COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR.

JUDGMENT / ORDER OF THE SUPREME COURT

JUDGMENT DR. DHANANJAYA Y CHANDRACHUD, CJI Table of Contents* A. The reference .............................................................................4 B. Submissions ...............................................................................7 C. Legal background ....................................................................16 i. India........ ..............................................................................16 a. Chloro Controls.................................................................20 b. Development of Law after Chloro Controls .....................24 ii. France – The Dow Chemicals case .....................................29 iii. Switzerland .........................................................................33 iv. England ..............................................................................34 v. Singapore .............................................................................37 vi. United States of America ....................................................38 D. Arbitration Agreement .............................................................41 i. Consent as the basis for arbitration ......................................41 ii. Parties to Arbitration Agreement .........................................45 E. Group of Companies Doctrine .................................................56 i. Separate legal personality .....................................................56 ii. Adopting a pragmatic approach to consent .........................61 iii. Group of companies doctrine – a fact based doctrine ........66 *Ed. Note: The pagination as per the original Judgment.

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iv. The determination of mutual intention ...............................70 v. Threshold standard ...............................................................80 F. The group of companies doctrine has independent existence ..............................................................................85 i. Party and Persons “claiming through or under” are different ..............................................................................88 ii. The approach adopted by this Court in Chloro Controls is Incorrect ................................................................92 iii. Power of the Courts to issue directions under Section....... ..............................................................................97 G. The standard of determination at the referral stage – Sections 8 and 11 .....................................................................98 H. Conclusions ...........................................................................104 A. The reference

1Copy pinpoint1. More than a century ago, James Joyce published Ulysses. Joyce experimented with the narrative technique by extensively using a stream of consciousness. In its modernist narrative technique, Ulysses is feted by literary critics and novelists as a literary masterpiece. Novelists such as Vladimir Nabokov and T S Elliot eulogized it as a divine work of art. However, others such as Virginia Woolf and Aldous Huxley criticized the novel for being technical and boring. Despite the varied criticism, the legacy of Ulysses endures particularly because its experimental narrative technique challenged the conventional literary style. Similar is the case of the group of companies doctrine – a modern theory which challenges the conventional notions of arbitration law. It is celebrated by some, reviled by many others. Yet, its legacy continues.

2Copy pinpoint2. Five judges of this Court are called upon to determine the validity of the ‘Group of Companies’ doctrine in the jurisprudence of Indian arbitration.

*Ed. Note: The pagination as per the original Judgment.

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 639 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

The doctrine provides that an arbitration agreement which is entered into by a company within a group of companies may bind non-signatory affiliates, if the circumstances are such as to demonstrate the mutual intention of the parties to bind both signatories and non-signatories. This doctrine is called into question purportedly on the ground that it interferes with the established legal principles such as party autonomy, privity of contract, and separate legal personality. The challenge before this Court is to figure out whether there can be a reconciliation between the group of companies doctrine and well settled legal principles of corporate law and contract law.

3Copy pinpoint3. A Bench of three Judges of this Court, while considering an application under Section 11(6) of the Arbitration Act and Conciliation 19961, sought to reexamine the validity of the group of companies doctrine in the Indian context on the ground that it is premised more on economic efficiency rather than law. The Bench of three judges (speaking through the majority opinion authored by Chief Justice N. V. Ramana (as he was then), and the concurring opinion by Justice Surya Kant) doubted the correctness of the application of the doctrine by the Indian courts.

4Copy pinpoint4. Chief Justice Ramana criticised the approach of a three-Judge Bench of this Court in Chloro Controls India (P) Ltd v. Severn Trent Water Purification Inc2 of relying upon the phrase “claiming through or under” in Section 45 of the Arbitration Act to adopt the group of companies doctrine. He noted that the subsequent decisions of this Court established the doctrine in Sections 8 and 35 without adequately examining the interpretation of the phrase “claiming through or under” appearing in those provisions. These decisions include: Cheran Properties Ltd v. Kasturi and Sons Ltd3, Mahanagar Telephone Nigam Ltd. v. Canara Bank4, and Oil and Natural Gas Corporation Ltd v. Discovery Enterprises Pvt. Ltd. 5 He also observed that economic concepts such as tight group structure and single economic unit alone cannot be utilized to bind a non-signatory to an arbitration agreement in the absence of an express consent. Consequently, he

1 “Arbitration Act” 2 (2013) 1 SCC 641 3 (2018) 16 SCC 413 4 (2020) 12 SCC 767 5 (2022) 8 SCC 42

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referred the matter to the larger Bench to seek clarity on the interpretation of the phrase “claiming through or under” appearing under Sections 8, 35, and 45 of the Arbitration Act by formulating the following two questions: a. Whether the phrase ‘claiming through or under’ in Sections 8 and 116 could be interpreted to include the ‘Group of Companies’ doctrine; and b. Whether the ‘Group of Companies’ doctrine as expounded by Chloro Controls Case (supra) and subsequent judgments is valid in law.

5Copy pinpoint5. In a concurring opinion, Justice Surya Kant observed that the decisions of this Court before Chloro Controls (supra), rendered in Sukanya Holdings (P) Ltd v. Jayesh H Pandya7 and Indowind Energy Ltd v. Wescare (I) Ltd,8 adopted a “rigid” and “restrictive” approach by placing undue emphasis on formal consent. Justice Surya Kant traced the evolution of the group of companies doctrine to observe it had gained a firm footing in Indian jurisprudence. However, he opined that that this Court adopted inconsistent approaches while applying the doctrine in India, which needed to be clarified by a larger Bench. Accordingly, he highlighted the following questions of law for determination by the larger Bench: 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 implied consent or intent to arbitrate between the parties; and

6 The reference to Section 11 seems inadvertent as the phrase “claiming through or under” is not found in the said provision. Rather, Section 11 ought to be read as Section 45 where the phrase “claiming through or under” appears. 7 (2003) 5 SCC 531 8 (2010) 5 SCC 306

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 641 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

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.

6Copy pinpoint6. We are not reproducing the factual matrix of the case, as we have been called upon to settle the broader legal issues raised in the reference. In the process, we will answer the above legal issues, as well as other ancillary issues that have been raised before us by counsel. B. Submissions

7Copy pinpoint7. Mr Hiroo Advani, learned counsel appearing for the petitioner in Arbitration Petition No. 38 of 2020, made the following submissions: a. The basis for the application of the group of companies doctrine is the tacit or implied consent by the non-signatory to be bound by the arbitration agreement; b. The definition of “party” under Section 2(1)(h) of the Arbitration Act cannot be restricted to the signatories to an arbitration agreement. The definition should be read expansively to also include non- signatories depending upon the facts and circumstances; c. Section 7 of the Arbitration Act provides that the defined legal relationship between the parties may be non-contractual as well. Moreover, Section 7(4)(b) indicates that a non-signatory could be bound by an arbitration agreement if in the course of a written communication, it has demonstrated an intention to be bound by the agreement; and d. The group of companies doctrine should ideally be applied by the arbitral tribunal. At the stage of referral, the court should merely take a prima facie view and leave it for the arbitral tribunal to determine the necessity of joining the non-signatories to the arbitration agreement.

8Copy pinpoint8. Mr Darius J Khambata, learned senior counsel appearing for the respondents in SLP (C) No. 8607 of 2022, made the following submissions: a. The applicability of the group of companies doctrine must be examined from the touchstone of whether a non-signatory could be

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made a party to the arbitration agreement. The expression “claiming through or under” a party cannot be the basis to apply the doctrine; b. The doctrine is a consensual theory premised on the existence of a dispute arising from a defined legal relationship and mutual intention of the parties to be bound by the arbitration agreement. The intention of the non-signatory has to be ascertained from the cumulative factors laid down in Chloro Controls (supra); c. The following requirements must be met for the application of the group of companies doctrine to bind the non-signatory as a “veritable” party to the arbitration agreement: i. mutual intention of all the parties, both signatories and non- signatories, to be bound by the arbitration agreement; ii. absolute and unqualified acceptance by the non-signatory party to the arbitration agreement; and iii. such acceptance must either be expressed or implied. In the context of a non-signatory, such acceptance will be implied and manifested in the negotiation, performance, or termination of the contract; d. Mutual consent of the parties to refer disputes arising out of their defined legal relationship to arbitration is the essential ingredient of an arbitration agreement. It would be against the concept of party autonomy to bind a non-signatory to an arbitration agreement without ascertaining their consent; e. The concept of “party” to an arbitration agreement is distinct from the concept of “person claiming through or under” a party. The latter expression conveys the notion of a derivative cause of action where the non-signatory steps into the shoes of the party rather than claiming an independent right under the agreement. The typical scenarios where a person claims through or under a party are assignment, subrogation, and novation; and f. Concepts such as ‘tight group structure’ and ‘single economic unit’ cannot be the sole basis to invoke the group of companies doctrine. This doctrine cannot be applied to bind a non-signatory

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 643 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

merely on account of it being under the ownership, control, or supervision of the signatory party;

9Copy pinpoint9. Dr A M Singhvi, learned senior counsel appearing for the interveners in IA No. 92757 of 2022, made the following submissions: a. The group of companies doctrine constitutes a true and genuine effectuation of the real intent of the parties to subject both the signatory and non-signatory parties to the arbitration agreement; b. The doctrine is a reasonable and natural extension of the principle of piercing the corporate veil. The application of the doctrine is also justified in affixing responsibility when the requisite and sufficient degree of common ownership and control exists; c. The intention of the parties cannot be the only basis to join a non- signatory party to an arbitration agreement. The court can also consider non-consensual doctrines such as piercing the corporate veil, alter ego, or tight group structure; and d. The Arbitration Act does not prohibit or inhibit the adoption of the group of companies doctrine in Indian arbitration jurisprudence. On the contrary, Section 7 of the Arbitration Act provides an expansive concept of an arbitration agreement. Moreover, the legislature specifically amended Section 8 of the Arbitration Act by inserting the words “any person claiming through or under” to recognize and codify the reality of non-signatories acting through or under the signatory parties.

10Copy pinpoint10. Mr Kapil Sibal, learned senior counsel appearing for the intervener in IA No. 56615 of 2023, made the following submissions: a. A non-signatory can be impleaded in an arbitration proceeding provided: (i) there is a defined legal relationship between the non- signatory and the parties to the arbitration agreement; and (ii) the non- signatory consented to be bound by the arbitration agreement in terms of Section 7 of the Arbitration Act; b. The onus to prove the intention of the non-signatory to be bound by the arbitration agreement lies on the party seeking to implead the non- signatory;

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c. In view of the requirement under Section 7 of the Arbitration Act, an arbitration agreement has to be in writing and there cannot be an oral agreement to arbitrate. Regardless, the intention of the non-signatory to be bound by the arbitration agreement can be gathered from conduct; d. Arbitration is in the realm of private law, and a matter of choice and intent of the parties. Therefore, factors such as economic convenience, justice, or equity cannot be grounds for binding non-signatories to an arbitration agreement; and e. The cumulative factors laid down by this Court in Discovery Enterprises (supra) cannot be considered in isolation, and must be applied holistically to determine the applicability of the group of companies doctrine in a given factual matrix.

11Copy pinpoint11. Mr Nakul Dewan, learned senior counsel appearing for the respondent in SLP (C) No. 8607 of 2022, made the following submissions: a. The group of companies doctrine and single economic entity doctrine are purely economic concepts without any basis in either contract law or company law. Therefore, they cannot be applied to determine the intention of non-signatories to be bound by an arbitration agreement; b. The decision of a party to not sign the arbitration agreement may form the basis to demonstrate an intent not to be bound by it; c. The mere factum of multiple agreements or that the non-signatory was involved in the negotiation of the contract cannot form the basis to bind it to the arbitration agreement; d. The phrase “claiming through or under” which finds mention under Sections 8 and 45 of the Arbitration Act cannot be the basis for the application of the group of companies doctrine; and e. The determination of the intention of parties to a contract should relate only to the intention held at the time of entering into the contract, which can be gathered objectively from the text of the contract. However, Chloro Controls (supra) which considers consequential or subsequent agreements to determine the mutual intention of the parties is incorrect.

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 645 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

12Copy pinpoint12. Mr Ritin Rai, learned senior counsel appearing for the respondent in Arbitration Petition No. 38 of 2020, made the following submissions: a. Section 7 of the Arbitration Act requires the arbitration agreement to be in writing. Therefore, an arbitration agreement cannot be created on the basis of implied consent of the non-signatory; b. Complex multi-party contracts are outcomes of detailed negotiations entered into after parties have fully applied their mind. To impute intention to parties in contradiction to the express terms of the agreement would defeat the purpose of the parties’ memorializing their understanding in a negotiated, written document; c. An arbitration agreement which sets out the executing parties and the arbitral procedure agreed among them cannot be read to expand its reach to third parties; d. The group of companies doctrine cannot be traced to the phrase “claiming through or under” as provided under Sections 8 and 45 of the Arbitration Act; and e. Chloro Controls (supra) erroneously failed to consider whether an implied consent derived from the conduct of a non-signatory satisfied the requirement of a clear intention to arbitrate. Moreover, Chloro Controls (supra) wrongly held that the courts have the discretion to refer non-signatory parties to arbitration under Sections 8 or 45 of the Arbitration Act in exceptional cases. The introduction of such a discretion brings in uncertainty in the arbitration practice in India.

13Copy pinpoint13. Mr Tushar Mehta, learned Solicitor General appearing on behalf of the Union of India, made the following submissions: a. Since India follows the UNCITRAL Model Law, concepts of ‘commercial element’ and ‘business prudence’ have to be considered while interpreting the provisions of the Arbitration Act; b. The group of companies doctrine is inbuilt in the overall scheme of the Arbitration Act. Section 7 uses the broad phrase “defined relationship whether contractual or otherwise” to convey that an arbitration agreement is not restricted to a conventional agreement;

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c. The insertion of the words “claiming through or under” in Section 8 of the Arbitration Act is merely in furtherance of the legislative intent to confer locus on yet another category of persons to insist that the judicial authority must refer the dispute before it to arbitration; and d. If the referral court under Sections 8 and 11 cannot prima facie determine the issue of joinder of a non-signatory to the arbitration agreement on the basis of the group of companies doctrine, it can refer the issue to be decided by the arbitral tribunal.

14Copy pinpoint14. Mr Sanjoy Ghose, learned senior counsel appearing on behalf of the petitioner in SLP (C) No. 8607 of 2022, made the following submissions: a. Section 2(1)(h) uses the term “party” and not “signatory” to account for situations where a non-signatory enters the shoes of a signatory party either by succession, operation of law, assignment, or death; and b. The group of companies doctrine contravenes the provisions of corporate law by fixing liability on an entity that is not a party to an arbitration agreement. Mere participation in the negotiation or performance of the contract cannot bind a non-signatory to the arbitration agreement in the absence of express consent.

15Copy pinpoint15. Mr Pallav Mongia, learned advocate on behalf of the interveners in IA No. 58168 of 2023, submitted that Section 2(1)(h) of the Arbitration Act does not restrict the definition of parties to “signatories”. Rather, the definition has to be inferred from Section 7. Section 7(4) expands the definition of parties to non-signatories.

16Copy pinpoint16. Ms Meenakshi Arora, learned senior counsel on behalf of the respondent in SLP (C) No. 8607 of 2022, argued for de-tagging of SLP (C) No. 8607 of 2022 from the lead matter, that is Arbitration Petition No. 38 of 2020, as the former deals with power of the courts to issue directions under Section 9 of the Arbitration Act against third parties. Further, the learned senior counsel submitted that the courts can take aid of the group of companies doctrine to issue interim directions against non-signatories to the arbitration agreement.

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 647 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

17Copy pinpoint17. The arguments advanced by advocates on both sides of the aisle indicate that this Constitution Bench has been primarily called upon to determine the validity of the group of companies doctrine in Indian arbitration jurisprudence. However, there are other broad ancillary issues which have been raised by the learned counsel. These include: (i) whether the Arbitration Act allows joinder of a non-signatory as a party to an arbitration agreement; and, (ii) whether Section 7 of the Arbitration Act allows for determination of an intention to arbitrate on the basis of the conduct of the parties. This Bench will address the issues arising out of the order of reference as well as the above-mentioned ancillary issues in due course. C. Legal background i. India

18Copy pinpoint18. Before the enactment of the Arbitration Act, the law on arbitration was substantially contained in the Arbitration Act of 1940, 9 the Arbitration (Protocol and Convention) Act of 1937, and the Foreign Awards (Recognition and Enforcement) Act of 1961. In 1978, the Law Commission of India suggested substantive amendments to the 1940 Act. Moreover, the United Nations Commission on International Trade Law10 adopted the Model Law on International Commercial Arbitration in 1985.11 The General Assembly of the United Nations recommended all the Member States to adopt the UNCITRAL Model Law in their domestic legislation with a view to uniformize the law of arbitral procedures.12 The Arbitration Act was enacted to consolidate and amend the law relating to arbitration. It brought the law relating to domestic and international commercial arbitration in consonance with the UNCITRAL Model Law, the New York Convention, and the Geneva Convention.

19Copy pinpoint19. Section 2(1)(h) of the Arbitration Act defines a “party” to mean “a party to an arbitration agreement.” An “arbitration agreement” is defined

9 “1940 Act” 10 “UNCITRAL” 11 “UNCITRAL Model Law” 12 UN General Assembly, Fortieth Session, ‘Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law’ 40/72 (1985)

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under Section 2(1)(b) to mean “an agreement referred to in Section 7.” Section 7 lays down the essential elements of a valid and binding arbitration agreement. It defines an arbitration agreement as 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 provision also mandates that an arbitration agreement shall be in writing. An arbitration agreement is in writing if it is contained in: (a) a document signed by the parties; (b) an exchange of letters, telexes, 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 defense in which the existence of the agreement in alleged by one party and not denied by the other. Section 7(5) further stipulates that the reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if two conditions are satisfied. These conditions are first, that the contract is in writing; and second, that the reference is such as to make the arbitration clause part of the contract.

20Copy pinpoint20. An arbitration agreement, being a creature of contract,13 is based on the consent of parties to submit their disputes to an alternate dispute resolution mechanism. Generally, a party to an arbitration agreement is determined on the basis of persons or entities who are signatories to the arbitration agreement or the underlying contract containing the arbitration agreement. However, over the past two decades the law on joinder of non- signatory parties has evolved substantially. The evolution could roughly be classified into two stages: before Chloro Controls (supra) and after Chloro Controls (supra).

21Copy pinpoint21. In the pre Chloro Controls (supra) era, this Court construed “parties” by limiting it only to the signatories to the arbitration agreement. In Sukanya Holdings (supra) the applicant filed an application under Section

13 Bhaven Construction v. Executive Engineer, Sardar Sarovar Narmada Nigam Ltd, (2022) 1 SCC 75

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 649 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

8 of the Arbitration Act before the High Court and sought to enforce the arbitration agreement against both the signatories and non-signatories to the agreement. The High Court rejected the application on the ground that the non-signatories were not parties to the arbitration agreement. In appeal, this Court upheld the decision of the High Court by observing that there is no provision under the Arbitration Act stipulating what is required to be done where some parties to the suit are not parties to the arbitration agreement. In Sumitomo Corporation v. CDC Financial Services (Mauritius) Ltd,14 this Court, while dealing with an international commercial arbitration held that a “party” to an arbitration agreement means a party to the judicial proceedings. This was expressly held to be erroneous in Chloro Controls (supra), where it was held that “party” has to be construed in view of Section 2(1)(h) to mean a party to an arbitration agreement.

22Copy pinpoint22. The interpretation of the expression “party” as defined under Section 2(1)(h) came up for the consideration of this Court in Indowind Energy Ltd (supra). In that case, an agreement of sale was entered into by the first and second respondents. The agreement described the second respondent as the ‘buyer’ and promoter of Indowind, the non-signatory. After a dispute arose, the first respondent instituted an application under Section 11(6) of the Arbitration Act against the second respondent and Indowind. Indowind resisted the impleadment on the ground that it was not a party to the underlying sale agreement and, therefore, had not consented to be bound by the arbitration clause. The issue before this Court was whether the arbitration agreement contained in the sale agreement was binding on Indowind. This Court refused to join Indowind to the arbitration agreement on the ground that (i) Indowind was not a signatory to the sale agreement; (ii) Indowind and the promoter company were two independent companies with a separate and distinct legal existence; and (iii) the fact that Indowind did not sign the sale agreement indicated that it was the mutual intention of all the parties to not make it a party to the arbitration agreement.

23Copy pinpoint23. The pre Chloro Controls (supra) position was characterized by three underlying precepts: (i) arbitration could be invoked at the instance of a signatory to the arbitration agreement only in respect to disputes with

14 (2008) 4 SCC 91

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another signatory party;15 (ii) the court would adopt a strict interpretation of the provisions of the Arbitration Act, particularly the unamended Section 8 which only allowed reference of “parties” to an arbitration agreement; and (iii) there was an emphasis on formal consent of the parties, thereby excluding any scope for implied consent of the non-signatories to be bound by an arbitration agreement. This position of law underwent a significant change when a Bench of three Judges of this Court in Chloro Controls (supra) allowed joinder of non-signatory parties to the arbitration agreement on the basis of the group of companies doctrine. a. Chloro Controls

24Copy pinpoint24. In Chloro Controls (supra) this Court was called upon to determine an arbitral reference in case of multi-party agreements where performance of the ancillary agreements was substantially dependent upon effective execution of the principal agreement. In that case, a foreign entity and an Indian entity incorporated a joint venture company to market and distribute chlorination equipment. With respect to the joint venture, the related companies of both the Indian and foreign entity were also involved. Consequently, the parties concluded several ancillary agreements such as a Shareholders’ Agreement which contained an arbitration clause. All the contracting parties were not signatories to all the agreements, including the Shareholders’ Agreement. When disputes arose between the parties, the foreign entities sought to terminate the joint venture. The Indian entity filed an application before the High Court seeking a declaration to restrain the foreign entities from repudiating their obligations under the agreements. In response, the foreign entities applied for referring the disputes to arbitration in view of the fact that the agreements were binding on the non-signatories because of the composite nature of the transaction. A Single Judge of the High Court granted the application of the Indian entity, which was set aside by the Division Bench of the High Court. The primary issue before this Court pertained to the ambit and scope of Section 45 of the Arbitration Act. This Court framed the issue in the following terms: “1.3. Whether in a case where multiple agreements are signed between different parties and where some contain an arbitration clause and

15 S N Prasad v. Monnet Finance Ltd, (2011) 1 SCC 320

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 651 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

others do not and further the parties are not identically common in proceedings before the court (in a suit) and the arbitration agreement, a reference of disputes as a whole or in part can be made to the Arbitral Tribunal, more particularly, where the parties to an action are claiming under or through a party to the arbitration agreement”

25Copy pinpoint25. Section 45 of the Arbitration Act in its unamended form read as follows: “45. Power of judicial authority to refer parties to arbitration.— Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, that the said agreement is null and void, inoperative or incapable of being performed.” (emphasis supplied) In view of the language of Section 45, this Court held that the expression “any person” reflects a legislative intent of enlarging the scope beyond “parties” who are signatories to the arbitration agreement to include non-signatories. However, the court noted that such non-signatory parties are required to claim “through or under the signatory party.” Thus, this Court accepted that arbitration is possible between a signatory to an arbitration agreement and a third party or non-signatory claiming through a party.

26Copy pinpoint26. The next issue before this Court was to determine whether there was any legal relationship between the signatory and the non-signatory for the latter to “claim through or under” the former. The court noted that the group of companies doctrine has been developed by courts and tribunals in the international context to bind a non-signatory affiliate or sister concern within the same corporate group as the signatory party, to an arbitration agreement provided there was a mutual intention of all the parties. This court emphasized that the “intention of the parties” is the underlying principle for the application of the group of companies doctrine. It observed: “72. This evolves the principle that a non-signatory party could be subjected to arbitration provided these transactions were with group of

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companies and there was a clear intention of the parties to bind 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.” (emphasis supplied)

27Copy pinpoint27. The court held that a non-signatory could be subjected to arbitration “without their prior consent” in “exceptional cases” on the basis of four determinative factors: (i) A direct relationship to the party which is a signatory to the arbitration agreement; (ii) A direct commonality of the subject-matter and the agreement between the parties being a composite transaction; (iii) The transaction being of a composite nature where performance of the mother agreement may not be feasible without the aid, execution, and performance of supplementary or ancillary agreements for achieving the common object and collectively have a bearing on the dispute; and (iv) A composite reference of such parties will serve the ends of justice.

28Copy pinpoint28. In Chloro Controls (supra), this Court acknowledged that cases of composite transactions involving multi-party agreement give rise to peculiar challenges where non-signatories may be implicated in the dispute because of their legal relationship and involvement in the performance of contractual obligations. To remedy such situations, it was held that the group of companies doctrine could be applied to systematically evaluate the facts and circumstances to determine “a clear intention of the parties to bind both, the signatory as well as the non-signatory parties” to the arbitration agreement.

29Copy pinpoint29. Chloro Controls (supra) was dealing with a situation where the success of the joint venture agreement was dependent upon the fulfilment of all the ancillary agreements. In this context, this Court observed that all the ancillary agreements were relatable to the parent agreement and the ancillary agreements were intrinsically linked with each other, to the extent that they could not be severed. This in the view of the court indicated the intention of

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 653 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

the parties to refer all disputes arising out of the parent agreement and ancillary agreements to the arbitral tribunal.

30Copy pinpoint30. Furthermore, this Court explained the phrase “legal relationship” to mean the relationship of the signatory party with the person claiming under or through them. It observed that all the agreements were signed by “some parties or their holding companies or the companies into which the signatory company had merged.” Although these companies did not put pen to paper for all the agreements, they were descendants in interest or subsidiaries of the signatory parties and therefore would be covered under the expression “claiming through or under” the parties to the agreement. In this context the Court observed that being part of the same corporate group, the interests of the non-signatory companies were not adverse to the interest of the principal company and the joint venture company. Therefore, the group of companies doctrine formed the basis for a non-signatory to claim through or under the signatory. Chloro Controls (supra) laid down the ratio that a non-signatory person or entity could be made a party to an arbitration agreement, as “claiming through or under” a signatory party, if the circumstances demonstrate the mutual intention of the parties on the basis of the composite nature of the transaction, direct commonality of subject- matter, and direct relationship of the non-signatory to the signatory parties. b. Development of Law after Chloro Controls

31Copy pinpoint31. In the aftermath of Chloro Controls (supra), the Law Commission of India published a Report in 2014 recommending amendments to the Arbitration Act. The Commission observed that the phrase “claiming through or under” as used and understood in Section 45 is absent in the corresponding provision of Section 8. To cure this anomaly, it was suggested that the definition of “party” under Section 2(1)(h) be amended to also include the expression “a person claiming through or under such party.”16 In 2016, the legislature amended Section 8 to bring it in line with Section 45 of the Arbitration Act. The unamended Section 8(1) provided that a party to an arbitration agreement could make an application seeking a reference to arbitration. The amended Section 8(1) provided that “a party to an arbitration

16 Law Commission of India, ‘Amendments to the Arbitration and Conciliation Act 1996’, Report No. 246 (August 2014)

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agreement or any person claiming through or under him” could seek a reference to arbitration. However, the legislature did not bring about any change in the language of Section 2(1)(h) or Section 7 of the Arbitration Act. Since Chloro Controls (supra) and the amendment to Section 8, subsequent decisions of this Court have referred to the group of companies doctrine to join non-signatories persons or entities to arbitration agreements.

32Copy pinpoint32. In Cheran Properties (supra), the issue before this Court was whether the arbitral award could be enforced under Section 35 of the Arbitration Act against a non-signatory, who was a nominee of one of the signatories to the arbitration agreement and a direct beneficiary of the underlying contract between the signatories. Section 35 of the Arbitration Act postulates that an arbitral award “shall be final and binding on the parties and persons claiming under them respectively.” This Court observed that the expression “persons claiming under them” refers to every person whose capacity or position is derived from and is same as a party to the proceedings. It held that the non-signatory, being a nominee of one of the signatory parties, was bound by the arbitral award as it was claiming under the signatory.

33Copy pinpoint33. This Court in Cheran Properties (supra) interpreted the group of companies doctrine to hold that its true purport is to enforce the common intention of the parties where the circumstances indicate that both the signatories and non-signatories were intended to be bound. One of us (D Y Chandrachud J) explained the evolution of the group of companies doctrine in the Indian context in the following terms: “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. 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

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 655 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

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.” (emphasis supplied)

34Copy pinpoint34. The decision in Cheran Properties (supra) holds that the group of companies doctrine is applied to bind a non-signatory party upon a construction of the arbitration agreement, circumstances which exist at the time of entering into the contract, and the performance of the underlying contract. Nevertheless, it must be noted that Cheran Properties (supra) did not apply the group of companies doctrine to make the non-signatory a party to the arbitration agreement. Rather, this Court made the arbitral award binding on a non-signatory under Section 35 on the ground that it was claiming under a party which was a signatory to the arbitration agreement.

35Copy pinpoint35. In Ameet Lalchand Shah v. Rishabh Enterprises,17 a two-Judge Bench of this Court was dealing with an arbitral dispute arising out of four interconnected agreements executed towards a single commercial project. The issue was whether the four agreements were interconnected to refer all the parties to arbitration. In that case, all the parties were not signatories to the main agreement containing the arbitration clause. This Court relied on Chloro Controls (supra) to hold that a non-signatory, which is a party to an interconnected agreement, would be bound by the arbitration clause in the principal agreement. It observed that in view of the composite nature of the transaction, the disputes between the parties to various agreements could be resolved effectively by referring all of them to arbitration.

36Copy pinpoint36. Over time, this Court has identified certain additional factors for the invocation of the group of companies doctrine. In Reckitt Benckiser

17 (2018) 15 SCC 678

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(India) Private Limited v. Reynders Label Printing India Private Limited,18 a two-Judge Bench of this Court was dealing with an application under Section 11(6) of the Arbitration Act seeking the appointment of an arbitrator. This Court prima facie observed that the parties belonged to the same group of companies. Subsequently, the issue before this Court was whether there was a clear intention of the parties to bind both the signatory and non-signatory parties based on their participation in the negotiation of the underlying contract. The court held that the non-signatory party, even though a constituent part of the corporate group, did not have “any causal connection with the process of negotiations preceding the agreement or the execution thereof, whatsoever.” Thus, the participation of the non-signatory party in the negotiation and performance of the underlying contract was held to be the key determinant of the intention of the parties to be bound by an arbitration agreement.

37Copy pinpoint37. In Canara Bank (supra), this Court emphasized that the group of companies doctrine could be invoked on the basis of the principle of “single economic unit”. In that case, the facts were that Canbank Financial Services Ltd19, a wholly owned subsidiary of Canara Bank, subscribed to the bonds floated by MTNL. CANFINA subsequently transferred the bonds to Canara Bank. Eventually, MTNL cancelled the bonds which gave rise to the dispute between the parties. Canara Bank filed a writ petition before the Delhi High Court challenging the cancellation of bonds by MTNL. The High Court referred the parties to arbitration, but Canara Bank challenged the impleadment of CANFINA. This Court dismissed Canara Bank’s objection on the ground that CANFINA was a necessary and proper party to the arbitral proceedings, being the original purchaser to the bonds. While dealing with the contours of the group of companies doctrine, this Court noted that the doctrine could also be invoked “in cases where there is a tight group structure with strong organizational and financial links, so as to constitute a single economic unit, or a single economic reality.”

38Copy pinpoint38. The last in the series of decisions dealing with the group of companies doctrine is a three-Judge Bench decision of this Court in Discovery Enterprises

18 (2019) 7 SCC 62 19 “CANFINA”

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 657 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

(supra). In that case, ONGC entered into a contract with Discovery Enterprises for operating a shipping vessel. After a dispute arose between the parties, ONGC invoked the arbitration clause in the contract against Discovery Enterprises and Jindal Drilling and Industries Ltd., a sister company of Discovery Enterprises. The arbitral tribunal refused to proceed with the claim against Jindal Drilling and Industries Ltd. on the ground that it was not a signatory to the arbitration agreement. In an appeal filed by ONGC under Section 37 of the Arbitration Act, the High Court upheld the decision of the tribunal. The High Court’s decision was challenged before this Court under Article 136 of the Constitution. This Court cited Chloro Controls (supra) and the subsequent decisions with approval to emphasize that the group of companies doctrine can be applied to bind a company within a group which is not a signatory to the arbitration agreement. The Court held that in addition to the cumulative factors laid down in Chloro Controls (supra), the performance of the contract was also an essential factor to be considered by the courts and tribunals to bind a non-signatory to the arbitration agreement. Ultimately, this Court set aside the decision of the arbitral tribunal on the ground that it failed to address the plea raised by ONGC, and remanded the matter back to the tribunal to decide afresh. ii. France – The Dow Chemicals case

39Copy pinpoint39. The application of the group of companies doctrine in arbitration law mainly originated from the decisions rendered by international arbitral tribunals. Before proceeding to analyze the contours of the doctrine, it is necessary to understand its origin and development in the international context. Such an analysis is particularly relevant because any authoritative determination by this Court with regard to the group of companies doctrine ought to be in tune with the internationally accepted principles on the vexed issue of joining non-signatories to arbitration agreements.

40Copy pinpoint40. The origin of the doctrine is primarily attributed to a number of arbitration awards rendered mainly in France. The most prominent among them remains an interim award delivered more than four decades ago by an ICC tribunal in Case No. 4131,20 more popularly known as the Dow Chemicals case. In that case, Dow Chemical (Venezuela) entered

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into a contract with a French company, which later assigned the rights to Isover Saint Gobain, for distribution of thermal isolation products in France. Dow Chemical (Venezuela) subsequently assigned the contract to Dow Chemical AG, which was a subsidiary of Dow Chemical Company – the holding company. Thereafter, Dow Chemical Europe, a subsidiary of Dow Chemical AG, entered into a similar contract with three companies, which subsequently assigned the contract to Isover Saint Gobain. Both contracts provided that the deliveries of products to the distributors will be made by Dow Chemical France, or any other subsidiary of Dow Chemical Company. Several suits were instituted against the companies of the Dow Chemical group before the French courts. In response, the four companies of the Dow Chemical group (the two formal parties to the contract – Dow Chemical AG and Dow Chemical Europe, and the two non-signatories – Dow Chemical Company and Dow Chemical France) instituted arbitral proceedings against Isover Saint Gobain before the ICC tribunal.

41Copy pinpoint41. The primary issue before the ICC tribunal was to determine its own jurisdiction over the non-signatory parties. The tribunal sought to determine whether there existed a common intention of the parties to be bound by the arbitration agreement. The tribunal established the common intention of the parties by analyzing the factual circumstances underpinning the negotiation, performance, and termination of the contracts. The tribunal held that Dow Chemical France “was a party” to the two contracts, and consequently to the arbitration agreements contained in them, because it played a preponderant role in the negotiation, performance, and termination of the contract. As for Dow Chemical Company, the tribunal held that the holding company had ownership of the trademarks under which the products were marketed in France and had absolute control over its subsidiaries who were involved in the negotiation, performance, and termination of the two contracts. The tribunal also relied on the fact that Isover Saint Gobain applied for the joinder of the holding company into the court proceedings in France before the Court of Appeal of Paris.

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42Copy pinpoint42. After concluding that the non-signatories were also a party to the arbitration agreement, the tribunal proceeded to analyze the factual circumstances of the signatory and non-signatory belonging to the same group of companies. At the outset, the tribunal observed that a group of companies constitutes one and the same economic reality. However, the tribunal emphasized that a non-signatory may be bound by the arbitration agreement entered into by another entity of the same group if the non-signatory appears to be a veritable party to the contracts on the basis of their involvement in the negotiation, performance, and termination of the contracts. The relevant observation is extracted below: “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 their conclusion, performance, or termination of the contracts containing said clause, 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.”

43Copy pinpoint43. In Dow Chemical (supra), the arbitral tribunal did not base its decision to extend the arbitration agreement to non-signatories solely on the fact that both the signatory and non-signatory parties were members of the same group. The tribunal emphasized the importance of determining the true parties to the arbitration agreement on the basis of their participation in the negotiation, performance, and termination of the agreement. The Dow Chemical case has been regarded as being instrumental in the transition from a restrictive interpretation of consent focusing only on its express manifestation to a more flexible approach attaching necessary relevance to implied consent to be bound by the arbitration agreement.21

44Copy pinpoint44. In a series of subsequent rulings, the Court of Appeal of Paris acknowledged the extension of an arbitration agreement to non-signatories provided there was common intention of all the parties. According to the Court of Appeal, the common intention may be ascertained from the active role played by the non-signatories in the performance of the contract containing

21 Bernard Hanotiau and Leonardo Ohlrogge, ‘40th Year Anniversary of the Dow Chemical Award’ 40(2) ASA Bulletin 300-308.

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the arbitration agreement, which gives rise to the presumption that the non- signatory had knowledge of the arbitration agreement.22

45Copy pinpoint45. The French law has been succinctly summarized in an unpublished ICC award in case No. 11405 of 2001 in the following terms: “[t]here is no general rule, in French international arbitration law, that would provide that non-signatory parties members of a same group of companies would be bound by an arbitration clause, whether always or in determined circumstances. What is relevant is whether all parties intended non-signatory parties to be bound by the arbitration clause. Not only the signatory parties, but also the non-signatory parties should have intended (or led the other parties to reasonably believe that they intended) to be bound by the arbitration clause.”23 Hence our understanding of the position in French law is that an arbitration agreement can be extended to non-signatory parties if all the parties to the arbitration agreement had a common intention to be bound by the agreement. The subjective intention of the parties is to be inferred on the basis of their objective conduct during the negotiation, performance, and termination of the underlying contract containing the arbitration agreement. iii. Switzerland

46Copy pinpoint46. Section 178(1) of the Swiss Private International Law Act 1987 states that an “arbitration agreement must be made in writing or any other means of communication allowing it to be evidenced by text.” In 2003, the Swiss Federal Supreme Court held that once there is a valid arbitration clause according to Section 178(1) of the Swiss Act, the issue whether it also extends to non-signatories may be decided by the courts or the arbitral tribunals. As a matter of general rule, the Swiss courts have extended an arbitration agreement to non-signatories typically in cases of assignment of a claim, assumption of debt or delegation of a contract.24

22 Paris Court of Appeal, 7 December 1994, V 2000 (formerly Jaguar France) v. Project XS, Rev. Arb. (1996) 67. 23 Yves Derains, ‘Is there a Group of Companies Doctrine?’ in Bernard Hanotiau and Eric Schwartz (eds) in Dossier of the ICC Institute of World Business Law, Volume 7, 131-145. 24 A, B, C v. D and State of Libya, 4A_636/2018

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47Copy pinpoint47. In a decision rendered in 1996, the Swiss Federal Supreme Court held that the fact that a non-signatory party belonged to the same group of companies as the signatory party to the arbitration agreement was not a sufficient justification for binding the non-signatory to the arbitration agreement.25 However, the Swiss Courts are not averse to extending an arbitration agreement to non-signatory parties if there is an independent and formally valid manifestation of consent of the non-signatory party to the arbitration agreement.

48Copy pinpoint48. In Swiss law, the consent of the parties to be bound by an arbitration agreement may be express or implied by conduct. In a 2008 decision, the Swiss Federal Court held that certain behavior or conduct may substitute compliance with a formal requirement of an arbitration agreement.26 To determine the implied consent, it was held that the courts or tribunals may take into consideration the fact whether the non-signatory party was involved in the negotiation and performance of the contract, and thereby expressed its willingness to be bound by the arbitration agreement.27 Thus, the subjective element of willingness to be bound by an arbitration agreement ought to be expressed through an objective element in the form of negotiation or performance of the contract. iv. England

49Copy pinpoint49. The English courts have generally taken a conservative approach to binding non-signatory parties to arbitration agreements. Section 82(2) of the English Arbitration Act 1996 defines a “party to arbitration agreement” to include “any person claiming under or through a party to the agreement.” The English law envisages that even non-signatory parties may be bound by an arbitration agreement but only if they are claiming under or through the original party to the agreement. The English courts have adopted an approach which favors a strict adherence to the doctrine of privity. Under English law, an arbitration agreement is extended to non-signatory parties on the basis of traditional contractual principles and doctrines such as agency, novation,

25 Saudi Butec Ltd et Al Fouzan Trading v. Saudi Arabian Saipem Ltd, unpublished ICC Interim Award of 25 October 1994, confirmed by DFT on 29 January 1996, ASA Bulletin (1996) Vol 3 p 496. 26 Decision 4A_376/2008 of 5 December 2008. 27 X v. Y Engineering S.p.A. and Y S.p.A., 4A_450/2013, ASA Bull., 160 (2015).

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assignment, operation of law, and merger and succession.28 However, the English law has explicitly rejected other doctrines such as piercing the corporate veil, equitable estoppel, and group of companies as a basis for extending an arbitration agreement to non-signatory parties.

50Copy pinpoint50. In Peterson Farms INC v. C & M Farming Limited,29 a claim for damages was brought against Peterson Farms by the respondent C & M Farming for damages suffered by several C & M group entities, some of them being non-signatories to the arbitration agreement. The arbitral tribunal applied the group of companies doctrine to hold that C & M Farming contracted on behalf of the entire C & M group entities, and therefore was entitled to claim all the damages suffered by the C & M group entities arising out of the contractual relationship with Peterson. In appeal, the Commercial Court held that the chosen proper law of the Agreement - Arkansas law – is similar to the English law which excludes the application of the group of companies doctrine. Thus, the English law does not favor the application of the group of companies doctrine for extending an arbitration agreement to non-signatory parties.

51Copy pinpoint51. The English precedents have also dealt with the meaning of the phrase “claiming through or under”, which was referred to by this Court in Chloro Controls (supra). In Roussel-Uclaf v. G D Searle and Co Ltd30, the issue before the Court of Chancery Division was whether a wholly owned subsidiary company could claim to be a party to an arbitration agreement between the parent company and a third party. The Court was called upon to interpret Section 1 of the Arbitration Act of 1975 which allowed any party to an arbitration agreement “or any person claiming through or under him” to apply to a court to stay proceedings where an arbitration agreement existed. It was held that the subsidiary can claim the benefit of the arbitration agreement because the parent company and the subsidiary were “so closely related” that it could be said that the subsidiary was “claiming through or

28 Audley William Sheppard, ‘Third Party Non-Signatories in English Arbitration Law’ in Stavros Brekoulakis, Julian Lew, et al (eds) The Evolution and Future of International Arbitration (Kluwer Law International, 2016) 183-198. 29 [2004] EWHC 121 (Comm) 30 [1978] 1 Lloyd’s Rep

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under” the parent company. In City of London v. Sancheti,31 the Court of Appeal overturned Roussel-Uclaf (supra) on the ground that an entity cannot be considered to be claiming through or under merely because there is a “legal or commercial connection” between them.

52Copy pinpoint52. Section 5 of the English Arbitration Act, 1996 requires an arbitration agreement to be in writing. Further, Section 5(2)(a) provides that it is not necessary for the parties to sign the arbitration agreement. In such situations, the critical question that arises before the English courts is whether a non-signatory party is bound by an arbitration agreement. The English law position is that “contracts are not to be lightly implied” and the court “must be able to conclude with confidence both that the parties intended to create contractual relations and that the agreement was to the effect contended for.”32 However, in limited situations, a contract is implied if the parties conducted themselves in a manner as if they have formally entered into a contract.33

53Copy pinpoint53. In Dallah Real Estate and Tourism Holding Company v. The Ministry of Religious Affairs, Government of Pakistan34, the Government of Pakistan entered into a Memorandum of Understanding with Dallah Real Estate and Tourism Holding Company35 for construction of housing facilities in Mecca, Saudi Arabia. Subsequently, an agreement was executed between Dallah and the Awami Hajj Trust, which was established by the Government through an Ordinance. However, the trust ceased to exist as a legal entity because the Ordinance was not laid before Parliament and no further ordinance was promulgated. Dallah commenced arbitral proceedings against the Government. The UK Supreme Court had to determine whether there was a common intention on behalf of the Government and Dallah to make the former a party to the agreement. The Court observed that the “common intention of the parties means their subjective intention derived

31 The Mayoralty and Commonalty & Citizens of the City of London v. Ashok Sancheti, [2008] EWCA Civ 1283 32 Blackpool and Fylde Aero Club Ltd. v. Blackpool Borough Council, [1990] 1 WLR 1195 33 Chitty on Contracts, Hugh Beale (ed), (32nd edn, Sweet and Maxwell, 2015) para 2-169. 34 [2010] UKSC 46 35 “Dallah”

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