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Non-Signatory to Arbitration Agreement can be referred to Arbitration: Supreme Court

In a recent judgement passed by the Supreme Court of India, it has been held that even a non-signatory to an arbitration agreement can be referred to arbitration and there is no rule of thumb that arbitration cannot be invoked by or against an entity who has not signed the Arbitration Agreement. The legal position and the judicial approach in this regard is as follows:

  • SBP & Co.1 expanded the scope of the Court’s power under section 11 of the Arbitration Act while empowering the referral Courts to decide several preliminary issues. Boghara Polyfab2 went to the extent of identifying three categories of preliminary issues that may arise for consideration in an application under section 11. Of these, in the first category which had to be mandatorily decided by the referral court, the question whether there was an arbitration agreement and whether the party who has applied under section 11, is a party to such an agreement agreement was also included.
  • The insertion of section 11(6A) through the 2015 amendment to the act, stipulated that the Courts under section 11 shall confine their examination to the “existence” of an arbitration agreement. It legislatively overruled decisions in SBP & Co. and Boghara Polyfab. 
  • Duro Felgura3, in clear terms, clarified the effect of the change brought in by section 11(6A) and stated that all that the Courts need to see is whether an arbitration agreement exists – nothing more, nothing less.
  • Vidya Drolia4, endorsed the prima facie test in examining the existence and validity of an arbitration agreement both under section 8 as well as section 11. However, it was clarified that in cases of debatable and disputable facts, the court may refer the parties to arbitration since the arbitral tribunal has the authority to decide disputes including the question of jurisdiction. It was further stated that jurisdictional issues concerning whether certain parties are bound by a particular arbitration the group company doctrine, in a multi-party arbitration, raised complicated questions of facts which are best left to the tribunal to decide. 
  • In In Re: Interplay5, the position taken in Vidya Drolia, was clarified to state that the scope of examination under section 11 should be confined “to the existence of an arbitration agreement” under section 7 of the Act. and the “validity of an arbitration agreement” must be restricted to the requirement of formal validity such as the requirement that the agreement be in writing. Therefore, substantive objections pertaining to existence and validity on the basis of evidence must be left to the arbitral tribunal since it can “rule” on its own jurisdiction.
  • Krish Spinning6 cautioned that the Courts delving into the domain of the arbitral tribunal at the stage of section 11 run the risk of leaving the claimant remediless if the section 11 application is rejected. Further it was held that a detailed examination by the Court at the section 11 stage would be counter-productive to the objective of expeditious disposal of section 11 application and simplification of pleadings at that stage. 
  • Cox and Kings7, specifically dealt with the scope of enquiry under section 11 when it comes to impleading the non-signatories in the arbitration proceedings. While saying that the referral Court would be required to prima facie rule on the existence of the arbitration agreement and whether the non-signatory party is a veritable party to the arbitration agreement, it also said that in view of the complexity in such a determination, the arbitral tribunal would be the proper forum. It was further stated, that the issue of determining parties to an arbitration agreement goes to the root of the jurisdiction competence of the arbitral tribunal and can be decided under its jurisdiction under section 16.
  1. SBP & Company vs. Patel Engineering Limited : (2005) 8 SCC 618.
  2. National Insurance Company Limited vs. Boghara Polyfab Private Limited :  (2009) 1 SCC 267.
  3. Duro Felgura vs. Gangavaram Port Limited : (2017) 9 SCC 729.
  4. Vidya Drolia and Others vs. Durga Trading Corporation : (2021) 2 SCC 1.
  5. In Re: Interplay Between Arbitration Agreements under Arbitration & Conciliation Act, 1996 and Stamp Act : 1899 (2024) 6 SCC 1.
  6. SBI General Insurance Company Limited vs. Krish Spinning : (2024) SCC Online 174.
  7. Cox & Kings vs. SAP India Private Limited and Another : (2024) 4 SCC 1.