CASE COMMENTARY: Cox and Kings Ltd. vs SAP India Pvt. Ltd. & Anr Aniket Murarka Legal Article Tue, Mar 05, 2024, at ,09:32 PM CASE TITLE Cox and Kings Ltd. vs SAP India Pvt. Ltd. & Anr. CASE NO Arbitration Petition (Civil) No. 38 of 2020 CITATION 2023 INSC 1051 DATE OF ORDER 06.12.2023 JURISDICTION THE SUPREME COURT OF INDIA CORAM Hon’ble Justice Dr. Dhananjaya Y Chandrachud. AUTHOR OF THE JUDGMENT Hon’ble Justice Dr. Dhananjaya Y Chandrachud APPELLANT Cox and Kings Ltd RESPONDENT SAP India Pvt. Ltd. & Anr INTRODUCTION:-CJI Chandrachud defined “group of companies” 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, 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.”A common criticism of the GOCD is that it violates the principle of “separate legal personality”, a cornerstone of corporate law. As per the Companies Act, subsidiary companies have been statutorily recognized as separate legal entities. However, in exceptional situations, when the holding company dominates the affairs of the subsidiary company, the court applies what is called the ‘doctrine of alter ego’, or ‘piercing the corporate veil’. This is applied only when the maintenance of the principle of separate corporate personalities opposes justice, convenience and public interest. The judgment reiterated that the only cases in which the fundamental principle of separateness of corporate personalities is breached would be in exceptional situations of fraud and such.The judgment pointed to the need to adopt a pragmatic approach to consent without compromising on the fundamental principles of arbitration law, contract and company law.The Chief concluded that the GOCD would be applied when the involvement of the non-signatories was to the extent of making the parties believe that they were genuine parties to the contract. Therefore, the underlying basis for the application of the GOCD rests on maintaining the separateness of the corporate entities while determining their mutual intention to be bound by an arbitration agreement. The judgment also noted that the existence of a group of companies is a “factual element” that the Court or tribunal has to reconsider while analyzing the consent of the parties. The judgment distinguishes between ‘piercing the corporate veil doctrine’ and the GOCD. While the former disregards corporate separateness, the latter identifies the mutual intention of the separate legal entities to enter into the arbitration agreement without disturbing the separateness of legal personalities.To identify this mutual intent, the judgment said, “circumstances that surround the conclusion and characterize the performance and later the termination of contracts” must be considered.FACTS:- Mr Hiroo Advani, learned counsel appearing for the petitioner in Arbitration Petition No. 38 of 2020, made the following submissions: The basis for the application of the group of companies doctrine is the tacit or implied consent by the non-signatory to be bound by the arbitration agreement; The definition of “party” under Section 2(1)(h) of the Arbitration Act cannot be restricted to the signatories to an arbitration agreement. The definition should be read expansively to also include non-signatories depending upon the facts and circumstances;Section 7 of the Arbitration Act provides that the defined legal relationship between the parties may be non-contractual as well. Moreover, Section 7(4)(b) indicates that a non-signatory could be bound by an arbitration agreement if in the course of a written communication, it has demonstrated an intention to be bound by the agreement; and The group of companies doctrine should ideally be applied by the arbitral tribunal. At the stage of referral, the court should merely take a prima facie view and leave it for the arbitral tribunal to determine the necessity of joining the non-signatories to the arbitration agreement. Mr Darius J Khambata, learned senior counsel appearing for the respondents in SLP (C) No. 8607 of 2022, made the following submissions: The applicability of the group of companies doctrine must be examined from the touchstone of whether a non-signatory could be made a party to the arbitration agreement. The expression “claiming through or under” a party cannot be the basis to apply the doctrine; The doctrine is a consensual theory premised on the existence of a dispute arising from a defined legal relationship and mutual intention of the parties to be bound by the arbitration agreement. The intention of the nonsignatory has to be ascertained from the cumulative factors laid down in Chloro Controls (supra);Mutual consent of the parties to refer disputes arising out of their defined legal relationship to arbitration is the essential ingredient of an arbitration agreement. It would be against the concept of party autonomy to bind a non-signatory to an arbitration agreement without ascertaining their consent; The concept of “party” to an arbitration agreement is distinct from the concept of “person claiming through or under” a party. The latter expression conveys the notion of a derivative cause of action where the non-signatory steps into the shoes of the party rather than claiming an independent right under the agreement. The typical scenarios where a person claims through or under a party are assignment, subrogation, and novation; and f. Concepts such as ‘tight group structure’ and ‘single economic unit’ cannot be the sole basis to invoke the group of companies doctrine. This doctrine cannot be applied to bind a non-signatory merely on account of it being under the ownership, control, or supervision of the signatory party; other counsel also presented their respective arguments. The arguments advanced by advocates on both sides of the aisle indicate that this Constitution Bench has been primarily called upon to determine the validity of the group of companies doctrine in Indian arbitration jurisprudence. However, there are other broad ancillary issues which have been raised by the learned counsel. These include: (i) whether the Arbitration Act allows the joining of a non-signatory as a party to an arbitration agreement; and, (ii) whether Section 7 of the Arbitration Act allows for determination of an intention to arbitrate on the basis of the conduct of the parties. This Bench will address the issues arising out of the order of reference as well as the abovementioned ancillary issues in due course. SUBMISSIONS OF THE PETITIONER:The Petitioner argued that the Respondent No. 1 was a wholly owned subsidiary of the Respondent No.2 and customisation would be only possible through the aid of Respondent No. 2, therefore all the four agreements and email exchanges between all the parties constitutes a composite agreement and will become part of the single transaction.It relied on Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. to contend that arbitration can be invoked even against the non-signatories if mutual intention of the parties can be shown. It was also argued that as Section 11 of the Act has limited scope, the intervention by the Hon’ble Supreme Court should be minimal and thus the Court at this stage should only examine the existence of a valid arbitration agreement.SUBMISSIONS OF THE RESPONDENT(s):The Respondent No.1 argued that when the Clause 15.7 of the GTC was invoked, the Petitioner itself had challenged it on the ground of the GTC being void ab initio. Therefore, the reliance on the same provision cannot be invoked by the Petitioner in order to appoint an Arbitrator.On the other hand, Respondent No. 2 argued that they were a separate and independent legal entity and did not have any business dealings in India. It was further claimed that neither they were signatory to the arbitration agreement nor have they expressly or impliedly agreed to be bound by the terms of the agreement.The Respondent No. 2 further contended that the emails on which Petitioner has relied, does not reflect any participation from Respondent No. 2’s side therefore they were not involved in the contract negotiation process. In addition, there was no consensus among the parties to be bound by the agreement, thus the doctrine of the Group of Companies will not be applicable in the present case.ISSUE:- (i) Whether the Act allows joinder of a non-signatory as a party to an arbitration agreement? (ii) Whether section 7 of the Act allows for determination of an intention to arbitrate on the basis of the conduct of the parties? (iii) Whether the group of companies doctrine is valid and applicable in Indian arbitration law and, if so, under what circumstances and conditions?JUDGMENT:-Chief Justice DY Chandrachud, who authored the main judgment, expounded that Act does not prohibit the joinder of a non-signatory as a party to an arbitration agreement, provided that there is a defined legal relationship between the non-signatory and the parties to the arbitration agreement, and that the non-signatory has consented to be bound by the arbitration agreement, either expressly or impliedly. He further clarified that section 7 of the Act does not preclude the determination of an intention to arbitrate on the basis of the conduct of the parties, as long as such conduct is evidenced in writing or by reference to a document containing an arbitration clause. The conduct of the parties must demonstrate a clear and unequivocal intention to submit to arbitration.He established the group of companies doctrine as a valid and applicable theory in Indian arbitration law. The doctrine can be invoked to bind a non-signatory entity within a corporate group to an arbitration agreement, if the following factors are satisfied: (i) a direct relationship to the party which is a signatory to the arbitration agreement; (ii) a direct commonality of the subject-matter and the agreement between the parties being a composite transaction; (iii) the transaction being of a composite nature where performance of the mother agreement may not be feasible without the aid, execution, and performance of supplementary or ancillary agreements for achieving the common object and collectively have a bearing on the dispute; and (iv) a composite reference of such parties will serve the ends of justice.Justice Narsimha, who wrote a concurring judgment, found that the joinder of a non-signatory as a party to an arbitration agreement is a matter of contractual interpretation, which should be left to the arbitral tribunal to decide in the first instance, unless the court is satisfied that there is a prima facie case of no consent or intention to arbitrate on the part of the non-signatory. With respect to section 7 of the Act, he reiterated that the same should be construed in a flexible and purposive manner, to give effect to the true intention of the parties and the commercial realities of modern transactions. The conduct of the parties should be assessed objectively and contextually, to determine whether they have manifested an intention to arbitrate.CASE LAWS REFERRED:- In the Chloro Controls,(2013) 1 SCC 641 wherein the Court had to invoke Section 45 of the Act as many foreign parties were involved. In this case, the Court noticed the distinction between the language of Section 8 and Section 45 of the Act.The interpretation of the Chloro Controls was further expanded in Ameet Lalchand Shah v. Rishabh Enterprises, wherein four parties had executed four agreements for commissioning a Photovoltaic Solar Plant in Uttar Pradesh. The Court by invoking the amended Section 8(1) of the Act, was of the view that arbitration will extend to the non-signatory parties as well.Similarly, in Cheran Properties Ltd. v. Kasturi & Sons Ltd,(2018) 16 SCC 413 the Court by interpreting Section 35 of the Act enforced an award against a non-signatory who was not even a part of the arbitration proceedings.In Reckitt Benckiser (India) (P) Ltd. v. Reynders Label Printing (India) (P) Ltd, (2019) 7 SCC 62 the respondents were unable to prove the commonality of intention of the parties to be bound by arbitration agreement which ultimately led to the Court refusing to apply doctrine of Group of Companies.In Mahanagar Telephone Nigam Ltd. v. Canara Bank, (2020) 12 SCC 767 the Division bench of the Supreme Court observed that a third party can be attached to arbitration proceedings by using Group of Companies doctrine if a tight corporate group structure constituting a single economic reality exists.In Lakovoglou Prodromos and Co. v. SAS Amplitude,04-20842, JCP E 2007, 2018 the Cour de Cassation observed that simply the existence of a closely knit group of companies would be insufficient ground to bind a third party to an arbitration agreement.OPINION:- It clarified the relationship and distinction between the group of companies doctrine and other doctrines and principles that have been used to bind non-signatories to an arbitration agreement, such as the alter ego doctrine, the piercing the corporate veil doctrine, and the single economic unit principle. The judgment held that the group of companies' doctrine stood on its own right and did not depend on or derive from these other doctrines and principles. The judgment also held that the group of companies doctrine was not based on the concept of “persons claiming through or under” a party to the arbitration agreement, as envisaged under sections 8 and 45 of the Act. Thus, the judgment has settled the long-standing issue of binding non-signatories to arbitration agreements and has provided a comprehensive and pragmatic framework for the application of the group of companies doctrine in the Indian contextCONCLUSION:-An agreement to refer disputes to arbitration must be in a written form, as against an oral agreement, but need not be signed by the parties. Under Section 7(4)(b), a court or arbitral tribunal will determine whether a non-signatory is a party to an arbitration agreement by interpreting the express language employed by the parties in the record of agreement, coupled with surrounding circumstances of the formation, performance, and discharge of the contract. While interpreting and constructing the contract, courts or tribunals may adopt well-established principles, which aid and assist proper adjudication and determination. The Group of Companies doctrine is one such principle.