COX AND KINGS LIMITED v. SAP INDIA PRIVATE LIMITED & ANOTHER

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not been amended despite the changes introduced in Section 8 of the A Act, it appears to me that one of the objectives in introducing the amended Section 8 was to accord tacit recognition and acceptance of the Group of Companies Doctrine in India.

33. It may also be noted that the question as to which entities are parties to the arbitration agreement is usually left to judicial discretion, B especially when there is a limited statutory guidance. 28 Thus, the perception regarding the questionable sourcing of the Group of Companies Doctrine from the wording of Section 8 of the Act, does not imply that it is barred from Indian arbitration law. Undoubtedly, the Courts have the judicial discretion to invoke and apply the Doctrine in Indian arbitral jurisprudence. C

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A that non-signatory to the arbitration. This is a departure from the “single economic reality” approach which views the entire group of companies as a singular entity and overrides the separate legal personalities of the different members of the group.

36. Thus, in this approach, the separate legal form of the parent company remains undisturbed and the application of veil piercing or alter ego is merely for identification of duplicitous acts by a third party which would then lead to application of the Group of Companies Doctrine to bind them to arbitration. The function of this is to identify parties which have no actual intent to be part of the arbitration and deliberately use the corporate form as a shield to avoid being subjected to the arbitration proceedings. For such scenarios, a formal intent-based approach to Group of Companies Doctrine may be insufficient to address the dispute.

37. From the analysis above, it appears that joining a third party to arbitration based on the convergence of a group of companies as a “single economic unit” is no longer the norm under the Group of Companies D Doctrine. Instead, the standard is premised primarily on implied consent drawn from the acts and conduct of an entity within the group of companies. Where a closely knit group exists, the interpretation of a third party’s intent to be bound to the arbitration would be construed from facts and circumstances specific to that group and the manner in which it functions. This maintains the separate legal personality of the non-signatory and joins it to the arbitration proceedings on the basis of its implied acceptance to be bound.

38. It must be emphasized that the Doctrine is an exception to the general rule of arbitration. However, where the facts of a case indicate that the intention of the parties was to bind the non-signatory, the Courts, after exercising due care and caution, will be justified in invoking the Doctrine to do substantial and complete justice. After the 2016 amendment to the Act, this Court has continued to acknowledge and apply the Doctrine in exceptional cases. When all of these factors are viewed in consonance, it emerges that the Doctrine has found firm footing in Indian G jurisprudence.

39. This is not without reason. On a practical front, the Doctrine is a means of grappling with complex multi-party business transactions which necessarily involve more than two parties, even if these additional parties do not finally and formally sign the contract. To that extent, the H

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Doctrine helps to ensure that arbitration as a dispute resolution mechanism is able to adapt to this reality. Failure to do so would make arbitration an ineffective dispute resolution forum as parties which are important for the complete and proper resolution of the dispute will be left out of the adjudication.

40. The Doctrine also ensures that multiplicity of proceedings are avoided. A party may be involved in the negotiation and even performance of an agreement but still be able to circumvent the arbitral process on the ground that it did not sign the contract. Such a party would then have to be proceeded against in court.

41. There are additional benefits of having the Group of Companies C Doctrine in Indian jurisprudence. These arise from the peculiar circumstances and manner in which Indian business entities transact with each other and establish commercial relations. A large chunk of Indian business houses are composed of family run entities or groups. The individuals running these entities often occupy multiple roles in different companies within the group. Thus, the commonality in terms of key managerial personnel and the preponderance of family members occupying these positions moulds the way these companies conduct business. Entering into commercial transactions involves informal understandings based on familiarity with persons who run the overall group of companies even if not the specific entity with which a contract is formally executed.

42. In this scenario it becomes even more relevant to have a doctrine such as the Group of Companies in Indian arbitration law. A third party outside the group of companies may transact with a subsidiary due to its faith in the bona fides and commercial know-how of the parent. F The third party in question relies upon the stature or presence of the larger parent company, either due to its reputation or personal familiarity with its promoters, directors or executives.

43. The Doctrine itself may also provide greater stimulus for business with new entities that are starting out. Due to the aforementioned G peculiarities in Indian business relations, newer companies have significant difficulty in gaining traction. One of the means by which such companies can then gain a foothold is by being part of a large (often family held) group of companies. These new entities are then able to feed off the goodwill or relations that the larger group has with the rest of the business H

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A world. Given that the connection to the larger group is intrinsic to the way in which business is conducted, arbitration law must acknowledge and address this reality.

44. In fact, Tribunals have already recognized the reliance that is often placed by a company upon the conduct of the non-signatory parent B company when entering into an agreement with its subsidiary. The Tribunal in Petro Alliance Services Company Ltd. v. Yukos Oil30 under the aegis of the Arbitration Institute of the Stockholm Chamber of Commerce is a prime example of international arbitration grappling with this issue.

C 45. Therein, the tribunal noted that Yukos Oil, via its actions, had created an expectation in the mind of PetroAlliance that it was willing and ready to back up/step into the shoes of its subsidiary YNG with which PetroAlliance had entered into a contract. While there were several factors that contributed to the decision of the tribunal to bind Yukos to the arbitral proceedings, the most relevant takeaway for our purposes is the manner in which the tribunal enunciated the “theory of trust” that exists under Swedish contract law.

46. The important consideration under this theory, similar to company law principles such as alter ego, is not the actual intent of the party as the non-signatory may be acting duplicitously to represent itself as the driver of the contract while avoiding any liabilities arising from it by not signing the contract. Hence, what the theory examines is what intent the non-signatory has conveyed to a reasonable party in the same position as the contracting entity. The decisive factor is the extent to which the contracting party has placed “trust” in the other party, reasonably, and on the basis of the non-signatory’s actions.

47. To clarify, the wholesale adoption of the Swedish theory of trust into Indian law is not being advocated. Rather, the notion of how we may apply the Group of Companies Doctrine in situations where non-signatory parties are acting in a fraudulent or deceitful manner can be addressed by examining the impression that was conveyed to the contracting parties by the third party. This is in addition to the already well-established principles of piercing the veil and alter ego. This may also address the legitimate critique of Chloro Controls and Cheran Properties, that despite placing an emphasis on legal standards of intent, 30 H SCC Case No 108/1997, 2000.

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the Court eventually resorted to principles of equity and commercial/ A economic expediency to apply the Group of Companies Doctrine in those cases. E. Conclusion

48. In view of the above discussion, respectfully, I am of the opinion that the questions that are sought to be referred to a larger bench deserve further elaboration. With all the humility at my command, the following substantial questions of law also arise for authoritative determination by a larger bench in addition and in conjunction with those formulated by Hon’ble the Chief Justice: A. Whether the Group of Companies Doctrine should be read into Section 8 of the Act or whether it can exist in Indian jurisprudence independent of any statutory provision? B. Whether the Group of Companies Doctrine should continue to be invoked on the basis of the principle of ‘single economic reality’? D C. Whether the Group of Companies Doctrine should be construed as a means of interpreting the implied consent or intent to arbitrate between the parties? D. Whether the principles of alter ego and/or piercing the E corporate veil can alone justify pressing the Group of Companies Doctrine into operation even in the absence of implied consent?

Nidhi Jain Matter refered to larger Bench. (Assisted by : Shashwat Jain, LCRA) F