Unveiling the ‘Group of Companies’ Doctrine in Arbitration

The Doctrine’s Essence

• In a recent landmark decision, a Constitution Bench of the Supreme Court highlighted the pertinence of the ‘group of companies’ doctrine within the sphere of arbitration. This doctrine asserts that a company not directly involved in signing an arbitration agreement can still be bound by it if it belongs to the same corporate group as the signatory. Essentially, it implies a shared intention among the involved parties for non-signatories to be legally bound by an arbitration agreement.

Core Principles Explored

• Diverging from domestic legal principles, the ‘group of companies’ doctrine finds its roots in international arbitration jurisprudence. Its initial recognition in Indian law came through the case of Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. (2013). Since then, Indian courts have consistently applied this doctrine to hold group companies accountable within arbitration agreements.

Critical Factors for Consideration

• In the case of ONGC Ltd. vs. Discovery Enterprises (P) Ltd., the Supreme Court elucidated specific factors pivotal in determining the applicability of this doctrine. These factors encompass the mutual intent of the involved parties, the relationship between signatories and non-signatories, the commonality of the subject-matter, the nature of the transaction, and the execution of the contract.

The Objective and Ruling Emphasized

• The primary objective behind embracing the ‘group of companies’ doctrine in India is to prevent the fragmentation of disputes arising in interconnected transactions involving multiple parties and contracts.
• The recent ruling underscored that the scope of an arbitration agreement extends beyond those who merely sign it.
• It emphasized that written agreements can encompass non-signatories, given a defined legal association between signatories and non-signatories, and a clear intent to be bound by the agreement through their actions and commercial engagement in the matter.
• This ruling fundamentally stresses the interconnectedness within corporate groups and solidifies the binding nature of arbitration agreements on non-signatory entities.