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

from the objective evidence.” It was held that there was no evidence to conclude that the Government’s behavior showed that it always considered itself to be a true party to the agreement. v. Singapore

54Copy pinpoint54. In Manuchar Steel Hong Kong Limited v. Star Pacific Line Pte Ltd,36 the Singapore High Court expressly rejected the group of companies doctrine to bind non-signatories to arbitration agreement. The High Court reasoned that the group of companies doctrine was: first, anathema to the logic of consensual basis of an agreement to arbitrate; and second, ordering of companies within a broader group did not mean one could dispense with separate legal entity. The Singapore High Court relied on position of law taken in Peterson Farms INC (supra) to observe that enforceable obligations cannot be imposed on “strangers” to an arbitration agreement. vi. United States of America

55Copy pinpoint55. The Federal Arbitration Act is silent on the aspect of the joinder of non-signatory parties to the arbitration agreement. Nevertheless, the US courts have often used the general principles of contract law such as incorporation by reference, assumption, agency, veil piercing or alter ego, and estoppel for binding non-signatories to arbitration agreements. 37 Although the United States follow a pro-arbitration policy, an important issue that often comes up for deliberation is whether the domestic doctrines could be applied for binding non-signatories in cases of international arbitration.

56Copy pinpoint56. In G E Energy Power Conversion France SAS v. Outokumpu Stainless,38 the issue before the United States Supreme Court was whether the New York Convention precludes a non-signatory to an international arbitration agreement from compelling arbitration by invoking domestic doctrines such as equitable estoppel. In that case, the Eleventh Circuit Court refused to apply the domestic doctrine of equitable estoppel on the ground that it conflicts with the signature requirements under the New York

36 [2014] SGHC 181 37 Andrijana Misovic, ‘Binding non-signatories to arbitrate: the United States approach’ (2021) 37(3) Arbitration International 749-768. 38 140 S. Ct. 1637 (2020)

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 665 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

Convention. The Circuit Court observed that Article II of the New York Convention contains a strict requirement that the parties “actually sign” the arbitration agreement in order to compel the parties to arbitration. The US Supreme Court held that the Article II of the New York Convention does not restrict the contracting states from applying domestic law to refer parties to arbitration agreements. Moreover, it was observed that “the provisions of Article II contemplate the use of domestic doctrines to fill gaps in the Convention.” Thus, it was held that the New York Convention does not set out a comprehensive regime to preclude the use of domestic law to enforce arbitration agreements.

57Copy pinpoint57. Unlike the English courts, the US Courts have used non-consensual doctrines to extend arbitration agreements to non-signatory parties. For instance, the US Courts have pierced the corporate veil and held the alter ego liable in exceptional circumstances where the parent company exercised complete control over the subsidiary with respect to the transaction at issue.39 Similarly, the doctrine of arbitral estoppel has been developed by the US Courts to bind non-signatory parties to an arbitration agreement. The doctrine of arbitral estoppel suggests that a party is estopped from denying its obligation to arbitrate when it received a ‘direct benefit’ from a contract containing an arbitration agreement.40 The second type of arbitral estoppel developed by the US courts places emphasis on the substantial interdependent relationship between the signatory and non-signatory party.41 In a situation where claims of concerted misconduct were raised against both the signatory and non-signatory to the contract, the courts have resorted to the doctrine of equitable estoppel to further the policy of pro-arbitration. 42

58Copy pinpoint58. The above discussion shows that international jurisdictions, in some form or the other, have moved beyond the formalistic requirement of consent to bind a non-signatory to an arbitration agreement. The primary conclusion is that the issue of binding a non-signatory to an arbitration

39 American Fuel Corp v. Utah Energy Development Co, Inc, 122 F.3d 130, 134 (2d Cir 1997) 40 American Bureau, Shipping v. Tencara Shipyard, 170 F.3d 349, 353 (2d Cir 1999) 41 Sunkist Soft Drinks, Inc v. Sunkist Growers, Inc, 10 F.3d 753, 757 (11th Cir 1993) 42 Grigson v. Creative Artists Agency, LLC, 210 F.3d 524 (2000)

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agreement is more of a fact-specific aspect.43 In jurisdictions such as France and Switzerland, there is a broad consensus that consent or subjective intention of a non-signatory to arbitrate may be proved by conduct. Such subjective intention could be derived from the objective evidence in the form of participation of the non-signatory in the negotiation, performance, or termination of the underlying contract containing the arbitration agreement. However, the group of companies doctrine has not been universally accepted by all jurisdictions. In jurisdictions such as France where the doctrine has gained acceptance, group of companies is one of the several factors that a court or tribunal considers to determine the mutual intention of all the parties to join the non-signatory to the arbitration agreement. Keeping in mind the above background, we now move on to analyze the applicability of the group of companies doctrine in the Indian context. Arbitration Agreement i. Consent as the basis for arbitration

59Copy pinpoint59. Arbitration is an alternative dispute resolution mechanism where parties consensually decide to submit a dispute between them to an arbitral tribunal to the exclusion of domestic courts.44 Arbitration provides a neutral, efficient, and expert process for dispute resolution at a single forum whose decision is final and binding on the parties. The principle of party autonomy underpins the arbitration process as it allows the parties to dispense with technical formalities and agree upon substantive and procedural laws and rules applicable to the merits of the dispute.45 Party autonomy allows the parties to choose the seat of arbitration, number of arbitrators, procedure for appointment of arbitrators, rules governing the arbitral procedure, and the institution which will administer the arbitration. An arbitration proceeding is broadly divided into two stages: The first

43 Bernard Hanotiau, ‘May an Arbitration Clause be Extended to Non-signatories: Individuals, States or Other Companies of the Group?’ in Complex Arbitrations: Multi- party, multi-contract, Multi-issue – A comparative study’ Bernard Hanotiau (eds) (2nd edn, 2020) 95, 194. 44 Gary Born, International Arbitration Law and Practice (3rd ed, 2021) 2. 45 Bharat Aluminium Company v Kaiser Aluminium Technical Services, (2016) 4 SCC 126

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 667 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

stage commences with an arbitration agreement and ends with the making of an arbitral award. The second stage pertains to the enforcement of the arbitral award.46

60Copy pinpoint60. Consent forms the cornerstone of arbitration. An arbitration agreement records the consent of the parties to submit their disputes to arbitration. A two-Judge Bench of this Court in Bihar State Mineral Development Corporation v. Encon Builders (I) Pvt. Ltd.47 laid down four essential elements of an arbitration agreement: (i) There must be a present or a future difference in connection with some contemplated affair (ii) The parties must intend to settle such difference by a private tribunal (iii) The parties must agree in writing to be bound by the decision of such tribunal. (iv) The parties must be ad idem.

61Copy pinpoint61. An arbitration agreement is a contractual undertaking by two or more parties to resolve their disputes by the process of arbitration, even if the disputes themselves are not based on contractual obligations. An arbitration agreement is a conclusive proof that the parties have consented to submit their dispute to an arbitral tribunal to the exclusion of domestic courts. The basis for an arbitration agreement is generally traced to the contractual freedom of parties to codify their intention to consensually submit their disputes to an alternative dispute resolution process.

62Copy pinpoint62. According to Section 10 of the Code of Civil Procedure of 1908, the courts have jurisdiction to try all suits of a civil nature except suits whose cognizance is expressly or impliedly barred. The said provision gives a right to any person to file a civil suit before a court of competent jurisdiction. Moreover, Section 28 of the Indian Contract Act of 187248 provides that any agreement restraining a party from enforcing their rights under a contract

46 Satish Kumar v. Surinder Kumar, (1969) 2 SCR 244 47 (2003) 7 SCC 418 48 “Contract Act”

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before courts or tribunals is void to that extent. However, the provision specifically saves a contract by which two or more persons agree that any dispute, which may arise between them, in respect of any subject or class of subjects shall be referred to arbitration. Thus, arbitration agreements are granted a statutory exception under Section 28 of the Contract Act. In Dhulabhai v. State of Madhya Pradesh a Constitution Bench of this Court held that the jurisdiction of civil courts may be excluded by an express provision of law or by clear intendment arising from such law.49 In Chloro Controls (supra), this Court observed that Section 45 of the Arbitration Act shall prevail over the provisions of the Code of Civil Procedure, 1908 in case of a valid arbitration agreement. Considering the fact that an arbitration agreement excludes the jurisdiction of civil courts, such an agreement ought to be valid and enforceable.

63Copy pinpoint63. An arbitration agreement must satisfy the principles of contract law laid down under the Contract Act, in addition to satisfying other requirements stipulated under Section 7 of the Arbitration Act, to qualify as a valid agreement.50 Section 2(e) of the Contract Act defines an agreement as every promise and every set of promises forming the consideration for each other. An agreement enforceable by law is a contract. An agreement should satisfy the mandate of Section 10 of the Contract Act to be enforceable by law. Section 10 provides that 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. According to Section 13, two or more persons are said to consent when they agree upon the same thing in the same sense. Thus, consensus ad idem between the parties forms the essential basis to constitute a valid arbitration agreement.

64Copy pinpoint64. Being a creature of a contract, an arbitration agreement is also bound by the general principles of contract law, including the doctrine of privity. The doctrine of privity means that a contract cannot confer rights or impose liabilities on any person except the parties to the contract. This doctrine has two aspects: first, only the parties to the contract are entitled under it or bound by it; and second, the parties to the contract cannot impose a

49 (1968) 3 SCR 662 50 Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 669 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

liability on a third party. As a corollary, a third party cannot acquire rights and entitlements under a contract. In M C Chacko v. State Bank of Travancore, this Court held it as a settled principle of law that a person who is not party to a contract cannot enforce the terms of the contract, subject to certain well- recognised exceptions such as trust, family arrangement, and assignment.51 The principle that only the parties to an arbitration agreement are either bound or benefited by such an agreement is fundamental to arbitration.52 This principle is uniformly reflected in international arbitration conventions as well as the Arbitration Act. For instance, Section 7 of the UNCITRAL Model Law 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.” (emphasis supplied)

65Copy pinpoint65. It is a generally accepted legal proposition that arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which they have not agreed so to submit.53 Since consent forms the cornerstone of arbitration, a non-signatory cannot be forcibly made a “party” to an arbitration agreement as doing so would violate the sacrosanct principles of privity of contract and party autonomy. However, In case of multi-party contracts, the courts and tribunals are often called upon to determine the parties to an arbitration agreement. ii. Parties to Arbitration Agreement

66Copy pinpoint66. The general method to figure out the parties to an arbitration agreement is to look for the entities who are named in the recitals and have signed the agreement. The signature of a party on the agreement is the most profound expression of the consent of a person or entity to submit to the jurisdiction of an arbitral tribunal. However, the corollary that persons or entities who have not signed the agreement are not bound by it may not always be correct. A written contract does not necessarily require that parties put their signatures to the document embodying the terms of the

51 (1969) 2 SCC 343 52 Gary Born (n 44) 1518. 53 United Steelworkers of America v. Warrior and Gulf Navigation, (1960) 363 US 574, 582

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agreement.54 Therefore, the term “non-signatories”, instead of the traditional “third parties”, seems the most suitable to describe situations where consent to arbitration is expressed through means other than signature. A non- signatory is a person or entity that is implicated in a dispute which is the subject matter of an arbitration, although it has not formally entered into an arbitration agreement.55 The important determination is whether such a non-signatory intended to effect legal relations with the signatory parties and be bound by the arbitration agreement. There may arise situations where persons or entities who have not formally signed the arbitration agreement or the underlying contract containing the arbitration agreement may intend to be bound by the terms of the agreement. In other words, the issue of who is a “party” to an arbitration agreement is primarily an issue of consent.

67Copy pinpoint67. Section 2 of the Contract Act provides that when a person signifies their willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, is said to make a proposal. The proposal is said to be accepted when the person to whom the proposal is made signifies their assent. A proposal becomes promise upon acceptance. Every promise and every set of promises, forming the consideration for each other, is an agreement. Importantly, Section 9 provides that a promise is said to be express if the proposal or acceptance of any promise is made in words, while a promise is said to be implied if such proposal or acceptance is “made otherwise than in words.” Thus, a contract may either be express or implied.

68Copy pinpoint68. Chitty on Contracts explains the difference between express and implied contracts as follows: “Contracts may either be express or implied. The difference is not one of legal effect but simply of the way in which the consent of the parties is manifested. Contracts are express when their terms are stated in words by the parties. They are often said to be implied when their terms are not so stated, as, for example, when a passenger

54 Pollock and Mulla, The Indian Contract and Specific Reliefs Act (14th edn, 2016) 235. 55 Stavros Brekoulakis, ‘Rethinking Consent in International Commercial Arbitration: A General Theory for Non-signatories’ (2017) 8 Journal of International Dispute Settlement 610.

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 671 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

is permitted to board a bus: from the conduct of the parties the law implies a promise by the passenger to pay the fare, and a promise by the operator of the bus to carry him safely to his destination.[…] Express and implied contracts are both contracts in the true sense of the term, for they both arise from the agreement of the parties, though in one case the agreement is manifested in words and in the other case by conduct. Since, as we have seen, agreement is not a mental state but an act, an inference from conduct, and since many of the terms of an express contract are often implied, it follows that the distinction between express and implied contracts has little importance.” 56

69Copy pinpoint69. The above exposition gives rise to the inference that in case of an implied contract, the question revolves around the determination of the consent of the parties to be bound by the terms of the contract. Such determination is manifested through the acts or conduct. The theory of implied contract by conduct has also been accepted by this Court. In Haji Mohammed Ishaq v. Mohamad Iqbal,57 the plaintiff supplied tobacco to the defendant. Although there was no express agreement between the parties, the defendant accepted the goods, but allegedly failed to clear the outstanding dues despite repeated demands raised by the plaintiff. A Bench of three Judges of this Court observed that the conduct of the defendants in accepting the goods and not repudiating any of the demand letters raised by the plaintiff “clearly showed that a direct contract which in law is called an implied contract by conduct was brough about between them.” Under the Indian contract law, it is posited that actions or conduct can be an indicator of consent of a party to be bound by a contract. This also applies to an arbitration agreement considering the fact that it is a creature of contract. However, an arbitration agreement also has to meet the requirements laid down under the Arbitration Act to be valid and enforceable.

70Copy pinpoint70. Section 2(h) of the Arbitration Act defines a “party” to mean a party to an arbitration agreement. Section 7 defines an arbitration agreement to mean an agreement by the parties to submit to arbitration all or certain

56 Chitty on Contracts, Hugh Beale (ed) (32nd edn, Sweet and Maxwell, 2015) para 1-104. 57 (1978) 2 SCC 493

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disputes which have arisen or which may arise between them in respect of a “defined legal relationship.” Section 7 requires that an arbitration agreement has to be in writing. Section 7 indicates the circumstances in which it is regarded as an agreement in writing. Such an agreement may be embodied in a document, an exchange of communications, including in the electronic form, or in a statement of claim which is not traversed in the defence. In Vidya Drolia v. Durga Trading Corporation,58 this Court observed that a legal relationship means a relationship which gives rise to legal obligations and duties, and confers a right. Such a right may be contractual or non- contractual. In case of a non-contractual legal relationship, the cause of action arises in tort, restitution, breach of statutory duty, or some other non- contractual cause of action. Thus, the legislative intent underlying Section 7 suggests that any legal relationship, including relationships where there is no contract between the persons or entities, but whose actions or conduct has given rise to a relationship, could form a subject matter of an arbitration agreement under Section 7. This approach is in line with the observations of Lord Hoffman in Fiona Trust and Holding Company v. Privalov where it was observed that “the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal.”59 (emphasis supplied)

71Copy pinpoint71. Section 7(3) requires an arbitration agreement to be in writing. Section 7(4) lays down three circumstances to elaborate when an arbitration agreement can be said to be in writing. According to the first circumstance laid down under Section 7(4)(a), an arbitration agreement is in writing if it is signed by the parties. This circumstance refers to a situation where the parties have formally executed and expressly assumed the status of parties by attesting their signatures to the arbitration agreement or the underlying contract containing the arbitration agreement. In such situations, the courts or tribunals only need to refer to the signature page or the recitals to figure out the parties to the arbitration agreement.

58 (2021) 2 SCC 1 59 [2007] UKHL 40

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 673 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

72Copy pinpoint72. Section 7(4)(b) provides the second circumstance, according to which an arbitration agreement is in writing if it is contained in an exchange of letters, telex, telegrams or other means of telecommunication including communication through electronic means which provide a record of the agreement. According to this provision, the existence of an arbitration agreement can be inferred from various documents duly approved by the parties.60 Section 7(4)(b) dispenses with the conventional sense of an agreement as a document with signatories. Rather, it emphasizes on the manifestation of the consent of persons or entities through their actions of exchanging documents. However, the important aspect of the said provision lies in the fact that the parties should be able to record their agreement through a documentary record of evidence. In Great Offshore Ltd. v. Iranian Offshore Engineering and Construction Company, this Court observed that Section 7(4)(b) requires the court to ask whether a record of agreement is found in the exchange of letters, telex, telegrams, or other means of telecommunication.61 Thus, the act of agreeing by the persons or entities has to be inferred or derived by the courts or tribunals from the relevant documents and communication, neither of which can be equated with a conventional contract.

73Copy pinpoint73. The third circumstance is provided under Section 7(4)(c), according to which an arbitration agreement is in writing if it is contained in 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. A two-Judge Bench of this Court clarified in S N Prasad v. Monnet Finance Limited62 that there will be an “exchange of statements of claim and defence” for the purposes of Section 7(4)(c) if there is an assertion of the existence of an arbitration agreement in any suit, petition or application filed before any court or tribunal, and if there is no denial of it in the defence, counter, or written statement. Thus, in the third circumstance the court proceeds on the assumption that the conduct of the person or entity in not denying the existence of an arbitration agreement leads to the conclusive proof of its

60 Shakti Bhog Foods Limited v. Kola Shipping Ltd, (2009) 2 SCC 134; Trimex International FZE Ltd v. Vedanta Aluminium Ltd, (2010) 3 SCC 1 61 (2008) 14 SCC 240 62 (2011) 1 SCC 320

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existence. All the three circumstances contained in Section 7(4) are geared towards determining the mutual intention of the parties to be bound by the arbitration agreement.

74Copy pinpoint74. Section 7 of the Arbitration Act contains two aspects: a substantive aspect and a formal aspect. The substantive aspect is contained is Section 7(1) which allows parties to submit disputes arising between them in respect of a defined legal relationship to arbitration. The legal relationships between and among parties could either be contractual or non-contractual. For legal relations to be contractual in nature, they ought to meet the requirements of the Indian contract law as contained in the Contract Act. It has been shown in the preceding paragraphs that a contract can either be express or implied, which is inferred on the basis of action or conduct of the parties. Thus, it is not necessary for the persons or entities to be signatories to a contract to enter into a legal relationship – the only important aspect to be determined is whether they intended or consented to enter into the legal relationship by the dint of their action or conduct.

75Copy pinpoint75. The second aspect is contained in Section 7(3) which stipulates the requirement of a written arbitration agreement. A written arbitration agreement need not be signed by the parties if there is a record of agreement.63 The mandatory requirement of a written arbitration agreement is merely to ensure that there is a clearly established record of the consent of the parties to refer their disputes to arbitration to the exclusion of the domestic courts.

76Copy pinpoint76. Section 2(h) read with Section 7 does not expressly require the “party” to be a signatory to an arbitration agreement or the underlying contract containing the arbitration agreement. This interpretation is in line with the general trend in national and international legislations that a signature is not necessary for an arbitration agreement. The UNCITRAL Model Law as amended in 2006 lays down the writing requirement for an arbitration agreement under Article 7 in the following terms: “(3) An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means.”

63 Govind Rubber Ltd v. M/s Louis Dreyfus Commodities, (2015) 13 SCC 477

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 675 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

The above provision states that an arbitration agreement may be entered into in any form, for example orally or tacitly, as long as the content of the agreement is recorded. It eliminates the requirement of the signature of parties or an exchange of messages between the parties.

77Copy pinpoint77. Article II paragraph 2 of the New York Convention defines “agreement in writing” to include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams. Article 7 of the UNCITRAL Model Law establishes a more favourable requirement for a written arbitration agreement. In 2006, UNCITRAL recommended that the circumstances described in Article II paragraph 2 of the New York Convention “be applied recognizing that the circumstances described therein are not exhaustive.”64 Additionally, it also recommended that Article 7 paragraph 1 of the UNCITRAL Model Law should be applied “to allow any interested party to avail itself of rights it may have, under the law or treaties of the country where an arbitration agreement is sought to be relied upon, to seek recognition of the validity of such an arbitration agreement.” The Arbitration Act is largely based on the UNCITRAL Model Law. Therefore, the UNCITRAL Model Law could be referred to while construing the provisions of the Arbitration Act.65 Although the amended Section 7 of the UNCITRAL Model Law has not been adopted in the Indian law, it reflects the modern commercial reality where substance is given precedence over technical legal formalities. 66

78Copy pinpoint78. Reading Section 7 of the Arbitration Act in view of the above discussion gives rise to the following conclusions: first, arbitration agreements arise out of a legal relationship between or among persons or entities which may be contractual or otherwise; second, in situations where the legal relationship is contractual in nature, the nature of relationship can

64 UNCITRAL Model Law on International Commercial Arbitration, Recommendation regarding the interpretation of article II, paragraph 2, and article VII, paragraph 1, of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done in New York, 10 June 1958, (adopted by the UNCITRAL on 7 July 2006) 39. 65 Sundaram Finance Ltd v. NEPC India Ltd, (1999) 2 SCC 479, para 9; P Manohar Reddy and Bros v. Maharashtra Krishna Valley Development Corporation, (2009) 2 SCC 494, para 27. 66 Redfern and Hunter on International Arbitration (7th edn, Oxford University Press, 2023) para 2.23.

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be determined on the basis of general contract law principles; third, it is not necessary for the persons or entities to be signatories to the arbitration agreement to be bound by it; fourth, in case of non-signatory parties, the important determination for the courts is whether the persons or entities intended or consented to be bound by the arbitration agreement or the underlying contract containing the arbitration agreement through their acts or conduct; fifth, the requirement of a written arbitration agreement has to be adhered to strictly, but the form in which such agreement is recorded is irrelevant; sixth, the requirement of a written arbitration agreement does not exclude the possibility of binding non-signatory parties if there is a defined legal relationship between the signatory and non-signatory parties; and seventh, once the validity of an arbitration agreement is established, the court or tribunal can determine the issue of which parties are bound by such agreement.

79Copy pinpoint79. It is presumed that the formal signatories to an arbitration agreement are parties who will be bound by it. However, in exceptional cases persons or entities who have not signed or formally assented to a written arbitration agreement or the underlying contract containing the arbitration agreement may be held to be bound by such agreement. As mentioned in the preceding paragraphs, the doctrine of privity limits the imposition of rights and liabilities on third parties to a contract. Generally, only the parties to an arbitration agreement can be subject to the full effects of the agreement in terms of the reliefs and remedies because they consented to be bound by the arbitration agreement. Therefore, the decisive question before the courts or tribunals is whether a non-signatory consented to be bound by the arbitration agreement. To determine whether a non-signatory is bound by an arbitration agreement, the courts and tribunals apply typical principles of contract law and corporate law. The legal doctrines provide a framework for evaluating the specific contractual language and the factual settings to determine the intentions of the parties to be bound by the arbitration agreement.67

80Copy pinpoint80. Gary Born suggests that the legal theories and doctrines provide a basis for determining the real intent of parties to be bound by an arbitration agreement. Therefore, it is incorrect to use terminologies such as ‘extension’ of an arbitration agreement to non-signatories or ‘third parties’:

67 Gary Born (n 44) 1531.

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 677 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

“Judicial case law and commentary on international arbitration sometimes make reference to the “extension” of an arbitration agreement to non-signatories, or to “third parties” on the basis of one or more of the foregoing theories. These expression are inaccurate, in that they imply that an entity which is not a party to an arbitration agreement is nonetheless subject to that agreement’s effects, by virtue of something other than the parties’ consent. Contrary to the references to “extension” or “third parties”, most of the theories […] provide a basis for concluding that an entity is in reality a party to the arbitration agreement – which therefore does not need to be “extended” to a “third party” – because that party’s actions constitute consent to the agreement, or otherwise bind it to the agreement, notwithstanding the lack of its formal execution of the agreement. The arbitration agreement is therefore not ordinarily “extended”, but rather the true parties that have consented to the arbitration agreement are identified.”

81Copy pinpoint81. Courts and tribunals across the world have been applying traditional contractual and commercial doctrines to determine the consent of the non- signatory parties to be bound by the arbitration agreement. Generally, consent based theories such as agency, novation, assignment, operation of law, merger and succession, and third party beneficiaries have been applied in different jurisdictions. In exceptional circumstances, non-consensual theories such as piercing the corporate veil or alter ego and estoppel have also been applied to bind to bind a non-signatory party to an arbitration agreement. The group of companies doctrine is one such consent-based doctrine which has been applied, albeit controversially, for identifying the real intention of the parties to bind a non-signatory to an arbitration agreement. Group of Companies Doctrine i. Separate legal personality

82Copy pinpoint82. The phenomenon of group companies is the modern reality of economic life and business organisation. Group companies are a set of separate firms linked together in formal or informal structures under the control of a parent company. The group companies can be defined in the Indian context as “an agglomeration of privately held and publicly traded firms operating in different lines of business, each of which is incorporated as a separate legal entity, but which are collectively under the entrepreneurial,

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financial, and strategic control of a common authority, typically a family, and are linked by trust-based relationships forged around a similar persona, ethnicity, or community.”68 A group company involving the parent and subsidiary companies are created for myriad purposes such as limiting the liability of the parent corporation, facilitating international trade, entering into business ventures with investors, establishing domestic corporate residence, and avoiding tax liability.

83Copy pinpoint83. The principle of separate legal personality has been the cornerstone of corporate law. In Salomon v. Salomon,69 the House of Lords famously observed that a company is at law a different person altogether from the promoters, directors, shareholders, and employees. The principle of separate legal personality equally applies to corporate groups. A parent company is not generally held to be liable for the actions of the subsidiary company of which it is a direct or indirect shareholder. The Companies Act, 2013 70 has statutorily recognized a subsidiary company as a separate legal entity.71 Section 2(46) of the 2013 Act defines a holding company as a company of which one or more other companies are subsidiary companies. Section 2(87) defines “subsidiary company” to mean a company in which the holding company exercises control over the composition of the Board of Directors and has a controlling interest of at least 50 percent over the voting rights. Although a holding company owns a controlling interest in the subsidiary company, they are considered as separate legal entities. Group companies’ structures allow multinational corporations to structure their businesses at both the national and international level to leverage better returns for the investors and ensure business growth of the corporation.

84Copy pinpoint84. A Bench of three Judges of this Court in Vodafone International Holding BV v. Union of India72 emphasized the principles of corporate separateness in the following terms:

68 Jayati Sarkar, ‘Business Groups in India’ in Asli Coplan, Takashi Hikino, and James Lincoln (eds) The Oxford Handbook of Business Groups (2010) 299 69 [1897] AC 22 70 “2013 Act” 71 Balwant Rai Saluja v. Air India, (2014) 9 SCC 407 72 (2012) 6 SCC 613

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101. A company is a separate legal persona and the fact that all its shares are owned by one person or by the parent has nothing to do with its separate legal existence. If the owned company is wound up, the liquidator, and its parent company, would get hold of the assets of the subsidiary. In none of the authorities have the assets of the subsidiary been held to be those of the parent unless it is acting as an agent. Thus, even though a subsidiary may normally comply with the request of a parent company it is not just a puppet of the parent company. The difference is between having power or having a persuasive position. Though it may be advantageous for parent and subsidiary companies to work as a group, each subsidiary will look to see whether there are separate commercial interests which should be gained.”

85Copy pinpoint85. The separateness of corporate personality will be ignored by courts in exceptional situations where a company is used as a means by the members and shareholders to carry out fraud or evade tax liabilities. If the court, on the basis of factual evidence, determines that the company was acting as an agent of the members or shareholders, it will ignore the separate personality of the company to attribute liability to the individuals. In Tata Engineering and Locomotive Co Ltd v. State of Bihar73, the issue before a Constitution Bench of this Court was whether a company could be treated as a citizen for the purposes of maintaining a writ petition under Article 32 of the Constitution. The company urged that the corporate veil should be lifted to treat the petition as one filed by the shareholders. This Court held that the veil of a corporation can be lifted where fraud is intended to be prevented or trading with an enemy is sought to be defeated.

86Copy pinpoint86. In case of group companies, there may arise situations where a holding company completely dominates the affairs of the subsidiary company, to the extent of misusing its control, to avoid or conceal liability. In such situations, the courts apply the doctrine of “alter ego” or piercing the corporate veil to disregard the corporate separateness between the two companies and treat them as a single entity.74 In LIC v. Escorts Ltd,75 a Constitution Bench of this Court

73 (1964) 6 SCR 885 74 Gary Born (n 44) 1545. 75 (1986) 1 SCC 264

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noted that the principle of distinct legal personality may be ignored where the associate companies are inextricably connected as to be, in reality, part of one concern. Speaking for the Bench, Justice O Chinnappa Reddy observed: “90. […] Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud, or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricable connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected, etc.”

87Copy pinpoint87. The application of the doctrine of lifting the corporate veil rests on the overriding considerations of justice and equity.76 Often, the courts pierce the corporate veil when maintaining the separateness of corporate personality is found opposed to justice, convenience, and public interests.77 In Balwant Rai Saluja v. Air India,78 this Court cautioned that the principle of piercing the corporate veil should be applied in a restrictive manner and only in scenarios where it is evident that the subsidiary company was a mere camouflage deliberately created by the holding company for the purpose of avoiding liability. It was further observed that the intent of piercing the corporate veil must be such that would seek to remedy a wrong done by the holding company. In the context of arbitration, the principle of piercing the corporate veil has been sparingly used because it disregards the intention of the parties by emphasizing on the overriding considerations of good faith and equity to bind the non-signatories to an arbitration agreement.

88Copy pinpoint88. Moreover, since the companies in a group have separate legal personality, the presence of common shareholders or directors cannot lead to

76 Delhi Development Authority v. Skipper Construction Co. (P) Ltd., (1996) 4 SCC 662 77 Kapila Hingorani v. State of Bihar, (2003) 6 SCC 1 78 (2014) 9 SCC 407

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 681 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

the conclusion that the subsidiary company will be bound by the acts of the holding company. The statements or representations made by promoters or directors in their personal capacity would not bind a company. Similarly, the mere fact that the two companies have common shareholders or a common Board of Directors will not constitute a sufficient ground to conclude that they are a single economic entity. The single economic entity or the single economic unit theory imposes general enterprise liability on the corporate group. In D H N Food Distributors Ltd v. Tower Hamlets London Borough Council79, Lord Denning held that a group of three companies should be treated as a single economic entity on the basis of two factors: first, the parent company owned all the shares of the subsidiary companies to the extent that it controlled every movement of the given subsidiary companies; and second, all the three companies in the group virtually acted as partners and could not be treated separately. Thus, the determination of whether two or more companies constitute a single economic entity depends upon the concerted efforts of the companies to act in pursuance of a common endeavour or enterprise.

89Copy pinpoint89. From the above discussion, we can infer that entities within a corporate group have separate legal personality, which cannot be ignored save in exceptional circumstances such as fraud. The distinction between a parent company and its subsidiary is fundamental, and cannot be easily abridged by taking recourse to economic convenience. 80 Legally, the rights and liabilities of a parent company cannot be transferred to the subsidiary company, and vice versa, unless, there is a strong legal basis for doing so. ii. Adopting a pragmatic approach to consent

90Copy pinpoint90. In the context of arbitration law, the intention of the parties has to be derived from the words used in the arbitration agreement. While construing the arbitration agreement, it is the duty of the court to not delve deep into the intricacies of the human mind, but only consider the expressed intentions of the parties.81 The words used in the contract reflect the commercial

79 [1976] 1 WLR 852 (2) 80 Bank of Tokyo v. Karoon, (1986) 3 All ER 468 81 Kamla Devi v. Takhatmal Land, AIR 1964 SC 859; Bangalore Electricity Supply Co Ltd v. E S Solar Power (P) Ltd, (2021) 6 SCC 718

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understanding between the parties. The intention of the parties has to be ascertained from the words used in the contract, considered in light of the surrounding circumstances and the object of such contract. 82

91Copy pinpoint91. An arbitration agreement encapsulates the commercial understanding of business entities as regards to the mode and manner of settlement of disputes that may arise between them in respect of their legal relationship. In most situations, the language of the contract is only suggestive of the intention of the signatories to such contract and not the non-signatories. However, there may arise situations where a person or entity may not sign an arbitration agreement, yet give the appearance of being a veritable party to such arbitration agreement due to their legal relationship with the signatory parties and involvement in the performance of the underlying contract. Especially in cases involving complex transactions involving multiple parties and contracts, a non-signatory may be substantially involved in the negotiation or performance of the contractual obligations without formally consenting to be bound by the ensuing burdens, including arbitration.

92Copy pinpoint92. Modern commercial reality suggests that there often arise situations where a company which has signed the contract containing the arbitration clause is not always the one to negotiate or perform the underlying contractual obligations. In such situations, emphasis on formal consent will lead to the exclusion of such non-signatories from the ambit of the arbitration agreement, leading to multiplicity of proceedings and fragmentation of disputes. In A Ayyasamy v. A Paramsivam,83 this Court observed that it is the duty of the courts “to impart to that commercial understanding a sense of business efficacy.” The courts must interpret contracts in a manner that would give them a sense of efficacy rather than invalidating the commercial interests of the parties. The meaning of the contract must be gathered by adopting a common sense approach, which should “not be allowed to be thwarted by a narrow, pedantic and legalistic interpretation.”84 Therefore, there is a need to adopt a modern approach to consent, which takes into

82 Bank of India v. K Mohandas, (2009) 5 SCC 313; M Dayanand Reddy v. A P Industrial Infrastructure Corporation Ltd, (1993) 3 SCC 137 83 (2016) 10 SCC 386 84 Union of India v. D N Revri, (1976) 4 SCC 147

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 683 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

consideration the circumstances, apparent conduct, and commercial facets of business transactions.

93Copy pinpoint93. As Professor Hanotiau suggests, there is a need to adopt a modern and pragmatic approach to consent: “I would suggest that it is more accurate to refer to a modern approach to consent; an approach that is more pragmatic, more focussed on an analysis of facts, which places an emphasis on commercial practice, economic reality, trade usages, and the complex and multifaceted dimensions of large projects involving group of companies and connected agreements in multiparty multi-contract scenarios; an approach that is no longer restricted to express consent but that takes into consideration all its various expressions and tends to give much more importance than before to the conduct of the individuals or companies concerned.”85

94Copy pinpoint94. It has been urged before us that where a written arbitration agreement clearly sets out the parties to it, the courts or tribunals cannot read into the agreement an intention to bind persons or entities other than the signatory parties. Reliance was placed on Roop Kumar v. Mohan Thedani,86 where this Court observed that “wherever written instruments are appointed, either by the requirement of law, or by the contract of the parties, to be the repositories and memorials of truth, any other evidence is excluded from being used either as a substitute for such instruments, or to contradict or alter them.” Consequently, it was urged that the courts or tribunals cannot interpret the arbitration agreement in a manner so as to expand its reach to parties not named in the agreement.

95Copy pinpoint95. Arbitration law is an autonomous legal field. While the main purpose of corporate law and contract law is imputation of substantive legal liability, the main purpose behind the law of arbitration is to determine whether an arbitral tribunal has jurisdiction over the dispute arising between parties to an arbitration agreement. On the one hand, the courts and tribunals cannot lightly brush aside the decision of the parties to not make a person or

85 Bernard Hanotiau, ‘Consent to Arbitration: Do We Share a Common Vision?’ (2011) 27(4) Arbitration International 539, 554 86 (2003) 6 SCC 595

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entity a party to the arbitration agreement. The fact that the non-signatory did not put pen to paper may be an indicator of its intention to not assume any rights or responsibilities under the arbitration agreement. On the other hand, courts and tribunals cannot adopt a rigid approach to exclude all persons or entities who, through their conduct and relationship with the signatory parties, intended to be bound by the underlying contract containing the arbitration agreement. The area of arbitration law not only concerns domestic law, but it also encompasses the international law, particularly when it pertains to the enforcement of international arbitral awards. Therefore, this Court ought to adopt a balanced approach without comprising on the basic principles of arbitration law, contract law, and company law to ensure that the resultant legal framework is consistent with internationally accepted practices and principles.

96Copy pinpoint96. A formalistic construction of an arbitration agreement would suggest that the decision of a party to not sign an arbitration agreement should be construed to mean that the mutual intention of the parties was to exclude that party from the ambit of the arbitration agreement. Indeed, corporate entities have the commercial and contractual freedom to structure their businesses in a manner to limit their liability. However, there have been situations where a corporate entity deliberately made an effort to be not bound by the underlying contract containing the arbitration agreement, but was actively involved in the negotiation and performance of the contract. The level of the non-signatory party’s involvement was to the extent of making the other party believe that it was a veritable party to the contract, and the arbitration agreement contained under it. Therefore, the group of companies doctrine is applied to ascertain the intentions of the parties by analysing the factual circumstances surrounding the contractual arrangements.87

97Copy pinpoint97. Increasingly, multinational groups often adopt new and sophisticated corporate structures for execution and delivery of complex commercial transactions such as construction contracts, concession contracts, license agreements, long-term supply contracts, banking and financial transactions, and maritime contracts. For the execution of such contracts, corporate structures may take the form of groups based on equity, joint ventures, and

87 Gary Born (n 44) 1568.

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 685 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

informal alliances.88 A multi-corporate structure helps a group in adopting commercially effective models of operation as different companies can get involved at different stages of a single transaction. Often, persons or entities, who are not signatories to the underlying contract containing the arbitration agreement, are involved in the negotiation, performance, or termination of the contract. In the context of arbitration law, the challenge arises when only one member of the group signs the arbitration agreement, to the exclusion of other members. Should the non-signatories be excluded from the arbitration proceedings, even though they were implicated in the dispute which forms the subject matter of arbitration? As a response to this challenge, arbitration law has developed and adopted the group of companies doctrine, to allow or compel a non-signatory party to be bound by an arbitration agreement. iii. Group of companies doctrine – a fact based doctrine

98Copy pinpoint98. The group of companies doctrine is used in the context of companies which are related to each other by virtue of their being a part of the same corporate group. Since every company in a group has a separate legal personality, a contract formally entered by one member of a group will not be binding on the other members by virtue of the limited liability principle. The group of companies doctrine is used to bind a non-signatory company within a group to an arbitration agreement which has been signed by other member of the group.89 The underlying basis 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. In other words, the group of companies doctrine is a means of identifying the common intention of the parties to bind a non-signatory to arbitration agreement by emphasizing and analysing the corporate affiliation of the distinct legal entities.90

88 Stavros Brekoulakis, ‘Parties in International Arbitration: Consent v. Commercial Reality’ in Stavros Brekoulakis, Julian DM Lew, et al (eds) in ‘The Evolution and Future of International Arbitration’ (2016) 119, 120. 89 UNCITRAL, ‘Settlement of Commercial Disputes: Possible uniform rules on certain issues concerning settlement of commercial disputes: conciliation, interim measures of protection, written form of arbitration agreement: Report of the Secretary General’ A/CN.9/WG.II/WP.108/Add.1 (26 January 2000) 90 Gary Born (n 44) 1563.

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99Copy pinpoint99. The group of companies doctrine has been a subject of rigorous academic debate among practitioners of arbitration law and academics with domain expertise. The first view questions the necessity of adopting the doctrine by suggesting that the determination of consent in complex multi-party arbitration can be done on the basis of traditional contractual and commercial law theories. Professor Bernard Hanotiau suggests that the group of companies doctrine should be discarded because it has been used as a “shortcut to avoid legal reasoning” leading to a distorted approach by courts and arbitral tribunals.91 However, Professor Hanotiau does concede that the existence of a group of companies may be a relevant factual element to determine whether the conduct of a non-signatory party amounts to consent.

100Copy pinpoint100. In contrast, the second view suggests that the group of companies doctrine is an integral aspect of arbitration law. According to this view, the existence of specific patterns of corporate structure could be a useful factual indicator to determine the common intention of the parties to make the non-signatory a party to the arbitration agreement.92 For instance, the active involvement of a non-signatory group company in the facilitation and performance of a commercial project helmed by other signatory companies of the group can be considered as an indication that the non-signatory party also consented to arbitrate. Moreover, Gary Born also suggests that the group of companies doctrine is helpful because it allows the courts to go beyond the objective intentions of the parties to determine their dynamic subjective intentions both before, during, and after the execution of the contract.93 According to Born, the doctrine also promotes efficacy of arbitration agreements by prohibiting circumvention of arbitration through satellite litigation by non-signatory parties within a group. We are broadly in agreement with this view for the reasons to follow.

101Copy pinpoint101. The group of companies doctrine was developed by international arbitral tribunals specifically in the context of arbitration, and is not generally

91 Hanotiau (n 85) 546. 92 Stavros Brekoulakis, ‘Parties in International Arbitration: Consent v. Commercial Reality’ in Stavros Brekoulakis, Julian DM Lew, et al (eds) ‘The Evolution and Future of International Arbitration’ (2016) 119, 137. 93 Gary Born (n 44) 1568.

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 687 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

used in other areas of law.94 Although the existence of a group of companies is a necessary condition, it is not the sufficient condition to determine the intention of the parties. In almost all formulations, the courts and tribunals have cautioned that the mere membership of a non-signatory in a group of companies is not enough to bind it to the arbitration agreement. Rather, the courts need to determine: first, the existence of a group of companies; and second, the conduct of the signatory and non-signatory parties which indicate their common intention to make the non-signatory a party to the arbitration agreement.95 Thus, the group of companies doctrine is similar to other consent based doctrines such as agency, assignment, assumption, and guarantee to the extent that it is ordinarily applied as a means of identifying the common intention of the parties to bind the non-signatory to the arbitration agreement.

102Copy pinpoint102. The above position was explicitly adopted by the ICC Tribunal in Dow Chemicals (supra) where it held that an arbitration agreement signed by certain companies of a corporate group will bind the other non-signatory members only where all the parties intended and understood the non- signatories to be the “veritable parties” to the underlying contract containing the arbitration agreement based on their participation in the “conclusion, performance, or termination of the contracts”. Thus, the existence of a group of companies is a factual element that the court or tribunal has to consider when analysing the consent of the parties. It inevitably adds an extra layer of criteria to an exercise which at its core is preponderant on determining the consent of the parties in case of complex transactions involving multiple parties and agreements.

103Copy pinpoint103. In Chloro Control (supra), this Court rightly observed that a non-signatory could be subjected to arbitration provided the underlying transactions were with a group of companies and there was a clear intention of the parties to bind both the signatory as well as non-signatory parties to the arbitration agreement. This legal proposition has been reiterated in a series of subsequent decisions of this Court including Canara Bank (supra) and Discovery Enterprises (supra). Further, this Court in Cheran Properties

94 Gary Born (n 44) 1559. 95 Gary Born (n 44) 1562.

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(supra) held that the group of companies doctrine helps in decoding the layered structure of commercial arrangements to unravel the true intention of the parties to bind someone who is not formally a signatory to the contract, but has “assumed” the obligation to be bound by the actions of a signatory. This court explained the purport of the doctrine to discern the “true” party in interest: “25. […] The group of companies doctrine has been applied to pierce the corporate veil to locate the “true” party in interest, and more significantly, to target the creditworthy member of a group of companies. Through the extension of this doctrine is met with resistance on the basis of the legal imputation of corporate personality, the application of the doctrine turns on a construction of the arbitration agreement and the circumstances relating to the entry into and performance of the underlying contract.”

104Copy pinpoint104. In Cox and Kings (supra), Surya Kant, J questioned whether the principles of alter ego or piercing the corporate veil can alone justify the application of the group of companies doctrine even in the absence of implied consent. This Court in Cheran Properties (supra) clarified that there is an important distinction between the group of companies doctrine and the principle of veil piercing or alter ego. The principle of alter ego disregards the corporate separateness and the intentions of the parties in view of the overriding considerations of equity and good faith. In contrast, the group of companies doctrine facilitates the identification of the intention of the parties to determine the true parties to the arbitration agreement without disturbing the legal personality of the entity in question. Therefore, the principle of alter ego or piercing the corporate veil cannot be the basis for the application of the group of companies doctrine. iv. The determination of mutual intention

105Copy pinpoint105. In multi-party agreements, the courts or tribunals will have to examine the corporate structure to determine whether both the signatory and non-signatory parties belong to the same group. This evaluation is fact specific and must be carried out in accordance with the appropriate principles of company law. Once the existence of the corporate group is established, the next step is the determination of whether there was a mutual intention of all the parties to bind the non-signatory to the arbitration agreement.

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 689 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

106Copy pinpoint106. The group of companies doctrine requires the courts and tribunals to consider the commercial circumstances and the conduct of the parties to evince the common intention of the parties to arbitrate. It is important to note that the group of companies doctrine concerns only the parties to the arbitration agreement and not the underlying commercial contract. 96 Consequently, a non-signatory could be held to be a party to the arbitration agreement without becoming a formal party to the underlying contract. The existence of a group companies is one of the essential factors to determine whether the conduct amounts to consent but membership of a group is not sufficient in itself. This has been the consistent position of law, starting from the Dow Chemicals (supra) award, where it was observed that the common intention of the parties to bind the non-signatory party to the arbitration can be inferred from the ”circumstances that surround the conclusion and characterize the performance and later the termination of the contracts.” In other words, it was held that a non-signatory party could be considered as a “true party” to the arbitration agreement on the basis of their role in the conclusion, performance, or termination of the underlying contract containing the arbitration agreement.

107Copy pinpoint107. This Court in Chloro Controls (supra) laid down four factual indices that the courts or tribunals should consider to bind a non-signatory party to arbitration agreement. It is important to extract the relevant paragraphs in full: “72. This evolves the principle that a non-signatory could be subjected to arbitration provided these transactions were with group of 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 the arbitration can be said to include the signatory as well as the non-signatory party.”

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,

96 Gary Born (n 44) 1567

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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. Besides all this, the court would have to examine whether a composite reference of such parties would serve the ends of justice. Once this exercise is completed and the court answers the same in the affirmative, the reference of even non-signatory parties would fall within the exception afore-discussed.” (emphasis supplied)

108Copy pinpoint108. In Cox and Kings (supra), Justice Surya Kant observed a contradiction in terms of the above extracted paragraphs 72 and 73 of Chloro Controls (supra). According to Justice Surya Kant, on the one hand, Chloro Controls (supra) emphasizes on the “intention of the parties”, while on the other hand it allows joinder of non-signatory parties to arbitration proceedings “without their prior consent”. Justice Surya Kant is indeed correct in noticing this inconsistency in the observations in the above two paragraphs. Para 72 underlines mutual intent while para 73 seems to move away from it by suggesting an absence of prior consent as well. We would like to clarify that the phrase “without their prior consent” has to be construed as “without prior formal consent to the arbitration agreement or the underlying contract containing the arbitration agreement.” Reading the above two paragraphs harmoniously, it is evident that paragraph 72 emphasizes on determining the “intention of the parties” to bind a non-signatory party to an arbitration agreement. In paragraph 73, the Court deals with the tests for joining a non-signatory party which has not formally consented to the arbitration agreement. Furthermore, the said paragraph enlist the cumulative factors for deciphering the mutual intention of the parties to join non-signatory parties to the arbitration agreement. In view of the above clarification, we are of the opinion that so construed there would be no inconsistency between paragraphs 72 and 73 of Chloro Controls (supra).

109Copy pinpoint109. One of the contentions that has been raised before us pertains to the observations in paragraph 73 of Chloro Controls (supra) that the composite reference of all the parties should “serve the ends of justice”.

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 691 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

It was contended that the equity jurisdiction doesn’t generally apply to arbitration agreements because they are in the realm of private law. Since arbitration is a matter of consent, interests of justice and equity cannot be the sole grounds for invoking arbitration agreement. The primary test to apply the group of companies doctrine is by determining the intention of the parties on the basis of the underlying factual circumstances. The application of the group of companies doctrine will serve to stymie satellite litigation by non-signatory members of the corporate group, thereby ensuring the efficacy of the agreement between the parties. Avoiding multiplicity of proceedings and fragmentation of disputes is certainly in the interests of justice. However, it can never be the sole consideration to invoke the group of companies doctrine.

110Copy pinpoint110. In Discovery Enterprises (supra), this Court refined and clarified the cumulative factors that the courts and tribunals should consider in deciding whether a company within a group of companies is bound by the arbitration agreement: “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; (iii) The commonality of the subject-matter; (iv) The composite nature of the transactions; and (v) The performance of the contract.”

111Copy pinpoint111. Since the group of companies doctrine is a consent based theory, its application depends upon the consideration of a variety of factual elements to establish the mutual intention of all the parties involved. In other words, the group of companies doctrine is a means to infer the mutual intentions of both the signatory and non-signatory parties to be bound by the arbitration agreement. The relationship between and among the legal entities within the corporate group structure and the involvement of the parties in the performance of the underlying contractual obligations are indicators to

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determine the mutual intentions of the parties. The other factors such as the commonality of the subject matter, composite nature of the transactions, and the performance of the contract ought to be cumulatively considered and analysed by courts and tribunals to identify the intention of the parties to bind the non-signatory party to the arbitration agreement. The party seeking joinder of a non-signatory bears the burden of proof of satisfying the above factors to the satisfaction of the court or tribunal, as the case may be.

112Copy pinpoint112. Section 7 of the Arbitration Act broadly talks about an agreement by the parties in respect of a defined legal relationship, whether contractual or not. Such a legal relationship must give rise to legal obligations and duties. In a corporate group, a company may have various related companies. The legal relationship must be analysed in the context of the underlying contract containing the arbitration agreement. The nature of the contractual relationship can either be formally encrusted in the underlying contract, or it can also be inferred from the conduct of the signatory and non-signatory parties with respect to such contract. However, we clarify that mere presence of a commercial relationship between the signatory and non-signatory parties is not sufficient to infer “legal relationship” between and among the parties. If this factor is applied solely, any related entity or company may be impleaded even when it does not have any rights or obligations under the underlying contract and did not take part in the performance of the contract. The group of companies doctrine cannot be applied to abrogate party consent and autonomy. The doctrine, properly conceptualised and applied, gives effect to mutual intent and autonomy.

113Copy pinpoint113. In Canara Bank (supra), this Court observed that the group of companies doctrine can also be invoked in cases where a “tight group structure with strong organisational and financial links, so as to constitute a single economic unit, or a single economic reality.” In Cox and Kings (supra), Justice Surya Kant observed that applying this approach has the tendency to overlook the principle of corporate separateness and dispense with the consent of the parties. There is weight in the caution expressed by Justice Surya Kant. The presence of commercial relationships between a party and a non-signatory cannot be the sole criteria to bind non-signatory parties to the arbitration agreement. Adopting such an approach would bind all the non-signatories within a corporate group, even though they are not

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 693 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

related to the contractual obligations under consideration, to the arbitration agreement. Consequently, such an approach will lead to the violation of the basic legal tenet of arbitration – the necessity of consent, either express or implied, to be bound by an arbitration agreement. Moreover, the imposition of liability on a non-signatory company within a group for the acts of other members of the group merely on the basis of the fact that they belong to a “single economic unit” will ride roughshod over the principle of distinct corporate personality. The objective of the group of companies doctrine is to identify the mutual intentions of the parties without disregarding the legal personality of the entities.

114Copy pinpoint114. In Dow Chemicals (supra), it was held that a group of companies constitutes the same economic reality, which has to be considered by the arbitral tribunal while deciding on its jurisdiction. According to the tribunal, the presence of the group of companies is merely an additional factor that the tribunal may consider to determine the mutual intention of the parties. In Canara Bank (supra), this Court did not apply the group of companies doctrine solely on the basis that the companies belonged to a single economic unit. Rather, it was held that there was an implied or tacit consent by the non-signatory party (CANFINA) to being impleaded in the arbitral proceedings. The presence of strong organizational links and financial links between the signatory and non-signatory parties is only one of the factual elements that the court or tribunal may consider to determine the legal relationship between the signatory and non-signatory parties. We accordingly clarify that the principle of “single economic entity” cannot be used as a sole basis to invoke the group of companies doctrine.

115Copy pinpoint115. In case of multiple parties, the necessity of a common subject- matter and composite transaction is an important factual indicator. An arbitration agreement arises out of a defined legal relationship between the parties with respect to a particular subject matter. Commonality of the subject matter indicates that the conduct of the non-signatory party must be related to the subject matter of the arbitration agreement. For instance, if the subject matter of the contract underlying the arbitration agreement pertains to distribution of healthcare goods, the conduct of the non-signatory party should also be connected or in pursuance of the

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contractual duties and obligations, that is, pertaining to the distribution of healthcare goods. The determination of this factor is important to demonstrate that the non-signatory party consented to arbitrate with respect to the particular subject matter.

116Copy pinpoint116. In case of a composite transaction involving multiple agreements, it would be incumbent for the courts and tribunals to assess whether the agreements are consequential or in the nature of a follow-up to the principal agreement. This Court in Canara Bank (supra) observed that a composite transaction refers to a situation where the transaction is interlinked in nature or where the performance of the principal agreement may not be feasible without the aid, execution, and performance of the supplementary or ancillary agreements.

117Copy pinpoint117. The general position of law is that parties will be referred to arbitration under the principal agreement if there is a situation where there are disputes and differences “in connection with” the main agreement and also disputes “connected with” the subject-matter of the principal agreement.97 In Chloro Controls (supra), this Court clarified that the principle of “composite performance” would have to be gathered from the conjoint reading of the principal and supplementary agreements on the one hand, and the explicit intention of the parties and attendant circumstances on the other. The common participation in the commercial project by the signatory and non- signatory parties for the purposes of achieving a common purpose could be an indicator of the fact that all the parties intended the non-signatory party to be bound by the arbitration agreement. Thus, the application of the group of companies doctrine in case of composite transactions ensures accountability of all parties who have materially participated in the negotiation and performance of the transaction and by doing so have evinced a mutual intent to be bound by the agreement to arbitrate.

118Copy pinpoint118. The participation of the non-signatory in the performance of the underlying contract is the most important factor to be considered by the courts and tribunals. The conduct of the non-signatory parties is an indicator of the intention of the non-signatory to be bound by the arbitration agreement. The intention of the parties to be bound by an arbitration agreement can

97 Olympus Superstructures (P) Ltd v. Meena Vijay Khetan, (1999) 5 SCC 651

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 695 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

be gauged from the circumstances that surround the participation of the non-signatory party in the negotiation, performance, and termination of the underlying contract containing such agreement. The UNIDROIT Principle of International Commercial Contract, 201698 provides that the subjective intention of the parties could be ascertained by having regard to the following circumstances: (a) preliminary negotiations between the parties; (b) practices which the parties have established between themselves; (c) the conduct of the parties subsequent to the conclusion of the contract; (d) the nature and purpose of the contract; (e) the meaning commonly given to terms and expressions in the trade concerned; and (f) usages.

119Copy pinpoint119. In Dow Chemicals (supra), consent of the non-signatory parties to arbitrate was implied primarily in view of their predominant participation in the conclusion, performance, and termination of contracts. Similarly, this Court in Canara Bank (supra) observed that a non-signatory entity may be bound by an arbitration agreement where a parent or a member of the group of companies is a signatory to the arbitration agreement and the non-signatory entity of the group has been engaged in the negotiation or performance of the commercial contract.

120Copy pinpoint120. In Reckitt Benckiser (supra), this Court was called upon to determine whether the representation of a purported promoter of a non- signatory entity would bind it to the said representation. In that case, the applicant entered into an agreement with an Indian company for the supply of packing materials. During the stage of negotiation, the applicant circulated a draft of the agreement by email with the Indian company. This email was reverted by one Mr. Frederick Reynders, who the applicant claimed was the promoter of a Belgian sister company of the Indian company. The Belgian

98 UNIDROIT Principles of International Commercial Contracts, 2016, Article 4.3

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company was a non-signatory to the agreement. Yet, the applicant sought to implead the Belgian company on the basis that it had participated during the negotiations preceding the execution of the agreement. This Court refused to allow the joinder of the Belgian company to the arbitration agreement on the grounds that Mr. Reynders was not the promoter of the Belgian company, and was therefore not acting in that capacity on or behalf of the company and the applicant failed to discharge its burden to prove that the Belgian company consented to the arbitration agreement.

121Copy pinpoint121. Evaluating the involvement of the non-signatory party in the negotiation, performance, or termination of a contract is an important factor for a number of reasons. First, by being actively involved in the performance of a contract, a non-signatory may create an appearance that it is a veritable party to the contract containing the arbitration agreement; second, the conduct of the non-signatory may be in harmony with the conduct of the other members of the group, leading the other party to legitimately believe that the non-signatory was a veritable party to the contract; and third, the other party has legitimate reasons to rely on the appearance created by the non-signatory party so as to bind it to the arbitration agreement. v. Threshold standard

122Copy pinpoint122. In Cox and Kings (supra), Justice Surya Kant observed that Reckitt Benckiser (supra) fixed a higher threshold of evidence for the application of the group of companies doctrine as compared to earlier decisions of this Court. This Court’s approach is Reckitt Benckiser (supra) is indicative of the fact that the mere presence of a group of companies is not the sole or determinative factor to bind a non-signatory to an arbitration agreement. Rather, the courts or tribunals should closely evaluate the overall conduct and involvement of the non-signatory party in the performance of the contract. The nature or standard of involvement of the non-signatory in the performance of the contract should be such that the non-signatory has actively assumed obligations or performance upon itself under the contract. In other words, the test is to determine whether the non-signatory has a positive, direct, and substantial involvement in the negotiation, performance, or termination of the contract. Mere incidental involvement in the negotiation or performance of the contract is not sufficient to infer the consent of the non-signatory to be bound by the underlying contract or its arbitration

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 697 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

agreement. The burden is on the party seeking joinder of the non-signatory to the arbitration agreement to prove a conscious and deliberate conduct of involvement of the non-signatory based on objective evidence.

123Copy pinpoint123. An arbitration agreement is a distinct and separate agreement from the substantive commercial contract which contains the arbitration agreement. An arbitration agreement is independent of the other terms of the contract, to the extent that nullification of the contract will not lead to invalidation of the arbitration agreement.99 The concept of separability of the arbitration agreement from the underlying contract ensures that the intention of the parties to resolve the disputes through arbitration does not vanish merely because of a challenge to the legal validity of the underlying contract.100 To join a non-signatory to arbitration, the decisive question that has to be answered is whether a non-signatory consented to the arbitration agreement, as distinct from the underlying contract containing the arbitration agreement.101

124Copy pinpoint124. Stavros Brekoulakis argues that the application of legal theories such as group of companies doctrine rests on an assumption that an arbitration agreement requires “less consent” or “less evidence of consent” than the underlying contract containing the arbitration agreement. 102 Brekoulakis further notes that the assumption that implied consent of a non-signatory to the underlying contract is sufficient to constitute consent to the arbitration agreement contained in such contract militates against the principle of separability of contracts.103

125Copy pinpoint125. The non-signatory’s participation in the negotiation, performance, or termination of the contract can give rise to the implied consent of it being bound by the contract. Brekoulakis rightly points out an anomalous situation where the legal theories such as the group of companies doctrine treat consent as a functional legal construct without actually determining the main question –

99 Reliance Industries Ltd v. Union of India, (2014) 7 SCC 603 100 Enercon (India) Ltd v. Enercon Gmbh, (2014) 5 SCC 1 101 Gary Born (n 44) 1545. 102 Stavros Brekoulakis, ‘Rethinking Consent in International Commercial Arbitration: A General Theory for Non-signatories’ (2017) 8 Journal of International Dispute Settlement 610, 621. 103 Stavros Brekoulakis, ‘Parties in International Arbitration: Consent v. Commercial Reality’ in Stavros Brekoulakis, Julian DM Lew, et al (eds) ‘The Evolution and Future of International Arbitration’ (2016) 119, 148.

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whether the arbitral tribunal has jurisdiction over the parties (and non-signatory parties) to resolve the disputes?104

126Copy pinpoint126. The involvement of a non-signatory in the negotiation, performance, or termination of the underlying contract could be an important indicator of the fact that such non-signatory accepted to be bound by the contract. However, transposition of such consent to an arbitration agreement is a legal fiction to accommodate commercial reality. The contemporary commercial reality suggests that different companies within a group often become involved in different stages of execution and performance of a contractual transaction. For instance, a non-signatory may merely participate in the performance of a contract to carry out a specific task or assist the parent company. Such incidental involvement in the contractual performance is insufficient to constitute consent to the underlying contract, let alone the arbitration agreement. Rather, it has been suggested that it should also be considered whether the commercial dispute sufficiently implicates the non-signatory party for the arbitral tribunal to exercise its jurisdiction.105 The emphasis on the scope of the jurisdiction of the arbitral tribunal with respect to the subject matter of the dispute between the signatory parties would ensure effective arbitration and prevent unnecessary fragmentation of disputes. It also adequately accounts for the lack of formal consent on behalf of the non-signatory to the arbitration agreement (and the ensuing procedural aspects such as the constitution of arbitral tribunal) by considering facts and circumstances, such as close relationship and composite transactions, which indicates that there was a mutual understanding or convergence among all the parties to treat non-signatory as parties to the arbitration agreement. 106

127Copy pinpoint127. We are of the opinion that there is a need to seek a balance between the consensual nature of arbitration and the modern commercial reality where a non-signatory becomes implicated in a commercial transaction in a number of different ways. Such a balance can be adequately achieved if the factors laid down under Discovery Enterprises (supra) are applied

104 Ibid, at 121. 105 Brekoulakis (n 102) 629. 106 Karim Youssef, ‘The Limits of Consent: The Right or Obligation to Arbitrate of Non- Signatories in Group of Companies’ in Multiparty Arbitration: Dossiers of the ICC Institute of Worlds Business Law, Volume 7 (2010) 71, 79.

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 699 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

holistically. For instance, the involvement of the non-signatory in the performance of the underlying contract in a manner that suggests that it intended to be bound by the contract containing the arbitration agreement is an important aspect. Other factors such as the composite nature of transaction and commonality of subject matter would suggest that the claims against the non-signatory were strongly inter-linked with the subject matter of the tribunal’s jurisdiction. Looking at the factors holistically, it could be inferred that the non-signatories, by virtue of their relationship with the signatory parties and active involvement in the performance of commercial obligations which are intricately linked to the subject matter, are not actually strangers to the dispute between the signatory parties.

128Copy pinpoint128. We hold that all the cumulative factors laid down in Discovery Enterprises (supra) must be considered while determining the applicability of the group of companies doctrine. However, the application of the above factors has to be fact-specific, and this Court cannot tie the hands of the courts or tribunals by laying down how much weightage they ought to give to the above factors. This approach ensures that a dogmatic emphasis on express consent is eschewed in favour of a modern approach to consent which focuses on the factual analysis, complexity of commercial projects, and thereby increases the relevance of arbitration in multi-party disputes. Moreover, it is also keeping in line with the objectives of the Arbitration Act which aims to make the Indian arbitration law more responsive to the contemporary requirements. F. The group of companies doctrine has independent existence

129Copy pinpoint129. In Cox and Kings (supra), Chief Justice Ramana observed that Chloro Controls (supra), and the series of subsequent decisions, have not appropriately dealt with the scope and ambit of the phrase “claiming through or under” as appearing under Sections 8 and 45 of the Arbitration Act. Connectedly, one of the issues that arises for the consideration of this Court is whether the phrase “claiming through or under” could be interpreted to include the group of companies doctrine.

130Copy pinpoint130. The Arbitration Act does not define the phrase “person claiming through or under” a party. A person “claiming through or under” a party is not a signatory to the contract or agreement, but can assert a right through or under the signatory party. Russel on Arbitration states that an assignee can

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invoke the arbitration agreement as a person “claiming through or under” a party to the arbitration agreement.107 An assignee takes the assigned right under a contract with both the benefit and burden of the arbitration clause.108 Similarly, the English courts have held that a transferee or subrogate can claim through or under a party to the arbitration agreement. 109 Under the English law, the typical scenarios where a person or entity can claim through or under a party are assignment, subrogation, and novation. In these situations, the assignees or representatives become successors to the signatory party’s interests under the arbitration agreement. They step into the shoes of the signatory party, from whom they derive the right to arbitrate, rather than claiming an independent right under the arbitration agreement.

131Copy pinpoint131. The scope of an arbitration agreement under the English law is limited to the parties who entered into it and those claiming through or under them.110 In Roussel-Uclaf (supra), it was held that a subsidiary company can invoke the arbitration agreement on the basis that it is “claiming through or under” the parent company because of the close relationship between the two companies. However, Roussel-Uclaf (supra) was expressly overruled by the Court of Appeal in Sancheti (supra) on the ground that a mere legal or commercial connection is not sufficient for a person to claim through or under a party to an arbitration agreement.

132Copy pinpoint132. The scope of the phrase “claiming through or under” has been evaluated by other common law jurisdictions. In Tanning Research Laboratories Inc v. O’Brien,111 the issue before the High Court of Australia was whether a liquidator could be regarded as a person “claiming through or under” a party to an arbitration agreement. The High Court construed the words “through” or “under” to hold that the liquidator had a derivative interest through the company. The relevant observation is extracted below:

107 Russel on Arbitration (23rd edn, 2007) 99 para 3-018. 108 Schiffahrts–gesellschaft Detlev von Appen v Voest Alpine Intertrading, [1997] EWCA Civ 1420. 109 Through Transport Mutual Insurance Association (Eurasia) Ltd v. New India Assurance Co Ltd, [2005] EWHC 455 (Comm); West Tankers Inc. v. Allianz Spa, [2012] EWCA Civ 27. 110 Section 82(2) of the English Arbitration Act, 1996 111 [1990] HCA 8

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“[T]he prepositions “through” or “under” convey the notion of a derivative cause of action or ground of defence, that is to say, a cause of action or ground of defence derived from the party. In other words, an essential element of the cause of action or defence must be or must have been vested in or exercisable by the party before the person claiming through or under the party can rely on the cause of action or ground of defence. A liquidator may be a person claiming through or under a company because the causes of action or grounds of defence on which he relies are vested in or exercisable by the company; a trustee in bankruptcy may be such a person because the causes of action or grounds of defence on which he relies were vested in or exercisable by the bankrupt.” The test of derivative action conveys that a third party’s cause of action is derived from the original party to the arbitration agreement. The third party cannot be saddled with new duties and liabilities to which it has not consented. They can only be held liable or entitled to the extent they derive their rights or entitlements from the original party to the agreement.

133Copy pinpoint133. The above formulation was further clarified by the Australian High Court in Rinehart v. Hancock Prospecting Pty Ltd112, where it observed that the ultimate test in Tanning Research (supra) was whether an essential element of the defence was or is vested in or exercisable by the party to the arbitration agreement. In Rinehart (supra), the Court was dealing with a situation where a signatory party had assigned mining tenements in breach of trust. It was held that assignees stand in the same position vis-à-vis the claimant as the assignor since the “assignee [took] its stand upon a ground which [was] available to the assignor.” The Court concluded that the assignees were persons claiming through or under the signatory parties on the basis that the parties to the arbitration agreement had agreed that any dispute as to the beneficial title to the mining tenements would be determined by arbitration. Since the third parties accepted the benefits of the agreement, it was held that they must also accept the burdens of its stipulated conditions, including arbitration.

112 [2019] HCA 13

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134.In Rinehart (supra), the Australian High Court’s approach is similar to the doctrine of equitable estoppel developed by the US Courts, to the effect that a non-signatory party who elects to take the benefit of some aspects of the contract, must also accept the burden of it. 113 However, we cannot adopt the Rinehart (supra) position in the context of the phrase “claiming through or under” as doing so would be contrary to the common law position and the legislative intent underpinning the Arbitration Act, as will be discussed below.

135Copy pinpoint135. An analysis of the cases cited above establishes the following propositions of law: first, the typical scenarios where a person or entity can claim through or under a party are assignment, subrogation, and novation; second, a person “claiming through or under” can assert a right in a derivative capacity, that is through the party to the arbitration agreement, to participate in the agreement; third, the persons claiming through or under do not possess an independent right to stand as parties to an arbitration agreement, but as successors to the signatory parties’ interest; and fourth, mere legal or commercial connection is not sufficient for a non-signatory to claim through or under a signatory party. i. Party and Persons “claiming through or under” are different

136Copy pinpoint136. The 246th Law Commission suggested that the definition of “party” under section 2(1)(h) of the Arbitration Act be amended to include the words “or any persons claiming through or under such party”. The Commission reasoned that in appropriate contexts, a party also include persons “claiming through or under” a signatory party such as successors-in-interest. However, the suggested amendment was not carried out by Parliament.

137Copy pinpoint137. The word “claim” is of very extensive significance embracing every species of legal demand. In the ordinary sense, it means to demand as one’s own or as one’s right.114 A “claim” also means assertion of a cause of action.115 The expression “through” connotes “by means of, in consequence

113 Vicky Priskich, ‘Binding non-signatories to arbitration agreements – who are person ‘claiming through or under’ a party?’ (2019) 35(3) Arbitration International 375-386. 114 Black’s Law Dictionary (5th edn, 1979) 224 115 P Ramanatha Aiyar’s, The Law Lexicon (1997) 330

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 703 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

of, by reason of.”116 The term “under” is used with reference to an inferior or subordinate position. P Ramanatha Aiyar’s Law Lexicon defines “claiming under” or “claiming under him” to denote a person putting forward a claim under derived rights.117 When the above definitions are read harmoniously, it gives rise to an inference that a person “claiming through or under” is asserting their legal demand or cause of action in an intermediate or derivative capacity. We can also conclude that a person “claiming through or under” has inferior or subordinate rights in comparison to the party from which it is deriving its claim or right. Therefore, a person “claiming through or under” cannot be a “party” to an arbitration agreement on its own terms because it only stands in the shoes of the original signatory party.

138Copy pinpoint138. An arbitration is founded upon the consent of the parties to refer their disputes to an alternative dispute resolution mechanism. Consequently, third parties typically cannot be compelled to arbitrate based on an agreement to which they have not consented. The phrase “claiming through or under” has not been used either in Section 2(1)(h) or Section 7 of the Arbitration Act. This is because those provisions are based on the concept of party autonomy and party independence, which requires the party to provide consent to submit their disputes to arbitration. On the contrary, a person claiming through or under a party to an arbitration agreement is merely standing in the shoes of the original party to the extent that it is merely agitating the right of the original party to the arbitration agreement.

139Copy pinpoint139. The phrase “claiming through or under” has been used in Sections 8, 35, and 45 in their specific contexts. Section 8 contains a mandate that when an action is brought before a judicial authority which is the subject of an arbitration agreement, the dispute shall be referred to arbitration on an application made by a party or any person claiming through or under him. As mentioned above, the phrase “claiming through or under” was inserted in Section 8 to bring it in line with Section 45. Sections 8 and 45 are peremptory in nature mandating the court to refer the parties to arbitration if there is a valid arbitration agreement.118 In A Ayyasamy (supra), it was held

116 Black’s Law Dictionary (5th edn, 1979) 1328 117 P Ramanatha Aiyar’s, The Law Lexicon (1997) 331 118 Agri Gold Exims Ltd v. Sri Lakshmi Knits & Wovens, (2007) 3 SCC 686

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that Section 8 imposes an affirmative obligation on every judicial authority to “hold down parties to the terms of the agreement entered into between them to refer disputes to arbitration.”119 Thus, the legislative intent behind Sections 8 and 45 is to ensure that parties fulfil their mutual intention of settling disputes arising between or among them by way of arbitration.

140Copy pinpoint140. Section 35 of the Arbitration Act provides that an arbitral award shall be final and binding on the parties and persons claiming under them respectively. In Cheran Properties (supra), this Court rightly observed that the expression “persons claiming under them” is “a legislative recognition of the doctrine that besides the parties, an arbitral award binds every person whose capacity or position is derived from and is the same as a party to the proceedings.” It was further observed that “[h]aving derived its capacity from a party and being in the same position as a party to the proceedings binds a person who claims under it.” Similarly, Section 73 also provides that a settlement agreement signed by the parties shall be final and binding “on the parties and persons claiming under them respectively.”

141Copy pinpoint141. Sections 8, 35, and 45 use the phrase “parties or any person claiming through or under”. The word “or” is used in Section 8 and 45 as a disjunctive particle to express an alternative or give a choice between “parties” or “any person claiming through or under”. Consequently, either the party to an arbitration agreement or any person claiming through or under the party can make an application to the judicial authority to refer the dispute to arbitration. It is in the interest of respecting the intention of the parties and promoting commercial efficacy, that the above provisions allow either the party or any person “claiming through or under him” to refer the disputes to arbitration.

142Copy pinpoint142. On the other hand, Sections 35 and 73 use the phrase “parties and persons claiming under them”. The use of the word “and” in Sections 35 and 73 conveys the idea that “parties” is to be added or taken together with the subsequent phrase “any person claiming through or under.” The above provisions provide that an arbitration award binds not only the parties but also all such persons who derive their capacity from the party to the arbitration agreement. Again, the foundational basis for this provision is

119 (2016) 10 SCC 386

COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 705 [DR. DHANANJAYA Y CHANDRACHUD, CJI]

commercial efficacy as it ensures that an arbitral award leads to finality, such that both the parties and all persons claiming through or under them do not reagitate the claims. Moreover, the use of the word “and” in Sections 35 and 73 leads to an unmistakable conclusion that 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. ii. The approach adopted by this Court in Chloro Controls is Incorrect

143Copy pinpoint143. This Court in Chloro Controls (supra) observed: first, that the use of the expression “any person” reflects the legislative intent of enlarging the scope of the words beyond the “parties” who are signatory to the arbitration agreement; second, a signatory party to an arbitration agreement may have a legal relationship with the party claiming through or under the party on the basis of the group of companies doctrine; and third, in case of a multi-party contract, a subsidiary company which “derives” its basic interest from the parent contract would be covered under the expression “claiming though or under.”

144Copy pinpoint144. The first proposition of law relies on the construction of the expression “any person” to conclude that the language of Section 45 has wider import. However, the expression “any person” cannot be singled out and construed devoid of its context. The context, in terms of Section 8 and 45, is provided by the subsequent phrase – “claiming through or under”. Therefore, such “any persons” are acting only in a derivative capacity. Since an arbitration agreement excludes the jurisdiction of national courts, it is essential that the parties consent, either expressly or impliedly, to submit their dispute to the arbitral tribunal.

145Copy pinpoint145. The second and third proposition of law states that a non-signatory party may claim through or under a signatory party by virtue of its legal or commercial relationship with the latter. However, this proposition is contrary to the common law position as evidenced in Sancheti (supra) and Tanning Research Laboratories (supra) according to which a mere legal or commercial connection is not sufficient to allow a non-signatory to claim through or under a party to the arbitration agreement. In A Ayyasamy (supra), this Court observed that the Arbitration Act should be interpreted “so as to bring in line the principles underlying its interpretation in a manner that is