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consistent with prevailing approaches in the common law world.” Therefore, even though a subsidiary derives interests or benefits from a contract entered into by the company within a group, they would not be covered under the expression “claiming through or under” merely on the basis that it shares a legal or commercial relationship with the parties.

146Copy pinpoint146. One of the questions that has been referred before us is whether the phrase “claiming through or under” in Section 8 could be interpreted to include the group of companies doctrine. The group of companies doctrine is founded on the mutual intention of the parties to determine if the non- signatory entity within a group could be made a party to the arbitration agreement in its own right. Such non-signatory entity is not “claiming through or under” a signatory party. As mentioned above, the phrase “claiming through or under” is used in the context of successors in interest that act in a derivative capacity and substitute the signatory party to the arbitration agreement. To the contrary, the group of companies doctrine is used to bind the non-signatory to the arbitration agreement so that it can agitate the benefits and be subject to the burdens that it derived or is conferred in the course of the performance of the contract. The doctrine can be used to bind a non-signatory party to the arbitration agreement regardless of the phrase “claiming through or under” as appearing in Sections 8 and 45 of the Arbitration Act.

147Copy pinpoint147. In Chloro Controls (supra), this Court joined the non-signatory entities as parties to the arbitration agreement in their own rights on the basis that they were signatories to ancillary agreements which were closely interlinked with the performance of the principal agreement containing the arbitration agreement. This Court in Chloro Controls (supra) reasoned that the non-signatory entities, being part of the same corporate group as the signatory parties, were subsidiaries in interest or subsidiary companies, and therefore were “claiming through or under” the signatory parties. As held above, the phrase “claiming through or under” only applies to entities acting in a derivative capacity and not with respect to joinder of parties in their own right. Therefore, we hold that the approach of this Court in Chloro Controls (supra) to the extent that it traced the group of companies doctrine to the phrase “claiming through or under” is erroneous and against the well- established principles of contract and commercial law. As observed above,

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the existence of the group of companies doctrine is intrinsically found on the principle of the mutual intent of parties to a commercial bargain.

148Copy pinpoint148. Chief Justice N. V. Ramana also sought our consideration on the question of whether the “group of companies doctrine” as expounded by Chloro Controls (supra) and subsequent judgments is valid in law. The group of companies doctrine has important utility in determining the mutual intention of the parties in the context of complex transactions involving multiple parties and multiple agreements. Moreover, the doctrine has been substantively entrenched in the Indian arbitration jurisprudence. We are aware of the fact that the group of companies doctrine has not found favor in some other jurisdictions, including in English law. However, we deem it appropriate to retain the doctrine which has held the field in Indian jurisprudence though by firmly establishing it within the realm of the mutual consent or the mutual intent of the parties to a commercial bargain. This will ensure on the one hand that Indian arbitration law retains a sense of dynamism so as to respond to contemporary challenges. At the same time, structuring the doctrine in the manner suggested so as to ground it in settled principles governing the elucidation of mutual intent is necessary. This will ensure that the doctrine has a jurisprudential foundation in party autonomy and consent to arbitrate.

149Copy pinpoint149. Although the issue before us largely concerns the application of the group of companies doctrine in the Indian context, this Court cannot be oblivious to the changing currents in the international arbitration jurisprudence. In deciding the contours of the group of companies doctrine, we have reiterated the general legal proposition that non-signatory persons or entities can also be bound by an arbitration agreement. The basis for such joinder stems from the harmonious reading of Section 2(1)(h) along with Section 7 of the Arbitration Act. Since the scope of this judgment was limited to the group of companies doctrine, any authoritative determination given by this Court in the course of this judgment should not be interpreted to exclude the application of other doctrines and principles for binding non- signatories to arbitration agreements. However, we also need to be mindful of the fact that the Indian courts and tribunals should not adopt an overzealous approach to extending the jurisdiction of arbitral tribunals to non-signatory parties merely on the ground that they are part of a corporate group.

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150Copy pinpoint150. In Cheran Properties (supra), this Court found the non-signatory to be “claiming through or under” the signatory party to the arbitration agreement and not as a “party” to the arbitration agreement. In that case, this Court was dealing with an issue pertaining to enforcement of an arbitral award. On the available facts and circumstances, the Court held that the non-signatory was a nominee of the signatory party under the underlying commercial contract, and therefore was acting in a derivative capacity. In Canara Bank (supra) this Court indirectly adopted the principle of estoppel to bind the non-signatory on the basis that it had already participated in the judicial proceedings before the High Court, and cannot subsequently deny being a party to the proceedings before the arbitral tribunal. In Discovery Enterprises (supra), this Court remanded the matter back to the arbitral tribunal to decide afresh the application for discovery and inspection by applying the group of companies doctrine. Therefore, we can conclude that the observations pertaining to the group of companies doctrine were rendered in the facts and circumstances of each case. We have harmonized the divergent strands of law emanating from these judgments in the preceding paragraphs.

151Copy pinpoint151. In Law’s Empire, Ronald Dworkin proposed a hypothetical where a group of novelists write a novel seriatim, each novelist interpreting the chapters given to them to write a new chapter.120 The novelists are expected to “take their responsibilities of continuity more seriously” to create “a single unified novel that is the best it can be.”121 Chloro Controls (supra) was the first chapter in the group of companies doctrine in Indian arbitration jurisprudence. The series of subsequent judgments starting from Cheran Properties (supra) and ending with Cox and Kings (supra) were the incremental chapters – each adding further dimensions to the theory already propounded in the previous chapters. In this case, we have added another chapter to the theory of group of companies doctrine. Our aim was to make further progress in the course of evolution of arbitration law. In the process, we have tweaked the plotline to make the novel a more coherent read, instead of rewriting or discarding the previous chapters.

120 Ronald Dworkin, Law’s Empire (Belknap Press, Harvard University Press 1986) 229. 121 Ibid.

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iii. Power of the Courts to issue directions under Section 9

152Copy pinpoint152. In Cox and Kings (supra), Chief Justice Ramana observed that establishing the group of companies doctrine in the phrase “claiming through or under” creates an anomalous situation where a party “claiming through or under” could be referred to an arbitration agreement, but would not have a right to seek relief under Section 9 of the Arbitration Act. Section 9 allows a “party” to approach the court to seek interim measures such as appointment of a guardian for a minor or person of unsound mind, custody or sale of any goods which are the subject matter of the arbitration agreement, and appointment of receiver.

153Copy pinpoint153. The group of companies doctrine is based on determining the mutual intention to join the non-signatory as a “veritable” party to the arbitration agreement. Once a tribunal comes to the determination that a non-signatory is a party to the arbitration agreement, such non-signatory party can apply for interim measures under Section 9 of the Arbitration Act. Establishing the legal basis for the application of the group of companies doctrine in the definition of “party” under Section 2(1)(h) read with Section 7 of the Arbitration Act resolves the anomality pointed out by Chief Justice Ramana. G. The standard of determination at the referral stage – Sections 8 and 11

154Copy pinpoint154. The last but not the least issue that arises for our consideration pertains to the stage of applicability of the group of companies doctrine under the Arbitration Act. In Cox and Kings (supra), Chief Justice Ramana observed that there is a need to have a relook at the scope of judicial reference at the stage of Sections 8 and 11 of the Arbitration Act considering the ambit of the unamended Section 2(1)(h). Section 5 of the Arbitration Act provides that “no judicial authority shall intervene except where so provided in this Part.” The context for “so provided” is contained in Sections 8 and 11 which mandate the courts to refer the parties to arbitration. Under Section 8, the court has to “prima facie” ascertain the existence of a valid arbitration agreement before referring the parties to arbitration. Section 11 empowers the Supreme Court and High Courts to appoint arbitrators on the failure of the parties to comply with the agreed arbitration procedure. Section 11 could be invoked in situation where a dispute has arisen and one of the parties to

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the arbitration agreement unsuccessfully invoked the agreed procedure for the appointment of an arbitrator due to the non-cooperation of the other party.

155Copy pinpoint155. In SBP & Co v. Patel Engineering Ltd, 122 a seven-Judge Bench of this Court was called upon to determine the scope of the powers of the Chief Justice or their designate under Section 11 of the Arbitration Act. It was held that the Chief Justice or the designated judge will have the powers to determine the jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence of a live claim, the existence of the condition for the exercise of their powers, and the qualifications of the arbitrators. Furthermore, it was held that the Chief Justice has to decide whether there is an arbitration agreement as defined under the Arbitration Act and whether the person who has made a request is party to such an agreement.

156Copy pinpoint156. In 2015, the Arbitration Act was amended to insert Section 11(6-A). The said provision reads as follows: “(6A) The Supreme Court, or as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or (sub-section (6), shall, notwithstanding any judgment, decree, or order of any Court, confine to the examination of the existence of an arbitration agreement.” By virtue of non-obstante clause, Section 11(6A) has set out a new position, which takes away the basis of the position laid down in Patel Engineering (supra). In 2019, the Parliament passed the Arbitration and Conciliation (Amendment) Act, 2019 omitting Section 11(6-A). However, the amendment to Section 11(6-A) is yet to be notified. Till such time, Section 11 as amended in 2015 will continue to remain in force.

157Copy pinpoint157. When deciding the referral issue, the scope of reference under both Sections 8 and 11 is limited. Where Section 8 requires the referral court to look into the prima facie existence of a valid arbitration agreement, Section 11 confines the court’s jurisdiction to the existence of the examination of an arbitration agreement.

122 (2005) 8 SCC 618

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158Copy pinpoint158. Section 16 of the Arbitration Act enshrines the principle of competence-competence in Indian arbitration law. The provision empowers the arbitral tribunal to rule on its own jurisdiction, including any ruling on any objections with respect to the existence or validity of arbitration agreement. Section 16 is an inclusive provision which comprehends all preliminary issues touching upon the jurisdiction of the arbitral tribunal.123 The doctrine of competence-competence is intended to minimize judicial intervention at the threshold stage. The issue of determining parties to an arbitration agreement goes to the very root of the jurisdictional competence of the arbitral tribunal.

159Copy pinpoint159. In Vidya Drolia (supra), Justice N. V. Ramana (as the learned Chief Justice then was) held that the amendment to Section 8 rectified the shortcomings pointed out in Chloro Controls (supra) with respect to domestic arbitration. He further observed that the issue of determination of parties to an arbitration agreement is a complicated exercise, and should best be left to the arbitral tribunals: “239. […] Jurisdictional issues concerning whether certain parties are bound by a particular arbitration, under group-company doctrine or good faith, etc. in a multi-party arbitration raises complicated factual questions, which are best left for the tribunal to handle. The amendment to Section 8 on this front also indicates the legislative intention to further reduce the judicial interference at the stage of reference.”

160Copy pinpoint160. In Pravin Electricals Pvt Ltd v. Galaxy Infra and Engineering Pvt Ltd, 124 a Bench of three Judges of this Court was called upon to decide an appeal arising out of a petition filed under Section 11(6) of the Arbitration Act for appointment of sole arbitrator. The issue before the Court was the determination of existence of an arbitration agreement on the basis of the documentary evidence produced by the parties. This Court prima facie opined that there was no conclusive evidence to infer the existence of a valid arbitration

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agreement between the parties. Therefore, the issue of existence of a valid arbitration agreement was referred to be decided by the arbitral tribunal after conducting a detailed examination of documentary evidence and cross-examination of witnesses.

161Copy pinpoint161. The above position of law leads us to the inevitable conclusion that at the referral stage, the court only has to determine the prima facie existence of an arbitration agreement. If the referral court cannot decide the issue, it should leave it to be decided by the arbitration tribunal. The referral court should not unnecessarily interfere with arbitration proceedings, and rather allow the arbitral tribunal to exercise its primary jurisdiction. In Shin-Etsu Chemical Co Ltd v. Aksh Optifibre Ltd,125 this Court observed that there are distinct advantages to leaving the final determination on matters pertaining to the validity of an arbitration agreement to the tribunal:

74. […] Even if the Court takes the view that the arbitral agreement is not vitiated or that it is not valid, inoperative or unenforceable, based upon purely a prima facie view, nothing prevents the arbitrator from trying the issue fully rendering a final decision thereupon. If the arbitrator finds the agreement valid, there is no problem as the arbitration will proceed and the award will be made. However, if the arbitrator finds the agreement invalid, inoperative or void, this means that the party who wanted to proceed for arbitration was given an opportunity of proceedings to arbitration, and the arbitrator after fully trying the issue has found that there is no scope for arbitration.”

162Copy pinpoint162. In Chloro Controls (supra), this Court held that it is the legislative intent of Section 45 of the Arbitration Act to give a finding on whether an arbitration agreement is “null and void, inoperative and incapable of being performed” before referring the parties to arbitration. In 2019, the expression “unless it prima facie finds” was inserted in Section 45. In view of the legislative amendment, the basis

125 (2005) 7 SCC 234

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 713 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

of the above holding of Chloro Controls (supra) has been expressly taken away. The present position of law is that the referral court only needs to give a prima facie finding on the validity or existence of an arbitration agreement.

163Copy pinpoint163. In Deutsche Post Bank Home Finance Ltd v. Taduri Sridhar,126 a two-Judge Bench of this Court held that when a third party is impleaded in a petition under Section 11(6) of the Arbitration Act, the referral court should delete or exclude such third party from the array of parties before referring the matter to the tribunal. This observation was made prior to the decision of this Court in Chloro Controls (supra) and is no longer relevant in light of the current position of law. Thus, when a non-signatory person or entity is arrayed as a party at Section 8 or Section 11 stage, the referral court should prima facie determine the validity or existence of the arbitration agreement, as the case may be, and leave it for the arbitral tribunal to decide whether the non- signatory is bound by the arbitration agreement.

164Copy pinpoint164. In case of joinder of non-signatory parties to an arbitration agreement, the following two scenarios will prominently emerge: first, where a signatory party to an arbitration agreement seeks joinder of a non-signatory party to the arbitration agreement; and second, where a non-signatory party itself seeks invocation of an arbitration agreement. In both the scenarios, the referral court will be required to prima facie rule on the existence of the arbitration agreement and whether the non-signatory is a veritable party to the arbitration agreement. In view of the complexity of such a determination, the referral court should leave it for the arbitral tribunal to decide whether the non-signatory party is indeed a party to the arbitration agreement on the basis of the factual evidence and application of legal doctrine. The tribunal can delve into the factual, circumstantial, and legal aspects of the matter to decide whether its jurisdiction extends to the non-signatory party. In the process, the tribunal should comply with the requirements of

126 (2011) 11 SCC 375

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principles of natural justice such as giving opportunity to the non- signatory to raise objections with regard to the jurisdiction of the arbitral tribunal. This interpretation also gives true effect to the doctrine of competence-competence by leaving the issue of determination of true parties to an arbitration agreement to be decided by arbitral tribunal under Section 16. H. Conclusions

165Copy pinpoint165. In view of the discussion above, we arrive at the following conclusions: a. The definition of “parties” under Section 2(1)(h) read with Section 7 of the Arbitration Act includes both the signatory as well as non-signatory parties; b. Conduct of the non-signatory parties could be an indicator of their consent to be bound by the arbitration agreement; c. The requirement of a written arbitration agreement under Section 7 does not exclude the possibility of binding non- signatory parties; d. Under the Arbitration Act, the concept of a “party” is distinct and different from the concept of “persons claiming through or under” a party to the arbitration agreement; e. The underlying basis for the application of the group of companies doctrine rests on maintaining the corporate separateness of the group companies while determining the common intention of the parties to bind the non-signatory party to the arbitration agreement; f. The principle of alter ego or piercing the corporate veil cannot be the basis for the application of the group of companies doctrine; g. The group of companies doctrine has an independent existence as a principle of law which stems from a harmonious reading of Section 2(1)(h) along with Section 7 of the Arbitration Act;

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h. To apply the group of companies doctrine, the courts or tribunals, as the case may be, have to consider all the cumulative factors laid down in Discovery Enterprises (supra). Resultantly, the principle of single economic unit cannot be the sole basis for invoking the group of companies doctrine; i. The persons “claiming through or under” can only assert a right in a derivative capacity; j. The approach of this Court in Chloro Controls (supra) to the extent that it traced the group of companies doctrine to the phrase “claiming through or under” is erroneous and against the well-established principles of contract law and corporate law; k. The group of companies doctrine should 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; l. At the referral stage, the referral court should leave it for the arbitral tribunal to decide whether the non-signatory is bound by the arbitration agreement; and m. I n t h e co u r s e o f t h i s j u d g m e n t , a n y a u t h o r i t a t i v e determination given by this Court pertaining to the group of companies doctrine should not be interpreted to exclude the application of other doctrines and principles for binding non-signatories to the arbitration agreement.

166Copy pinpoint166. We answer the questions of law referred to this Constitution Bench in the above terms. The Registry shall place the matters before the Regular Bench for disposal after obtaining the directions of the Chief Justice of India on the administrative side.

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JUDGMENT Index* A. Introduction ................................................................................1 B. Civil Remedy and Arbitration ....................................................4 i. Arbitration Agreement is a Contract........................................6 ii. Section 7(4)(b) ........................................................................9 C. Group of Companies Doctrine .................................................17 i. International Perspectives .....................................................17 ii. Indian Precedents on the Group of Companies Doctrine .....27 D. Group of Companies Doctrine in the Context of Section 7 .....39 E. Conclusion ................................................................................43 PAMIDIGHANTAM SRI NARASIMHA, J. A. Introduction

1. The reference to this Constitution Bench is for an authoritative determination of the applicability of the ‘Group of Companies doctrine’ to proceedings under the Arbitration and Conciliation Act, 1996, 1 and if found to be applicable and statutorily anchored, to delineate its precise contours.

2. In the reference order, Chief Justice N.V. Ramana highlighted the variations in the exposition and application of the doctrine as it has evolved in India. He questioned the statutory source of the doctrine in the phrase “claiming through or under”, which appears in Sections 8 and 45 of the Act. He also cautioned that maintaining the separate legal identities of members within the same group of companies is a fundamental principle of corporate and contract law. In this light, the specific questions formulated and referred to this Constitution Bench by Chief Justice N.V. Ramana,2 are as follows: “(a) Whether phrase “claiming through or under” in Sections 8 and 113 could be interpreted to include “Group of Companies” doctrine?

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(b) Whether the “Group of Companies” doctrine as expounded by Chloro Controls case4 and subsequent judgments are valid in law?”5

3. Justice Surya Kant concurred with Chief Justice Ramana and supplemented his reasons for reference. At the outset, he emphasised the need to retain the doctrine in India to keep pace with the complexity of multi-party business transactions, where certain persons do not formally sign the contract but are involved in its negotiation and performance. Especially in India, with large number of family-run business groups, he expressed that the inclusion of the non-signatory company is essential for effective and complete dispute resolution through arbitration. However, he also indicated the need to iron out inconsistencies in the formulation of the doctrine. He questioned the reliance on equity considerations and ‘single economic reality’ to determine non-signatories to be parties, as these undermine well- entrenched principles of party autonomy and separate legal entity. In this light, for an authoritative determination of the contours of the doctrine, he framed the following questions: “(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”? (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 corporate veil can alone justify pressing the Group of Companies doctrine into operation even in the absence of implied consent?” 6

4 Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641 [2012 INSC 436]. 5 Cox and Kings Ltd v. SAP India Pvt Ltd, (2022) 8 SCC 1, para 54 [2022 INSC 523]. 6 ibid, para 104.

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4. I have had the advantage of going through the erudite and comprehensive opinion of the learned Chief Justice. While I agree with his reasoning and conclusions, I consider it necessary to supplement them with my own reasoning on some important aspects. The broad question before us relates to the ‘parties’ to an ‘arbitration agreement’. This question must take us to Section 7 of the Act that defines an ‘arbitration agreement’ as under: “7. Arbitration agreement.—(1) In this Part, “arbitration agreement” means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not. (2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. (3) An arbitration agreement shall be in writing. (4) An arbitration agreement is in writing if it is contained in— (a) a document signed by the parties; (b) an exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means which provide a record of the agreement; or (c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other. (5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.”

5. It is evident from the above-referred statutory prescription that an ‘arbitration agreement’ is described in sub-section (1) of Section 7 as, “an agreement by the parties”. Both these expressions, ‘agreement’ and ‘parties’ are important for our consideration. For a proper understanding

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of these expressions, it is necessary to examine the place of arbitration as a dispute redressal mechanism in the larger body of institutional remedies in civil law. B. Civil Remedy and Arbitration

6. In our legal system, access to civil courts is a standard judicial remedy. Civil courts have the jurisdiction to try all civil suits,7 and any agreement to restrict the remedy is declared void under Section 28 of the Indian Contract Act, 1872.8 However, exceptions to Section 28 save a “contract to refer to arbitration” any dispute that has arisen or may arise between two or more persons.9 Thus, a restriction on accessing civil remedy is saved under Section 28 of the Contract Act, if there is a contract to arbitrate.

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7. A ‘contract’ is defined under the Contract Act as an agreement enforceable by law.10 Agreement11 is formed when a promise or mutual promises (defined in Section 2(b))12 are reciprocated with a consideration (defined in Section 2(d))13, and these promises can either be express (when its proposal or acceptance is in words) or implied (when its proposal or acceptance is otherwise than in words).14 An agreement is legally enforceable as a contract if it is formed with the free consent of parties who are competent to contract, for a lawful consideration and lawful object.15 i. Arbitration Agreement is a Contract

8. An arbitration agreement is more specifically defined in Section 7(1) of the 1996 Act as an “an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.” The use of the phrase ‘whether contractual or not’ qualifies the dispute, not the agreement; an arbitration agreement must always be a contract, but the dispute that is referred to arbitration need not necessarily be contractual, suffice it to be arising out of a “defined legal relationship”.16

10 Section 2(h) of the Indian Contract Act, 1872 reads: “(h) An agreement enforceable by law is a contract;” 11 Section 2(e), Indian Contract Act 1872 reads: “(e) Every promise and every set of promises, forming the consideration for each other, is an agreement;” 12 Section 2(b), Indian Contract Act 1872 reads: “(b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise;” 13 Section 2(d), Indian Contract Act 1872 reads: “(d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise;” 14 Section 9, Indian Contract Act 1872 reads: “9. Promises, express and implied.—In so far as the proposal or acceptance of any promise is made in words, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied.” 15 Section 10, Indian Contract Act 1872 reads: “10. What agreements are contracts. —All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.” 16 Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1, para 24 [2020 INSC

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9. Arbitration Agreement must be in writing, as against an oral agreement. However, it need not be signed document: India has adopted the UNCITRAL model17 which lays emphasis on the substance of an agreement, rather than its form, to determine the existence of the agreement to arbitrate. Sub-Section (2) of Section 7 incorporates this principle and recognises an agreement, either in the form of an arbitration clause in the contract or in the form of a separate agreement.

10. Section 7(3) mandates that an arbitration agreement shall be in writing, meaning that the arbitration agreement must be in express terms. Subsequently, Section 7(4) declares that an arbitration agreement “is in writing” if it is contained in: (a) a document signed by the parties; (b) exchange of correspondence that provides the record of the agreement; and (c) admission in the proceedings, i.e., the statement of claim and defence. It is evident from the deliberate language of Section 7 that the arbitration agreement must be in a written form, in contradistinction to an oral agreement, and at the same time, that it is not necessary for it to be signed by the parties.18 A signed document containing the arbitration agreement is only one of the written forms, where the signature of the party is absolute proof for the existence and privity of the contract.

11. Section 7 therefore comprehensively defines what an arbitration agreement is and also from where it is to be identified. The referral court under Sections 8, 11 or 45 of the Act, or the arbitral tribunal, is the forum that identifies and deciphers the existence of an arbitration agreement and its parties. The real question, however, is how must the court or tribunal make this determination, particularly when a non-signatory seeks to initiate arbitration, or is sought to be made party by a signatory. Apart from the standard methods of drawing inferences by interpreting the express language employed in the agreement, what are the other external aids to assist the court or the arbitral tribunal in constructing the existence of the arbitration

697]; Gemini Bay Transcription Pvt Ltd v. Integrated Sales Service Ltd, (2022) 1 SCC 753, para 30 [2021 INSC 392]. 17 UNCITRAL Model Law on International Commercial Arbitration, 1985. 18 Jugal Kishore Rameshwardas v. Goolbai Hormusji, (1955) 2 SCR 857, para 7 [1955 INSC 22]; Caravel Shipping Services (P) Ltd v. Premier Sea Foods Exim (P) Ltd, (2019) 11 SCC 461, para 8 [2018 INSC 1008].

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agreement with the non-signatory, is the question that we are called upon to answer. ii. Section 7(4)(b)

12. An arbitration agreement with non-signatories is to be inferred from the record of the agreement consisting the exchange of correspondence such as letters, telex, telegrams, and other telecommunication and electronic communication, wherein it “unequivocally and clearly emerge(s) that the parties were ad idem”.19 In Rickmers Verwaltung Gmbh v. Indian Oil Corporation Ltd,20 this Court referred to the role of courts while considering the existence of an arbitration agreement as under: “12. …The question, however, is: can any agreement be spelt out from the correspondence between the parties in the instant case?

13. In this connection the cardinal principle to remember is that it is the duty of the court to construe correspondence with a view to arrive at a conclusion whether there was any meeting of mind between the parties, which could create a binding contract between them but the court is not empowered to create a contract for the parties by going outside the clear language used in the correspondence, except insofar as there are some appropriate implications of law to be drawn. Unless from the correspondence, it can unequivocally and clearly emerge that the parties were ad idem to the terms, it cannot be said that an agreement had come into existence between them through correspondence. The court is required to review what the parties wrote and how they acted and from that material to infer whether the intention as expressed in the correspondence was to bring into existence a mutually binding contract. The intention of the parties is to be gathered only from the expressions used in the correspondence and the meaning it conveys and in case it shows that there had been meeting of mind between the parties and they had actually reached an agreement upon all material terms, then and then alone can it be said that a binding contract was capable of being spelt out from the correspondence.

19 Rickmers Verwaltung Gmbh v. Indian Oil Corporation Ltd, (1999) 1 SCC 1, para 13 [1998 INSC 436]. 20 ibid; also see MTNL v. Canara Bank, (2020) 12 SCC 767, para 9.3 [2019 INSC 881].

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14. From a careful perusal of the entire correspondence on the record, we are of the opinion that no concluded bargain had been reached between the parties as the terms of the standby letter of credit and performance guarantee were not accepted by the respective parties. In the absence of acceptance of the standby letter of credit and performance guarantee by the parties, no enforceable agreement could be said to have come into existence. The correspondence exchanged between the parties shows that there is nothing expressly agreed between the parties and no concluded enforceable and binding agreement came into existence between them. Apart from the correspondence relied upon by the learned Single Judge of the High Court, the fax messages exchanged between the parties, referred to above, go to show that the parties were only negotiating and had not arrived at any agreement. There is a vast difference between negotiating a bargain and entering into a binding contract. After negotiation of bargain in the present case, the stage never reached when the negotiations were completed giving rise to a binding contract…” Further in Babanrao Rajaram Pund v. Samarth Builders and Developers,21 this Court held: “29. It is thus imperative upon the courts to give greater emphasis to the substance of the clause, predicated upon the evident intent and objectives of the parties to choose a specific form of dispute resolution to manage conflicts between them. The intention of the parties that flows from the substance of the agreement to resolve their dispute by arbitration are to be given due weightage. It is crystal clear to us that Clause 18, in this case, contemplates a binding reference to arbitration between the parties and it ought to have been given full effect by the High Court.” The parties must mutually intend to refer their differences to arbitration as consent is the source of the arbitral tribunal’s jurisdiction over them. 22

21 (2022) 9 SCC 691 [2022 INSC 935]. 22 KK Modi v. KN Modi, (1998) 3 SCC 573, para 17 [1998 INSC 63]; Bihar State Mineral Development Corporation v. Encon Builders (I) Pvt Ltd, (2003) 7 SCC 418, para 13 [2003 INSC 409].

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13. The settled jurisprudence under Section 7(4)(b) is that the non- signatory’s consent to an arbitration agreement can be made out from its conduct by way of exchange of letters, telegrams and other forms of written communication.23 These correspondences constitute the written record of the agreement. In Smita Conductors v. Euro Alloys,24 this Court was tasked with determining whether certain correspondences by the appellant therein, that were not addressed to the respondent, showed the appellant’s consent to arbitration as per the Article II(2) of the New York Convention, under the Foreign Awards (Recognition and Enforcement) Act, 1961. The Court noted that the contracts containing the arbitration clause were not signed by the appellant, nor were there any letters or telegrams between the appellant and respondent where the appellant expressly assented to these contracts. Rather, it relied on correspondences by the appellant to a bank where it acted in pursuance of the terms of the contract, as providing a record of the arbitration agreement.25 Therefore, even in the absence of a signature, the non-signatory’s consent to arbitration can be gathered from its written correspondence (even with third parties) that shows its conduct pursuant to the contract containing the arbitration agreement.

14. This principle has been consistently applied by the Court to determine whether the non-signatory is a party to an arbitration agreement in accordance with Section 7(4)(b).26 Our courts and tribunals have suffi ciently developed the interpretive tools to determine the intention of the parties to refer disputes to arbitration by construing the express language in the correspondence. It has also been held that once the terms of the contract show that there is an intention to refer disputes to arbitration, parties cannot “wriggle out” of the arbitration agreement. 27

23 Shakti Bhog Foods v. Kola Shipping Ltd, (2009) 2 SCC 134, para 17 [2008 INSC 1081]. 24 (2001) 7 SCC 728 [2001 INSC 417]. 25 ibid, paras 6-7. 26 Unissi (India) Pvt Ltd v. Post Graduate Institute of Medical Education and Research, (2009) 1 SCC 107 [2008 INSC 1111]; Powertech World Wide Ltd v. Delvin international General Trading LLC, (2012) 1 SCC 361 [2011 INSC 799]; Govind Rubber v. Louids Dreyfus Commodities Asia Pvt Ltd, (2015) 13 SCC 477 [2014 INSC 1042]. 27 Unissi (India) (supra), paras 16-19; Govind Rubber (supra), paras 21-22.

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15. Having considered the statutory scheme and also the consistent approach of this Court in interpreting and construing the existence or lack of intention to arbitrate, the following principle can be restated: i. An arbitration agreement is a contract. It must meet the requirements of an agreement enforceable by law under the Indian Contract Act, 1872.28 ii. Section 7(2) of the Arbitration and Conciliation Act, 1996 recognises the existence of an arbitration agreement in substance, rather than in form.29 The agreement may be in the form of an arbitration clause in a contract or it may be in the form of a separate agreement. iii. Section 7(3) mandates that the arbitration agreement shall be in writing, as against an oral agreement. However, the written form of the document evidencing the agreement need not be signed by the parties.30 iv. ‘Party’ is defined in Section 2(1)(h) as “a party to an arbitration agreement”. The determination of the arbitration agreement and its parties are inextricably connected with one another, their existence is based on the written agreement. v. If the arbitration agreement is evidenced in the written form as contained in a document signed by the parties (Section 7(4)(a)), the parties to the agreement are evidently those who have signed the agreement. vi. If the arbitration agreement is evidenced in the written form as contained as admissions in pleadings comprising statements of claim and defence (Section 7(4)(c)), parties to this agreement would be evident from the statements of claim and defence and the admissions made therein.

28 Vidya Drolia (supra), para 21. 29 Nimet Resources Inc v. Essar Steels Ltd, (2000) 7 SCC 497, para 5; Babanrao Rajaram Pund (supra), paras 15 and 29. 30 Jugal Kishore Rameshwardas (supra), para 7; Rickmers Verwaltung Gmbh (supra), para 12; Shakti Bhog Foods Ltd (supra), para 17; Caravel Shipping Services (P) Ltd (supra), para 8.

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vii. The arbitration agreement may also be in writing if it is contained in the record of the agreement comprising exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means (Section 7(4)(b)). In these instances, parties to the agreement as well as the existence of the arbitration agreement is a matter of interpretation and construction by the referral court or arbitral tribunal. The inquiry under Section 7(4)(b) is to determine whether there exists an agreement for referring the matter to arbitration, and who are the parties to such an agreement. viii. The referral court or the arbitral tribunal, while considering the claim of a non-signatory for reference, or the objection of a non- signatory to the inclusion in an arbitration, will primarily examine the record of agreement under Section 7(4)(b) and consider the express language employed by the parties. ix. Once the express terms are ascertained,31 their meaning is a matter of construction by the court or arbitral tribunal. The object of such construction is to discover the intention of the parties. 32 Intention must always be ascertained through the words actually used, for there is no intention independent of the language employed by the parties. x. For the purpose of ascertaining the true meaning of the express words, the court or tribunal may also look into the surrounding circumstances such as the nature and object of the contract, 33 and conduct of the parties during the formation, implementation, and discharge of the contract.34 Trade practices also assume importance

31 Rickmers Verwaltung Gmbh (supra), para 13; MTNL v. Canara Bank (supra), para 9.3. 32 Bangalore Electricity Supply Company Ltd (BESCOM) v. E.S. Solar Power Pvt Ltd (2021) 6 SCC 718, paras 16 and 17; Food Corporation of India v. Abhijit Paul 2022 SCC OnLine SC 1605, para 27 [2022 INSC 1216]; Lewison, The Interpretation of Contracts (6th edn, Sweet and Maxwell 2016) para 2.01, 27. 33 Bank of India v. K. Mohandas (2009) 5 SCC 313, para 28 [2009 INSC 417]. 34 Godhra Electricity Co Ltd v. State of Gujarat (1975) 1 SCC 199, paras 11, 16 [1974 INSC 174]; McDermott International Inc v. Burn Standard Co Ltd (2006) 11 SCC 181, para 112 [2006 INSC 326].

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in determining the meaning of the language employed by the parties.35 While interpreting the contract, courts or tribunals adopt well-established principles of construction. These principles are in the nature of guidelines for the court to presume the intention of the parties. xi. As the arbitration agreement is confined to a written document contained in the material specified in Section 7(4)(b) and the interpretation and construction is based on its text, Sections 91 and 92 of the Indian Evidence Act, 1872 disable adducing of oral evidence.36 This is necessary to prevent a referral proceeding from being converted into a full-fledged trial. If the arbitration agreement cannot be deduced from the record of agreement as provided in Section 7(4)(b), the inquiry must conclude. This approach is in consonance with the requirement of a written agreement and also subserves the important policy consideration as surmised in Section 5 of the Act.

16. It is in the context of the above referred legal regime, statutory as well as precedential, that we need to consider the questions referred to this Constitution Bench – whether the Group of Companies Doctrine is part of Indian arbitration jurisprudence and whether it has any statutory basis. C. Group of Companies Doctrine i. International Perspectives

17. I am in complete agreement with the opinion of the learned Chief Justice, who has in his scholarly exposition considered this matter in great detail. He has examined the precedents on the applicability of the doctrine in France, England, Switzerland, and the USA.

18. The Group of Companies Doctrine was formulated and initially applied by international arbitral tribunals to determine whether a person who has not formally signed an arbitration agreement can be made party to it. It is one of the various legal theories used to determine whether a

35 ONGC v. Saw Pipes Ltd (2003) 5 SCC 705, para 13 [2003 INSC 241]. 36 See Roop Kumar v. Mohan Thedani (2003) 6 SCC 595, paras 13, 16-18 [2003 INSC 206].

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non-signatory is a party to the arbitration agreement. Before we proceed to the doctrine itself, it may be relevant for us to briefly set out the other legal bases, so as to locate the doctrine in the broader jurisprudence on non-signatories being a party.

19. The legal bases for making a non-signatory a party can be classified as consensual and non-consensual. The consensual theories that are focused on determining the mutual intent of the parties include agency, implied consent, and assignment and transfer of contractual rights, and the non- consensual theories that are based on equity considerations include alter ego/ piercing the corporate veil, estoppel, succession, and apparent authority.37 The formulation of these principles, whether consensual or non-consensual, is not new. They are derived from general principles of contractual law and corporate law.38

20. The Group of Companies doctrine was formulated and theorised exclusively in international arbitration jurisprudence to specifically determine whether a company which is a non-signatory is party to the arbitration agreement. Gary Born clarifies that this principle is not evoked outside the context of arbitration.39

21. With this background, I will now discuss the doctrine along with other considerations and legal tests that guide its application.

22. The doctrine was first developed by a French arbitral tribunal in an interim award by the International Chamber of Commerce in Dow Chemical v. Isover Saint Gobain.40 In this case, Dow Chemical A.G. and Dow Chemical Europe (fully-owned subsidiaries of Dow Chemical Company (USA)) were signatories to two separate agreements containing arbitration clauses with Isover Saint Gobain. Dow Chemical France, a non-signatory to these agreements but a member of the Dow group, effectuated the deliveries under these agreements. When disputes arose and Isover instituted suits in the French courts against all four Dow companies, both the signatory and

37 Gary Born, International Commercial Arbitration, vol 1 (3rd edn, Kluwer Law International 2021) 1531. 38 ibid 1525. 39 ibid 1559. 40 ICC Case No. 4131, 23 September 1982.

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the non-signatory Dow companies instituted arbitral proceedings. Isover objected to the arbitral tribunal’s jurisdiction to render an award with respect to Dow Chemical France and Dow Chemical Company (USA), as they were non-signatories. On the other hand, the non-signatory companies argued that they can invoke arbitration due to their involvement in the conclusion and performance of these contracts, and by virtue of them being in the same group of companies.

23. The Arbitral Tribunal applied French law to determine whether the non-signatories are parties “by reference to the common intent of the parties to these proceedings, such as it appears from the circumstances that surround the conclusion and characterize the performance and later the termination of the contracts in which they appear”. It held that Dow Chemical France and Dow Chemical Company (USA) were central to the negotiation and conclusion of both contracts. Further, they were also involved in the performance of the contracts and their subsequent termination since Dow Chemical France effected the deliveries and Dow Chemical Company (USA) owned the trademarks for the goods and also exercised absolute control over its subsidiaries. Relying on these facts, the Tribunal concluded that both companies participated in the conclusion, performance, and termination of the contracts. It held: “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 réalité 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.”41

41 ibid.

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24. From the above extracts, it is clear that membership in the same group of companies or “same economic reality” were neither the sole nor the guiding factors to hold that the non-signatory companies were parties. Rather, the Tribunal’s emphasis was on the mutual intent of the parties, gathered from their conduct in the conclusion, performance, and termination of the contracts.42

25. The subsequent exposition and application of the doctrine by French arbitral tribunals and courts also largely reflects a focus on mutual intent, rather than mere membership in the same group, which has been held to be insufficient in and of itself to make the non-signatory a party.43 In Dallah Real Estate and Tourism Holding Co. v. Ministry of Religious Affairs, Government of Pakistan, the Paris Court of Appeal enforced the arbitral award against the Pakistan government (non-signatory) as its conduct through involvement in the negotiation and performance of the contract reflected common will to be a party to the arbitration.44 Common will must be ascertained according to the principles of good faith (parties must not be allowed to evade commitments) and effectiveness (when parties insert an arbitration clause, it must be presumed that their intent is to be governed by the arbitration).45

26. The focus on mutual intention reflects a fundamental difference between the Group of Companies doctrine and ‘piercing the veil’ or alter ego. In veil-piercing, the separate legal identities of the parent and subsidiary companies are disregarded or nullified on equity and fairness considerations (such as to prevent fraud). Application of the Group of Companies doctrine does not result in lifting the corporate veil, and is rather based on identifying the mutual intention of the parties.46

27. The doctrine has not been accepted in the same terms across the world.

42 Also see Born (supra) 1561; Bernard Hanotiau, ‘Chapter 14: Group of Companies in International Arbitration’ in Loukas A. Mistelis and Julian D.M. Lew (ed), Pervasive Problems in International Arbitration, vol 15 (Kluwer Law International 2006), 286. 43 Born (supra) 1562-1563. 44 Case No. 9-28533, dated 17 February 2011 (Paris Cour d’Appel). 45 Malakoff Corporation Berhad and TLEMCEN Desalination Investment Company v. Algerian Energy Company SA and Hyflux Limited, Case No. 21-07296, dated 13 June 2023 (Paris Cour d’Appel). 46 Born (supra) 1563.

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28. In UK, in Peterson Farms Inc v. C&M Farming Ltd,47 the Court rejected the applicability of the doctrine in English law. The separate legal identities of the parent and subsidiary companies is held to be a fundamental legal tenet.48 In the Dallah case, the UK Supreme Court differed from the Paris Court of Appeal on enforcing the arbitral award against the Government of Pakistan (non-signatory). Even after applying French law to determine when a non-signatory is a party, based on the material before it, the Court held there was no mutual intention in this case to make the Government of Pakistan a party.49 Similarly, in Kabab-Ji SAL (Lebanon) v. Kout Food Group (Kuwait),50 the UK Supreme Court did not enforce the arbitral award against the non-signatory company as there was no material to show that it was a party as per the terms of the contract.

29. Similarly, Singapore courts have also rejected the applicability of the Group of Companies doctrine by emphasising the fundamental corporate law principle of separate legal identities.51

30. Swiss courts, on the other hand, have allowed for non-signatories to be made party to the arbitration agreement based on their conduct, manifesting implied consent. The Swiss Federal Court has held that an arbitration agreement must itself be in writing as per Article 178 of the Swiss Private International Law Act. However, the question of whether a non- signatory is a party to such written arbitration agreement can be determined by reference to its involvement in the preparation and performance of the contract containing the arbitration clause, which reflects its intent to be party to such arbitration agreement.52

31. American courts also do not expressly rely on the Group of Companies doctrine to determine whether a non-signatory is a party. Rather, they use principles such as equitable estoppel, assumption, piercing the

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corporate veil, alter ego, and waiver.53 In the recent decision in GE Energy Power Conversion v. Outokumpu Stainless, the US Supreme Court relied on equitable estoppel to hold that a non-signatory can compel arbitration where a signatory is relying on terms of the contract to make its claim against the non-signatory.54 American courts have also relied on implied consent,55 third party beneficiary,56 and general contractual and agency law principles to hold that a non-signatory is a party.57

32. This comparative perspective makes it clear that a determination of parties to an arbitration agreement that is based on mutual intention can take place without reference to whether the non-signatory is a part of the group of companies. In fact, Bernard Hanotiau, an international arbitration scholar, argues that the award in Dow Chemical has been misinterpreted to give rise to the Group of Companies doctrine. Rather, he emphasises that the real implication of Dow is that it enables us to determine whether a non- signatory is a party by reference to its conduct that reflects its consent. In this light, he argues that any reference to a group of companies is unnecessary as membership within the same group is not a determinative factor in the inquiry of who is a party to the arbitration agreement. 58

33. The conclusions from the above analysis can be succinctly put forth as follows: i. Various jurisdictions use both consensual and non-consensual legal principles to determine whether a non-signatory is a party to an arbitration agreement.59 ii. The Group of Companies doctrine is applied irrespective of the distinct juridical identities of each member of the group when

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they share a common economic reality by virtue of their role in the formation, performance, and termination of the contract. The principle is based on mutual intention of all the parties to settle the dispute through arbitration.60 iii. The acceptance of the doctrine is highly contested across jurisdictions. The doctrine was developed in France and is applied there by emphasising mutual consent of the signatory and non-signatory companies.61 iv. On the other hand, countries like the United Kingdom62 and Singapore63 have expressly rejected the doctrine and have emphasised the fundamentality of separate legal personalities of members within the same group. v. Some jurisdictions, such as Switzerland64 and the USA,65 have not accepted the Group of Companies doctrine in those terms. However, they invoke other legal principles to hold a non- signatory to be a party to the arbitration agreement (such as conduct, implied consent, contractual and agency principles). vi. American courts also solely rely on equity considerations (non- consensual) to hold a non-signatory to be party, such as when they apply equitable estoppel and veil piercing/alter ego.66 ii. Indian Precedents on the Group of Companies Doctrine

34. I will now consider the application of the Group of Companies doctrine by our courts and formulate principles that arise from the precedents.

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35. I am in agreement with the detailed analysis of the Indian case-law on this doctrine by the learned Chief Justice. The position of law in India can broadly be divided as it existed before and after the decision in Chloro Controls (supra). I have already referred to the decisions interpreting and applying Section 7(4)(b) in Part B(ii) of my opinion. The decisions cited therein recognise the possibility of a non-signatory company being a party to the arbitration. I have also referred to the reasoning in those decisions where the Court has examined the record of the agreement and constructed the existence of an arbitration agreement based on the express language, coupled with the consent of the parties.

36. Two decisions of this Court which preceded Chloro Controls (supra), namely, Sukanya Holdings67 and Indowind Energy68 were based on a strict interpretation of Section 7 and considered that parties to an agreement are limited to its signatories.

37. There was a definitive shift in this position from the case of Chloro Controls v. Severen Trent (supra). Arising out of the conspectus of a multi- party multi-contractual dispute, a petition for reference to arbitration under Section 45 of the Act was filed in a suit, despite asymmetry in the parties to the contracts and the parties to the arbitration agreement. Interpreting the words and phrases “any person”, “claiming through or under”, and “shall” in Section 45 of the Court, this Court enlarged the scope of reference for the first time, to bind non-signatories.

38. It noted that if a claim is made against or by someone who is not originally a signatory to an arbitration agreement, the Group of Companies doctrine can bind the “non-signatory affiliates or sister or parent concerns” to arbitration, “if the circumstances demonstrate that the mutual intention of all the parties was to bind both the signatories and the non-signatory affiliates.”69 The Court noted in the following words: “72. 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

67 SukanRya Holdings v. Jayesh H Pandya (2003) 5 SCC 531 [2003 INSC 230]. 68 Indowind Energy Ltd v. Wescare (India) Ltd (2010) 5 SCC 306 [2010 INSC 246]. 69 Chloro Controls (supra), para 71.

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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.

73. A non-signatory or third party could be subjected to arbitration without their prior consent, but this would only be in exceptional cases. The court will examine these exceptions from the touchstone of direct relationship to the party signatory to the arbitration agreement, direct commonality of the subject-matter and the agreement between the parties being a composite transaction. The transaction should be of a composite nature where performance of the mother agreement may not be feasible without aid, execution and performance of the supplementary or ancillary agreements, for achieving the common object and collectively having bearing on the dispute...” (emphasis supplied)

39. In his opinion, the learned Chief Justice has considered the concern of Justice Surya Kant about an apparent contradiction between the above-referred paragraphs 72 and 73, and has correctly reconciled the two paragraphs. I am in agreement with the same.

40. In this context, it is critical to emphasize that the Court in Chloro Controls was interpreting Section 45, in Part II of the Act, in particular, the phrase “claiming through or under”. The conclusion to include non- signatories to the arbitration agreement pivoted on their derivative claim to being a party to the arbitration agreement. The Group of Companies doctrine thus found recognition in the interpretation of the phrases of Section 45 of the Act. Further, for the derivative action to pass muster, “a clear intention” of the signatories and non-signatories had to be ascertained, through the circumstances delineated by the Court, i.e., i) direct relationship with the party to the agreement, ii) commonality of subject matter, iii) composite nature of transaction, and iv) interlinked performance of the contract.

41. In 2015, the Law Commission of India’s 246th Report acknowledged this interpretation of Section 45 to the Act. In the pursuant amendments, Section 8 in Part I of the Act was amended to mirror the language of Section

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45;70 thus, parties in domestic arbitrations could also petition for reference to arbitration in a derivative capacity.

42. We will now examine the application of the Group of Companies doctrine in the subsequent cases. In Duro Felguera, S.A. v. Gangavaram Port Ltd,71 the application of the doctrine as recognised in Chloro Controls (supra) was not applied on the facts of that case.

43. Until now, the precedents pertained to situations where the parties invoked the pre-referral jurisdiction of the courts. In Cheran Properties Ltd v. Kasturi and Sons Ltd,72 the Court was approached at the enforcement stage.73 The Court allowed the enforcement of an arbitral award against a subsequent purchaser of shares under Section 35 of the Act, interpreting the phrase “persons claiming under them”. However, expositions pertaining to the Group of Companies doctrine were observed in the judgment, in response to certain arguments advanced before the Court. In that context, the Court made the following observations: “23. 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.

70 The amended Section 8(1) of Arbitration and Conciliation Act 1996 reads as under: “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.” 71 (2017) 9 SCC 729 [2017 INSC 1026]. 72 (2018) 16 SCC 413 [2018 INSC 394]. 73 The respondent sold shares of its subsidiary company to one K.C. Palanisamy, who undertook to discharge the outstanding liabilities of this company. Clause 14 of this agreement recognised the right of K.C. Palanisamy to sell or transfer his holdings in the company to any other person of his choice, provided that transferee accepts the terms of the agreement regarding the management and financial aspects of the company. This agreement also contained an arbitration clause. K.C. Palaniswamy nominated the appellant to receive 95% of the shares that were to be transferred to him. Subsequently, disputes arose and an arbitral tribunal directed him to return the share certificates and title documents. The appellant was made party to the proceedings filed by the respondents to enforce the arbitral award.

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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.”74

44. The Court did not rely on the Group of Companies doctrine. Yet, Cheran (supra) is an important case to demonstrate that a non- signatory company can be determined to be a party to an arbitration agreement, based on factors such as relationship of the non-signatory with the signatory parties, commonality of subject-matter, and composite nature of transaction. It is also possible for the court to construct such an agreement where the intention of a business arrangement is apparent and the non-signatories have bound themselves by their conduct to fulfill such business arrangement.

45. The subsequent decision in Ameet Lalchand Shah v. Rishabh Enterprises75 is yet another instance where this Court has allowed a non- signatory to be party to an arbitration agreement, in connected contracts, on the ground of business efficacy, noting that all agreements were executed for a single commercial project. This approach was noted in the subsequent decision of Discovery Enterprises,76 where learned Chief Justice has noted:

74 ibid, para 23. 75 (2018) 15 SCC 678 [2018 INSC 450]. 76 ONGC v. Discovery Enterprises Pvt Ltd (2022) 8 SCC 42 [2022 INSC 483].

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“In Ameet Lalchand, the Court did not explicitly invoke the group of companies doctrine to bind a non-signatory, rather it relied on Chloro Controls to hold that a non-signatory would be bound by the arbitration clause in the mother agreement, since it is a party to an inter-connected agreement, executed to achieve a common commercial goal.”77 (emphasis supplied)

46. In Reckitt Benckiser (India) Pvt Ltd v. Reynders Label Printing India Pvt Ltd,78 the Court inferred that since the non-signatory neither signed the arbitration agreement nor had any causal connection with the negotiation or execution of the agreement, an intent to consent to the arbitration agreement could not be discerned. Hence, the non-signatory was not bound by the arbitration agreement. 79 Thus, in Reckitt, the Court reverted to the approach of ascertaining mutual intention of the parties for applying the doctrine, although it did not result in the non-signatory being made a party to the arbitration.

47. MTNL v. Canara Bank80 is the decision which acknowledged the Group of Companies doctrine, formulated its principles, and applied them to the proceedings by recognising CANFINA, a non-signatory, to be party to the arbitration agreement. The Court held: “10.5. 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

77 ibid, para 28. 78 (2019) 7 SCC 62 [2019 INSC 700]. 79 ibid, para 12. 80 (2020) 12 SCC 767 [2019 INSC 881].

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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. 10.6. 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 interlinked 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. 10.7. The group of companies doctrine has also been invoked in cases where there is a tight group structure with strong organisational 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 restructure other members of the group.”

48. Finally, in ONGC v. Discovery Enterprises Pvt Ltd,81 while the decision on whether the non-signatory was a party was remitted to the arbitral tribunal, the Court undertook a comprehensive review of the academic literature and judicial pronouncements on the issue. The court compendiously concluded the following: “40. 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;

81 Discovery Enterprises (supra).

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(iii) The commonality of the subject-matter; (iv) The composite nature of the transaction; and (v) The performance of the contract.

41. Consent and party autonomy are undergirded in Section 7 of the 1996 Act. However, a non-signatory may be held to be bound on a consensual theory, founded on agency and assignment or on a non- consensual basis such as estoppel or alter ego...”

49. What emerges from the aforementioned precedents is that: i. The Group of Companies doctrine was adopted and applied in Indian arbitration jurisprudence in Chloro Controls (supra), where the Court read the doctrine into the phrase “claiming through or under” in Section 45. It held that a non-signatory affiliate or sister or parent company can be a party to an arbitration agreement if there is mutual intention of the signatories and non-signatories to this effect. In order to determine mutual intention, the Court laid down factors such as direct relationship, direct commonality of subject-matter, and a composite transaction where the performance of multiple agreements is inextricably connected.82 ii. Pursuant to the 2015 Amendment of Section 8, the Court made a composite reference of signatories and non-signatories to arbitration by emphasising that all agreements were executed for a single commercial project,83 but without explicitly referring to the Group of Companies doctrine.84 iii. Subsequently, this Court relied on mutual intention as the test for the doctrine. However, it deviated from Chloro (supra) by prescribing the non-signatory’s causal connection with the negotiation and execution of the contract as factors to determine its mutual intent to arbitrate.85

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 741 [PAMIDIGHANTAM SRI NARASIMHA, J.]

iv. In MTNL (supra), the Court summarised the test under the doctrine as being based on the common intention of the parties to bind both signatory and non-signatory members of the group of companies. Such common intention can be inferred from the non-signatory’s involvement in negotiation and performance of the contract (similar to Reckitt Benckiser (supra)), or from its statements that indicate its intention to be a party.86 Simultaneously, the Court also referred to the test in Chloro Controls (supra) for determining mutual intention.87 Lastly, the Court held the doctrine to be applicable when there is a tight group structure or single economic reality, without any reference to the intention of the parties.88 However, the Court ultimately relied on implied or tacit consent by the non-signatory, evidenced by its conduct, to hold that it is a party.89 v. In Discovery (supra), the Court comprehensively reviewed the above cases and ironed out the various tests formulated in them. It held that (a) mutual intent of the parties, (b) relationship of the non-signatory to the signatory, (c) commonality of subject-matter, (d) composite nature of transaction, and (e) performance of the contract, are the factors to determine whether the non-signatory is a party.90 These factors emphasise mutual intention and draw from the tests laid down in Chloro Controls and Reckitt Benckiser but do not include the test of single economic reality as a determinative factor, as held in MTNL (supra).

50. At this juncture, it is necessary to clarify and answer a common question referred for our consideration, i.e., whether the Group of Companies doctrine is anchored in Sections 8 and 45 of the Act. The expression “claiming through or under” employed in Sections 8 and 45 is concerned with instances of succession and derivative rights. Learned Chief Justice has dealt with this aspect in great detail in Part F (i) and (ii) of his opinion

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and held that the doctrine cannot be anchored in Sections 8 and 45 and to this extent, Chloro Controls (supra) is wrongly decided. I am in complete agreement with his reasons and findings. D. Group of Companies Doctrine in the Context of Section 7

51. In this reference, we are tasked to determine whether the Group of Companies doctrine is in accord with the statutory regime of the Arbitration and Conciliation Act, 1996, defining an arbitration agreement and parties thereto. The adaptation of the doctrine has been doubted, and that is the reason for this reference. While dealing with the international perspective on the doctrine in Part C(i) of my opinion, it was noticed that the doctrine could not attain any conceptual singularity, and it remains contested. Perhaps, this is for two reasons: first, the expression ‘single economic reality’ employed in Dow (supra) is not in line with the concept of separate legal personality of a company, and second, the doctrine is applied for determining the intention of the parties, which is completely fact-based. For these reasons, the doctrine has remained dynamic, if not uncertain, and is subject to many qualifications and exceptions. At the same time, there are certain advantages to adopting the doctrine, considering modern business practices. I am of the opinion that it is necessary to entrench the doctrine within the statutory regime of the Act, to enable a court or arbitral tribunal to apply it as a principle to decipher the intention of the parties. I find it necessary to subsume the doctrine of Group of Companies within the judicial process under Section 7(4)(b), where a court or arbitral tribunal is called upon to determine the existence of an arbitration agreement and parties to it.

52. A conjoint reading of Section 9 of the Code of Civil Procedure and Section 28 of the Indian Contract Act informs us that the jurisdiction of an arbitral tribunal to settle disputes between the parties, to the exclusion of ordinary civil courts, must arise out of a contract to arbitrate between them. An arbitration agreement, being a contract, must necessarily be in writing, as against an oral agreement, but need not be signed by the parties. The written arbitration agreement can be in the form of a document signed by the parties, or be evidenced in the record of agreement. Section 7(4)(b) prescribes the written material from which a non-signatory’s consent and intention can be deciphered by a court or arbitral tribunal.

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 743 [PAMIDIGHANTAM SRI NARASIMHA, J.]

53. The existence of an arbitration agreement with a non-signatory is a matter of interpretation and construction. The express words employed by the parties enable the court to ascertain the intention of the parties and their agreement to resolve disputes through arbitration. For ascertaining the true meaning of the express words, the court or tribunal may look into the surrounding circumstances such as nature and object of the contract and the conduct of the parties during the formation, performance, and discharge of the contract. While interpreting and constructing the contract, courts or tribunals may adopt well-established principles, which aid and assist proper adjudication and determination. The Group of Companies doctrine is one such principle. It may be adopted by courts or arbitral tribunals while interpreting the record of agreement to determine whether the non-signatory company is a party to it.

54. Although the application of the Group of Companies doctrine in India has until now been independent of Section 7, its juxtaposition with Section 7(4)(b) case-law shows that the inquiry under both is premised on determining the mutual intention of parties to submit to arbitration. The mutual intention of the parties is discernible from their conduct in the performance of the contract and this inquiry is common to Section 7(4)(b) jurisprudence and the Group of Companies doctrine. Even the precedents on the doctrine, national and international, look to additional factors beyond the non-signatory being in the same group of companies, such as commonality of subject-matter, composite nature of transaction, and interdependence of the performance of the contracts to determine mutual intent.

55. Since the fundamental issue before the court or tribunal under Section 7(4)(b) and the Group of Companies doctrine is the same, the doctrine can be subsumed within Section 7(4)(b). Consequently, the record of agreement that evidences conduct of the non-signatory in the formation, performance, and termination of the contract and surrounding circumstances such as its direct relationship with the signatory parties, commonality of subject-matter, and composite nature of transaction, must be comprehensively used to ascertain the existence of the arbitration agreement with the non-signatory. In this inquiry, the fact of a non-signatory being a part of the same group of companies will strengthen its conclusion. In this light, there is no difficulty in applying the Group of Companies doctrine as it would be statutorily anchored in Section 7 of the Act.

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E. Conclusion

56. In view of the above, while concurring with the judgment of the learned Chief Justice, my conclusions are as follows: I. An agreement to refer disputes to arbitration must be in a written form, as against an oral agreement, but need not be signed by the parties. Under Section 7(4)(b), a court or arbitral tribunal will determine whether a non-signatory is a party to an arbitration agreement by interpreting the express language employed by the parties in the record of agreement, coupled with surrounding circumstances of the formation, performance, and discharge of the contract. While interpreting and constructing the contract, courts or tribunals may adopt well-established principles, which aid and assist proper adjudication and determination. The Group of Companies doctrine is one such principle. II. The Group of Companies doctrine 91 is also premised on ascertaining the intention of the non-signatory to be party to an arbitration agreement. The doctrine requires the intention to be gathered from additional factors such as direct relationship with the signatory parties, commonality of subject-matter, composite nature of the transaction, and performance of the contract. III. Since the purpose of inquiry by a court or arbitral tribunal under Section 7(4)(b) and the Group of Companies doctrine is the same, the doctrine can be subsumed within Section 7(4)(b) to enable a court or arbitral tribunal to determine the true intention and consent of the non-signatory parties to refer the matter to arbitration. The doctrine is subsumed within the statutory regime of Section 7(4)(b) for the purpose of certainty and systematic development of law. IV. The expression “claiming through or under” in Sections 8 and 45 is intended to provide a derivative right; and it does not enable a non-signatory to become a party to the arbitration agreement. The decision in Chloro Controls (supra) tracing the Group

91 As delineated in para 40 of Discovery Enterprises (supra).

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 745 [PAMIDIGHANTAM SRI NARASIMHA, J.]

of Companies doctrine through the phrase “claiming through or under” in Sections 8 and 45 is erroneous. The expression ‘party’ in Section 2(1)(h) and Section 7 is distinct from “persons claiming through or under them”. This answers the remaining questions referred to the Constitution Bench.

Headnotes prepared by: Referred questions of law answered. Bibhuti Bhushan Bose