Supreme Court lets non-signatories join arbitration as veritable parties to the dispute

A commercial property in Worli, Mumbai originally belonged to a partnership formed in 1977. Through a series of reconstitutions, Hemant D. Shah HUF and others became partners under a 1985 deed that carried an arbitration clause, while two other respondents entered the partnership only later, through a 2009 deed, and never signed the 1985 deed. When a dispute arose over ownership of the property, the appellants sought to invoke arbitration under Section 11 of the Arbitration and Conciliation Act, 1996 and asked that the two later-joining respondents be made parties to it. The High Court refused, since they had not signed the arbitration agreement and did not fall within recognised exceptions, such as persons claiming through or under a signatory, or the Group of Companies doctrine.

The Supreme Court (J.B. Pardiwala and K. Vinod Chandran, JJ.) modified that order. It held that, independently of those named exceptions, a non-signatory who is a "veritable party" to the dispute, because the outcome will substantially affect their rights, may still be referred to arbitration. Here, the 2009 deed through which the two respondents held their interest was itself valid only if the appellants' earlier retirement from the partnership was valid, so the dispute over the property directly affected them. The Court made clear this was only a prima facie finding, and left questions of limitation and estoppel raised against the appellants to be decided by the Arbitral Tribunal.