5 January 2024 Ali Amerjee -  Clara Tung ArbitrationLinks

Indian Supreme Court rules on “group of companies” doctrine

Can a non-signatory be bound to arbitrate by virtue of an arbitration agreement entered into by other members of its corporate group? In Cox and Kings Ltd. (Cox) v SAP India Pvt. Ltd. and others (SAP) 2023 INSC 1051 the Indian Supreme Court recently confirmed that the so-called “Group of Companies” doctrine (GoC Doctrine) is part of Indian arbitration law; leading to the result that the answer could be “yes” (provided that certain conditions are met).

Background

The dispute concerned a series of license agreements which Cox entered into with SAP India for the development of an e-commerce platform. The operative arbitration agreements therein provided for arbitration in Mumbai governed by the Indian Arbitration and Conciliation Act (IAA). Project timelines fell behind and SAP India’s parent company (SAP Parent) provided assurances the project would be completed, notwithstanding that it was not party to any of the agreements. The dispute remained unresolved and Cox eventually initiated arbitration against both SAP India and SAP Parent, on the basis that both entities were “ad idem for the implementation and execution of the agreements”, particularly as SAP Parent had undertaken responsibility for ensuring SAP India’s completion of the project. SAP Parent argued that it: (i) was not a signatory to the relevant agreements; (ii) had not impliedly or expressly agreed to be bound by them; and (iii) had never been involved in the negotiation of the relevant agreements.

The dispute came before the Indian courts (in the context of an application for the Tribunal to be appointed). The central question was whether the GoC Doctrine remained part of Indian arbitration law.

The Court’s judgment – GoC Doctrine upheld

Although the Court recognised that arbitration is “a creature of contract”, in its view valid consent was a wider concept than formal execution and non-signatories may be bound if their acts or conduct indicated such an intention [78]. In the specific context of groups of companies, it perceived a need to “adopt a modern and pragmatic approach to consent” in circumstances where “increasingly, multinational groups often adopt new and sophisticated corporate structures for execution and delivery of complex commercial transactions” (such as in the areas of construction, concession contracts, license agreements, and banking and financial transactions) [97]. This doctrine would, however, only apply to assessing who was party to an arbitration agreement, not the underlying contract itself [106].

On this basis, whilst recognizing that the doctrine has attracted significant debate and has been rejected in other jurisdictions, the Court confirmed that the GoC Doctrine “should be retained in the Indian arbitration jurisprudence” [165].

Applying the GoC Doctrine

The Court held that finding of a corporate group relationship would not, however, suffice – whether all the parties intended for the non-signatory company to be bound would depend on the facts and application of company law principles. The Court applied a two-step approach to a finding of such intention:

First, whether both the signatories and non-signatories to the arbitration agreement belong to the same corporate group.

Second, if a corporate group is established, whether all parties mutually intended to bind the non-signatory to the arbitration agreement would be based on the following considerations:

  • mutual intent of the parties;
  • relationship of the non-signatory to a signatory party;
  • commonality of the subject matter;
  • whether the transaction is composite in nature;
  • how the contract was to be performed; and
  • the non-signatory’s conduct – in particular, the Court made repeated reference to the significance of a non-signatory’s involvement in the “negotiation and performance” of the contract

Who decides?

In so far as an Indian court is concerned with an application to refer parties to arbitration in accordance with the IAA, although the court must reach a “prima facie” view, the ultimate decision as to whether  any non-signatory is bound by the arbitration agreement should be left to the tribunal [163]. Once a tribunal determines that a non-signatory is a party to the arbitration agreement, such a party can apply for interim measures under the IAA [153].

Comment and conclusion

This judgment is significant as, after some debate, it confirms the applicability of the GoC Doctrine under Indian arbitration law, as well as its parameters. Not all arbitration laws take a similar approach. English law, for example, treats privity to arbitration agreements in an orthodox, contractual, way (e.g. Peterson Farms [2004] EWHC 121 (Comm) at [62]), and Singapore law has not followed the GoC doctrine (e.g. Manuchar Steel [2014] 4 SLR 832).

Where Indian arbitration law would be applicable to the parties’ arbitration agreement or arbitration proceedings, the potential implications of this, more expansive, approach may be something that they wish to pay attention to in assessing the consequences of any involvement of other group companies in transactions, especially where they are unfamiliar with a wider approach to the tribunal’s jurisdiction.

Ali Amerjee and Clara Tung thank Bhavisha Sharma and Gaurika Mohan for their assistance in the preparation of this post.