Merely because section 21 arbitration notice was not issued to certain persons who are parties to the arbitration agreement does not denude arbitral tribunal to implead them as parties to the arbitral proceedings
In a recent judgment, the Hon’ble Supreme Court has held that section 21 notice invoking arbitration under Section 21 of the Arbitration and Conciliation Act, 1996 is mandatory. However, merely because such a notice was not issued to certain persons who are parties to the arbitration agreement does not denude the arbitral tribunal of its jurisdiction to implead them as parties during the arbitral proceedings.
ABCAUS Case Law Citation:
4521 (2025) (04) abcaus.in SC
In the instant case, the issue was whether the service of notice invoking arbitration under Section 21 of the Arbitration and Conciliation Act, 1996 (ACA) on a person and joinder of such person in the application under Section 11 for appointment of arbitrator are prerequisites for an arbitral tribunal to exercise jurisdiction over him? Also, when can an arbitral tribunal implead a person to the arbitration proceedings.
The Hon’ble Supreme Court held that in the instant case, in view of the fact that respondent nos. 2 and 3 have, through their conduct, consented to perform contractual obligations under the LLP Agreement, it was clear that they have also agreed to be bound by the arbitration agreement. Since they were parties to the underlying contract and the arbitration agreement, the arbitral tribunal has the power to implead them as parties to the arbitration proceedings while exercising its jurisdiction under Section 16 of the ACA and as per the kompetenz-kompetenz principle.
The following guidelines has been laid down by the Hon’ble Supreme Court:
1.A notice invoking arbitration under Section 21 of the ACA is mandatory as it fixes the date of commencement of arbitration, which is essential for determining limitation periods and the applicable law, and it is a prerequisite to filing an application under Section 11. However, merely because such a notice was not issued to certain persons who are parties to the arbitration agreement does not denude the arbitral tribunal of its jurisdiction to implead them as parties during the arbitral proceedings.
2.The purpose of an application under Section 11 is for the court to appoint an arbitrator, so as to enable dispute resolution through arbitration when the appointment procedure in the agreement fails. The court only undertakes a limited and prima facie examination into the existence of the arbitration agreement and its parties at this stage. Hence, merely because a court does not refer a certain party to arbitration in its order does not denude the jurisdiction of the arbitral tribunal from impleading them during the arbitral proceedings as the referral court’s view does not finally determine this issue. 3.The relevant consideration to determine whether a person can be made a party before the arbitral tribunal is if such a person is a party to the arbitration agreement. The arbitral tribunal must determine this jurisdictional issue in an application under Section 16 by examining whether a nonsignatory is a party to the arbitration agreement as per Section 7 of the ACA.
It was held that in the present appeal, respondent nos. 2 and 3 were parties to the arbitration agreement of the LLP Agreement despite being non-signatories. Their conduct is in accordance with and in pursuance of the terms of the LLP Agreement, and hence, they can be made parties to the arbitral proceedings.
Accordingly, the appeal, was dismissed.
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