SC upholds group of companies (GoC) doctrine says, Non-Signatories bound to Arbitration Agreement

Today, the Supreme Court of India delivered the long-awaited verdict in the Cox and Kings Ltd. vs. SAP India Pvt Ltd. case. The Constitution bench ruled that the ‘group of companies’ doctrine (GoC) will apply to arbitration proceedings in India. It said, “The ‘group of companies’ doctrine must be retained in the 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.” Further, the SC held that “The non-signatory by their relation to the signatory and performing commercial duties are not strangers to the dispute in comparison to signatory parties. The GoC is founded on the mutual intent of the parties ... The doctrine is used to bind the non-signatory to the arbitration agreement so that it shares the profits and burden it entails.” The matter was heard by a five-judge bench including Chief Justice of India DY Chandrachud, Justice JB Pardiwala, Justice PS Narasimha, Justice Manoj Misra, and Justice Hrishikesh Roy. While pronouncing the judgment, the CJI said, “The signature of a party in the agreement is the most profound expression of consent of a person to submit to jurisdiction. However, the corollary that persons who have not signed aren’t part of the agreement may not always be correct.” 

The issues addressed by the Supreme Court were:

• “Whether the GoC doctrine should be read into Section 8 of the Arbitration Act or whether it can exist in Indian jurisprudence independent of any statutory provision?
• Whether the GoC doctrine continues to be invoked based on the principle of ‘single economic reality’?
• Whether the GoC doctrine should be construed as a means of interpreting the implied consent or intent to arbitrate between the parties?
• Whether the principles of alter ego and/or piercing the corporate veil can alone justify pressing the GoC doctrine into operation even in the absence of implied consent?”

The SC bench concluded by upholding the application of the doctrine to arbitration proceedings stating that both signatory and non-signatory parties are bound by an arbitration agreement.