WILL THE ‘GROUP OF COMPANIES’ DOCTRINE SURVIVE IN INDIA?
The Indian Supreme Court recently issued (within the span of a week) diametrically different judgments relating to the ‘group of companies’ doctrine. The first – ONGC v. Discovery – reaffirms a long line of Indian decisions that have liberally applied the doctrine to bind non-signatories to arbitrations. The second – Cox & Kings v. SAP India – questions whether the approach adopted in those cases “based, more on economics and convenience rather than law” is correct.
Acknowledging that inconsistencies exist across various Supreme Court judgments, the Cox & Kings bench ruled that there is “clear need” for the court to “re-look at... the doctrinal ingredients concerning the ‘group of companies doctrine’” and has referred the matter to a larger bench. With the expectation of some serious debate as and when that larger bench is constituted, this article recounts the development of the doctrine in India, discusses the two latest decisions, and concludes with some considerations that may engage the Supreme Court when it considers the issue.
Indian law recognises the group of companies doctrine
The group of companies doctrine was upheld in 2012, for the first time, by the Supreme Court in Chloro Controls v. Severn Trent. The court ruled that in “exceptional cases” a non-signatory could be joined to an arbitration without its “prior consent”. According to the court, to assess whether such an exception is justified requires consideration of four factors: (i) the relationship between the signatories and non-signatories; (ii) direct commonality of the subject matter; (iii) the ‘composite’ nature of the transaction; and (iv) whether justice would be served by joining the non-signatory.
Oct-Dec 2022 issue
Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates