Arbitration – Group of companies doctrine – Invocation of – Held: An arbitration agreement entered into by a company within a group of companies, can bind its non-signatory affiliates or sister concerns if the circumstances demonstrate a mutual intention of the parties to bind both the signatory and affiliated, non-signatory parties – A non-signatory may be bound by the arbitration agreement where: (i) there exists a group of companies; and (ii) parties have engaged in conduct or made statements indicating an intention to bind a non-signatory – In deciding whether a company within a group of companies which is not a signatory to arbitration agreement would nonetheless be bound by it, the law considers the following factors: (i) mutual intent of the parties; (ii) relationship of a non-signatory to a party which is a signatory to the agreement;
(iii) commonality of the subject matter; (iv) composite nature of the transaction; and (v) performance of the contract. Arbitration and Conciliation Act, 1996 – s.37 – Decision of Arbitral Tribunal that it lacks jurisdiction – Challenge to – Held: If the arbitral tribunal accepts a plea that it lacks jurisdiction, the order of the tribunal is amenable to a challenge in appeal u/s.37(2)(a) – In exercise of the appellate jurisdiction, the court must have due deference to the grounds which weighed with the tribunal in holding that it lacks jurisdiction having regard to the object and spirit underlying the statute which entrusts the arbitral tribunal with the power to rule on its own jurisdiction – Decision of the tribunal that it lacks jurisdiction is not conclusive because it is subject to appellate remedy u/s.37(2)(a) – However, in exercise of this appellate power, the court must be mindful of the fact that the statute has entrusted the arbitral tribunal with the power to rule on its own jurisdiction with the purpose of facilitating the efficacy of arbitration as an institutional mechanism for resolution of disputes. Allowing the appeal, the Court
HELD: 1. A signed written agreement to submit a present or future dispute to arbitration does not exclude the possibility of an arbitration agreement binding a third party. A non-signatory may be bound by the operation of the group of companies doctrine as well as by the operation of the principles of assignment, agency and succession. A party, which is not a signatory to a contract containing an arbitration clause, may be bound by the agreement to arbitrate if it is an alter ego of a party which executed the agreement. This constitutes a departure from the ordinary principle of contract law that every company in a group of companies is a distinct legal entity. A non-signatory may be bound by the arbitration agreement where: (i) There exists a group of companies; and (ii) Parties have engaged in conduct or made statements indicating an intention to bind a non-signatory. [Para 23][955-H; 956-A-C]
2. In deciding whether a company within a group of companies which is not a signatory to arbitration agreement would nonetheless be bound by it, the law considers the following factors:
(i) The mutual intent of the parties; (ii) The relationship of a nonsignatory to a party which is a signatory to the agreement; (iii) The commonality of the subject matter; (iv) The composite nature of the transaction; and (v) The performance of the contract. Consent and party autonomy are undergirded in Section 7 of the Act of 1996. However, a non-signatory may be held to be bound on a consensual theory, founded on agency and assignment or on a non-consensual basis such as estoppel or alter ego. [Para 26][957-G-H; 958-A-C]
3.1. In the present case, ONGC’s attempt at the joinder of JDIL to the proceedings was rejected without adjudication of ONGC’s application for discovery and inspection of documents to prove the necessity for such a joinder. By failing to consider the application for discovery and inspection, the Tribunal foreclosed itself from inquiring into whether there was sufficient material to establish the application of the group of companies doctrine. The application for discovery and inspection was indeed relevant to the exercise which was being carried out by the Tribunal. [Paras 26 and 30][958-C-D; 959-E-F]
3.2. The interim award of the first Arbitral Tribunal stands vitiated because of: (i) The failure of the arbitral tribunal to decide upon the application for discovery and inspection filed by ONGC;
(ii) The failure of the arbitral tribunal to determine the legal foundation for the application of the group of companies doctrine; and (iii) The decision of the arbitral tribunal that it would decide upon the applications filed by ONGC only after the plea of jurisdiction was disposed of. There was a fundamental failure of the first Arbitral Tribunal to address the plea raised by ONGC for attracting the group of companies doctrine. Moreover, by leaving the application filed by ONGC for discovery and inspection unresolved, the first Arbitral Tribunal failed to allow evidence which may have had a bearing on the issue of whether JDIL could be considered to have an economic unity with DEPL and could hence be made a party to the arbitral proceedings. [Paras 50 and 51][974-B-F]
Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. & Ors (2013) 1 SCC 641 : [2012] 13 SCR 402 – relied on.
Ameet Lalchand Shah & Ors. v. Rishabh Enterprises & Anr. (2018) 15 SCC 678 : [2018] 6 SCR 1001 – affirmed.
Indowind Energy Ltd. v. Wescare (I) Ltd. & Anr. (2010)
5 SCC 306 : [2010] 5 SCR 284; Cheran Properties Ltd. v. Kasturi & Sons Ltd. & Ors (2018) 16 SCC 413 : [2018] 4 SCR 1063; MTNL v. Canara Bank & Ors. (2020) 12 SCC 767 : [2019] 11 SCR 660; Duro
Felguera v. Gangavaram Port Limited (2017) 9 SCC
729 : [2017] 10 SCR 285; referred to Reckitt Benckiser (India) P Ltd. v. Reynders Label Printing (2019) 7 SCC
62 : [2019] 8 SCR 966; Ssangyong Engineering and Construction Company Limited v. National Highways Authority of India (2019) 15 SCC 131 : [2019]
7 SCR 522; M/s Dyna Technologies Pvt. Ltd. v. M/s Crompton Graves Ltd. (2019) 20 SCC 1 : [2019]
15 SCR 295; Associate Builders v. DDA (2015) 3 SCC
49 : [2014] 13 SCR 895 – referred to.
Redfern and Hunter on International Arbitration, 5th Ed. – 2.13, pp. 89-90; Gary Born, International Commercial Arbitration 2nd Edn., Vol. 1, at page 1418; John Fellas, Compelling Signatories to Arbitrate with Non-Signatories, New York Law Journal (March 28, 2022) - referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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