The question of law and concept of 'Group-Company Doctrine' which was referred to the constitution bench of Hon'ble Supreme Court in the matter of Cox & Kings Ltd. v. SAP India (P) Ltd.1, has now been crystallized and made enforceable under the Arbitration & Conciliation Act, 1996 ('Arbitration Act'). The Hon'ble Supreme Court has recognized the Doctrine's application to bind non-signatories to an 'Arbitration Agreement' upon satisfaction of certain parameters. The controversy over binding nature of Arbitration Agreement on non-signatories – in absence of their express consent inter-alia the concepts of 'Autonomy' and 'Privity of Contracts' has been laid to rest to the extent that Court's seized of the question have to determine if there exists a defined legal relationship between the non-signatory and the parties to the arbitration agreement. Depending on the facts and circumstances of each case, the courts where the question of applicability of doctrine arises will have to see whether the non-signatory has consented to be bound by the arbitration agreement, either expressly or impliedly.

Analysis of "Group of Company Doctrines"

In recognizing the Group Company Doctrine as an applicable concept under the Indian Arbitration regime – and making the joinder of parties who are non-signatory to the Arbitration Agreement – a question of contractual interpretation, the Hon'ble Courts have given way to a more diverse and expansive view of what constitutes an 'Arbitrable Dispute'. By way of the present Article, the author is trying to analyze the broader impact of the Constitution Bench judgment on the Indian Arbitration regime, with a focus on the meaning of 'Arbitrable Disputes' in the subsequent judgments of Indian Court.

However, before delving into what the Hon'ble Courts have held subsequent to the judgment of the Constitution Bench, the present Article is briefly dealing with the findings on the 'Group Company Doctrine' as the same forms the backbone of the subsequent rulings on 'Arbitrable Dispute'. Vide the judgment upholding the 'Group Company Doctrine' the Hon'ble Supreme Court has cautioned that a pragmatic approach ought to be adopted to ascertain consent of the non-signatory from the facts of each case. The Hon'ble Court examined the questions of 'Single Economic Reality' 'Implied Consent to arbitrate' 'Piercing of Corporate Veil' etc. to find that the conduct of the non-signatory is the most important factor to be considered by the courts and tribunals as the same is an indicator of the intention of the non-signatory to be bound by the Arbitration Agreement. In its conclusions, it was held that the definition of "parties" under Section 2(1)(h) read with Section 7 of the Arbitration Act includes both the signatory as well as non-signatory parties and that principle of alter ego or piercing the corporate veil cannot be the basis for the application of the group of companies' doctrine. Indeed, it has been clarified that 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. It has also been cautioned that the at the referral stage, the referral court should leave it for the arbitral tribunal to decide whether the non-signatory is bound by the arbitration agreement.

Following the Judgment of Cox & Kings, recently the Hon'ble Delhi HC in the matter of Opuskart Enterprises v. Kaushal Kishore Tyagi2 dated 10.01.2014 in an application under S.11(6) of the Arbitration Act examined the Arbitration Agreement arising out of a partnership deed between certain individuals. In the said case, the partnership deed clearly narrated that the referred parties intended to carry on the business of trading, import and export of books and any other businesses which the partners intended to deal with under the name of M/s Opuskart Enterprises. Under Clause 12 of the Deed, the parties were required be just and faithful and render true accounts and full information relating to the firm to the other partners and also pay their separate private debts on their own.

It was the case of the Petitioners is that the Respondent – Mr. Tyagi had indulged in misappropriation of funds of the firm. Accordingly, notice was issued initially raising a claim of certain amounts. In the reply to said notice, Respondent stated that apart from being a partner in the partnership firm, the said partners are also Directors in M/s Opuskart India Pvt. Ltd and made allegations that the that the Petitioners intended to hijack, usurp and run away with the business of both the firm as also the company. Whereafter, the Petitioners invoked the Arbitration Clause and since there was no response from the Respondent, the S.11 petition was filed before the Hon'ble High Court of Delhi. The Hon'ble High Court was therefore seized of the question as to whether the disputes raised by the Petitioner, since the business was common between the firm and the company, whether the claim is an arbitrable dispute.

Without going into the factual analysis of the above case, attention is drawn to the Hon'ble High Court's interpretation of the Cox & Kings judgment (Supra). Rejecting the Respondent's arguments that the accounts relating to the firm, or the Company would not be 'Arbitrable Disputes, the Hon'ble Judge took the view that since the business by the Partners is being conducted both through the firm and by the company, the disputes raised would in fact be arbitrable disputes. Therefore, in the Opuskart Judgment (supra) the Hon'ble Judge reiterated the view taken in Cox & Kings and stated that a non-signatory affiliate or sister or parent company can be a party to an arbitration agreement if there is mutual intention of the signatories and non-signatories to this effect.

However, in the subsequent judgment of the Hon'ble Delhi High Court in the matter of Vingro Developers (P) Ltd. v. Nitya Shree Developers (P) Ltd3 dated 24.01.20214, where once again the main challenge raised by the respondent was that Respondent No. 2 and 3 were not parties to the Arbitration Agreements and thus, the matter could not be referred to arbitration against them, as the Respondent No.2 and 3 had only acted in their capacity as directors of the Respondent No.1. It was argued that they cannot be held personally liable, and the referred disputes were not 'Arbitrable Disputes'.

The Hon'ble Delhi High Court, interpreted the judgment in Cox & Kings and found that to bind a non-signatory to an arbitration agreement, there must exist a common intention between the parties to do so, and held that there was a principal agent relationship between the Respondent No.1 and Respondents Nos. 2 and 3, and merely because they were signatories to the Builder Buyer Agreement in question, Arbitration could not be invoked against them.

Conclusion

By way of the illustration of the above referred two judgments of the Hon'ble Delhi High Court, in the aftermath of the Constitution Bench Judgment in Cox & Kings, the author is trying to convey that the diverse views being taken by the Hon'ble Court's is a curiouser subject and begs the present analysis insofar as the contrary views & interpretations only make it fascinating to see how the definition of 'Arbitrable Disputes' especially in cases of Partnership Firms and Companies will unfold going forward. The present Article is a mere commentary on the diverse understanding of the evolving Group Company Doctrine, and as stated above, it will be fascinating to follow and analyze. However, it goes without saying, that the Constitution Bench Judgment and recognition of the 'Group Companies doctrine" has left the Indian Arbitration Jurisprudence much richer.

Footnotes

1. 2023 SCC OnLine SC 1634

2. 2024 SCC OnLine Del 266

3. 2024 SCC OnLine Del 486

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