Supreme Court of India: Arbitrability of Non-Signatories Referral Court vs Arbitral Tribunal
In Hindustan Petroleum Corporation Ltd. v. BCL Secure Premises Pvt. Ltd. 2025 INSC 1401, the Supreme Court decided the issue of whether a non-signatory to the original contract can invoke the arbitration clause against a party to the contract under Section 11 of the Indian Arbitration and Conciliation Act, 1996, based on an assignment and subcontracting arrangement. While deciding this issue, the Court discussed the referral court’s limited role to prima facie examine existence of an arbitration agreement versus the arbitral tribunal’s power to rule on jurisdiction, and the requirement of consent for assignment in light of party autonomy.
Factual Matrix
Hindustan Petroleum Corporation Ltd. (HPCL) floated a tender for the design, supply, installation, and commissioning of a Tank Truck Locking System (TTLS). The tender explicitly prohibited subletting or assignment without HPCL’s prior written consent. HPCL awarded the contract to AGC Networks Ltd. (later Black Box Ltd.).
Subsequently, AGC entered into a back-to-back agreement with BCL Secure Premises Pvt. Ltd. (BCL), assigning most of the project responsibilities to BCL without HPCL’s consent. The project faced technical issues, leading HPCL to issue notices to AGC for non-performance. BCL later claimed entitlement to 94% of the payment and initiated multiple proceedings against AGC. Later, AGC and BCL executed a Settlement-cum-Assignment Agreement transferring AGC’s receivables from HPCL to BCL.
Based on this, BCL invoked arbitration against HPCL, claiming INR 3 crore plus interest. HPCL denied liability, asserting no privity of contract with BCL and invalidity of the assignment. BCL then filed a petition under Section 11(4) of the Indian Arbitration & Conciliation Act, 1996 (‘Arbitration Act’) before the Bombay High Court, which allowed the appointment of an arbitrator, leaving arbitrability to the tribunal. HPCL challenged this order before the Supreme Court in the present case.
Parties Contentions
HPCL argued that there was no privity of contract between HPCL and BCL, as HPCL never dealt with BCL during negotiations or execution of the TTLS project. HPCL emphasized that the tender terms expressly prohibited subletting or assignment without prior written consent, which was never obtained.
It contended that the Settlement-cum-Assignment Agreement between AGC and BCL was invalid in law and could not bind HPCL. HPCL further asserted that the claim was ex facie time-barred and that the High Court erred in referring the matter to arbitration without prima facie examining arbitrability. HPCL maintained that mere commercial dealings between AGC and BCL or emails marked to HPCL did not establish any legal relationship or arbitration agreement with BCL.
Per contra, BCL contended that it was the real performer of the TTLS project under a back-to-back agreement with AGC, and HPCL was aware of its involvement through communications and escrow arrangements. BCL argued that after the Settlement-cum-Assignment Agreement of October 2023, it stepped into AGC’s shoes and acquired rights to claim receivables from HPCL.
It invoked the doctrine of “claiming through or under” and the “veritable party” principle, asserting that its role and obligations made it bound by and entitled to enforce the arbitration clause in HPCL’s tender. BCL maintained that whether a non-signatory is bound by an arbitration agreement is a mixed question of fact and law, best left to the arbitral tribunal under Section 16 of the Arbitration Act, and urged dismissal of HPCL’s appeal.
Issues
The issue involved in this case was whether the Bombay High Court was justified in referring the parties to arbitration under Section 11(4) of the Arbitration Act, despite the absence of a direct arbitration agreement between HPCL and BCL.
Specifically, the question was whether BCL, a non-signatory to the original contract between HPCL and AGC, could invoke the arbitration clause by claiming rights through an assignment agreement and its role as a subcontractor, and whether such determination should be made by the referral court or left to the arbitral tribunal under the doctrine of competence-competence.
Findings of the Supreme Court
In its observations, the Supreme Court clarified the role of the referral court versus the arbitral tribunal when non-signatories are involved:
- Under Section 11(6-A) of the Arbitration Act, the referral court’s jurisdiction is limited to a prima facie examination of the existence of an arbitration agreement. This means the court must inspect whether an arbitration agreement exists between the parties and whether the non-signatory appears to be a “veritable party” to that agreement.
- The Supreme Court explained that the term “veritable party” means a party that is real, genuine, or truly intended to be part of the contract and arbitration agreement for all practical purposes. It is not enough for a non-signatory to have a mere commercial relationship or indirect involvement; there must be clear evidence of intent to assume rights and obligations under the contract containing the arbitration clause. Factors like active participation in negotiation, performance, or termination of the contract, and conduct creating an appearance of being a true party, are considered to determine if a non-signatory is a veritable party.
- The Court emphasized that the examination under Section 11(6-A) of the Arbitration Act should not be a laborious or contested inquiry; it is only to weed out cases where no arbitration agreement exists. The deeper question of whether a non-signatory is actually bound by the arbitration agreement involves a fact-intensive and mixed question of law, which falls within the domain of the arbitral tribunal under Section 16 (competence-competence doctrine).
- While the referral court can refuse reference if there is nothing prima facie to show any legal relationship, it cannot mechanically refer strangers to arbitration. Conversely, if there is some prima facie indication, the tribunal should decide the issue after considering evidence and applying doctrines like “group of companies” or “claiming through or under.”
- The Court warned against an extreme approach where every non-signatory is automatically referred to arbitration, as that would undermine party autonomy and consent. At the same time, it reiterated that the tribunal retains full authority to rule on its jurisdiction, even if the referral court has taken a prima facie view.
Applying the above observations on the present facts, the Court held that there was no arbitration agreement between HPCL and BCL, nor any privity of contract. BCL was not a “veritable party” to the original contract between HPCL and AGC Networks Ltd., as HPCL had no involvement with BCL during negotiations or execution, and the tender expressly prohibited subletting or assignment without written consent, which was never obtained.
The Settlement-cum-Assignment Agreement between AGC and BCL only transferred receivables and did not create any contractual or arbitral relationship with HPCL. The Court clarified that mere commercial links, emails, or escrow arrangements cannot establish consent or legal relationship for arbitration.
Applying the past precedents, the Court emphasized that the referral court must prima facie examine the existence of an arbitration agreement and cannot mechanically refer strangers to arbitration. Since BCL failed to show even prima facie that it was a party to the arbitration agreement, the High Court’s order was set aside, and the Section 11 application was dismissed.