Supreme Court: Referral Court U/S 11 A&C Act Not Deprived Of Jurisdiction From Examining Whether Non-Signatory Is In Real Sense Party To Agreement

The Supreme Court held that the Referral Court under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) is not deprived of its jurisdiction from examining whether the non-signatory is in the real sense a party to the arbitration agreement.

The Court held thus in a Civil Appeal challenging the Judgment of the Bombay High Court by which Section 11(4) Application under A&C Act was allowed and an Arbitrator was appointed to adjudicate upon the disputes and differences between the parties.

The two-Judge Bench of Justice J.B. Pardiwala and Justice K.V. Viswanathan observed, “… what is primordial is that it should be demonstrated prima facie before the referral court that the non-signatory is a veritable party. … In substance, it means truly, genuinely or for all intended purposes. The referral court under Section 11 is not deprived of its jurisdiction from examining whether the non-signatory is in the real sense a party to the arbitration agreement. The answer thereof will depend on the facts and circumstances of each case after examining the documents pertaining thereto.”

The Bench reiterated that since the scope of Referral Court has to be within the parameter of Section 11 (6-A), the exercise carried thereon is “examination of the existence of an arbitration agreement”.

Solicitor General Tushar Mehta and AOR Sanjay Kapur appeared for the Appellant, while Senior Advocate Nalin Kohli appeared for the Respondent.

Factual Background

The Appellant-Hindustan Petroleum Corporation Ltd. (HPCL) floated a tender for design, supply, installation, integration, testing, commissioning, and post-commissioning warranty support services of Tank Truck Locking System (TTLS). The tender conditions had a specific clause stating that the contractor shall not be entitled to sublet, transfer or assign the work under the contract without the prior consent of the owner obtained in writing. In 2013, the Appellant issued a purchase order in favour of the successful tenderer (AGC Networks Ltd) and the same was accepted. In 2016, the Appellant issued a notice to AGC with regard to non-functioning of Electro Magnetic Locking System (EMLS) at Pilot locations of Vashi and Manmad. In 2017, the Appellant issued a show-cause notice (SCN) to AGC for unsatisfactory performance of EMLS at the said two locations. In 2018, the BCL Secure Premises Pvt. Ltd. (Respondent) informed the Appellant that they were working as sub-vendor of AGC and were entitled to receive 94% of the payment due.

However, the Appellant informed that since it could not complete the project successfully, no payment was due to them. Thereafter, a series of proceedings ensued between the BCL and AGC. Subsequently, a civil suit was filed by BCL against AGC, seeking injunction against AGC from invoking the bank guarantee submitted by BCL. The Appellant was not a party to the suit and then, a Section 9-Petition under the Insolvency and Bankruptcy Code, 2016 (IBC) was filed by BCL against AGC. However, the said Petition was rejected. The case was referred to arbitration and the Respondent withdrew claim from the Arbitral Tribunal in view of amicable settlement with AGC. The suit was also withdrawn and in 2024, the Respondent issued a notice to the Appellant invoking arbitration under Section 21 of the A&C Act. The High Court allowed the Section-11 Application filed by the Respondent. This was under challenge before the Apex Court.

Reasoning

The Supreme Court in the above context of the case, said, “… the referral court should be prima facie satisfied that there exists an arbitration agreement and as to whether the non-signatory is a veritable party.”

The Court noted that even if the Referral Court prima facie arrives at the satisfaction that the non-signatory is a veritable party, the Arbitral Tribunal is not denuded of its jurisdiction to decide whether the non-signatory is indeed a party to the arbitration agreement on the basis of factual evidence and application of legal doctrine.

“… as to whether the non-signatory is bound would be for the Arbitral Tribunal to decide. … As was held in In Re: Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 & Stamp Act, 1899, since the scope of referral court has to be within the parameter of Section 11 (6-A), the exercise carried thereon is “examination of the existence of an arbitration agreement”, it added.

The Court observed that while ‘examination’ does not contemplate a laborious or a contested inquiry, there is an obligation on the Referral Court to “inspect and scrutinize” the dealings, if any, between the parties.

“… we find that even prima facie the respondent has not been able to establish that it was a veritable party to the contract between HPCL and AGC. HPCL has no privity at all with the respondent BCL. Admittedly, to the documentation between AGC and BCL, HPCL was not a party. After obtaining the contract from HPCL, AGC appears to have engaged BCL to supply, install, integrate, test, commission and grant warranty and post warranty support services to AGC”, it further noted.

The Court remarked that the Appellant and the Respondent have been operating on separate orbits and it has not been established even prima facie that there was any intention to bind BCL to the contract between HPCL and AGC.

“Applying the consensual theory or the non-consensual theory, the respondent has not established its case to show even prima facie the existence of an arbitration agreement between HPCL and the respondent. Reference to copies of group emails being marked to HPCL or the creation of an escrow account on account of the contract between AGC and the respondent BCL, fall far short of making out of a prima facie case”, it also said.

Conclusion

The Court, therefore, held that the Respondent failed the prima facie test of being a veritable party to the arbitration agreement between HPCL and AGC.

“In view of our holding on the issue of the non-existence of an arbitration agreement between the parties herein, we are not required to go into the issue of whether the claim was ex-facie time-barred”, it concluded.

Accordingly, the Apex Court allowed the Appeal and set aside the impugned Judgment.

Cause Title- Hindustan Petroleum Corporation Ltd. v. BCL Secure Premises Pvt. Ltd. (Neutral Citation: 2025 INSC 1401)

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