Supreme Court Clarifies Scope of Arbitral Jurisdiction

In a significant pronouncement that clarifies procedural aspects of arbitration law under the Indian legal framework, the Hon’ble Supreme Court in Civil Appeal No. 5297 of 2025 arising out of SLP (C) No. 25746 of 2024, delivered on April 17, 2025, held that an arbitral tribunal is empowered to exercise Arbitral Jurisdiction over a party even if such party was not served with a notice under Section 21 of the Arbitration and Conciliation Act, 1996 (“ACA”) nor impleaded in an application under Section 11 of the Act.

The matter was adjudicated by a Division Bench comprising Hon’ble Mr. Justice Pamidighantam Sri Narasimha and Hon’ble Mr. Justice Manoj Misra, in the appeal titled Adavya Projects Pvt. Ltd. v. M/s Vishal Structurals Pvt. Ltd. & Ors. The ruling came in an appeal filed under Section 37(2)(a) of the Arbitration and Conciliation Act, 1996, challenging an order of the Delhi High Court which had upheld the arbitral tribunal’s decision refusing to exercise jurisdiction over Respondent Nos. 2 and 3 on the ground that no notice under Section 21 was issued to them and they were not parties to the Section 11 application.

The Bench allowed the appeal, thereby setting aside the impugned judgment dated 08.07.2024 passed by the High Court in Arb. A. (Comm.) 24/2024, and directed that Respondent Nos. 2 and 3 be impleaded as parties in the ongoing arbitral proceedings, to be resumed from the stage of the arbitral tribunal’s earlier order dated 15.02.2024.

Factual Background And Contractual Framework

The genesis of the dispute lies in a contractual relationship arising out of a Limited Liability Partnership Agreement dated 01.06.2012, executed between Adavya Projects Pvt. Ltd. (Appellant) and M/s Vishal Structurals Pvt. Ltd. (Respondent No. 1), with the object of establishing a joint venture in the form of a Limited Liability Partnership under the name “Vishal Capricorn Energy Services LLP” (Respondent No. 2). Only the appellant and Respondent No. 1 were signatories to the LLP Agreement.

As per Clause 8 of the LLP Agreement, Mr. Kishore Krishnamoorthy (Respondent No. 3) was designated as the Chief Executive Officer of the LLP, entrusted with the responsibility of administering the business and supervising the execution of contracts. It is pertinent to note that Respondent No. 3 is also a Director of Respondent No. 1.

The dispute resolution mechanism was set out in Clause 40 of the LLP Agreement, which provided as follows:

“Disputes or differences, if any, that may arise between partners inter se and/ or between the partner(s) and LLP hereto or their affiliates, assigns, successors, attorneys, administrators and all those claiming through it touching these presents or the construction thereof or any clause or thing herein contained or otherwise or in any way relating to or concerning these presents or the rights, duties or liabilities of any of the partners hereto in connection therewith the matters in such dispute or difference shall be referred to the arbitration in accordance with and subject to the provisions of Arbitration and Conciliation Act, 1996 or to any statutory modification or reenactment thereof for the time being in force. The venue of the Arbitration shall be decided by the Arbitrator so appointed by mutual consent of both partners.”

In connection with a project awarded by Oil India Ltd. by a letter of award dated 31.12.2012, a consortium involving Respondent No. 1 was formed for the augmentation of storage capacity at ITF, Tenughat, Assam. This project was subsequently subcontracted to Respondent No. 1 through an agreement dated 08.01.2013. Thereafter, the execution of the said project was undertaken through Respondent No. 2, the LLP, pursuant to a Supplementary Agreement and Memorandum of Understanding (both dated 29.01.2013) between the appellant and Respondent No. 1.

The appellant infused a sum of ₹1.1 crores towards the execution of this project. Subsequently, disputes emerged in the year 2018, particularly with respect to access to accounting records of Respondent No. 2. The appellant issued demand notices dated 11.10.2019 and 20.12.2019, claiming ₹7.31 crores from Respondent No. 1 towards reconciliation of accounts.

Thereafter, the appellant invoked Clause 40 of the LLP Agreement by issuing a notice under Section 21 of the ACA dated 17.11.2020, which was addressed solely to Respondent No. 1, through Respondent No. 3 in his capacity as Director. A Section 11 application was then filed by the appellant, again impleading only Respondent No. 1. The High Court, vide order dated 24.11.2021, appointed a sole arbitrator “to adjudicate the disputes that are stated to have arisen between the parties out of the LLP Agreement dated 01st June, 2012 read with Supplementary LLP Agreement and MoU both dated 29th January, 2013.”

Upon constitution of the tribunal, the appellant filed its statement of claim, wherein Respondent Nos. 2 and 3 were also impleaded, though the prayer clause was restricted to Respondent No. 1. This triggered an objection under Section 16 of the ACA by all respondents challenging the tribunal’s jurisdiction, asserting inter alia that no Section 21 notice was served on Respondent Nos. 2 and 3 and that they were not parties to the Section 11 proceedings. An amendment application under Section 23(3) to include Respondent Nos. 2 and 3 in the prayer clause was later allowed by the tribunal, noting that the amendment was ministerial and non-substantive.

However, the arbitral tribunal, by its order dated 15.02.2024, allowed the objections under Section 16 and held that the proceedings were not maintainable against Respondent Nos. 2 and 3, citing absence of Section 21 notice and their non-inclusion in the Section 11 application.

The appellant’s Section 37 appeal before the Delhi High Court was dismissed on 08.07.2024, affirming the view that non-service of notice and absence in the Section 11 application barred their impleadment. This order was assailed before the Supreme Court.

Arguments Advanced By The Parties

During the hearing before the Hon’ble Supreme Court, detailed submissions were made by both sides, presenting nuanced interpretations of the applicable provisions under the Arbitration and Conciliation Act, 1996 (“ACA”), especially concerning Sections 21, 11, and 16.

On behalf of the Appellant, Mr. Gaurav Agrawal, advanced the following contentions:

  1. Kompetenz-Kompetenz Principle: It was submitted that under Section 16 of the ACA, the arbitral tribunal possesses the authority to rule on its own jurisdiction, including the power to implead parties—signatories and non-signatories alike—if the disputes concern obligations arising from the same arbitration agreement.

  2. Intentional and Consensual Involvement: He emphasized that Respondent Nos. 2 and 3, although not formal signatories to the LLP Agreement, were intentionally and consensually involved in the performance of the agreement, the Supplementary Agreement, and the MoU, all of which governed the execution of the ITF Project.

  3. Binding Arbitration Agreement: Relying on the language of Clause 40 of the LLP Agreement, it was argued that the clause expressly covers disputes between the partners and the LLP (Respondent No. 2) and between the partners and the administrator (Respondent No. 3). Therefore, both entities were bound by the arbitration agreement.

  4. Constructive Notice and Intertwined Roles: The appellant asserted that the absence of a separate Section 21 notice to Respondent Nos. 2 and 3 does not bar their inclusion, particularly as they had constructive notice through Respondent No. 1, to whom the notice was served. Their intertwined roles within the LLP structure and the project execution further justified their impleadment.

  5. Statutory Provisions: Reference was also made to Section 23(4) of the Limited Liability Partnership Act, 2008 read with Schedule I, which allows for arbitration between partners and the LLP, thereby reinforcing the possibility of disputes between a partner and the LLP being referred to arbitration.

On behalf of the Respondents,made the following opposing submissions:

  1. Scope of Issue: The respondents contended that the question was not the tribunal’s jurisdiction to implead a non-signatory, but rather whether a party who was neither served with a Section 21 notice nor impleaded in a Section 11 application could be validly made a party to arbitral proceedings.

  2. Non-Applicability of Cox and Kings (2024) 4 SCC 1: It was argued that the Cox and Kings decision was distinguishable on facts. In the present case, there was no judicial or arbitral finding that Respondent Nos. 2 and 3 were necessary parties to the dispute or that their involvement was essential for its adjudication.
  3. No Consent to Arbitration: The respondents submitted that both Respondent Nos. 2 and 3 were not parties to the arbitration agreement as they were not signatories to the LLP Agreement, and hence, the clause in question could not be enforced against them.

  4. Violation of Principles of Natural Justice: A foundational objection was raised that impleading Respondent Nos. 2 and 3 without notice under Section 21 or any participation in the Section 11 proceedings was contrary to natural justice, as they were deprived of an opportunity to respond before being made parties.

Issues Framed And Analysis By The Supreme Court

Upon consideration of the submissions and the factual background, the Hon’ble Supreme Court framed two central questions of law for adjudication:

  1. “Whether service of a Section 21 notice and joinder in a Section 11 application are prerequisites to implead a person/entity as a party to the arbitral proceedings?”

  2. “What is the source of jurisdiction of an arbitral tribunal over a person/entity who is sought to be impleaded as a party to the arbitral proceedings? As a corollary, what is the relevant inquiry that the arbitral tribunal must undertake when determining its own jurisdiction under Section 16 of the ACA?”A. Section 21 Notice: Purpose and Scope

The Court commenced its analysis by interpreting Section 21 of the ACA, which provides that arbitral proceedings commence when a request for arbitration is received by the respondent, unless otherwise agreed.

The Bench explained that while a Section 21 notice is mandatory to determine:

  • The commencement date of arbitration,
  • The applicable limitation period under Section 43 of the ACA, and
  • The applicable arbitration law (particularly in light of statutory amendments),

non-service of such notice on a person who is otherwise a party to the arbitration agreement does not ipso facto prevent their impleadment in arbitration.

In doing so, the Court placed reliance on precedents including:

  • Milkfood Ltd. v. GMC Ice Cream (P) Ltd., (2004) 7 SCC 288, and
  • State of Goa v. Praveen Enterprises, (2012) 12 SCC 581,

which clarify that:

  • Claims omitted from the Section 21 notice may still be raised during arbitration, though the limitation for such claims will be calculated differently.
  • The non-issuance of a counterclaim notice by a respondent does not bar its adjudication during the proceedings.

The Court thereby held that “non-service of Section 21 notice does not render proceedings against such persons void or incompetent.”

  B. Section 11 Application: Limited Judicial Inquiry

Turning to Section 11, the Bench clarified that the purpose of this provision is confined to the appointment of arbitrators when the appointment procedure in the arbitration agreement fails.

In view of Section 11(6A), the Court stated:

“The court’s jurisdiction is confined to a prima facie examination… into the existence of the arbitration agreement.”

This principle has been affirmed in:

  • Interplay Between Arbitration Agreements and Stamp Act, (2024) 6 SCC 1,
  • SBI General Insurance Co. Ltd. v. Krish Spinning, 2024 SCC OnLine SC 1754, and
  • Ajay Madhusudan Patel v. Jyotrindra S. Patel, (2025) 2 SCC 147.

The Court referred to the Constitution Bench judgment in Cox and Kings Ltd. v. SAP India (P) Ltd., (2024) 4 SCC 1, to reaffirm that:

“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… This interpretation also gives true effect to the doctrine of competence-competence.”

Thus, the Court concluded that non-joinder of a party in a Section 11 application does not preclude the arbitral tribunal from exercising jurisdiction over such party if it finds that they are bound by the arbitration agreement.

Competence Of Arbitral Tribunal Under Section 16: Source Of Jurisdiction And Inquiry Mandated

In continuing its analysis, the Hon’ble Supreme Court examined the source of jurisdiction of the arbitral tribunal, holding that such jurisdiction emanates from the arbitration agreement itself, in line with Section 7 and Section 16 of the Arbitration and Conciliation Act, 1996 (“ACA”).

  A. Consent and Contractual Obligation as Basis of Jurisdiction

The Bench reaffirmed that:

“The arbitral tribunal’s jurisdiction over a person or entity is derived from their consent to the arbitration agreement.”

As per Section 7 of the ACA, an arbitration agreement must be in writing, and the person must be a party to such an agreement, either directly or by conduct amounting to implied consent.

The Court emphasised that under Section 16, which embodies the principle of kompetenz-kompetenz, the arbitral tribunal is empowered to rule on its own jurisdiction, including:

  • The existence or validity of the arbitration agreement,
  • The identity of the parties to the arbitration agreement, and
  • The scope of the disputes referred.

    B. International Arbitration Practice and Scholarly Authority

In support of its interpretation, the Court referred to international authorities and scholarly works, notably:

  • Gary Born, International Commercial Arbitration, and
  • Redfern and Hunter on International Arbitration.

It was noted that even in jurisdictions where national arbitration statutes are silent on joinder of parties, arbitral tribunals may imply such power where the arbitration agreement is multilateral or the underlying transaction is composite, thereby avoiding fragmented proceedings.

       C. Improper Approach of the Arbitral Tribunal in This Case

Criticising the arbitral tribunal’s order dated 15.02.2024, the Bench observed that it failed to examine whether Respondent Nos. 2 and 3 were parties to the arbitration agreement.

The tribunal had stated:

“In this case, this Tribunal has not at all found or held that the presence of Respondents No.2 and 3 is essential in these proceedings for effective adjudication of the disputes… the absence of any reference qua them by the High Court under Section 11 of the A&C Act, 1996 renders these proceedings against them void-ab-initio…”

The Supreme Court held this to be an erroneous approach, observing that the tribunal misapplied the principle of kompetenz-kompetenz by limiting its jurisdictional inquiry to procedural grounds, without analysing the substantive relationship of Respondent Nos. 2 and 3 to the arbitration agreement.

The Court concluded that a proper inquiry under Section 16 must entail a determination of whether the non-signatories are in fact parties to the arbitration agreement, and if so, the arbitral tribunal is competent to exercise jurisdiction over them.

 

Conclusion

In a path-breaking decision, the Hon’ble Supreme Court has clarified that the arbitral tribunal’s jurisdiction is fundamentally grounded in the existence of an arbitration agreement and the consent of parties thereto, rather than the procedural compliance of issuing a Section 21 notice or inclusion in a Section 11 application. By holding that non-signatories can be made parties to arbitration proceedings based on their conduct, functional role, and involvement in the underlying transaction, the Court has reaffirmed the doctrine of kompetenz-kompetenz and aligned Indian arbitration jurisprudence with international standards. The Bench’s interpretation of Sections 7, 11, and 16 of the ACA, supported by precedents and authoritative commentary, ensures that arbitration proceedings are not derailed by hyper-technical objections when the real issue is the substantive connection of a party to the arbitration agreement.

The ruling also marks a significant departure from restrictive views earlier adopted by arbitral tribunals and High Courts, thereby safeguarding the efficacy and flexibility of arbitration as a dispute resolution mechanism. By allowing the appeal and directing that Respondent Nos. 2 and 3 be impleaded in the arbitral proceedings, the Court has restored the primacy of substantive justice over procedural formality, emphasising that a party’s active participation under a contract containing an arbitration clause may bind them to arbitration, even absent formal notices or procedural joinder at earlier stages. This decision is a crucial precedent for future multi-party arbitration disputes in India.