Supreme Court Ruling on Arbitration Agreement Binding

The Supreme Court delivered a significant verdict on Wednesday, ruling that an arbitration agreement can bind non-signatory firms under the “group of companies” doctrine. This means that a company not originally involved in an arbitration agreement can still be held to it if it is part of the same group of companies that agreed to the clause or agreement.

The five-judge Constitution bench, led by Chief Justice D Y Chandrachud, made this ruling in response to a plea filed by Cox and Kings Ltd regarding a dispute arising from an arbitration agreement. The bench emphasized the importance of retaining the “group of companies” doctrine in Indian arbitration jurisprudence, especially in complex transactions involving multiple parties and agreements.

The bench, which included Chief Justice Chandrachud, Justices Hrishikesh Roy, PS Narasimha, JB Pardiwala, and Manoj Misra, unanimously stated that only signatories to an arbitration agreement are bound by it. They clarified that a written arbitration agreement can still bind non-signatories if there is a defined legal relationship between the parties and an intention to be bound by it through their conduct.

In addition to the CJI, Justice Narasimha wrote a concurring judgement. A detailed verdict is still pending.

The case was referred to a larger bench in May 2022 by a three-judge bench headed by then CJI N V Ramana, who felt that certain aspects of the “group of companies” doctrine needed reconsideration. The constitution bench addressed questions about whether the doctrine should be incorporated into Section 8 of the Arbitration Act or if it can exist independently in Indian jurisprudence.