The guiding principle of Arbitration is l'autonomie de la volonte
, that is arbitration is based on the autonomy of the parties. The
Supreme Court of Texas has said that consent is the cardinal principle of
the practise of arbitration
. Arbitration only commences when the parties
themselves have resolved to submit themselves to the authority of an
arbitrator or an arbitral tribunal, such arbitrator or tribunal drawing its
adjudicatory mandate through an arbitration agreement or arbitration clause.
The importance of consent in arbitration proceedings is such that the
Supreme Court in Stolt Nielsen SA vs Animal Feeds International
 said that arbitration is a matter of consent, not coercion.
This principle is the main reason why the position of non-signatories
arbitration agreements is difficult to ascertain, and implead them in
It is estimated that more than 40% of international arbitration cases
involve more than two parties, this challenges the conventional notion
that arbitration is a bi-polar dispute
In India the jurisprudential basis
for extension of non-signatories
has been established through Chloro
Controls vs Severn Trent Water Purification Inc & Ors
. This case to some
extent introduced the Group of Companies Doctrine in India however this
Doctrine still remains to be fructified in the system of Indian
Jurisprudence, although it has been recognized through various Apex Court
and High Court judgements.
This Article shall endeavour to first of all explain the definition of
Alter Ego and Group of Companies. It shall analyse these principles
through very recent judgements of the Supreme Court and the Delhi High
Court. It shall conclude with a in depth analysis of similar practises in
the world of arbitration that can be adopted by our National Courts and
Arbitral Tribunals when faced with such situations.
The definition of Alter Ego does not have any singular approach, and it can
be described through a plethora of terms. The concept of Alter Ego is found
in many jurisdictions, it is called Durchgriff
Law, levee du voile social in France and ‘piercing/lifting the corporate
veil in the English Legal system.
The principle is difficult to define in a straight jacketed manner, however
certain underlying principles can be ascertained. When a Court or Tribunal
comes to the conclusion that an entity is the alter ego
of another , the
question arises whether the two corporate bodies have a discernible separate
corporate identity or not.
It is clear to us however that there has to be a discernible element of
fraudulent activity for the concept of alter ego to be invoked in
Arbitration or any other legal scenario. In the Indian scenario this is
not always the case as the Indian Courts have taken a hugely pro
Arbitration stance by extending the purview of the Arbitration agreements to
Non-Signatory Parent Companies as well.
We must however be conscious of the
differentiating factor between them as explained by Gary Born wherein he
The alter ego theory is a rule of Law that is invoked to disregard
or nullify the otherwise applicable effects of incorporation or separate
legal personality. The outcome is that one entity is deemed non-existent or
merely an unincorporated part of another entity.
I shall thus attempt
to elucidate the differentiating factors of this theory with the Group of
Companies Doctrine in the subsequent paragraphs of this Article.
Group of Companies:
This Doctrine has gained recognition due to the case of
Dow Chemicals .
The Interim Award pronounced in this case held that the
group of Companies are part of the one and same economic reality and
considered factors indicating that:
- companies in the group due to their role in the conclusion,
performance and termination of contracts containing the arbitration
- the common intention of the parties to include them as concerned
parties to the contract made the arbitration clause binding on them. 
Gary Born in his assessment of the Doctrine concisely summarizes the case
Law on this Doctrine, and while he does maintain that the Dow Chemical
definition of the same would include the parties intentions to bind and be
bound, recent Arbitral Awards suggest that a departure from the traditional
approach , and holding the Non- Signatory parent Company bound for such
reasons like security of International Commercial Arbitrations
would be compromised if the economic reality of the situation is not taken
We can draw an inference that within the domain of Arbitration the Group of
Companies Doctrine would include a two part assessment of 1)whether the
company belongs to a closely knit group commercial group which functions as
a single economic entity and 2)whether both the parties intended the parent
Company to be bound by the arbitration.
The Indian Saga:
Indian Courts have often been vexed with the question of extension to Non- Signatories
, there a number of Case Laws which
provide us illumination in this regard, there have been Supreme Court and
High Courts . We shall attempt to elucidate this Doctrine through these
Judicial Pronouncements of the Supreme Court of India which have elucidated
and expanded the scope of this Doctrine .
A. The Regime of Chloro Controls
This is perhaps the most Landmark Judicial pronouncement in Indian
Jurisprudence pertaining to extension to non-signatories, wherein a 3
Judge Bench of the Supreme Court gave recognition to the principles of alter
ego and the Group of Companies Doctrine .
The question was whether non-signatories to an agreement containing the
arbitration clause was addressed as per Legal principles and the Court
relying on International Scholarly opinion gave its pronouncement.
The Court observed that the Group of Doctrines
Doctrine can bind a Non
Signatory affiliate Company to a contract entered into by another Company
within the group, and held that if circumstances demonstrate that if the
mutual intention of the parties was to bind both signatory as well as non-
signatory Companies then the Doctrine will bind them also.
It is based on this legal proposition and principles that the Courts in
India have extended this Doctrine in various factual scenarios.
Recent Case Law:
In this part of the Article we shall explore the approach
taken by the Supreme Court in relation to this Doctrine in 2 recent case
Laws . The Legal principles enunciated in the Chloro Controls case Laws have
been distinguished and utilized in these Judgements .
In the case of Cherian Properties vs Kasturi & Sons Ltd and Ors
 which was
delivered by a 3 Judge Bench of the Supreme Court , Justice Chandrachud
embarked on a detailed analysis of the Chloro Controls Judgement. In this
case the Appellants contended before the Court that the binding precedent of
Chloro Controls would only be applicable in the factual scenario of a Joint
Venture agreement and a mother agreement containing arbitration clauses.
They also contended that the
Chloro Controls cases would be applicable only in International Arbitration,
and not in Domestic Arbitration.
Justice Chandrachud explained the scope of the earlier Judgement and has
modern business transactions are effected through multiple layers and
agreements and the circumstances in which they have entered
into them may reflect an intention to bind both signatory and
The factors like
The Judgement also quotes the works of Gary Born in order to expound
the meaning of this Doctrine and to draw parallels between the Group of
Companies Doctrine and Alter Ego stating that:
- relationship between signatory and non-signatory,
- commonality of the subject matter,
- composite nature of transaction are mentioned in considerations while
determining cases on extension to non-signatories.
While the alter ego
principle is a rule of Law which disregards the effect of incorporation or
separate Legal personality, in contrast to the Group of Companies Doctrine
is a means of identifying the intentions of the parties and does not disturb
the legal personalities.
The second Key Judgement propounded by the Supreme Court is the case of Ameet
Lalchand Shah and Ord vs Rishabh Enterprises
, a Division Bench dealing
the extension of whether an arbitration agreement under one contract can be
extended to non-signatories. The Factual scenario is elucidated below.
In this case , there existed three contracts signed in 2012 by Rishabh
enterprises and different enterprises and service providers on the other. It
arose out of a project related to a Solar project installation in Uttar
Pradesh. The first was a Equipment and Material Supply Contract as well
and Commissioning Contract, was signed between Rishabh Enterprises and M/S
Rishabh Enterprises had also entered into a Sale and Purchase
Agreement with Aston Renewables Pvt Ltd for purchase of Photo voltaic
products to be leased to Appellant No.3 Dante Energy Pvt Ltd to be
installed in the Solar Planet.
There arose disputes between the parties related to the Sale and Purchase
Agreement, party sought reference to Arbitration on the basis of the Equipment Lease Agreement which contained an arbitral clause.
It was submitted by the Respondents that the since all the parties are not
signatories to the agreement(herein Asttonfield to the Sale and Purchase
Agreement), and hence the Chloro Controls Judgement would not apply herein.
The Court held that even though the Sale and Purchase Agreement did not
contain the Arbitration clause it was intimately connected to the project in
question , and therefore by virtue of the Group of Companies Doctrine the
arbitral clause in the Equipment Lease Agreement was deemed to have extended
to the Sale and Purchase Agreement as well.
Arbitration has become the preferred mode of dispute resolution all over the
word, more specially in the commercial world. A recent study by the Boston
Consulting Group has concluded that more than 80 percent of commercial
disputes have inbuild arbitral clauses and a growing number of businessmen
prefer to resolve their disputes through arbitration.
Governments around the
world have recognized this trend, including the Government of India which
has amended the Arbitration Act to make in tune with the UNICTRAL model Law
on Arbitration, and other model legislations. The Legislature can take a
number of steps to ensure that the extension regime in India is at par with
the international system and it doesn’t create difficulties for opting for
Arbitration to remove the uncertainty of outcomes caused by arbitrary
inclusion or non inclusion of Non-Signatory Companies.
The Legislature must provide a minimum standard for application of this
Doctrine and must specify by means of amendment to The Arbitration and
Conciliation Act, 1996 and codify the principles already enunciated by the
Apex Court and the High Courts in relation to the Doctrine around the
country in the Act.
It is also important that the Legislature in a revivalist mode does not
negate the cornerstone of Arbitration, that is consent, because it is
consent which gives the Arbitration process its legitimacy.
In concluding we must ask ourselves at this time whether India should
emulate the British and American approach to the extension regime . The
answer to that should be in the affirmative as adopting the approach of
these countries towards the extension regime will go a long way in making
India an Arbitration friendly jurisdiction.
- 363 U.S. 564 (1960);
- (2013) 1SCC641
- Jason Varady, International Commercial Arbitration-A Transnational
- Born, International Commercial Arbitration(n11) 1435
- Dow Chemicals vs Isover Saint Gobain , ICC Interim Award in Case No
- Born, International Commercial Arbitration(n24)1447
- ( 2013) 1 SCC 421
- (2019) 4 SCC 421
- Ibid para 17
- Ibid para 17
- Civil Appeal No 4690 of 2018, Supreme Court of India (Civil Appellate