Written By: Apoorv Agarwal, Ayushi Goyal
INTRODUCTION
The evolution of Indian arbitration jurisprudence over the last decade has been marked by an increasing recognition that commercial realities often transcend the formal boundaries of contractual privity. Modern infrastructure projects, EPC contracts, consortium agreements, and public-private partnerships rarely involve only the parties who have signed the principal contract. Rather they are executed through a network of parent companies, subsidiaries, special purpose vehicles, project management consultants, and subcontractors, each playing a vital role in the performance of the underlying transaction. It is therefore often visible that the disputes arising from such projects frequently affect entities that are not formal signatories to the arbitration agreement.
The Supreme Court has acknowledged this commercial reality by progressively acknowledging the role of a non-signatory in a project and considering the same as a veritable party to an arbitration agreement. In fact, the Hon’ble Apex Court has recognized that consent to arbitrate may, in exceptional circumstances, be inferred from the structure and conduct of a composite commercial transaction in the case of Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc.[1], which was subsequently reaffirmed in Ameet Lalchand Shah v. Rishabh Enterprises[2]. The Constitution Bench in Cox and Kings Ltd. v. SAP India Pvt. Ltd.[3] settled the debate concerning the impleadment of the non-signatories to an arbitration agreement as a party to the arbitral proceedings and further clarified that the arbitral tribunal vests with the power to decide upon the impleadment of non-signatories by applying the “Group of Companies” doctrine. Thus, it has been amply clarified that the doctrinal foundations of binding non-signatories, ultimately remain rooted in consent, albeit consent that may be implied from the surrounding circumstances in every case.
While these decisions have considerably developed the substantive law governing the participation of the non-signatories in the arbitral proceedings, yet an equally important procedural question remains unanswered, i.e., what happens when a non-signatory seeks to participate in arbitration after the proceedings have already completed its pleadings. It is this gap that exposes one of the most significant lacunae in Section 16 of the Arbitration and Conciliation Act, 1996.
WIDE JURISDICTION UNDER SECTION 16 OF THE ARBITRATION & CONCILIATION ACT
Section 16 of the Arbitration & Conciliation Act, 1996 (“A&C Act”) incorporates the doctrine of ‘Kompetenz-Kompetenz’, empowering an arbitral tribunal to rule upon its own jurisdiction, including objections regarding the existence or validity of the arbitration agreement. The provision reflects the legislative intent that questions concerning jurisdiction should ordinarily be decided by the tribunal itself, with minimal judicial intervention. Decisions such as SBP & Co. v. Patel Engineering Ltd.[4], and Vidya Drolia v. Durga Trading Corporation[5] reinforce this principle by recognizing that arbitral tribunals are the primary forum for determining jurisdictional disputes.
Even though Section 16 of the A&C Act merely confers jurisdictional power upon the Arbitral Tribunals, however, it offers a little guidance as to how that power should be exercised when a non-signatory seeks impleadment into an ongoing arbitration. The provision is silent on the stage at which such an application ought to be decided, the factors relevant to its determination, or the procedural consequences of allowing or rejecting such a request. Consequently, the decision is left almost entirely to the discretion of the arbitral tribunal.
The difficulty with this approach becomes apparent in complex commercial projects. For an example, an infrastructure project involving a concessionaire, a special purpose vehicle, the parent company, a project consultant and multiple contractors. Although only two entities may have executed the arbitration agreement, the implementation of the project is often dependent upon the coordinated participation of all stakeholders. It is not uncommon for one such entity to become aware of the arbitration only after pleadings have been completed or evidence has commenced. The reasons are practical rather than tactical. The signatories may not have disclosed the proceedings, or the dispute may initially have appeared bilateral before eventually affecting the rights of the non-signatory.
Upon acquiring knowledge of the arbitration, the non-signatory may invoke Section 16 of the A&C Act and contend that it is either bound by, or entitled to rely upon, the arbitration agreement. At this juncture, the Tribunal often faces a procedural dilemma. Permitting impleadment may require reopening pleadings, recalling witnesses, or extending timelines. Rejecting the application may compel the non-signatory to initiate separate proceedings, creating the possibility of inconsistent findings arising from the same transaction. Section 16 offers no guidance as to how these competing considerations should be balanced.
This absence of procedural standards is particularly significant because the Arbitral Tribunals, though creatures of contract and getting its jurisdiction from such arbitral agreements, perform undeniably quasi-judicial functions. They determine jurisdiction, adjudicate disputed questions of fact and law, assess evidence, and render binding decisions affecting valuable civil rights. Such powers are judicial in substance, even if exercised within a contractual framework. It is therefore difficult to justify conferring such broad adjudicatory discretion without simultaneously prescribing the principles that are ought to regulate its jurisdictional exercise.
The issue is not that arbitral tribunals possess discretion, in fact, the procedural flexibility is one of the defining features of the arbitration. However, the concern is that this discretion operates in a normative vacuum. Different tribunals may adopt entirely different approaches to identical applications. One tribunal may decide the impleadment application as a preliminary issue in the interests of procedural economy, while another may reject the application altogether because of the advanced stage of the proceedings. Each approach may be legally defensible, yet the absence of statutory guidance produces uncertainty and inconsistency.
DILEMMA UNDER ARBITRAL PROCEEDINGS VIS-À-VIS THE GUIDING PRINCIPLES OF ORDER I RULE 10 OF CPC
The procedural vacuum under Section 16 of the A&C Act becomes even more evident when a parallel is drawn with the Code of Civil Procedure, 1908 (“CPC”). Although the CPC does not apply to the arbitral proceedings strictly, but its underlying principles often illuminate gaps in the arbitral framework. Order I Rule 10 of the CPC empowers the Civil Courts to add those parties whose presence is necessary or proper for the effective adjudication of the dispute. Over decades of judicial interpretation, the courts have developed well-settled principles governing the exercise of this discretion. They examine whether an effective decree can be passed in the absence of the proposed party, whether its presence would facilitate complete adjudication, and whether impleadment would avoid multiplicity of proceedings.
These principles should not be transplanted in wholesale into arbitration. As the arbitral proceedings remain fundamentally consensual, and no person can be compelled to arbitrate merely because they are a necessary party in the civil law sense. The decision of the Hon’ble Supreme Court in Cox & Kings (Supra) reiterates that the consent continues to be the cornerstone of arbitration. Nevertheless, once a tribunal is prima facie satisfied that a non-signatory may legitimately be bound by the arbitration agreement under the ‘Group of Companies’ doctrine, the procedural philosophy underlying Order I Rule 10 of the CPC becomes instructive. Both the civil courts and the arbitral tribunals are confronted with the same institutional concern, i.e., whether justice can be effectively administered in the absence of a party whose rights are inextricably connected with the dispute.
The absence of guiding principles under Section 16 also undermines one of the principal objectives of arbitration, which is to avoid the traditional dispute resolution practice that is time taking. It is pertinent to consider here that a refusal to entertain a legitimate impleadment application may compel the non-signatory to commence independent proceedings, resulting in parallel arbitrations or court litigation involving identical questions of facts and law. Such fragmentation not only increases the costs but also creates the possibility of conflicting findings upon the same commercial transaction. Ironically, a procedural rule intended to promote efficiency may ultimately produce the very multiplicity of proceedings that arbitration seeks to avoid.
The answer, however, does not lie in importing the procedural rigidity of CPC into arbitration. The same is because an excessive formalism under the CPC would undermine the flexibility that distinguishes arbitration from conventional litigation. Instead, what is required is a structured framework to guide, rather than to constrain the Arbitral Tribunal’ discretion. Section 16 of the A&C Act could be amended to require the Arbitral Tribunals to consider factors such as the stage at which the applicant became aware of the proceedings, the reasons for the delay, the applicant’s role in the underlying transactions, the likelihood of prejudice to the existing parties, and the possibility of avoiding multiplicity of proceedings through impleadment, while deciding applications by non-signatories under Section 16 of the A&C Act. Such a framework would preserve procedural flexibility while ensuring that discretion is exercised consistently and transparently.
CONCLUSION
As arbitration is becoming a constant choice in every commercial agreement that is being executed in the country, which often has to deal with complex, multi-party commercial disputes, the limitations of a procedural framework designed primarily for bilateral disputes have become increasingly apparent. The debate today is no longer confined to whether non-signatories may participate in arbitration. The Hon’ble Supreme Court has largely settled that question in the Cox & Kings (Supra), followed by the recent judgment of the Ajay Madhusudan Patel v. Jyotrindra S. Patel[6], wherein it was held that “the intention of the parties to be bound by an arbitration agreement can be gauged from the circumstances that surround the participation of the non-signatory party in the negotiation, performance, and termination of the underlying contract containing such an agreement.”. Thus, the more pressing challenge is ensuring that such participation is regulated through fair and predictable procedures.
Section 16 of the A&C Act has successfully entrenched the doctrine of Kompetenz-Kompetenz within the Indian Arbitration Law, but its silence regarding the impleadment applications by the non-signatories, who played an indispensable role in the execution of the contract, has created a significant procedural gap. In a legal regime that entrusts the Arbitral Tribunals with quasi-judicial authority, the discretion cannot remain entirely unguided. Hence, borrowing the underlying rationale of Order I Rule 10 of the CPC, i.e. its emphasis on complete adjudication and avoidance of multiplicity and not its procedural rigidity, can provide a guiding light for exercising jurisdiction under Section 16 of the A&C Act. Such an approach would ensure that the procedural architecture of Indian arbitration evolves in tandem with the substantive expansion of non-signatory jurisprudence, while diluting the consensual nature of arbitration.
[1] Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641.
[2] Ameet Lalchand Shah v. Rishabh Enterprises, (2018) 15 SCC 678.
[3] Cox and Kings Ltd. v. SAP India Pvt. Ltd, (2024) 4 SCC 1.
[4] SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618.
[5] Vidya Drolia v. Durga Trading Corpn., (2021) 2 SCC 1.
[6] Ajay Madhusudan Patel v. Jyotrindra S. Patel, (2025) 2 SCC 147.
