In a setback to
Zee, the Supreme Court on Tuesday upheld a Delhi High Court order by referring
a dispute between Essel Group entity Siti Network and Aditya Birla Finance to
arbitration.
The 150-crore
loan dispute involves Essel Group of Companies, Zee Entertainment Enterprises,
Siti Networks Ltd, and Aditya Birla Finance. The court said all parties
involved should raise their arguments before a sole arbitrator appointed by the
Delhi High Court.
Chief Justice of
India DY Chandrachud also dropped Siti Network from the lineup of parties in
the arbitration proceedings as it has already gone into insolvency.
The Delhi High
Court in March 2023 had referred the matter to arbitration and appointed former
Supreme Court judge Justice LN Rao as the sole arbitrator.
Aditya Birla
Finance, the lender, in 2017 had extended a loan of Rs 150 crore to Siti
Networks under a credit arrangement letter wherein Zee stood as guarantor. The
lender alleged that Siti had failed to repay the term loan. It also said that
since Siti, Zee, and their parent Essel Group belong to the same group of
companies or the same economic entity, they should repay the loan.
Zee and Essel had
opposed being part of this because they were non-signatory to the arbitration
clause in the agreement.
Zee had moved the
Supreme Court against the Delhi High Court matter but the court had deferred
the hearing as the question of whether non-signatories to an agreement could be
made parties to arbitration if they were part of the same group was pending
before a constitution bench.
The Supreme Court
in December 2023 ruled that non-signatory firms can be bound by arbitration
agreement under the 'group of companies' doctrine.
This means that
companies that belong to the same group of companies but are not signatories to
the arbitration agreement can still be bound by the said agreement.
"The 'group
of companies' doctrine must be retained in the Indian arbitration jurisprudence
considering its utility in determining the intention of the parties in the
context of complex transactions involving multiple parties and multiple
agreements," the bench of Chief Justice of India DY Chandrachud, Justices
Hrishikesh Roy, PS Narasimha, JB Pardiwala and Manoj Misra said in the Cox and
Kings Ltd v. SAP India Pvt Ltd verdict.
By this ruling, a party who is not a signatory to
the arbitration agreement will still be bound by it provided that there is a
clear and defined legal relationship between signatories and non-signatories.