Existence of Arbitration Agreement Is Not Defined by Signature, But by Consent: Supreme Court Clarifies Scope of Tribunal’s Jurisdiction Over Non-Signatories

“Tribunal Derives Jurisdiction From the Arbitration Agreement, Not from the Referral Court’s Appointment” –  Supreme Court of India resolving a long-standing ambiguity under the Arbitration and Conciliation Act, 1996. The Court held that non-signatories may be joined to arbitral proceedings, provided they have expressly or impliedly consented to the arbitration agreement. Upholding the arbitral tribunal’s decision to implead group companies that were not formal signatories, the Court reinforced that an arbitral tribunal derives jurisdiction not from procedural technicalities but from the substance of party consent and contractual obligations.

This decision reaffirms the arbitral tribunal’s Kompetenz-Kompetenz — the power to rule on its own jurisdiction under Section 16 — and clarifies that the absence of a Section 21 notice does not invalidate such jurisdiction when consent is otherwise established.

The dispute arose out of a commercial relationship between SPCPL and BCSPL, part of the ASF Group of Companies, concerning the redevelopment of the Black Canyon project. Arbitration was commenced pursuant to a clause in the Works Contract. SPCPL later sought to implead AISPL and ABPL — other ASF Group companies — asserting that they were not only involved in negotiations and contract performance but were also parties in interest to the Settlement Agreement. The arbitral tribunal, exercising powers under Section 16 of the Act, allowed their impleadment.

AISPL and ABPL challenged their inclusion, arguing they were not signatories and had not received a notice under Section 21. The High Court upheld the tribunal’s order. The appeal before the Supreme Court was directed against this decision.

Consent, Not Signature, Determines Binding Nature of Arbitration Agreement

The Court rejected the argument that being a non-signatory per se excludes a party from arbitral proceedings. It held that “the question whether a non-signatory is bound by the arbitration agreement is not one of its ‘existence’ but rather of the interpretation of parties’ mutual intent”. Referring to Section 7 of the Act and the definition of "party" under Section 2(1)(h), the Court clarified that "signature is not a formal requirement", and what matters is whether the party has expressed or implied consent to the arbitration agreement.

Citing its earlier judgment in Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia (P) Ltd., the Court affirmed that “Section 7 does not stipulate that a party must be a signatory”, and reiterated the reasoning in Cox and Kings (I), where the ‘Group of Companies’ doctrine was accepted as part of Indian arbitration jurisprudence.

“Power to Implead Non-Signatory Exists Even If Not Expressly Provided” — Doctrine of Implied Powers Applies

Addressing the statutory silence on tribunal's power to implead non-signatories, the Court invoked the doctrine of implied powers, observing:

“Where it is impossible to effectuate the final power unless something not authorised in express terms be also done, in such an event, the power will be supplied by necessary intendment as an exception.” (para 122)

The Court found that recognizing the tribunal's power to implead such parties was essential to advance the object of the Arbitration Act, and that such power was “a necessary intendment of Section(s) 2(1)(h) and 7 and the overall scheme and object of the Act, 1996”.

“Jurisdiction Flows From the Arbitration Agreement, Not the Order of Referral Court” — Kompetenz-Kompetenz Doctrine Strengthened

Clarifying the scope of Section 16, the Court emphasized that an arbitral tribunal is not dependent on court orders for jurisdiction, stating:

“It is not the tribunal’s subsequent constitution... that bestows jurisdiction upon it. Rather, such procedural mechanisms merely activate or operationalise a jurisdiction that is already in existence by virtue of the arbitration agreement.” (para 142)

The Court warned against the misconception that tribunal jurisdiction is born from the act of appointment, and observed, “Jurisdiction exists in a de jure sense from the moment the arbitration agreement is validly executed.”

Invoking the 'always speaking' rule of statutory interpretation, the Court emphasized that Section 16 must be construed in light of evolving commercial complexities and that arbitral power must not be frozen in rigid proceduralism.

Section 21 Notice Not a Precondition for Tribunal Jurisdiction Over Impleaded Parties

The appellants argued that the lack of a Section 21 notice invalidated the proceedings against them. The Court rejected this contention categorically, holding:

“Section 21 is procedural rather than jurisdictional — it does not serve to create or validate the arbitration agreement itself, nor is it a precondition for the existence of the tribunal's jurisdiction.” (para 145)

Referring to Milkfood Ltd. v. GMC Ice Cream (P) Ltd. and State of Goa v. Praveen Enterprises, the Court clarified that Section 21’s role is limited to fixing the commencement date for limitation purposes and not for deciding who may be joined in arbitration.

In a powerful observation, the Court stated:
“The contents of the notice do not restrict the claims, and any objections regarding limitation and maintainability can be raised before the arbitral tribunal.” (para 30.2, Adavya Projects)

Even non-signatories, once found to be bound by the arbitration agreement, may be impleaded without a separate invocation notice, as long as claims are raised in the statement of claim or counterclaim.

“Group of Companies Doctrine Is Rooted in Commercial Reality, Not Just Legal Formalism”

Endorsing the findings of the tribunal and the High Court, the Court noted that BCSPL, AISPL, and ABPL were all under common management, acted interchangeably, and were deeply involved in contract performance. It found:

“There is no differentiation between BCSPL, AISPL, or ABPL, all of which are part of the ASF Group.” (para 162)

The Court acknowledged that the Novation Agreement, Settlement Agreement, Comfort Letter, and Works Contract all related to the same project, and the intertwined nature of these documents and business conduct reflected composite operations. The ASF Group, as a whole, was “a veritable party to the arbitration agreement”.

Need for Legislative Reform: Supreme Court Urges Statutory Recognition of Joinder Powers

In its concluding remarks, the Court criticized legislative silence on the issue:

“What is expressly missing in the Act, 1996 is still missing in the Arbitration and Conciliation Bill, 2024... Any uncertainty in the law of arbitration would be an anathema to business and commerce.” (para 170)

The Bench urged the Ministry of Law and Justice to revise the Bill and codify the tribunal’s power to implead parties, to eliminate ambiguity and promote arbitration-friendly jurisprudence.

The Supreme Court dismissed the appeal and upheld the orders of the arbitral tribunal and the High Court, allowing the impleadment of AISPL and ABPL. It held that:

“For all the foregoing reasons, this appeal fails and is hereby dismissed.” (para 173)

The Court emphasized that procedural irregularities such as absence of notice under Section 21 cannot defeat the larger purpose of arbitration, where implied consent, composite transactions, and party conduct form the foundation for arbitral jurisdiction.

The decision consolidates Indian arbitration law's trajectory toward pragmatism, commercial responsiveness, and minimal judicial interference, marking another milestone in affirming party autonomy and arbitral autonomy.

Date of Decision: 2nd May, 2025