Supreme Court: arbitration clause can bind non-signatory in composite transaction

The case concerns whether an arbitration clause in a Loan Agreement can bind a non-signatory party (Respondent No. 2) who executed a separate Personal Guarantee that did not contain its own arbitration clause, within the context of a composite transaction for setting up skill training centers.

Who it concerns: Appellant: National Skill Development Corporation; Respondents: Surya Wires Private Limited & Ors. (specifically Respondent No. 2, the Managing Director/Authorised Representative of the Company); Bench: Justice Alok Aradhe.

What the court decided

• The Court granted leave to appeal.
• The appeal is confined to the correctness of the High Court's order regarding the deletion of Respondent No. 2 from the arbitral proceedings.
• The Court analyzed the scope of Section 7(5) of the Arbitration and Conciliation Act, 1996, regarding the incorporation of arbitration clauses by reference.
• The Court noted that the High Court affirmed the Sole Arbitrator's order deleting Respondent No. 2 because they were a non-signatory to the Loan Agreements in their personal capacity and the Personal Guarantees lacked an arbitration clause.

Also in the document

• The judgment is marked as 'NON-REPORTABLE'.
• The Court cited the Constitution Bench decision in Cox and Kings Limited, which held that the definition of 'parties' includes non-signatories and that their conduct can indicate consent to be bound by an arbitration agreement.
• The Court referenced the principle from M.R. Engineers that a general reference to another contract does not automatically incorporate an arbitration clause, whereas a reference to a standard form may suffice.