Absence of Arbitration Notice or Section 11 Joinder Not a Bar to Jurisdiction: Supreme Court Allows Non-Signatories to Be Impleaded in Arbitration

“Tribunal Must Ask: Is the Person a Party to the Arbitration Agreement? Not: Were They Named in the Section 11 Application?” - In a landmark ruling Supreme Court of India settled a crucial legal question in arbitration law: Can a party be impleaded in arbitration despite not receiving a Section 21 notice or being named in a Section 11 petition? The Court held that what matters is whether such a party is bound by the arbitration agreement, not whether procedural formalities like individual notices were served.

Declaring that "the arbitral tribunal’s jurisdiction must be determined against the touchstone of the arbitration agreement," the Court emphasized that consent to arbitrate is the foundation of jurisdiction, not procedural default.

The appeal arose from a dispute between Adavya Projects Pvt. Ltd. and Vishal Structurals Pvt. Ltd., who had entered into an LLP Agreement in 2012 to form a joint venture for energy projects. The agreement included an arbitration clause (Clause 40).

A dispute concerning financial reconciliation in a subcontracted project led Adavya to invoke arbitration under the LLP Agreement in 2020—but the notice was issued only to respondent no. 1, Vishal Structurals, and not to the LLP itself (respondent no. 2) or its CEO (respondent no. 3), who were later impleaded in the statement of claim.

When respondents 2 and 3 challenged the arbitral tribunal’s jurisdiction under Section 16 of the Arbitration and Conciliation Act, 1996, both the tribunal and the Delhi High Court ruled in their favour, holding that absence of Section 21 notice and non-joinder in the Section 11 petition rendered the proceedings void against them. This was the decision challenged in the Supreme Court.

The Court framed the issues precisely:“Whether service of a Section 21 notice and joinder in a Section 11 application are prerequisites to implead a person as party to arbitral proceedings?”

And more fundamentally:“What is the source of jurisdiction of an arbitral tribunal over a person/entity sought to be impleaded?”

Answering both, the Court ruled: “While a notice invoking arbitration under Section 21 is mandatory… non-service of such notice on a person does not preclude his impleadment in the arbitral proceedings.”

“The arbitral tribunal’s jurisdiction over a person/entity is derived from their consent to the arbitration agreement.”

The Bench of Justices Pamidighantam Sri Narasimha and Manoj Misra held that non-inclusion in the Section 11 petition does not foreclose the tribunal’s ability to implead a party, stating emphatically: “The order appointing the arbitrator does not limit the arbitral tribunal’s terms of reference or scope of jurisdiction.”

Application of Kompetenz-Kompetenz Doctrine

Invoking the kompetenz-kompetenz principle under Section 16 of the Act, the Court reminded: “The arbitral tribunal can determine its own jurisdiction… including who is a party to the arbitration agreement.”

“This interpretation gives true effect to the doctrine of competence-competence by leaving the issue… to be decided by the arbitral tribunal under Section 16.”

On Non-Signatories and ArbitrationThe Court took a liberal and realistic view of multi-party commercial arrangements, quoting extensively from Cox and Kings Ltd. v. SAP India Pvt. Ltd. and ONGC v. Discovery Enterprises: “The involvement of the non-signatory in the performance of the underlying contract in a manner that suggests that it intended to be bound by the contract… is an important aspect.”

Here, the LLP (respondent no. 2) was created under the LLP Agreement and carried out contractual business pursuant to it. Respondent no. 3, as CEO of the LLP, derived his role directly from Clause 8 of the same agreement.

Thus, the Court concluded: “Respondent nos. 2 and 3 have, through their conduct, consented to perform contractual obligations under the LLP Agreement… they have also agreed to be bound by the arbitration agreement.”

Rebuking Tribunal’s Approach

The Court was critical of the arbitral tribunal’s narrow reading of its powers:

“The arbitral tribunal did not go into whether these respondents are parties to the arbitration agreement… this approach clearly shows that it did not exercise its jurisdiction in accordance with the principle of kompetenz-kompetenz.”

It held that both the arbitral tribunal and the High Court had erred in interpreting procedural shortcomings as jurisdictional barriers.

The Court set aside the orders of the tribunal and the High Court, and directed that respondent nos. 2 and 3 be impleaded as parties. It further requested the tribunal to conclude the proceedings expeditiously, noting that the claim was filed in 2022.

Summarizing its position, the Court held:

“The relevant consideration to determine whether a person can be made a party before the arbitral tribunal is if such a person is a party to the arbitration agreement.”

“The arbitral tribunal must determine this jurisdictional issue… by examining whether a non-signatory is a party to the arbitration agreement as per Section 7 of the ACA.”

Date of Decision: April 17, 2025