# COX AND KINGS LIMITED v. SAP INDIA PRIVATE LIMITED & ANOTHER

- **Citation:** [2022] 15 S.C.R. 182
- **Court:** Supreme Court of India
- **Decided:** 2022-05-06
- **Bench:** N. V. Ramana, A. S. Bopanna, Surya Kant
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/cox-and-kings-limited-v-sap-india-private-limited-another-35522
- **Pages:** 50

## Headnote

Arbitration and Conciliation Act, 1996:ss. 2(1), 8 -'Group
of companies' doctrine as expounded in Chloro Control case -
Examination of scope and applicability of the doctrine in Indian
jurisprudence - Issue as regards whether the parent company, which
is not signatory to the arbitration agreement should be joined to
this arbitration petition regardless of the fact that petitioner entered
into an agreement with only the subsidiary - Held: The ratio of the
Chloro Control case alludes to the subjective intention of parties to
be bound by arbitration agreement when the parties have clearly
not been signatory to the agreement - Concepts like single economic
entity are economic concepts difficult to be enforced as principles
of law - Areas which were left open by this Court in Chloro Control
case has created certain broad-based understanding of this doctrine
which may not be suitable and would clearly go against distinct
legal identities of companies and party autonomy itself - Law laid
down in Chloro Control and the cases following it, appear to have
been based, more on economics and convenience rather than law
which may not be the correct approach - In view thereof, the matter
referred to a larger bench to expound on the intricacies of the Group
of Companies doctrine and answer the questions framed - Reference
to larger Bench.
Referring the matter to larger Bench, the Court
(Per N.V. RAMANA, CJI (for himself and A.S. BOPANNA.
J.)
HELD:
1.1 The ratio of the Chloro Control's case alludes to the
subjective intention of parties to be bound by arbitration
agreement when the parties have clearly not been signatory to
the agreement. Reconciling the two is difficult and requires
exposition by this Court. [Para 36][208-D-E]
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1.2 It may be noted that the doctrine, as expounded, requires
the joining of non-signatories as 'parties in their own right'. This
joinder is not premised on non-signatories 'claiming through or
under'. Such a joinder has the effect of obliterating the
commercial reality, and the benefits of keeping subsidiary
companies distinct. Concepts like single economic entity are
economic concepts difficult to be enforced as principles of law.
[Para 37][208-E-F]
1.3 The areas which were left open by this Court in Chloro
Control case has created certain broad-based understanding of
this doctrine which may not be suitable and would clearly go
against distinct legal identities of companies and party autonomy
itself. The said exposition in the saidm case clearly indicates an
understanding of the doctrine which cannot be sustainable in a
jurisdiction which respects party autonomy. There is a clear need
for having a re-look at the doctrinal ingredients concerning the
'group of companies' doctrine. [Para 38][208-G-H]
1.4 An arbitration agreement may be binding on parties,
whether signatories or non-signatories, provided there is
sufficient legal basis to bind them. Most legal bases for binding
non- signatories to an arbitration agreement are of contractual
origin, like agency, etc. Jurisprudence has shown that arbitration
being a creature of contract, does not sit very well in binding
non-signatories. [Para 45][211-H; 212-A]
1.5 The group of companies doctrine must be applied with
caution and mere fact that a non-signatory is a member of a group
of affiliated companies will not be sufficient to claim extension of
the arbitration agreement to the non-signatory. [Para 46][212-FG]
1.6 It is appropriate to refer the aspect of interpretation of
'claiming through or under' as occurring in amended Section 8 of
the Arbitration Act qua the doctrine of group of companies to a
larger Bench to provide clarity on this aspect. The law laid down
in Chloro Control and the cases following it, appear to have been
based, more on economics and convenience rather than law. This
may not be a correct approach. The Bench doubts the correctness
COX AND KINGS LIMITED v. SAP INDIA PRIVATE LIMITED
& ANOTHER
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SUPREME COURT RE

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 [2022] 15 S.C.R. 182
182
COX AND KINGS LIMITED
v.
SAP INDIA PRIVATE LIMITED & ANOTHER
(Arbitration Petition (Civil) No. 38 of 2020)
MAY 06, 2022
[N. V. RAMANA, CJI, A. S. BOPANNA AND
SURYA KANT, JJ.]
Arbitration and Conciliation Act, 1996:ss. 2(1), 8 -'Group
of companies' doctrine as expounded in Chloro Control case -
Examination of scope and applicability of the doctrine in Indian
jurisprudence - Issue as regards whether the parent company, which
is not signatory to the arbitration agreement should be joined to
this arbitration petition regardless of the fact that petitioner entered
into an agreement with only the subsidiary - Held: The ratio of the
Chloro Control case alludes to the subjective intention of parties to
be bound by arbitration agreement when the parties have clearly
not been signatory to the agreement - Concepts like single economic
entity are economic concepts difficult to be enforced as principles
of law - Areas which were left open by this Court in Chloro Control
case has created certain broad-based understanding of this doctrine
which may not be suitable and would clearly go against distinct
legal identities of companies and party autonomy itself - Law laid
down in Chloro Control and the cases following it, appear to have
been based, more on economics and convenience rather than law
which may not be the correct approach - In view thereof, the matter
referred to a larger bench to expound on the intricacies of the Group
of Companies doctrine and answer the questions framed - Reference
to larger Bench.
Referring the matter to larger Bench, the Court
(Per N.V. RAMANA, CJI (for himself and A.S. BOPANNA.
J.)
HELD:
1.1 The ratio of the Chloro Control's case alludes to the
subjective intention of parties to be bound by arbitration
agreement when the parties have clearly not been signatory to
the agreement. Reconciling the two is difficult and requires
exposition by this Court. [Para 36][208-D-E]
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1.2 It may be noted that the doctrine, as expounded, requires
the joining of non-signatories as 'parties in their own right'. This
joinder is not premised on non-signatories 'claiming through or
under'. Such a joinder has the effect of obliterating the
commercial reality, and the benefits of keeping subsidiary
companies distinct. Concepts like single economic entity are
economic concepts difficult to be enforced as principles of law.
[Para 37][208-E-F]
1.3 The areas which were left open by this Court in Chloro
Control case has created certain broad-based understanding of
this doctrine which may not be suitable and would clearly go
against distinct legal identities of companies and party autonomy
itself. The said exposition in the saidm case clearly indicates an
understanding of the doctrine which cannot be sustainable in a
jurisdiction which respects party autonomy. There is a clear need
for having a re-look at the doctrinal ingredients concerning the
'group of companies' doctrine. [Para 38][208-G-H]
1.4 An arbitration agreement may be binding on parties,
whether signatories or non-signatories, provided there is
sufficient legal basis to bind them. Most legal bases for binding
non- signatories to an arbitration agreement are of contractual
origin, like agency, etc. Jurisprudence has shown that arbitration
being a creature of contract, does not sit very well in binding
non-signatories. [Para 45][211-H; 212-A]
1.5 The group of companies doctrine must be applied with
caution and mere fact that a non-signatory is a member of a group
of affiliated companies will not be sufficient to claim extension of
the arbitration agreement to the non-signatory. [Para 46][212-FG]
1.6 It is appropriate to refer the aspect of interpretation of
'claiming through or under' as occurring in amended Section 8 of
the Arbitration Act qua the doctrine of group of companies to a
larger Bench to provide clarity on this aspect. The law laid down
in Chloro Control and the cases following it, appear to have been
based, more on economics and convenience rather than law. This
may not be a correct approach. The Bench doubts the correctness
COX AND KINGS LIMITED v. SAP INDIA PRIVATE LIMITED
& ANOTHER
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of the law laid down in Chloro Control and cases following it.
[Para 47][213-F-G]
1.7 This Court deems it appropriate to refer this matter to
a larger Bench to expound on the intricacies of the Group of
Companies doctrine and answer the following questions whether
phrase 'claiming through or under' in Sections 8 and 11 could be
interpreted to include 'Group of Companies' doctrine; and
whether the 'Group of companies' doctrine as expounded by
Chloro Control Case and subsequent judgments are valid in law?
[Para 50][214-B-C]
Chloro Controls India Private Limited v. Severn Trent
Water Purification Inc. (2013) 1 SCC 641 : [2012] (13)
SCR 402 - Correctness doubted.
Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia
(P) Ltd. (2015) 13 SCC 477 : [2014] (12) SCR 488;
Dow Chemical France, the Dow Chemical Company v.
Isover Saint Gobain ICC Case No. 4131; Sukanya
Holdings Pvt. Ltd. v. Jayesh H. Pandya (2003) 5 SCC
531 : [2003] (3) SCR 558; Roussel-Uclaf v. G.D. Searle
& Co. Limited and G. D. Searle & Co. [1978] F. S. R
95; The Mayor and Commonalty & Citizens of the City
of London v. Ashok Sancheti [2008] EWCA Civ 1283;
Ameet Lalchand Shah v. Rishabh Enterprises (2018) 15
SCC 678 : [2018] (6) SCR 1001; Cheran Properties
Ltd. v. Kasturi & Sons Ltd. (2018) 16 SCC 413 : [2018]
(4) SCR 1063; Reckitt Benckiser (India) (P) Ltd. v.
Reynders Label Printing (India) (P) Ltd. (2019) 7 SCC
62 : [2019] (8) SCR 966; Mahanagar Telephone Nigam
Ltd. v. Canara Bank (2020) 12 SCC 767 : [2019] (11)
SCR 660; Peterson Farms Inc. v. C & M Farming Ltd.
[2004] EWHC 121 (Comm); Tanning Research
Laboratories Inc v. O'Brien (1990) 169 CLR 332; Vidya
Drolia v. Durga Trading Corporation (2021) 2 SCC 1;
Shah Faesal v. Union of India (2020) 4 SCC 1:[2020]
(3) SCR 1115
Case Law Reference
[2012] (13) SCR 402
correctness doubted. Para 47
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[2014] (12) SCR 488
referred to
Para 18
[2003] (3) SCR 558
referred to
Para 20
[2018] (6) SCR 1001
referred to
Para 32
[2018] (4) SCR 1063
referred to
Para 33
[2019] (8) SCR 966
referred to
Para 34
[2019] (11) SCR 660
referred to
Para 35
(2021) 2 SCC 1
referred to
Para 42
[2020] (3) SCR 1115
referred to
Para 49
Pietro Ferrario, 'The Group of Companies Doctrine in
International Commercial Arbitration: Is There any
Reason for this Doctrine to Exist?', Journal of
International Arbitration, (© Kluwer Law International;
Kluwer Law International 2009, Volume 26 Issue 5) pp.
647 - 673; Gary B.Born's, International Commercial
Arbitration, 3rd Edition, Volume I, Page 1558 - 1559 -
referred to.
Per SURYA KANT, J. (Concurring) :
HELD 1.1 It is important to note that the Doctrine has now
travelled a reasonable distance in Indian law. While the opinion
of Hon'ble the Chief Justice correctly notes that the term
"parties" under Section 2(1) (h) has not been amended despite
the changes introduced in Section 8 of the Act, it appears to me
that one of the objectives in introducing the amended Section 8
was to accord tacit recognition and acceptance of the Group of
Companies Doctrine in India. [Para 32][226-H]
1.2 It may also be noted that the question as to which entities
are parties to the arbitration agreement is usually left to judicial
discretion, especially when there is a limited statutory guidance.
Thus, the perception regarding the questionable sourcing of the
Group of Companies Doctrine from the wording of Section 8 of
the Act, does not imply that it is barred from Indian arbitration
law. Undoubtedly, the Courts have the judicial discretion to invoke
and apply the Doctrine in Indian arbitral jurisprudence. [Para
33][227-B-C]
COX AND KINGS LIMITED v. SAP INDIA PRIVATE LIMITED
& ANOTHER
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1.3 The earlier analysis on the interpretation of the Group
of Companies Doctrine fortifies that when formulated in its most
modern sense, it does not affect the separate legal entity principle
in company law. It therefore appears that the current interpretation
of the Doctrine 'does not disturb or affect' the separate corporate
form of different entities within a group of companies. Neither
does the act of piercing the corporate veil necessarily cause the
separate legal entity of the third party to collapse. In this context,
corporate law doctrines such as piercing the veil and alter ego
are a means by which to identify fraudulent activity by a
non-signatory which would then provide the legal justification for
application of the Group of Companies Doctrine to bind that
non-signatory to the arbitration. This is a departure from the
"single economic reality" approach which views the entire group
of companies as a singular entity and overrides the separate legal
personalities of the different members of the group. [Paras 34
and 35][227-C-D, F-H; 228-A-B]
1.5 In this approach, the separate legal form of the parent
company remains und4sturbed and the application of veil piercing
or alter ego is merely for identification of duplicitous acts by a
third party which would then lead to application of the Group of
Companies Doctrine to bind them to arbitration. The function of
this is to identify parties which have no actual intent to be part of
the arbitration and deliberately use the corporate form as a shield
to avoid being subjected to the arbitration proceedings. For such
scenarios, a formal intent- based approach to Group of Companies
Doctrine may be insufficient to address the dispute. [Para 36][228B-C]
1.5 It appears that joining a third party to arbitration based
on the convergence of a group of companies as a "single economic
unit" is no longer the norm under the Group of Companies
Doctrine. Instead, the standard is premised primarily on implied
consent drawn from the acts and conduct of an entity within the
group of companies. Where a closely knit group exists, the
interpretation of a third party's intent to be bound to the arbitration
would be construed from facts and circumstances specific to that
group and the manner in which it functions. This maintains the
separate legal personality of the non-signatory and joins it to the
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arbitration proceedings on the basis of its implied acceptance to
be bound. [Para 37][228-C-E]
1.6 It must be emphasized that the Doctrine is an exception
to the general rule of arbitration. However, where the facts of a
case indicate that the intention of the parties was to bind the
non-signatory, the Courts, after exercising due care and caution,
will be justified in invoking the Doctrine to do substantial and
complete justice. After the 2016 amendment to the Act, this Court
has continued to acknowledge and apply the Doctrine in
exceptional cases. When all of these factors are viewed in
consonance, it emerges that the Doctrine has found firm footing
in Indian jurisprudence. [Para 38][228-F-G]
1.7 This is not without reason. On a practical front, the
Doctrine is a means of grappling with complex multi-party
business transactions which necessarily involve more than two
parties, even if these additional parties do not finally and formally
sign the contract. To that extent, the Doctrine helps to ensure
that arbitration as a dispute resolution mechanism is able to adapt
to this reality. Failure to do so would make arbitration an
ineffective dispute resolution forum as parties which are important
for the complete and proper resolution of the dispute will be left
out of the adjudication. [Para 39][228-G-H; 229-A-B]
1.8 The Doctrine also ensures that multiplicity of
proceedings are avoided. A party may be involved in the
negotiation and even performance of an agreement but still be
able to circumvent the arbitral process on the ground that it did
not sign the contract. Such a party would then have to be
proceeded against in court. [Para 40][229-B-C]
1.9 There are additional benefits of having the Group of
CompaniesDoctrine in Indian jurisprudence. These arise from
the peculiar circumstances and manner in which Indian business
entities transact with each other and establish commercial
relations. A large chunk of Indian business houses are composed
of family run entities or groups. The individuals running these
entities often occupy multiple roles in different companies within
the group. Thus, the commonality in terms of key managerial
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personnel and the preponderance of family members occupying
these positions moulds the way these companies conduct
business. Entering into commercial transactions involves informal
understandings based on familiarity with persons who run the
overall group of companies even if not the specific entity with
which a contract is formally executed. [Para 41][229-C-E]
1.10 In this scenario it becomes even more relevant to
have a doctrine such as the Group of Companies in Indian
arbitration law. A third party outside the group of companies may
transact with a subsidiary due to its faith in the bona fides and
commercial know-how of the parent. The third party in question
relies upon the stature or presence of the larger parent company,
either due to its reputation or personal familiarity with its
promoters, directors or executives. [Para 42][229-E-G]
1.11 The Doctrine itself may also provide greater stimulus
for business with new entities that are starting out. Due to the
aforementioned peculiarities in Indian business relations, newer
companies have significant difficulty in gaining traction. One of
the means by which such companies can then gain a foothold is
by being part of a large (often family held) group of companies.
These new entities are then able to feed off the goodwill or
relations that the larger group has with the rest of the business
world. Given that the connection to the larger group is intrinsic
to the way in which business is conducted, arbitration law must
acknowledge and address this reality. [Para 43][229-G-H; 230A]
1.12 The important consideration under this theory, similar
to company law principles such as alter ego, is not the actual
intent of the party as the non-signatory may be acting duplicitously
to represent itself as the driver of the contract while avoiding
any liabilities arising from it by not signing the contract. Hence,
what the theory examines is what intent the non-signatory has
conveyed to a reasonable party in the same position as the
contracting entity. The decisive factor is the extent to which the
contracting party has placed "trust" in the other party, reasonably,
and on the basis of the non- signatory's actions.The wholesale
adoption of the Swedish theory of trust into Indian law is not being
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advocated. Rather, the notion of how we may apply the Group of
Companies Doctrine in situations where non- signatory parties
are acting in a fraudulent or deceitful manner can be addressed
by examining the impression that was conveyed to the contracting
parties by the third party. This is in addition to the already
well-established principles of piercing the veil and alter ego. This
may also address the legitimate critique of Chloro Controls and
Cheran Properties, that despite placing an emphasis on legal
standards of intent, the Court eventually resorted to principles
of equity and commercial/economic expediency to apply the Group
of Companies Doctrine in those cases. [Para 46, 47][230-E-H;
231-A]
1.13 In view thereof, the questions that are sought to be
referred to a larger bench deserve further elaboration. The
following substantial questions of law also arise for authoritative
determination by a larger bench in addition and in conjunction
with those formulated by Hon'ble the Chief Justice:
A. Whether the Group of Companies Doctrine should be
read into Section 8 of the Act or whether it can exist in Indian
jurisprudence independent of any statutory provision?
B. Whether the Group of Companies Doctrine should
continue to be invoked on the basis of the principle of 'single
economic reality'?
C. Whether the Group of Companies Doctrine should be
construed as a means of interpreting the implied consent or intent
to arbitrate between the parties?
D. Whether the principles of alter ego and/or piercing the
corporate veil can alone justify pressing the Group of Companies
Doctrine into operation even in the absence of implied consent?
[Para 48][231-B-E]
Chloro Controls India (P) Ltd. v. Severn Trent Water
Purification Inc. & Anr 2013 1 SCC 641 : [2012] (13)
SCR 402; Chloro Controls and Cheran Properties Ltd.
v. Kasturi and Sons Ltd. & Ors 2018 16 SCC 413 :
[2018] (4) SCR 1063; Dow Chemicals v. Isover Saint
Gobain Rev Arb 137 1984; 110 JDI 899 (1983);
COX AND KINGS LIMITED v. SAP INDIA PRIVATE LIMITED
& ANOTHER
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Lakovoglou Prodomos and Co. v. SAS Amplitude Cour
de Cas, 1st Civ Ch, 27 Mar 2007, no 04-20842, JCP E
2007, 2018; Societe Alcatel Business Systems v. Societe
Akmor Technology Cour de Cas, 1st Civ Ch, 7 Nov.
2012, No. 11-25.891, JCP 2012, I, 1354 No 5; Peterson
Farms Inc v C &M Farming Ltd [2004] EWHC 121;
Through Transport Mutual Insurance Association
(Euasia) Ltd v New India Assurance Co. Ltd [2005]
EWHC 455 Moore-Bick J; Starlight Shipping Co. and
Anor v Tai Ping Insurance Co Ltd, Hubei Branch and
Anor [2007] EWHC 1893; Charles M Willie & Co
(Shipping) Ltd v Ocean Laser Shipping Ltd (The Smaro)
[1998] EWHC 1206; Hicks v. Bank of Am, NA, 218 F
App'x 739, 746 (2007); Bridas SAPIC v. Turkmenistan,
447 F 3d 411, 416-20 (2006); Astra Oil Co v Rover
Navigation, Ltd, 344 F 3d 276, 277 (2003); Choctaw
Generation LP v. Am Home Assur Co, 271 F 3d 403,
406-07 (2001); Sukanya Holdings (P) Ltd. v. Jayesh
H. Pandya & Anr 2003 5 SCC 531 : [2003] (3) SCR
558; Indowind Energy Ltd. v. Wescare (I) Ltd. & Anr
2010 5 SCC 306 : [2010] (5) SCR 284; S.N. Prasad v.
Monnet Finance & Ors 2011 1 SCC 320 : [2010] (13)
SCR 207; Reckitt Benckiser (India) (P) Ltd. v. Reynders
Label Printing (India) (P) Ltd & Anr 2019 7 SCC 62 :
[2019] (8) SCR 966; Mahanagar Telephone Nigam
Limited v. Canara Bank & Ors 2020 12 SC 767 : [2019]
(11) SCR 660; Oil and Natural Gas Corporation Ltd.
v. M/s Discovery Enterprises Pvt. Ltd. & Anr Civil
Appeal No 2042 of 2022; PetroAlliance Services
Company Ltd. v. Yukos Oil SCC Case No 108/1997,
2000 - referred to.
Case Law Reference
[2012] (13) SCR 402
referred to
Para 1
[2018] (4) SCR 1063
referred to
Para 3
[2003] (3) SCR 558
referred to
Para 19
[2010] (5) SCR 284
referred to
Para 19
[2010] (13) SCR 207
referred to
Para 21
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[2019] (8) SCR 966
referred to
Para 25
[2019] (11) SCR 660
referred to
Para 26
Bernard Hanotiau, 'Who Are the Parties to the
Contract(s) or to the Arbitration Clause(s) Contained
Therein? The Theories Applied by Courts and
Arbitral Tribunals' in Bernard Hanotiau (eds),
Complex Arbitrations: Multi-party, Multicontract, Multiissue - A comparative Study (Kluwer Law International
2020); Judgment of 29 January 1996, 14 ASA Bull
496 (Swiss Fed Trib) (1996); Jean Francois Poudret,
'The Extension of the Arbitration Clause: French and
Swiss Approaches' 122 JDI (Clunet) 893 (1995);
Gabrielle Kaufmann-Kohler & A Rigozzi, International
Arbitration: Law and Practice in Switzerland (OUP
2015); Gary Born, 'Parties to International Arbitration
Agreements, International Commercial Arbitration'
in Gary Born (eds) International Commercial
Arbitration (Kluwer Law International 2021) -
referred to.
CIVIL ORIGINAL JURISDICTION : Arbitration Petition (Civil)
No.38 of 2020.
Petition Under Section 11(6), Section 11(12)(a) of the Arbitration
and Conciliation Act, 1996 for Appointment of the Arbitral Tribunal.
Kailash Vasdev, Sr. Adv., Hiroo Advani, Divyakant Lahoti, Ms.
Madhooja Mulay, Ms. Madhur Jhavar, Ms. Vindhya Mehra, Nayantara
Gupta, Navdeep Dahiya, Advs. for the Petitioner.
Ritin Rai, Neeraj Kishan Kaul, Sr. Advs., Dheeraj Nair, Kumar
Kislay, Pratik Pawar, Siddhesh Pradhan, Ms. Shanaya Irani, Ms. Ritika
Sinha, Advs. for the Respondents.
The Judgments* of the Court were delivered by
N. V. RAMANA, CJI
1. This petition calls on us to examine the 'group of companies
doctrine'. In particular, it requires us to examine whether the principles
of party autonomy under arbitration law and corporate personality in
COX AND KINGS LIMITED v. SAP INDIA PRIVATE LIMITED
& ANOTHER
*Ed Note: There were two judgments in the matter-one judgement rendered by
Shri N.V. Ramana, Hon'ble Chief Justice of India, for himself and on behalf of
Hon'ble Mr. Justice A.S. Bopanna; and the other judgment rendered by Hon'ble
Mr. Justice Surya Kant.
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company law have been adequately safeguarded in outlining the scope
and applicability of the doctrine being followed at present in Indian
jurisprudence.
2. The present Arbitration Petition has been preferred by the
Petitioner-Applicant under Section 11(6) and Section l1(12)(a) of the
Arbitration and Conciliation Act, 1996 (hereinafter the "Arbitration Act"),
for appointment of an Arbitral Tribunal in terms of the provisions of the
Arbitration Act, on the ground that there has been a failure with respect
to the appointment of an Arbitral Tribunal in accordance with the
agreements between the parties.
3. The facts necessary for the adjudication of the dispute are as
follows: on 14.12.2010, the Applicant and Respondent No. l entered into
an SAP Software End User License Agreement and SAP Enterprise
Support Schedule under which the Applicant was made a licensee of
certain ERP software developed and owned by the Respondents. This
is an overall licensing agreement that all customers of the Respondents
have to enter into compulsorily in advance in order to utilize any software
of the Respondents. In 2015, while the Applicant was developing its
own e-commerce platform, the Respondents approached the Applicant
and recommended their Hybris Solution as it would be 90% compatible
with the Applicant's software. The Respondents indicated that the
remaining 10% customisation would take only 10 months, a much shorter
solution than the Applicant developing the software itself.
4. The aforesaid agreement was divided into 3 separate
transactions: first, the Software License and Support Agreement -
Software Order Form 3, dated 30.10.2015, was signed between the
Applicant and Respondent No. 1 for the purchase of the SAP Hybris
Software License. Second, an agreement dated 30.10.2015 was signed
between the parties containing the terms and conditions governing the
implementation of the SAP Hybris software. This agreement is called
the Services General Terms and Conditions Agreement ("GTC"). Third,
on 16.11.2015, an agreement was entered into for the customization of
the software.
5. Clause 15.7 of the GTC contains the arbitration clause which
we are concerned with in the present matter. The clause reads as follows:
"15.7 Dispute Resolution: In the event of any dispute or
difference arising out of the subject matter of this Agreement,
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the Parties shall undertake to resolve such disputes amicably.
If disputes and differences cannot be settled amicably then
such disputes shall be referred to bench of three arbitrators,
where each party will nominate one arbitrator and the two
arbitrators shall appoint a third arbitrator. Arbitration award
shall be binding on both parties. The arbitration shall be held
in Mumbai and each party will bear the expenses of their
appointed arbitrator. The expense of the third arbitrator shall
be shared by the parties. The arbitration process will be
governed by the Arbitration & Conciliation Act, 1996."
6. Till August 2016, the Applicant listed out various issues in project
implementation to Respondent No. 1 and requested Respondent no. 2 to
intervene. Respondent No. 2, in turn, gave certain assurances to the
Applicant. As the contract could not be fulfilled even with the extended
timelines and additional manpower, the contractual framework pertaining
to SAP Hybris Solution was rescinded on 15.11.2016 after which the
Respondents immediately withdrew their resources from the said project.
Pursuant to the same, the Applicant demanded a refund of Rs. 45 crores
that was paid towards the License Agreement, Annual Maintenance
Charges, and implementation services. Respondent No. 2 in response to
the said demand proposed a solution which was rejected by the Applicant.
7. Finally, after several correspondences and meetings, the matter
could not be settled amicably. On 29.10.2017, Respondent No. 1 issued
a notice invoking arbitration for the alleged wrongful termination of the
contract and demanded payment of Rs. 17 crores. An Arbitral Tribunal
comprising of Hon'ble Mr. Justice Madan B. Lokur (Retd.), Hon'ble
Mr. Justice Dilip Bhosale (Retd.), and Hon'ble Mr. Justice V. C. Daga
(Retd.) was constituted to adjudicate the disputes between the parties.
8. Respondent No. l initiated proceedings under Clause 15.7 of
the GTC entered between the parties on 30.10.2015. It may be noted
here that Respondent No. 2 was not made a party in the aforesaid
proceedings. During these proceedings, the Applicant herein filed an
application under Section 16 of the Arbitration Act, before the Hon'ble
Tribunal, contending that the four agreements entered between the parties
are a part of a composite transaction and the same should be a part of a
singular proceeding.
9. Mean while, on 22.10.2019, NCLT, admitted an application
under Section 7 of the Insolvency and Bankruptcy Code, 2016 preferred
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against the Applicant and appointed an Interim Resolution Professional.
On 05.11.2019, the NCLT directed the parties to adjourn the arbitration
proceedings sine die in view of the moratorium imposed upon the claims
against the Applicant due to the initiation of the Corporate Insolvency
Resolution Process (CIRP).
10. On 07.11.2019, the Applicant sent a fresh notice invoking
Arbitration arraying Respondent No. 2 in the Arbitration Proceedings.
In the said Notice, the Applicant appointed Hon'ble Dr. Justice Arijit
Pasayat as its nominated arbitrator and called upon the Respondents to
appoint their Arbitrator for the constitution of the Tribunal. However,
there was no response from the Respondents. Hence, the Applicant has
preferred this Application under Section 11 of the Arbitration Act seeking
appointment of the Arbitrator in an International Commercial Arbitration.
11. Mr. Kailash Vasdev, learned Senior Advocate appearing on
behalf of the Applicant made the following submissions:
i.
Respondent No. 1 is a wholly owned subsidiary and
proprietary concern of Respondent No. 2. Since the
software is licensed by Respondent No. 2 to Respondent
No. 1, the customisation would not be possible without the
aid of Respondent No. 2. Therefore, all the four agreements
together form a composite agreement and are a part of a
single, interlinked transaction by both Respondent Nos. 1
and 2.
ii.
The agreements and email correspondences clearly show
that Respondent Nos. 1 and 2 and the Applicant were in ad
idem for the implementation and the execution of the
agreements. Especially, when Respondent No. 1 failed to
execute the agreement, Respondent No. 2 took the
responsibility to resolve the grievances of the applicant.
iii.
Considering the holding in the three Judge Bench decision
of Chloro Controls India Private Limited v. Severn Trent
Water Purification Inc., (2013) 1 SCC 641, arbitration can
be invoked even against the non-signatories, if the
circumstances demonstrate that it was the mutual intention
of the parties.
iv.
There is no commonality of claims between the present
arbitration proceedings and the earlier proceedings.
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v.
Considering, the limited scope under Section 11 of the
Arbitration Act, the intervention of the Court should be as
minimal as the Court is only required to examine the
existence of the arbitration agreement.
12. Mr. Ritin Rai, learned Senior Advocate appearing on behalf of
the Respondent No. 1 made the following submissions:
i.
The Applicant has suppressed material facts regarding its
previous attempts to resist constitution of an Arbitral
Tribunal. It ought to be noted that when Respondent No. 1
had earlier invoked Clause 15.7 of the GTC, it was the
Applicant who had challenged the same for being void ab
initio. Now, the Applicant himself is invoking the same
provision seeking the appointment of an Arbitrator.
ii.
Immediately one day after the commencement of the CIRP
and the consequent imposition of the moratorium, the
Applicant has chosen to raise similar claims through a fresh
notice and has obliquely arrayed Respondent No. 2 as a
party to inflate its claim. It is a settled principle of law that
the principle of res-judicata applies to arbitral proceedings
as well.
13. Mr. Neeraj Kishan Kaul, learned Senior Advocate appearing
on behalf of Respondent No. 2 made the following submissions:
i.
Respondent No. 2 is neither a signatory, nor has it ever
agreed (expressly or impliedly) to be bound by the
agreements between the Applicant and the Respondent No.
1. Respondent No. 2, being a foreign entity does not have
any business dealings in India and is a separate and
independent legal entity from Respondent No. 1.
ii.
The emails relied upon by the Applicant do not indicate any
undertaking by Respondent No. 2. Especially, when the
Applicant himself approached Respondent No. 2 seeking
assistance much after the execution of the License
Agreement and Service Agreement. Admittedly, Respondent
No. 2 was not involved in the contract negotiation process.
iii.
The "Group of Companies" doctrine is not applicable in
the present case. Respondent No. 2 is not only a nonCOX AND KINGS LIMITED v. SAP INDIA PRIVATE LIMITED
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signatory but also never participated in the negotiation
process during the drafting of the contract. Moreover, there
is no consensus of the parties to be bound by the contract.
14. After hearing the counsel appearing on both sides and
considering the ramifications it may have by the adjudication of the subject
matter, this Court must examine the ambit of the "Group of Companies"
doctrine. Ever since this doctrine was expounded in the Chloro Control
(supra) case, it has been utilised in a varied manner. It is in this context
we felt that there is a further need to examine the rationality behind the
doctrinal approach taken by this Court in the Chloro Control (supra)
case.
15. Arbitration is a creature of contract which has been provided
statutory backing under the Arbitration Act, to usher in party autonomy,
quick disposal, and an efficacious alternative remedy. Arbitration has
been a great boon for Indian jurisprudence, wherein numerous cases
have been methodically dealt with in an effective manner without taking
the meandering course of litigation before Courts.
16. One of the most challenging areas of Arbitration practice,
both theoretical and practical, relates to multi-party and multi-claim
proceedings. Usually, arbitration involves parties who have explicitly
entered into an arbitration agreement, or parties with successor interests,
claiming under them. In some cases, it happens that third parties are
bound by an arbitration clause by tacit consent, etc.
17. Doctrine of group of companies is one such area which is
utilized to bind third parties to an arbitration agreement. Theoretically,
the policy consideration of efficiency is argued to allow such joinders.
However, until a legal basis for the same is provided, efficiency cannot
itself be the sole ground to bind a party to arbitration.
18. Section 7 of the Arbitration Act defines an arbitration
agreement. Being a creature of contract, the realm of arbitration is one
of consent. The bare reading of the aforesaid provision indicates that
parties must reduce their intention to submit their existing or future
disputes to arbitration, in writing. The statute does not mandate a particular
form for an arbitration agreement. The intention of the parties can be
inferred from an exchange of letters, telex, telegram, and even electronic
means. The existence of the arbitration agreement can be deduced once
it is ascertained that the parties were at ad idem either through a
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contract, conduct or correspondences. (See Govind Rubber
Ltd. v. Louis Dreyfus Commodities Asia (P) Ltd., (2015) 13 SCC 477).
Therefore, the question of the extension of an arbitration agreement to
non-signatories necessarily also involves the question of the extension
of the scope and the effects of the jurisdiction of the arbitration tribunal
over such companies.1
19. This doctrine can be clearly stated to have originated in the
Dow Chemical France, the Dow Chemical Company v. Isover Saint
Gobain, (ICC Case No. 4131). In the case of Dow Chemicals (supra),
it was the subsidiaries of Dow Chemicals which initiated Arbitration
proceedings against Isover. In that case, Isover objected to the basis on
which the subsidiaries of Dow Chemicals chose to arbitrate, without
some of them having entered a valid arbitration agreement with Isover.
The Tribunal, while disregarding the contention of Isover, held that Dow
Chemicals Group operated as a single economic reality and thus the
non-signatories were also bound by the arbitration agreement. We may
note that the Dow Chemicals (supra) case related to a situation where
a non-signatory did not resist arbitration. Rather they wished to join an
arbitration already initiated by its affiliates. The effect of this position
has not been evaluated in any precedents of this Court and needs to be
examined.
20. The first case which dealt with group of companies doctrine
for domestic arbitrations was Sukanya Holdings Pvt. Ltd. v. Jayesh
H. Pandya, (2003) 5 SCC 531. In that case, disputes had arisen between
multiple parties over the same transaction. Some of the parties in the
dispute were not a part of the arbitration agreement. The appellant was
claiming relief against some of these parties who were not party to the
agreement. The Court held, under Section 8 of the Arbitration Act, that
causes of action cannot be bifurcated in an arbitration, and non-parties
to an arbitration agreement cannot be included in the same arbitration.
21. The next important case which dealt with the group of
companies doctrine was the Chloro Control (supra) case. The Court at
the outset acknowledged that there were various school of thoughts
when it came to the doctrine in arbitration jurisprudence. It was in this
1 Pietro Ferrario, 'The Group of Companies Doctrine in International Commercial
Arbitration: Is There any Reason for this Doctrine to Exist?', Journal of International
Arbitration, (© Kluwer Law International; Kluwer Law International 2009, Volume 26
Issue 5) pp. 647 - 673
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context that the Court had to formulate an opinion to provide a best fit
for the doctrine for Indian jurisdiction under part II of the Arbitration
Act. As many foreign parties were involved, the Court had to invoke
Section 45 of the Arbitration Act for appointment of an arbitrator. Section
45 of the Arbitration Act stood as under:
"45. Power of judicial authority to refer parties to
arbitration.-Notwithstanding anything contained in Part I or in
the Code of Civil Procedure, 1908 (V of 1908), a judicial authority,
when seized of an action in a matter in respect of which the parties
have made an agreement referred to in Section 44, shall, at the
request of one of the parties or any person claiming through or
under him, refer the parties to arbitration, unless it finds that the
said agreement is null and void, inoperative or incapable of being
performed."
22. The Court compared Section 45 of the Arbitration Act to Article
2 of UNCITRAL Model Law and formulated the following ingredients
for a Judicial Authority to examine at a referral stage:
"1.
Does the arbitration agreement fall under the scope of the
Convention?
2.
Is the arbitration agreement evidenced in writing?
3.
Does the arbitration agreement exist and is it substantively
valid?
4.
Is there a dispute, does it arise out of a defined legal
relationship, whether contractual or not, and did the parties
intend to have this particular dispute settled by arbitration?
5.
Is the arbitration agreement binding on the parties to the
dispute that is before the court?
6.
Is this dispute arbitrable?"
23. The Court noticed distinction in the language under Section 45
and Section 8 of the Arbitration Act in the following manner:
"69. We have already noticed that the language of Section 45 is
at a substantial variance to the language of Section 8 in this regard.
In Section 45, the expression "any person" clearly refers
to the legislative intent of enlarging the scope of the words
beyond "the parties" who are signatory to the arbitration
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agreement.Of course, such applicant should claim through
or under the signatory party. Once this link is established, then
the court shall refer them to arbitration. The use of the word
"shall" would have to be given its proper meaning and cannot be
equated with the word "may", as liberally understood in its common
parlance. The expression "shall" in the language of Section 45 is
intended to require the court to necessarily make a reference to
arbitration, if the conditions of this provision are satisfied. To that
extent, we find merit in the submission that there is a greater
obligation upon the judicial authority to make such reference, than
it was in comparison to the 1940 Act. However, the right to
reference cannot be construed strictly as an indefeasible right.
One can claim the reference only upon satisfaction of the
prerequisites stated under Sections 44 and 45 read with Schedule
I of the 1996 Act. Thus, it is a legal right which has its own contours
and is not an absolute right, free of any obligations/limitations.
70. Normally, arbitration takes place between the persons who
have, from the outset, been parties to both the arbitration agreement
as well as the substantive contract underlining (sic underlying)
that agreement. But, it does occasionally happen that the
claim is made against or by someone who is not originally
named as a party. These may create some difficult situations,
but certainly, they are not absolute obstructions to law/the
arbitration agreement. Arbitration, thus, could be possible
between a signatory to an arbitration agreement and a third
party. Of course, heavy onus lies on that party to show that,
in fact and in law, it is claiming "through" or "under" the
signatory party as contemplated under Section 45 of the
1996 Act. Just to deal with such situations illustratively, reference
can be made to the following examples in Law and Practice of
Commercial Arbitration in England (2nd Edn.) by Sir Michael J.
Mustill:
"1. The claimant was in reality always a party to the contract,
although not named in it.
2. The claimant has succeeded by operation of law to the rights
of the named party.
3. The claimant has become a party to the contract in substitution
for the named party by virtue of a statutory or consensual novation.
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4.