Non-Signatory Collaborator Under 'Deed Of Joint Undertaking' Can Invoke Arbitration Clause As A 'Veritable Party': Supreme Court

"Contract by itself necessitated the execution of joint undertaking by the Contractor and the Collaborator who had the ‘joint and several’ liability for the due completion of the contract. The arbitration clause applied both to the Collaborator and the Contractor in so far as the disputes with the Employer, " Supreme Court, in a significant ruling dated May 07, 2026, held that a technical collaborator who executes a 'Deed of Joint Undertaking' (DJU) and assumes "joint and several liability" for a project becomes an inextricable part of the contract.

A bench of Justice Sanjay Kumar and Justice K. Vinod Chandran observed that such a collaborator is a "veritable party" to the arbitration agreement, even if they were not a formal signatory to the primary contract. The Court emphasized that when an Employer calls upon a collaborator to fulfill obligations due to a contractor's default, they cannot later plead lack of privity to deny arbitration.

The dispute arose from a contract for a Coal Handling Plant at the Nabinagar Thermal Power Project. The 2nd Respondent (Contractor) had collaborated with Elecon Engineering (Appellant/Collaborator) to meet technical eligibility criteria, executing a Deed of Joint Undertaking (DJU) in favor of the Employer (1st Respondent). Following the Contractor's liquidation in 2020, the Employer demanded the Collaborator take full responsibility for the project. However, when the Collaborator sought arbitration under Section 11(6) of the Arbitration and Conciliation Act, 1996, the High Court rejected the plea citing a lack of privity of contract.

The primary question before the Court was whether a collaborator, essential for the technical qualification of a contractor and bound by a DJU, qualifies as a "veritable party" to the arbitration agreement. The Court also examined whether the subsequent tripartite agreement and communications from the Employer established an inextricable connection between the parties that would allow a non-signatory to invoke arbitration.

Non-Signatories Can Invoke Arbitration As Veritable Parties

The Supreme Court began by noting the established legal principle that even non-signatories to an agreement containing an arbitration clause can invoke it if they are found to be a "veritable party" to the agreement. The bench observed that the High Court had acknowledged this trite principle but erred in its application by failing to find an "inextricable connection" in the notice issued under Section 21 of the Act of 1996.

Collaborator Was Inseparable From Contractual Execution

The Court highlighted that the initial bid documents specifically required the bidder to satisfy eligibility through collaborations, necessitating a DJU for the successful performance of the relevant system. The bench noted that without the Appellant's expertise in design and commissioning, the Contractor would not have qualified for the project.

"The DJU was executed by the Collaborator with the Contractor, in favour of the Employer which clearly indicates that the Collaborator was an inseparable part of the contract and its execution."

Employer Reaffirmed Obligations Despite Contractor's Liquidation

The bench scrutinized the conduct of the Employer following the Contractor’s liquidation in 2020. It was noted that the Employer had issued communications threatening to execute balance work at the "risk and cost of the Collaborator." The Court found that these demands were a direct reaffirmation of the Collaborator's obligations under the original contract and the DJU.

Tripartite Agreement Did Not Eclipse Arbitration Clause

The Court addressed the argument that a subsequent tripartite agreement between the parties lacked an arbitration clause. The bench held that the tripartite agreement was merely a measure to ensure direct payments to the Collaborator and did not "wipe out" the earlier contract. It observed that the tripartite agreement specifically authorized payments to the Collaborator for outstandings, further cementing their status as a primary stakeholder in the project's completion.

Joint And Several Liability Triggers Arbitration Clause

The Court placed heavy reliance on the nature of the liability assumed by the Appellant. It noted that the contract necessitated a joint undertaking where the Contractor and the Collaborator held "joint and several" liability for the due completion of the project. This legal standing, the Court reasoned, made the arbitration clause applicable to both entities in their disputes with the Employer.

"The communications addressed to the collaborator to take up his responsibility as per the DJU makes the Collaborator a veritable party to the contract who is also entitled to invoke the arbitration clause as available in the contract."

Finding that the High Court had "wrongly declined" the prayer for arbitration, the Supreme Court set aside the impugned judgment. Exercising its powers under Section 11(6) of the Act of 1996, the Court appointed Justice (Retd.) Chakradhari Sharan Singh, former Chief Justice of the Orissa High Court, as the sole Arbitrator. The Court directed the Arbitrator to proceed in accordance with the law and make a declaration in terms of Section 12 of the Act within 15 days of receiving the judgment.

The ruling reinforces the "Group of Companies" and "Veritable Party" doctrines in Indian arbitration law. It establishes that where a party’s participation is essential for a contract’s technical qualification and they assume joint liability via secondary undertakings like a DJU, they cannot be excluded from the dispute resolution framework of the main contract.

Date of Decision: May 07, 2026