Adavya Projects v. Vishal Structurals

Arbitration and Conciliation Act, 1996 – Sections 7, 11, 16, 21, 37 – Jurisdiction of Arbitral Tribunal – Impleadment of Non-Signatories – Notice under Section 21 and Section 11 Application.

Non-service of a notice invoking arbitration under Section 21 and non-joinder in a Section 11 application for arbitrator appointment are not prerequisites for impleading a person/entity in arbitral proceedings. The arbitral tribunal’s jurisdiction, derived from the arbitration agreement under Section 7, is determined by whether the person is a party to the agreement, assessed under Section 16 based on consent and conduct. A Section 21 notice fixes the commencement of proceedings for limitation and applicable law, while a Section 11 application involves a prima facie examination of the arbitration agreement’s existence, not conclusively limiting the tribunal’s jurisdiction. Non-signatories, such as an LLP and its CEO, can be impleaded if their conduct under the agreement indicates consent to be bound by the arbitration clause.

Cox and Kings Ltd. v. SAP India (P) Ltd., (2024) 4 SCC 1 followed.

Impugned High Court order set aside, non-signatories impleaded, and arbitral proceedings directed to continue expeditiously.

Appeal Allowed – No Costs.

Citation: 2025 INSC 507
Court: Supreme Court of India
Bench: Pamidighantam Sri Narasimha, J., Manoj Misra, J.
Date of Judgment: April 17, 2025

Parties

• Appellant: Adavya Projects Pvt. Ltd.
• Respondents: M/s Vishal Structurals Pvt. Ltd. (Respondent No. 1), Vishal Capricorn Energy Services LLP (Respondent No. 2), Mr. Kishore Krishnamoorthy (Respondent No. 3)

Facts

• Background: The appellant and Respondent No. 1 entered into an LLP Agreement on June 1, 2012, forming Vishal Capricorn Energy Services LLP (Respondent No. 2) for oil and gas projects. Respondent No. 3, a director of Respondent No. 1, was designated as the CEO of the LLP under Clause 8. Clause 40 of the LLP Agreement provided for arbitration to resolve disputes between partners, the LLP, and its administrators.
• Dispute: Disputes arose in 2018 regarding the reconciliation of accounts for the ITF Project, sub-contracted to Respondent No. 1. The appellant issued demand notices in 2019 and a Section 21 notice invoking arbitration on November 17, 2020, only to Respondent No. 1. A Section 11 application was filed, impleading only Respondent No. 1, and a sole arbitrator was appointed by the High Court on November 24, 2021.
• Arbitral Proceedings: The appellant’s statement of claim impleaded Respondent Nos. 2 and 3, and an amendment to include them in the prayer clause was allowed. Respondent Nos. 1–3 challenged the tribunal’s jurisdiction under Section 16, arguing that Respondent Nos. 2 and 3 were not served with the Section 21 notice or included in the Section 11 application.
• Arbitral Tribunal’s Decision: On February 15, 2024, the tribunal held that it lacked jurisdiction over Respondent Nos. 2 and 3 due to non-service of the Section 21 notice and their absence from the Section 11 application.
• High Court: The Delhi High Court, on July 8, 2024, upheld the tribunal’s decision under Section 37, reasoning that the absence of Respondent Nos. 2 and 3 from the Section 21 notice and Section 11 application barred their inclusion in the arbitration.

Issues

1. Are service of a Section 21 notice and joinder in a Section 11 application prerequisites for impleading a person/entity in arbitral proceedings?
2. What is the source of an arbitral tribunal’s jurisdiction over a person/entity sought to be impleaded, and what inquiry must the tribunal undertake under Section 16 of the Arbitration and Conciliation Act, 1996 (ACA)?
3. Are Respondent Nos. 2 and 3 parties to the arbitration agreement, allowing their impleadment in the arbitral proceedings?

Holding

• The Supreme Court allowed the appeal, set aside the High Court’s order, and directed that Respondent Nos. 2 and 3 be impleaded as parties to the arbitral proceedings.
• The tribunal was instructed to continue proceedings from the stage of its February 15, 2024, order and to expedite the process.

Reasoning

Issue 1: Section 21 Notice and Section 11 Application

• Section 21 Notice: A notice under Section 21 is mandatory to fix the commencement of arbitral proceedings, determining limitation periods and applicable law, and is a prerequisite for a Section 11 application. However, non-service on a party does not preclude their impleadment if they are parties to the arbitration agreement. The notice’s purpose is primarily temporal, not to restrict claims or parties (relying on State of Goa v. Praveen Enterprises).
• Section 11 Application: The purpose of a Section 11 application is to appoint an arbitrator when the agreed procedure fails. The court’s role is limited to a prima facie examination of the arbitration agreement’s existence (Section 11(6A)). The court’s order does not conclusively determine the tribunal’s jurisdiction or the parties involved (relying on Cox and Kings Ltd. v. SAP India (P) Ltd.). Thus, non-joinder in a Section 11 application does not bar subsequent impleadment.

Issue 2: Source of Tribunal’s Jurisdiction and Section 16 Inquiry

• Jurisdiction Source: The tribunal’s jurisdiction derives from the parties’ consent in the arbitration agreement (Section 7, ACA). The principle of kompetenz-kompetenz (Section 16) empowers the tribunal to rule on its own jurisdiction, including whether a person is a party to the agreement.
• Section 16 Inquiry: The tribunal must examine whether the person sought to be impleaded is a party to the arbitration agreement, based on the agreement’s terms and the person’s conduct. This inquiry is not limited by the Section 21 notice or Section 11 application.

Issue 3: Respondent Nos. 2 and 3 as Parties

• Arbitration Agreement: Clause 40 of the LLP Agreement covers disputes between partners, the LLP (Respondent No. 2), and its administrators (Respondent No. 3 as CEO). Though non-signatories, their conduct indicates consent to be bound.
• Respondent No. 2: As the LLP created under the agreement, Respondent No. 2’s activities, including the ITF Project, were governed by the LLP Agreement. Its performance of contractual obligations implies consent to the arbitration clause.
• Respondent No. 3: As CEO, Respondent No. 3’s duties under Clause 8 derive from the LLP Agreement. His role in administration and contract execution binds him to the arbitration clause in his official capacity.
• Legal Test: Applying Cox and Kings and ONGC v. Discovery Enterprises, the Court found mutual intent, direct relationship, commonality of subject-matter, and composite transactions, confirming that Respondent Nos. 2 and 3 are parties to the arbitration agreement.

Conclusion

The arbitral tribunal and High Court erred by focusing solely on the non-service of the Section 21 notice and non-joinder in the Section 11 application, neglecting the tribunal’s power under Section 16 to determine its jurisdiction based on the arbitration agreement. Respondent Nos. 2 and 3, through their conduct, are bound by the arbitration agreement, justifying their impleadment.