Hon’ble Supreme Court of India has upheld the group of companies doctrine in its recent judgment dated December 6, 2023 in the matter of Cox and King Limited vs. SAP India Private Limited (SLP (C) No. 8706 of 2022). The Supreme Court of India, while upholding the principles laid down in its judgment in the matter of Oil and Natural Gas Corporation Ltd v. Discovery Enterprises Pvt. Ltd ((2022) 8 SCC 42), ruled that a party which is not a signatory to the arbitration agreement, may still be bound by the arbitration agreement, if the principle laid down by the Hon’ble Supreme Court in Discovery Enterprises (Supra) matter are satisfied. In Discovery Enterprises (supra) matter, the Hon’ble Supreme Court laid down the following criteria which a court or arbitral tribunal should consider in deciding whether a company within a group of companies is bound by the arbitration agreement, even if it is not a signatory to the arbitration agreement:
- The mutual intent of the parties;
- The relationship of a non-signatory to a party which is a signatory to the agreement;
- The commonality of the subjectmatter;
- The composite nature of the transactions; and
- The performance of the contract.
The above factors are fact specific and must be considered holistically by the courts / tribunals in deciding whether the group companies can be made a party to the arbitration agreement even if they are not signatory. The Hon’ble Supreme Court also laid down certain instances where a non-signatory can be considered as a party to the arbitration agreement. The involvement of the nonsignatory in the performance of the underlying contract in a manner that suggests that it intended to be bound by the contract containing the arbitration agreement is an important aspect that should be considered. Further, other factors such as the composite nature of transaction and commonality of subject matter suggests that the claims against the non-signatory were strongly inter-linked with the subject matter of the tribunal’s jurisdiction. Further, the Supreme Court held that the conduct of the non-signatory parties could be an indicator of their consent to be bound by the arbitration agreement.
The Hon’ble Supreme Court while applying the group of companies doctrine, opined that the concept of ‘party’ under the Arbitration and Conciliation Act, 1996 is different from the concept of “persons claiming through or under” a party to the arbitration agreement. The Hon’ble Supreme Court, in this judgment, further stated that the approach of this Court in Chloro Controls India (P) Ltd v. Severn Trent Water Purification Inc (2013) 1 SCC 641 to the extent that it traced the group of companies doctrine to the phrase “claiming through or under” was erroneous and against the wellestablished principles of contract law and corporate law.
The Hon’ble Supreme Court further ruled that the group of companies doctrine should be retained in the Indian arbitration jurisprudence considering its utility in determining the intention of the parties in the context of complex transactions involving multiple parties and multiple agreements.
