parties   to   bind   both   Canara   Bank,
and   its   subsidiary   –   CANFINA   to   the   proceedings.   In   this
case, there can be no final resolution of the disputes, unless
all three parties are joined in the arbitration. 
35

11. In   view   of   the   aforesaid   discussion,   the   present   appeals   are
partly allowed. We invoke the Group of Companies doctrine, to
join   Respondent   No.   2   –   CANFINA   i.e.   the   wholly   owned
subsidiary   of   Respondent   No.   1   –   Canara   Bank,   in   the
arbitration proceedings pending before the Sole Arbitrator. 
The   matter   is   remitted   to   the   Sole   Arbitrator   to
continue with the arbitral proceedings, and conclude the same
as   expeditiously   as   possible.   We   have,   however,   expressed   no
opinion on the merits of the dispute.
Pending   applications,   if   any,   are   disposed   of
accordingly.
…..……...........................J.
(ABHAY MANOHAR SAPRE)
..….……..........................J.
( INDU MALHOTRA )
New Delhi
August 8, 2019.
36

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL  APPEAL Nos.6202­6205 OF 2019
(Arising out of S.L.P.(C) Nos.13573­13676 of 2014)
Mahanagar Telephone Nigam Ltd. ….Appellant(s)
VERSUS
Canara Bank & Ors.                      ….Respondent(s)
                 
J U D G M E N T
Abhay Manohar Sapre, J.  
1. I   have   had   the   advantage   of   going   through   an
elaborate,   well   considered   and   scholarly   drafted
judgment   proposed   by   my   esteemed   Sister   Justice
Indu Malhotra. 
1 1

2. I   entirely   agree   with   the   reasoning   and   the
conclusion,   which   my   erudite   Sister   has   drawn,
which are based on remarkably articulate process of
reasoning.   However,   having   regard   to   the   nature   of
the controversy  involved in these appeals, I wish to
add a few words of mine.
3. As   rightly   observed   by   my   learned   Sister   in
para   8,   following   two   questions   arise   for
consideration in these appeals:
4.   One,   whether   the   arbitration   agreement   in
question   is   a   bi­party   agreement   between   the
MTNL(appellant   herein)   and   Canara   Bank
(respondent   No.   1)   or   it   is   a   tri­partite   agreement
between   the   MTNL,   Canara   Bank   and   CANFINA
(respondent   No.   2)   and,   if   so,   whether   the
agreement   satisfies   the   conditions   laid   down   in
Section   7(4)(b)   and   (c)     of   the   Arbitration   and
Conciliation   Act,   1996   (hereinafter   referred   to   as
“the   Act”)   so   as   to   enable   the   arbitral   tribunal   to
2 2

decide   the   dispute   which   has   arisen   between   these
parties in relation to the agreement.
5.  Second,   if   the   answer   to   the   first   question   is
that   the   agreement   in   question   is   a   tri­partite
agreement,   whether   CANFINA   is   also   a   necessary
party   to   the   arbitral   proceedings   for   deciding   the
rights   of   the   parties   inter   se   in   relation   to   the
dispute.
6.   In my considered opinion also, the agreement
in   question   is   essentially   a   tri­partite   agreement
between   the   parties,   namely,   MTNL,   Canara   Bank
and   CANFINA.   Indeed,   this   is   clear   from   the
documents   exchanged   between   the   parties,
pleadings and orders of the Court. 
7. It   is   also   clear   when   one   examines   the   nature
of   the   dispute.   It   is   so   inextricably   linked   between
the   three   parties   that   it   can   be   effectively   decided
only   when   all   the   three   parties   are   made   parties   to
the arbitral proceedings. 
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8. Once we examine the issue on facts in the light
of requirements of Section 7(4)(b) and (c) of the Act,
we   have   no   hesitation   in   coming   to   a   conclusion
that   the   agreement   in   question   is,   in   fact,   a   tri­
partite   agreement   between   the   three   parties
mentioned   above.     In   my   view,   it   satisfies   the
requirements of Section 7(4)(b) and (c) of the Act.  
9. This   issue   is   extensively   dealt   with   by   my
learned   Sister   in   the   light   of   law   laid   down   by   this
Court   in   several   decisions   and   I   agree   with   her
reasoning.
10.   Somewhat   similar   question   also   arose   in
international arbitrations as to when there are more
than two parties in a dispute then how such dispute
should   be   dealt   with   in   the   arbitral   proceedings­
whether   it   should   be   dealt   with   in   one   arbitral
proceedings  between   one   set   of  parties  or  it   should
be   dealt   with   in   separate   or   parallel   arbitration
proceedings. 
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11. This question was succinctly dealt with by the
learned Authors­Alan Redfern and Martin Hunter in
their   book   on   “ International   Arbitration ".   ( see   ­
Redfern   and   Hunter   on   International
Arbitration ­ sixth edition­under the heading ‘J’
“ Multiparty   Arbitrations”   (a)   to   (e)   2.212   to
2.247 pages 141 to 153 ). 
12. The   learned   authors   examined   the
aforementioned   question   in   the   context   of   ICC   and
AAA   Rules,   decisions   rendered   by   English   Court   of
appeal and the reports of ICC Commission on multi­
party   arbitration.   They   opined   that   subject   to   the
terms of the agreement and any rules framed in that
behalf,  it   is   desirable  that   such   disputes   should   be
resolved   as   far   as   possible   in   one   arbitral
proceedings   to   avoid   any   inconsistent   findings   and
parallel arbitral proceedings. 
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13. Since   the   main   object   of   the   arbitral
proceedings   is   to   decide   the   disputes   expeditiously
and within a time frame, this object can be achieved
only   when   the   disputes   are   resolved   as   far   as
possible   in   one   arbitral   proceedings.   In   this   case,
this  object  can  be  achieved  only   when  all  the  three
parties named above are made party in one arbitral
proceedings to enable the arbitral tribunal to finally
decide   the   dispute   on   merits   in   accordance   with
law.
14. As   rightly   observed   by   my   learned   Sister,   the
undisputed facts brought on record, in clear terms,
entitles this Court to invoke the well known doctrine
of   “ Group   of   Companies ”   and   apply   its   principle   to
the   facts   of   this   case   so   as   to   enable   the   arbitral
tribunal   to   determine   the   rights   of   three   parties
named   above.     In   my   considered   view,   one   cannot
dispute the legal proposition the doctrine “ Group of
Companies”   has   its   application   to   arbitral
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proceedings  and,   in  appropriate  cases,  it  can   be  so
applied ( See­Redfern and Hunter on International
Arbitration ­ Sixth Edition ­ 1.115 page 33, 2.42­
2.51 pages 85 to 88)      
15. In view of what I have said above, I respectfully
agree   with   the   reasoning   and   the   conclusion   of   my
learned sister.          
                                      .………...................................J.
                                    [ABHAY MANOHAR SAPRE]     
                                
New Delhi;
August 08, 2019
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