Cox & Kings has a number of contracts with SAP India (Respondent No 1). As a result of disagreements between the parties, Respondent No. 1 and its parent business, Respondent No. 2, were subject to arbitration by SAP India. Since neither Respondent responded to the arbitration notice, SAP India applied for the appointment of an arbitrator in accordance with Section 11 of the Act. Due to the fact that this was an international business arbitration, the Supreme Court was contacted.
In the instant case titled Cox And Kings Ltd. vs Sap India Pvt. Ltd., the issue raised for clarification before the Supreme Court was:
If SAP India could compel the parent firm, which did not sign the arbitration agreement, to arbitrate?
With regard to this issue, the group of companies theory presupposes the joining of non-signatories as parties rather than only as claims under a signature, the Bench stated in the majority judgement. The concept is based on the parties' arbitrary intent to obligate non-signatories to an arbitration agreement. Arbitration does not work well in binding such non-signatories because it is a product of a contract and therefore an agreement, according to legal precedent. The theory seems to have been more influenced by convenience and economy than by the law. It isolates corporate personality and goes against party autonomy values. In order to determine if Chloro Controls and other judgements were sound legal precedent, the Bench subsequently referred this subject to a bigger Bench.
The Court categorically stated that,
“This doctrine can be clearly stated to have originated in the Dow Chemical France, the Dow Chemical Company v. Isover Saint Gobain, (ICC Case No. 4131). In the case of Dow Chemicals (supra), it was the subsidiaries of Dow Chemicals which initiated Arbitration proceedings against Isover. In that case, Isover objected to the basis on which the subsidiaries of Dow Chemicals chose to arbitrate, without some of them having entered a valid arbitration agreement with Isover. The Tribunal, while disregarding the contention of Isover, held that Dow Chemicals Group operated as a single economic reality and thus the non-signatories were also bound by the arbitration agreement. We may note that the Dow Chemicals (supra) case related to a situation where a non-signatory did not resist arbitration. Rather they wished to join an arbitration already initiated by its affiliates. The effect of this position has not been evaluated in any precedents of this Court and needs to be examined.”