Group Arbitrations vis-à-vis the ‘Group of Companies’ Doctrine in India
Tazeen Ahmed & SK Raqueeb
5th Year, B.A. LL.B.(Hons.), Faculty of Law, Jamia Millia Islamia, New Delhi
Abstract
Recently, class, collective, group and mass arbitrations in commercial as well as investor-state disputes have emerged as an alternative to class action lawsuits, especially as regards consumer law, competition law, labor law, and other disputes involving multiple parties. Although the Indian jurisprudence reflects a reluctance to allow class arbitration by virtue of the ‘public policy’ exception, the recent “Group of Companies” doctrine hints at the emergence of group arbitrations in India as in the United States. Earlier, group arbitrations in Indian have manifested in the form of consolidated and composite claims. This article examines the conceptual viability, as well as the bars and pros and cons of Group Arbitration in India as an alternative to Class Action Litigation, vis-a-vis the Group of Companies Doctrine. The issue of ‘arbitrability’ of class or mass arbitrations and the extent of applicability of the ‘public policy exception’ in the Indian context has also been critically analyzed. The article essentially determines the contemporary position regarding the issues through a thorough review of the contemporary jurisprudence of Arbitration law in India.
Introduction
In the dynamic realm of dispute resolution, a paradigm shift has occurred with the advent of class and collective arbitration (together referred to as “group arbitration”) as well as mass arbitrations. The concept is well established in the United States (“US”)[1] and other developed legal regimes, and been revolutionized through various institutional arbitration rules[2]. Although the concept is underway in the Indian Arbitration jurisprudence, it has crept in practice the form of ‘consolidated’ arbitrations. Moreover, the recent traction of “group of companies” doctrine has paved a way, albeit indirectly, by acknowledging group arbitrations in India. In a way, group arbitrations have a potential to replace class action lawsuits, bringing to table the best of both world for the multiple parties, ensuring efficient and expeditious disposal of disputes, among other advantages. However, group arbitrations have their fair share of challenges and limitations, which are discussed in detail towards the end of this article.
In the US, Class arbitration is governed by the Federal Arbitration Act. The attitude of the Court in the US towards class arbitration in the beginning was unwelcoming, unless the same was expressly provided for in the Arbitration Agreement. Whereas, the Court later on granted the discretion to the Arbitrator to decide whether the agreement permits class arbitration.[3] This was however, later on limited to the express words of the Arbitration agreement which would be the test for class arbitration and not upon the discretion of the Arbitrator in the landmark case of Stolt–Nielsen S.A. v AnimalFeeds International Corp.[4] Apart from the US, other Jurisdictions, including England[5] and Australia.[6] have laws allowing the consolidation of arbitral proceedings from multiple contracts to prevent complexities.
A Primer on Concept, Characteristics and Pre-requisites of Group Arbitrations
At the outset, it is imperative to discern between two forms of group arbitration, viz., collective and class arbitrations. Collective arbitration (also known as joint arbitration) is an arbitration process that allows a group of ‘similarly-situated’ claimants to pursue interconnected claims within a unified proceeding through a class representative. while collective arbitrations only bind absent parties who actively opt-in, class arbitrations bind absent parties by default unless they choose to opt-out.[7] A pertinent issue that looms large in class arbitration is that the parties whoever intended to arbitrate their claims could be forced to submit to arbitration, which runs counter to the consensual nature of arbitration[8], as is the case with binding non-signatories.
Besides, class and collective arbitration, mass arbitration, and group arbitration too have differing connotations. While mass arbitration refers to several individual claims, akin to aggregate, analogous or simultaneous adjudication, class arbitration envisages collective claims of a class to reach a common settlement for claimants. Group Arbitrations generally come into the picture either when an arbitration agreement expressly permits class adjudication, i.e., when parties mutually consent to large-scale adjudication in their contract, or when the contract is silent as to group proceedings. A prominent example of mass arbitration is the arbitration of minimum wage claims of Uber drivers by invoking the arbitration agreements in the employment contracts that provided for arbitration of individual claims.[9]
Group of Companies Doctrine and its Relation to Group Arbitrations in the Indian Context
The Supreme Court (“SC”), in Cox & Kings Ltd. v SAP India Pvt. Ltd.[10] recognized the “group of companies” doctrine as part of Indian arbitration law. This doctrine allows an arbitration agreement entered into by one company within a group to bind non-signatory affiliates, based on mutual intention. Moreover, only companies within the group which are involved in forming, executing, or terminating the contract in line with the mutual agreement of all parties are to be bound by the arbitration clause they expressly accepted.
In Chloro Controls (India) (P) Ltd. v Severn Trent Water Purification Inc. (“Chloro Controls”) [11], the SC allowed non-signatories to be included in international arbitration under exceptional circumstances, upholding the “Group of Companies” doctrine. This doctrine was further affirmed in Cheran Properties Limited v Kasturi Sons Limited[12], where the court acknowledged the enforcement of awards among entities within a group based on their conduct and intent. Chloro Controls has also recognized the principle of making a “composite reference”[13] to arbitration which aims to prevent multiple proceedings by consolidating cases involving a ‘single economic transaction’, contracts with principal and ancillary contracts, or where the “group of companies” doctrine applies. This approach leads to composite adjudication and a single award by one Arbitral Tribunal[14], as opposed to mass arbitrations, where several awards may be made.[15]
A common thread that runs across Group or multiparty arbitrations and the doctrine is that often a class is involved in both, irrespective of the ‘consent’ or mutual agreement of all the parties constituting the class, which is presumed. In other words, both are representative arbitrations, binding individual parties that do not even participate in the arbitration proceedings. While the doctrine negatively impacts third parties, who tend to be companies, binding them to the arbitration agreement, the whole notion of class arbitration revolves around empowering a class, who could be laborers, creditors, among other groups, in the form of ‘collective bargaining’.
Arbitrability of Class, Collective and Mass Actions and the ‘Public Policy’ Impediment
Under the Arbitration & Conciliation Act of 1996 (“the Act”) of India, Section 48 gives the power to courts to refuse enforcement of award on the grounds of “public policy”, and Section 34(2)(b)(ii) provides that an arbitral award may be set aside if the court concludes that it conflicts with the ‘Public Policy’ of India. In common parlance, the term “public policy” refers to matters concerning the public good and interest, which can vary over time.[16] Thus, the dimensions of public policy continues to be likened to a “very unruly horse”[17].
The scope of public policy as a ground for challenging foreign awards under Section 48 is narrow[18] and must go beyond mere violation of statutes. In the Vidya Drolia[19] case, the SC introduced a comprehensive four-fold test to determine the arbitrability of a dispute within an arbitration agreement:
“(1) when cause of action and subject matter of the dispute relates to actions in rem, that do not pertain to subordinate rights in personam that arise from rights in rem.
(2) when cause of action and subject matter of the dispute affects third party rights; have erga omnes effect; require centralized adjudication, and mutual adjudication would not be appropriate and enforceable;
(3) when cause of action and subject matter of the dispute relates to inalienable sovereign and public interest functions of the State and hence mutual adjudication would be unenforceable; and
(4) when the subject-matter of the dispute is expressly or by necessary implication non-arbitrable as per mandatory statute(s).”
The SC emphasized that these tests are not rigid, but rather interrelated and overlapping.
In India, arbitration is generally suitable for disputes within the jurisdiction of ordinary civil courts. However, if specific courts are exclusively designated by law to address certain disputes as a matter of public policy, such disputes cannot be resolved through arbitration.[20]
Evidently, the courts have interpreted the term “arbitrability” in a relatively precise and restricted definition, indicating certain categories of disputes are non-arbitrable due to national laws or judicial rulings. In Booz-Allen and Hamilton Inc.[21], it has been held that in India, certain disputes are reserved for resolution by public forums due to their significance to public welfare. These include disputes related to criminal offenses, matrimonial disputes, guardianship, insolvency, testamentary matters, and tenancy disputes governed by special statutes.
From the foregoing position, there is no expressed exclusion on class claims. However, class actions may be construed to come under the purview of actions in rem, rendering them non-arbitrable.
Contemporary Legal Position on Consolidation of Arbitral Proceedings in India
Group Arbitrations have manifested in India in the form of consolidated and composite claims and by joinder of claims. The Indian judiciary has endorsed the consolidation of arbitrations involving separate contracts . Consolidation has also been done to compel non-signatories to arbitrate based on the alter ego doctrine[22]. In PR Shah v B.H.H. Securities[23], the SC allowed consolidating separate arbitration claims by a party against two parties to avoid multiple proceedings and conflicting decisions. In an earlier case, Dolphin Drilling Ltd. vs. ONGC[24], the SC had decided that where there are several disputes arising out of related work contracts/agreements involving the same parties, an endeavour should be made to send them to the same Arbitrator. Furthermore, in Gammon India Ltd. v National Highways Authority[25], the Delhi High Court stated that the principles of res judicata[26], apply to arbitral proceedings. The court also noted that while multiple arbitrations are allowed, permitting parties to raise claims at their discretion goes against public policy.
In M/s Young Achievers v IMS Learning Resources Pvt. Ltd.[27], the SC permitted the consolidation of two arbitrations from distinct franchise agreements involving different parties because of their similar subject matters and issues.[28] In M/s Elite Engineering & Construction (Hyd.) Pvt. Ltd. v M/s Techtrans Construction India Pvt. Ltd.[29], the SC affirmed that multiple contracts can be subject to a single arbitration process if they are interconnected and constitute a unified transaction.
In Ameet Lalchand Shah v Rishabh Enterprises[30], the SC noted that parties involved in four separate agreements were also parties to the main Equipment Lease Agreement, and all agreements were interconnected. Following Chloro Controls, the SC ruled that in cases involving multiple parties in a single commercial project executed through various agreements, all parties can be bound by the arbitration clause in the main contract.[31] The SC noted that Section 8(1) plainly permits even parties claiming through or under a party to the arbitration agreement to seek an arbitral reference.[32]
The recent Delhi High Court judgment in Global Infonet v Lenovo and Ors.[33] is noteworthy in the terms of consolidation of claims. Despite there being three separate arbitration agreements between different parties, the court allowed consolidation under Section 8 of the Arbitration Act. This decision highlights that Indian courts may consolidate arbitration proceedings even in ad-hoc arbitration setups when deemed appropriate.[34] Further, in Jaiprakash Associates Ltd. v Micro and Small Enterprises Facilitation Council & Anr.[35], the court has endorsed consolidation of disputes from interconnected contracts before the same Arbitral Tribunal to avoid multiplicity of proceedings. Further, the Court in KMA Caterers v Indian Railway Catering and Tourism Corporation (IRCTC), Through its Chairman[36] appointed a single arbitrator to resolve disputes between multiple caterers and the Indian Railway Catering & Tourism Corporation Limited (IRCTC). The cases involved 25 Section 11(6) petitions involving identical or similar contracts.[37]
As a whole, while under the Indian Arbitration Act, joinder of parties (i.e., addition of new party to an ongoing arbitration) and consolidation of claims (i.e., combining multiple arbitrations into a single proceeding) has been allowed, the scope of group arbitration remains uncertain.
Conclusion & Way Forward
One might argue that Class arbitrations are nothing but a colorable form of class action lawsuits. Class Arbitrations have their fair share of advantages, challenges, as well as limitations. As for its advantages, arbitration allows parties to establish their own procedural rules, avoiding inefficiencies seen in Indian courts, such as frequent adjournments and delays. Secondly, unlike the shortage of judges in Indian courts, arbitrators are not in short supply, as parties can appoint as many as needed and compensate them accordingly. Moreover, confidentiality concerns in class arbitration aren’t crucial, given the existing level of confidentiality in arbitration, making transparency in class proceedings beneficial.[38] Further, group arbitration could be leveraged to disburden the already overburdened judicial machinery and ensure speedy and effective disposal of cases. As for roadblocks created by overriding public policy considerations, a judicial review of the Class arbitration award could be afforded to the Courts within the framework of the Arbitration Act by incorporating the “second look” doctrine. Perhaps, consolidation of parties and claims into a single proceeding can go a long way in preventing contradictory awards and preserving time and resources.
References:
[1] Francisco Blavi and Gonzalo Vial, ‘Class Actions in International Commercial Arbitration’ (2016) 39 Fordham International Law Journal 793 <https://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=2447&context=ilj> accessed 7 April 2024.
[2] Hong Kong International Arbitration Centre (HKIAC) Rules 2013, art. 28; Article 7, the Chartered Institute of Arbitrators (CIArb) Arbitration Rules 2015, art. 7; Singapore International Arbitration Centre (SIAC) Rules 2016, art. 8; International Chamber of Commerce (ICC) Rules 2017, art. 10; Stockholm Chamber of Commerce (SCC) Rules 2017, art. 15; London Court of International Arbitration (LCIA) Rules 2014, art. 22(ix) and (x).
[3] Green Tree Financial Corp. v Bazzle (539 U.S. 444, 2003).
[4] Stolt–Nielsen S.A. v AnimalFeeds International Corp. (559 U.S. 662, 2010); Lamps Plus, Inc. v Varela (139 S. Ct. 1407, 2019).
[5] See, English Arbitration Act, 1996, s 35.
[6] See, Commercial Arbitration Act, 2017.
[7] ‘Group, Class and Collective Arbitration’ (Nortonrosefulbright.com 2021) <https://www.nortonrosefulbright.com/en/knowledge/publications/3d52c376/group-class-and-collective-arbitration> accessed 4 April 2024.
[8] Shore L, ‘Defining “Arbitrability” | the United States vs. the Rest of the World’ (New York Law Journal 15 June 2009) <https://www.law.com/newyorklawjournal/almID/1202431398140/> accessed 5 April 2024.
[9] Uber Technologies Inc. v. Heller, 2020 SCC 16 (Supreme Court of Canada).
[10]Cox & Kings Ltd. v SAP India Pvt. Ltd 2023 INSC 1051.
[11] Chloro Controls (India) (P) Ltd. v Severn Trent Water Purification Inc (2017) ibclaw.in 247 SC.
[12] Cheran Properties Limited v Kasturi Sons Limited (2018) ibclaw.in 67 SC.
[13] Arbitration and Conciliation Act, 1996, s 11.
[14] Sharma A, ‘Composite Adjudication and Analogous (or Consolidated) Adjudication by Arbitral Tribunals in Multi-Contract and Multi-Party Disputes — a Comparative Analysis | SCC Times’ (SCC Times7 June 2022) <https://www.scconline.com/blog/post/2022/06/07/composite-adjudication-and-analogous-or-consolidated-adjudication-by-arbitral-tribunals-in-multi-contract-and-multi-party-disputes-a-comparative-analysis/> accessed 6 April 2024.
[15] Nigam A, ‘Multi Party Arbitration Disputes and Joinder of Non-Signatories : In International Arbitration & Indian Context’ (Legaleagleweb.com2018) <https://legaleagleweb.com/articalsdetail.aspx?newsid=1> accessed 5 April 2024.
[16] Central Inland Water Transport Corpn. Ltd. v Brojo Nath Ganguly AIR 1986 SC 1571.
[17] Richardson v Mellish (1824) 2 Bing 229.
[18] Gemini Bay Transcription (P) Ltd. v Integrated Sales Service Ltd. (2021) ibclaw.in 205 SC
[19] Vidya Drolia v Durga Trading Corpn., (2020) ibclaw.in 78 SC.
[20]A. Ayyasamy v A. Paramasivam and Others (2017) ibclaw.in 217 SC; Booz-Allen and Hamilton Inc. v SBI Home Finance Ltd., (2017) ibclaw.in 576 SC.
[21] Ibid.
[22] See Amazon.com NV Investment Holdings LLC v Future Coupons Pvt Ltd & Ors, Civil Appeal 4492 – 4493 of 2021.
[23] PR Shah v B.H.H. Securities (2012) 1 SCC 594.
[24] Dolphin Drilling Ltd. vs. ONGC (2017) ibclaw.in 443 SC
[25] Gammon India Ltd. v National Highways Authority 2020 SCC OnLine Del 659.
[26] Code of Civil Procedure, 1908, Order II Rule 2.
[27] M/s Young Achievers v IMS Learning Resources Pvt. Ltd 2013 (1) SCC 535.
[28] VIA Mediation Centre, ‘Consolidation of Arbitral Proceedings in India: A Call for Statutory Recognition | via Mediation Centre’ (Viamediationcentre.org2021) <https://viamediationcentre.org/readnews/MTU0MQ==/Consolidation-of-Arbitral-Proceedings-in-India-A-Call-for-Statutory-Recognition> accessed 5 April 2024
[29] M/s Elite Engineering & Construction (Hyd.) Pvt. Ltd. v M/s Techtrans Construction India Pvt. Ltd. (2018) ibclaw.in 118 SC.
[30] Ameet Lalchand Shah v Rishabh Enterprises (2018) ibclaw.in 195 SC.
[31] Garg A and Puri S, ‘Supreme Court Rules on Binding Non-Signatories to Arbitration Proceedings: Paving Way for Consolidation…’ (Livelaw.in2 January 2024) <https://www.livelaw.in/law-firms/law-firm-articles-/supreme-court-binding-non-signatories-arbitration-zeus-law-associates-245657> accessed 6 April 2024
[32] Kulkarni R, ‘India’s Treatment of Interconnected Agreements to Arbitrate – Kluwer Arbitration Blog’ (Kluwer Arbitration Blog9 August 2018) <https://arbitrationblog.kluwerarbitration.com/2018/08/09/indias-treatment-interconnected-agreements-arbitrate/> accessed 6 April 2024
[33] Global Infonet Distribution (P) Ltd. v Lenovo (India) (P) Ltd., 2019 SCC OnLine Del 9980.
[34] Singh VP and Jha A, ‘Consolidation of Arbitration Proceedings – Global Infonet v. Lenovo and Ors. – Azb’ (azb29 April 2022) <https://www.azbpartners.com/bank/consolidation-of-arbitration-proceedings-global-infonet-v-lenovo-and-ors/> accessed 6 April 2024
[35] Jaiprakash Associates Ltd. vs. Micro and Small Enterprises Facilitation Council & Anr 2023 STPL(Web) 14 Delhi.
[36] KMA Caterers v Indian Railway Catering and Tourism Corporation (IRCTC), Through its Chairman 2022/DHC/004522
[37] Advocate Sapna, Prashant Kanha, ‘Multi-Party and Multi-Contract Arbitration in India – Redlaw Legal Services | a Law Firm’ (Redlaw Legal Services | A Law Firm 27 October 2022) <https://redlaw.in/multi-party-and-multi-contract-arbitration-in-india/> accessed 5 April 2024.
[38] Brian T Fitzpatrick and Randall S Thomas, ‘The Indian Securities Fraud Class Action: Is Class Arbitration the Answer?’ (2020) 40 Northwestern Journal of International Law & Business 203 <https://scholarship.law.vanderbilt.edu/faculty-publications/1146/> accessed 5 April 2024.
