Non-Signatory Consultant Shareholder Can Be Veritable Party For Arbitration Due To His Involvement In Performance Of Underlying Contract: Supreme Court

The Apex Court was considering a matter revolving around the issue of whether the first respondent, who was arrayed as a respondent in the arbitration petition before the High Court, would also be bound by the clauses in the Memorandum of Settlement and would qualify as a veritable party for the purposes of the arbitration proceedings initiated thereunder.

The Division Bench of Justice Sanjay Kumar and Justice Sanjeev Sachdeva held, “We may also note that, in terms of the law laid down in Cox and Kings Limited (supra), the principle of ‘veritable parties’ would be applicable in situations where a person or entity may not sign an arbitration agreement, yet give the appearance of being a veritable party to such agreement due to that person/entity’s legal relationship with the signatory parties and involvement in the performance of the underlying contract.”

“The appeal is accordingly allowed, setting aside the judgment dated 21.10.2024 in so far as it related to Ashiesh Shukla, respondent No. 1. He is also held to be a veritable party to the MoS and would, therefore, be amenable to having his disputes with appellant Nos. 1 and 2 referred to arbitration”, it added.

Senior Advocate Dhruv Mehta represented the Appellant while AOR Kailash Prashad Pandey represented the Respondent.

Factual Background

The first appellant, KKH Finvest Private Limited, was involved in the business of investment, consultancy, development and promotion of business activities of companies. The first Appellant intended to take over Sensorise Digital Services Private Limited, the second appellant and its sister concern, Sensorise Smart Solutions Private Limited, under a Memorandum of Settlement (MoS). Ashiesh Shukla, the first respondent, was not a signatory to the MoS, which was signed by the first appellant along with the second appellant, its sister concern and their promoters. The first Appellant was referred to as the ‘buyer ’, and some were referred to as the ‘ex-Promoter group’ or ‘Sellers’.

Disputes arose after the execution of the MoS and the first appellant issued an Arbitration Invocation Notice to the ex-promoters, i.e., Rajeev Arora and Sharad Arora. On its application filed under Section 11 of the 1996 Act, the Delhi High Court appointed a sole Arbitrator. The Judge held that Ajay Nandy, Abhishek Batra, Prasun Nigam and Achin Jain were veritable parties to the arbitration agreement contained in the MoS. The disputes relating to them were, accordingly, referred to arbitration by the Arbitrator who was already appointed.

Reasoning

Considering certain clauses in the Share Purchase Agreement executed by Ashiesh Shukla, the Bench stated that Ashiesh Shukla committed himself to the sale of his shares and to be bound by the terms of the MoS dated May 9, 2022. The Bench explained that in terms of the law laid down in Cox and Kings Limited vs. SAP India Private Limited and another (2024), the principle of ‘veritable parties’ would be applicable in situations where a person or entity may not sign an arbitration agreement, yet give the appearance of being a veritable party to such agreement due to that person/entity’s legal relationship with the signatory parties and involvement in the performance of the underlying contract.

The Bench further noticed that the Share Purchase Agreements executed by Ajay Nandy, Abhishek Batra, Prasun Nigam and Achin Jain contained a clause identical to Clause 16 in Ashiesh Shukla’s Share Purchase Agreement. The agreement of Prasun Nigam replicated Clause 16 in Clause 24 while the agreement executed by Abhishek Batra mirrored it in Clause 24. The agreement executed by Ajay Nandy duplicated the same in Clause 28 and, lastly, the agreement of Achin Jain stated to the same effect in Clause 23. As per the Bench, the logic applied to the four of them in the context of qualifying them as veritable parties equally applied to Ashiesh Shukla, notwithstanding Clause 16 in the Share Purchase Agreement executed by him.

“Further, as already noted supra, the learned Judge had found Ajay Nandy, Abhishek Batra, Prasun Nigam and Achin Jain to be veritable parties in the context of almost identical Share Purchase Agreements executed by them. Their obligations as members of the MT may have included certain functions that were not applicable to Ashiesh Shukla, a consultant shareholder, but the irrefutable fact remains that all other acts to be undertaken by persons listed in Schedule 1A, as spelt out by the terms of the MoS, referred to hereinabove, equally applied to him. In effect, there was no real point of distinction between Ashiesh Shukla when compared to Ajay Nandy, Abhishek Batra, Prasun Nigam and Achin Jain. The difference drawn by the learned Judge between these identically situated persons was not founded on fact and is entirely unsustainable in the light of the similar agreements executed by all of them,” it stated.

Thus, allowing the appeal, the Bench set aside the judgment in so far as it related to Ashiesh Shukla, first respondent. Holding the appellant a veritable party to the MoS, the Bench ordered, “As a learned Arbitrator is already seized of the disputes arising under the MoS and the Share Purchase Agreements executed by Ajay Nandy, Abhishek Batra, Prasun Nigam and Achin Jain, we deem it appropriate to refer the disputes pertaining to Ashiesh Shukla also to the same learned Arbitrator.”

Cause Title: KKH Finvest Pvt. Ltd. v. Ashiesh Shukla (Neutral Citation: 2026 INSC 803)

Appearance

Appellant: Senior Advocate Dhruv Mehta, Advocates Ranjana Roy Gawai, Vasudha Sen, K. Hema, AOR Divya Roy

Respondent: Senior Advocate Rajeshwari H., AOR Kailash Prashad Pandey, Advocates Garima Joshi, Sawani Chothe, AOR Manjeet Kirpal

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