'Group of Companies' doctrine and arbitration: the 'modern approach' to consent

The Indian Supreme Court confirms that the 'Group of Companies' doctrine is capable of binding non-signatories to arbitration agreements. 

What you need to do

• Does your transaction involve multiple parties and/or multiple contracts in respect of which not all relevant stakeholders are signatories?
• Does Indian law have a role to play i.e. is it the governing law of the contract(s)?
• Is arbitration the chosen forum for resolving dispute(s)?

If 'yes' or 'maybe' contact our team for advice on how this decision may impact you.

In Cox and Kings Ltd. v. SAP India Pvt. Ltd. and Another (Arbitration Petition (Civil) No. 38 of 2020), a five-judge bench of the Indian Supreme Court ("Supreme Court") has made a landmark ruling on the validity and application of the 'Group of Companies' doctrine in Indian arbitration jurisprudence, following the referral of the matter last year by a three-judge bench of the same court.

The 'Group of Companies' doctrine has been widely criticised – by lawmakers and practitioners alike – for being at odds with the doctrine of consent, a cornerstone of arbitration, as well as the principle of privity of contract.  The doctrine has been a 'hot topic' for many years in Indian arbitration jurisprudence, starting with the Sukanya Holdings and Chloro Controls cases and peaking last year with the Cox and Kings case, where a three-judge bench of the Supreme Court revisited the doctrine and laid down issues for consideration by a larger bench, including whether the application of the doctrine - as expounded in previous rulings - is valid law.

In a judgment issued on behalf of the majority of the five-judge bench on 6 December 2023, Mr Chief Justice Dhananjaya Chandrachud clarified that the 'Group of Companies' doctrine has an important role to play in Indian arbitration jurisprudence.  He noted that arbitration law has developed and adopted the doctrine in response to the need to adopt a "modern approach to consent" in a business world where multi-party and multi-agreement transactions are the norm.  He provided guidance on the application of the doctrine under Indian law, noting that the definition of "parties" under the Arbitration and Conciliation Act 1996 ("Arbitration Act") includes both the signatory as well as non-signatories, and the requirement of a written agreement under the Arbitration Act does not exclude the possibility of binding non-signatories.  In doing so, he made clear that the doctrine has an independent existence to the principle of piercing the corporate veil and the latter cannot be used as a basis for the application of the doctrine. 

Finally, Justice Chandrachud emphasised that it is for the arbitral tribunal – not the referral court – to decide whether the non-signatory is bound by the arbitration agreement.  In doing so, the tribunal can "delve into the factual, circumstantial, and legal aspects of the matter to decide whether its jurisdiction extends to the non-signatory party".  Relevant factors – as laid down in the Discovery Enterprises case  – include the mutual intent of the parties, the relationship between the non-signatory and a signatory to the agreement, the commonality of the subject-matter, the composite nature of the transactions and the performance of the contract. 

The ruling serves as an important reminder to companies partaking in complex transactions involving multiple parties and/or multiple contracts where Indian law has a role to play.  While it is ultimately for the arbitral tribunal to decide whether a non-signatory is bound by the arbitration agreement, the Indian courts are unlikely to shy away from the application of the 'Group of Companies' doctrine for instance at the interim relief, enforcement or appeal stage.  

More widely, we will be tracking how the wider arbitral community reacts to this ruling, including whether the courts of other jurisdictions – including England & Wales and Singapore – are minded to revisit their stance on the doctrine.  Decisions of the Supreme Court have a significant persuasive value in other common law jurisdictions, both before courts and arbitral tribunals.  Any decision of a well-respected court of final appeal on the vexed question of application of this doctrine in arbitration should be well noted by practitioners in all common law jurisdictions.