APPROACHING PRO-ARBITRATION JURISPRUDENCE: A STUDY OF “GROUP OF COMPANIES” DOCTRINE IN NON-SIGNATORY ARBITRATION IN INDIA
The celebrated principles of “party autonomy” and “party consent” structure the operation of international commercial arbitration; however, it has been criticized off-late over the aspect of compulsory consent on the parties to the arbitration agreement, particularly with respect to the non-signatory party to the agreement. The international jurisprudence prior to the Barcelona Traction Case[1] suggests that a non-signatory to an arbitration agreement cannot be bound to arbitrate; however, the ICJ recognized that the principles of corporate personality and separate legal existence of a corporate cannot be treated in an absolute sense.
Over the period of time, the dynamics of “consent to arbitration” have changed and there are certain circumstances, where even non-signatories to an arbitration agreement can be compelled to the terms and conditions under the agreement.[2] The “group of companies”[3] doctrine presents a complex structuring literature with respect to the Article II requirements of the New York Convention of being signatory to the arbitration agreement. It must; however, be noted that neither the UNCITRAL Model Law on International Commercial Arbitration, UNCITRAL Arbitration Rules or the New York Convention provide for any statutory requirement for binding a non-signatory party to an arbitration agreement and most of the municipal statutory law in common law countries is also silent in this respect. The doctrine of “group of companies” certainly expands the subjective scope of bindingness to an arbitration agreement. The acceptance of such a doctrine poses a conflict for the arbitrator between maintaining arbitration’s consensual nature and maximizing an award’s reasonableness by binding related persons.[4]
International Jurisprudence Outlining the Doctrine
The doctrine was utilized for the very first time in an ICC Arbitration where the affiliates of Dow Chemicals Group[5] had entered into a number of agreements with the respondent Saint-Gobain where in an interim award the arbitration agreement was made binding on the Group since it had an absolute control over the affiliates. Recently, a SIAC tribunal also held that for applicability of doctrine to bind non-signatories the true intention of parties must be determined on basis of evidence adduced. It must; however, be noted that most common law jurisdictions including England and Australia have outright rejected the doctrine and desisted on binding a non-signatory to the agreement respecting the corporate personality of a corporation, thereby preserving the consensual aspect of arbitration. A conflict of strict and liberal approaches towards the doctrine has raised grounds for an academic discourse on the applicability of doctrine in a dynamic jurisdiction like India which aims to develop itself as hub for arbitration in coming years.
Applicability of the Doctrine in Indian Context
Section 7(4)(a) of the Arbitration and Conciliation Act, 1996[6] does not specifically outline whether “parties” would incorporate non-signatories to an arbitration agreement, although a caton of recent judgments present a corollary. The Supreme Court of India (“SC”) in Indowind Energy Case[7] restrictively held that a mere commonality of shareholders and Board of Directors doesn’t suffice a parent company to be bound by the actions of its affiliates. Since the White Industries[8] fiasco, India tried adopting a transparent pro-arbitration approach towards arbitration resulting in the Chloro Controls Case[9] which laid down the groundbreaking rules concerning the group of companies doctrine, which became the leading precedent for future disputes concerning the doctrine. The SC held that interconnectedness of the agreements involving single commercial project meant that the non-signatory can be bound by the agreement. The moot argument made was with respect to the fact that the execution and performance of the ancillary contract cannot be made without reference to the mother contract, making the party signatory to the mother contract binding to the ancillary contract. The SC in a 2018 judgment held that arbitral award can be enforced against a non-signatory based on facts and circumstances and relying on the Chloro Controls Case.[10] The SC in Reckitt Benckiser (India) Case[11] referred to the Cheran Properties Case to establish that mutual intention of parties to the arbitration agreement is necessary to bind the non-signatory. The SC recently concurring with the trend of pro-arbitration in the MTNL Case[12] laid down grounds when non-signatory affiliate can be made party to the arbitration agreement where there has to be a direct relationship between the party signatory to the arbitration agreement and direct commonality of the subject matter, thereby creating a composite (interlinked) transaction, This recent judgment by the Apex Court provides a broader interpretation to the already accepted doctrine to bind a non-signatory to the arbitration agreement whereby adhering to the internationally accepted jurisprudence.
Report submitted by-
Urmil Shah
Reporters’ Committee,
Section for Law Students, INBA.
[1] Barcelona Traction, Light and Power Company Limited (New Application, 1962), Belgium v Spain, Judgment, Merits, Second Phase, [1970] ICJ Rep 3.
[2] Some of the internationally recognized circumstances being Alter-ego, Agency, Incorporation by Reference, Estoppel, Assignment, Third-Party Beneficiary.
[3] In most simplest sense, the doctrine refers to several related companies or affiliates of the parent company inevitably forming part of the larger corporate group to be regarded as single economic realm.
[4] W.W. Park, Non-Signatories and International Contracts: An Arbitrator’s Dilemma, Oxford University Press (2009).
[5] ICC Award No. 4131.
[6] Act No. 26 of 1996.
[7] Indowind Energy Ltd v. Wescare (I) Ltd. & Anr., (2010) 5 SCC 306.
[8] White Industries Australia Ltd v India, Final award, IIC 529 (2011).
[9] Chloro Controls(I) P.Ltd vs Severn Trent Water Purification Inc., (2013) 1 SCC 641.
[10] Cheran Properties Limited Vs. Kasturi and Sons Limited and Ors., (2018) 16 SCC 413.
[11] Reckitt Benckiser (India) Private Limited v. Reynders Label Printing India, AIR 2019 SC 65.
[12] Mahanagar Telephone Nigam Ltd. v. Canara Bank & Ors., CIVIL APPEAL NOS. 6202-6205 OF 2019.