Supreme Court of India
Adavya Projects Pvt. Ltd vs M/S Vishal Structurals Pvt. Ltd on 17 April, 2025
Author: Pamidighantam Sri Narasimha
Bench: Pamidighantam Sri Narasimha
2025 INSC 507 REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5297 OF 2025
ARISING OUT OF SLP (C) No. 25746 OF 2024
ADAVYA PROJECTS PVT. LTD. ...APPELLANT(S)
VERSUS
M/S VISHAL STRUCTURALS PVT. LTD. & ORS. …RESPONDENT(S)
JUDGMENT
PAMIDIGHANTAM SRI NARASIMHA, J.
Contents
Facts …………………………………………………………………………………………………… 3
Arbitral Tribunal’s Decision on the Section 16 Application ………………………….. 7
Impugned Order …………………………………………………………………………………… 7
Submissions ………………………………………………………………………………………… 8
Issues ………………………………………………………………………………………………..10
Notice Invoking Arbitration under Section 21 of the ACA …………………………..10
Appointment of Arbitrator by the Court under Section 11 ………………………….15
Source of the Arbitral Tribunal’s Jurisdiction and Relevant Inquiry under
Section 16 …..……………………………………………………………………………..20
Returning to the Facts of the Case …………………………………………………………24
High Court Decisions on these Issues …………………………………………………….26
Signature Not Verified
Digitally signed by
KAPIL TANDON
Date: 2025.04.17
Whether Respondent Nos. 2 and 3 are Parties to the Arbitration Agreement..32
18:07:26 IST
Reason:
Summary of Conclusions ………………………………………………………………………38
1
1. Leave granted.
2. The issues arising in the present appeal are whether the
service of notice invoking arbitration under Section 21 of the
Arbitration and Conciliation Act, 19961 on a person and joinder of
such person in the application under Section 11 for appointment
of arbitrator are prerequisites for an arbitral tribunal to exercise
jurisdiction over him, and further, when can an arbitral tribunal
implead a person to the arbitration proceedings. In the present
case, the arbitral tribunal, while determining its own jurisdiction
under Section 16, took the view that service of a Section 21 notice
and being made party to the Section 11 application are mandatory
requirements for a person/entity to be made party to the arbitral
proceedings. By the impugned order, the High Court has affirmed
and upheld this reasoning in exercise of its appellate jurisdiction
under Section 37, from which the present appeal arises. Upon
consideration of the purpose and scope of a Section 21 notice and
Section 11 application, as well as the source of the arbitral
tribunal’s jurisdiction being the arbitration agreement and the
principle of kompetenz-kompetenz under Section 16 of the ACA, we
have allowed the present appeal by answering the issues as
1
Hereinafter “the ACA”.
2
follows: First, 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. Second, the purpose of an application under Section
11 is simply the constitution of the arbitral tribunal, which is
pursuant to a limited and prima facie examination by the referral
court. The order appointing the arbitrator does not limit the
arbitral tribunal’s terms of reference or scope of jurisdiction. Third,
the arbitral tribunal’s jurisdiction over a person/entity is derived
from their consent to the arbitration agreement. Hence, the proper
inquiry in an application under Section 16 is whether such person
is a party to the arbitration agreement. Fourth, in the facts of the
present case, an arbitration agreement exists between the
appellant and respondent nos. 2 and 3, and hence they can be
impleaded as parties to the arbitral proceedings.
3. Facts: The facts that are relevant for our purpose are as
follows. The appellant and respondent no. 1 entered into an
agreement dated 01.06.2012 to form a Limited Liability
Partnership 2 by the name of Vishal Capricorn Energy Services LLP,
2
Hereinafter “LLP”.
3
which is respondent no. 2 herein, to carry out various oil and gas
sector projects. It is relevant to note at this stage that only the
appellant and respondent no. 1 are signatories to the LLP
Agreement. Clause 8 of the LLP Agreement provides that Mr.
Kishore Krishnamoorthy, who is respondent no. 3 herein, shall be
designated as the Chief Executive Officer of the LLP and will be
responsible for administration of business and looking after the
execution of contracts. It is relevant that respondent no. 3 is also
a director of respondent no. 1 company. Further, Clause 40 of the
LLP Agreement provides for dispute resolution through arbitration
in the following terms:
“40. Disputes or differences, if any, that may arise between partners
inter se and/ or between the partner(s) and LLP hereto or their
affiliates, assigns, successors, attorneys, administrators and all
those claiming through it touching these presents or the construction
thereof or any clause or thing herein contained or otherwise or in any
way relating to or concerning these presents or the rights, duties or
liabilities of any of the partners hereto in connection therewith the
matters in such dispute or difference shall be referred to the
arbitration in accordance with and subject to the provisions of
Arbitration and Conciliation Act, 1996 or to any statutory modification
or reenactment thereof for the time being in force. The venue of the
Arbitration shall be decided by the Arbitrator so appointed by mutual
consent of both partners.”3.1 By letter of award dated 31.12.2012, Oil India Ltd. awarded
a contract for augmentation of storage capacity at ITF, Tenughat,
Assam to a consortium, of which respondent no. 1 was a member.
By agreement dated 08.01.2013, the consortium sub-contracted
4
the ITF Project to respondent no. 1. Pursuantly, the appellant and
respondent no. 1 entered into a Supplementary Agreement and a
Memorandum of Understanding3, both dated 29.01.2013, for
execution of the ITF Project through respondent no. 2. The
appellant infused funds of Rs. 1.1 crores for the execution of this
Project.
3.2 Disputes arose in 2018 when the appellant sought
documents and information to audit respondent no. 2’s accounts
in relation to the ITF Project. The appellant then issued demand
notices dated 11.10.2019 and 20.12.2019 to respondent no. 1 for
payment of Rs. 7.31 crores towards reconciliation of accounts of
the LLP. Subsequently, on 17.11.2020, the appellant issued a
notice invoking arbitration under Clause 40 of the LLP Agreement.
It is relevant that this notice was issued only to respondent no. 1
through its Director, respondent no. 3. The appellant then filed a
Section 11 application for appointment of arbitrator, impleading
only respondent no. 1 as a party. The High Court, by order dated
24.11.2021, appointed a sole arbitrator “to adjudicate the disputes
that are stated to have arisen between the parties out of the LLP
3
Hereinafter “MoU”.
5
Agreement dated 01st June, 2012 read with Supplementary LLP
Agreement and MoU both dated 29th January, 2013.”
3.3 After the arbitrator entered reference, the appellant filed its
statement of claim, wherein it also impleaded respondent nos. 2
and 3 as parties to the arbitration. However, at the time of filing,
the prayer clause was restricted to respondent no. 1. Respondent
nos. 1-3 then filed an application under Section 16 of the ACA,
raising various objections to the arbitral tribunal’s jurisdiction.
The most relevant objection for our purpose is that the arbitration
is not maintainable against respondent nos. 2 and 3 as they were
not parties to the notice invoking arbitration under Section 21 or
the application for appointment of arbitrator under Section 11.
Further, it was contended that the arbitration agreement
contained in Clause 40 of the LLP Agreement does not bind
respondent no. 2, which is itself a creature of the LLP Agreement,
and respondent no. 3 as he was not a party to the LLP Agreement
in his individual capacity.
3.4 In the meanwhile, the appellant preferred an application
under Section 23(3) of the ACA to amend the statement of claim in
order to bring on record a detailed memo of parties and to amend
the prayer clause to include respondent nos. 2 and 3 as well. The
6
appellant’s application for amendment was allowed by the arbitral
tribunal’s order dated 01.08.2023 on the ground that these are
ministerial amendments that do not change the averments in the
original statement of claim.
4. Arbitral Tribunal’s Decision on the Section 16 Application: By
order dated 15.02.2024, the arbitral tribunal allowed the
application under Section 16 and held that the arbitral
proceedings against respondent nos. 2 and 3 are not maintainable.
The reasoning of the arbitral tribunal is that in the absence of the
notice invoking arbitration being served on respondent nos. 2 and
3, as well as considering that the High Court did not refer them to
arbitration while allowing the Section 11 application, the arbitral
tribunal cannot exercise jurisdiction over them. The arbitral
tribunal also rejected the appellant’s argument regarding its own
competence to implead non-signatories as necessary parties by
holding that there is no finding that respondent nos. 2 and 3 are
essential for effective adjudication of disputes.
5. Impugned Order: The appellant’s appeal under Section
37(2)(a) of the ACA against the arbitral tribunal’s order was
dismissed by the High Court’s order dated 08.07.2024, which is
impugned herein. The High Court proceeded on a similar basis and
7
held that since the Section 21 notice and the Section 11
application do not raise any disputes against respondent nos. 2
and 3, and they are not included as parties therein, the appellant
cannot be permitted to subsequently raise disputes against them
in the statement of claim.
6. Submissions: We have heard Mr. Gaurav Agrawal, learned
senior counsel for the appellant and Mr. Varun Kanwal, learned
counsel for the respondents.
6.1 Mr. Agrawal has submitted that: First, as per the principle of
kompetenz-kompetenz enshrined in Section 16 of the ACA, the
arbitral tribunal has the power to implead parties (signatories or
non-signatories) even after reference to arbitration if the disputes
involving them arise from the same agreement.4 In the present
facts, respondent nos. 2 and 3 ought to be impleaded for complete
adjudication of disputes, considering their intentional and
consensual involvement in the performance of the LLP Agreement,
Supplementary Agreement, and MoU as well as execution of the
ITF Project. Second, they are bound by the arbitration agreement
in Clause 40 of the LLP Agreement as it specifically refers to
disputes between the partners and the LLP (respondent no. 2), and
4
Relied on Cox and Kings Ltd. v. SAP India (P) Ltd., (2024) 4 SCC 1.
8
the partners and the administrator (respondent no. 3). Further,
even Section 23(4) of the Limited Liability Partnership Act, 2008
read with Schedule I provides for arbitration between the LLP and
its partners. Third, given the intertwined roles of the respondents,
the absence of a separate notice under Section 21 being issued to
them does not bar the appellant from impleading them in the
arbitral claim as they had constructive notice through respondent
no. 1 upon whom such notice was served.
6.2 Mr. Kanwal, on the other hand, has submitted that the issue
for consideration is not the arbitral tribunal’s jurisdiction to
implead a non-signatory. Rather, it is whether a person/entity that
has not been served with a notice under Section 21, and has not
been referred to arbitration by the court under Section 11 of the
ACA, can be made a party to the arbitral proceedings. His
submissions are as follows: First, this Court’s decision in Cox and
Kings (supra) is not applicable to the facts of the case, and has
rightly been distinguished as neither the arbitral tribunal nor the
High Court have found that respondent nos. 2 and 3 are necessary
parties for effective adjudication of disputes. Second, that
respondent nos. 2 and 3 are not bound by the arbitration
agreement as they are not parties to the same. Third, that the
9
proceedings against respondent nos. 2 and 3 are contrary to
principles of natural justice as they were not served with any notice
or impleaded in the Section 11 application.
7. Issues: Given the factual background and submissions of the
parties, there are two questions of law that can be framed for our
consideration:
I. Whether service of a Section 21 notice and joinder in a
Section 11 application are prerequisites to implead a
person/entity as a party to the arbitral proceedings?
II. What is the source of jurisdiction of an arbitral tribunal
over a person/entity who is sought to be impleaded as a
party to the arbitral proceedings? As a corollary, what is
the relevant inquiry that the arbitral tribunal must
undertake when determining its own jurisdiction under
Section 16 of the ACA?
7.1 After analysing and answering these legal issues, we will
examine the facts and the material on record in the present case
to determine whether respondent nos. 2 and 3 can be made parties
to the arbitral proceedings.
8. Notice Invoking Arbitration under Section 21 of the ACA:
Section 21 falls under Part I, Chapter V of the ACA, which deals
10
with “Conduct of arbitral proceedings”. The provision is extractedhereinbelow for reference:
“21. Commencement of arbitral proceedings.—Unless otherwise
agreed by the parties, the arbitral proceedings in respect of a
particular dispute commence on the date on which a request for that
dispute to be referred to arbitration is received by the respondent.”
9. A plain reading of the provision shows that in the absence of
an agreement between the parties, arbitral proceedings are
deemed to have commenced when the respondent receives a
request to refer disputes to arbitration. It is clear that Section 21
does not expressly mandate the claimant to send a notice invoking
arbitration to the respondents. However, the provision necessarily
mandates such notice as its receipt by the respondent is required
to commence arbitral proceedings, unless the parties have
mutually agreed on another date/event for determining when the
arbitral proceedings have commenced.
10. This Court has expounded the purpose and object underlying
the notice referenced in Section 21 in several judgments, which
can be stated as follows:
10.1 First, the notice is necessary to determine whether claims are
within the period of limitation or are time-barred. Section 43(1) of
the ACA stipulates that the Limitation Act, 1963 shall apply to
arbitrations as it applies to court proceedings. Further, Section
11
43(2) provides that for the purpose of the Limitation Act, anarbitration shall be deemed to have commenced on the date
referred to in Section 21. Hence, the date of receipt of the Section
21 notice is used to determine whether a dispute has been raised
within the limitation period as specified in the Schedule to the
Limitation Act, as held by this Court in Milkfood Ltd. v. GMC Ice
Cream (P) Ltd.5 and State of Goa v. Praveen Enterprises 6.
10.2 Second, the date of receipt of notice is also relevant to
determine the applicable law to the arbitral proceedings. This can
be understood in two senses: (i) When the arbitral proceedings are
governed by a law that is different from the proper law of the
contract, the governing law applies only after the arbitral
proceedings have commenced, as held in Milkfood Ltd (supra) 7.
And, (ii) Section 85(2)(a) of the ACA provides that the Arbitration
Act, 1940 and Foreign Awards (Recognition and Enforcement) Act,
1961 will apply to arbitral proceedings that commenced prior to
the ACA coming into force, unless otherwise agreed by the parties.
Hence, the date of invoking arbitration is necessary to determine
which arbitration law applies to the proceedings as per the
5
(2004) 7 SCC 288, paras 26, 29
6
(2012) 12 SCC 581, paras 16, 18.
7
Milkfood Ltd (supra), para 31.
12
decisions in Milkfood Ltd (supra) 8 and Geo-Miller & Co (P) Ltd. v.
Chairman, Rajasthan Vidyut Utpadan Nigam Ltd.9 Similarly, the
applicability of amendments to the ACA to arbitral proceedings is
determined by reference to the date on which such proceedings
commenced as per Section 21.10
10.3 Third, an application before the High Court or this Court
under Section 11(6) of the ACA for appointment of arbitrator can
be filed only after the respondent has failed to act as per the
appointment procedure in the arbitration agreement. Hence,
invocation of arbitration as provided in Section 21, and the
subsequent failure of the respondent to appoint its arbitrator or
agree to the appointment of a sole arbitrator as provided in
Sections 11(4) and 11(5), are necessary for invoking the court’s
jurisdiction under Section 11. This is as per the decision of this
Court in BSNL v. Nortel Networks (India) (P) Ltd. 11 Further, the
limitation period within which the Section 11 application must be
filed is also calculated with reference to the date on which the
appointment procedure under the arbitration agreement fails. 12
8
ibid, paras 46, 49, 70.
9
(2020) 14 SCC 643, para 10.
10
For example, the applicability of the Arbitration and Conciliation (Amendment) Act, 2015 to arbitral
proceedings depends on whether the notice invoking arbitration was issued before or after the amendment came
into force. See BCCI v. Kochi Cricket (P) Ltd., (2018) 6 SCC 287, paras 38-39.
11
(2021) 5 SCC 738, para 15.
12
ibid, para 16.
13
11. It is clear that by fixing the date of commencement of arbitral
proceedings by anchoring the same to a notice invoking
arbitration, Section 21 of the ACA fulfils various objects that are
time-related. The receipt of such notice is determinative of the
limitation period for substantive disputes as well as the Section 11
application, and also the law applicable to the arbitration
proceedings.
12. In this case, a Section 21 notice was undisputedly issued by
the appellant under Clause 40 of the LLP Agreement on
17.11.2020; but the problem arises because this notice was issued
only to respondent no. 1. However, there is nothing in the wording
of the provision or the scheme of the ACA to indicate that merely
because such notice was not served on respondent nos. 2 and 3,
they cannot be impleaded as parties to the arbitral proceedings.
The relevant considerations for joining them as parties to the
arbitration will be discussed at a later stage.
13. At this point, it is important to note this Court’s decision in
State of Goa v. Praveen Enterprises (supra) wherein it was held that
the claims and disputes raised in the notice under Section 21 do
not restrict and limit the claims that can be raised before the
arbitral tribunal. The consequence of not raising a claim in the
14
notice is only that the limitation period for such claim that is raised
before the arbitral tribunal for the first time will be calculated
differently vis-a-vis claims raised in the notice. However, non-
inclusion of certain disputes in the Section 21 notice does not
preclude a claimant from raising them during the arbitration, as
long as they are covered under the arbitration agreement. Further,
merely because a respondent did not issue a notice raising
counter-claims, he is not precluded from raising the same before
the arbitral tribunal, as long as such counter-claims fall within the
scope of the arbitration agreement. 13
14. A similar rationale may be adopted in this case as well,
especially considering the clear purpose served by a Section 21
notice. Extending this logic, non-service of the notice under
Section 21 and the absence of disputes being raised against
respondent nos. 2 and 3 in the appellant’s notice dated 17.11.2020
do not automatically bar their impleadment as parties to the
arbitration proceedings.
15. Appointment of Arbitrator by the Court under Section 11: The
other reason provided by the arbitral tribunal and the High Court
in this case is that respondent nos. 2 and 3 were not made parties
13
Praveen Enterprises (supra), paras 19-20, 26.
15
in the appellant’s Section 11 application. Consequently, the High
Court order appointing the arbitrator only refers the appellant and
respondent no. 1 to arbitration, and the arbitration is maintainable
only qua both of them. We find that this line of reasoning must
also be rejected in light of the purpose of a Section 11 application
and the scope of inquiry by the courts while deciding such
application. The relevant portion of Section 11 reads as follows:
“11. Appointment of arbitrators.—
(6) Where, under an appointment procedure agreed upon by the
parties,—
(a) a party fails to act as required under that procedure; or
(b) the parties, or the two appointed arbitrators, fail to reach an
agreement expected of them under that procedure; or
(c) a person, including an institution, fails to perform any function
entrusted to him or it under that procedure,
a party may request [the Supreme Court or, as the case may be, the
High Court or any person or institution designated by such Court] to
take the necessary measure, unless the agreement on the
appointment procedure provides other means for securing the
appointment.
(6A) The Supreme Court or, as the case may be, the High Court, while
considering any application under sub-section (4) or sub-section (5) or
sub-section (6), shall, notwithstanding any judgment, decree or order
of any Court, confine to the examination of the existence of an
arbitration agreement.”
16. As has been stated above, a Section 11 application can be
preferred by a party when the procedure for appointment
stipulated in the arbitration agreement fails. It is relevant that
Section 11 falls under Part I, Chapter III of the ACA that deals with
“Composition of arbitral tribunal”. The statutory scheme, along
with the clear wording of Section 11(6), evidences that the purpose
16
of this application is for the court to take “necessary measure”, in
the absence of any other means in the arbitration agreement, “for
securing the appointment” of the arbitral tribunal. By constituting
the arbitral tribunal when there is a deadlock or failure of the
parties or the appointed arbitrators to act as per the arbitration
agreement, the court only gives effect to the mutual intention of
the parties to refer their disputes to arbitration. 14
17. It is also relevant to note that while deciding such an
application under Section 11(6), the High Court or this Court, as
the case may be, undertakes a limited examination as per Section
11(6A). The court’s jurisdiction is confined to a prima facie
examination, without conducting a mini-trial or laborious and
contested inquiry, into the existence of the arbitration agreement,
i.e., whether there exists a contract to refer disputes that have
arisen between the parties to arbitration. 15 Further, any
examination into the validity of the arbitration agreement must be
restricted to the requirement of “formal validity”, i.e., whether the
requirements of a written agreement under Section 7 of the ACA
are satisfied. 16 Beyond this, the court must leave it to the arbitral
14
Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 & Stamp Act, 1899, In
re, (2024) 6 SCC 1, para 150; SBI General Insurance Co. Ltd. v. Krish Spinning, 2024 SCC OnLine SC 1754,
para 122.
15
In re, Interplay (supra), paras 164-167.
16
ibid, para 165; SBI General Insurance (supra), para 110.
17
tribunal to “rule” on and adjudicate the existence and validity of
the arbitration agreement on the basis of evidence adduced by the
parties, in accordance with the principle under Section 16 of the
ACA.17
18. More specifically, in respect of determining parties to the
arbitral proceedings, the Constitution Bench in Cox and Kings
(supra) delineated the role of the court in a Section 11 application
in the context of non-signatories as parties to the arbitration
agreement as follows:
“169. In case of joinder of non-signatory parties to an arbitration
agreement, the following two scenarios will prominently emerge : first,
where a signatory party to an arbitration agreement seeks joinder of
a non-signatory party to the arbitration agreement; and second,
where a non-signatory party itself seeks invocation of an arbitration
agreement. In both the scenarios, the referral court will be required to
prima facie rule on the existence of the arbitration agreement and
whether the non-signatory is a veritable party to the arbitration
agreement. In view of the complexity of such a determination, the
referral court should leave it for the Arbitral Tribunal to decide
whether the non-signatory party is indeed a party to the arbitration
agreement on the basis of the factual evidence and application of
legal doctrine. The Tribunal can delve into the factual, circumstantial,
and legal aspects of the matter to decide whether its jurisdiction
extends to the non-signatory party. In the process, the Tribunal
should comply with the requirements of principles of natural justice
such as giving opportunity to the non-signatory to raise objections
with regard to the jurisdiction of the Arbitral Tribunal. This
interpretation also gives true effect to the doctrine of competence-
competence by leaving the issue of determination of true parties to an
arbitration agreement to be decided by the Arbitral Tribunal under
Section 16.”
(emphasis supplied)17
In re, Interplay (supra), para 167, 169; SBI General Insurance (supra), para 111.
18
Therefore, the determination of whether certain persons are
parties to the arbitration agreement, and consequently, whether
they can be made party to the arbitration proceedings, is left to the
arbitral tribunal. While the Section 11 court can return a prima
facie finding on this issue, the same does not bind the arbitral
tribunal, which must decide the issue based on evidence and the
applicable legal principles.18 The determination of this issue goes
to the very root of the arbitral tribunal’s jurisdiction, and hence, is
covered under Section 16 of the ACA.19
19. It is also relevant to take note of this Court’s decision in
Praveen Enterprises (supra), wherein it held that when a court
appoints the arbitral tribunal under Section 11, the arbitral
tribunal’s terms of reference are not restricted to specific disputes
referred by the court, unless the arbitration agreement itself
requires the court to formulate and refer disputes to arbitration.20
20. Considering the purpose of a Section 11 application for
constitution of an arbitral tribunal and the limited scope of
examination into the existence of the arbitration agreement and
prima facie finding on who are parties to it, it follows that the court
18
Also see Ajay Madhusudan Patel v. Jyotrindra S. Patel, (2025) 2 SCC 147, para 75.
19
ibid, paras 73, 76.7.
20
Praveen Enterprises (supra), paras 28-29. Also see Bharat Petroleum Corporation Ltd. v. Go Airlines (India)
Ltd., (2019) 10 SCC 250.
19
under Section 11 does not conclusively determine or rule on who
can be made party to the arbitral proceedings. Therefore, merely
because respondent nos. 2 and 3 were not parties before the High
Court under Section 11, and disputes against them were not
referred to the arbitrator by order dated 24.11.2021, it does not
mean that they cannot be impleaded at a later stage on this ground
alone.
21. Source of the Arbitral Tribunal’s Jurisdiction and Relevant
Inquiry under Section 16: At this stage, it is clear that not being
served with a Section 21 notice and not being made a party in the
Section 11 application are not sufficient grounds to hold that a
person cannot be made party to arbitral proceedings. We will now
deal with the next question, i.e., when can a person be made party
to the arbitration proceedings?
22. This issue deals with the source of the arbitral tribunal’s
jurisdiction, which is derived from the consent of the parties to
refer disputes to arbitration. 21 Such consent must be gathered
from the arbitration agreement,22 that must in accordance with
Section 7 of the ACA, which provides:
21
Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia (P) Ltd., (2015) 13 SCC 477, para 22; Cox and Kings
(supra), para 69 (Chandrachud, J).
22
ONGC Ltd. v. Afcons Gunanusa JV, (2024) 4 SCC 481, para 263.
20
“7. Arbitration agreement.—(1) In this Part, “arbitration
agreement” means an agreement by the parties to submit to
arbitration all or certain disputes which have arisen or which may
arise between them in respect of a defined legal relationship, whether
contractual or not.
(2) An arbitration agreement may be in the form of an arbitration
clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in—
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of
telecommunication [including communication through electronic
means] which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the
existence of the agreement is alleged by one party and not denied by
the other.
(5) The reference in a contract to a document containing an arbitration
clause constitutes an arbitration agreement if the contract is in writing
and the reference is such as to make that arbitration clause part of
the contract.”
23. Once a person consents to refer disputes to arbitration, and
enters into an arbitration agreement under Section 7, he is bound
by the same. The implication of being a party to the arbitration
agreement is that such person has contractually undertaken to
resolve any disputes referenced in the arbitration agreement
through the agreed upon method of dispute resolution, i.e.,
arbitration. It is under this contractual obligation that a person
can be impleaded as a party to the arbitral proceedings, even if he
was not served with a Section 21 notice and not referred to
arbitration by the court under Section 11.
24. As briefly stated above, the determination of who is a party to
the arbitration agreement falls within the domain of the arbitral
21
tribunal as per Section 16 of the ACA. Section 16 embodies the
doctrine of kompetenz-kompetenz, i.e., that the arbitral tribunal
can determine its own jurisdiction. The provision is inclusive and
covers all jurisdictional questions, including the existence and
validity of the arbitration agreement, who is a party to the
arbitration agreement, and the scope of disputes referrable to
arbitration under the agreement. 23 Considering that the arbitral
tribunal’s power to make an award that binds the parties is derived
from the arbitration agreement, these jurisdictional issues must
necessarily be decided through an interpretation of the arbitration
agreement itself. Therefore, the arbitral tribunal’s jurisdiction
must be determined against the touchstone of the arbitration
agreement.
25. This view finds support in the jurisprudence and practice of
international commercial arbitration. It is notable that while most
national legislations do not expressly provide for joinder of parties
by the arbitral tribunal, this must be done with the consent of all
the parties.24 Gary Born has taken the view that the arbitral
tribunal can direct the joinder of parties when the arbitration
23
Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd., (2020) 2 SCC 455, para 7.11; Cox
and Kings (supra), para 163 (Chandrachud, J); Ajay Madhusudhan Patel (supra), para 75.
24
Redfern and Hunter on International Arbitration (5th edn, Oxford University Press 2009). See also David St
John Sutton, Judith Gill and Matthew Gearing, Russell on Arbitration (23rd edn, Sweet and Maxwell 2009).
22
agreement expressly provides for the same. However, he states that
in reality, most arbitration agreements, whether ad hoc or
providing for institutional arbitration, neither expressly preclude
nor expressly permit the arbitral tribunal to join parties. In such
cases, the power must be implied,25 particularly when there is a
multi-party arbitration clause in the same underlying contract that
does not expressly address the joinder of parties in the arbitral
proceedings. He states that: “In these circumstances, there is a
substantial argument that the parties have impliedly accepted the
possibility of consolidating arbitrations under their multi-party
arbitration agreement and/or the joinder or intervention of other
contracting parties into such arbitrations… the parties’ joint
acceptance of a single dispute resolution mechanism, to deal with
disputes under a single contractual relationship, reflects their
agreement on the possibility of a unified proceeding to resolve their
disputes, rather than necessarily requiring fragmented proceedings
in all cases.” Further, in jurisdictions where there is no provision
in the national arbitration statute authorising the courts to
consolidate arbitrations or to join parties, it is left to the arbitral
tribunal to determine this issue at the first instance. 26
25
Gary Born, International Commercial Arbitration, vol 2 (3rd edn, Kluwer Law International 2021) 2777.
26
ibid, 2788-2789.
23
26. Therefore, as per the legal principles under the ACA as well
as in international commercial arbitration, it is a foundational
tenet that the arbitral tribunal’s jurisdiction is derived from the
consent of the parties to refer their disputes to arbitration, which
must be recorded in an arbitration agreement. The proper judicial
inquiry to decide a jurisdictional issue under Section 16 as to
whether a person/entity can be made a party to the arbitral
proceedings will therefore entail an examination of the arbitration
agreement and whether such person is a party to it. If the answer
is in the affirmative, such person can be made party to the arbitral
proceedings and the arbitral tribunal can exercise jurisdiction over
him as he has consented to the same.
27. Returning to the Facts of the Case: Now that we have set out
the legal principles on when can a person be made party to an
arbitration proceeding and how must the arbitral tribunal proceed
under Section 16, we will deal with the approach adopted in the
present case. While allowing the Section 16 application by order
dated 15.02.2024, the arbitral tribunal proceeded only on the
basis that respondent nos. 2 and 3 were not served with the
Section 21 notice and were not parties in the Section 11
application. The arbitral tribunal did not go into whether these
24
respondents are parties to the arbitration agreement, and whether
its jurisdiction extends to them. We are extracting the relevant
portion of the arbitral tribunal’s order:
“8. Ld. Counsel for the Claimant has also relied upon various
judgments and in particular the judgment in “Cox and Kings Ltd. Vs.
SAP India Pvt. Ltd. & Anr.”, Arbitration Petition (Civil) No. 38/2020,
dated 06.12.2023 to argue that on the principle of competence-
competence this Tribunal can continue the Arbitral proceedings
against Respondents No.2 and 3 as they are necessary parties to
these proceedings and their presence is required for effective
adjudication of the disputes being raised by the Claimant. In my view
this submission is also without any merit in as much as the principle
of competence-competence can be applied only when the Court or the
Tribunal finds that the presence of even non-signatories of the Arbitral
Agreement is required. A non-signatory of the Arbitral Agreement can
be added in the Arbitral Proceedings if he has played a positive, direct
and substantial role in the negotiations and performance of the
Contract which contains an Arbitral Clause and as such the Court or
the Tribunal may add him also in the proceedings for effectual
adjudication of the disputes between the parties. This principle is like
the provision of Order 1 Rule 10 of the CPC. However, in this case this
Tribunal has not at all found or held that the presence of Respondents
No.2 and 3 is essential in these proceedings for effective adjudication
of the disputes being raised by the Claimant. At this stage the
Tribunal is concerned only with the question of joining Respondents
No.2 and 3 without serving upon them a notice under Section 21 of
the A&C Act, 1996 which admittedly was never served upon them
and as such the Arbitral proceedings initiated by the Claimant
against them are unsustainable.
9. The objection raised by Respondents No.2 and 3 / Applicants in
the present proceedings against them is also on the ground that they
were never made a party to Section 11 A&C Act, 1996 proceedings
and the High Court while making a reference and appointing the
undersigned as an Arbitrator had only Respondent No. 1 before it. It
is argued that there is no reference qua Respondents No.2 and 3 by
the High Court of Delhi and as such the present proceedings against
them are void and illegal. As already discussed above the principle
of competence-competence is not applicable to the Respondents No. 2
and 3 at this stage. The absence of any reference qua them by the
High Court under Section 11 of the A&C Act, 1996 renders these
proceedings against them void-ab-initio and as such they cannot be
proceeded against by this Tribunal.”25
28. 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.
29. High Court Decisions on these Issues: Now that we have laid
down the purpose of a Section 21 notice, the scope of inquiry in a
Section 11 application, and the judicial approach to determining
jurisdictional issues under Section 16, including whether a person
can be made party to the arbitration proceedings, we find it
necessary to clarify various decisions by High Courts that deal with
these legal issues.
30. The Delhi High Court in Alupro Building Systems Pvt Ltd. v.
Ozone Overseas Pvt Ltd.27 allowed an application under Section 34
27
2017 SCC OnLine Del 7228.
26
of the ACA against an award passed by an arbitrator who was
unilaterally appointed by the respondent therein, without issuing
a notice to the petitioner therein under Section 21 of the ACA. The
High Court proceeded to delineate the various functions served by
a Section 21 notice as follows:28 (i) To inform the other party as to
the claims, which will enable them to accept or dispute the claims;
(ii) To enable the other party to point out if certain claims are time-
barred, barred by law, or untenable, or if there are counter-claims;
(iii) For arriving at a consensus for appointment of arbitrators
under the arbitration agreement; (iv) For parties to inform each
other about their proposed arbitrator, to enable the other party to
raise any objections/issues regarding qualification; (v) To trigger
the court’s jurisdiction under Section 11 in case the appointment
procedure fails; and (vi) To fix the date of commencement of
arbitration for the purpose of Section 43(1).
30.1 The decision in Alupro Building Systems (supra) has been
relied on by the High Court in its impugned order to hold that the
notice under Section 21 is a mandatory requirement before a
person can be made party to arbitral proceedings.
28
ibid, paras 25-30.
27
30.2 While we agree with the decision insofar as holding that the
notice under Section 21 is mandatory, unless the contract provides
otherwise, we do not agree with the conclusion that non-service of
such notice on a party nullifies the arbitral tribunal’s jurisdiction
over him. The purpose of the Section 21 notice is clear – by fixing
the date of commencement of arbitration, it enables the calculation
of limitation and it is a necessary precondition for filing an
application under Section 11 of the ACA. The other purposes
served by such notice – of informing the respondent about the
claims, giving the respondent an opportunity to admit and contest
claims and raise counter-claims, and to object to proposed
arbitrators – are only incidental and secondary. We have already
held that the contents of the notice do not restrict the claims, and
any objections regarding limitation and maintainability can be
raised before the arbitral tribunal, and the ACA provides
mechanisms for challenging the appointment of arbitrators on
various grounds. Hence, while a Section 21 notice may perform
these functions, it is not the primary or only mechanism envisaged
by the ACA.
30.3 In this light, and considering that in the facts of the present
case a Section 21 notice was in fact issued to respondent no. 1, we
28
find it difficult to accept that the decision in Alupro Building
Systems (supra) can be relied on to entirely reject the arbitral
tribunal’s jurisdiction over respondent nos. 2 and 3.
31. The next decision is in De Lage Landen Financial Services
India (P) Ltd. v. Parhit Diagnostic (P) Limited29, which has been
relied on by the appellant. This decision arose out of a Section 11
application that was allowed by the Delhi High Court by holding
that the respondent therein had due notice of the arbitration
proceedings. Upon considering the facts of the case and the
appointment mechanism in the arbitration agreement therein, the
Court held that the rationale of serving a Section 21 notice as laid
down in Alupro (supra) stood fulfilled, and hence, the Section 11
application was maintainable. In the present impugned order, the
High Court differentiated this decision by holding that the
respondent in De Lage Landen Financial Services (supra) was made
a party to the Section 11 proceedings, which is absent in this case.
At this stage, it will suffice to say that De Lage Landen Financial
Services (supra) does not seem to have deviated from the legal
position on a Section 21 notice laid down in Alupro (supra), and its
decision must be understood in the context of its facts.
29
2021 SCC OnLine Del 4160.
29
32. Another relevant decision is that of Arupri Logistics (P) Ltd. v.
Vilas Gupta 30, wherein the Delhi High Court was dealing with the
arbitral tribunal’s power to implead non-signatories to the
arbitration agreement as parties. It held that unlike a court that
has the power to implead parties under Order I, Rule 10 of the
Code of Civil Procedure, 1908, no such provision exists under the
ACA. Further, proceeding on the basis that a non-signatory is not
a party to the arbitration agreement, the High Court held that the
arbitral tribunal cannot exercise jurisdiction over a non-signatory
and impleading such person would be contrary to consent being
the foundation of arbitration. It is necessary to note that this
decision was prior to the Constitution Bench judgment in Cox and
Kings (supra), wherein it was held that non-signatories can be
impleaded in the arbitration if their conduct shows that they are
veritable parties to the arbitration agreement. We also find that the
reasoning in Arupri Logistics (supra) is in line with what we have
held hereinabove, i.e., the jurisdiction of the arbitral tribunal to
implead a person depends on whether such person is a party to
the arbitration agreement.
30
2023 SCC OnLine Del 4297.
30
33. Finally, we must refer to the Bombay High Court’s decision
in Cardinal Energy & Infra Structure (P) Ltd. v. Subramanya
Construction & Development Co. Ltd. 31, which has a similar factual
matrix as this case. The petitioners therein were not served with
the Section 21 notice or made party in the Section 11 proceedings.
Rather, they were impleaded by the arbitral tribunal after it had
framed issues, upon an application by respondent nos. 1 and 2
therein. In a Section 34 application against the arbitral award, the
High Court considered the issue of whether the petitioners therein,
who were non-signatories to the arbitration agreement, could have
been impleaded without them being referred to arbitration in the
order under Section 11. By referring to Cox and Kings (supra), the
relevant portion of which we have extracted hereinabove, the High
Court held that the arbitral tribunal has the power to decide
whether a non-signatory is bound by the arbitration agreement.
The referral court only gives a prima facie finding on this issue,
and leaves it to the arbitrator to decide the same. By relying on
this rationale, the High Court held that the non-joinder of a party
in a Section 11 application does not preclude its impleadment in
the arbitration proceedings by the arbitral tribunal.
31
2024 SCC OnLine Bom 964.
31
33.1 In the impugned order in this case, the High Court
differentiated Cardinal Energy & Infra Structure (supra) on the
ground that the arbitral tribunal’s order in this case does not hold
respondent nos. 2 and 3 to be proper parties to the arbitration
proceedings. However, as we have stated above as well, the arbitral
tribunal did not decide the issue of whether these respondents are
parties to the arbitration agreement and proper parties to the
proceedings before it. Hence, the decision in Cardinal Energy &
Infra Structure (supra) was not properly considered by the High
Court in this case.
34. Whether Respondent Nos. 2 and 3 are Parties to the Arbitration
Agreement: In light of the legal position set out hereinabove, we
will now consider whether respondent nos. 2 and 3 are parties to
the arbitration agreement, in order to determine whether the
arbitral tribunal can exercise jurisdiction over them. While we
determine this issue, it is necessary to set out the contours of our
jurisdiction. Since this appeal arises from the dismissal of an
appeal under Section 37(2)(a) of the ACA against the arbitral
tribunal’s order deciding its jurisdiction under Section 16, we are
not confined by the grounds set out in Section 34 of the ACA. While
deciding an appeal against the arbitral tribunal’s order under
32
Section 16, the appellate courts “must have due deference to the
grounds which have weighed with the Tribunal in holding that it
lacks jurisdiction having regard to the object and spirit underlying
the statute which entrusts the Arbitral Tribunal with the power to
rule on its own jurisdiction.”32
35. As we have held above, the arbitral tribunal in this case did
not delve into the issue of whether respondent nos. 2 and 3 are
parties to the arbitration agreement and consequently, whether
they can be impleaded in the arbitral proceedings. It is also
undisputed that these respondents are not signatories to the LLP
Agreement that contains the arbitration agreement in Clause 40.
In this light, we are required to examine whether respondent nos.
2 and 3 are parties to the arbitration agreement.
36. In Cox and Kings (supra), this Court held that non-signatories
are parties to the arbitration agreement if the conduct of the
signatories and non-signatories indicates mutual intention that
the latter be bound by the arbitration agreement. 33 The test to
determine whether such a non-signatory is a party is as follows:
“132. We are of the opinion that there is a need to seek a balance
between the consensual nature of arbitration and the modern
commercial reality where a non-signatory becomes implicated in a
commercial transaction in a number of different ways. Such a balance32
ONGC Ltd. v. Discovery Enterprises (P) Ltd., (2022) 8 SCC 42, para 55.
33
Cox and Kings (supra), paras 116, 120, 123, 126 (Chandrachud, J)
33
can be adequately achieved if the factors laid down under Discovery
Enterprises are applied holistically. For instance, the involvement of
the non-signatory in the performance of the underlying contract in a
manner that suggests that it intended to be bound by the contract
containing the arbitration agreement is an important aspect. Other
factors such as the composite nature of transaction and commonality
of subject-matter would suggest that the claims against the non-
signatory were strongly interlinked with the subject-matter of the
tribunal’s jurisdiction. Looking at the factors holistically, it could be
inferred that the non-signatories, by virtue of their relationship with
the signatory parties and active involvement in the performance of
commercial obligations which are intricately linked to the subject-
matter, are not actually strangers to the dispute between the
signatory parties.” 3436.1 The factors laid down in ONGC v. Discovery Enterprises
(supra) must be holistically considered to determine whether non-
signatories are parties to the arbitration agreement, which are as
follows:
“40. In deciding whether a company within a group of companies
which is not a signatory to arbitration agreement would nonetheless
be bound by it, the law considers the following factors:
(i) The mutual intent of the parties;
(ii) The relationship of a non-signatory to a party which is a signatory
to the agreement;
(iii) The commonality of the subject-matter;
(iv) The composite nature of the transactions; and
(v) The performance of the contract.”
36.2 Finally, in light of the requirement under Section 7 of the ACA
that the arbitration agreement must be in writing, the mutual
intention of non-signatories to be bound by the arbitration
agreement must be evidenced in writing. The non-signatory’s
conduct in the formation, performance, and termination of the
34
Followed in Ajay Madhusudhan Patel (supra).
34
contract, and surrounding circumstances like direct relationship
with signatory parties, commonality of subject-matter, and
composite nature of transaction must be ascertained from the
record of the agreement, as held in Cox and Kings (supra):
“229. Since the fundamental issue before the Court or tribunal under
Section 7(4)(b) and the Group of Companies doctrine is the same, the
doctrine can be subsumed within Section 7(4)(b). Consequently, the
record of agreement that evidences conduct of the non-signatory in
the formation, performance, and termination of the contract and
surrounding circumstances such as its direct relationship with the
signatory parties, commonality of subject-matter, and composite
nature of transaction, must be comprehensively used to ascertain the
existence of the arbitration agreement with the non-signatory. In this
inquiry, the fact of a non-signatory being a part of the same group of
companies will strengthen its conclusion. In this light, there is no
difficulty in applying the Group of Companies doctrine as it would be
statutorily anchored in Section 7 of the Act.
230.1. An agreement to refer disputes to arbitration must be in a
written form, as against an oral agreement, but need not be signed
by the parties. Under Section 7(4)(b), a court or Arbitral Tribunal will
determine whether a non-signatory is a party to an arbitration
agreement by interpreting the express language employed by the
parties in the record of agreement, coupled with surrounding
circumstances of the formation, performance, and discharge of the
contract. While interpreting and constructing the contract, courts or
tribunals may adopt well-established principles, which aid and assist
proper adjudication and determination. The Group of Companies
doctrine is one such principle.”
37. In this case, Clause 40 of the LLP Agreement (extracted
hereinabove) is expansive in its wording. It covers disputes arising
between the partners inter se each other, and between the partners
on the one hand and the LLP and its administrator on the other
hand, when such disputes pertain to the LLP Agreement or its
construction, or relate to the rights, duties, and liabilities of the
35
partners. This arbitration agreement covers the present disputes
arising out of reconciliation of accounts in relation to the ITF
Project, as this directly affects the rights and liabilities of the
appellant and respondent no. 1, who are the partners. Further, the
arbitration agreement itself includes within its scope disputes that
may arise between the partners and the LLP (respondent no. 2),
and the partners and the administrators of the LLP, i.e.,
respondent no. 3 as he is the CEO of the LLP and responsible for
its administration under Clause 8 of the LLP Agreement. The
question that must be answered is whether respondent no. 2 and
3 have consented to being bound by such arbitration agreement.
38. We must answer this question in the affirmative based on the
following considerations. With respect to respondent no. 2, it was
created under the LLP Agreement and the scope of its activities
and the management of its business are set out in the LLP
Agreement. It is pursuant to the objectives, purpose, and terms of
the LLP Agreement that respondent no. 2 undertook the ITF
Project, for which a Supplementary LLP Agreement and an MoU
were also signed by the partners. Hence, it can be said that
respondent no. 2 is carrying out its business and entering into
contracts and dealings with third parties, such as undertaking the
36
ITF Project, based on the terms of the LLP Agreement. Hence, by
way of its conduct, respondent no. 2 has undertaken to be bound
by the LLP Agreement and it is therefore bound by the arbitration
clause contained therein. Similarly, respondent no. 3, who is the
CEO of the LLP and is responsible for its administration and
looking after its business derives his position and duties from
Clause 8 of the LLP Agreement. His obligations as the CEO of the
LLP are therefore derived under the LLP Agreement, and he is
acting under this contract. Therefore, it can be said that
respondent no. 3 is also bound by the arbitration clause contained
in the LLP Agreement, not in his individual capacity but as the
CEO of the LLP.
39. Therefore, in view of the fact that respondent nos. 2 and 3
have, through their conduct, consented to perform contractual
obligations under the LLP Agreement, it is clear that they have also
agreed to be bound by the arbitration agreement contained in
Clause 40 therein. Since they are parties to the underlying
contract and the arbitration agreement, the arbitral tribunal has
the power to implead them as parties to the arbitration proceedings
while exercising its jurisdiction under Section 16 of the ACA and
as per the kompetenz-kompetenz principle.
37
40. Summary of Conclusions: Our legal analysis of the issues that
we set out above, as well as our findings in the facts of the given
appeal, can be stated as follows:
I. 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.
II. 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
38
arbitral proceedings as the referral court’s view does notfinally determine this issue.
III. 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 non-
signatory is a party to the arbitration agreement as per
Section 7 of the ACA.
IV. 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.
41. 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 dated 08.07.2024 in Arb. A. (Comm.) 24/2024. 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 dated 15.02.2024. Considering
39
that the claim was filed in 2022, we would request the arbitral
tribunal to complete the hearings and pass its award as
expeditiously as possible.
42. No order as to costs.
43. Pending applications, if any, stand disposed of.
………………………………….J.
[PAMIDIGHANTAM SRI NARASIMHA]
………………………………….J.
[MANOJ MISRA]
NEW DELHI;
APRIL 17, 2025
40