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Non-Signatory Cannot Invoke Arbitration Without Consent: Supreme Court

Overview

The Supreme Court in this case examined the scope of a court’s power under Section 11 of the Arbitration and Conciliation Act, 1996, particularly when a non-signatory seeks to invoke an arbitration agreement. The Court clarified that while referral courts adopt a limited, prima facie scrutiny, they are not bound to mechanically refer disputes to arbitration where it is evident that no arbitration agreement exists between the parties.

Facts

Hindustan Petroleum Corporation Ltd. (HPCL) floated a tender for the design, supply, installation, and commissioning of a Tank Truck Locking System. The tender expressly prohibited subletting, subcontracting, or assignment of the contract or any interest therein without HPCL’s prior written consent. The contract also contained an arbitration clause providing for disputes to be resolved by arbitration seated in Mumbai.

On 20 August 2013, HPCL issued a purchase order to AGC Networks Ltd. Subsequently, AGC entered into a back-to-back agreement dated 15 January 2014 with BCL Secure Premises Pvt. Ltd. (BCL), under which BCL was to perform most of the contractual obligations. HPCL was not a party to this arrangement, and the agreement restricted BCL from communicating directly with HPCL without AGC’s consent.

Due to alleged non-performance, HPCL issued notices to AGC and ultimately withheld payments. BCL, claiming to be a sub-vendor entitled to payments, initiated multiple proceedings against AGC, including civil suits, insolvency proceedings, and claims before the MSME Facilitation Council. These proceedings either failed or were withdrawn following a settlement between BCL and AGC.

On 31 October 2023, AGC and BCL executed a Settlement-cum-Assignment Agreement, under which AGC purported to assign its receivables from HPCL to BCL. Relying on this assignment, BCL issued a notice to HPCL in August 2024, invoking arbitration under HPCL’s tender conditions and claiming approximately ?3 crore.

HPCL denied liability, asserting lack of privity of contract, invalidity of assignment due to absence of consent, and limitation. BCL filed a Section 11(4) application before the Bombay High Court, which allowed the application and appointed an arbitrator, leaving the issue of arbitrability to be decided under Section 16. HPCL appealed to the Supreme Court.

Legal Issue

The principal issue before the Supreme Court was whether the High Court was justified in referring the parties to arbitration under Section 11 when the respondent was a non-signatory and had failed to establish even prima facie that it was a “veritable party” to the arbitration agreement.

Decision and Reasoning

The Supreme Court allowed the appeal and set aside the High Court’s order.

The Court reiterated that under Section 11(6-A), a referral court must prima facie examine the existence of an arbitration agreement and, where a non-signatory is involved, whether such party can be regarded as a veritable party. While complex cases may be left to the arbitral tribunal, the referral court is not reduced to a mere formality.

Applying settled law, the Court held that:

  • There was no privity of contract between HPCL and BCL.
  • The back-to-back agreement and the settlement-cum-assignment were strictly between AGC and BCL and could not bind HPCL.
  • The tender conditions expressly prohibited assignment or subletting without HPCL’s written consent, which was admittedly absent.
  • Mere commercial involvement, escrow arrangements, or copied email communications did not establish an intention on HPCL’s part to treat BCL as a contracting or “veritable” party.
  • Assignment of receivables could not, by itself, confer a right on BCL to invoke HPCL’s arbitration clause.

The Court emphasised that allowing arbitration in such circumstances would permit absolute strangers to force parties into arbitration, undermining consent, an essential foundation of arbitration.

Having found that no arbitration agreement existed, the Court found it unnecessary to examine the limitation. The Section 11 application was dismissed, while leaving BCL free to pursue any other remedies available in law.

Case Reference:- Civil Appeal No. 14647 of 2025 (@ Special Leave Petition (Civil) No. 25803 of 2025) Decided on December 9, 2025 Hindustan Petroleum Corporation Ltd. Vs. BCL Secure Premises Pvt. Ltd.