Non-Signatory To Arbitration Agreement Cannot Invoke Arbitration Clause Against Party With No Legal Relationship Or Intention To Be Bound; Supreme Court
Kiran Raj
The Supreme Court of India Division Bench of Justice J.B. Pardiwala and Justice K.V. Viswanathan on Tuesday, December 9, held that a non-signatory to an arbitration agreement cannot invoke its arbitration clause against a party with which it has no legal relationship and where there is no indication that the main contract was intended to bind the non-signatory. In a dispute involving Hindustan Petroleum Corporation Ltd. (HPCL), BCL Secure Premises Pvt. Ltd. and AGC Networks Ltd. over receivables from a Tank Truck Locking System project, the Bench allowed HPCL’s appeal, set aside the Bombay High Court’s order appointing an arbitrator and dismissed BCL’s Section 11 application, concluding that no arbitration agreement existed between HPCL and BCL and that BCL could not seek arbitration against HPCL.
The appellant corporation floated a tender for design, supply, installation, integration, testing, commissioning and post-commissioning warranty support of a Tank Truck Locking System, with conditions prohibiting subletting or assignment without prior written consent and containing an arbitration clause for disputes under the contract. A purchase order was issued to AGC Networks Ltd., which accepted it. Subsequently, notices were issued to AGC for non-functioning and unsatisfactory performance of the system at pilot locations. Later, a company acting as AGC’s sub-vendor informed the appellant that it was entitled to the bulk of the payments. The appellant responded that it had no contract with the sub-vendor and that no payment was due to it.
The sub-vendor then initiated multiple proceedings against AGC, including a civil suit seeking injunction against invocation of its bank guarantee, a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016, and three claims before the MSME Facilitation Council, some of which ended in settlement and others were rejected as not maintainable. A back-to-back agreement dated 15 January 2014 between AGC and the sub-vendor and a Settlement-cum-Assignment Agreement dated 31 October 2023 assigning AGC’s receivables from the appellant were relied on to assert that the sub-vendor had stepped into AGC’s position.
On 28 August 2024, the sub-vendor issued a notice invoking the arbitration clause in the appellant’s tender under Section 21 of the Arbitration and Conciliation Act, 1996 and raised a monetary claim with interest. The appellant, in reply and later before the High Court under Section 11(4) of the Arbitration and Conciliation Act, 1996, contended that there was no privity of contract or valid assignment without its consent, that no purchase order existed in favour of the sub-vendor, and that the claim was time-barred. The sub-vendor argued that questions on whether a non-signatory is bound by an arbitration agreement involve a mixed inquiry of fact and law to be conducted by the arbitral tribunal and relied on the back-to-back agreement, escrow arrangements, email communications and the Settlement-cum-Assignment Agreement, invoking the “veritable party” doctrine to support reference to arbitration.
The Court first observed that “it should be demonstrated prima facie before the referral court that the non-signatory is a veritable party.” It further stated that “the referral court under Section 11 is not deprived of its jurisdiction from examining whether the non-signatory is in the real sense a party to the arbitration agreement.”
Clarifying the role of the referral court, it recorded that “this does not mean that where the Referral Court finds prima facie a party is not a veritable party still the matter is left to the Arbitral Tribunal. To hold so, would relegate the Referral Court to the status of a monotonous automation. Further, to countenance such an extreme proposition would lead to disastrous consequences, where absolute strangers could walk into the Referral Court and contend that the matter has to perforce go to the Arbitral Tribunal for a decision on the veritable nature of the party. We are not prepared to accept such an extreme proposition.”
On the factual matrix, the Court stated that “even prima facie the respondent has not been able to establish that it was a veritable party to the contract between HPCL and AGC. HPCL has no privity at all with the respondent BCL. Admittedly, to the documentation between AGC and BCL, HPCL was not a party. After obtaining the contract from HPCL, AGC appears to have engaged BCL to supply, install, integrate, test, commission and grant warranty and post-warranty support services to AGC. In fact, Clause 4 of the contractual arrangement of 15.01.2014 expressly proscribes the Project Manager of the respondent-BCL to not make any communication/coordination with HPCL without obtaining prior written approval from AGC.” It further recorded that “on the facts of this case, it is clear that the appellant and the respondent have been operating on separate orbits. It has not been established even prima facie that there was any intention to bind BCL to the contract between HPCL and AGC.”
Addressing the doctrine of “veritable party”, the Court observed that “it could happen that one party having undertaken a contract from the other may engage one or more third parties like in the present case. In such a scenario, if there is nothing even prima facie to show that there was any semblance of an intent to effect legal relationship between that party and the party originally granting the contract and/or to indicate that such a third party was a veritable party, such parties cannot be found to be veritable parties.” It added that “nothing even prima facie has been shown to establish that there was any semblance of an intent to effect legal relationship between the respondent and the party originally granting the contract and/or to indicate that the respondent was a veritable party.”
Relying on Cox and Kings, the Court stated that “mere legal or commercial connection is not sufficient for a non-signatory to claim through or under a signatory party.” It noted further, by quoting Cox and Kings, that “mere presence of a commercial relationship between signatory and non-signatory parties is not sufficient to infer ‘legal relationship’ between and among the parties… The group of companies doctrine cannot be applied to abrogate party consent and autonomy….”
The Court directed: “In view of our holding on the issue of the non-existence of an arbitration agreement between the parties herein, we are not required to go into the issue of whether the claim was ex-facie time-barred. For the reasons stated above, we allow the appeal and set aside the judgment and order dated 07.04.2025 passed by the Learned Single Judge of the High Court of Judicature at Bombay in Comm. Arbitration Application No.125/2025.”
“Comm. Arbitration Application No.125/2025, on the file of the High Court of Judicature at Bombay, shall stand dismissed. If the respondent has any other remedy available in law, it is at liberty to pursue the same. If any such proceedings are resorted to, they have to be decided in accordance with law and on their own merits. No order as to costs.”
Advocates Representing the Parties
For the Petitioners: Mr. Sanjay Kapur, AOR, Mr. Surya Prakash, Adv., Ms. Shubhra Kapur, Adv., Ms. Mahima Kapur, Adv., Ms. Mansi Kapur, Adv., Mr. Abhishek Tiwari, Adv., Mr. Anuraj Mishra, Adv.
For the Respondents: Mr. Nalin Kohli, Sr. Adv., Mr. Chirag Madan, Adv., Mr. Ravleen Sabharwal, Adv., Mr. G. Sai Krishna Kumar, Adv., Mr. Rahul Agarwal, Adv., Mr. Ronit Bose, Adv., Ms. Nimisha Menon, Adv., Mr. Ayuushman Arora, Adv., Mr. Randeep Sabharwal, Adv., Mr. Anubhav, AOR
Case Title: Hindustan Petroleum Corporation Ltd. v. BCL Secure Premises Pvt. Ltd.
Neutral Citation: 2025 INSC 1401
Case Number: Civil Appeal No.14647 of 2025 (@ Special Leave Petition (Civil) No.25803 of 2025)
Bench: Justice J.B. Pardiwala, Justice K.V. Viswanathan
