India: SC Declines To Apply 'Group Of Companies' Doctrine To Implead Foreign Company In Arbitration With Its Indian Affiliate

Last Updated: 26 July 2019
Article by Ram Bharathwaj

The Bench comprising of Justice A. M. Khanwilkar and Justice Ajay Rastogi of Hon'ble Supreme Court of India in the Judgement dated 1st July 2019 in the matter of Reckitt Benckiser (India) Private Limited versus Reynders Label Printing India Private Limited and Anr1, refused to invoke the 'group of companies' doctrine to implead a foreign company in an Application for appointment of Arbitrator for a dispute arising out of an agreement with its India affiliate.

FACTS:

In this case, Reckitt Benckiser (India) Private Limited wanted to implead a Belgian associate company (Respondent No. 2) of Reynders Label Printing India Private Limited in an Application filed under Section 11 of the Arbitration and Conciliation Act, 1996, based on the doctrine of 'groups of companies'.

The agreement was executed on May 1st 2014, between Reckitt Benckiser(India) Pvt Ltd and Reynders Label Printing (India) Pvt Ltd, the agreement was for providing packaging material to the Petitioner and its affiliates, during pre-negotiations stage, the Petitioner shared a draft of agreement along with its code of conduct and anti-bribery policy with Respondent No. 1. This email was reverted by one Mr Fredrick Reynders who as per the Petitioner was the promotor of Reynders Etiketten NV (Respondent No. 2) which is one of the group companies of Reynders Label Printing Group and is established and bound by the laws of Belgium.

The Respondents are constituents of a group of companies known as "Reynders Label Printing Group".

ISSUE: The Hon'ble Supreme Court of India considered the following question of Law and facts:

Whether the indisputable circumstances go to show that the mutual intention of the parties was to bind both the signatory as well as non-signatory parties, namely Respondent No. 1, and Respondent No. 2 respectively, qua the existence of an Arbitration agreement between the Applicant and the said Respondents.

SUBMISSIONS:

The counsel of Petitioner heavily relied on doctrine of "group of companies", based on the email sent by Mr. Fredrick Reynders, "please find attached the contract with some comments of our HQ in Belgium". The Counsel contended that the email made Respondent No. 2 a party to the agreement entered into between Respondent No.1 and the Petitioner and therefore, the Petitioner filed under Sections 11(5), 11(9) and 11(12)(a) of the Act, that the appointment of arbitrator in relation to certain disputes arising out of the agreement are binding on the Belgian Company of the Reyndes group of companies and an International Commercial Arbitration is required. Applicant opined that the Belgian company was the holding company of Reynders India.

The Respondent No. 2 contended that both Respondent No. 1 and 2 are part of the Reynders Label Printing Group, which is an internationally operating group of seven printing companies and each of these companies has its own separate legal entities and operates in different offices independently. Further these companies only share a common parent entity, namely, Reynesco NV, the Holding company of both the Respondent Companies. The Respondent no. 2 held that they had no presence or operation whatsoever in India and was not involved in the negotiation, execution and/or performance of the agreement. There was no privity of contract between the Applicant and the Respondent No. 2.

The Respondent No.2 clearly stated that Mr Fredrick Reynders was not the promotor and he was an employee of Respondent No. 1. The Signatory to the stated agreement, Mr Kari Vandenbussche, had neither exercised any managerial functions for Respondent No. 2 nor was an Authorised Representative or a Director, with any authority to appoint the said Respondent.

The Applicant vehemently relied upon the circumstances and correspondence post contract but that cannot be the basis to answer the matter in issue, the Respondent No. 2 had relied on Godhra Electricity Co. Ltd. and Anr. Vs. State of Gujarat and Anr.,2 wherein it was held that "It is enough to say that there is nothing in that decision which would prevent a court from looking into the subsequent conduct or acting's of parties to find out the meaning of the terms of a document when there is latent ambiguity:" to buttress the argument that post negotiations in law would not bind the Respondent No. 2 qua Arbitration agreement limited between the Applicant and Respondent No.1.

JUDGEMENT:

The Hon'ble Supreme Court considering, legal position as to when a non-signatory to an arbitration can be impleaded to an Arbitration agreement can be implemented and subjected to arbitration proceedings is no more res integra. In the case of Chloro Controls India Private Limited Vs Severn Trent Water Purification Inc and Ors.,3 a three Judge bench of the Hon'ble Supreme Court opined that ordinarily an arbitration takes place between the persons who have been parties to both the arbitration agreement as well as the substantive contract underlying it invoking the doctrine of " group of companies", The Bench went on to observe that an arbitration entered into by a company, being one within a group of corporate entities, can in certain circumstances, bind its non-signatory affiliates. The Same exposition has been followed and applied by another three Judge Bench of the Hon'ble Supreme Court in Cheran Properties Limited Vs. Kasturi and Sons Limited and Ors.4

Keeping in mind the exposition in Chloro Controls and Cheran Properties, the crucial question is whether it is manifest from indispensable correspondence exchanged between the parties, culminating in the agreement dated 1st May 2014, that the transactions between the Applicant and Respondent No.1, were essentially with the group of companies and whether there was a clear intention of the parties to bind both the signatory as well as non-signatory parties, qua the existence of an arbitration agreement between the Applicant and the said Respondents.

In the wake of the amended Section 11(6) read with Section 11(6A) of the Act, confined itself to the examination of existence of an arbitration agreement. No more and no less, after hearing both the sides Bench went on to dismiss the Petition while concluding that-

"Respondent No. 2 was neither the signatory to the arbitration agreement nor did have any casual connection with the process of negotiations preceding the agreement or the execution thereof, the arbitration agreement shall be dismissed as no relief can be granted to the Applicant against the Respondent No. 2.

However, with the consent of the parties other than the Respondent No. 2, Bench appointed the sole arbitrator to conduct domestic commercial arbitration at New Delhi, between the Applicant and the Respondent No. 1 on the terms and conditions as specified in the Arbitration and Conciliation Act of 1996.

CONCLUSION:

The Hon'ble Supreme Court harmoniously balanced the principles of natural justice and legislative intent to safeguard the interests of the Respondent No. 2, as the Respondent No. 2 was impleaded without any basis and no nexus prevailed between the Applicant and the Respondent No. 2. The Opportunity has been given to Applicant as well by way of arbitration proceeding against the Respondent No. 1. It shall be rightly concluded that purposive interpretation adopted by the Hon'ble Supreme Court serves the purpose of the applicability of the Doctrine of 'group of companies' in true letter and spirit.

Footnotes

1 Petition for Arbitration (Civil) No. 65 of 2016

2 (1975) 1 SCC 199

3 (2013) 1 SCC 641

4 (2018) 16 SCC 413

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions