Delhi High Court Appoints Former Sc Judge As Sole Arbitrator In Dispute Between Aditya Birla Finance And Essel Group: Analysis Of The Court’s Interpretation Of The Principle Of Related Party Arbitration

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The High Court of Delhi has appointed former Supreme Court judge, Justice L Nageswara Rao, as the sole arbitrator in the case related to the dispute between Essel Corporate, Zee Enterprises, Siti Networks, and Aditya Birla Finance. This decision came after a petition was filed by Aditya Birla Finance alleging that Siti Networks had defaulted on the payment of a Rs 150 crore loan extended to it by the Aditya Group.

The petitioner argued that Siti had admitted to its failure of repayment before the National Stock Exchange and the Bombay Stock Exchange. Aditya Birla Finance demanded that since Siti, Zee, and Essel belong to the same group of companies and have a single economic identity, therefore, all of them should be referred to the adjudicatory process of arbitration. However, Zee and Essel argued that they were non-signatory to the arbitration clause enumerated in the facility agreement and the credit arrangement letter (CAL) and therefore, they cannot be compelled to arbitrate in the absence of the mutual intent of the parties. It noted that the two letters claimed by Aditya Birla Finance to be letters of guarantee could not be called so in terms of the Indian Contract Act and could only be considered as letters of comfort. However, since the petitioner was seeking compliance/performance of these letters, such a claim could be maintainable before the arbitrator only when the respondent Numbers 2 (Zee) and 3 (Essel) were parties before the arbitrator.

The High Court referred to the Supreme Court verdict in Chloro Controls India (P) Ltd, which ruled that non-signatory or a third party could be subjected to arbitration without their prior consent in exceptional cases. The Single-Judge Bench noted that there could not be any denial that respondent Siti and Zee were part of Essel Group of companies and as such, they were a single economic entity and related party.