The Supreme Court has set aside a Bombay High Court order appointing an arbitrator under Section 11(4) of the Arbitration and Conciliation Act, 1996, holding that BCL Secure Premises Pvt. Ltd., a sub-vendor, failed to establish even a prima facie case that it was a “veritable party” to the arbitration agreement between Hindustan Petroleum Corporation Ltd. (HPCL) and the principal contractor, AGC Networks Ltd.
The dispute arose from a 2013 tender floated by HPCL for the design, supply, installation and commissioning of a Tank Truck Locking System. AGC Networks Ltd. was awarded the contract, which expressly prohibited sub-letting or assignment without HPCL’s prior written consent. AGC subsequently entered into a back-to-back arrangement with BCL Secure Premises Pvt. Ltd. BCL later claimed that it had performed the substantive obligations under the contract and was entitled to payments allegedly due from HPCL, relying on a settlement-cum-assignment agreement executed between AGC and BCL in 2023. On this basis, BCL invoked arbitration directly against HPCL and approached the Bombay High Court under Section 11(4), seeking the appointment of an arbitrator.
The High Court allowed the Section 11 application and appointed an arbitrator, leaving questions of arbitrability and the binding nature of the arbitration agreement to be decided by the arbitral tribunal. Aggrieved by the referral order, HPCL approached the Supreme Court
Allowing HPCL’s appeal, a Bench of Justice J.B. Pardiwala and Justice K.V. Viswanathan held that the High Court erred in referring the parties to arbitration. The Court reiterated that at the Section 11 stage, the referral court must prima facie examine the existence of an arbitration agreement and whether a non-signatory can be regarded as a “veritable party” to that agreement. Applying the principles laid down in Cox and Kings v. SAP India, (2024) 4 SCC 1, In Re: Interplay Between Arbitration Agreements and the Stamp Act, (2024) 6 SCC 1, and SBI General Insurance v. Krish Spinning, (2024) 12 SCC , the Court held that mere commercial arrangements, back-to-back contracts, or assignment of receivables do not establish consent to arbitrate.
The Court found that HPCL had no privity of contract with BCL, and it had not consented to any assignment or sub-contracting, and was not a party to the agreements relied upon by BCL. It noted that the contractual documents expressly barred communication by BCL with HPCL without AGC’s approval, reinforcing the absence of any intent to create a direct legal relationship. The Bench held that BCL and HPCL “operated on separate orbits” and that BCL could not be treated as a party claiming “through or under” AGC merely on the basis of an internal settlement or escrow arrangements.
Clarifying the limits of Section 11 jurisdiction, the Court observed that “where the Referral Court finds prima facie that a party is not a veritable party, the matter cannot still be left to the Arbitral Tribunal.” Such an approach, the Court warned, would reduce the referral court to a “monotonous automation” and allow even absolute strangers to compel a reference to arbitration.
Holding that no arbitration agreement existed between HPCL and BCL, the Court set aside the High Court’s order and dismissed the Section 11 application, leaving BCL at liberty to pursue any other remedy available in law.
Appearances
Appellant- Mr. Sanjay Kapur, AOR Mr. Surya Prakash, Adv. Ms. Shubhra Kapur, Adv. Ms. Mahima Kapur, Adv. Ms. Mansi Kapur, Adv. Mr. Abhishek Tiwari, Adv. Mr. Anuraj Mishra, Adv.
Respondent- Mr. Nalin Kohli, Sr. Adv. Mr. Chirag Madan, Adv. Mr. Ravleen Sabharwal, Adv. Mr. G. Sai Krishna Kumar, Adv. Mr. Rahul Agarwal, Adv. Mr. Ronit Bose, Adv. Ms. Nimisha Menon, Adv. Mr. Ayuushman Arora, Adv. Mr. Randeep Sabharwal, Adv. Mr. Anubhav, AOR
