Can Subsidiary Contracts Displace a Foreign Seat? Analysing the Supreme Court’s Ruling in Balaji Steel

[Prabhas Kumar is a first-year law student at Gujarat National Law University, Gandhinagar and Surya Prakash is a second-year law student at National Law University Odisha]

Introduction

In the recent past, commercial disputes before Indian courts have increasingly reflected a different kind of difficulty. In matters where the principal agreement already includes a seat outside India, supplemental arrangements are often riddled with separate dispute resolution provisions with differing seats. These overlapping clauses frequently fuel a tussle, as parties generally tend to invoke arbitration on the seat that best suits their interests. The determination of the seat, from among all the competing ones nominated in a myriad of contracts, becomes important, as contingent upon it are the procedures that guide the appointment of the arbitrator and the institution of the tribunal.

This issue was dealt with in Balaji Steel Trade v. Fludor Benin S.A. (Balaji Steel) by a bench of the Supreme Court comprising Justice P.S. Narasimha and Justice A.S. Chandurkar. The decision makes it clear that if any “Mother Agreement” provides for a foreign seat, even though there is a nomination of a domestic seat in subsequent arrangements, Indian Courts cannot exercise the jurisdiction having regard to the appointment of arbitrator(s) under Section 11 of the Arbitration and Conciliation Act, 1996 (1996 Act).

This piece offers a doctrinal analysis of the aforementioned ruling.

Facts/Backgrounds

Balaji Steel Trades (BST) and Fludor Benin (Fludor), a company formed in the Republic of Benin, concluded a Buyer and Seller Agreement (BSA) for the manufacture and sale of cottonseed cakes on 6^th June 2019. Under Article 11 of the BSA, arbitration was stipulated, with Benin as the seat.

Fludor delegated the supply obligations to M/s. Vink Corporations (Vink). BST entered into a Sales Contract (SC) with Vink, the arbitration clause of which stipulated a New Delhi seat. Terms of the BSA were modified, diluting BST’s exclusive purchase rights over Fludor’s produce. Upon supply shortfalls on the part of Fludor, BST was made to enter into High Sea Sale Contracts (HSSAs) with Tropical Industries International Pvt. Ltd. (Tropical) by Fludor to address the shortfall. The arbitration clause of this arrangement also stipulated New Delhi to be the seat. 

As inconsistencies in supply arrangements persisted, BST terminated the BSA with Fludor and all addenda agreements with Vink and Tropical. Fludor initiated arbitration in Benin without a joinder of Vink and Tropical. BST, in retaliation, invoked composite arbitration against all three suppliers, referring the disputes arising out of the BSA, SC and HSSAs to arbitration and proposed the name of a sole arbitrator as per the terms of the SC and HSSAs.

As BST did not take part in the arbitral proceedings initiated by Fludor, the latter moved to the Commercial Court of Benin for the appointment of an arbitrator. The Benin Court appointed a sole arbitrator, and the award was rendered on 21^st May 2024. In the meantime, BST approached the Delhi High Court seeking an anti-arbitration injunction to restrain the continuation of the Benin proceedings, which was rejected. BST simultaneously filed an application under Section 11(6) of the 1996 Act before the Apex Court for the appointment of an arbitrator in the New Delhi seat.

Analysis of the Judgement

(A) Affirmation of the "Mother Agreement" Doctrine

The Court relied heavily on the authority of Balasore Alloys Ltd. v. Medima LLC  while applying the principle that disputes shall be governed by a party's commercial agreement, which incorporates dispute resolution clauses, holding that where there was a "Mother Agreement" defining the business relationship between parties, its dispute resolution clause would operate as an area of influence over disputes arising under this relationship. Other purchase orders or documents of performance are collateral.

In Balaji Steel, the Court identified the BSA dated 6^th June 2019, as the "Mother Agreement". BSA nominated Benin as the seat. It is well settled that novation of a contract must be established by the unequivocal intention of the parties to substitute the earlier agreement with a new one. None of the SC and HSSAs incorporates or refers to the BSA or its arbitration clause, nor did they expressly substitute, novate, or supersede the BSA. Their scope ended upon completion of delivery and payment under the respective consignment. The BSA, however, prevailed as the mother agreement defining the long-term commercial relationship, specifying supply obligations, pricing structure and risk allocation.

(B) Application of Part I of the 1996 Act: Extending the Restrictive Doctrine

Once it is established that the BSA between BST and Fludor prevails over other arrangements, a petition under Section 11 of Part I of the 1996 Act becomes infructuous. Fludor, being a body incorporated under the laws of Benin and BSA, explicitly nominating a seat outside India, makes it a case of International Commercial Arbitration with a foreign seat as defined under Section 2(1)(f) of the 1996 Act.

The Apex Court in Bharat Aluminium Co. v. Kaiser Aluminium Technical Service, Inc., relied on the English case of Roger Shashoua v. Mukesh Sharmato to decide that the court at the seat of arbitration will have exclusive jurisdiction to guide the arbitral proceedings. This read with Section 2(2) of the 1996 Act, in effect, limits the application of Part I to seats in India.

The bench in Balaji thus ruled that Indian Courts have no jurisdiction to appoint an arbitrator for a foreign-seated arbitration, irrespective of the nationality or domicile of the parties.

(C) Limiting Cox & Kings: The "Group of Companies" Doctrine

As Tropical owns the entirety of Fludor’s shares and the majority of Vink’s, BST invoked the doctrine of “Group of Companies”, relying upon the decision of the Constitution Bench in Cox & Kings Ltd. vs. SAP India Pvt. Ltd. (Cox & Kings), to initiate the composite arbitration.

In Cox and Kings, the Apex Court affirmed the group of companies’ doctrine, holding that a non-signatory may be bound by an arbitration agreement where the facts reveal mutual intention and participation in a composite commercial transaction alongside the signatory parties.

While rejecting this application, the Courts reiterated the words of caution by the constitution bench in Cox and Kings that the doctrine is neither a talisman nor a carte blanche to pierce corporate veils.

The principle would be invoked when it is the intended result of both parties to join the non-signatory as a ‘veritable’ party to the arbitration agreement. The principle of “single economic entity” cannot be used as the sole basis to invoke the group of companies’ doctrine.

ONGC v. Discovery Enterprises Pvt. Ltd. clarified that such intention may be inferred from direct participation in negotiation, performance of contract, or from the role played in the overall transaction. However, a mere overlap of shareholding, or the fact that entities belong to the same corporate family, is not by itself sufficient.

Upon review of the facts in Balaji Steel, the Court could not discern any conclusive evidence that the parties intended to render BSA susceptible to Indian jurisdiction; thus, it cannot be used to set aside an express foreign seat of arbitration in an underlying contract.

(D) Issue Estoppel and the Delhi High Court Proceedings

A pivotal procedural aspect was the finding of "Issue Estoppel." Before moving to the Section 11 petition, the petitioner had moved an anti-arbitration injunction in the Delhi High Court. This suit was struck out by the High Court on 8^thNovember 2024, finding that Benin was the seat of arbitration and that BSA was the dominant contract.

The Supreme Court held that these findings by the High Court constituted findings of "jurisdictional fact." Once the judicial authority takes a decision not to refer the parties to arbitration or refuses an injunction confirming the foreign seat, and the said decision having become final, thereafter, Section 11(6) route before the apex court is not available to either party, essentially barring them from re-litigating further on this issue.

IV. Conclusion

In NBCC (India) Limited v. Zillion Infraprojects Pvt. Ltd., the Supreme Court held that a mere reference in a subsequent contract to the “terms and conditions” of an earlier agreement does not, by itself, incorporate the arbitration clausecontained in the primary contract. The Court insisted on a specific reference to the arbitration clause. This standard protects party consent. The mother agreement doctrine, however, appears to dilute this requirement by according primacy to the arbitration clause in the principal agreement, even when a subsidiary agreement neither refers to it nor adopts it expressly.

The difficulty becomes sharper where a single primary agreement operates through multiple individual SCs, each containing its own arbitration clause and seat. If disputes under those sale contracts proceed independently at different seats, the seat designated in the primary arrangement loses practical relevance. If, instead, parties invoke a composite arbitration under the primary agreement, the distinct seats chosen in the secondary contracts become redundant.

Either approach undermines contractual design. Both reveal the absence of a clear rule on when the primary arbitration clause should prevail.

These tensions demand closer scrutiny. They shape access to arbitration, costs, and procedural certainty. MSMEs face the sharpest impact. Parallel seats and fragmented proceedings raise barriers they cannot absorb. Until courts draw firmer lines on primacy and incorporation, parties must draft with caution and litigate with foresight. The uncertainty remains and so does the risk.