Holding

A valid tri‑partite arbitration agreement existed and, under the Group of Companies doctrine, CANFINA is a necessary and proper party to the arbitration, so the case is remitted to the arbitrator.

Summary

Mahanagar Telephone Nigam Ltd. (MTNL) entered into a bond transaction with CANFINA, a wholly‑owned subsidiary of Canara Bank, which later transferred the bonds to its parent. MTNL cancelled the bonds alleging non‑payment of consideration and sought arbitration. The parties exchanged letters and a draft arbitration agreement indicating that the arbitration would involve MTNL, Canara Bank and CANFINA, and MTNL filed a claim and counter‑claim before the sole arbitrator. The issues before the Supreme Court were whether a valid arbitration agreement existed among the three parties and whether CANFINA, a non‑signatory, could be joined in the arbitration. The Court held that the exchange of correspondence and the conduct of the parties demonstrated a tri‑partite arbitration agreement and, applying the Group of Companies doctrine, CANFINA was a necessary party. Consequently, the appeals were partly allowed and the matter was remitted to the arbitrator to continue the proceedings.

Issues considered

Whether a valid arbitration agreement exists between MTNL, Canara Bank and CANFINA, making the arbitration tri‑partite.
Whether CANFINA, a non‑signatory subsidiary, can be impleaded in the arbitration under the Group of Companies doctrine.

Legislation cited

Arbitration and Conciliation Act, 1996s. 2(b), s. 7(3), s. 7(4)(b), s. 7(4)(c)

Subjects

Arbitration agreementGroup of Companies doctrineJoinder of non‑signatoryTri‑partite arbitrationSection 7 Arbitration ActEstoppelArbitration jurisdiction

Judgment

660 [2019]
SUPREME COURT 11 S.C.R. 660
REPORTS [2019] 11 S.C.R.

A MAHANAGAR TELEPHONE NIGAM LTD.
v.
CANARA BANK & ORS.
(Civil Appeal Nos. 6202-6205 of 2019)
B AUGUST 08, 2019
[ABHAY MANOHAR SAPRE AND INDU MALHOTRA, JJ.]
Arbitration and Conciliation Act, 1996:
Arbitration agreement – Existence of valid arbitration
C agreement – Joinder of subsidiary company in arbitral proceedings
– On facts, transactions between the appellant and respondent no.
1 and its subsidiary, respondent no. 2 – Respondent no. 2 subscribed
to the bonds floated by appellant and subsequently transferred the
Bonds to its holding Company-respondent no. 1 – Case of appellant
D that since respondent no. 2 did not pay the entire sale consideration
for the Bonds, appellant constrained to cancel the allotment of the
Bonds – Appointment of an arbitrator to settle the dispute through
arbitration – Objection by appellant with respect to existence of
valid arbitration agreement between the parties and objection by
respondent no. 1 to the joining of respondent no. 2 as party to
E
arbitration since respondent no. 2 was not party to the arbitration
agreement, it could not be impleaded in the proceedings – Held:
Agreement between appellant and respondent no. 1 to refer the
disputes to arbitration is evidenced from the documents exchanged
between the parties, and the proceedings and is final and conclusive
F – Appellant after giving its consent to refer the disputes to arbitration
before the High Court, is now estopped from contending that there
was no written agreement to refer the parties to arbitration –
Respondent no. 1 had filed its statement of claim before the
Arbitrator, and appellant filed its reply to the statement of claim,
G and also made a counter claim against respondent no. 1, which
would constitute evidence of the existence of an arbitration
agreement, and the same was not denied by the other party – As
regards an objection to the joinder of respondent No. 2 in arbitral
proceedings, it will be a futile effort to decide the disputes only
between appellant and Respondent no. 1, in the absence of
H
660
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK 661

respondent no. 2, since undisputedly, the original transaction A
emanated from a transaction between appellant and respondent no.
2-original purchaser of the Bonds – Disputes arose on the
cancellation of the Bonds by appellant 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 B
respondent No. 2 to respondent no. 1, and the cancellation by
appellant, which has led to disputes between the three parties –
Thus, respondent no. 2 is a necessary and proper party to the
arbitration proceedings – Given the tri-patite 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 C
resolve the disputes which have been pending – respondent no. 2
has participated in the proceedings before the High Court, and the
Committee on Disputes, was represented by its separate counsel
before the Sole Arbitrator – Respondent no. 1 filed before the High
Court, had joined respondent No. 2, even though it was joined as a D
proforma party – objection to respondent No. 2 being impleaded as
a party to the arbitration proceedings was raised by Respondent
no. 1, and not respondent No. 2 – There is no merit in the objection
raised by Respondent no. 1 opposing the joining of respondent No.
2 as a party to the dispute. Respondent no. 1 had enclosed a Draft
E
Arbitration Agreement to appellant, wherein it has clearly stated
that the arbitration would be between three parties i.e. Respondent
no. 1 and respondent No. 2 as party of the first part, and appellant
as party of the second part – There was implied or tacit consent by
respondent No. 2 to being impleaded in the arbitral proceedings,
which is evident from the conduct of the parties – Respondent No. 2 F
has throughout participated in the proceedings before the Committee
on Disputes, before the High Court, before the Sole Arbitrator, and
was represented by its separate counsel before this Court in the
instant appeal – There was a clear intention of the parties to bind
both Respondent no. 1, and its subsidiary- respondent No. 2to the G
proceedings – There can be no final resolution of the disputes, unless
all three parties are joined in the arbitration – Group of Companies
doctrine is invoked to join respondent No. 2 in the arbitration
proceedings pending before the Sole Arbitrator – Matter remitted
to the Sole Arbitrator to continue with the arbitral proceedings.
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662 SUPREME COURT REPORTS [2019] 11 S.C.R.

A Arbitration agreement – Existence of valid arbitration
agreement – Held: Arbitration agreement is the written agreement
between the parties, to submit their existing, or future disputes or
differences, to arbitration – Valid arbitration agreement is the
foundation on which the arbitral process is structured – Binding
agreement for disputes to be resolved through arbitration is a sine-
B
qua-non for referring the parties to arbitration – 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
C parties – 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 –
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
D
– 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 – ‘Arbitration
agreement’ must be interpreted so as to give effect to the intention
of the parties, rather than to invalidate it on technicalities.
E Doctrines: Group of Companies Doctrine – Invocation of –
Held: Group of Companies doctrine can be invoked to bind a non-
signatory by an arbitration agreement 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
F have invoked this doctrine to join a non-signatory member of the
group, if they are satisfied that the non-signatory company was by
reference to the common intention of the parties, a necessary party
to the contract – ‘Group of Companies’ doctrine indicates the
implied consent to an agreement to arbitrate, in the context of modern
multi-party business transactions – Doctrine provides that a non-
G signatory may be bound by an arbitration agreement 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
H
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK 663

indicating its intention to be bound by the contract, the non-signatory A
will also be bound and benefitted by the relevant contracts –
Circumstances are if there is a direct relationship between the party
which is a signatory to the arbitration agreement; direct commonality
of the subject matter; the composite nature of the transaction
between the parties.
B
Partly allowing the appeals, the Court
HELD : PER INDU MALHOTRA, J.
THE EXISTENCE OF A VALID ARBITRATION
AGREEMENT
C
1.1 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 D
through arbitration is a sine-qua-non for referring the parties to
arbitration. 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 E
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. [Paras 9, 9.2][679-A-B, H;
680-A]
F
1.2 Section 7(4)(b) of the Arbitration and Conciliation Act,
1996 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 inserted the words “including communication
through electronic means” in Section 7(4)(b). If it can prima facie G
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. [Para 9.3][680-B-C]

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664 SUPREME COURT REPORTS [2019] 11 S.C.R.

A 1.3 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
B
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 approach,
and must not be allowed to be thwarted by a pedantic and legalistic
C interpretation. 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. In interpreting or construing an arbitration
D
agreement or arbitration clause, it would be the duty of the court
to make the same workable within the permissible limits of the
law. 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
E be construed with a purely legalistic mindset, as in the case of a
statute. [Paras 9.4, 9.5, 9.7][680-D-G; 681-D]
Enercon (India) Ltd. and Ors. v. Enercon GMBH (2014)
5 SCC 1 : [2014] 2 SCR 855 – relied on.
1.4 The agreement between MTNL and Canara Bank to
F refer the disputes to arbitration is evidenced from the documents
exchanged between the parties, and the proceedings. The
agreement between the parties as recorded in a judicial Order,
is final and conclusive of the agreement entered into between
the parties. The appellant-MTNL after giving its consent to refer
G the disputes to arbitration before the High Court, is now estopped
from contending that there was no written agreement to refer
the parties to arbitration. Furthermore, 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

H
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK 665

agreement is asserted by one party, and not denied by the other. A
In the instant 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
B
agreement, which was not denied by the other party, under s.
7(4)(c) of the 1996 Act. [Para 9.9-9.10][683-E; 684-A-B]
Union of India v. DN Revry and Co., (1976) 4 SCC
147 : [1977] 1 SCR 483 ; Khardah Company Ltd. v.
Raymon and Co. (India) Pvt. Ltd. [1963] 3 SCR 183 ;
Savitri Goenka v. Kanti Bhai Damini & Ors., 2009 (1) C
Arb LR 320 (Del) (DB) ; State of Maharashtra v.
Ramdas Shrinivas Nayak (1982) 2 SCC 463 : [1983] 1
SCR 8 ; Chitra Kumari v. Union of India (2001) 3 SCC
208 - referred to.
JOINDER OF CANFINA IN THE ARBITRAL D
PROCEEDINGS
2.1 As per the principles of contract law, an agreement
entered into by one of the companies in a group, cannot be binding
on the other members of the same group, as each company is a
separate legal entity which has separate legal rights and liabilities. E
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 F
entering into the agreement, would alone be bound by it. [Paras
10, 10.2][684-C-F]
2.2 A non-signatory 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 G
the parties to bind both the signatory as well as the non-signatory
parties. Courts and tribunals have invoked this doctrine to join a
non-signatory member of the group, if they are satisfied that the

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666 SUPREME COURT REPORTS [2019] 11 S.C.R.

A non-signatory company was by reference to the common intention
of the parties, a necessary party to the contract. The ‘Group of
Companies’ doctrine indicates the implied consent to an
agreement to arbitrate, in the context of modern multi-party
business transactions. The ‘Group of Companies’ doctrine has
been invoked by courts and tribunals in arbitrations, where an
B
arbitration agreement is entered into by one of the companies in
the group; and the non-signatory affiliate, or sister, or parent
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
C the non-signatory affiliates in the group. The doctrine provides
that a non-signatory may be bound by an arbitration 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
D
statements indicating its intention to be bound by the contract,
the non-signatory will also be bound and benefitted by the relevant
contracts. The circumstances in which the ‘Group of Companies’
Doctrine could be invoked to bind the non-signatory affiliate of a
parent company, or inclusion of a third party to an arbitration, if
E there is a direct relationship between the 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
inter-linked in nature; or, where the performance of the
agreement may not be feasible without the aid, execution, and
F
performance of the supplementary or the ancillary agreement,
for achieving the common object, and collectively having a bearing
on the dispute. [Paras 10.3, 10.4][684-F-H; 685-D-G; 686-A-C]
2.3 The Group of Companies Doctrine has been invoked in
cases where there is a tight group structure with strong
G organizational and financial links, so as to constitute a single
economic unit, or a single economic reality. In such a situation,
signatory and non-signatories have been bound together under

H
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK 667

the arbitration agreement. This will apply in particular when the A
funds of one company are used to financially support or re-
structure other members of the group. [Para 10.5][686-D-E]
2.4 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 B
Banking Transactions, 1993. 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 Bonds, C
MTNL eventually was constrained to cancel the allotment of the
Bonds. [Para 10.7, 10.8][687-A; 688-A-B]
2.5 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 D
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, E
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. [Para
10.9][688-C-E]
2.6 Given the tri-patite nature of the transaction, there can F
be a final resolution of the disputes, only if all three parties are
joined in the arbitration proceedings, to finally resolve the
disputes which have been pending for over 26 years now.
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. G
Canara Bank filed before the 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

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668 SUPREME COURT REPORTS [2019] 11 S.C.R.

A Proceedings before the 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 High Court that Canara Bank should
agree to take over the liabilities of CANFINA before the
B
arbitration could commence. The High Court recorded that there
was no necessity of requiring Canara Bank to agree to take over
the liabilities of CANFINA, prior to the arbitration proceedings.
This issue would be decided in the arbitration. [Para 10.10][688-
E-H; 689-A-B]
C 2.7 On the commencement of arbitration proceedings before
the Sole Arbitrator, notice was issued by the Arbitrator to all the
three parties including CANFINA, which was represented by its
Counsel. The objection to CANFINA being impleaded as a party
to the arbitration proceedings was raised by Canara Bank, and
D not CANFINA. There is no merit in the objection raised by Canara
Bank opposing the joining of CANFINA as a party to the dispute.
Canara Bank by letters had enclosed a Draft Arbitration
Agreement to MTNL, wherein it clearly stated that the arbitration
would be between three parties-Canara Bank and CANFINA as
party of the first part, and MTNL as party of the second part.
E [Paras 10.11-10.13][689-C-E]
2.8 The instant 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.
Respondent No. 2-CANFINA has throughout participated in the
F proceedings before the Committee on Disputes, before the High
Court, before the Sole Arbitrator, and was represented by its
separate counsel before this Court in the instant appeal. There
was a clear intention of the parties to bind both Canara Bank,
and its subsidiary-CANFINA to the proceedings. There can be
G no final resolution of the disputes, unless all three parties are
joined in the arbitration. [Para 10.14][689-F-H; 690-A]
2.10 The Group of Companies doctrine is invoked to join
CANFINA i.e. the wholly owned subsidiary of Respondent No. 1-
Canara Bank, in the arbitration proceedings pending before the
H Sole Arbitrator. The matter is remitted to the Sole Arbitrator to
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK 669

continue with the arbitral proceedings, and conclude the same as A
expeditiously as possible. [Para 11][690-A-C]
O.N.G.C. v. Commissioner of Central Excise (1995)
Supp. 4 SCC 541; Electronics Corporation of India Ltd.
v. Union of India & Ors. (2011) 3 SCC 404 : [2011] 2
SCR 971; Chloro Controls India (P) Ltd. v. Severn Trent B
WaterPurification Inc.,(2013) 1 SCC 641 : [2012]13
SCR 402; SEI Adhavan Power Pvt. Ltd. v. Jinneng Clean
Energy Technology Ltd. & Ors. 2018 (4) CTC 46; Ameet
Lal Chand Shah v. Rishabh Enterprises, (2018) 15 SCC
678 : [2018] 6 SCR 1001 – referred to.
C
Dow Chemical v. Isover-Saint-Gobain 1984 Rev Arb
137; 110 JDI 899 (1983) Gary B. Born: International
Commercial Arbitration, Vol. I, 2009, pp. 1170-1171 -
referred to.
PER ABHAY MANOHAR SAPRE, J: (Supplementing): D
HELD: 1.1 The agreement is essentially a tri-partite
agreement between the parties, namely, the appellant, respondent
no. 1 and CANFINA. This is clear from the documents exchanged
between the parties, pleadings and orders of the Court. It is also
clear when one examines the nature of the dispute. It is so E
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. [Paras 6, 7][691-A-B]
1.2 Once the issue is examined on facts in the light of
requirements of Section 7(4)(b) and (c) of the Act, there is no F
hesitation in coming to a conclusion that the agreement in question
is, in fact, a tri-partite agreement between the three parties
mentioned. It satisfies the requirements of Section 7(4)(b) and
(c) of the Act. [Para 8][691-C]
1.3 Since the main object of the arbitral proceedings is to
G
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 the instant case,
this object can be achieved only when all the three parties named

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670 SUPREME COURT REPORTS [2019] 11 S.C.R.

A are made party in one arbitral proceedings to enable the arbitral
tribunal to finally decide the dispute on merits in accordance with
law. The facts 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. The
B
doctrine “Group of Companies” has its application to arbitral
proceedings and, in appropriate cases, it can be so applied. [Paras
13, 14][691-H; 692-A-C]
International Arbitration by Redfern and Hunter - Sixth
Edn pages 141 to 153 - referred to.
C
Case Law Reference
In the Judgment of Justice Indu Malhotra
(1995) Supp. 4 SCC 541 referred to Para 2.12
[2011] 2 SCR 971 referred to Para 2.21
D
[2014] 12 SCR 488 referred to Para 9.3
[1977] 1 SCR 483 referred to Para 9.4
[1963] 3 SCR 183 referred to Para 9.6

E [2014] 2 SCR 855 relied on Para 9.7
[1983] 1 SCR 8 referred to Para 9.9
(2001) 3 SCC 208 referred to Para 9.9
2009 (1) Arb LR 320 (Del) (DB) referred to Para 9.10
F [2012] 13 SCR 402 referred to Para 10.6
2018 (4) CTC 46 referred to Para 10.6
[2018] 6 SCR 1001 referred to Para 10.7
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 6202-
G 6205 Of 2019
From the Judgment and Order dated 16.09.2011 and 21.10.2011
of the High Court of Delhi at New Delhi in CM No. 12230 of 2011 in
W.P.(C) No. 560 of 1995 and order dated 05.07.2013 in CM No. 8100
of 2012 in W.P. (C) No. 560 of 1995 and dated 10.01.2014 in CM No.
324-25 of 2014 in W.P.(C) No. 560 of 1995
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MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK 671

Ms. Madhvi Divan, ASG, Sachin Datta, Sr. Adv., Manoj Gorkela, A
Ms. Tannishtha Singh, Abinash Agarwal, Sandeep Kumar Singh,
Ms. Shashi Kiran, Advs. for the Appellant.
Ameesh Dabass, Viresh B. Saharya. Akshat Agarwal, Ms. Saumya
Sinha, A.K. Sharma, Lalit Kumar, Advs. for the Respondents.
The Judgment of the Court was delivered by B

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 of 1995, Order C
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 :
D
2.1. In 1992, MTNL floated 17% Non-Cumulative 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 E
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
F
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 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 G
to CANFINA, which was not accepted by CANFINA.
2.2. As per Canara Bank, soon after the bonds were subscribed,
there was an out-break of a security scam which led to a
collapse of the secondary market in shares, security and
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672 SUPREME COURT REPORTS [2019] 11 S.C.R.

A 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
B
crores, from Respondent No. 2 – CANFINA which is its
wholly owned subsidiary.
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
C 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.
D 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
E 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.

F 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
G
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
CANFINA. It was stated that the bonds and interest
H
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK 673
[INDU MALHOTRA, J.]

accrued thereon cannot be refunded. MTNL with its letter A
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. B
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. C

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 Excise1.
D
The Writ Petition was dismissed on the ground of
availability of an alternative and efficacious remedy
beforethe Company Law Board under Section 111 of the
Companies Act, 1956.
2.13. The proceedings before the Company Law Board came to
E
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.
F
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 G
MTNL, Canara Bank, and CANFINA.
The Committee directed Canara Bank, CANFINA and
MTNL to settle the disputes through arbitration by making

1
(1995) Supp. 4 SCC 541. H
674 SUPREME COURT REPORTS [2019] 11 S.C.R.

A 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
B 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.
C 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
inter-linked transactions between them.
D
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,
E 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
F 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
G
direction of the Ministry of Law and Justice.
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
H
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK 675
[INDU MALHOTRA, J.]

expeditiously so that the arbitration agreement between the A
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 B
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: C

(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. D
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.
E
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. F
2.24. On 05.01.2012, the Sole Arbitrator issued notice to all the
three parties i.e. MTNL, Canara Bank, and CANFINA.
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 G
joined as a party to the proceedings.

2
(2011) 3 SCC 404. H
676 SUPREME COURT REPORTS [2019] 11 S.C.R.

A 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.
B 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
C the application as “not pressed” on the statement made by
the Counsel of MTNL.
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
D 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
E 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.
F 2.30. In May 2014, MTNL filed its reply to the Statement of Claim
filed by Canara Bank, and also made a Counter-Claim
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 in W.P. (C)
G 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.
H
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK 677
[INDU MALHOTRA, J.]

4. Ms. Madhavi Divan, learned ASG appeared on behalf of MTNL, A
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: B
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 C
to transactions between the Appellant – MTNL on the one
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 D
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 E
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.
F
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.
The Appellant – MTNL had consented to the disputes
being referred to arbitration on the understanding that the G
arbitration would be amongst the three parties.
6. The Counsel for Respondent No. 1 Canara Bank inter alia
submitted that :

H
678 SUPREME COURT REPORTS [2019] 11 S.C.R.

A 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 Counter-Claim before the learned
Sole Arbitrator, and has therefore submitted itself to the
jurisdiction of the learned Sole Arbitrator.
B 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
C Court, and therefore cannot be made a party before the
arbitral proceedings.
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
D 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
E 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.

F 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
G 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 to the
arbitration agreement, and hence cannot be impleaded in the proceedings.
These issues will be dealt with seriatim.

H
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK 679
[INDU MALHOTRA, J.]

9. THE EXISTENCE OF A VALID ARBITRATION AGREEMENT A
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 B
disputes to be resolved through arbitration is a sine-qua-non for referring
the parties to arbitration.
9.1. Section 7 defines “arbitration agreement” and reads as follows:
7. Arbitration agreement. –
C
(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.
D
(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.
(4) An arbitration agreement is in writing if it is contained E
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 F
(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 G
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 H
680 SUPREME COURT REPORTS [2019] 11 S.C.R.

A 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.
B 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 inserted the
words “including communication through electronic means”
in Section 7(4)(b). If it can prima facie be shown that parties
C are ad idem, even though the other party may not have
signed a formal contract, it cannot absolve him from the
liability under the agreement3.
9.4. Arbitration agreements are to be construed according to
the general principles of construction of statutes, statutory
D 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
E 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 allowed to be
F 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
G
invalidate it on technicalities.

3
Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia (P) Ltd., (2015) 13 SCC 477
H
4
Union of India v.DN Revry and Co.,(1976) 4 SCC 147.
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK 681
[INDU MALHOTRA, J.]

9.6. In Khardah Company Ltd. v. Raymon and Co. (India) A
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 B
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.”
C
(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.
This Court in Enercon (India) Ltd. and Ors. v. Enercon D
GMBH6, 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.
E
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 F
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
G
Committee on Disputes, in the Meeting dated
16.12.2008 expressed the view that all the three parties
should take recourse to arbitration in view of the

5
[1963] 3 SCR 183.
6
(2014) 5 SCC 1. H
682 SUPREME COURT REPORTS [2019] 11 S.C.R.

A different inter-liked 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.
B (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.
C
(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.
D The relevant extract of the Order dated 16.09.2011
passed by the Delhi High Court reads as follows :
“Unfortunately, although the parties had displayed
their willingness for arbitration, the Committee on
Disputes could not resolve the specific clauses of
E 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
F 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
G 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
H
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK 683
[INDU MALHOTRA, J.]

because that itself would not be one of the points to A
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
B
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) C

(iv) Pursuant thereto, MTNL participated in the proceedings
conducted by the Sole Arbitrator, and filed its Claim,
and Counter-Claim. No objection was raised before
the Sole Arbitrator that there was no arbitration
agreement in writing between the parties. The only D
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 E
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 F
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 agreement is G
asserted by one party, and not denied by the other.8

7
State of Maharashtra v. Ramdas Shrinivas Nayak (1982) 2 SCC 463.
See also Chitra Kumari v. Union of India (2001) 3 SCC 208.
8
Savitri Goenka v. Kanti Bhai Damini & Ors., 2009 (1) Arb LR 320 (Del) (DB). H
684 SUPREME COURT REPORTS [2019] 11 S.C.R.

A 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
B 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.
C 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
D into by one of the companies in a group, cannot be binding
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
E
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.
F
10.3. A non-signatory 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.
G
Courts and tribunals have invoked this doctrine to join a
non-signatory member of the group, if they are satisfied
that the non-signatory company was by reference to the
common intention of the parties, a necessary party to the
contract.
H
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK 685
[INDU MALHOTRA, J.]

10.4. The doctrine of ‘Group of Companies’ had its origins in the A
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 multi-party
business transactions.
It was first propounded in the case of Dow Chemical B
v. Isover-Saint-Gobain,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 C
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”. D

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 non-signatory affiliate, or sister, or parent
concern, is held to be bound by the arbitration agreement, if E
the facts and circumstances of the case demonstrate that it
was the mutual intention of all parties to bind both the
signatories and the non-signatory affiliates in the group.
The doctrine provides that a non-signatory may be bound
by an arbi-tration agree-ment where the parent or holding F
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, G
the non-signatory will also be bound and benefitted by the
relevant contracts.10
9
1984 Rev Arb 137; 110 JDI 899 (1983).
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. 1170- H
1171.
686 SUPREME COURT REPORTS [2019] 11 S.C.R.

A The circumstances in which the ‘Group of Companies’
Doctrine could be invoked to bind the non-signatory affiliate
of a parent company, or inclusion of a third party to an
arbitration, if there is a direct relationship between the party
which is a signatory to the arbitration agreement; direct
commonality of the subject matter; the composite nature of
B
the transaction between the parties.
A ‘composite transaction’ refers to a transaction which
is inter-linked 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
C 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
D economic unit, or a single econo-mic reality. In such a
situation, signatory and non-signatories 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 re-structure other members of the
E group.11
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
F 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.

G 11
ICC Case No.4131 of 1982, ICC Case No. 5103 of 1988.
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
H Report, Presented to the Lok Sabha on 21 st December 1993.
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK 687
[INDU MALHOTRA, J.]

10.7. Coming to the facts of the present case, CANFINA was A
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. B
6.14CANFINA 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 C
personnel from Canara Bank and 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 D
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, E
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 F
classification entitles the company to mobilize public
deposits to the extent of ten time its owned funds.
…
6.25The Committee hope that the nature and extent of
the financial assistance being provided by Canara Bank G
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) H
688 SUPREME COURT REPORTS [2019] 11 S.C.R.

A 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
B
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
C 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
D 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.
E
10.10. Given the tri-patite 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 resolve the
disputes which have been pending for over 26 years now.

F 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
G 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
H
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK 689
[INDU MALHOTRA, J.]

submitted before the Delhi High Court that Canara Bank A
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 CANFINA, prior to the
arbitration proceedings. This issue would be decided in the
B
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.
C
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 D
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. E

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. F
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 G
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
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690 SUPREME COURT REPORTS [2019] 11 S.C.R.

A case, there can be no final resolution of the disputes, unless
all three parties are joined in the arbitration.
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
B 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.
C Pending applications, if any, are disposed of accordingly.

ABHAY MANOHAR SAPRE, J.
1. I have had the advantage of going through an elaborate, well
D considered and scholarly drafted judgment proposed by my esteemed
Sister Justice Indu Malhotra.
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
E 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 bi-
F party agreement between the MTNL(appellant herein) and Canara Bank
(respondent No. 1) or it is a tri-partite 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
G “the Act”) so as to enable the arbitral tribunal to 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 tri-partite agreement, whether CANFINA is also a
necessary party to the arbitral proceedings for deciding the rights of the
H parties inter se in relation to the dispute.
MAHANAGAR TELEPHONE NIGAM LTD. v. CANARA BANK 691
[ABHAY MANOHAR SAPRE, J.]

6. In my considered opinion also, the agreement in question is A
essentially a tri-partite 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 B
decided only when all the three parties are made parties to the arbitral
proceedings.
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 C
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. D
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 E
proceedings.
11. This question was succinctly dealt with by the learned Authors-
Alan Redfern and Martin Hunter in their book on “International
Arbitration”. (see - Redfern and Hunter on International Arbitration
- sixth edition-under the heading ‘J’ “Multiparty Arbitrations” (a) F
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
G
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.
13. Since the main object of the arbitral proceedings is to decide
the disputes expeditiously and within a time frame, this object can be
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692 SUPREME COURT REPORTS [2019] 11 S.C.R.

A 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.
B 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
C its application to arbitral proceedings and, in appropriate cases, it can be
so applied (See-Redfern 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.
D

Nidhi Jain Appeals partly allowed.

E

F

G

H