Arbitration is a creature of contract statutorily backed by the Arbitration and Conciliation Act, 1996 (act), which is intended to provide quick and efficacious alternate dispute remedies. In our experience, challenging areas in arbitration are multi-party and multi-claim proceedings. Usually, the parties to the arbitration agreement arbitrate, but the courts have applied the group of companies doctrine to bind non-signatories to the arbitration proceedings.
Over the years, the scope of the doctrine has been widened by the courts. Following such an expanded view adopted by courts, the Supreme Court recently revisited the doctrine in Cox and Kings Ltd v SAP India Pvt Ltd. Cox and Kings Ltd (CKL) entered into an agreement with SAP India (SAP) to provide software-related services. Disputes arose between the parties in relation to the implementation of the project and in 2017 SAP invoked arbitration against CKL. In October 2019, insolvency proceedings were initiated against CKL and arbitration was kept in abeyance. In November 2019, CKL sent a fresh notice invoking arbitration against SAP and its parent company. Neither SAP nor its parent company responded to the notice or appointed arbitrators. CKL applied to the Supreme Court to appoint an arbitrator in an international commercial arbitration.
The doctrine has been widely applied by the courts in previous matters. Therefore, the Supreme Court looked at it afresh and came to the conclusion that caution must be applied. The court has expressed a view that there is a clear need to re-examine the law laid down in Chloro Controls (India) Private Ltd v Severn Trent Water Purification (2013) and how it had been applied in subsequent decisions. Accordingly, the matter has been referred to a larger bench. The court has also been asked whether the phrase "claiming through or under" in sections 8 and 11 of the act can be interpreted to include the doctrine. In reaching this decision, the court noted that the doctrine originated in the year 1982 in the Dow Chemicals case, but it was a situation where the non-signatories did not resist, rather they wished to participate in the proceedings.
In Sukanya Holdings (2003), the court held that causes of action cannot be bifurcated and non-parties to the arbitration agreement cannot be included in the arbitration. The Supreme Court has criticised the decision in Chloro Controls because it seems to have taken inconsistent positions as to when a third party may be bound by the arbitration agreement. On one hand, Chloro Controls emphasised the intention of he parties to include the non-signatory party but, on the other hand went on to say that non-signatories may be added to the arbitration proceedings without their consent in exceptional cases.
The 246th Law Commission report recommended adding the words "any person claiming or through or under such party" in sections 2 and 8 of the act. The act was amended in 2015 and the commission's suggestion was incorporated into section 8, but section 2 remained unamended. The impact of not amending section 2 needs to be examined. An anomalous situation now exists where a party claiming through or under could be referred to arbitration, but would not have the right to seek interim relief under section 9 of the act.
The doctrine was further expanded in Cheran Properties Ltd v Kasturi & Sons Ltd (2018) to enforce the award against a non-signatory, even though it did not participate. The Supreme Court held that the later decisions in Reckitt Benckiser (2019) and MTNL (2020) were decided without referring to the ambit of the phrase claiming through or under in section 8 of the act. The areas that were left open in Chloro Controls have created a broad-based understanding of the doctrine that may not be sustainable and clearly go against the distinct legal identities of companies and party autonomy. Moreover, Vidya Droliya (2021) predominantly dealt with the scope of judicial interference at the referral stage and did not explore the doctrine.
It will be interesting to see how the larger bench of the Supreme Court will interpret the words "claiming through or under" in sections 8 and 11 of the act. We now await clarity from the Supreme Court.
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