Group of companies doctrine - Non-signatory affiliates or sister concerns can be bound by arbitration agreement

Citation : Oil and Natural Gas Corporation Ltd. Versus M/s Discovery Enterprises Pvt. Ltd. & Anr., CA 2042 of 2022

Date of Judgment/Order : April 25, 2022

Court/Tribunal : The Supreme Court Of India

Corum : Dr. Dhananjaya Y. Chandrachud; J., Surya Kant; J., Vikram Nath; J.

Background

The appeal arose from a judgment dated 27 June 2012 of the High Court of Judicature at Bombay by which an appeal under Section 37 of the Arbitration and Conciliation Act, 19961 has been dismissed. Oil & Natural Gas Corporation Limited instituted an appeal against an interim award dated 27 October 2010 of the Arbitral Tribunal holding that the second respondent – Jindal Drilling and Industries Limited4 was not a party to the arbitration agreement and must be deleted from the array of parties. The interim award was challenged in an appeal which was dismissed by the impugned judgment.

Judgment

Allowing the appeal, the Supreme Court went into a detailed explanation of the Group of companies doctrine as mentioned in Chloro Controls [Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641 : (2013) 1 SCC (Civ) 689] 

The court had observed that 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 nonsignatory 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 (23rd Edn.)]

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 non-signatory 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.