The Supreme Court has reiterated that a party which is not a signatory to a contract containing an arbitration clause may be bound by the agreement to arbitrate if it is an alter ego of a party that executed the agreement.
The Apex Court in this regard observed that the Group of Companies doctrine puts forward that an arbitration agreement that has been entered into by a company within a group of companies can bind its non-signatory affiliates or sister concerns if the circumstances demonstrate a mutual intention of the parties to bind both the signatory and affiliated, non-signatory parties. It noted that a non-signatory may be bound by the arbitration agreement where:
- there exists a group of companies; and
- parties have engaged in conduct or made statements indicating an intention to bind a non-signatory.
The Court in its decision dated 27 April 2022 said that a non-signatory may be bound by the operation of the group of companies doctrine as well as by the operation of the principles of assignment, agency, and succession.
Observing that the principle for binding non-signatories by application of the group of companies doctrine was invoked in Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc and MTNL v. Canara Bank, the Court summarized the following factors for determination of the application:
- mutual intent of the parties;
- relationship of a non-signatory to a party which is a signatory to the agreement;
- commonality of the subject matter;
- composite nature of the transaction; and
- performance of the contract.
Allowing the appeal against the decision of the Bombay High Court, the Court in this case - Oil and Natural Gas Corporation Ltd. v. Discovery Enterprises Pvt. Ltd., approved the contention of the appellant that the interim award was rendered purely on the premise that a non-signatory to the arbitration agreement cannot be impleaded as a party.
The Apex Court vitiated the interim award and said that the failure of the Arbitral Tribunal to allow for discovery and inspection went to the root of the process in as much as it disabled the appellant from pursuing its fundamental claim based on the application of the group of companies doctrine.