Non-Signatories To Arbitration Agreement Can Be Held To Be 'Veritable Parties' Based On Holistic Conduct: Supreme Court

"Looking at the factors holistically, it could be inferred that the non-signatories, by virtue of their relationship with the signatory parties and active involvement in the performance of commercial obligations which are intricately linked to the subject-matter, are not actually strangers to the dispute between the signatory parties." Supreme Court of India, in a ruling dated October 12, 2026, held that a Referral Court under Section 11 of the Arbitration and Conciliation Act, 1996, possesses the jurisdiction to determine whether a non-signatory to an arbitration agreement is a "veritable party" based on a prima facie consideration of facts and conduct.

A bench comprising Justice J.B. Pardiwala and Justice K. Vinod Chandran emphasized that while the law of arbitration is an autonomous field, courts cannot adopt a rigid approach to exclude entities who, through their relationship with signatories and active commercial involvement, were intended to be bound by the underlying contract.

Dispute Over Subject Asset

The matter concerned a property dispute involving a partnership firm and several successive partnership deeds executed over decades. The appellants contended that they never retired from the firm and that the assets belong to the original partnership constituted on December 9, 1985, which contained an arbitration clause. Conversely, certain respondents claimed the firm stood dissolved upon the retirement of partners, and that they, as subsequent inductees, were not bound by the original arbitration agreement.

Determination Of Veritable Parties

The primary legal issue before the court was whether the third and fourth respondents, who were not signatories to the 1985 partnership deed, could be compelled to join the arbitration proceedings. The court also examined the extent to which a Referral Court should engage in factual inquiry regarding the status of non-signatories at the Section 11 stage, particularly in light of the principles laid down in Cox & Kings Limited v. SAP India Private Limited.

Holistic Assessment Of Conduct

The court noted that the question of whether an entity is a "veritable party" is a vexing issue that cannot be reduced to a "strait jacket formula" but must be determined based on the specific facts and circumstances. Relying on the principles established in Cox & Kings, the bench observed that the requirement of a written arbitration agreement under Section 7 does not preclude the possibility of binding non-signatories.

Moving Beyond Rigid Signatory Requirements

The court clarified that while a non-signatory who has not executed an agreement suggests an initial lack of intention to assume liabilities, courts must not exclude entities whose conduct suggests otherwise. By evaluating the relationship between the parties and their active involvement in performance obligations, the court found that the third and fourth respondents were, prima facie, veritable parties.

"The requirement of a written arbitration agreement under Section 7 does not exclude the possibility of binding non-signatory parties."

Preservation Of Arbitral Jurisdiction

The bench was careful to clarify that this finding of the third and fourth respondents as veritable parties was purely a prima facie determination. Crucially, the court held that such a finding does not preclude the Arbitral Tribunal from adjudicating the issue of jurisdiction, the question of limitation, or any plea of estoppel raised by the parties during the substantive proceedings.

Addressing Previous Judicial Precedents

In distinguishing the application of the 'Group of Companies' doctrine, the court emphasized that arbitration law focuses on whether the Tribunal has jurisdiction over disputes between parties to an agreement. The Referral Court's task is not to provide an authoritative determination on liability but to satisfy itself prima facie that the non-signatory is, in the real sense, a party to the agreement.

Ultimately, the court modified the impugned order only to the extent of declaring the third and fourth respondents as veritable parties to the arbitration. The bench clarified that all other contentions, including the plea of limitation and the alleged forgery of retirement documents, remain open for the Arbitral Tribunal to decide based on evidence.

Date of Decision: 12 October 2026