Supreme Court: Non-Issuance Of Notice U/S. 21 A&C Act To Parties To Arbitration Agreement Doesn't Bar Arbitral Tribunal From Impleading Them During Proceedings

The Court set aside the impugned Judgment of the Delhi High Court, which upheld the decision of the Arbitral Tribunal that allowed the application under Section 16 of the Arbitration and Conciliation Act, 1996 (the Act) and held that the arbitral proceedings against certain parties was not maintainable. The Court clarified that while a notice invoking arbitration under Section 21 is mandatory and fulfils various purposes by fixing the date of commencement of arbitral proceedings, non-service of such notice on a person does not preclude his impleadment in the arbitral proceedings.

A Bench of Justice Pamidighantam Sri Narasimha and Justice Manoj Misra held, “A notice invoking arbitration under Section 21 of the ACA is mandatory as it fixes the date of commencement of arbitration, which is essential for determining limitation periods and the applicable law, and it is a prerequisite to filing an application under Section 11. However, merely because such a notice was not issued to certain persons who are parties to the arbitration agreement does not denude the arbitral tribunal of its jurisdiction to implead them as parties during the arbitral proceedings.”

Senior Advocate Gaurav Agrawal represented the Appellant, while Advocate Varun Kanwal appeared for the Respondents.

Brief Facts

Adavya Projects Pvt. Ltd. (Appellant) and M/s Vishal Structurals Pvt. Ltd. (Respondent) entered into an agreement to establish Vishal Capricorn Energy Services LLP (Respondent) for projects in the oil and gas sector.

Disputes arose in 2018, prompting the Appellant to seek account information from the second Respondent and issue demand notices to the first Respondent for payment. Ultimately, the Appellant initiated arbitration proceedings by issuing a notice invoking arbitration. However, this notice was only served to the first Respondent, through its director, and the subsequent Section 11 application for arbitrator appointment also included only the first Respondent as a party.

After the arbitrator was appointed, the Appellant filed its statement of claim, which included other Respondents as well. In response, the other Respondents filed an application under Section 16 of the Act, challenging the arbitral tribunal's jurisdiction. Their primary objection was that the arbitration was not maintainable against the second and third Respondents because they were not parties to the Section 21 notice or the Section 11 application.

Court’s Reasoning

The Supreme Court considered whether serving a notice invoking arbitration under Section 21 of the Act, and joining a person in the application under Section 11 for the appointment of an arbitrator, was mandatory before an Arbitral Tribunal can have jurisdiction over that person.

The Bench explained, “The arbitral tribunal’s approach clearly shows that it did not exercise its jurisdiction in accordance with the principle of kompetenz-kompetenz, and rather held that such issue does not at all arise at the present stage. Even the High Court, while exercising appellate jurisdiction under Section 37, proceeded on a similar basis. In view of the legal principles set out above, we are of the view that this is an incorrect approach. Rather, the arbitral tribunal should have inquired into whether respondent nos. 2 and 3 are parties to the arbitration agreement to determine whether they could have been impleaded in the statement of claim. We will be elaborating on this issue at a later stage.”

“The purpose of an application under Section 11 is for the court to appoint an arbitrator, so as to enable dispute resolution through arbitration when the appointment procedure in the agreement fails. The court only undertakes a limited and prima facie examination into the existence of the arbitration agreement and its parties at this stage. Hence, merely because a court does not refer a certain party to arbitration in its order does not denude the jurisdiction of the arbitral tribunal from impleading them during the arbitral proceedings as the referral court’s view does not finally determine this issue,” the Court clarified.

The Bench stated, “The relevant consideration to determine whether a person can be made a party before the arbitral tribunal is if such a person is a party to the arbitration agreement. The arbitral tribunal must determine this jurisdictional issue in an application under Section 16 by examining whether a nonsignatory is a party to the arbitration agreement as per Section 7 of the ACA.”

“​​In the facts of the present appeal, respondent nos. 2 and 3 are parties to the arbitration agreement in Clause 40 of the LLP Agreement despite being non-signatories. Their conduct is in accordance with and in pursuance of the terms of the LLP Agreement, and hence, they can be made parties to the arbitral proceedings,” the Court held.

Consequently, the Court ordered, “In light of the above reasoning, we allow the present appeal and set aside the impugned judgment and order of the High Court of Delhi. We direct that respondent nos. 2 and 3 be impleaded as parties before the arbitral tribunal, and the proceedings must be continued from the stage of arbitral tribunal’s order.”

Accordingly, the Supreme Court allowed the Appeal.

Cause Title: Adavya Projects Pvt. Ltd. v. M/S Vishal Structurals Pvt. Ltd. & Ors. (Neutral Citation: 2025 INSC 507)

Appearance:

Appellant: Senior Advocate Gaurav Agrawal; Advocates Debmalya Banerjee, Simran Brar, Kiran Devrani, Nitish Dham, Apurva and Liza Vohra

Respondents: Advocates Susheel Joseph Cyriac, Nirnimesh Dube, Ankur S. Kulkarni and Varun Kanwal

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