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 non- signatory 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. ”
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.
Written By : Adv Ayantika Mondal, Partner, Prime Legal
