Arbitral Tribunal Has Power To Implead Non-Signatories To Arbitration Agreement On Its Own Accord: Supreme Court
The Supreme Court elucidated that the impleadment of a non-signatory, being fundamentally a question of jurisdiction and consent, falls squarely within the province of the Tribunal's powers, free from any statutory prohibition.
Justice J.B. Pardiwala, Justice R. Mahadevan, Supreme Court
The Supreme Court held that an Arbitral Tribunal has power to implead a non-signatory to the arbitration agreement and proceedings on its own accord.
The Court held thus in a Civil Appeal filed against the Judgment of the Delhi High Court which dismissed the Appeals under Section 37 of the Arbitration and Conciliation Act, 1996 (A&C Act) and affirmed the Order of the Arbitral Tribunal.
The two-Judge Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan observed, “… it can be seen that there is nothing within the scheme of the Act, 1996, which prohibits or restrains an arbitral tribunal from, impleading a non-signatory to the arbitration proceedings on its own accord. So long as such impleadment is undertaken upon a consideration of the applicable legal principles — including, but not limited to, the doctrines of ‘group of companies’, ‘alter ego’, ‘composite transaction’, and the like — the arbitral tribunal is fully empowered to summon the non-signatory to participate in the arbitration.”
The Bench elucidated that the impleadment of a non-signatory, being fundamentally a question of jurisdiction and consent, falls squarely within the province of the Tribunal's powers, free from any statutory prohibition.
Senior Advocate Devadatt Kamat represented the Appellant while Senior Advocate Jayant Mehta and Advocate Aakanksha Kaul appeared for the Respondents.
Case Background
The Respondent No. 1 (SPCPL) company was the counter claimant before the Arbitrator and the Respondent No. 3 (BCSPL) initiated arbitration against SPCPL in relation to a Settlement Agreement in 2020. SPCPL filed its counter-claim against BCSPL as well as the Appellant company (ABPL) and the Respondent No. 2 (AISPL), which constituted and formed part of the ASF Group. SPCPL pleaded before the Arbitrator that BCSPL, ASIPL, and ABPL being a part of the ASF Group are bound by the Arbitration Agreement contained in the Works Contract on the basis of the Group of Companies Doctrine. BCSPL, ABPL, and AISPL respectively filed separate Section 16 Applications before the Arbitrator seeking rejection of SPCPL’s counter claim to the extent it is against AISPL and ABPL.
By the Arbitrator’s Orders, the Arbitrator dismissed the said Applications, inter alia holding that, in order to decide whether or not the inclusion of AISPL and ABPL amongst the party-Respondents on basis of such doctrine is correct on basis of facts narrated by SPCPL, some crucial aspects as regards the role and conduct of AISPL and ABPL, would need adjudication as questions mixed of facts and law, which cannot be holistically determined without first arraying them as parties. The Arbitral Tribunal rejected the Appellant’s challenge on the ground that the Appellant being a non-signatory to the arbitration agreement could not have been impleaded in the array of parties and join the arbitration proceedings. In such circumstances, the matter was taken to the High Court which dismissed the Appeals of the Appellant and affirmed the Tribunal’s Order. Hence, the case was before the Apex Court.
Issue for Consideration
The only question that fell for consideration before the Court was whether an Arbitral Tribunal has the authority or power to implead or join a non-signatory to the arbitration agreement as a party to the arbitration proceedings?
Court’s Observations
The Supreme Court in view of the above issue, noted, “… despite the wide recognition of the doctrinal principles of ‘group of companies’, ‘alter-ego’, agency, implied consent, assignment or transfer of contractual rights, estoppel, ‘apparent authority’ etc. to law of arbitration, the High Courts throughout the country remained averse to accepting the application of these principles by the arbitral tribunals.”
The Court said that even after the decision of the Supreme Court in the case of Chloro Controls India Private Limited v. Severn Trent Water Purification Inc (2013), allowing non-signatories to an arbitration agreement to be referred and enjoined to arbitration on the basis of their conduct, role, and involvement in the underlying contract, the High Courts consistently held that such power to refer or implead a non-signatory was only available to the Courts and not to the Arbitral Tribunals.
“It is only after the decision of this Court in in Cox and Kings (I) (supra), that the position of law as regards the power of an arbitral tribunal to implead a non-signatory underwent a significant change, whereby many High Courts which had earlier refused to recognize such power of the arbitral tribunal, came around to recognizing it”, it added.
The Court was of the view that the Arbitral Tribunal is the more appropriate and competent forum to adjudicate upon the issue of whether a non-signatory is bound by the arbitration agreement, as the arbitral as it has the innate advantage of going through all the relevant evidence and pleadings in greater depth and detail than the Referral Court at the pre-reference stage, and as such is uniquely positioned to undertake such a nuanced determination.
“There runs no umbilical cord between the exercise of determining the “existence of the arbitration agreement” and determining its “existence qua the non-signatory”. The latter is an independent and substantive determination that falls outside the narrow and circumscribed domain of the referral court’s singular obligation under Section 11 sub-section (6A) of the Act, 1996 and as such cannot be conflated to be one pertaining to or attacking the “existence” of an arbitration”, it further explained.
The Court also remarked that even if it is assumed for a moment, that the question whether a non- signatory is a veritable party to the arbitration agreement is intrinsically connected with the issue of ‘existence’ of arbitration agreement, the Referral Courts should still nevertheless, leave such questions for the determination of the Arbitral Tribunal to decide, as such an interpretation gives true effect to the doctrine of competence-competence enshrined under Section 16 of the A&C Act.
“… even where the referrals courts either find that there is no arbitration agreement in “existence” or as a logical sequitur never embarked upon determining such “existence”, for whatever reasons, the matter should still nevertheless be referred to arbitration”, it noted.
Furthermore, the Court said that where the Referral Court is either unable to decide the issue as to whether, the non-signatory is a veritable party to the arbitration agreement, or finds in its opinion that such non-signatory is not a veritable party, or in the extreme alternative, had no occasion to decide such an issue, still it would be open for the Arbitral Tribunal to look into the issue and decide the same.
Arbitral Tribunal has the authority and power to implead Non-Signatories to the arbitration agreement on its own accord
The Court held that there is no inhibition in the scheme of A&C Act which precludes the Arbitral Tribunal from impleading a Non-Signatory on its own accord.
“Unlike Section(s) 8 and 45 of the Act, 1996, the provisions of Section(s) 2(1)(h) and 7 are not confined in their applicability to only judicial forums or courts, and rather extend equally to both courts and arbitral tribunals, as these provisions form the bedrock of the framework of arbitration under the Act, 1996. The logical sequitur of this is that arbitral tribunals, too, are vested with the requisite authority to engage with and apply principles, such as the 'Group of Companies' doctrine, when determining whether a non-signatory may be bound by an arbitration agreement”, it enunciated.
The Court emphasised that it is well within the jurisdiction of the Arbitral Tribunal to decide the issue of joinder and non-joinder of parties and to assess the applicability of the Group of Companies Doctrine.
“The law which has developed over a period of time is that both ‘courts and tribunals’ are fully empowered to decide the issues of impleadment of a non-signatory and Arbitral Tribunals have been held to be preferred forum for the adjudication of the same”, it further explained.
The Court also referred to its recent Judgment in the case of Gayatri Balasamy v. M/S. ISG Novasoft Technologies Limited (Neutral Citation: 2025 INSC 605).
The Court said that the power by virtue of the doctrine of implied powers will be supplied as a necessary intendment of the legislation, to advance its object and avoid grave hardship.
Important Remarks
The Court observed that the recourse to doctrine of implied powers would be permissible, if without it, it is impossible to effectuate a final power, and such exercise of implied power would effectuate and advance the object of the legislation.
“For arbitration to remain a viable and effectively alternative mechanism for dispute resolution, it is imperative to ensure that commercial reality does not outgrow this mechanism. The mechanisms of arbitration must be sufficiently elastic to accommodate the complexities of multi-party and multi-contract arrangements without compromising foundational principles such as consent and party autonomy. The approach of courts and arbitral tribunal in particular must be responsive to the emerging commercial practices and expectations of the parties who submit themselves to it”, it emphasised.
The Court was of the opinion that recognition of the power of joinder or impleadment of a non-signatory by an Arbitral Tribunal is a necessary intendment of the express provisions of Section(s) 2(1)(h) and 7 and the overall scheme and object of the A&C Act as well as the fundamental cannons of the law of arbitration of providing an effective alternative dispute resolution mechanism.
“… even in the absence of an express provisions in the Act, 1996 empowering the arbitral tribunal to implead or join a party who is otherwise bound by the arbitration agreement, the arbitral tribunal does possess such power by virtue of the doctrine of implied powers, as long as the same is in tandem with the scheme of Act, 1996 i.e., as long as the parties had either expressly or impliedly consented to the arbitration agreement as held in Cox and Kings (I) (supra)”, it held.
The Court also remarked that the Arbitral Tribunal is not a creature of mere procedural will but of substantive legal consequence flowing from the arbitration agreement.
“The principle of consensus ad idem for referring disputes to arbitral tribunals applies to the signatories to the arbitration agreement and not non-signatories who are sought to be impleaded”, it added.
Conclusion
The Court remarked that it very sad that even after these many years, procedural issues such as the one involved in this case, have continued to plaque the arbitration regime of India.
“Unfortunately, even the new Bill has taken no steps whatsoever, for ameliorating the position of law as regards the power of impleadment or joinder of an arbitral tribunal. What is expressly missing in the Act, 1996 is still missing in the Arbitration and Conciliation Bill, 2024, despite a catena of decisions of this Court as-well as the various High Courts, highlighting the need for statutory recognition of such power in order to obviate all possibilities of confusion”, it concluded.
The Court also urged the Department of Legal Affairs, Ministry of Law and Justice to take a serious look at the arbitration regime that is prevailing in India and bring about necessary changes while the Arbitration and Conciliation Bill, 2024 is still being considered.
Accordingly, the Apex Court dismissed the Appeal.
Cause Title- ASF Buildtech Private Limited v. Shapoorji Pallonji and Company Private Limited (Neutral Citation: 2025 INSC 616)
Appearance:
Appellant: Senior Advocate Devadatt Kamat, AOR Anindita Mitra, Advocates Amit George, Harsh Pandey, and Hruday Bajentri.
Respondents: Senior Advocate Jayant Mehta, AORs Salvador Santosh Rebello, S. S. Shroff, Sanyat Lodha, Advocates Aakanksha Kaul, Saurav Agrawal, Aman Sahani, Anshuman Chowdhary, Rhea Borkotoky, Akash Saxena, Kritika, Ashima Chopra, Prachi Dubey, Pooja Gill, Shruti Sabharwal, Avlokita Rajvi, Lakshya Khanna, Vikramaditya Sanghi, Sanskriti Sinha, and Sanjana Saddy.
