Commercial law monologues: Does the “group of companies doctrine” in Indian arbitration jurisprudence transcend party autonomy?

Commercial law monologues: Does the “group of companies doctrine” in Indian arbitration jurisprudence transcend party autonomy?
Commercial Law Monologues by Gaurav Pachnanda 

In December 2023, a five-judge bench of the Supreme Court of India held in Cox and Kings Ltd. v. SAP India Private Ltd., reported at (2024) 4 SCC 1 (“Cox and Kings Case”), at paragraphs 115 to 123, 130, 131, 133, 170 to 170.13, that the “group of companies doctrine” has an “independent existence as a principle of law which stems from a harmonious reading of Section 2(1)(h) along with Section 7 of the Arbitration Act…”

According to the Supreme Court, the “group of companies doctrine” is a means of identifying the common intention of the parties to bind a non-signatory to the arbitration agreement by emphasising and analysing the corporate affiliation of the distinct legal entities

The Supreme Court reiterated the test laid down in paragraph 40 of ONGC Ltd. v. Discovery Enterprises (P) Ltd., reported at (2022) 8 SCC 42, that the following factors ought to be considered cumulatively for identifying the intention of the parties to bind the non-signatory to the arbitration agreement:

• The mutual intent of the parties;

• The relationship of a non-signatory to a party which is a signatory to the arbitration agreement;

• The commonality of the subject-matter;

• The composite nature of the transactions; and

• The performance of the contract

Therefore, the “group of companies doctrine” is a consent-based theory, where “the non-signatory’s participation in the negotiation, performance, or termination of the contract can give rise to the implied consent of it being bound by the contract.”

Contractual Exclusion of the “group of companies doctrine”

If the parties expressly provide in the arbitration agreement that the “group of companies doctrine” will not be applicable to their contract, could a court or arbitral tribunal still invoke this doctrine to bind a non-signatory?

Would such a clear exercise of party autonomy leave any room for application of this doctrine? It appears to be seriously doubtful

Now, imagine a situation where the parties to a contract have, in addition to providing for an arbitration agreement amongst the signatories alone, also provided (a) an entire agreement clause, (b) a no third-party benefit or liability clause and (c) a no oral modification clause in the contract

Would that not be a clear enough indicator of the exercise of party autonomy to exclude the application of this doctrine?

It appears that the Supreme Court has not yet had the occasion to consider or analyse the effect of either (a) the parties expressly excluding the application of the “group of companies doctrine” or (b) the cumulative impact of these three (3) clauses in the underlying contract, which contains the arbitration agreement

The doctrinal basis of applying the “group of companies doctrine” to such contracts, which contain a combination of such clauses, will require a critical analysis

Entire Agreement, No Third-Party Benefit or Liability and No Oral Modification Clauses

In most cases, a combination of these clauses could operate as a decisive bar to the invocation of the “group of companies doctrine” to bind a non-signatory

The effect of an entire agreement clause was appreciated by the Supreme Court in Joshi Technologies International Inc. v. Union of India, reported at (2015) 9 SCC 641, at paragraphs 41 to 52. It was held that the existence of an entire agreement clause in a written contract has the effect of making that written contract “the sole repository of the terms on which it is signed” and that “nothing else would be looked into”

Similarly, in Thyssen Krupp Materials AG v. Steel Authority of India, reported at 2017 SCC Online Del 7997, at paragraphs 70 to 72, a Division Bench of the Delhi High Court held that English law on entire agreement clauses would apply in India. It was held that there can be no implied waiver of the entire agreement clause by the parties through conduct. It was held that “Clause 9 of the agreement between the parties is of such nature; it would necessarily preclude the parties from raising any claims based on collateral agreements that are not encompassed within the present contract or are not expressly stated as being amendments to the main agreement.”

Therefore, the purpose of an entire agreement clause is to ensure that the intention of the contracting parties is not ascertained from any other extraneous documents or correspondence but exclusively from the contract itself

No Third-party Benefit or Liability Clause

No third-party benefit or liability clauses reflect the intention of the parties that the contract is executed solely for the benefit of the parties named in the contract. Further, no provision of such a contract is to be construed in a manner as creating or conferring any right, obligation or liability upon, or enforceable by, any third party. In essence, such clauses strictly reinforce the doctrine of privity of contract as recognised under Indian law [See M.C. Chacko v. State Bank of Travancore, reported at (1969) 2 SCC 343, at paragraphs 6 to 9].

No Oral Modification Clause

No oral modification clauses require that in order to be effective, an amendment to a written contract must be made in writing, and signed by the contracting parties

The Supreme Court of the United Kingdom (“UKSC”) in MWB Business Exchange Centres Ltd. v. Rock Advertising Ltd., reported at [2018] UKSC 24 (“Rock Advertising Case”), at paragraphs 12 to 16, held that once parties have contractually agreed to a no oral modification clause, any oral variation to a contract would be ineffective, unless it meets the contractually stipulated form. The UKSC recognised only one exception to this rule, i.e., estoppel. The UKSC also reiterated the enforceability of entire agreement clauses in the Rock Advertising Case.

Recently, the Supreme Court of India in SEPCO Electric Power Construction Corporation v. GMR Kamalanga Energy Limited, reported at (2026) 2 SCC 542, at paragraphs 85 to 88, affirmed the principles laid down in the Rock Advertising Case

Importantly, the UKSC in Kabab-Ji SAL (Lebanon) v. Kout Food Group (Kuwait), reported at [2021] UKSC 48, at paragraphs 1, 3, 4, 22(ii), 54 to 59, 75, has even held that no oral modification and entire agreement clauses are equally applicable to the arbitration agreement contained in a contract and held that:

“… …we are satisfied that the Court of Appeal was both entitled and correct to conclude that as a matter of English law there was no real prospect that a court might find at a further hearing that KFG became a party to the arbitration agreement in the FDA. Given the terms of the No Oral Modification clauses, the evidential burden was on the claimant to show a sufficiently arguable case that KFG had become a party to the FDA and hence to the arbitration agreement in compliance with the requirements set out in those clauses, or that KFG was estopped or otherwise precluded from relying on the failure to comply with those requirements. On the findings made by the judge and the evidence before the court, such a case was not and has not been made out… …”

Three clauses, one purpose: Contracting Out of the “group of companies doctrine”

An entire agreement clause in a contract specifically prohibits the exercise of ascertaining mutual intention based on conduct of the parties, surrounding facts and circumstances, including pre-contractual negotiations or correspondence

A no third-party benefit or liability clause expressly defines the contracting parties and excludes all others from the contractual framework. Therefore, it confines the rights and obligations under the contract to the named contracting parties alone and prohibits the fastening of any obligation or liability on anyone else

With the addition of a no oral modification clause in the contract, this understanding of the parties can be modified only in one situation, i.e., when the contract is varied in the contractually stipulated manner, generally by a written variation signed by both the parties

Therefore, unless such a variation happens, these clauses should work together to exclude the application of the “group of companies doctrine”

The counter-argument to this thesis would be that the Cox and Kings Case itself described the doctrine as a process of finding the “veritable” parties, not as a way of extending the arbitration agreement to third parties. Therefore, one could argue that the “group of companies” doctrine deals with the process of finding out “who” the real parties to the arbitration agreement are. While this counter-argument might appear persuasive at first blush, it does not appear to be correct doctrinally.

The enquiry into “who” the real parties to the arbitration agreement are cannot be done in the abstract. It is undertaken by examining the same pre-contractual conduct, the same negotiation history, and the same patterns of performance that these clauses operate to shut out

Therefore, applying the “group of companies doctrine”, despite these clauses in a written contract, would in most cases entail the negation of the cumulative effect of these clauses

A failure to give due effect to these clauses not only risks rewriting the parties’ contractual bargain but would be contrary to the settled jurisprudence regarding their binding effect

Having said that, it is equally true that the cumulative effect of these clauses in a given contract will always be a matter of construction depending upon the specific language used in such a contract

Conclusion

If the parties expressly provide in the arbitration agreement that the “group of companies doctrine” will not be applicable to their contract, it appears to be seriously doubtful that a court or arbitral tribunal could still invoke the “group of companies doctrine” to bind a non-signatory

Further, if a contract contains a well-drafted (a) entire agreement clause, (b) a no third-party benefit or liability clause, and (c) a no oral modification clause, and clearly identifies the parties bound by it, the basis for inferring implied consent or a shared intention to bind non-signatories also appears to be doubtful

Consent cannot be implied or inferred when the parties have made express provisions in the contract to define and limit the parties to the contract. In such circumstances, courts and arbitral tribunals ought to give primacy to party autonomy

It is hoped that the Supreme Court of India will explore and clarify this doctrinal aspect relating to the “group of companies doctrine” in an appropriate case

Gaurav Pachnanda is a Senior Advocate, based in New Delhi, whose practice includes a wide range of commercial litigation, international commercial arbitration and intellectual property litigation

SCROLL FOR NEXT