By Myra Khanna and Advait Arunav.
Myra Khanna is a fourth year B.A. LL.B. (Hons.) student at Maharashtra National Law University, Mumbai. Advait Arunav is a third year B.A. LL.B. (Hons.) at National Law University, Delhi.
Recently, in Gaurav Dhanuka v. Surya Maintenance Agency (2024), the Delhi High Court via a prima facie order under Section 11 of the Arbitration & Conciliation Act impleaded a non-signatory developer in arbitration proceedings between flat owners and maintenance agencies. For impleadment, the Court invoked “direct benefits estoppel” and “intertwined contract theory” but did not sufficiently engage with these theories’ applicability or thresholds.
Accordingly, this piece sets out the facts in Part I before highlighting the doctrinal flaws in the Court’s decision: Part II examines the misapplication of the ‘intertwined estoppel theory’, while Part III questions whether the reasoning could be saved by interconnected contracts. Part IV analyses the application of direct benefits estoppel that flies in the face of its own substantive thresholds and the Supreme Court in Cox & Kings. It then examines existing jurisprudence in Part V, before concluding in Part VI.
Group of Companies Doctrine, third-party impleadment, non-signatory impleadment, Cox & Kings, equitable estoppel.
In this case, Respondent No. 3 (Developer) owned two commercial buildings and appointed Respondent No. 1 (Maintenance Agency) under an agreement providing for supervisory powers and a revenue-sharing mechanism. The Maintenance Agency thereafter appointed Respondent No. 2 (Property Manager) through a separate agreement. The Petitioners (Flat owners) entered into maintenance agreements with the Maintenance Agency and the Property Manager that included an arbitration clause. The Petitioners invoked this clause when disputes arose concerning building maintenance.
The Petitioners sought the impleadment of the Developer, arguing that its participation was necessary as it controlled maintenance operations. The Court allowed the impleadment, reasoning that the Developer derived direct financial benefit through revenue sharing, exercised pervasive control, and that the agreements were inextricably connected.
Critically, the Developer was neither a party to the Petitioners’ maintenance agreements nor any other agreement containing an arbitration clause. The Court appears to have majorly relied on the two aforementioned doctrines to justify impleading the non-signatory developer. In doing so, the Court cited the Supreme Court’s observations in ONGC v. Discovery Enterprises (“ONGC”), where it noted that non-signatories may be bound either on “consensual theories…and non-consensual theories (e.g. estoppel, alter ego).” This application, however, warrants closer examination.
John Fellas’ “intertwined estoppel theory”, as noted in ONGC, provides that a party may be bound where “the issues the non-signatory is seeking to resolve in arbitration are intertwined with the agreement that the estoppel [signatory party] has signed.”
At first, this application to Dhanuka may seem sound. However, as Fellas himself explains, unlike other estoppel theories, the “intertwined claims” estoppel doctrine allows only the “non-signatory to rely upon an arbitration clause against a signatory, but not the other way around.”
Put otherwise, this theory only justifies use by a non-signatory to implead a signatory and not vice versa. The rationale for this unidirectional application, as Fellas explains, is preserving arbitration’s efficacy: it prevents signatories from avoiding arbitration and defeating an otherwise valid arbitration clause simply by alleging that an agent has improperly performed certain duties under the contract, i.e., rendering the arbitration agreement meaningless through collateral litigation.
Keeping this in mind, the Court in Dhanuka could not properly have invoked this theory, as the case involved signatories (flat owners) attempting to compel arbitration against a non-signatory (developer) who never consented to such an arbitration.
It may, however, be said that ONGC itself dealt with a case wherein a signatory sought to bind a non-signatory (though part of the group of companies) to the arbitration agreement. The Supreme Court, however, never applied the intertwined estoppel theory to the facts before it; instead, it laid down factors relevant to binding entities operating within a group of companies and applied those. Fella’s observation in ONGC that the Court in Dhanuka applied, thus, appears to be obiter rather than ratio.
Although the Court’s invocation of the theory may be incorrect, its finding that the agreements were “inextricably connected” might find justification under a different principle: the interconnected contracts theory.
The interconnected contracts principle is what the Court appears to have conflated with intertwined estoppel. Though not fully delineated in Indian jurisprudence, it was first observed in Ameet Lalchand Shah v. Rishabh Enterprises, which held that where several parties are involved in a single commercial project executed through several agreements/contracts, all the parties can be covered by the arbitration clause in the main agreement. But it’s pertinent to mention in that case, all the contracts referenced each other, contained identical arbitration clauses, and served a unified commercial purpose evident from the facts.
Dhanuka’s agreements do not seem to meet this. Neither do the agreements reference each other nor does the agreement between Petitioners and the developer contain an arbitration clause. Moreover, while maintenance might be characterised as the overall commercial purpose, the developer-maintenance agency contract serves a supervisory role, whereas the flat owner-maintenance agency contracts serve an operational role, suggesting vertically distinct purposes rather than a unified commercial objective.
That said, some nexus between the agreements might be argued. Even if not, the Court can independently invoke direct benefits estoppel to implead; however, even its application warrants closer scrutiny.
Again, relying on Fellas, as cited in ONGC, Dhanuka invoked direct benefits estoppel, which prohibits a party from taking inconsistent positions or seeking to have it both ways by relying on the contract when it works to its advantage and ignoring it when it works to its disadvantage.
i. Does Direct Benefits Estoppel Survive Cox & Kings?
Now, unlike the intertwined estoppel theory, it can certainly be used by a signatory against a non-signatory. However, the Supreme Court in Cox & Kings Ltd. v. SAP India, does not appear to favour this theory in at least two contexts. Firstly, under the group of companies’ context, the Supreme Court observed that “even though a subsidiary derives interests or benefits from a contract… they would not be covered… merely on the basis that it shares a legal or commercial relationship.” Secondly, under the broader umbrella of impleadment of third parties under “claiming through or under him” i.e., Section 8 of the A&C Act. The Supreme Court while examining Rinehart v. Hancock Prospecting Pty Ltd, where the Australian High Court adopted the estoppel approach (“a non-signatory party who elects to take the benefit of some aspects of the contract, must also accept the burden of it”), held that this approach cannot be adopted “in the context of the phrase “claiming through or under” as doing so would be contrary to the common law position and the legislative intent underpinning the Arbitration Act”. Further, the Court clarified “claiming through or under” applies only to parties in “derivative capacity” (assignees or successors), not those merely deriving benefits.
Thus, two things are clear, the principle of benefits estoppel does not fit within the: (i) group of companies’ context (as benefit-derivation alone is insufficient); and (ii) “claiming through or under”, as it’s limited to entities in derivative capacity. Where direct benefits estoppel fits, if anywhere, remains unclear. Whether it operates independently, within group of companies’ contexts, or beyond both, Cox & Kings left unanswered.
ii. Direct or Indirect benefits?
But even assuming that direct benefits estoppel survived Cox & Kings, its application in Dhanuka must still satisfy the principle’s thresholds. Given it’s not provided in Indian jurisprudence, it is useful to look to U.S. jurisprudence, where this doctrine originates. The case of Life Techs. Corp. v. AB Sciex held that the principle was confined to direct benefits, and does not extend to indirect benefits. While distinguishing direct from indirect benefits it held: first, benefits are “direct” only when they “arise from the unsigned contract containing the arbitration clause”, and “indirect” “when merely incidental” to its performance; second, benefits are direct only “when specifically contemplated by the relevant parties”, and indirect when the non-signatory’s benefit was not within their original contemplation.
Dhanuka seems to not fulfil either step. The developer’s revenue-sharing and control mechanisms arose from the developer-maintenance agency agreement, not from the flat owner-maintenance agency agreements containing the arbitration clause. The Developer derives supervisory rights and profit-sharing from its contract with the Maintenance Agency, not from the Agency’s separate agreements with flat owners. These are indirect benefits incidental to the contractual relationship between two other parties.
Moreover, nothing suggests flat owners contemplated the developer benefiting from their maintenance agreements when executing them years after the agreement. The parties to the arbitration clause never manifested intent to bind the developer, absent from their contracts entirely.
Granted, this is not the first instance in which the Delhi High Court has invoked non-signatory impleadment principles. In DLF v. PNB Housing Finance Ltd., wherein impleadment of two non-signatories was sought on alleged collusion with signatories, and illegal share transfers to the non-signatories “directly benefitting” them. The Court noted the petitioner’s reliance on direct benefits and intertwined estoppel theories and permitted impleadment. But while the applicability of intertwined estoppel may again be questioned, impleadment was nonetheless necessary, as the dispute concerned the loss and transfer of pledged shares, which could not have been effectively resolved in the absence of the non-signatories.
In other cases, such as Shapoorji Pallonji and Co. Pvt. Ltd. v. Rattan India Power Ltd., although the theories weren’t directly invoked, a third-party non-signatory who was deriving the benefit from the arbitration agreement was impleaded.
It may be said that the Court’s conclusion aligns with a pro-arbitration impulse and might be based on other facts not mentioned in the order. But what must be remembered is what the Supreme Court reiterated in Cox & Kings that consent forms the cornerstone of arbitration; a non-signatory cannot be forcibly made a ‘party’ to an arbitration agreement in violation of the sacrosanct principles of privity of contract and party autonomy.
Granted, the ultimate decision on impleadment rests with the arbitral tribunal. But compelling a party to participate in arbitration proceedings pending such determination imposes the very delay, cost, and inconvenience that arbitration seeks to avoid. This is why common-law jurisdictions exercise caution for non-signatories impleadment. English courts, for instance, do not recognise the Group of Companies doctrine and maintain that a third party cannot be bound absent its consent, leaving little room for non-consensual theories of impleadment. As Prof. Brekoulakis observes, “consent for arbitration is a matter of kind not degree”. Thus, participation in a related commercial transaction should not substitute for an arbitration agreement.
Moreover, the prima facie inquiry under Section 11 A&C Act, is intended as a procedural filter, not as a dilution of arbitration’s consent requirement. When courts invoke non-signatory doctrines without rigorously engaging their thresholds, that filter collapses into compulsory arbitration by default. Doctrinal looseness at this stage risks transforming judicial deference into what scholars have called a “shortcut to avoid legal reasoning“, one that “blurs the requirement of consent“ and “disregards the principles of privity of contract and separate legal personality.”
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