The Supreme Court on Wednesday held that an arbitration agreement can be binding even on non-signatory firms under the ‘group of companies’ doctrine.
This doctrine makes an arbitration agreement binding on a firm which, though not a signatory, is a member of a group of companies which is a party to the agreement.
“The group of companies doctrine must be retained in the Indian arbitration jurisprudence considering its utility in determining the intention of the parties in the context of complex transactions involving multiple parties and multiple agreements,” a Constitution Bench headed by Chief Justice of India D.Y. Chandrachud held in a judgment.
The judgment came on the basis of a plea filed by Cox and Kings Ltd in a dispute arising out of an arbitration agreement.
‘Common intention’
“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 non-signatory party to the arbitration agreement,” Chief Justice Chandrachud observed.
The Chief Justice wrote that the definition of “parties” under Section 2(1)(h), read with Section 7 of the Arbitration Act, included both the signatory as well as non-signatory parties.
“The requirement of a written arbitration agreement under Section 7 does not exclude the possibility of binding non-signatory parties,” the court said.
