In Petition for Special Leave to Appeal(C) No.4154/2020-SC- Top Court upholds Kerala HC verdict directing State Electricity Board to be impleaded as party in arbitration proceeding by relying on “Group of Companies” doctrine Justices Uday Umesh Lalit, S.Ravindra Bhat & Pamidighantam Sri Narasimha [05-04-2022]

Read Order: M/s. ENZEN GLOBAL SOLUTIONS PRIVATE LIMITED v. M/s. KEPCO KDN CO. LIMITED & ANR 

Tulip Kanth

New Delhi, April 14, 2022: The Supreme Court has recently dismissed Special Leave Petitions against the judgment of the Kerala High Court directing the State Contractor- Kerala State Electricity Board to be impleaded as a party in the arbitration proceedings pertaining to the disputes which arose while implementing the Restructured Accelerated Power Development Programme.

The Larger Bench of Justice Uday Umesh Lalit, Justice S.Ravindra Bhat and Justice Pamidighantam Sri Narasimha was considering appeals against the final judgment of the Kerala  High Court in KEPCO KDN CO. LTD v. ENZEN GLOBAL SOLUTION PVT. LTD. AND OTHERS . The factual background of this case was such that  a new project called Restructured Accelerated Power Development Programme (RAPDRP), aiming to reduce aggregate technical and commercial losses with respect to distribution of electricity was introduced by the Ministry of Power, Central Government. The Power Finance Corporation was appointed as nodal agency for the planning and implementation of the project and the Kerala State Electricity Board (KSEB)invited proposals from PFC empanelled domain experts for the implementation of IT infrastructure under the above programme. 

One company called KEPCO KDN claiming itself to be a lead consortium member with two other consortium partners who were empanelled by PFC, after due consultation and based on their confirmation on all the technical requirements, submitted a bid to the KSEB. This bid was accepted and a contract was awarded to them. Subsequently, KSEB entered into agreements with KEPCO KDN in furtherance of the principal agreement.

Disputes arose between KEPCO KDN and KSEB with respect to the performance of the contractual terms on the basis of the alleged claims of delay and default. Invoking the provisions to the contract, arbitration proceedings were initiated and each of the parties appointed an arbitrator and they in turn appointed an umpire. 

According to KEPCO KDN,the principal agreement between KEPCO and KSEB were so inter-connected and inter-dependent that without the KSEB on the party array, no conclusive and final decision could have been arrived at by the Arbitral Tribunal. Hence, an application was filed before the arbitrator to implead KSEB in the arbitration proceedings. The Arbitral Tribunal expressed its inability, due to lack of jurisdiction to implead the second respondent and directed the parties to approach and pursue the same before the jurisdictional court. Accordingly, the original petition was filed before the Kerala High Court.

The High Court had relied upon the judgment of the Apex Court in Chloro Controls (India) Private Limited v. Severn Trent Water Purification Inc. wherein the doctrine of “group of companies” was invoked and it was observed that an arbitration agreement entered into by a company, being one within a group of corporate entities, can in certain circumstances, bind its non-signatory affiliates. 

Another judgment referred to was of the Top Court in Cheran  Properties Limited v. Kasturi and Sons Limited and Ors. wherein it was held that while deciding whether a non-signatory to an arbitral agreement is liable to be fastened with the liability, factors such as the relationship of a non-signatory to a party which is a signatory to the agreement, the commonality of the subject matter and the composite nature of the transaction must be taken into account.

Considering the Letter of Award, the High Court had opined that an agreement was entered into between KEPCO and KSEB and it was stated therein that if the supplier is a consortium, the members of such consortium shall be jointly and severally liable to the purchaser (KSEB) for the fulfillment of the provisions of the contract. However, it was described that only the lead member shall have the authority to conduct all businesses for and on behalf of the consortium, during the bidding process and in the event the consortium is awarded the contract, during the contract execution. The composition of the consortium was not permitted to be altered. Arbitration clause was incorporated in the above contract. Thereafter a contract was entered into between the KEPCO and KSEB dated March 5, 2013 and it was based on a clause in that agreement that the arbitration proceedings had been initiated.

Affirming that there was a functional integrality of the agreement between the KEPCO and KSEB, the High Court noted that KSEB had recognized the consortium inclusive of Enzen Global and the contract was with the KEPCO as the lead member of the consortium. Thus, there was a commonality of purpose which was intended to provide service to KSEB in its implementation of IT project.  

It was also asserted by the High Court that all the agreements were entered into for achieving the common purpose for KSEB and for procurement of goods and services. Such agreements were interconnected and they clearly showed that even KSEB contemplated a multi layer performance of the contract. It was under these circumstances and observations that the Kerala High Court allowed impleadment of KSEB  as a party in the arbitration proceedings.

Hence, refusing to exercise its jurisdiction under Article 136(1) of the Constitution of India, the Supreme Court dismissed the Special Leave Petition against the judgment of the Kerala High Court.