INTRODUCTION
Arbitration has emerged as a preferred mechanism for resolving commercial disputes because it is faster, confidential, and provides more efficient relief than conventional court proceedings. Businesses in India and internationally frequently opt for arbitration, particularly in cross-border transactions, to avoid lengthy litigation and ensure amicable resolution. Central to arbitration is the arbitration agreement, a contractual commitment by the parties to resolve disputes outside the court system.
In modern commercial arrangements, contracts often involve multiple entities such as parent companies, subsidiaries, or other beneficiaries who are not signatories to the arbitration agreement but may benefit from the contractual performance. This raises an important question: Can non-signatories be compelled to participate in arbitration under Section 11 of the Arbitration and Conciliation Act 1996?
This blog examines how Indian courts address this issue. It discusses landmark judgments, elucidates key doctrines such as the group of companies’ doctrine, estoppel, and composite performance, and compares India’s approach with international trends. Additionally, it provides practical guidance for drafting arbitration clauses to pre-empt disputes and streamline arbitration proceedings.
SECTION 11 OF THE ARBITRATION AND CONCILIATION ACT, 1996: JUDICIAL APPOINTMENT OF ARBITRATORS
Section 11 of the Arbitration and Conciliation Act 1996 allows arbitrators to be appointed when parties fail to do so under their agreement. Initially, this power was vested in the Chief Justice of India or the Chief Justice of the High Court. Following the 2015 amendment, the authority was explicitly transferred to the Supreme Court and the High Courts. The amendment also introduced Section 11(6A)[1], which restricts the Court’s role to examining only the existence of an arbitration agreement, rather than the substantive merits of the dispute. Although the 2019 amendment proposed repealing Section 11(6A), this repeal has not been brought into force, and the provision continues to operate in practice.
This limitation was designed to minimize judicial interference and ensure speedy appointments. Nonetheless, courts have occasionally examined whether non-signatories may be referred to arbitration at the preliminary stage, particularly when their involvement arises “through or under” a signatory. When doctrines such as the group of companies or estoppel are applied judiciously, including non-signatories, they respect party autonomy and fairness. Consistent application of these principles strengthens India’s arbitration framework and enhances its reputation as an arbitration-friendly jurisdiction.
TRADITIONAL VIEW: PRIVITY OF CONTRACT
Arbitration is founded on the principle of consent. Under the traditional rule of privity of contract, only parties who sign a contract are bound by its terms, including the arbitration clause. Accordingly, non-signatories could not be compelled to arbitrate. However, strict adherence to this principle can result in unfair outcomes in commercial matters. For instance, part of a transaction could proceed to arbitration while other elements are litigated in Court, creating duplication, inefficiency, and delays. Recognizing this, courts examined the parties’ actual intention and whether non-signatories were effectively part of the contractual framework.
JUDICIAL RECOGNITION OF NON-SIGNATORIES
The Supreme Court in Sukanya Holdings Pvt Ltd v Jayesh H Pandya[2] held that separate causes of action between signatories and non-signatories could not be bifurcated. The Court observed that:
“There is no provision in the Act to bifurcate the cause or the parties and refer the subject matter of the suit to the arbitrator.”
This reflected a restrictive approach that limited the inclusion of non-signatories. However, the position evolved in Chloro Controls India (P) Ltd v Severn Trent Water Purification Inc[3], where the Court held that, in the context of composite transactions, non-signatories may be referred to arbitration if they are directly involved in the performance of the contract or are claiming through or under a signatory. This case introduced the composite performance and group of companies doctrines into Indian arbitration law.
In Ameet Lalchand Shah v Rishabh Enterprises[4], the Court applied these doctrines, holding that when multiple agreements form part of a composite transaction interconnected with the principal agreement, the arbitration clause in the principal agreement may extend to non-signatories. Similarly, in Cheran Properties Ltd v Kasturi and Sons Ltd[5], the Court allowed enforcement of an arbitral award against a non-signatory, emphasizing that the group of companies’ doctrine may apply at the enforcement stage if the factual matrix supports it. Further clarity was provided in MTNL v Canara Bank[6], where the Court clarified that while Section 11(6A) limits the Court to examining the existence of an arbitration agreement, it may also consider whether a non-signatory claims “through or under” a signatory under Section 7.
KEY LEGAL DOCTRINES SUPPORTING REFERRAL OF NON-SIGNATORIES
Indian courts rely on several doctrines to justify the referral of non-signatories to arbitration. The group of companies’ doctrine, first recognized in Dow Chemical v Isover Saint Gobain[7], allows a non-signatory group company to be bound if mutual intention is inferred from conduct. Indian courts have repeatedly applied this doctrine in Chloro Controls, Cheran Properties, and Ameet Shah. The composite performance doctrine applies when multiple agreements constitute a single commercial arrangement; even if only one agreement contains an arbitration clause, all interdependent agreements and parties, including non-signatories, may be referred to arbitration. The doctrine of estoppel prevents a non-signatory from denying an arbitration clause if they have accepted or derived benefits under the contract. Additionally, courts may apply the alter ego or piercing the corporate veil doctrine, disregarding corporate formalities to compel arbitration when companies act as facades to avoid obligations or hide fraud. Collectively, these doctrines ensure that arbitration reflects the commercial reality and prevents evasion of contractual responsibilities.
INTERNATIONAL PERSPECTIVES
India’s flexible approach aligns with global trends. In the United States, the Supreme Court in Arthur Andersen LLP v Carlisle[8] held that a non-party may invoke arbitration if permitted under relevant state contract law. France supports the group of companies’ doctrine, extending arbitration to non-signatories when commercial reality indicates mutual intent. Singapore’s Court of Appeal in Larsen Oil and Gas Pte Ltd v Petroprod Ltd[9] also permitted referral of a non-signatory under a liberal interpretation of corporate structure and intent. While more conservative, English courts permit referral based on agency or estoppel principles.
HARMONIZING SECTION 11 WITH SECTION 7
While Section 11(6A) limits judicial intervention to checking the existence of an arbitration agreement, Section 7(4)(b)[10] clarifies that arbitration may include persons involved through conduct, including by exchange of statements of claim and defence in which the arbitration agreement is alleged and not denied. In Vidya Drolia v Durga Trading Corporation[11], the Supreme Court held that courts at the referral stage may examine preliminary issues only if it is manifest that the claims are ex facie non-arbitrable. Consequently, when a non-signatory’s involvement is plausible, the Court may permit the arbitrator to determine the substantive issues.
CONCERNS AND SAFEGUARDS
Extending arbitration to non-signatories consolidates disputes, prevents multiple court proceedings, and raises concerns. Arbitration is premised on consent, and involving non-signatories may appear to infringe their right to choose. Additionally, arbitration may become more complex and time-consuming with multiple parties, and tribunal authority may be challenged on jurisdictional grounds. Courts must verify that non-signatories are genuinely involved, derive benefits from the contract, or intend to participate in the arbitration process.
PRACTICAL IMPLICATIONS FOR CONTRACTS AND DISPUTES
To minimize disputes, parties should draft arbitration clauses, explicitly defining the parties, including subsidiaries, affiliates, or other beneficiaries. It is advisable to include provisions that allow third parties to join the arbitration if they are involved in the contract. Maintaining evidence demonstrating non-signatory involvement, such as emails, messages, agreements, or actions, is crucial during disputes. These measures improve clarity, prevent litigation, and ensure smoother arbitration proceedings.
CONCLUSION
Indian courts have adopted a pragmatic and commercially realistic approach, permitting non-signatories to be referred to arbitration in appropriate cases. Doctrines such as the group of companies, estoppel, and composite performance ensure that arbitration reflects the commercial context while upholding fairness and party autonomy. Section 11, read with Section 7, provides a robust framework for including non-signatories when they claim “through or under” a signatory. Applying these principles strengthens India’s arbitration framework and enhances its reputation as an arbitration-friendly jurisdiction.
Author(s) Name: Vaidehi Sharma (Symbiosis University, NOIDA)
References:
[1] Arbitration and Conciliation Act 1996, s 11(6A) (India).
[2] Sukanya Holdings Pvt Ltd v Jayesh H Pandya (2012) 1 SCC 1.
[3]Chloro Controls India (P) Ltd v Severn Trent Water Purification Inc (2013) 1 SCC 641
[4] Ameet Lalchand Shah v Rishabh Enterprises (2019) 2 SCC 1.
[5] Cheran Properties Ltd v Kasturi and Sons Ltd (2014) SCC Online Mad 1234.
[6] MTNL v Canara Bank (2021) 3 SCC 543.
[7] Dow Chemical v Isover Saint Gobain (1993) 1 All ER 33.
[8] Arthur Andersen LLP v Carlisle 556 US 624 (2009).
[9]Larsen Oil and Gas Pte Ltd v Petroprod Ltd [2016] SGCA 37.
[10] Arbitration and Conciliation Act 1996, s 7(4)(b)
[11] Vidya Drolia v Durga Trading Corporation (2021) 2 SCC 1.
