Latest News
Can a non-signatory be bound by an arbitration agreement? Part 3
Another illustration where the court invokes the group of companies’ doctrine was in Ameet Lalchand Shah & Ors. V. Rishabh Enterprises & Anr.[1], where the parties had entered into four interconnected agreements, and several parties were involved in setting up a solar plant, which was a single commercial project. The clauses of the four agreements would make them an integral part of the principal agreement. The principle agreement and the agreement for the purchase of the power generating equipment, and for engineering, installation, and commissioning of the plant contained arbitration clauses. However, the fourth agreement for the purchase of the photo-voltaic product for energizing the solar plant did not contain an arbitration clause. The court took the view that even though there are different agreements involving several parties, these agreements are interrelated and are in pursuance of a single commercial project. The dispute between all the parties, under the four agreements, were referred to were common arbitration.
The court had held that where there is a tight group structure with strong organizational and financial links, so as to constitute the corporate entities into a single economic unit, or a single economic reality, the group of companies doctrine could be invoked. In MTNL V. Canara bank[2], the court invokes the group of companies doctrine, to join the whole owned subsidiary to the arbitration proceedings. This doctrine would apply in particular when the funds of one company are used to financially support or restructure the other members of the group.
In a group of companies where a signatory and non-signatory is our constituent of a group, the intention to consent to arbitration of the non-signatory must be established. The burden to establish that the non-signatory had the intention to consent to arbitration would lie on the party which invokes the doctrine. In Reckitt Benckiser (India) P. Ltd V. Reynders label Printing India p. Ltd & Anr[3] respondent number two – a foreign company was impleaded by the claimant in the arbitration proceeding, on the ground that it was the parent, holding company of the respondent number one. Respondent number two empathetically refuted the assertions made by the claimant that it was the apparent or holding company of respondent number one. It was submitted that both the respondent number one and two were part of the Renters label Printing Group, which is an internationally operating group of seven printing companies, each of which is a separate legal entity and operates from different offices independently. These companies only shared a common parent entity viz. Reynesco NV is also the holding company of both the respondent companies. Respondent number two submitted that it had no presence or operation whatsoever in India and was not involved either in the negotiation, execution, and/or performance of the agreement. Respondent number two submitted that it had no connection with the present dispute, nor had it given any assent to the arbitration agreement. The court rejected the invocation of the doctrine to implead respondent number two in the arbitration proceeding merely on the grounds that it was a constituent of a common group of companies.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.
- Can a non-signatory be bound by an arbitration agreement? Part 3
- Non-signatory
- Arbitration
