GROUP OF COMPANIES DOCTRINE (Syllabus: GS Paper 3 – Economy)

Context: Recently, the Supreme Court issued a significant verdict affirming that an arbitration agreement can be binding on non-signatory firms under the "group of companies" doctrine.

• According to the doctrine, a firm which is not a signatory to an arbitration agreement between two parties can be held bound if such a company is part of the same group of companies which agreed to such a clause or agreement.

Group of Companies

• About: "Group of Companies" doctrine in Indian Arbitration, it is essential to delve into the fundamentals of Indian Arbitration Law.
• Consent in Arbitration Agreement: Section 7 of the Arbitration & Conciliation Act, 1996, mandates consensus ad idem for a valid arbitration agreement. 

oThis mutual agreement reflects the parties' common intention to resolve disputes through arbitration, serving as the foundation for arbitration proceedings.

• Genesis of Contention: The concept of "consent" forms the basis for debate surrounding the "Group of Companies" doctrine in Indian Arbitration. 

oCriticized globally for potentially diluting consent and altering arbitration dynamics, this doctrine has sparked discussions among jurists and arbitration practitioners.

• Indian Jurisprudence Embracing the Doctrine: Contrary to global criticism, the Indian legal landscape has embraced the "Group of Companies" doctrine.

 
Role of the Doctrine in Complex Commercial Transactions

• The "Group of Companies" doctrine has become particularly relevant due to the escalating complexities associated with commercial transactions.
• In addressing multifaceted agreements and disputes, this doctrine empowers Arbitral Tribunals and Indian courts to extend the arbitration agreement to members within a company group with a relationship to the principal contract.