Introduction
Arbitration is a private dispute resolution mechanism which involves a contractual arrangement between two or more parties to waive the right of each side to invoke the jurisdiction of the court(s) competent to adjudicate the disputes amongst such parties and instead refer them to the Arbitral Tribunal that is to be constituted in accordance with the provisions of the arbitration agreement. Therefore, it is universally accepted that arbitration is exclusively reserved for those parties which consent to it by entering into a valid arbitration agreement. This notion has been very aptly captured by the Supreme Court of the United States of America in United Steelworkers of America v. American Mfg. Co.1, by noting that, “to be sure, since arbitration is a creature of contract, a court must always inquire, when a party seeks to invoke its aid to force a reluctant party to the arbitration table, if the parties have agreed to arbitrate the particular dispute”. Usually, the arbitration agreement or the principal contract containing an arbitration clause bears the signature and/or stamp of the parties to it, signifying their unambiguous intention and consent to refer their disputes to arbitration.
It has been observed that due to the increasing growth and complicated nature of commercial transactions in the present times, under certain circumstances, even third parties, which have not signed a contract, may be benefitted from and therefore be bound by its terms.2 Consequently, Arbitral Tribunals and courts in various national jurisdictions have deemed it proper to compel such non-signatories to arbitrate on certain grounds such as apparent agency, piercing of corporate veil, alter ego, third-party beneficiary and estoppel3 in order to stay in touch with the realities of modern commercial transactions which are commonly entangled in multi-agreement and multi-party disputes. However, one of such grounds which has received the most attention and interest is the group of companies doctrine (the doctrine), essentially conceptualised, developed and expounded in the French national jurisdiction. The doctrine, in simple words, enables Arbitral Tribunals and courts to extend the arbitration agreement over members within a company group which have a relationship with the principal contract, under special circumstances. It is similar to piercing of corporate veil, alter ego, and third-party beneficiary doctrines; however, its distinctive mark is its specific creation and applicability to arbitration.4
In 2013, the Supreme Court of India (Supreme Court) adopted the doctrine in the seminal case of Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc.5 (Chloro Controls). Since then, the Supreme Court has applied the doctrine in context of various cases, sometimes in a manner whereby the doctrine seems have lost touch with its original form, iteration, and purpose. Resultantly, in Cox and Kings Ltd. v. SAP India (P) Ltd.6 (Cox and Kings), the Supreme Court has sought a relook into the doctrine as applicable in India by a larger Bench in order to ascertain the basis of its existence, application, and form in the Indian arbitration law. In view thereof, the present article seeks to address the concerns and issues raised in Cox and Kings7 by tracing the development and exposition of the doctrine by the Supreme Court in certain significant cases. However, before undertaking the aforementioned exercise, it is only appropriate to analyse the conception and origin of the doctrine.
Conception of the group of companies doctrine
The origin of the group of companies doctrine can be traced to the interim award in the landmark case of Dow Chemical v. Isover Saint Gobain8 (Dow Chemical) which was adjudicated by the International Chamber of Commerce (ICC) Tribunal at Paris. In the instant case, Dow Chemical A.G., and Dow Chemical Europe, two subsidiaries of the Dow Chemical Company (based in the United States of America), had entered into and signed two contracts, containing arbitration clauses, with Isover Saint Gobain (Isover) for the distribution of thermal insulation products. Both contracts stipulated that any subsidiary of Dow Chemical Company could discharge the delivery obligations under the said contracts. Consequently, during the course of business cooperation amongst the parties, it was Dow Chemical France, yet another subsidiary of Dow Chemical Company, which was not a signatory to the aforementioned contracts, which actually discharged the delivery obligations on behalf of its sister concerns.
When disputes arose amongst the parties with respect to the performance of the aforementioned contracts, Dow Chemical A.G., Dow Chemical Europe, Dow Chemical France, and Dow Chemical Company (parent company) brought an arbitration claim against Isover before the ICC Tribunal. However, the jurisdiction of the ICC Tribunal was challenged by Isover on the ground that two of the four claimants i.e. Dow Chemical France and Dow Chemical Company, were not signatories to the distribution contracts containing the arbitration clauses. The ICC Tribunal rejected this contention in its interim award and held that even though each individual member of the Dow Chemical Group has a separate legal identity, it was incumbent upon the Tribunal to assess and consider the elements and factors surrounding the business cooperation amongst the parties to the said distribution contracts.
After doing so, the ICC Tribunal came to a finding that Dow Chemical France and Dow Chemical Company could indeed invoke arbitration against Isover since
(i) both had played a central role in negotiating the said distribution contracts;
(ii) the assent of Dow Chemical Company, being the parent company and the owner of all relevant trademarks being used by its subsidiaries (without any licence agreements), was essential to consummate the deal; and
(iii) Dow Chemical France was by and large responsible for discharging the obligations of its sister concerns under the said distribution contracts.
The ICC Tribunal observed that all these factors indicated that the signatories to the said distribution contracts had impliedly consented to the aforementioned non-signatories being a part of the entire business transaction under consideration. The ICC Tribunal also took into consideration certain international trade usages, specifically the existence of a company group i.e. the Dow Chemical Group, of which the four claimants were members.9
In view of the above, the ICC Tribunal came to the conclusion that Dow Chemical Group operated as a “single economic reality” and held that:
Considering, in particular, that the arbitration clause expressly accepted by certain of the companies of the group should bind the other companies which, by virtue of their role in the conclusion, performance, or termination of the contracts containing said clauses, and in accordance with the mutual intention of all parties to the proceedings, appear to have been veritable parties to these contracts or to have been principally concerned by them and the disputes to which they may give rise.10
The Paris Court of Appeal also concurred with the above decision of the ICC Tribunal whilst dismissing the challenge made by Isover, on jurisdictional grounds, against the interim award passed in Dow Chemical11. It is pertinent to note that, in Dow Chemical12, the ICC Tribunal, therefore, conceptualised a three-pronged test for the application of the doctrine viz. existence of a company group creating a “single economic reality,” cumulative participation of the non-signatories in the negotiation, performance and termination of the contract and the mutual intention of all parties to bind the non-signatories to the arbitration agreement. These elements have been explained hereunder for the sake of better understanding of the original form and iteration of the doctrine.
A. Single economic reality
In the present times, it is fairly common for companies to carry out their commercial transactions through subsidiaries resulting in the formation of company groups, functioning, and operating in a synchronised manner, wherein the parent company usually controls the coordinated actions of the entire group resulting in what has been termed as a “single economic reality”. Notwithstanding the same, it has been pointed out by certain scholars that the mere existence of a company group could not in itself justify the extension of the arbitration agreement to non-signatories.13 However, it is imperative to consider that Dow Chemical14 covered a situation wherein the parent company i.e. Dow Chemical Company exercised a significant control over its subsidiaries resulting in a tight group structure. It has been observed that the application of the doctrine is warranted only when the existence of strong financial and organisational links amongst the companies involved in the business transaction15 and a unity of financial orientation derived from common power16 is demonstrated.
B. Negotiation, performance, and termination of the contract
The application of the doctrine requires cumulative participation of the non-signatories in the negotiation, performance and termination of the contract containing the arbitration clause.17 The said cumulative participation of the non-signatories can be determined from their conduct such as the substitution of parties for discharging contractual obligations or the use of intellectual property rights (like trademarks) owned by the parent company without any licence agreements as was the case in Dow Chemical18.
C. Mutual intention to bind non-signatories
The Paris Court of Appeal, in its abovementioned order of dismissal of the appeal preferred by Isover, had observed that:
[Arbitral Tribunal] ha[d], 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.19
This implies that both signatories and non-signatories shall have a clear intention of binding the non-signatories to the arbitration agreement at the time of the conclusion of contract.
Despite having such fairly strong foundations, the doctrine has had its own share of criticisms. The doctrine has been principally criticised for its apparent disregard for party autonomy in arbitration resulting in the breach of privity of contract.20 However, it is essential to understand that the true intention of the parties as manifested in their conduct is the touchstone of the doctrine21 and it is applicable only if there is evidence to establish that the non-signatory intended to be bound by the arbitration agreement.22 It has been further argued by Brekoulakis that the doctrine has implied consent at its core and the non-signatories forming part of same company group is a factor that indicates the existence of the implied consent.23
Since implied consent plays a central role in the applicability of the doctrine, at this stage, it is pertinent to mention that although traditionally only written instruments were used to prove arbitral consent, in the present times, international law has evolved with respect to the form of an arbitration agreement thereby providing a certain degree of flexibility in inferring arbitral consent.
The new version of the UNCITRAL Model Law on International Commercial Arbitration24 (Model Law) released in 2006 recognises:
… a record of the “contents” of the agreement “in any form” as equivalent to traditional “writing.” The agreement to arbitrate may be entered into in any form (e.g. including orally) as long as the content of the agreement is recorded. This new rule is significant in that it no longer requires signatures of the parties or an exchange of messages between the parties.25
Additionally, Article 7 — Option II of the Model Law provides an open-ended interpretation of arbitral consent by merely stating that arbitration agreement is an agreement by the parties to submit their disputes to arbitration. Therefore, there is no requirement as to the form of an arbitration agreement thereby leading to the inference that lex arbitri based on Article 7 — Option II does not require either written agreement or written evidence thereof. This demonstrates the significance and requirement of an inquiry into the consent of the parties to be bound by the arbitration agreement even when the same may not be necessarily in writing. In the same vein, Meyniel argues that the task of an Arbitral Tribunal is to find the true intention of the parties, implied or express, and determine whether the parties did consent, in any form, to arbitration.26
It is observed that the doctrine has received a lukewarm response by national court systems across the world. Whilst Arbitral Tribunals and courts in France freely apply it, the judicial authorities in England, Switzerland and the United States of America have been quite hostile to the application of the doctrine.27 For instance, in Peterson Farms Inc. v. C&M Farming Ltd.28, the English High Court went to the extent of expressly stating that the doctrine “forms no part of English Law”29. However, interestingly, the Supreme Court of India has not only adopted the doctrine, but also has applied it frequently, thereby developing its contours, as will be elucidated hereunder.
Application of the group of companies doctrine in the Indian context
A. Recognition of implied arbitral consent
The law of arbitration in India is codified in the Arbitration and Conciliation Act, 199630 (the Act) which is based on the Model Law. Although Section 7(4)31 of the Act recognises a signed document containing an arbitration clause as only one of the modes32 of the formation of an arbitration agreement, Section 7(3) of the Act requires that an arbitration agreement shall be in writing. However, the Supreme Court has recognised the role of implied consent in extending arbitration agreement to non-signatories on certain occasions thereby perhaps taking stock of the recent developments in the Model Law discussed hereinabove. For instance, in Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia (P) Ltd.33, the Supreme Court has observed that the existence of arbitration agreement can be deduced once it is ascertained that the parties were ad idem through a contract, their conduct or correspondences.
Similarly, in Cheran Properties Ltd. v. Kasturi and Sons Ltd.34 (Cheran Properties), the Supreme Court has noted that:
25. Does the requirement, as in Section 7, that an arbitration agreement be in writing exclude the possibility of binding third parties who may not be signatories to an agreement between two contracting entities? The evolving body of academic literature as well as adjudicatory trends indicate that in certain situations, an arbitration agreement between two or more parties may operate to bind other parties as well. Redfern and Hunter explain the theoretical foundation of this principle:
“… The requirement of a signed agreement in writing, however, does not altogether exclude the possibility of an arbitration agreement concluded in proper form between two or more parties also binding other parties.…”
In addition to the above, interestingly, Section 2(1)(h)35 of the Act defines the term “party” as “a party to the arbitration agreement” and not merely a signatory thereto.
B. Adoption and development of the doctrine
Although the doctrine is not recognised by the Act expressly, it finds its prominent place in the Indian case law. As mentioned earlier, the doctrine was first applied in the context of Indian arbitration law in Chloro Controls36 and therefore, it is apposite to consider the facts and circumstances of the said case which prompted the Supreme Court to consider the adoption of the doctrine. In the instant case, Chloro Controls Pvt. Ltd., an Indian company owned by one Mr Madhusudan Kocha and his corporate group and Capital Controls (Delaware), an American company desired to enter into a business cooperation in order to carry out distribution of chlorination equipment in India. Therefore, the said entities along with Mr Kocha created a joint venture by the name of Capital Controls (India) Pvt. Ltd. to work with Capital Controls (Colmar) Co. Inc., a sister concern of Capital Controls (Delaware), both of which were subsidiaries of Severn Trent Services (Delaware) Inc. (Severn Trent).37 All these entities entered into various agreements, some of which contained conflicting dispute resolution clauses. Additionally, above all, there existed a shareholders agreement containing an arbitration clause, which was entered into by only Chloro Controls Pvt. Ltd., Mr Kocha, and Capital Controls (Delaware). Other than the shareholders agreement, all other agreements were entered into between Capital Controls (Colmar) and the joint venture.
Since Severn Trent started distributing its equipment through an entity other than the joint venture, disputes arose amongst the parties involved in the aforementioned business cooperation. As a result, Chloro Controls Pvt. Ltd. initiated litigation to obtain injunctive relief, against which Capital Controls (Delaware) and Severn Trent invoked the arbitration clause under the shareholders agreement on the ground that all the agreements entered into by the abovementioned entities formed part of a “composite transaction” thereby also binding the non-signatories to the arbitration agreement contained in the shareholders agreement by virtue of the group of companies doctrine. Therefore, the questions which arose before the Supreme Court were whether the non-signatory concerns could invoke the arbitration clause in the shareholders agreement, and whether the disputes, which arose in relation to all the agreements entered into by the abovementioned entities, could be heard in one arbitration.
The Supreme Court considered that Section 4538 (applicable to international commercial arbitrations under Part II) of the Act allowed a party and “any person claiming through or under him” to approach a judicial authority for reference of a dispute to arbitration and made an interpretation that use of the said phrase provides statutory basis for extending arbitration agreements to non-signatories under the Act. Thereafter, the Supreme Court identified the shareholders agreement as a “mother agreement” and held the group of contracts under consideration formed a “composite transaction” by noting that,
139. All these agreements are so intrinsically connected to each other that it is neither possible nor probable to imagine the execution and implementation of one without the collective performance of all the other agreements.39
The Supreme Court also observed that the dispute resolution provision in the shareholders agreement provided that all disputes arising “under and in connection with” the said agreement would be arbitrable.40 Further, the Supreme Court went on to hold that Severn Trent was a party “claiming through or under” a signatory i.e. Chloro Controls (Delaware) and also held that the joint venture i.e. Chloro Controls (India) Pvt. Ltd., was a party “claiming through or under” all the signatories as it was the clear subject of concern of the shareholders agreement, and all other subsidiary agreements were signed by it.41 In this manner, the Supreme Court used the phrase “party and any person claiming through or under him” appearing in Section 45 of the Act to adopt and apply the doctrine in the context of the Indian arbitration law.
However, it appears that in laying down the law with respect to the doctrine as applicable in India, the Supreme Court in Chloro Controls has taken self-contradicting positions. This is evident from the fact that, although the Supreme Court emphasised that the “ ‘intention of the parties' is a very significant feature which must be established before the scope of arbitration can be said to include the signatory as well as the non-signatory parties”42, it went on to introduce a four-pronged test to extend the arbitration agreements to non-signatories “without their prior consent” in “exceptional cases”.43 According to the said test, an arbitration agreement may be extended to non-signatories notwithstanding the absence of the intention of the parties to do so if:
(i) there is a direct relationship between the non-signatory and the signatory;
(ii) the disputes involve a common subject-matter;
(iii) there is a composite transaction i.e. where performance of the mother agreement may not be feasible without the aid, execution, and performance of the supplementary or ancillary agreements, for achieving the common object and collectively having a bearing on the dispute; and
(iv) the composite reference serves the ends of justice.44
It may be argued that the above approach of the Supreme Court in Chloro Controls45 seems to be inconsistent — at times focussing on the intention of parties to bind non-signatories to the arbitration agreement and at other times focussing on the intention of the parties to form a composite transaction, the effect of which is the creation of the abovementioned hybrid “composite transaction” test not resembling the original form of the doctrine as conceptualised Dow Chemical46. Further, the Supreme Court in Chloro Controls47 has effectively held that mutual intention and arbitral consent of the parties may be disregarded if the consideration of equity requires so, expanding the scope of the doctrine to a great extent.
The decision of the Supreme Court in Chloro Controls48 opened doors to the application of the doctrine in various forms that are prima facie inconsistent with Dow Chemical49. For instance, in Ameet Lalchand Shah v. Rishabh Enterprises50 (Ameet Lalchand Shah), the Supreme Court, by extensively relying on Chloro Controls51, extended the arbitration agreement to non-signatories, on the basis of the phrase “party and any person claiming through or under him” appearing in Section 852 (applicable to domestic arbitrations under Part I) of the Act, by merely conducting an inquiry into and coming to a finding that a “composite transaction” existed with respect to a “mother agreement” and three “ancillary agreements” and by presuming the intention of the parties of the said extension from the fact that all of them were members of the same company group rather than the other way round. In the said case, one of the non-signatories, to which the arbitration agreement was extended, was never involved in the negotiation, execution, performance, or termination of the mother agreement in any way, an essential prerequisite for the application of the doctrine.
Similarly, in Cheran Properties53, the Supreme Court relied on the phrase “party and any person claiming through or under him” appearing in Section 3554 of the Act to enforce an arbitral award against a non-signatory although it did not even participate in the arbitration proceedings55, thereby expanding the scope of the doctrine far beyond its intended original purpose. The use doctrine in Cheran Properties56 has been described as “the highest expansion of the group of companies doctrine, whereby, a party is bound to the final award itself on the basis of the doctrine without having a chance to present its case or defend itself in the arbitral proceedings”.57
On the other hand, recent cases have shown a reversal in above trend, whereby the Supreme Court has given due regard to the original form of the doctrine as expounded in Dow Chemical58. For instance, in Reckitt Benckiser (India) (P) Ltd. v. Reynders Label Printing India (P) Ltd.59 (Reckitt), the Supreme Court has observed that the application of the doctrine will be determined by ascertaining “whether the indisputable circumstances go to show that the mutual intention of the parties was to bind both the signatory as well as the non-signatory parties”.60 The Supreme Court further held that in absence of any evidence of the non-signatories participating in the conclusion of the contract, it cannot be made a part of the arbitration proceedings merely on the ground that it is a part of the same company group as the signatories.
Similarly, In MTNL v. Canara Bank61 (MTNL), the Supreme Court, by extensively relying on Dow Chemical62, emphasised on the existence of a tight group structure for the application of the doctrine, by observing that:
10.7. The group of companies doctrine has also been invoked in cases where there is a tight group structure with strong organisational and financial links, so as to constitute a single economic unit, or a single economic reality. In such a situation, signatory and non-signatories have been bound together under the arbitration agreement. This will apply in particular when the funds of one company are used to financially support or restructure other members of the group.63
Such an interpretation demonstrates that the application of doctrine must require an inquiry into the corporate structure of the signatories and non-signatories as an indication of “tacit or implied consent”64 of the parties to a contract bind non-signatories to the arbitration agreement. However, the decision of the Supreme Court in MTNL65 does not provide clarity as to whether the existence of tight group structure shall be a relevant fact or a presumption of implied consent of the parties to bind non-signatories to the arbitration agreement. The view taken by Surya Kant, J., in his separate opinion in Cox and Kings, leads to the inference that the existence of a tight group structure is a relevant fact whilst conducting the aforementioned consent-based inquiry. According to Kant, J.:
92. … Where a closely knit group exists, the interpretation of a third-party's intent to be bound to the arbitration would be construed from facts and circumstances specific to that group and the manner in which it functions. This maintains the separate legal personality of the non-signatory and joins it to the arbitration proceedings on the basis of its implied acceptance to be bound.66
Very recently, in ONGC Ltd. v. Discovery Enterprises (P) Ltd.67 (ONGC), the Supreme Court has observed that a deeper probe is required to be made into the circumstance justifying the invocation of the doctrine. The Court held that the following factors must be considered whilst deciding whether a non-signatory company within a company group would be bound by the arbitration agreement:
(i) the mutual intent of the parties;
(ii) the relationship of a non-signatory to a party which is a signatory to the agreement;
(iii) the commonality of the subject-matter;
(iv) the composite nature of the transaction; and
(v) the performance of the contract.68
Although the aforementioned test contains all the elements of the doctrine as laid down in Dow Chemical69, the elements of the hybrid “composite transaction” test as laid down in Chloro Controls70 forms a part of the doctrine as applicable in India to this day.
Addressing the issues raised in Cox and Kings
Although there is sufficient basis to bind non-signatories to an arbitration agreement on the ground of the group of companies doctrine in India, the major issues with it, as pointed out by the Supreme Court in Cox and Kings71, is that the doctrine has been adopted and applied under the phrase “party and any person claiming through or under him” appearing in Sections 8, 35 and 45 of the Act and the concerning manner in which it has been interpreted and applied in and post Chloro Controls.72 The Supreme Court has observed that the interpretation of the aforementioned phrase to extend the application of the doctrine in India is problematic since the said phrase traditionally covers only substituted parties and successors in interest to a signatory party and not non-signatories.73 Further, since the abovementioned phrase was originally absent in Section 8 of the Act, corresponding to Section 45 of the Act, an amendment was made post Chloro Controls74 to insert the same therein on the basis of the recommendation made the 246th Law Commission Report75 in order to facilitate the binding of non-signatories to arbitration agreements with respect to domestic arbitrations if the facts and circumstances of the case warrant so. However, no such amendment was made in Section 2(1)(h) of the Act which defines the term “party”, which according to the Supreme Court, creates an anomaly and an adverse inference against the legislative intent to retain the doctrine in the Indian arbitration law.76
However, Surya Kant, J., in his separate opinion (assenting) in Cox and Kings77, to the contrary, has observed in this regard that one of the objects of the abovementioned amendment to Section 8 of the Act was to pave way for the recognition to the doctrine in context of domestic arbitrations in India.78 This argument gains strength when understood in light of recognition by the Supreme Court of the role played by implied consent to extend arbitration agreement to non-signatories as discussed earlier as well as the fact that Section 2(1)(h) of the Act does not limit the term “party” to only signatories of arbitration agreements or principal contracts containing arbitration clauses. However, in order to ensure that the technicalities of the interpretation of the phrase “party and any person claiming through or under him” does not dilute the existence and application of the doctrine in the Indian arbitration law, it would be prudent to provide the doctrine a standing that is independent of any statutory provision on the basis of judicial precedents.
However, at the same time, it is essential to determine the form and manner of application of the doctrine in India by examining the interpretation thereof by the Supreme Court in the cases discussed hereinabove, thereby identifying instances wherein the Court has expanded the scope of the doctrine beyond what was iterated in Dow Chemical79. For instance, Chloro Controls80 whilst emphasising on a consent-based enquiry for the application of the doctrine, also recognised its application on the basis of the four-pronged hybrid “composite transaction” test which completely disregards implied arbitral consent; an interpretation that ought to be done away with for being materially inconsistent with Dow Chemical81. Consequently, there is a need to demarcate the contours of the doctrine and the “composite transaction” test, which seems to be based on the group of contracts theory, by perhaps defining and applying the latter in an independent capacity if the need be. Doing so may bring about consistency in the understanding and the application of the doctrine by the Indian courts. Similarly, the interpretation of the doctrine whereby primacy is provided to the existence of single economic reality as against mutual intention of the parties to bind non-signatories to the arbitration agreement as made in Ameet Lalchand Shah82 and the unjust exclusive extension of the doctrine to the proceedings pertaining to enforcement of arbitral awards in blatant disregard of the due process established by the Act as made in Cheran Properties83 shall also be done away with. Rather, the interpretations of the doctrine as made in Reckitt84, MTNL85 and ONGC86 which maintain the sanctity of the doctrine, as originally conceptualised in Dow Chemical87, to a great extent shall be retained in the Indian arbitral jurisprudence.
Further, the doctrine has also been attacked on the ground that it impedes party autonomy in arbitration by thrusting it on parties that have not consented to waive their right to invoke the jurisdiction of the competent court(s).88 This seems to be very narrow interpretation of the doctrine. As has been discussed hereinabove, the doctrine is based on implied consent which can be inferred by conducting inquiry under the three-pronged test, especially since unwritten expressions of arbitral consent are now recognised in India. Also, in this regard, Meyniel notes that:
[The doctrine] only operates to effectuate a presumption that group of companies tend to act as a composite economic entity, and where such a situation occurs, it should affect the scope of an arbitration agreement. Yet, that presumption does not operate to negate the requirement for consent, and absent such a finding, the “group of companies” doctrine will have no effect to binding non-signatories.89
Thus, the doctrine attempts to ascertain whether or not the parties actually consented to arbitration in any form.90 The doctrine merely requires that the parties shall not deviate from their promise to settle disputes through arbitration on the ground of the absence of their signature on the arbitration agreement or the principal contract containing an arbitration clause when circumstance evidence the mutual intention of parties to bind non-signatories to the arbitration agreement.
The doctrine has also been criticised for its apparent disregard for the principle of separate legal identity of companies within a company group.91 However, the said criticism is also misplaced. As has been explained in Part II hereinabove, the doctrine examines the existence of a tight group structure i.e. although signatories and non-signatories might exist as distinct entities on paper, there is no evidence to demonstrate their financial and operational independence resulting in the creation of a single economic reality warranting the inference of implied consent of the parties to bind non-signatories to the arbitration agreement. Also, in this regard, Born observes that:
the doctrine is ordinarily a means of identifying the parties' intentions, which does not disturb or affect the legal personality of the entities in question. Rather, as usually formulated, the group of companies doctrine is akin to principles of agency or implied consent, whereby the corporate affiliations among distinct legal entities provide the foundation for concluding that they were intended to be parties to an agreement, notwithstanding their formal status as non-signatories.92
Conclusion
Even though the multiple interpretations of the doctrine by the Supreme Court of India have created a certain degree of ambiguity and uncertainty with respect to its place in the Indian arbitration law, “the appropriate response to such uncertainty would be an authoritative determination of the contours of the doctrine rather than a wholesale uprooting of it from Indian arbitration law altogether”.93 It is fairly clear that the group of companies doctrine has a firm footing in the Indian arbitral jurisprudence by enabling courts to grapple with complex commercial disputes which factually involved the participation of more than those entities which formally signed the contract containing an arbitration clause, thereby also ensuring that the dispute resolution mechanism of arbitration finds its pace with the realities of modern business commercial transactions. Therefore, there seems to be enough scope for retaining the doctrine and consequently the Supreme Court ought to recognise its independent doctrinal existence on the basis of judicial precedents. In order to do so, the doctrine must be interpreted and recognised in its original form i.e. as conceptualised in Dow Chemical94. This would require the Indian courts to focus on undertaking a consent-based enquiry (the course has already been charted in Reckitt95, MTNL96 and ONGC97) and treat the existence of single economic reality as an indication of implied consent of parties to join non-signatories to arbitration agreements, as against the sole or principal basis for invoking the doctrine.
† Advocate based out of Gujarat. Author has previously worked as an Associate with Dispute Resolution Team at M/s Wadia Ghandy & Co., Advocates & Solicitors (Ahmedabad). BA LLB (Hons.) from Faculty of Law, Maharaja Sayajirao University of Baroda, Vadodara, Gujarat. Author can be reached at <dhruvspatel100@gmail.com>.
1. 1960 SCC OnLine US SC 106 : 4 L Ed 2d 1403 : 363 US 564 (1960).
2. Gary Born, International Commercial Arbitration (2nd Edn., Kluwer Law International, 2014) p. 1411.
3. William W. Park, “Non-Signatories and International Contracts: An Arbitrator's Dilemma” in Doak Bishop (Ed.), Multiple Party Actions in International Arbitration (Oxford University Press, 2009) at p.3.
4. Gary Born, International Commercial Arbitration (2nd Edn., Kluwer Law International, 2014) at p. 1166.
8. Dow Chemical France v. Isover Saint Gobain, ICC Case No. 4131, Interim Award dt. 23-9-1982.
9. Dow Chemical case, ICC Case No. 4131, Interim Award dt. 23-9-1982 at 134.
10. Dow Chemical case, ICC Case No. 4131, Interim Award dt. 23-9-1982 at 136.
11. ICC Case No. 4131, Interim Award dt. 23-9-1982.
12. ICC Case No. 4131, Interim Award dt. 23-9-1982.
13. See generally, Gary Born, International Commercial Arbitration (2nd Edn., Kluwer Law International, 2014) p. 1411.
14. ICC Case No. 4131, Interim Award dt. 23-9-1982.
15. ICC Case No. 5894 at para 27.
16. Mauro Rubino-Sammartano, International Arbitration: Law and Practice (3rd Edn., Juris Net, 2014) p. 371.
17. Alexandre Meyniel, “That Which must not be Named: Rationalizing the Denial of US Courts with Respect to the Group of Companies Doctrine”, (2013) 3 The Arbitration Brief 19.
18. ICC Case No. 4131, Interim Award dt. 23-9-1982.
19. Yves Derains, “Is There a Group of Companies Doctrine?”, in Dossier of the ICC Institute of World Business Law, Vol. 7, Bernard Hanotiau and Eric E. Schwarz (Eds.) (Kluwer Law International, 2010) pp. 131, 133, Ch. 7.
20. Pietro Ferrario, “The Group of Companies Doctrine in International Commercial Arbitration: Is There any Reason for this Doctrine to Exist?”, (2009) 26(5) Journal of International Arbitration 647, 652.
21. Stavros Brekoulakis, “Rethinking Consent in International Commercial Arbitration: A General Theory for Non-Signatories”, (2017) 8(4) Journal of International Dispute Settlement 610, 618.
22. Yves Derains, “Is There a Group of Companies Doctrine?”, in Dossier of the ICC Institute of World Business Law, Vol. 7, Bernard Hanotiau and Eric E. Schwarz (Eds.) (Kluwer Law International, 2010) pp. 131, 133, Ch. 7 at p. 138.
23. Yves Derains, “Is There a Group of Companies Doctrine?”, in Dossier of the ICC Institute of World Business Law, Vol. 7, Bernard Hanotiau and Eric E. Schwarz (Eds.) (Kluwer Law International, 2010) pp. 131, 133, Ch. 7 at pp. 141-142.
24. UNCITRAL Model Law on International Commercial Arbitration.
25. UNCITRAL Secretariat, Commentary on UNCITRAL Model Law on International Commercial Arbitration, 28 (30-7-2022), available at <https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/19-09955_e_ebook.pdf>.
26. Alexandre Meyniel, “That Which must not be Named: Rationalizing the Denial of US Courts with Respect to the Group of Companies Doctrine”, (2013) 3 The Arbitration Brief 19.
27. See generally, Alexandre Meyniel, “That Which must not be Named: Rationalizing the Denial of US Courts with Respect to the Group of Companies Doctrine”, (2013) 3 The Arbitration Brief 19.
28. Peterson Farms Inc. v. C&M Farming Ltd., (2004) 1 Lloyd’s Rep 603 : 2004 EWHC 121 (Comm).
29. Peterson Farms Inc. v. C&M Farming Ltd., (2004) 1 Lloyd’s Rep 603 : 2004 EWHC 121 (Comm) at para 62.
30. Arbitration and Conciliation Act, 1996.
31. Arbitration and Conciliation Act, 1996, S. 7(4).
32. Other modes being exchange of letters, telex, telegrams or other means of telecommunication which provides a record of the agreement or by acquiescence in a situation wherein the exchange of state of claim and defence the existence of the agreement is alleged by one party and not denied by the other.
34. (2018) 16 SCC 413, 433-434.
35. Arbitration and Conciliation Act, 1996, S. 2(1)(h).
36. Chloro Controls case, (2013) 1 SCC 641.
37. (2013) 1 SCC 641 at para 7.
38. Arbitration and Conciliation Act, 1996, S. 45.
39. Chloro Controls case, (2013) 1 SCC 641, 712.
40. Chloro Controls case, (2013) 1 SCC 641 at para 144.
41. (2013) 1 SCC 641 at paras 140-143.
42. (2013) 1 SCC 641 at para 67.
43. (2013) 1 SCC 641 at para 68.
46. ICC Case No. 4131, Interim Award dt. 23-9-1982.
49. ICC Case No. 4131, Interim Award dt. 23-9-1982.
52. Arbitration and Conciliation Act, 1996, S. 8.
54. Arbitration and Conciliation Act, 1996, S. 35.
55. (2018) 16 SCC 413 at paras 20-22.
57. Cox & Kings Ltd. v. SAP India (P) Ltd. (Cox and Kings case), 2022 SCC OnLine SC 570 at para 86. (Surya Kant, J., concurring).
58. ICC Case No. 4131, Interim Award dt. 23-9-1982.
60. (2019) 7 SCC 62 at para 3.
61. (2020) 12 SCC 767, 779-780.
62. ICC Case No. 4131, Interim Award dt. 23-9-1982.
63. MTNL case, (2020) 12 SCC 767, 779-780.
64. (2020) 12 SCC 767 at para 10.14.
68. 2022 SCC OnLine SC 522 at para 36.
69. ICC Case No. 4131, Interim Award of 23-9-1982.
71. 2022 SCC OnLine SC 570 at para 47.
73. Cox and Kings case, 2022 SCC OnLine SC 570 at paras 27 and 28.
75. Law Commission of India, Report No. 246 on Amendments to the Arbitration and Conciliation Act, 1996, see para 64.
76. Cox and Kings case, 2022 SCC OnLine SC 570 at paras 30 and 31.
78. 2022 SCC OnLine SC 570 at para 32. (Surya Kant, J., concurring).
79. ICC Case No. 4131, Interim Award of 23-9-1982.
81. ICC Case No. 4131, Interim Award of 23-9-1982.
87. ICC Case No. 4131, Interim Award of 23-9-1982.
88. Pietro Ferrario, “The Group of Companies Doctrine in International Commercial Arbitration: Is There any Reason for this Doctrine to Exist?”, (2009) 26(5) Journal of International Arbitration 648. See also Cox and Kings case, 2022 SCC OnLine SC 570 at para 1.
89. Alexandre Meyniel, “That Which must not be Named: Rationalizing the Denial of US Courts with Respect to the Group of Companies Doctrine”, (2013) 3 The Arbitration Brief 22.
90. Alexandre Meyniel, “That Which must not be Named: Rationalizing the Denial of US Courts with Respect to the Group of Companies Doctrine”, (2013) 3 The Arbitration Brief 22.
91. Cox and Kings case, 2022 SCC OnLine SC 570 at para 1.
92. See generally, Gary Born, “Parties to International Arbitration Agreements”, International Commercial Arbitration in Gary Born (Eds.) International Commercial Arbitration (Kluwer Law International, 2021).
93. Cox and Kings case, 2022 SCC OnLine SC 570 at para 31. (Surya Kant, J., concurring).
94. ICC Case No. 4131, Interim Award of 23-9-1982.
