Supreme Court declines to apply group of companies doctrine in arbitration

Supreme court declines to apply group of companies doctrine in arbitration

The Supreme Court, in the recent judgment of Reckitt Benckiser (India) Ltd v Reynders Label Printing India Ltd, refused to invoke the group of companies doctrine (which bind non-signatory affiliates) to implead a foreign company in an application for appointment of an arbitrator over a dispute arising out an agreement with its Indian affiliate.

In the case, an application under section 11 of the Arbitration and Conciliation Act, 1996, was filed by Reckitt India for the appointment of an arbitrator according to an agreement between Reckitt India and Reynders India. Reckitt India also impleaded a Belgian affiliate of Reynders India (Reynders Belgium) despite it being a non-signatory to the agreement. Both Reynders India and Reynders Belgium were constituents of the same group of companies known as Reynders Label Printing Group. Reckitt filed the application on the premise that Reynders Belgium was an entity incorporated in a country other than India and therefore this was international commercial arbitration.

The Supreme Court, however, turned down the plea based on the finding that Reynders Belgium was neither a signatory to the arbitration agreement nor did it have a causal connection with the negotiations preceding the agreement or its execution. It was found that Frederik Reynders, who represented Reynders India in the negotiations preceding the agreement, was only an employee of the Indian entity and was in no way associated with Reynders Belgium. The court held that the fact that Reynders Belgium and Reynders India belong to the same group of companies made no difference.

The court, while dismissing the arbitration application against Reynders Belgium, appointed a retired high court judge as the sole arbitrator to conduct a domestic commercial arbitration in New Delhi, between Reckitt and Reynders India.

The dispute digest is compiled by Bhasin & Co, a corporate law firm based in New Delhi. The authors can be contacted at Readers should not act on the basis of this information without seeking professional legal advice.