Impleading Non-Signatories in Arbitration: Key Legal Ruling

Introduction

On 5th February 2025, the judgment in ASF Buildtech Private Limited v. Shapoorji Pallonji and Company Private Limited (2025 INSC 616) addressed a critical issue in arbitration law—whether an Arbitral Tribunal has the power to implead non-signatories to an arbitration agreement. This decision has broad implications for the applicability of the Group of Companies Doctrine (GoCD) and clarifies the Tribunal’s competence under the Arbitration and Conciliation Act, 1996.

Factual Matrix

The dispute stemmed from a Settlement Agreement dated 24.07.2020, where Black Canyon SEZ Pvt. Ltd. (BCSPL) initiated arbitration against Shapoorji Pallonji & Co. Pvt. Ltd. (SPCPL). SPCPL responded with a counterclaim against BCSPL and other entities—ASF Insignia SEZ Pvt. Ltd. (AISPL) and the appellant ASF Buildtech Pvt. Ltd. (ABPL), alleging that all were part of the ASF Group and thus bound by the arbitration clause in the Works Contract dated 21.11.2016.

SPCPL relied on the Group of Companies Doctrine to support its position that ABPL and AISPL, despite being non-signatories, were veritable parties to the contract.

The arbitral tribunal dismissed objections filed by ABPL and AISPL under Section 16 of the Act, and the Delhi High Court upheld the decision under Section 37. ABPL then approached the apex court challenging its impleadment in the arbitration.

Issues Before the Court

1. Can an Arbitral Tribunal implead non-signatories to an arbitration agreement post-referral under Section 11 of the Arbitration and Conciliation Act?
   
2. Does the Group of Companies Doctrine justify binding ABPL, a non-signatory, to the arbitration proceedings?
   
3. Is the arbitral tribunal competent under the Act to determine the existence of an arbitration agreement involving non-signatories based on conduct and relationship?
   

Appellant’s Arguments (ASF Buildtech Pvt. Ltd.)

• ABPL had no direct involvement in any contractual documents, including the Works Contract, Novation Agreement, or Settlement Agreement.
  
• Mere status as a holding company does not suffice to establish ABPL as a veritable party to the arbitration.
  
• Relied on precedents including:
  
  • ONGC v. Discovery Enterprises (2022) 8 SCC 42
    
  • Cox and Kings v. SAP India Pvt. Ltd. (2023 SCC OnLine SC 1634)
    
  • Ajay Madhusudan Patel v. Jyotrindra S. Patel (2024 SCC OnLine SC 2597)
    
• Argued that corporate separateness must be respected and impleadment cannot be based on shared logos, email domains, or overlapping management.
  

Respondent’s Arguments (SPCPL)

• Asserted that the ASF Group operated as a single economic unit, evidenced by:
  
  • Shared personnel, email domains, and branding;
    
  • Comfort Letters issued by ABPL guaranteeing project performance;
    
  • Admissions by ABPL acknowledging its status as part of the ASF Group.
    
• Cited the Group of Companies Doctrine as upheld in:
  
  • Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. (2013) 1 SCC 641
    
  • Cox and Kings (supra)
    
  • Ajay Madhusudan Patel (supra)
    
• Highlighted ABPL’s indirect participation in project discussions and financial commitments.
  

Court’s Analysis and Reasoning

Doctrine of Kompetenz-Kompetenz

The Court reaffirmed that an arbitral tribunal is empowered under Section 16 to determine its own jurisdiction, including deciding whether a non-signatory can be impleaded based on facts and law.

Evolution of the Group of Companies Doctrine

• The Court relied extensively on Cox and Kings (I), clarifying that the test of impleading a non-signatory hinges on:
  
  • Direct, positive, and substantial involvement;
    
  • The mutual intent of the parties;
    
  • Conduct that leads other parties to believe the non-signatory was part of the agreement.
    

Application to ABPL

• Evidence such as the Comfort Letter, shared personnel, domain names, and internal communications showed that ABPL was more than just a holding company.
  
• The Court noted that ABPL, through its conduct, legitimately appeared to be a party involved in the negotiation and performance of the contracts.
  

Conclusion

The Court dismissed the appeal and held that ABPL and AISPL were properly impleaded in the arbitral proceedings. It clarified that an arbitral tribunal has the power to implead non-signatories under Section 16 based on the Group of Companies Doctrine, provided there is enough evidence of mutual intention and substantial involvement.

This judgment reinforces the position that corporate form alone cannot shield entities from arbitral liability if their conduct shows direct participation in the contract’s execution.

FAQs:

1. Can an Arbitral Tribunal (panel deciding case) add a company to ongoing arbitration proceedings if that company didn’t originally sign arbitration agreement?

Yes, Supreme Court has clarified that an Arbitral Tribunal has authority and power to decide whether to include a non-signatory (a party that did not sign arbitration agreement) in arbitration proceedings. This can be done even if court that initially referred case to arbitration (under Section 11 of Arbitration and Conciliation Act, 1996) didn’t make that non-signatory a party or explicitly leave decision to Tribunal. Tribunal can make this decision on its own, based on facts and application of legal doctrines like “Group of Companies” doctrine.

2. What is “Group of Companies” doctrine in arbitration, and how is it used to include a company that didn’t sign agreement?

Group of Companies” doctrine is a legal principle used in arbitration to determine if a company that didn’t sign an arbitration agreement can still be bound by it because it is part of a larger corporate group. Core idea is to identify mutual intention of all parties (both signatories and non-signatories) to bind non-signatory to arbitration agreement. This is determined by looking at factors like non-signatory’s involvement in negotiation, performance, or termination of main contract; commonality of subject matter; composite nature of transaction; and overall conduct of parties indicating an intention to be bound. Merely being part of same group is not enough; there must be a clear intention and substantial involvement.

3. Who generally decides if a company that didn’t sign an arbitration agreement should be part of arbitration – Court at start, or Arbitral Tribunal during proceedings?

While a court, when appointing an arbitrator (under Section 11 of Arbitration Act), might make a preliminary (prima facie) observation on whether a non-signatory appears to be a party to arbitration agreement, Supreme Court has emphasized that Arbitral Tribunal itself is preferred and more appropriate forum to make a full determination. This is because deciding if a non-signatory should be included involves a detailed look at facts, evidence, and complex legal principles (like “Group of Companies” doctrine), which Tribunal is better equipped to handle through its power to rule on its own jurisdiction (Kompetenz-Kompetenz under Section 16 of Act). Court’s role at referral stage is very limited, mainly to see if an arbitration agreement exists.

4. How does an Arbitral Tribunal figure out if a company that didn’t sign an arbitration agreement actually intended to be bound by it?

Arbitral Tribunal determines a non-signatory’s intention to be bound by an arbitration agreement by conducting a fact-intensive inquiry. This involves examining non-signatory’s conduct and level of involvement in negotiation, performance, and termination of underlying contract that contains arbitration clause. Tribunal will look for evidence of a positive, direct, and substantial involvement that would lead other parties to legitimately believe non-signatory was a true party to contract and its arbitration agreement. Assessment considers overall circumstances, including relationship between signatory and non-signatory, commonality of subject matter, and composite nature of transactions to infer mutual consent.

5. If a company wasn’t named in initial notice that started arbitration (Section 21 notice), can Arbitral Tribunal still add it to proceedings later on its own?

Yes, Arbitral Tribunal can add a non-signatory to arbitration proceedings even if that non-signatory was not mentioned in initial notice invoking arbitration (under Section 21 of Arbitration and Conciliation Act, 1996). Primary purpose of Section 21 notice is to determine date when arbitration proceedings are considered to have commenced, mainly for limitation purposes. It does not rigidly define or limit scope of claims or parties that can ultimately be part of arbitration. Tribunal has power to allow amendments to claims and join parties if it finds, based on evidence and legal principles, that a non-signatory is indeed bound by arbitration agreement. Non-signatory will, of course, be given an opportunity to present its case and challenge Tribunal’s jurisdiction.

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