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Report No. 246

Definition of "Party"

61. Arbitration is a consensual form of dispute resolution, with the arbitral tribunal deriving powers and authority on the basis of the "contract" or the "agreement" between the parties. This agreement has far reaching consequences - it takes away the right of the party to the arbitration agreement to avail its remedies in a court of law for resolution of the disputes covered by the terms of the arbitration agreement; and makes the consequent award binding, with a limited right of recourse in terms of section 34 of the Act.

It would thus be incongruous and incompatible with this "consensual" and "agreement based" status of arbitration as a method of dispute resolution, to hold persons who are not "parties" to the arbitration agreement to be bound by the same.

62. However, a party does not necessarily mean only the "signatory" to the arbitration agreement. In appropriate contexts, a "party" means not just a signatory, but also persons "claiming through or under" such signatory - for instance, successors-of-interest of such parties, alter-ego's of such parties etc. This is particularly true in the case of unincorporated entities, where the issue of "personality" is usually a difficult legal question and raises a host of other issues. This principle is recognized by the New York Convention, 1985 which in article II (1) recognizes an agreement between parties "in respect of a defined legal relationship, whether contractual or not."

63. The Arbitration and Conciliation Act, 1996 under section 7 borrows the definition of the "arbitration agreement" from the corresponding provision at article 7 of the UNCITRAL Model Law which in turn borrows this from article II of the New York Convention. However, the definition of the word "party" in section 2(1)(h) refers to a "party" to mean "a party to an arbitration agreement." This cannot be read restrictively to imply a mere "signatory" to an arbitration agreement, since there are many situations and contexts where even a "non-signatory" can be said to be a "party" to an arbitration agreement.

This was recognized by the Hon'ble Supreme Court in Chloro Controls v. Severn Trent Water Purification, (2013) 1 SCC 641, where the Hon'ble Supreme Court was dealing with the scope and interpretation of section 45 of the Act and, in that context, discussed the scope of the relevant doctrines on the basis of which "non-signatories" could be said to be bound by the arbitration agreement, including in cases of inter-related contracts, group of companies doctrine etc.

64. This interpretation given by the Hon'ble Supreme Court follows from the wording of section 45 of the Act which recognizes the right of a "person claiming through or under [a party]" to apply to a judicial authority to refer the parties to arbitration. The same language is also to be found in section 54 of the Act.

This language is however, absent in the corresponding provision of section 8 of the Act. It is similarly absent in the other relevant provisions, where the context would demand that a party includes also a "person claiming through or under such party". To cure this anomaly, the Commission proposes an amendment to the definition of "party" under section 2 (h) of the Act.

Amendments to the Arbitration and Conciliation Act, 1996 Back

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