Arbitration Agreements need not be a formal contract. Section 7(4)(b) states that an Arbitration Agreement can be derived from exchange of letters, telex, telegram or other means of communication, including through electronic means. What is required to be ascertained is the intention of the parties to refer their disputes or differences to Arbitration. The intention can even be inferred from conduct. A common-sense approach must be adopted. Arbitration Clauses cannot be construed with a purely legalistic mindset.
The Doctrine of Group of Companies had its origins in the 1970’s from French Arbitration Practice [Dow Chemical v. Isover-Saint-Gobain, 1984 Rev Arb 137] and has been applied in Chloro Controls India (P) Ltd., (2013) 1 SCC 641; Ameet Lal Chand Shah, (2018) 15 SCC 678. The Doctrine of Group of Companies indicates the implied consent to an Arbitration Agreement.
Based on the Doctrine of Group of Companies, a non-signatory can be bound by an Arbitration Agreement when the conduct of the parties [engagement in negotiation/making statements] evidences a clear intention of the parties to bind both the signatory as well as the non-signatory parties; or, the transaction between the parties has a composite nature. A composite transaction refers to a transaction which is inter-linked in nature; or, where the performance of the agreement may not be feasible without the aid, execution, and performance of the supplementary or the ancillary agreement, for achieving the common object, and collectively having a bearing on the dispute. The Doctrine of Group of Companies has also been invoked in cases where there is a tight group structure with strong organizational and financial links, constituting a single economic unit/single economic reality.
– Hon’ble Justice Indu Malhotra, Mahanagar Telephone Nigam Ltd. v. Canara Bank, [Civil Appeal Nos. 6202-6205 of 2019].
“I have had the advantage of going through an elaborate, well considered and scholarly drafted Judgment proposed by my esteemed Sister Justice Indu Malhotra.
I entirely agree with the reasoning and the conclusion, which my erudite Sister has drawn, which are based on remarkably articulate process of reasoning.”
– Hon’ble Justice Abhay Manohar Sapre, Mahanagar Telephone Nigam Ltd. v. Canara Bank, [Civil Appeal Nos. 6202-6205 of 2019].