In Adavya Projects Pvt. Ltd. v M/s Vishal Structurals Pvt. Ltd.[1](“Judgment”), the Supreme Court of India (“Court”) has held that the arbitral tribunal has the power to implead parties to arbitration proceedings even where the said parties were neither issued an arbitration notice nor made party to court proceedings seeking appointment of arbitrators. The Judgment is significant because it holds that even if the claimant issues an arbitration notice to only one counterparty initially, it can subsequently include additional counterparties when filing its statement of claim before the arbitral tribunal. The Judgment reconciles the divergent views taken by the Delhi High Court[2] and the Bombay High Court[3] on the issue, but the implications for additional counterparties, who may be joined after the arbitral tribunal has been constituted, could be significant.
The implications are particularly significant for non-signatories. In Cox & Kings Ltd. v SAP India Pvt. Ltd. (“Cox & Kings”),[4] the Court held that non-signatories may be bound by an arbitration agreement, but emphasised that consent of parties is the cornerstone of arbitration and that the basis for binding a non-signatory to an arbitration agreement is implied or tacit consent. Insofar as the forum for deciding this issue is concerned, the Court held that at the referral stage, the referral court is only required to prima facie rule on whether the non-signatory is a party to the arbitration agreement and that it should be left to the arbitral tribunal to take a final view on the issue.
The Need for a Prima Facie Ruling at the Referral Stage
The Judgment proceeds on the basis that since the referral court does not conclusively rule on the issue of whether a non-signatory is a party to the arbitration agreement, there is nothing wrong with an additional counterparty being joined after the arbitral tribunal is constituted. In doing so, the Court has downplayed the importance of the prima facie ruling that the referral court must make before a non-signatory is required to appear before the arbitral tribunal for a more thorough examination of the issue.
The referral court’s prima facie ruling is an important safeguard for a non-signatory whose position is that it is not a party to the arbitration agreement. Based on the non-signatory’s submissions, the referral court could find that the non-signatory is not a party to the arbitration agreement. However, if a non-signatory is brought into the proceedings only after the arbitral tribunal is constituted, it is deprived of the opportunity of a prima facie review by the referral court. It is also significant that if the arbitral tribunal finds the non-signatory to be a party to the arbitration agreement, the non-signatory can only challenge this jurisdictional ruling after the arbitral tribunal makes an award.[5] Accordingly, the non-signatory may have to go through the time and expense of the entire arbitration proceeding. This is unlike the position in other jurisdictions (e.g. Singapore[6] and England & Wales[7]), where parties may immediately approach a court in relation to a jurisdictional ruling by the arbitral tribunal.
Compelling a non-signatory to participate in arbitration proceedings without even a prima facie ruling by the referral court on the threshold issue of whether it is even a party to the arbitration agreement dilutes the importance of consent in arbitration. Since an arbitral tribunal derives its jurisdiction from consent of parties, it follows that where the existence of such consent is disputed, there should at least be a prima facie examination of the issue by another forum. Cox & Kings makes it clear that the referral court is the appropriate forum for this purpose. Where the referral court finds that the non-signatory is prima facie a party to the arbitration agreement, the referral court’s ruling legitimizes the arbitral tribunal’s jurisdiction over the non-signatory for the purpose of carrying out a more detailed examination of whether the non-signatory is indeed bound by the arbitration agreement.
Importance of Party Participation in the Constitution of the Arbitral Tribunal
One of the reasons for issuing an arbitration notice is to begin the process of constituting the arbitral tribunal. Where the arbitration clause provides for a sole arbitrator, the claimant suggests its nominee and the respondents have the opportunity of either agreeing with the claimant’s suggestion or making alternate suggestions. The referral court is approached only if the claimant and respondents are unable to agree on whom to appoint as the arbitrator. Where the arbitration clause provides for a panel of three arbitrators, the claimant nominates its arbitrator and the respondents have the opportunity to nominate theirs. The referral court is approached only if the respondent fails to nominate its arbitrator or if the two nominated arbitrators are unable to agree on whom to appoint as the third arbitrator. However, if an additional counterparty is added after the arbitral tribunal is constituted, they lose the opportunity to participate in the process of constituting the arbitral tribunal. This applies even when the additional counterparty is a signatory to the arbitration agreement or acknowledges that it is bound by the arbitration clause.
In Central Organisation for Railway Electrification v M/s ECI SPIC SMO MCML (JV) (“CORE”),[8] the Court held that permitting one party to an arbitration clause to unilaterally appoint an arbitrator violates the principle of equal treatment of parties and procedural equality in arbitration. If one party cannot impose its choice of arbitrator on another, it follows that two parties also cannot impose their choice of arbitrator on a third. However, this is precisely the position of an additional counterparty who is not issued an arbitration notice, but is made to join the arbitration proceedings after the arbitral tribunal is constituted.
No Justification for Absence of Notice
Considering the substantial implications for additional counterparties who are to be included in arbitration proceedings post-constitution of the arbitral tribunal, it should be incumbent upon the claimant to ensure that the arbitration notice is duly issued to all counterparties whom the claimant intends to involve in these proceedings. It is difficult to envisage any bona fide reason why the claimant would not do so, particularly if any of the intended counterparties is a non-signatory. By tactically omitting to issue an arbitration notice to a counterparty and subsequently joining such counterparty in the arbitration proceedings after the arbitral tribunal is constituted, the claimant could deprive a non-signatory counterparty of the opportunity of a prima facie ruling by the referral court and present such non-signatory with a fait accompli of having to appear before the arbitral tribunal. Under the circumstances, even if the claimant inadvertently omits to issue the arbitration notice to an intended counterparty, the reasonable course of action would be to require the claimant to issue a supplementary arbitration notice so that such counterparty can raise any objections it may have at the beginning and otherwise participate in the constitution of the arbitral tribunal.
Concluding Remarks
By affirming arbitrators’ power to implead non-signatories, the Court appears to have continued the trend of pro-arbitration rulings that have emanated from the Court in recent times. However, by dispensing with the need for issuing an arbitration notice to all intended counterparties, the Judgment may unintentionally open the door for abuse of the arbitral process by claimants and dilute an important safeguard available to counterparties. Undoubtedly, there could be situations where the additional counterparties raise frivolous objections to their joinder in arbitration proceedings, despite having actual or constructive knowledge of the arbitration notice and having participated in the constitution of the arbitral tribunal by proxy (either due to their connection with a party to whom the arbitration notice was issued or otherwise). In such situations, there is a need to prevent abuse of process by additional counterparties who resort to frivolous and hyper-technical objections. While this is necessary to preserve the efficiency of the arbitral process, it is equally important to avoid diluting consent and notice requirements that are likely to adversely affect the legitimacy of arbitration. The Judgment appears to have gone a step too far in prioritizing efficiency, without having fully considered its implications for the legitimacy of arbitration. Going forward, it will be interesting to see how courts strike a balance between promoting the efficiency of arbitration and safeguarding its legitimacy.
[1] 2025 INSC 507.
[2] Arupri Logistics (P) Ltd. v Vilas Gupta, 2023 SCC OnLine Del 4297.
[3] Cardinal Energy & Infrastructure (P) Ltd. v Subramanya Construction & Development Co. Ltd., 2024 SCC OnLine Bom 964.
[4] (2024) 4 SCC 1.
[5] Arbitration and Conciliation Act, 1996 (India), ss 16(5) and 16(6).
[6] International Arbitration Act, 1994 (Singapore), s 10(3)(a).
[7] Arbitration Act, 1996 (England & Wales), s 32.
[8] 2024 INSC 857.