The Supreme Court criticised the 2024 Arbitration Bill for ignoring the tribunal’s power to include non-signatories in arbitration. It stated, “Arbitral Tribunal can make non-signatories parties,” urging the Centre to amend the law.
New Delhi: The Supreme Court ruled that an Arbitral Tribunal possesses the authority to independently include a non-signatory party in arbitration agreements and proceedings.
This decision came in response to a Civil Appeal challenging a Delhi High Court Judgment that dismissed Appeals under Section 37 of the Arbitration and Conciliation Act, 1996 (A&C Act) and upheld the Arbitral Tribunal’s Order.
The two-Judge Bench, consisting of Justice J.B. Pardiwala and Justice R. Mahadevan, stated,
“It can be seen that there is nothing within the scheme of the Act, 1996, which prohibits or restrains an arbitral tribunal from, impleading a non-signatory to the arbitration proceedings on its own accord. So long as such impleadment is undertaken upon a consideration of the applicable legal principles — including, but not limited to, the doctrines of ‘group of companies’, ‘alter ego’, ‘composite transaction’, and the like the arbitral tribunal is fully empowered to summon the non-signatory to participate in the arbitration.”
The Bench clarified that the inclusion of a non-signatory, as it fundamentally concerns jurisdiction and consent, falls within the Tribunal’s powers and is not prohibited by statute.
Senior Advocate Devadatt Kamat represented the Appellant, while Senior Advocate Jayant Mehta and Advocate Aakanksha Kaul represented the Respondents.
Respondent No. 1 (SPCPL) acted as the counter-claimant before the Arbitrator, and Respondent No. 3 (BCSPL) initiated arbitration against SPCPL in 2020 concerning a Settlement Agreement. SPCPL then filed a counter-claim against BCSPL, as well as the Appellant company (ABPL) and Respondent No. 2 (AISPL), all of which constituted and formed part of the ASF Group.
SPCPL argued before the Arbitrator that BCSPL, ASIPL, and ABPL, as members of the ASF Group, were bound by the Arbitration Agreement within the Works Contract, based on the Group of Companies Doctrine. BCSPL, ABPL, and AISPL each filed separate Section 16 Applications before the Arbitrator, seeking to dismiss SPCPL’s counter-claim insofar as it applied to AISPL and ABPL.
The Arbitrator dismissed these Applications, stating that determining whether the inclusion of AISPL and ABPL as party-Respondents was correct based on SPCPL’s presented facts required adjudicating crucial aspects of AISPL and ABPL’s role and conduct. These aspects involved mixed questions of fact and law that could not be comprehensively determined without first including them as parties.
The Arbitral Tribunal rejected the Appellant’s challenge on the ground that the Appellant being a non-signatory to the arbitration agreement could not have been impleaded in the array of parties and join the arbitration proceedings. The matter was subsequently appealed to the High Court, which dismissed the Appeals of the Appellant and affirmed the Tribunal’s Order.
This led to the case being brought before the Apex Court.
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It said this power does not depend on any particular section stopping or allowing it,
“It is only after the decision of this Court in in Cox and Kings (I) (supra), that the position of law as regards the power of an arbitral tribunal to implead a non-signatory underwent a significant change, whereby many High Courts which had earlier refused to recognize such power of the arbitral tribunal, came around to recognizing it.”
The Supreme Court said that an Arbitral Tribunal is the best authority to decide if a non-signatory should be made part of an arbitration case. This is because the tribunal has access to all related documents and evidence and can look into everything in detail, unlike a court at the beginning stage.
“There runs no umbilical cord between the exercise of determining the ‘existence of the arbitration agreement’ and determining its ‘existence qua the non-signatory’. The latter is an independent and substantive determination that falls outside the narrow and circumscribed domain of the referral court’s singular obligation under Section 11 sub-section (6A) of the Act, 1996 and as such cannot be conflated to be one pertaining to or attacking the ‘existence’ of an arbitration.”
The Court also said that even if someone argues that adding a non-signatory is related to the question of whether the arbitration agreement truly exists, the court should still send the case to arbitration. The Arbitral Tribunal should decide the matter using its own powers.
It stated,
“Even where the referrals courts either find that there is no arbitration agreement in ‘existence’ or as a logical sequitur never embarked upon determining such ‘existence’, for whatever reasons, the matter should still nevertheless be referred to arbitration.”
It also stated that if the referral court is unable to decide whether the non-signatory is part of the agreement or if it simply didn’t get the chance to decide, then too, the Arbitral Tribunal can look into the matter.
The Court clearly stated,
“Arbitral Tribunal has the authority and power to implead Non-Signatories to the arbitration agreement on its own accord.”
It explained that there is nothing in the Arbitration Act that blocks the tribunal from adding such parties.
The Court said,
“Unlike Section(s) 8 and 45 of the Act, 1996, the provisions of Section(s) 2(1)(h) and 7 are not confined in their applicability to only judicial forums or courts, and rather extend equally to both courts and arbitral tribunals, as these provisions form the bedrock of the framework of arbitration under the Act, 1996. The logical sequitur of this is that arbitral tribunals, too, are vested with the requisite authority to engage with and apply principles, such as the ‘Group of Companies’ doctrine, when determining whether a non-signatory may be bound by an arbitration agreement.”
The Court added that both courts and tribunals can decide who can be added or not added as a party. It stated,
“The law which has developed over a period of time is that both ‘courts and tribunals’ are fully empowered to decide the issues of impleadment of a non-signatory and Arbitral Tribunals have been held to be preferred forum for the adjudication of the same.”
The Court also mentioned a recent judgment in Gayatri Balasamy v. M/S. ISG Novasoft Technologies Limited (Neutral Citation: 2025 INSC 605) and said that tribunals can use the “doctrine of implied powers” if it helps fulfill the main purpose of the law and avoids serious injustice.
It observed,
“The recourse to doctrine of implied powers would be permissible, if without it, it is impossible to effectuate a final power, and such exercise of implied power would effectuate and advance the object of the legislation.”
It further added that arbitration must stay useful and practical in today’s commercial world.
The process must adapt to new business methods without ignoring key legal values like consent.
It Added,
“For arbitration to remain a viable and effectively alternative mechanism for dispute resolution, it is imperative to ensure that commercial reality does not outgrow this mechanism. The mechanisms of arbitration must be sufficiently elastic to accommodate the complexities of multi-party and multi-contract arrangements without compromising foundational principles such as consent and party autonomy. The approach of courts and arbitral tribunal in particular must be responsive to the emerging commercial practices and expectations of the parties who submit themselves to it.”
The Court strongly said that allowing the Arbitral Tribunal to add non-signatories is clearly supported by the law, especially Sections 2(1)(h) and 7, and fits within the wider purpose of the Arbitration and Conciliation Act,
It noted,
“Even in the absence of an express provisions in the Act, 1996 empowering the arbitral tribunal to implead or join a party who is otherwise bound by the arbitration agreement, the arbitral tribunal does possess such power by virtue of the doctrine of implied powers, as long as the same is in tandem with the scheme of Act, 1996 i.e., as long as the parties had either expressly or impliedly consented to the arbitration agreement as held in Cox and Kings (I) (supra).”
It also said that a tribunal is not just a simple part of the process but plays an important legal role based on the agreement between the parties.
It also said,
“The Arbitral Tribunal is not a creature of mere procedural will but of substantive legal consequence flowing from the arbitration agreement.”
Finally, the Court explained that the rule of agreement (consensus ad idem) for sending disputes to arbitration applies only to those who have signed the agreement, and not to others who are later added,
“The principle of consensus ad idem for referring disputes to arbitral tribunals applies to the signatories to the arbitration agreement and not non-signatories who are sought to be impleaded.”
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In conclusion, the Court said it was unfortunate that even after so many years, such technical legal issues are still troubling the arbitration system in India,
“It is very sad that even after these many years, procedural issues such as the one involved in this case, have continued to plague the arbitration regime of India. Unfortunately, even the new Bill has taken no steps whatsoever, for ameliorating the position of law as regards the power of impleadment or joinder of an arbitral tribunal. What is expressly missing in the Act, 1996 is still missing in the Arbitration and Conciliation Bill, 2024, despite a catena of decisions of this Court as-well as the various High Courts, highlighting the need for statutory recognition of such power in order to obviate all possibilities of confusion.”
The Court also asked the Ministry of Law and Justice to look into this issue seriously and make proper changes in the new Arbitration and Conciliation Bill, 2024.
In the end, the Supreme Court dismissed the appeal.
Case Title: ASF Buildtech Private Limited v. Shapoorji Pallonji and Company Private Limited (Neutral Citation: 2025 INSC 616)
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