COX AND KINGS LIMITED versus SAP INDIA PRIVATE LIMITED & ANOTHER

Citation: [2022] 15 S.C.R. 182 · Decided: 06-05-2022 · Supreme Court of India · Bench: N.V. RAMANA · Disposal: Matter referred to larger bench

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2022] 15 S.C.R.
   [2022] 15 S.C.R. 182
182
COX AND KINGS LIMITED
v.
SAP INDIA PRIVATE LIMITED & ANOTHER
(Arbitration Petition (Civil) No. 38 of 2020)
MAY 06, 2022
[N. V. RAMANA, CJI, A. S. BOPANNA AND
SURYA KANT, JJ.]
Arbitration and Conciliation Act, 1996:ss. 2(1), 8 –‘Group
of companies’ doctrine as expounded in Chloro Control case –
Examination of scope and applicability of the doctrine in Indian
jurisprudence – Issue as regards whether the parent company, which
is not signatory to the arbitration agreement should be joined to
this arbitration petition regardless of the fact that petitioner entered
into an agreement with only the subsidiary – Held: The ratio of the
Chloro Control case alludes to the subjective intention of parties to
be bound by arbitration agreement when the parties have clearly
not been signatory to the agreement – Concepts like single economic
entity are economic concepts difficult to be enforced as principles
of law – Areas which were left open by this Court in Chloro Control
case has created certain broad-based understanding of this doctrine
which may not be suitable and would clearly go against distinct
legal identities of companies and party autonomy itself – Law laid
down in Chloro Control and the cases following it, appear to have
been based, more on economics and convenience rather than law
which may not be the correct approach – In view thereof, the matter
referred to a larger bench to expound on the intricacies of the Group
of Companies doctrine and answer the questions framed – Reference
to larger Bench.
Referring the matter to larger Bench, the Court
(Per N.V. RAMANA, CJI (for himself and A.S. BOPANNA.
J.)
HELD:
1.1 The ratio of the Chloro Control’s case alludes to the
subjective intention of parties to be bound by arbitration
agreement when the parties have clearly not been signatory to
the agreement. Reconciling the two is difficult and requires
exposition by this Court. [Para 36][208-D-E]
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1.2 It may be noted that the doctrine, as expounded, requires
the joining of non-signatories as ‘parties in their own right’. This
joinder is not premised on non-signatories ‘claiming through or
under’. Such a joinder has the effect of obliterating the
commercial reality, and the benefits of keeping subsidiary
companies distinct. Concepts like single economic entity are
economic concepts difficult to be enforced as principles of law.
[Para 37][208-E-F]
1.3 The areas which were left open by this Court in Chloro
Control case has created certain broad-based understanding of
this doctrine which may not be suitable and would clearly go
against distinct legal identities of companies and party autonomy
itself. The said exposition in the saidm case clearly indicates an
understanding of the doctrine which cannot be sustainable in a
jurisdiction which respects party autonomy. There is a clear need
for having a re-look at the doctrinal ingredients concerning the
‘group of companies’ doctrine. [Para 38][208-G-H]
1.4 An arbitration agreement may be binding on parties,
whether signatories or non-signatories, provided there is
sufficient legal basis to bind them. Most legal bases for binding
non- signatories to an arbitration agreement are of contractual
origin, like agency, etc. Jurisprudence has shown that arbitration
being a creature of contract, does not sit very well in binding
non-signatories. [Para 45][211-H; 212-A]
1.5 The group of companies doctrine must be applied with
caution and mere fact that a non-signatory is a member of a group
of affiliated companies will not be sufficient to claim extension of
the arbitration agreement to the non-signatory. [Para 46][212-F-
G]
1.6 It is appropriate to refer the aspect of interpretation of
‘claiming through or under’ as occurring in amended Section 8 of
the Arbitration Act qua the doctrine of group of companies to a
larger Bench to provide clarity on this aspect. The law laid down
in Chloro Control and the cases following it, appear to have been
based, more on economics and convenience rather than law. This
may not be a correct approach. The Bench doubts the correctness
COX AND KINGS LIMITED v. SAP INDIA PRIVATE LIMITED
& ANOTHER
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SUPREME COURT REPORTS
[2022] 15 S.C.R.
of the law laid down in Chloro Control and cases following it.
[Para 47][213-F-G]
1.7 This Court deems it appropriate to refer this matter to
a larger Bench to expound on the intricacies of the Group of
Companies d

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