Group of Companies Doctrine: SC holds arbitration agreement can be binding on non-signatory firms

Source: The post is based on the article “Arbitration agreement can be binding on non-signatory firms: SC” published in “The Hindu” on 7th December 2023

Why in the News?

The Supreme Court of India has held that an arbitration agreement can be binding on non-signatory firms under the “group of companies” doctrine.

What is the Group of Companies Doctrine (GOCD)?

1) The Group of Companies Doctrine (GOCD) is applied in arbitration proceedings.

2) The doctrine states an arbitration agreement binding on a firm, which though not a signatory, is a member of a group of companies that is a party to the agreement

What did the Supreme Court say on the Group of Companies Doctrine (GOCD)?

1) The ​​Supreme Court has upheld the “Group of Companies” doctrine in Indian arbitration law.

2) The court also held that the definition of “parties” under Section 2 and Section 7 of the Arbitration Act included both the signatory as well as non-signatory parties.

3)​​ This judgment clarifies the scope of the “group of companies” doctrine in India and makes it easier for parties to enforce arbitration agreements.

What is Arbitration?

1) Arbitration is a form of alternative dispute resolution (ADR) in which a neutral third party resolves a dispute outside of court. 

2) The parties to the dispute agree to submit their case to an arbitrator, who will make a binding decision on the matter. 

3) Arbitration can be a faster and more cost-effective way to resolve disputes.

4) Arbitration in India is governed by the Arbitration and Conciliation Act,1996.

UPSC Syllabus: Polity