{"id":287548,"date":"2023-03-23T10:00:13","date_gmt":"2023-03-23T04:30:13","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=287548"},"modified":"2023-05-04T12:56:58","modified_gmt":"2023-05-04T07:26:58","slug":"the-group-of-companies-doctrine-in-india-antithetical-to-free-consent","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2023\/03\/23\/the-group-of-companies-doctrine-in-india-antithetical-to-free-consent\/","title":{"rendered":"The Group of Companies Doctrine in India \u2013 Antithetical to Free Consent?"},"content":{"rendered":"
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A. Introduction<\/h4>\n

The decision of the Supreme Court in Cox & Kings Ltd.<\/i> v. SAP India (P) Ltd.<\/i>1<\/sup><\/a> 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 \u201cconsent\u201d in arbitration.<\/p>\n

Shortly after the Supreme Court, in ONGC Ltd.<\/i> v. Discovery Enterprises (P) Ltd.<\/i>2<\/sup><\/a>, upheld the GOCD and summarised, very succinctly, its elements3<\/sup><\/a>; in Cox & Kings<\/i>4<\/sup><\/a>, 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 Bench<\/i>5<\/sup><\/a>, it is stated that the GOCD is an integral part of India\u2019s arbitral jurisprudence. Collectively, the Judges posed six questions6<\/sup><\/a> to a larger Bench7<\/sup><\/a> for an authoritative decision on the matter. The Constitution Bench of the Supreme Court has begun hearing the matter.<\/p>\n

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 \u201ca separate legal entity\u201d. But to the traditional lawyer in India, the main concern is the doctrine\u2019s 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 & Kings<\/i>8<\/sup><\/a> called out this concern.<\/p>\n

Some modern academics and lawyers question this \u201cover reliance\u201d on consent. They make arguments on why it is time to rethink the need for consent in arbitration.9<\/sup><\/a> It is suggested that we should move away from \u201cconsent\u201d and make \u201cthe dispute\u201d the central and determining theme of arbitration.10<\/sup><\/a> Others suggest that arbitration should be a \u201cdefault\u201d choice.11<\/sup><\/a> Interestingly, \u201cnon-consensual arbitration\u201d (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<\/sup><\/a> In fact, some suggest that \u201creal consent\u201d arguably ceased to be the touchstone of arbitration law some time ago.13<\/sup><\/a><\/p>\n

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<\/sup><\/a> The Supreme Court, we hope, will answer this.<\/p>\n

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 & Kings<\/i>15<\/sup><\/a> for determination by a larger Bench.<\/p>\n

B. The Group of Companies Doctrine<\/h4>\n

The principle that rights and obligations of an arbitration agreement apply only to the agreement\u2019s parties is a straightforward application of the doctrine of privity of contract, recognised in both common and civil law jurisdictions.16<\/sup><\/a><\/p>\n

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 \u201cshall recognise an agreement in writing under which the parties undertake to submit their disputes to arbitration\u201d.17<\/sup><\/a><\/p>\n

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<\/sup><\/a> 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.<\/p>\n

While the doctrine was initially developed by a number of ICC Tribunals and French Courts,19<\/sup><\/a> the findings in Dow Chemical<\/i>20<\/sup><\/a> case are considered to be the cornerstone of this doctrine.<\/p>\n

Award in the Dow Chemical Case<\/i><\/h4>\n

The GOCD drew international recognition in the ICC award in Dow Chemical<\/i> v. Isover Saint Gobain<\/i>.21<\/sup><\/a><\/p>\n

In Dow Chemical<\/i>22<\/sup><\/a> , 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.<\/p>\n

The Tribunal rejected the jurisdictional challenge. In its analysis, the Tribunal assessed the circumstances under which the (a<\/i>) negotiation;23<\/sup><\/a> (b<\/i>) performance; and (c<\/i>) termination of the underlying contracts took place.<\/p>\n

It noted the following:<\/p>\n