In India, there has been a more expansive approach to arbitration jurisprudence in recent years. The decision of a Constitution Bench of the Supreme Court in Cox & Kings v SAP India Pvt. Ltd. is a continuation of this trend.
The reference was made by two separate orders (referring and concurring) of a three-judge bench in Cox & Kings in 2022. The referring order (by the then Chief Justice N.V. Ramana and Justice A.S. Bopanna) sought clarification on whether the group of companies doctrine (“GOC doctrine”) could properly be found in the phrase “claiming through or under” in Sections 8 and 45 of the Arbitration and Conciliation Act, 1996. The question was whether the GOC doctrine, as set out in the 2012 decision in Chloro Controls v Severn Trent, was valid in law. The referring order struck a somewhat sceptical note, noting that the law in Chloro Controls and subsequent cases appeared to be based on convenience rather than statutory provisions.
On the other hand, the concurring order (written by Justice Surya Kant) raised the same fundamental question in a broader and more enthusiastic manner. It stated that the appropriate response to the prevailing uncertainty would be an authoritative determination of the contours of the doctrine, rather than its ‘wholesale uprooting’ from Indian arbitration law.
In Cox and Kings, the Constitution Bench leaned towards Justice Surya Kant’s view of the matter. In doing so, the Supreme Court not only provides conceptual clarity on the basis of the GOC doctrine and the extent of its applicability, but also firmly grounds the doctrine within Indian arbitration jurisprudence.
In short, the Constitution Bench draws a doctrinal distinction between independent entities (albeit part of a larger corporate group) that may nevertheless be drawn into an arbitration agreement despite not being signatories, and those that have a derivative status (by claiming “through or under” a signatory or as an alter ego).
The Chloro Controls decision merged these categories. The Cox & Kings decision separates them, holding that the phrase “claiming through or under” refers only to successors in interest acting in a derivative capacity. The Supreme Court makes it clear that the GOC doctrine does not have its source in the phrase “claiming through or under”. It is an independent doctrine that provides a means of inferring the mutual intentions of the signatory and the non-signatory to bind the latter by the arbitration agreement.
Cox & Kings sets out the indicators for determining whether a non-signatory to a GOC is a “real party” to the arbitration agreement. In doing so, it reiterated its decision in ONGC v Discovery Enterprises Private Ltd. & Anr. (2022). In addition to the threshold requirement (that the non-signatory be part of a larger GOC), the factors include the mutual intention of the parties, the relationship of a non-signatory to a signatory, the commonality of the subject matter, the composite nature of the transaction and the performance of the underlying contract. It also clarifies that its authoritative pronouncement on the GOC doctrine should not be interpreted to exclude the application of other doctrines and principles for binding non-signatories to arbitration agreements.
Although Chloro Controls applied the GOC doctrine in the context of a foreign arbitration under Part II of the Arbitration Act, the contours of the doctrine and its applicability are much broader today. The Supreme Court’s decisions in Ameet Lalchand Shah v Rishab Enterprises (2018) and Discovery Enterprises applied the GOC doctrine in the context of domestic arbitrations. Cox and Kings confirms this position.
The judgment traces the evolution of formal consent in the Indian arbitration landscape, dividing it into the pre-Chloro Controls and post-Chloro Controls eras. Decisions in the pre-Chloro Controls era include, most famously, the 2003 decision in Sukanya Holdings P. Ltd. v. Jayesh Pandya, in which the Supreme Court held that there could be no bifurcation of causes of action and that persons who were not parties to the arbitration agreement could not be joined in the arbitration.
Much has changed since 2003. The law set out in Sukanya has been significantly eroded over the years. Section 8 was amended in 2015 to provide for referral to arbitration – “where a party to the arbitration agreement or a person claiming through or under him so applies… notwithstanding any judgment, decree or order of the Supreme Court or any court…”. In the 2018 Ameet Lalchand Shah decision, the Supreme Court applied the economic efficacy test and set aside a Delhi High Court decision refusing to refer the parties to arbitration on the grounds, inter alia, that Sukanya Holdings had not been overruled perse.
While Cox & Kings refers to Sukanya by way of history, it does not expressly overrule it or clarify that it is no longer good law. However, its extension of the concept of parties to an arbitration agreement to include non-signatories to a GOC further narrows the areas in which Sukanya might apply. The trend of judicial opinion suggests that a future Supreme Court decision may find that Sukanya has already been overruled.
Cox & Kings also adds a new dimension to the doctrine of severability. As commonly understood, the doctrine provides that the arbitration agreement is separate and severable from the underlying contract. However, it nevertheless contemplates a unity of parties – although the agreements may be different, the parties to both are the same.
However, the Supreme Court in Cox & Kings appears to expand on this traditionalist view of the separability doctrine when it states that “to join a non-signatory to arbitration, the critical question to be answered is whether a non-signatory has consented to the arbitration agreement as distinct from the underlying contract containing the arbitration agreement”. As a result, not only can the underlying contract be separated from the arbitration agreement, but the arbitration agreement could also be seen as having different parties from the underlying contract.
Cox & Kings provides a further boost to arbitration as a means of dispute resolution in India. In his concurring order in the reference, Justice Surya Kant emphasised why this is desirable – the doctrine provides a means of dealing with complex multi-party commercial transactions and ensures that circumvention of arbitration is avoided (thereby reducing the burden on the courts).
While his order emphasised that the GOC doctrine is “an exception to the general rule of arbitration”, it appears that the exception may ultimately replace the rule.