Supreme Court - Non-Signatory To An Arbitration Agreement May Be A “Veritable Party” In Arbitral Proceedings

On August 5, 2026, a bench of the Supreme Court (“Court”) comprising Justice Mr. Sanjay Kumar, and Justice Sanjeev Sachdeva, in KKH Finvest Private Limited v. Ashiesh Shukla (Special Leave Petition (C) No. 4222 of 2025), held that a shareholder of a company may constitute a ‘veritable party’ to arbitration proceedings arising out of an agreement entered into by the company, notwithstanding such shareholder not being a signatory to the agreement. In arriving at such conclusion, the Court affirmed that the principle of ‘veritable party’ may apply to persons or entities who, although not signatories to an arbitration agreement, may be regarded as parties to the agreement by virtue of their relationship with the signatory and their role in the underlying transaction.

Facts

The Appellants, KKH Finvest Private Limited (“KKH”), Sensorise Digital Services Private Limited (“SDS”), and a sister concern of SDS, along with their promoters, entered into a Memorandum of Settlement (“MoS”) whereby KKH agreed to purchase entire shareholding of SDS and its sister concern. The MoS required execution of separate share purchase agreements by promoters/ shareholders. One such share purchase agreement (“SPA”) was executed by Respondent No. 1, Ashiesh Shukla, an ex-consultant in SDS, for transfer of 1480 shares held by him.

Disputes arose between the parties to MoS. Upon the filing of an application under Section 11 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), the High Court of Delhi appointed a sole arbitrator. Although Respondent No. 1 and the ex-promoter group were not signatories to MoS, they were arrayed as parties in arbitral proceedings. On this ground, Respondent No. 1 raised objections before the sole arbitrator. Simultaneously, KKH and SDS jointly filed another application under Section 11 for referral of disputes relating to Ashiesh Shukla and ex-promoter group to arbitration.

In its decision, the High Court referred ex-promoter group to arbitration. However, Respondent No. 1 was excluded from referral. Relying on a clause in his SPA, the High Court observed that the sale of shares by Respondent No. 1 was independent of obligations and disputes arising under MoS. Further, there was no separate arbitration agreement in the SPA. Aggrieved by the decision of the High Court, the appellants approached the Supreme Court in appeal.

Issues before the Court

The primary issue raised before the Court was whether Respondent No. 1, a shareholder non-signatory to MoS, would qualify as a veritable party for the purposes of arbitral proceedings before the sole arbitrator.

Decision of the Court

The Court, while referring to certain clauses of the SPA, observed that Respondent No. 1 committed himself to the sale of shares and was bound by the terms of MoS. The clauses in the SPA categorically provided reference to total acquisition under MoS and transfer being undertaken in amount proportionate to the settlement in MoS. The Court observed that the principle of ‘veritable parties’ would be applicable in situations where a person or entity may not be a signatory to an arbitration agreement, yet may appear to be a veritable party to such agreement due to its legal relationship with the signatory parties and involvement in the performance of the underlying contract.

In reaching the conclusion, the Court placed reliance on its earlier decision in Cox & Kings Limited v. SAP India (P) Limited, (2024) 4 SCC 1, wherein it was held that in the participation of a non-signatory in the performance of the underlying contract is the most important factor to be considered as the conduct of the non-signatory parties is an indicator of the intention of those parties to be bound by the arbitration agreement. Other than such involvement, the composite nature of the transaction and commonality of the subject matter were factors essential for determination of a non-signatory as veritable party.

Applying the aforesaid principles, the Court observed that the transfer of shares by Respondent No. 1 was fundamental to the execution of MoS. Setting aside the impugned judgment passed by the Delhi High Court, the Supreme Court allowed the appeal and held Respondent No. 1 to be a veritable party to MoS.