By: August Attorneys LLP
Date: April 21, 2025
Key Takeaways:
- Non-service of Section 21 notice does not prevent impleadment of a party to arbitration proceedings
- Non-inclusion in Section 11 application is not a jurisdictional bar
- The arbitral tribunal’s jurisdiction stems from the arbitration agreement itself
- Non-signatories may still be bound by an arbitration agreement through their conduct
Introduction
In a landmark judgment that significantly clarifies the scope of arbitral jurisdiction, the Supreme Court of India has recently held that neither the absence of a Section 21 notice nor exclusion from a Section 11 application prevents a person or entity from being impleaded in arbitral proceedings. The ruling in ADAVYA PROJECTS PVT. LTD. VERSUS M/S VISHAL STRUCTURALS PVT. LTD. & ORS. (Civil Appeal No. 5297 of 2025) delivered by Justices P.S. Narasimha and Manoj Misra offers important insights on jurisdictional questions that frequently arise in arbitration.
Background of the Case
The dispute arose from an agreement to form a Limited Liability Partnership (LLP). The appellant and respondent No. 1 signed an LLP Agreement where respondent No. 3 (director of respondent No. 1) was designated as the CEO of the LLP (respondent No. 2). When disputes emerged, the appellant:
- Invoked the arbitration clause in the LLP Agreement
- Issued a notice under Section 21 only to respondent No. 1
- Filed a Section 11 application impleading only respondent No. 1
- Subsequently filed a statement of claims impleading respondent Nos. 2 and 3
Respondents challenged the tribunal’s jurisdiction, arguing that respondent Nos. 2 and 3 could not be made parties since they were neither served with the Section 21 notice nor included in the Section 11 application. The arbitral tribunal and subsequently the High Court agreed with this contention, leading to the appellant’s appeal before the Supreme Court.
The Supreme Court’s Analysis
On Section 21 Notice Requirements
The Court acknowledged that a Section 21 notice is mandatory and serves important functions including fixing the commencement date of arbitral proceedings. However, it clarified that non-service of such notice does not preclude impleadment of a party.
Referring to the decision in State of Goa v. Praveen Enterprises, the Court noted that even claims not raised in a Section 21 notice can be brought before an arbitral tribunal. The only consequence is that the limitation period for such claims would be calculated differently.
By extending this logic, the Court held:
“There is nothing in the wording of the provision, or in the scheme of the Act, to indicate that a party must not be impleaded merely because it was not served notice under Section 21.”
On Section 11 Application
The Court emphasized that the primary purpose of a Section 11 application is the “constitution” of the arbitral tribunal following a limited prima facie examination. The order appointing an arbitrator does not restrict the tribunal’s jurisdiction or terms of reference.
Drawing from Cox and Kings Ltd. v. SAP India (P) Ltd., the Court observed that while a Section 11 court can make a prima facie determination on whether certain persons are parties to an arbitration agreement, this finding does not bind the arbitral tribunal. The tribunal must independently decide based on evidence and applicable legal principles.
Source of Arbitral Jurisdiction
The Court clarified that an arbitral tribunal’s jurisdiction over a person stems from their consent to the arbitration agreement. Therefore, the proper inquiry under Section 16 (embodying the doctrine of kompetenz-kompetenz) is whether such person is a party to the arbitration agreement.
In the Court’s words:
“The implication of being a party to the arbitration agreement is that such person has contractually undertaken to resolve any disputes referenced in the arbitration agreement through the agreed upon method of dispute resolution, i.e., arbitration. It is under this contractual obligation that a person can be impleaded as a party to the arbitral proceedings, even if he was not served with a Section 21 notice and not referred to arbitration by the court under Section 11.”
Application to Non-Signatories
Importantly, the Court held that respondent Nos. 2 and 3, though non-signatories to the LLP Agreement, were bound by the arbitration agreement. Their conduct demonstrated adherence to and pursuance of the terms of the LLP Agreement, thereby making them proper parties to the arbitral proceedings.
Implications for Arbitration Practice
This judgment has several significant implications:
- Broader Party Scope: Parties involved in the underlying transaction can be brought before an arbitral tribunal even if procedural requirements like Section 21 notice were not fulfilled.
- Substance Over Form: The Court has prioritized substantive connections to the arbitration agreement over procedural formalities.
- Enhanced Arbitral Authority: The decision strengthens the arbitral tribunal’s authority to determine its own jurisdiction under Section 16.
- Non-Signatory Inclusion: It reinforces that non-signatories can be bound by arbitration agreements through their conduct and involvement in the underlying transaction.
- Efficiency in Dispute Resolution: By allowing all relevant parties to be part of a single arbitration, the judgment promotes efficient dispute resolution and prevents multiplicity of proceedings.
Conclusion
The Supreme Court’s judgment in Adavya Projects provides much-needed clarity on critical jurisdictional questions in arbitration. It reinforces that an arbitral tribunal’s jurisdiction stems from the arbitration agreement itself rather than procedural compliances. By allowing the impleadment of parties who are substantively connected to the dispute, regardless of procedural omissions, the Court has advanced the core purpose of arbitration—efficient and comprehensive dispute resolution.
For parties and practitioners, this judgment underscores the importance of carefully examining substantive connections to the arbitration agreement rather than relying solely on procedural defenses to evade arbitral jurisdiction.
Disclaimer: This article has been authored by August Attorneys LLP for informational purposes only and does not constitute legal advice. Readers should seek specific legal advice for their particular circumstances. This article adheres to the requirements prescribed by the Bar Council of India.