SC upholds application of 'group of companies doctrine' in Indian arbitration law

In May 2022, a bench led by the then CJI NV Ramana referred the issue to a five-judge constitution bench.

A constitutional bench of the Supreme Court, on December 6, upheld the application of the 'group of companies' doctrine in Indian arbitration law.

According to the doctrine, a non-signatory to an arbitration agreement could be made a party to an arbitration dispute if they are a part of the group of companies.

Arbitration is a mechanism to resolve disputes between parties without going to court. A neutral person is appointed to adjudicate the dispute and the judgment of an arbitrator is legally enforceable.

For parties to resolve their dispute through arbitration, they must necessarily have an agreement expressing their intention to arbitrate, as arbitration is consensual.

Arbitration proceedings cannot begin when one party disputes the existence of an agreement. Under such circumstances, a group of companies doctrine states that a non-signatory can be asked to participate in arbitrations if they belong to the group of companies, the doctrine was criticised for not considering individual party autonomy and the concept of a separate legal entity.

In 2012, the SC had in a judgment called Chloro Control Vs Severn Trent Water Purification Inc, held that "A non-signatory forming part of the same corporate group as a signatory could be made a party to the arbitration where it is clear from circumstances surrounding the transaction that the mutually held intent was to bind the signatory as well as the non-signatory to the arbitration agreement."

Facts of the current case:

The genesis of this judgment originates in a dispute between Cox and Kings and software giant SAP.

Cox and Kings and SAP India entered into an agreement under which the latter would install its software in the former's system. However, Cox and Kings alleged that SAP did not perform its obligations properly and initiated arbitration proceedings.

SAP's German arm SAP SE was made a party to the arbitration proceedings. SAP India objected to this and the dispute reached the Supreme Court. SAP objected to the arbitration stating that Cox and Kings did not have an arbitration agreement with SAP SE and thus it could not make it a party. Cox and Kings sought to invoke the group of companies doctrine.

In May 2022, a bench led by the then CJI NV Ramana referred the issue to a five-judge constitution bench.