TMI Blog2023 (12) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, composite nature of the transaction, and performance of the contract. III. Since 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .............................................................. 16 a. Chloro Controls ............................................................................................. 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 ................................ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on agreement which is entered into by a company within a group of companies may bind non-signatory affiliates, if the circumstances are such as to demonstrate the mutual intention of the parties to bind both signatories and non-signatories. This 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be clarified by a larger Bench. Accordingly, he highlighted the following questions of law for determination by the larger Bench: a. Whether the Group of Companies Doctrine should be read into Section 8 of the Act or whether it can exist in Indian jurisprudence independent of any statutory provision; 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the negotiation, performance, or termination of the contract; d. Mutual consent of the parties to refer disputes arising out of their defined legal relationship to arbitration is the essential ingredient of an arbitration agreement. It would be against the concept of party autonomy to bind a non-signatory to an arbitration agreement without ascertaining their consent; 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The cumulative factors laid down by this Court in Discovery Enterprises (supra) cannot be considered in isolation, and must be applied holistically to determine the applicability of the group of companies doctrine in a given factual matrix. 11. Mr Nakul Dewan, learned senior counsel appearing for the respondent in SLP (C) No. 8607 of 2022, made the following submissions: a. The group of companies doctrine and single economic 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t; c. The insertion of the words claiming through or under in Section 8 of the Arbitration Act is merely in furtherance of the legislative intent to confer locus on yet another category of persons to insist that the judicial authority must refer the dispute before it to arbitration; and d. If the referral court under Sections 8 and 11 cannot prima facie determine the issue of joinder of a non-signatory to the arbitration agreement on the basis of the group of companies doctrine, 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 agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... niformize the law of arbitral procedures., UN General Assembly, Fortieth Session, Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law 40/72 (1985) The Arbitration Act was enacted to consolidate and amend the law relating to arbitration. It brought the law relating to domestic and international commercial arbitration in consonance with the UNCITRAL Model Law, the New York Convention, and the Geneva Convention. 19. Section 2(1)(h) of the Arbitration Act defines a party to mean a party 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 parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld to be erroneous in Chloro Controls (supra), where it was held that party has to be construed in view of Section 2(1)(h) to mean a party to an arbitration agreement. 22. The interpretation of the expression party as defined under Section 2(1)(h) came up for the consideration of this Court in Indowind Energy Ltd (supra). In that case, an agreement of sale was entered into by the first and second respondents. The agreement described the second respondent as the buyer and promoter of Indowind, the non-signatory. After a dispute arose, the first respondent instituted an application 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction. A Single Judge of the High Court granted the application of the Indian entity, which was set aside by the Division Bench of the High Court. The primary issue before this Court pertained to the ambit and scope of Section 45 of the Arbitration Act. This Court framed the issue in the following terms: 1.3. Whether in a case where multiple agreements are signed between different parties and where some contain an arbitration clause and others do not and further the parties are not identically common in proceedings before the court (in a suit) and the arbitration agreement, a reference of disputes as a 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 reques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asible 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 ends of justice. 28. In Chloro Controls (supra), this Court acknowledged that cases of composite transactions involving multi-party agreement give rise to peculiar challenges where non-signatories may be implicated in the dispute because of their legal relationship and involvement in the performance of contractual obligations. To remedy such situations, it was held that the group of companies doctrine could be applied to systematically evaluate 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitration agreement could make an application seeking a reference to arbitration. The amended Section 8(1) provided that a party to an arbitration agreement or any person claiming through or under him could seek a reference to arbitration. However, the legislature did not bring about any change in the language of Section 2(1)(h) or Section 7 of the Arbitration Act. Since Chloro Controls (supra) and the amendment to Section 8, subsequent decisions of this Court have referred to the group of companies doctrine to join non-signatories persons or entities to arbitration agreements. 32. In Cheran Properties (supra), the issue before this Court was whether the arbitral award could be enforced under Section 35 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, this Court made the arbitral award binding on a nonsignatory under Section 35 on the ground that it was claiming under a party which was a signatory to the arbitration agreement. 35. In Ameet Lalchand Shah v. Rishabh Enterprises, (2018) 15 SCC 678 a two-Judge Bench of this Court was dealing with an arbitral dispute arising out of four interconnected agreements executed towards a single commercial project. The issue was whether the four agreements were interconnected to refer all the parties to arbitration. In that case, all the parties were not signatories to the main agreement containing the arbitration clause. This Court relied on Chloro Controls (supra) to hold that a non-signatory, which is a party to an interconnected agreement, 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. Reynde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng vessel. After a dispute arose between the parties, ONGC invoked the arbitration clause in the contract against Discovery Enterprises and Jindal Drilling and Industries Ltd., a sister company of Discovery Enterprises. The arbitral tribunal refused to proceed with the claim against Jindal Drilling and Industries Ltd. on the ground that it was not a signatory to the arbitration agreement. In an appeal filed by ONGC under Section 37 of the Arbitration Act, the High Court upheld the decision of the tribunal. The High Court s decision was challenged before this Court under Article 136 of the Constitution. This Court cited Chloro Controls (supra) and the subsequent decisions with approval to emphasize that the group of companies doctrine can be applied to bind 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 fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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. The tribunal 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roject XS, Rev. Arb. (1996) 67. 45. The French law has been succinctly summarized in an unpublished ICC award in case No. 11405 of 2001 in the following terms: [t]here is no general rule, in French international arbitration law, that would provide that non-signatory parties members of a same group of companies would be bound by an arbitration clause, whether always or in determined circumstances. What is relevant is whether all parties intended non-signatory parties to be bound by the arbitration clause. Not only the signatory parties, but also the nonsignatory parties should have intended (or led the other parties to reasonably believe that they intended) to be bound by the arbitration clause. , Yves Derains, Is there a Group of Companies Doctrine? in Bernard Hanotiau and Eric Schwartz (eds) in Dossier 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 thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n objective element in the form of negotiation or performance of the contract. iv. England 49. The English courts have generally taken a conservative approach to binding non-signatory parties to arbitration agreements. Section 82(2) of the English Arbitration Act 1996 defines a party to arbitration agreement to include any person claiming under or through a party to the agreement. The English law envisages that even non-signatory parties may be bound by an arbitration agreement but only if they are claiming under or through the original party to the agreement. The English courts have adopted an approach which favors a strict adherence to the doctrine of privity. Under English law, an arbitration agreement is extended to non-signatory parties on the basis of traditional contractual principles and doctrines such as agency, novation, assignment, 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 doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... glish Arbitration Act, 1996 requires an arbitration agreement to be in writing. Further, Section 5(2)(a) provides that it is not necessary for the parties to sign the arbitration agreement. In such situations, the critical question that arises before the English courts is whether a nonsignatory party is bound by an arbitration agreement. The English law position is that contracts are not to be lightly implied and the court must be able to conclude with confidence both that the parties intended to create contractual relations and that the agreement was to the effect contended for. , Blackpool and Fylde Aero Club Ltd. v. Blackpool Borough Council, [1990] 1 WLR 1195 However, in limited situations, a contract is implied if the parties conducted themselves in a manner as if they have formally entered into a contract., Chitty on Contracts, Hugh Beale (ed), (32nd edn, Sweet and Maxwell, 2015) para 2-169. 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 const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1637 (2020) the issue before the United States Supreme Court was whether the New York Convention precludes a non-signatory to an international arbitration agreement from compelling arbitration by invoking domestic doctrines such as equitable estoppel. In that case, the Eleventh Circuit Court refused to apply the domestic doctrine of equitable estoppel on the ground that it conflicts with the signature requirements under the New York Convention. The Circuit Court observed that Article II of the New York Convention contains a strict requirement that the parties actually sign the arbitration agreement in order to compel the parties to arbitration. The US Supreme Court held that the Article II of the New York Convention does not restrict the contracting states from applying domestic law to refer parties to arbitration agreements. Moreover, it was observed that the provisions of Article II contemplate the use of domestic doctrines to fill gaps in the Convention. 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-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... group of companies doctrine has not been universally accepted by all jurisdictions. In jurisdictions such as France where the doctrine has gained acceptance, group of companies is one of the several factors that a court or tribunal considers to determine the mutual intention of all the parties to join the nonsignatory to the arbitration agreement. Keeping in mind the above background, we now move on to analyze the applicability of the group of companies doctrine in the Indian context. PART D D. Arbitration Agreement i. Consent as the basis for arbitration 59. Arbitration is an alternative dispute resolution mechanism where parties consensually decide to submit a dispute between them to an arbitral tribunal to the exclusion of domestic courts., Gary Born, International Arbitration Law and Practice (3rd ed, 2021) 2. Arbitration provides a neutral, efficient, and expert process for dispute resolution at a single forum whose decision is final and binding on the parties. The principle 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 applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. However, the provision specifically saves a contract by which two or more persons agree that any dispute, which may arise between them, in respect of any subject or class of subjects shall be referred to arbitration. Thus, arbitration agreements are granted a statutory exception under Section 28 of the Contract Act. In Dhulabhai v. State of Madhya Pradesh a Constitution Bench of this Court held that the jurisdiction of civil courts may be excluded by an express provision of law or by clear intendment arising from such law., (1968) 3 SCR 662 In Chloro Controls (supra), this Court observed that Section 45 of the Arbitration Act shall prevail over the provisions of the Code of Civil Procedure, 1908 in case of a valid arbitration agreement. Considering the fact that an arbitration agreement excludes the jurisdiction of civil courts, such an agreement ought to be valid and enforceable. 63. An arbitration agreement must satisfy the principles of contract law laid down under the Contract Act, in addition to satisfying other requirements stipulated under Section 7 of the Arbitration Act, to qualify as a valid agreement., Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ior and Gulf Navigation, (1960) 363 US 574, 582 Since consent forms the cornerstone of arbitration, a non-signatory cannot be forcibly made a party to an arbitration agreement as doing so would violate the sacrosanct principles of privity of contract and party autonomy. However, In case of multiparty contracts, the courts and tribunals are often called upon to determine the parties to an arbitration agreement. ii. Parties to Arbitration Agreement 66. The general method to figure out the parties to an arbitration agreement is to look for the entities who are named in the recitals and have signed the agreement. The signature of a party on the agreement is the most profound expression of the consent of a person or entity to submit to the jurisdiction of an arbitral tribunal. However, the corollary that persons or entities who have not signed the agreement are not bound by it may not always be correct. A written contract does not necessarily require that parties put their signatures to the document embodying the terms of the agreement., Pollock and Mulla, The Indian Contract and Specific Reliefs Act (14th edn, 2016) 235. Therefore, the term non-signatories , instead of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us to carry him safely to his destination .[ ] Express and implied contracts are both contracts in the true sense of the term, for they both arise from the agreement of the parties, though in one case the agreement is manifested in words and in the other case by conduct. Since, as we have seen, agreement is not a mental state but an act, an inference from conduct, and since many of the terms of an express contract are often implied, it follows that the distinction between express and implied contracts has little importance. , Chitty on Contracts, Hugh Beale (ed) (32nd edn, Sweet and Maxwell, 2015) para 1-104. 69. The above exposition gives rise to the inference that in case of an implied contract, the question revolves around the determination of the consent of the parties to be bound by the terms of the contract. Such determination is manifested through the acts or conduct. The theory of implied contract by conduct has also been accepted by this Court. In Haji Mohammed Ishaq v. Mohamad Iqbal, (1978) 2 SCC 493 the plaintiff supplied tobacco to the defendant. Although there was no express agreement between the parties, the defendant accepted the goods, but allegedly faile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. , [2007] UKHL 40 (emphasis supplied) 71. Section 7(3) requires an arbitration agreement to be in writing. Section 7(4) lays down three circumstances to elaborate when an arbitration agreement can be said to be in writing. According to the first circumstance laid down under Section 7(4)(a), an arbitration agreement is in writing if it is signed by the parties. This circumstance refers to a situation where the parties have formally executed and expressly assumed the status of parties by attesting their signatures to the arbitration agreement or the underlying contract containing the arbitration agreement. In such situations, the courts or tribunals only need to refer to the signature page or the recitals to figure out the parties to the arbitration agreement. 72. Section 7(4)(b) provides the second circumstance, according to which an arbitration agreement is in writing if it is contained in an exchange of letters, telex, telegrams or other means of telecommunication including communication through electr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stantive aspect and a formal aspect. The substantive aspect is contained is Section 7(1) which allows parties to submit disputes arising between them in respect of a defined legal relationship to arbitration. The legal relationships between and among parties could either be contractual or non-contractual. For legal relations to be contractual in nature, they ought to meet the requirements of the Indian contract law as contained in the Contract Act. It has been shown in the preceding paragraphs that a contract can either be express or implied, which is inferred on the basis of action or conduct of the parties. Thus, it is not necessary for the persons or entities to be signatories to a contract to enter into a legal relationship the only important aspect to be determined is whether they intended or consented to enter into the legal relationship by the dint of their action or conduct. 75. The second aspect is contained in Section 7(3) which stipulates the requirement of a written arbitration agreement. A written arbitration agreement need not be signed by the parties if there is a record of agreement., Govind Rubber Ltd v. M/s Louis Dreyfus Commodities, (2015) 13 SCC 477 The m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such an arbitration agreement. The Arbitration Act is largely based on the UNCITRAL Model Law. Therefore, the UNCITRAL Model Law could be referred to while construing the provisions of the Arbitration Act., Sundaram Finance Ltd v. NEPC India Ltd, (1999) 2 SCC 479, para 9; P Manohar Reddy and Bros v. Maharashtra Krishna Valley Development Corporation, (2009) 2 SCC 494, para 27. Although the amended Section 7 of the UNCITRAL Model Law has not been adopted in the Indian law, it reflects the modern commercial reality where substance is given precedence over technical legal formalities., Redfern and Hunter on International Arbitration (7th edn, Oxford University Press, 2023) para 2.23. 78. Reading Section 7 of the Arbitration Act in view of the above discussion gives rise to the following conclusions: first, arbitration agreements arise out of a legal relationship between or among persons or entities which may be contractual or otherwise; second, in situations where the legal relationship is contractual in nature, the nature of relationship can be determined on the basis of general contract law principles; third, it is not necessary for the persons or entities to be signatories ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial case law and commentary on international arbitration sometimes make reference to the extension of an arbitration agreement to non-signatories, or to third parties on the basis of one or more of the foregoing theories. These expression are inaccurate, in that they imply that an entity which is not a party to an arbitration agreement is nonetheless subject to that agreement s effects, by virtue of something other than the parties consent. Contrary to the references to extension or third parties , most of the theories [ ] provide a basis for concluding that an entity is in reality a party to the arbitration agreement which therefore does not need to be extended to a third party because that party s actions constitute consent to the agreement, or otherwise bind it to the agreement, notwithstanding the lack of its formal execution of the agreement. The arbitration agreement is therefore not ordinarily extended , but rather the true parties that have consented to the arbitration agreement are identified. 81. Courts and tribunals across the world have been applying traditional contractual and commercial doctrines to determine the consent of the nonsignatory par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholder. The Companies Act, 2013, 2013 Act has statutorily recognized a subsidiary company as a separate legal entity., Balwant Rai Saluja v. Air India, (2014) 9 SCC 407 Section 2(46) of the 2013 Act defines a holding company as a company of which one or more other companies are subsidiary companies. Section 2(87) defines subsidiary company to mean a company in which the holding company exercises control over the composition of the Board of Directors and has a controlling interest of at least 50 percent over the voting rights. Although a holding company owns a controlling interest in the subsidiary company, they are considered as separate legal entities. Group companies structures allow multinational corporations to structure their businesses at both the national and international level to leverage better returns for the investors and ensure business growth of the corporation. 84. A Bench of three Judges of this Court in Vodafone International Holding BV v. Union of India, (2012) 6 SCC 613 emphasized the principles of corporate separateness in the following terms: 101. A company is a separate legal persona and the fact that all its shares are owned by one person or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bench, Justice O Chinnappa Reddy observed: 90. [ ] Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud, or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricable connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected, etc. 87. The application of the doctrine of lifting the corporate veil rests on the overriding considerations of justice and equity., Delhi Development Authority v. Skipper Construction Co. (P) Ltd., (1996) 4 SCC 662 Often, the courts pierce the corporate veil when maintaining the separateness of corporate personality is found opposed to justice, convenience, and public interests., Kapila Hingorani v. State of Bihar, (200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidiary is fundamental, and cannot be easily abridged by taking recourse to economic convenience., Bank of Tokyo v. Karoon, (1986) 3 All ER 468 Legally, the rights and liabilities of a parent company cannot be transferred to the subsidiary company, and vice versa, unless, there is a strong legal basis for doing so. ii. Adopting a pragmatic approach to consent 90. In the context of arbitration law, the intention of the parties has to be derived from the words used in the arbitration agreement. While construing the arbitration agreement, it is the duty of the court to not delve deep into the intricacies of the human mind, but only consider the expressed intentions of the parties., Kamla Devi v. Takhatmal Land, AIR 1964 SC 859; Bangalore Electricity Supply Co Ltd v. E S Solar Power (P) Ltd, (2021) 6 SCC 718 The words used in the contract reflect the commercial understanding between the parties. The intention of the parties has to be ascertained from the words used in the contract, considered in light of the surrounding circumstances and the object of such contract., Bank of India v. K Mohandas, (2009) 5 SCC 313; M Dayanand Reddy v. A P Industrial Infrastructure Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach that is more pragmatic, more focussed on an analysis of facts, which places an emphasis on commercial practice, economic reality, trade usages, and the complex and multifaceted dimensions of large projects involving group of companies and connected agreements in multiparty multicontract scenarios; an approach that is no longer restricted to express consent but that takes into consideration all its various expressions and tends to give much more importance than before to the conduct of the individuals or companies concerned. , Bernard Hanotiau, Consent to Arbitration: Do We Share a Common Vision? (2011) 27(4) Arbitration International 539, 554 94. It has been urged before us that where a written arbitration agreement clearly sets out the parties to it, the courts or tribunals cannot read into the agreement an intention to bind persons or entities other than the signatory parties. Reliance was placed on Roop Kumar v. Mohan Thedani, (2003) 6 SCC 595 where this Court observed that wherever written instruments are appointed, either by the requirement of law, or by the contract of the parties, to be the repositories and memorials of truth, any other evidence is excluded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f making the other party believe that it was a veritable party to the contract, and the arbitration agreement contained under it. Therefore, the group of companies doctrine is applied to ascertain the intentions of the parties by analysing the factual circumstances surrounding the contractual arrangements., Gary Born (n 44) 1568. 97. Increasingly, multinational groups often adopt new and sophisticated corporate structures for execution and delivery of complex commercial transactions such as construction contracts, concession contracts, license agreements, long-term supply contracts, banking and financial transactions, and maritime contracts. For the execution of such contracts, corporate structures may take the form of groups based on equity, joint ventures, and informal alliances., Stavros Brekoulakis, Parties in International Arbitration: Consent v. Commercial Reality in Stavros Brekoulakis, Julian DM Lew, et al (eds) in The Evolution and Future of International Arbitration (2016) 119, 120. A multi-corporate structure helps a group in adopting commercially effective models of operation as different companies can get involved at different stages of a single transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in complex multi-party arbitration can be done on the basis of traditional contractual and commercial law theories. Professor Bernard Hanotiau suggests that the group of companies doctrine should be discarded because it has been used as a shortcut to avoid legal reasoning leading to a distorted approach by courts and arbitral tribunals., Hanotiau (n 85) 546. However, Professor Hanotiau does concede that the existence of a group of companies may be a relevant factual element to determine whether the conduct of a non-signatory party amounts to consent. 100. In contrast, the second view suggests that the group of companies doctrine is an integral aspect of arbitration law. According to this view, the existence of specific patterns of corporate structure could be a useful factual indicator to determine the common intention of the parties to make the non-signatory a party to the arbitration agreement., 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, 137. For instance, the active involvement of a non-signatory group c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he existence of a group of companies is a factual element that the court or tribunal has to consider when analysing the consent of the parties. It inevitably adds an extra layer of criteria to an exercise which at its core is preponderant on determining the consent of the parties in case of complex transactions involving multiple parties and agreements. 103. In Chloro Control (supra), this Court rightly observed that a non-signatory could be subjected to arbitration provided the underlying transactions were with a group of companies and there was a clear intention of the parties to bind both the signatory as well as non-signatory parties to the arbitration agreement. This legal proposition has been reiterated in a series of subsequent decisions of this Court including Canara Bank (supra) and Discovery Enterprises (supra). Further, this Court in Cheran Properties (supra) held that the group of companies doctrine helps in decoding the layered structure of commercial arrangements to unravel the true intention of the parties to bind someone who is not formally a signatory to the contract, but has assumed the obligation to be bound by the actions of a signatory. This court explaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e parties to the arbitration agreement and not the underlying commercial contract., Gary Born (n 44) 1567 Consequently, a non-signatory could be held to be a party to the arbitration agreement without becoming a formal party to the underlying contract. The existence of a group companies is one of the essential factors to determine whether the conduct amounts to consent but membership of a group is not sufficient in itself. This has been the consistent position of law, starting from the Dow Chemicals (supra) award, where it was observed that the common intention of the parties to bind the non-signatory party to the arbitration can be inferred from the circumstances that surround the conclusion and characterize the performance and later the termination of the contracts. In other words, it was held that a non-signatory party could be considered as a true party to the arbitration agreement on the basis of their role in the conclusion, performance, or termination of the underlying contract containing the arbitration agreement. 107. This Court in Chloro Controls (supra) laid down four factual indices that the courts or tribunals should consider to bind a non-signatory party to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement. Reading the above two paragraphs harmoniously, it is evident that paragraph 72 emphasizes on determining the intention of the parties to bind a non-signatory party to an arbitration agreement. In paragraph 73, the Court deals with the tests for joining a nonsignatory party which has not formally consented to the arbitration agreement. Furthermore, the said paragraph enlist the cumulative factors for deciphering the mutual intention of the parties to join non-signatory parties to the arbitration agreement. In view of the above clarification, we are of the opinion that so construed there would be no inconsistency between paragraphs 72 and 73 of Chloro Controls (supra). 109. One of the contentions that has been raised before us pertains to the observations in paragraph 73 of Chloro Controls (supra) that the composite reference of all the parties should serve the ends of justice . It was contended that the equity jurisdiction doesn t generally apply to arbitration agreements because they are in the realm of private law. Since arbitration is a matter of consent, interests of justice and equity cannot be the sole grounds for invoking arbitration agreement. The primary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 112. Section 7 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 must give rise to legal obligations and duties. In a corporate group, a company may have various related companies. The legal relationship must be analysed in the context of the underlying contract containing the arbitration agreement. The nature of the contractual relationship can either be formally encrusted in the underlying contract, or it can also be inferred from the conduct of the signatory and non-signatory parties with respect to such contract. However, we clarify that mere presence of a commercial relationship between the signatory and non-signatory parties is not sufficient to infer legal relationship between and among the parties. If this factor is applied solely, any related entity or company may be impleaded even when it does not have any rights or obligations under the underlying contract and did not take part in the performance of the contract. The group of companies doctrine cannot be applied to abrogate party consent and autonomy. The doctrine, properly conceptualised and applie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts that the court or tribunal may consider to determine the legal relationship between the signatory and non-signatory parties. We accordingly clarify that the principle of single economic entity cannot be used as a sole basis to invoke the group of companies doctrine. 115. In case of multiple parties, the necessity of a common subject-matter and composite transaction is an important factual indicator. An arbitration agreement arises out of a defined legal relationship between the parties with respect to a particular subject matter. Commonality of the subject matter indicates that the conduct of the non-signatory party must be related to the subject matter of the arbitration agreement. For instance, if the subject matter of the contract underlying the arbitration agreement pertains to distribution of healthcare goods, the conduct of the non-signatory party should also be connected or in pursuance of the contractual duties and obligations, that is, pertaining to the distribution of healthcare goods. The determination of this factor is important to demonstrate that the non-signatory party consented to arbitrate with respect to the particular subject matter. 116. In case of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , UNIDROIT Principles of International Commercial Contracts, 2016, Article 4.3 provides that the subjective intention of the parties could be ascertained by having regard to the following circumstances: (a) preliminary negotiations between the parties; (b) practices which the parties have established between themselves; (c) the conduct of the parties subsequent to the conclusion of the contract; (d) the nature and purpose of the contract; (e) the meaning commonly given to terms and expressions in the trade concerned; and (f) usages. 119. In Dow Chemicals (supra), consent of the non-signatory parties to arbitrate was implied primarily in view of their predominant participation in the conclusion, performance, and termination of contracts. Similarly, this Court in Canara Bank (supra) observed that a non-signatory entity may be bound by an arbitration agreement where a parent or a member of the group of companies is a signatory to the arbitration agreement and the non-signatory entity of the group has been engaged in the negotiation or performance of the commercial contract. 120. In Reckitt Benckiser (supra), this Court was called upon to determine whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... natory party in the performance of the contract. The nature or standard of involvement of the non-signatory in the performance of the contract should be such that the non-signatory has actively assumed obligations or performance upon itself under the contract. In other words, the test is to determine whether the non-signatory has a positive, direct, and substantial involvement in the negotiation, performance, or termination of the contract. Mere incidental involvement in the negotiation or performance of the contract is not sufficient to infer the consent of the nonsignatory to be bound by the underlying contract or its arbitration agreement. The burden is on the party seeking joinder of the non-signatory to the arbitration agreement to prove a conscious and deliberate conduct of involvement of the non-signatory based on objective evidence. 123. An arbitration agreement is a distinct and separate agreement from the substantive commercial contract which contains the arbitration agreement. An arbitration agreement is independent of the other terms of the contract, to the extent that nullification of the contract will not lead to invalidation of the arbitration agreement., Relianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement is a legal fiction to accommodate commercial reality. The contemporary commercial reality suggests that different companies within a group often become involved in different stages of execution and performance of a contractual transaction. For instance, a non-signatory may merely participate in the performance of a contract to carry out a specific task or assist the parent company. Such incidental involvement in the contractual performance is insufficient to constitute consent to the underlying contract, let alone the arbitration agreement. Rather, it has been suggested that it should also be considered whether the commercial dispute sufficiently implicates the non-signatory party for the arbitral tribunal to exercise its jurisdiction., Brekoulakis (n 102) 629. The emphasis on the scope of the jurisdiction of the arbitral tribunal with respect to the subject matter of the dispute between the signatory parties would ensure effective arbitration and prevent unnecessary fragmentation of disputes. It also adequately accounts for the lack of formal consent on behalf of the nonsignatory to the arbitration agreement (and the ensuing procedural aspects such as the constitution of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration Act which aims to make the Indian arbitration law more responsive to the contemporary requirements. F. The group of companies doctrine has independent existence 129. In Cox and Kings (supra), Chief Justice Ramana observed that Chloro Controls (supra), and the series of subsequent decisions, have not appropriately dealt with the scope and ambit of the phrase claiming through or under as appearing under Sections 8 and 45 of the Arbitration Act. Connectedly, one of the issues that arises for the consideration of this Court is whether the phrase claiming through or under could be interpreted to include the group of companies doctrine. 130. The Arbitration Act does not define the phrase person claiming through or under a party. A person claiming through or under a party is not a signatory to the contract or agreement, but can assert a right through or under the signatory party. Russel on Arbitration states that an assignee can invoke the arbitration agreement as a person claiming through or under a party to the arbitration agreement., Russel on Arbitration (23rd edn, 2007) 99 para 3-018. An assignee takes the assigned right under a contract with both the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce must be or must have been vested in or exercisable by the party before the person claiming through or under the party can rely on the cause of action or ground of defence. A liquidator may be a person claiming through or under a company because the causes of action or grounds of defence on which he relies are vested in or exercisable by the company; a trustee in bankruptcy may be such a person because the causes of action or grounds of defence on which he relies were vested in or exercisable by the bankrupt. The test of derivative action conveys that a third party s cause of action is derived from the original party to the arbitration agreement. The third party cannot be saddled with new duties and liabilities to which it has not consented. They can only be held liable or entitled to the extent they derive their rights or entitlements from the original party to the agreement. 133. The above formulation was further clarified by the Australian High Court in Rinehart v. Hancock Prospecting Pty Ltd [2019] HCA 13 , where it observed that the ultimate test in Tanning Research (supra) was whether an essential element of the defence was or is vested in or exercisable by the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration Act be amended to include the words or any persons claiming through or under such party . The Commission reasoned that in appropriate contexts, a party also include persons claiming through or under a signatory party such as successors-in-interest. However, the suggested amendment was not carried out by Parliament. 137. 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., Black s Law Dictionary (5th edn, 1979) 224 A claim also means assertion of a cause of action., P Ramanatha Aiyar s, The Law Lexicon (1997) 330 The expression through connotes by means of, in consequence of, by reason of. , Black s Law Dictionary (5th edn, 1979) 1328 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., P Ramanatha Aiyar s, The Law Lexicon (1997) 331 When the above definitions are read harmoniously, it gives rise to an inference that a person claiming through or under is asserting their l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35 of the Arbitration Act provides that an arbitral award shall be final and binding on the parties and persons claiming under them respectively. In Cheran Properties (supra), this Court rightly observed that the expression persons claiming under them is a legislative recognition of the doctrine that besides the parties, an arbitral award binds every person whose capacity or position is derived from and is the same as a party to the proceedings. It was further observed that [h]aving derived its capacity from a party and being in the same position as a party to the proceedings binds a person who claims under it. Similarly, Section 73 also provides that a settlement agreement signed by the parties shall be final and binding on the parties and persons claiming under them respectively. 141. Sections 8, 35, and 45 use the phrase parties or any person claiming through or under . The word or is used in Section 8 and 45 as a disjunctive particle to express an alternative or give a choice between parties or any person claiming through or under . Consequently, either the party to an arbitration agreement or any person claiming through or under the party can make an applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince an arbitration agreement excludes the jurisdiction of national courts, it is essential that the parties consent, either expressly or impliedly, to submit their dispute to the arbitral tribunal. 145. The second and third proposition of law states that a non-signatory party may claim through or under a signatory party by virtue of its legal or commercial relationship with the latter. However, this proposition is contrary to the common law position as evidenced in Sancheti (supra) and Tanning Research Laboratories (supra) according to which a mere legal or commercial connection is not sufficient to allow a non-signatory to claim through or under a party to the arbitration agreement. In A Ayyasamy (supra), this Court observed that the Arbitration Act should be interpreted so as to bring in line the principles underlying its interpretation in a manner that is consistent with prevailing approaches in the common law world. Therefore, even though a subsidiary derives interests or benefits from a contract entered into by the company within a group, they would not be covered under the expression claiming through or under merely on the basis that it shares a legal or commercial re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... na also sought our consideration on the question of whether the group of companies doctrine as expounded by Chloro Controls (supra) and subsequent judgments is valid in law. The group of companies doctrine has important utility in determining the mutual intention of the parties in the context of complex transactions involving multiple parties and multiple agreements. Moreover, the doctrine has been substantively entrenched in the Indian arbitration jurisprudence. We are aware of the fact that the group of companies doctrine has not found favor in some other jurisdictions, including in English law. However, we deem it appropriate to retain the doctrine which has held the field in Indian jurisprudence though by firmly establishing it within the realm of the mutual consent or the mutual intent of the parties to a commercial bargain. This will ensure on the one hand that Indian arbitration law retains a sense of dynamism so as to respond to contemporary challenges. At the same time, structuring the doctrine in the manner suggested so as to ground it in settled principles governing the elucidation of mutual intent is necessary. This will ensure that the doctrine has a jurisprudential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng from these judgments in the preceding paragraphs. 151. In Law s Empire, Ronald Dworkin proposed a hypothetical where a group of novelists write a novel seriatim, each novelist interpreting the chapters given to them to write a new chapter., Ronald Dworkin, Law s Empire (Belknap Press, Harvard University Press 1986) 229. The novelists are expected to take their responsibilities of continuity more seriously to create a single unified novel that is the best it can be. , Ibid. Chloro Controls (supra) was the first chapter in the group of companies doctrine in Indian arbitration jurisprudence. The series of subsequent judgments starting from Cheran Properties (supra) and ending with Cox and Kings (supra) were the incremental chapters each adding further dimensions to the theory already propounded in the previous chapters. In this case, we have added another chapter to the theory of group of companies doctrine. Our aim was to make further progress in the course of evolution of arbitration law. In the process, we have tweaked the plotline to make the novel a more coherent read, instead of rewriting or discarding the previous chapters. iii. Power of the Courts to issue d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the parties to the arbitration agreement unsuccessfully invoked the agreed procedure for the appointment of an arbitrator due to the non-cooperation of the other party. 155. In SBP Co v. Patel Engineering Ltd, (2005) 8 SCC 618 a seven-Judge Bench of this Court was called upon to determine the scope of the powers of the Chief Justice or their designate under Section 11 of the Arbitration Act. It was held that the Chief Justice or the designated judge will have the powers to determine the jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence of a live claim, the existence of the condition for the exercise of their powers, and the qualifications of the arbitrators. Furthermore, it was held that the Chief Justice has to decide whether there is an arbitration agreement as defined under the Arbitration Act and whether the person who has made a request is party to such an agreement. 156. In 2015, the Arbitration Act was amended to insert Section 11(6-A). The said provision reads as follows: (6A) The Supreme Court, or as the case may be, the High Court, while considering any application under sub-section (4) or subsection (5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this front also indicates the legislative intention to further reduce the judicial interference at the stage of reference. 160. In Pravin Electricals Pvt Ltd v. Galaxy Infra and Engineering Pvt Ltd, (2021) 5 SCC 671 a Bench of three Judges of this Court was called upon to decide an appeal arising out of a petition filed under Section 11(6) of the Arbitration Act for appointment of sole arbitrator. The issue before the Court was the determination of existence of an arbitration agreement on the basis of the documentary evidence produced by the parties. This Court prima facie opined that there was no conclusive evidence to infer the existence of a valid arbitration agreement between the parties. Therefore, the issue of existence of a valid arbitration agreement was referred to be decided by the arbitral tribunal after conducting a detailed examination of documentary evidence and cross-examination of witnesses. 161. The above position of law leads us to the inevitable conclusion that at the referral stage, the court only has to determine the prima facie existence of an arbitration agreement. If the referral court cannot decide the issue, it should leave it to be decided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rral court should prima facie determine the validity or existence of the arbitration agreement, as the case may be, and leave it for the arbitral tribunal to decide whether the nonsignatory is bound by the arbitration agreement. 164. In case of joinder of non-signatory parties to an arbitration agreement, the following two scenarios will prominently emerge: first, where a signatory party to an arbitration agreement seeks joinder of a non-signatory party to the arbitration agreement; and second, where a non-signatory party itself seeks invocation of an arbitration agreement. In both the scenarios, the referral court will be required to prima facie rule on the existence of the arbitration agreement and whether the non-signatory is a veritable party to the arbitration agreement. In view of the complexity of such a determination, the referral court should leave it for the arbitral tribunal to decide whether the nonsignatory party is indeed a party to the arbitration agreement on the basis of the factual evidence and application of legal doctrine. The tribunal can delve into the factual, circumstantial, and legal aspects of the matter to decide whether its jurisdiction extends to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les of contract law and corporate law; k. The group of companies doctrine should 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; l. 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; and m. In the course of this judgment, any authoritative determination given by this Court pertaining to the group of companies doctrine should not be interpreted to exclude the application of other doctrines and principles for binding non-signatories to the arbitration agreement. 166. We answer the questions of law referred to this Constitution Bench in the above terms. The Registry shall place the matters before the Regular Bench for disposal after obtaining the directions of the Chief Justice of India on the administrative side. . CJI [Dr Dhananjaya Y Chandrachud] . . J [Hrishikesh Roy] . . J [J B Pardiwala] .. J [Manoj Misra] JUDGMENT P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 8 SCC 1, para 54 [2022 INSC 523]. 3. Justice Surya Kant concurred with Chief Justice Ramana and supplemented his reasons for reference. At the outset, he emphasised the need to retain the doctrine in India to keep pace with the complexity of multi-party business transactions, where certain persons do not formally sign the contract but are involved in its negotiation and performance. Especially in India, with large number of family-run business groups, he expressed that the inclusion of the non-signatory company is essential for effective and complete dispute resolution through arbitration. However, he also indicated the need to iron out inconsistencies in the formulation of the doctrine. He questioned the reliance on equity considerations and single economic reality to determine non-signatories to be parties, as these undermine well-entrenched principles of party autonomy and separate legal entity. In this light, for an authoritative determination of the contours of the doctrine, he framed the following questions: (a) Whether the Group of Companies doctrine should be read into Section 8 of the Act or whether it can exist in Indian jurisprudence independent of any statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pressions, it is necessary to examine the place of arbitration as a dispute redressal mechanism in the larger body of institutional remedies in civil law. B. Civil Remedy and Arbitration 6. In our legal system, access to civil courts is a standard judicial remedy. Civil courts have the jurisdiction to try all civil suits, Section 9 of the Code of Civil Procedure, 1908 reads: 9. Courts to try all civil suits unless barred. The Courts shall (subject to the provisions herein contained) have jurisdiction to try all suits of a civil nature excepting suits of which their cognizance is either expressly or impliedly barred. Explanation I. A suit in which the right to property or to an office is contested is a suit of a civil nature, notwithstanding that such right may depend entirely on the decision of questions as to religious rites or ceremonies. Explanation II. For the purposes of this section, it is immaterial whether or not any fees are attached to the office referred to in Explanation I or whether or not such office is attached to a particular place. and any agreement to restrict the remedy is declared void under Section 28 of the Indian Contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise; are reciprocated with a consideration (defined in Section 2(d)), Section 2(d), Indian Contract Act 1872 reads: (d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise; , and these promises can either be express (when its proposal or acceptance is in words) or implied (when its proposal or acceptance is otherwise than in words)., Section 9, Indian Contract Act 1872 reads: 9. Promises, express and implied. In so far as the proposal or acceptance of any promise is made in words, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied. An agreement is legally enforceable as a contract if it is formed with the free consent of parties who are competent to contract, for a lawful consideration and lawful object., Section 10, Indian Contract Act 1872 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NSC 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 only one of the written forms, where the signature of the party is absolute proof for the existence and privity of the contract. 11. Section 7 therefore comprehensively defines what an arbitration agreement is and also from where it is to be identified. The referral court under Sections 8, 11 or 45 of the Act, or the arbitral tribunal, is the forum that identifies and deciphers the existence of an arbitration agreement and its parties. The real question, however, is how must the court or tribunal make this determination, particularly when a non-signatory seeks to initiate arbitration, or is sought to be made party by a signatory. Apart from the standard methods of drawing inferences by interpreting the express language employed in the agreement, what are the other external aids to assist the court or the arbitral tribunal in constructing the existence of the arbitration agreement with the non-signatory, is the question that we are called upon to answer. ii. Section 7(4)(b) 12. An arbitration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 expressly agreed between the parties and no concluded enforceable and binding agreement came into existence between them. Apart from the correspondence relied upon by the learned Single Judge of the High Court, the fax messages exchanged between the parties, referred to above, go to show that the parties were only negotiating and had not arrived at any agreement. There is a vast difference between negotiating a bargain and entering into a binding contract. After negotiation of bargain in the present case, the stage never reached when the negotiations were completed giving rise to a binding contract Further in Babanrao Rajaram Pund v. Samarth Builders and Developers, (2022) 9 SCC 691 [2022 INSC 935]. this Court held: 29. It is thus imperative upon the courts to give greater emphasis to the substance of the clause, predicated upon the evident intent and objectives of the parties to choose a specific form of dispute resolution to manage conflicts between them. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 have sufficiently developed the interpretive tools to determine the intention of the parties to refer disputes to arbitration by construing the express language in the correspondence. It has also been held that once the terms of the contract show that there is an intention to refer disputes to arbitration, parties cannot wriggle out of the arbitration agreement., Unissi (India) (supra), paras 16-19; Govind Rubber (supra), paras 21-22. 15. Having considered the statutory scheme and also the consistent approach of this Court in interpreting and construing the existence or lack of intention to arbitrate, the following principle can be restated: i. An arbitration agreement is a contract. It must meet the requirements of an agreement enforceable by law under the Indian Contract Act, 1872., Vidya Drolia (supra), para 21. ii. Section 7(2) of the Arbitration and Conciliation Act, 1996 recognises the existence of an arbitratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 (BESCOM) v. E.S. Solar Power Pvt Ltd (2021) 6 SCC 718, paras 16 and 17; Food Corporation of India v. Abhijit Paul 2022 SCC OnLine SC 1605, para 27 [2022 INSC 1216]; Lewison, The Interpretation of Contracts (6th edn, Sweet and Maxwell 2016) para 2.01, 27. Intention must always be ascertained through the words actually used, for there is no intention independent of the language employed by the parties. x. For the purpose of ascertaining the true meaning of the express words, the court or tribunal may also look into the surrounding circumstances such as the nature and object of the contract, Bank of India v. K. Mohandas (2009) 5 SCC 313, para 28 [2009 INSC 417]. and conduct of the parties during the formation, implementation, and discharge of the contract., Godhra Electricity Co Ltd v. State of Gujarat (1975) 1 SCC 199, paras 11, 16 [1974 INSC 174]; McDermott International Inc v. Burn S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 considerations include alter ego/ piercing the corporate veil, estoppel, succession, and apparent authority., Gary Born, International Commercial Arbitration, vol 1 (3rd edn, Kluwer Law International 2021) 1531. The formulation of these principles, whether consensual or nonconsensual, is not new. They are derived from general principles of contractual law and corporate law., ibid 1525. 20. The Group of Companies doctrine was formulated and theorised exclusively in international arbitration jurisprudence to specifically determine whether a company which is a non-signatory is party to the arbitration agreement. Gary Born clarifies that this principle is not evoked outside the context of arbitration., ibid 1559. 21. With this background, I will now discuss the doctrine along with other considerations and legal tests that guide its application. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion) 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, appear to have been veritable parties to these contracts or to have been principally concerned by them and the disputes to which they may give rise. , ibid. 24. From the above extracts, it is clear that membership in the same group of companies or same economic reality were neither the sole nor the guiding factors to hold that the non-signatory companies were parties. Rather, the Tribunal s emphasis was on the mutual intent of the parties, gathered from their conduct in the conclusion, performance, and termination of the contracts., Also see Born (supra) 1561; Bernard Hanotiau, Chapter 14: Group of Companies in International Arbitration in Loukas A. Mistelis and Julian D.M. Lew (ed), Pervasive Problems in International Arbitration, vol 15 (Kluwer Law International 2006), 286. 25. The subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty, 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. Similarly, Singapore courts have also rejected the applicability of the Group of Companies doctrine by emphasising the fundamental corporate law principle of separate legal identities., Manuchar Steel Hong Kong Ltd v. Star Pacific Line Pte Ltd [2014] SGHC 181. 30. Swiss courts, on the other hand, have allowed for nonsignatories to be made party to the arbitration agreement based on their conduct, manifesting implied consent. The Swiss Federal Court has held that an arbitration agreement must itself be in writing as per Article 178 of the Swiss Private International Law Act. However, the question of whether a non-signatory is a party to such written arbitration agreement can be determined by reference to its involvement in the preparation and performance of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 intention of all the parties to settle the dispute through arbitration., Dow Chemical (supra). iii. The acceptance of the doctrine is highly contested across jurisdictions. The doctrine was developed in France and is applied there by emphasising mutual consent of the signatory and non-signatory companies., Dallah Real Estate (supra) [Paris Cour d Appel]; Malakoff Corporation (supra). iv. On the other hand, countries like the United Kingdom, Peterson Farms (supra). and Singapore, Manuchar Steel (supra). have expressly rejected the doctrine and have emphasised the fundamentality of separate legal personalities of members within the same group. v. Some jurisdictions, such as Switzerland, X._____ et a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates. , Chloro Controls (supra), para 71. The Court noted in the following words: 72. This evolves the principle that a non-signatory party could be subjected to arbitration provided these transactions were with group of companies and there was a clear intention of the parties to bind both, the 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 arbitration can be said to include the signatory as well as the non-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, (2017) 9 SCC 729 [2017 INSC 1026]. the application of the doctrine as recognised in Chloro Controls (supra) was not applied on the facts of that case. 43. Until now, the precedents pertained to situations where the parties invoked the pre-referral jurisdiction of the courts. In Cheran Properties Ltd v. Kasturi and Sons Ltd, (2018) 16 SCC 413 [2018 INSC 394]. the Court was approached at the enforcement stage., The respondent sold shares of its subsidiary company to one K.C. Palanisamy, who undertook to discharge the outstanding liabilities of this company. Clause 14 of this agreement recognised the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 450]. is yet another instance where this Court has allowed a non-signatory to be party to an arbitration agreement, in connected contracts, on the ground of business efficacy, noting that all agreements were executed for a single commercial project. This approach was noted in the subsequent decision of Discovery Enterprises, ONGC v. Discovery Enterprises Pvt Ltd (2022) 8 SCC 42 [2022 INSC 483]. where learned Chief Justice has noted: In Ameet Lalchand, the Court did not explicitly invoke the group of companies doctrine to bind a non-signatory, rather it relied on Chloro Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a single economic unit, or a single economic reality. In such a situation, signatory and non-signatories have been bound together under the arbitration agreement. This will apply in particular when the funds of one company are used to financially support or restructure other members of the group. 48. Finally, in ONGC v. Discovery Enterprises Pvt Ltd, Discovery Enterprises (supra). while the decision on whether the non-signatory was a party was remitted to the arbitral tribunal, the Court undertook a comprehensive review of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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., ibid, para 10.7. However, the Court ultimately relied on implied or tacit consent by the non-signatory, evidenced by its conduct, to hold that it is a party., ibid, para 10.16. v. In Discovery (supra), the Court comprehensively reviewed the above cases and ironed out the various tests formulated in them. It held that (a) mutual intent of the parties, (b) relationship of the non-signatory to the signatory, (c) commonality of subject-matter, (d) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsume 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 the record of agreement. Section 7(4)(b) prescribes the written material from which a non-signatory s consent and intention can be deciphered by a court or arbitral tribunal. 53. The existence of an arbitration agreement with a nonsignatory is a matter of interpretation and construction. The express words employed by the parties enable the court to ascertain the intention of the parties and their agreement to resolv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urring 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 Companies doctrine, As delineated in para 40 of Discovery Enterprises (supra). is also premised on ascertaining the intention of the non-signatory to be party to an arbitration agreement. The doctrine requires the intention to be gathered from additional factors such as direct relationship with the signatory parties, commonality of subject-matter, composite nature of the transaction, and performan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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