2025 Supreme(SC) 762

SUPREME COURT OF INDIA
J.B. Pardiwala, R. Mahadevan, JJ.
ASF Buildtech Private Limited – Appellant
Versus
Shapoorji Pallonji and Company Private Limited – Respondent
Civil Appeal No. 5823 of 2025 (Arising out of Special Leave Petition (C) No. 21286 of 2024)
Decided On : 02-05-2025

IMPORTANT POINTS
(1) Locus of non-signatory to arbitration agreement to challenge jurisdiction of Arbitral Tribunal – Archaic understanding that Arbitral Tribunal is incapable or incompetent to identify and implead a non-signatory to arbitration agreement on its own accord, is not the correct position of law.
(2) It is well within jurisdiction of Arbitral Tribunal to decide issue of joinder and non-joinder of parties and to assess applicability of Group of Companies Doctrine – Both ‘Courts and Tribunals’ are fully empowered to decide issues of impleadment of a non-signatory and Arbitral Tribunals have been held to be preferred forum for adjudication of same.
(3) Jurisdiction of Arbitral Tribunal is not created by mere subjective intent or volition of parties – Rather, it is arbitration agreement, a legally cognizable and objective instrument that operates as foundational source of jurisdiction in eyes of law – Arbitral Tribunal is not a creature of mere procedural will but of substantive legal consequence flowing from arbitration agreement.

Headnote:

(A) Arbitration and Conciliation Act, 1996 – Section 37 – Arbitration – Locus of non-signatory to arbitration agreement to challenge jurisdiction of Arbitral Tribunal – Archaic understanding that Arbitral Tribunal is incapable or incompetent to identify and implead a non-signatory to arbitration agreement on its own accord, is not the correct position of law – Mere incidental involvement in negotiation or performance of contract is not sufficient to infer consent of non-signatory to be bound by underlying contract or its arbitration agreement – Arbitral Tribunal is more appropriate and competent forum to adjudicate upon issue of whether a non-signatory is bound by arbitration agreement – Question whether a non-signatory is bound by arbitration agreement is completely independent of question concerning existence of an arbitration agreement – Existence of an arbitration agreement pertains solely to its formal presence in contractual documentation, as per requirements under Act, 1996 and once established, it obligates referral of dispute to arbitration – By contrast, question whether a non-signatory is bound by arbitration agreement involves a more nuanced determination of parties' intentions, contractual relationships, and broader context of agreement, which is not confined to formal text of arbitration clause alone – Even in absence of non-signatory being made a party to proceedings before referral court, and where question of its impleadment has neither been raised nor addressed or left open to Arbitral Tribunal by referral court, Arbitral Tribunal would be full empowered to examine this issue in first instance and determine whether any non- signatory is bound by arbitration agreement based on factual circumstances of case, and if necessary, implead such non-signatory to arbitration proceedings.(Paras 67,75, 76, 87 and 88)

(B) Arbitration and Conciliation Act, 1996 – Section 37 – Arbitration – Locus of non-signatory to arbitration agreement to challenge jurisdiction of Arbitral Tribunal – Enquiry into whether a non-signatory is bound by an arbitration agreement is not, in its essence, enquiry into formal or juridical existence of arbitration agreement itself – It is an exercise of determining functional concept of consent within existing arbitration agreement rather than existence of arbitration agreement itself – Even if it is assumed that question whether a non- signatory is a veritable party to arbitration agreement is intrinsically connected with issue of “existence” of arbitration agreement, referral courts should still nevertheless, leave such questions for determination of Arbitral Tribunal to decide, as such interpretation gives true effect to doctrine of competence-competence enshrined under Section 16 of Act, 1996 – Referral courts must refrain from embarking upon an intricate evidentiary inquiry or making final determinations on matters that are within jurisdiction of Arbitral Tribunal – Any premature adjudication or opinion by referral court would not only usurp Tribunal’s role as forum of first instance for dispute resolution but could also cause irremediable prejudice – There is nothing within scheme of Act, 1996, which prohibits or restrains an Arbitral Tribunal from, impleading a non-signatory to arbitration proceedings on its own accord – So long as such impleadment is undertaken upon consideration of applicable legal principles including but not limited to doctrines of ‘group of companies’, ‘alter ego’, ‘composite transaction’, and the like, Arbitral Tribunal is fully empowered to summon non-signatory to participate in arbitration. (Paras 92, 93, 98, 102 and 109)

(C) Arbitration and Conciliation Act, 1996 – Section 16 – Arbitration – Locus of non-signatory to arbitration agreement to challenge jurisdiction of Arbitral Tribunal – It is well within jurisdiction of Arbitral Tribunal to decide issue of joinder and non-joinder of parties and to assess applicability of Group of Companies Doctrine – Both ‘Courts and Tribunals’ are fully empowered to decide issues of impleadment of a non-signatory and Arbitral Tribunals have been held to be preferred forum for adjudication of same – Section 16 is an inclusive provision which comprehends all preliminary issues touching upon jurisdiction of Arbitral Tribunal and issue of determining parties to an arbitration agreement goes to very root of jurisdictional competence of Arbitral Tribunal – Legal relationship between signatory and non-signatory assumes significance in determining whether non-signatory can be taken to be bound by Arbitration Agreement – Even in absence of an express provisions in the Act, 1996 empowering Arbitral Tribunal to implead or join a party who is otherwise bound by arbitration agreement, Arbitral Tribunal does possess such power by virtue of doctrine of implied powers, as long as same is in tandem with scheme of Act, 1996. (Paras 113, 114, 115, 116 and 127)

(D) Interpretation of Statute – Doctrine of Kompetenz-Kompetenz – Words of a statute should be treated as ambulatory, speaking continuously in present and conveying a contemporary meaning – This approach entails that if things not known or understood at the time when enactment came into force, fall, on a fair construction, within its words, those things should be held to be included or intended by statute – It lays that context or application of a statutory expression may change over time, but meaning of expression itself cannot change – It provides for a statute to be applied to new circumstances and developments without need for legislative revision or amendment – Core meaning of a statute is fixed but its context or application may change which is inherently capable of ‘embracing future changes in the subject matter – Modern approach to statutory interpretation insists that context be considered in first instance, not merely at some later stage when ambiguity might be thought to arise, and include such things as existing state of law and mischief which, by legitimate means such as reference to reports of law reform bodies, one may discern the statute was intended to remedy – If close consideration of a statutory text in its wider context and by reference to its purpose establishes that Parliament has deliberately chosen words to provide for its application to new circumstances and developments then application of ‘always speaking’ approach is judicially required. (Paras 128, 130 and 131)

(E) Arbitration and Conciliation Act, 1996 – Sections 21 and 23 – Jurisdiction of Arbitral Tribunal – Jurisdiction of Arbitral Tribunal is not created by mere subjective intent or volition of parties – Rather, it is arbitration agreement, a legally cognizable and objective instrument that operates as foundational source of jurisdiction in eyes of law – Arbitral Tribunal is not a creature of mere procedural will but of substantive legal consequence flowing from arbitration agreement – Unlike Section 23, Section 21 does not require any articulation of relief sought or framing of issues – Its sole purpose is to indicate when arbitration is deemed to have commenced, for limited purpose of computing limitation period – Mere non-service of notice of invocation on a party would not nullify Arbitral Tribunal’s jurisdiction over such party – Such party can be impleaded and arrayed in arbitration proceedings if any claim or counter- claim is made against such party by claimant in statement of claims or counter-claims, or by even amending memo of parties of putative statement of claims counter-claims filed by it, provided that such party is found to be bound by arbitration agreement. (Paras 141, 142, 147 and 160)

Facts of the case:

Present appeal arises from the judgment and order passed by High court of Delhi dated 4th July, 2024 in Arb. A. (Comm.) No. 4/2024 & I.As. 2124/2024- 25/2024, Arb. A. (Comm.) No. 5/2024 & I.A. 2197/2024 and O.M.P. (T)(Comm.) 4/2024 by which High Court dismissed appeals filed by the appellant herein under Section 37 of Arbitration and Conciliation Act, 1996 and thereby affirmed order passed by Arbitral Tribunal rejecting challenge made by appellant to its jurisdiction on the ground that appellant being a non-signatory to arbitration agreement could not have been impleaded in array of parties and join arbitration proceedings.

Only question that falls for consideration is whether Arbitral Tribunal has power to implead or join a non-signatory to arbitration agreement as a party to arbitration proceedings?

Findings of Court:

In overall view of the matter, no error of law could be said to have been committed by High Court in passing impugned judgment and order. All other legal contentions available to parties are kept open to be canvassed before the Arbitral Tribunal.

Result : Appeal dismissed.