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

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

The Supreme Court on January 16 upheld a Delhi High Court order referring a loan dispute between Essel group entity Siti Network and Aditya Birla Finance to arbitration, which is a blow to Zee which had opposed being made part of the proceedings.

The arbitration proceedings are likely to add to legal woes of Zee Entertainment Enterprises Limited (ZEEL), an Essel Group company, as it stood guarantee to the Rs 150 crore loan that Aditya Birla Finance extended to Siti Network in 2017.

ZEEL was made a party to the proceedings after Siti Network allegedly didn’t repay the loan.

The court said all the issues between the two sides should be raised during arbitration proceedings.

The high court had in March 2023 the referred the matter to arbitration, appointing retired SC judge Justice Lavu Nageswara Rao as the arbitrator. ZEEL said it could not be made a party as it was not a signatory to the arbitration agreement.

In 2017, Aditya Birla Finance extended a term loan of Rs 150 crore to Siti Networks under a credit arrangement letter with Zee as guarantor.

Group of companies doctrine

ZEEL moved the top court against the high court order. The apex court had deferred the hearing in March 2023, as the question of whether non-signatories to an agreement could be made parties to arbitration by virtue of being a part of the same group was pending before a constitution bench.

On December 6, the court held a non-signatory to an arbitration agreement could be made a party to an arbitration dispute if it is a part of the group of companies.

Arbitration is a mechanism to resolve disputes between parties without going to court. A neutral person is appointed to adjudicate the dispute and the judgment of an arbitrator is legally enforceable. For parties to resolve their dispute through arbitration, they must necessarily have an agreement expressing their intention to arbitrate, as arbitration is consensual.

Arbitration proceedings cannot begin when one party disputes the existence of an agreement. Under such circumstances, a “group of companies’ doctrine” states that a non-signatory can be asked to participate in arbitrations if they belong to the group of companies.