Group Of Companies Doctrine and Indian laws

The article states the importance of Group of Companies doctrine and what is its applicability in India. It also covers the origin of this doctrine through case laws. It further discusses that the importance of this doctrine is concerned under application possibility to extend in arbitration agreement to the same as other companies who are non-signatory companies and relate in arbitration.
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What is the group of Companies doctrine?

Each company has its own legal entity and has separate legal rights and liabilities. Therefore, an agreement made by one company of the same group cannot be binding on another company so that is an affiliate of the parent concern i.e. Group of companies Doctrine. Now with the help of a group of companies doctrine an arbitration agreement when two parties enter into an agreement by one main company, and one within a group of companies can bind its non-signatory companies. The second thing is all parties are bound within their mutual intention to the signatories and non-signatories companies. The different judiciary provides different points of view but in consideration, all are the same, the important point is that the companies did not sign the agreement of arbitration or do not include an arbitration clause. It plays an important role in arbitration.

Group of company doctrine according to Indian laws is[1] an arbitration clause and may be extended with a group of companies or where a non-signatory parties/companies exerts excessive control over the parties to the arbitration agreement E.g. consent of each party to agree in the arbitration to resolve the dispute.

The essential elements of this doctrine are-

  • The non-signatory companies had represented or participated in some ways in conclusion or a performance of the contract.
  • Such non-signatory company enter into a contract as regarded as the actual party to the main contract to the arbitration agreement.
  • In another way when such company in some way has been benefitted or expected to benefit from its aforementioned involvement.

Support and running of the international law arbitration point of this doctrine are to be established. The Group of companies provides exception general principles of the company. It is applied in special cases in arbitration. It is bound by the arbitration agreement and provides a benefit of the arbitration agreement to binding the award. When different companies enter into the same group or have the same group which party of the arbitration agreement or do not agree in the company’s act. The group of companies doctrine was first established through the case of Dow Chemical v. Isover saint gobain[2]. In India, this doctrine was first invoked by the Supreme Court case of [3]chloro control India ltd vs. seven Trent water purification inc, with the respect of the international commercial agreement. Now through this topic, we shall be discussing recent cases of Supreme Court. [4]Mahanagar telephone nigam vs. canara bank & ors. In this case group of companies was invoked by the Supreme court of India to bind a nonsignatory to the arbitration.

Agreements & the Indian Companies act, 1956

In case the parties have the desire for arbitration they sign an arbitration agreement prior to the contract. But in several cases it has been seen that despite the agreement the parties approaches the court for their claim. Section 9 of the Companies act 1956 says that the provisions of company’s act will override the article of association and memorandum of the company. If any agreement or contract made by the company is ultra vires then that agreement will be termed as void.                                                                                                                                                         For instance, if we take a company and its shareholders as the parties to a contract, they agree to settle the dispute if any arising by the way of arbitration. But at the time of dispute, the shareholder’s approaches ‘The companies law tribunal’ as it also provides for the reliefs of the shareholders. In such cases, the other party can refer to sec/8 of the arbitration and conciliation act 1996. The section confers the power to the court to refer the parties to the arbitration where it was pre-decided that the dispute resolution was to be done by the method of arbitration.[5] When we said that nowadays arbitration laws are growing faster than before. The answer is yes; arbitration is an agreement process to solve a commercial distribute between two parties. Now the point is that in arbitration we have seen different types of doctrines and legal theories developed such as the group of companies doctrine, the concept of reliance theory in arbitration procedure.

Dow chemical company, dow chemical Frence, dow chemical AG & dow chemical Europe v/s isover saint gobin

This is the first case which established the group of company’s doctrine. In this case Dow chemical companies, US company was an owner of his parent company. Dow chemical company of AG. It was owner of parent co. of AG (swiss co.) (Dow chemical Europe company) that company was under Dow chemical company in Europe and Dow company grants distribution on rights to a number of French company which the later assigned a right on distribution. Agreement to Isova-saint-Gobain. Come to the dispute agreement Dow’s delivery rights no. of company to any subsidiary company of Dow chemical company and in some particular in Dow chemical French company. In the end arbitration Dow chemical agreement and French were parties to the arbitration.

In this case distribution between parties arbitration agreement there is distribution agreement contain ICC arbitration clause for dow chemical company now coming to arbitration agreement between parties distribution agreement to dow chemical France and dow chemical company not paying expressed to be parties and not having a sign to distribution agreement. In interim award the tribunal had to decide whether these two non-signatory companies for entitlement to the benefit of arbitration clause. In order to take part in arbitration the tribunal decided that where it  was decided in the absence of expressed choice of law in  the government arbitration agreement the party choice in ICC arbitration where therefore there selection ICC rules represented the choice there tribunal should decide in jurisdiction and there reference so any national law the tribunal therefore decided to the determine of party intention at the time of arbitration agreement and deciding this question’s intention the tribunal taken regard the 2 or 3 factors-

  • The dow can exercise the absolute control of the subsidiary.
  • The party intention to signatory company should bind the grip of where the parent company in fact the control profit the performance before the dow chemical company which be non-signatory.

In the tribunal review the previous ICC award established a case law in the account of application of group of company now decided to the intention of the parties. In the court of appeal, the interim award is cancelled the application bill rejection on the ground of the tribunal what it makes the case running. It is true that English law provide both signatory and non-signatory companies with aioli by the section of 46(1)(b) under certain circumstances. Only matter is consent and intention of parties

Now in the coming case of Mahanagar telephone nigam limited(MTNL) the S.C invoked to bind a non signatory company to arbitration.

In this case, Mahanagar Telephone Nigam Limited(MTNL) v/s Canara bank &ors. They serve the bonds to a partial extent and the balance amount is paid soon after the bonds were subscribed there was an outbreak of scam in security which affect the secondary shares market that collapsed the security and bonds and the result was they faced a problem of liquidity crunch and then as a result of the parent concern by Canara bank. Now after sometimes they again raised a bond in share market but that time October 20, MTNL canceled the bonds, Canara bank filed a writ petition against a challenge the cancellation of bonds wherein CANFINA was arrayed as a proforma party.

Then high court dismissed the writ petition on the ground that the parties had a recourse of alternative remedies and U.O.I to resolve his dispute now the result was held that CANFINA had not agreed to be party to the arbitration. Now the group of doctrine has been regarded as a controversial doctrine on one of the reason of sole proprietorship that is against the principal of law regarding autonomy.  

Conclusion

We have understood the concept of the given doctrine. The article states the importance of the doctrine and what is its applicability in India. It also covers the origin of this doctrine through case laws. The important of this doctrine is concerned under application possibility to extend in arbitration agreement to the same as other companies who are non-signatory company and relate in arbitration. The main feature if this doctrine is to identify the intention and consent of the parties on the effect of legal provision. This doctrine has emerged through the roots of alternate dispute resolution system. The doctrine is part of arbitration agreement between the parties.


[1] OLG braunschweig, beck RS 2014, 11052 at II,1b)CC)(1)

[2] 1984, Rev Arb 137,1983.

[3] (2013)1 SCC 641

[4] Civil appeal nos. 6202-6205 of 2019(arising out of SLP civil no. 13573-13576 of 2014)

[5] Effect of arbitration agreements on the company when entered in articles of association of the company, Karan Gandhi, 4 Nov 2013

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