Group of Companies Doctrine in Arbitration: Indian Perspective


The Group of companies’ doctrine in arbitration law is based on the principles of agency and implied consent. According to this doctrine if the corporate affiliations among various legal entities imply that they were intended to be parties to the agreement, then in those cases they shall be considered to be parties to the arbitration despite their non-signatory status[1]. However, it is pertinent to note that to bind the non-signatories to the arbitration clause, it must be shown that the non-signatory company is an active participant in the contractual relationship.[2]

In the Indian context, this doctrine was first enforced in the case of Chloro Controls India Pvt. Ltd v. Severn Trent Purification Inc[3]. Here the apex court held that where the agreements are inter-connected and several parties are involved in the execution of a single project through various agreements then all of them can be made the parties to the arbitration. The court held that Section 45 of the Arbitration and Conciliation Act, 1996 also includes multiple and multi-party agreements under the expression “person claiming through or under”.

Post Chloro Controls Case, the apex court in the case of Cheran Properties Ltd v. Kasturi and Sons Ltd and Ors held that non-signatory organizations can also be made parties to the arbitration. In order to determine if the non-signatories are bound by the doctrine, the relationship of the signatory and the non-signatory doctrine must be determined, the commonality of the subject matter must be ascertained and the composite nature of the transaction must also be checked. The court further observed that the intention must also be considered. It must be seen whether the party who was not a formal signatory but has assumed the responsibility to be bound, by the conduct of the signatory. However, the court held that a non-signatory can be bound by a contract and be subject to arbitration without their consent only in exceptional cases.

However, it is pertinent to note that a non-signatory cannot ipso facto become a party to the arbitration. This can be understood with the aid of the Reynders Label Case[4]. In the present case, the issue that arose was if there was clear mutual intention among parties to bind the non-signatory party. In the present case, the apex court based its decision taking into account the facts and circumstances of this case. In the instant case, the second respondent was a Belgian Company. The petitioner contended that while entering into the agreement it primarily relied on a correspondence by an individual Mr. Fredrik who claimed he was the promoter of the second respondent. He further claimed that he was representing the second respondent in the negotiations and that the second respondent was an undisclosed principal of the respondent one. The second respondent in turn submitted that Mr. Fredrik was an employee of respondent one and thereby the second respondent was not involved in the negotiations. It further submitted that they belonged to the same parent company, however, they were two distinct legal entities and therefore were not bound by the agreement and could not be bound by it. Taking into account all the fact the Supreme Court held that Doctrine of Group of Companies was not applicable in the present case since it neither a signatory to the agreement nor did it have any sort of connection with the negotiation process and the execution of the agreement. Here the Supreme Court further held that in order to make the second respondent a party the petitioner must prove that the second respondent had the intention to consent to the agreement of arbitration.

Furthermore, in the MTNL Case,[5] the issue was if the subsidiary which is a non-signatory is bound by the arbitration agreement between its parent company, Canara Bank, and MTNL. In the present case, the Canara Bank purchased bonds issued by MTNL on behalf of its subsidiary CAFINA. Later when disputes arose MTNL made CAFINA a party to the arbitration as well. Here the question was if CAFINA is bound by the arbitration agreement?

Here the Supreme Court observed the non-signatory can also be a party to the arbitration if the parties’ conduct exhibits their mutual intention to bind the signatory and non-signatory.  Furthermore, the Supreme Court also reiterate the three factors which were also laid down in Cheran Properties’ case. Thus after taking into account the facts, the Court held that CAFINA was bound by the arbitration agreement.

Thus the abovementioned case laws have played a significant role in shaping the doctrine of Group of Companies in India. From the aid of the aforementioned precedents, it can be said that the Doctrine of Group of Companies has been read under Section 45 of the Arbitration and Conciliation Act, 1996. However, this doctrine is to be used only in exceptional cases and after taking into account the three factors laid down in the Cheran Properties Case. Moreover, this doctrine cannot be used as a blanket rule and must be taken into account only after examining the facts and circumstances of the case. Furthermore, companies cannot be made parties to the arbitration merely because they are subsidiaries of the parent companies, it must be shown that there was an intention to bind the non-signatory party in the arbitration agreement in question.

[1] Cheran Properties Ltd v. Kasturi and Sons Ltd and Ors, Civil Appeal Nos. 10025-10026 of 2017.

[2] Kunal Mimani and Ishan Jhingran., Extension of Arbitration Agreements to Non-Signatories: An International Perspective, Indian Law Journal

[3] Chloro Controls India Pvt. Ltd v. Severn Trent Purification Inc, [2012] 13 SCR 402

[4] Reckitt Benckiser (India)  vs Reynders Label Printing India,  2019 (7) SCC 62

[5] MTNL v. Canara Bank, Civil Appeal Nos. 6202-6205 of 2019



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