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Supreme Court Constitution Bench states group of companies doctrine applicable to arbitration proceedings

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The Supreme Court Constitution Bench said that group of companies doctrine will be applicable in India for arbitration proceedings. 

The doctrine “group of companies”means that a company that is a non-signatory to an arbitration agreement would be bound by the agreement if such a company is a member of the same group of companies that signed the agreement.

The doctrine makes it important for the the parties to the arbitration agreement mutually intended for such a non-signatory to be bound by it.

A Constitution bench comprising of Chief Justice of India (CJI) DY Chandrachud along with Justice Hrishikesh Roy, Justice PS Narasimha,Justice JB Pardiwala, and Justice Manoj Misra concluded that non-signatory parties, by virtue of their relationship with the signatory and engagement in commercial activities, cannot be deemed strangers to the dispute under arbitration..

The following issues were considered by the bench.

– Whether the group of companies doctrine should be read into Section 8 of the Arbitration Act or whether it can exist in Indian jurisprudence independent of any statutory provision?

– Whether the group of companies doctrine should continue to be invoked on the basis of the principle of ‘single economic reality’?

– Whether the group of companies doctrine should be construed as a means of interpreting the implied consent or intent to arbitrate between the parties?

– 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?

The Court emphasized that arbitration is a matter of contract and consent is paramount. No one can be compelled to submit to arbitration without their consent.

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