COX AND KINGS LIMITED versus SAP INDIA PRIVATE LIMITED & ANOTHER

[2022] 15 S.C.R.

COX AND KINGS LIMITED

SAP INDIA PRIVATE LIMITED & ANOTHER

(Arbitration Petition (Civil) No. 38 of 2020)

BMAY 06, 2022

[N. V. RAMANA, CJI, A. S. BOPANNA ANDSURYA KANT, JJ.]

Arbitration and Conciliation Act, 1996:ss. 2(1), 8 –‘Groupof companies’ doctrine as expounded in Chloro Control case –CExamination of scope and applicability of the doctrine in Indianjurisprudence – Issue as regards whether the parent company, whichis not signatory to the arbitration agreement should be joined tothis arbitration petition regardless of the fact that petitioner enteredinto an agreement with only the subsidiary – Held: The ratio of theChloro Control case alludes to the subjective intention of parties toDbe bound by arbitration agreement when the parties have clearlynot been signatory to the agreement – Concepts like single economicentity are economic concepts difficult to be enforced as principlesof law – Areas which were left open by this Court in Chloro Controlcase has created certain broad-based understanding of this doctrinewhich may not be suitable and would clearly go against distinctElegal identities of companies and party autonomy itself – Law laiddown in Chloro Control and the cases following it, appear to havebeen based, more on economics and convenience rather than lawwhich may not be the correct approach – In view thereof, the matterreferred to larger bench to expound on the intricacies of the GroupFof Companies doctrine and answer the questions framed – Referenceto larger Bench.

Referring the matter to larger Bench, the Court

(Per N.V. RAMANA, CJI (for himself and A.S. BOPANNA.

GHELD:

1.1 The ratio of the Chloro Control’s case alludes to thesubjective intention of parties to be bound by arbitrationagreement when the parties have clearly not been signatory tothe agreement. Reconciling the two is difficult and requiresHexposition by this Court. [Para 36][208-D-E]

1.2 It may be noted that the doctrine, as expounded, requiresthe joining of non-signatories as ‘parties in their own right’. Thisjoinder is not premised on non-signatories ‘claiming through orunder’. Such joinder has the effect of obliterating thecommercial reality, and the benefits of keeping subsidiarycompanies distinct. Concepts like single economic entity areeconomic concepts difficult to be enforced as principles of law.[Para 37][208-E-F]

1.3 The areas which were left open by this Court in ChloroControl case has created certain broad-based understanding ofthis doctrine which may not be suitable and would clearly goagainst distinct legal identities of companies and party autonomyitself. The said exposition in the saidm case clearly indicates anunderstanding of the doctrine which cannot be sustainable in ajurisdiction which respects party autonomy. There is clear needfor having re-look at the doctrinal ingredients concerning the‘group of companies’ doctrine. [Para 38][208-G-H]

1.4 An arbitration agreement may be binding on parties,whether signatories or non-signatories, provided there issufficient legal basis to bind them. Most legal bases for bindingnon- signatories to an arbitration agreement are of contractualorigin, like agency, etc. Jurisprudence has shown that arbitrationbeing creature of contract, does not sit very well in bindingnon-signatories. [Para 45][211-H; 212-A]

1.5 The group of companies doctrine must be applied withcaution and mere fact that non-signatory is member of groupof affiliated companies will not be sufficient to claim extension ofthe arbitration agreement to the non-signatory. [Para 46][212-F-G]

1.6 It is appropriate to refer the aspect of interpretation of‘claiming through or under’ as occurring in amended Section 8 ofthe Arbitration Act qua the doctrine of group of companies to alarger Bench to provide clarity on this aspect. The law laid downin Chloro Control and the cases following it, appear to have beenbased, more on economics and convenience rather than law. Thismay not be correct approach. The Bench doubts the correctness

Aof the law laid down in Chloro Control and cases following it.[Para 47][213-F-G]

1.7 This Court deems it appropriate to refer this matter toa larger Bench to expound on the intricacies of the Group ofCompanies doctrine and answer the following questions whetherBphrase ‘claiming through or under’ in Sections 8 and 11 could beinterpreted to include ‘Group of Companies’ doctrine; andwhether the ‘Group of companies’ doctrine as expounded byChloro Control Case and subsequent judgments are valid in law?[Para 50][214-B-C]

CChloro Controls India Private Limited v. Severn TrentWater Purification Inc. (2013) 1 SCC 641 : [2012] (13)SCR 402 – Correctness doubted.

Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia(P) Ltd. (2015) 13 SCC 477 : [2014] (12) SCR 488;DDow Chemical France, the Dow Chemical Company v.Isover Saint Gobain ICC Case No. 4131; SukanyaHoldings Pvt. Ltd. v. Jayesh H. Pandya (2003) 5 SCC531 : [2003] (3) SCR 558; Roussel-Uclaf v. G.D. Searle& Co. Limited and G. D. Searle & Co. [1978] F. S. R95; The Mayor and Commonalty & Citizens of the CityEof London v. Ashok Sancheti [2008] EWCA Civ 1283;Ameet Lalchand Shah v. Rishabh Enterprises (2018) 15SCC 678 : [2018] (6) SCR 1001; Cheran PropertiesLtd. v. Kasturi & Sons Ltd. (2018) 16 SCC 413 : [2018](4) SCR 1063; Reckitt Benckiser (India) (P) Ltd. v.FReynders Label Printing (India) (P) Ltd. (2019) 7 SCC62 : [2019] (8) SCR 966; Mahanagar Telephone NigamLtd. v. Canara Bank (2020) 12 SCC 767 : [2019] (11)SCR 660; Peterson Farms Inc. v. & M Farming Ltd.[2004] EWHC 121 (Comm); Tanning ResearchLaboratories Inc v. O’Brien (1990) 169 CLR 332; VidyaGDrolia v. Durga Trading Corporation (2021) 2 SCC 1;Shah Faesal v. Union of India (2020) 4 SCC 1:[2020](3) SCR 1115

Case Law Reference

[2012] (13) SCR 402H

correctness doubted. Para 47

COX AND KINGS LIMITED v. SAP INDIA PRIVATE LIMITED& ANOTHER

Pietro Ferrario, ‘The Group of Companies Doctrine inInternational Commercial Arbitration: Is There anyReason for this Doctrine to Exist?’, Journal ofInternational Arbitration, (© Kluwer Law International;Kluwer Law International 2009, Volume 26 Issue 5) pp.647 – 673; Gary B.Born’s, International CommercialArbitration, 3rd Edition, Volume I, Page 1558 – 1559 –referred to.

Per SURYA KANT, J. (Concurring) :

HELD 1.1 It is important to note that the Doctrine has nowtravelled reasonable distance in Indian law. While the opinionof Hon’ble the Chief Justice correctly notes that the term“parties” under Section 2(1) (h) has not been amended despitethe changes introduced in Section 8 of the Act, it appears to methat one of the objectives in introducing the amended Section 8was to accord tacit recognition and acceptance of the Group ofCompanies Doctrine in India. [Para 32][226-H]

1.2 It may also be noted that the question as to which entitiesare parties to the arbitration agreement is usually left to judicialdiscretion, especially when there is limited statutory guidance.Thus, the perception regarding the questionable sourcing of theGroup of Companies Doctrine from the wording of Section 8 ofthe Act, does not imply that it is barred from Indian arbitrationlaw. Undoubtedly, the Courts have the judicial discretion to invokeand apply the Doctrine in Indian arbitral jurisprudence. [Para33][227-B-C]

A1.3 The earlier analysis on the interpretation of the Groupof Companies Doctrine fortifies that when formulated in its mostmodern sense, it does not affect the separate legal entity principlein company law. It therefore appears that the current interpretationof the Doctrine ‘does not disturb or affect’ the separate corporateform of different entities within group of companies. NeitherBdoes the act of piercing the corporate veil necessarily cause theseparate legal entity of the third party to collapse. In this context,corporate law doctrines such as piercing the veil and alter egoare means by which to identify fraudulent activity by anon-signatory which would then provide the legal justification forCapplication of the Group of Companies Doctrine to bind thatnon-signatory to the arbitration. This is departure from the“single economic reality” approach which views the entire groupof companies as singular entity and overrides the separate legalpersonalities of the different members of the group. [Paras 34and 35][227-C-D, F-H; 228-A-B]D

1.5 In this approach, the separate legal form of the parentcompany remains und4sturbed and the application of veil piercingor alter ego is merely for identification of duplicitous acts by athird party which would then lead to application of the Group ofCompanies Doctrine to bind them to arbitration. The function ofEthis is to identify parties which have no actual intent to be part ofthe arbitration and deliberately use the corporate form as shieldto avoid being subjected to the arbitration proceedings. For suchscenarios, formal intent- based approach to Group of CompaniesDoctrine may be insufficient to address the dispute. [Para 36][228-

1.5 It appears that joining third party to arbitration basedon the convergence of group of companies as “single economicunit” is no longer the norm under the Group of CompaniesDoctrine. Instead, the standard is premised primarily on impliedGconsent drawn from the acts and conduct of an entity within thegroup of companies. Where closely knit group exists, theinterpretation of third party’s intent to be bound to the arbitrationwould be construed from facts and circumstances specific to thatgroup and the manner in which it functions. This maintains theseparate legal personality of the non-signatory and joins it to the

arbitration proceedings on the basis of its implied acceptance tobe bound. [Para 37][228-C-E]

1.6 It must be emphasized that the Doctrine is an exceptionto the general rule of arbitration. However, where the facts of acase indicate that the intention of the parties was to bind thenon-signatory, the Courts, after exercising due care and caution,will be justified in invoking the Doctrine to do substantial andcomplete justice. After the 2016 amendment to the Act, this Courthas continued to acknowledge and apply the Doctrine inexceptional cases. When all of these factors are viewed inconsonance, it emerges that the Doctrine has found firm footingin Indian jurisprudence. [Para 38][228-F-G]

1.7 This is not without reason. On practical front, theDoctrine is means of grappling with complex multi-partybusiness transactions which necessarily involve more than twoparties, even if these additional parties do not finally and formallysign the contract. To that extent, the Doctrine helps to ensurethat arbitration as dispute resolution mechanism is able to adaptto this reality. Failure to do so would make arbitration anineffective dispute resolution forum as parties which are importantfor the complete and proper resolution of the dispute will be leftout of the adjudication. [Para 39][228-G-H; 229-A-B]

1.8 The Doctrine also ensures that multiplicity ofproceedings are avoided. party may be involved in thenegotiation and even performance of an agreement but still beable to circumvent the arbitral process on the ground that it didnot sign the contract. Such party would then have to beproceeded against in court. [Para 40][229-B-C]

1.9 There are additional benefits of having the Group ofCompaniesDoctrine in Indian jurisprudence. These arise fromthe peculiar circumstances and manner in which Indian businessentities transact with each other and establish commercialrelations. large chunk of Indian business houses are composedof family run entities or groups. The individuals running theseentities often occupy multiple roles in different companies withinthe group. Thus, the commonality in terms of key managerial

Apersonnel and the preponderance of family members occupyingthese positions moulds the way these companies conductbusiness. Entering into commercial transactions involves informalunderstandings based on familiarity with persons who run theoverall group of companies even if not the specific entity withwhich contract is formally executed. [Para 41][229-C-E]B

1.10 In this scenario it becomes even more relevant tohave doctrine such as the Group of Companies in Indianarbitration law. third party outside the group of companies maytransact with subsidiary due to its faith in the bona fides andcommercial know-how of the parent. The third party in questionCrelies upon the stature or presence of the larger parent company,either due to its reputation or personal familiarity with itspromoters, directors or executives. [Para 42][229-E-G]

1.11 The Doctrine itself may also provide greater stimulusfor business with new entities that are starting out. Due to theDaforementioned peculiarities in Indian business relations, newercompanies have significant difficulty in gaining traction. One ofthe means by which such companies can then gain foothold isby being part of large (often family held) group of companies.These new entities are then able to feed off the goodwill orErelations that the larger group has with the rest of the businessworld. Given that the connection to the larger group is intrinsicto the way in which business is conducted, arbitration law mustacknowledge and address this reality. [Para 43][229-G-H; 230-

F1.12 The important consideration under this theory, similarto company law principles such as alter ego, is not the actualintent of the party as the non-signatory may be acting duplicitouslyto represent itself as the driver of the contract while avoidingany liabilities arising from it by not signing the contract. Hence,what the theory examines is what intent the non-signatory hasGconveyed to reasonable party in the same position as thecontracting entity. The decisive factor is the extent to which thecontracting party has placed “trust” in the other party, reasonably,and on the basis of the non- signatory’s actions.The wholesaleadoption of the Swedish theory of trust into Indian law is not being

advocated. Rather, the notion of how we may apply the Group ofCompanies Doctrine in situations where non- signatory partiesare acting in fraudulent or deceitful manner can be addressedby examining the impression that was conveyed to the contractingparties by the third party. This is in addition to the alreadywell-established principles of piercing the veil and alter ego. Thismay also address the legitimate critique of Chloro Controls andCheran Properties, that despite placing an emphasis on legalstandards of intent, the Court eventually resorted to principlesof equity and commercial/economic expediency to apply the Groupof Companies Doctrine in those cases. [Para 46, 47][230-E-H;231-A]1.13 In view thereof, the questions that are sought to bereferred to larger bench deserve further elaboration. Thefollowing substantial questions of law also arise for authoritativedetermination by larger bench in addition and in conjunctionwith those formulated by Hon’ble the Chief Justice:

A. Whether the Group of Companies Doctrine should beread into Section 8 of the Act or whether it can exist in Indianjurisprudence independent of any statutory provision?

B. Whether the Group of Companies Doctrine shouldcontinue to be invoked on the basis of the principle of ‘singleeconomic reality’?

C. Whether the Group of Companies Doctrine should beconstrued as means of interpreting the implied consent or intentto arbitrate between the parties?

D. Whether the principles of alter ego and/or piercing thecorporate veil can alone justify pressing the Group of CompaniesDoctrine into operation even in the absence of implied consent?[Para 48][231-B-E]

Chloro Controls India (P) Ltd. v. Severn Trent WaterPurification Inc. & Anr 2013 1 SCC 641 : [2012] (13)SCR 402; Chloro Controls and Cheran Properties Ltd.v. Kasturi and Sons Ltd. & Ors 2018 16 SCC 413 :[2018] (4) SCR 1063; Dow Chemicals v. Isover SaintGobain Rev Arb 137 1984; 110 JDI 899 (1983);

ALakovoglou Prodomos and Co. v. SAS Amplitude Courde Cas, 1st Civ Ch, 27 Mar 2007, no 04-20842, JCP E2007, 2018; Societe Alcatel Business Systems v. SocieteAkmor Technology Cour de Cas, 1st Civ Ch, 7 Nov.2012, No. 11-25.891, JCP 2012, I, 1354 No 5; PetersonFarms Inc v &M Farming Ltd [2004] EWHC 121;BThrough Transport Mutual Insurance Association(Euasia) Ltd v New India Assurance Co. Ltd [2005]EWHC 455 Moore-Bick J; Starlight Shipping Co. andAnor v Tai Ping Insurance Co Ltd, Hubei Branch andAnor [2007] EWHC 1893; Charles M Willie & CoC(Shipping) Ltd v Ocean Laser Shipping Ltd (The Smaro)[1998] EWHC 1206; Hicks v. Bank of Am, NA, 218 FApp’x 739, 746 (2007); Bridas SAPIC v. Turkmenistan,447 3d 411, 416-20 (2006); Astra Oil Co v RoverNavigation, Ltd, 344 3d 276, 277 (2003); ChoctawGeneration LP v. Am Home Assur Co, 271 3d 403,D406-07 (2001); Sukanya Holdings (P) Ltd. v. JayeshH. Pandya & Anr 2003 5 SCC 531 : [2003] (3) SCR558; Indowind Energy Ltd. v. Wescare (I) Ltd. & Anr2010 5 SCC 306 : [2010] (5) SCR 284; S.N. Prasad v.Monnet Finance & Ors 2011 1 SCC 320 : [2010] (13)ESCR 207; Reckitt Benckiser (India) (P) Ltd. v. ReyndersLabel Printing (India) (P) Ltd & Anr 2019 7 SCC 62 :[2019] (8) SCR 966; Mahanagar Telephone NigamLimited v. Canara Bank & Ors 2020 12 SC 767 : [2019](11) SCR 660; Oil and Natural Gas Corporation Ltd.v. M/s Discovery Enterprises Pvt. Ltd. & Anr CivilFAppeal No 2042 of 2022; PetroAlliance ServicesCompany Ltd. v. Yukos Oil SCC Case No 108/1997,2000 – referred to.

Bernard Hanotiau, ‘Who Are the Parties to theContract(s) or to the Arbitration Clause(s) ContainedTherein? The Theories Applied by Courts andArbitral Tribunals’ in Bernard Hanotiau (eds),Complex Arbitrations: Multi-party, Multicontract, Multi-issue – comparative Study (Kluwer Law International2020); Judgment of 29 January 1996, 14 ASA Bull496 (Swiss Fed Trib) (1996); Jean Francois Poudret,‘The Extension of the Arbitration Clause: French andSwiss Approaches’ 122 JDI (Clunet) 893 (1995);Gabrielle Kaufmann-Kohler & Rigozzi, InternationalArbitration: Law and Practice in Switzerland (OUP2015); Gary Born, ‘Parties to International ArbitrationAgreements, International Commercial Arbitration’in Gary Born (eds) International CommercialArbitration (Kluwer Law International 2021) –referred to.

CIVIL ORIGINAL JURISDICTION : Arbitration Petition (Civil)No.38 of 2020.

Petition Under Section 11(6), Section 11(12)(a) of the Arbitrationand Conciliation Act, 1996 for Appointment of the Arbitral Tribunal.

Kailash Vasdev, Sr. Adv., Hiroo Advani, Divyakant Lahoti, Ms.Madhooja Mulay, Ms. Madhur Jhavar, Ms. Vindhya Mehra, NayantaraGupta, Navdeep Dahiya, Advs. for the Petitioner.

Ritin Rai, Neeraj Kishan Kaul, Sr. Advs., Dheeraj Nair, KumarKislay, Pratik Pawar, Siddhesh Pradhan, Ms. Shanaya Irani, Ms. RitikaSinha, Advs. for the Respondents.

The Judgments* of the Court were delivered by

N. V. RAMANA, CJI

1. This petition calls on us to examine the ‘group of companiesdoctrine’. In particular, it requires us to examine whether the principlesof party autonomy under arbitration law and corporate personality in

*Ed Note: There were two judgments in the matter-one judgement rendered byShri N.V. Ramana, Hon’ble Chief Justice of India, for himself and on behalf ofHon’ble Mr. Justice A.S. Bopanna; and the other judgment rendered by Hon’bleMr. Justice Surya Kant.

Acompany law have been adequately safeguarded in outlining the scopeand applicability of the doctrine being followed at present in Indianjurisprudence.

2. The present Arbitration Petition has been preferred by thePetitioner-Applicant under Section 11(6) and Section l1(12)(a) of theBArbitration and Conciliation Act, 1996 (hereinafter the “Arbitration Act”),for appointment of an Arbitral Tribunal in terms of the provisions of theArbitration Act, on the ground that there has been failure with respectto the appointment of an Arbitral Tribunal in accordance with theagreements between the parties.

C3. The facts necessary for the adjudication of the dispute are asfollows: on 14.12.2010, the Applicant and Respondent No. l entered intoan SAP Software End User License Agreement and SAP EnterpriseSupport Schedule under which the Applicant was made licensee ofcertain ERP software developed and owned by the Respondents. Thisis an overall licensing agreement that all customers of the RespondentsDhave to enter into compulsorily in advance in order to utilize any softwareof the Respondents. In 2015, while the Applicant was developing itsown e-commerce platform, the Respondents approached the Applicantand recommended their Hybris Solution as it would be 90% compatiblewith the Applicant’s software. The Respondents indicated that theEremaining 10% customisation would take only 10 months, much shortersolution than the Applicant developing the software itself.

4. The aforesaid agreement was divided into 3 separatetransactions: first, the Software License and Support Agreement -Software Order Form 3, dated 30.10.2015, was signed between theFApplicant and Respondent No. 1 for the purchase of the SAP HybrisSoftware License. Second, an agreement dated 30.10.2015 was signedbetween the parties containing the terms and conditions governing theimplementation of the SAP Hybris software. This agreement is calledthe Services General Terms and Conditions Agreement (“GTC”). Third,on 16.11.2015, an agreement was entered into for the customization ofGthe software.

5. Clause 15.7 of the GTC contains the arbitration clause whichwe are concerned with in the present matter. The clause reads as follows:

“15.7 Dispute Resolution: In the event of any dispute ordifference arising out of the subject matter of this Agreement,H

the Parties shall undertake to resolve such disputes amicably.If disputes and differences cannot be settled amicably thensuch disputes shall be referred to bench of three arbitrators,where each party will nominate one arbitrator and the twoarbitrators shall appoint third arbitrator. Arbitration awardshall be binding on both parties. The arbitration shall be heldin Mumbai and each party will bear the expenses of theirappointed arbitrator. The expense of the third arbitrator shallbe shared by the parties. The arbitration process will begoverned by the Arbitration & Conciliation Act, 1996.”6. Till August 2016, the Applicant listed out various issues in projectimplementation to Respondent No. 1 and requested Respondent no. 2 tointervene. Respondent No. 2, in turn, gave certain assurances to theApplicant. As the contract could not be fulfilled even with the extendedtimelines and additional manpower, the contractual framework pertainingto SAP Hybris Solution was rescinded on 15.11.2016 after which theRespondents immediately withdrew their resources from the said project.Pursuant to the same, the Applicant demanded refund of Rs. 45 croresthat was paid towards the License Agreement, Annual MaintenanceCharges, and implementation services. Respondent No. 2 in response tothe said demand proposed solution which was rejected by the Applicant.

7. Finally, after several correspondences and meetings, the mattercould not be settled amicably. On 29.10.2017, Respondent No. 1 issueda notice invoking arbitration for the alleged wrongful termination of thecontract and demanded payment of Rs. 17 crores. An Arbitral Tribunalcomprising of Hon’ble Mr. Justice Madan B. Lokur (Retd.), Hon’bleMr. Justice Dilip Bhosale (Retd.), and Hon’ble Mr. Justice V. C. Daga(Retd.) was constituted to adjudicate the disputes between the parties.

8. Respondent No. l initiated proceedings under Clause 15.7 ofthe GTC entered between the parties on 30.10.2015. It may be notedhere that Respondent No. 2 was not made party in the aforesaidproceedings. During these proceedings, the Applicant herein filed anapplication under Section 16 of the Arbitration Act, before the Hon’bleTribunal, contending that the four agreements entered between the partiesare part of composite transaction and the same should be part of asingular proceeding.

9. Mean while, on 22.10.2019, NCLT, admitted an applicationunder Section 7 of the Insolvency and Bankruptcy Code, 2016 preferred

Aagainst the Applicant and appointed an Interim Resolution Professional.On 05.11.2019, the NCLT directed the parties to adjourn the arbitrationproceedings sine die in view of the moratorium imposed upon the claimsagainst the Applicant due to the initiation of the Corporate InsolvencyResolution Process (CIRP).

B10. On 07.11.2019, the Applicant sent fresh notice invokingArbitration arraying Respondent No. 2 in the Arbitration Proceedings.In the said Notice, the Applicant appointed Hon’ble Dr. Justice ArijitPasayat as its nominated arbitrator and called upon the Respondents toappoint their Arbitrator for the constitution of the Tribunal. However,there was no response from the Respondents. Hence, the Applicant hasCpreferred this Application under Section 11 of the Arbitration Act seekingappointment of the Arbitrator in an International Commercial Arbitration.

11. Mr. Kailash Vasdev, learned Senior Advocate appearing onbehalf of the Applicant made the following submissions:

Di.Respondent No. 1 is wholly owned subsidiary andproprietary concern of Respondent No. 2. Since thesoftware is licensed by Respondent No. 2 to RespondentNo. 1, the customisation would not be possible without theaid of Respondent No. 2. Therefore, all the four agreementstogether form composite agreement and are part of aEsingle, interlinked transaction by both Respondent Nos. 1and 2.

ii.The agreements and email correspondences clearly showthat Respondent Nos. 1 and 2 and the Applicant were in adidem for the implementation and the execution of theFagreements. Especially, when Respondent No. 1 failed toexecute the agreement, Respondent No. 2 took theresponsibility to resolve the grievances of the applicant.

iii.Considering the holding in the three Judge Bench decisionof Chloro Controls India Private Limited v. Severn TrentGWater Purification Inc., (2013) 1 SCC 641, arbitration canbe invoked even against the non-signatories, if thecircumstances demonstrate that it was the mutual intentionof the parties.

iv.There is no commonality of claims between the presentHarbitration proceedings and the earlier proceedings.

v.Considering, the limited scope under Section 11 of theArbitration Act, the intervention of the Court should be asminimal as the Court is only required to examine theexistence of the arbitration agreement.

12. Mr. Ritin Rai, learned Senior Advocate appearing on behalf ofthe Respondent No. 1 made the following submissions:

i.The Applicant has suppressed material facts regarding itsprevious attempts to resist constitution of an ArbitralTribunal. It ought to be noted that when Respondent No. 1had earlier invoked Clause 15.7 of the GTC, it was theApplicant who had challenged the same for being void abinitio. Now, the Applicant himself is invoking the sameprovision seeking the appointment of an Arbitrator.

ii.Immediately one day after the commencement of the CIRPand the consequent imposition of the moratorium, theApplicant has chosen to raise similar claims through freshnotice and has obliquely arrayed Respondent No. 2 as aparty to inflate its claim. It is settled principle of law thatthe principle of res-judicata applies to arbitral proceedingsas well.

13. Mr. Neeraj Kishan Kaul, learned Senior Advocate appearingon behalf of Respondent No. 2 made the following submissions:

i.Respondent No. 2 is neither signatory, nor has it everagreed (expressly or impliedly) to be bound by theagreements between the Applicant and the Respondent No.1. Respondent No. 2, being foreign entity does not haveany business dealings in India and is separate andindependent legal entity from Respondent No. 1.

ii.The emails relied upon by the Applicant do not indicate anyundertaking by Respondent No. 2. Especially, when theApplicant himself approached Respondent No. 2 seekingassistance much after the execution of the LicenseAgreement and Service Agreement. Admittedly, RespondentNo. 2 was not involved in the contract negotiation process.

iii.The “Group of Companies” doctrine is not applicable inthe present case. Respondent No. 2 is not only non-

Asignatory but also never participated in the negotiationprocess during the drafting of the contract. Moreover, thereis no consensus of the parties to be bound by the contract.

14. After hearing the counsel appearing on both sides andconsidering the ramifications it may have by the adjudication of the subjectBmatter, this Court must examine the ambit of the “Group of Companies”doctrine. Ever since this doctrine was expounded in the Chloro Control(supra) case, it has been utilised in varied manner. It is in this contextwe felt that there is further need to examine the rationality behind thedoctrinal approach taken by this Court in the Chloro Control (supra)case.C

15. Arbitration is creature of contract which has been providedstatutory backing under the Arbitration Act, to usher in party autonomy,quick disposal, and an efficacious alternative remedy. Arbitration hasbeen great boon for Indian jurisprudence, wherein numerous caseshave been methodically dealt with in an effective manner without takingDthe meandering course of litigation before Courts.

16. One of the most challenging areas of Arbitration practice,both theoretical and practical, relates to multi-party and multi-claimproceedings. Usually, arbitration involves parties who have explicitlyentered into an arbitration agreement, or parties with successor interests,Eclaiming under them. In some cases, it happens that third parties arebound by an arbitration clause by tacit consent, etc.

17. Doctrine of group of companies is one such area which isutilized to bind third parties to an arbitration agreement. Theoretically,the policy consideration of efficiency is argued to allow such joinders.FHowever, until legal basis for the same is provided, efficiency cannotitself be the sole ground to bind party to arbitration.

18. Section 7 of the Arbitration Act defines an arbitrationagreement. Being creature of contract, the realm of arbitration is oneof consent. The bare reading of the aforesaid provision indicates thatGparties must reduce their intention to submit their existing or futuredisputes to arbitration, in writing. The statute does not mandate particularform for an arbitration agreement. The intention of the parties can beinferred from an exchange of letters, telex, telegram, and even electronicmeans. The existence of the arbitration agreement can be deduced onceit is ascertained that the parties were at ad idem either through aH

contract, conduct or correspondences. (See Govind RubberLtd. v. Louis Dreyfus Commodities Asia (P) Ltd., (2015) 13 SCC 477).Therefore, the question of the extension of an arbitration agreement tonon-signatories necessarily also involves the question of the extensionof the scope and the effects of the jurisdiction of the arbitration tribunalover such companies.[1]

19. This doctrine can be clearly stated to have originated in theDow Chemical France, the Dow Chemical Company v. Isover SaintGobain, (ICC Case No. 4131). In the case of Dow Chemicals (supra),it was the subsidiaries of Dow Chemicals which initiated Arbitrationproceedings against Isover. In that case, Isover objected to the basis onwhich the subsidiaries of Dow Chemicals chose to arbitrate, withoutsome of them having entered valid arbitration agreement with Isover.The Tribunal, while disregarding the contention of Isover, held that DowChemicals Group operated as single economic reality and thus thenon-signatories were also bound by the arbitration agreement. We maynote that the Dow Chemicals (supra) case related to situation wherea non-signatory did not resist arbitration. Rather they wished to join anarbitration already initiated by its affiliates. The effect of this positionhas not been evaluated in any precedents of this Court and needs to beexamined.

20. The first case which dealt with group of companies doctrinefor domestic arbitrations was Sukanya Holdings Pvt. Ltd. v. JayeshH. Pandya, (2003) 5 SCC 531. In that case, disputes had arisen betweenmultiple parties over the same transaction. Some of the parties in thedispute were not part of the arbitration agreement. The appellant wasclaiming relief against some of these parties who were not party to theagreement. The Court held, under Section 8 of the Arbitration Act, thatcauses of action cannot be bifurcated in an arbitration, and non-partiesto an arbitration agreement cannot be included in the same arbitration.

21. The next important case which dealt with the group ofcompanies doctrine was the Chloro Control (supra) case. The Court atthe outset acknowledged that there were various school of thoughtswhen it came to the doctrine in arbitration jurisprudence. It was in this

1 Pietro Ferrario, ‘The Group of Companies Doctrine in International CommercialArbitration: Is There any Reason for this Doctrine to Exist?’, Journal of InternationalArbitration, (© Kluwer Law International; Kluwer Law International 2009, Volume 26Issue 5) pp. 647 - 673

Acontext that the Court had to formulate an opinion to provide best fitfor the doctrine for Indian jurisdiction under part II of the ArbitrationAct. As many foreign parties were involved, the Court had to invokeSection 45 of the Arbitration Act for appointment of an arbitrator. Section45 of the Arbitration Act stood as under:

B“45. Power of judicial authority to refer parties toarbitration.—Notwithstanding anything contained in Part I or inthe Code of Civil Procedure, 1908 (V of 1908), judicial authority,when seized of an action in matter in respect of which the partieshave made an agreement referred to in Section 44, shall, at therequest of one of the parties or any person claiming through orCunder him, refer the parties to arbitration, unless it finds that thesaid agreement is null and void, inoperative or incapable of beingperformed.”

22. The Court compared Section 45 of the Arbitration Act to Article2 of UNCITRAL Model Law and formulated the following ingredientsDfor Judicial Authority to examine at referral stage:

“1.Does the arbitration agreement fall under the scope of theConvention?

2.Is the arbitration agreement evidenced in writing?

E3.Does the arbitration agreement exist and is it substantivelyvalid?

4.Is there dispute, does it arise out of defined legalrelationship, whether contractual or not, and did the partiesintend to have this particular dispute settled by arbitration?

5.Is the arbitration agreement binding on the parties to thedispute that is before the court?

6.Is this dispute arbitrable?”

23. The Court noticed distinction in the language under Section 45Gand Section 8 of the Arbitration Act in the following manner:

“69. We have already noticed that the language of Section 45 isat substantial variance to the language of Section 8 in this regard.In Section 45, the expression “any person” clearly refersto the legislative intent of enlarging the scope of the wordsHbeyond “the parties” who are signatory to the arbitration

COX AND KINGS LIMITED v. SAP INDIA PRIVATE LIMITED& ANOTHER [N. V. RAMANA, CJI]

agreement.Of course, such applicant should claim throughor under the signatory party. Once this link is established, thenthe court shall refer them to arbitration. The use of the word“shall” would have to be given its proper meaning and cannot beequated with the word “may”, as liberally understood in its commonparlance. The expression “shall” in the language of Section 45 isintended to require the court to necessarily make reference toarbitration, if the conditions of this provision are satisfied. To thatextent, we find merit in the submission that there is greaterobligation upon the judicial authority to make such reference, thanit was in comparison to the 1940 Act. However, the right toreference cannot be construed strictly as an indefeasible right.One can claim the reference only upon satisfaction of theprerequisites stated under Sections 44 and 45 read with ScheduleI of the 1996 Act. Thus, it is legal right which has its own contoursand is not an absolute right, free of any obligations/limitations.

70. Normally, arbitration takes place between the persons whohave, from the outset, been parties to both the arbitration agreementas well as the substantive contract underlining (sic underlying)that agreement. But, it does occasionally happen that theclaim is made against or by someone who is not originallynamed as party. These may create some difficult situations,but certainly, they are not absolute obstructions to law/thearbitration agreement. Arbitration, thus, could be possiblebetween signatory to an arbitration agreement and thirdparty. Of course, heavy onus lies on that party to show that,in fact and in law, it is claiming “through” or “under” thesignatory party as contemplated under Section 45 of the1996 Act. Just to deal with such situations illustratively, referencecan be made to the following examples in Law and Practice ofCommercial Arbitration in England (2nd Edn.) by Sir Michael J.Mustill:

“1. The claimant was in reality always party to the contract,although not named in it.

2. The claimant has succeeded by operation of law to the rightsof the named party.

3. The claimant has become party to the contract in substitutionfor the named party by virtue of statutory or consensual novation.

A4. The original party has assigned to the claimant either theunderlying contract, together with the agreement to arbitrate whichit incorporates, or the benefit of claim which has already comeinto existence.”

(emphasis supplied)

From the above it is clear that the Court was of the firm opinionthat there must be legal relationship between the non-signatory andthe party to the arbitration agreement.

24. While expounding on the legal relationship, the Court acceptedthe group of companies doctrine as sufficient basis to establish thisClegal relationship. However, while expounding on the ingredients ofdoctrine itself, the Court brought in the intention of the parties as towhether they were ad-idem to treat non-signatory as being party tothe arbitration agreement. This postulation conflates contractualunderstanding of the group of companies doctrine, which has evolvedDwithin the framework of arbitration, without alluding to contractualprinciples.

25. On one hand, this Court reduced the threshold of arbitrationbeing consensual affair. On the other, the doctrine of group of companiesis transposed on requirements under contract law to bind party to anarbitration.E

26. An attempt was made by the Court to find basis for readingthe group of companies doctrine within the language of Section 45 of theArbitration Act in the following manner:

“99. Having examined both the above stated views, we are ofFthe considered opinion that it will be the facts of given case thatwould act as precept to the jurisdictional forum as to whether anyof the stated principles should be adopted or not. If in the facts ofa given case, it is not possible to construe that the personapproaching the forum is party to the arbitration agreement or aperson claiming through or under such party, then the case wouldGnot fall within the ambit and scope of the provisions of the sectionand it may not be possible for the court to permit reference toarbitration at the behest of or against such party.

100. We have already referred to the judgments of various courtsthat state that arbitration could be possible between aH

signatory to an agreement and third party. Of course,heavy onus lies on that party to show that in fact and in law,it is claiming under or through signatory party, ascontemplated under Section 45 of the 1996 Act.”

(emphasis supplied)

27. It is interesting to note that this Court discusses some judgmentsfrom the United Kingdom in this regard. In Roussel-Uclaf v. G.D. Searle& Co. Limited and G. D. Searle & Co., [1978] F.S.R 95, the Courtinterpreted the term ‘claiming through or under’ while staying caseagainst company that was neither party nor privy to an arbitrationagreement. Here, the non-signatory was fully owned subsidiary, andits parent company was signatory to an arbitration agreement. Thesubsidiary had claimed that it had the right to sell patented articles whichit had obtained from the parent company because the parent companyhad ordered the sale of the patented articles. stay on the litigation wasgranted, but the Court concluded that the subsidiary was ‘claimingthrough or under’ the parent company. This meant that if the parentcompany was entitled under the license agreement to sell the articles,then the same right flowed to the subsidiary company as well. Althoughthis case did not explicitly indicate the acceptance of group of companiesdoctrine under the English Law, the wordings can only be said to haveleft the door open to possibility of such inclusion.

28. In any case, the Court of Appeal in the case of The Mayorand Commonalty & Citizens of the City of London v. Ashok Sancheti,[2008] EWCA Civ 1283 overruled the Uclaf Case (supra). The Courtpronounced that ‘mere legal or commercial connection is insufficient’.In essence, this restricted the phrase ‘claiming through or under’ to onlythose third persons who assert their right on the basis of the rights of asignatory to an arbitration agreement. It is noticed that this Court inChloro Control (supra), while observing both cases as persuasive,however, does not provide reasoning to favour one interpretation overthe other, in the following manner:

“98. In Roussel-Uclaf v. G.D. Searle & Co. Ltd. [(1978) 1 Lloyd’sRep 225] the Court held:

“The argument does not admit of much elaboration, but Isee no reason why these words in the Act should beconstrued so narrowly as to exclude wholly-owned

Asubsidiary company claiming, as here, right to sell patentedarticles which it has obtained from and been ordered to sellby its parent. Of course, if the arbitration proceedings sodecide, it may eventually turn out that the parent companyis at fault and not entitled to sell the articles in question atall; and, if so, the subsidiary will be equally at fault. But, ifBthe parent is blameless, it seems only common sense thatthe subsidiary should be equally blameless. The two partiesand their actions are, in my judgment, so closelyrelated on the facts in this case that it would be rightto hold that the subsidiary can establish that it isCwithin the purview of the arbitration clause, on thebasis that it is ‘claiming through or under’ the parentto do what it is in fact doing whether ultimately heldto be wrongful or not.”

However, the view expressed by the Court in Roussel-Uclaf caseD[(1978) 1 Lloyd’s Rep 225] does not find approval in the decisionof the Court of Appeal in City of London v. Sancheti [2008 EWCACiv 1283 : (2009) 1 Lloyd’s Rep 117 (CA)] . In para 34, it washeld that the view in Roussel-Uclaf [(1978) 1 Lloyd’s Rep 225]need not be followed and stay could not be obtained against aparty to an arbitration agreement or person claiming through orEunder such party, as mere local or commercial connection is notsufficient. But the Court of Appeal hastened to add that, in casessuch as the one of Mr Sancheti, Corporation of London was notparty to the arbitration agreement, but the relevant party is theUnited Kingdom Government. The fact that in certainFcircumstances, the State may be responsible under internationallaw for the acts of one of its local authorities, or may have to takesteps to redress wrongs committed by one of the local authorities,does not make the local authority party to the arbitrationagreement.”

G29. This Court ultimately concluded that Sukanya Holdings(supra) was not applicable for interpreting Section 45 of the ArbitrationAct. The ratio of the Sukanya Holdings (supra) was restricted toarbitrations under Part I of the Arbitration Act as such.

30. It may be noted that following the ratio in Chloro ControlH(supra), the 246[th] Law Commission Report recommended an amendment

to Section 2(1)(h) and 8 of the Arbitration Act to modify the definition of‘party’ under Part I of the Arbitration Act, to “a party to an arbitrationagreement or any person claiming or through or under such party” tocure the anomaly pointed out by this Court in the Chloro Control (supra)case. The relevant observations by the 246[th] Law Commission Reportare extracted below:

“61… It would thus be incongruous and incompatible with this“consensual” and “agreement based” status of arbitration as amethod of dispute resolution, to hold persons who are not “parties”to the arbitration agreement to be bound by the same.

62.However, party does not necessarily mean only the“signatory” to the arbitration agreement. In appropriatecontexts, “party” means not just signatory, but alsopersons “claiming through or under” such signatory – forinstance, successors-of-interest of such parties, alter-ego’sof such parties etc. This is particularly true in the case ofunincorporated entities, where the issue of “personality”is usually difficult legal question and raises host of otherissues. This principle is recognized by the New YorkConvention, 1985 which in article II (1) recognizes anagreement between parties “in respect of defined legalrelationship, whether contractual or not.”

63.The Arbitration and Conciliation Act, 1996 under section 7borrows the definition of the “arbitration agreement” from thecorresponding provision at article 7 of the UNCITRAL ModelLaw which in turn borrows this from article II of the New YorkConvention. However, the definition of the word “party” in section2(1)(h) refers to “party” to mean “a party to an arbitrationagreement.” This cannot be read restrictively to imply mere“signatory” to an arbitration agreement, since there are manysituations and contexts where even “non-signatory” can be saidto be “party” to an arbitration agreement.This was recognizedby the Hon’ble Supreme Court in Chloro Controls v. Severn TrentWater Purification, (2013) 1 SCC 641, where the Hon’ble SupremeCourt was dealing with the scope and interpretation of section 45of the Act and, in that context, discussed the scope of the relevantdoctrines on the basis of which “non-signatories” could be said to

Abe bound by the arbitration agreement, including in cases of inter-related contracts, group of companies doctrine etc.

64.This interpretation given by the Hon’ble Supreme Court followsfrom the wording of section 45 of the Act which recognizes theright of “person claiming through or under [a party]” to apply toBa judicial authority to refer the parties to arbitration. The samelanguage is also to be found in section 54 of the Act. This languageis however, absent in the corresponding provision of section 8 ofthe Act. It is similarly absent in the other relevant provisions, wherethe context would demand that party includes also “personclaiming through or under such party”. To cure this anomaly, theCCommission proposes an amendment to the definition of “party”under section 2 (h) of the Act.”

(emphasis supplied)

We must here also state that the Law Commission did not examineDthe interpretation of ‘claiming through or under’. Rather, it simplyrecognized that there may be need to extend the same to arbitrationsunder Part I of the Arbitration Act.

31. Pursuant to the aforesaid recommendation, the legislature madethe following amendment to Section 8(1) of the Arbitration Act.

The 2015 Amendment brought in four amendments to Section8(1). Firstly, the scope of the concept of “party” has been expanded toinclude persons claiming “through or under”. Secondly, the amendmentalso clarified the scope of judicial interference, and that the same is tobe limited only to the prima facie examination regarding the existenceof the arbitration agreement. Thirdly, the cut-off for submitting anapplication under Section 8 of the Arbitration Act has been stated to be“the date of” submitting the first statement on the substance of the dispute.Fourthly, the aforesaid amendment shall apply notwithstanding prior judicialprecedent. However, it may be observed that the Parliament has notcarried out any amendment to Section 2(1)(h) of the Arbitration Act.The impact of the absence of such an amendment needs to be clearlyexamined by this Court. This has created an anomalous situation whereinpotentially party “claiming through or under” could be referred to anarbitration, but would not have the right to seek relief under Section 9 ofthe Arbitration Act. This is merely an illustrative example to indicate apotentially anomalous result.

32. In the case of Ameet Lalchand Shah v. Rishabh Enterprises,(2018) 15 SCC 678, this Court had to deal with case wherein fourparties had executed four agreements for the single purpose ofcommissioning Photovoltaic Solar Plant in Uttar Pradesh. DivisionBench of this Court treated the contracts as interconnected. Althoughthe parties were different, yet the agreements were effectuated in lightof single commercial project. Thereafter, the Court applied the amendedSection 8(1) of the Arbitration Act and extended the arbitration to non-signatory and opined that the dispute could be resolved only by referringall four agreements and parties thereon to arbitration. The Court observedtherein:

“25. Parties to the agreements, namely, Rishabh and Juwi India:(i) Equipment and Material Supply Agreement; and (ii)Engineering, Installation and Commissioning Contract and theparties to Sale and Purchase Agreement between Rishabh andAstonfield are one and the same as that of the parties in the mainagreement, namely, Equipment Lease Agreement (14-3-2012).All the four agreements are inter-connected. This is casewhere several parties are involved in single commercialproject (Solar Plant at Dongri) executed through severalagreements/contracts. In such case, all the parties can

[2022] 15 S.C.R.

Abe covered by the arbitration clause in the main agreementi.e. Equipment Lease Agreement (14-3-2012).

26.Since all the three agreements of Rishabh with Juwi Indiaand Astonfield had the purpose of commissioning the PhotovoltaicSolar Plant project at Dongri, Raksa, District Jhansi, Uttar Pradesh,Bthe High Court was not right in saying that the Sale and PurchaseAgreement (5-3-2012) is the main agreement. The High Court, inour view, erred in not keeping in view the various clauses in all thethree agreements which make them as an integral part of theprincipal agreement, namely, Equipment Lease Agreement (14-3-2012) and the impugned order of the High Court cannot beCsustained.”

(emphasis supplied)

33. The interpretation of Chloro Control (supra) was furtherexpanded in the three Judge Bench decision of this Court in CheranDProperties Ltd. v. Kasturi & Sons Ltd., (2018) 16 SCC 413.In thatcase, this Court interpreted Section 35 of the Arbitration Act to enforcean Award against non-signatory, even though it did not participate inthe proceedings.

34. This court in the case, Reckitt Benckiser (India) (P) Ltd. v.EReynders Label Printing (India) (P) Ltd., (2019) 7 SCC 62, whereinthe two-Judge Bench of this Court refused to apply the “group ofcompanies” doctrine as the applicant failed to prove the commonality ofintention of the Respondents to be bound by the arbitration agreement:

“4. Keeping in mind the exposition in Chloro Controls...In otherFwords, whether the indisputable circumstances go to showthat the mutual intention of the parties was to bind both the-signatory as well as the nonsignatory parties, namely,Respondent 1 and Respondent 2, respectively, qua theexistence of an arbitration agreement between the applicantand the said respondents.

12.Thus, Respondent 2 was neither the signatory to thearbitration agreement nor did have any causal connection

with the process of negotiations preceding the agreementor the execution thereof, whatsoever.If the main plank ofthe applicant, that Mr Frederik Reynders was acting for and onbehalf of Respondent 2 and had the authority of Respondent 2,collapses, then it must necessarily follow that Respondent 2 wasnot party to the stated agreement nor had it given assent to thearbitration agreement and, in absence thereof, even if Respondent2 happens to be constituent of the group of companies of whichRespondent 1 is also constituent, that will be of no avail. For,the burden is on the applicant to establish that Respondent2 had an intention to consent to the arbitration agreementand be party thereto, maybe for the limited purpose ofenforcing the indemnity Clause 9 in the agreement, whichrefers to Respondent 1 and the supplier group against anyclaim of loss, damages and expenses, howsoever incurredor suffered by the applicant and arising out of or inconnection with matters specified therein.That burden hasnot been discharged by the applicant at all. On this finding, it mustnecessarily follow that Respondent 2 cannot be subjected to theproposed arbitration proceedings. Considering the averments inthe application under consideration, it is not necessary for us toenquire into the fact as to which other constituent of the group ofcompanies, of which the respondents form part, had participatedin the negotiation process.”

(emphasis supplied)

35. In the Division Bench decision of this Court in MahanagarTelephone Nigam Ltd. v. Canara Bank, (2020) 12 SCC 767,it wasobserved that the group of companies doctrine can be utilized to bind athird party to an arbitration, if tight corporate group structure constitutinga single economic reality existed. The Court held as under:

“10.6. The circumstances in which the “group of companies”doctrine could be invoked to bind the non-signatory affiliate of aparent company, or inclusion of third party to an arbitration, ifthere is direct relationship between the party which is signatoryto the arbitration agreement; direct commonality of the subject-matter; the composite nature of the transaction between theparties. “composite transaction” refers to transaction whichis interlinked in nature; or, where the performance of the agreement

Amay not be feasible without the aid, execution, and performanceof the supplementary or the ancillary agreement, for achievingthe common object, and collectively having bearing on the dispute.

10.7. The group of companies doctrine has also beeninvoked in cases where there is tight group structureBwith strong organisational and financial links, so as toconstitute single economic unit, or single economic

-reality. In such situation, signatory and nonsignatorieshave been bound together under the arbitration agreement.This will apply in particular when the funds of one companyare used to financially support or restructure other membersCof the group. [ ICC Case No. 4131 of 1982, ICC Case No. 5103of 1988.]”

(emphasis supplied)

We may notice that these cases have been decided by this Court,Dwithout referring to the ambit of the phrase ‘claiming through or under’as occurring under Section 8 of the Arbitration Act.

36. The ratio of the Chloro Control (supra) case alludes to thesubjective intention of parties to be bound by arbitration agreement whenthe parties have clearly not been signatory to the agreement. ReconcilingEthe two is difficult and requires exposition by this Court.

37. It may be noted that the doctrine, as expounded, requires thejoining of non-signatories as ‘parties in their own right’. This joinder isnot premised on non-signatories ‘claiming through or under’. Such ajoinder has the effect of obliterating the commercial reality, and theFbenefits of keeping subsidiary companies distinct. Concepts like singleeconomic entity are economic concepts difficult to be enforced asprinciples of law.

38. The areas which were left open by this Court in Chloro Control(supra) case has created certain broad-based understanding of thisdoctrine which may not be suitable and would clearly go against distinctGlegal identities of companies and party autonomy itself. The aforesaidexposition in the above case clearly indicates an understanding of thedoctrine which cannot be sustainable in jurisdiction which respectsparty autonomy. There is clear need for having re-look at the doctrinalingredients concerning the group of companies doctrine.H

39. Internationally, the group of companies doctrine has beenaccepted in varying degrees. Swiss Courts usually do not recognize sucha doctrine under their Switzerland de lege lata.[2] One English Court hasobserved as under:

“Mr. Hoffmann suggested beguilingly that it would be technicalfor us to distinguish between parent and subsidiary company inthis context; economically, he said, they were one. But we areconcerned not with economics but with law.The distinctionbetween the two is, in law, fundamental and cannot here bebridged.”[3]

(emphasis supplied)

40. Similarly, in the case of Peterson Farms Inc. v. & MFarming Ltd.,[4] an arbitral award was challenged wherein the claimantreceived damages on its behalf as well as on behalf of its group entitiesbefore the Queen’s Bench Division (Commercial Court). The Court partlyset aside the award and stated that the group of companies doctrinedoes not form part of English law. It further stated that corporatestructure exists to create separate legal entities, and general agencyrelationship would defeat this purpose. The Court held therein:

“65. In commercial terms the creation of corporate structure isby definition designed to create separate legal entities for entirelylegitimate purposes which would often if not usually be defeatedby any general agency relationship between them…”

41. The High Court of Australia, in the case of Tanning ResearchLaboratories Inc v. O’Brien, (1990) 169 CLR 332 interpreted thephrase “claiming through and under” in the following manner:

“…A person who claims through or under party may be either aperson seeking to enforce or person seeking to resist theenforcement of an alleged contractual right. The subject of theclaim may be either cause of action or ground of defence.Next, the prepositions ‘through’ and ‘under’ convey thenotion of derivative cause of action or ground of defence,that is to say, cause of action or ground of defence derived

2 Award in Geneva Chamber of Commerce Case of 24 March 2000, 21 ASA Bull. 781(2003).

3 Bank of Tokyo v. Karoon, [1987] AC 45

4 [2004] EWHC 121 (Comm)

from the party. In other words, an essential element of thecause of action or defence must be or must have beenvested in or exercisable by the party before the personclaiming through or under the party can rely on the causeof action or ground of defence…”

(emphasis supplied)

In the aforesaid case, company and its creditor had entered acontract having an arbitration clause. Subsequently, litigation ensued,and question arose as to whether the liquidator of the company couldrely on the arbitration clause. The Court held that liquidator may be aCperson who can claim through or under the company because the groundsof defence and the causes of action he depends on are vested in thecompany or are exercisable by the company. This meant that an essentialelement of cause of action or defence must be, or have been, vestedor exercisable by the original party before the person claiming throughor under the said party can rely on the same.D

42. Viewed from different angle, this Court in the case of VidyaDrolia v. Durga Trading Corporation, (2021) 2 SCC 1 noted thatambit of judicial interference under Section 8 and Section 11 of theArbitration Act is similar. The relevant observations of this Court in theaforesaid case in relation to the power under Section 8 and Section 11 isEas follows:

239. Moreover, the amendment to Section 8 now rectifies theshortcomings pointed out in Chloro Controls case [ChloroControls (India) (P) Ltd. v. Severn Trent Water PurificationInc., (2013) 1 SCC 641 : (2013) 1 SCC (Civ) 689] with respect toFdomestic arbitration. Jurisdictional issues concerning whethercertain parties are bound by particular arbitration, undergroup-company doctrine or good faith, etc., in multi-partyarbitration raises complicated factual questions, which arebest left for the tribunal to handle. The amendment toGSection 8 on this front also indicates the legislative intentionto further reduce the judicial interference at the stage ofreference.240. Courts, while analysing case under Section 8, may chooseto identify the issues which require adjudication pertaining to thevalidity of the arbitration agreement. If the court cannot rule on

the invalidity of the arbitration agreement on prima facie basis,then the court should stop any further analysis and simply refer allthe issues to arbitration to be settled.

242. We are cognizant of the fact that the statutory languageof Sections 8 and 11 are different, however materially theydo not vary and both sections provide for limited judicialinterference at reference stage, as enunciated above.

244.1. Sections 8 and 11 of the Act have the same ambit withrespect to judicial interference.

244.3. The court, under Sections 8 and 11, has to refer amatter to arbitration or to appoint an arbitrator, as the casemay be, unless party has established prima facie(summary findings) case of non-existence of valid arbitrationagreement, by summarily portraying strong case that heis entitled to such finding.”

(emphasis supplied)

43. In the aforesaid case of Vidya Drolia (supra), this Courtprimarily delineated the threshold standard of reference to arbitration.The aforesaid case predominantly laid down that when an application ismade under Section 11 of the Arbitration Act, considering the scope ofjudicial intervention, the Courts are only required to look into the primaexistence of an arbitration agreement.

44. The aforesaid case pre-dominantly dealt with the scope ofjudicial interference at the referral stage. However, this Court did nothave an occasion to explore the jurisprudential basis of group ofcompanies doctrine and required ingredients to refer “non-signatory”to arbitration. Especially, the scope of judicial reference at the stage ofSections 8 and 11 of the Arbitration Act, needs to be relooked consideringthe ambit of unamended Section 2(1)(h) of the Arbitration Act.

45. An arbitration agreement may be binding on parties, whethersignatories or non-signatories, provided there is sufficient legal basis tobind them. Most legal bases for binding non-signatories to an arbitration

Aagreement are of contractual origin, like agency, etc. Jurisprudence hasshown that arbitration being creature of contract, does not sit verywell in binding non-signatories. Expounding on the same, ProfessorWilliam Park, in one of his key works, captures the dilemma whileattaching non-signatory to the arbitral process[5 ]as under:

B“For arbitrators, motions to join non-signatories create tensionbetween two principles: maintaining arbitration’s consensual nature,and maximizing an award’s practical effectiveness by bindingrelated persons. Pushed to the limit of their logic, each goal pointsin an opposite direction. Resolving the tension usually implicatesthe two doctrines discussed below: implied consent and disregardCof corporate personality…

The term “non-signatory” remains useful for what mightbe called “less-than-obvious” parties to an arbitrationclause: individuals and entities that never put pen to paper,but still should be part of the arbitration under theDcircumstances of the relevant business relationship. Thelabel does little harm if invoked merely for ease of expression, todesignate someone whose right or obligation to arbitrate may bereal but not self-evident...

Most significantly, the fact that “non-signatory” might bebound to arbitrate does not dispense with the need for anEarbitration agreement. Rather, it means only that theagreement takes its binding force through some”circumstance other than the formality of signature.

(emphasis supplied)

46. It is evident from the discussion above that the group ofFcompanies doctrine must be applied with caution and mere fact that anon-signatory is member of group of affiliated companies will not besufficient to claim extension of the arbitration agreement to the non-signatory. In this context Gary Born[6] notes as under:

“GROUP OF COMPANIES” DOCTRINE

GAnother significant, but controversial, basis for binding non-signatories to an arbitration agreement is the “group of companies”

5 William W. Park, Non-Signatories and International Contracts: An Arbitrator’sDilemma, in Multiple Parties in International Arbitration (Oxford University Press)(2009).6 Gary B.Born’s, International Commercial Arbitration, 3rd Edition, Volume I, PageH1558 - 1559

doctrine. Under this principle, non-signatories of contract maybe deemed parties to the associates arbitration clause based onfactors which are often roughly comparable to those relevant toan alter ego analysis. In particular, where company is part ofa corporate group, is subject to the control of (or controls) acorporation affiliate that has executed contract and is involvedin the negotiation or performance of that contract, then thatcompany may in some circumstances invoke or be subject to anarbitration clause contained in that contract, notwithstanding thefact that it has not executed the contract itself.

Unlike other bases for binding non-signatory to an arbitrationagreement (such as agency, alter ego, estoppel, third partybeneficiary, or assignment), the group of companies doctrine wasdeveloped specifically in the arbitration context and is not typicallyinvoked outside that context. At least thus far, the group ofcompanies doctrine has also been explicitly accepted sin only alimited number of jurisdictions (in particular, as discussed below,France). In part for that reason, the doctrine has given rise tosubstantial controversy.

Gary Born also refers (in footnotes 222 and 223) to the factthat only small number of jurisdictions France and India, appear tohave applied the group of companies doctrine in the context ofInternational Arbitration and to the prevalent criticism of the group ofcompanies doctrine.

47. In view of the aforesaid discussion, we feel it appropriate torefer the aspect of interpretation of ‘claiming through or under’ asoccurring in amended Section 8 of the Arbitration Act qua the doctrineof group of companies to larger Bench to provide clarity on this aspect.The law laid down in Chloro Control (supra) and the cases following it,appear to have been based, more on economics and convenience ratherthan law. This may not be correct approach. The Bench doubts thecorrectness of the law laid down in Chloro Control (supra) and casesfollowing it.

48. On different note, we are cognizant that reference to alarger Bench should not be made in casual and cavalier manner.However, we see that the questions raised herein are fundamental tothe arbitration practice in India and have large scale repercussions.

A49. It is in this context that we deem it appropriate to refer thematter to larger Bench as the threshold laid down by Shah Faesal v.Union of India, (2020) 4 SCC 1stands adequately satisfied.

50. In view of the aforesaid discussion, we deem it appropriate torefer this matter to larger Bench to expound on the intricacies of theBGroup of Companies doctrine and answer the following questions:

a.Whether phrase ‘claiming through or under’ in Sections 8and 11 could be interpreted to include ‘Group of Companies’doctrine?

b.Whether the ‘Group of companies’ doctrine as expoundedCby Chloro Control Case (supra) and subsequent judgmentsare valid in law?

SURYA KANT, J.

1. I have had the advantage of going through scholarly and self-Dspeaking order prepared by Hon’ble the Chief Justice, doubting thecorrectness of three judge bench judgment of this Court in ChloroControls India (P) Ltd. v. Severn Trent Water Purification Inc.&Anr[1] and formulating the questions of law to be determined by largerbench. While at the outset, I concur that the contours of the Group ofCompanies Doctrine need to be settled by larger bench, my thoughtsEare oriented in favour of the Doctrine as an integral part of Indian arbitraljurisprudence for the reasons assigned below.

2. The question which has fallen for consideration in this case iswhether the parent company of Respondent No. 1, namely RespondentNo. 2, should be joined to this arbitration petition regardless of the factFthat the Petitioner had entered into an SAT-Software End User LicenseAgreement and SAP-Enterprise Support Schedule with only thesubsidiary. Petitioner sought greenfield solutions for its E-Commerceproblems, for which Respondent No. 1 provided its Hybris solution system.Overtime, disputes arose between the parties. During this phase, theGPetitioner had requested Respondent No. 2 to mediate between theparties. However, the disputes could not be resolved. Consequently, thePetitioner initiated arbitration proceedings and has sought to bindRespondent No. 2 to the proceedings even though the said Respondentis not signatory to the arbitration agreement.

3. On the issue of whether Respondent No. 2 may be roped intothe arbitration pending between the Petitioner and Respondent No. 1,Hon’ble the Chief Justice has noted that the basis under Indian law forjoining non-signatories to arbitral proceedings has been the Group ofCompanies Doctrine. While discussing the holdings in Chloro Controlsand Cheran Properties Ltd. v. Kasturi and Sons Ltd. & Ors[2], Hon’blethe Chief Justice felt it necessary to revisit certain aspects of thesedecisions and determine whether the manner in which they have invokedthe Group of Companies Doctrine within Indian jurisprudence is consistentand sound.

4. Hon’ble the Chief Justice has very eruditely analysed thesustainability of the Group of Companies Doctrine and inter alia pointedout that-

i)The application of the Group of Companies Doctrine inChloro Controls relies upon the intent of the parties toinclude non-signatory to the arbitral proceedings.DHowever, the Court in that decision failed to adhere tocontractual principles on the basis of which such intent isinterpreted;

ii)Joinder of non-signatories based on the notion of “singleeconomic unit” ignores commercial reality and theimportance of treating different parties within the sameEgroup of companies as separate legal entities;

iii)Following Chloro Controls there has been an expansion ofthe Group of Companies Doctrine. broad interpretationof the Doctrine is at odds with the principle of partyautonomy;

iv)The line of judgments by this Court, beginning with ChloroControls, seem to be premised more on convenience andeconomic efficiency in resolution of disputes rather than aconsistent and clear legal doctrine which respects partyautonomy and intent;G

v)The phrase “claiming through or under” as provided inSection 8 of the Arbitration and Conciliation Act, 1996(hereinafter, “the Act”), as amended via the Arbitration

216SUPREME COURT REPORTS

AAmendment Act, 2016, may not be legitimate basis forreading the Group of Companies Doctrine into Indian law.

A. Origin of the Group of Companies Doctrine

5. The Group of Companies Doctrine has generally been invokedby courts and tribunals in arbitrations to either ‘extend’ the arbitrationBagreement or ‘bind’ non-signatory affiliate of the contracting party tothe arbitration clause. As the name suggests, where an arbitrationagreement is entered into by one of the companies in group, the othermembers of the group may be bound by the arbitration agreement if thefacts and circumstances, including the conduct of the parties, indicateCthat the true intention of parties was to bind the signatories as well as thenon-signatories.

6. The Group of Companies Doctrine was first espoused explicitlyby an arbitral tribunal in the case of Dow Chemicals v. Isover SaintGobain[3]. The International Chamber of Commerce (hereinafter “ICC”)DTribunal opined that the scope and effect of the arbitration agreementshould be determined on the basis of the “common intent of the parties”as ascertainable from the circumstances related to ‘conclusion,performance, and termination, of the contract’. The Tribunal thereindetermined that the Dow Chemical Group had not attached anysignificance to which of them performed the distribution agreementsEwith Saint Gobain and the common intent of all the parties was that theywould be playing role in performance of the contract. The Tribunalfurther held that the companies within the Dow Chemical group hadacted as single ‘economic reality’ or unit and that the non-signatoriesto the distribution agreements with Saint Gobain would be bound to theFarbitration agreement, regardless of whether they had performed thecontract.7. The Tribunal in Dow Chemicals laid down the elements requiredto attract the Group of Companies Doctrines, which read as follows:

“…irrespective of the distinct juridical identity of each of itsGmembers, group of companies constitutes one and the sameeconomic reality of which the Arbitral tribunal should takeaccount when it rules on its own jurisdiction...”

xxx

3 Rev Arb 137 1984; 110 JDI 899 (1983).H

Considering that the tribunal shall, accordingly, determinethe scope and effects of the arbitration clauses in question,and thereby reach its decision regarding jurisdiction, byreference to the common intent of the parties to theseproceedings, such as it appears from the circumstances thatsurround the conclusion and characterize the performanceand later the termination of the contracts in which theyappear.….

xxx

Considering, in particular, that the arbitration clauseexpressly accepted by certain of the companies of the groupshould bind the other companies which, by virtue of their role

in the conclusion, performance, or termination of the contractscontaining said clauses, and in accordance with the mutualintention of all parties to the proceedings, appear to havebeen veritable parties to these contracts or to have beenprincipally concerned by them and the disputes to which theymay give rise.”

(Emphasis Supplied)

B. Group of Companies Doctrine in Foreign Jurisdictions

8. It is important to recount the evolution of the Group of CompaniesDoctrine in France and other jurisdictions in order to understand somevisible anomalies that have emerged in the Indian context.

9. The practice by Courts and tribunals in terms of usage of theGroup of Companies Doctrine has gravitated toward being factintensive exercise. In this context, what has emerged even in Francewhere the Doctrine originated is that the existence of group ofcompanies is not the sole sufficient condition for the joinder of non-signatory to arbitration proceedings. The Tribunal in ICC Case Nos.7604 & 7610[4] had summed up the steps in the application of the doctrineand held:

“…Although the existence of group is the first condition forjoining third party to the arbitration proceedings, it is alsonecessary to determine the parties’ actual intention at the timeof the facts or, at the very least the intention of the non-signatorythird party.”

4 ICC award in Cases No. 7604 and 7610 of 1995, 125 J Droit Int’l 1027 (1998) and 4ICC Awards 510.

A10. The Final Award in ICC Case No. 10758[5] elaborated asfollows,

“The extension of an arbitration agreement to non-signatoryis not mere question of corporate structure or control, butrather one of the non-signatory’s participation in theBnegotiations, conclusion or performance of the contract, orits conduct towards the other party that the Arbitral Tribunalcan infer.”

11. Bernard Hanotiau, arguably France’s leading scholar oninternational arbitration, while referring to French jurisprudence sinceCDow Chemicals, has opined that,

“The existence of group of companies gives specialdimension to the issue of conduct or consent. As several authorshave pointed out, when there is group of companies, onemay presume that the parent company binds its subsidiaries;Dbut on the other hand, only the companies that have beensubstantially involved in the negotiation and performance ofthe agreement containing the arbitration clause will beconsidered parties to the latter. The case law is not alwaysentirely clear in this respect. In most cases, it seems that onlya substantial involvement is considered sufficient to constituteEconsent or ratification. Some cases, however, suggest that aparty’s conduct should not necessarily be regarded as anexpression of party’s implied consent; rather party’ssubstantial involvement in the negotiation and performanceof the contract and the knowledge of the existence of theFarbitration clause have standing of their own, as substitutefor consent”[6]

(Emphasis Supplied)

12. Thus, the relevance of the Group of Companies Doctrine inits jurisdiction of origin is that of being special lens through which theGparties’ intentions are interpreted. The existence of close group structure

5 ICC award in Case No. 10758 of 2000, 6 ICC Ct Bull 87 (No. 2, 2005), 5 ICC Awards537, JDI 2001, 1171.

6 Bernard Hanotiau, ‘Who Are the Parties to the Contract(s) or to the ArbitrationClause(s) Contained Therein? The Theories Applied by Courts and Arbitral Tribunals’in Bernard Hanotiau (eds), Complex Arbitrations: Multi-party, Multicontract, Multi-Hissue – comparative Study (Kluwer Law International 2020).

would be only one of the considerations when determining the impliedconsent of third party to arbitrate.

13. Subsequent French court decisions have taken similar stance.In Lakovoglou Prodomos and Co. v. SAS Amplitude[7], the Cour deCassation reiterated the requirement of involvement of the third party inthe performance of the main agreement in order it to be bound by thearbitration agreement contained therein. Simply the existence of closelyknit group of companies would be insufficient. In Societe AlcatelBusiness Systems v. Societe Akmor Technology[8 ]as well, the Cour deCassation noted that arbitral proceedings may bind non-signatoriesinvolved in the substantive dispute itself.

14. In yet another ICC Award[9], the Tribunal held,”…There is nogeneral rule, in French international arbitration law, that wouldprovide that non-signatory parties members of same group ofcompanies would be bound by an arbitration clause, whether alwaysor in determined circumstances.”

15. The reception to the Group of Companies Doctrine in otherjurisdictions has been mixed. The Swiss Federal Tribunal rejected theGroup of Companies Doctrine[10] but has accepted that third party may‘implicitly’ consent to be bound to arbitration in certain circumstances.In general, the involvement of the non-signatory in the performance ofthe contract will be interpreted as intent to be bound to the arbitrationagreement.[11] However, this requires an active involvement which showsclear and unambiguous intent, thus setting high threshold for thirdparty to be joined.[12]

16. The Swiss sentiment vis-à-vis the Group of CompaniesDoctrine is mirrored by British jurisprudence where there has been anunequivocal rejection of the Doctrine.[13] Further, the expression “claiming

7 Cour de Cas, 1st Civ Ch, 27 Mar 2007, no 04-20842, JCP 2007, 2018.

8 Cour de Cas, 1st Civ Ch, 7 Nov. 2012, No. 11-25.891, JCP 2012, I, 1354 No 5.9 ICC Case No 11405, Interim award of 29 Nov 2001, Unpublished (Sole Arbitrator,Paris).

10 Judgment of 29 January 1996, 14 ASA Bull 496 (Swiss Fed Trib) (1996); JeanFrancois Poudret, ‘The Extension of the Arbitration Clause: French and SwissApproaches’ 122 JDI (Clunet) 893 (1995).

11 Judgment of 19 August 2008, DFT 4A_128/2008 (Swiss Fed Trib) (2008).

12 Gabrielle Kaufmann-Kohler & Rigozzi, International Arbitration: Law and Practicein Switzerland (OUP 2015).

13 Peterson Farms Inc v C&M Farming Ltd [2004] EWHC 121.

Aunder or through” in Sec. 82(2) of the English Arbitration Act, 1996,which is similar to Sec. 8 of the amended Indian Act, 1996, has beeninterpreted to refer to instances that are unrelated to the Group ofCompanies Doctrine. British Courts have deemed it to mean inter aliaassignees[14], subrogated insurer[15], novatees[16], and successors[17].

B17. American Courts usually do not refer to the Group ofCompanies Doctrine and rely primarily on aspects of American ContractLaw and Agency Law.[18] Company law principles such as alter ego andpiercing the veil are additionally invoked by American Courts though thethreshold for their application remains relatively high.[19] American Courtshave sometimes reached conclusions through reasoning that resemblesCthe Group of Companies Doctrine but which are actually based on theprinciple of equitable estoppel.[20]

18. The common theme among all these jurisdictions is that eachof them has negotiated compromise with the formalistic requirementof explicit assent through signed contract. In other words, theseDjurisdictions have moved away from this need for explicit consent ineach and every instance and have instead attempted to identifyconstructive consent via examination of the actions of the parties whenthe circumstances of the case require it. In some instances, thesejurisdictions have even applied standards that are not based upon consentEat all such as equitable estoppel and piercing the veil.

C. Evolution of the Group of Companies Doctrine in India

19. Indian arbitral jurisprudence with respect to binding non-signatory to an arbitration agreement has seen considerabletransformation. In Sukanya Holdings (P) Ltd. v. Jayesh H. PandyaF14

14 Through Transport Mutual Insurance Association (Euasia) Ltd v New India AssuranceCo. Ltd [2005] EWHC 455 Moore-Bick J.

15 Starlight Shipping Co. and Anor v Tai Ping Insurance Co Ltd, Hubei Branch andAnor, [2007] EWHC 1893.

16 Charles M Willie & Co (Shipping) Ltd v Ocean Laser Shipping Ltd (The Smaro)[1998] EWHC 1206.G17 Hanotiau (n 6).18 Gary Born, ‘Parties to International Arbitration Agreements, International CommercialArbitration’ in Gary Born (eds) International Commercial Arbitration (Kluwer LawInternational 2021).

19 Hicks v. Bank of Am, NA, 218 App’x 739, 746 (2007); Bridas SAPIC v.Turkmenistan, 447 3d 411, 416-20 (2006).

20 Astra Oil Co v Rover Navigation, Ltd, 344 3d 276, 277 (2003); Choctaw GenerationHLP v. Am Home Assur Co, 271 3d 403, 406-07 (2001).

& Anr[21] certain disputes had arisen between multiple parties relating tothe same transaction, however, not all parties were signatories to theagreement containing the arbitration clause. The Court therein, relyingupon the unamended Section 8 of the Act, held that it would not bepossible to refer the non-signatories to arbitration. Thereafter, in IndowindEnergy Ltd. v. Wescare (I) Ltd.& Anr[22] this Court interfered with anorder of the Madras High Court which had allowed the application underSection 11 of the Act and joined Indowind to proceedings even thoughIndowind was not signatory to the agreement. This Court, while allowingthe appeal, held:

“18. The very fact that the parties carefully avoided makingIndowind party and the fact that the Director of Subuthithough Director of Indowind, was careful not to sign theagreement as on behalf of Indowind, shows that the partiesdid not intend that Indowind should be party to theagreement. Therefore the mere fact that Subuthi describedIndowind as its nominee or as company promoted by it orthat the agreement was purportedly entered by Subuthi onbehalf of Indowind, will not make Indowind party in theabsence of ratification, approval, adoption or confirmationof the agreement dated 24-2-2006 by Indowind.”

20. With utmost respect, it appears that the Court in Indowindadopted rigid and restrictive understanding of the Act. In order to holdthat third party cannot be subjected to the arbitration proceedings, thetwo judge bench placed an undue emphasis on the issue of formal consent.However, as noticed earlier, several jurisdictions have recognized thatformal consent to an arbitration agreement is not sine qua non toadduce the intention of third party to be bound to an arbitrationagreement. In fact, certain principles by which Courts across jurisdictionsjoin non-signatories to arbitration do not depend upon intent of the partiesat all.

21. The principle laid down in Indowind was then followed inS.N. Prasad v. Monnet Finance & Ors[23] as well. Eventually, thisposition of law regarding the joinder of non-signatories was radicallytransformed after the decision of this Court in Chloro Controls, whereby,

21 2003 5 SCC 531.22 2010 5 SCC 306.23 2011 1 SCC 320.

Athe Group of Companies Doctrine was introduced into Indianjurisprudence. In that case, there was Shareholders Agreement betweenan Indian party and foreign entity. The Shareholders Agreement wasthe principal or the ‘parent’ agreement with English law governing thetransaction and the seat of arbitration as London. Beyond theShareholders Agreement, there were various other inter-linkedBagreements but not all these agreements had the same parties. Theseother agreements, however, were part of ‘composite transaction’ andall arose out of the mother agreement. The question before the Courtwas whether all these parties could be referred to single and compositearbitral tribunal. Noting earlier precedents, this Court stated that whileCSukanya Holdings was decided under the ambit of Section 8 of theAct, this case fell within the purview of Section 45 of the Act which hada much wider scope. Relying upon the expression “person claimingthrough or under” in Section 45, this Court ruled that it had the powerto refer parties in multi-party agreement to Arbitration while invokingthe Group of Companies Doctrine. It was further elucidated:D“69. We have already noticed that the language of Section45 is at substantial variance to the language of Section 8 inthis regard. In Section 45, the expression “any person”clearly refers to the legislative intent of enlarging the scopeof the words beyond “the parties” who are signatory to theEarbitration agreement. Of course, such applicant should claimthrough or under the signatory party. Once this link isestablished, then the court shall refer them to arbitration. Theuse of the word “shall” would have to be given its propermeaning and cannot be equated with the word “may”, asFliberally understood in its common parlance. The expression“shall” in the language of Section 45 is intended to requirethe court to necessarily make reference to arbitration, if theconditions of this provision are satisfied. To that extent, wefind merit in the submission that there is greater obligationupon the judicial authority to make such reference, than itGwas in comparison to the 1940 Act. However, the right toreference cannot be construed strictly as an indefeasible right.One can claim the reference only upon satisfaction of theprerequisites stated under Sections 44 and 45 read withSchedule I of the 1996 Act. Thus, it is legal right which has

its own contours and is not an absolute right, free of anyobligations/limitations.

xxx

72….In other words, ‘intention of the parties’ is verysignificant feature which must be established before the scopeof arbitration can be said to include the signatory as well asthe non-signatory party.

73. non-signatory or third party could be subjected toarbitration without their prior consent, but this would only bein exceptional cases. The court will examine these exceptionsfrom the touchstone of direct relationship to the party signatoryto the arbitration agreement, direct commonality of the subject-matter and the agreement between the parties being acomposite transaction. The transaction should be of acomposite nature where performance of the mother agreementmay not be feasible without aid, execution and performanceof the supplementary or ancillary agreements, for achievingthe common object and collectively having bearing on thedispute. Besides all this, the court would have to examinewhether composite reference of such parties would servethe ends of justice. Once this exercise is completed and thecourt answers the same in the affirmative, the reference ofeven non-signatory parties would fall within the exceptionafore-discussed.”

(Emphasis Supplied)

22. To give legislative effect to the decision in Chloro Controls,the Law Commission in its 246[th] Report made the followingrecommendation:

“64. This interpretation given by the Hon’ble Supreme Courtfollows from the wording of section 45 of the Act which recognizesthe right of “person claiming through or under [a party]” toapply to judicial authority to refer the parties to arbitration. Thesame language is also to be found in section 54 of the Act. Thislanguage is however, absent in the corresponding provision ofsection 8 of the Act. It is similarly absent in the other relevantprovisions, where the context would demand that party includesalso “person claiming through or under such party”. To cure this

224SUPREME COURT REPORTS

Aanomaly, the Commission proposes an amendment to the definitionof “party” under section 2 (h) of the Act.”[24]

23. The Legislature in its wisdom did not amend the definition ofSection 2(1)(h) of the Act but Section 8 of the Act was amended throughAct 3 of 2016, which now reads as follows:

B“(1). judicial authority, before which an action is brought in amatter which is the subject of an arbitration agreement shall, if aparty to the arbitration agreement or any person claimingthrough or under him, so applies not later than the date ofsubmitting his first statement on the substance of the dispute, then,notwithstanding any judgment, decree or order of the SupremeCCourt or any court, refer the parties to arbitration unless it findsthat prima facie no valid arbitration agreement exists.”

(Emphasis Supplied)

24. Following the post amendment provision(s), the Group ofCompanies Doctrine in the Indian Context was further expanded by aDthree judge bench of this Court in Cheran Properties Ltd. This Courtinvoked the Group of Companies Doctrine and laid down that even thoughCheran was not party to the arbitration agreement and had not appearedbefore the Tribunal, the arbitral award could be enforced against it asCheran was ‘party claiming under’ one of the signatories to theEagreement. Speaking on the importance of this doctrine in moderncommercial transactions, the Court held that, “The effort is to find thetrue essence of the business arrangement and to unravel from alayered structure of commercial arrangements, an intent to bindsomeone who is not formally signatory but has assumed the”obligation to be bound by the actions of signatory.F

25. In Reckitt Benckiser (India) (P) Ltd. v. Reynders LabelPrinting (India) (P) Ltd & Anr[25], while acknowledging the Group ofCompanies Doctrine, this Court refused to allow the joinder of non-signatory as it could not be proved that the non-signatory company hadnegotiated the contract on behalf of the signatory.G

26. two judge bench of this Court in Mahanagar TelephoneNigam Limited v. Canara Bank & Ors[26], was concerned with the

24 Law Commission of India, Amendments to the Arbitration and Conciliation Act 1996¶ 64.

25 2019 7 SCC 62.H26 2020 12 SC 767.

joinder of CANFINA, which was non-signatory to the agreement buta wholly owned subsidiary of Canara Bank. Upon considering the natureof transaction involved and the conduct of the parties, the Court heldthat this was case of “tacit or implied consent”and accordingly itwas necessary to join CANFINA to the arbitral proceedings. The Courtstated the principles governing the group of companies doctrine to be asfollows:

“10.7. The group of companies doctrine has also been invokedin cases where there is tight group structure with strongorganisational and financial links, so as to constitute singleeconomic unit, or single economic reality. In such situation,signatory and non-signatories have been bound togetherunder the arbitration agreement. This will apply in particularwhen the funds of one company are used to financially supportor restructure other members of the group. [ICC Case No.4131 of 1982, ICC Case No. 5103 of 1988.]”

27. three judge bench of this Court (in which I was member),has in very recent decision dated 27.04.2022 in Oil and Natural GasCorporation Ltd. v. M/s Discovery Enterprises Pvt. Ltd. & Anr[27],reiterated the deep rooted existence of the Doctrine in the Indian context.The Court held that the following factors may be considered when decidingwhether non-signatory company within group of companies wouldbe bound by the arbitration agreement:

“i) The mutual intent of the parties;

(ii) The relationship of non-signatory to party which isa 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.”

(Emphasis Supplied)

D. Current State of the Group of Companies Doctrine

28. At the outset, it must be candidly acknowledged that certaininconsistencies do exist in terms of the judgments of this Court regardingthe underlying basis for the Group of Companies Doctrine. For instance,

27 Civil Appeal No 2042 of 2022.

Ain Chloro Controls, the Court seemed to adopt contradictory positionsin terms of when third party may be bound to the arbitration agreement.On the one hand, the Court emphasized on the intention of the parties toinclude the non-signatory party, but on other, it went on to add that non-signatories may be added to the arbitration proceedings without theirconsent in “exceptional cases”. Thus, it seems that while the ChloroBControls places premium on the intent of parties, it also advocatestaking an equity based approach to discard intent completely if so requiredin the interest of justice.

29. In Mahanagar Telephone Nigam Ltd. the Court had appliedthe Group of Companies Doctrine where tight structure with deepCfinancial and organization links existed between signatory and non-signatory to the extent where they constituted “single economic unit”.Such an approach has the tendency to overlook the principle of separatelegal entity and seems to dispense almost entirely with the intent and/orconsent of parties.D

30. It is also worth noting that in Cheran Properties, this Courtenforced an award against party that had not even participated in thearbitral proceedings, by relying on the phrase “persons claiming underthem” in Section 35 of the Act. This presents the highest expansion ofthe Group of Companies Doctrine, whereby, party is bound to the finalEaward itself on the basis of the doctrine without having chance topresent its case or defend itself in the arbitral proceedings. This Court inReckitt Benckiser fixed higher threshold of evidence for the Group ofCompanies Doctrine to apply as compared to earlier judgments. Finally,in ONGC, the Court has upheld the necessity for deeper probe todetermine whether the Doctrine is attracted in the facts and circumstancesFof given case. This leads to questions regarding which standard ofproof must be fulfilled to apply the Doctrine.

31. An overall analysis of the above cited judgments reveals anunwitting, but nonetheless discordant note with implicit contradictions.However, in my humble view, the appropriate response to such uncertaintyGwould be an authoritative determination of the contours of the Doctrinerather than wholesale uprooting of it from Indian arbitration lawaltogether.

32. It is important to note that the Doctrine has now travelled areasonable distance in Indian law. While the opinion of Hon’ble the ChiefHJustice correctly notes that the term “parties” under Section 2(1)(h) has

not been amended despite the changes introduced in Section 8 of theAct, it appears to me that one of the objectives in introducing the amendedSection 8 was to accord tacit recognition and acceptance of the Groupof Companies Doctrine in India.

33. It may also be noted that the question as to which entities areparties to the arbitration agreement is usually left to judicial discretion,especially when there is limited statutory guidance.[28] Thus, theperception regarding the questionable sourcing of the Group of CompaniesDoctrine from the wording of Section 8 of the Act, does not imply that itis barred from Indian arbitration law. Undoubtedly, the Courts have thejudicial discretion to invoke and apply the Doctrine in Indian arbitraljurisprudence.34. The earlier analysis on the interpretation of the Group ofCompanies doctrine fortifies that when formulated in its most modernsense, it does not affect the separate legal entity principle in companylaw. Gary Born[29] notes that the Doctrine,

“…is ordinarily means of identifying the parties’ intentions,which does not disturb or affect the legal personality of theentities in question.Rather, as usually formulated, the groupof companies doctrine is akin to principles of agency orimplied consent, whereby the corporate affiliations amongdistinct legal entities provide the foundation for concludingthat they were intended to be parties to an agreement,notwithstanding their formal status as non-signatories.”Commentators have observed the same distinctions betweenthe group of companies doctrine and veil-piercing principles.”

(Emphasis Supplied)

35.It therefore appears that the current interpretation of theDoctrine ‘does not disturb or affect’ the separate corporate form ofdifferent entities within group of companies. Neither does the act ofpiercing the corporate veil necessarily cause the separate legal entity ofthe third party to collapse. In this context, corporate law doctrines suchas piercing the veil and alter ego are means by which to identifyfraudulent activity by non-signatory which would then provide the legaljustification for application of the Group of Companies Doctrine to bind

28 Born (n 18).

29 Born (n 18).

Athat non-signatory to the arbitration. This is departure from the “singleeconomic reality” approach which views the entire group of companiesas singular entity and overrides the separate legal personalities of thedifferent members of the group.

36. Thus, in this approach, the separate legal form of the parentBcompany remains undisturbed and the application of veil piercing or alterego is merely for identification of duplicitous acts by third party whichwould then lead to application of the Group of Companies Doctrine tobind them to arbitration. The function of this is to identify parties whichhave no actual intent to be part of the arbitration and deliberately use thecorporate form as shield to avoid being subjected to the arbitrationCproceedings. For such scenarios, formal intent-based approach to Groupof Companies Doctrine may be insufficient to address the dispute.

37. From the analysis above, it appears that joining third party toarbitration based on the convergence of group of companies as “singleeconomic unit” is no longer the norm under the Group of CompaniesDDoctrine. Instead, the standard is premised primarily on implied consentdrawn from the acts and conduct of an entity within the group ofcompanies. Where closely knit group exists, the interpretation of athird party’s intent to be bound to the arbitration would be construedfrom facts and circumstances specific to that group and the manner inEwhich it functions. This maintains the separate legal personality of thenon-signatory and joins it to the arbitration proceedings on the basis ofits implied acceptance to be bound.

38. It must be emphasized that the Doctrine is an exception to thegeneral rule of arbitration. However, where the facts of case indicateFthat the intention of the parties was to bind the non-signatory, the Courts,after exercising due care and caution, will be justified in invoking theDoctrine to do substantial and complete justice. After the 2016 amendmentto the Act, this Court has continued to acknowledge and apply theDoctrine in exceptional cases. When all of these factors are viewed inconsonance, it emerges that the Doctrine has found firm footing in IndianGjurisprudence.

39. This is not without reason. On practical front, the Doctrineis means of grappling with complex multi-party business transactionswhich necessarily involve more than two parties, even if these additionalparties do not finally and formally sign the contract. To that extent, theH

Doctrine helps to ensure that arbitration as dispute resolution mechanismis able to adapt to this reality. Failure to do so would make arbitration anineffective dispute resolution forum as parties which are important forthe complete and proper resolution of the dispute will be left out of theadjudication.

40. The Doctrine also ensures that multiplicity of proceedings areavoided. party may be involved in the negotiation and even performanceof an agreement but still be able to circumvent the arbitral process onthe ground that it did not sign the contract. Such party would then haveto be proceeded against in court.

41. There are additional benefits of having the Group of CompaniesDoctrine in Indian jurisprudence. These arise from the peculiarcircumstances and manner in which Indian business entities transactwith each other and establish commercial relations. large chunk ofIndian business houses are composed of family run entities or groups.The individuals running these entities often occupy multiple roles indifferent companies within the group. Thus, the commonality in terms ofkey managerial personnel and the preponderance of family membersoccupying these positions moulds the way these companies conductbusiness. Entering into commercial transactions involves informalunderstandings based on familiarity with persons who run the overallgroup of companies even if not the specific entity with which contractis formally executed.

42. In this scenario it becomes even more relevant to have adoctrine such as the Group of Companies in Indian arbitration law. Athird party outside the group of companies may transact with subsidiarydue to its faith in the bona fides and commercial know-how of the parent.The third party in question relies upon the stature or presence of thelarger parent company, either due to its reputation or personal familiaritywith its promoters, directors or executives.

43. The Doctrine itself may also provide greater stimulus forbusiness with new entities that are starting out. Due to the aforementionedpeculiarities in Indian business relations, newer companies have significantdifficulty in gaining traction. One of the means by which such companiescan then gain foothold is by being part of large (often family held)group of companies. These new entities are then able to feed off thegoodwill or relations that the larger group has with the rest of the business

Aworld. Given that the connection to the larger group is intrinsic to theway in which business is conducted, arbitration law must acknowledgeand address this reality.

44. In fact, Tribunals have already recognized the reliance that isoften placed by company upon the conduct of the non-signatory parentBcompany when entering into an agreement with its subsidiary. TheTribunal in Petro Alliance Services Company Ltd. v. Yukos Oil[30] underthe aegis of the Arbitration Institute of the Stockholm Chamber ofCommerce is prime example of international arbitration grappling withthis issue.

C45. Therein, the tribunal noted that Yukos Oil, via its actions, hadcreated an expectation in the mind of PetroAlliance that it was willingand ready to back up/step into the shoes of its subsidiary YNG withwhich PetroAlliance had entered into contract. While there were severalfactors that contributed to the decision of the tribunal to bind Yukos tothe arbitral proceedings, the most relevant takeaway for our purposes isDthe manner in which the tribunal enunciated the “theory of trust” thatexists under Swedish contract law.46. The important consideration under this theory, similar tocompany law principles such as alter ego, is not the actual intent of theparty as the non-signatory may be acting duplicitously to represent itselfEas the driver of the contract while avoiding any liabilities arising from itby not signing the contract. Hence, what the theory examines is whatintent the non-signatory has conveyed to reasonable party in the sameposition as the contracting entity. The decisive factor is the extent towhich the contracting party has placed “trust” in the other party,Freasonably, and on the basis of the non-signatory’s actions.

47. To clarify, the wholesale adoption of the Swedish theory oftrust into Indian law is not being advocated. Rather, the notion of howwe may apply the Group of Companies Doctrine in situations wherenon-signatory parties are acting in fraudulent or deceitful manner canGbe addressed by examining the impression that was conveyed to thecontracting parties by the third party. This is in addition to the alreadywell-established principles of piercing the veil and alter ego. This mayalso address the legitimate critique of Chloro Controls and CheranProperties, that despite placing an emphasis on legal standards of intent,

the Court eventually resorted to principles of equity and commercial/economic expediency to apply the Group of Companies Doctrine in thosecases.

E. Conclusion

48. In view of the above discussion, respectfully, I am of the opinionthat the questions that are sought to be referred to larger bench deservefurther elaboration. With all the humility at my command, the followingsubstantial questions of law also arise for authoritative determination bya larger bench in addition and in conjunction with those formulated byHon’ble the Chief Justice:

A.Whether the Group of Companies Doctrine should be readinto Section 8 of the Act or whether it can exist in Indianjurisprudence independent of any statutory provision?

B.Whether the Group of Companies Doctrine should continueto be invoked on the basis of the principle of ‘single economicreality’?D

C.Whether the Group of Companies Doctrine should beconstrued as means of interpreting the implied consent orintent to arbitrate between the parties?

D.Whether the principles of alter ego and/or piercing theEcorporate veil can alone justify pressing the Group ofCompanies Doctrine into operation even in the absence ofimplied consent?

Nidhi JainMatter refered to larger Bench.(Assisted by : Shashwat Jain, LCRA)