Reinforcement Of Limits On Extending Arbitration To Non-signatories

When the Hon'ble Supreme Court delivered its decision in SBI General Insurance Co. Ltd. v. Krish Spinny¹, there was an initial impression in the hallowed corridors of all the High Courts that Section 11 applications would thereafter require minimal judicial scrutiny. For a moment, it appeared as though these petitions would be disposed of almost mechanically, with the High Court merely confirming the existence of an arbitration agreement and moving on. The principal that was being applied was that once an arbitrator was appointed, every other issue, however complex, would appropriately fall within the domain of the arbitrator. That optimism, however, did not survive for too long. As diverse factual scenarios continue to surface in Indian litigation, the Bombay High Court's decision in Mukesh Patel & Ors. v. Pant Nagar Ganesh Krupa CHS Ltd. & Ors.makes it abundantly clear that, in matters involving intricate factual matrices, the High Court cannot sidestep from its duty of examining certain aspects even in a Section 11 petition.

The case arose from a Development Agreement of 2010 between the applicant, Mukesh Patel, and the original Society (Pant Nagar Ganesh Krupa Cooperative Housing limited). This agreement was terminated by the Society in 2019. Several years later, in 2022–2023, the Society (Merged society of Pant Nagar and Shubham Ambience Co-operative Housing Society Limited) entered into an entirely fresh development arrangement with Avvad Spaces LLP. Patel did not challenge the termination until 2023, when he filed a Section 9 petition, which was ultimately dismissed for non-removal of objections. Thereafter, in 2025, Patel filed the present Section 11 application seeking appointment of an arbitrator and also sought to array Avvad as a "veritable party" to the arbitration proceedings.

The central issue before the High Court was whether Avvad, a non-signatory to the 2010 Development Agreement, could be compelled to participate in an arbitration arising from that agreement. Patel relied heavily on Cox & Kingsand ASF Buildtech, submitting that Avvad acquired rights in respect of the same property and therefore claimed "through or under" the Society, making it a veritable party. The High Court rejected this contention, holding that the doctrines recognized in Cox & Kingsand ASF Buildtechapply to parties where there exists a genuine legal or factual connection between the signatory and the non-signatory such as within group companies, alter-ego scenarios, or composite and interdependent transactions. The High Court noted that Avvad was merely a subsequent developer appointed under an entirely independent contract and had no ownership, management or transactional connection with Patel's agreement. The mere fact that the subject property was common could not justify dragging Avvad into arbitration proceedings concerning a long-terminated contract to which Avvad had no relationship. The High Court not only underscored that Avvad had no legal or factual correlation with the proceedings but also questioned the interpretation the Petitioner sought to draw from ASF Buildtech. It observed that the Petitioner's reliance on the judgment was highly selective, resting on isolated lines without appreciating the core reasoning or the context in which the Hon'ble Supreme Court articulated the principles governing non-signatories. The High Court made it clear that such fragmented reliance could not be a basis to invoke the veritable party doctrine, particularly when the foundational elements required to bind a non-signatory were entirely absent.

Another significant aspect addressed by the High Court was the argument under Section 19(b) of the Specific Relief Act. Patel argued that since the law allows specific performance to be enforced even against someone who later derives rights from a contracting party, Avvad should therefore be treated as bound by the terms of the original agreement. The High Court rejected this submission outright, clarifying that Section 19(b) merely identifies the category of persons against whom a decree for specific performance may be enforced; it does not expand or create privity for the purpose of arbitration. The provision does not operate to import consent to arbitrate, nor does it transform a subsequent, independent contracting party into one who "claims under" the original agreement. In other words, even if a claim for specific performance could theoretically be pursued against Avvad in a civil suit, that possibility does not convert Avvad into a party bound by the arbitration clause contained in Patel's long-terminated Development Agreement. Arbitration remains a consent-based mechanism, and Section 19(b) cannot be used to manufacture such consent where none exists.

The High Court also stressed that the limited nature of Section 11 jurisdiction does not absolve the High Court of its duty to determine whether an arbitration agreement exists with the party that sought to be referred. While Krish Spinnyemphasizes on minimal intervention by courts, the High Court is still required to record a prima facie conclusion on the existence of an arbitration agreement with the proposed party. In this case, no such agreement or even the basis for treating Avvad as a de facto party was traceable.

The judgment further underlined the broader consequences of accepting Patel's interpretation. If subject-matter commonality alone were sufficient, then every future developer or contracting party associated with the project could be forced into arbitration proceedings indefinitely, leading to untenable and absurd results. Arbitration jurisprudence cannot permit such instability, especially when the very foundation of the arbitral process is consent.

Ultimately, the High Court held that Avvad is not a veritable party and cannot be compelled to participate in arbitration proceedings arising from Patel's Development Agreement. While Patel may pursue arbitration against the merged Society, any claim he intends to pursue against Avvad must be undertaken in an appropriate forum, but not through arbitration.

Anhad Law's Perspective

This judgment is significant as it restores clarity to the scope of the veritable party doctrine. It reinforces that the principles laid down in Cox & Kings and ASF Buildtechcannot be stretched beyond their factual context and certainly cannot be invoked merely because the dispute concerns the same project or property. The decision further underscores an important principle, namely that precedents must be read in their entirety rather than by isolating favorable sentences detached from their underlying reasoning. It also reiterates that a precedent should be relied upon only where the judgment has actually examined and opined on a similar controversy. It should never be the case that a decision rendered on an entirely different issue is pressed into service merely because a line or two appear to be helpful when taken out of context².

That said, while the High Court rightly rejected the attempt to rope in Avvad as a veritable party, the outcome of the Section 11 application raises a separate and equally relevant concern. Despite the Development Agreement having been terminated in 2019, despite Patel's Section 9 petition itself having been filed four years later and then dismissed for non-removal of objections, and despite there being substantial delay and inaction on the part of the Petitioner, an arbitrator was nonetheless appointed.

While the judgment appropriately clarifies the limits of the veritable party doctrine, it leaves ambiguity on a separate but critical aspect. Section 11 proceedings, as repeatedly affirmed by the Supreme Court, require the Court to undertake a prima facie examination of two narrow but essential aspects, one being thevalidity of the arbitration agreementand other, theissue of limitation. In the present case, although the former was not in dispute, the manner in which the limitation test was satisfied is unclear, particularly given that the Development Agreement was terminated way back in February 2019 and the Petitioner invoked rights only years later. Thus, while the Court has rightly refused to expand the scope of the veritable party doctrine, the judgment leaves open an important question as to whether the test for referral to arbitration was fully met in the factual circumstances of this case.

Footnotes

1 2024 INSC 532

2 (2022) SCC OnLine SC 568

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