Non-Signatories to Arbitration

The legal position as to when a Non­-Signatory to an Arbitration Agreement can be impleaded and subjected to Arbitration Proceedings is no more res integra. In the case of Chloro Controls India Private Limited, (2013) 1 SCC 641 a Three-Judge Bench of this Court opined that ordinarily, an Arbitration takes place between the persons who have been parties to both the Arbitration Agreement as well as the Substantive Contract underlying it. Invoking the ‘Doctrine of Group of Companies’, it went on to observe that an Arbitration Agreement entered by a Company, being one within a Group of Corporate Entities, can, in certain circumstances, bind its Non-Signatory Affiliates. That exposition has been followed and applied by another Three-Judge Bench of this Court in Cheran Properties Limited, (2018) 16 SCC 413.”

Hon’ble A.M. Khanwilkar, Reckitt Benckiser (India) Private Limited v. Reynders Label Printing India Private Limited [Arbitration Petition (Civil) No. 65 of 2016].

As the law has evolved, it has recognized that modern business transactions are often effectuated through multiple lawyers and agreements. There may be transactions within a Group of Companies. There circumstances in which they have entered into them may reflect an intention to bind both Signatory and Non-Signatory Entities within the same Group. In holding a Non-Signatory bound by an Arbitration Agreement, the Court approached the matter attributing to the transactions a meaning consistent with the business sense which was intended to be ascribed to them. Therefore, factors such as the relationship of a Non-Signatory to a party which is a Signatory to the agreement, the commonality of subject-matter and the composite nature of the transaction weigh in balance. The ‘Group of Companies Doctrine’ is essentially intended to facilitate the fulfillment of a mutually held intent between the parties, where the circumstances indicate that the intent was to bind both Signatories and Non-Signatories. The effort is find the true essence of the business arrangement and to unravel from a layered structure of commercial arrangements, an intent to bind someone who is not formally a Signatory but has assumed the obligation to be bound by the actions of the Signatory.

– Hon’ble Justice Dr. D.Y. Chandrachud, Cheran Properties Limited, (2018) 16 SCC 413.