Jurisdiction Flows from Consent: Supreme Court Clarifies Joinder of Non-Signatories in Arbitration
- Chintan Shah
- 6 days ago
- 4 min read
Summary of the Judgment
Case Name: Adavya Projects Pvt. Ltd. v. M/s Vishal Structurals Pvt. Ltd. & Ors.
Date of Judgment: 17 April 2025
Court: Supreme Court of India
Judges: Hon’ble Justice Pamidighantam Sri Narasimha and Hon’ble Justice Manoj Misra
Advocates:
For Appellant: Mr. Gaurav Agrawal, Senior Advocate
For Respondents: Mr. Varun Kanwal, Advocate
Acts and Sections Involved:
Arbitration and Conciliation Act, 1996 – Sections 7, 11, 16, 21, 23(3), 37
Limited Liability Partnership Act, 2008 – Section 23(4), Schedule I
Code of Civil Procedure, 1908 – Order I Rule 10 (analogy)
Limitation Act, 1963
Cited Judgments:
Cox and Kings Ltd. v. SAP India Pvt. Ltd. (2024) 4 SCC 1
Milkfood Ltd. v. GMC Ice Cream (P) Ltd. (2004) 7 SCC 288
State of Goa v. Praveen Enterprises (2012) 12 SCC 581
BSNL v. Nortel Networks (India) Pvt. Ltd. (2021) 5 SCC 738
BCCI v. Kochi Cricket Pvt. Ltd. (2018) 6 SCC 287
ONGC Ltd. v. Discovery Enterprises Pvt. Ltd. (2022) 8 SCC 42
Introduction
In a significant decision that redefines the contours of arbitral jurisdiction in multi-party disputes, the Supreme Court in Adavya Projects Pvt. Ltd. v. M/s Vishal Structurals Pvt. Ltd. & Ors. has clarified the interplay between procedural prerequisites and substantive jurisdiction under the Arbitration and Conciliation Act, 1996 ("ACA").
The case arose from a dispute over the non-joinder of parties in arbitration proceedings. The arbitral tribunal had rejected the impleadment of respondent nos. 2 and 3—Vishal Capricorn Energy Services LLP and its CEO—on the ground that they had not received notice under Section 21 nor were parties in the Section 11 petition. The High Court affirmed this position under Section 37. However, the apex court set aside the High Court’s order, elucidating the true source of arbitral jurisdiction and reinstating the arbitral tribunal’s authority to determine its own jurisdiction under Section 16.
The Core Issue: Is Section 21 Notice a Precondition to Jurisdiction?
The judgment underscores that while a notice under Section 21 is mandatory, it is not determinative of jurisdiction. The Court rightly observed:
“The relevant consideration to determine whether a person can be made a party before the arbitral tribunal is if such a person is a party to the arbitration agreement.”
This demarcation between procedural compliance and substantive consent lies at the heart of this judgment. The service of notice under Section 21 merely fixes the date of commencement of arbitration, impacting limitation and procedural timelines, but not the tribunal’s competence to adjudicate upon parties who may not have formally received such notice.
Kompetenz-Kompetenz and Section 16: More than a Catchphrase
At the heart of the decision lies a robust reaffirmation of the doctrine of kompetenz-kompetenz under Section 16. The Court held:
“The arbitral tribunal’s jurisdiction over a person/entity is derived from their consent to the arbitration agreement... the proper inquiry... is whether such person is a party to the arbitration agreement.”
The arbitral tribunal had erred in sidestepping this analysis, mechanically resting its conclusion on the absence of procedural steps. The Supreme Court made it clear that a Section 16 application requires a deeper inquiry into whether the person concerned is indeed party to the arbitration agreement, either directly or by conduct.
Section 11 Orders: Not the Final Word
The Court also addressed the significance of a party not being included in the Section 11 application. It held that such absence does not foreclose the possibility of their later impleadment. The reasoning was bolstered by the Constitution Bench ruling in Cox and Kings Ltd., which observed:
“The referral court should leave it for the Arbitral Tribunal to decide whether the non-signatory party is indeed a party to the arbitration agreement...”
Thus, the appointment of an arbitrator is a facilitative act, not a jurisdictional gatekeeper. This deconstructs a common misconception that non-mention in Section 11 proceedings precludes subsequent involvement.
Consent Beyond Signatures: Clause 40 and its Interpretative Breadth
Clause 40 of the LLP Agreement—forming the basis of arbitration—was wide in its coverage. It explicitly extended to disputes involving not just partners inter se, but also the LLP and its CEO. The Court applied the test laid down in Discovery Enterprises to determine non-signatory consent, considering factors like:
Performance of contract by non-signatory
Commonality of subject matter
Intertwined roles in dispute
Intention evidenced through conduct
Respondent no. 2 (the LLP) was formed pursuant to the same agreement and carried out the disputed project. Respondent no. 3, as CEO under the agreement, was actively involved in the contractual obligations. The Court rightly inferred their constructive consent to arbitration.
“Respondent nos. 2 and 3 have, through their conduct, consented to perform contractual obligations under the LLP Agreement… they have also agreed to be bound by the arbitration agreement.”
This is a textbook application of the group of companies doctrine, now fully anchored within Section 7(4)(b) of the ACA post-Cox and Kings.
High Court Precedents: Alupro and Cardinal Energy
The Court undertook a valuable comparative analysis of High Court precedents.
While the Delhi High Court in Alupro Building Systems had stressed the importance of Section 21 notice, the Supreme Court nuanced its application, distinguishing between mandatory nature and jurisdictional effect.
In contrast, the Bombay High Court in Cardinal Energy & Infrastructure supported post-Section 11 impleadment by the arbitral tribunal—an approach that the apex court endorsed. The Supreme Court clarified that Alupro could not be read to limit the arbitral tribunal’s jurisdiction in the face of demonstrable consent.
Concluding Thoughts
This judgment is a significant step in maturing India's arbitration jurisprudence. It strikes a necessary balance between procedural discipline and the commercial realities of multi-party agreements. The Court’s insistence on substance over form, and its deep engagement with comparative and doctrinal materials, reflect a judiciary that is increasingly attuned to the nuances of modern arbitration.
As Hon’ble Justice Narasimha aptly summed up:
“The proper judicial inquiry to decide a jurisdictional issue under Section 16... will therefore entail an examination of the arbitration agreement and whether such person is a party to it.”
This decision not only reinforces the autonomy of arbitral tribunals but also sets a compelling precedent for future multi-party disputes. Legal professionals must absorb its implications deeply, especially in sectors like infrastructure, oil and gas, and joint ventures, where layered contractual frameworks are common.
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