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Arbitration agreement can bind non-signatories as per "Group of Companies" Doctrine : SC Constitution Bench

Arbitration agreement can bind non-signatories as per "Group of Companies" Doctrine : SC Constitution Bench

On Wednesday, the Supreme Court's Constitution Bench extends Group of Companies Doctrine to Arbitration in India

The Court emphasized the necessity of maintaining the 'group of companies' doctrine within Indian arbitration jurisprudence, highlighting its significance in deciphering the parties' intentions, especially in intricate transactions involving multiple entities and agreements.

A bench comprising Chief Justice of India DY Chandrachud, Justices Hrishikesh Roy, PS Narasimha, JB Pardiwala and Manoj Misra delivered the verdict.

he Court's ruling clarified that the scope of individuals bound by an arbitration agreement isn't restricted solely to those who directly signed it, indicating that non-signatories can also be bound by the agreement's obligations

The Court highlighted that the written arbitration agreement does not mean that non-signatories will not be bound by it. Instead, it emphasized that a clear legal relationship between signatories and non-signatories, coupled with demonstrated intent through conduct, can establish the latter's obligation under the agreement.

The bench deliberated on several key issues:

The incorporation of the 'group of companies' doctrine into Section 8 of the Arbitration Act or whether it can exist in Indian jurisprudence independent of any statutory provision?

The sustainability of invoking the 'group of companies' doctrine based on the principle of 'single economic reality.' Interpreting the 'group of companies' doctrine as a mechanism to discern implied consent or intent to arbitrate among the involved parties.

Examining whether the principles of alter ego and/or piercing the corporate veil alone suffice to justify invoking the 'group of companies' doctrine even in the absence of implied consent.

The Court emphasized that arbitration is a matter of contract and consent is paramount. No one can be compelled to submit to arbitration without their consent.

The Court highlighted the judicial responsibility to ascertain whether a non-signatory to an arbitration agreement intended to establish a legal association with the signatory party and willingly consented to be bound by the terms of the arbitration agreement.

The Court, citing Section 7A of the Arbitration and Conciliation Act, underscored that although arbitration operates on a contractual basis, it isn't imperative for parties to be direct signatories to the agreement to be held bound by its provisions.

The Court advocated for a balanced approach, stressing the significance of respecting the parties' deliberate choice to exclude someone from the arbitration agreement. However, it also emphasized the importance of not disregarding individuals who, through their actions, have indicated a clear intention to be bound by the terms of the arbitration agreement.

The Court's conclusion affirmed the application of the doctrine to arbitration proceedings, asserting that the scope of involved parties encompasses not only signatories but also non-signatories affiliated with the same group of companies. This ruling clarified that the doctrine extends its coverage to include both categories within the definition of parties that are part of the same group of companies

Case : Cox and Kings Ltd v. SAP India Pvt Ltd,

ARBIT. PETITION No. 38/2020.

Click here to read/download order.

Click here to read/download Judgment.

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