Five judges of this Court are called upon to determine the validity of the ‘Group of Companies’ doctrine in the jurisprudence of Indian arbitration. The doctrine provides that an arbitration agreement which is entered into by a company within a group of companies may bind non-signatory affiliates, if the circumstances are such as to demonstrate the mutual intention of the parties to bind both signatories and non-signatories. This doctrine is called into question purportedly on the ground that it interferes with the established legal principles such as party autonomy, privity of contract, and separate legal personality. The challenge before this Court is to figure out whether there can be a reconciliation between the group of companies doctrine and well settled legal principles of corporate law and contract law. (Para 2)
A Bench of three Judges of this Court, while considering an application under Section 11(6) of the Arbitration Act and Conciliation 1996[“Arbitration Act”], sought to reexamine the validity of the group of companies doctrine in the Indian context on the ground that it is premised more on economic efficiency rather than law. The Bench of three judges (speaking through the majority opinion authored by Chief Justice N. V. Ramana (as he was then), and the concurring opinion by Justice Surya Kant) doubted the correctness of the application of the doctrine by the Indian courts. (Para 3)
In view of the above, while concurring with the judgment of the learned Chief Justice, my conclusions are as follows:
I. An agreement to refer disputes to arbitration must be in a written form, as against an oral agreement, but need not be signed by the parties. Under Section 7(4)(b), a court or arbitral tribunal will determine whether a non-signatory is a party to an arbitration agreement by interpreting the express language employed by the parties in the record of agreement, coupled with surrounding circumstances of the formation, performance, and discharge of the contract. While interpreting and constructing the contract, courts or tribunals may adopt well-established principles, which aid and assist proper adjudication and determination. The Group of Companies doctrine is one such principle.
II. The Group of Companies doctrine[As delineated in para 40 of Discovery Enterprises (supra).] is also premised on ascertaining the intention of the non-signatory to be party to an arbitration agreement. The doctrine requires the intention to be gathered from additional factors such as direct relationship with the signatory parties, commonality of subject-matter, composite nature of the transaction, and performance of the contract.
III. Since the purpose of inquiry by a court or arbitral tribunal under Section 7(4)(b) and the Group of Companies doctrine is the same, the doctrine can be subsumed within Section 7(4)(b) to enable a court or arbitral tribunal to determine the true intention and consent of the non-signatory parties to refer the matter to arbitration. The doctrine is subsumed within the statutory regime of Section 7(4)(b) for the purpose of certainty and systematic development of law.
IV. The expression “claiming through or under” in Sections 8 and 45 is intended to provide a derivative right; and it does not enable a non-signatory to become a party to the arbitration agreement. The decision in Chloro Controls (supra) tracing the Group of Companies doctrine through the phrase “claiming through or under” in Sections 8 and 45 is erroneous. The expression ‘party’ in Section 2(1)(h) and Section 7 is distinct from “persons claiming through or under them”.
This answers the remaining questions referred to the Constitution Bench.
SUPREME COURT OF INDIA
2023 STPL(Web) 465 SC
[2023 INSC 1051]
Cox And Kings Ltd. Vs. Sap India Pvt. Ltd. & Anr.
Arbitration Petition (Civil) No. 38 of 2020 With SLP (C) No. 8607 of 2022 And With SLP (C) No. 5833 of 2022-Decided on 6-12-2023
https://stpllaw.in/wp-content/uploads/2024/01/2023-STPLWeb-465-SC.pdf
