Case Title: Oil and Natural Gas Corporation Limited v. Discovery Enterprises Private Limited and Others [Civil Appeal 2042 of 2022]
A three-judge bench of Justices DY Chandrachud, Surya Kant and Vikram Nath held that a non-signatory to a contract containing an arbitration clause, may be bound by the arbitration agreement, if it is an alter-ego of the party which executed the arbitration agreement.
The Court analysed existing literature on the ‘group of companies doctrine’ and stated that a non signatory may be bound by an arbitration agreement where:
1. There exists a group of companies; and
2. Parties have engaged in conduct or made statements indicating an intention to bind a non-signatory.
“A party, which is not a signatory to a contract containing an arbitration clause, may be bound by the agreement to arbitrate if it is an alter ego of a party which executed the agreement,” the judgement stated.
Moreover, it observed that, in deciding whether a company within a group of companies which is not a signatory to arbitration agreement would nonetheless be bound by it, the law considers the following factors:
1. The mutual intent of the parties;
2. The relationship of a non-signatory to a party which is a signatory to the agreement;
3. The commonality of the subject matter;
4. The composite nature of the transaction; and
5. The performance of the contract.
“Consent and party autonomy are undergirded in Section 7 of the Act of 1996. However, a non-signatory may be held to be bound on a consensual theory, founded on agency and assignment or on a non-consensual basis such as estoppel or alter ego,” the Court said.
In holding so, the top Court recalled that in Chloro Controls(I) P. Ltd. v Severn Trent Water Purification, a three-judge Bench had held that though an arbitration normally would take place between parties to the arbitration agreement, it could take place between a signatory to an arbitration agreement and a third party as well.
Source: Barandbench
