Arbitration Law | Mahanagar Telephone Nigam Ltd. v. Canara Bank, C.A. No. 6202 of 2019 08-08-2019 SC

SUPREME COURT OF INDIA | Abhay Manohar Sapre & Indu Malhotra, JJ. C.A. Nos. 6202 - ­6205 of 2019 (Arising out of SLP (Civil) No. 13573­13576 of 2014) August 08, 2019

Arbitration - Doctrine of ‘Group of Companies’ - the doctrine “Group of Companies” has its application to arbitral proceedings and, in appropriate cases, it can be so applied.

A non-­signatory can be bound by an arbitration agreement on the basis of the “Group of Companies” doctrine, where the conduct of the parties evidences a clear intention of the parties to bind both the signatory as well as the non-signatory parties. The doctrine of ‘Group of Companies’ had its origins in the 1970’s from French arbitration practice. The ‘Group of Companies’ doctrine indicates the implied consent to an agreement to arbitrate, in the context of modern multi­party business transactions. The ‘Group of Companies’ doctrine has been invoked by courts and tribunals in arbitrations, where an arbitration agreement is entered into by one of the companies in the group; and the non­-signatory affiliate, or sister, or parent concern, is held to be bound by the arbitration agreement, if the facts and circumstances of the case demonstrate that it was the mutual intention of all parties to bind both the signatories and the non­-signatory affiliates in the group. The doctrine provides that a non-­signatory may be bound by an arbitration agreement where the parent or holding company, or a member of the group of companies is a signatory to the arbitration agreement and the non-signatory entity on the group has been engaged in the negotiation or performance of the commercial contract, or made statements indicating its intention to be bound by the contract, the non-­signatory will also be bound and benefitted by the relevant contracts. The circumstances in which the ‘Group of Companies’ Doctrine could be invoked to bind the non­-signatory affiliate of a parent company, or inclusion of a third party to an arbitration, if there is a direct relationship between the party which is a signatory to the arbitration agreement; direct commonality of the subject matter; the composite nature of the transaction between the parties. The Group of Companies Doctrine has also been invoked in cases where there is a tight group structure with strong organizational and financial links, so as to constitute a single economic unit, or a single economic reality. In such a situation, signatory and non-­signatories have been bound together under the arbitration agreement. This will apply in particular when the funds of one company are used to financially support or re­structure other members of the group.

Composite Transaction - A ‘composite transaction’ refers to a transaction which is inter­linked 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 present appeals are partly allowed. We invoke the Group of Companies doctrine, to join Respondent No. 2 – CANFINA i.e. the wholly owned subsidiary of Respondent No. 1 – Canara Bank, in the arbitration proceedings pending before the Sole Arbitrator.

Petitioner's Advocate : SHASHI KIRAN