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Akash Kumar Surya*
The paper explores the talk between utilizing consent-based doctrines like Group of Corporations (GOC) Doctrine and non-consent-based doctrines like alter ego to implead a non-signatory to an arbitration settlement. This debate is explored within the context of the Arbitration and Conciliation Act in mild of the not too long ago delivered Supreme Courtroom judgement in Cox and Kings II. The paper makes an attempt to justify the adoption of consent-based doctrines to the exclusion of others within the Indian jurisprudence by using the framework of Unique Authorized Positivism. It scrutinizes the current judgement to focus on its inadequacy in not even participating with non-consent-based doctrines given the bench was a five-judge bench and had the chance to guage completely different approaches to the difficulty. It intends to fill this hole by resorting to the ELP framework utilizing which it argues that the posited legislation didn’t allow the adoption of non-consent-based doctrines.
Introduction
A five-judge bench of the Supreme Courtroom of India (SC) not too long ago delivered its judgment within the case of Cox and Kings II. The case is a landmark one within the context of arbitration legislation because it settles the authorized place of the Group of Corporations (GOC) doctrine in India- a doctrine that seeks to implead non-signatories to the arbitration settlement by counting on the notion of implied consent. The case arises out of a reference made by a three-judge bench within the case of Cox and King I the place the SC expressed reservations with respect to the adoption of the GOC doctrine in Indian jurisprudence. On this case, after an intensive dialogue of earlier choices on the topic, the bulk was of the opinion that the adoption of the GOC doctrine by advantage of the legislation laid down within the case of Chloro Controls, was based mostly on concerns of economics and comfort quite than of legislation (para 55). It additional noticed that the doctrine was theoretically based mostly on concerns of effectivity and that effectivity couldn’t have been the only real foundation to bind a celebration to arbitration within the absence of a authorized foundation for grounding the doctrine in Indian jurisprudence (para 17). Accordingly, it framed two points for the five-judge bench to think about in Cox and Kings II, one among which questioned the authorized validity of the GOC doctrine within the Indian context (para 54).
Settling the legislation on this query, the SC in Cox and Kings II relied on sections 2(1)(h) and seven of the Arbitration Act (Act) to offer a authorized basis for the GOC doctrine. In line with the SC, a literal interpretation of the mentioned provisions was adequate to justify the adoption of GOC in India. Nonetheless, the court docket didn’t study the chance or efficacy of using competing doctrines which may have additionally served the aim of impleading the non-signatory to an arbitration settlement. The court docket appears to have engaged in an train of backward reasoning- continuing with the conclusion that the GOC doctrine is what needs to be adopted in India after which figuring out the related authorized provisions to justify it. In doing so, the court docket missed a possibility to guage if the related authorized provisions allowed the court docket to look previous GOC in the direction of different competing doctrines to find out if the Indian legislation additionally permitted the adoption of the latter.
On this paper, with the intention to handle this hole, I argue that the Act didn’t present any scope for the adoption of another competing doctrines that aren’t based mostly on the notion of consent. To take action, I firstly, analyse the important thing distinction between two teams of doctrines- whereas one group comprises doctrines which might be consent-based, the opposite group comprises doctrines that depend on rules aside from consent- with the intention to higher situate the current judgement of the SC; and secondly, make use of an Unique Authorized Positivist perspective to the interpretation of the Act to substantiate my argument.
Non-Consensual Theories- The Highway Not Taken
The GOC doctrine performs a key function in arbitration legislation and was developed to justify the imposition of legal responsibility arising out of an arbitration settlement upon an entity (non-signatory) which may not have initially signed the settlement itself. Nonetheless, its adoption in authorized techniques throughout jurisdictions has been a topic of vehement scholarly debate primarily as a result of business arbitration, as a method of dispute decision, is characterised by two primary principles- occasion autonomy and a mutual intent to arbitrate a dispute i.e., consent.
Within the modern business local weather, the place companies are inspired to speculate, diversify, and restrict their liabilities, the tendency to ascertain subsidiaries has grown immensely. On this context, a significant query that has arisen is whether or not a father or mother firm will be certain by the consent to arbitration offered by the subsidiary and vice versa. Ordinarily because of the operation of separate authorized persona precept, one firm or its shareholders are usually not certain by the actions of the opposite firm. That is additionally termed because the precept of company veil- a protecting protect which protects the shareholders from being chargeable for the actions of the corporate. So, if one subsidiary indicators an arbitration settlement, the holding firm or sister subsidiaries would, by implication, not be certain by any of the obligations of the primary subsidiary. Nonetheless, preserving business and financial realities in thoughts, arbitral tribunals have felt the necessity to prolong their jurisdiction to even non-signatories (p. 35). Now, there are two alternative ways (p. 35) to realize this objective- firstly, counting on doctrines like GOC that are grounded on the thought of implied consent, or secondly, resorting to conventional doctrines of contract legislation doctrines just like the doctrines of veil-piercing, estoppel, or third occasion beneficiary[1] that don’t depend on the notion of consent.
The important thing distinction between the 2 strategies lies within the significance given to consent within the former. As an illustration, conventional doctrines like veil-piercing or alter-ego, and so forth. are based mostly on rules of fairness, equity, and justice. When the courts are confronted with conditions whereby the father or mother firm makes use of the subsidiary to commit fraud or evade liabilities, and notice the problem thrown by the separate authorized persona precept, they normally reply by piercing the company veil and holding the father or mother firm chargeable for the actions of the subsidiary. On this strategy thus, the court docket is just not involved with the consent of the father or mother firm in any respect. Nonetheless, within the GOC doctrine, the concerns of equity and justice are under no circumstances related and the one pertinent situation to impose legal responsibility upon a non-signatory father or mother firm is to find out if the non-signatory had consented to be certain by the arbitration clause. Within the context of arbitration legislation, which accords paramount significance to consent, it’s cheap to undertake the primary strategy and impute legal responsibility upon a non-signatory solely whether it is discovered to have consented to the settlement. Doing this is able to enable one to realize a stability between two equally essential considerations- preserving the foundational rules of arbitration legislation and acknowledging the fashionable approaches to enterprise.
It’s no shock, then, that the SC selected to proceed with the primary methodology and undertake the GOC doctrine to implead non-signatories within the arbitration settlement. Whereas it appears logical to proceed with a consent-based principle to implead non-signatories in an arbitration settlement, the SC has not reasoned out why it most popular a consent-based doctrine over the non-consent ones. In any case, even jurisdictions just like the U.Ok., whose case legal guidelines are so enthusiastically cited by Indian courts, have proven important reservations in adopting the GOC doctrine. English legislation locations paramount significance on the notion of privity of contract and doesn’t enable the extension of arbitration agreements to non-signatories. It requires the intention of the events to be readily obvious and never inferred. Thus, what seems to be clear from this dialogue is that there are two competing notions- the notion of privity of contract and the notion of consent in arbitration. The SC has evidently sought to protect the notion of consent over the notion of privity of contract.
Nonetheless, as talked about above, the SC appears to have presupposed the existence of solely consent-based doctrines within the Indian context, thereby not reasoning out the exclusion of the non-consent doctrines. Agreeing with the stance of the SC, I search to fill this hole and argue that the Arbitration Act, the related legislation that governs the legislation on arbitration, itself privileges the notion of consent. To substantiate my argument, I undertake an Unique Authorized Positivist perspective in deciphering in deciphering the related provisions of the Act which signifies that there was no scope for the SC to legally floor a non-consent-based doctrine in India.
An ELP view of the Arbitration Act- Justification for the adoption of the GOC Doctrine
The rationale behind utilizing the ELP strategy is two-fold- Firstly, using this framework permits us to look at the judgment by tracing down its very reasoning to guage whether or not the judgement is a operate of mere whims and fancies of the choose couched in legalese or is an consequence of authorized reasoning arising from a legitimate supply of legislation like a statute or a binding precedent. Secondly, by specializing in the supply, the ELP framework helps be certain that the end result arrived at by the court docket is as near probably the most environment friendly consequence as attainable. As an instance, take into account Ronald Coase’s legislation and economics principle on transaction prices which asserts that if there aren’t any transaction prices in a market, the sources available in the market would inevitably find yourself being allotted effectively in a Pareto-Optimum consequence.[2] Additional, Calabresi argues that there are hardly any allocations which might be free from transaction prices attributable to which the elemental intention of any authorized system have to be to allocate main sources to succeed in a scenario as shut as attainable to what would in any other case have existed had there been no transaction prices available in the market. It’s on this context that the significance of statutes will be appreciated. Statutes will be seen as devices of intervention which might be meant to deal with market inefficiencies and govern the relationships between entities in such a way that probably the most environment friendly consequence is produced. Provided that the legislature is probably the most well-suited organ of the federal government to border legal guidelines, it’s cheap to imagine that its evaluation whereas enacting any legislation is appropriate and is meant to result in probably the most environment friendly outcomes. Then, if a court docket’s judgement is just not solidly backed by the posited legislation, it could replicate a reallocation of sources completely different from what was envisaged by the legislature. This could produce inefficient outcomes. Thus, it turns into essential to check the judgements utilizing the framework of ELP.
The ELP strategy posits that each one legislation is source-based based mostly i.e., a choose is merely supposed to use the legislation from the supply which requires him to undertake authorized reasoning, and never entertain ethical concerns.[3] The concept subsequently is {that a} legislation is legitimate if and provided that its existence and contents will be decided with out utilizing ethical arguments (p. 47). This concept of supply is just not merely restricted to formal sources like laws but additionally consists of judicial precedents and interpretive sources arising out of such legislations.[4]
Utilizing this attitude, one can justify the adoption of the GOC doctrine in India by referring to sections 2(1)(h) and seven of the Arbitration and Conciliation Act (Act) because the court docket has additionally accomplished. The court docket rightly causes that part 2(1)(h) of the Act defines a celebration to imply a “occasion to an arbitration settlement”. Now, an arbitration settlement is a creature of contract, and it is just logical to argue that the rules of contract legislation must be utilized to find out who’s a correct occasion to the arbitration settlement. Within the context of contract legislation, one of many key rules that the courts depend on to find out if an entity is a celebration to a contract or not is the precept of free consent as contained in part 10 of the Indian Contract Act i.e., whether or not an entity had consented to being certain by the rights and obligations below the contract.
Clearly, the most typical method of figuring out whether or not a celebration has submitted to the jurisdiction of the arbitral tribunal or not is to examine if the occasion has consented to the settlement by placing in its signature. Nonetheless, the court docket recognises that in contract legislation, the requirement of signature is just not a essential situation for the expression of consent.[5] Thus, we see that the posited legislation itself is predicated on the notion of a legitimate contract which is centered on the thought of consent. In Haji Mohammad, the SC had relied on the conduct of the defendant to watch that an implied contract existed between the events. Extending this conventional precept of contract legislation and making use of it to the posited legislation i.e., part 2(1)(h), it may be argued that one will be mentioned to be a celebration to the settlement if one had expressed one’s consent to be certain by the settlement in any method together with by placing a signature.
This logically implies that even a non-signatory will be validly argued to be a celebration to the arbitration settlement so long as its expression of consent will be established by means of another means. A literal interpretation of the part makes it clear that neither it derogates from the rules of contract legislation, nor does it ponder any extra necessities. So, viewing from an ELP perspective, for the reason that provision itself is centered on the notion of consent, it could have been unreasonable for the court docket to undertake a non-consensual principle to implead non-signatories.
Nonetheless, the Act itself additionally contemplates an extra requirement to be met for the arbitration settlement to be legitimate.[6] That is contained in sections 7(3) and (4). Whereas part 7(3) stipulates that an arbitration settlement have to be in writing, sub-section 4 postulates an exhaustive checklist of three completely different eventualities when the arbitration settlement will be mentioned to be in writing. This requirement of a written arbitration settlement, in accordance with the SC in Cox and Kings II, can also be current to merely guarantee that there’s a clearly established file of consent between the events.[7] Thus, in accordance with the SC, even part 7, whereas imposing the extra requirement of a written arbitration settlement, is just primarily involved with the willpower of consent between the events.
The conclusion reached by the court docket appears in line with the established interpretation of part 7. Explaining the scope of this provision, the SC, in Jagdish Chander had noticed that to represent an arbitration settlement, the court docket was required to have a look at inter alia the next elements- the intention of the events to be gathered from the phrases of the settlement; the events ought to have agreed (consensus advert idem) to refer the dispute to an arbitral tribunal; the events ought to have mutually meant to be certain by the selections of the tribunal.[8] Equally, numerous different SC judgements- Bharat Bhushan Bansal v. U.P. Small Industriesand Bihar State Mineral Dev v. Encon Builders– have additionally noticed that for any clause to be construed as an arbitration settlement, one of many related necessities wanted to be seen was whether or not there was any specific or implied settlement (consensus advert idem) to refer the disputes to arbitration or not.
Thus, a survey of the case legal guidelines on part 7 additionally clearly signifies that the supply itself doesn’t diverge from the requirement of consent, and actually, is predicated on the very thought of consensus advert idem. It requires the arbitration settlement to be in writing and merely offers the three completely different circumstances during which the Act considers an arbitration settlement to be in writing. So, all that this provision requires is that the arbitration settlement, to whom even a non-signatory will be made a celebration, must be in writing. This by no means derogates from the elemental requirement of the consent of the events, and actually reinforces the notion that for an arbitration settlement to be legitimate, there have to be an specific or implied consensus advert idem.
What emerges from the above dialogue is as follows: the GOC doctrine is just not a operate of ethical or political concerns as its contents and existence will be traced again to provisions of the Act as interpreted by varied precedents utilizing the interpretive rules of contract legislation. Thus, a mixed studying of sections 2(1)(h) and seven in mild of the settled rules of contract legislation means that the court docket would have confronted a troublesome job in justifying the adoption of a non-consent principle to implead non-signatories. Using this ELP lens, it may be argued that there’s a agency basis for the GOC doctrine to be adopted in India as its authority will be derived from the father or mother laws and the precedents themselves.
Lastly, the Preamble to the Arbitration Act additionally clarifies that it’s based mostly on the UNCITRAL Mannequin Regulation and subsequently courts have referred to the latter as an help within the interpretation of the previous (para 26). Though Article 7 of the Mannequin Regulation offers that the arbitration settlement must be in writing, it additional specifies that its precise contents will be recorded in any method together with by means of oral means or by means of conduct. This provision thus appears to offer an exception to the overall rule (p. 37) that each facet of the arbitration clause must be written and explicitly consented to by the events.
Subsequently, the Mannequin Regulation itself envisages a scenario the place, if an entity conducts itself in a way that signifies the existence of implied consent to the arbitration settlement, it’s thought-about to be a celebration to the settlement. Notably, the supply focuses on the conduct of the entities to find out if an arbitration settlement has certainly been recorded or not. Evaluating an entity’s conduct offers the courts with a possibility to deduce if the occasion meant to be certain by the settlement or not. Thus, this concentrate on the “conduct” signifies that the Mannequin Regulation additionally relied on the notion of consent to find out if an entity was a celebration to an arbitration settlement in case the settlement was not diminished to writing. The Mannequin Regulation may have very nicely adopted a special approach- one based mostly on notions of equity and fairness versus consent. Nonetheless, the acutely aware selection of preferring consent over different values signifies that, not less than, the Mannequin Regulation doesn’t present us a lot wiggle room to justify the adoption of non-consent-based doctrines however offers us with adequate scope to justify the adoption of a consent-based doctrine to implead a non-signatory to the arbitration settlement.
Conclusion
An ELP-based justification of the GOC doctrine, subsequently, adequately responds to the reservations raised by the three-judge bench in Cox and King I. It addresses the legitimate issues raised by the bulk to the impact that the adoption of GOC appeared to be a operate of the effectivity and comfort it introduced by decreasing the potential for a number of litigations over the identical dispute. Nonetheless, an train of authorized reasoning below the ELP framework clearly exhibits {that a} mixed studying of sections 2 and seven of the Act leaves no scope for one to include any non-consent-based principle. The reliance on the UNCITRAL Mannequin Regulation offers us with additional causes to substantiate the argument this paper makes. Since, the provisions themselves are centered on the notion of consent and consensus advert idem, they supply a stable basis to justify the adoption of GOC doctrine, to the exclusion of non-consent-based doctrines, within the Indian arbitration legislation jurisprudence.
[1] William H. Park, ‘Non-Signatories and Worldwide Contracts: An Arbitrator’s Dilemma’ in Doak Bishop (ed), A number of Get together Actions in Worldwide Arbitration (OUP 2009) 4.
[2] R. H. Coase, ‘The Drawback of Social Price’ (1960) 3 Journal of Regulation and Economics 1.
[3] See the chapter on Unique Authorized Positivism by Andrei Marmor starting at web page 83.
[4] Ibid.
[5] Cox and Kings II [66].
[6] Cox and Kings II [69].
[7] Cox and Kings II [75].
[8] Jagdish Chander v. Ramesh Chander (2007) 5 SCC 719 [8].
*Akash Kumar Surya is a third-year legislation scholar on the Nationwide Regulation Faculty of India College pursuing the undergraduate B.A., LL.B. course.
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