When Can A Non-Signatory Be Bound By An Arbitration Agreement? Supreme Court Explains

The Supreme Court has held that at the referral stage under Section 11 of the Arbitration and Conciliation Act, 1996, the court must form a prima facie view on whether a non-signatory to an arbitration agreement is a “veritable party” to the dispute, while leaving the final determination to the Arbitral Tribunal.

When can a non-signatory be treated as a ‘veritable party’ to arbitration?

A Bench of Justices J B Pardiwala and K Vinod Chandran said the referral court can examine whether a non-signatory is a veritable party, but this finding is only prima facie. Whether the non-signatory is ultimately bound by the arbitration agreement must be decided by the Arbitral Tribunal after considering the evidence.

The Bench made the observation while deciding an appeal filed by Hemant D Shah HUF, concerning a dispute over a 3,500 sq ft property in Worli, Mumbai, originally owned by a partnership firm, M/s Prospective Traders.

Court held that respondents 3 and 4, though not signatories to the 1985 partnership deed containing the arbitration clause, were veritable parties because their rights under a subsequent partnership deed depended on the validity of a disputed retirement deed through which the appellants were said to have exited the original partnership.

Court observed that whether a person is a “veritable party” has to be determined primarily on the facts of each case and cannot be reduced to a “strait jacket formula”.

The dispute

The property was acquired by M/s Prospective Traders, a partnership constituted in 1977 between three family trusts of V U Shah, N U Shah and C U Shah.

The partnership was reconstituted in 1985, when the appellants- Hemant D Shah HUF and Hemant D Shah's wife, and respondents 1 and 2 were inducted as partners.

The partnership was again reconstituted in 1987, under a deed disputed by the appellants, through which the original partners retired.

The central dispute arose from a 1995 retirement deed, under which the appellants were allegedly shown as having retired from the partnership. The appellants claimed that the deed was forged and maintained that they had never retired.

Subsequently, respondent 2 retired in 2005, following which the firm was dissolved and continued as a proprietorship with respondent 1. In 2009, respondents 3 and 4 were inducted as partners. Respondent 1 later retired, leaving respondents 3 and 4 as partners.

Respondents 3 and 4 did not rely on the 1985 partnership agreement containing the arbitration clause. The appellants, meanwhile, maintained that they had never retired and that the original partnership continued, with the disputed property continuing to belong to it.

Court noted that the dispute essentially concerned the ownership of the property and whether the parties' rights were governed by the 1985 partnership deed or the subsequent 2009 arrangement.

Court observed that if the 1995 retirement deed was ultimately found to be invalid, the parties would necessarily revert to the position under the 1985 partnership deed. This would directly affect the rights claimed by respondents 3 and 4 under the 2009 partnership deed.

The Bench therefore held that respondents 3 and 4 were veritable parties to the dispute because a finding on the validity of the 1995 retirement deed would substantially affect their rights in the subject asset.

However, Court clarified that this did not decide the respondents' other objections, including limitation and whether the appellants were estopped from impleading them because they had not been included in an earlier arbitration proceeding despite allegedly knowing about the retirement deed.

Those issues, Court said, would remain open for determination by the Arbitral Tribunal.

Court accordingly modified the impugned order only to the extent of holding respondents 3 and 4 to be veritable parties to the arbitration, despite their being non-signatories to the 1985 partnership deed.

The Bench emphasised that its finding was only prima facie and would not bind the Arbitral Tribunal while deciding whether respondents 3 and 4 were ultimately bound by the arbitration agreement, or while considering the issues of limitation and estoppel.

Case Title: Hemant D Shah HUF & Anr Vs Chittaranjan D Shah HUF & Ors

Bench: Justices J B Pardiwala and K Vinod Chandran 

Date of Judgment: October 12, 2026