Non-Signatory Which Isn't A Veritable Party Cannot Invoke Arbitration Clause : Supreme Court
The Supreme Court on Tuesday (December 9) held that a non-signatory to an arbitration agreement cannot invoke the arbitration clause against a party with whom it shares no legal relationship and where there is no indication of any intention to bind the non-signatory to the main contract. A bench of Justice J.B. Pardiwala and Justice K.V. Viswanathan heard the matter, where the...
The Supreme Court on Tuesday (December 9) held that a non-signatory to an arbitration agreement cannot invoke the arbitration clause against a party with whom it shares no legal relationship and where there is no indication of any intention to bind the non-signatory to the main contract.
A bench of Justice J.B. Pardiwala and Justice K.V. Viswanathan heard the matter, where the Respondent, admittedly a non-signatory to the primary contract between HPCL and AGC Networks Ltd., sought to invoke the arbitration clause against HPCL on the ground that AGC had assigned its work contract received from the Appellant to the Respondent, thereby allegedly binding it to the main agreement.
The Bombay High Court's decision to appoint an arbitrator on the Respondent's application, prompted the HPCL to move to the Supreme Court, arguing that the Respondent-BCL has no right to invoke the arbitration clause as there was no privity of contract between the Appellant and Respondent; moreover the assignment of work to the Respondent by the AGC was made without express consent of the Appellant, when the tender conditions had a specific clause stating that the contractor shall not be entitled to sublet, transfer or assign, the work under the contract without the prior consent of the owner obtained in writing.
Setting aside the High Court's decision, the judgment authored by Justice Viswanathan, relying on Cox and Kings Limited vs. Sap India Private Limited and Another, 2023 LiveLaw (SC) 1042 observed that “mere legal or commercial connection is not sufficient for a non-signatory to claim through or under a signatory party.” The Court said that unless there exists any intent to effect a legal relationship between the signatory (Appellant) and non-signatory (Respondent) to indicate that the Respondent was a veritable party, the non-signatory would not be able to invoke arbitration against the party with whom there exists no legal relationship.
“…nothing even prima facie has been shown to establish that there was any semblance of an intent to effect legal relationship between the respondent and the party originally granting the contract and/or to indicate that the respondent was a veritable party.”, the court noted.
"It should be demonstrated prima facie before the referral court that the non-signatory is a veritable party," the Court said.
"where the Referral Court finds prima facie a party is not a veritable party still the matter is left to the Arbitral Tribunal. To hold so, would relegate the Referral Court to the status of a monotonous automation. Further, to countenance such an extreme proposition would lead to disastrous consequences, where absolute strangers could walk into the Referral Court and contend that the matter has to perforce go to the Arbitral Tribunal for a decision on the veritable nature of the party. We are not prepared to accept such an extreme proposition," the Court stated.
"It could happen that one party having undertaken a contract from the other may engage one or more third parties like in the present case. In such a scenario, if there is nothing even prima facie to show that there was any semblance of an intent to effect legal relationship between that party and the party originally granting the contract and/or to indicate that such a third party was a veritable party, such parties cannot be found to be veritable parties," the Court added.
The Court found that even prima facie, the respondent has not been able to establish that it was a veritable party to the contract between HPCL and AGC.
“HPCL has no privity at all with the respondent BCL. Admittedly, to the documentation between AGC and BCL, HPCL was not a party. After obtaining the contract from HPCL, AGC appears to have engaged BCL to supply, install, integrate, test, commission and grant warranty and post warranty support services to AGC. In fact, Clause 4 of the contractual arrangement of 15.01.2014 expressly proscribes the Project Manager of the respondent-BCL to not make any communication/coordination with HPCL without obtaining prior written approval from AGC.”, the court said.
“it is clear that the appellant and the respondent have been operating on separate orbits. It has not been established even prima facie that there was any intention to bind BCL to the contract between HPCL and AGC.”, the court held.
The appeal was allowed.
Cause Title: Hindustan Petroleum Corporation Ltd. Versus BCL Secure Premises Pvt. Ltd.
Citation : 2025 LiveLaw (SC) 1184