The Supreme Court has elucidated the principles governing the applicability of arbitration clauses to non-signatory parties under the Arbitration and Conciliation Act, 1996, emphasizing that a non-signatory may be bound by an arbitration agreement contained in a primary agreement if their conduct, participation, and performance of obligations under interlinked agreements demonstrate a mutual intent to be bound.
In KKH Finvest Pvt. Ltd. v. Ashiesh Shukla, 2026 LiveLaw (SC) 769 : 2026 INSC 803, the Court considered the scope of Section 11 of the Act in the context of a Memorandum of Settlement and individual Share Purchase Agreements. It held that a non-signatory to the primary settlement agreement may qualify as a 'veritable party' to the arbitration clause if the performance of their individual agreement is fundamental and interwoven with the completion of the main agreement. The Court relied on the principles laid down in Cox and Kings Limited v. SAP India Private Limited and Another, (2024) 4 SCC 1, and Oil and Natural Gas Corporation Limited v. Discovery Enterprises Private Limited and Another, (2022) 8 SCC 42.
The Bench observed that where multiple non-signatories execute individual agreements containing similar or identical exclusion or decoupling clauses, the Court cannot differentiate between them to exclude one from arbitration while referring others. Drawing a distinction between identically situated persons without a factual basis was deemed unsustainable. The participation of a non-signatory in the performance of the underlying contract was identified as the most critical factor indicating an intention to be bound by the arbitration clause. The composite nature of the transaction and the commonality of the subject matter suggest that claims against such non-signatory are inextricably interlinked with the issues under arbitration.
Separately, the Court addressed the maintainability of a Section 9 petition at the post-award stage by an unsuccessful party or award debtor. It held that such a petition is maintainable in law, but the threshold for granting interim relief is significantly higher. The Supreme Court may grant interim measures in rare and compelling cases to balance equities, prevent irreparable prejudice, and preserve the efficacy of challenge proceedings under Section 34.
The exercise of power under the 'just and convenient' residuary clause of Section 9(1)(ii)(e) must be guided by settled principles: existence of a strong prima facie case, balance of convenience, irreparable injury, and reasonable expedition. The Court emphasized that this power must promote the efficacy of arbitration without being rigidly bound by the strict procedural technicalities of Order XXXVIII Rule 5 or Order XXXIX Rules 1 and 2 of the Code of Civil Procedure, 1908.
In the present case, the appellant had encashed bank guarantees furnished against mobilisation advance prior to the pronouncement of the arbitral award. The Arbitrator dismissed the respondent's claims in toto without the appellant having filed any counter-claim or the Arbitrator recording any finding regarding non-utilisation of the mobilisation advance. Sustaining the High Court's direction, the Supreme Court held that permitting the appellant to retain the encashed funds in the absence of an executable award or counter-claim in its favour would result in unjust enrichment and defeat earlier interim undertakings.
The Court directed the appellant to deposit Rs. 3.5 crores in the Registry to be placed in an interest-bearing Fixed Deposit pending adjudication of the Section 34 petition. It concluded that the case presented rare and compelling circumstances warranting an interim deposit to prevent irreparable prejudice and preserve the subject matter of the dispute, relying on Home Care Retail Marts Pvt. Ltd. v. Haresh N. Sanghavi, 2026 SCC OnLine SC.