Group of Companies Doctrine in Arbitration Proceedings
Cox and Kings Ltd. v SAP India Pvt. Ltd.
The Supreme Court will decide if parties who did not sign an arbitration agreement can be made parties to arbitration proceedings. If this is the case, the Court will clarify the circumstances where this can be done.
Petitioner: Cox and Kings Ltd.
Lawyers: Hiroo Advani; Divyakant Lahoti
Respondent: SAP India Pvt. Ltd.; SAP SE GMBH
Lawyers: Dheeraj Nair
Intervenor: Kirloskar Brothers Ltd.; Jindal Drilling Industries; ECom Express Ltd.; Dost Hospitality Services Pvt. Ltd.
Lawyers: A.M. Singhvi; Kapil Sibal
Can non-signatories be included as parties to an arbitration agreement?
If so, under what circumstances can non-signatories be included as parties to an arbitration agreement?
On December 14th, 2010, a travel company named Cox and Kings Ltd. (C&K) entered into a software licensing agreement with SAP India Pvt. Ltd. SAP specialises in creating and selling software to aid companies in marketing, finance, human resources and other areas of interest for large businesses.
In October 2015, as C&K began developing its own e-commerce platform SAP India approached them with an offer to install a new software. The two companies entered into three new agreements to use SAP’s ‘Hybris Solution’ software. SAP India stated that the new software was already 90% compatible with C&K’s current software and that only an additional 10 months were needed in order to customise the remaining 10%.
One of the agreements, the General Terms and Conditions Agreement (GTC), contained an arbitration clause. The two companies agreed to resolve future disputes through arbitration. They also agreed to be bound by the Arbitration and Conciliation Act, 1996 (the Arbitration Act) and conduct any future arbitrations in Mumbai. However, the project to implement the Hybris software faced difficulties. C&K then reached out to SAP SE—the main branch of SAP based in Germany—and requested their assistance.
SAP SE created a team of global experts and effectively took over the project. However, the project failed to get off the ground despite repeated extensions. C&K terminated the contract in November 2016 and demanded a refund of ₹45 crores to recoup the payments made to SAP so far. In response SAP India issued a notice to begin arbitration proceedings, claiming that C&K wrongfully terminated the agreement and demanded ₹17 crores as payment.
The arbitration proceedings were adjourned in November 2019 by the National Company Law Tribunal as C&K were facing insolvency proceedings. Despite looming bankruptcy, C&K sent a notice to SAP and initiated a fresh arbitration. This time, C&K sent a notice to SAP SEas well to make them a party to the arbitration even though SAP SE was not a signatory to any of the agreements.
When SAP did not appoint any arbitrator, C&K approached the Supreme Court under Section 11 of the Arbitration Act and requested the Court to appoint one. The petitioners claimed that SAP SE could be included as a party to the arbitration even though they did not sign any of the agreements. C&K argued that SAP SE took full responsibility of the project and gave their implied consent to be bound by the agreement. Further, SAP India was a subsidiary of SAP SE and was fully owned by them. This principle of including a non-signatory as a party to an arbitration agreement is known as the ‘Group of Companies Doctrine’.
On May 6th, 2022, a 3-Judge Bench led by former CJI N.V. Ramana referred the case to a 5-Judge Constitution Bench. CJI Ramana’s majority Judgement (which was co-signed by Justice A.S. Bopanna) expressed concerns regarding the Doctrine. Specifically, the Bench held that a larger Bench was necessary to decide when the Doctine applied to the arbitration act. Further, it questioned whether the jurisdiction of an arbitral tribunal could extend to non-signatories. Justice Surya Kant agreed that the case should be referred to a larger Bench so that the contours of the Doctrine could be defined clearly. However, he clarified that he was in favor of the Doctrine and considered it ‘…an integral part of Indian arbitral jurisprudence’.
A 5-Judge Bench led by CJI D.Y. Chandrachud began hearing the case on March 22nd, 2023.