The High Court of Madhya Pradesh at Indore has partially allowed a plea for the appointment of an arbitrator, determining that while a commercial development agreement containing an arbitration clause must be honored, non-signatory third parties cannot be forcibly joined in the proceedings without clear, prima facie evidence of their involvement as veritable parties. Justice Vinay Saraf, presiding over the matter, directed the appointment of former Supreme Court Judge Justice J.K. Maheshwari as the sole arbitrator to resolve the dispute between SAM Industries Ltd and one of the project’s landowners, while dismissing the application concerning two other brothers who were not signatories to the underlying contract.

The dispute stems from an agreement dated February 4, 2025, concerning the development of 2.358 hectares of land situated in village Tillor Bujurg, Indore. SAM Industries Ltd, the applicant, contended that the contract necessitated the development of this land and that, despite initial payments made to the signatory respondent, the project was stalled due to the non-cooperation of the landowners. While one brother signed the development agreement, two others, who also held ownership rights, remained non-signatories. The applicant had sought to compel all three landowners to enter into arbitration, citing the clause within the agreement as binding for the entire subject matter.

However, the respondents vehemently challenged the validity of the document. The signatory respondent alleged that the development agreement was a forged instrument, while the non-signatory brothers argued that they had no privity of contract with the applicant and that their land was being improperly entangled in a fraudulent dispute. These arguments triggered a detailed examination by the court on whether allegations of fraud and the inclusion of non-signatories could act as a bar to the referral of a case to arbitration under the Arbitration and Conciliation Act, 1996.

Regarding the allegations of forgery and fraud, the court reaffirmed the principle that such claims do not automatically render a dispute non-arbitrable. Drawing on the Supreme Court’s judgment in Vidya Drolia v. Durga Trading Corporation , Justice Saraf observed, “Clause 14 of the agreement provides an arbitration clause and despite levelling the allegation of fraud and forgery, the matter is referrable to the arbitration in so far it relates to the dispute between applicant and non applicant No. 1, as the allegation of fraud and forgery is connected with the civil dispute and not having any larger impact on the society.” The court noted that the arbitral tribunal is well-equipped to examine the veracity of the agreement and the specific claims of fraud during the proceedings.

The second, more complex aspect of the decision involved the joinder of non-signatory parties. Relying on the precedent set in Cox & Kings Ltd. v. SAP India Pvt. Ltd. , the court scrutinized whether the non-signatory brothers could be considered "veritable parties" to the agreement. Justice Saraf emphasized that a referral court must exercise caution; while it is tasked with the prima facie assessment of the existence of an arbitration agreement, it should not engage in an exhaustive inquiry that essentially requires the tribunal’s expertise.

The court found that there was insufficient material on record to link the two non-signatory brothers to the contract. The absence of signatures and the lack of evidence showing that they had actively participated in the negotiation or performance of the development agreement were decisive factors. The court remarked, “After considering the totality of the facts and circumstances of the case, prima facie there is no material on record to connect the non applicant No. 2 and 3 with the Development Agreement allegedly executed between the applicant and non applicant No. 1.”

The ruling underscores a critical boundary in commercial litigation: the need to balance the sanctity of arbitration agreements with the doctrine of privity of contract. By excluding the non-signatories, the High Court clarified that a commercial relationship or joint ownership of property is not, by itself, a sufficient ground to subject third parties to an arbitration process they never formally consented to. This approach prevents the "vexatious" inclusion of third parties, as cautioned against in recent Supreme Court jurisprudence, while simultaneously protecting the jurisdictional competence of the arbitrator to decide the merits of the dispute between the actual signatories.

The litigation surrounding the project remains complex, with pending civil suits initiated by the daughters of one of the landowners regarding property title and partition. The High Court’s order focuses strictly on the contractual dispute between SAM Industries and the signatory respondent. By appointing a former Supreme Court judge, the court aims to ensure that the factual and legal disputes, including the contentious issues of fraud and title, are adjudicated in a structured environment.

The matter has been listed for further consideration on November 16, 2026, by which time the Principal Registrar is tasked with obtaining the formal consent and declaration from Justice J.K. Maheshwari. The decision marks a significant development for land developers and property owners in the region, reaffirming that while arbitration is a favored mode of dispute resolution, its scope remains firmly tethered to the intent and consent of the parties involved. Parties wishing to involve third-party non-signatories in arbitration must now provide more compelling prima facie evidence that such individuals acted as veritable parties to the contract, failing which the courts will continue to restrict the scope of arbitration strictly to those who have formally assented to the underlying agreement.