Supreme Court’s recognize corporate group principle

On December 6, the Constitution Bench of the Supreme Court upheld the application of the ‘corporate group’ principle in the Indian Arbitration Act. According to this principle, companies that have not signed an arbitration agreement can become parties to an arbitration dispute if they are part of a corporate group.
The recent Supreme Court decision regarding the ‘Group of Companies’ Doctrine in Indian arbitration law has been widely praised for bringing clarity to the legal process. This doctrine allows a non-signatory to an arbitration agreement to be involved in the arbitration process if they are part of a related group of companies.

In simpler terms, when two parties have a dispute and want to resolve it through arbitration rather than going to court, they must have previously agreed to arbitration. Sometimes, one party may dispute the existence of such an agreement. In such cases, the ‘Group of Companies’ Doctrine allows a non-signatory within the same corporate group to be brought into the arbitration process.

This doctrine is relevant when a larger company within a group dominates the affairs of a subsidiary to the extent of potentially avoiding or concealing liability. The recent judgment gives more authority to the arbitral tribunal, rather than the courts, to decide whether this doctrine should be applied in a given case.

Legal experts believe this decision aligns with the demands of modern corporate transactions and expands the scope of arbitration agreements. However, they also caution that the doctrine should be applied carefully to avoid unnecessary complications.
Overall, this Supreme Court decision is seen as a positive step towards enhancing the arbitration process and adapting it to the complexities of contemporary business structures in India.