Arjun Doshi 
Adani Group, Gujarat

Payel Chatterjee
​​​​​​​Adani Group, Gujarat​​​​​​​

Consent is the sine qua non for any arbitration proceedings. The application of ‘Group of Companies’ doctrine in arbitration has been criticized by jurists and arbitration practitioners in both civil and common law countries for diluting consent and allowing addition of parties thus changing the manner in how arbitrations should be conducted. The doctrine has found its usage especially in multi-party proceedings and is intrinsically linked to piercing the corporate veil. 

Surprisingly, the Indian bar and jurisprudence have accepted the concept with open arms and have kept evolving and diluting it where needed, over the last decade. While a lot has been written about its application in the Indian context, the Supreme Court of India (“Supreme Court”) felt the need to revisit the doctrine in Cox and Kings Limited v. SAP India Private Limited & Anr.^[1]  The Supreme Court has referred it to a larger Five Judge Bench for re-consideration to clarify the application of the doctrine going forward. In this article, we have attempted to trace the evolution of this principle in the Indian context (domestic and international commercial arbitrations) and discuss some scenarios which could call for its application in future.

Tracing the Indian journey

• The Supreme Court first applied the doctrine in Sukanya Holdings^[2] , albeit in the context of a domestic arbitration, holding that non-parties to an arbitration agreement cannot be included. The judiciary adopted a restrictive approach in not binding non-signatories to the arbitration agreement. This practice was followed yet again with courts refusing to pierce the corporate veil to include a non-signatory to arbitration proceedings in the absence of documentation reflecting clear intent of the parties. ^[3] 
• The Supreme Court revisited this concept yet again in 2013 in the context of an international commercial arbitration involving a foreign party.^[4] Analyzing Section 45^[5] of the Indian Arbitration and Conciliation Act, 1996 (“Act”), the Supreme Court held that the language intended to include parties beyond the parties, that are signatories to the arbitration agreement. However, there must be a direct relationship between the non-signatory and the party to the arbitration agreement, commonality of the subject matter and a composite transaction to apply this principle. Chloro Controls focused on the intention of parties to bind non-signatories and clarified that it should be applied cautiously and only in exceptional cases. This ruling differentiated Sukanya Holdings and called for an amendment to the definition of “party” under the Act. Interestingly, the term ‘party’ was expanded to include persons claiming “through or under” Section 8 of the Act without amending the definition in Section 2(1) (h) of the Act.^[6] 
•  Applying this logic, non-signatories to an arbitration agreement were added even in domestic arbitrations, due to the existence of inter-connected agreements and common commercial goals.^[7] The principle saw its application even in the context of enforcement of arbitral awards against non-signatories, despite their not being a party to the arbitration proceedings. ^[8] It is settled law that awards do not have effect on non-parties to the proceedings, even if they are members of the same group of companies. However, with this ruling, non-signatories were made part of enforcement proceedings, based on the intention of the parties and performance of the contract. The Supreme Court has taken this trend forward and adopted a pro-arbitration approach which allowed enforcement of a foreign award against a non-signatory to the arbitration agreement.^[9]
• The doctrine saw its further expansion in multiple cases which either diluted or expanded it with the underlying theme being that its application may be allowed in cases with commonality of intention and having regard to the rationale behind the group structure.^[10]  
• Indian arbitration jurisprudence saw further development of this doctrine necessitating the showing of a tight group structure, strong organizational and financial links in particular “when the funds of one company are used to financially support or re-structure other members of the group” for its application on the basis of companies constituting a single economic entity.^[11] The High Courts across the country have applied this doctrine along with other principles including ‘piercing of corporate veil’ and ‘alter ego’, to join non-signatories,^[12] completely bypassing the principle of separate legal entity.  
• The Supreme Court recently dealt with the doctrine yet again and laid down factors to be considered while deciding this issue which factors include:(i) the mutual intent of parties; (ii) the relationship of a non-signatory to a party signatory to the agreement; (iii) commonality of the subject-matter; (iv) composite nature of the transaction and (v) performance of a contract.^[13] The concept has found its foot hold in Indian jurisprudence and is expanding with every ruling in favour of efficiency. However, in the absence of a firm legal basis, this may not take it far.  

Despite the above factors having been formulated, the Chief Justice of India felt the need to take another look at this issue in its recent ruling in Cox and Kings Limited (supra)^[14]  formulating specific issues for consideration before submitting these to a larger Bench to decide: (i) whether the application of the doctrine laid down through series of rulings is valid and (ii) whether the language of provisions of the Act (Section 8 and 11) could be interpreted to include the doctrine within its realm. Interestingly, in addition to the above issues, Justice Surya Kant though concurring with the majority view, formulated additional issues for consideration: (i) 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? (ii) whether the Group of Companies Doctrine should continue to be invoked on the basis of the principle of ‘single economic reality’? (iii) whether the Group of Companies Doctrine should be construed as a means of interpreting the implied consent or intent to arbitrate between the parties? and (iv) 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?

‘Group of Companies’ doctrine – boon for the parent companies? 

While we wait for the Supreme Court to decide on its application, given the evolution of the Group of Companies doctrine, the authors feel that it can be used by parent companies in arbitration proceedings to their advantage. However, in some cases, it is likely that parent companies may have to bear the brunt of the application of this doctrine. This section attempts to explore possible scenarios in which the ‘Group of Companies’ doctrine may be applicable in the context of arbitration proceedings. 

• Interim relief under Sections 9 and 17 of the Act: In large infrastructure projects, it is common practice in India to incorporate a wholly owned subsidiary or special purpose vehicle (SPV) to implement, operate and maintain the underlying project in accordance with the terms and conditions of the concession agreement. This SPV or the Concessionaire as generally defined would be owned by the parent company which bids for the tender and is formed once the tender is awarded to the parent company. 
  ​​​​​​​(i) The termination of the SPV’s concession agreement, (ii) expulsion of the SPV from the project or (iii) the SPV’s failure to perform the underlying concession agreement (as evidenced by judicial pronouncement or arbitral award) often leads to the parent company’s disqualification from future tenders for a certain period of time. Barring criteria (iii) for disqualification, the other two disqualification criteria ((i) and (ii)) may have a vast impact on future business especially in circumstances when the SPV and the Concessioning Authority are embroiled in a dispute on those very issues before an arbitral tribunal, constituted under the underlying concession agreement. Such pending issues may be an impediment for the parent company’s participation in other tenders. The parent company’s disqualification on the basis of pending issues pertaining to the SPV, which issues may eventually be held to be illegal or unjustified by the arbitral tribunal, does not restitute the loss of opportunity for the parent company. In such cases, the parent company can take recourse to the group of companies’ doctrine to seek interim relief either from the court under Section 9 of the Act or from the arbitral tribunal under Section 17 of the Act. The parent company can apply the principle of single economic entity, as enunciated in Mahanagar Telephone Nigam Limited v. Canara Bank or piercing of corporate veil / alter ego principles as laid down in Shapoorji Pallonji and Co. Pvt. Ltd. v. Rattan India Power Ltd to invoke the ‘group of companies’ doctrine to seek interim relief. Such interim relief could be in the form of a stay of the disputed termination/expulsion, as the case may be. If granted, the disputed disqualification criteria would not come in the way of the parent company’s participation in other tenders, whilst the dispute is pending adjudication by the arbitral tribunal, and the parent company would be able to continue to undertake business in its normal course. 
• Enforcement of an award where the SPV is an award debtor: The Indian Court’s rulings in Cheran Properties Limited v. Kasturi & Sons. Limited and Gemini Bay Transcription Private Limited v. Integrated Sales Service Limited have already opened doors for enforcement of awards against non-signatories to the arbitration agreement, albeit on the limited grounds of consent and performance of the contract. However, if a SPV is created by the parent company to implement a project and the revenues generated by such SPV is diverted to the parent company, it is a natural corollary that the arbitral award (in respect of which the SPV is an award-debtor) can be enforced against the parent company. Moreover, it is common for SPVs not to have sufficient assets to satisfy the award as an award-debtor. The award-creditor may take recourse to the principles of single economic entity, piercing of corporate veil and alter ego to invoke the group of companies’ doctrine to enforce the arbitral award against the parent company. However, such an approach would have to be adopted cautiously otherwise the concept of the SPV being a separate legal entity would be completely blurred. 

The Group of Companies doctrine should be applied cautiously when it comes to enforcement of a subsidiary’s award against a non-signatory. However, in the context of interim reliefs, this doctrine may bolster the parent company’s chances of participating in other tenders even if issues pertaining to disqualification are sub-judice. This will in turn, allow continuation of the parent company’s business operations in normal parlance. At the time of writing, the authors are unaware of any reported decision dealing with the grant of interim reliefs on the basis of group of companies’ doctrine. Only time will tell if and when such an eventuality arises. 

Road ahead

The future of the doctrine in the Indian context now rests in the hands of a larger Bench, to decide on the application, exceptions if any, and factors to be considered when making non-signatories bound by an arbitration agreement. Chloro Controls (supra) relied on the subjective intention of parties. The judgment had its premise in increasing efficiency and avoiding multiplicity of proceedings, thus adopting a pragmatic approach to dispute resolution. However, with every ruling, the application of the doctrine has been expanded, moving away from the original intent, questioning the fundamentals of arbitration. 

While the matter remains sub-judice, there are several arbitrations and related court proceedings underway where the doctrine is being tested and with scenarios where it could be made applicable. The Supreme Court recently in Cox Kings (supra) made an interesting observation stating that application of this doctrine assumes even more significance in the Indian context given the number of family run entities with the same individuals in different capacities involved in senior management roles and transactions being finalized based on relationships. All eyes are set on the Supreme Court Constitutional Bench to take up the matter to settle the principle and provide much needed clarity on the application of this doctrine. 
 

^[1] Arbitration Petition (Civil) No. 38/2020

^[2]Sukanya Holdings Private Limited v. Jayesh Pandya (2003) 5 SCC 531

^[3]Indowind Energy Limited v. Wescare (I) Limited & Anr. (2010) 5 SCC 306.

^[4]Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. (2013) 1 SCC 641

^[5]Section 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 request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

^[6]“party” means a party to an arbitration agreement.

^[7]Ameet Lalchand Shah v. Rishabh Enterprises (2018) 15 SCC 678

^[8]Cheran Properties Limited v. Kasturi & Sons. Limited (2018) 16 SCC 413

^[9]Gemini Bay Transcription Private Limited v. Integrated Sales Service Limited (2022) 1 SCC 753.

​​​​​^[10]Reckitt Benckiser India Private Limited v. Reynders Label Printing India Private Limited (2019) 7 SCC 62.

^[11]Mahanagar Telephone Nigam Limited v. Canara Bank (2020) 12 SCC 767

^[12]Shapoorji Pallonji and Co. Pvt. Ltd. v. Rattan India Power Ltd 2021 SCC OnLine Del 2875

^[13]Oil and Natural Gas Corporation Limited v. M/s. Discovery Enterprises Private Limited & Anr. (Civil Appeal No. 2042 of 2022) 

^[14]Supra at fn 1, A three judge Bench comprising the Chief Justice of India, Justice Bopanna and Justice Surya Kant have referred the matter to a larger Bench to decide on certain issues of law.