Arbitration | 'Substantial Financial Interest' No Ground To Implead Non-Signatory; Active Participation In Contract Essential: HP High Court

The Himachal Pradesh High Court has ruled that merely because a party has a substantial financial interest in the subject matter of the contract, that alone cannot be a ground for impleading it as a party in the arbitration proceedings between the parties before the learned Arbitrator.The HC thus upheld an arbitral tribunal's decision rejecting the impleadment application of a non-signatory third party, emphasising that potential ultimate financial liability is not a valid ground for joinder in arbitration proceedings in the absence of direct participation in the underlying contract.With these observations, a Bench of Justice Ajay Mohan Goel dismissed a writ petition filed by IIT Mandi and upheld the Arbitral Tribunal's order, which refused to implead the Institute in a dispute between the Central Public Works Department (CPWD) and a private contractor, M/s Supreme Infrastructure India Limited.The Court held that the Memorandum of Understanding (MoU) between IIT Mandi and CPWD was "completely distinct and independent" from the Construction Agreement between CPWD and the contractor. Consequently, IIT Mandi was a stranger to the arbitration agreement invoking the latter.Case in brief Briefly put, in 2011, IIT Mandi entered into a Memorandum of Understanding (MoU) with the Central Public Works Department (CPWD) for the construction of its campus at Kamand. Under the MoU, IIT Mandi provided funds and approved designs, while CPWD was responsible for execution, tendering, and project management.Acting on this, the CPWD awarded a separate construction contract to M/s Supreme Infrastructure India Limited.However, disputes eventually arose between the CPWD and the private contractor regarding the execution of the work, and the contractor invoked arbitration against the CPWD, claiming approximately Rs. 689 Crores.During the pendency of these arbitral proceedings, IIT Mandi moved an application seeking impleadment. The Institute argued that, as the "project owner" and "ultimate beneficiary", any adverse award against the CPWD would effectively impose a financial liability on the Institute under the terms of the MoU.The application, however, was rejected by the Arbitrator. The Tribunal held that IIT Mandi's plea was based solely on the apprehension of an adverse award.Dismissing its application, the Arbitrator had remarked: "Merely because IIT Mandi has a substantial interest in the subject matter of the contract…is not a ground to implead it, as it has no direct role to play in execution of the project".High Court's observationsDismissing the writ petition filed by IIT Mandi against the Tribunal's order, the High Court observed that the MoU between IIT Mandi and CPWD, and the construction contract between CPWD and the contractor, were "completely distinct and independent of each other".Justice Goel noted that IIT Mandi was neither a signatory to the construction agreement nor involved in its performance or negotiations.Relying on the principles of the 'Group of Companies' doctrine and the Supreme Court's verdict in the case of Cox and Kings Ltd v. SAP India Pvt Ltd 2023 LiveLaw (SC) 1042, the High Court reiterated:"Non-signatory can be made a party…provided that there is participation of the non-signatory in the performance of the underlying contract and conduct…is also an indicator of the intention…to be bound".The Court concluded that the Institute had failed to demonstrate any such participation in the contract between the CPWD and the contractor. Consequently, the mere fact that the Institute funded the project did not make it a necessary party to the arbitration.Thus, the High Court dismissed the writ petition and upheld the arbitrator's order.Case Name: Indian Institute of Technology, Mandi (Kamand), H.P. v/s Central Public Works Department & anotherCase No.: CWP No.9200 of 2025Date of Decision: 29.12.2025For the Petitioner: M/s Akhil Mittal, Abhinav Purohit and Abhishek Kaundal, Advocates.For the Respondents: Mr. Balram Sharma, Deputy Solicitor General of India, for respondent No.1.Mr. Vikram Chaudhari, Senior Advocate (through V.C.), with Mr.Arvind Sharma, Advocate, for respondent No.2.Dr. Sambhav K. Pandey, Registrar, IIT Mandi, present in the Court in person.Click Here To Read/Download Order

Arbitration | 'Substantial Financial Interest' No Ground To Implead Non-Signatory; Active Participation In Contract Essential: HP High Court

Mehak Aggarwal

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