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HomeLawGroup of companies doctrine applicable to arbitration proceedings: Supreme Court Constitution Bench

Group of companies doctrine applicable to arbitration proceedings: Supreme Court Constitution Bench

The Court emphasized that arbitration is a matter of contract and consent is paramount. No one can be compelled to submit to arbitration without their consent.

It said that courts have to determine whether a non-signatory to an arbitration agreement intended to create a legal relationship with the signatory and agreed to be bound by the arbitration agreement.

Referring to Section 7A of the Arbitration and Conciliation Act, the Court emphasized that while arbitration is contractual, it is not necessary for parties to be signatories to be bound by it.

The Court called for a balanced approach, emphasizing that the decision of parties not to include someone in the arbitration agreement should not be brushed aside. Simultaneously, the Court highlighted the importance of not excluding individuals who, through their conduct, have demonstrated an intention to be bound by the arbitration agreement.

However, the Court also said that the doctrine, which was developed by international arbitration tribunals, is not sufficient to determine whether a party is bound by an agreement. As such, it called on courts to first establish the existence of a group of companies.

“Since GoC is consent based theory it is meant to ascertain the intention of both signatory and non signatory to be bound by the arbitration agreement,” it said.

The Court concluded by upholding the doctrine’s application to arbitration proceedings, stating that the definition of parties includes both signatory and non-signatory parties that are part of the same group of companies.

Hence, the Court held that the act of a non-signatory could make non-signatory companies that are part of the same group, a party to the contract.

Source: Barandbench

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