Introduction
Indian courts have developed key doctrines and principles to justify impleading
non-signatories in arbitration proceedings. Let’s explore each concept in detail,
followed by key aspects of the case laws illustrating their application.
1) Group of Companies Doctrine:-
The Indian Supreme Court, in the case of Cox & Kings Ltd. v. Sap India
Pvt. Ltd. & Anr, held that non-signatories to an arbitration agreement may
be treated as parties to the arbitration under India’s ‘Group of Companies’
doctrine. The Group of Companies doctrine simplifies the process of
bringing a non-signatory “group company”—a company linked to a
signatory through formal or informal corporate structures under a common
parent—into an arbitration agreement if a shared intention to arbitrate can
be established. This intent is discerned through factors like participation in
contract negotiations, involvement in performance, or conduct during
termination of the agreement. Critics argue that the doctrine undermines
foundational principles like privity of contract, separate legal personality,
and party autonomy. However, supporters contend that it is grounded in
consent and provides practical advantages, such as preventing the
fragmentation of disputes and avoiding multiple legal proceedings.
In Chloro Controls v. Severn Trent Water Purification Inc., the Supreme
Court observed that under the Group of Companies doctrine, a nonsignatory group company could be bound by an arbitration agreement if a
mutual intention to arbitrate among all parties could be established.
However, the application of this doctrine has not been consistent across
Indian courts, leading to variability in its interpretation and
implementation.
On July 26, 2023, the Delhi High Court in Arupri Logistics Pvt Ltd v. Shri
Vilas Gupta and Ors. agreed with the Madras High Court’s rulings
in Abhibus Services India Pvt. Limited and Ors. Vs. Pallavan Transport
Consultancies Services Ltd. and Ors. and V.G. Santhosam and Ors. Vs.
Shanthi Gnanasekaran and Ors. affirming that an arbitrator does not
have the authority or jurisdiction to add parties who are not signatories to the arbitration agreement.
2) Doctrine of Estoppel
Estoppel prevents a party from denying its obligation to arbitrate when it
has knowingly benefited from a contract containing an arbitration clause.
The non-signatory must derive a tangible or intangible benefit from the
contract. A party cannot claim benefits under a contract while avoiding its
burdens, including arbitration.
MTNL v. Canara Bank (2020)
MTNL entered into a contract with an escrow agreement between Canara
Bank and a third party. The escrow agreement contained an arbitration
clause. MTNL, though not a signatory, sought to avoid arbitration when
disputes arose. The Supreme Court held MTNL was estopped from
avoiding arbitration because it had directly benefited from the escrow
agreement. Courts emphasized that direct involvement and benefits, even
without formal agreement, could bind non-signatories to arbitration.
When a non-signatory acts as an agent of a signatory, it can be bound by
or benefit from an arbitration clause in the principal’s agreement. A clear
agency relationship must exist, either expressly or impliedly. The agent’s
actions must fall within the scope of authority granted by the principal.
The Hon’ble Apex Court observed that “Section 7(4)(b) of the 1996 Act,
states that an arbitration agreement can be derived from exchange of letters,
telex, telegram or other means of communication, including through
electronic means. The 2015 Amendment Act inserted the words “including
communication through electronic means” in Section 7(4)(b). If it can
prima facie be shown that parties are ad idem, even though the other party
may not have signed a formal contract, it cannot absolve him from the
liability under the agreement.” It was further observed that :- “Canara Bank
had filed its Statement of Claim before the Arbitrator, and MTNL filed its
Reply to the Statement of Claim, and also made a Counter Claim against
Canara Bank. The statement of Claim and Defence filed before the
Arbitrator would constitute evidence of the existence of an arbitration
agreement, which was not denied by the other party, under Section 7(4)(c)
of the 1996 Act.”
3) Agency Relationship
When a non-signatory acts as an agent of a signatory, it can be bound by
or benefit from an arbitration clause in the principal’s agreement. A clear
agency relationship must exist, either expressly or impliedly. The agent’s
actions must fall within the scope of authority granted by the principal.
Dozco India Pvt. Ltd. v. Doosan Infracore Co. Ltd. (2011)
A dispute arose over whether an Indian distributor (non-signatory) could
be included in arbitration proceedings related to a Korean company’s
international contract. The court recognized that the distributor, acting as
an agent in the Indian market, was closely tied to the obligations under the
arbitration agreement. Agency relationships create a legal framework for
including non-signatories if their actions are tied to the arbitration clause’s
scope.
4) Composite Transactions
This principle allows non-signatories to be impleaded when multiple
contracts form part of a single overarching transaction. All contracts in the
transaction must be interdependent. There must be an intent to resolve
disputes collectively, even if some parties are non-signatories.
Ameet Lalchand Shah v. Rishabh Enterprises (2018)
A project involved multiple interconnected contracts for the purchase of
solar plant equipment, financing, and service agreements. Some parties
were non-signatories to the main agreement. The Supreme Court held that
all contracts were part of a composite transaction and disputes must be
resolved through arbitration. The court highlighted that avoiding piecemeal
resolution of disputes was critical for justice.
5) Bifurcation of the Suit between Parties
This doctrine is invoked when a non-signatory uses corporate structure to
evade obligations under an arbitration agreement. Courts must find
evidence of fraud or misuse of corporate identity. The aim is to hold the
controlling party accountable.
Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya (2003)
In this the Hon’ble Supreme Court observed:- “In our view, it would be
difficult to give an interpretation to Section 8 under which bifurcation of
the cause of action that is to say the subject matter of the suit or in some
cases bifurcation of the suit between parties who are parties to the
arbitration agreement and others is possible. This would be laying down a
totally new procedure not contemplated under the Act. If bifurcation of the
subject matter of a suit was contemplated, the legislature would have used
appropriate language to permit such a course. Since there is no such
indication in the language, it follows that bifurcation of the subject matter
of an action brought before a judicial authority is not allowed. Secondly,
such bifurcation of suit in two parts, one to be decided by the arbitral
tribunal and other to be decided by the civil court would inevitably delay
the proceedings. The whole purpose of speedy disposal of dispute and
decreasing the cost of litigation would be frustrated by such procedure. It
would also increase the cost of litigation and harassment to the parties and
on occasions there is possibility of conflicting judgments and orders by two
different forums. Thirdly, there is no provision as to what is required to be
done in a case where some parties to the suit are not parties to the
arbitration agreement. As against this, under Section 24 of the Arbitration
Act, 1940, some of the parties to a suit could apply that the matters in
difference between them be referred to arbitration and the Court may refer
the same to arbitration provided that the same can be separated from the
rest of the subject matter of the suit. Section also provided that the suit
would continue so far as it related to parties who have not joined in such
application. ”
Bottom Line
Indian courts have developed a robust jurisprudence allowing the
impleading of non-signatories in exceptional cases. Each doctrine is
applied carefully, balancing the principles of consent, equity, and the
unique complexities of commercial arrangements. These doctrines reflect
a pro-arbitration approach aimed at ensuring holistic dispute resolution
without compromising the foundational consensual nature of arbitration
By Advocate Ayantika Mondal,
Partner, Prime Legal
