Introduction
In the complex tapestry of commercial transactions, a fundamental question often arises: Can a party who never signed the main agreement and is a complete stranger to the initial contract later step into the shoes of a signatory and compel another party into arbitration? This delicate dance between contractual autonomy and commercial necessity forms the backdrop of many legal battles.
The Supreme Court, in its recent definitive ruling, Hindustan Petroleum Corporation Ltd. v. Black Cat Logistics1, has clarified this highly debated area, holding that a non-signatory cannot invoke an arbitration clause against a party with whom it shares no direct legal relationship, especially where there is no clear intention to bind the non-signatory to the main contract.
This pivotal judgment stemmed from a dispute between Hindustan Petroleum Corporation Ltd. (HPCL) and Black Cat Logistics (BCL). BCL, a non-signatory, sought to enforce the arbitration clause in HPCL’s primary contract with AGC Networks Ltd. (which had assigned its work to BCL without HPCL’s consent, contrary to the contract’s explicit non-assignment clause). The core issue before the Apex Court was whether BCL, lacking privity of contract with HPCL, could legally compel HPCL into arbitration under these circumstances.
This article delves into the meticulous reasoning and underlying legal principles that guided the Supreme Court’s pronouncement, shedding light on the crucial doctrine of privity of contract and the limited exceptions under which the veil of non-signatory status may be pierced in arbitration law.
The initial hurdle in this legal inquiry was defining the appropriate scope of judicial power for the referral court when an application is moved under Section 11 of the Arbitration and Conciliation Act, 1996, seeking to compel a non-signatory into arbitration. “What exactly is the jurisdictional limit of the referral court when confronted with an alleged “stranger” to the contract?”
The Supreme Court relied extensively on its authoritative five-judge bench decision in Cox and Kings Limited vs. Sap India Private Limited and Another2, which, though primarily concerning the Group of Companies doctrine, laid down the jurisdictional roadmap. The court established that the referral court must be satisfied prima facie on two counts: the existence of an arbitration agreement and whether the non-signatory is a “veritable party” to that agreement.
The term “veritable,” meaning “real, truly, genuinely, or for all intended purposes,” is key. It signifies that the referral court is not a “monotonous automation,” but has an obligation to “inspect and scrutinize” the dealings between the parties to determine, on a preliminary basis, if the non-signatory is a party in the real sense. As reiterated in In Re: Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 & Stamp Act, 1899 and SBI General Insurance Company Limited vs. Krish Spinning3, the scope of this “examination” under Section 11(6-A) is limited to a prima facie scrutiny, distinct from the Arbitral Tribunal’s ultimate power under Section 16 to “rule” on its jurisdiction after a full, laborious inquiry and admission of evidence.
This leads to the crucial question: Under what legal and factual circumstances can a third party enforce an arbitration clause, thereby crossing the threshold of being a “veritable party” prima facie? The Court, drawing from principles articulated in Ajay Madhusudan Patel and others vs. Jyotrindra S. Patel and others4, provided broad features to guide this determination. While a non-signatory’s lack of a signature may suggest an intention to avoid obligations, the courts must not be conservative. The intention of the non-signatory to be bound must be evident through their conduct and relationship with the signatory parties.
The key indicia, therefore, are: the mutual intent of the parties, the relationship of a non-signatory with a signatory, commonality of the subject-matter, the composite nature of the transactions, and the performance of the contract. The underlying thread is the non-signatory’s involvement being substantial enough to “create an appearance that it is a veritable party to the contract containing the arbitration agreement,” leading the other party to legitimately rely on that appearance, as noted in the context of the Group of Companies doctrine.
Did the non-signatory in the HPCL dispute successfully clear this prima facie threshold? Applying these established principles to the facts of the instant appeal, the Supreme Court found that the respondent, BCL, failed to establish, even prima facie, that it was a “veritable party” to the contract between HPCL and AGC Networks Ltd. Crucially, there was no privity of contract between HPCL and BCL. The documentation between AGC and BCL was entirely separate, and the contractual arrangement between them even expressly proscribed BCL from making communication with HPCL without AGC’s prior written approval.
Furthermore, the settlement agreement between AGC and BCL, which arranged for the transfer of receivables from HPCL litigation to BCL, reinforced the absence of a direct link. The Court emphatically rejected the argument that BCL was a person “claiming through or under AGC,” holding that mere legal or commercial connection, as underscored in Cox and Kings (supra), is insufficient. Without the required consent for assignment, as stipulated by the original tender document’s anti-assignment clause, and with no evidence of an intent to create a legal relationship with HPCL, the Court concluded that BCL had not established, either under the consensual or non-consensual theory, the prima facie existence of an arbitration agreement.
The Court further clarified the distinction between leaving a complex issue to the Arbitral Tribunal, as occurred in Cox & Kings Ltd. (2) vs. SAP (India) Pvt. Ltd., and a simple case where the evidence manifestly fails the prima facie test. Does the necessity to refer complex issues mean the Referral Court is stripped of its primary screening function?While judgments like ASF Buildtech Private Limited vs. Shapoorji Pallonji and Company Private Limited5, confirm the Arbitral Tribunal’s ultimate power to rule, this does not mean the Referral Court must automatically refer every case. The Supreme Court stated that to hold otherwise would “relegate the Referral Court to the status of a monotonous automation” and lead to “disastrous consequences,” allowing absolute strangers to demand arbitration.
Ultimately, the Court allowed the appeal, setting aside the Bombay High Court’s decision, having found no difficulty in concluding that BCL had failed the prima facie test of being a veritable party. This judgment decisively reinforces that while the Arbitral Tribunal has the final say, the Referral Court must exercise its jurisdiction under Section 11(6-A) judiciously to prevent non-parties from wrongfully leveraging an arbitration agreement.
Conclusion
The Supreme Court’s pronouncement serves as a critical affirmation of the fundamental principles underpinning arbitration law: consent and the doctrine of privity of contract. By striking down the attempt of a non-signatory to invoke the arbitration clause based merely on a downstream commercial arrangement, the Court has drawn a clear line in the sand. This judgment solidifies the limited role of the referral court under Section 11(6-A), transforming it from a mere rubber stamp into a necessary screening mechanism. It clarifies that while complex factual inquiries are reserved for the Arbitral Tribunal, the court must perform a judicious, albeit prima facie, examination to ensure that the party seeking arbitration is, in the true sense, a “veritable party.” This decision offers much-needed clarity, protecting original contracting parties from being involuntarily dragged into arbitration by commercially connected, yet legally distinct, entities.
Looking ahead, this ruling raises crucial questions regarding the future application of non-consensual arbitration doctrines. Since the Group of Companies doctrine remains a valid exception, future disputes will inevitably hinge on how courts and tribunals distinguish between a genuine demonstration of mutual intent to bind the non-signatory and a mere commercial nexus. Will the courts develop a more structured, objective test to measure the “appearance” and “legitimate reliance” created by a non-signatory’s conduct, especially in the context of large, multi-party infrastructure projects? Furthermore, the judgment’s emphasis on the anti-assignment clause in the HPCL contract highlights the rising importance of explicit contractual stipulations in warding off non-signatory claims, compelling legal professionals to draft such clauses with surgical precision.
Ultimately, this decision is a strong judicial endorsement of party autonomy in arbitration. It signals that courts will not lightly erode the requirement of consent. While commercial realities often necessitate involvement of non-signatories, this judgment places the burden squarely on the claimant to demonstrate a clear and compelling legal nexus that binds them to the arbitration agreement. The principles reiterated here—that mere legal or commercial connection is insufficient, and that the referral court must actively check for the prima facie existence of a veritable party—will shape the landscape of Indian commercial arbitration for years to come, encouraging signatories to proceed with greater certainty and discouraging speculative claims from strangers to the contract.
Citations
- Hindustan Petroleum Corporation Ltd. v. Black Cat Logistics, 2025 INSC 1401.
- Cox & Kings Ltd. (2) vs. SAP (India) Pvt. Ltd., (2024) 4 SCC 1.
- SBI General Insurance Company Limited vs. Krish Spinning, (2024) 12 SCC 1.
- Ajay Madhusudan Patel and others vs. Jyotrindra S. Patel and others, (2025) 2 SCC 147.
- ASF Buildtech Private Limited vs. Shapoorji Pallonji and Company Private Limited, 2025 INSC 616.
Expositor(s): Adv. Anuja Pandit, Nidhi Kumari (Intern)
