A company that never signed a contract was forced into arbitration. The Supreme Court just changed the rules.

A company that never signed an arbitration agreement was dragged into a case. The Supreme Court just said: it can be — but only if the tribunal does its homework first.

Oil and Natural Gas Corporation Ltd. (ONGC) had paid Rs.55.78 crores in customs duty on a vessel, expecting the operator to complete the re-export paperwork. The operator didn't. The loss: Rs.63.88 crores. ONGC wanted its money back — not just from the company it had signed a contract with, but from a second company that had never put pen to paper. The question that landed before the Supreme Court: could a non-signatory be forced into arbitration?

When the vessel arrived but the paperwork didn't

ONGC awarded a contract to M/s Discovery Enterprises Pvt. Ltd. (DEPL) for operating a vessel. The deal was straightforward: DEPL would handle the vessel, complete the customs formalities for re-export, and ONGC would pay. But DEPL failed to complete the duty drawback process — the mechanism by which customs duty paid on imported goods is refunded when those goods are re-exported. The loss ballooned to Rs.63.88 crores.

ONGC didn't just go after DEPL. It also dragged in Jindal Drilling & Industries Ltd. (JDIL), arguing that both companies were part of the DP Jindal Group and functioned as a single economic entity. JDIL had never signed the arbitration agreement. It had never agreed to resolve disputes through arbitration. But ONGC argued that the group of companies doctrine — a legal principle that can bind non-signatory affiliates to an arbitration agreement — should apply.

The tribunal said no. The High Court agreed.

The Arbitral Tribunal — composed of three retired judges — took up the jurisdictional question first. JDIL objected, saying it was not a party to the arbitration agreement. The tribunal agreed. It held that it had no jurisdiction over JDIL under Section 16 of the Arbitration and Conciliation Act, 1996 (the provision that allows an arbitral tribunal to rule on its own jurisdiction). JDIL was deleted from the proceedings.

But here's the catch: ONGC had filed an application seeking discovery and inspection of documents — asking the tribunal to order JDIL to produce internal records that could prove the two companies were, in fact, a single economic entity. The tribunal never decided that application. It simply ruled on jurisdiction first, without letting ONGC present the evidence it said would prove its case.

ONGC appealed under Section 37(2)(a) of the Act (which allows appeals against a tribunal's decision on jurisdiction). The Bombay High Court dismissed the appeal in June 2012. The tribunal then proceeded to pass a final award in 2013, ordering DEPL alone to pay Rs.63.87 crores plus USD 1,756,197.50. But JDIL was out of the picture.

What the group of companies doctrine actually requires

The Supreme Court bench — Justice Dr. Dhananjaya Y. Chandrachud, Justice Surya Kant, and Justice Vikram Nath — examined the evolution of the group of companies doctrine through four key precedents: Indowind Energy Ltd. v. Wescare (I) Ltd. (2010), Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. (2013), Cheran Properties Ltd. v. Kasturi & Sons Ltd. (2018), and MTNL v. Canara Bank (2020).

The doctrine, the Court explained, allows an arbitration agreement signed by one company in a group to bind non-signatory affiliates — but only where the circumstances demonstrate a mutual intention to be bound. The Court laid down five factors to consider: (i) mutual intent of the parties; (ii) the relationship of the non-signatory to the signatory; (iii) the commonality of the subject matter; (iv) the composite nature of the transaction; and (v) the actual performance of the contract.

None of these factors, the Court noted, had been examined by the tribunal. The tribunal had simply concluded it lacked jurisdiction without hearing evidence on whether JDIL and DEPL functioned as a single economic entity under the DP Jindal Group.

Why the tribunal's shortcut was fatal

The Court identified three specific failures that vitiated the interim award — meaning the award was legally invalid from the start.

First, the tribunal failed to decide ONGC's application for discovery and inspection. That application was material to the jurisdictional question. If ONGC could prove through internal documents that JDIL controlled DEPL's operations, that the two companies shared bank accounts, that they presented themselves as one entity to the world — that evidence would go directly to whether the group of companies doctrine applied. The tribunal could not defer that application and then rule on jurisdiction.

Second, the tribunal failed to determine the legal foundation for applying the group of companies doctrine. It didn't examine whether the facts of the case fit within the framework established by Chloro Controls and Cheran Properties. It simply said "no jurisdiction" without explaining why the doctrine didn't apply.

Third, the tribunal erred in deciding to defer ONGC's applications until after the jurisdictional plea was disposed of. That sequencing, the Court held, was procedurally wrong. A party that pleads absence of jurisdiction must establish the grounds for that plea. The other side must get a fair opportunity to rebut it — including through discovery of documents.

What the Court actually held

The Supreme Court allowed ONGC's appeal. The interim award of the Arbitral Tribunal was set aside. The case was sent back to a fresh arbitral tribunal — one without the same members — to decide the jurisdictional question afresh, after hearing evidence on the group of companies doctrine.

The Court also clarified the standard of review under Section 37(2)(a). An appellate court must give due deference to the tribunal's reasoning, but the tribunal's decision on jurisdiction is not conclusive. The court must balance deference with the statutory purpose of entrusting jurisdiction to the tribunal in the first place. A tribunal cannot simply say "we have no jurisdiction" without a proper evidentiary basis.

On the definition of "party" under Section 2(1)(h) of the Act, the Court held that the term is not limited to signatories. A non-signatory can be a party to an arbitration agreement if the circumstances — including group company relationships — demonstrate a mutual intention to be bound. But that intention must be proved, not assumed.

THE PLAY: If you want to bind a non-signatory group company to an arbitration agreement, you must ask the tribunal to decide your discovery application before it rules on jurisdiction — and if the tribunal refuses, you have grounds to challenge that refusal under Section 37(2)(a).

The vessel's paperwork was never completed. But the Court made sure the legal paperwork would be.