In the ever-evolving landscape of commercial disputes, binding “non-signatories” to an arbitration agreement has often been a point of consideration and deliberation before various courts. This extensive piece delves into binding nature of the “group of companies” doctrine and its’ applicability to non-signatories to an Arbitration Agreement.

In a recent ruling of the Delhi High Court in the case of M/s Opuskart Enterprises and Ors. vs. Kaushal Kishore Tyagi, ARB. P. 134/2023), it has been held that the disagreements related to the partners’ business activities, whether conducted through the firm or the company, fall within the scope of arbitrable matters. The bench rejected the argument that the firm or the company cannot be brought forth in the arbitration proceedings since neither the firm nor the company are signatories to the Arbitration Agreement.

Factual Background:
A partnership deed was concluded between the Petitioners and the Respondent on 27th June, 2016. The same remained in force, with the respective shares of the partners of the company detailed in the agreement. The parties intended to continue with their business of trading, import and export of books, etc and mutually agreed to name the business as “M/s Opuskart Enterprises”.

Claims of the Parties:
The Petitioners initiated a claim wherein they alleged that Mr. Kaushal Kishore Tyagi (Respondent) indulged in the misappropriation of funds of the firm, in violation of the Partnership deed signed by the parties. Accordingly, vide notice dated 18th June,2021, the Petitioners asserted a claim of INR 60,50,000/- against the Respondent. Refuting the aforesaid allegations, the Respondent contended that the petitioners were aiming to seize control of the business. Subsequently, on 25th June, 2022, the Petitioners invoked the arbitration clause, claiming INR 3.88 crores. In the absence of a response from the Respondent, a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 was filed.

Arguments before the Court:
The Petitioners raised several objections before the Hon’ble Court stating that the reference to the Indian Arbitration Act, 1940 in the Arbitration clause (Clause 16) of the Partnership deed does not invalidate the Arbitration Agreement. Further, it was contended that the absence of stamping on the aforesaid agreement does not preclude the parties from choosing arbitration as a form of dispute resolution. In addition to the same, it was contended that the discrepancies in claimed amounts between the initial notice and the Notice invoking arbitration do not impede arbitration. Lastly, it was contended that the claims related to the company cannot be raised as part of the arbitration notice as the company is not a party to the Arbitration agreement.

In response to the aforesaid claims, the Respondents submitted that the claims relating to the firm or the company cannot be raised as part of the present arbitrable proceedings since they are not parties to the Arbitration agreement. Further, it was contended that amounts related to the Company’s accounts are not arbitrable and in any case, the firm itself not being a party to the Arbitration agreement, no Arbitrator would be liable to be appointed.

Observations of the Court:
While referring to the Reply of the Respondent dated 28th June 2021, the Hon’ble Court stated that the partners had started the firm and the company and that disputes have arisen with respect to their businesses. The Arbitration clause in the partnership deed (Clause 16) is quite wide and deals with the disputes and differences between the parties either in respect of the construction, meaning and effect of the deed or a part thereof. Therefore, this clause covers the disputes or differences in respect of the accounts, profits and losses or the business or the rights and liabilities of the parties to the partnership deed. Keeping in view the expansive language of Clause 16, the Court held that the disputes arising out of the common business ventures of the parties, either through the firm or the company, falls within the purview of the aforesaid clause.

In addition to the aforesaid, the Hon’ble High Court opined that the Respondent’s response to the Legal Notice dated 28th June,2021 implies that the firm and the company’s businesses are integrated. In this regard, the Hon’ble High Court referred to the decision of the Supreme Court in Cox and Kings Ltd. v. SAP India Pvt. Ltd [2023 INSC 1051] wherein it has been held that non-signatory affiliates can be a party to an arbitration agreement if the parties intend to do so among signatories and non-signatories.

Conclusion:
It appears that the Courts have settled the substantive question of the existence of the doctrine and its location, however, the further wave of litigation surrounding the application of the doctrine to specific circumstances arising from transactions involving corporate groups cannot be ruled out. However, in the present scenario, the Group of Companies doctrine enables the inclusion of a non-signatory affiliates or sister companies in arbitration proceedings if there is a mutual intention between the signatories and non-signatories to this effect.

By - Swetalana Rout