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TMI Blog2023 (12) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... iming through or under a party to the arbitration agreement; e. 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 nonsignatory party to the arbitration agreement; f. The principle of alter ego or piercing the corporate veil cannot be the basis for the application of the group of companies doctrine; g. 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; h. 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. VERSUS M/S DISCOVERY ENTERPRISES PVT. LTD. ANR. [ 2022 (4) TMI 1350 - SUPREME COURT] . Resultantly, the principle of single economic unit cannot be the sole basis for invoking the group of companies doctrine; i. The persons claiming through or under can only assert a right in a derivative capacity; j. The approach of this Court in CHLORO CONTROLS (I) P. LTD. VERS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of inquiry by a court or arbitral tribunal under Section 7(4)(b) and the Group of Companies doctrine is the same, the doctrine can be subsumed within Section 7(4)(b) to enable a court or arbitral tribunal to determine the true intention and consent of the non-signatory parties to refer the matter to arbitration. The doctrine is subsumed within the statutory regime of Section 7(4)(b) for the purpose of certainty and systematic development of law. IV. The expression claiming through or under in Sections 8 and 45 is intended to provide a derivative right; and it does not enable a non-signatory to become a party to the arbitration agreement. The decision in Chloro Control tracing the Group of Companies doctrine through the phrase claiming through or under in Sections 8 and 45 is erroneous. The expression party in Section 2(1)(h) and Section 7 is distinct from persons claiming through or under them . This answers the remaining questions referred to the Constitution Bench. - CJI DR DHANANJAYA Y CHANDRACHUD, JUSTICE HRISHIKESH ROY, JUSTICE , J B PARDIWALA, JUSTICE , MANOJ MISRA And JUSTICE , PAMIDIGHANTAM SRI NARASIMHA For the Petitioner : Mr. Hiroo Advani, Adv. Mr. Divyaka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ............................... 20 b. Development of Law after Chloro Controls ................................................... 24 ii. France The Dow Chemicals case .................................................................. 29 iii. Switzerland ....................................................................................................... 33 iv. England ............................................................................................................ 34 v. Singapore ......................................................................................................... 37 vi. United States of America .................................................................................. 38 D. Arbitration Agreement .......................................................................................... 41 i. Consent as the basis for arbitration .................................................................. 41 ii. Parties to Arbitration Agreement ....................................................................... 45 E. Group of Companies Doctrine ............................................................................. 56 i. Separate legal person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is doctrine is called into question purportedly on the ground that it interferes with the established legal principles such as party autonomy, privity of contract, and separate legal personality. The challenge before this Court is to figure out whether there can be a reconciliation between the group of companies doctrine and well settled legal principles of corporate law and contract law. 3. A Bench of three Judges of this Court, while considering an application under Section 11(6) of the Arbitration Act and Conciliation 1996, Arbitration Act , sought to reexamine the validity of the group of companies doctrine in the Indian context on the ground that it is premised more on economic efficiency rather than law. The Bench of three judges (speaking through the majority opinion authored by Chief Justice N. V. Ramana (as he was then), and the concurring opinion by Justice Surya Kant) doubted the correctness of the application of the doctrine by the Indian courts. 4. Chief Justice Ramana criticised the approach of a three-Judge Bench of this Court in Chloro Controls India (P) Ltd v. Severn Trent Water Purification Inc, (2013) 1 SCC 641 of relying upon the phrase claiming through or under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; PART B b. Whether the Group of Companies Doctrine should continue to be invoked on the basis of the principle of single economic reality ; c. Whether the Group of Companies Doctrine should be construed as a means of interpreting implied consent or intent to arbitrate between the parties; and d. Whether the principles of alter ego and/or piercing the corporate veil can alone justify pressing the Group of Companies Doctrine into operation even in the absence of implied consent. 6. We are not reproducing the factual matrix of the case, as we have been called upon to settle the broader legal issues raised in the reference. In the process, we will answer the above legal issues, as well as other ancillary issues that have been raised before us by counsel. B. Submissions 7. Mr Hiroo Advani, learned counsel appearing for the petitioner in Arbitration Petition No. 38 of 2020, made the following submissions: a. The basis for the application of the group of companies doctrine is the tacit or implied consent by the non-signatory to be bound by the arbitration agreement; b. The definition of party under Section 2(1)(h) of the Arbitration Act cannot be restricted to the signatories to an arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The concept of party to an arbitration agreement is distinct from the concept of person claiming through or under a party. The latter expression conveys the notion of a derivative cause of action where the non-signatory steps into the shoes of the party rather than claiming an independent right under the agreement. The typical scenarios where a person claims through or under a party are assignment, subrogation, and novation; and f. Concepts such as tight group structure and single economic unit cannot be the sole basis to invoke the group of companies doctrine. This doctrine cannot be applied to bind a non-signatory merely on account of it being under the ownership, control, or supervision of the signatory party; 9. Dr A M Singhvi, learned senior counsel appearing for the interveners in IA No. 92757 of 2022, made the following submissions: a. The group of companies doctrine constitutes a true and genuine effectuation of the real intent of the parties to subject both the signatory and non-signatory parties to the arbitration agreement; b. The doctrine is a reasonable and natural extension of the principle of piercing the corporate veil. The application of the doctrine is also jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omic entity doctrine are purely economic concepts without any basis in either contract law or company law. Therefore, they cannot be applied to determine the intention of non-signatories to be bound by an arbitration agreement; b. The decision of a party to not sign the arbitration agreement may form the basis to demonstrate an intent not to be bound by it; c. The mere factum of multiple agreements or that the non-signatory was involved in the negotiation of the contract cannot form the basis to bind it to the arbitration agreement; d. The phrase claiming through or under which finds mention under Sections 8 and 45 of the Arbitration Act cannot be the basis for the application of the group of companies doctrine; and e. The determination of the intention of parties to a contract should relate only to the intention held at the time of entering into the contract, which can be gathered objectively from the text of the contract. However, Chloro Controls (supra) which considers consequential or subsequent agreements to determine the mutual intention of the parties is incorrect. 12. Mr Ritin Rai, learned senior counsel appearing for the respondent in Arbitration Petition No. 38 of 2020, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, it can refer the issue to be decided by the arbitral tribunal. 14. Mr Sanjoy Ghose, learned senior counsel appearing on behalf of the petitioner in SLP (C) No. 8607 of 2022, made the following submissions: a. Section 2(1)(h) uses the term party and not signatory to account for situations where a non-signatory enters the shoes of a signatory party either by succession, operation of law, assignment, or death; and b. The group of companies doctrine contravenes the provisions of corporate law by fixing liability on an entity that is not a party to an arbitration agreement. Mere participation in the negotiation or performance of the contract cannot bind a non-signatory to the arbitration agreement in the absence of express consent. 15. Mr Pallav Mongia, learned advocate on behalf of the interveners in IA No. 58168 of 2023, submitted that Section 2(1)(h) of the Arbitration Act does not restrict the definition of parties to signatories . Rather, the definition has to be inferred from Section 7. Section 7(4) expands the definition of parties to non-signatories. 16. Ms Meenakshi Arora, learned senior counsel on behalf of the respondent in SLP (C) No. 8607 of 2022, argued for de-tagging o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to an arbitration agreement. An arbitration agreement is defined under Section 2(1)(b) to mean an agreement referred to in Section 7. Section 7 lays down the essential elements of a valid and binding arbitration agreement. It defines an arbitration agreement as an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. The provision also mandates that an arbitration agreement shall be in writing. An arbitration agreement is in writing if it is contained in: (a) a document signed by the parties; (b) an exchange of letters, telexes, telegrams, or other means of telecommunication including communication through electronic means which provide a record of the agreement; or (c) an exchange of statements of claim and defense in which the existence of the agreement in alleged by one party and not denied by the other. Section 7(5) further stipulates that the reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if two conditions are satisfied. These conditions are first, that the contract is in writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under Section 11(6) of the Arbitration Act against the second respondent and Indowind. Indowind resisted the impleadment on the ground that it was not a party to the underlying sale agreement and, therefore, had not consented to be bound by the arbitration clause. The issue before this Court was whether the arbitration agreement contained in the sale agreement was binding on Indowind. This Court refused to join Indowind to the arbitration agreement on the ground that (i) Indowind was not a signatory to the sale agreement; (ii) Indowind and the promoter company were two independent companies with a separate and distinct legal existence; and (iii) the fact that Indowind did not sign the sale agreement indicated that it was the mutual intention of all the parties to not make it a party to the arbitration agreement. 23. The pre Chloro Controls (supra) position was characterized by three underlying precepts: (i) arbitration could be invoked at the instance of a signatory to the arbitration agreement only in respect to disputes with another signatory party; S N Prasad v. Monnet Finance Ltd, (2011) 1 SCC 320 (ii) the court would adopt a strict interpretation of the provisions of the Arb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whole or in part can be made to the Arbitral Tribunal, more particularly, where the parties to an action are claiming under or through a party to the arbitration agreement 25. Section 45 of the Arbitration Act in its unamended form read as follows: 45. Power of judicial authority to refer parties to arbitration. Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, that the said agreement is null and void, inoperative or incapable of being performed. (emphasis supplied) In view of the language of Section 45, this Court held that the expression any person reflects a legislative intent of enlarging the scope beyond parties who are signatories to the arbitration agreement to include non-signatories. However, the court noted that such non-signatory parties are required to claim through or under the signatory party. Thus, this Court accepted that arbitration is possible between a sig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valuate the facts and circumstances to determine a clear intention of the parties to bind both, the signatory as well as the non-signatory parties to the arbitration agreement. 29. Chloro Controls (supra) was dealing with a situation where the success of the joint venture agreement was dependent upon the fulfilment of all the ancillary agreements. In this context, this Court observed that all the ancillary agreements were relatable to the parent agreement and the ancillary agreements were intrinsically linked with each other, to the extent that they could not be severed. This in the view of the court indicated the intention of the parties to refer all disputes arising out of the parent agreement and ancillary agreements to the arbitral tribunal. 30. Furthermore, this Court explained the phrase legal relationship to mean the relationship of the signatory party with the person claiming under or through them. It observed that all the agreements were signed by some parties or their holding companies or the companies into which the signatory company had merged. Although these companies did not put pen to paper for all the agreements, they were descendants in interest or subsidiaries of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Arbitration Act against a non-signatory, who was a nominee of one of the signatories to the arbitration agreement and a direct beneficiary of the underlying contract between the signatories. Section 35 of the Arbitration Act postulates that an arbitral award shall be final and binding on the parties and persons claiming under them respectively. This Court observed that the expression persons claiming under them refers to every person whose capacity or position is derived from and is same as a party to the proceedings. It held that the nonsignatory, being a nominee of one of the signatory parties, was bound by the arbitral award as it was claiming under the signatory. 33. This Court in Cheran Properties (supra) interpreted the group of companies doctrine to hold that its true purport is to enforce the common intention of the parties where the circumstances indicate that both the signatories and nonsignatories were intended to be bound. One of us (D Y Chandrachud J) explained the evolution of the group of companies doctrine in the Indian context in the following terms: 23. As the law has evolved, it has recognised that modern business transactions are often effectuated throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement, would be bound by the arbitration clause in the principal agreement. It observed that in view of the composite nature of the transaction, the disputes between the parties to various agreements could be resolved effectively by referring all of them to arbitration. 36. Over time, this Court has identified certain additional factors for the invocation of the group of companies doctrine. In Reckitt Benckiser (India) Private Limited v. Reynders Label Printing India Private Limited, (2019) 7 SCC 62 a two-Judge Bench of this Court was dealing with an application under Section 11(6) of the Arbitration Act seeking the appointment of an arbitrator. This Court prima facie observed that the parties belonged to the same group of companies. Subsequently, the issue before this Court was whether there was a clear intention of the parties to bind both the signatory and non-signatory parties based on their participation in the negotiation of the underlying contract. The court held that the non-signatory party, even though a constituent part of the corporate group, did not have any causal connection with the process of negotiations preceding the agreement or the execution thereof, whatsoeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd a company within a group which is not a signatory to the arbitration agreement. The Court held that in addition to the cumulative factors laid down in Chloro Controls (supra), the performance of the contract was also an essential factor to be considered by the courts and tribunals to bind a non-signatory to the arbitration agreement. Ultimately, this Court set aside the decision of the arbitral tribunal on the ground that it failed to address the plea raised by ONGC, and remanded the matter back to the tribunal to decide afresh. ii. France The Dow Chemicals case 39. The application of the group of companies doctrine in arbitration law mainly originated from the decisions rendered by international arbitral tribunals. Before proceeding to analyze the contours of the doctrine, it is necessary to understand its origin and development in the international context. Such an analysis is particularly relevant because any authoritative determination by this Court with regard to the group of companies doctrine ought to be in tune with the internationally accepted principles on the vexed issue of joining nonsignatories to arbitration agreements. 40. The origin of the doctrine is primarily a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibunal also relied on the fact that Isover Saint Gobain applied for the joinder of the holding company into the court proceedings in France before the Court of Appeal of Paris. 42. After concluding that the non-signatories were also a party to the arbitration agreement, the tribunal proceeded to analyze the factual circumstances of the signatory and non-signatory belonging to the same group of companies. At the outset, the tribunal observed that a group of companies constitutes one and the same economic reality. However, the tribunal emphasized that a nonsignatory may be bound by the arbitration agreement entered into by another entity of the same group if the non-signatory appears to be a veritable party to the contracts on the basis of their involvement in the negotiation, performance, and termination of the contracts. The relevant observation is extracted below: Considering, in particular, that the arbitration clause expressly accepted by certain of the companies of the group should bind the other companies which, by virtue of their role in their conclusion, performance, or termination of the contracts containing said clause, and in accordance with the mutual intention of all pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sier of the ICC Institute of World Business Law, Volume 7, 131-145. Hence our understanding of 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. The subjective intention of the parties is to be inferred on the basis of their objective conduct during the negotiation, performance, and termination of the underlying contract containing the arbitration agreement. iii. Switzerland 46. Section 178(1) of the Swiss Private International Law Act 1987 states that an arbitration agreement must be made in writing or any other means of communication allowing it to be evidenced by text. In 2003, the Swiss Federal Supreme Court held that once there is a valid arbitration clause according to Section 178(1) of the Swiss Act, the issue whether it also extends to non-signatories may be decided by the courts or the arbitral tribunals. As a matter of general rule, the Swiss courts have extended an arbitration agreement to non-signatories typically in cases of assignment of a claim, assumption of debt or delegation of a contract., A, B, C v. D and State o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, operation of law, and merger and succession., Audley William Sheppard, Third Party Non-Signatories in English Arbitration Law in Stavros Brekoulakis, Julian Lew, et al (eds) The Evolution and Future of International Arbitration (Kluwer Law International, 2016) 183-198. However, the English law has explicitly rejected other doctrines such as piercing the corporate veil, equitable estoppel, and group of companies as a basis for extending an arbitration agreement to non-signatory parties. 50. In Peterson Farms INC v. C M Farming Limited, [2004] EWHC 121 (Comm) a claim for damages was brought against Peterson Farms by the respondent C M Farming for damages suffered by several C M group entities, some of them being nonsignatories to the arbitration agreement. The arbitral tribunal applied the group of companies doctrine to hold that C M Farming contracted on behalf of the entire C M group entities, and therefore was entitled to claim all the damages suffered by the C M group entities arising out of the contractual relationship with Peterson. In appeal, the Commercial Court held that the chosen proper law of the Agreement - Arkansas law is similar to the English law which excludes t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 53. In Dallah Real Estate and Tourism Holding Company v. The Ministry of Religious Affairs, Government of Pakistan, [2010] UKSC 46 , the Government of Pakistan entered into a Memorandum of Understanding with Dallah Real Estate and Tourism Holding Company, Dallah for construction of housing facilities in Mecca, Saudi Arabia. Subsequently, an agreement was executed between Dallah and the Awami Hajj Trust, which was established by the Government through an Ordinance. However, the trust ceased to exist as a legal entity because the Ordinance was not laid before Parliament and no further ordinance was promulgated. Dallah commenced arbitral proceedings against the Government. The UK Supreme Court had to determine whether there was a common intention on behalf of the Government and Dallah to make the former a party to the agreement. The Court observed that the common intention of the parties means their subjective intention derived from the objective evidence. It was held that there was no evidence to conclude that the Government s behavior showed that it always considered itself to be a true party to the agreement. v. Singapore 54. In Manuchar Steel Hong Kong Limited v. Star Pacific Lin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onvention. Thus, it was held that the New York Convention does not set out a comprehensive regime to preclude the use of domestic law to enforce arbitration agreements. 57. Unlike the English courts, the US Courts have used non-consensual doctrines to extend arbitration agreements to non-signatory parties. For instance, the US Courts have pierced the corporate veil and held the alter ego liable in exceptional circumstances where the parent company exercised complete control over the subsidiary with respect to the transaction at issue., American Fuel Corp v. Utah Energy Development Co, Inc, 122 F.3d 130, 134 (2d Cir 1997) Similarly, the doctrine of arbitral estoppel has been developed by the US Courts to bind non-signatory parties to an arbitration agreement. The doctrine of arbitral estoppel suggests that a party is estopped from denying its obligation to arbitrate when it received a direct benefit from a contract containing an arbitration agreement., American Bureau, Shipping v. Tencara Shipyard, 170 F.3d 349, 353 (2d Cir 1999) The second type of arbitral estoppel developed by the US courts places emphasis on the substantial interdependent relationship between the signatory and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ple of party autonomy underpins the arbitration process as it allows the parties to dispense with technical formalities and agree upon substantive and procedural laws and rules applicable to the merits of the dispute., Bharat Aluminium Company v Kaiser Aluminium Technical Services, (2016) 4 SCC 126 Party autonomy allows the parties to choose the seat of arbitration, number of arbitrators, procedure for appointment of arbitrators, rules governing the arbitral procedure, and the institution which will administer the arbitration. An arbitration proceeding is broadly divided into two stages: The first stage commences with an arbitration agreement and ends with the making of an arbitral award. The second stage pertains to the enforcement of the arbitral award., Satish Kumar v. Surinder Kumar, (1969) 2 SCR 244 60. Consent forms the cornerstone of arbitration. An arbitration agreement records the consent of the parties to submit their disputes to arbitration. A two- Judge Bench of this Court in Bihar State Mineral Development Corporation v. Encon Builders (I) Pvt. Ltd. (2003) 7 SCC 418 laid down four essential elements of an arbitration agreement: (i) There must be a present or a future d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stipulated under Section 7 of the Arbitration Act, to qualify as a valid agreement., Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1 Section 2(e) of the Contract Act defines an agreement as every promise and every set of promises forming the consideration for each other. An agreement enforceable by law is a contract. An agreement should satisfy the mandate of Section 10 of the Contract Act to be enforceable by law. Section 10 provides that all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object. According to Section 13, two or more persons are said to consent when they agree upon the same thing in the same sense. Thus, consensus ad idem between the parties forms the essential basis to constitute a valid arbitration agreement. 64. Being a creature of a contract, an arbitration agreement is also bound by the general principles of contract law, including the doctrine of privity. The doctrine of privity means that a contract cannot confer rights or impose liabilities on any person except the parties to the contract. This doctrine has two aspects: first, only the parties to the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Indian Contract and Specific Reliefs Act (14th edn, 2016) 235. Therefore, the term non-signatories , instead of the traditional third parties , seems the most suitable to describe situations where consent to arbitration is expressed through means other than signature. A non-signatory is a person or entity that is implicated in a dispute which is the subject matter of an arbitration, although it has not formally entered into an arbitration agreement., Stavros Brekoulakis, Rethinking Consent in International Commercial Arbitration: A General Theory for Nonsignatories (2017) 8 Journal of International Dispute Settlement 610. The important determination is whether such a non-signatory intended to effect legal relations with the signatory parties and be bound by the arbitration agreement. There may arise situations where persons or entities who have not formally signed the arbitration agreement or the underlying contract containing the arbitration agreement may intend to be bound by the terms of the agreement. In other words, the issue of who is a party to an arbitration agreement is primarily an issue of consent. 67. Section 2 of the Contract Act provides that when a person signifies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement between the parties, the defendant accepted the goods, but allegedly failed to clear the outstanding dues despite repeated demands raised by the plaintiff. A Bench of three Judges of this Court observed that the conduct of the defendants in accepting the goods and not repudiating any of the demand letters raised by the plaintiff clearly showed that a direct contract which in law is called an implied contract by conduct was brough about between them. Under the Indian contract law, it is posited that actions or conduct can be an indicator of consent of a party to be bound by a contract. This also applies to an arbitration agreement considering the fact that it is a creature of contract. However, an arbitration agreement also has to meet the requirements laid down under the Arbitration Act to be valid and enforceable. 70. Section 2(h) of the Arbitration Act defines a party to mean a party to an arbitration agreement. Section 7 defines an arbitration agreement to mean an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship. Section 7 requires that an arbitration ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of telecommunication including communication through electronic means which provide a record of the agreement. According to this provision, the existence of an arbitration agreement can be inferred from various documents duly approved by the parties., Shakti Bhog Foods Limited v. Kola Shipping Ltd, (2009) 2 SCC 134; Trimex International FZE Ltd v. Vedanta Aluminium Ltd, (2010) 3 SCC 1 Section 7(4)(b) dispenses with the conventional sense of an agreement as a document with signatories. Rather, it emphasizes on the manifestation of the consent of persons or entities through their actions of exchanging documents. However, the important aspect of the said provision lies in the fact that the parties should be able to record their agreement through a documentary record of evidence. In Great Offshore Ltd. v. Iranian Offshore Engineering and Construction Company, this Court observed that Section 7(4)(b) requires the court to ask whether a record of agreement is found in the exchange of letters, telex, telegrams, or other means of telecommunication., (2008) 14 SCC 240 Thus, the act of agreeing by the persons or entities has to be inferred or derived by the courts or tribunals from the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Commodities, (2015) 13 SCC 477 The mandatory requirement of a written arbitration agreement is merely to ensure that there is a clearly established record of the consent of the parties to refer their disputes to arbitration to the exclusion of the domestic courts. 76. Section 2(h) read with Section 7 does not expressly require the party to be a signatory to an arbitration agreement or the underlying contract containing the arbitration agreement. This interpretation is in line with the general trend in national and international legislations that a signature is not necessary for an arbitration agreement. The UNCITRAL Model Law as amended in 2006 lays down the writing requirement for an arbitration agreement under Article 7 in the following terms: (3) An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means. The above provision states that an arbitration agreement may be entered into in any form, for example orally or tacitly, as long as the content of the agreement is recorded. It eliminates the requirement of the signature of parties or an exchange o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ories to the arbitration agreement to be bound by it; fourth, in case of non-signatory parties, the important determination for the courts is whether the persons or entities intended or consented to be bound by the arbitration agreement or the underlying contract containing the arbitration agreement through their acts or conduct; fifth, the requirement of a written arbitration agreement has to be adhered to strictly, but the form in which such agreement is recorded is irrelevant; sixth, the requirement of a written arbitration agreement does not exclude the possibility of binding nonsignatory parties if there is a defined legal relationship between the signatory and non-signatory parties; and seventh, once the validity of an arbitration agreement is established, the court or tribunal can determine the issue of which parties are bound by such agreement. 79. It is presumed that the formal signatories to an arbitration agreement are parties who will be bound by it. However, in exceptional cases persons or entities who have not signed or formally assented to a written arbitration agreement or the underlying contract containing the arbitration agreement may be held to be bound by such a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n agreement. Generally, consent based theories such as agency, novation, assignment, operation of law, merger and succession, and third party beneficiaries have been applied in different jurisdictions. In exceptional circumstances, non-consensual theories such as piercing the corporate veil or alter ego and estoppel have also been applied to bind to bind a non-signatory party to an arbitration agreement. The group of companies doctrine is one such consent-based doctrine which has been applied, albeit controversially, for identifying the real intention of the parties to bind a non-signatory to an arbitration agreement. PART E E. Group of Companies Doctrine i. Separate legal personality 82. The phenomenon of group companies is the modern reality of economic life and business organisation. Group companies are a set of separate firms linked together in formal or informal structures under the control of a parent company. The group companies can be defined in the Indian context as an agglomeration of privately held and publicly traded firms operating in different lines of business, each of which is incorporated as a separate legal entity, but which are collectively under the entrepreneur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y is wound up, the liquidator, and its parent company, would get hold of the assets of the subsidiary. In none of the authorities have the assets of the subsidiary been held to be those of the parent unless it is acting as an agent. Thus, even though a subsidiary may normally comply with the request of a parent company it is not just a puppet of the parent company. The difference is between having power or having a persuasive position. Though it may be advantageous for parent and subsidiary companies to work as a group, each subsidiary will look to see whether there are separate commercial interests which should be gained. 85. The separateness of corporate personality will be ignored by courts in exceptional situations where a company is used as a means by the members and shareholders to carry out fraud or evade tax liabilities. If the court, on the basis of factual evidence, determines that the company was acting as an agent of the members or shareholders, it will ignore the separate personality of the company to attribute liability to the individuals. In Tata Engineering and Locomotive Co Ltd v. State of Bihar (1964) 6 SCR 885 , the issue before a Constitution Bench of this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the corporate veil should be applied in a restrictive manner and only in scenarios where it is evident that the subsidiary company was a mere camouflage deliberately created by the holding company for the purpose of avoiding liability. It was further observed that the intent of piercing the corporate veil must be such that would seek to remedy a wrong done by the holding company. In the context of arbitration, the principle of piercing the corporate veil has been sparingly used because it disregards the intention of the parties by emphasizing on the overriding considerations of good faith and equity to bind the non-signatories to an arbitration agreement. 88. Moreover, since the companies in a group have separate legal personality, the presence of common shareholders or directors cannot lead to the conclusion that the subsidiary company will be bound by the acts of the holding company. The statements or representations made by promoters or directors in their personal capacity would not bind a company. Similarly, the mere fact that the two companies have common shareholders or a common Board of Directors will not constitute a sufficient ground to conclude that they are a single econ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner of settlement of disputes that may arise between them in respect of their legal relationship. In most situations, the language of the contract is only suggestive of the intention of the signatories to such contract and not the non-signatories. However, there may arise situations where a person or entity may not sign an arbitration agreement, yet give the appearance of being a veritable party to such arbitration agreement due to their legal relationship with the signatory parties and involvement in the performance of the underlying contract. Especially in cases involving complex transactions involving multiple parties and contracts, a non-signatory may be substantially involved in the negotiation or performance of the contractual obligations without formally consenting to be bound by the ensuing burdens, including arbitration. 92. Modern commercial reality suggests that there often arise situations where a company which has signed the contract containing the arbitration clause is not always the one to negotiate or perform the underlying contractual obligations. In such situations, emphasis on formal consent will lead to the exclusion of such non-signatories from the ambit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement in a manner so as to expand its reach to parties not named in the agreement. 95. Arbitration law is an autonomous legal field. While the main purpose of corporate law and contract law is imputation of substantive legal liability, the main purpose behind the law of arbitration is to determine whether an arbitral tribunal has jurisdiction over the dispute arising between parties to an arbitration agreement. On the one hand, the courts and tribunals cannot lightly brush aside the decision of the parties to not make a person or entity a party to the arbitration agreement. The fact that the non-signatory did not put pen to paper may be an indicator of its intention to not assume any rights or responsibilities under the arbitration agreement. On the other hand, courts and tribunals cannot adopt a rigid approach to exclude all persons or entities who, through their conduct and relationship with the signatory parties, intended to be bound by the underlying contract containing the arbitration agreement. The area of arbitration law not only concerns domestic law, but it also encompasses the international law, particularly when it pertains to the enforcement of international arbitra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he context of arbitration law, the challenge arises when only one member of the group signs the arbitration agreement, to the exclusion of other members. Should the non-signatories be excluded from the arbitration proceedings, even though they were implicated in the dispute which forms the subject matter of arbitration? As a response to this challenge, arbitration law has developed and adopted the group of companies doctrine, to allow or compel a non-signatory party to be bound by an arbitration agreement. iii. Group of companies doctrine a fact based doctrine 98. The group of companies doctrine is used in the context of companies which are related to each other by virtue of their being a part of the same corporate group. Since every company in a group has a separate legal personality, a contract formally entered by one member of a group will not be binding on the other members by virtue of the limited liability principle. The group of companies doctrine is used to bind a non-signatory company within a group to an arbitration agreement which has been signed by other member of the group., UNCITRAL, Settlement of Commercial Disputes: Possible uniform rules on certain issues concernin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suggests that the group of companies doctrine is helpful because it allows the courts to go beyond the objective intentions of the parties to determine their dynamic subjective intentions both before, during, and after the execution of the contract., Gary Born (n 44) 1568. According to Born, the doctrine also promotes efficacy of arbitration agreements by prohibiting circumvention of arbitration through satellite litigation by non-signatory parties within a group. We are broadly in agreement with this view for the reasons to follow. 101. The group of companies doctrine was developed by international arbitral tribunals specifically in the context of arbitration, and is not generally used in other areas of law., Gary Born (n 44) 1559. Although the existence of a group of companies is a necessary condition, it is not the sufficient condition to determine the intention of the parties. In almost all formulations, the courts and tribunals have cautioned that the mere membership of a non-signatory in a group of companies is not enough to bind it to the arbitration agreement. Rather, the courts need to determine: first, the existence of a group of companies; and second, the conduct of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a group of companies. Through the extension of this doctrine is met with resistance on the basis of the legal imputation of corporate personality, the application of the doctrine turns on a construction of the arbitration agreement and the circumstances relating to the entry into and performance of the underlying contract. 104. In Cox and Kings (supra), Surya Kant, J questioned whether the principles of alter ego or piercing the corporate veil can alone justify the application of the group of companies doctrine even in the absence of implied consent. This Court in Cheran Properties (supra) clarified that there is an important distinction between the group of companies doctrine and the principle of veil piercing or alter ego. The principle of alter ego disregards the corporate separateness and the intentions of the parties in view of the overriding considerations of equity and good faith. In contrast, the group of companies doctrine facilitates the identification of the intention of the parties to determine the true parties to the arbitration agreement without disturbing the legal personality of the entity in question. Therefore, the principle of alter ego or piercing the corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he signatory as well as the non-signatory parties. In other words, intention of the parties is a very significant feature which must be established before the scope of the arbitration can be said to include the signatory as well as the nonsignatory party. 73. A non-signatory or third party could be subjected to arbitration without their prior consent, but this would only be in exceptional cases. The court will examine these exceptions from the touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject-matter and the agreement between the parties being a composite transaction. The transaction should be of a composite nature where performance of the mother agreement may not be feasible without aid, execution and performance of the supplementary or ancillary agreements, for achieving the common object and collectively having bearing on the dispute. Besides all this, the court would have to examine whether a composite reference of such parties would serve the ends of justice. Once this exercise is completed and the court answers the same in the affirmative, the reference of even non-signatory parties would fall within the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the agreement between the parties. Avoiding multiplicity of proceedings and fragmentation of disputes is certainly in the interests of justice. However, it can never be the sole consideration to invoke the group of companies doctrine. 110. In Discovery Enterprises (supra), this Court refined and clarified the cumulative factors that the courts and tribunals should consider in deciding whether a company within a group of companies is bound by the arbitration agreement: 40. In deciding whether a company within a group of companies which is not a signatory to arbitration agreement would nonetheless be bound by it, the law considers the following factors: (i) The mutual intent of the parties; (ii) The relationship of a non-signatory to a party which is a signatory to the agreement; (iii) The commonality of the subject-matter; (iv) The composite nature of the transactions; and (v) The performance of the contract. 111. Since the group of companies doctrine is a consent based theory, its application depends upon the consideration of a variety of factual elements to establish the mutual intention of all the parties involved. In other words, the group of companies doctrine is a means to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urya Kant observed that applying this approach has the tendency to overlook the principle of corporate separateness and dispense with the consent of the parties. There is weight in the caution expressed by Justice Surya Kant. The presence of commercial relationships between a party and a non-signatory cannot be the sole criteria to bind non-signatory parties to the arbitration agreement. Adopting such an approach would bind all the non-signatories within a corporate group, even though they are not related to the contractual obligations under consideration, to the arbitration agreement. Consequently, such an approach will lead to the violation of the basic legal tenet of arbitration the necessity of consent, either express or implied, to be bound by an arbitration agreement. Moreover, the imposition of liability on a non-signatory company within a group for the acts of other members of the group merely on the basis of the fact that they belong to a single economic unit will ride roughshod over the principle of distinct corporate personality. The objective of the group of companies doctrine is to identify the mutual intentions of the parties without disregarding the legal personality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... performance of the principal agreement may not be feasible without the aid, execution, and performance of the supplementary or ancillary agreements. 117. The general position of law is that parties will be referred to arbitration under the principal agreement if there is a situation where there are disputes and differences in connection with the main agreement and also disputes connected with the subject-matter of the principal agreement., Olympus Superstructures (P) Ltd v. Meena Vijay Khetan, (1999) 5 SCC 651 In Chloro Controls (supra), this Court clarified that the principle of composite performance would have to be gathered from the conjoint reading of the principal and supplementary agreements on the one hand, and the explicit intention of the parties and attendant circumstances on the other. The common participation in the commercial project by the signatory and nonsignatory parties for the purposes of achieving a common purpose could be an indicator of the fact that all the parties intended the non-signatory party to be bound by the arbitration agreement. Thus, the application of the group of companies doctrine in case of composite transactions ensures accountability of all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt claimed was the promoter of a Belgian sister company of the Indian company. The Belgian company was a non-signatory to the agreement. Yet, the applicant sought to implead the Belgian company on the basis that it had participated during the negotiations preceding the execution of the agreement. This Court refused to allow the joinder of the Belgian company to the arbitration agreement on the grounds that Mr. Reynders was not the promoter of the Belgian company, and was therefore not acting in that capacity on or behalf of the company and the applicant failed to discharge its burden to prove that the Belgian company consented to the arbitration agreement. 121. Evaluating the involvement of the non-signatory party in the negotiation, performance, or termination of a contract is an important factor for a number of reasons. First, by being actively involved in the performance of a contract, a non-signatory may create an appearance that it is a veritable party to the contract containing the arbitration agreement; second, the conduct of the nonsignatory may be in harmony with the conduct of the other members of the group, leading the other party to legitimately believe that the non-sig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question that has to be answered is whether a non-signatory consented to the arbitration agreement, as distinct from the underlying contract containing the arbitration agreement., Gary Born (n 44) 1545. 124. Stavros Brekoulakis argues that the application of legal theories such as group of companies doctrine rests on an assumption that an arbitration agreement requires less consent or less evidence of consent than the underlying contract containing the arbitration agreement., Stavros Brekoulakis, Rethinking Consent in International Commercial Arbitration: A General Theory for Nonsignatories (2017) 8 Journal of International Dispute Settlement 610, 621. Brekoulakis further notes that the assumption that implied consent of a non-signatory to the underlying contract is sufficient to constitute consent to the arbitration agreement contained in such contract militates against the principle of separability of contracts., Stavros Brekoulakis, Parties in International Arbitration: Consent v. Commercial Reality in Stavros Brekoulakis, Julian DM Lew, et al (eds) The Evolution and Future of International Arbitration (2016) 119, 148. 125. The non-signatory s participation in the negotiation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Law, Volume 7 (2010) 71, 79. 127. We are of the opinion that there is a need to seek a balance between the consensual nature of arbitration and the modern commercial reality where a non-signatory becomes implicated in a commercial transaction in a number of different ways. Such a balance can be adequately achieved if the factors laid down under Discovery Enterprises (supra) are applied holistically. For instance, the involvement of the non-signatory in the performance of the underlying contract in a manner that suggests that it intended to be bound by the contract containing the arbitration agreement is an important aspect. Other factors such as the composite nature of transaction and commonality of subject matter would suggest that the claims against the non-signatory were strongly inter-linked with the subject matter of the tribunal s jurisdiction. Looking at the factors holistically, it could be inferred that the non-signatories, by virtue of their relationship with the signatory parties and active involvement in the performance of commercial obligations which are intricately linked to the subject matter, are not actually strangers to the dispute between the signatory parties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a person or entity can claim through or under a party PART F are assignment, subrogation, and novation. In these situations, the assignees or representatives become successors to the signatory party s interests under the arbitration agreement. They step into the shoes of the signatory party, from whom they derive the right to arbitrate, rather than claiming an independent right under the arbitration agreement. 131. The scope of an arbitration agreement under the English law is limited to the parties who entered into it and those claiming through or under them., Section 82(2) of the English Arbitration Act, 1996 In Roussel-Uclaf (supra), it was held that a subsidiary company can invoke the arbitration agreement on the basis that it is claiming through or under the parent company because of the close relationship between the two companies. However, Roussel-Uclaf (supra) was expressly overruled by the Court of Appeal in Sancheti (supra) on the ground that a mere legal or commercial connection is not sufficient for a person to claim through or under a party to an arbitration agreement. 132. The scope of the phrase claiming through or under has been evaluated by other common law jurisd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neficial title to the mining tenements would be determined by arbitration. Since the third parties accepted the benefits of the agreement, it was held that they must also accept the burdens of its stipulated conditions, including arbitration. 134. In Rinehart (supra), the Australian High Court s approach is similar to the doctrine of equitable estoppel developed by the US Courts, to the effect that a non-signatory party who elects to take the benefit of some aspects of the contract, must also accept the burden of it., Vicky Priskich, Binding non-signatories to arbitration agreements who are person claiming through or under a party? (2019) 35(3) Arbitration International 375-386. However, we cannot adopt the Rinehart (supra) position in the context of the phrase claiming through or under as doing so would be contrary to the common law position and the legislative intent underpinning the Arbitration Act, as will be discussed below. 135. An analysis of the cases cited above establishes the following propositions of law: first, the typical scenarios where a person or entity can claim through or under a party are assignment, subrogation, and novation; second, a person claiming through o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led to arbitrate based on an agreement to which they have not consented. The phrase claiming through or under has not been used either in Section 2(1)(h) or Section 7 of the Arbitration Act. This is because those provisions are based on the concept of party autonomy and party independence, which requires the party to provide consent to submit their disputes to arbitration. On the contrary, a person claiming through or under a party to an arbitration agreement is merely standing in the shoes of the original party to the extent that it is merely agitating the right of the original party to the arbitration agreement. 139. The phrase claiming through or under has been used in Sections 8, 35, and 45 in their specific contexts. Section 8 contains a mandate that when an action is brought before a judicial authority which is the subject of an arbitration agreement, the dispute shall be referred to arbitration on an application made by a party or any person claiming through or under him. As mentioned above, the phrase claiming through or under was inserted in Section 8 to bring it in line with Section 45. Sections 8 and 45 are peremptory in nature mandating the court to refer the parties to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut also all such persons who derive their capacity from the party to the arbitration agreement. Again, the foundational basis for this provision is commercial efficacy as it ensures that an arbitral award leads to finality, such that both the parties and all persons claiming through or under them do not reagitate the claims. Moreover, the use of the word and in Sections 35 and 73 leads to an unmistakable conclusion that 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. ii. The approach adopted by this Court in Chloro Controls is Incorrect 143. This Court in Chloro Controls (supra) observed: first, that the use of the expression any person reflects the legislative intent of enlarging the scope of the words beyond the parties who are signatory to the arbitration agreement; second, a signatory party to an arbitration agreement may have a legal relationship with the party claiming through or under the party on the basis of the group of companies doctrine; and third, in case of a multi-party contract, a subsidiary company which derives its basic interest from the parent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contrary, the group of companies doctrine is used to bind the non-signatory to the arbitration agreement so that it can agitate the benefits and be subject to the burdens that it derived or is conferred in the course of the performance of the contract. The doctrine can be used to bind a non-signatory party to the arbitration agreement regardless of the phrase claiming through or under as appearing in Sections 8 and 45 of the Arbitration Act. 147. In Chloro Controls (supra), this Court joined the non-signatory entities as parties to the arbitration agreement in their own rights on the basis that they were signatories to ancillary agreements which were closely interlinked with the performance of the principal agreement containing the arbitration agreement. This Court in Chloro Controls (supra) reasoned that the nonsignatory entities, being part of the same corporate group as the signatory parties, were subsidiaries in interest or subsidiary companies, and therefore were claiming through or under the signatory parties. As held above, the phrase claiming through or under only applies to entities acting in a derivative capacity and not with respect to joinder of parties in their own r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the course of this judgment should not be interpreted to exclude the application of other doctrines and principles for binding non-signatories to arbitration agreements. However, we also need to be mindful of the fact that the Indian courts and tribunals should not adopt an overzealous approach to extending the jurisdiction of arbitral tribunals to non-signatory parties merely on the ground that they are part of a corporate group. 150. In Cheran Properties (supra), this Court found the non-signatory to be claiming through or under the signatory party to the arbitration agreement and not as a party to the arbitration agreement. In that case, this Court was dealing with an issue pertaining to enforcement of an arbitral award. On the available facts and circumstances, the Court held that the non-signatory was a nominee of the signatory party under the underlying commercial contract, and therefore was acting in a derivative capacity. In Canara Bank (supra) this Court indirectly adopted the principle of estoppel to bind the non-signatory on the basis that it had already participated in the judicial proceedings before the High Court, and cannot subsequently deny being a party to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eritable party to the arbitration agreement. Once a tribunal comes to the determination that a non-signatory is a party to the arbitration agreement, such non-signatory party can apply for interim measures under Section 9 of the Arbitration Act. Establishing the legal basis for the application of the group of companies doctrine in the definition of party under Section 2(1)(h) read with Section 7 of the Arbitration Act resolves the anomality pointed out by Chief Justice Ramana. G. The standard of determination at the referral stage Sections 8 and 11 154. The last but not the least issue that arises for our consideration pertains to the stage of applicability of the group of companies doctrine under the Arbitration Act. In Cox and Kings (supra), Chief Justice Ramana observed that there is a need to have a relook at the scope of judicial reference at the stage of Sections 8 and 11 of the Arbitration Act considering the ambit of the unamended Section 2(1)(h). Section 5 of the Arbitration Act provides that no judicial authority shall intervene except where so provided in this Part. The context for so provided is contained in Sections 8 and 11 which mandate the courts to refer the partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es the court s jurisdiction to the existence of the examination of an arbitration agreement. 158. Section 16 of the Arbitration Act enshrines the principle of competence competence in Indian arbitration law. The provision empowers the arbitral tribunal to rule on its own jurisdiction, including any ruling on any objections with respect to the existence or validity of arbitration agreement. Section 16 is an inclusive provision which comprehends all preliminary issues touching upon the jurisdiction of the arbitral tribunal., Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field, (2020) 2 SCC 455 The doctrine of competencecompetence is intended to minimize judicial intervention at the threshold stage. The issue of determining parties to an arbitration agreement goes to the very root of the jurisdictional competence of the arbitral tribunal. 159. In Vidya Drolia (supra), Justice N. V. Ramana (as the learned Chief Justice then was) held that the amendment to Section 8 rectified the shortcomings pointed out in Chloro Controls (supra) with respect to domestic arbitration. He further observed that the issue of determination of parties to an arbitration agreement is a complicated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rator finds the agreement invalid, inoperative or void, this means that the party who wanted to proceed for arbitration was given an opportunity of proceedings to arbitration, and the arbitrator after fully trying the issue has found that there is no scope for arbitration. 162. In Chloro Controls (supra), this Court held that it is the legislative intent of Section 45 of the Arbitration Act to give a finding on whether an arbitration agreement is null and void, inoperative and incapable of being performed before referring the parties to arbitration. In 2019, the expression unless it prima facie finds was inserted in Section 45. In view of the legislative amendment, the basis of the above holding of Chloro Controls (supra) has been expressly taken away. The present position of law is that the referral court only needs to give a prima facie finding on the validity or existence of an arbitration agreement. 163. In Deutsche Post Bank Home Finance Ltd v. Taduri Sridhar, (2011) 11 SCC 375 a two- Judge Bench of this Court held that when a third party is impleaded in a petition under Section 11(6) of the Arbitration Act, the referral court should delete or exclude such third party from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bitration agreement under Section 7 does not exclude the possibility of binding non-signatory parties; d. 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; e. 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 nonsignatory party to the arbitration agreement; f. The principle of alter ego or piercing the corporate veil cannot be the basis for the application of the group of companies doctrine; g. 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; h. 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 Discovery Enterprises (supra). Resultantly, the principle of single economic unit cannot be the sole basis for invoking the group of companies doctrine; i. The persons claiming through or u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found to be applicable and statutorily anchored, to delineate its precise contours. 2. In the reference order, Chief Justice N.V. Ramana highlighted the variations in the exposition and application of the doctrine as it has evolved in India. He questioned the statutory source of the doctrine in the phrase claiming through or under , which appears in Sections 8 and 45 of the Act. He also cautioned that maintaining the separate legal identities of members within the same group of companies is a fundamental principle of corporate and contract law. In this light, the specific questions formulated and referred to this Constitution Bench by Chief Justice N.V. Ramana, For himself and for Justice A.S. Bopanna. are as follows: (a) Whether phrase claiming through or under in Sections 8 and 11, The phrase claiming through or under does not appear in Section 11. Rather, the reference to Section 11 must be read as Section 45 that contains this phrase. could be interpreted to include Group of Companies doctrine? (b) Whether the Group of Companies doctrine as expounded by Chloro Controls case, Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641 [2012 INSC 436] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich may arise between them in respect of a defined legal relationship, whether contractual or not. (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in (a) a document signed by the parties; (b) an exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means which provide a record of the agreement; or (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. (5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract. 5. It is evident from the above-referred statutory prescription that an arbitration agreement is described in sub-section (1) of Section 7 as, an agreement by the parties . Both these expressions, agreement and parties are important for our consideration. For a proper unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount awarded in such arbitration shall be recoverable in respect of the dispute so referred. Exception 2. Saving of contract to refer questions that have already arisen. Nor shall this section render illegal any contract in writing, by which two or more persons agree to refer to arbitration any question between them which has already arisen, or affect any provision of any law in force for the time being as to references to arbitration. Thus, a restriction on accessing civil remedy is saved under Section 28 of the Contract Act, if there is a contract to arbitrate. 7. A contract is defined under the Contract Act as an agreement enforceable by law., Section 2(h) of the Indian Contract Act, 1872 reads: (h) An agreement enforceable by law is a contract; Agreement, Section 2(e), Indian Contract Act 1872 reads: (e) Every promise and every set of promises, forming the consideration for each other, is an agreement; is formed when a promise or mutual promises (defined in Section 2(b)), Section 2(b), Indian Contract Act 1872 reads: (b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r than its form, to determine the existence of the agreement to arbitrate. Sub-Section (2) of Section 7 incorporates this principle and recognises an agreement, either in the form of an arbitration clause in the contract or in the form of a separate agreement. 10. Section 7(3) mandates that an arbitration agreement shall be in writing, meaning that the arbitration agreement must be in express terms. Subsequently, Section 7(4) declares that an arbitration agreement is in writing if it is contained in: (a) a document signed by the parties; (b) exchange of correspondence that provides the record of the agreement; and (c) admission in the proceedings, i.e., the statement of claim and defence. It is evident from the deliberate language of Section 7 that the arbitration agreement must be in a written form, in contradistinction to an oral agreement, and at the same time, that it is not necessary for it to be signed by the parties., Jugal Kishore Rameshwardas v. Goolbai Hormusji, (1955) 2 SCR 857, para 7 [1955 INSC 22]; Caravel Shipping Services (P) Ltd v. Premier Sea Foods Exim (P) Ltd, (2019) 11 SCC 461, para 8 [2018 INSC 1008]. A signed document containing the arbitration agreement is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement had come into existence between them through correspondence. The court is required to review what the parties wrote and how they acted and from that material to infer whether the intention as expressed in the correspondence was to bring into existence a mutually binding contract. The intention of the parties is to be gathered only from the expressions used in the correspondence and the meaning it conveys and in case it shows that there had been meeting of mind between the parties and they had actually reached an agreement upon all material terms, then and then alone can it be said that a binding contract was capable of being spelt out from the correspondence. 14. From a careful perusal of the entire correspondence on the record, we are of the opinion that no concluded bargain had been reached between the parties as the terms of the standby letter of credit and performance guarantee were not accepted by the respective parties. In the absence of acceptance of the standby letter of credit and performance guarantee by the parties, no enforceable agreement could be said to have come into existence. The correspondence exchanged between the parties shows that there is nothing ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court noted that the contracts containing the arbitration clause were not signed by the appellant, nor were there any letters or telegrams between the appellant and respondent where the appellant expressly assented to these contracts. Rather, it relied on correspondences by the appellant to a bank where it acted in pursuance of the terms of the contract, as providing a record of the arbitration agreement., ibid, paras 6-7. Therefore, even in the absence of a signature, the non-signatory s consent to arbitration can be gathered from its written correspondence (even with third parties) that shows its conduct pursuant to the contract containing the arbitration agreement. 14. This principle has been consistently applied by the Court to determine whether the non-signatory is a party to an arbitration agreement in accordance with Section 7(4)(b)., Unissi (India) Pvt Ltd v. Post Graduate Institute of Medical Education and Research, (2009) 1 SCC 107 [2008 INSC 1111]; Powertech World Wide Ltd v. Delvin international General Trading LLC, (2012) 1 SCC 361 [2011 INSC 799]; Govind Rubber v. Louids Dreyfus Commodities Asia Pvt Ltd, (2015) 13 SCC 477 [2014 INSC 1042]. Our courts and tribunals h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is contained in the record of the agreement comprising exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means (Section 7(4)(b)). In these instances, parties to the agreement as well as the existence of the arbitration agreement is a matter of interpretation and construction by the referral court or arbitral tribunal. The inquiry under Section 7(4)(b) is to determine whether there exists an agreement for referring the matter to arbitration, and who are the parties to such an agreement. viii. The referral court or the arbitral tribunal, while considering the claim of a non-signatory for reference, or the objection of a non-signatory to the inclusion in an arbitration, will primarily examine the record of agreement under Section 7(4)(b) and consider the express language employed by the parties. ix. Once the express terms are ascertained, Rickmers Verwaltung Gmbh (supra), para 13; MTNL v. Canara Bank (supra), para 9.3. their meaning is a matter of construction by the court or arbitral tribunal. The object of such construction is to discover the intention of the parties., Bangalore Electricity Supply Company Ltd (BES ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Doctrine i. International Perspectives 17. I am in complete agreement with the opinion of the learned Chief Justice, who has in his scholarly exposition considered this matter in great detail. He has examined the precedents on the applicability of the doctrine in France, England, Switzerland, and the USA. 18. The Group of Companies Doctrine was formulated and initially applied by international arbitral tribunals to determine whether a person who has not formally signed an arbitration agreement can be made party to it. It is one of the various legal theories used to determine whether a non-signatory is a party to the arbitration agreement. Before we proceed to the doctrine itself, it may be relevant for us to briefly set out the other legal bases, so as to locate the doctrine in the broader jurisprudence on nonsignatories being a party. 19. The legal bases for making a non-signatory a party can be classified as consensual and non-consensual. The consensual theories that are focused on determining the mutual intent of the parties include agency, implied consent, and assignment and transfer of contractual rights, and the non-consensual theories that are based on equity considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntral to the negotiation and conclusion of both contracts. Further, they were also involved in the performance of the contracts and their subsequent termination since Dow Chemical France effected the deliveries and Dow Chemical Company (USA) owned the trademarks for the goods and also exercised absolute control over its subsidiaries. Relying on these facts, the Tribunal concluded that both companies participated in the conclusion, performance, and termination of the contracts. It held: Considering that irrespective of the distinct juridical identity of each of its members, a group of companies constitutes one and the same economic reality (une r alit conomique unique) of which the arbitral tribunal should take account when it rules on its own jurisdiction subject to Article 13 (1955 version) or Article 8 (1975 version) of the ICC Rules. Considering, in particular, that the arbitration clause expressly accepted by certain of the companies of the group should bind the other companies which, by virtue of their role in the conclusion, performance, or termination of the contracts containing said clauses, and in accordance with the mutual intention of all parties to the proceedings, appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entifying the mutual intention of the parties., Born (supra) 1563. 27. The doctrine has not been accepted in the same terms across the world. 28. In UK, in Peterson Farms Inc v. C M Farming Ltd, [2004] EWHC 121 (Comm); Mayor and Commonalty Citizens of the City of London v. Ashok Sancheti, [2008] EWCA Civ 1283. the Court rejected the applicability of the doctrine in English law. The separate legal identities of the parent and subsidiary companies is held to be a fundamental legal tenet., Bank of Tokyo Ltd v. Karoon, [1987] AC 45. In the Dallah case, the UK Supreme Court differed from the Paris Court of Appeal on enforcing the arbitral award against the Government of Pakistan (non- signatory). Even after applying French law to determine when a non-signatory is a party, based on the material before it, the Court held there was no mutual intention in this case to make the Government of Pakistan a party., [2010] UKSC 46. Similarly, in Kabab-Ji SAL (Lebanon) v. Kout Food Group (Kuwait), [2021] UKSC 48. the UK Supreme Court did not enforce the arbitral award against the non-signatory company as there was no material to show that it was a party as per the terms of the contract. 29. Similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational arbitration scholar, argues that the award in Dow Chemical has been misinterpreted to give rise to the Group of Companies doctrine. Rather, he emphasises that the real implication of Dow is that it enables us to determine whether a non-signatory is a party by reference to its conduct that reflects its consent. In this light, he argues that any reference to a group of companies is unnecessary as membership within the same group is not a determinative factor in the inquiry of who is a party to the arbitration agreement., Bernard Hanotiau, Consent to Arbitration: Do We Share a Common Vision? (2011) 27(4) Arbitration International 539. 33. The conclusions from the above analysis can be succinctly put forth as follows: i. Various jurisdictions use both consensual and nonconsensual legal principles to determine whether a nonsignatory is a party to an arbitration agreement., Born (supra), 1531. ii. The Group of Companies doctrine is applied irrespective of the distinct juridical identities of each member of the group when they share a common economic reality by virtue of their role in the formation, performance, and termination of the contract. The principle is based on mutual int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this Court which preceded Chloro Controls (supra), namely, Sukanya Holdings, Sukanya Holdings v. Jayesh H Pandya (2003) 5 SCC 531 [2003 INSC 230]. and Indowind Energy, Indowind Energy Ltd v. Wescare (India) Ltd (2010) 5 SCC 306 [2010 INSC 246]. were based on a strict interpretation of Section 7 and considered that parties to an agreement are limited to its signatories. 37. There was a definitive shift in this position from the case of Chloro Controls v. Severen Trent (supra). Arising out of the conspectus of a multi-party multi-contractual dispute, a petition for reference to arbitration under Section 45 of the Act was filed in a suit, despite asymmetry in the parties to the contracts and the parties to the arbitration agreement. Interpreting the words and phrases any person , claiming through or under , and shall in Section 45 of the Court, this Court enlarged the scope of reference for the first time, to bind non-signatories. 38. It noted that if a claim is made against or by someone who is not originally a signatory to an arbitration agreement, the Group of Companies doctrine can bind the non-signatory affiliates or sister or parent concerns to arbitration, if the circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terlinked performance of the contract. 41. In 2015, the Law Commission of India s 246th Report acknowledged this interpretation of Section 45 to the Act. In the pursuant amendments, Section 8 in Part I of the Act was amended to mirror the language of Section 45;, The amended Section 8(1) of Arbitration and Conciliation Act 1996 reads as under: 8. Power to refer parties to arbitration where there is an arbitration agreement. (1) A judicial authority, before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any Court, refer the parties to arbitration unless it finds that prima facie no valid arbitration agreement exists. thus, parties in domestic arbitrations could also petition for reference to arbitration in a derivative capacity. 42. We will now examine the application of the Group of Companies doctrine in the subsequent cases. In Duro Felguera, S.A. v. Gangavaram Port Ltd, (201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p of companies doctrine is essentially intended to facilitate the fulfilment of a mutually held intent between the parties, where the circumstances indicate that the intent was to bind both signatories and non-signatories. The effort is to find the true essence of the business arrangement and to unravel from a layered structure of commercial arrangements, an intent to bind someone who is not formally a signatory but has assumed the obligation to be bound by the actions of a signatory. , ibid, para 23. 44. The Court did not rely on the Group of Companies doctrine. Yet, Cheran (supra) is an important case to demonstrate that a non-signatory company can be determined to be a party to an arbitration agreement, based on factors such as relationship of the non-signatory with the signatory parties, commonality of subject-matter, and composite nature of transaction. It is also possible for the court to construct such an agreement where the intention of a business arrangement is apparent and the non-signatories have bound themselves by their conduct to fulfill such business arrangement. 45. The subsequent decision in Ameet Lalchand Shah v. Rishabh Enterprises, (2018) 15 SCC 678 [2018 INSC 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signatory to the arbitration agreement and the nonsignatory entity on the group has been engaged in the negotiation or performance of the commercial contract, or made statements indicating its intention to be bound by the contract, the non-signatory will also be bound and benefitted by the relevant contracts. 10.6. 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. A composite transaction refers to a transaction which is interlinked in nature; or, where the performance of the agreement may not be feasible without the aid, execution, and performance of the supplementary or the ancillary agreement, for achieving the common object, and collectively having a bearing on the dispute. 10.7. The group of companies doctrine has also been invoked in cases where there is a tight group structure with strong organisational and financial links, so as to constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. but without explicitly referring to the Group of Companies doctrine., Discovery Enterprises (supra), para 28. iii. Subsequently, this Court relied on mutual intention as the test for the doctrine. However, it deviated from Chloro (supra) by prescribing the non-signatory s causal connection with the negotiation and execution of the contract as factors to determine its mutual intent to arbitrate., Reckitt Benckiser (supra), para 12. iv. In MTNL (supra), the Court summarised the test under the doctrine as being based on the common intention of the parties to bind both signatory and non-signatory members of the group of companies. Such common intention can be inferred from the non-signatory s involvement in negotiation and performance of the contract (similar to Reckitt Benckiser (supra)), or from its statements that indicate its intention to be a party., MTNL (supra), para 10.5. Simultaneously, the Court also referred to the test in Chloro Controls (supra) for determining mutual intention., ibid, para 10.6. Lastly, the Court held the doctrine to be applicable when there is a tight group structure or single economic reality, without any reference to the intention of the parties., ib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c, if not uncertain, and is subject to many qualifications and exceptions. At the same time, there are certain advantages to adopting the doctrine, considering modern business practices. I am of the opinion that it is necessary to entrench the doctrine within the statutory regime of the Act, to enable a court or arbitral tribunal to apply it as a principle to decipher the intention of the parties. I find it necessary to subsume the doctrine of Group of Companies within the judicial process under Section 7(4)(b), where a court or arbitral tribunal is called upon to determine the existence of an arbitration agreement and parties to it. 52. A conjoint reading of Section 9 of the Code of Civil Procedure and Section 28 of the Indian Contract Act informs us that the jurisdiction of an arbitral tribunal to settle disputes between the parties, to the exclusion of ordinary civil courts, must arise out of a contract to arbitrate between them. An arbitration agreement, being a contract, must necessarily be in writing, as against an oral agreement, but need not be signed by the parties. The written arbitration agreement can be in the form of a document signed by the parties, or be evidenced in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y used to ascertain the existence of the arbitration agreement with the non-signatory. In this inquiry, the fact of a non43 signatory being a part of the same group of companies will strengthen its conclusion. In this light, there is no difficulty in applying the Group of Companies doctrine as it would be statutorily anchored in Section 7 of the Act. E. Conclusion 56. In view of the above, while concurring with the judgment of the learned Chief Justice, my conclusions are as follows: I. An agreement to refer disputes to arbitration must be in a written form, as against an oral agreement, but need not be signed by the parties. Under Section 7(4)(b), a court or arbitral tribunal will determine whether a non-signatory is a party to an arbitration agreement by interpreting the express language employed by the parties in the record of agreement, coupled with surrounding circumstances of the formation, performance, and discharge of the contract. While interpreting and constructing the contract, courts or tribunals may adopt well-established principles, which aid and assist proper adjudication and determination. The Group of Companies doctrine is one such principle. II. The Group of Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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