Post Group of Companies Doctrine: Is There Equality in Seeking Interim Reliefs?
The Supreme Court of India in its past judgments has recognized the application of the “Group of Companies doctrine” (“GoC Doctrine”) to the Indian arbitration regime. Simply put, the GoC Doctrine is an exception to the rule earlier laid down by the Supreme Court in Indowind Energy Limited v. Wescare that only a signatory to an arbitration agreement can be bound by it. This doctrine makes it possible for even non-signatories to be referred to arbitration provided that certain conditions are met. The focus of this article is not the GoC Doctrine per se.
Rather, this article focuses on the arbitration proceedings post the application of this doctrine. Specifically, it is submitted that once the GoC Doctrine is applied to refer a non-signatory to mandatory arbitration, such a non-signatory finds itself on an unequal footing with its signatory adversaries when it comes to seeking interim reliefs. However, it is the view of the author that the courts and arbitration tribunals can resolve this inequality by applying the concept of “implied consent” which is intrinsic to the GoC Doctrine.
Who has the right to seek interim reliefs?
The Arbitration and Conciliation Act, 1996 (“Arbitration Act”) gives the power to grant interim reliefs to the court and the arbitral tribunal under Section 9 and Section 17 respectively. However, the aforementioned sections restrict the right to approach the court or the tribunal for interim reliefs to only “a party”. The Supreme Court, in the case of Firm Ashok Traders v. Gurumukh Das Saluja (“Ashok Traders”) held that Section 2(1)(h) of the Arbitration Act defines “a party” as a “party to the arbitration agreement”. Therefore, only “a party to the arbitration agreement” can take benefit of Section 9 and Section 17. Conversely, a person not a party to the arbitration agreement cannot approach the Court or the tribunal for interim reliefs.
As mentioned previously, the GoC Doctrine permits signatories as well as non-signatories to be referred to mandatory arbitration and both are expected to contest issues equally. However, the Ashok Traders judgment has the effect of creating inequality between them by restricting the right to seek interim to only the former. If section 2(1)(h) had defined “a party” as “party to the arbitration proceedings” as opposed to “party to the arbitration agreement”, it would have been a different case. In that case, even non-signatories to the agreement could seek interim reliefs once they were made a party to the arbitration proceeding through the application of the GoC Doctrine. In this context, a single-judge bench of the Madras High Court in L and T Finance Limited vs. C.T. Ramanathan Infrastructure Pvt. Ltd. made an interesting observation:
“The Hon'ble Supreme Court in Firm Ashok Traders vs. Gurumukh Das Saluja was pleased to lay down that since remedy under section 9 flows from arbitration agreement, a third party who is not a party to the arbitration agreement or arbitration proceedings, cannot seek any relief”
The aforementioned paragraph evinces that the court treated “parties to the arbitration agreement” and “parties to the arbitration proceedings” as two exclusive categories. Since they are exclusive categories, the latter category can be construed as a reference to the non-signatories to the arbitration agreement who are parties to the arbitration proceedings. In light of the same, by holding that a third party who doesn’t belong to either of the aforementioned categories cannot seek interim reliefs, the Madras HC seems to suggest that non-signatories added to the arbitration proceedings through the GoC Doctrine can indeed seek interim reliefs just like signatories. However, the problem with this decision is that Ashok Traders judgment (which the Madras High Court mentions as its basis) unequivocally held that the “qualification” that a person must possess in order to invoke the jurisdiction of the court under Section 9 is that of being a party to the arbitration agreement. There exists nothing in the Ashok Traders judgement that would even remotely support the Madras High Court’s observation that even non-signatory parties to the arbitration proceedings could seek interim reliefs.
Therefore, it appears that the GoC saga is not over. The ambiguity surrounding the ability of a non-signatory company to seek interim reliefs still requires clarification.
Does the answer lie in the GoC Doctrine itself?
From the aforementioned analysis, it is clear that the right to seek interim reliefs under the Arbitration Act is inextricably linked to the arbitration agreement. Hence, it is required that the nature of the GoC Doctrine is analyzed in order to discover what relationship it establishes (or does not) between a non-signatory and the arbitration agreement.
The Supreme Court in Mahanagar Telephone Limited v. Canara Bank had the opportunity to explain the nature of the GoC Doctrine. In this case, it was held that the GoC Doctrine was based on the idea of “implied consent”. “Implied consent” is where a person is assumed to have consented to an agreement on the basis of their acts and conducts, notwithstanding that such person had never formally signed the said agreement. Consequently, such person is deemed to be a party to the said agreement on the same footing as a person who formally signed it. Even in Cheran Properties Limited v. Kasturi and Sons, the Supreme Court explained the GoC doctrine as:
“…akin to the principle of implied consent, whereby the corporate affiliations among distinct legal entities provide the foundation for concluding that they were intended to be parties to an agreement, notwithstanding their formal status as non-signatories”.
Apart from the aforementioned cases, the link between GoC Doctrine and “implied consent” is evident in the criteria for this doctrine’s application. That is, if a non-signatory company actively participates in the negotiation, performance and termination of a contract having an arbitration clause, such non-signatory can be referred to mandatory arbitration. The active participation of the non-signatory in the aforementioned activities is what constitutes the “acts and conducts” on the basis of which the consent of the non-signatory to the agreement is assumed. As per the Supreme Court in Chloro Controls v. Severn Trent Water Purification, the effect is that “(the company) was in reality always a party to the contract, although not named in it”.
Since the GoC Doctrine is akin to the concept of implied consent, the effect of this doctrine is that a non-signatory impliedly becomes a party to the arbitration agreement on the basis of its past conduct, i.e. active participation in the negotiation, performance and termination of the contract. As previously mentioned, the qualification for seeking interim reliefs is that of a being a party to the arbitration agreement. Therefore, when a company becomes a party to the arbitration agreement by implication, it should ideally qualify this threshold. In light of this analysis, it is submitted that courts and arbitration tribunals should not discriminate between signatories and non-signatories in granting interim reliefs once the GoC Doctrine has been applied.
[[i]] Aviral is a fourth-year student at NLU Delhi with a keen interest in domestic and International Arbitration.
Preferred Citation – Aviral Singhal, “Post Group of Companies Doctrine: Is There Equality in Seeking Interim Reliefs?”, Arbitration & Corporate Law Review, Published on 14th January 2021.