The present case is filed under the Civil Original Jurisdiction of the Supreme Court of India, to expound on the intricacies of the 'group of companies doctrine' and answer certain ...
No Acts & Articles mentioned in this case
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
ARBITRATION PETITION (CIVIL) NO. 38 OF 2020
COX AND KINGS LIMITED …PETITIONER
VERSUS
SAP INDIA PRIVATE LIMITED & ANOTHER …RESPONDENTS
JUDGMENT
N.V. RAMANA, CJI
1.This petition calls on us to examine the ‘group of companies
doctrine’. In particular, it requires us to examine whether the
principles of party autonomy under arbitration law and
corporate personality in company law have been adequately
safeguarded in outlining the scope and applicability of the
doctrine being followed at present in Indian jurisprudence.
2.The present Arbitration Petition has been preferred by the
PetitionerApplicant under Section 11(6) and Section l1(12)(a) of
the Arbitration and Conciliation Act, 1996 (hereinafter the
"Arbitration Act"), for appointment of an Arbitral Tribunal in
terms of the provisions of the Arbitration Act, on the ground
1
REPORTABLE
that there has been a failure with respect to the appointment of
an Arbitral Tribunal in accordance with the agreements
between the parties.
3.The facts necessary for the adjudication of the dispute are as
follows: on 14.12.2010, the Applicant and Respondent No. l
entered into an SAP Software End User License Agreement and
SAP Enterprise Support Schedule under which the Applicant
was made a licensee of certain ERP software developed and
owned by the Respondents. This is an overall licensing
agreement that all customers of the Respondents have to enter
into compulsorily in advance in order to utilize any software of
the Respondents. In 2015, while the Applicant was developing
its own ecommerce platform, the Respondents approached the
Applicant and recommended their Hybris Solution as it would
be 90% compatible with the Applicant’s software. The
Respondents indicated that the remaining 10% customisation
would take only 10 months, a much shorter solution than the
Applicant developing the software itself.
4.The aforesaid agreement was divided into 3 separate
transactions: first, the Software License and Support Agreement
2
Software Order Form 3, dated 30.10.2015, was signed
between the Applicant and Respondent No. 1 for the purchase
of the SAP Hybris Software License. Second, an agreement
dated 30.10.2015 was signed between the parties containing
the terms and conditions governing the implementation of the
SAP Hybris software. This agreement is called the Services
General Terms and Conditions Agreement ("GTC"). Third, on
16.11.2015, an agreement was entered into for the
customization of the software.
5.Clause 15.7 of the GTC contains the arbitration clause which
we are concerned with in the present matter. The clause reads
as follows:
"15.7 Dispute Resolution: In the event of any
dispute or difference arising out of the subject
matter of this Agreement, the Parties shall
undertake to resolve such disputes
amicably. If disputes and differences cannot
be settled amicably then such disputes shall be
referred to bench of three arbitrators, where
each party will nominate one arbitrator and the
two arbitrators shall appoint a third arbitrator.
Arbitration award shall be binding on both
parties. The arbitration shall be held in
Mumbai and each party will bear the expenses
of their appointed arbitrator. The expense of the
third arbitrator shall be shared by the parties.
3
The arbitration process will be governed by
the Arbitration & Conciliation Act, 1996.”
6.Till August 2016, the Applicant listed out various issues in
project implementation to Respondent No. 1 and requested
Respondent no. 2 to intervene. Respondent No. 2, in turn, gave
certain assurances to the Applicant. As the contract could not
be fulfilled even with the extended timelines and additional
manpower, the contractual framework pertaining to SAP Hybris
Solution was rescinded on 15.11.2016 after which the
Respondents immediately withdrew their resources from the
said project. Pursuant to the same, the Applicant demanded a
refund of Rs. 45 crores that was paid towards the License
Agreement, Annual Maintenance Charges, and implementation
services. Respondent No. 2 in response to the said demand
proposed a solution which was rejected by the Applicant.
7.Finally, after several correspondences and meetings, the matter
could not be settled amicably. On 29.10.2017, Respondent No.
1 issued a notice invoking arbitration for the alleged wrongful
termination of the contract and demanded payment of Rs. 17
crores. An Arbitral Tribunal comprising of Hon'ble Mr. Justice
Madan B. Lokur (Retd.), Hon'ble Mr. Justice Dilip Bhosale
4
(Retd.), and Hon'ble Mr. Justice V. C. Daga (Retd.) was
constituted to adjudicate the disputes between the parties.
8.Respondent No. l initiated proceedings under Clause 15.7 of the
GTC entered between the parties on 30.10.2015. It may be
noted here that Respondent No. 2 was not made a party in the
aforesaid proceedings. During these proceedings, the Applicant
herein filed an application under Section 16 of the Arbitration
Act, before the Hon'ble Tribunal, contending that the four
agreements entered between the parties are a part of a
composite transaction and the same should be a part of a
singular proceeding.
9.Meanwhile, on 22.10.2019, NCLT, admitted an application
under Section 7 of the Insolvency and Bankruptcy Code, 2016
preferred against the Applicant and appointed an Interim
Resolution Professional. On 05.11.2019, the NCLT directed the
parties to adjourn the arbitration proceedings sine die in view of
the moratorium imposed upon the claims against the Applicant
due to the initiation of the Corporate Insolvency Resolution
Process (CIRP).
5
10.On 07.11.2019, the Applicant sent a fresh notice invoking
Arbitration arraying Respondent No. 2 in the Arbitration
Proceedings. In the said Notice, the Applicant appointed Hon'ble
Dr. Justice Arijit Pasayat as its nominated arbitrator and called
upon the Respondents to appoint their Arbitrator for the
constitution of the Tribunal. However, there was no response
from the Respondents. Hence, the Applicant has preferred this
Application under Section 11 of the Arbitration Act seeking
appointment of the Arbitrator in an International Commercial
Arbitration.
11.Mr. Kailash Vasdev, learned Senior Advocate appearing on
behalf of the Applicant made the following submissions:
i.Respondent No. 1 is a wholly owned subsidiary and
proprietary concern of Respondent No. 2. Since the
software is licensed by Respondent No. 2 to Respondent
No. 1, the customisation would not be possible without
the aid of Respondent No. 2. Therefore, all the four
agreements together form a composite agreement and
are a part of a single, interlinked transaction by both
Respondent Nos. 1 and 2.
ii.The agreements and email correspondences clearly
show that Respondent Nos. 1 and 2 and the Applicant
were in ad idem for the implementation and the
execution of the agreements. Especially, when
Respondent No. 1 failed to execute the agreement,
Respondent No. 2 took the responsibility to resolve the
grievances of the applicant.
6
iii.Considering the holding in the three Judge Bench
decision of Chloro Controls India Private Limited v.
Severn Trent Water Purification Inc., (2013) 1 SCC
641, arbitration can be invoked even against the non
signatories, if the circumstances demonstrate that it
was the mutual intention of the parties.
iv.There is no commonality of claims between the present
arbitration proceedings and the earlier proceedings.
v.Considering, the limited scope under Section 11 of the
Arbitration Act, the intervention of the Court should be
as minimal as the Court is only required to examine the
existence of the arbitration agreement.
12.Mr. Ritin Rai, learned Senior Advocate appearing on behalf of
the Respondent No. 1 made the following submissions:
i.The Applicant has suppressed material facts regarding
its previous attempts to resist constitution of an
Arbitral Tribunal. It ought to be noted that when
Respondent No. 1 had earlier invoked Clause 15.7 of
the GTC, it was the Applicant who had challenged the
same for being void ab initio. Now, the Applicant himself
is invoking the same provision seeking the appointment
of an Arbitrator.
ii.Immediately one day after the commencement of the
CIRP and the consequent imposition of the moratorium,
the Applicant has chosen to raise similar claims
through a fresh notice and has obliquely arrayed
Respondent No. 2 as a party to inflate its claim. It is a
settled principle of law that the principle of resjudicata
applies to arbitral proceedings as well.
13.Mr. Neeraj Kishan Kaul, learned Senior Advocate appearing on
behalf of Respondent No. 2 made the following submissions:
7
i.Respondent No. 2 is neither a signatory, nor has it ever
agreed (expressly or impliedly) to be bound by the
agreements between the Applicant and the Respondent
No. 1. Respondent No. 2, being a foreign entity does not
have any business dealings in India and is a separate
and independent legal entity from Respondent No. 1.
ii.The emails relied upon by the Applicant do not indicate
any undertaking by Respondent No. 2. Especially, when
the Applicant himself approached Respondent No. 2
seeking assistance much after the execution of the
License Agreement and Service Agreement. Admittedly,
Respondent No. 2 was not involved in the contract
negotiation process.
iii.The “Group of Companies” doctrine is not applicable in
the present case. Respondent No. 2 is not only a non
signatory but also never participated in the negotiation
process during the drafting of the contract. Moreover,
there is no consensus of the parties to be bound by the
contract.
14.After hearing the counsel appearing on both sides and
considering the ramifications it may have by the adjudication of
the subject matter, this Court must examine the ambit of the
“Group of Companies” doctrine. Ever since this doctrine was
expounded in the Chloro Control (supra) case, it has been
utilised in a varied manner. It is in this context we felt that
there is a further need to examine the rationality behind the
doctrinal approach taken by this Court in the Chloro Control
(supra) case.
8
15.Arbitration is a creature of contract which has been provided
statutory backing under the Arbitration Act, to usher in party
autonomy, quick disposal, and an efficacious alternative
remedy. Arbitration has been a great boon for Indian
jurisprudence, wherein numerous cases have been
methodically dealt with in an effective manner without taking
the meandering course of litigation before Courts.
16.One of the most challenging areas of Arbitration practice, both
theoretical and practical, relates to multiparty and multiclaim
proceedings. Usually, arbitration involves parties who have
explicitly entered into an arbitration agreement, or parties with
successor interests, claiming under them. In some cases, it
happens that third parties are bound by an arbitration clause
by tacit consent, etc.
17.Doctrine of group of companies is one such area which is
utilized to bind third parties to an arbitration agreement.
Theoretically, the policy consideration of efficiency is argued to
allow such joinders. However, until a legal basis for the same is
provided, efficiency cannot itself be the sole ground to bind a
party to arbitration.
9
18.Section 7 of the Arbitration Act defines an arbitration
agreement. Being a creature of contract, the realm of arbitration
is one of consent. The bare reading of the aforesaid provision
indicates that parties must reduce their intention to submit
their existing or future disputes to arbitration, in writing. The
statute does not mandate a particular form for an arbitration
agreement. The intention of the parties can be inferred from an
exchange of letters, telex, telegram, and even electronic means.
The existence of the arbitration agreement can be deduced once
it is ascertained that the parties were at ad idem either through
a contract, conduct or correspondences. (See Govind Rubber
Ltd. v. Louis Dreyfus Commodities Asia (P) Ltd ., (2015) 13
SCC 477). Therefore, the question of the extension of an
arbitration agreement to nonsignatories necessarily also
involves the question of the extension of the scope and the
effects of the jurisdiction of the arbitration tribunal over such
companies.
1
1 Pietro Ferrario, 'The Group of Companies Doctrine in International
Commercial Arbitration: Is There any Reason for this Doctrine to Exist?',
Journal of International Arbitration, (
© Kluwer Law International; Kluwer
Law International 2009, Volume 26 Issue 5) pp. 647 673
10
19.This doctrine can be clearly stated to have originated in the
Dow Chemical France, the Dow Chemical Company v.
Isover Saint Gobain, (ICC Case No. 4131). In the case of Dow
Chemicals (supra), it was the subsidiaries of Dow Chemicals
which initiated Arbitration proceedings against Isover. In that
case, Isover objected to the basis on which the subsidiaries of
Dow Chemicals chose to arbitrate, without some of them having
entered a valid arbitration agreement with Isover. The Tribunal,
while disregarding the contention of Isover, held that Dow
Chemicals Group operated as a single economic reality and
thus the nonsignatories were also bound by the arbitration
agreement. We may note that the Dow Chemicals (supra) case
related to a situation where a nonsignatory did not resist
arbitration. Rather they wished to join an arbitration already
initiated by its affiliates. The effect of this position has not been
evaluated in any precedents of this Court and needs to be
examined.
20.The first case which dealt with group of companies doctrine for
domestic arbitrations was Sukanya Holdings Pvt. Ltd. v.
Jayesh H. Pandya, (2003) 5 SCC 531. In that case, disputes
11
had arisen between multiple parties over the same transaction.
Some of the parties in the dispute were not a part of the
arbitration agreement. The appellant was claiming relief against
some of these parties who were not party to the agreement. The
Court held, under Section 8 of the Arbitration Act, that causes of
action cannot be bifurcated in an arbitration, and nonparties to
an arbitration agreement cannot be included in the same
arbitration.
21.The next important case which dealt with the group of
companies doctrine was the Chloro Control (supra) case. The
Court at the outset acknowledged that there were various
school of thoughts when it came to the doctrine in arbitration
jurisprudence. It was in this context that the Court had to
formulate an opinion to provide a best fit for the doctrine for
Indian jurisdiction under part II of the Arbitration Act. As many
foreign parties were involved, the Court had to invoke Section
45 of the Arbitration Act for appointment of an arbitrator.
Section 45 of the Arbitration Act stood as under:
“45. Power of judicial authority to refer
parties to arbitration.—Notwithstanding
anything contained in Part I or in the Code of
12
Civil Procedure, 1908 (V of 1908), a judicial
authority, when seized of an action in a matter
in respect of which the parties have made an
agreement referred to in Section 44, shall, at
the request of one of the parties or any person
claiming through or under him, refer the
parties to arbitration, unless it finds that the
said agreement is null and void, inoperative or
incapable of being performed.”
22.The Court compared Section 45 of the Arbitration Act to Article
2 of UNCITRAL Model Law and formulated the following
ingredients for a Judicial Authority to examine at a referral
stage:
“1. Does the arbitration agreement fall under
the scope of the Convention?
2. Is the arbitration agreement evidenced in
writing?
3. Does the arbitration agreement exist and is
it substantively valid?
4. Is there a dispute, does it arise out of a
defined legal relationship, whether
contractual or not, and did the parties
intend to have this particular dispute settled
by arbitration?
5. Is the arbitration agreement binding on the
parties to the dispute that is before the
court?
6. Is this dispute arbitrable?”
13
23.The Court noticed distinction in the language under Section 45
and Section 8 of the Arbitration Act in the following manner:
“69. We have already noticed that the
language of Section 45 is at a substantial
variance to the language of Section 8 in this
regard. In Section 45, the expression “any
person” clearly refers to the legislative
intent of enlarging the scope of the words
beyond “the parties” who are signatory to
the arbitration agreement. Of course, such
applicant should claim through or under
the signatory party. Once this link is
established, then the court shall refer them to
arbitration. The use of the word “shall” would
have to be given its proper meaning and
cannot be equated with the word “may”, as
liberally understood in its common parlance.
The expression “shall” in the language of
Section 45 is intended to require the court to
necessarily make a reference to arbitration, if
the conditions of this provision are satisfied.
To that extent, we find merit in the submission
that there is a greater obligation upon the
judicial authority to make such reference, than
it was in comparison to the 1940 Act. However,
the right to reference cannot be construed
strictly as an indefeasible right. One can claim
the reference only upon satisfaction of the
prerequisites stated under Sections 44 and 45
read with Schedule I of the 1996 Act. Thus, it
is a legal right which has its own contours and
is not an absolute right, free of any
obligations/limitations.
70. Normally, arbitration takes place between
the persons who have, from the outset, been
parties to both the arbitration agreement as
well as the substantive contract underlining
14
(sic underlying) that agreement. But, it does
occasionally happen that the claim is made
against or by someone who is not originally
named as a party. These may create some
difficult situations, but certainly, they are
not absolute obstructions to law/the
arbitration agreement. Arbitration, thus,
could be possible between a signatory to an
arbitration agreement and a third party. Of
course, heavy onus lies on that party to
show that, in fact and in law, it is claiming
“through” or “under” the signatory party as
contemplated under Section 45 of the 1996
Act. Just to deal with such situations
illustratively, reference can be made to the
following examples in Law and Practice of
Commercial Arbitration in England (2nd Edn.)
by Sir Michael J. Mustill:
“1. The claimant was in reality always a party
to the contract, although not named in it.
2. The claimant has succeeded by operation of
law to the rights of the named party.
3. The claimant has become a party to the
contract in substitution for the named party by
virtue of a statutory or consensual novation.
4. The original party has assigned to the
claimant either the underlying contract,
together with the agreement to arbitrate which
it incorporates, or the benefit of a claim which
has already come into existence.”
(emphasis supplied)
15
From the above it is clear that the Court was of the firm
opinion that there must be a legal relationship between the
nonsignatory and the party to the arbitration agreement.
24.While expounding on the legal relationship, the Court accepted
the group of companies doctrine as a sufficient basis to
establish this legal relationship. However, while expounding on
the ingredients of doctrine itself, the Court brought in the
intention of the parties as to whether they were adidem to
treat a nonsignatory as being a party to the arbitration
agreement. This postulation conflates a contractual
understanding of the group of companies doctrine, which has
evolved within the framework of arbitration, without alluding to
contractual principles.
25.On one hand, this Court reduced the threshold of arbitration
being a consensual affair. On the other, the doctrine of group of
companies is transposed on requirements under contract law
to bind a party to an arbitration.
26.An attempt was made by the Court to find a basis for reading
the group of companies doctrine within the language of Section
45 of the Arbitration Act in the following manner:
16
“99. Having examined both the above stated
views, we are of the considered opinion that it
will be the facts of a given case that would act
as precept to the jurisdictional forum as to
whether any of the stated principles should be
adopted or not. If in the facts of a given case, it
is not possible to construe that the person
approaching the forum is a party to the
arbitration agreement or a person claiming
through or under such party, then the case
would not fall within the ambit and scope of
the provisions of the section and it may not be
possible for the court to permit reference to
arbitration at the behest of or against such
party.
100. We have already referred to the
judgments of various courts that state that
arbitration could be possible between a
signatory to an agreement and a third
party. Of course, heavy onus lies on that
party to show that in fact and in law, it is
claiming under or through a signatory
party, as contemplated under Section 45 of
the 1996 Act.”
(emphasis supplied)
27.It is interesting to note that this Court discusses some
judgments from the United Kingdom in this regard. In Roussel
Uclaf v. G.D. Searle & Co. Limited and G. D. Searle & Co.,
[1978] F.S.R 95, the Court interpreted the term ‘claiming
through or under’ while staying a case against a company that
was neither party nor privy to an arbitration agreement. Here,
17
the nonsignatory was a fully owned subsidiary, and its parent
company was a signatory to an arbitration agreement. The
subsidiary had claimed that it had the right to sell patented
articles which it had obtained from the parent company
because the parent company had ordered the sale of the
patented articles. A stay on the litigation was granted, but the
Court concluded that the subsidiary was ‘claiming through or
under’ the parent company. This meant that if the parent
company was entitled under the license agreement to sell the
articles, then the same right flowed to the subsidiary company
as well. Although this case did not explicitly indicate the
acceptance of group of companies doctrine under the English
Law, the wordings can only be said to have left the door open to
possibility of such inclusion.
28.In any case, the Court of Appeal in the case of The Mayor and
Commonalty & Citizens of the City of London v. Ashok
Sancheti, [2008] EWCA Civ 1283 overruled the Uclaf Case
(supra). The Court pronounced that a ‘mere legal or commercial
connection is insufficient’. In essence, this restricted the phrase
‘claiming through or under’ to only those third persons who
18
assert their right on the basis of the rights of a signatory to an
arbitration agreement. It is noticed that this Court in Chloro
Control (supra), while observing both cases as persuasive,
however, does not provide reasoning to favour one
interpretation over the other, in the following manner:
“98. In RousselUclaf v. G.D. Searle & Co. Ltd.
[(1978) 1 Lloyd's Rep 225] the Court held:
“The argument does not admit of
much elaboration, but I see no
reason why these words in the Act
should be construed so narrowly as
to exclude a whollyowned
subsidiary company claiming, as
here, a right to sell patented articles
which it has obtained from and been
ordered to sell by its parent. Of
course, if the arbitration
proceedings so decide, it may
eventually turn out that the parent
company is at fault and not entitled
to sell the articles in question at all;
and, if so, the subsidiary will be
equally at fault. But, if the parent is
blameless, it seems only common
sense that the subsidiary should be
equally blameless. The two parties
and their actions are, in my
judgment, so closely related on
the facts in this case that it would
be right to hold that the
subsidiary can establish that it is
within the purview of the
arbitration clause, on the basis
19
that it is ‘claiming through or
under’ the parent to do what it is
in fact doing whether ultimately
held to be wrongful or not.”
However, the view expressed by the Court in
RousselUclaf case [(1978) 1 Lloyd's Rep 225]
does not find approval in the decision of the
Court of Appeal in City of London v. Sancheti
[2008 EWCA Civ 1283 : (2009) 1 Lloyd's Rep
117 (CA)] . In para 34, it was held that the view
in RousselUclaf [(1978) 1 Lloyd's Rep 225]
need not be followed and stay could not be
obtained against a party to an arbitration
agreement or a person claiming through or
under such a party, as mere local or
commercial connection is not sufficient. But
the Court of Appeal hastened to add that, in
cases such as the one of Mr Sancheti,
Corporation of London was not party to the
arbitration agreement, but the relevant party is
the United Kingdom Government. The fact that
in certain circumstances, the State may be
responsible under international law for the
acts of one of its local authorities, or may have
to take steps to redress wrongs committed by
one of the local authorities, does not make the
local authority a party to the arbitration
agreement.”
29.This Court ultimately concluded that Sukanya Holdings
(supra) was not applicable for interpreting Section 45 of the
Arbitration Act. The ratio of the Sukanya Holdings (supra)
was restricted to arbitrations under Part I of the Arbitration Act
as such.
20
30.It may be noted that following the ratio in Chloro Control
(supra), the 246
th
Law Commission Report recommended an
amendment to Section 2(1)(h) and 8 of the Arbitration Act to
modify the definition of ‘party’ under Part I of the Arbitration
Act, to “a party to an arbitration agreement or any person
claiming or through or under such party” to cure the anomaly
pointed out by this Court in the Chloro Control (supra) case.
The relevant observations by the 246
th
Law Commission Report
are extracted below:
“61… It would thus be incongruous and
incompatible with this “consensual” and
“agreement based” status of arbitration as a
method of dispute resolution, to hold persons
who are not “parties” to the arbitration
agreement to be bound by the same.
62.However, a party does not necessarily
mean only the “signatory” to the
arbitration agreement. In appropriate
contexts, a “party” means not just a
signatory, but also persons “claiming
through or under” such signatory – for
instance, successorsofinterest of such
parties, alterego’s of such parties etc. This
is particularly true in the case of
unincorporated entities, where the issue of
“personality” is usually a difficult legal
question and raises a host of other issues.
This principle is recognized by the New
York Convention, 1985 which in article II
(1) recognizes an agreement between parties
21
“in respect of a defined legal relationship,
whether contractual or not.”
63.The Arbitration and Conciliation Act, 1996
under section 7 borrows the definition of the
“arbitration agreement” from the corresponding
provision at article 7 of the UNCITRAL Model
Law which in turn borrows this from article II
of the New York Convention. However, the
definition of the word “party” in section 2(1)(h)
refers to a “party” to mean “a party to an
arbitration agreement.” This cannot be read
restrictively to imply a mere “signatory” to an
arbitration agreement, since there are many
situations and contexts where even a “non
signatory” can be said to be a “party” to an
arbitration agreement. This was recognized by
the Hon’ble Supreme Court in Chloro Controls
v. Severn Trent Water Purification, (2013) 1
SCC 641, where the Hon’ble Supreme Court
was dealing with the scope and interpretation
of section 45 of the Act and, in that context,
discussed the scope of the relevant doctrines
on the basis of which “nonsignatories” could
be said to be bound by the arbitration
agreement, including in cases of interrelated
contracts, group of companies doctrine etc.
64.This interpretation given by the Hon’ble
Supreme Court follows from the wording of
section 45 of the Act which recognizes the right
of a “person claiming through or under [a
party]” to apply to a judicial authority to refer
the parties to arbitration. The same language
is also to be found in section 54 of the Act.
This language is however, absent in the
corresponding provision of section 8 of the Act.
It is similarly absent in the other relevant
provisions, where the context would demand
that a party includes also a “person claiming
through or under such party”. To cure this
anomaly, the Commission proposes an
22
amendment to the definition of “party” under
section 2 (h) of the Act.”
(emphasis supplied)
We must here also state that the Law Commission did not
examine the interpretation of ‘claiming through or under’. Rather,
it simply recognized that there may be a need to extend the same
to arbitrations under Part I of the Arbitration Act.
31.Pursuant to the aforesaid recommendation, the legislature
made the following amendment to Section 8(1) of the
Arbitration Act.
SECTION 8(1) PRIOR TO ACT 3 OF 2016 SECTION 8(1) AFTER ACT 3 OF 2016
“8. Power to refer parties to
arbitration where there is an
arbitration agreement .—(1) A
judicial authority before which an
action is brought in a matter which is
the subject of an arbitration agreement
shall, if a party so applies not later
than when submitting his first
statement on the substance of the
dispute, refer the parties to
arbitration.
8. Power to refer parties to
arbitration where there is an
arbitration agreement.—(1) A
judicial authority, before which an
action is brought in a matter which
is the subject of an arbitration
agreement shall, if a party to the
arbitration agreement or any
person claiming through or
under him, so applies not later than
the date of submitting his first
statement on the substance of the
23
dispute, then, notwithstanding any
judgment, decree or order of the
Supreme Court or any court, refer
the parties to arbitration unless it
finds that prima facie no valid
arbitration agreement exists.
The 2015 Amendment brought in four amendments to Section
8(1). Firstly, the scope of the concept of “party” has been
expanded to include persons claiming “through or under”.
Secondly, the amendment also clarified the scope of judicial
interference, and that the same is to be limited only to the prima
facie examination regarding the existence of the arbitration
agreement. Thirdly, the cutoff for submitting an application
under Section 8 of the Arbitration Act has been stated to be “the
date of” submitting the first statement on the substance of the
dispute. Fourthly, the aforesaid amendment shall apply
notwithstanding prior judicial precedent. However, it may be
observed that the Parliament has not carried out any
amendment to Section 2(1)(h) of the Arbitration Act. The impact
of the absence of such an amendment needs to be clearly
examined by this Court. This has created an anomalous
situation wherein potentially a party “claiming through or
24
under” could be referred to an arbitration, but would not have
the right to seek relief under Section 9 of the Arbitration Act.
This is merely an illustrative example to indicate a potentially
anomalous result.
32.In the case of Ameet Lalchand Shah v. Rishabh
Enterprises, (2018) 15 SCC 678, this Court had to deal with a
case wherein four parties had executed four agreements for the
single purpose of commissioning a Photovoltaic Solar Plant in
Uttar Pradesh. A Division Bench of this Court treated the
contracts as interconnected. Although the parties were
different, yet the agreements were effectuated in light of a
single commercial project. Thereafter, the Court applied the
amended Section 8(1) of the Arbitration Act and extended the
arbitration to nonsignatory and opined that the dispute could
be resolved only by referring all four agreements and parties
thereon to arbitration. The Court observed therein:
“25. Parties to the agreements, namely,
Rishabh and Juwi India: (i) Equipment and
Material Supply Agreement; and ( ii)
Engineering, Installation and Commissioning
Contract and the parties to Sale and Purchase
Agreement between Rishabh and Astonfield are
one and the same as that of the parties in the
25
main agreement, namely, Equipment Lease
Agreement (1432012). All the four
agreements are interconnected. This is a case
where several parties are involved in a
single commercial project (Solar Plant at
Dongri) executed through several
agreements/contracts. In such a case, all
the parties can be covered by the
arbitration clause in the main agreement
i.e. Equipment Lease Agreement (143
2012).
26. Since all the three agreements of Rishabh
with Juwi India and Astonfield had the
purpose of commissioning the Photovoltaic
Solar Plant project at Dongri, Raksa, District
Jhansi, Uttar Pradesh, the High Court was not
right in saying that the Sale and Purchase
Agreement (532012) is the main agreement.
The High Court, in our view, erred in not
keeping in view the various clauses in all the
three agreements which make them as an
integral part of the principal agreement,
namely, Equipment Lease Agreement (143
2012) and the impugned order of the High
Court cannot be sustained.”
(emphasis supplied)
33.The interpretation of Chloro Control (supra) was further
expanded in the three Judge Bench decision of this Court in
Cheran Properties Ltd. v. Kasturi & Sons Ltd., (2018) 16
SCC 413. In that case, this Court interpreted Section 35 of the
Arbitration Act to enforce an Award against a nonsignatory,
even though it did not participate in the proceedings.
26
34.This court in the case, Reckitt Benckiser (India) (P) Ltd. v.
Reynders Label Printing (India) (P) Ltd., (2019) 7 SCC 62,
wherein the twoJudge Bench of this Court refused to apply the
“group of companies” doctrine as the applicant failed to prove
the commonality of intention of the Respondents to be bound
by the arbitration agreement:
“4. Keeping in mind the exposition in Chloro
Controls... In other words, whether the
indisputable circumstances go to show that
the mutual intention of the parties was to
bind both the signatory as well as the non
signatory parties, namely, Respondent 1
and Respondent 2, respectively, qua the
existence of an arbitration agreement
between the applicant and the said
respondents.
…
…
12.Thus, Respondent 2 was neither the
signatory to the arbitration agreement nor
did have any causal connection with the
process of negotiations preceding the
agreement or the execution thereof,
whatsoever. If the main plank of the
applicant, that Mr Frederik Reynders was
acting for and on behalf of Respondent 2 and
had the authority of Respondent 2, collapses,
then it must necessarily follow that
Respondent 2 was not a party to the stated
agreement nor had it given assent to the
arbitration agreement and, in absence thereof,
27
even if Respondent 2 happens to be a
constituent of the group of companies of
which Respondent 1 is also a constituent, that
will be of no avail. For, the burden is on the
applicant to establish that Respondent 2
had an intention to consent to the
arbitration agreement and be party
thereto, maybe for the limited purpose of
enforcing the indemnity Clause 9 in the
agreement, which refers to Respondent 1
and the supplier group against any claim of
loss, damages and expenses, howsoever
incurred or suffered by the applicant and
arising out of or in connection with
matters specified therein. That burden has
not been discharged by the applicant at all.
On this finding, it must necessarily follow that
Respondent 2 cannot be subjected to the
proposed arbitration proceedings. Considering
the averments in the application under
consideration, it is not necessary for us to
enquire into the fact as to which other
constituent of the group of companies, of
which the respondents form a part, had
participated in the negotiation process.”
(emphasis supplied)
35.In the Division Bench decision of this Court in Mahanagar
Telephone Nigam Ltd. v. Canara Bank, (2020) 12 SCC 767,
it was observed that the group of companies doctrine can be
utilized to bind a third party to an arbitration, if a tight
corporate group structure constituting a single economic reality
existed. The Court held as under:
28
“10.6. The circumstances in which the “group
of companies” doctrine could be invoked to
bind the nonsignatory affiliate of a parent
company, or inclusion of a third party to an
arbitration, if there is a direct relationship
between the party which is a signatory to the
arbitration agreement; direct commonality of
the subjectmatter; the composite nature of the
transaction between the parties. A “composite
transaction” refers to a transaction which is
interlinked in nature; or, where the
performance of the agreement may not be
feasible without the aid, execution, and
performance of the supplementary or the
ancillary agreement, for achieving the common
object, and collectively having a bearing on the
dispute.
10.7. The group of companies doctrine has
also been invoked in cases where there is a
tight group structure with strong
organisational and financial links, so as to
constitute a single economic unit, or a
single economic reality. In such a situation,
signatory and nonsignatories have been
bound together under the arbitration
agreement. This will apply in particular
when the funds of one company are used to
financially support or restructure other
members of the group. [ ICC Case No. 4131 of
1982, ICC Case No. 5103 of 1988.]”
(emphasis supplied)
We may notice that these cases have been decided by this
Court, without referring to the ambit of the phrase ‘claiming
through or under’ as occurring under Section 8 of the
Arbitration Act.
29
36.The ratio of the Chloro Control (supra) case alludes to the
subjective intention of parties to be bound by arbitration
agreement when the parties have clearly not been signatory to
the agreement. Reconciling the two is difficult and requires
exposition by this Court.
37.It may be noted that the doctrine, as expounded, requires the
joining of nonsignatories as ‘parties in their own right’. This
joinder is not premised on nonsignatories ‘claiming through or
under’. Such a joinder has the effect of obliterating the
commercial reality, and the benefits of keeping subsidiary
companies distinct. Concepts like single economic entity are
economic concepts difficult to be enforced as principles of law.
38.The areas which were left open by this Court in Chloro
Control (supra) case has created certain broadbased
understanding of this doctrine which may not be suitable and
would clearly go against distinct legal identities of companies
and party autonomy itself. The aforesaid exposition in the
above case clearly indicates an understanding of the doctrine
which cannot be sustainable in a jurisdiction which respects
party autonomy. There is a clear need for having a relook at
30
the doctrinal ingredients concerning the group of companies
doctrine.
39.Internationally, the group of companies doctrine has been
accepted in varying degrees. Swiss Courts usually do not
recognize such a doctrine under their Switzerland de lege lata.
2
One English Court has observed as under:
“Mr. Hoffmann suggested beguilingly that it
would be technical for us to distinguish
between parent and subsidiary company in
this context; economically, he said, they were
one. But we are concerned not with
economics but with law. The distinction
between the two is, in law, fundamental and
cannot here be bridged.”
3
(emphasis supplied)
40.Similarly, in the case of Peterson Farms Inc. v. C & M
Farming Ltd.,
4
an arbitral award was challenged wherein the
claimant received damages on its behalf as well as on behalf of
its group entities before the Queen's Bench Division
(Commercial Court). The Court partly set aside the award and
stated that the group of companies doctrine does not form a
part of English law. It further stated that a corporate structure
2 Award in Geneva Chamber of Commerce Case of 24 March 2000, 21 ASA
Bull. 781 (2003).
3 Bank of Tokyo v. Karoon, [1987] AC 45
4 [2004] EWHC 121 (Comm)
31
exists to create separate legal entities, and a general agency
relationship would defeat this purpose. The Court held therein:
“65. In commercial terms the creation of a
corporate structure is by definition designed to
create separate legal entities for entirely
legitimate purposes which would often if not
usually be defeated by any general agency
relationship between them…”
41.The High Court of Australia, in the case of Tanning Research
Laboratories Inc v. O'Brien, (1990) 169 CLR 332 interpreted
the phrase “claiming through and under” in the following
manner:
“…A person who claims through or under a
party may be either a person seeking to
enforce or a person seeking to resist the
enforcement of an alleged contractual right.
The subject of the claim may be either a cause
of action or a ground of defence. Next, the
prepositions ‘through’ and ‘under’ convey
the notion of a derivative cause of action or
ground of defence, that is to say, a cause of
action or ground of defence derived from
the party. In other words, an essential
element of the cause of action or defence
must be or must have been vested in or
exercisable by the party before the person
claiming through or under the party can
rely on the cause of action or ground of
defence…”
(emphasis supplied)
32
In the aforesaid case, a company and its creditor had entered a
contract having an arbitration clause. Subsequently, litigation
ensued, and a question arose as to whether the liquidator of
the company could rely on the arbitration clause. The Court
held that a liquidator may be a person who can claim through
or under the company because the grounds of defence and the
causes of action he depends on are vested in the company or
are exercisable by the company. This meant that an essential
element of a cause of action or defence must be, or have been,
vested or exercisable by the original party before the person
claiming through or under the said party can rely on the same.
42.Viewed from a different angle, this Court in the case of Vidya
Drolia v. Durga Trading Corporation , (2021) 2 SCC 1 noted
that ambit of judicial interference under Section 8 and Section
11 of the Arbitration Act is similar. The relevant observations of
this Court in the aforesaid case in relation to the power under
Section 8 and Section 11 is as follows:
239. Moreover, the amendment to Section 8
now rectifies the shortcomings pointed out
in Chloro Controls case [Chloro Controls (India)
(P) Ltd. v. Severn Trent Water Purification Inc.,
(2013) 1 SCC 641 : (2013) 1 SCC (Civ) 689]
33
with respect to domestic arbitration.
Jurisdictional issues concerning whether
certain parties are bound by a particular
arbitration, under groupcompany doctrine
or good faith, etc., in a multiparty
arbitration raises complicated factual
questions, which are best left for the
tribunal to handle. The amendment to
Section 8 on this front also indicates the
legislative intention to further reduce the
judicial interference at the stage of
reference.
240. Courts, while analysing a case under
Section 8, may choose to identify the issues
which require adjudication pertaining to the
validity of the arbitration agreement. If the
court cannot rule on the invalidity of the
arbitration agreement on a prima facie basis,
then the court should stop any further
analysis and simply refer all the issues to
arbitration to be settled.
…
242. We are cognizant of the fact that the
statutory language of Sections 8 and 11 are
different, however materially they do not
vary and both sections provide for limited
judicial interference at reference stage, as
enunciated above.
…
244.1. Sections 8 and 11 of the Act have the
same ambit with respect to judicial
interference.
…
244.3. The court, under Sections 8 and 11,
has to refer a matter to arbitration or to
34
appoint an arbitrator, as the case may be,
unless a party has established a prima facie
(summary findings) case of nonexistence of
valid arbitration agreement, by summarily
portraying a strong case that he is entitled
to such a finding.”
(emphasis supplied)
43.In the aforesaid case of Vidya Drolia (supra), this Court
primarily delineated the threshold standard of reference to
arbitration. The aforesaid case predominantly laid down that
when an application is made under Section 11 of the
Arbitration Act, considering the scope of judicial intervention,
the Courts are only required to look into the prima existence of
an arbitration agreement.
44.The aforesaid case predominantly dealt with the scope of
judicial interference at the referral stage. However, this Court
did not have an occasion to explore the jurisprudential basis of
group of companies doctrine and required ingredients to refer a
“nonsignatory” to arbitration. Especially, the scope of judicial
reference at the stage of Sections 8 and 11 of the Arbitration
Act, needs to be relooked considering the ambit of unamended
Section 2(1)(h) of the Arbitration Act.
35
45.An arbitration agreement may be binding on parties, whether
signatories or nonsignatories, provided there is sufficient legal
basis to bind them. Most legal bases for binding non
signatories to an arbitration agreement are of contractual
origin, like agency, etc. Jurisprudence has shown that
arbitration being a creature of contract, does not sit very well in
binding nonsignatories. Expounding on the same, Professor
William Park, in one of his key works, captures the dilemma
while attaching a nonsignatory to the arbitral process
5
as
under:
“For arbitrators, motions to join non
signatories create a tension between two
principles: maintaining arbitration’s
consensual nature, and maximizing an award’s
practical effectiveness by binding related
persons. Pushed to the limit of
their logic, each goal points in an opposite
direction. Resolving the tension usually
implicates the two doctrines discussed below:
implied consent and disregard of corporate
personality…
The term “nonsignatory” remains useful
for what might be called “lessthanobvious”
parties to an arbitration clause: individuals
and entities that never put pen to paper,
5 William W. Park, NonSignatories and International Contracts: An
Arbitrator’s Dilemma, in Multiple Parties in International Arbitration
(Oxford University Press) (2009).
36
but still should be part of the arbitration
under the circumstances of the relevant
business relationship. The label does little
harm if invoked merely for ease of expression,
to designate someone whose right or obligation
to arbitrate may be real but not selfevident...
Most significantly, the fact that a “non
signatory” might be bound to arbitrate does
not dispense with the need for an
arbitration agreement. Rather, it means
only that the agreement takes its binding
force through some circumstance other
than the formality of signature.”
(emphasis supplied)
46.It is evident from the discussion above that the group of
companies doctrine must be applied with caution and mere fact
that a nonsignatory is a member of a group of affiliated
companies will not be sufficient to claim extension of the
arbitration agreement to the nonsignatory. In this context Gary
Born
6
notes as under:
“GROUP OF COMPANIES” DOCTRINE
Another significant, but controversial, basis
for binding nonsignatories to an arbitration
agreement is the “group of companies”
doctrine. Under this principle, nonsignatories
of a contract may be deemed parties to the
associates arbitration clause based on factors
which are often roughly comparable to those
relevant to an alter ego analysis. In particular,
where a company is a part of a corporate
group, is subject to the control of (or controls)
a corporation affiliate that has executed a
6 Gary B.Born’s, International Commercial Arbitration, 3
rd
Edition, Volume I, Page 1558
1559
37
contract and is involved in the negotiation or
performance of that contract, then that
company may in some circumstances invoke
or be subject to an arbitration clause
contained in that contract, notwithstanding
the fact that it has not executed the contract
itself.
Unlike other bases for binding a non
signatory to an arbitration agreement (such as
agency, alter ego, estoppel, third party
beneficiary, or assignment), the group of
companies doctrine was developed specifically
in the arbitration context and is not typically
invoked outside that context. At least thus far,
the group of companies doctrine has also been
explicitly accepted sin only a limited number
of jurisdictions (in particular, as discussed
below, France). In part for that reason, the
doctrine has given rise to substantial
controversy.
Gary B Born also refers (in footnotes 222 and 223) to the fact
that only a small number of jurisdictions France and India,
appear to have applied the group of companies doctrine in the
context of International Arbitration and to the prevalent
criticism of the group of companies doctrine.
47.In view of the aforesaid discussion, we feel it appropriate to
refer the aspect of interpretation of ‘claiming through or under’
as occurring in amended Section 8 of the Arbitration Act qua
the doctrine of group of companies to a larger Bench to provide
clarity on this aspect. The law laid down in Chloro Control
38
(supra) and the cases following it, appear to have been based,
more on economics and convenience rather than law. This may
not be a correct approach. The Bench doubts the correctness of
the law laid down in Chloro Control (supra) and cases
following it.
48.On a different note, we are cognizant that reference to a larger
Bench should not be made in a casual and cavalier manner.
However, we see that the questions raised herein are
fundamental to the arbitration practice in India and have large
scale repercussions.
49. It is in this context that we deem it appropriate to refer the
matter to a larger Bench as the threshold laid down by Shah
Faesal v. Union of India, (2020) 4 SCC 1 stands adequately
satisfied.
50.In view of the aforesaid discussion, we deem it appropriate to
refer this matter to a larger Bench to expound on the
intricacies of the Group of Companies doctrine and answer the
following questions:
39
a. Whether phrase ‘claiming through or under’ in Sections
8 and 11 could be interpreted to include ‘Group of
Companies’ doctrine?
b. Whether the ‘Group of companies’ doctrine as expounded
by Chloro Control Case (supra) and subsequent
judgments are valid in law?
............................CJI.
(N. V. RAMANA)
.........…………….......J.
(A.S. BOPANNA)
NEW DELHI;
MAY 06, 2022.
40
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
ARBITRATION PETITION NO. 38 of 2020
Cox and Kings Ltd. ..... Appellant
VERSUS
SAP India Pvt. Ltd. & Anr. ..... Respondents
JUDGEMENT
Surya Kant, J:
1.I have had the advantage of going through a scholarly and self
speaking order prepared by Hon’ble the Chief Justice, doubting the
correctness of a three judge bench judgment of this Court in Chloro
Controls India (P) Ltd. v. Severn Trent Water Purification Inc.&
Anr
1
and formulating the questions of law to be determined by a larger
bench. While at the outset, I concur that the contours of the Group of
Companies Doctrine need to be settled by a larger bench, my thoughts
are oriented in favour of the Doctrine as an integral part of Indian
arbitral jurisprudence for the reasons assigned below.
2.The question which has fallen for consideration in this case is
whether the parent company of Respondent No. 1, namely Respondent
1
2013 1 SCC 641.
Page | 1
No. 2, should be joined to this arbitration petition regardless of the
fact that the Petitioner had entered into an SATSoftware End User
License Agreement and SAPEnterprise Support Schedule with only
the subsidiary. Petitioner sought greenfield solutions for its E
Commerce problems, for which Respondent No. 1 provided its Hybris
solution system. Overtime, disputes arose between the parties. During
this phase, the Petitioner had requested Respondent No. 2 to mediate
between the parties. However, the disputes could not be resolved.
Consequently, the Petitioner initiated arbitration proceedings and has
sought to bind Respondent No. 2 to the proceedings even though the
said Respondent is not a signatory to the arbitration agreement.
3.On the issue of whether Respondent No. 2 may be roped into the
arbitration pending between the Petitioner and Respondent No. 1,
Hon’ble the Chief Justice has noted that the basis under Indian law
for joining nonsignatories to arbitral proceedings has been the Group
of Companies Doctrine. While discussing the holdings in Chloro
Controls and Cheran Properties Ltd. v. Kasturi and Sons Ltd. &
Ors
2
, Hon’ble the Chief Justice felt it necessary to revisit certain
aspects of these decisions and determine whether the manner in
which they have invoked the Group of Companies Doctrine within
Indian jurisprudence is consistent and sound.
2
2018 16 SCC 413.
Page | 2
4.Hon’ble the Chief Justice has very eruditely analysed the
sustainability of the Group of Companies Doctrine and inter alia
pointed out that
i)The application of the Group of Companies Doctrine in Chloro
Controls relies upon the intent of the parties to include a non
signatory to the arbitral proceedings. However, the Court in that
decision failed to adhere to contractual principles on the basis of
which such intent is interpreted;
ii)Joinder of nonsignatories based on the notion of “single
economic unit” ignores commercial reality and the importance of
treating different parties within the same group of companies as
separate legal entities;
iii)Following Chloro Controls there has been an expansion of the
Group of Companies Doctrine. A broad interpretation of the Doctrine
is at odds with the principle of party autonomy;
iv)The line of judgments by this Court, beginning with Chloro
Controls, seem to be premised more on convenience and economic
efficiency in resolution of disputes rather than a consistent and clear
legal doctrine which respects party autonomy and intent;
v)The phrase “claiming through or under” as provided in Section
8 of the Arbitration and Conciliation Act, 1996 (hereinafter, “the Act”),
as amended via the Arbitration Amendment Act, 2016, may not be a
legitimate basis for reading the Group of Companies Doctrine into
Indian law.
A.Origin of the Group of Companies Doctrine
Page | 3
5.The Group of Companies Doctrine has generally been invoked by
courts and tribunals in arbitrations to either ‘extend’ the arbitration
agreement or ‘bind’ a nonsignatory affiliate of the contracting party to
the arbitration clause. As the name suggests, where an arbitration
agreement is entered into by one of the companies in a group, the
other members of the group may be bound by the arbitration
agreement if the facts and circumstances, including the conduct of the
parties, indicate that the true intention of parties was to bind the
signatories as well as the nonsignatories.
6.The Group of Companies Doctrine was first espoused explicitly
by an arbitral tribunal in the case of Dow Chemicals v. Isover Saint
Gobain
3
. The International Chamber of Commerce (hereinafter “ICC”)
Tribunal opined that the scope and effect of the arbitration agreement
should be determined on the basis of the “common intent of the
parties” as ascertainable from the circumstances related to
‘conclusion, performance, and termination, of the contract’. The
Tribunal therein determined that the Dow Chemical Group had not
attached any significance to which of them performed the distribution
agreements with Saint Gobain and the common intent of all the
parties was that they would be playing a role in performance of the
contract. The Tribunal further held that the companies within the Dow
Chemical group had acted as a single ‘economic reality’ or unit and
3
Rev Arb 137 1984; 110 JDI 899 (1983).
Page | 4
that the nonsignatories to the distribution agreements with Saint
Gobain would be bound to the arbitration agreement, regardless of
whether they had performed the contract.
7.The Tribunal in Dow Chemicals laid down the elements
required to attract the Group of Companies Doctrines, which read as
follows:
“…irrespective of the distinct juridical identity of each of its
members, a group of companies constitutes one and the
same economic reality of which the Arbitral tribunal
should take account when it rules on its own
jurisdiction...”
xxx
Considering that the tribunal shall, accordingly, determine the
scope and effects of the arbitration clauses in question, and
thereby reach its decision regarding jurisdiction, by reference to
the common intent of the parties to these proceedings, such as
it appears from the circumstances that surround the conclusion
and characterize the performance and later the termination of
the contracts in which they appear.….
xxx
Considering, in particular, that the arbitration clause
expressly accepted by certain of the companies of the
group should bind the other companies which, by virtue
of their role in the conclusion, performance, or
termination of the contracts containing said clauses,
and in accordance with the mutual intention of all
parties to the proceedings, appear to have been veritable
parties to these contracts or to have been principally
concerned by them and the disputes to which they may
give rise.”
(Emphasis Supplied)
Page | 5
B.Group of Companies Doctrine in Foreign Jurisdictions
8.It is important to recount the evolution of the Group of
Companies Doctrine in France and other jurisdictions in order to
understand some visible anomalies that have emerged in the Indian
context.
9.The practice by Courts and tribunals in terms of usage of the
Group of Companies Doctrine has gravitated toward being a fact
intensive exercise. In this context, what has emerged even in France
where the Doctrine originated is that the existence of a group of
companies is not the sole sufficient condition for the joinder of a non
signatory to arbitration proceedings. The Tribunal in ICC Case Nos.
7604 & 7610
4
had summed up the steps in the application of the
doctrine and held:
“…Although the existence of a group is the first
condition for joining a third party to the arbitration
proceedings, it is also necessary to determine the
parties’ actual intention at the time of the facts or, at
the very least the intention of the nonsignatory third
party.”
10.The Final Award in ICC Case No. 10758
5
elaborated as follows,
“The extension of an arbitration agreement to a non
signatory is not a mere question of corporate structure
or control, but rather one of the nonsignatory’s
participation in the negotiations, conclusion or
4
ICC award in Cases No. 7604 and 7610 of 1995, 125 J Droit Int’l 1027 (1998) and 4 ICC Awards 510.
5
ICC award in Case No. 10758 of 2000, 6 ICC Ct Bull 87 (No. 2, 2005), 5 ICC Awards 537, JDI
2001, 1171.
Page | 6
performance of the contract, or its conduct towards the
other party that the Arbitral Tribunal can infer.”
11.Bernard Hanotiau, arguably France’s leading scholar on
international arbitration, while referring to French jurisprudence since
Dow Chemicals, has opined that,
“The existence of a group of companies gives a
special dimension to the issue of conduct or consent.
As several authors have pointed out, when there is a
group of companies, one may presume that the
parent company binds its subsidiaries; but on the
other hand, only the companies that have been
substantially involved in the negotiation and
performance of the agreement containing the
arbitration clause will be considered parties to the
latter. The case law is not always entirely clear in this
respect. In most cases, it seems that only a substantial
involvement is considered sufficient to constitute consent
or ratification. Some cases, however, suggest that a
party’s conduct should not necessarily be regarded as an
expression of a party’s implied consent; rather a party’s
substantial involvement in the negotiation and
performance of the contract and the knowledge of the
existence of the arbitration clause have a standing of their
own, as a substitute for consent”
6
(Emphasis Supplied)
6
Bernard Hanotiau, ‘Who Are the Parties to the Contract(s) or to the Arbitration Clause(s) Contained Therein?
The Theories Applied by Courts and Arbitral Tribunals’ in Bernard Hanotiau (eds), Complex Arbitrations:
Multi-party, Multicontract, Multi-issue – A comparative Study (Kluwer Law International 2020).
Page | 7
12.Thus, the relevance of the Group of Companies Doctrine in its
jurisdiction of origin is that of being a special lens through which the
parties’ intentions are interpreted. The existence of a close group
structure would be only one of the considerations when determining
the implied consent of a third party to arbitrate.
13.Subsequent French court decisions have taken a similar stance.
In Lakovoglou Prodomos and Co. v. SAS Amplitude
7
, the Cour de
Cassation reiterated the requirement of involvement of the third party
in the performance of the main agreement in order it to be bound by
the arbitration agreement contained therein. Simply the existence of a
closely knit group of companies would be insufficient. In Societe
Alcatel Business Systems v. Societe Akmor Technology
8
as well,
the Cour de Cassation noted that arbitral proceedings may bind non
signatories involved in the substantive dispute itself.
14.In yet another ICC Award
9
, the Tribunal held,“…There is no
general rule, in French international arbitration law, that would
provide that nonsignatory parties members of a same group of
companies would be bound by an arbitration clause, whether
always or in determined circumstances .”
15.The reception to the Group of Companies Doctrine in other
jurisdictions has been mixed. The Swiss Federal Tribunal rejected the
Group of Companies Doctrine
10
but has accepted that a third party
7
Cour de Cas, 1st Civ Ch, 27 Mar 2007, no 04-20842, JCP E 2007, 2018.
8
Cour de Cas, 1st Civ Ch, 7 Nov. 2012, No. 11-25.891, JCP 2012, I, 1354 No 5.
9
ICC Case No 11405, Interim award of 29 Nov 2001, Unpublished (Sole Arbitrator, Paris).
10
Judgment of 29 January 1996, 14 ASA Bull 496 (Swiss Fed Trib) (1996); Jean Francois Poudret, ‘The
Page | 8
may ‘implicitly’ consent to be bound to arbitration in certain
circumstances. In general, the involvement of the nonsignatory in the
performance of the contract will be interpreted as intent to be bound
to the arbitration agreement.
11
However, this requires an active
involvement which shows clear and unambiguous intent, thus setting
a high threshold for a third party to be joined.
12
16.The Swiss sentiment vis
àvis
the Group of Companies Doctrine
is mirrored by British jurisprudence where there has been an
unequivocal rejection of the Doctrine.
13
Further, the expression
“claiming under or through” in Sec. 82(2) of the English Arbitration
Act, 1996, which is similar to Sec. 8 of the amended Indian Act, 1996,
has been interpreted to refer to instances that are unrelated to the
Group of Companies Doctrine. British Courts have deemed it to mean
inter alia assignees
14
, subrogated insurer
15
, novatees
16
, and
successors
17
.
17.American Courts usually do not refer to the Group of Companies
Doctrine and rely primarily on aspects of American Contract Law and
Agency Law.
18
Company law principles such as alter ego and piercing
the veil are additionally invoked by American Courts though the
Extension of the Arbitration Clause: French and Swiss Approaches’ 122 JDI (Clunet) 893 (1995).
11
Judgment of 19 August 2008, DFT 4A_128/2008 (Swiss Fed Trib) (2008).
12
Gabrielle Kaufmann-Kohler & A Rigozzi, International Arbitration: Law and Practice in Switzerland (OUP
2015).
13
Peterson Farms Inc v C&M Farming Ltd [2004] EWHC 121.
14
Through Transport Mutual Insurance Association (Euasia) Ltd v New India Assurance Co. Ltd [2005] EWHC
455 Moore-Bick J.
15
Starlight Shipping Co. and Anor v Tai Ping Insurance Co Ltd, Hubei Branch and Anor, [2007] EWHC 1893.
16
Charles M Willie & Co (Shipping) Ltd v Ocean Laser Shipping Ltd (The Smaro) [1998] EWHC 1206.
17
Hanotiau (n 6).
18
Gary Born, ‘Parties to International Arbitration Agreements, International Commercial Arbitration’ in Gary
Born (eds) International Commercial Arbitration (Kluwer Law International 2021).
Page | 9
threshold for their application remains relatively high.
19
American
Courts have sometimes reached conclusions through reasoning that
resembles the Group of Companies Doctrine but which are actually
based on the principle of equitable estoppel.
20
18.The common theme among all these jurisdictions is that each of
them has negotiated a compromise with the formalistic requirement of
explicit assent through a signed contract. In other words, these
jurisdictions have moved away from this need for explicit consent in
each and every instance and have instead attempted to identify
constructive consent via examination of the actions of the parties
when the circumstances of the case require it. In some instances,
these jurisdictions have even applied standards that are not based
upon consent at all such as equitable estoppel and piercing the veil.
C.Evolution of the Group of Companies Doctrine in India
19.Indian arbitral jurisprudence with respect to binding a non
signatory to an arbitration agreement has seen considerable
transformation. In Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya
& Anr
21
certain disputes had arisen between multiple parties relating
to the same transaction, however, not all parties were signatories to
the agreement containing the arbitration clause. The Court therein,
relying upon the unamended Section 8 of the Act, held that it would
19
Hicks v. Bank of Am, NA, 218 F App’x 739, 746 (2007); Bridas SAPIC v. Turkmenistan, 447 F 3d 411, 416-
20 (2006).
20
Astra Oil Co v Rover Navigation, Ltd, 344 F 3d 276, 277 (2003); Choctaw Generation LP v. Am Home Assur
Co, 271 F 3d 403, 406-07 (2001).
21
2003 5 SCC 531.
Page | 10
not be possible to refer the nonsignatories to arbitration. Thereafter,
in Indowind Energy Ltd. v. Wescare (I) Ltd.& Anr
22
this Court
interfered with an order of the Madras High Court which had allowed
the application under Section 11 of the Act and joined Indowind to
proceedings even though Indowind was not a signatory to the
agreement. This Court, while allowing the appeal, held:
“18. The very fact that the parties carefully avoided making
Indowind a party and the fact that the Director of Subuthi though a
Director of Indowind, was careful not to sign the agreement as on
behalf of Indowind, shows that the parties did not intend that
Indowind should be a party to the agreement. Therefore the mere
fact that Subuthi described Indowind as its nominee or as a
company promoted by it or that the agreement was purportedly
entered by Subuthi on behalf of Indowind, will not make Indowind a
party in the absence of a ratification, approval, adoption or
confirmation of the agreement dated 2422006 by Indowind.”
20.With utmost respect, it appears that the Court in Indowind
adopted a rigid and restrictive understanding of the Act. In order to
hold that a third party cannot be subjected to the arbitration
proceedings, the two judge bench placed an undue emphasis on the
issue of formal consent. However, as noticed earlier, several
jurisdictions have recognized that formal consent to an arbitration
agreement is not a sine qua non to adduce the intention of a third
party to be bound to an arbitration agreement. In fact, certain
22
2010 5 SCC 306.
Page | 11
principles by which Courts across jurisdictions join nonsignatories to
arbitration do not depend upon intent of the parties at all.
21.The principle laid down in Indowind was then followed in S.N.
Prasad v. Monnet Finance & Ors
23
as well. Eventually, this position
of law regarding the joinder of nonsignatories was radically
transformed after the decision of this Court in Chloro Controls,
whereby, the Group of Companies Doctrine was introduced into Indian
jurisprudence. In that case, there was a Shareholders Agreement
between an Indian party and a foreign entity. The Shareholders
Agreement was the principal or the ‘parent’ agreement with English
law governing the transaction and the seat of arbitration as London.
Beyond the Shareholders Agreement, there were various other inter
linked agreements but not all these agreements had the same parties.
These other agreements, however, were part of a ‘composite
transaction’ and all arose out of the mother agreement. The question
before the Court was whether all these parties could be referred to a
single and composite arbitral tribunal. Noting earlier precedents, this
Court stated that while Sukanya Holdings was decided under the
ambit of Section 8 of the Act, this case fell within the purview of
Section 45 of the Act which had a much wider scope. Relying upon the
expression “person claiming through or under ” in Section 45, this
Court ruled that it had the power to refer parties in a multiparty
23
2011 1 SCC 320.
Page | 12
agreement to Arbitration while invoking the Group of Companies
Doctrine. It was further elucidated:
“69. We have already noticed that the language of
Section 45 is at a substantial variance to the language
of Section 8 in this regard. In Section 45, the expression
“any person” clearly refers to the legislative intent of
enlarging the scope of the words beyond “the parties”
who are signatory to the arbitration agreement. Of
course, such applicant should claim through or under
the signatory party. Once this link is established, then
the court shall refer them to arbitration. The use of the
word “shall” would have to be given its proper meaning
and cannot be equated with the word “may”, as liberally
understood in its common parlance. The expression
“shall” in the language of Section 45 is intended to
require the court to necessarily make a reference to
arbitration, if the conditions of this provision are
satisfied. To that extent, we find merit in the submission
that there is a greater obligation upon the judicial
authority to make such reference, than it was in
comparison to the 1940 Act. However, the right to
reference cannot be construed strictly as an indefeasible
right. One can claim the reference only upon satisfaction
of the prerequisites stated under Sections 44 and 45
read with Schedule I of the 1996 Act. Thus, it is a legal
right which has its own contours and is not an absolute
right, free of any obligations/limitations.
xxx
72….In other words, ‘intention of the parties’ is a very
significant feature which must be established before the
Page | 13
scope of arbitration can be said to include the signatory
as well as the nonsignatory party.
73. A nonsignatory or third party could be subjected to
arbitration without their prior consent, but this would
only be in exceptional cases. The court will examine
these exceptions from the touchstone of direct
relationship to the party signatory to the arbitration
agreement, direct commonality of the subjectmatter and
the agreement between the parties being a composite
transaction. The transaction should be of a composite
nature where performance of the mother agreement may
not be feasible without aid, execution and performance
of the supplementary or ancillary agreements, for
achieving the common object and collectively having
bearing on the dispute. Besides all this, the court would
have to examine whether a composite reference of such
parties would serve the ends of justice. Once this
exercise is completed and the court answers the same in
the affirmative, the reference of even nonsignatory
parties would fall within the exception aforediscussed .”
(Emphasis Supplied)
22.To give legislative effect to the decision in Chloro Controls, the
Law Commission in its 246
th
Report made the following
recommendation:
“64.This interpretation given by the Hon’ble Supreme Court
follows from the wording of section 45 of the Act which recognizes
the right of a “person claiming through or under [a party]” to apply
to a judicial authority to refer the parties to arbitration. The same
language is also to be found in section 54 of the Act. This language
Page | 14
is however, absent in the corresponding provision of section 8 of
the Act. It is similarly absent in the other relevant provisions,
where the context would demand that a party includes also a
“person claiming through or under such party”. To cure this
anomaly, the Commission proposes an amendment to the
definition of “party” under section 2 (h) of the Act.”
24
23.The Legislature in its wisdom did not amend the definition of
Section 2(1)(h) of the Act but Section 8 of the Act was amended
through Act 3 of 2016, which now reads as follows:
“(1). A judicial authority, before which an action is brought in a
matter which is the subject of an arbitration agreement shall, if a
party to the arbitration agreement or any person claiming
through or under him, so applies not later than the date of
submitting his first statement on the substance of the dispute,
then, notwithstanding any judgment, decree or order of the
Supreme Court or any court, refer the parties to arbitration unless
it finds that prima facie no valid arbitration agreement exists.”
(Emphasis Supplied)
24.Following the post amendment provision(s), the Group of
Companies Doctrine in the Indian Context was further expanded by a
three judge bench of this Court in Cheran Properties Ltd. This Court
invoked the Group of Companies Doctrine and laid down that even
though Cheran was not a party to the arbitration agreement and had
not appeared before the Tribunal, the arbitral award could be enforced
against it as Cheran was a ‘party claiming under’ one of the
signatories to the agreement. Speaking on the importance of this
doctrine in modern commercial transactions, the Court held that, “The
24
Law Commission of India, Amendments to the Arbitration and Conciliation Act 1996 ¶ 64.
Page | 15
effort is to find the true essence of the business arrangement and to
unravel from a layered structure of commercial arrangements, an
intent to bind someone who is not formally a signatory but has
assumed the obligation to be bound by the actions of a signatory .”
25.In Reckitt Benckiser (India) (P) Ltd. v. Reynders Label
Printing (India) (P) Ltd & Anr
25
, while acknowledging the Group of
Companies Doctrine, this Court refused to allow the joinder of a non
signatory as it could not be proved that the nonsignatory company
had negotiated the contract on behalf of the signatory.
26.A two judge bench of this Court in Mahanagar Telephone
Nigam Limited v. Canara Bank & Ors
26
, was concerned with the
joinder of CANFINA, which was a nonsignatory to the agreement but a
wholly owned subsidiary of Canara Bank. Upon considering the nature
of transaction involved and the conduct of the parties, the Court held
that this was a case of “tacit or implied consent” and accordingly it
was necessary to join CANFINA to the arbitral proceedings. The Court
stated the principles governing the group of companies doctrine to be
as follows:
“10.7. The group of companies doctrine has also been
invoked in cases where there is a tight group structure
with strong organisational and financial links, so as to
constitute a single economic unit, or a single economic
reality. In such a situation, signatory and nonsignatories
have been bound together under the arbitration
25
2019 7 SCC 62.
26
2020 12 SC 767.
Page | 16
agreement. This will apply in particular when the funds of
one company are used to financially support or restructure
other members of the group. [ICC Case No. 4131 of 1982,
ICC Case No. 5103 of 1988.]”
27.A three judge bench of this Court (in which I was a member), has
in a very recent decision dated 27.04.2022 in Oil and Natural Gas
Corporation Ltd. v. M/s Discovery Enterprises Pvt. Ltd. & Anr
27
,
reiterated the deep rooted existence of the Doctrine in the Indian
context. The Court held that the following factors may be considered
when deciding whether a nonsignatory company within a group of
companies would be bound by the arbitration agreement:
“i) The mutual intent of the parties;
(ii) The relationship of a nonsignatory to a party
which is a signatory to the agreement;
(iii) The commonality of the subject matter;
iv) The composite nature of the transaction; and
(v) The performance of the contract.”
(Emphasis Supplied)
D.Current State of the Group of Companies Doctrine
28.At the outset, it must be candidly acknowledged that certain
inconsistencies do exist in terms of the judgments of this Court
regarding the underlying basis for the Group of Companies Doctrine.
For instance, in Chloro Controls, the Court seemed to adopt
27
Civil Appeal No 2042 of 2022.
Page | 17
contradictory positions in terms of when a third party may be bound to
the arbitration agreement. On the one hand, the Court emphasized on
the intention of the parties to include the nonsignatory party, but on
other, it went on to add that nonsignatories may be added to the
arbitration proceedings without their consent in “exceptional cases”.
Thus, it seems that while the Chloro Controls places a premium on
the intent of parties, it also advocates taking an equity based approach
to discard intent completely if so required in the interest of justice.
29.In Mahanagar Telephone Nigam Ltd . the Court had applied
the Group of Companies Doctrine where a tight structure with deep
financial and organization links existed between a signatory and non
signatory to the extent where they constituted a “single economic
unit”. Such an approach has the tendency to overlook the principle of
separate legal entity and seems to dispense almost entirely with the
intent and/or consent of parties.
30.It is also worth noting that in Cheran Properties, this Court
enforced an award against a party that had not even participated in
the arbitral proceedings, by relying on the phrase “persons claiming
under them” in Section 35 of the Act. This presents the highest
expansion of the Group of Companies Doctrine, whereby, a party is
bound to the final award itself on the basis of the doctrine without
having a chance to present its case or defend itself in the arbitral
proceedings. This Court in Reckitt Benckiser fixed a higher threshold
Page | 18
of evidence for the Group of Companies Doctrine to apply as compared
to earlier judgments. Finally, in ONGC, the Court has upheld the
necessity for a deeper probe to determine whether the Doctrine is
attracted in the facts and circumstances of a given case. This leads to
questions regarding which standard of proof must be fulfilled to apply
the Doctrine.
31.An overall analysis of the above cited judgments reveals an
unwitting, but nonetheless discordant note with implicit
contradictions. However, in my humble view, the appropriate response
to such uncertainty would be an authoritative determination of the
contours of the Doctrine rather than a wholesale uprooting of it from
Indian arbitration law altogether.
32.It is important to note that the Doctrine has now travelled a
reasonable distance in Indian law. While the opinion of Hon’ble the
Chief Justice correctly notes that the term “parties” under Section 2(1)
(h) has not been amended despite the changes introduced in Section 8
of the Act, it appears to me that one of the objectives in introducing
the amended Section 8 was to accord tacit recognition and acceptance
of the Group of Companies Doctrine in India.
33.It may also be noted that the question as to which entities are
parties to the arbitration agreement is usually left to judicial
discretion, especially when there is a limited statutory guidance.
28
Thus, the perception regarding the questionable sourcing of the Group
28
Born (n 18).
Page | 19
of Companies Doctrine from the wording of Section 8 of the Act, does
not imply that it is barred from Indian arbitration law. Undoubtedly,
the Courts have the judicial discretion to invoke and apply the
Doctrine in Indian arbitral jurisprudence.
34.The earlier analysis on the interpretation of the Group of
Companies doctrine fortifies that when formulated in its most modern
sense, it does not affect the separate legal entity principle in company
law. Gary Born
29
notes that the Doctrine,
“…is ordinarily a means of identifying the parties’
intentions, which does not disturb or affect the legal
personality of the entities in question. Rather, as usually
formulated, the group of companies doctrine is akin to
principles of agency or implied consent, whereby the
corporate affiliations among distinct legal entities
provide the foundation for concluding that they were
intended to be parties to an agreement, notwithstanding
their formal status as nonsignatories.” Commentators
have observed the same distinctions between the group of
companies doctrine and veilpiercing principles.”
(Emphasis Supplied)
35.It therefore appears that the current interpretation of the
Doctrine ‘does not disturb or affect’ the separate corporate form of
different entities within a group of companies. Neither does the act of
piercing the corporate veil necessarily cause the separate legal entity of
the third party to collapse. In this context, corporate law doctrines
such as piercing the veil and alter ego are a means by which to identify
29
Born (n 18).
Page | 20
fraudulent activity by a nonsignatory which would then provide the
legal justification for application of the Group of Companies Doctrine
to bind that nonsignatory to the arbitration. This is a departure from
the “single economic reality” approach which views the entire group of
companies as a singular entity and overrides the separate legal
personalities of the different members of the group.
36.Thus, in this approach, the separate legal form of the parent
company remains undisturbed and the application of veil piercing or
alter ego is merely for identification of duplicitous acts by a third party
which would then lead to application of the Group of Companies
Doctrine to bind them to arbitration. The function of this is to identify
parties which have no actual intent to be part of the arbitration and
deliberately use the corporate form as a shield to avoid being subjected
to the arbitration proceedings. For such scenarios, a formal intent
based approach to Group of Companies Doctrine may be insufficient to
address the dispute.
37.From the analysis above, it appears that joining a third party to
arbitration based on the convergence of a group of companies as a
“single economic unit” is no longer the norm under the Group of
Companies Doctrine. Instead, the standard is premised primarily on
implied consent drawn from the acts and conduct of an entity within
the group of companies. Where a closely knit group exists, the
interpretation of a third party’s intent to be bound to the arbitration
would be construed from facts and circumstances specific to that
Page | 21
group and the manner in which it functions. This maintains the
separate legal personality of the nonsignatory and joins it to the
arbitration proceedings on the basis of its implied acceptance to be
bound.
38.It must be emphasized that the Doctrine is an exception to the
general rule of arbitration. However, where the facts of a case indicate
that the intention of the parties was to bind the nonsignatory, the
Courts, after exercising due care and caution, will be justified in
invoking the Doctrine to do substantial and complete justice. After the
2016 amendment to the Act, this Court has continued to acknowledge
and apply the Doctrine in exceptional cases. When all of these factors
are viewed in consonance, it emerges that the Doctrine has found firm
footing in Indian jurisprudence.
39.This is not without reason. On a practical front, the Doctrine is a
means of grappling with complex multiparty business transactions
which necessarily involve more than two parties, even if these
additional parties do not finally and formally sign the contract. To that
extent, the Doctrine helps to ensure that arbitration as a dispute
resolution mechanism is able to adapt to this reality. Failure to do so
would make arbitration an ineffective dispute resolution forum as
parties which are important for the complete and proper resolution of
the dispute will be left out of the adjudication.
40.The Doctrine also ensures that multiplicity of proceedings are
avoided. A party may be involved in the negotiation and even
Page | 22
performance of an agreement but still be able to circumvent the
arbitral process on the ground that it did not sign the contract. Such a
party would then have to be proceeded against in court.
41.There are additional benefits of having the Group of Companies
Doctrine in Indian jurisprudence. These arise from the peculiar
circumstances and manner in which Indian business entities transact
with each other and establish commercial relations. A large chunk of
Indian business houses are composed of family run entities or groups.
The individuals running these entities often occupy multiple roles in
different companies within the group. Thus, the commonality in terms
of key managerial personnel and the preponderance of family
members occupying these positions moulds the way these companies
conduct business. Entering into commercial transactions involves
informal understandings based on familiarity with persons who run
the overall group of companies even if not the specific entity with
which a contract is formally executed.
42.In this scenario it becomes even more relevant to have a doctrine
such as the Group of Companies in Indian arbitration law. A third
party outside the group of companies may transact with a subsidiary
due to its faith in the bona fides and commercial knowhow of the
parent. The third party in question relies upon the stature or presence
of the larger parent company, either due to its reputation or personal
familiarity with its promoters, directors or executives.
Page | 23
43.The Doctrine itself may also provide greater stimulus for
business with new entities that are starting out. Due to the
aforementioned peculiarities in Indian business relations, newer
companies have significant difficulty in gaining traction. One of the
means by which such companies can then gain a foothold is by being
part of a large (often family held) group of companies. These new
entities are then able to feed off the goodwill or relations that the
larger group has with the rest of the business world. Given that the
connection to the larger group is intrinsic to the way in which
business is conducted, arbitration law must acknowledge and address
this reality.
44.In fact, Tribunals have already recognized the reliance that is
often placed by a company upon the conduct of the nonsignatory
parent company when entering into an agreement with its subsidiary.
The Tribunal in PetroAlliance Services Company Ltd. v. Yukos
Oil
30
under the aegis of the Arbitration Institute of the Stockholm
Chamber of Commerce is a prime example of international arbitration
grappling with this issue.
45.Therein, the tribunal noted that Yukos Oil, via its actions, had
created an expectation in the mind of PetroAlliance that it was willing
and ready to back up/step into the shoes of its subsidiary YNG with
which PetroAlliance had entered into a contract. While there were
several factors that contributed to the decision of the tribunal to bind
30
SCC Case No 108/1997, 2000.
Page | 24
Yukos to the arbitral proceedings, the most relevant takeaway for our
purposes is the manner in which the tribunal enunciated the “theory
of trust” that exists under Swedish contract law.
46.The important consideration under this theory, similar to
company law principles such as alter ego, is not the actual intent of
the party as the nonsignatory may be acting duplicitously to
represent itself as the driver of the contract while avoiding any
liabilities arising from it by not signing the contract. Hence, what the
theory examines is what intent the nonsignatory has conveyed to a
reasonable party in the same position as the contracting entity. The
decisive factor is the extent to which the contracting party has placed
“trust” in the other party, reasonably, and on the basis of the non
signatory’s actions.
47.To clarify, the wholesale adoption of the Swedish theory of trust
into Indian law is not being advocated. Rather, the notion of how we
may apply the Group of Companies Doctrine in situations where non
signatory parties are acting in a fraudulent or deceitful manner can be
addressed by examining the impression that was conveyed to the
contracting parties by the third party. This is in addition to the
already wellestablished principles of piercing the veil and alter ego.
This may also address the legitimate critique of Chloro Controls and
Cheran Properties, that despite placing an emphasis on legal
standards of intent, the Court eventually resorted to principles of
Page | 25
equity and commercial/economic expediency to apply the Group of
Companies Doctrine in those cases.
E.Conclusion
48.In view of the above discussion, respectfully, I am of the opinion
that the questions that are sought to be referred to a larger bench
deserve further elaboration. With all the humility at my command, the
following substantial questions of law also arise for authoritative
determination by a larger bench in addition and in conjunction with
those formulated by Hon’ble the Chief Justice:
A.Whether the Group of Companies Doctrine should be read into
Section 8 of the Act or whether it can exist in Indian jurisprudence
independent of any statutory provision?
B.Whether the Group of Companies Doctrine should continue to be
invoked on the basis of the principle of ‘single economic reality’?
C.Whether the Group of Companies Doctrine should be construed as
a means of interpreting the implied consent or intent to arbitrate
between the parties?
D.Whether the principles of alter ego and/or piercing the corporate
veil can alone justify pressing the Group of Companies Doctrine
into operation even in the absence of implied consent?
………..………………… J.
(SURYA KANT)
NEW DELHI
DATED :06.05.2022
Page | 26
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