Non-Signatory Successors Bound by Arbitration Clause Through Conduct and Agreement Adoption: Calcutta High Court on S.11 of Arbitration Act - 2025-06-30

Tracking Legal Developments.

Successors Bound by Original Arbitration Clause, Rules Calcutta High Court

The Court affirmed that parties acting under an original agreement, even as non-signatories, are bound by its arbitration clause, leaving the final determination of jurisdiction to the arbitral tribunal under the 'kompetenz-kompetenz' principle.

Kolkata: In a significant ruling on the law of arbitration, the Calcutta High Court, presided over by Justice Shampa Sarkar , has allowed an application for the appointment of an arbitrator, holding that successors in interest who adopt a principal agreement in its entirety are prima facie bound by its arbitration clause, even if they were not original signatories.

The Court appointed a three-member arbitral tribunal to adjudicate the dispute between property owner Bimla Devi Jaiswal and telecom giant Indus Towers Limited, reinforcing the principle of arbitral autonomy and the limited scope of judicial review at the referral stage.

A Tale of Two Agreements

The case originated from a license agreement dated January 19, 2001, between the petitioner's predecessor, Smt. Duija Devi Shaw, and the respondent's predecessor, Usha Martin Telekom Limited . The agreement, for the installation of a mobile tower, was for a 20-year term and contained a clear arbitration clause. Crucially, it specified that the terms would bind the "heirs, executors, administrators and assigns" of the licensor and the "successors, administrators, liquidators, representatives and assigns" of the licensee.

Over time, Bimla Devi Jaiswal became the owner of the property, and Indus Towers Limited, through a series of mergers, stepped into the shoes of Usha Martin . In 2014, the current parties executed a "supplementary agreement," which explicitly stated that it would be "co-existing, co-extensive and co-terminus with the principal agreement" and would continue under the same terms and conditions.

Disputes arose when the petitioner alleged non-payment of license fees from 2018 and the respondent's failure to vacate the premises after the agreement expired in December 2020. The petitioner invoked arbitration, which the respondent contested.

The Arguments: Incorporation by Reference vs. Separate Agreement

Petitioner's Stance: Advocate Shaunak Ghosh, representing the petitioner, argued that the supplementary agreement incorporated all terms of the original contract by reference, including the arbitration clause. He emphasized that both parties were successors to the original signatories and that the respondent, by its conduct and admissions in its affidavit, had acted under and accepted the terms of the 2001 agreement.

Respondent's Counter: Senior Advocate S. N. Mitra, for Indus Towers, contended that the 2014 supplementary agreement did not contain an arbitration clause. He argued that a mere general reference to the original contract was insufficient to incorporate the arbitration clause, which is a separate agreement. Citing precedents like M.R. Engineers and Contractors Pvt. Ltd. v. Som Datt Builders Ltd. , he asserted that the supplementary agreement should have made a specific reference to the arbitration clause to make it binding.

Court's Reasoning: Kompetenz-Kompetenz and Party Conduct

Justice Shampa Sarkar , in her judgment, navigated the complex issue by focusing on the conduct of the parties and the doctrine of kompetenz-kompetenz (the arbitral tribunal's power to rule on its own jurisdiction).

The Court noted that the respondent had, by its own admission, continued to occupy the premises and make payments under the terms of the original 2001 agreement. The supplementary agreement's language, making it "co-extensive and co-terminus" with the principal one, suggested an intention to adopt the original contract in its entirety.

"Whether non-signatories to the principal agreement is bound by the terms and conditions of the principal agreement shall be finally decided by the learned arbitral tribunal, but this court, prima facie, finds that both the parties are intrinsically connected with the principal agreement and chose to abide by the terms and conditions, in their entirety."

The Court distinguished the M.R. Engineers case, stating that here, the parties had accepted the entirety of the principal agreement, not just made a general reference to it.

Citing a series of recent Supreme Court judgments, including Cox & Kings Ltd. v. SAP (India) (P) Ltd. and Adavya Projects Pvt. Ltd. v. Vishal Structurals Pvt. Ltd. , the Court highlighted that the issue of whether a non-signatory is a party to an arbitration agreement is a jurisdictional question best left for the arbitral tribunal to decide under Section 16 of the Arbitration and Conciliation Act, 1996. The referral court's role is limited to a prima facie examination of the existence of an arbitration agreement.

Final Decision and Implications

The Court allowed the application, appointing a three-member arbitral tribunal comprising Mr. Debjit Mukherjee (petitioner's nominee), Mr. Rajarshi Datta (respondent's nominee), and Mr. Saptansu Basu, Senior Advocate (presiding arbitrator).

This judgment reinforces the pro-arbitration stance of Indian courts, emphasizing minimal judicial interference and upholding the principle that jurisdictional challenges, including the impleadment of non-signatories, fall squarely within the domain of the arbitral tribunal. It serves as a reminder that a party's conduct and the clear intent expressed in subsequent agreements can be sufficient to bind them to an arbitration clause from a preceding contract.