The decision of the Supreme Court in Cox & Kings Ltd. v. SAP India (P) Ltd.1 has reignited a debate about the application of the Group of Companies Doctrine (GOCD/doctrine) to arbitrations in India. But more significantly, it has evoked a discussion on the relevance of “consent” in arbitration.
Shortly after the Supreme Court, in ONGC Ltd. v. Discovery Enterprises (P) Ltd.2, upheld the GOCD and summarised, very succinctly, its elements3; in Cox & Kings4, a concurrent Bench of the Supreme Court questioned, and even criticised, the way the doctrine has been expounded and applied in India. Notably, in a separate judgment written by Justice Surya Kant, while accepting that the contours of the group of companies doctrine need to be settled by a larger Bench5, it is stated that the GOCD is an integral part of India’s arbitral jurisprudence. Collectively, the Judges posed six questions6 to a larger Bench7 for an authoritative decision on the matter. The Constitution Bench of the Supreme Court has begun hearing the matter.
Those familiar with the doctrine will agree that the conflicting viewpoints and the referral of the matter to a larger Bench is not surprising. While many would argue that absent its application, arbitration, as a means to resolve commercial disputes, would be less effective, others perceive the doctrine as being hostile to the concept of “a separate legal entity”. But to the traditional lawyer in India, the main concern is the doctrine’s propensity to uproot the rule of free consent that is so essential to arbitration and Indian contract law in general. The Supreme Court in Cox & Kings8 called out this concern.
Some modern academics and lawyers question this “over reliance” on consent. They make arguments on why it is time to rethink the need for consent in arbitration.9 It is suggested that we should move away from “consent” and make “the dispute” the central and determining theme of arbitration.10 Others suggest that arbitration should be a “default” choice.11 Interestingly, “non-consensual arbitration” (an oxymoron to the traditional lawyer) is no longer a theory. It is being practised in some jurisdictions and our Supreme Court has affirmed the concept.12 In fact, some suggest that “real consent” arguably ceased to be the touchstone of arbitration law some time ago.13
The question though is whether such non-consensual form of arbitration, be it in the form of the GOCD or otherwise, is at all legally sustainable in India. Is it not opposed to the underlying legislative policy on which our general arbitration and contract laws are founded?14 The Supreme Court, we hope, will answer this.
This paper broadly summarises the legal position surrounding the GOCD in India with reference to relevant judicial decisions. It also discusses the concerns raised and questions posed by the Supreme Court in Cox & Kings15 for determination by a larger Bench.
B. The Group of Companies Doctrine
The principle that rights and obligations of an arbitration agreement apply only to the agreement’s parties is a straightforward application of the doctrine of privity of contract, recognised in both common and civil law jurisdictions.16
Even leading international arbitration conventions adopt the principle that an agreement to arbitrate binds only the parties to such agreement. Article 2(1) of the New York Convention impliedly recognises the subjective limits on the binding nature of arbitration agreements, providing that contracting States “shall recognise an agreement in writing under which the parties undertake to submit their disputes to arbitration”.17
The GOCD envisages, under certain circumstances, the extension of an arbitration agreement signed only by one or some of the companies of a group to other non-signatory companies of the same group.18 The question of extending an arbitration agreement to non-signatory parties consequently involves extending the jurisdiction of the Arbitral Tribunal to or over such parties.
Award in the Dow Chemical Case
The GOCD drew international recognition in the ICC award in Dow Chemical v. Isover Saint Gobain.21
In Dow Chemical22 , a French subsidiary (Dow Chemical France) and its American parent (Dow Chemical USA) commenced arbitration against the counterparty, Isover Saint Gobain, based on an arbitration clause contained in a contract to which neither Dow Chemical France, nor Dow Chemical USA were parties. The arbitration clause was contained in a contract executed between Isover Saint Gobain and certain affiliates of the Dow Chemical entities. Expectedly, Saint Gobain questioned the jurisdiction of the Arbitral Tribunal on the ground that Dow Chemical France and Dow Chemical USA were not parties to the underlying arbitration agreement.
The Tribunal rejected the jurisdictional challenge. In its analysis, the Tribunal assessed the circumstances under which the (a) negotiation;23 (b) performance; and (c) termination of the underlying contracts took place.
It noted the following:
- That the contractual relationship between the French subsidiary, Dow Chemical France and Isover Saint Gobain could not have been formed without the approval of the American parent and the negotiations revealed that the parties attached very little importance to the specific company within the Dow Group that ultimately signed the contracts.
- At the stage of performance, the contracts clearly designated Dow France for delivery of products to the distributor, which thus, played a preponderant role even in the execution of the contracts.
- All trade marks used by the distributor for its contractual activities belonged to the parent company.
Lastly, both Dow Chemical France and Dow Chemical USA played an essential role in the termination of one of the contracts.
In light of the above findings, the Tribunal observed that Dow Chemical USA exercised absolute control over its subsidiaries having either signed the relevant contracts or like in Dow Chemical France, effectively participated in the conclusion, performance and termination of the contracts which reflected the mutual intention of the parties to be bound by the contracts in question. It further stated that irrespective of the distinct juridical identity of its members, a group of companies constitutes a single economic reality, which should be taken into consideration by a tribunal ruling on its jurisdiction.
The award in Dow Chemical24 was challenged by Isover Saint Gobain before the Court of Appeal in Paris. While rejecting the appeal, the court upheld the finding of the Arbitral Tribunal, holding that:
The arbitrators for good reasons have observed that the law applicable to determine the scope and effects of an arbitral clause providing for international arbitration does not necessarily coincide with the law applicable to the merits of the dispute. Following an autonomous interpretation of the agreement and the documents exchanged at the time of their negotiation and termination, the arbitrators have, for pertinent and non-contradicted reasons, decided, in accordance with the intention common to all companies involved, that Dow Chemical France and Dow Chemical Company have been parties to these agreements although they did not actually sign them and that therefore the arbitration clause was applicable to them as well.25
The Dow Chemical26 case thus crystallised the concept of group of companies in international jurisprudence. What is notable though is that in this case, the non-signatories over whom arbitral jurisdiction was extended were the claimants and not parties resisting arbitration. The third parties, in this case, freely consented to arbitrate.
C. Evolution of the Group of Companies Doctrine in India27
(a) Chloro Controls v. Severn Trent Water Purification Inc.
In India, the basis for extension of an arbitration agreement to non-signatories was crystallised in the Supreme Court’s landmark decision in Chloro Controls28. The Supreme Court did so primarily based on the language of Section 45 of the Arbitration and Conciliation Act, 1996 (the Arbitration Act) which is applicable to foreign seated arbitrations to which the New York Convention applies.29 Section 45 provides for reference of disputes to arbitration at the instance of a party to an arbitration agreement or any person claiming through or under such party. Importantly, at the relevant time, the corresponding provision applicable to India seated arbitrations (i.e. Section 8 of the Arbitration Act) did not contain the words “any person claiming through or under”. These words have since been included in Section 8 also.
The underlying transaction in Chloro Controls30 , involved multiple Indian and foreign parties as well as multiple contracts amongst such parties.
As noted by the Supreme Court in Cox & Kings31 , there are some material contradictions in the observations of the Supreme Court in Chloro Controls32. Firstly, while expounding on the doctrine, the court expressly noted that the intention of parties was a very significant element that needs to be factored in while extending an arbitration agreement to non-signatories.33 At the same time, the court propounded the “composite transaction” theory to cover situations in which an arbitration agreement could be extended to a non-consenting signatory, albeit in exceptional cases.
In deciding the ambit of the doctrine, the court set out four factors that need to be taken into consideration, namely: (i) the “direct relationship” of the non-signatory to the signatory to the arbitration agreement; (ii) the “direct commonality” of the subject-matter; (iii) the transaction should be of a “composite nature where performance of (the principal) agreement may not be feasible without aid, execution and performance of the supplementary or ancillary agreement”; and (iv) whether referring disputes under all agreements would “serve the ends of justice”.34
It however stressed that courts will have to examine such pleas with greater caution and by definite reference to the language of the contract and intention of the parties. The principle of “composite performance” would have to be gathered from the conjoint reading of the principal and supplementary agreements on the one hand and the explicit intention of the parties and the attendant circumstances on the other.35
(b) Cheran Properties Ltd. v. Kasturi and Sons Ltd.
Subsequently, in Cheran Properties Ltd. v. Kasturi and Sons Ltd.,36 the Supreme Court carried forward the above approach, albeit this time in the context of an arbitral award.
Recognising the changing role of modern business transactions, the Court noted that these are often effectuated through multiple layers and agreements.37 The circumstances in which companies have entered into such agreements may reflect an intention to bind both signatories and non-signatories within the same group. Referring to the GOCD doctrine, it stated that it is essentially intended to facilitate the fulfilment of a mutually held intent between the parties, where the circumstances indicate that the intent was to bind both signatories and non-signatories.38 It further added that while holding a non-signatory to be bound, courts approach the matter by attributing a business sense to the transactions in question, to attempt to locate the true essence of the business arrangement as well as the intent to bind someone not formally a signatory but who had assumed the obligation to be bound by the actions of a signatory.39
The court also discussed Section 35 of the Arbitration Act which postulates that an arbitral award “shall be final and binding on the parties and persons claiming under them respectively”. Interpreting Section 35 of the Act, the Court held that the phrase “persons claiming under them” widens the net in terms of the persons who the arbitral award seeks to bind.40 It does so by reaching out not only to the parties but to those who claim under them, as well.41 It concluded that the expression “persons claiming under them” is thus, a legislative recognition of the doctrine that besides the parties, an arbitral award binds every person whose capacity or position is derived from and is the same as a party to the proceedings.42
(c) Mahanagar Telephone Nigam Ltd. v. Canara Bank
In MTNL v. Canara Bank43 , the facts involved a lengthy dispute resolution path that culminated in another dispute, regarding whether the parties had agreed to arbitrate the original dispute. The petitioner, Mahanagar Telephone Nigam Ltd. (MTNL), had placed bonds with the second respondent, Can Bank Financial Services Ltd. (CANFINA), which were bought up by CANFINA’s parent company, Canara Bank during a market shock.44 However, due to a pre-existing contractual dispute with CANFINA about the bonds, MTNL refused to register the bonds in Canara Bank’s name.45 Subsequently however, when the parties commenced arbitration, CANFINA was not a party to the proceedings.46
The Supreme Court, relying on the Group of Companies Doctrine, held that CANFINA could be joined in the arbitration. Following the ratio in Chloro Controls47 , it held that the circumstances in which the doctrine could be invoked were if (a) there is a direct relationship between the party which is a signatory to the arbitration agreement; (b) direct commonality of subject-matter; and (c) composite nature of the transaction between parties.48 However, it also introduced the concept of a “tight group structure” with strong organisational and financial links which constituted a single economic unit or a single economic reality,49 as a second possible parameter to invoke the doctrine.
In the facts of the present case, it noted that CANFINA was set up as a wholly-owned subsidiary of Canara Bank.50 The disputes between the parties emanated out of the initial transaction between CANFINA and MTNL.51 There was thus, a clear and direct nexus between the initial issuance of bonds, subsequent transfer by CANFINA to Canara Bank and the cancellation by MTNL and hence, it would be a futile effort to decide the disputes between MTNL and Canara Bank in the absence of CANFINA.52
Lastly, the Court stated that this was a case of implied or tacit consent on part of CANFINA to be impleaded in the arbitral process since it had participated in various earlier proceedings before different fora and hence, there was a clear intention of the parties to bind both Canara Bank and CANFINA to the proceedings.53
(d) ONGC Ltd. v. Discovery Enterprises (P) Ltd.
In April 2022, the Supreme Court, while deciding on a challenge to an interim arbitral award, held that a non-signatory company within a group of companies can be held to be bound to an arbitration agreement.
The facts involved a contract that Oil and Natural Gas Corporation Limited (ONGC) had awarded to Discovery Enterprises Private Limited (DEPL).54 Subsequently, due to certain defaults by DEPL under the contract, ONGC initiated arbitration against DEPL and Jindal Drilling and Industries Limited (JDIL), a group entity, to recover its outstanding dues of INR 63.88 crores. JDIL, however, was not a signatory to the contract.55
On 27-10-2010, the Arbitral Tribunal passed its interim order holding that JDIL could not be enjoined in the proceedings since it was a non-signatory.56 This interim award was also upheld by the Bombay High Court on the ground of lack of privity of contract.
Before the Supreme Court, the parties challenged the above findings. The Bench, after outlining the development of the Group of Companies Doctrine in India, noted that a non-signatory may be bound by an arbitration agreement, where (a) there exists a group of companies; and (b) the parties have made statements or engaged in conduct indicating an intention to bind a non-signatory.57It thus, established a dual requirement for the application of the doctrine.
Further, it reiterated that the present law on the subject considers the following factors:58
(a) mutual intent of parties;
(b) relationship of a non-signatory to a signatory;
(c) commonality of the subject-matter;
(d) composite nature of the transaction; and
(e) performance of the contract.
Considering the facts of the case, the Court held that the interim award stood vitiated since it had failed to evaluate the legal foundation of the doctrine, either on law or facts, by rejecting ONGC’s application for discovery and inspection of documents.59
D. The Supreme Court decision in Cox and Kings and its referral to a larger Bench
On 6-5-2022, a three-Judge Bench of the Supreme Court delivered its judgment in Cox and Kings Ltd. v. SAP India (P) Ltd.60
The facts of the case, briefly stated, are as follows.
In 2015, Cox and Kings entered into a series of agreements with SAP India Private Limited (Respondent 1) for availing of software services. There were predominantly three transactions: first, a software licence and support agreement, second, an agreement containing the terms and conditions governing the implementation of the SAP software (GTC) and third, an agreement for the customisation of the software. Clause 15.7 of the GTC contained the arbitration clause in question.61 Disputes arose in the course of the next few years and in 2019, Cox and Kings commenced arbitration against SAP India Private Limited and its parent company (Respondent 2). Notably, Respondent 2 was not a party to the GTC. Since there was no response from either respondent, Cox and Kings filed a Section 11 application before the Supreme Court.62
Relying on the position of law laid down in Chloro Controls63 , counsel for the applicant argued that arbitration in India can be invoked even against non-signatories, if the circumstances demonstrate that such was the mutual intention of the parties.64 On the other hand, counsel for the respondents argued that Respondent 2 was neither a signatory nor had it ever agreed to be bound by the agreements between the applicant and Respondent 1. Respondent 2, being a foreign entity did not have any business dealings in India and was a separate and independent legal entity from Respondent 1.65 Further, the Group of Companies Doctrine did not apply in the present case since Respondent 2 was not only a non-signatory but had also never participated in the negotiation process during the drafting of the contract. Moreover, there was no consensus among the parties to be bound by the contract.66
Upon hearing the parties, the Court observed that the Group of Companies Doctrine had been applied in a varied manner post the Chloro Controls67 decision and more specifically, without referring to the ambit of the phrase “claiming through or under” as occurring in Section 8 of the Arbitration Act.68 While the policy consideration of efficiency was often used to allow such joinders, in the absence of a legal basis, efficiency cannot be the sole ground to bind a party to arbitration.69 Thus, in this context, the court felt the need to examine the rationality behind the approach taken by the court in the Chloro Controls70 case.
It proceeded to trace the jurisprudential history of the Doctrine in the Indian context. Specifically referring to the Chloro Controls71 decision, it stated that this decision introduced the mutual intention of the parties to treat a non-signatory as a party to the arbitration agreement. However, this postulation conflated a contractual understanding of the Group of Companies Doctrine, without alluding to contractual principles. While on the one hand, the court reduced the threshold of arbitration being a consensual affair, on the other hand, the Doctrine is transposed on requirements of contract law.72 Further, the amendment to Section 8 of the Arbitration Act post Chloro Controls73 was not accompanied by a corresponding amendment to Section 2(1)(h) which defines “party”. This has created an anomalous situation where a party “claiming through or under” could be referred to an arbitration but may not have the right to seek interim relief under Section 9 of the Arbitration Act.74 Thus, the impact of the absence of such an amendment, needed to be clearly examined.
Moreover, the court also highlighted the fact that only a small number of nations (such as France and India) have applied the Group of Companies Doctrine in the international arbitration context.75 In light of the above, and more importantly, the fact that the Doctrine, as expounded by Indian courts seeks to join non-signatories as “parties in their own right” as opposed to them “claiming through or under a signatory”, the court was of the opinion that this resulted in obliterating the commercial reality and the benefits of keeping subsidiary companies distinct.76
It thus held that the law laid down in Chloro Controls77 and the decisions following it seemed to be based more on economics and convenience rather than on law.78 It was thus, imperative for the matter to be referred to a larger Bench since it involved questions fundamental to the practice of arbitration in India.79
In a concurring but separate opinion, Justice Surya Kant, agreed with the fact that the contours of the Group of Companies Doctrine needed to be settled by a larger bench. While laying down a position in favour of the Doctrine, he held the following:
- The doctrine does not affect the separate legal entity principle under company law. It is a means of identifying the intention of the parties without disturbing their legal personality.
- Corporate law doctrines such as piercing the corporate veil and alter ego are a means by which to identify fraudulent activity by a non-signatory which would then provide the legal justification for application of the Group of Companies Doctrine to bind that non-signatory 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.
- This doctrine thus, serves the function of identifying parties that deliberately use the corporate form as a shield to avoid being subjected to arbitration.
- Joining a non-signatory to arbitration based on the “single economic entity” concept no longer seems to be the norm under the Group of Companies Doctrine. The standard is now premised on implied consent based on the facts and circumstances of each case.
- The doctrine helps navigate complex multi-party business transactions which necessarily involve third parties which are non-signatories to the arbitration agreement. The doctrine acknowledges the commercial reality that parties often transact with subsidiaries based on the goodwill of the parent company.
- It prevents multiplicity of proceedings by joining non-signatories involved in the negotiation and/or performance of an agreement.
The Arbitral Tribunal’s decision in Petro Alliance Services Co. Ltd. v. Yukos Oil,80 enunciated a “theory of trust” prevalent under Swedish contract law which could be applied in the Indian context to flesh out the intent of both the signatory and non-signatory parties.
The court thus, formulated the following questions for reference to a larger Bench:
- Whether the phrase “claiming through or under” in Sections 8 and 11 of the Arbitration Act could be interpreted to include the Group of Companies Doctrine?
- Whether the doctrine as expounded by Chloro Controls81 and subsequent judgments is valid in law?
- Whether the doctrine should be read into Section 8 of the Arbitration Act or whether it can exist in Indian jurisprudence independent of any statutory provision?
- Whether the doctrine should continue to be invoked onthe basis of the principle of “single economic reality”?
- Whether the doctrine should be construed as a means of interpreting the implied consent or intent to arbitrate between the parties?
Whether the principles of alter ego and/or piercing the corporate veil canalone justify pressing the doctrine into operation even in the absence of implied consent?
E. Concluding comments and thoughts
While we were tempted to take a crack at predicting the answers to some of the questions posed to the larger Bench in Cox & Kings82 , realising the enormity of the task, we have restricted this section to only our concluding thoughts and views on the subject83.
First, as the law stands today, the legislature does not recognise the Group of companies Doctrine. The law and principles surrounding the application of the GOCD are entirely Judge-made. That said – the law does provide that under certain circumstances, “persons claiming through or under” a party to an arbitration agreement may initiate arbitration or be proceeded against in enforcement of an arbitral award.84
In our view, in the absence of any amendment to the current law, any discussion on the contours of the GOCD must be confined to the limited expansion offered by the phrase “persons claiming through or under” as appearing in Sections 8, 35 and 45 of the Arbitration Act. Enlargement of the scope of the doctrine to bring in parties who do not fit the above description would be an obvious deviation from the statute book.
If confined to “persons claiming through or under” parties to an arbitration agreement, it is possible to sustain the application of the GOCD provided the two essential pillars of arbitration – consent and party autonomy – are not compromised.
Free consent is fundamental to arbitration and contract law in general. And this, in our view, should be the starting point for the Supreme Court in answering the questions posed in Cox & Kings85.
The formation of a contract in India requires, amongst other things, the free consent of the parties. Contractual terms cannot be foisted on a third party absent her consent. This is a foundational and non-controversial principle of contract law. Notably, under Indian law, consent can be implied and need not always be express.86 Thus, a party may be compelled to perform obligations under an agreement, even without having signed the agreement, if her words or actions otherwise establish her unqualified and free consent to be bound by the terms of the agreement. Such inference though must not be readily drawn. A party making such a claim has a high burden to discharge.
An arbitration agreement is as much a contract as any other and therefore the first principles of our contract law equally apply to such an agreement. The only additional requirement imposed by the Arbitration Act is that an arbitration agreement must be in writing although it is not necessary for such an agreement to be signed by the parties.
Thus, save in the case of statutory arbitrations not governed by the Arbitration Act,87 consent is a sine qua non for arbitrations in India. India has adopted the New York Convention88 and, by doing so, has embraced party autonomy and consent as fundamental bases of our arbitration system.
Consent, as stated above, can be express or implied89 but the lack of it vitiates an agreement,and absent an arbitration agreement, any arbitration process (other than statutory arbitrations90) commenced or continued would be without jurisdiction.91 This is our legislative policy. To promote non-consensual arbitration, whether in the form of GOCD or otherwise, would be to derogate from the stated policy. It is always open for our legislature to amend the policy (and there are good arguments favouring a change), but until that is done, the existing legal regime binds us.
Fortunately, despite the many contradictions in our earlier decisions, as highlighted in Cox & Kings, the common understanding of the law appears to be that, in the context of joinder of third parties, intent to be bound by the arbitration agreement is paramount and must be established.92 Even otherwise, mutual consent, intent and party autonomy in arbitration have been the cornerstone of some key and landmark decisions of the Supreme Court.93
While commercial expediency, convenience and the overall promotion of arbitration in India are relevant considerations, the doctrine must be tested primarily on the touchstone of legality.
This brings us to an important question posed by Cox & Kings94 to the larger Bench. Whether the principles of alter ego and/or piercing the corporate veil can alone justify pressing the GOCD into operation even in the absence of implied consent? In our view, this question should be answered in the negative. If we are right in our understanding of the Indian arbitration policy, which embraces party autonomy and consent as fundamental bases of arbitration, the involuntary lifting of the corporate veil or applying the alter ego principle by an Arbitral Tribunal on a non-consensual basis would be derogating from this policy. Undoubtedly, as courts have repeatedly held,95 certain circumstances justify the lifting of the corporate veil, but, in our view, it is best left to courts, entertaining civil or criminal proceedings, to do this rather than empowering and expanding the remit of a contractually envisaged Arbitral Tribunal.96 However, Indian High Courts have taken contrasting positions on this specific point.97 Thus, an authoritative finding on the power of Arbitral Tribunals to implead third parties in the absence of mutual consent and specifically, where the Section 8 or Section 11 route has not been followed, is critical.
It will be interesting to see how the Supreme Court answers the questions posed to it. But one hopes that there will be more clarity on not just the applicability of the group of companies doctrine in India but also the law surrounding joinder of non-signatories generally. Given the increasing number of multiparty and multi-contracts disputes, this is the need of the hour.
* * *
† Partner, Khaitan & Co.
†† Associate, Khaitan & Co.
7. A vast majority of cases before the Indian Supreme Court are decided by a Bench of two Judges (Division Bench), and sometimes of three (Coordinate Bench). It is now a settled principle of law that the decisions rendered by a Coordinate Bench are binding on the subsequent Benches of equal or lesser strength. [See, National Insurance Co. Ltd. v. Pranay Sethi, (2017) 16 SCC 680]. The power of referral arises in the event of non-consideration of an earlier Coordinate Bench decision or in the case of contradictions by a subsequent judgment of the same Bench. In such an event, the matter may be referred to a larger five-Judge Bench (also known as Constitutional Bench) for deliberation. Recently, the Supreme Court, in Shah Faesal v. Union of India, (2020) 4 SCC 1, has cautioned against cavalier referrals and stated that matters ought to be referred to a larger Bench only when there is an irreconcilable conflict between the opinions of two Coordinate Benches.
9. Stavros Brekoulakis, “Rethinking Consent in International Commercial Arbitration: A General Theory for Non-Signatories”, Journal of International Dispute Settlement (2017), Vol. 8, 610-643; Fabio Núñez del Prado, “The Fallacy of Consent: Should Arbitration Be a Creature of Contract?”, 35 Emory Int’l L. Rev. 219 (2021).
10. Stavros Brekoulakis, “Rethinking Consent in International Commercial Arbitration: A General Theory for Non-Signatories, Journal of International Dispute Settlement” (2017), Vol. 8, p. 629, S. 4.
11. Fabio Núñez del Prado, “The Fallacy of Consent: Should Arbitration Be a Creature of Contract?”, 35 Emory Int’l L. Rev. 219 (2021); also see Gilles Cuniberti, “Beyond Contract – The Case for Default Arbitration in International Commercial Disputes”, 32 Fordham Int’l. L.J. 419, 432 (2008).
Even in India, mandatory arbitration is a prevalent concept. Under certain statutes, parties do not have a choice but to arbitrate. See for instance, the Micro, Small and Medium Enterprises Development Act, 2006, Electricity Act, 1910, Byelaws of the National Stock Exchange of India Limited and Bombay Stock Exchange Limited. In this paper, we are not alluding to the compulsory or involuntary form of arbitration that finds its source in special statutes, but rather to the law applicable to general, non-statutory or voluntary arbitrations.
12. Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641, (hereinafter referred to as “Chloro Controls”) and ONGC v. Discovery, (2022) 8 SCC 42. See also, Gemini Bay Transcription (P) Ltd. v. Integrated Sales Services Ltd., (2022) 1 SCC 753, where the Indian Supreme Court recognised and enforced a foreign arbitral award made against non-signatories based on the alter ego principle.
13. Jack Graves, “Court Litigation over Arbitration Agreements: Is it Time for a New Default Rule?”, (2012) 23 Am. Rev. Int’l Arb. 1, 16.
14. We discuss our understanding of the legislative policy later in this paper.
16. Gary Born, International Commercial Arbitration, Vol. 1 (2009), p. 1406; “UNIDROIT Principles of International Commercial Contracts”, Art. 1.3.
17. United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter referred to as “New York Convention”), 330 UNTS 38, Arts. 2(1), and 2(3).
18. 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 (2009), Vol. 26(5), pp. 647-673]
19. Fouchard, Gaillard, Goldman on International Commercial Arbitration, paras 499-500 (Emmanuel Gaillard & John Savage eds., 1999); Tobias Zuberbühler, “Non-Signatories and the Consensus to Arbitrate”, 26 ASA Bull. 1, 24 (2008).
20. 1984 Rev Arb, 9 Y.B. Com. Arb. 136 (1984) 137, ICC Case No. 4131 (1982).
21. Dow Chemical v. Isover Saint Gobain, (1982), 9 Y.B. Com. Arb. 136 (1984), ICC Case No. 4131.
22. 1984 Rev Arb, 9 Y.B. Com. Arb. 136 (1984) 137, ICC Case No. 4131 (1982).
23. William W. Park has rightly explained the emphasis on the negotiation stage of a contract. Normally, it is during this time that parties understand who is expected to be bound. A dominant entity thus should not be permitted to renege on its agreement, particularly when the negotiation induced reliance by the counterparty. See, Park, William W., “Non-Signatories and International Contracts: An Arbitrator’s Dilemma”, 2 Dispute Res. Int’l 84 (2008).
24. 1984 Rev Arb, 9 Y.B. Com. Arb. 136 (1984) 137, ICC Case No. 4131 (1982).
25. Dow Chemical v. Isover Saint Gobain, CA Paris, October 21, 1983, 9 Y.B. Com. Arb. 132 (1984).
26. 1984 Rev Arb, 9 Y.B. Com. Arb. 136 (1984) 137, ICC Case No. 4131 (1982).
27. Also see the earlier Supreme Court decisions in Indowind Energy Ltd. v. Wescare (I) Ltd., (2010) 5 SCC 306 and Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya, (2003) 5 SCC 531. Both these decisions (rendered in the context of an unamended S. 8 of the Arbitration and Conciliation Act, 1996) held that an arbitration agreement cannot be extended to non-signatories.
80. SCC Case No 108/1997, 2000.
83. All views expressed are those of the authors and should not be attributed to the firm they are associated with or any other person.
- S. 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 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.
- S. 35. Finality of arbitral awards.— Subject to this Part, an arbitral award shall be final and binding on the parties and persons claiming under them respectively.
- S. 45. Power of judicial authority to refer parties to arbitration.— Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 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 prima facie finds that the said agreement is null and void, inoperative or incapable of being performed.
87. See, fn. 9.)
88. India signed the New York Convention on 10-6-1958 and ratified it on 13-7-1960.
90. See, fn. 9
93. ONGC Ltd. v. Afcons Gunanusa JV, 2022 SCC OnLine SC 1122, Pasl Wind Solutions (P) Ltd. v. GE Power Conversion India (P) Ltd., (2021) 7 SCC 1, Centrotrade Minerals and Metal Inc. v. Hindustan Copper Ltd., (2017) 2 SCC 228.
95. State of Rajasthan v. Gotan Lime Stone Khanij Udyog (P) Ltd., (2016) 4 SCC 469, paras 24 to 27, UT, Chandigarh v. Esys Information Technologies Pte. Ltd., (2016) 12 SCC 582, para 16, Arcelormittal India (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1, paras 32 to 37.
96. In this connection, it is important to note the well-established distinction between the inherent powers available to a civil court in India and the limited powers available to an Arbitral Tribunal, which are circumscribed by the contract under which it has been created and in accordance with the Arbitration and Conciliation Act, 1996. See, V.G. Santhosam v. Shanthi Gnanasekaran, 2020 SCC OnLine Mad 560, para 85.
97. While the Gujarat High Court has upheld the power of an Arbitral Tribunal to implead third parties by lifting the corporate veil [IMC Ltd. v. Board of Trustees of Deendayal Port Trust, (2019) 60 (3) GLR, paras 31 and 34], the Madras High Court, Delhi High Court and Bombay High Court have categorically stated that in the absence of any express provisions in the Arbitration and Conciliation Act, 1996, an Arbitral Tribunal cannot wield such power [Abhibus Services India (P) Ltd. v. Pallavan Transport Consultancies Services Ltd., 2022 SCC OnLine Mad 796, paras 136 to 138, Sudhir Gopi v. Indira Gandhi National Open University, 2017 SCC OnLine Del 8345, paras 15 to 20, ONGC v. Jindal Drilling & Industries Ltd., 2015 SCC OnLine Bom 1707, para 47].