India: 

Binding Non-Signatories To An Arbitration - Charting The Shifting

Paradigms

27 November 2019

by Soorjya Ganguli , Somdutta Bhattacharyya and Radhika Misra

Argus Partners

Introduction

Commercial transactions in today's context are often complex, multi-layered

and involve parties from several jurisdictions executing numerous documents.
Consequently, contracting parties encounter several challenges in ensuring that
the primary commercial objective is fulfilled along with safeguarding the
interest of parties who are integral to the transaction.

In balancing the interests of all stakeholders there are complications and time
and again roadblocks are encountered when these complex multi-layered
transactions end up before dispute resolution forums (mostly arbitrations in the
present scheme of matters). In such scenarios judges and arbitrators are often
confronted with the task of ensuring that party autonomy is not compromised
while also bringing the entire dispute under one umbrella in keeping with the
original intent of parties.

Against this backdrop this paper traces the journey of the group of
companies/single economic entity doctrine in India and the treatment it has been
meted with by judges and arbitrators alike and analyses the shifting trends in
arbitral proceedings. Where appropriate, references have also been made to
common law principles and precedents to evaluate how the doctrine has evolved
in common law jurisdictions other than India.

Analysis

An Early International Perspective

Dow Chemical v. Isover-Saint-Gobain- Origins of the 'Group of Companies'

doctrine

One of the earliest known adoptions and promulgation of the 'Group of

Companies' doctrine can be traced to the ICC arbitral award in Dow Chemical
v. Isover-Saint-Gobain1. In that matter, the dispute arose out of several contracts
executed by various Dow Chemical Company subsidiaries (but not Dow
Chemical Company itself) and Isover. Dow Chemical Company together with
its subsidiaries commenced arbitration. Isover objected to jurisdiction over the
claims asserted by Dow Chemical Company on the ground that the latter was
not a party to the contract. The tribunal upheld its jurisdiction. In its award, the
ICC arbitral panel stated that mere corporate ties between different companies
were not enough to bind them to a single arbitration and the non-signatory
companies must have played an essential role in the 'conclusion, performance or
the termination´ of the contracts. It was held therein as follows:

"Considering that irrespective of the distinct juridical identity of each of its

members, a group of companies constitutes one and the same economic reality
(une realité économique unique) of which the arbitral tribunal should take
account when it rules on its own jurisdiction subject to Article 13 (1955
version) or Article 8 (1975 version) of the ICC Rules.

Considering, in particular, that the arbitration clause expressly accepted by

certain of the companies of the group should bind the other companies which,
by virtue of their role in the conclusion, performance, or termination of the
contracts containing said clauses, and in accordance with the mutual intention
of all parties to the proceedings, appear to have been veritable parties to these
contracts or to have been principally concerned by them and the disputes to
which they may give rise." (emphasis supplied)

Indian Jurisprudence on the subject:

The question then arises that what would be a good starting point in the Indian
context, regarding whether a non-signatory can be bound by an arbitration
agreement, and if so, in what circumstances?

The Supreme Court of India, in Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya
and Ors.2, had observed that causes of action against different parties cannot be
bifurcated in a single arbitration and that an arbitration agreement will only bind
the parties which have entered into the same.

A few years down the line in a series of judgments starting from Chloro
Controls (I) Pvt. Ltd. v. Severn Trent Water Purification Inc. and Ors.3 to the
recent judgment in Mahanagar Telephone Nigam Ltd. v. Canara Bank and Ors.4,
the Supreme Court has gradually clarified and broadened its position in this
regard by adopting the 'Group of Companies' doctrine, and indeed the High
Courts have also passed several important judgments in this regard.

a) Sukanya Holdings- The Supreme Court holds that only signatories are bound
by an arbitration agreement
In Sukanya Holdings (supra), disputes had arisen between several parties in
relation to the same transaction. However, all these parties were not signatories
to the agreement containing the arbitration clause and the Supreme Court stated
that the non-signatory parties could not be referred to a single arbitration, in the
context of Section 8 of the Arbitration and Conciliation Act, 19965 ('the Act'). It
was further held that causes of action cannot be bifurcated in an arbitration and
thus the arbitral proceedings could be restricted only to the parties to the
arbitration agreement. Therefore, any person who was not a party to the
arbitration agreement could not be brought into the arbitration. The Supreme
Court held as follows:

"15. The relevant language used in Section 8 is--"in a matter which is the
subject matter of an arbitration agreement". Court is required to refer the
parties to arbitration. Therefore, the suit should be in respect of 'a matter'
which the parties have agreed to refer and which comes within the ambit of
arbitration agreement. Where, however, a suit is commenced - "as to a matter"
which lies outside the arbitration agreement and is also between some of the
parties who are not parties to the arbitration agreement, there is no question of
application of Section 8. The word 'a matter' indicates entire subject matter of
the suit should be subject to arbitration agreement.

16. The next question which requires consideration is--even if there is no

provision for partly referring the dispute to arbitration, whether such a course
is possible under Section 8 of the Act? In our view, it would be difficult to give
an interpretation to Section 8 under which bifurcation of the cause of action
that is to say the subject matter of the suit or in some cases bifurcation of the
suit between parties who are parties to the arbitration agreement and others is
possible. This would be laying down a totally new procedure not contemplated
under the Act. If bifurcation of the subject matter of a suit was contemplated,
the legislature would have used appropriate language to permit such a course.
Since there is no such indication in the language, it follows that bifurcation of
the subject matter of an action brought before a judicial authority is not
allowed." (emphasis supplied)

A reading of the judgment of the Supreme Court in Sukanya Holdings (supra)

clearly suggests that as of the year 2003, party autonomy was considered to be
supreme and judicial interpretation was in favour of excluding non-signatories
irrespective of the commercial intent between the contracting parties. It is
pertinent to mention here that till date, the judgment in Sukanya Holdings
(supra) has not been overruled. However, whether the same is still good law
after a spate of recent judgments on the issue by the Supreme Court, is a matter
of debate.
b) Chloro Controls and a subsequent broadening of the position

So how have we evolved since the days of Sukanya Holdings (supra)? The year
2013 sees the Supreme Court setting down a landmark precedent in the Chloro
Controls (supra) judgment. Not only does the concept of party autonomy get
diluted significantly but the Apex Court highlights the commercial prudence of
bringing the entire dispute resolution process under one umbrella i.e., an
arbitration proceeding which not only encompasses parties who are signatories
to the arbitration agreement but non-signatories as well.

In Chloro Controls (supra), the facts involved a principal agreement, being a

Shareholders' Agreement, between an Indian party and a foreign party, with the
English law being the governing law and London being the seat of arbitration,
and several interconnected agreements stemming from the said Shareholders
Agreement but not between the same parties. Dealing with the question whether
all these parties could be referred to a single arbitration and whether such an
order would be in conflict with its earlier judgment in Sukanya Holdings
(supra), the Supreme Court stated that Sukanya Holdings (supra) was passed in
the context of Section 8 of the Act while the facts in this case fell within the
ambit of Section 45 of the Act, of which a much wider interpretation was
possible. It was held that the expression "person claiming through or under"
appearing at Section 45 of the Act could be given a much wider import and
"would mean and take within its ambit multiple and multiparty agreement,
though in exceptional cases"6. The Supreme Court also applied the 'Group of
Companies' doctrine and held as follows:

"66. Though the scope of an arbitration agreement is limited to the parties who
entered into it and those claiming under or through them, the Courts under the
English Law have, in certain cases, also applied the "Group of Companies
Doctrine". This doctrine has developed in the international context, whereby an
arbitration agreement entered into by a company, being one within a group of
companies, can bind its non- signatory affiliates or sister or parent concerns, if
the circumstances demonstrate that the mutual intention of all the parties was to
bind both the signatories and the non-signatory affiliates. This theory has been
applied in a number of arbitrations so as to justify a tribunal taking jurisdiction
over a party who is not a signatory to the contract containing the arbitration
agreement. ['Russell on Arbitration' (Twenty Third Edition)].

67. This evolves the principle that a non-signatory party could be subjected to
arbitration provided these transactions were with group of companies and there
was a clear intention of the parties to bind both, the signatory as well as the
non-signatory parties. In other words, 'intention of the parties' is a very
significant feature which must be established before the scope of arbitration can
be said to include the signatory as well as the non-signatory parties."(emphasis
supplied)

c) Amendment of the Arbitration and Conciliation Act, 1996 and applicability

of the ratio in Chloro Controls to domestic arbitrations

Since the judgment in Chloro Controls (supra) was passed in the context of
Section 45 of the Act, and Sukanya Holdings (supra) held the field when it
came to non-signatory parties being referred to an arbitration in the domestic
scenario, it might seem like an automatic presumption that non-signatory parties
could never be bound by an arbitration agreement in a reference under Section 8
of the Act. However, even prior to the amendment of the Act in 2015, Indian
courts had alluded to their power (it is debatable whether correctly or not) to
apply the ratio in Chloro Controls (supra) to a domestic arbitration. In an
application under Section 9 of the Act where certain pre-arbitration reliefs were
prayed for against non-signatory parties also, the Division Bench of the Bombay
High Court, though deciding the matter on the facts of that case and the wide
import of the arbitration clause, referred to the ratio in Chloro Controls (supra)
and the power of the courts to refer non-signatory parties to arbitration, even
though the disputes here were between domestic parties7.

Major amendments were carried out to the Act through the Arbitration and
Conciliation (Amendment) Act, 2015 ('the Amendment Act'), including to
Section 8 therein, whereby the words 'a party to the arbitration agreement or any
person claiming through or under him' were included to replace the word
'party'8.

d) Does that necessarily imply that the ratio in Chloro Controls (supra) can now
be applied to domestic arbitrations?

Our evaluation shows that this has been a mixed bag across the spectrum with
no clear trend emerging. In Duro Felguera, S.A. v. Gangavaram Port Ltd.9, the
fact situation involved multiple contracts entered into by and between
Gangavaram Port Ltd. ('GPL') and a Spanish company as well as FGI, the
Spanish company's subsidiary. GPL argued that a composite reference to
arbitration should be made for all the companies, following the ratio in Chloro
Controls (supra). However, the Supreme Court held that the ratio in Chloro
Controls (supra) will be inapplicable in this case since there were multiple
contracts between GPL and the Spanish company as well as GPL and FGI, each
having separate arbitration clauses, whereas in Chloro Controls (supra) all the
agreements were part of a composite transaction which emanated from the
principal agreement, which contained the arbitration clause. Further, the Court
also pointed out that while the agreements between GPL and the Spanish
company contemplated international arbitrations between them, those between
GPL and FGI contemplated domestic arbitrations, and therefore if the award (in
case a composite reference was made) came to be challenged before an Indian
court, there would be no clarity regarding applicability of Section 34 of the Act
to such award. In such scenario, a reference to a single arbitration for all the
agreements could not be possibly made.

In Ameet Lalchand Shah and Ors. v. Rishabh Enterprises and Ors. 10, the
Supreme Court was faced with the question whether, post the amendment of the
Act (and Section 8 thereof), non-signatory parties could be referred to a single
composite domestic arbitration, when such parties had entered into several
contracts with each other (not all of which contained arbitration clauses also) in
connection with the execution of the same project. The Supreme Court analysed
the amendments to Section 8 of the Act as well as the 246th Report of the Law
Commission and observed as follows:

"28. "Principally four amendments to Section 8(1) have been introduced by the
2015 Amendments — (i) the relevant "party" that is entitled to apply seeking
reference to arbitration has been clarified/amplified to include persons
claiming "through or under" such a party to the arbitration agreement; (ii)
scope of examination by the judicial authority is restricted to a finding whether
"no valid arbitration agreement exists" and the nature of examination by the
judicial authority is clarified to be on a "prima facie" basis; (iii) the cut-off date
by which an application under Section 8 is to be presented has been defined to
mean "the date of" submitting the first statement on the substance of the
dispute; and (iv) the amendments are expressed to apply notwithstanding any
prior judicial precedent. The proviso to Section 8(2) has been added to allow a
party that does not possess the original or certified copy of the arbitration
agreement on account of it being retained by the other party, to nevertheless
apply under Section 8 seeking reference, and call upon the other party to
produce the same." (Ref.: Justice R.S. Bachawat's Law of Arbitration and
Conciliation, Sixth Edn., Vol. I (Sections 1 to 34) at p. 695 published by
LexisNexis).

29. Amendment to Section 8 by the 2015 Act, are to be seen in the background
of the recommendations set out in the 246th Law Commission Report. In its
246th Report, Law Commission, while recommending the amendment to Section
8, made the following observation/comment:

LC Comment:

"The words "such of the parties ... to the arbitration agreement" and proviso (i)
of the amendment have been proposed in the context of the decision of the
Supreme Court in Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya [Sukanya
Holdings (P) Ltd. v. Jayesh H. Pandya, (2003) 5 SCC 531] in cases where all
the parties to the dispute are not parties to the arbitration agreement, the
reference is to be rejected only where such parties are necessary [Ed.:
Emphasis in original.] parties to the action — and not if they are only proper
parties, or are otherwise legal strangers to the action and have been added only
to circumvent the arbitration agreement. Proviso (ii) of the amendment
contemplates a two-step process to be adopted by a judicial authority when
considering an application seeking the reference of a pending action to
arbitration. The amendment envisages that the judicial authority shall not refer
the parties to arbitration only if it finds that there does not exist an arbitration
agreement or that it is null and void. If the judicial authority is of the opinion
that prima facie the arbitration agreement exists, then it shall refer the dispute
to arbitration, and leave the existence of the arbitration agreement to be finally
determined by the Arbitral Tribunal. However, if the judicial authority
concludes that the agreement does not exist, then the conclusion will be final
and not prima facie. The amendment also envisages that there shall be a
conclusive determination as to whether the arbitration agreement is null and
void."

On the basis of the aforementioned observations, the Supreme Court went on to

hold that all the agreements were entered into in pursuance of a single project,
were intrinsically connected to each other and one of the said agreements viz.
the Equipment Lease Agreement between two of the parties was the main
agreement and the remaining agreements were ancillary agreements to the
same. Since the said Equipment Lease Agreement contained an arbitration
clause, the Supreme Court held that all the parties involved could be referred to
a single composite arbitration.

e) Impact of Supreme Court's observations in Ameet Lalchand Shah (supra)

This judgment is pathbreaking for two reasons- (i) The Court applied the
rationale adopted in Chloro Controls (supra), though not expressly so, to a fact
situation within the ambit of Section 8 of the Act, though that judgment was
passed in the context of Section 45 of the Act; and (ii) by referring to the
language of the amended Act, particularly Section 8 thereof as well as the 246th
Report of the Law Commission of India, the Hon'ble Supreme Court has diluted
the applicability of Sukanya Holdings (supra) in a Section 8 scenario to a large
extent. The introduction of the phrases 'party to the arbitration agreement or any
person claiming through or under him' (which is similar to that used in Section
45 of the Act) and 'notwithstanding any judgment, decree or order of the
Supreme Court or any Court' to the amended Section 8 of the Act has been
interpreted by the Hon'ble Supreme Court to refer parties who have executed
agreements forming part of the same transaction to a composite arbitration, even
if all of those agreements do not contain arbitration clauses. Therefore, Sukanya
Holdings (supra), though not overruled, may have very limited applicability in
similar fact scenario, and may only be used to test whether all the parties sought
to be referred to a composite arbitration are necessary parties, or whether the
arbitration agreement itself is bad in law11. This wide interpretation has been
adopted by the Supreme Court in recent cases, as will be seen hereinbelow.

f) Cheran Properties-Execution of Arbitral Award against non-signatory and

'intention of parties'

One of the biggest concerns of contracting parties globally has been the ability
to effectively enforce arbitration awards in India. Against this backdrop, the
observations of the Supreme Court in a recent judgment (discussed below) is of
considerable interest inasmuch as it aims to bring non-signatories to arbitration
agreements within the ambit of execution proceedings in an appropriate case.
Whether this opens up a pandora's box or ends up being an effective tool in the
hands of a genuine litigant is to be seen in the days that follow but the
endeavour at some level seems to point towards greater recognition and
acceptance of the Group of Companies doctrine.

The Supreme Court in Cheran Properties Limited v. Kasturi and Sons

Limited12 went on to hold that even an arbitral award may be binding on a third
party if such party falls within the meaning of 'parties and persons claiming
under them' under Section 35 of the Act13. In this case, the award-holder sought
execution of the arbitral award against a third party contending that such party
was a nominee of the judgment-debtor, even though the principal agreement,
being a Share Purchase Agreement containing the arbitration clause, was
entered into only between the award-holder and the judgment-debtor and the
arbitral proceedings were also only conducted between them. The Supreme
Court relied heavily on its judgment in Chloro Controls (supra) and held as
follows:

"As the law has evolved, it has recognised that modern business transactions
are often effectuated through multiple layers and agreements. There may be
transactions within a group of companies. The circumstances in which they
have entered into them may reflect an intention to bind both signatory and non-
signatory entities within the same group. In holding a non-signatory bound by
an arbitration agreement, the Court approaches the matter by attributing to the
transactions a meaning consistent with the business sense which was intended
to be ascribed to them. Therefore, factors such as the relationship of a non-
signatory to a party which is a signatory to the agreement, the commonality of
subject matter and the composite nature of the transaction weigh in the balance.
The group of companies doctrine is essentially intended to facilitate the
fulfilment of a mutually held intent between the parties, where the
circumstances indicate that the intent was to bind both signatories and non-
signatories. The effort is to find the true essence of the business arrangement
and to unravel from a layered structure of commercial arrangements, an intent
to bind someone who is not formally a signatory but has assumed the obligation
to be bound by the actions of a signatory." (emphasis supplied)

The tenets in Cheran Properties (supra) have, however, been adopted with
caution and the Supreme Court has broadly espoused that the facts and
circumstances of each case must be evaluated in context before foisting a
principle of law. In Reckitt Benckiser (India) Private Limited vs. Reynders
Label Printing India Private Limited and Ors.14 the Supreme Court in keeping
with the aforementioned espousal in Cheran (supra), has observed that unless
the non-signatory's intention to be bound by the arbitration agreement can be
established, such non-signatory cannot be referred to arbitration. In this case,
the petitioner had sought to implead the respondent (with which it had entered
into an agreement) as well as a group company of the respondent (which was
not a signatory to such agreement) in the arbitration proceeding by invoking the
'group of companies' doctrine. However, even though a clause in the said
agreement mentioned that the non-signatory group company would indemnify
the petitioner in case of breach by the respondent, it was not found to be
involved in any other way towards the negotiations or the execution of the said
agreement. It was held by the Court as follows:

"...If the main plank of the applicant, that Mr. Frederik Reynders was acting for
and on behalf of respondent No.2 and had the authority of respondent No.2,
collapses, then it must necessarily follow that respondent No.2 was not a party
to the stated agreement nor had it given assent to the arbitration agreement
and, in absence thereof, even if respondent No.2 happens to be a constituent of
the group of companies of which respondent No.1 is also a constituent, that will
be of no avail. For, the burden is on the applicant to establish that respondent
No.2 had an intention to consent to the arbitration agreement and be party
thereto, maybe for the limited purpose of enforcing the indemnity clause 9 in the
agreement, which refers to respondent No.1 and the supplier group against any
claim of loss, damages and expenses, howsoever incurred or suffered by the
applicant and arising out of or in connection with matters specified therein.
That burden has not been discharged by the applicant at all. On this finding, it
must necessarily follow that respondent No.2 cannot be subjected to the
proposed arbitration proceedings. Considering the averments in the application
under consideration, it is not necessary for us to enquire into the fact as to
which other constituent of the group of companies, of which the respondents
form a part, had participated in the negotiation process." (emphasis supplied)
g) Most recent trends

MTNL v. Canara Bank- Clarification on when the 'Group of Companies'

doctrine can be invoked

The Supreme Court in Mahanagar Telephone Nigam Ltd. v. Canara Bank and
Ors.15, while allowing the impleadment of a non-signatory party to single
composite arbitration by invoking the 'Group of Companies' doctrine, clearly
laid down the circumstances in which such doctrine can be invoked by the
courts. After referring to the ICC award in Dow Chemicals (supra), the Court
observed as follows:

"The 'Group of Companies' doctrine has been invoked by courts and tribunals
in arbitrations, where an arbitration agreement is entered into by one of the
companies in the group; and the non-signatory affiliate, or sister, or parent
concern, is held to be bound by the arbitration agreement, if the facts and
circumstances of the case demonstrate that it was the mutual intention of all
parties to bind both the signatories and the non-signatory affiliates in the
group.

The doctrine provides that a non-signatory may be bound by an arbitration

agreement where the parent or holding company, or a member of the group of
companies is a signatory to the arbitration agreement and the non-signatory
entity on the group has been engaged in the negotiation or performance of the
commercial contract, or made statements indicating its intention to be bound by
the contract, the non-signatory will also be bound and benefitted by the relevant
contracts.

The circumstances in which the 'Group of Companies' Doctrine could be

invoked to bind the non-signatory affiliate of a parent company, or inclusion of
a third party to an arbitration, if there is a direct relationship between the party
which is a signatory to the arbitration agreement; direct commonality of the
subject matter; the composite nature of the transaction between the parties.

A 'composite transaction' refers to a transaction which is inter-linked in nature;

or, where the performance of the agreement may not be feasible without the aid,
execution, and performance of the supplementary or the ancillary agreement,
for achieving the common object, and collectively having a bearing on the
dispute.

10.5. The Group of Companies Doctrine has also been invoked in cases where
there is a tight group structure with strong organizational and financial links,
so as to constitute a single economic unit, or a single economic reality. In such
a situation, signatory and non-signatories have been bound together under the
arbitration agreement. This will apply in particular when the funds of one
company are used to financially support or re-structure other members of the
group." (emphasis supplied)

The Supreme Court also noted that the 'Group of Companies' doctrine has now
been applied to domestic arbitrations in the Ameet Lalchand Shah (supra)
judgment. Following the aforementioned observation in Mahanagar Telephone
Nigam (supra) as well as the principles laid down in Dow Chemicals (supra), it
may be stated that the courts may ordinarily invoke the 'Group of Companies'
doctrine and refer non-signatory group companies to a single composite
arbitration if the following conditions are met:-

i It is established that it was the intention of all the parties to bind the signatory
as well as the non-signatory group companies to the arbitration agreement;

ii The non-signatory company has either:-

a. Been engaged in the negotiation or the performance or the termination of the

contract; or

b. Made statements expressing its intention to be bound by the contract;

iii The non-signatory signatory has a direct relationship with the signatory party
or the parties are involved in the execution of a composite transaction, i.e. a
transaction with a common or shared business objective which would not be
possible without the participation of the non-signatory party.

iv The 'Group of Companies' doctrine may also be invoked by the courts if it

can be established that the signatory and non-signatory parties exist within a
tight group

i structure with strong organizational and financial links, so as to constitute 'a

single economic unit', or 'a single economic reality'.

The 'Group of Companies' doctrine, as espoused in the Mahanagar Telephone

Nigam (supra) case by the Supreme Court, has also been relied upon by the
High Courts at Telengana16 and Calcutta17 in recent judgments.

h) Applicability of the 'Group of Companies' or 'single economic reality'

concept in other common law jurisdictions

It may be pertinent to mention at this stage that the wholehearted acceptance of

the 'Group of Companies' doctrine through the Hon'ble Supreme Court's
judgments in Chloro Controls (supra), Ameet Lalchand Shah (supra) and
Mahanagar Telephone Nigam (supra) is a major departure from the position
regarding the same in other significant common law jurisdictions such as the
United Kingdom ('UK'), Singapore or even the United States of America ('US'),
where the 'Group of Companies' doctrine has not been adopted to such an
extent, if at all.

In Peterson Farms Inc. v. C&M Farming Ltd.18, the respondent in an arbitration

sought a declaration from the Court that certain findings in an award were made
without jurisdiction because those findings related to members of the claimant
group that did not enter into a binding arbitration agreement with the
respondent. The respondent's argument had been rejected by the arbitral tribunal
because the tribunal accepted the 'Group of Companies' doctrine. The award
was challenged before the UK Commercial Court by the Respondent, which
held that the arbitral tribunal's decision was "open to a number of substantial
criticisms" and "seriously flawed in law". It was further held that the issue of
whether the respondent had contracted with the other members of the claimant
group was governed by the proper law of the contract which was Arkansas law
and which the parties had agreed was the same as English law. On that basis,
the Commercial Court went on to hold that the 'Group of Companies' doctrine
"forms no part of English law" and set aside the arbitral award.

Relying on the aforementioned judgment in Peterson Farms (supra) as well as a

plethora of judgments passed by the courts in Singapore, the High Court of
Singapore, in its judgment in Manuchar Steel Hong Kong Ltd. v. Star Pacific
Line Pvt. Ltd.19, pronounced as follows:

"Interestingly, Mr. Gary Born, a prominent international disputes practitioner

and commentator, too, takes the view that the "group of companies" doctrine (at
[73] above), which I mentioned earlier is conceptually similar to the single
economic entity (though confined primarily to the arbitration context), is
fundamentally distinct from the other techniques of disregarding separate legal
personality (see Born at p. 1449).

Apart from the conceptual difficulties I had with the doctrine as stated above, I
was also not persuaded by the case law that the single economic entity concept
was recognised under the common law, or at any rate under Singapore law."
(emphasis supplied)

In Manuchar (supra), the High Court of Singapore further went on to state as

follows:

"Last but not least, I should mention that as far as I could tell, the single
economic entity concept has not received endorsement under US corporate law
(see Virginia Harper Ho, "Theories of Corporate Groups: Corporate Identity
Reconceived" (2012) Seton Hall L Rev 879 at pp 880–881). A sprinkling of
cases mention (with approval) a similar doctrine loosely described as
"enterprise liability", but on the whole, my assessment of the cases in the US
was that the single economic entity concept in the context of company law was
not clearly settled.

Apart from the Dow Chemical arbitration case which I mentioned in passing
above (see [72] and [73] above), I found that the single economic entity concept
had very little traction in the international arbitration community, especially
outside jurisdictional issues (such as whether a company within the group is
part of the group for the purposes of jurisdiction). I found particularly helpful
the tribunal's summary in the investment treaty arbitration case of CME Czech
Republic BV v The Czech Republic (Final Award, dated 14 March 2003 at para
436):

Only in exceptional cases, in particular in competition law, have tribunals or

law courts accepted a concept of a 'single economic entity', which allows
discounting of the separate legal existences of the shareholder and the
company, mostly, to allow the joining of a parent of a subsidiary to an
arbitration. Also a 'company group' theory is not generally accepted in
international arbitration (although promoted by prominent authorities) and
there are no precedents of which this Tribunal is aware for its general
acceptance....

For all the foregoing reasons, I was not persuaded, on balance, that the single
economic entity concept was recognised at law in Singapore nor was there a
good legal basis to support its recognition." (emphasis supplied)

The aforementioned judgments certainly provide an interesting perspective on

how readily Indian courts have adopted the 'Group of Companies' doctrine, post
the Chloro Controls (supra) judgment, in sharp contrast to the prevailing
scepticism with regard to the same in prominent common law jurisdictions. It
certainly makes one wonder whether the judgment in Sukanya Holdings (supra)
would find more acceptance among legal practitioners in these jurisdictions, as
opposed to the judgments discussed hereinabove where such doctrine has been
invoked and upheld.

Concluding Remarks

A lot of water has flown beneath the bridge since the days of Sukanya Holdings
(supra). The bias towards party autonomy has been considerably diluted as
observed from landmark precedents of the Indian Supreme Court and High
Courts across the country.
In its endeavour to highlight the importance and sanctity of the Group of
Companies Doctrine the Indian Courts have been in favour of extending
references to non-signatories of an arbitration agreement subject to certain
thresholds being met. The Courts have broadened their approach, no doubt
aided by the amendments effected to the Act in 2015 and the 246th report of the
Law Commission of India, to extend the principles first expounded in Chloro
Controls (supra) in the scenario of international arbitrations to domestic
arbitrations also. With the adoption of such position in Ameet Lalchand Shah
(supra) and Mahanagar Telephone Nigam (supra), no doubt the law laid down
in Sukanya Holdings (supra), while not being overruled, has been substantially
weakened. Further, Mahanagar Telephone Nigam (supra), has provided much
needed clarity on the circumstances in which the 'Group of Companies' doctrine
can be invoked. However, as we have seen, the courts in the UK and Singapore
have viewed the doctrines of 'Group of Companies' or 'single economic reality'
with suspicion and rejected their applicability in such legal regimes.

That leads us to end on a note of caution. The Indian courts must not adopt an
overzealous approach in every matter where multiple contracts between
multiple parties are involved and impleadment of non-signatories to a single,
composite arbitration is sought. A detailed examination of the facts of each case
on their own merits must be made and the same should be tested against the
criteria as laid down in Mahanagar Telephone Nigam (supra), as elaborated
hereinabove. In absence of the same, even non-signatories whom the parties
never intended to be bound by the arbitration agreement or who had no or
minimal role to play in a transaction between the signatories would also be
subjected to the same arbitration, which could not have been the intention of the
legislators while carrying out the amendments to the Act.

Footnotes

1 Dow Chemical v. Isover-Saint-Gobain, ICC Award No. 4131, YCA 1984, at

131 et seq., available at https://www.trans-lex.org/204131, last visited on
November 13, 2019.

2 Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and Ors., (2003) 5 SCC 351.

3 Chloro Controls (I) Pvt. Ltd. v. Severn Trent Water Purification Inc. and Ors.,
(2013) 1 SCC 641.

4 Mahanagar Telephone Nigam Ltd. v. Canara Bank and Ors., 2019 SCC
OnLine SC 995.

5 Section 8 of the Act, as it stood then, reads as follows:

"Section 8. Power to refer parties to arbitration where there is an arbitration
agreement. (1) A judicial authority before which an action is brought in a
matter which is the subject of an arbitration agreement shall, if a party so
applies not later than when submitting his first statement on the substance of the
dispute, refer the parties to arbitration.

(2) The application referred to in sub-section (1) shall not be entertained unless
it is accompanied by the original arbitration agreement or a duly certified copy
thereof.

(3) Notwithstanding that an application has been made under sub-section (1)
and that the issue is pending before the judicial authority, an arbitration may be
commenced or continued and an arbitral award made."

6 Section 45 of the Act reads as follows:

"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."

7 Rakesh S. Kathotia & Anr v. Milton Global Ltd. & Ors, 2014 SCC OnLine
Bom 1119.

8 Post the amendment to the Act, Section 8 reads as follows:

"8. Power to refer parties to arbitration where there is an arbitration

agreement.—(1) A judicial authority, before which an action is brought in a
matter which is the subject of an arbitration agreement shall, if a party to the
arbitration agreement or any person claiming through or under him, so applies
not later than the date of submitting his first statement on the substance of the
dispute, then, notwithstanding any judgment, decree or order of the Supreme
Court or any Court, refer the parties to arbitration unless it finds that prima
facie no valid arbitration agreement exists.

(2) The application referred to in sub-section (1) shall not be entertained unless
it is accompanied by the original arbitration agreement or a duly certified copy
thereof.

Provided that where the original arbitration agreement or a certified copy

thereof is not available with the party applying for reference to arbitration
under sub-section (1), and the said agreement or certified copy is retained by
the other party to that agreement, then, the party so applying shall file such
application along with a copy of the arbitration agreement and a petition
praying the Court to call upon the other party to produce the original
arbitration agreement or its duly certified copy before that Court.

(3) Notwithstanding that an application has been made under subsection (1)
and that the issue is pending before the judicial authority, an arbitration may be
commenced or continued and an arbitral award made."

9 Duro Felguera, S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729.

10 Ameet Lalchand Shah and Ors. v. Rishabh Enterprises and Ors., (2018) 15
SCC 678.

11 The Hon'ble Supreme Court itself, in its judgment in Emaar MGF Land
Limited v. Aftab Singh, 2018 SCC Online SC 2771, observed this diluting down
of the position in Sukanya Holdings (supra) in the following words:

"The amended provision, thus, limits the intervention by judicial authority to

only one aspect, i.e. refusal by judicial authority to refer is confined to only one
aspect, when it finds that prima facie no valid arbitration agreement exists.
Other several conditions, which were noticed by this court in various
pronouncements made prior to amendment were not to be adhered to and the
Legislative intendment was clear departure from fulfilling various conditions as
noticed in the judgment of P. Anand Gajapathi Raju (supra) and Sukanya
Holdings (P) Ltd. (supra)." (see paragraph 46)

12 Cheran Properties Ltd. v. Kasuri and Sons Ltd. & Ors., (2018) 16 SCC 413.

13 Section 35 of the Act reads as follows:

"35. Finality of arbitral awards.—Subject to this Part an arbitral award shall

be final and binding on the parties and persons claiming under them
respectively."

14 Reckitt Benckiser (India) Private Limited vs. Reynders Label Printing India
Private Limited and Ors., (2019) 7 SCC 62.

15 Supra at 3.

16 Tecpro Systems Limited v. Telangana State Power Generation, 2019

SCCOnline TS 1658.
17 IL&FS Financial Services v. Aditya Khaitan & Ors, TA No. 12 of 2019 and
CS No. 177 of 2019 (order dated September 3, 2019). It is pertinent to mention
herein that the Hon'ble Calcutta High Court, in this case, relied upon the
judgment in Mahanagar Telephone Nigam (supra) not in the context of binding
non-signatories to an arbitration agreement but to pass an interlocutory
injunction restraining the respondents, all of whom were found to belong to a
single group with a "tight group structure with strong organisational and
financial links so as to constitute a single economic unit or a single economic
reality", from alienating or encumbering or disposing off their assets, even
though not all the respondent companies had signed an agreement with the
petitioner-creditor (please see paragraph 25).

18 Peterson Farms Inc. v. C&M Farming Ltd., [2004] EWHC 121.

19 Manuchar Steel Hong Kong Ltd. v. Star Pacific Line Pvt. Ltd., [2014] SGHC
181.

The content of this article is intended to provide a general guide to the subject
matter. Specialist advice should be sought about your specific circumstances.

India’s Affair with the ‘Group of Companies’ Doctrine Continues

Kluwer Arbitration Blog
October 31, 2019

Juhi Gupta

Please refer to this post as: Juhi Gupta, ‘India’s Affair with the ‘Group of
Companies’ Doctrine Continues’, Kluwer Arbitration Blog, October 31 2019,
http://arbitrationblog.kluwerarbitration.com/2019/10/31/indias-affair-with-the-
group-of-companies-doctrine-continues/

Introduction

In a previous post, I had surmised whether the Indian courts’ tryst with the
group of companies doctrine (“Doctrine”) in the arbitration context is a
harbinger or aberration. If the Indian Supreme Court (“SC”) decisions
in Reckitt Benckiser v. Reynders Label Printing, decided on 1 July 2019
(“Reynders Label”), and MTNL v. Canara Bank, decided on 8 August 2019
(“MTNL”) are any indication, it appears that the tryst is steadily evolving into
an affair. The decisions reinforce India’s pro-arbitration outlook and at the same
time clarify the parameters to employ the Doctrine to bind non-signatories to
arbitration.

Non-Signatory Member of A Group of Companies Cannot be Ipso

Facto Bound by Arbitration

Reynders Label involved a petition under Section 11 of the Arbitration and

Conciliation Act, 1996 (“Act”) to appoint a sole arbitrator. The question was
whether there was a clear mutual intention of the signatory parties to the
agreement (“Agreement”) and the arbitration agreement contained therein to
bind the non-signatory party. The signatory first respondent was a party to the
Agreement and the non-signatory second respondent was a Belgian company.
Both respondents were members of the same group of companies. Therefore, if
the non-signatory was held bound by the arbitration agreement, the arbitration
would become an international commercial arbitration as opposed to a domestic
commercial arbitration, governed by different provisions of the Act.

In order to determine the existence of mutual intention, the SC examined

whether it was manifest from the indisputable inter-parties correspondence,
culminating in the Agreement, that the transactions between the petitioner and
first respondent were essentially undertaken within the group of companies.
Apart from alluding to the Doctrine as expounded in Chloro Controls and relied
upon in Cheran Properties, the SC predominantly engaged with the Doctrine in
the factual matrix. Therefore, it concerned itself with the inter-parties
correspondence to analyse if the second respondent played a role in negotiating
the Agreement and consequently, whether it was bound by the arbitration
agreement by virtue of Section 7(4)(b) of the Act according to which an
arbitration agreement can be concluded via exchange of correspondence.

The petitioner primarily relied upon correspondence from one Mr Frederik

Reynders, who it claimed was the promoter of the second respondent and
therefore, represented it in the negotiations. Since the second respondent was
the disclosed principal of the first respondent, it was bound by the arbitration
agreement, which was an integral component of the Agreement. On the other
hand, the second respondent (i) submitted a counter-affidavit stating that Mr
Reynders was an employee of the first respondent and could not represent or
bind the second respondent to any legal obligation; (ii) argued that there was no
privity of contract and that it was not involved in the negotiation, execution or
enforcement of the Agreement; and (iii) argued that both respondents were
merely members of the same group of companies sharing a common
parent/holding company but otherwise were distinct legal entities operating
independently. There was no relationship, such as that of a parent-subsidiary,
between them.

The SC held that the second respondent was not a party to the Agreement and,
consequently, the arbitration agreement:

“Thus, respondent No.2 was neither the signatory to the arbitration agreement

nor did [it] have any causal connection with the process of negotiations
preceding the agreement or the execution thereof, whatsoever. If the main plank
of the applicant, that Mr. Frederik Reynders was acting for and on behalf of
respondent No.2 and had the authority of respondent No.2, collapses, then it
must necessarily follow that respondent No.2 was not a party to the stated
agreement nor had it given assent to the arbitration agreement and, in absence
thereof, even if respondent No.2 happens to be a constituent of the group of
companies of which respondent No.1 is also a constituent, that will be of no
avail. For, the burden is on the applicant to establish that respondent No.2 had
an intention to consent to the arbitration agreement and be party thereto”.
(paragraph 9, emphasis supplied)

Although this made the arbitration a domestic arbitration for which the SC did
not have jurisdiction to appoint an arbitrator, the SC appointed the arbitrator
since the first respondent had no objection to this. It is pertinent to note that the
SC dismissed the review petition filed by the petitioner against this decision.

Parties’ Conduct and Intention to be Examined to Apply Doctrine

In MTNL, the issue was whether the non-signatory subsidiary (“CANFINA”)

was bound by the arbitration agreement entered into between its parent
company (“Canara Bank”) and MTNL. Interestingly, while the factual matrix
was relatively straightforward to even intuitively conclude that CANFINA was
bound by the arbitration agreement, the SC engaged with the Doctrine in decent
depth. Briefly, the facts were that MTNL placed bonds with CANFINA under a
MoU Agreement. Due to a liquidity crunch, Canara Bank purchased certain
value of the bonds issued by MTNL on behalf of CANFINA. Subsequently,
MTNL cancelled the bonds as a result of which disputes arose. Canara Bank
objected to CANFINA being made a party to the arbitration agreement.

The SC observed that:

 The parent or subsidiary entering into an agreement, unless acting in accord

with the principles of agency or representation, will be the only entity in a
group to be bound by that agreement. Similarly, an arbitration agreement is
governed by the same principles.
 However, a non-signatory can be bound by an arbitration agreement on the
basis of the Doctrine, where the parties’ conduct evidences their clear mutual
intention to bind the signatory and non-signatory. Such an intention can be
evidenced via the non-signatory’s engagement in the negotiation or
performance of the contract or any statements made by it indicating its
intention to be bound by the agreement.
 The SC identified three critical factors: (i) non-signatory’s direct relationship
with the signatory; (ii) direct commonality of the subject matter; and (iii)
composite nature of the transaction between the parties. The SC further
noted that the Doctrine has also been invoked in arbitration where there is a
tight group structure with strong organisational and financial links, so as to
constitute a single economic unit or reality.

Applying the aforementioned principles, the SC concluded that CANFINA was

bound by the arbitration agreement:

“It will be a futile effort to decide the disputes only between MTNL and Canara
Bank, in the absence of CANFINA, since undisputedly, the original transaction
emanated from a transaction between MTNL and CANFINA – the original
purchaser of the Bonds. […] There is a clear and direct nexus between the
issuance of the Bonds, its subsequent transfer by CANFINA to Canara Bank,
and the cancellation by MTNL, which has led to disputes between the three
parties. Therefore, CANFINA is undoubtedly a necessary and proper party to
the arbitration proceedings. Given the tri-partite nature of the transaction,
there can be a final resolution of the disputes, only if all three parties are joined
in the arbitration proceedings […]”. (paragraph 10.9, emphasis supplied)

In addition, the SC noted that (i) a Committee of Disputes had referred all three
parties to arbitration, pursuant to which a sole arbitrator was appointed; (ii)
Canara Bank itself had circulated a draft arbitration agreement in which it had
mentioned itself and CANFINA on one side and MTNL on the other side; and
(iii) CANFINA had participated in all proceedings thus far and was represented
by separate counsel. Accordingly, the SC concluded that CANFINA had given
implied or tacit consent to being impleaded in the arbitral proceedings, which
was evident from the parties’ conduct.

Implications of the Decisions

These decisions, in my opinion, are significant. They have generated or renewed

discussion about the Doctrine, which will lead to more awareness and debate
about its application to arbitrations, both in theory and practice. This in turn will
persuade practitioners and parties to be careful about how they draft and
interpret arbitration clauses where entities of a same group of companies are
involved or could be potentially involved in the underlying transaction/contract.

MTNL in particular is significant because it engages with the Doctrine at a

jurisprudential level and expressly predicates its decision on it: “We invoke the
Group of Companies doctrine, to join Respondent No. 2 – CANFINA i.e. the
wholly owned subsidiary of Respondent No. 1 – Canara Bank, in the arbitration
proceedings pending before the Sole Arbitrator” (paragraph 11). It does not
cite Cheran Properties, which is unfortunate as discussing and/or applying it
would have aided the larger goal of cultivating jurisprudence on the Doctrine.
This, however, does not dilute MTNL’s importance.

Both decisions reinforce fundamental factors that are to be considered in

applying the Doctrine, such as mutual intention, direct commonality of subject
matter and composite transaction. They also provide greater clarity about
different factual scenarios in which the Doctrine could potentially be attracted
and applied. This is particularly important given the Doctrine’s application is
heavily predicated on the underlying facts and circumstances. Accordingly, they
reinforce India’s dynamic and commercially pragmatic approach to arbitration
and to binding non-signatories to arbitration. Internationally, uptake of the
Doctrine to bind non-signatories is rare, with the exception of civil law courts to
a certain extent, as compared to “traditional” devices such as piercing the
corporate veil, agency and estoppel (see previous posts on this
blog here and here). Therefore, India’s affair with the Doctrine could prove
instructive for other jurisdictions.
India’s Tryst with the Group of Companies Doctrine: Harbinger or Aberration?

Juhi Gupta /November 27, 2018  /1   Comment

This blog previously carried a post (“previous post”) on the Indian Supreme

Court’s (“SC”) progressive approach to binding non-signatories to an arbitration
agreement in Ameet Lalchand Shah and Others v Rishabh Enterprises and
Another (“Ameet Lalchand”). The present post briefly discusses another aspect
of this approach in context of Cheran Properties Limited v Kasturi and Sons
Limited and Others (“Cheran Properties”), which was incidentally decided just
nine days prior to Ameet Lalchand.
In Cheran Properties, the SC held that an arbitral award can be enforced against
a non-signatory based on facts and circumstances. The case involved a domestic
arbitration under a share purchase agreement (“SPA”). The award was sought to
be enforced against the appellant, Cheran Properties, which was not a signatory
to the arbitration agreement contained in the SPA and was a nominee of one of
the signatories, an individual by the name of KC Palanisamy (“KCP”). The SPA
expressly recorded the right of KCP and/or his nominees to transfer their
shareholding to any other person of their choice. Pursuant to the SPA, 95% of
the shares was transferred to Cheran Properties. Prior to the dispute arising,
KCP sent a letter to the opposite signatory party (“KSL”) as the authorised
signatory of Cheran Properties, stating that in pursuance of the SPA, “our Group
Companies, by themselves and/or by their nominees have agreed to purchase
shares…” and requesting KSL to execute share transfer deeds “in the following
names…[including Cheran Properties]”.
As in Ameet Lalchand, the SC in Cheran Properties took recourse to Chloro
Controls India Private Limited v Severn Trent Water Purification Inc.
(“Chloro Controls”), this time relying upon the ‘group of companies’ doctrine,
which was recognised for the first time by the SC in Chloro Controls. To the
best of the author’s knowledge, there appears to be no other reported decision
where Indian courts have considered enforcing an arbitral award against a non-
signatory on basis of this doctrine.
The SC noted that the doctrine facilitates fulfillment of a mutually held
intention between parties, where circumstances indicate that the intention was to
bind both signatories and non-signatories (affiliates) – “the effort is to find the
true essence of the business arrangement and to unravel from a layered structure
of commercial arrangements, an intent to bind someone who is not formally a
signatory but has assumed the obligation to be bound by the actions of a
signatory”.
The SC was cognisant of the exceptional nature of the doctrine and held that its
application turns on construction of the arbitration agreement, and
circumstances surrounding conclusion and performance of the parent contract.
Applying the law to the facts, the SC found that Cheran Properties was
conscious of and accepted the terms of the SPA, which specifically provided
that KCP’s nominees would be bound by it. This would include the arbitration
agreement contained in the very same agreement and therefore, Cheran
Properties was bound by the arbitral award. It acted as KCP’s nominee at all
material times and this was unequivocally confirmed by KCP’s letter to KSL in
which KCP indicated, as its authorised signatory, that the group of companies
agreed to purchase the shares.
While Ameet Lalchand focussed on identifying the principal/mother agreement
in a network of agreements that contained an arbitration clause (which was
similar to the facts in Chloro Controls), Cheran Properties focussed on
identifying the mutual intention of parties to bind signatories and non-
signatories that are related to each other in a corporate structure and where only
one agreement is involved. The SC expressly clarified that interpretation of the
Chloro Controls dictum could not be restricted to the parent-ancillary
agreements situation.
The SC also clarified that the material legal provision in Cheran Properties was
section 35 of the Arbitration Act, 1996, and not sections 8 or 45 as contended
by Cheran Properties, since the case dealt with a post-award situation. Section
35 clearly stipulates that an arbitral award shall be final and binding on the
parties and persons claiming under them. The expression “persons claiming
under them” widens the net of those who are bound by an arbitral award – it is a
“legislative recognition [that] an arbitral award binds every person whose
capacity or position is derived from and is the same as a party to the
proceedings”. Cheran Properties derived its capacity or position from KCP and
was therefore bound by the arbitral award.
It is not often that the group of companies doctrine is applied in the arbitration
context. The doctrine must be distinguished from ‘piercing the corporate veil’,
which arbitral tribunals and courts have often done and approved to bind non-
signatories, such as shareholders, to arbitration agreements and awards. The
doctrine, on the other hand, involves binding a distinct legal entity on account
of it being a part of an undivided economic reality or being inseparable from the
signatory such that its participation and acquiescence is deemed.
Perhaps the leading arbitration decision on the doctrine is Dow Chemical –
here, an ICC interim award that was upheld by the Paris Court of Appeals
permitted non-signatories to contracts containing arbitration agreements to raise
claims along with the signatories. It was held that Dow Chemicals, one of the
non-signatories, was the parent company of the signatories and had participated
in the conclusion, performance and termination of the contracts. The arbitral
tribunal and court affirmed existence of the mutual intention to bind the non-
signatories and implied consent of the non-signatories to the disputed contracts.
While a detailed analysis of the doctrine in case law is beyond the scope of this
post, what can be deduced from Dow Chemical and subsequent decisions is that
(1) willingness to bind non-signatories varies greatly across civil and common
law jurisdictions (see previous posts on this blog here and here); and (2) when
the doctrine is applied, mutual intention and consent (express or implied) of the
non-signatory are vital touchstones.
In the limited repository of decisions on the doctrine in the arbitration context,
where does Cheran Properties stand? Admittedly, the SC did not undertake
much of a nuanced or principled analysis of the doctrine. Given KCP’s express
nomination of Cheran Properties and language of “our Group Companies” in his
letter, as well as the wording of section 35, the SC did not have to assess the
relationship between KCP and Cheran Properties from a group company
perspective or Cheran Properties’ conduct in the conclusion and performance of
the SPA in much detail. Arguably, given Cheran Properties’ nominee status
combined with section 35, did the SC have to refer to the doctrine at all?
Likewise, if either or both of these factors were absent, would the SC have paid
more attention to the group company aspect and potentially delineated some test
or principles?
While these are academic questions worth pondering, they should not dilute the
significance of a decision on a doctrine of limited and fairly reluctant
acceptance in the arbitration context. In its limited discussion, the SC struck the
right notes by emphasising the touchstones of mutual intention and implied
consent of Cheran Properties to the SPA. The decision gives effect to the
express stipulation in section 35 and has positive implications for reducing
roadblocks to the enforcement of arbitral awards and consequently, upholding
commercial contracts and agreements in India.
Interestingly, the Madras High Court subsequently applied the doctrine to refer
non-signatories [SEI Adhavan (“Adhavan”) and SunEdison India] to a SIAC
arbitration; however, no reference was made to Cheran Properties. The Court’s
key observations were: (1) it was undisputed that the non-signatories and one of
the signatories [SunEdison Holding (“SunEdison”)] constituted a single
economic reality and all transactions pertained to a project undertaken by
Adhavan; (2) “for the convenience sake, the group of companies divided the
work between themselves to carry out different activities among which the
project is one”; (3) the undertaking executed by SunEdison, which contained the
arbitration clause, expressly reflected that Adhavan was its alter ego, evidenced
by its appointment as SunEdison’s agent and other provisions; (4) the
undertaking was prepared by SunEdison’s President who controlled all
operations of Adhavan; and (5) the arbitration clause clearly envisaged the non-
signatories and SunEdison in one basket. The Court referred to Chloro Controls,
holding that it read the doctrine into section 45 of the Arbitration Act (referring
parties to international arbitration). However, while the Court cited Ameet
Lalchand on the point that Chloro Controls applies to section 8, (referring
parties to domestic arbitration), in my opinion, Cheran Properties ought to have
been cited given it is on the doctrine and would have aided the building of
jurisprudence on the doctrine in India.
Nevertheless, the decision is a positive development and combined with Cheran
Properties, bodes well for the application and acceptance of the doctrine in
India. The decisions reinforce India’s progressive approach to binding non-
signatories to arbitration agreements and awards, and to arbitration in general,
and also reflect the commercially pragmatic and pro-arbitration attitude of
Indian courts.