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Author: Parth Bindal, IV year of BBA.,LL.B from School of Law, UPES


In this article, the author discussed the Supreme Court's key observations and analysis given in Cox case, in which the Apex Court was asked to examine the "group of companies’ doctrine". The Supreme Court, in particular, examined its own precedents and made key observations on the principles of party autonomy under arbitration law and corporate personality under company law.

Arbitration, as a contract creature, according to the Court, is distinguished by party autonomy and consent. However, one of the most difficult aspects of arbitration practice is dealing with multi-party and multi-claim proceedings. In general, arbitration involves parties who have entered into an arbitration agreement with the intention of resolving their disputes through arbitration. The doctrine, on the other hand, allows third parties to be bound to an arbitration clause by tacit consent.

The Court also addressed the critical issue of what the doctrine entails in terms of extending the arbitration agreement. The use of the doctrine to extend the arbitration agreement to non-signatories raises the issue of the Arbitral Tribunal's jurisdiction being extended to such non-signatories. How does one reconcile a law based on ad-idem consent with the concept of non-signatories and third parties being bound?

The Apex Court examined Indian and foreign jurisprudence on the doctrine in an order dated 6th May 2022 ("Order") and concluded by a majority of 2:1 that its own precedents are based more on economics and convenience than on law. After expressing their views, the majority referred the matter to a larger bench. In a separate dissenting opinion, Hon'ble Mr. Justice Surya Kant stated that while the doctrine must be defined, it cannot be demolished because it is an integral part of Indian arbitral jurisprudence.


Evolvement & Recognition-

The application of this doctrine was first insisted in Sukanya Holdings Pvt. Ltd case, the Respondents in the SLP had filed a suit to dissolve the partnership deed. However, the Appellant filed an application under Section 8 of the Act, which was dismissed by the High Court on the grounds that the Respondents' suit sought relief that was not covered by the parties' arbitration agreement.

The Apex Court upheld the High Court's decision, holding that "the relevant language used in Section 8 is "in a matter which is the subject matter of an arbitration agreement," and the Court is required to refer the parties to arbitration. As a result, the suit should be brought in relation to "a matter" to which the parties have agreed to refer and which falls within the scope of the arbitration agreement. However, where a suit is filed "as to a matter" that falls outside the scope of the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, Section 8 does not apply. The phrase 'a matter' indicates that the entire subject matter of the suit should be subject to arbitration."

Doctrine difference in light of Sec. 8 & Sec. 45 of Arbitration Act.

Further this doctrine was articulated by a three-judge bench of the Supreme Court in its decision in Chloro Controls case. Under Part II of the Act, the Apex Court was required to formulate a perspective that would provide the best fit for the doctrine in the Indian context. Because there were so many foreign parties involved, the Court had to invoke sec. 45 of the Act to appoint an arbitrator. The Apex Court held, drawing a distinction between sec. 45 and sec. 8 of the Act:

We've already noticed that the language of sec. 45 differs significantly from the language of Section 8. The phrase "any person" in sec. 45 clearly refers to the legislative intent of broadening the scope of the words beyond "the parties" who sign the arbitration agreement. Of course, such an applicant must make his or her claim through or under the signatory party. Once this connection is established, the court will refer them to arbitration.

Arbitration is usually held between people who have been parties to both the arbitration agreement and the substantive contract underpinning (sic underlying) that agreement from the beginning. However, it is not uncommon for a claim to be made against or by someone who was not originally named as a party. These may create some difficult situations, but they are not absolute impediments to the law/the arbitration agreement. Thus, arbitration between a signatory to an arbitration agreement and a third party may be possible. Of course, the burden is on that party to demonstrate that it is claiming "through" or "under" the signatory party as contemplated by Section 45 of the 1996 Act.

We have already referred to court decisions stating that arbitration between a signatory to an agreement and a third party is possible. Of course, the burden is on that party to demonstrate that it is, in fact and in law, claiming under or through a signatory party, as contemplated by Section 45 of the 1996 Act.

The Supreme Court ruled that non-signatories' reference to arbitration is a legal right subject to the provisions of sec. 44 & 45 read with Schedule I of the Act. Furthermore, in Chloro Control, the Supreme Court emphasized two points:

  • The legal relationship between the non-signatory and the signatory to the arbitration agreement and;

  • That the arbitration parties are ad-idem when they join the non-signatory to the arbitration.

Binding nature of the doctrine-

The Supreme Court expanded the doctrine's scope in Mahanagar Telephone Nigam case and held that the doctrine could be used to bind a third party to arbitration if a tight corporate group structure constituting a single economic reality existed. "The circumstances in which the "group of companies" doctrine could be invoked to bind the non-signatory affiliate of a parent company, or inclusion of a third party to an arbitration, if there is a direct relationship between the party which is a signatory to the arbitration agreement; direct commonality of the subject matter; the composite nature of the transaction between the parties," the Court held in this case.

A "composite transaction" is one that is interconnected in nature; or, one in which the performance of the agreement may be impossible without the aid, execution, and performance of the supplementary or ancillary agreement, for achieving the common object and collectively having a bearing on the dispute. The group of companies’ doctrine has also been used when there is a tight group structure with strong organizational and financial ties, forming a single economic unit or a single economic reality. In such a case, the arbitration agreement binds both signatory and non-signatory parties together. This is especially true when one company's funds are used to financially support or restructure other members of the group. [ICC Case No. 4131, 1982, and ICC Case No. 5103, 1988.]”

Summing of the Essentials of the doctrine: From evolution to development over time-

The Supreme Court in ONGC case, ruled that the following factors should be considered when determining whether a non-signatory company within a group of companies is bound by the arbitration agreement:

  • The parties' mutual intent;

  • The relationship of a non-signatory to a party that is a signatory to the agreement;

  • The commonality of the subject matter;

  • The composite nature of the transaction; and

  • The performance of the contract.


The Supreme Court examined the law on non-signatories being bound by arbitration agreements in this case and expressed disagreement with the corpus of cases. While Chloro Control specifically alludes to the subjective intention of the parties to the arbitration agreement to bind non-signatories to arbitration, the subsequent expansion of the doctrine in subsequent judgments seeks joinder of third parties in their own right, according to the majority judgement authored by the Hon'ble Chief Justice of India.

While referring the expansion of the doctrine in Chloro Control and subsequent judgments to a larger bench, the Apex Court raises significant questions about the doctrine's application and expansion when viewed in the context of party autonomy and the doctrine of distinct legal corporate entities.

According to the majority judgement, "the aforementioned exposition in the preceding case clearly indicates an understanding of the doctrine that cannot be sustained in a jurisdiction that respects party autonomy."

In his dissenting judgement, Justice Surya Kant states that the inconsistencies in the Apex Court's precedents can easily be remedied by an authoritative determination of the contours of the doctrine rather than a wholesale removal of the same from Indian Arbitration Law. Intriguingly, Justice Surya Kant observed that the doctrine of groups of companies, when formulated in its modern sense, has no effect on the separate legal entity principle in company law.

The order states that corporate law doctrines such as piercing the veil and alter ego can be used to identify fraudulent activity by a non-signatory, which can then be used to provide legal justification for applying the group of companies' doctrine to bind that non-signatory to the arbitration. Joining a third party to arbitration based on the convergence of a group of companies as a "single economic unit" appears to be the exception rather than the rule under the group of companies’ doctrine. Instead, the standard is based primarily on implied consent derived from an entity within the group of companies' acts and conduct.

The factum of consent is crucial in arbitrations. The presence of a group companies makes a unique contribution to a conundrum of conduct as well as authorization. A interpretation of such case scenarios uncovers that, in the vast bulk of companions, a side's acts really shouldn't be generally viewed as just an affirmation of one's implicit consent; instead, a side's considerable engagement inside the agreement's negotiating process as well as outcomes, and also understanding of a presence of such agreement to arbitrate, have their very own prestige.

When determining the applicability of the 'group of companies' doctrine, courts consider factors such as sturdy financial and operational affiliations, if the major corporations are indeed a particular financial entity, the critical contribution ended up playing during bargaining as well as effectiveness of an accord, & understanding of such arbitration clause. As a result, when trying to negotiate transaction records comprising various enterprises out of the same collective, it's indeed sensible to concur upon that positions & obligations, and the way wherein the culpability could've been attributed towards each corporation, just at time the contract is made. It thus underlines the value of making compromises including even short and unambiguous terms and conditions.


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