top of page
  • Writer's pictureIRALR

Analysis of ‘Group of companies’ doctrine in Indian and International ADR

This article is written by Muskaan Garg, a 2nd Year law student from SLS, Pune

The group of companies doctrine is essentially a concept which may allow to bind a non-signatory party, who is directly linked to the disputing parties, to the original arbitration clause. It can be applied in cases of multiple companies having same parent company or an affiliate group of companies. The underlined essentials for binding a non-signatory party are; there should be a direct link of the non-signatory party with the disputing party, the signatory and non-signatory party should share the same economical unit and the transaction should be inter-linked.

Essentiality of consent as a pre-condition to arbitration

Arbitration clause is the main element of the arbitration mechanism. Section 7 of the Arbitration and Conciliation Act defines arbitration agreement as “an agreement by the parties to submit to arbitration all or certain disputes which have arisen or may arise between them in respect of a defined legal relationship, whether contractual or not.” Thereby, making it very clear that it is an agreement entered into at the very time of beginning the contract. It has to be mutually consented with corresponding intentions of the contracting parties.

Consent is a functional concept of arbitration and has a major role to play. The parties in dispute could only resort to arbitration only if they had mutually agreed to a pre-mentioned clause of resorting to arbitration but with the changing and diversifying commercial scenarios and overlapping of company interests there can be seen rising new-found exceptions to the consent clause.

As per contract law, a contract or an agreement when entered into by two or more parties of the same group does not bind others as they are separate legal entities. Similar is the nature of the arbitration clause but the group of companies doctrine has been an exception of the consent pre-condition when it comes to arbitration between multi-party companies wherein there is consent of tributary companies but the parent company is not involved in the original arbitration clause. The doctrine is based on the legal principles of agency and implied consent which presume consent of the parties.

Evolution in international ADR

The Barcelona traction case, 1970 case initiated the idea and theme of the group of companies doctrine. The dispute was between a spain based Canadian company and Belgian shareholders wherein it was observed that the law needs to protect all those who have economic interest in a corporate entity whether inclusive or exclusive of the corporation. The same observation led to the interpretation that the independent existence of a legal entity need not be absolute and its disregard maybe justified. The initiation of the doctrine was practically emerged from the Dow chemical case 1984. In this case, there was a dispute between a subsidiary of dow chemical company and another company, isover. It was held that the non-signatory parties which had effective role in the performance of the contract could take part in the arbitration proceedings. Mere corporate ties within the group were insufficient but the conduct of the non-signatories was justified by the position of the parent company, which controls and directs the signatory company. The authority to control and direct was considered as implied consent to bind the non-signatory parties. The tribunal did not interpret the intentions under the applicable law, it concluded on the basis of general international principles of agent-principle relation and implied consent.

In Peterson farms v. CM farming 2004, the ICC tribunal accepted the jurisdiction of non-signatory party directly on the basis of group of companies doctrine which was by an English court stating that doctrine itself is not a part of the law directly and it is to be derived from law of the agreement and place of the same. Hence, the court made it distinct that the concept behind the doctrine has to be derived and not applied. This was a major turn in the application of the doctrine after 20 years of its existence. The doctrine was seen losing its meaning with the direct application and it did not provide enough rationale. Hence it became important to derive the application of the doctrine rather than imposing it in order to keep the doctrine evolving, relevant and to save its purpose.

Even after deciding to derive the doctrine, presumption of intent was one point where the courts dealt with more hesitation and less confidence. In Darlah Real Estate case 2010, there was a dispute between dallah real estate company and a pilgrimage trust of Pakistan which was later dissolved. It was held that Pakistan is a party to the arbitration after the dissolution of the trust. The case was challenged in UK wherein it was held that the Pakistan government did not want direct involvement in the contract and there was a difference between an agreement with the state and a state entity. This was again taken up by the paris court of appeal which held that Pakistan was true party of the economic transaction of the trust, thereby it was presumed that they had knowledge of the contract and their intent to indulge in the same was implied. It was to be noted that despite agreeing with similar set of legal principles, both the courts reached different conclusions. The former tried to look for intention while the latter focussed on commercial relations and presumed intent.

Thereby the trend could be seen starting from: there should be a provision to protect interest of all the parties to directly applying the doctrine to then hesitating in presuming consent and deriving the doctrine on the basis of intention, the application of the doctrine has come a long way around and is expected to still evolve as the complexities increase.

Evolution in Indian ADR

The international progress of the doctrine over 50 years has been steady but hesitant. In many cases there have been direct applications and not derivations due to the reluctance in deriving and imposing consent on the basis of agent-relation or implied consent principles. Whereas, india, from acknowledging the doctrine just a few years back, has seen progressive application and derivation of the doctrine. The Indian courts and tribunals have very well incorporated the doctrine to be in line with the international standards. Stating that the non-signatory party should be a necessary party for the tribunals to reach a conclusion has seen a major turn in the ability to ascertain the relation between the signatory and non-signatory parties.

It was with the Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) that India acknowledged of the internationally developed doctrine of group of companies. The supreme court gave cognizance to the doctrine and alter ego principle and based the invocation of the doctrine on the presence of mutual intention of the signatories to include the non-signatories in the arbitration process. Further, the supreme court in SEI Adhavan Power Private Limited case 2018, reiterated the findings of the chloro case and stated that according to the doctrine developed internationally, non-signatory affiliates of direct relation can be held party to arbitration as the doctrine is based on the legal principles of agent-principle relations and implied consent which are legally valid and reasonable.

The scope of applicability of the doctrine was widened in Cheran Propertiees Limited vs Kasturi And Sons Limited , where in it was contended that the precedent set by the chloro case would only be applicable to international arbitrations and not domestic arbitrations. The contention also restricted the applicability to cases of joint venture agreements and mother agreements containing arbitration clauses. After a detailed analysis of the chloro case, the decision and findings of the case were reiterated and the contentions were set aside. It was in MTNL v. Canara Bank 2019, that the supreme court of india observed three conditions for invoking the doctrine; direct relation between signatory and non-signatory, direct commonality of subject matter and composite and interlinked transaction. On the basis of this it was held that canfina will be a party to arbitration as there is clear nexus between transactions of canfina and canara bank with MTNL. This decision of the court prevented multiplicity of proceedings in mechanism of arbitration and provided that the non-signatory should be a necessary party to be involved in the arbitration.


Thereby, after the analysis and evolution of the doctrine it is observed that the main challenge of imposing the doctrine is disturbing the rubrics of consent within the arbitration. Another challenge seen while adopting the doctrine is the overlapping but incongruency of international and national laws. The tribunals in many instances directly apply the doctrine as an international standard without deliberating upon the legality of it within the scenario at hand. It becomes difficult to ascertain as to what prevails in such circumstances, the direct application or the logical derivation of the doctrine. The latter would help to safeguard the intention of the doctrine by preventing malicious actions like parent companies trying to save their subsidiaries from huge losses and vice-versa or fraudulent methods by companies to extract huge arbitral awards from non-signatory huge profit-making companies. Such malicious intentions could be sensed within the process of deriving the doctrine.

While the benefits of the doctrine are witnessed in easy and quick proceedings as all the necessary parties are present under one roof thereby promoting quick deliberation upon all the significant issues while also avoiding duplication and multiplicity of issues and transactions. Also, the doctrine acts as a measure to protect interests of all the people associated with a transaction.

While we see that with the ever-growing commercialisation and multiple layers of the same, it is necessary to adapt such doctrines which aim to ease the process and avoid duplication. It better prepares the world for complexities of the future commerce and strives to build strong foundation of possibilities of commercial relations as a completely different sector.

bottom of page
ga('require', 'ipMeta', { serviceProvider: 'dimension1', networkDomain: 'dimension2', networkType: 'dimension3', }); ga('ipMeta:loadNetworkFields'); ga('send', 'pageview');