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Group of Companies Doctrine

Group of Companies Doctrine:

A Constitution Bench of the Supreme Court recently held that an arbitration agreement can bind non-signatories as per the “group of companies” doctrine

  • The “group of companies” doctrine states that a company that is a non-signatory to an arbitration agreement would be bound by the agreement if such a company is a member of the same group of companies that signed the agreement.
  • The doctrine deems that the parties to the arbitration agreement mutually intended for such a non-signatory to be bound by it.
  • Arbitration is a mechanism to resolve disputes between parties without going to court.
  • A neutral person is appointed to adjudicate the dispute, and the judgement of an arbitrator is legally enforceable.
  • The “group of companies” concept, unlike other non-signatory theories that are based on domestic law principles, is based on international arbitration jurisprudence.
  • The doctrine was first recognised by the Indian Supreme Court in Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. (2013). Since then, Indian courts have applied the doctrine to bind group companies of signatories to arbitration agreements.
  • The main purpose behind bringing the ‘group of companies’ doctrine in India was to prevent fragmentation of disputes in composite transactionse., disputes consisting of several parties and multiple contracts.