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Supreme Court Clarifies Basis for ‘Group of Companies’ Doctrine, Dismissing ‘Alter Ego’ Connection

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Published on: December 07, 2023 at 11:49 IST

The Supreme Court has affirmed the ‘group of companies’ doctrine in arbitration law jurisprudence, clarifying that the principle of “alter ego” or “piercing the corporate veil” should not serve as the basis for applying this doctrine.

The Constitution Bench, consisting of Chief Justice DY Chandrachud, Justice Hrishikesh Roy, PS Narasimha, JB Pardiwala, and Manoj Misra, addressed a reference that raised doubts about the ‘group of companies’ doctrine, allowing non-signatory companies to be bound by arbitration agreements.

In the judgment, Chief Justice Chandrachud explained that the ‘group of companies’ doctrine does not compromise the separate corporate identity of different companies.

Instead, its application depends on the conduct of non-signatories, indicating an intention to be bound by the arbitration agreement.

The Court stated, “The principle of alter ego disregards the corporate separateness and the intentions of the parties in view of the overriding considerations of equity and good faith. In contrast, the group of companies doctrine facilitates the identification of the intention of the parties to determine the true parties to the arbitration agreement without disturbing the legal personality of the entity in question.”

The Court emphasized that the application of the ‘group of companies’ doctrine should consider factors such as the non-signatory’s participation in the performance of the underlying contract, the conduct of non-signatory parties indicating an intention to be bound, and circumstances surrounding the negotiation, performance, and termination of the contract containing the arbitration agreement.

Case Title: Cox and Kings Ltd v. SAP India Pvt Ltd