SC upholds Delhi HC order referring loan dispute between Siti Network and Aditya Birla Finance to arbitration

The Supreme Court has upheld the Delhi High Court's order referring a loan dispute between Essel Group's Siti Network and Aditya Birla Finance to arbitration. This comes as a setback for Zee, as it had objected to being made part of the proceedings.

The arbitration process might increase the legal problems for Zee Entertainment Enterprises (ZEEL), which is part of the Essel Group because ZEEL stood a guarantee to the Rs 150 crore loan that Aditya Birla Finance extended to Siti Network in 2017.

ZEEL became a party to the proceedings when Siti Network allegedly didn't repay the loan. The court stated all the issues between the two sides should be raised during arbitration proceedings.

In March 2023, the High Court referred the case to arbitration and chose Justice Lavu Nageswara Rao, a retired Supreme Court judge, as the arbitrator. ZEEL argued that it couldn't be involved because it didn't sign the arbitration agreement.

In 2017, Aditya Birla Finance provided Siti Networks with a Rs 150 crore term loan, backed by Zee as a guarantor, as outlined in a credit arrangement letter.

The lender alleged that Siti didn't pay back the term loan. They also mentioned that because Siti, Zee, and their parent company Essel Group are part of the same group of companies or economic entities, they need to repay the loan.

Zee and Essel didn't want to join in because they hadn't agreed to the arbitration clause in the agreement.

Zee had moved the Supreme Court against the Delhi High Court issue. However, the court postponed the hearing because there was a pending question about whether people who didn't sign the agreement could join arbitration if they were part of the same group.

In December 2023, the Supreme Court ruled that non-signatory firms can be bound by arbitration agreements under the 'group of companies' doctrine.

This implies that even if companies are part of the same group but haven't officially agreed to arbitration, they can still be held to the 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 v. SAP India verdict.

According to this ruling, even if someone isn't a signatory to the arbitration agreement will still be bound by it as long as there's a clear legal connection between those who signed the agreement and those who didn't.

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