Charlie Caher, partner in the International Arbitration practice group at Wilmer Cutler Pickering Hale and Dorr LLP, recently co-authored an article in the Indian Journal of Arbitration Law on the “Group of Companies Doctrine – Assessing the Indian Approach” with counsel Dharshini Prasad and associate Shanelle Irani. The article, which analyzes the circumstances in which non-signatories to an arbitration agreement may be compelled to arbitrate by Indian Courts, will be of particular interest to our clients with business operations in India. The article can be accessed here.
Consent is a foundational requirement of any arbitration. This consent is embodied in the arbitration agreement. Typically, therefore, it is only the signatories to an arbitration agreement that are bound by the agreement to arbitrate. In limited circumstances, however, the arbitration agreement may also bind non-signatories. A variety of legal doctrines have been used, albeit sparingly, to establish consent on the part of non-signatories. The majority of these doctrines are derived from well-established principles of contract, company, and agency law in domestic legal systems. One theory that has grown specifically out of arbitral practice and jurisprudence is the “group of companies” doctrine.
As the name suggests, the “group of companies” doctrine provides, in broad terms, that a non-signatory may be bound by an arbitration agreement if it forms part of the same group of companies as a signatory and all the parties to the arbitration agreement mutually intend that the non-signatory be bound by it. The parties’ intentions are typically ascertained through their conduct, which includes a consideration of whether the non-signatory participated in the negotiation, performance, or termination of the contract.
The practical implications of the “group of companies” doctrine in modern day commerce can be considerable, given the increasing complexity of commercial contracts. For instance, it is not unusual to see multiple entities within a group of companies be involved in the negotiation, performance or termination of a contract, even if they are non-signatories to it. The entity that executes an agreement may also not necessarily be the entity that performs it for tax, financial or other business organizational reasons. The operations and performance of a contract by a subsidiary may be funded by a parent company, or funds may flow between group companies to facilitate contract performance. In these circumstances, and despite the fact that companies may have structured their deals to limit or separate liability among various group members, the “group of companies” doctrine may provide a legal basis for non-signatories to be compelled to arbitrate.
Common law jurisdictions and most civil law jurisdictions have rejected the “group of companies” doctrine for its apparent disregard for the principles of privity of contract and separate legal personality and blurring the requirement of consent in international arbitration. Breaking ranks with its common law counterparts, however, the Indian Supreme Court has affirmed that the “group of companies” doctrine forms a part of Indian law making it, today, a well-established aspect of the arbitral landscape in that jurisdiction. Businesses with operations or contracts in India will therefore need to be cognizant of the “group of companies” doctrine when negotiating, performing and terminating their contracts and organizing their affairs.
Through a comparative lens, the article authored by Charlie, Dharshini and Shanelle discusses Chloro Controls India (P) Ltd. Vs. Severn Trent Water Purification Inc, the seminal decision of the Indian Supreme Court rendered in 2012 that affirmed the “group of companies” doctrine as part of Indian law. The article also considers subsequent Indian case law, including decisions that have arguably led to an overexpansion of the doctrine. The article concludes by proposing a revised approach to the “group of companies” doctrine in India to limit its ambit and better reflect the realities of modern-day commerce.
This article first appeared in the Indian Journal of Arbitration Law.
