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

Citation: 2023 INSC 1051, [2023] 15 S.C.R. 621, [2023] 15 S.C.R. 622

Court: Supreme Court of India

Bench: DR DHANANJAYA Y CHANDRACHUD, CJI, HRISHIKESH ROY, PAMIDIGHANTAM SRI NARASIMHA, J B PARDIWALA AND MANOJ MISRA, JJ.

Judgment text

SUPREME COURT OF INDIA COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. [2023] 15 S. C. R. 621 : 2023 INSC 1051 COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. (Arbitration Petition (Civil) No. 38 of 2020) DECEMBER 06, 2023 [DR DHANANJAYA Y CHANDRACHUD, CJI, HRISHIKESH ROY, PAMIDIGHANTAM SRI NARASIMHA, J B PARDIWALA AND MANOJ MISRA, JJ. ] HEADNOTES Issues for consideration: The primary issue for consideration of the present Constitution Bench of Five Judges was determination of the validity of the 'Group of companies doctrine' in Indian arbitration jurisprudence and its applicability to proceedings under the Arbitration and Conciliation Act, 1996. Earlier, the Group of Companies doctrine had been adopted and applied in Indian arbitration jurisprudence in Chloro Controls case, where a three Judge Bench of the Supreme Court had read the said doctrine into the phrase "claiming through or under" in Section 45 of the Arbitration and Conciliation Act, 1996.

The 'Group of companies doctrine' provides that an arbitration agreement which is entered into by a company within a group of companies may bind non-signatory affi liates, if the circumstances are such as to demonstrate the mutual intention of the parties to bind both signatories and non-signatories. This doctrine was called into question purportedly on the ground that it interfered with the established legal principles such as party autonomy, privity of contract, and separate legal personality. Also, there were ancillary issues such as: (i) whether the Arbitration and Conciliation Act, 1996 allows joinder of a non-signatory as a party to an arbitration agreement; (ii) whether Section 7 of the Arbitration and Conciliation Act, 1996 allows for determination of an intention to arbitrate on the basis of the conduct of the parties; and (iii) interpretation of the phrase "claiming through or under" appearing under Sections 8, 35 and 45 of the Arbitration and Conciliation Act, 1996. Ed.

Note: Hon'ble Dr. Dhananjaya Y. Chandrachud, CJI pronounced judgment on behalf of his Lordship, Hon'ble Mr. Justice Hrishikesh Roy, Hon'ble Mr. Justice J. B. Pardiwala and Hon'ble Mr. Justice Manoj Misra. Hon'ble Mr. Justice Pamidighantam Sri Narasimha pronounced a separate concurring judgment. 621 622 SUPREME COURT REPORTS [2023] 15 S. C. R. Arbitration - Arbitration agreement - Consent as the basis for arbitration: Held (per Dr. Dhananjaya Y Chandrachud, CJI) (for himself, Hrishikesh Roy, J B Pardiwala and Manoj Misra, JJ. ): Consensus ad idem between the parties forms the essential basis to constitute a valid arbitration agreement - 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. [Paras 60, 63] Arbitration and Conciliation Act, 1996 - s. 2(1)(h) r/w s. 7 - Defi nition of "parties": Held (per Dr.

Dhananjaya Y Chandrachud, CJI) (for himself, Hrishikesh Roy, J B Pardiwala and Manoj Misra, JJ. ): The defi nition of "parties" under Section 2(1)(h) read with Section 7 of the Arbitration Act includes both the signatory as well as non-signatory parties. [Para 165] Arbitration - Parties to an arbitration Agreement - Method to fi gure out: Held (per Dr. Dhananjaya Y Chandrachud, CJI) (for himself, Hrishikesh Roy, J B Pardiwala and Manoj Misra, JJ. ): 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 - The issue of who is a "party" to an arbitration agreement is primarily an issue of consent. [Para 66] Words and Phrases - Arbitration agreement - Term "nonsignatories" - Meaning of: Held (per Dr.

Dhananjaya Y Chandrachud, CJI) (for himself, Hrishikesh Roy, J B Pardiwala and Manoj Misra, JJ. ): 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 - Non- COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 623 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. [Paras 66, 127] Arbitration - Group of companies doctrine in Indian arbitration jurisprudence - Relevance -Doctrines / Principles: Held (per Dr.

Dhananjaya Y Chandrachud, CJI) (for himself, Hrishikesh Roy, J B Pardiwala and Manoj Misra, JJ. ): The group of companies doctrine is a consent-based doctrine which has been applied, for identifying the real intention of the parties to bind a non-signatory to an arbitration agreement - The group of companies doctrine should be retained in the Indian arbitration jurisprudence considering its utility in determining the intention of the parties in the context of complex transactions involving multiple parties and multiple agreements. [Paras 81, 165] Corporate Law - Principle of corporate separateness - Separate legal personality: Held (per Dr. Dhananjaya Y Chandrachud, CJI) (for himself, Hrishikesh Roy, J B Pardiwala and Manoj Misra, JJ.

): The 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 - 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 - The underlying basis for the application 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. [Paras 89, 165] Arbitration - Group of companies doctrine - Adopting a pragmatic approach to consent: Held (per Dr. Dhananjaya Y Chandrachud, CJI) (for himself, Hrishikesh Roy, J B Pardiwala and Manoj Misra, JJ.

): Corporate structures may take the form of groups based on equity, joint ventures, and informal alliances - In the context of arbitration law, the challenge 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 - The group of companies doctrine is applied to ascertain the intentions of the parties by analysing the factual circumstances surrounding the contractual arrangements.

[Paras 96 and 97] Arbitration - Group of companies doctrine - International perspectives - Precedents on applicability of the doctrine in France, England, Switzerland, Singapore and the USA - Discussed: Held (per Dr. Dhananjaya Y Chandrachud, CJI) (for himself, Hrishikesh Roy, J B Pardiwala and Manoj Misra, JJ.

): The 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 issue of binding a non-signatory to an arbitration agreement is more of a fact-specifi c aspect - 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 nonsignatory 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 nonsignatory to the arbitration agreement.

[Para 58] Arbitration - Group of companies doctrine, a fact based doctrine: Held (per Dr. Dhananjaya Y Chandrachud, CJI) (for himself, Hrishikesh Roy, J B Pardiwala and Manoj Misra, JJ. ): The existence of a group of companies is a factual element that the court or tribunal has COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 625 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. [Para 102] Arbitration - Group of companies doctrine - Mutual intention of all the parties to bind the non-signatory to the arbitration agreement - The determination of mutual intention: Held (per Dr. Dhananjaya Y Chandrachud, CJI) (for himself, Hrishikesh Roy, J B Pardiwala and Manoj Misra, JJ.

): 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 effi cacy 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. [Para 109] Arbitration - Group of companies doctrine - Applicability - Threshold standard of evidence: Held (per Dr. Dhananjaya Y Chandrachud, CJI) (for himself, Hrishikesh Roy, J B Pardiwala and Manoj Misra, JJ.

): In Discovery Enterprises case, the Supreme Court refi ned and clarifi ed 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 - All the cumulative factors laid down in Discovery Enterprises case must be considered while determining the applicability of the group of companies doctrine - However, the application of the above factors has to be fact-specifi c, and onecannot tie the hands of the courts or tribunals by laying down how much weightage they ought to give to the above factors - The principle of single economic unit cannot be the sole basis for invoking the group of companies doctrine. [Paras 110, 128 and 165] Arbitration and Conciliation Act, 1996 - ss. 8 and 45 - Phrase "claiming through or under" as appearing under ss. 8 and 45 of the Arbitration Act - Party to arbitration agreement and Persons 626 SUPREME COURT REPORTS [2023] 15 S. C. R.

"claiming through or under" a party to the arbitration agreement are diff erent: Held (per Dr. Dhananjaya Y Chandrachud, CJI) (for himself, Hrishikesh Roy, J B Pardiwala and Manoj Misra, JJ. ): A person "claiming through or under" is asserting their legal demand or cause of action in an intermediate or derivative capacity - 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 - Under the Arbitration Act, the concept of a "party" is distinct and diff erent from the concept of "persons claiming through or under" a party to the arbitration agreement - The persons "claiming through or under" can only assert a right in a derivative capacity.

[Paras 137, 165] Words and Phrases - "Claiming through or under"; "claim"; "through" and "claiming under". [Para 137] Arbitration and Conciliation Act, 1996 - s. 9 - Power of the Courts to issue directions u/s. 9: Held (per Dr. Dhananjaya Y Chandrachud, CJI) (for himself, Hrishikesh Roy, J B Pardiwala and Manoj Misra, JJ. ): The group of companies doctrine is based on determining the mutual intention to join the non-signatory as a "veritable" party to the arbitration agreement - Once a tribunal comes to the determination that a non-signatory is a party to the arbitration agreement, such non-signatory party can apply for interim measures under s. 9 of the Arbitration and Conciliation Act, 1996. [Para 153] Arbitration and Conciliation Act, 1996 - ss. 8 and 11 - Standard of determination at the referral stage - Stage of applicability of the group of companies doctrine under the Arbitration Act: Held (per Dr.

Dhananjaya Y Chandrachud, CJI) (for himself, Hrishikesh Roy, J B Pardiwala and Manoj Misra, JJ. ): When a non- signatory person or entity is arrayed as a party at Section 8 or Section 11 stage, the referral court should prima facie determine the validity or existence of the arbitration agreement, as the case may be, and leave it for the arbitral tribunal to decide whether the non-signatory is bound by the COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 627 arbitration agreement - At the referral stage, the referral court should leave it for the arbitral tribunal to decide whether the non-signatory is bound by the arbitration agreement. [Paras 163, 165] Arbitration and Conciliation Act, 1996 - s. 7 - Requirement of a written arbitration agreement u/s. 7 - Eff ect: Held (per Dr. Dhananjaya Y Chandrachud, CJI) (for himself, Hrishikesh Roy, J B Pardiwala and Manoj Misra, JJ. ): The requirement of a written arbitration agreement u/s.

7 does not exclude the possibility of binding non-signatory parties. [Para 165] Arbitration - Group of companies doctrine - Whether the principle of alter ego or piercing the corporate veil can be the basis for application of the group of companies doctrine: Held (per Dr. Dhananjaya Y Chandrachud, CJI) (for himself, Hrishikesh Roy, J B Pardiwala and Manoj Misra, JJ. ): 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 identifi cation 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 - The principle of alter ego or piercing the corporate veil cannot be the basis for the application of the group of companies doctrine.

[Paras 104, 165] Arbitration - Group of companies doctrine - Factors to be considered for application of the doctrine - Conduct of the non- signatory parties - Relevance: Held (per Dr. Dhananjaya Y Chandrachud, CJI) (for himself, Hrishikesh Roy, J B Pardiwala and Manoj Misra, JJ. ): 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 intention of the parties to be bound by an arbitration agreement can 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 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 - Conduct of the 628 SUPREME COURT REPORTS [2023] 15 S. C. R.

non-signatory parties could be an indicator of their consent to be bound by the arbitration agreement. [Paras 118, 125 and 165] Arbitration - Arbitration and Conciliation Act, 1996 - s. 2(1)(h) and s. 7 - Group of companies doctrine - Has independent existence: Held (per Dr. Dhananjaya Y Chandrachud, CJI) (for himself, Hrishikesh Roy, J B Pardiwala and Manoj Misra, JJ. ): The group of companies doctrine has an independent existence as a principle of law which stems from a harmonious reading of s. 2(1)(h) along with s. 7 of the Arbitration Act. [Para 165] Arbitration and Conciliation Act, 1996 - Group of Companies doctrine - In Chloro Controls case, a three Judge Bench of Supreme Court read the said doctrine into the phrase "claiming through or under" in s. 45 of the Arbitration Act - Challenge to. Held (per Dr. Dhananjaya Y Chandrachud, CJI) (for himself, Hrishikesh Roy, J B Pardiwala and Manoj Misra, JJ.

): The approach of the Supreme Court in Chloro Controls case to the extent that it traced the group of companies doctrine to the phrase "claiming through or under" is erroneous and against the well-established principles of contract law and corporate law. [Para 165] Arbitration - Group of companies doctrine - Applicability - Non-signatory, if party to arbitration agreement - Determination - Arbitration and Conciliation Act, 1996 s. 7(4)(b). Held (per Pamidighantam Sri Narasimha, J. ) (Concurring with Dr. Dhananjaya Y Chandrachud, CJI): 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 s.

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. [Para 56] COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 629 Arbitration - Group of companies doctrine - Arbitration agreement - Ascertaining the intention of the non-signatory. Held (per Pamidighantam Sri Narasimha, J. ) (Concurring with Dr.

Dhananjaya Y Chandrachud, CJI): The Group of Companies doctrine is also premised on ascertaining the intention of the non-signatory to be party to an arbitration agreement - The doctrine requires the intention to be gathered from additional factors such as direct relationship with the signatory parties, commonality of subject-matter, composite nature of the transaction, and performance of the contract. [Para 56] Arbitration and Conciliation Act, 1996 - s. 7(4)(b) - Inquiry by a court or arbitral tribunal under s. 7(4)(b) and Group of companies doctrine. Held (per Pamidighantam Sri Narasimha, J. ) (Concurring with Dr. Dhananjaya Y Chandrachud, CJI): Since the purpose of inquiry by a court or arbitral tribunal u/s. 7(4)(b) and the Group of Companies doctrine is the same, the doctrine can be subsumed within s.

7(4)(b) to enable a court or arbitral tribunal to determine the true intention and consent of the non- signatory parties to refer the matter to arbitration - The doctrine is subsumed within the statutory regime of s. 7(4)(b) for the purpose of certainty and systematic development of law. [Para 56] Arbitration and Conciliation Act, 1996 - ss. 2(1)(h), 7, 8 and 45 - Expression "claiming through or under" in ss. 8 and 45 - Diff erence from expression 'party' in s. 2(1)(h) and 7. Held (per Pamidighantam Sri Narasimha, J. ) (Concurring with Dr. Dhananjaya Y Chandrachud, CJI): The expression "claiming through or under" in ss. 8 and 45 is intended to provide a derivative right; and it does not enable a non-signatory to become a party to the arbitration agreement - The decision in Chloro Controls tracing the Group of Companies doctrine through the phrase "claiming through or under" in ss. 8 and 45 is erroneous - The expression 'party' in s. 2(1) (h) and s.

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23; Jayati Sarkar, 'Business Groups in India' in Asli Coplan, Takashi Hikino, and James Lincoln (eds) The Oxford Handbook of Business Groups (2010) 299; Bernard Hanotiau, 'Consent to Arbitration: Do We Share a Common Vision? ' (2011) 27(4) Arbitration International 539, 554; 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; 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); 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, 148; UNIDROIT Principles of International Commercial Contracts, 2016, Article 4. 3; Stavros Brekoulakis, 'Rethinking Consent in International Commercial Arbitration: A General Theory for Non-signatories' (2017) 8 Journal of International Dispute Settlement 610, 621; 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; Russel on Arbitration (23rd edn, 2007) 99 para 3-018; Vicky Priskich, 'Binding non-signatories to arbitration agreements - who are person 'claiming through or under' a party? ' (2019) 35(3) 634 SUPREME COURT REPORTS [2023] 15 S. C. R.

Arbitration International 375-386; Black's Law Dictionary (5th edn, 1979) 224; P Ramanatha Aiyar's, The Law Lexicon (1997) 330, 331; Black's Law Dictionary (5th edn, 1979) 1328; Ronald Dworkin, Law's Empire (Belknap Press, Harvard University Press 1986) 229 - referred to. In the judgment of Pamidighantam Sri Narasimha, J. Chloro Controls India (P) Ltd. v. Severn Trent Water Purifi cation Inc. , (2013) 1 SCC 641:[2013] 1 SCR 698 - held erroneous. Cox and Kings Ltd v. SAP India Pvt Ltd. (2022) 8 SCC 1; Vidya Drolia v. Durga Trading Corporation, (2021) 2 SCC 1 : [2020] 11 SCR 1001; Gemini Bay Transcription Pvt Ltd v. Integrated Sales Service Ltd. (2022) 1 SCC 753; Jugal Kishore Rameshwardas v. Goolbai Hormusji [1955] 2 SCR 857; Caravel Shipping Services (P) Ltd v. Premier Sea Foods Exim (P) Ltd. (2019) 11 SCC 461 : [2018] 14 SCR 289; Rickmers Verwaltung Gmbh v. Indian Oil Corporation Ltd. (1999) 1 SCC 1 : [1998] 3 Suppl. SCR 42; MTNL v.

Canara Bank, (2020) 12 SCC 767 : [2019] 11 SCR 660; Babanrao Rajaram Pund v. Samarth Builders and Developers, (2022) 9 SCC 691; KK Modi v. KN Modi, (1998) 3 SCC 573 : [1998] 1 SCR 601; Bihar State Mineral Development Corporation v. Encon Builders (I) Pvt Ltd. (2003) 7 SCC 418 : [2003] 2 Suppl. SCR 812; Shakti Bhog Foods v. Kola Shipping Ltd. (2009) 2 SCC 134 : [2008] 13 SCR 925; Smita Conductors v. Euro Alloys, (2001) 7 SCC 728 : [2001] 2 Suppl. SCR 477; Unissi (India) Pvt Ltd v. Post Graduate Institute of Medical Education and Research (2009) 1 SCC 107 : [2008] 14 SCR 108; Powertech World Wide Ltd v. Delvin international General Trading LLC (2012) 1 SCC 361 : [2011] 13 SCR 122; Govind Rubber v. Louids Dreyfus Commodities Asia Pvt Ltd. (2015) 13 SCC 477: [2014] 12 SCR 488; Nimet Resources Inc v. Essar Steels Ltd, (2000) 7 SCC 497; Bangalore Electricity Supply Company Ltd (BESCOM) v. E. S. Solar Power Pvt Ltd. (2021) 6 SCC 718; Food Corporation of India v.

Abhijit Paul 2022 SCC OnLine SC 1605; Bank of India v. K. Mohandas (2009) 5 SCC 313 : [2009] 5 SCR 118; Godhra Electricity Co Ltd v. State of Gujarat (1975) 1 SCC 199 : [1975] 2 SCR 42; McDermott International Inc v. Burn Standard Co Ltd. (2006) 11 SCC 181 : [2006] 2 Suppl. SCR 409; ONGC v. Saw Pipes Ltd. (2003) 5 SCC 705 : [2003] 3 SCR 691; Roop Kumar v. Mohan Thedani (2003) 6 SCC 595 : [2003] 3 SCR 292; Sukanya Holdings v. Jayesh H Pandya COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 635 (2003) 5 SCC 531 : [2003] 3 SCR 558; Indowind Energy Ltd v. Wescare (India) Ltd. (2010) 5 SCC 306 : [2010] 5 SCR 284; Duro Felguera, S. A. v. Gangavaram Port Ltd. (2017) 9 SCC 729 : [2017] 10 SCR 285; Cheran Properties Ltd v. Kasturi and Sons Ltd. (2018) 16 SCC 413 : [2018] 4 SCR 1063; Ameet Lalchand Shah v. Rishabh Enterprises (2018) 15 SCC 678 : [2018] 6 SCR 1001; ONGC v. Discovery Enterprises Pvt Ltd. (2022) 8 SCC 42; Reckitt Benckiser (India) Pvt Ltd v. Reynders Label Printing India Pvt Ltd.

(2019) 7 SCC 62 : [2019] 8 SCR 966; MTNL v. Canara Bank (2020) 12 SCC 767: [2019] 11 SCR 660 - referred to. Dow Chemical v. Isover Saint Gobain. ICC Case No. 4131, 23 September 1982; Dallah Real Estate and Tourism Holding Co. v. Ministry of Religious Aff airs, Government of Pakistan Case No. 9-28533, dated 17 February 2011 (Paris Cour d'Appel), [2010] UKSC 46; Malakoff Corporation Berhad and TLEMCEN Desalination Investment Company v. Algerian Energy Company SA and Hyfl ux Limited, Case No. 21-07296, dated 13 June 2023 (Paris Cour d'Appel); Peterson Farms Inc v. C&M Farming Ltd. [2004] EWHC 121 (Comm); Mayor and Commonalty & Citizens of the City of London v. Ashok Sancheti, [2008] EWCA Civ 1283; Bank of Tokyo Ltd v. Karoon, [1987] AC 45; Kabab-Ji SAL (Lebanon) v. Kout Food Group (Kuwait), [2021] UKSC 48; Manuchar Steel Hong Kong Ltd v. Star Pacifi c Line Pte Ltd. [2014] SGHC 181; GE Energy Power Conversion France SAS Corp. , FKA Converteam SAS v. Outokumpu Stainless USA, LLC, et al.

, Case No. 18-1048 (1 June 2020); McBro Planning & Dev. Co. v. Triangle Elec. Constr. Co. Inc. , 741 F. 2d 342 (11th Cir. 1984); Nauru Phosphate Royalties, Inc. v. Drago Daic Interests, Inc. 138 F. 3d 160 (5th Cir. 1998); Sarhank Group v. Oracle Corp, 404 F. 3d 657 (2nd Cir. 2005) - referred to. Lewison, The Interpretation of Contracts (6th edn, Sweet and Maxwell 2016) para 2. 01, 27; Gary Born, International Commercial Arbitration, vol 1 (3rd edn, Kluwer Law International 2021) 1531; Bernard Hanotiau, 'Chapter 14: Group of Companies in International Arbitration' in Loukas A. Mistelis and Julian D. M. Lew (ed), Pervasive Problems in International Arbitration, vol 15 (Kluwer Law International 2006), 286; Bernard Hanotiau, 'Consent to Arbitration: Do We Share a Common Vision? ' (2011) 27(4) Arbitration International 539 - referred to. 636 SUPREME COURT REPORTS [2023] 15 S. C. R.

OTHER CASE DETAILS INCLUDING IMPUGNED ORDER AND APPEARANCES CIVIL ORIGINAL/APPELLATE JURISDICTION: Arbitration Petition (Civil) No. 38 of 2020. Petition for Appointment of the Arbitral Tribunal under Section 11(6), Section 11(12)(a) of the Arbitration and Conciliation Act, 1996. With SLP (C) Nos. 8607 and 5833 of 2022. Appearances: Nakul Dewan, Sanjoy Ghose, Sr. Advs. , Hiroo Advani, Divyakant Lahoti, Ms. Madhur Jhavar, Ms. Vindhya Mehra, Parikshit Ahuja, Ms. Praveena Bisht, Kartik Lahoti, Ms. Garima Verma, Rahul Maheshwari, Ms. Shivangi Malhotra, Navdeep Dahiya, Ms. Sanjana Khatri, Ms. Ria Garg, Manav Nagpal, Karandeep Dahiya, Jeevan Ballav Panda, Ms. Shalini Sati Prasad, Satish Padhi, Ms. Meher Tandon, Gaurav Sharma, Ms. Dhriti Mehta, Rohan Naik, Ms. Nooreen Sarna, Neil Chatterjee, Ms. Tansi Fotedar, Sathvik Chandrashekhar, Rohan Mandal, M/s. Khaitan & Co. , Nagarkatti Kartik Uday, Advs. for the Petitioner. Tushar Mehta, SG, Darius J. Khambata, Ritin Rai, Ms. Meenakshi Arora, Sr.

Advs. , Rajat Nair, Kartikey Agarwal, Parantap Singh, Rohit, Rohan Batra, Ms. Sonali Malik, Harsh Vardhan Arora, Tushar Hathiramani, Rishabh Bhargava, Dhruv Sethi, Ms. Vidhi Shah, Farhad Sorabjee, Dheeraj Nair, Manish Jha, Kumar Kislay, Pratik Pawar, Siddhesh Pradhan, Ms. Shanaya Cyrus Irani, Ms. Aishna Jain, Yashvardhan, Ms. Smita Kant, Apoorv Shukla, Puneet Chahar, Ms. Prabhleen A. Shukla, Ms. Ishita Farsaiya, Ms. Kritika Nagpal, Chandratanay Chaube, Tushar Arora, Anirudh Krishnan, Balaji Srinivasan, Shiva Krishnamurti, Ms. Gauri Pasricha, Devamshu Behl, Rohan Dewan, Advs. for the Respondents. Kapil Sibal, Dr. A. M. Singhvi, A. N. Haksar, Sr. Advs. , Ajay Bhargava, Mrs. Vanita Bhargava, Aseem Chaturvedi, Ms. Trishala Trivedi, Milind Sharma, Ms. Manisha Singh, M/s. Khaitan & Co. , Ujjwal A. Rana, Himanshu Mehta for M/s. Gagrat and Co, Pallav Mongia, Debesh Panda, Pratyush Miglani, Omar Ahmad, Pranav Mago, Udbhav Gady, Ms. COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR.

637 Chandrika Sharma, Sri Aditya Kumar, Kanishk Aggarwal, Vas Dev Verma, George Pothan Poothicote, Ms. Manisha Singh, Ms. Jyoti Singh, Ashu Pathak, Arunava Mukherjee, Advs. for the Intervenors. JUDGMENT / ORDER OF THE SUPREME COURT JUDGMENT DR. DHANANJAYA Y CHANDRACHUD, CJI Table of Contents* A. The reference ............................................................................. 4 B. Submissions ............................................................................... 7 C. Legal background .................................................................... 16 i. India........ .............................................................................. 16 a. Chloro Controls ................................................................. 20 b. Development of Law after Chloro Controls ..................... 24 ii. France - The Dow Chemicals case ..................................... 29 iii.

Switzerland ......................................................................... 33 iv. England .............................................................................. 34 v. Singapore ............................................................................. 37 vi. United States of America .................................................... 38 D. Arbitration Agreement ............................................................. 41 i. Consent as the basis for arbitration ...................................... 41 ii. Parties to Arbitration Agreement ......................................... 45 E. Group of Companies Doctrine ................................................. 56 i. Separate legal personality ..................................................... 56 ii. Adopting a pragmatic approach to consent ......................... 61 iii. Group of companies doctrine - a fact based doctrine ........ 66 *Ed. Note: The pagination as per the original Judgment. iv.

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

The reference 1. More than a century ago, James Joyce published Ulysses. Joyce experimented with the narrative technique by extensively using a stream of consciousness. In its modernist narrative technique, Ulysses is feted by literary critics and novelists as a literary masterpiece. Novelists such as Vladimir Nabokov and T S Elliot eulogized it as a divine work of art. However, others such as Virginia Woolf and Aldous Huxley criticized the novel for being technical and boring. Despite the varied criticism, the legacy of Ulysses endures particularly because its experimental narrative technique challenged the conventional literary style. Similar is the case of the group of companies doctrine - a modern theory which challenges the conventional notions of arbitration law. It is celebrated by some, reviled by many others. Yet, its legacy continues. 2.

Five judges of this Court are called upon to determine the validity of the 'Group of Companies' doctrine in the jurisprudence of Indian arbitration. *Ed. Note: The pagination as per the original Judgment. COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 639 [DR. DHANANJAYA Y CHANDRACHUD, CJI] The doctrine provides that an arbitration agreement which is entered into by a company within a group of companies may bind non-signatory affi liates, if the circumstances are such as to demonstrate the mutual intention of the parties to bind both signatories and non-signatories. This doctrine is called into question purportedly on the ground that it interferes with the established legal principles such as party autonomy, privity of contract, and separate legal personality. The challenge before this Court is to fi gure out whether there can be a reconciliation between the group of companies doctrine and well settled legal principles of corporate law and contract law. 3.

A Bench of three Judges of this Court, while considering an application under Section 11(6) of the Arbitration Act and Conciliation 19961, sought to reexamine the validity of the group of companies doctrine in the Indian context on the ground that it is premised more on economic effi ciency rather than law. The Bench of three judges (speaking through the majority opinion authored by Chief Justice N. V. Ramana (as he was then), and the concurring opinion by Justice Surya Kant) doubted the correctness of the application of the doctrine by the Indian courts. 4. Chief Justice Ramana criticised the approach of a three-Judge Bench of this Court in Chloro Controls India (P) Ltd v. Severn Trent Water Purifi cation Inc2 of relying upon the phrase "claiming through or under" in Section 45 of the Arbitration Act to adopt the group of companies doctrine.

He noted that the subsequent decisions of this Court established the doctrine in Sections 8 and 35 without adequately examining the interpretation of the phrase "claiming through or under" appearing in those provisions. These decisions include: Cheran Properties Ltd v. Kasturi and Sons Ltd3, Mahanagar Telephone Nigam Ltd. v. Canara Bank4, and Oil and Natural Gas Corporation Ltd v. Discovery Enterprises Pvt. Ltd. 5 He also observed that economic concepts such as tight group structure and single economic unit alone cannot be utilized to bind a non-signatory to an arbitration agreement in the absence of an express consent. Consequently, he 1 "Arbitration Act" 2 (2013) 1 SCC 641 3 (2018) 16 SCC 413 4 (2020) 12 SCC 767 5 (2022) 8 SCC 42 640 SUPREME COURT REPORTS [2023] 15 S. C. R.

referred the matter to the larger Bench to seek clarity on the interpretation of the phrase "claiming through or under" appearing under Sections 8, 35, and 45 of the Arbitration Act by formulating the following two questions: a. Whether the phrase 'claiming through or under' in Sections 8 and 116 could be interpreted to include the 'Group of Companies' doctrine; and b. Whether the 'Group of Companies' doctrine as expounded by Chloro Controls Case (supra) and subsequent judgments is valid in law. 5. In a concurring opinion, Justice Surya Kant observed that the decisions of this Court before Chloro Controls (supra), rendered in Sukanya Holdings (P) Ltd v. Jayesh H Pandya7 and Indowind Energy Ltd v. Wescare (I) Ltd,8 adopted a "rigid" and "restrictive" approach by placing undue emphasis on formal consent. Justice Surya Kant traced the evolution of the group of companies doctrine to observe it had gained a fi rm footing in Indian jurisprudence.

However, he opined that that this Court adopted inconsistent approaches while applying the doctrine in India, which needed to be clarifi ed by a larger Bench. Accordingly, he highlighted the following questions of law for determination by the larger Bench: a. Whether the Group of Companies Doctrine should be read into Section 8 of the Act or whether it can exist in Indian jurisprudence independent of any statutory provision; b. Whether the Group of Companies Doctrine should continue to be invoked on the basis of the principle of 'single economic reality'; c. Whether the Group of Companies Doctrine should be construed as a means of interpreting implied consent or intent to arbitrate between the parties; and 6 The reference to Section 11 seems inadvertent as the phrase "claiming through or under" is not found in the said provision. Rather, Section 11 ought to be read as Section 45 where the phrase "claiming through or under" appears.

7 (2003) 5 SCC 531 8 (2010) 5 SCC 306 COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 641 [DR. DHANANJAYA Y CHANDRACHUD, CJI] d. Whether the principles of alter ego and/or piercing the corporate veil can alone justify pressing the Group of Companies Doctrine into operation even in the absence of implied consent. 6. We are not reproducing the factual matrix of the case, as we have been called upon to settle the broader legal issues raised in the reference. In the process, we will answer the above legal issues, as well as other ancillary issues that have been raised before us by counsel. B. Submissions 7. Mr Hiroo Advani, learned counsel appearing for the petitioner in Arbitration Petition No. 38 of 2020, made the following submissions: a. The basis for the application of the group of companies doctrine is the tacit or implied consent by the non-signatory to be bound by the arbitration agreement; b.

The defi nition of "party" under Section 2(1)(h) of the Arbitration Act cannot be restricted to the signatories to an arbitration agreement. The defi nition should be read expansively to also include nonsignatories depending upon the facts and circumstances; c. Section 7 of the Arbitration Act provides that the defi ned legal relationship between the parties may be non-contractual as well. Moreover, Section 7(4)(b) indicates that a non-signatory could be bound by an arbitration agreement if in the course of a written communication, it has demonstrated an intention to be bound by the agreement; and d. The group of companies doctrine should ideally be applied by the arbitral tribunal. At the stage of referral, the court should merely take a prima facie view and leave it for the arbitral tribunal to determine the necessity of joining the non-signatories to the arbitration agreement. 8. Mr Darius J Khambata, learned senior counsel appearing for the respondents in SLP (C) No.

8607 of 2022, made the following submissions: a. The applicability of the group of companies doctrine must be examined from the touchstone of whether a non-signatory could be 642 SUPREME COURT REPORTS [2023] 15 S. C. R. made a party to the arbitration agreement. The expression "claiming through or under" a party cannot be the basis to apply the doctrine; b. The doctrine is a consensual theory premised on the existence of a dispute arising from a defi ned legal relationship and mutual intention of the parties to be bound by the arbitration agreement. The intention of the non-signatory has to be ascertained from the cumulative factors laid down in Chloro Controls (supra); c. The following requirements must be met for the application of the group of companies doctrine to bind the non-signatory as a "veritable" party to the arbitration agreement: i. mutual intention of all the parties, both signatories and non- signatories, to be bound by the arbitration agreement; ii.

absolute and unqualifi ed acceptance by the non-signatory party to the arbitration agreement; and iii. such acceptance must either be expressed or implied. In the context of a non-signatory, such acceptance will be implied and manifested in the negotiation, performance, or termination of the contract; d. Mutual consent of the parties to refer disputes arising out of their defi ned legal relationship to arbitration is the essential ingredient of an arbitration agreement. It would be against the concept of party autonomy to bind a non-signatory to an arbitration agreement without ascertaining their consent; e. The concept of "party" to an arbitration agreement is distinct from the concept of "person claiming through or under" a party. The latter expression conveys the notion of a derivative cause of action where the non-signatory steps into the shoes of the party rather than claiming an independent right under the agreement.

The typical scenarios where a person claims through or under a party are assignment, subrogation, and novation; and f. Concepts such as 'tight group structure' and 'single economic unit' cannot be the sole basis to invoke the group of companies doctrine. This doctrine cannot be applied to bind a non-signatory COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 643 [DR. DHANANJAYA Y CHANDRACHUD, CJI] merely on account of it being under the ownership, control, or supervision of the signatory party; 9. Dr A M Singhvi, learned senior counsel appearing for the interveners in IA No. 92757 of 2022, made the following submissions: a. The group of companies doctrine constitutes a true and genuine eff ectuation of the real intent of the parties to subject both the signatory and non-signatory parties to the arbitration agreement; b. The doctrine is a reasonable and natural extension of the principle of piercing the corporate veil.

The application of the doctrine is also justifi ed in affi xing responsibility when the requisite and suffi cient degree of common ownership and control exists; c. The intention of the parties cannot be the only basis to join a non- signatory party to an arbitration agreement. The court can also consider non-consensual doctrines such as piercing the corporate veil, alter ego, or tight group structure; and d. The Arbitration Act does not prohibit or inhibit the adoption of the group of companies doctrine in Indian arbitration jurisprudence. On the contrary, Section 7 of the Arbitration Act provides an expansive concept of an arbitration agreement. Moreover, the legislature specifi cally amended Section 8 of the Arbitration Act by inserting the words "any person claiming through or under" to recognize and codify the reality of non-signatories acting through or under the signatory parties. 10. Mr Kapil Sibal, learned senior counsel appearing for the intervener in IA No.

56615 of 2023, made the following submissions: a. A non-signatory can be impleaded in an arbitration proceeding provided: (i) there is a defi ned legal relationship between the non- signatory and the parties to the arbitration agreement; and (ii) the nonsignatory consented to be bound by the arbitration agreement in terms of Section 7 of the Arbitration Act; b. The onus to prove the intention of the non-signatory to be bound by the arbitration agreement lies on the party seeking to implead the non- signatory; 644 SUPREME COURT REPORTS [2023] 15 S. C. R. c. In view of the requirement under Section 7 of the Arbitration Act, an arbitration agreement has to be in writing and there cannot be an oral agreement to arbitrate. Regardless, the intention of the non-signatory to be bound by the arbitration agreement can be gathered from conduct; d. Arbitration is in the realm of private law, and a matter of choice and intent of the parties.

Therefore, factors such as economic convenience, justice, or equity cannot be grounds for binding non-signatories to an arbitration agreement; and e. The cumulative factors laid down by this Court in Discovery Enterprises (supra) cannot be considered in isolation, and must be applied holistically to determine the applicability of the group of companies doctrine in a given factual matrix. 11. Mr Nakul Dewan, learned senior counsel appearing for the respondent in SLP (C) No. 8607 of 2022, made the following submissions: a. The group of companies doctrine and single economic entity doctrine are purely economic concepts without any basis in either contract law or company law. Therefore, they cannot be applied to determine the intention of non-signatories to be bound by an arbitration agreement; b. The decision of a party to not sign the arbitration agreement may form the basis to demonstrate an intent not to be bound by it; c.

The mere factum of multiple agreements or that the non-signatory was involved in the negotiation of the contract cannot form the basis to bind it to the arbitration agreement; d. The phrase "claiming through or under" which fi nds mention under Sections 8 and 45 of the Arbitration Act cannot be the basis for the application of the group of companies doctrine; and e. The determination of the intention of parties to a contract should relate only to the intention held at the time of entering into the contract, which can be gathered objectively from the text of the contract. However, Chloro Controls (supra) which considers consequential or subsequent agreements to determine the mutual intention of the parties is incorrect. COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 645 [DR. DHANANJAYA Y CHANDRACHUD, CJI] 12. Mr Ritin Rai, learned senior counsel appearing for the respondent in Arbitration Petition No. 38 of 2020, made the following submissions: a.

Section 7 of the Arbitration Act requires the arbitration agreement to be in writing. Therefore, an arbitration agreement cannot be created on the basis of implied consent of the non-signatory; b. Complex multi-party contracts are outcomes of detailed negotiations entered into after parties have fully applied their mind. To impute intention to parties in contradiction to the express terms of the agreement would defeat the purpose of the parties' memorializing their understanding in a negotiated, written document; c. An arbitration agreement which sets out the executing parties and the arbitral procedure agreed among them cannot be read to expand its reach to third parties; d. The group of companies doctrine cannot be traced to the phrase "claiming through or under" as provided under Sections 8 and 45 of the Arbitration Act; and e.

Chloro Controls (supra) erroneously failed to consider whether an implied consent derived from the conduct of a non-signatory satisfi ed the requirement of a clear intention to arbitrate. Moreover, Chloro Controls (supra) wrongly held that the courts have the discretion to refer non-signatory parties to arbitration under Sections 8 or 45 of the Arbitration Act in exceptional cases. The introduction of such a discretion brings in uncertainty in the arbitration practice in India. 13. Mr Tushar Mehta, learned Solicitor General appearing on behalf of the Union of India, made the following submissions: a. Since India follows the UNCITRAL Model Law, concepts of 'commercial element' and 'business prudence' have to be considered while interpreting the provisions of the Arbitration Act; b. The group of companies doctrine is inbuilt in the overall scheme of the Arbitration Act.

Section 7 uses the broad phrase "defi ned relationship whether contractual or otherwise" to convey that an arbitration agreement is not restricted to a conventional agreement; 646 SUPREME COURT REPORTS [2023] 15 S. C. R. c. The insertion of the words "claiming through or under" in Section 8 of the Arbitration Act is merely in furtherance of the legislative intent to confer locus on yet another category of persons to insist that the judicial authority must refer the dispute before it to arbitration; and d. If the referral court under Sections 8 and 11 cannot prima facie determine the issue of joinder of a non-signatory to the arbitration agreement on the basis of the group of companies doctrine, it can refer the issue to be decided by the arbitral tribunal. 14. Mr Sanjoy Ghose, learned senior counsel appearing on behalf of the petitioner in SLP (C) No. 8607 of 2022, made the following submissions: a.

Section 2(1)(h) uses the term "party" and not "signatory" to account for situations where a non-signatory enters the shoes of a signatory party either by succession, operation of law, assignment, or death; and b. The group of companies doctrine contravenes the provisions of corporate law by fi xing liability on an entity that is not a party to an arbitration agreement. Mere participation in the negotiation or performance of the contract cannot bind a non-signatory to the arbitration agreement in the absence of express consent. 15. Mr Pallav Mongia, learned advocate on behalf of the interveners in IA No. 58168 of 2023, submitted that Section 2(1)(h) of the Arbitration Act does not restrict the defi nition of parties to "signatories". Rather, the defi nition has to be inferred from Section 7. Section 7(4) expands the defi nition of parties to non-signatories. 16. Ms Meenakshi Arora, learned senior counsel on behalf of the respondent in SLP (C) No.

8607 of 2022, argued for de-tagging of SLP (C) No. 8607 of 2022 from the lead matter, that is Arbitration Petition No. 38 of 2020, as the former deals with power of the courts to issue directions under Section 9 of the Arbitration Act against third parties. Further, the learned senior counsel submitted that the courts can take aid of the group of companies doctrine to issue interim directions against non-signatories to the arbitration agreement. COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 647 [DR. DHANANJAYA Y CHANDRACHUD, CJI] 17. The arguments advanced by advocates on both sides of the aisle indicate that this Constitution Bench has been primarily called upon to determine the validity of the group of companies doctrine in Indian arbitration jurisprudence. However, there are other broad ancillary issues which have been raised by the learned counsel.

These include: (i) whether the Arbitration Act allows joinder of a non-signatory as a party to an arbitration agreement; and, (ii) whether Section 7 of the Arbitration Act allows for determination of an intention to arbitrate on the basis of the conduct of the parties. This Bench will address the issues arising out of the order of reference as well as the above-mentioned ancillary issues in due course. C. Legal background i. India 18. Before the enactment of the Arbitration Act, the law on arbitration was substantially contained in the Arbitration Act of 1940,9 the Arbitration (Protocol and Convention) Act of 1937, and the Foreign Awards (Recognition and Enforcement) Act of 1961. In 1978, the Law Commission of India suggested substantive amendments to the 1940 Act. Moreover, the United Nations Commission on International Trade Law10 adopted the Model Law on International Commercial Arbitration in 1985.

11 The General Assembly of the United Nations recommended all the Member States to adopt the UNCITRAL Model Law in their domestic legislation with a view to uniformize the law of arbitral procedures. 12 The Arbitration Act was enacted to consolidate and amend the law relating to arbitration. It brought the law relating to domestic and international commercial arbitration in consonance with the UNCITRAL Model Law, the New York Convention, and the Geneva Convention. 19. Section 2(1)(h) of the Arbitration Act defi nes a "party" to mean "a party to an arbitration agreement. " An "arbitration agreement" is defi ned 9 "1940 Act" 10 "UNCITRAL" 11 "UNCITRAL Model Law" 12 UN General Assembly, Fortieth Session, 'Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law' 40/72 (1985) 648 SUPREME COURT REPORTS [2023] 15 S. C. R. under Section 2(1)(b) to mean "an agreement referred to in Section 7.

" Section 7 lays down the essential elements of a valid and binding arbitration agreement. It defi nes 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 defi ned legal relationship, whether contractual or not. The provision also mandates that an arbitration agreement shall be in writing. An arbitration agreement is in writing if it is contained in: (a) a document signed by the parties; (b) an exchange of letters, telexes, telegrams, or other means of telecommunication including communication through electronic means which provide a record of the agreement; or (c) an exchange of statements of claim and defense in which the existence of the agreement in alleged by one party and not denied by the other.

Section 7(5) further stipulates that the reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if two conditions are satisfi ed. These conditions are fi rst, that the contract is in writing; and second, that the reference is such as to make the arbitration clause part of the contract. 20. An arbitration agreement, being a creature of contract,13 is based on the consent of parties to submit their disputes to an alternate dispute resolution mechanism. Generally, a party to an arbitration agreement is determined on the basis of persons or entities who are signatories to the arbitration agreement or the underlying contract containing the arbitration agreement. However, over the past two decades the law on joinder of non- signatory parties has evolved substantially. The evolution could roughly be classifi ed into two stages: before Chloro Controls (supra) and after Chloro Controls (supra). 21.

In the pre Chloro Controls (supra) era, this Court construed "parties" by limiting it only to the signatories to the arbitration agreement. In Sukanya Holdings (supra) the applicant fi led an application under Section 13 Bhaven Construction v. Executive Engineer, Sardar Sarovar Narmada Nigam Ltd, (2022) 1 SCC 75 COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 649 [DR. DHANANJAYA Y CHANDRACHUD, CJI] 8 of the Arbitration Act before the High Court and sought to enforce the arbitration agreement against both the signatories and non-signatories to the agreement. The High Court rejected the application on the ground that the non-signatories were not parties to the arbitration agreement. In appeal, this Court upheld the decision of the High Court by observing that there is no provision under the Arbitration Act stipulating what is required to be done where some parties to the suit are not parties to the arbitration agreement. In Sumitomo Corporation v.

CDC Financial Services (Mauritius) Ltd,14 this Court, while dealing with an international commercial arbitration held that a "party" to an arbitration agreement means a party to the judicial proceedings. This was expressly held to be erroneous in Chloro Controls (supra), where it was held that "party" has to be construed in view of Section 2(1)(h) to mean a party to an arbitration agreement. 22. The interpretation of the expression "party" as defi ned under Section 2(1)(h) came up for the consideration of this Court in Indowind Energy Ltd (supra). In that case, an agreement of sale was entered into by the fi rst and second respondents. The agreement described the second respondent as the 'buyer' and promoter of Indowind, the non-signatory. After a dispute arose, the fi rst respondent instituted an application under Section 11(6) of the Arbitration Act against the second respondent and Indowind.

Indowind resisted the impleadment on the ground that it was not a party to the underlying sale agreement and, therefore, had not consented to be bound by the arbitration clause. The issue before this Court was whether the arbitration agreement contained in the sale agreement was binding on Indowind. This Court refused to join Indowind to the arbitration agreement on the ground that (i) Indowind was not a signatory to the sale agreement; (ii) Indowind and the promoter company were two independent companies with a separate and distinct legal existence; and (iii) the fact that Indowind did not sign the sale agreement indicated that it was the mutual intention of all the parties to not make it a party to the arbitration agreement. 23.

The pre Chloro Controls (supra)position was characterized by three underlying precepts: (i) arbitration could be invoked at the instance of a signatory to the arbitration agreement only in respect to disputes with 14 (2008) 4 SCC 91 650 SUPREME COURT REPORTS [2023] 15 S. C. R. another signatory party;15 (ii) the court would adopt a strict interpretation of the provisions of the Arbitration Act, particularly the unamended Section 8 which only allowed reference of "parties" to an arbitration agreement; and (iii) there was an emphasis on formal consent of the parties, thereby excluding any scope for implied consent of the non-signatories to be bound by an arbitration agreement. This position of law underwent a signifi cant change when a Bench of three Judges of this Court in Chloro Controls (supra) allowed joinder of non-signatory parties to the arbitration agreement on the basis of the group of companies doctrine. a. Chloro Controls 24.

In Chloro Controls (supra) this Court was called upon to determine an arbitral reference in case of multi-party agreements where performance of the ancillary agreements was substantially dependent upon eff ective execution of the principal agreement. In that case, a foreign entity and an Indian entity incorporated a joint venture company to market and distribute chlorination equipment. With respect to the joint venture, the related companies of both the Indian and foreign entity were also involved. Consequently, the parties concluded several ancillary agreements such as a Shareholders' Agreement which contained an arbitration clause. All the contracting parties were not signatories to all the agreements, including the Shareholders' Agreement. When disputes arose between the parties, the foreign entities sought to terminate the joint venture.

The Indian entity fi led an application before the High Court seeking a declaration to restrain the foreign entities from repudiating their obligations under the agreements. In response, the foreign entities applied for referring the disputes to arbitration in view of the fact that the agreements were binding on the non-signatories because of the composite nature of the transaction. A Single Judge of the High Court granted the application of the Indian entity, which was set aside by the Division Bench of the High Court. The primary issue before this Court pertained to the ambit and scope of Section 45 of the Arbitration Act. This Court framed the issue in the following terms: "1. 3. Whether in a case where multiple agreements are signed between diff erent parties and where some contain an arbitration clause and 15 S N Prasad v. Monnet Finance Ltd, (2011) 1 SCC 320 COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 651 [DR.

DHANANJAYA Y CHANDRACHUD, CJI] others do not and further the parties are not identically common in proceedings before the court (in a suit) and the arbitration agreement, a reference of disputes as a whole or in part can be made to the Arbitral Tribunal, more particularly, where the parties to an action are claiming under or through a party to the arbitration agreement" 25. Section 45 of the Arbitration Act in its unamended form read as follows: "45. Power of judicial authority to refer parties to arbitration. -- Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in Section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, that the said agreement is null and void, inoperative or incapable of being performed.

" (emphasis supplied) In view of the language of Section 45, this Court held that the expression "any person" refl ects a legislative intent of enlarging the scope beyond "parties" who are signatories to the arbitration agreement to include non-signatories. However, the court noted that such non-signatory parties are required to claim "through or under the signatory party. " Thus, this Court accepted that arbitration is possible between a signatory to an arbitration agreement and a third party or non-signatory claiming through a party. 26. The next issue before this Court was to determine whether there was any legal relationship between the signatory and the non-signatory for the latter to "claim through or under" the former.

The court noted that the group of companies doctrine has been developed by courts and tribunals in the international context to bind a non-signatory affi liate or sister concern within the same corporate group as the signatory party, to an arbitration agreement provided there was a mutual intention of all the parties. This court emphasized that the "intention of the parties" is the underlying principle for the application of the group of companies doctrine. It observed: "72. This evolves the principle that a non-signatory party could be subjected to arbitration provided these transactions were with group of 652 SUPREME COURT REPORTS [2023] 15 S. C. R. 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 signifi cant feature which must be established before the scope of arbitration can be said to include the signatory as well as the non-signatory parties.

" (emphasis supplied) 27. The court held that a non-signatory could be subjected to arbitration "without their prior consent" in "exceptional cases" on the basis of four determinative factors: (i) A direct relationship to the party which is a signatory to the arbitration agreement; (ii) A direct commonality of the subject-matter and the agreement between the parties being a composite transaction; (iii) The transaction being of a composite nature where performance of the mother agreement may not be feasible without the aid, execution, and performance of supplementary or ancillary agreements for achieving the common object and collectively have a bearing on the dispute; and (iv) A composite reference of such parties will serve the ends of justice. 28.

In Chloro Controls (supra), this Court acknowledged that cases of composite transactions involving multi-party agreement give rise to peculiar challenges where non-signatories may be implicated in the dispute because of their legal relationship and involvement in the performance of contractual obligations. To remedy such situations, it was held that the group of companies doctrine could be applied to systematically evaluate the facts and circumstances to determine "a clear intention of the parties to bind both, the signatory as well as the non-signatory parties" to the arbitration agreement. 29. Chloro Controls (supra) was dealing with a situation where the success of the joint venture agreement was dependent upon the fulfi lment of all the ancillary agreements.

In this context, this Court observed that all the ancillary agreements were relatable to the parent agreement and the ancillary agreements were intrinsically linked with each other, to the extent that they could not be severed. This in the view of the court indicated the intention of COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 653 [DR. DHANANJAYA Y CHANDRACHUD, CJI] the parties to refer all disputes arising out of the parent agreement and ancillary agreements to the arbitral tribunal. 30. Furthermore, this Court explained the phrase "legal relationship" to mean the relationship of the signatory party with the person claiming under or through them. It observed that all the agreements were signed by "some parties or their holding companies or the companies into which the signatory company had merged.

" Although these companies did not put pen to paper for all the agreements, they were descendants in interest or subsidiaries of the signatory parties and therefore would be covered under the expression "claiming through or under" the parties to the agreement. In this context the Court observed that being part of the same corporate group, the interests of the non-signatory companies were not adverse to the interest of the principal company and the joint venture company. Therefore, the group of companies doctrine formed the basis for a non-signatory to claim through or under the signatory.

Chloro Controls (supra) laid down the ratio that a non-signatory person or entity could be made a party to an arbitration agreement, as "claiming through or under" a signatory party, if the circumstances demonstrate the mutual intention of the parties on the basis of the composite nature of the transaction, direct commonality of subject- matter, and direct relationship of the non-signatory to the signatory parties. b. Development of Law after Chloro Controls 31. In the aftermath of Chloro Controls (supra), the Law Commission of India published a Report in 2014 recommending amendments to the Arbitration Act. The Commission observed that the phrase "claiming through or under" as used and understood in Section 45 is absent in the corresponding provision of Section 8. To cure this anomaly, it was suggested that the defi nition of "party" under Section 2(1)(h) be amended to also include the expression "a person claiming through or under such party.

"16 In 2016, the legislature amended Section 8 to bring it in line with Section 45 of the Arbitration Act. The unamended Section 8(1) provided that a party to an arbitration agreement could make an application seeking a reference to arbitration. The amended Section 8(1) provided that "a party to an arbitration 16 Law Commission of India, 'Amendments to the Arbitration and Conciliation Act 1996', Report No. 246 (August 2014) 654 SUPREME COURT REPORTS [2023] 15 S. C. R. agreement or any person claiming through or under him" could seek a reference to arbitration. However, the legislature did not bring about any change in the language of Section 2(1)(h) or Section 7 of the Arbitration Act. Since Chloro Controls (supra) and the amendment to Section 8, subsequent decisions of this Court have referred to the group of companies doctrine to join non-signatories persons or entities to arbitration agreements. 32.

In Cheran Properties (supra), the issue before this Court was whether the arbitral award could be enforced under Section 35 of the Arbitration Act against a non-signatory, who was a nominee of one of the signatories to the arbitration agreement and a direct benefi ciary of the underlying contract between the signatories. Section 35 of the Arbitration Act postulates that an arbitral award "shall be fi nal and binding on the parties and persons claiming under them respectively. " This Court observed that the expression "persons claiming under them" refers to every person whose capacity or position is derived from and is same as a party to the proceedings. It held that the non-signatory, being a nominee of one of the signatory parties, was bound by the arbitral award as it was claiming under the signatory. 33.

This Court in Cheran Properties (supra) interpreted the group of companies doctrine to hold that its true purport is to enforce the common intention of the parties where the circumstances indicate that both the signatories and non-signatories were intended to be bound. One of us (D Y Chandrachud J) explained the evolution of the group of companies doctrine in the Indian context in the following terms: "23. As the law has evolved, it has recognised that modern business transactions are often effectuated through multiple layers and agreements. There may be transactions within a group of companies. The circumstances in which they have entered into them may refl ect an intention to bind both signatory and non-signatory entities within the same group. In holding a non-signatory bound by an arbitration agreement, the court approaches the matter by attributing to the transactions a meaning consistent with the business sense which was intended to be ascribed to them.

Therefore, factors such as the relationship of a non-signatory to a party which is a signatory to the agreement, the commonality of subject-matter and the COX AND KINGS LTD. v. SAP INDIA PVT. LTD. & ANR. 655 [DR. DHANANJAYA Y CHANDRACHUD, CJI] composite nature of the transaction weigh in the balance. The group of companies doctrine is essentially intended to facilitate the fulfi lment of a mutually held intent between the parties, where the circumstances indicate that the intent was to bind both signatories and non-signatories. The eff ort is to fi nd the true essence of the business arrangement and to unravel from a layered structure of commercial arrangements, an intent to bind someone who is not formally a signatory but has assumed the obligation to be bound by the actions of a signatory. " (emphasis supplied) 34.

The decision in Cheran Properties (supra) holds that the group of companies doctrine is applied to bind a non-signatory party upon a construction of the arbitration agreement, circumstances which exist at the time of entering into the contract, and the performance of the underlying contract. Nevertheless, it must be noted that Cheran Properties (supra) did not apply the group of companies doctrine to make the non-signatory a party to the arbitration agreement. Rather, this Court made the arbitral award binding on a non-signatory under Section 35 on the ground that it was claiming under a party which was a signatory to the arbitration agreement. 35. In Ameet Lalchand Shah v. Rishabh Enterprises,17 a two-Judge Bench of this Court was dealing with an arbitral dispute arising out of four interconnected agreements executed towards a single commercial project. The issue was whether the four agreements were interconnected to refer all the parties to arbitration.

In that case, all the parties were not signatories to the main agreement containing the arbitration clause. This Court relied on Chloro Controls (supra) to hold that a non-signatory, which is a party to an interconnected agreement, would be bound by the arbitration clause in the principal agreement. It observed that in view of the composite nature of the transaction, the disputes between the parties to various agreements could be resolved eff ectively by referring all of them to arbitration. 36. Over time, this Court has identifi ed certain additional factors for the invocation of the group of companies doctrine. In Reckitt Benckiser 17 (2018) 15 SCC 678 656 SUPREME COURT REPORTS [2023] 15 S. C. R. (India) Private Limited v. Reynders Label Printing India Private Limited,18 a two-Judge Bench of this Court was dealing with an application under Section 11(6) of the Arbitration Act seeking the appointment of an arbitrator.

This Court prima facie observed that the parties belonged to the same group of companies. Subsequently, the issue before this Court was whether there was a clear intention of the parties to bind both the signatory and non-signatory parties based on their participation in the negotiation of the underlying contract. The court held that the non-signatory party, even though a constituent part of the corporate group, did not have "any causal connection with the process of negotiations preceding the agreement or the execution thereof, whatsoever. " Thus, the participation of the non-signatory party in the negotiation and perfo