Group Of Companies Doctrine : Nod Given By Supreme Court In Cox And King
Ankur Mittal, Additional Advocate General Haryana
Punjab and Haryana High Court, Chandigarh
Email Id : mittalattorneys@gmail.com
Date : 02/03/2024 Location : House No. 894, Top Floor, Sector 38-A, Chandigarh
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Group Of Companies Doctrine : Nod Given By Supreme Court In Cox And King
Introduction Today India is one of the fastest developing economies in the world and with the rapid growth that we are experiencing in the corporate sector, the transactions have become highly complex. One of the main issues that was being faced by the companies across the country was whether non-signatories shall be bound to an arbitration agreement. On 06th December 2023 in the case of Cox and Kings Ltd. v. SAP India Pvt. Ltd. 2023 INSC 1051 by the Constitutional Bench of the Supreme Court comprising of Chief Justice of India Dr D.Y. Chandrachud and Justices Hrishikesh Roy, J.B. Pardiwala, Manoj Mishra and P.S. Narasimha with the lead judgment authored by CJI Dr. D.Y. Chandrachud and a concurring judgment given by Justice P.S. Narasimha, the judgment has finally ended that debate by holding that merely because a non-signatory is not a party to the arbitration agreement, the same shall be held enforceable and binding on them under the principles of the Group of Companies Doctrine. As the law evolved, it has recognized the modern business transactions that are accompanied with multiple layers of agreements. There may arise a situation where there are agreements between a group of companies and the circumstance under which they have been entered into shall prove to be instrumental to decipher the intention of the signatories as well as the non-signatories. In holding a non-signatory binding to the arbitration agreement under the Group of Companies Doctrine factors such as the relationship between the signatories and the non-signatories to the agreement, the commonality of the subject matter and the composite nature of the transaction are relevant to be seen. The doctrine is essentially intended to facilitate the fulfillment of a mutually held intent between the parties where it could be determined whether non-signatories of the agreement could be bound by the actions of the signatory. Before referring to the ratio laid down in the judgment of the Constitution Bench, first we need to understand the concept of the Group of Companies Doctrine. The doctrine provides that an arbitration agreement which has been entered into by a company within a group of companies shall be binding on non-signatories if the circumstances are such as to demonstrate the mutual intention of both the signatories and the non-signatories. This doctrine has mainly been called into question within the sphere of the Indian jurisprudence as it interferes with the established legal principles of party autonomy, privity of contract and separate legal personality of a company. Inception of the Group of Companies Doctrine The concept of Group of Companies doctrine under arbitration law has mainly been originated by decisions by international arbitration tribunals, especially a number of arbitrational awards given in France. The doctrine was first propounded in the case of Dow Chemical v. Isover Saint Gobain, ICC Case No. 4131, 23 September, 1982. In this case Dow Chemical (Venezuela) entered into an agreement with a French company which later assigned the rights to Isovar Saint Gobain for the distribution of thermal isolation products in the country. Subsequently, Dow Chemical (Venezuela) assigned the contract to one of the subsidiaries Dow Chemical AG which was itself a subsidiary of the Dow Chemical Company. Thereafter, Dow Chemical Europe, a subsidiary of Dow Chemical AG, entered into a similar contract with three companies, which subsequently assigned the contract to Isover Saint Gobain. Both contracts provided that the deliveries of products to the distributors will be made by Dow Chemical France, or any other subsidiary of Dow Chemical Company. Several suits were instituted against the companies of the Dow Chemical group before the French courts. In response, the four companies of the Dow Chemical group (the two formal parties to the contract - Dow Chemical AG and Dow Chemical Europe, and the two non-signatories - Dow Chemical Company and Dow Chemical France) instituted arbitral proceedings against Isover Saint Gobain before the ICC tribunal. The tribunal sought to determine whether there existed a common intention of the parties to be bound by the arbitration agreement. The tribunal established the common intention of the parties by analyzing the factual circumstances underpinning the negotiation, performance, and termination of the contracts. The tribunal held that Dow Chemical France "was a party" to the two contracts, and consequently to the arbitration agreements contained in them, because it played a preponderant role in the negotiation, performance, and termination of the contract. As for Dow Chemical Company, the tribunal held that the holding company had ownership of the trademarks under which the products were marketed in France and had absolute control over its subsidiaries who were involved in the negotiation, performance, and termination of the two contracts. 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 non-signatory 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 main conditions that were put forth in this case were that there should be a direct connection between the signatory and the non-signatory, a direct commonality in the subject-matter at hand and the composite nature of the transaction and the agreement at large. Due to its practicality and consonance with the evolving business transactions across the globe, this doctrine found recognition in various countries like Switzerland, Germany, England, Singapore and the United States of America. In the 20th century the courts in India adopted restrictive approach where arbitration was limited only to the signatories of the agreement. But this approach was changed after the enactment of the Arbitration and Conciliation Act, 1996 as the approach followed by the courts slowly became more progressive and in consonance with the international norms. Evolution of the Group of Companies Doctrine in Indian Jurisprudence The understanding of the concept of the Group of Companies can be divided into 2 phases to gather a better understanding of the evolution i.e., before Chloro Control India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641, era and the post Chloro Control (supra) era as this concept was discussed in detail in the Indian context for the very first time in this judgment. The first phase is the era before the enactment of the Arbitration and Conciliation Act, 1996. During this time the law of arbitration was governed mainly by the combination of the Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. In 1985 the United Nations Commission on International Trade Law "UNICTRAL" adopted the Model Law on International Commercial Arbitration which was also recommended for adoption in the domestic legislation. During this period the interpretation of the word "party" was narrower as it only included the signatories of the arbitration agreement. In the case of Sukanya Holdings v. Jayesh H. Pandya, (2003) 5 SCC 531 an application was filed under Section 8 of the Arbitration Act before the High Court for the enforcement of the arbitration agreement against both the signatories and the non-signatories. The High Court rejected the application on the ground that non-signatories are not party to the arbitration agreement and subsequently it was observed that there is no provision in the Arbitration Act to stipulate as to what is required to be done where some parties happen to be non-signatories to the arbitration agreement. The main contention throughout this period revolves around the definition of the word "party" and "arbitration agreement". Section 2(1)(b) defines the term "arbitration proceedings" as an agreement referred under Section 7 of the Act which lays down the essentials to form a valid and binding arbitration agreement. Arbitration agreement is based on the concept that parties have submitted to alternate dispute resolution mechanisms in case of a dispute. Section 7 of the Arbitration Act lays down the elements that are essential for an agreement to be valid and binding under the Act. It defines an arbitration agreement as an agreement by the parties that they submit to arbitration was redressal of any dispute arising out of their legal relationship. 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 writing; and second, that the reference is such as to make the arbitration clause part of the contract.
An arbitration agreement, being a creature of contract[1*] is based on the consent of the parties to the agreement to submit their disputes to an alternate dispute resolution mechanism even if the disputes themselves are not based on contractual obligations. It provides a neutral, efficient and expert process for dispute resolution at a single forum whose decision is binding on all the parties involved. The principle of party autonomy underpins the arbitration process as it allows the parties to dispense with all the technical formalities and they can mutually agree upon substantive and procedural laws that shall be held applicable as per the merits of the dispute[2*]. An arbitration proceeding can be divided into two stages- first stage commences with an arbitration agreement and ends with making of the arbitral award. The second stage revolves around the enforcement of such arbitral award[3*].[1* Bhaven Construction v. Executive Engineer, Sardar Narmada Nigam Ltd. (2022) 1 SCC 75]
[2* Bharat Aluminimum Company v. Kaiser Aluminium Technical Services (2016) 4 SCC 126]
[3* Satish Kumar v. Surinder Kumar (1969) 2 SCR 244]
Mutual consent is the cornerstone of any arbitration agreement. The Hon'ble Apex Court in the case of Bihar State Mineral Development Corporation v. Encon Builders (I) Pvt. Ltd., (2003) 7 SCC 418 has laid down the four essential elements that are needed for a valid arbitration agreement-1. There must be a present or a future difference in connection with some contemplated affair.
2. The parties must intend to settle such difference by a private tribunal.
3. The parties must agree in writing to be bound by the decision of such tribunal.
4. The parties must be ad idem.
Section 2(1)(h) of the Arbitration Act defines a "party" which is held to be meant as "a party to an arbitration agreement". The contention that had to be decided by the court is whether the term "party" shall include a non-signatory to the agreement. In the pre-Chloro Controls (supra) era, the Hon'ble Apex Court has construed the term "party" by limiting it only to the signatories to the arbitration agreement. This contention was considered in the case of Sukanya Holdings (supra) but the same was rejected on the ground that there is no provision under the Arbitration Act regarding what is to be done in a situation when some of the parties to the suit are not parties to the arbitration agreement. The interpretation of the term "party" again came up for consideration in the case of Indowind Energy Ltd. v. Wescare (India) Ltd., (2010) 5 SCC 306 where the promoter of the company was held to be a non-signatory to the arbitration agreement and the first and the second respondent had entered into a sale agreement. When a dispute arose Indowind resisted impleadment on the ground that it was not a party of the sale agreement and hence did not give consent to the arbitration clause. Keeping the facts in mind the Hon'ble Apex Court did not implead Indowind as a party on the main contention that it was not a signatory to the sale agreement. Thus, it can be construed that the interpretation of the term "party" was done in a strict manner where only the explicit consent of the parties who were signatories was considered and the non-signatories were not covered under the ambit of the term. Hence, the pre Chloro Controls (supra) position has been characterized by three underlying precepts-i. Arbitration proceedings could only be invoked at the instance of a signatory to the arbitration agreement against dispute with another signatory party.
ii. The court shall adopt strict interpretation of the provisions of the Arbitration Act.
iii. There was an emphasis on formal or explicit consent of the parties involved, thus any scope for implied consent of a non-signatory.
All the above-mentioned positions underwent significant change when the three-Judge Bench of the Hon'ble Apex Court in Chloro Controls (supra) allowed joinder of non-signatory parties to the arbitration agreement on the basis of the Group of Companies Doctrine. In the case of Chloro Controls (supra) the Hon'ble Apex Court was called upon to determine the arbitral reference in case of multi-party agreements where performance of the ancillary agreements largely depended upon the effective execution of the principal agreement. In this case a foreign company and an Indian company came together to form a joint venture company to market and distribute chlorination equipment. In regard to the joint venture the related companies of both the Indian and the foreign companies were involved and consequently parties signed various ancillary agreements such as a Shareholders' Agreement which contained an arbitration clause. All the contracting parties were not signatories to all the agreements including the Shareholder Agreement. When dispute arose the foreign entity subsequently applied for reference of the case for arbitration on the ground that the agreements were binding on the non-signatories because of the composite nature of the transaction. After analyzing the matter in detail the court held that a non-signatory could be subjected to arbitration "without their prior consent" in exceptional cases on the basis of fulfillment of four determinative criteria's-i. A direct relationship to the party which is signatory to the arbitration agreement.
ii. A direct commonality of the subject-matter and the agreement between the parties being a composite transaction.
iii. The transaction being of a composite nature where performance of the parent agreement may not be feasible without the aid, execution and performance of supplementary or ancillary agreements for achieving the common object and collectively have a bearing on the dispute; and
iv. A composite reference of such parties will serve the end of justice.
Another aspect that was determined by the Hon'ble Apex Court in the case of Chloro Controls (supra) is whether the expression "any person" mentioned in Section 45[4*] of the Arbitration Act reflects legislative intent of enlarging the scope beyond the parties who are the signatories of the agreement so that non-signatories could also be included in the ambit. The question so raised revolves around the ambit and scope of this section. To this extent the court noted that in such a situation the non-signatories shall be required to claim "through or under the signatory party". Thus, this Court accepted that arbitration is possible between a signatory and non-signatory to an arbitration agreement.[4* 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.]
In this case the Hon'ble Apex Court acknowledged that cases of composite transactions involving multi-party agreements may give rise to peculiar circumstances in which non-signatories to the agreement shall be implicated in the dispute due to their legal relationship and involvement in the fulfillment of the contractual obligations. To remedy such a situation, it was held that in such peculiar facts and circumstances the group of companies' doctrine shall be applicable to evaluate the intention of both the signatory and non-signatory parties. In the aftermath of the Chloro Controls (supra), the Law Commission of India publishes a report in 2014 recommending amendments in the Arbitration Act. The Commission observed that the phrase "claiming through and under" as used in Section 45 is absent from the corresponding provision of Section 8 and the said amendment was brought about in 2016. On the other hand amendment was not made to the section 2(1)(h) or section 7 of the Arbitration Act. Since 2013, various judgments have been given by the Hon'ble Apex Court where the concept of inclusion of non-signatories in the ambit of an arbitration agreement has been discussed like in the cases of Ameet Lalchand Shah v. Rishabh Enterprises, (2018) 15 SCC 678, Cheran Properties Ltd. v. Kasturi and Sons Ltd. (2018) 16 SCC 413, Reckitt Benckiser (India) Private Limited v. Reynders Label Printing India Private Limited (2019) 7 SCC 62, Mahanagar Telephone Nigam Ltd. v. Canara Bank, (2020) 12 SCC 767 and Oil and Natural Gas Corporation Ltd. v. Discovery Enterprises Ltd. (2022) 8 SCC 42. in all these judgments the principles established in the case of Chloro Controls (supra) has been upheld where non-signatories have been found to be bound under the arbitration agreement in exceptional cases under the Group of Companies Doctrine. Group of Companies Doctrine in the Indian Context By tracing the history of the Group of Companies Doctrine it becomes clear that the applicability and the influence of this doctrine is rapidly increasing and has become a modern reality of economic life and business organizations. Group companies are a set of companies that are linked together in formal and 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 entrepreneurial, financial, and strategic control of a common authority, typically a family, and are linked by trust-based relationships forged around a similar persona, ethnicity, or community[5*]. "A group company involving the parent and subsidiary companies are created for myriad purposes such as limiting the liability of the parent corporation, facilitating international trade, entering into business ventures with investors, establishing domestic corporate residence, and avoiding tax liability.[5* Jayati Sarkar, `Business Groups in India' in Asli Coplan, Takashi Hikino, and James Lincoln (eds) The Oxford Handbook of Business Groups (2010) 299]
The Group of Companies Doctrine has certain salient features that have to be understood in detail as has been discussed in Cox and King (supra) and to get the grasp of the doctrine in toto they have been mentioned as under-• Separate legal personality
• Adopting a pragmatic approach to consent
• It is a fact based doctrine
• The determination of mutual intention
• Threshold standard
i. Separate legal personality- the principle of separate legal personality has been the cornerstone of corporate law. It was famously observed by the House of Lords in Salomon v. Salomon, (1897) AC 22, that a company in an altogether a different person from its promoters, directors, shareholders and employees. This principle equally applies to a group of companies as well. A parent company is not generally held liable for the actions of the subsidiary companies. The Companies Act, 2013 has statutorily recognized subsidiary company as a separate legal entity under section 2(87)[6*] and the same has been observed in Balwant Rai Saliya v. Air India, (2014) 9 SCC 407. The definition of a holding company has been given under Section 2(46)[7*] of the Companies Act which makes the concept of separate legal entity absolutely clear. The main advantage of Group of Companies structure is more related to financial feasibility in regard to the expansion of business in national and international market rather than any legal advantage or exemption.[6* "Subsidiary company" or "subsidiary", in relation to any other company (that is to say the holding company), means a company in which the holding company--
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the 23[total voting power] either at its own or together with one or more of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.
Explanation.--For the purposes of this clause,--
(a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;
(b) the composition of a company's Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors;
(c) the expression company includes anybody corporate;
(d) "layer" in relation to a holding company means its subsidiary or subsidiaries;]
[7* "holding company", in relation to one or more other companies, means a company of which such companies are subsidiary companies;
[Explanation.-- For the purposes of this clause, the expression "company" includes anybody corporate;]
"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."
Section 7[8*] of the Arbitration Act broadly talks about an agreement by the parties in respect of a defined legal relationship, whether contractual or not. Such a legal relationship gives rise to legal obligations and duties. The nature of a contractual relationship whether explicit or implicit has to be deciphered from the facts and circumstances of the particular transaction at hand but the mere presence of a commercial relationship between the signatory and a non-signatory is not sufficient to infer a "legal relationship" between them. The doctrine cannot be applied to abrogate party consent and autonomy. The general position of law is that parties shall be referred to arbitration if there is a situation where disputes and differences have arisen in connection with the main agreement held in Olympus Superstructures (P) Ltd. v. Meena Vijay Khetan, (1999) 5 SCC 651.[8* Arbitration agreement- (1) In this Part, "arbitration agreement" means 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.
(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 1[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.]
[9* (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.
(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof:
2[Provided that where the original arbitration agreement or a certified copy thereof is not available with the party applying for reference to arbitration under sub-section (1), and the said agreement or certified copy is retained by the other party to that agreement, then, the party so applying shall file such application along with a copy of the arbitration agreement and a petition praying the Court to call upon the other party to produce the original arbitration agreement or its duly certified copy before that Court.]
(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.]
[10* Subject to this Part an arbitral award shall be final and binding on the parties and persons claiming under them respectively.]
[11* 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, 1[unless it prima facie finds] that the said agreement is null and void, inoperative or incapable of being performed.]
It has to be kept in mind the Arbitration Act does not provide a definition to the phrase "personclaiming through or under" but over the series of judgments starting from Chloro Controls (supra) along with the interpretation that is being following in the international arbitration jurisprudence. It has been held that a party that is not a signatory to the contract or agreement can assert a right through or under the signatory. Even the 246th Law Commission of India suggested that the definition of the word "party" under section 2(1)(h) should be amended to add this phrase as under this phrase a signatory can include a non-signatory as successor-in-interest, however, the same was not carried out in the Parliament. Each and every word in the phrase "person claiming through or under" has a specific meaning which collectively comes together to give it a meaning that non-signatories could be impleaded as parties to an arbitration agreement under exceptional circumstances. The word "claim" is of very extensive significance embracing every species of legal demand. In the ordinary sense, it means to demand as one's own or as one's right[12*]. A "claim" also means assertion of a cause of action[13*]. The expression "through" connotes "by means of, in consequence of, by reason of"[14*]. The term "under" is used with reference to an inferior or subordinate position. P. Ramanatha Aiyar's Law Lexicon defines "claiming under" or "claiming under him" to denote a person putting forward a claim under derived rights[15*]. When the above definitions are read harmoniously, it gives rise to an inference that a person "claiming through or under" is asserting their legal demand or cause of action in an intermediate or derivative capacity. It can also conclude that a person "claiming through or under" has inferior or subordinate rights in comparison to the party from which it is deriving its claim or right. Therefore, a person "claiming through or under" cannot be a "party" to an arbitration agreement on its own terms because it only stands in the shoes of the original signatory party.[12* Black's Law Dictionary (5th edn, 1979) 224]
[13* P. Ramanatha Aiyar's, The Law Lexicon (1997) 330]
[14* Black's Law Dictionary (5th edn, 1979) 1328]
[15* P. Ramanatha Aiyar's, The Law Lexicon (1997) 331]
The Hon'ble Apex Court in Chloro Controls (supra) had discussed the phrase in detail and hence had observed that first, 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 contract would be covered under the expression "claiming though or under." One of the questions that had been referred to the Constitutional Bench was whether the phrase "claiming through or under" in Section 8 could be interpreted to include the group of companies doctrine. The group of companies doctrine is founded on the mutual intention of the parties to determine if the non-signatory entity within a group could be made a party to the arbitration agreement in its own right. Such non-signatory entity is not "claiming through or under" a signatory party. To the 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. In Cheran Properties (supra), it had been observed that for a 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 this case the court was dealing with an issue pertaining to the enforcement of an arbitral award already pronounced. Eventually, it was held that a non-signatory was a nominee of the signatory party under the commercial contract in question and therefore, was acting in a derivative capacity. In Canara Bank (supra) this principle was indirectly adopted as the non-signatory had participated in the judicial proceedings before the High Court and could not subsequently back out and deny being a party involved in the issue at hand before the arbitration tribunal. In Discovery Enterprises (supra) the matter was remanded to the arbitral tribunal to be decided a fresh after applying the principal at hand. Therefore, it can be concluded that the application of this principal shall heavily depend on the facts and circumstances of each and every case. In the case of Chloro Controls (supra), the Hon'ble Apex Court had joined the non-signatories as parties to the arbitration agreement in their own right on the ground that the said non-signatories were signatories to the ancillary agreements which were intricately linked to the performance of the principal agreement. It was reasoned that the non-signatory entities which are a part of the same group of companies can come under the ambit of the phrase. It was ultimately held that only entities acting in a derivative capacity can come under the ambit of the phrase and not with respect to joinder of parties in their own right. But the Constitutional Bench in the present case has held this approach to the erroneous and against the well-established principles of contract and commercial laws. It has been observed that the existence of the group of companies' doctrine is intrinsically linked to the mutual intent of parties to a commercial bargain. Conclusion and Analysis The Hon'ble Apex Court while pronouncing the judgment considered all the above-mentioned factors discussed and has held that-• Party autonomy and the contractual basis of the arbitration agreement are paramount to decipher the common intention of the parties.
• The High Court/ Supreme Court at the referral stage must leave it to the discretion of the arbitration tribunal to decide whether non-signatories are bound by the arbitration agreement or not depending on the facts of the particular case.
• The definition of the word "parties" as defined under Section 2(1)(h) read with Section 7 of the Arbitration Act shall include both the signatories and non-signatories to the arbitration agreement.
• Section 7 of the Arbitration Act does not exclude the possibility of binding third-parties to the arbitration agreement.
• The role and relationship of a third-party, as may be specified in the arbitration agreement, shall be an important factor to determine their consent to bind them to the agreement.
• The principles of alter ego and piercing of the corporate veil as given under the commercial laws cannot be made the basis for the implementation of the Group of Companies Doctrine The facts and circumstance along with the intention of the party and the role of the non-signatory has to be kept in mind.
• The Group of Companies is a consent-base doctrine in which agency, assignment, assumption and guarantee all have a critical role to play to derive the common intention of the parties to bind a non-signatory to the arbitration agreement.
• The existence of the principle of Group of Companies Doctrine is independent in nature that has to derived from the balanced reading of Section 2(1)(h), Section 7 and 8 of the Arbitration Act.
• The courts and the tribunals have to apply and consider all the factors and principles that have been laid down in landmark judgments of Discovery Enterprises (supra) where it has been held that in addition to all the factors that have been mentioned in Chloro Controls (supra), the performance of the contract is also an essential factor that has to be considered while implementing the Group of Companies Doctrine to bind an non-signatory. Hence, the principle of single economic unit or Group Company cannot the sole reason for binding a non-signatory to an arbitration agreement.
• The person claiming the principle of "through or under" only has a derivative right.
• The Apex Court has held that the principles laid down in Section 8 of the Arbitration Act regarding parties "claiming through or under" in Chloro Controls (supra) is erroneous. The Court has held that a non-signatory is not "claiming through or under" the signatory party.
• The arbitration agreement has to be in writing but it need not be signed by all the parties concerned including the signatories as well as the non-signatories.
• The Apex Court has clarified been about the situation in which how a party can be bound to the arbitration agreement when it has actually signed a composite agreement at large.
The Judgment in the case of Cox and King (supra) ensures that a final balance has to be maintained between `party consent' and the modern commercial realities of today's world. It has given the power of interpretation to the courts and the tribunal to decipher the common intention of the parties as consent may be impliedly given by the non-signatory. The Hon'ble Apex Court has also highlighted the importance of delving deep into the molecular details of the agreement at large as well as the complex commercial transactions to find out the true intention behind it all. For this Doctrine to be implementable in any case the primary determination would be the existence of a group of companies followed by the second consideration that the conduct of both the signatories and non-signatories have to be analyzed to decipher the intention of the parties. All the factors that have been discussed in detail in this article have to considered individually and collectively. The burden of proof rests on the party that is seeking the impleadment of the non-signatory to the arbitration agreement. One of the biggest advantages that the courts and tribunals all across the country shall derive from this landmark judgment will be a massive reduction in applications seeking to add third parties for the implementation of an agreement without any discernible basis or involvement in the larger scheme of things. This will ensure accountability in the addition of non-signatories and ensure that party autonomy does not degenerate into party anarchy. Thus, this judgment gives a way forward to Indian arbitration jurisprudence which have far reaching consequences when combined with contract and commercial laws. It has put all the doubts and contradictions to rest that have occurred due to various judgments of the Hon'ble Apex Court in the last decade as regards the "Group of Companies".© Chawla Publications (P) Ltd.