SC Declines To Apply 'Group Of Companies' Doctrine To Implead Foreign Company In Arbitration With Its Indian Affiliate [Read Judgment]

The Supreme Court on Monday refused to invoke the 'group of companies' doctrine to implead a foreign company in an application for appointment of arbitrator for a dispute arising out an agreement with its Indian affiliate.

As per 'group of companies' doctrine, arbitration agreement entered into by a company, which is one among a of corporate entities, can, in certain circumstances, bind its non­signatory affiliates. This was expounded by the SC in the 2013 decision Chloro Controls India Private Limited Vs. Severn Trent Water Purification Inc. and Ors.

Based on this doctrine, Reckitt Benckiser (India) Private Limited wanted to implead a Belgian associate company of Reynders Label Printing India Private Limited in an application filed under Section 11 of the Arbitration and Conciliation Act.

The agreement was executed between Reckitt Benckiser (India) Pvt Ltd and Reynders Label Printing (India) Pvt Ltd, and the former sought appointment of arbitrator in relation to certain disputes arising out of the agreement. Stating that the agreement was binding on the Belgian company of Reynders group of companies and that international commercial arbitration was needed, Reckitt Benckiser filed application under Section 11 for appointment of arbitrator.  According to the applicant, Belgian company was the holding company of Reynders India.

The bench of Justices A M Khanwilkar and Ajay Rastogi however turned down that plea for dragging the Belgian company to the proceedings on the finding that no clear intention to bind it was manifest from the correspondences between the parties.  

The applicant referred to certain emails with Frederik Reynders, who the applicant claimed to be the promoter of Reynders group, to contend that there was intention to bind the Belgian company by the agreement as it was actively involved in the negotiations. 

Reynders Belgium denied that it was the parent or holding company of Reynders India and stated that they were both  part of Reynders Label Printing Group. This group is an internationally operating group of seven printing companies and each of these companies has its own separate legal entities and operates in different offices independently. It was stated further, these companies only share a common parent entity, namely, Reynesco NV which is also the holding company of both respondent companies.

It added that Frederik Reynders was not its promoter and that he was an employee of the Indian affiliate. 

"respondent No.2 was never involved in the negotiation process concerning the stated agreement dated 1st May, 2014. On this finding, the application must fail as against respondent No.2 and as a consequence whereof, the provisions for making reference to the sole arbitrator, on the assumption that it is an  international commercial arbitration, cannot be taken forward", observed the Court.

Reynders India however submitted that it was willing to accept the appointment of an arbitrator for settling the disputes by treating it as a domestic arbitration.

Based on this, the Court appointed   Mr. Justice Badar Durrez Ahmed (Former Chief Justice, Jammu & Kashmir High Court) as the sole arbitrator to conduct domestic commercial arbitration at New Delhi in relation to disputes between the parties.

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