Mutual Intent Can Bind Non-Signatories to Arbitration Agreements: SC

Cox and Kings Ltd. Vs SAP India Pvt. Ltd. & Anr. (Supreme Court of India)

Summary: A Constitution Bench of the Supreme Court examined whether the Group of Companies doctrine is valid in Indian arbitration law and how a non-signatory may become a party to an arbitration agreement. The reference arose because earlier decisions, particularly Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., had traced the doctrine to the expression “claiming through or under” appearing in Sections 8 and 45 of the Arbitration and Conciliation Act, 1996, while subsequent decisions applied the doctrine in different statutory settings. The Court held that the definition of “party” under Section 2(1)(h), read with Section 7, is not confined to formal signatories.

A non-signatory’s conduct may evidence consent to be bound, and the statutory requirement that an arbitration agreement be in writing does not make signature indispensable. The Court distinguished a “party” to an arbitration agreement from a person “claiming through or under” a party: the latter acts in a derivative capacity, whereas the Group of Companies doctrine determines whether a non-signatory is itself a veritable party on the basis of mutual intention. Accordingly, Chloro Controls was held erroneous to the extent it located the doctrine in the phrase “claiming through or under”.