{"id":308507,"date":"2023-12-06T12:30:52","date_gmt":"2023-12-06T07:00:52","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=308507"},"modified":"2023-12-08T11:59:48","modified_gmt":"2023-12-08T06:29:48","slug":"can-bind-non-signatory-parties-to-arbitration-agreement-supreme-court-legal-news","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2023\/12\/06\/can-bind-non-signatory-parties-to-arbitration-agreement-supreme-court-legal-news\/","title":{"rendered":"Group of Companies Doctrine applicable in Indian Arbitration Jurisprudence; Can bind non-signatory parties to Arbitration Agreement: Supreme Court 5 Judge Bench"},"content":{"rendered":"<div style=\"text-align: justify; line-height: 150%;\">\n<p><span style=\"font-weight: bold;\">Supreme Court:<\/span> The 5-Judge bench comprising of Dr. Dhananjaya Y. Chandrachud C.J., Hrishikesh Roy, Pamidighantam Sri Narasimha, J.B. Pardiwala and Manoj Misra, JJ. delivered the Judgment pertaining to the issues of:<\/p>\n<ol style=\"list-style-type: decimal;\">\n<li>\n<p>Whether the Group of Companies Doctrine exists in Indian jurisprudence, independent of statutory provision?<\/p>\n<\/li>\n<li>\n<p>Can the same be read into Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001544989\" target=\"_blank\" rel=\"noopener\">8<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002726958\" target=\"_blank\" rel=\"noopener\">Arbitration and Conciliation Act, 1996<\/a> (&#8216;Arbitration Act&#8217;)?<\/p>\n<\/li>\n<li>\n<p>Whether it should continue to be invoked on grounds of a single economic reality principle?<\/p>\n<\/li>\n<li>\n<p style=\"margin-bottom: 3%;\">Whether it should be construed as a means of interpreting the implied intent or consent to arbitrate between the parties?<\/p>\n<\/li>\n<\/ol>\n<p style=\"font-weight: bold;\">BACKGROUND<\/p>\n<p style=\"font-weight: bold;\">Factual Matrix<\/p>\n<p style=\"margin-bottom: 3%;\">In the matter at hand, the Cox and Kings Limited (&#8216;petitioner&#8217;) provides tours and travels services. SAP SE GMBH (respondent 2) is a European multinational software company incorporated under the laws of Germany. The Petitioner had entered into an SAP Software End User License Agreement &amp; SAP Enterprise Support Schedule (&#8216;License Agreement&#8217;) dated 14-12-2010. Respondent 2 was the proprietor and licensor of the software. SAP India Private Limited (&#8216;respondent 1&#8217;) was merely its licensee in India which was a subsidiary of respondent 2. Therefore, respondents 1 and 2 were allegedly the same &#8216;group of companies.&#8217; The agreements signed between the parties also recorded that the SAP Hybris Solution software suitable for the use of the petitioner was owned by respondent 2 whereas respondent 1 was merely a licensee. All agreements executed between the parties were composite in nature forming an interlinked transaction by both respondent 1 and 2 to provide services to the petitioner.<\/p>\n<p style=\"margin-bottom: 3%;\">The Petitioner&#8217;s case was that serious prejudice was caused to their functioning due to the challenges and delay in the execution of the project on part of respondent 1. Since no concrete response or action was received from respondent 1, petitioner escalated the issue to the proprietor of the software respondent 2- listing out several issues with the project and requesting to bring the project back on track. Consequently, respondent 2 assured the petitioner to monitor progress of the project and revise engagement plan and delivery approach.<\/p>\n<p style=\"margin-bottom: 3%;\">The petitioner had relied upon <span style=\"font-weight: bold;\"><i>Chloro Controls India Private Limited<\/i> v. <i>Severn Trent Water Purification<\/i>, <a href=\"http:\/\/www.scconline.com\/DocumentLink\/9gVD9Hls\" target=\"_blank\" rel=\"noopener\">(2013) 1 SCC 641<\/a><\/span> and contended that under the &#8220;Group of Companies&#8221; Doctrine, an Arbitration Agreement entered into by a Company within a group of Companies can bind its non-signatory affiliates, if the circumstances demonstrate that the mutual intention of parties was to bind signatory as well as the non-signatory parties.<\/p>\n<p style=\"font-weight: bold;\">3-Judge Bench Decision referred to 5-Judge Bench<\/p>\n<p style=\"margin-bottom: 3%;\">The Court observed that the Group of Companies Doctrine had been applied in a varied manner post the <span style=\"font-style: italic;\">Chloro Controls (Supra)<\/span> and without referring to the ambit of the phrase &#8216;claiming through or under&#8217; as given under Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001544989\" target=\"_blank\" rel=\"noopener\">8<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002726958\" target=\"_blank\" rel=\"noopener\">Arbitration Act<\/a>. The Court said that the group of companies doctrine must be applied with caution and the mere fact that a non-signatory is a member of a group of affiliated companies will not be sufficient to claim extension of the arbitration agreement to the non-signatory. Doubting the correctness of the <span style=\"font-style: italic;\">Chloro Controls (Supra)<\/span>, the Court referred the aspect of interpretation of &#8216;claiming through or under&#8217; under Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001544989\" target=\"_blank\" rel=\"noopener\">8<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002726958\" target=\"_blank\" rel=\"noopener\">Arbitration Act<\/a> qua the doctrine of group of companies to a larger Bench to provide clarity on this aspect.<\/p>\n<p style=\"font-weight: bold;\">5-Judge Bench Decision<\/p>\n<p>The Court held that the approach in <span style=\"font-style: italic;\">Chloro Controls (Supra)<\/span> to the extent that it traces the group of companies doctrine to the phrase &#8216;claiming through or under&#8217; as given under Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001544989\" target=\"_blank\" rel=\"noopener\">8<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002726958\" target=\"_blank\" rel=\"noopener\">Arbitration Act<\/a> was erroneous and against the well settled principles of contract in commercial law. The Court conclusively held that:<\/p>\n<ol style=\"list-style-type: lower-alpha;\">\n<li>\n<p>The definition of parties under Section 2(1)(h) read with Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001544978\" target=\"_blank\" rel=\"noopener\">7<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002726958\" target=\"_blank\" rel=\"noopener\">Arbitration Act<\/a> includes both signatory as well as non-signatory parties.<\/p>\n<\/li>\n<li>\n<p>Conduct of the non-signatory parties could be an indicator of the consent to be bound by the arbitration agreement.<\/p>\n<\/li>\n<li>\n<p>The requirement of the written arbitration agreement under Section 7 does not exclude the possibility of binding non-signatory parties.<\/p>\n<\/li>\n<li>\n<p>Under the Arbitration Act, the concept of a party is distinct and different from the concept of person&#8217;s claiming through or under a party to the Arbitration agreement.<\/p>\n<\/li>\n<li>\n<p>The underlying basis for the application of the companies doctrine rests on the corporate separateness of the group of companies while determining the common intention of the non-signatory to the arbitration agreement.<\/p>\n<\/li>\n<li>\n<p>The principle of alter ego or piercing the corporate veil cannot be made the basis for the application of the doctrine.<\/p>\n<\/li>\n<li>\n<p>The doctrine has an independent existence as a principle of law which stems from harmonious reading of Section 2(1)(h) along with Section <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0001544978\" target=\"_blank\" rel=\"noopener\">7<\/a> of the <a href=\"https:\/\/www.scconline.com\/DocumentLink.aspx?q=JTXT-0002726958\" target=\"_blank\" rel=\"noopener\">Arbitration Act<\/a>.<\/p>\n<\/li>\n<li>\n<p>To apply the doctrine, the Courts and Tribunals have to consider all the cumulative factors laid down in <i>ONGC Ltd.<\/i> v. <i>Discovery Enterprises (P) Ltd.<\/i>, <a href=\"http:\/\/www.scconline.com\/DocumentLink\/t8x1te18\" target=\"_blank\" rel=\"noopener\">(2022) 8 SCC 42<\/a><span style=\"font-weight: bold;\">.<\/span> The principle of single economic unit cannot be the sole basis for invoking the doctrine.<\/p>\n<\/li>\n<li>\n<p style=\"margin-bottom: 3%;\">The doctrine should be retained in Indian Arbitration Jurisprudence considering its utility and determining the intention of the parties in the context of complex transactions involving multiple parties and agreements.<\/p>\n<\/li>\n<\/ol>\n<p style=\"margin-bottom: 3%;\">[<span style=\"font-weight: bold; color: #632423;\">Cox &amp; Kings Ltd. v. SAP India (P) Ltd., <a href=\"http:\/\/www.scconline.com\/DocumentLink\/PDhl5IjS\" target=\"_blank\" rel=\"noopener\">2023 SCC OnLine SC 1634<\/a>, Decided on: 06-12-2023<\/span>]<\/p>\n<hr\/>\n<p>Advocates who appeared in this case :<\/p>\n<p style=\"margin-left: 18pt;\"><b>For the petitioner:<\/b> Advocate Hiroo Advani, Advocate on Record Divyakant Lahoti, Advocate Praveena Bisht, Advocate Madhur Jhavar, Advocate Vindhya Mehra, Advocate Kartik Lahoti, Advocate Rahul Maheshwari, Advocate Garima Verma, Advocate Kumar Vinayakam Gupta, Advocate Mallika Luthra, Advocate Saksham Barsaiyan, Advocate Shivangi Malhotra, Advocate Navdeep Dahiya, Senior Advocate Nakul Dewan, Senior Advocate Advocate Sanjoy Ghose, Advocate Jeevan Ballav Panda, Advocate Shalini Sati Prasad, Advocate Satish Padhi, Advocate Meher Tandon, Advocate Gaurav Sharma, Advocate Dhriti Mehta, Advocate Rohan Mandal, Advocate Rohan Andrew Naik, Advocate on Record Khaitan &#038; Co., AOR Nagarkatti Kartik Uday<\/p>\n<p style=\"margin-left: 18pt;\"><b>For Respondents:<\/b> Solicitor General Tushar Mehta, Advocate Kanu Agrawal, Advocate on Record Rohan Batra, Senior Advocate Ritin Rai, Advocate Farhad Sorabjee, Advocate on Record Dheeraj Nair, Advocate Kumar Kislay, Advocate Pratik Pawar, Advocate Siddhesh Pradhan, Advocate Shanaya Cyrus Irani, Advocate Aishna Jain, Advocate on Record Apoorv Shukla, Advocate Anirudh Krishnan, Advocate Shiva Krishnamurti, Advocate on Record Balaji Srinivasan, Advocate Rohan Dewan, Advocate Sukanya Joshi, Advocate Vishwaditya, Advocate Niti Richariya, Advocate Gauri Pasricha, Advocate Ramkishore Karnam, Advocate Adarsh Subramanian, Advocate Mahaswetha S, Advocate Varun Venkatesan, Advocate Mohit Kumar, Advocate Anisha C, Advocate George Pothan Poothicote, Advocate Manisha Singh, Advocate Jyoti Singh, Advocate Ashu Pathak, Advocate On Record Arunava Mukherjee, Advocate Debesh Panda, Advocate on Record Pallav Mongia, Advocate Tushar Srivastava, Advocate Vijay Deora, Advocate Jayesh Gupta, Advocate Ritik Sharma, Advocate Ajay Bhargava, Advocate Vanita Bhargava, Advocate Aseem Chaturvedi, Advocate Trishala Trivedi, Advocate Milind Sharma, Advocate On record Khaitan &#038; Co., Advocate Ujjwal A. Rana, Advocate Himanshu Mehta, Advocate On Record Gagrat And Co., Senior Advocate Darius J. Khambata, Advocate Sonali Malik, Advocate Harsh Vardhan Arora, Advocate Tushar Hathiramani, Advocate Rishabh Bhargava, Advocate Dhruv Sethi, Advocate Vidhi Shah<\/p>\n<h3 style=\"color: #000080;\">Buy Arbitration and Conciliation Act, 1996 &nbsp; <a href=\"https:\/\/www.ebcwebstore.com\/product_info.php?products_id=382\" target=\"_blank\" rel=\"noopener\">HERE<\/a><\/h3>\n<p style=\"margin-bottom: 3%;\"><a href=\"https:\/\/www.ebcwebstore.com\/product_info.php?products_id=382\" target=\"_blank\" rel=\"noopener\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/06\/arbitration-and-conciliation-act-1996-191x300.png\" alt=\"arbitration and conciliation act, 1996\" width=\"191\" height=\"300\" class=\"aligncenter size-large wp-image-294803\" srcset=\"https:\/\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/06\/arbitration-and-conciliation-act-1996-191x300.png 191w, https:\/\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/06\/arbitration-and-conciliation-act-1996-38x60.png 38w, https:\/\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/06\/arbitration-and-conciliation-act-1996.png 620w\" sizes=\"auto, (max-width: 191px) 100vw, 191px\" \/><\/a><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p style=\"font-style: italic;\">&#8220;The approach in Chloro Controls India Private Limited v. Severn Trent Water Purification, <a href=\"http:\/\/www.scconline.com\/DocumentLink\/9gVD9Hls\" target=\"_blank\" rel=\"noopener\">(2013) 1 SCC 641<\/a> to the extent that it traces the group of companies doctrine to the phrase &#8216;claiming through or under&#8217; as given under Section 8 of the Arbitration Act was erroneous and against the well settled principles of contract in commercial law&#8221;.<\/p>\n","protected":false},"author":67517,"featured_media":308513,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,9],"tags":[4851,10111,40741,45496,63259,5363],"class_list":["post-308507","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-supremecourt","tag-5-judge-bench","tag-arbitration-agreement","tag-arbitration-and-conciliation-act-1996","tag-group-of-companies-doctrine","tag-non-signatory-parties","tag-supreme-court"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.4 (Yoast SEO v26.4) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Group of Companies Doctrine can bind non-signatory parties to Arbitration Agreement: 5 Judge Bench SC | SCC Blog<\/title>\n<meta name=\"description\" content=\"Can bind non-signatory parties to Arbitration Agreement by Group of Companies Doctrine: Supreme Court 5 Judge Bench\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.scconline.com\/blog\/post\/2023\/12\/06\/can-bind-non-signatory-parties-to-arbitration-agreement-supreme-court-legal-news\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Group of Companies Doctrine applicable in Indian Arbitration Jurisprudence; 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