The recent landmark case, Cox and Kings Ltd. v SAP India Pvt. Ltd., brought before a Constitution Bench comprising five judges of the Supreme Court, has imparted crucial perspectives on the implementation and restrictions of the doctrine (Group of Companies) within the legal framework of India.

Abstract

This study presents a quantitative assessment on applicability of the “Group of Companies” doctrine; recently, the Supreme Court made an important decision about how the “Group of Companies” rule applies in multi-party and multi-contract arbitrations in India. In the case of Cox and Kings Ltd. v. SAP India Private Ltd., the Supreme Court clarified that companies not originally part of the agreement can still be involved in arbitration, but only under certain conditions. This decision clears the confusion about when and how the “Group of Companies” rule can be used in India.

Background of Group of Companies Doctrine and Position in India.

To grasp the essence of the “Group of Companies” doctrine within Indian Arbitration, it’s crucial to delve into the fundamentals of Arbitration Law in India. In accordance to Section 7 of the Arbitration & Conciliation Act, 1996 (referred to as the “Arbitration Act”) it is a prerequisite condition for any arbitration proceedings that the parties involved in an arbitration should share a consensus ad idem between each other for a valid arbitration agreement. This consensus ad idem denotes mutual agreement and an aligned intention to resolve disputes through arbitration. This notion of “consent” forms the crux of the debate surrounding the “Group of Companies” doctrine in Indian Arbitration (referred to as the “Doctrine”) and has drawn criticism from legal experts and arbitration practitioners, both in civil and common law jurisdictions, for potentially diminishing consent and allowing the inclusion of parties, thereby fundamentally altering the conduct of arbitration. Surprisingly, Indian legal principles have embraced this doctrine and have continuously adapted it to suit their specific requirements. This Doctrine empowers Arbitral Tribunals and Indian courts, under specific circumstances, to extend the arbitration agreement to encompass entities within a corporate group related to the primary contract. Thus, this Doctrine shares similarities with concepts such as piercing the corporate veil, alter ego, and third-party beneficiary doctrines. However, its distinctive feature lies in its origin and applicability tailored for arbitration purposes.

In India, the expansion of an arbitration agreement to include non-signatories was established by the pivotal ruling of the Hon’ble Supreme Court in Chloro Controls case. This decision hinged primarily on the wording of Section 45 of the Arbitration Act, which pertains to foreign arbitrations falling under the scope of the New York Convention. Section 45 allows for the referral of disputes to arbitration upon the request of a party involved in the arbitration agreement or any individual claiming rights through or under that party. It’s worth noting that, initially, the equivalent provision for arbitrations seated in India (Section 8 of the Arbitration Act) lacked the specific phrase “any person claiming through or under.” However, these precise words have since been incorporated into Section 8 as well.

Current Ruling

In the present case, the issue arose from a dispute between two significant companies. Cox and Kings Ltd. (C&K), a well-known travel company, entered into a software licensing agreement with SAP India Pvt. Ltd., a subsidiary of the global software giant SAP SE in 2010. This partnership was intended to enhance C&K’s technological capabilities. However, by October 2015, challenges emerged as C&K and SAP India agreed to implement SAP’s “Hybris Solution” software, an endeavor aimed at boosting C&K’s e-commerce platform. The project faced significant issues, leading to C&K terminating the contract in November 2016 and demanding a refund of ₹45 crores. This led to arbitration proceedings, complicated by the involvement of SAP SE, the parent company of SAP India which was not a signatory to the initial agreements.

In this instance, it is noteworthy to highlight the following issues:

  • Whether the non-signatories can be party to an arbitration agreement?
  • Whether the phrase “claiming through or under” in Sections 8 and 116 of Arbitration Act could be interpreted to include the “Group of Companies” doctrine?
  • whether the Group of Companies Doctrine should be construed as a method for assessing implied consent or the intention to arbitrate among the involved parties?

The Hon’ble Supreme Court, through a majority decision, upheld the application of the doctrine, endorsing the inclusion of non-signatory entities in arbitration proceedings. The Court considered SAP SE’s substantial involvement in the project as tantamount to implicit consent to be bound by the arbitration agreement. The doctrine can be read into the relevant provisions of the 1996 Arbitration & Conciliation Act and that the definition of “parties” under the statute may include both signatories as well as non-signatories. The phrase “claiming through or under” is seen as giving a derivative right, preventing someone who didn’t sign from directly joining the arbitration agreement. This decision carries far-reaching implications for future arbitration cases involving non-signatory entities associated with a group of companies. 

The Hon’ble Supreme Court, by affirming the applicability of the doctrine, has not only provided a nuanced interpretation but has also introduced a practical way to dispute resolution within corporate groups. The decision underscores the need for adaptability in legal frameworks to accommodate the complexities of contemporary business structures. This could lead to a more comprehensive way of resolving conflicts in complicated business setups, keeping up with how things work in today’s business world. The decision makes it clearer that companies not signing can be part of arbitration, but some worries and criticisms have come up. This raises questions about letting companies decide for themselves and the basic principles of arbitration. Figuring out how to efficiently solve disputes while still protecting important principles is still a challenge. The Cox and Kings Ltd. v SAP India Pvt. Ltd. case is a significant step in how arbitration is understood in India. The Supreme Court, by saying the “Group of Companies” rule is valid, shows that it understands the modern business world well. The decision acknowledges that it makes sense to include companies not directly signing in arbitration. This gives a broader way to deal with and solve disputes.

Conclusion

The Hon’ble Supreme Court’s ruling in this instance is a forward-thinking choice that bolsters the efficacy of arbitration as a means of dispute resolution within the framework of current corporate structures. It represents a stride towards legal frameworks that better accommodate the realities of global businesses. This verdict also signifies a notable transformation in an arbitration law. The Court’s endorsement of the ‘group of companies’ doctrine reflects a practical response to the intricacies of contemporary corporate setups and commercial dealings. The decision recognizes the practicalities of how businesses function within an interconnected global market. By permitting arbitration agreements to encompass entities not directly involved in the signing process but within the same corporate groups, the Court has established a much-needed mechanism for resolving disputes that is in tune with the dynamics of modern business operations.