The Hon’ble Supreme Court of India (“SC”), in the matter of Cox and Kings Limited V. SAP India Private Limited & Anr. Civil Appeal No. 80 of 2020 decided on 6th May 2022 took note of the inconsistencies in terms of the judicial pronouncements for the ‘Group of Companies Doctrine’ (“Doctrine”) and referred the said issue to a larger bench.
This Doctrine has been invoked in arbitrations to either extend the arbitration agreement or bind a non- signatory affiliate of the contracting party to the arbitration clause.
Hon’ble the Chief Justice of India analysed the sustainability of the Doctrine and inter alia pointed out that
(A) The application of the Doctrine in Chloro Controls India Private Limited v. Severn Trent Water Purification Inc., (2013) 1 SCC 641 (“Chloro Controls”) is based on the intent of the parties to include a non-signatory to the arbitral proceedings without adhering to the contractual principles on the basis of which such intent is interpreted.
(B) Joinder of non- signatories based on the notion of “single economic unit” ignores commercial reality and the importance of treating different parties within the same group of companies as separate legal entities.
(C) A broad interpretation of the Doctrine is at odds with the principle of party autonomy.
(D) The line of judgments by this Court, beginning with Chloro Controls, seems to be premised more on convenience and economic efficiency in resolution of disputes rather than a consistent and clear legal doctrine which respects party autonomy and intent.
(E) The phrase “claiming through or under” as provided in Section 8 of the Arbitration and Conciliation Act, 1996 (“the Act”), as amended via the Arbitration Amendment Act, 2016, may not be a legitimate basis for reading the Group of Companies Doctrine into Indian law.
(F) The term “parties” under Section 2(1)(h) of the Act has not been amended despite the changes introduced in Section 8 of the Act.
The bench took note of the inconsistencies that exist in terms of the judicial pronouncements of the Apex Court regarding the underlying basis for the Doctrine and referred the following questions to a larger bench:-
1. Whether phrase ‘claiming through or under’ in Sections 8 and 11 could be interpreted to include Group of Companies Doctrine?
2. Whether the Group of Companies Doctrine as expounded by Chloro Control Case (supra) and subsequent judgments are valid in law?
3. Whether the Group of Companies Doctrine should be read into Section 8 of the Act or whether it can exist in Indian jurisprudence independent of any statutory provision?
4. Whether the Group of Companies Doctrine should continue to be invoked on the basis of the principle of ‘single economic reality’?
5. Whether the Group of Companies Doctrine should be construed as a means of interpreting the implied consent or intent to arbitrate between the parties?
6. Whether the principles of alter ego and/or piercing the corporate veil can alone justify pressing the Group of Companies Doctrine into operation even in the absence of implied consent?
The court observed that the Doctrine must be applied with caution and mere fact that a non-signatory is a member of a group of affiliated companies will not be sufficient to claim extension of the arbitration agreement to the non-signatory.