Introduction 

• This is a landmark judgment which upheld the applicability of doctrine of companies in India. 
• The judgment was delivered by 5 judges- Chief Justice of India DY Chandrachud, Justice Hrishikesh Roy, Justice PS Narsimha, Justice JB Pardiwala and Justice Manoj Misra.   

Facts 

• A Bench of Three judges was considering the application under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (A & C Act). 
• This bench of three judges comprising of Chief Justice NV Ramana, Justice Surya Kant and Justice AS Bopanna doubted the correctness of applicability of doctrine of group of companies in the Indian context. 
• Chief Justice Ramana criticized the approach adopted in the case of Chloro Controls India (P) Ltd v. Severn Trent Water Purification Inc. (2012) wherein the Court adopted this doctrine by relying upon the phrase “claiming through or under” in Section 45 of the A&C Act. 
• Therefore, the question of applicability of group of companies doctrine was considered by the Court. 
• The factual matrix was not mentioned here as the issue was a limited question of law in reference.

Issue Involved

• Whether the Doctrine of Group of Companies is applicable in India?   

Observations 

• The following conclusions were drawn in this case: 
  • The definition of “parties” under Section 2(1)(h) read with Section 7 of the Act includes both signatory as well as non-signatory parties. 
  • Conduct of the non-signatory parties could be an indicator of their consent to be bound by the arbitration agreement. 
  • The requirement of a written arbitration agreement under Section 7 does not exclude the possibility of binding non-signatory parties. 
  • Under the Arbitration Act, the concept of a “party” is distinct and different from the concept of “persons claiming through or under” a party to the arbitration agreement. 
  • The underlying basis for the application of the group of companies doctrine rests on maintaining the corporate separateness of the group companies while determining the common intention of the parties to bind the non-signatory party to the arbitration agreement. 
  • The principle of alter ego or piercing the corporate veil cannot be the basis for the application of the group of companies doctrine. 
  • The group of companies doctrine has an independent existence as a principle of law which stems from a harmonious reading of Section 2(1)(h) along with Section 7 of the Arbitration Act. 
  • To apply the group of companies doctrine, the courts or tribunals, as the case may be, have to consider all the cumulative factors laid down in Oil and Natural Gas Corporation Ltd v. Discovery Enterprises Pvt. Ltd. (2022). Resultantly, the principle of single economic unit cannot be the sole basis for invoking the group of companies doctrine. 
  • The persons “claiming through or under” can only assert a right in a derivative capacity. 
  • The approach of this Court in Chloro Controls Pvt. Ltd v. Seven Trent Water Purification Inc (2012) to the extent that it traced the group of companies doctrine to the phrase “claiming through or under” is erroneous and against the well-established principles of contract law and corporate law. 
  • The group of companies doctrine should be retained in the Indian arbitration jurisprudence considering its utility in determining the intention of the parties in the context of complex transactions involving multiple parties and multiple agreements. 
  • At the referral stage, the referral court should leave it for the arbitral tribunal to decide whether the non-signatory is bound by the arbitration agreement. 
  • In the course of this judgment, any authoritative determination given by this Court pertaining to the group of companies doctrine should not be interpreted to exclude the application of other doctrines and principles for binding non-signatories to the arbitration agreement. 

Conclusion 

The Court in this case answered the reference and held that an arbitration agreement can bind the non-signatories as per the “group of companies” doctrine.