Supreme Court Directs Arbitration in Cox & Kings vs. SAP India Dispute

The case of Cox & Kings Ltd. vs. SAP India Pvt. Ltd. & Anr. is a significant ruling regarding arbitration agreements and the principle of non-signatory involvement in arbitration. The Supreme Court ruled in favor of the petitioner, directing the appointment of an arbitrator and leaving the question of SAP SE’s (Respondent No. 2) involvement to be determined by the arbitral tribunal. This ruling clarifies the application of the Group of Companies doctrine and its interplay with the Arbitration & Conciliation Act, 1996.

Background of the Case

The dispute arose between Cox & Kings Ltd. (Petitioner) and SAP India Pvt. Ltd. (Respondent No. 1), a wholly-owned subsidiary of SAP SE Germany (Respondent No. 2). The conflict stemmed from agreements entered into by the parties for the purchase, customization, and implementation of SAP Hybris Software. The agreements included:

Software License and Support Agreement (Order Form No. 3) dated 30.10.2015
Services General Terms and Conditions Agreement (GTC Agreement) dated 30.10.2015
SAP Global Service and Support Agreement (Order Form No. 1) dated 16.11.2015

Under these agreements, SAP India was responsible for providing ERP software, and SAP Hybris Software was specifically recommended for Cox & Kings. However, the petitioner alleged that SAP India failed to meet project deadlines and that SAP SE (Respondent No. 2) actively participated in negotiations and project management.

Key Events Leading to the Dispute

2016: SAP India failed to meet the promised delivery timeline.
November 2016: The agreement was terminated due to delays.
2017: SAP India invoked arbitration against Cox & Kings for non-payment of dues.
2019: Cox & Kings filed counterclaims amounting to ₹45.99 crore before the arbitral tribunal.
2019: Cox & Kings invoked arbitration against both SAP India and SAP SE, seeking consolidation of disputes.

Legal Arguments

Arguments by the Petitioner (Cox & Kings Ltd.)

The agreements formed a composite transaction and should be read together.
SAP SE (Respondent No. 2) was directly involved in project execution and was thus bound by the arbitration agreement.
The doctrine of Group of Companies should be applied to include SAP SE in arbitration.

Arguments by the Respondents (SAP India Pvt. Ltd. & SAP SE)

SAP SE was not a signatory to the agreements and cannot be forced into arbitration.
The agreements were separate and distinct and should not be consolidated.
Cox & Kings’ claims were already being adjudicated in another arbitration.

Supreme Court’s Observations

1. Existence of an Arbitration Agreement

The Court ruled that there was a valid arbitration agreement between Cox & Kings and SAP India under Clause 15.7 of the GTC Agreement.

“The requirement of prima facie existence of an arbitration agreement under Section 11 of the Arbitration & Conciliation Act, 1996 is satisfied.”

2. Role of SAP SE in the Arbitration

The Court acknowledged that SAP SE had actively engaged with Cox & Kings regarding the project and had a role in project execution. However, it left the decision of SAP SE’s involvement to the arbitral tribunal.

“In view of the complexity involved, it would be appropriate for the arbitral tribunal to take a call on whether Respondent No. 2 is bound by the arbitration agreement.”

3. Application of the Group of Companies Doctrine

The Court referred to past precedents and the 2023 Cox & Kings ruling, which discussed the Group of Companies doctrine. While it did not outrightly apply the doctrine, it left the determination to the arbitrator.

4. Appointment of an Arbitrator

The Supreme Court appointed Justice Mohit S. Shah (Retd. Chief Justice, Bombay High Court) as the sole arbitrator to adjudicate the dispute.

Final Verdict

The Supreme Court issued the following directives:

The arbitration petition was allowed.
The appointment of Justice Mohit S. Shah as arbitrator was finalized.
The question of whether SAP SE was bound by the arbitration agreement was left to be decided by the arbitral tribunal.
All objections by the respondents could be raised before the arbitrator.

This ruling upholds arbitration as the preferred mode of dispute resolution while clarifying the applicability of non-signatory involvement in arbitration.

Petitioner Name: Cox & Kings Ltd..
Respondent Name: SAP India Pvt. Ltd. & SAP SE.
Judgment By: Justice Dhananjaya Y. Chandrachud, Justice J.B. Pardiwala, Justice Manoj Misra.
Place Of Incident: Mumbai, India.
Judgment Date: 09-09-2024.

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