A company signed an arbitration deal. Can its sister firms be dragged in too?
The Supreme Court said yes—if the group's mutual intention to bind everyone is clear. Here's how the 'group of companies' doctrine works.
Bound.
Without a signature.
Group of companies.
The Supreme Court said yes—if the group's mutual intention to bind everyone is clear. Here's how the 'group of companies' doctrine works.
One company signed the arbitration clause. The other side wanted its sister firms to pay too. The court had to decide—
The company that never signed a single paper was being told to sit in arbitration anyway. The Supreme Court said yes—if the entire group showed, through its actions, that it meant to be bound. The answer turned on one question: what did everyone involved actually intend?
The case of Cheran Properties Ltd. v. Kasturi and Sons Ltd. began with a straightforward commercial dispute. Cheran Properties Ltd., the signatory, had entered into an arbitration agreement. Kasturi and Sons Ltd., the party on the other side, wanted to drag in not just that company but its sister concerns, parent entities, and affiliates—companies that had never signed. The question was simple on paper but explosive in practice: could an arbitration agreement bind entities that were not signatories to it?
When the signature wasn't enough
Arbitration is a private system of dispute resolution. Two parties agree, usually in writing, that if a dispute arises, they will go to a private arbitrator instead of court. The signature on the dotted line is what makes it binding. Traditionally, only the people who signed could be dragged in. But companies do not operate as isolated islands. A parent holds shares in a subsidiary. A holding company controls multiple sister concerns. A group functions as a single economic unit even though each entity has its own legal identity. When one company in that group signs an arbitration agreement, can the others be treated as parties too?
Kasturi and Sons Ltd. argued yes. The signatory company’s affiliates argued no. The Supreme Court had to pick a side. In the courtroom, the stack of unsigned contracts sat on the counsel’s table—each one a document that the affiliates had never touched with a pen. The silence stretched as the bench asked about the intent behind the group’s conduct.
What the court looked at
The court did not start with a rigid rule. It started with the facts. Had all the companies acted as a single unit? Had they participated in negotiations? Had they benefited from the contract? Had they behaved in a way that suggested they all intended to be bound? The court observed that “if the circumstances demonstrated a mutual intention of all the parties to bind both the signatories and the non-signatory affiliates, the agreement could extend beyond the signing parties.” The key word was “mutual intention.” Not the intention of the signatory alone. Not the intention of the non-signatory alone. The shared understanding of everyone involved.
This is what lawyers call the “group of companies” doctrine. The Supreme Court gave it legislative recognition in this case. The court said that an arbitral award (the final decision of the arbitrator) can bind “persons claiming under them”—a phrase that encompasses every person whose capacity is derived from, and is the same as, a party to the proceedings. The bench’s voice was measured, the words landing like a verdict that would reshape corporate arbitration for years.
In plain English: if a company in a group signed the arbitration agreement, and the other companies were so closely connected to the transaction that they were essentially acting as one economic unit, those other companies could be bound too. The signature was not the only thing that mattered. The conduct of the entire group mattered.
What this means for corporate groups
The ruling changed the risk calculus for every company that operates within a group. Before this case, a subsidiary could safely assume that if it did not sign, it could not be forced into arbitration. After this case, that assumption is dead. If the subsidiary acted as if it was part of the same transaction, if it participated in negotiations, if it received benefits under the contract, it could be dragged into arbitration even without a signature. The smell of old paper and ink from the unsigned contracts seemed to hang in the air—a reminder that absence of a signature was no longer a shield.
For the party on the other side of the table, this is a powerful tool. You are not limited to suing only the company that signed. You can go after the entire group—the parent, the sister concerns, the affiliates—if you can show that they all intended to be bound by the same deal. But this power comes with a catch. The court did not say that every non-signatory affiliate is automatically bound. It said the non-signatory is bound only if the circumstances show a mutual intention to bind everyone. That is a factual question. It depends on the specific conduct of each company in each case. There is no blanket rule.
THE PLAY: When drafting arbitration clauses for group companies, name every entity that could be affected by the dispute—or risk a fight over who is bound.
The other side of the coin: challenging the arbitrator
This judicial expansion of who constitutes a “party” creates a new problem. If a non-signatory affiliate is suddenly dragged into arbitration, can it challenge the arbitrator’s appointment? Can it argue bias or lack of authority? The Supreme Court addressed this in a related case: HRD Corporation v. Gail (India) Ltd. The court dealt with the mandatory disclosure requirements under Section 12 of the Arbitration and Conciliation Act (the provision that requires an arbitrator to disclose any circumstances that could raise doubts about their independence or impartiality).
The court clarified that an arbitrator must disclose in writing any circumstances likely to give rise to justifiable doubts as to their independence and impartiality. This disclosure is guided by the grounds stated in the Fifth Schedule of the Act (a list of specific situations that raise doubts about an arbitrator’s neutrality). The disclosure itself must be made in the form specified in the Sixth Schedule (a standardised format for the disclosure statement). In the courtroom, the judge’s fingers traced the pages of the Fifth Schedule, the silence broken only by the rustle of paper as counsel waited for the ruling on what must be disclosed.
But here is the crucial point: if an arbitrator lacks inherent jurisdiction (the basic legal authority) to proceed due to ineligibility—for example, a direct financial interest in the outcome—an application can be filed under Section 14(2) of the Act. The court can decide on the termination of the arbitrator’s mandate on the ground of jurisdiction. In other words, the court can remove the arbitrator and appoint a new one. For a non-signatory affiliate dragged into arbitration, this is the escape hatch. If the affiliate can show that the arbitrator is ineligible to hear the case, it can ask the court to terminate the mandate. But this is not a free pass. The affiliate must prove actual ineligibility, not just discomfort with being in arbitration.
Why both cases matter together
Cheran Properties Ltd. v. Kasturi and Sons Ltd. expanded the net. HRD Corporation v. Gail (India) Ltd. tightened the rules for who can sit as an arbitrator. Together, they create a framework: more entities can be pulled into arbitration, but those entities have stronger tools to challenge an arbitrator who should not be deciding their fate. The weight of the case files on the bench seemed heavier after the ruling—each one a reminder that the law now looked beyond the signature to the conduct of the entire group.
For corporate lawyers, the lesson is clear. When drafting an arbitration clause for a group of companies, name every entity that could be affected. Do not assume that only the signatory will be bound. The court will look at conduct, not just signatures. And for the party being dragged into arbitration, do not accept the arbitrator’s appointment without scrutiny. Check the Fifth Schedule. Check the Sixth Schedule. If there is a ground for ineligibility, file under Section 14(2).
The signature on the dotted line is no longer the only thing that matters. The conduct of the entire group now speaks just as loudly.