Top News Headlines 28th Apr 2022: Doctrine Of Group Of Companies: Can Bind Non Signatory To An Arbitration Agreement

Doctrine Of Group Of Companies: Can Bind Non Signatory To An Arbitration Agreement: SC

• In Oil and Natural Gas Corporation Limited vs Discovery Enterprises Pvt Ltd. the Apex Court has held that a non-signatory can be bound by the arbitration agreement where:

1. There exists a group of companies; and
2. Parties have engaged in a conduct or made statements indicating an intention to bind the signatory.

• The Doctrine of ‘Group of Companies’ states that an arbitration agreement entered into by a company by a group of companies can bind the non-signatory affiliates if the circumstances show a mutual intention to bind both the signatory and the affiliated, non-signatory parties.
• In the instant case, the Arbitral Tribunal in a matter between ONGC and Discovery Enterprises Pvt Ltd. (DEPL) and others, in the interim award held that Jindal Drilling and Industries Limited (JDIL) was not a party to the arbitration agreement and thus, must be deleted from the array of parties. This order was challenged in an appeal which was dismissed. Appeal filed under section 37 of the Arbitration and Conciliation Act was dismissed by the Bombay HC. Aggrieved, the ONGC approached the Apex Court.
• The Counsel for the Appellant, ONGC contended that DEPL and JDIL are one single entity and thus ONGC is entitled to compel JDIL to participate in the arbitration proceedings so that the award can be enforced against it as well. It was also contended that the ‘Group of Companies’ doctrine would be applicable in the present situation. The argument advanced by the respondents is that the Group of Companies doctrine cannot be invoked in this case to indict JDIL for the acts or omissions of DEPL.
• Referring to the case of Chloro Controls Pvt. Ltd. vs Severn Trent Water Purification Inc. and ors. (2013) SCC the Apex Court observed that the Courts under English Law have developed the group of companies doctrine which postulates that an arbitration agreement which has been entered into by a company within a group of companies, can bind its non-signatory affiliates or sister concerns if the circumstances demonstrate a mutual intention of the parties to bind both. The ‘intention of the parties’ is thus, a very significant feature which must be established before the scope of the arbitration can be said to include the signatory as well as the non-signatory parties.
• While noting that this would only be in exceptional cases, the Court enumerated that these exceptions would be examined on the touchstone of:

1. A direct relationship to the party which is a signatory to the arbitration agreement;
2. Direct commonality of the subject matter;
3. If the agreement is of a composite transaction where the performance of a mother agreement would not be possible without the performance of a subsidiary agreement.

• The group of companies doctrine has also been applied in the cases of Cheran Properties Ltd. vs Kasturi and Sons Ltd (2018) SCC and MTNL vs Canara Bank and ors. (2020) SCC.
• The Court further observed that a non-signatory can be bound by the group of companies doctrine as well as the doctrine of assignment, agency and succession.
• Thus the Court observed that the interim award of the Arbitral Tribunal would stand vitiated because of:

1. The failure of the arbitral tribunal to decide upon the application for discovery and inspection filed by ONGC;
2. The failure to determine the legal foundation for the application of the group of companies doctrine;
3. The decision of the arbitral tribunal to decide upon the applications filed by ONGC only after the plea of jurisdiction was disposed of.

• Thus, the plea was allowed and the judgement of the HC was set aside.

U/S 482 Criminal Proceedings Can Be Quashed Even If Trial Court Has Ordered Conviction: Gujarat HC

• In Kamlesh @ Rinku Mohanlal Upadhyay v. the State Of Gujarat (2022), Justice Ilesh Vora quashed an FIR registered under Sections 498(a), 323, 294(b), 506(1), and 114 of the IPC, read with Sections 3 and 7 of the Dowry Prohibition Act 1961 and dismissed an order of conviction passed by the Additional Chief Metropolitan Magistrate in a marital dispute, after noting that the offenses involved were of non-serious and personal nature.
• In this case, the impugned FIR was filed, alleging that four days into the marriage, Respondent No. 2 (complainant) was subjected to physical abuse, mental abuse, and harassment for payment of dowry by Accused No. 1 (applicant), following which the complainant was compelled to leave her marital home and filed the FIR. Accused No. 1 and 2 were sentenced to 2 years of imprisonment and a fine under the aforementioned provisions by the Trial Court after examining the witnesses. Additionally, in default of payment of the fine, simple imprisonment for an additional month was awarded to the accused.
• Aggrieved by this, an appeal was made by the accused to the Appellate Court, which dismissed the accused's sentence. Simultaneously, during the proceedings of the aforementioned appeal, an instant application for quashing the impugned FIR was filed by the accused, where he contended that the dispute had already been settled amicably. Thus, there was no need for the criminal proceedings to prolong. However, the APP argued that this power could not be exercised under Section 482 of the Code once the trial court awarded the conviction and the appeal was pending before the Appellate Court.
• Section 482 of the 1973 Code of Criminal Procedure discusses the preservation of the inherent powers of the High Court.
• Section 498-A IPC safeguards married women from mistreatment at the hands of their husbands or family. A three-year prison sentence and a fine may be imposed for the same.
• Section 294 of the IPC stipulates that anybody who sings, recites, or utters any obscene song, ballad, or words to the irritation of others in a public place will be penalized.
• Section 506 (1) IPC deals with simple cases of criminal intimidation, which is punished by imprisonment for up to two years, a fine, or both.
• Section 323 of the IPC punishes wilful infliction of harm. Hurt typically refers to non-fatal offenses that do not result in the death of anybody.
• Section 114 of the Indian Penal Code states that anytime any person who is absent and would be liable to be punished as an abettor is present when the act or crime for which he would be punishable as a result of the abetment is performed, he is assumed to have committed such act.
• In Ramgopal Versus State of Madhya Pradesh [2021 (0) AIJEL-SC 67811], the proceedings were quashed after considering the nature of the offense, the parties' amicable settlement, and the complainant's voluntary acceptance of the nullification of proceedings.
• In another significant case, Madhya Pradesh Vs. Laxmi Narayan & Ors 2019 5 SCC 688, it was confirmed that under Section 482, the Court might quash criminal proceedings for non-compoundable offenses of essentially those which are of civil nature.
• In another noteworthy case, Gian Singh vs. the State of Punjab (2012 10 SCC 303), the Apex Court had held that the HC has the power to quash criminal proceedings if it believes that both the parties have settled their dispute amicably and that the possibility of conviction of the accused seems bleak.
• After hearing the parties and referring to the aforementioned judgments, the criminal proceedings and the impugned FIR were quashed and dismissed by the Hon'ble HC of Gujarat.