MTNL v. Canara Bank &; Ors: Case Analysis

Mahanagar Telephone Nigam Ltd. (MTNL) v. Canara Bank & Ors.- Case Analysis

In the Supreme Court of India
Case: MTNL v. Canara Bank & Ors.
Citation:  AIR 2019 SC 4449
Appellant: Mahanagar Telephone Nigam Ltd.(MTNL)
Respondent: Canara Bank & Ors.
Bench: Abhay Manohar Sapre, Indu Malhotra
Date of Judgement: 8 August,2019

Ratio: A non-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 indicating its intention to be bound by the contract, the non-signatory will also be bound and benefitted by the relevant contracts.

Relevant Facts:In the present case, dispute arose amongst the appellant and the respondent with respect to issuance of bonds worth Rs. 200 Crore by the appellant with Can Bank Financial Services Ltd. or CANFINA via a Memorandum of Understanding(MoU) agreement.

CANFINA paid back Rs. 50 crores of the fixed deposit but the balance fixed deposit amount of Rs. 150 crores along with interest was not paid by CANFINA to the appellant. As a consequence, MTNL did not service the interest on bonds. 

Eventually, due to CANFINA’s inability to redeem the bonds, the respondent cited CANFINA’s severe liquidity crunch due to the collapse of the secondary market in shares,security and bonds.Disagreements arose between the parties with respect to the registration and restoration of bonds due to which appellant cancelled all the bonds issued to CANFINA’s and adjusted the amount paid towards dues of CANFINA. Aggrieved by this ,Respondent filed a writ petition before the Delhi HC challenging the cancellation of bonds by the appellant and demanding the registration and restoration of bonds and to issue a direction to appellant to pay the interest accrued.

Hon’ble Delhi HC referred the matter to Union of India(UOI) to decide the issue between the parties in the light of the judgment in the case of ONGC v Commissioner of Central Excise[1]. The writ petition was dismissed by Delhi HC on the ground of availability of an alternative and efficacious remedy before the Company Law Board under Section 111 of the Companies Act, 1956.

Respondents made a representation to the Cabinet Secretary whereby the matter was referred to the Committee of Disputes and the committee directed  to settle the disputes through arbitration by making an appropriate reference to  the Permanent Machinery for Arbitration.But the respondent was granted liberty to revive the Petition in the event that the Committee on Disputes was unable to resolve the disputes by the Delhi HC. 

The parties agreed to the same in a joint meeting held on 16.12.2008. In pursuance of this, the respondent sent a draft tripartite arbitration agreement to the appellant wherein respondent and CANAFIN were parties on one side and the petitioner on the other side. 

Before the petitioner answered to the draft, the Supreme Court overruled the ONGC judgment in the case of Electronics Corporation of India Ltd v Union of India[2] as a result of which Canara Bank restored the writ petition before Delhi HC. 

The parties agreed to arbitration for resolving the dispute and Delhi HC appointed Mr. Justice A.P.Shah as the sole arbitrator who further did his job and issued notice to all the three parties and on the respondent’s request passed an interim award and removed CANAFIN as a party to the arbitration on the ground that CANFINA had not appeared before the HC, when the disputes were referred to arbitration.

The appellant opposed the said award and filed CM before Delhi HC requesting that CANAFIN should be made a necessary party to the arbitration agreement.Delhi HC dismissed the petition of the appellant and the respondent filed a statement of claims before the sole arbitrator in continuance of arbitration and in its reply, appellant made a counter-claim against respondent. 

Aggrieved by the dismissal of petition by Delhi HC, the appellant filed Special Leave Petition (SLP) before SC.SC issued order to all the parties and joined CANFINA as Respondent No.2.

Issues: (1) Whether there exists a valid arbitration agreement between the three parties?

(2) Whether the Respondent No. 2 i.e CANFINA is a party to the arbitration agreement, and hence can be impleaded in the proceedings or not?


Contentions of APPELLANT

1.The appellant contended that 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 between the parties.

2.It was further contended that the arbitration proceeding cannot proceed in the absence of Respondent No. 2 CANFINA as the Bonds in question were subscribed by CANFINA, and were then subsequently transferred to its parent Company i.e. Respondent No. 1 Canara Bank. In the absence of CANFINA,the arbitral proceedings should be rendered infructuous.

3.The only existing arbitration agreement in the case is a draft tripartite agreement forwarded by respondent wherein appellant and CANFINA were both made parties.But,there is no legal relationship or privity of contract between the Appellant and Respondent as the disputed Bonds were bought from the Appellant by CANFINA. 

Contentions of RESPONDENT

1.The respondent contended that  present appeal by the appellant is not maintainable as the Appellant has filed this 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. So,The only remedy available to Appellant is to file an application under Section 16 of the Arbitration and Conciliation Act, 1996.

2. It was further contended that CANFINA cannot be made a party before the arbitral proceedings as CANFINA was merely joined as a proforma party in the Writ Petition before the Delhi HC and also at the time of giving consent to arbitration and appointment of the learned Sole Arbitrator, CANFINA was not before the Court.

3.The Appellant MTNL has not filed any claim against CANFINA, and therefore, the appellant cannot seek any remedy or relief against CANFINA and it also cannot be allowed to raise an issue of impleadment without having any claim against the party sought to be impleaded. 


It was observed by the SC that A binding agreement for disputes to be resolved through arbitration is a sine-qua-non for referring the parties to arbitration.The arbitration agreement is defined in Section 7 of the Arbitration and Conciliation Act,1996.

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. 

(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.

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 are ad idem(consensus of mind), even though the other party may not have signed a formal contract, it cannot absolve him from the liability under the agreement.

The court placed reliance on the following judgments:

1.Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia (P) Ltd.[3]

In this case,it was observed 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.

2.In Khardah Company Ltd. v. Raymon and Co. (India) Pvt. Ltd.[4] and  Union of India v. DN Revry and Co.[5],the SC 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, 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.” 

3.In Enercon (India) Ltd. and Ors. v. Enercon GMBH[6],Hon’ble SC held that 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 inobserved 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.

The appellant had objected that there was no arbitration agreement in writing between the parties but the Hon’ble court observed that there was agreement between the parties for arbitration which is evidenced from the following documents exchanged between the parties, and the proceedings :

1.In the Meeting dated 27.03.2001 convened by the Cabinet Secretariat, all three parties were present and participated in the proceedings. 

2.The Committee on Disputes, in the Meeting dated 16.12.2008 expressed the view that all the three parties should take recourse to arbitration .

3.When the respondent suggested that to expedite the arbitration, it should be conducted under the Arbitration & Conciliation Act, 1996,the suggestion was readily accepted by the appellant and no objection was raised.

4.The appellant consented before the Delhi HC along with the respondent to refer the matter to arbitration by a Sole Arbitrator under the 1996 Act in response to the writ petition filed by the respondent.

5.The appellant participated in the proceedings conducted by the Sole Arbitrator, and filed its Claim, and Counter-Claim which shows that the appellant was taking part in arbitration proceedings.

Taking into account two cases of SSavitri Goenka v. Kanti Bhai Damini & Ors., 2009 (1) Arb LR 320 (Del) (DB) and Chitra Kumari v. Union of India (2001) 3 SCC 208 ,the court observed that 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 asserted by one party, and not denied by the other.

Taking into account evidence stated above, Hon’ble SC held that the Appellant 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.


The respondent objected to joinder of CANFINA as a party to the arbitration proceedings.

As per the Contract Act,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.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. 

But,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.

“Group of Companies” Doctrine

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 multi-party business transactions.

A non-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 indicating its intention to be bound by the contract, the non-signatory will also be bound and benefitted by the relevant contracts.

Courts and tribunals have invoked this doctrine to join a non-signatory member of the group 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 non-signatory affiliates in the group.

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, is mentioned in International Commercial Arbitration[7] which are as follows:

1.There is a direct relationship between the party which is a signatory to the arbitration agreement

2.Direct commonality of the subject matter

3.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 performance of the supplementary or the ancillary agreement, for achieving the common object, and collectively having a bearing on the dispute. 

It is also observed by the SC that this Doctrine 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 economic reality. In such a situation also, 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 group ICC Case No. 4131 of 1982, ICC Case No. 5103 of 1988.

The ‘Group of Companies’ doctrine has been applied by the Supreme Court in a lot of cases such as Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc.[8],and Ameet Lal Chand Shah v. Rishabh Enterprises[9].

The Supreme Court observed that there was enough factual background to suggest that the parties intended to bind the non-signatory party to the arbitration proceedings based on the following facts:

1.CANFINA was set up as a wholly owned subsidiary of Canara Bank and was staffed mostly by personnel from Canara Bank.The Board comprised mostly of senior executives of Canara Bank and its Chief Executive is also a senior official of that bank the company functioned under the umbrella of the parent bank.

2.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. It was further observed that the parent bank cannot be absolved of the responsibility for various irregularities of its subsidiary. 

3.CANFINA has participated in the proceedings before the High Court, and the Committee on Disputes. CANFINA was also represented before the Sole Arbitrator. The respondent joined CANFINA as Respondent No. 2 in the writ petition filed before the Delhi HC, even though it was joined as a proforma party. 

4.The notice issued by the Sole Arbitrator was to all the three parties including CANFINA.Respondent had enclosed a Draft Arbitration Agreement to the appellant, wherein it has clearly stated that the arbitration  would be between three parties i.e. respondent and CANFINA as party of the first part, and appellant as party of the second part.

5.The original transaction emanated from a transaction between Appellant and CANFINA – the original purchaser of the Bonds. The disputes arose on the cancellation of the Bonds by the appellant on the ground that the entire consideration was not paid by CANFINA.Taking this into consideration,the court stated that it would not be justified to decide the disputes only between appellant and respondent, in the absence of CANFINA.


1. There exists a valid arbitration agreement between the three parties.The arbitration agreement satisfies the requirements of Section 7(4)(b) and (c) of the Arbitration and Conciliation Act,1996.

2. The court invoked the “Group of Companies” Doctrine and held that CANFINA is undoubtedly a necessary and proper party to the arbitration proceedings.It was observed by the court that 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.

3. The court concluded that the agreement in question is essentially a tripartite agreement between the parties, namely, MTNL, Canara Bank and CANFINA which is clear from the documents exchanged between the parties, pleadings and orders of the Court.


Under Indian judicial pronouncements, arbitration agreements have been extended to non-signatories on certain occasions. Courts in India have started recognizing the group company’s doctrine wherein, a non-signatory gets impleaded, depending on the intention of parties, role and performance of the contract of such non-signatory. By this one may say that non-signatory affiliates can also be roped in arbitration, if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates.

The evolution of the doctrine of group companies is a step towards making India more arbitration friendly and is a need of the hour in light of the complex corporate structures.

[1] (1995) Supp. 4 SCC 541

[2] (2011) 3 SCC 404

[3] (2015) 13 SCC 477

[4] [1963] 3 SCR 183

[5] (1976) 4 SCC 147

[6] (2014) 5 SCC 1

[7]  Vol. I, 2009, pp. 1170-1171

[8] (2013) 1 SCC 641

[9] (2018) 15 SCC 678

Also Read: Indian Council for Enviro-Legal Action v. Union of India

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