Constitution Bench of SC Upheld ‘Group of Companies’ Doctrine

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Jan 23, 2024

Constitution Bench of SC Upheld ‘Group of Companies’ Doctrine

The Supreme Court (‘SC’), in Cox & Kings Ltd. v. SAP India (P) Ltd.,^[1] has held that an arbitration agreement can bind non-signatory parties, as per the ‘Group of Companies’ doctrine (‘Doctrine’). The SC, inter alia, held:

i. A non-signatory company, within a group of companies, may be bound by an arbitration agreement entered by its affiliate companies, if it is established that it was the mutual intention of both, signatories and non-signatories, to be bound by such agreement^[2] ;

ii. The underlying basis for the application of the Doctrine rests on maintaining the corporate separateness of the group companies, while determining the common intention of the parties to bind the non-signatory party to the arbitration agreement^[3];

iii. Conduct of the non-signatory parties could be an indicator of their consent to be bound by the arbitration agreement^[4];

iv. Principle of alter ego or piercing the corporate veil cannot be the basis of the application of the Doctrine. Principle of single economic unit cannot be the sole basis for invoking the Doctrine^[5];

v. Section 2(1)(h), which defines the term ‘party’, read with Section 7 of the Arbitration Act, 1996 (‘Arbitration Act’) includes both signatory and non-signatory parties to an arbitration agreement^[6];

vi. At the referral stage, the Arbitral Tribunal should decide whether the non-signatory is bound by the arbitration agreement^[7]; and

vii. The decision in Chloro Controls India Pvt. Limited Seven Trent Water Purification Inc.,^[8] to the extent it traced the Doctrine to the phrase ‘claiming through or under’ is erroneous and against the well-established principles of contract law and corporate law.^[9]

[1] Cox & Kings Ltd. v. SAP India (P) Ltd., 2023 SCC OnLine SC 1634.

[2] Para 152, Cox & Kings Ltd. v. SAP India (P) Ltd., 2023 SCC OnLine SC 1634.

[3] Para 103, Cox & Kings Ltd. v. SAP India (P) Ltd., 2023 SCC OnLine SC 1634.

[4] Para 122, Cox & Kings Ltd. v. SAP India (P) Ltd., 2023 SCC OnLine SC 1634.

[5] Para 109, Cox & Kings Ltd. v. SAP India (P) Ltd., 2023 SCC OnLine SC 1634.

[6] Para 155, Cox & Kings Ltd. v. SAP India (P) Ltd., 2023 SCC OnLine SC 1634.

[7] Para 168, Cox & Kings Ltd. v. SAP India (P) Ltd., 2023 SCC OnLine SC 1634.

[8] Chloro Controls India Pvt. Limited v. Seven Trent Water Purification Inc., (2013) 1 SCC 641.

[9] Para 153, Cox & Kings Ltd. v. SAP India (P) Ltd., 2023 SCC OnLine SC 1634.

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