This article has been authored by Amitabh Kumar Saxena & Ashmit Chauhan, 4th Year law students at NLIU, Bhopal.
Abstract
This blog examines whether parties, especially non-signatories, can be impleaded into arbitration without prior notice or consent. Analysing the Supreme Court’s decision in Adavya Projects v. Vishal Structurals, the case highlights the growing tension between arbitral efficiency and procedural fairness. The ruling permits impleadment post tribunal constitution, sidestepping early judicial scrutiny and potentially denying parties their right to contest jurisdiction or participate in tribunal appointment. The blog critiques this shift, arguing for a stricter insistence on notice and consent to preserve arbitration’s legitimacy and foundational principles.
Introduction
Arbitration is often praised for its efficiency, flexibility, and emphasis on party autonomy. A core principle of this framework is that no one can be compelled to arbitrate without their consent, thereby ensuring procedural fairness. But what happens when a dispute involves parties who never signed the arbitration agreement or were never served a formal notice? Can they still be drawn into the arbitral process?
The recent ruling of the Supreme Court in Adavya Projects Pvt. Ltd. v. M/s Vishal Structurals Pvt. Ltd. has brought renewed attention to a crucial procedural question in arbitration law: can a party, particularly a non-signatory to the arbitration agreement, be impleaded into arbitral proceedings without prior notice nor involved in the judicial process for the appointment of arbitrators?
This judgment assumes particular importance as it clarifies that a claimant, who initially directs an arbitration notice to only one respondent, may still bring additional parties into the fray at the stage of filing the statement of claim before the arbitral tribunal. This decision harmonises the conflicting approaches previously adopted by the Delhi High Court and the Bombay High Court, offering much-needed clarity on the issue. However, the ruling carries significant implications for those entities that may find themselves drawn into the arbitration process post the tribunal’s constitution, especially where their initial exclusion was unambiguous.
These implications are particularly pronounced in the context of non-signatories to the arbitration agreement. In Cox & Kings Ltd. v. SAP India Pvt. Ltd., the Supreme Court acknowledged that non-signatories can, under certain circumstances, be bound by arbitration clauses. Nonetheless, the Court underscored the foundational principle that party consent remains central to arbitration. In this regard, it recognised that such consent whether implied or explicit, must form the basis for binding a non-signatory. Concerning the adjudicatory forum, the Court clarified that the referral court’s role at the pre-arbitral stage is limited to a prima facie determination of whether a non-signatory can be treated as a party to the arbitration agreement, leaving the ultimate decision on the matter to the arbitral tribunal.
Reassessing Judicial Safeguards Before Tribunal Constitution
The Supreme Court, in its judgment, proceeds on the reasoning that since the pre-arbitral judicial forum does not issue a final determination on whether a non-signatory falls within the scope of an arbitration agreement, there is no procedural impropriety in allowing such a party to be impleaded after the arbitral tribunal has been constituted. However, this approach arguably downplays the critical function served by a preliminary judicial assessment at the threshold stage.
Such a prima facie examination is indispensable for non-signatories asserting that they are not bound by the arbitration agreement. On the basis of submissions made by the non-signatory, the pre-arbitral judicial forum may find that the arbitration clause is inapplicable to them. Yet, if the non-signatory is drawn into proceedings only after the tribunal is formed, they are deprived of an early-stage judicial filter that could shield them from the arbitration altogether. What further exacerbates this issue is that, should the arbitral tribunal conclude that the non-signatory is bound by the agreement, that party would have no recourse until the final award is rendered, at which point a jurisdictional challenge may be mounted only post facto.[i] This exposes the non-signatory to the burdens of arbitration in terms of both time and cost, despite the potential inapplicability of the agreement to them.
In contrast, legal systems such as those in Singapore[ii] and England & Wales[iii] permit immediate court intervention on such jurisdictional questions, offering a more robust procedural protection. Requiring a non-signatory to engage in arbitration, absent even a preliminary judicial determination, dilutes the primacy of consent as a fundamental principle in arbitration. As an arbitral authority emanates strictly from party consent, any contestation over the existence of such consent must, at a minimum, undergo prima facie scrutiny by a competent judicial body. The ruling in Cox and Kings Ltd. v SAP India Pvt. Ltd. clearly identifies the pre-arbitral judicial forum as the appropriate authority to conduct this preliminary review. Where such a forum concludes that a non-signatory is prima facie bound by the arbitration clause, it affirms the arbitral tribunal’s competence to delve deeper into whether the party is ultimately bound by the agreement.
Ensuring Procedural Fairness in Tribunal Constitution through Inclusive Participation
A fundamental objective of issuing an arbitration notice is to initiate the process of constituting the arbitral tribunal. In cases where the arbitration agreement stipulates the appointment of a sole arbitrator, the claimant proposes a nominee, and the respondent is afforded the opportunity to either concur with the nominee or suggest an alternative. The matter is referred to the appropriate judicial forum only in situations where the parties fail to reach a consensus on the appointment. When the arbitration clause provides for a three-member tribunal, the claimant designates one arbitrator, and the respondent is entitled to appoint the second. If the respondent defaults in nominating an arbitrator, or if the two party-appointed arbitrators are unable to agree upon the presiding arbitrator, judicial intervention becomes necessary.
However, when an additional counterparty is impleaded after the tribunal has already been formed, that party is denied the procedural right to participate in the appointment process. This procedural exclusion is problematic, even where the additional counterparty is a signatory to the arbitration agreement or does not dispute, he would be bound by the arbitration clause.
The Supreme Court’s decision in Central Organisation for Railway Electrification v. M/s ECI SPIC SMO MCML (JV) (“CORE”) affirms that the unilateral appointment of an arbitrator by one party undermines the principle of party equality and procedural fairness in arbitral proceedings. If an individual party cannot impose its arbitrator on the counterparty, then by the same logic, two parties acting together should not be permitted to impose their joint nominee upon a third party. Yet, this is exactly the procedural imbalance that arises when a new counterparty is drawn into arbitral proceedings after the tribunal is already constituted – effectively stripping them of any representation in the composition of the adjudicatory forum.
The Imperative of Prior Notice
Given the far-reaching consequences for additional counterparties who are brought into arbitral proceedings after the constitution of the tribunal, the claimant must bear the responsibility of ensuring that the arbitration notices are duly served upon all parties it intends to involve. This procedural obligation is not merely formal but rooted in the principles of natural justice and procedural equity. It is difficult to conceive of any legitimate justification for withholding such notice particularly where the party in question is a non-signatory whose inclusion in the proceedings remains legally contestable.
When a claimant selectively omits to issue an arbitration notice to a particular counterparty only to subsequently implead that party after the arbitral tribunal has been formed it effectively undermines the right of the non-signatory to seek a prima facie adjudication from the pre-arbitral judicial forum. Such omission risks transforming a contested jurisdictional issue into a procedural fait accompli, compelling the non-signatory to submit to the tribunal’s authority without the benefit of a preliminary judicial safeguard. This manoeuvre not only challenges the fundamental notion of consent in arbitration but also raises concerns of procedural ambush.
Even where the omission is attributable not to deliberate exclusion but to inadvertence, the equitable course would be to require the claimant to issue a supplementary arbitration notice. This supplementary notice functions as an instrument to rectify the procedural defect by extending participation rights to the party originally omitted, thereby ensuring both due process and the integrity of the arbitral proceedings. This would provide the latter with a meaningful opportunity to raise preliminary objections including challenges to jurisdiction and, importantly, participate in the formation of the arbitral tribunal. Such a corrective measure would align the process with the core tenets of procedural fairness, ensuring that no party is deprived of its right to contest the arbitration at the inception of the arbitral process.
Conclusion
By affirming the power of arbitral tribunals to implead non-signatories, the Supreme Court reinforces its ongoing pro-arbitration stance, consistent with a broader judicial shift favouring arbitration as a speedy and efficient dispute resolution mechanism. However, the Court’s decision to relax the requirement of serving arbitration notices on all intended participants raises concerns regarding procedural integrity. This relaxation risks undermining essential safeguards designed to prevent parties from being drawn into arbitration without prior notice or express or implied consent, potentially opening the door to strategic abuse by claimants.
To be sure, not every objection raised by additional parties will be genuine. There will be cases where such parties, despite having notice and being involved either overtly or through proxies in the tribunal’s formation, raise technical or meritless challenges solely to delay the proceedings. While it is important to curtail such obstructionism to protect arbitral efficiency, doing so must not erode fundamental principles such as consent and fair notice. Ultimately, the judgment appears to overemphasize efficiency at the cost of legitimacy. Courts must now carefully balance arbitral expediency with procedural fairness, ensuring that consent remains the cornerstone of arbitration and not merely an afterthought.
[i] Arbitration and Conciliation Act, 1996 (India), ss 16(5) and 16(6).
[ii] International Arbitration Act, 1994 (Singapore), s 10(3)(a).
[iii] Arbitration Act, 1996 (England & Wales), s 32.