“Requirement of a written arbitration agreement does not mean that non-signatories will not be bound by it, provided there is a defined legal relationship between the signatories and the non-signatories and that the parties intended to be bound by it by the act of conduct,” it said.
New Delhi:
In a significant verdict, the Supreme Court Wednesday held that an arbitration agreement can be binding on non-signatory firms under the “group of companies” doctrine.
According to the doctrine, a firm which is not a signatory to an arbitration agreement between two parties can be held bound if such a company is part of the same group of companies which agreed to such a clause or agreement.
A five-judge Constitution bench headed by Chief Justice D Y Chandrachud made the rulings in its judgement on a plea filed by Cox and Kings Ltd in a dispute arising out of arbitration agreement.
“The ‘group of companies’ doctrine must 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,” the bench said in its judgement.
Besides the CJI, Justices Hrishikesh Roy, PS Narasimha, JB Pardiwala and Manoj Misra were part of the bench which delivered the unanimous judgment.
The judgement said it was not necessary that only those who are signatories to an arbitration agreement are bound by it.
“Requirement of a written arbitration agreement does not mean that non-signatories will not be bound by it, provided there is a defined legal relationship between the signatories and the non-signatories and that the parties intended to be bound by it by the act of conduct,” it said.
Besides the CJI, Justice Narasimha wrote a concurring judgement in the matter.
The detailed verdict is awaited.
The case was referred to a larger bench in May 2022 by a three-judge bench headed by the then CJI, N V Ramana, saying that certain aspects of the ‘group of companies’ doctrine needed reconsideration.
The constitution bench dealt with certain questions including “whether the group of companies doctrine should be read into Section 8 of the Arbitration Act or whether it can exist in Indian jurisprudence independent of any statutory provision.”