NEW DELHI: The SC on Wednesday ruled that the ‘Group of Companies‘ doctrine is applicable to arbitration proceedings in India and the definition of parties under Section 2(1)(h) read with Section 7 of the Arbitration Act includes both signatory as well as non-signatory parties.
‘Group of Companies’ doctrine provides that an arbitration 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.
A five-judge Constitution bench of Chief Justice D Y Chandrachud and Justices Hrishikesh Roy, P S Narasimha, J B Pardiwala, and Manoj Misra held that conduct of the non-signatory parties could be an indicator of their consent to be bound by the arbitration agreement and the requirement of a written arbitration agreement under Section 7 does not exclude the possibility of binding non-signatory parties.
It said the ‘group of companies’ doctrine should be retained in 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. “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,” the bench said.
‘Group of Companies’ doctrine provides that an arbitration 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.
A five-judge Constitution bench of Chief Justice D Y Chandrachud and Justices Hrishikesh Roy, P S Narasimha, J B Pardiwala, and Manoj Misra held that conduct of the non-signatory parties could be an indicator of their consent to be bound by the arbitration agreement and the requirement of a written arbitration agreement under Section 7 does not exclude the possibility of binding non-signatory parties.
It said the ‘group of companies’ doctrine should be retained in 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. “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,” the bench said.