1. Composite loan and personal-guarantee transaction — whether arbitration clause in loan agreement binds non-signatory guarantor through an integrated facility agreement, under Section 7(5), Arbitration and Conciliation Act, 1996. (Para 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 )
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2026 Supreme(SC) 1096
SUPREME COURT OF INDIA
PAMIDIGHANTAM SRI NARASIMHA, ALOK ARADHE, JJ.
National Skill Development Corporation – Appellant
Versus
Surya Wires Private Limited & Ors. – Respondents
Civil Appeal No. 12526 of 2026 (@ S.L.P. (C) No. 10030 of 2026)
Decided On : 08-09-2026
Important Points
Under Section 7(5) of the 1996 Act, an arbitration clause in a principal agreement is incorporated into a linked collateral instrument if the agreements form a composite transaction and the principal agreement expressly deems the collateral instrument an integral extension of itself.
Subject
Arbitration Law - Arbitration Agreements
Act Referred
Headnote
(A) Arbitration and Conciliation Act, 1996 - Section 7(5) - Incorporation of arbitration clause by reference - Whether an arbitration clause in a principal agreement binds a non-signatory who executed a collateral instrument integrated into said principal agreement - An arbitration clause in another document is incorporated into a contract by reference if: (1) the contract contains a clear reference to the document, (2) the reference indicates an intention to incorporate the arbitration clause, and (3) the clause is appropriate and not repugnant to the contract - Where a contract contains a deeming fiction stating that auxiliary facility agreements are part of the agreement as if their provisions were set out in extension, the arbitration framework of the principal agreement applies to those auxiliary documents. (Paras 17, 25)
(B) Non-signatories to arbitration agreements - Consent of a non-signatory can be inferred from the nature and purpose of the contract, the conduct of the parties, and the existence of a composite transaction - In commercial arrangements where personal guarantees are mandatory pre-disbursement conditions for funds provided to special-purpose entities, such guarantees are inextricably woven into the fabric of the principal loan agreement and cannot be severed for dispute resolution purposes while remaining tethered for the purpose of liability. (Paras 20, 28)
Facts of the case:
A financial assistance agency provided loans to companies for establishing training centers. The loans were secured via personal guarantees. While the loan agreements contained an arbitration clause, the personal guarantees did not. Upon default, the agency initiated arbitration against both the borrowing companies and the guarantors. The guarantors moved for deletion from the proceedings, asserting they were not signatories to the loan agreements in their personal capacities. The arbitral tribunal and the High Court allowed the deletion of the guarantors, finding that a general reference to a document does not automatically import an arbitration clause.
Findings of Court:
The court observed that the loan agreements specifically defined the personal guarantees as "Facility Agreements" and stipulated that these were integral parts of the agreement, deemed to be part of the contract as if their provisions were set out therein in extension. The execution of these guarantees was a mandatory pre-disbursement condition, confirming that the parties intended the cluster of documents to constitute a single composite transaction.
Issues: Whether an arbitration clause contained in a principal instrument can bind a party through another instrument that is expressly integrated with the principal one but does not itself contain an arbitration clause.
Ratio Decidendi: Under Section 7(5) of the 1996 Act, the specific deeming fiction in the loan agreement, combined with the composite nature of the commercial arrangement and the mandatory requirement of the guarantee for disbursement, established an explicit intention to incorporate the arbitration clause into the personal guarantees. The absence of a personal signature on the loan agreement is not decisive when the guarantee is contractually integrated into the principal agreement's legal and arbitral framework.
Result: Appeal allowed.
(B) Non-signatories to arbitration agreements - Consent of a non-signatory can be inferred from the nature and purpose of the contract, the conduct of the parties, and the existence of a composite transaction - In commercial arrangements where personal guarantees are mandatory pre-disbursement conditions for funds provided to special-purpose entities, such guarantees are inextricably woven into the fabric of the principal loan agreement and cannot be severed for dispute resolution purposes while remaining tethered for the purpose of liability. (Paras 20, 28)
Facts of the case:
A financial assistance agency provided loans to companies for establishing training centers. The loans were secured via personal guarantees. While the loan agreements contained an arbitration clause, the personal guarantees did not. Upon default, the agency initiated arbitration against both the borrowing companies and the guarantors. The guarantors moved for deletion from the proceedings, asserting they were not signatories to the loan agreements in their personal capacities. The arbitral tribunal and the High Court allowed the deletion of the guarantors, finding that a general reference to a document does not automatically import an arbitration clause.
Findings of Court:
The court observed that the loan agreements specifically defined the personal guarantees as "Facility Agreements" and stipulated that these were integral parts of the agreement, deemed to be part of the contract as if their provisions were set out therein in extension. The execution of these guarantees was a mandatory pre-disbursement condition, confirming that the parties intended the cluster of documents to constitute a single composite transaction.
Issues: Whether an arbitration clause contained in a principal instrument can bind a party through another instrument that is expressly integrated with the principal one but does not itself contain an arbitration clause.
Ratio Decidendi: Under Section 7(5) of the 1996 Act, the specific deeming fiction in the loan agreement, combined with the composite nature of the commercial arrangement and the mandatory requirement of the guarantee for disbursement, established an explicit intention to incorporate the arbitration clause into the personal guarantees. The absence of a personal signature on the loan agreement is not decisive when the guarantee is contractually integrated into the principal agreement's legal and arbitral framework.
Result: Appeal allowed.
Legal Category Hierarchy
- arbitration
- contract law
Advocates appeared:
For the Petitioner(s): Ms. Shweta Bharti, Adv. Mr. J.k. Chaudhary, Adv. Mr. Ankit Konwar, Adv. Mr. Abhinav Agrawal, AOR Mr. Piyush Bhardwaj, Adv. Mr. Shivam Sengupta, Adv.
For the Respondent(s): Mr. Sudev Juneja, Adv. Ms. Sugandha Batra, AOR Mr. Vansh Bhatnagar, Adv.
For the Petitioner(s): Ms. Shweta Bharti, Adv. Mr. J.k. Chaudhary, Adv. Mr. Ankit Konwar, Adv. Mr. Abhinav Agrawal, AOR Mr. Piyush Bhardwaj, Adv. Mr. Shivam Sengupta, Adv.
For the Respondent(s): Mr. Sudev Juneja, Adv. Ms. Sugandha Batra, AOR Mr. Vansh Bhatnagar, Adv.
Table of Contents
2. Appellant: guarantee was a facility agreement integrated with loan agreement, so arbitration clause was incorporated by reference. Respondent: guarantee lacked its own arbitration clause; general reference cannot bind a non-signatory. (Para 13 , 14 , 15 )
3. Appeal allowed; High Court judgment and order of Sole Arbitrator set aside insofar as guarantor was deleted; arbitration clause incorporated; no order as to costs. (Para 29 , 30 , 31 )
4. What are the requirements for incorporating an arbitration clause from another document by reference under Section 7(5) of the Arbitration and Conciliation Act, 1996?
The contract must be in writing and clearly refer to the document; the reference must show an intention to make the arbitration clause part of the contract, and the clause must be appropriate and not repugnant. General reference is insufficient. (Para 17 , 18 , 19 )
5. Can a non-signatory be bound by an arbitration agreement, particularly in a multi-contract or composite transaction?
Under Sections 2(1)(h) and 7, parties include non-signatories; consent may be inferred from conduct, surrounding circumstances, and whether the agreement is consequential to or follow-up of the principal agreement. Composite transactions are assessed holistically. (Para 20 , 21 , 22 )
6. When is the arbitration clause in a loan agreement incorporated into a personal guarantee executed as a facility agreement?
Where the guarantee is expressly defined as a facility agreement, made a pre-disbursement condition, and the loan agreement deems such agreements as set out in extension, the guarantee is integral to the loan agreement and its arbitration clause binds the guarantor despite non-signature in personal capacity. (Para 24 , 25 , 26 , 27 , 28 )
JUDGMENT :
ALOK ARADHE, J.
1. Leave granted.
2. The appeal raises a significant question for our consideration, namely, whether, where parties structure a single transaction through several interconnected instruments, an arbitration clause contained in one instrument can bind a party through another instrument, expressly integrated with it but not itself containing an arbitration clause?
3. This appeal is directed against the judgment dated 28.01.2026 rendered by the High Court1[High Court of Delhi] in an Appeal2[ARB. A. (COMM.) 11 of 2025.] under Section 37(2)(a) of the Arbitration and Conciliation Act, 1996 (the ‘1996 Act’), whereby the High Court affirmed the order dated 23.10.2024 passed by the Sole Arbitrator directing the deletion of respondent nos. 2, 3, 5 and 7 from the array of parties to the arbitral proceedings, on the finding that they were non-signatories to the agreements in their personal capacities. The scope of the present appeal is confined to the correctness of the order insofar as it concerns respondent no. 2.
FACTS
4. The facts shorn of unnecessary details, may be stated thus.
5. The Ministry of Skill Development and Entrepreneurship, decided to establish Model Training Centres in every district of the country, to be known as “Pradhan Mantri Kaushal Kendra” (‘PMKK’). The appellant namely, National Skill Development Corporation, a not-for-profit company that extends financial assistance to companies and organisations which provide skill training, was the implementing agency. The appellant issued a ‘Request for Proposal’ dated 29.07.2016 inviting Technical and Financial proposals for setting up of PMKK from eligible persons.
6. The respondent no. 1, namely, Surya Wires Private Limited (the ‘Company’) and respondent no. 4, namely, Disha Education Society (the ‘Society’) submitted the Technical and Financial proposal to the appellant for its consideration for the allotment of clusters/districts for jointly setting up PMKKs. Accordingly, the appellant allotted districts to respondent nos. 1 and 4 to jointly establish Model Training Centres. The respondent no. 6 namely, Shanti Finance and Property Development Private Limited (the ‘Finance Company’) was the co-borrower providing mortgage security. Respondent nos. 2 and 3 are the Managing Director/ Authorised Representative and Director respectively of the Company. Respondent no. 5 is the Authorised Representative of the Society and respondent no. 7 is Authorised Representative of the Finance Company.
7. On 20.12.2016, the parties executed a cluster of contemporaneous agreements: a Service Level Agreement (SLA), a First Loan Agreement for a sum of Rs. 7,17,63,197/- , (Rupees Seven Crores Seventeen Lakhs Sixty-Three Thousand One Hundred Ninety-Seven only) and ancillary “Facility Agreements”, namely, a Deed of Assignment, Deed of Hypothecation, Irrevocable Power of Attorney, Undertaking-cum-Declaration, and a Personal Guarantee by respondent no. 2 in favour of the appellant which was executed on 27.12.2016.
8. A second, materially identical set of agreements was executed on 18.08.2017 for an additional loan of Rs. 2,13,83,194/- (Rupees Two Crores Thirteen Lakhs Eighty- Three Thousand One Hundred Ninety-Four only) including a second Personal Guarantee by respondent no. 2.
9. Subsequently, defaults occurred in the repayment of the amounts due under the Loan Agreements which led to issuance of Loan Recall Notices to the respondents on 29.10.2021. Respondent no. 2 was also served as he was a signatory to the Personal Guarantees.
10. On 21.06.2022, the appellant initiated arbitral proceedings before the Indian Council of Arbitration and filed its Statement of Claim against respondent nos. 1 to 7 for recovery of the amounts due under the two Loan Agreements. Respondent nos. 2, 3, 5 and 7 filed an application under Section 16 of the 1996 Act contending that the Arbitral Tribunal lacked jurisdiction qua them, they not being signatories to the Loan Agreements in their personal
