Non-Signatories Can Be Bound by Arbitration Agreements: Constitution Bench Retains Group of Companies Doctrine

Five Judges were asked to decide the validity of the group of companies doctrine, under which an agreement made by one group company may bind non-signatory affiliates (Chandrachud CJI, para 2). A three-Judge Bench hearing a Section 11(6) application doubted the group of companies doctrine as resting more on economic efficiency than law (Chandrachud CJI, para 3). Chief Justice Ramana questioned Chloro Controls' reliance on the phrase 'claiming through or under' in Section 45 to adopt the doctrine (Chandrachud CJI, para 4). Justice Surya Kant noted the earlier rigid approach of Sukanya Holdings and Indowind (Chandrachud CJI, para 5). The reference was answered without the facts (Chandrachud CJI, para 6).

Consent is the cornerstone of arbitration (Chandrachud CJI, para 60). A signature is the clearest expression of consent, but non-signatories are not necessarily excluded, as consent may be shown by conduct (Chandrachud CJI, paras 66-67). Group companies keep separate legal personality, so alter ego or veil-piercing cannot ground the doctrine (Chandrachud CJI, paras 83-84, 165). Courts and tribunals must examine the corporate structure and the parties' common intention to arbitrate, applying all the cumulative factors in Discovery Enterprises (Chandrachud CJI, paras 105-106, 110). The doctrine looks at commercial circumstances and conduct, and concerns only the arbitration agreement, not the underlying contract (Chandrachud CJI, para 106). Persons 'claiming through or under' a party assert only a derivative right, so Chloro Controls erred in tracing the doctrine to that phrase (Chandrachud CJI, paras 143, 165). The reference order noted this left such persons unable to seek interim relief under Section 9, which only a party may do (Chandrachud CJI, para 152). The doctrine has utility in complex multi-party transactions and should be retained (Chandrachud CJI, para 148). Narasimha J. would subsume the doctrine within Section 7(4)(b) (Narasimha J., para 56).