Delhi High Court: ‘Group of Companies’ Doctrine Inapplicable to Directors in Arbitration

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Published on: 28 January, 2024 at 00:30 IST

The Delhi High Court has ruled that directors of a company cannot be included as parties to arbitration proceedings through the ‘Group of Companies’ doctrine.

The Court emphasized that the relationship between a company and its directors is that of ‘Principal’ and ‘Agent’ under Section 182 of the Indian Contract Act.

In a case involving two Builder Buyer Agreements, a dispute arose between the petitioner and respondent no.1. The petitioner invoked arbitration, and when parties failed to appoint an arbitrator, the petitioner approached the High Court under Section 11(6) of the Arbitration and Conciliation Act.

The respondents contested the petitioner’s case against respondent nos. 2 & 3, directors of respondent no.1, arguing that an agent cannot be personally liable for acts on behalf of the principal.

The Court observed that the agreements were between the petitioner and respondent no.1, signed by respondent no.2 as a director of respondent no.1.

The Court held that directors cannot be made parties to arbitration using the ‘Group of Companies’ doctrine. The court cited Section 230 of the Indian Contract Act, stating that an agent cannot be personally liable for acts carried out on behalf of the principal unless there is an express agreement to the contrary.

As no such agreement existed, the court concluded that the dispute should proceed to arbitration without including respondent nos. 2 & 3.

Case Title: Vingro Developments Pvt Ltd v. Nitya Shree Developers Pvt Ltd, Arb.P. 667/2023

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