Contributed by Tanisha Chivate

Introduction

The Hon’ble Supreme Court of India (“Hon’ble Court”) upheld the validity of the ‘Group of Companies’ doctrine in the jurisprudence of Indian arbitration in the Cox and Kings v SAP India Pvt Ltd and Anr case (“Cox and Kings case”) decided on 6 December 2023. This decision clarifies a long-standing question of law as to whether non-signatory parties can be bound by an arbitration agreement/clause. By ruling that other group companies can be bound by arbitration agreements which they have not expressly signed, this judgment broadens the ambit of arbitration agreements, putting to rest confusion arising from contradictory judgments of the Hon’ble Court. This article seeks to provide an analysis of the implications of the Cox and Kings case by explaining the history of the Group of Companies doctrine, delving into foreign jurisprudence and explore the potential outcomes of this legal stand.

About the Group of Companies Doctrine

The Group of Companies doctrine dictates that an arbitration agreement entered into by a company within a group of companies may bind non-signatory group companies, if the circumstances are such that it shows the mutual intention of the parties to bind signatories and non-signatories. Thus, the non-signatory company would be considered as a party to the dispute arising from the subject matter of an arbitration although it has not formally entered into the arbitration agreement.

Previously, in the case of ONGC v. Discovery Enterprises Pvt Ltd (“Discovery Enterprises Case”), the Hon’ble Court laid down the test that courts and tribunals should consider in deciding whether a company within a group of companies is bound by the arbitration agreement:

• The mutual intent of the parties
• The relationship of a non-signatory to a party which is a signatory to the agreement
• The commonality of the subject-matter
• The composite nature of the transactions
• The performance of the contract

This test was also upheld in the Cox and Kings. However, this doctrine has attracted several criticisms on grounds that it contravenes existing legal principles such as privity of contract, separate legal personality and party autonomy.

International Perspective on the Group of Companies Doctrine

The Group of Companies doctrine has been the subject of debate in other jurisdictions as well which the Hon’ble Court has discussed at length in the Cox and Kings case.

France

The doctrine originated from the Dow Chemicals v. Isover Saint Gobain Case (“Dow Chemicals Case”) in which the primary issue before the ICC Tribunal was to determine the jurisdiction over the non-signatory parties. Summarily, the position in French law is that an arbitration agreement can be extended to non-signatory parties if all the parties to the arbitration agreement had a common intention to be bound by the agreement which can be inferred by their objective conduct during the negotiation, performance and termination of the underlying contract containing the arbitration agreement. Hence, the reasoning behind the doctrine is not solely on the fact that both the signatory and non-signatory parties were members of the same group of companies. It is crucial to consider the active role played by the non-signatory parties in the performance of the contract containing the arbitration agreement giving rise to the assumption that the non-signatory had knowledge of the arbitration agreement and thus, would be bound by the agreement.

Switzerland

As a general rule, Swiss courts have extended arbitration agreements to non-signatories typically in cases of assignment of a claim, assumption of debt or delegation of a contract. An arbitration agreement can be extended to non-signatory parties if there is an independent and formally valid manifestation of consent of the non-signatory party to the arbitration agreement. Here, consent may be express or implied by conduct such as whether the non-signatory party was involved in the negotiation and performance of the contract. In 1996, the Swiss Federal Supreme Court held that the mere fact that a non-signatory group company belonged to the same group of companies as the signatory party to the arbitration agreement was not a sufficient justification for binding the non-signatory to the arbitration agreement. Thus, Swiss jurisprudence highlights the consent of the non-signatory party by virtue of their conduct to hold them accountable under the arbitration agreement.

England

While English law observes a strict adherence to the doctrine of privity, an arbitration agreement may be extended to non-signatory parties on the basis of traditional contractual principles such as agency, novation, assignment, operation of law and merger and succession. Yet an arbitration agreement cannot be extended to non-signatory parties on the basis of the group of companies doctrine or other doctrines such as piercing the corporate veil or equitable estoppel.

Singapore

Singapore has rejected the Group of Companies doctrine to bind non-signatories to arbitration agreement with a two-fold reasoning — first, it goes against the consensual basis of an agreement to arbitrate; and secondly, the concept of separate legal entity cannot be dispensed with.

United States of America

The Federal Arbitration Act of USA is silent on whether non-signatory parties can be joined to an arbitration agreement, however courts have used contract law principles like agency, piercing of corporate veil, incorporation by reference, assumption and estoppel for binding non-signatories to arbitration agreements.

Summarily, it can be observed across jurisdictions that the issue of binding a non-signatory to an arbitration agreement is more a fact-specific question rather than a question of law.

Implications of the Legal Validity of the Group of Companies Doctrine

The Arbitration and Conciliation Act 1996 requires an arbitration agreement to be written but does not mandate that all parties have to sign it. Therefore, the main contention before the Hon’ble Court was not whether an arbitration agreement can be extended to non-signatories but to determine who are the “true” or “veritable” parties to the dispute. In this regard the Group of Companies doctrine is helpful as it allows court to determine the intention of the parties beyond the simple objective intentions to include the dynamic subjective intentions of the parties before, during and after the execution of the contract. The enforcement of the Group of Companies doctrine does not mean that the corporate veil has to be pierced. The mere presence of a commercial relationship is also not an implication of the presence of a legal relationship and therefore, not every single company in the group can be bound to the arbitration agreement.

To determine whether a party is bound by an arbitration agreement regardless of whether they have signed it or not, is an issue of consent which can be inferred by the conduct of the non-signatory parties. The cumulative factors discussed in the Discovery Enterprises case must be considered to establish conduct.

It is important to note that the Hon’ble Court has categorically held that the authoritative determination of the Group of Companies doctrine does not exclude or override the application of other doctrines and principles for binding non-signatories to the arbitration agreement.

Holding the Group of Companies doctrine would help prevent satellite litigation by non-signatory parties within the group of companies who attempt to circumvent arbitration. Satellite litigation refers to multiple lawsuits that are connected to a major piece of litigation that is ongoing in another court. This often occurs when there are numerous disagreements within the same case like for instance, in the legal battle between Apple and Qualcomm, Apple sued Qualcomm for its alleged anti-competitive practices, which led on to several ancillary litigation suits in South Korea, China and other regions, due to jurisdiction-specific regulations and compliance.  It will help to avoid multiple proceedings and fragmentation of disputes by enforcing accountability on the part of signatory parties who wish to join non-signatories to the arbitration proceedings.

The Hon’ble Court decided to adopt a modern approach to the concept of consent in order to deal with the commercial reality of complex transactions involving several interrelated agreements and parties. The Hon’ble Court however made it clear that it is up to the arbitral tribunal to decide whether the non-signatory party is bound by the arbitration agreement.

On the other hand, the enforcement of the Group of Companies doctrine has far-reaching implications as non-signatory companies in the group could be joined to the arbitration agreement by their involvement in the activities relating to, before or after the contract such as negotiations, performance of the contract and so on. Interrelated dealings within a group could constitute consent to be bound by the arbitration agreement.

By holding valid the Group of Companies doctrine in arbitration law, the simple conduct of non-signatory parties may result in them being bound by the arbitration agreement. Hence, other non-signatory companies in the group should not be involved in the transaction or contractual obligations of another group company without good reason. The conduct of non-signatories should be purposeful and structured. Parties must ensure clear and unambiguous language of their agreement in order to limit or perhaps, extend the involvement of non-signatories.

Conclusion

While initially the Indian legal framework adopted a conservative and restrictive approach by limiting the arbitration agreement to the signatories of the agreement, the Cox and Kings case reflects a changing liberal outlook to the scope of arbitral agreements. The judgment gave a definitive and authoritative judgment on a question of law that had lingered on for several past cases and aligns the Indian arbitration jurisprudence with international standards. Companies will need to reassess their contractual and corporate arrangements in order to ensure that they are in tandem with this new interpretation of law.