NLA Arbitration Newsletter
Key rulings this month from the Supreme Court of India, the Delhi High Court, and the Allahabad High Court — covering non-signatory participation in arbitral proceedings, arbitration agreements inferred from conduct, res judicata in Section 8 and 11 proceedings, and statutory post-award interest under Section 31(7)(b).
Supreme Court clarifies limits on non-signatory participation in arbitral proceedings and reaffirms the functus officio doctrine after appointment of arbitrator under Section 11(6).
The dispute arose out of a family settlement within the Gupta family. An oral settlement reached in 2015 was subsequently reduced into a Memorandum of Understanding/Family Settlement Deed (MoU/FSD) in July 2019. However, one family member, who later sought to intervene, was not a signatory to this MoU/FSD. Following disputes, an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“the Act”) was filed seeking the appointment of a sole arbitrator. Parallel proceedings under Section 9 of the Act for interim measures were also initiated. The Court, in March 2024, appointed a sole arbitrator and directed the Section 9 petition to be treated as a Section 17 application before the arbitrator. Requests from the non-signatory to intervene were rejected at that stage on the ground that he was not a party to the MoU/FSD.
Subsequently, in August 2024, the non-signatory, acting through certain companies, filed fresh intervention applications in the already disposed Section 11(6) proceedings, seeking permission to attend the arbitration hearings, access pleadings and orders, and even challenge the appointment of the arbitrator. A Single Judge permitted such presence in arbitral proceedings, holding that the non-signatories could be present either personally or through counsel, and issued directions relating to family properties. This prompted the signatory parties to challenge the order before the Supreme Court.
The appellants argued that once an arbitrator is appointed under Section 11(6), the Court becomes functus officio, meaning its jurisdiction is exhausted. Entertaining fresh applications in disposed proceedings was beyond the scope of the Act. They contended that under Section 35, arbitral awards bind only parties to the arbitration agreement and those claiming under them, and non-signatories could neither be bound by the award nor interfere in the arbitral process. The directions permitting their presence violated confidentiality under Section 42A and undermined arbitral autonomy. It was also urged that allowing the non-signatory to assert rights over family properties through these proceedings amounted to granting relief previously denied. Reliance was placed on Nimet Resources Inc. v. Essar Steels Ltd., (2009) 17 SCC 313, to underline the doctrine of minimal judicial intervention.
On the other hand, the respondents maintained that undertakings given earlier by the signatories had been breached, justifying the non-signatory’s applications. They invoked the inherent powers of the Court under Section 151 of the Code of Civil Procedure, 1908 to permit the presence of the non-signatory, contending that such directions merely flowed from the undertakings already recorded.
The Supreme Court rejected this reasoning and addressed both issues squarely. On the first question, it held that arbitral proceedings are confined to parties to the arbitration agreement. Section 2(h) defines “party” strictly, and Section 35 makes arbitral awards binding only on signatories or those claiming through them. Since the intervenors were not signatories to the MoU/FSD, they were strangers to the arbitration. Allowing them to be present would amount to creating a right unknown to law. Importantly, the Court noted that if a non-signatory faced enforcement of an award against them, their remedy lay under Section 36, not through pre-emptive participation. Further, Section 42A enshrines confidentiality of arbitral proceedings, which would be compromised by permitting strangers to attend. On this basis, the Court concluded that the order permitting the non-signatory to remain present in arbitral hearings was without jurisdiction and contrary to the scheme of the Act.
On the second issue, the Court emphasised that once a sole arbitrator has been appointed under Section 11(6), the Court becomes functus officio and cannot revisit the matter. It held that the Single Judge’s reliance on Section 151 of the Code of Civil Procedure was misplaced. Arbitration law is a self-contained code, and Section 5 of the Act restricts judicial intervention strictly to instances provided under Part I of the Act. The Bench referred to Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd., (2022) 1 SCC 75, reiterating that the non obstante clause in Section 5 was designed to minimise judicial interference, consistent with the UNCITRAL Model Law framework. The Constitution Bench in Re: Interplay had also clarified that where the Act provides a complete mechanism, recourse to general procedural provisions like Section 151 CPC is excluded. Therefore, once the arbitrator was appointed and the Section 11 proceedings disposed of, the Court lacked authority to entertain fresh intervention applications.
In its conclusion, the Supreme Court set aside the orders permitting non-signatory participation and ancillary directions issued by the Single Judge. It held that such applications were misconceived, amounted to reopening settled proceedings, and constituted an abuse of process. The appeals were allowed, and costs of INR 3,00,000 were imposed on the respondents to be paid to the Supreme Court Advocates-on-Record Association.
Key Takeaway
Once an arbitrator is appointed under Section 11(6) of the Arbitration and Conciliation Act, 1996, the court becomes functus officio and cannot revisit the matter or issue ancillary directions. Non-signatories, unless expressly falling under recognised exceptions, have no right to participate in arbitral proceedings, as Section 35 makes arbitral awards binding only on parties to the arbitration agreement and those claiming under them. Allowing outsiders to observe proceedings would also breach the confidentiality mandate under Section 42A.
Supreme Court upholds enforceability of an arbitration agreement inferred from the parties’ conduct and written communications, holding that signature is not a rigid prerequisite under Section 7 of the Arbitration and Conciliation Act, 1996.
The dispute arose from commercial dealings between an international commodity trader and an Indian zinc alloy manufacturer. Between 2011 and 2012, the parties executed several contracts containing arbitration clauses under the LCIA Rules with London as the seat. In 2016, they negotiated a new agreement for the supply of 6,000 metric tons of zinc. Negotiations occurred over email, where the purchaser accepted the terms subject to a modification in the provisional price calculation, which the seller agreed to. The seller then issued and signed a written contract, sending it to the purchaser for countersignature. Although the purchaser never signed, both parties acted upon it: the seller delivered 2,000 metric tons, raised invoices referencing the contract, and the purchaser arranged standby letters of credit citing the contract. The purchaser’s correspondence also consistently acknowledged the contract and confirmed its obligations.
Despite this performance, disputes arose when the purchaser defaulted on furnishing letters of credit for subsequent quotas. The seller invoked its rights under the contract, while the purchaser filed a civil suit before the Delhi High Court seeking declarations that the invocation of the standby letters of credit was invalid, coupled with injunctions against payment. The seller sought a reference to arbitration under Section 45 of the Arbitration and Conciliation Act, 1996, relying on the arbitration clause in the 2016 contract. The purchaser resisted, arguing that since it had never signed the 2016 contract, no arbitration agreement bound the parties.
A Single Judge of the Delhi High Court agreed with the purchaser, holding that without signatures there was no concluded contract. The Judge reasoned that the email correspondence was insufficient to infer consensus on arbitration and further observed that differences between the arbitration clause in the 2012 contract and the 2016 draft showed lack of complete agreement. On appeal, a Division Bench affirmed this view in 2019, curiously examining only whether the 2012 arbitration clause could extend to the dispute, while overlooking the effect of the 2016 draft and the parties’ conduct under it. Aggrieved, the seller appealed to the Supreme Court.
Before the Supreme Court, the appellant contended that the High Court erred in overlooking evidence that the contract was in fact acted upon. The supply of goods, issuance of invoices, procurement of letters of credit, and continued correspondence all tied to the 2016 contract. Such conduct, it was argued, clearly established acceptance of terms including the arbitration agreement. Reliance was placed on settled principles that an arbitration agreement may be inferred from written communications or conduct, and that signature is not a rigid requirement. The respondents reiterated that without signatures, no concluded contract came into being and that reliance on earlier contracts was misplaced.
The Supreme Court carefully examined the record and disagreed with the High Court’s findings. It noted that the purchaser had explicitly accepted the seller’s proposal with only a minor modification, which the seller duly incorporated into the written contract. The purchaser then proceeded to honour the contract by arranging letters of credit and lifting part of the contracted quantity. This, the Court held, was unequivocal evidence of consensus ad idem. The absence of a signature could not negate the existence of an arbitration agreement when the parties had otherwise accepted and acted upon the contract. Section 7 of the Act, the Court reiterated, recognises arbitration agreements concluded through exchange of letters, electronic communications, or even statements of claim and defence, provided they are in writing.
In support, the Court referred to its earlier rulings in Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia Pvt. Ltd., (2015) 13 SCC 477, where it held that commercial documents must be construed to give effect to arbitration clauses where possible and that lack of signature is not fatal when parties’ conduct evidences agreement. It also relied on Caravel Shipping Services Pvt. Ltd. v. Premier Sea Foods Exim Pvt. Ltd., (2019) 11 SCC 461, which reaffirmed that writing — not signature — is the essential requirement. The principle was further underlined in Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., (2005) 7 SCC 234, where the Court emphasised that under Section 45 the referral court need only take a prima facie view of the arbitration agreement’s validity, leaving final determination to the arbitral tribunal.
The Court rejected the respondents’ reliance on M.R. Engineers & Contractors Pvt. Ltd. v. Som Datt Builders Ltd., (2009) 7 SCC 696, and NBCC (India) Ltd. v. Zillion Infraprojects Pvt. Ltd., (2024) 7 SCC 174, both of which dealt with incorporation of arbitration clauses by reference. Here, the arbitration clause was directly contained in the 2016 contract that the parties had acted upon — it was not a case of incorporation by reference, rendering those authorities inapplicable.
Ultimately, the Supreme Court held that both the Single Judge and the Division Bench had erred in disregarding material evidence that demonstrated acceptance of the 2016 contract and its arbitration clause. It ruled that the arbitration agreement in clause 32.2 of the 2016 contract was binding, invocation of Section 45 was justified, and the disputes were directed to be referred to arbitration.
Key Takeaway
An arbitration agreement under Section 7 of the Arbitration and Conciliation Act, 1996 does not require signatures if the parties’ conduct and written communications clearly establish consensus ad idem. Courts have consistently held that exchange of emails, letters, or performance under an unsigned contract can evidence acceptance of an arbitration clause. The critical requirement is that the agreement must be in writing and demonstrate a binding and unequivocal intent to arbitrate, even if one party has not formally signed the contract.
Delhi High Court declines appointment of arbitrator, holding that a final rejection of a Section 8 application, affirmed on appeal, operates as res judicata and bars a subsequent Section 11 petition on the same cause.
The dispute stemmed from a collaboration agreement executed in December 2018 between the Petitioner, a builder, and one of the Respondents, the property owner, under which the Petitioner was to undertake construction and, in return, would acquire possession and ownership of the second floor of the redeveloped property. The Petitioner claimed to have completed construction but alleged that the Respondents were unjustifiably denying him rights in the second floor. Invoking Clause 17 of the agreement, which contained an arbitration clause, he approached the High Court under Section 11 seeking appointment of an independent arbitrator.
The Respondents opposed, highlighting that they had earlier instituted a civil suit before the Civil Judge at Tis Hazari Courts seeking a decree of permanent injunction against the Petitioner. In those proceedings, the Petitioner had already filed an application under Section 8 of the Act requesting reference to arbitration. That application was rejected by order dated 6 May 2023. The Trial Court had noted that the Petitioner failed to file the original or a certified copy of the collaboration agreement, which is a mandatory requirement under Section 8(2). Moreover, the agreement was executed only between the plaintiff and defendant no. 1, and not all defendants were signatories. Since the cause of action in the suit was joint action against multiple defendants, some of whom were non-signatories, the request for arbitration could not be sustained. The Court further remarked that allowing the application would impermissibly split causes of action, contrary to the scheme of the Act.
The Petitioner appealed to the District Judge, but the Appellate Court on 18 April 2024 upheld the rejection. It noted that the prayer for arbitration was pressed only on behalf of one defendant and, if allowed, would result in bifurcation of disputes between signatories and non-signatories. Since other defendants were neither signatories to the agreement nor applicants for reference to arbitration, and had already filed written statements, the Appellate Court held that the scheme of the Act did not permit partial reference. This finding was categorical, affirming that the dispute could not be fragmented between arbitral and judicial forums.
Despite this history, the Petitioner initiated fresh proceedings under Section 11 before the Delhi High Court. He argued that the issues in the civil suit differed from those raised in the Section 11 petition: the former sought injunctive relief while the latter pertained to specific enforcement of contractual rights over the second floor. He further contended that the rejection under Section 8 was on technical grounds and did not preclude the Court from exercising powers under Section 11 to appoint an arbitrator.
The Respondents maintained that the earlier orders of the Trial Court and Appellate Court operated as res judicata. They emphasised that the arbitration clause had already been tested under Section 8, and the findings — particularly that referring part of the matter would result in splitting causes — bound subsequent proceedings. Hence, the Section 11 petition was not maintainable.
The High Court agreed with the Respondents. It acknowledged that Clause 17 of the collaboration agreement did contain an arbitration clause, and that under principles laid down in decisions such as Swastik Pipe Ltd. v. Shri Ram Autotech Pvt. Ltd. (ARB.P. 241/2021), even unsigned agreements can in appropriate cases support a referral to arbitration. However, the Court stressed that in the present case the determinative factor was not the existence of the clause but the binding effect of prior judicial findings. Both the Trial Court and the Appellate Court had held that referral would impermissibly split disputes between signatory and non-signatory parties. Until those orders were set aside or overturned, the High Court was bound by them.
The Court highlighted that permitting a Section 11 petition in such circumstances would amount to re-litigation of the same issue under a different provision of the Act, undermining judicial finality. The doctrine of res judicata prevents re-examination of issues already adjudicated, and the legislative scheme does not contemplate multiple bites at the cherry by moving sequential applications under different provisions of the Act. The Petitioner had full opportunity to press his arbitration clause in the earlier proceedings, and having failed, could not repackage the same relief through a Section 11 petition.
Consequently, the High Court dismissed the petition, holding that “so long as the order dated 18 April 2024 is not set aside or interfered with, a similar prayer to refer the parties to arbitration cannot be entertained, as the same would amount to res judicata.” The Court clarified that the Petitioner was free to pursue any other remedies available in law but could not seek appointment of an arbitrator afresh in this dispute.
Key Takeaway
The doctrine of res judicata applies with equal force to arbitration-related proceedings. Once a court has finally rejected an application under Section 8 of the Arbitration and Conciliation Act, 1996 and that decision has been affirmed on appeal, a subsequent petition under Section 11 seeking appointment of an arbitrator on the same cause is barred. Indian courts have consistently held that permitting parallel or successive attempts to refer the same dispute to arbitration would undermine judicial finality and fragment disputes contrary to the scheme of the Act.
Allahabad High Court upholds the executing court’s power to award post-award interest under Section 31(7)(b) of the Arbitration Act, holding that the statutory entitlement applies even where the arbitral tribunal has not explicitly granted it.
The dispute arose from a government construction contract awarded to an approved contractor for the development of a gymnastic hall at Iklavya Sports Stadium, Agra. Owing to disputes during execution, the matter was referred to arbitration. The arbitral tribunal, by its award, granted the contractor a sum of INR 40,61,264 together with costs and interest at 18% per annum from 31 March 2000 to 26 August 2007. However, it expressly declined the contractor’s claim for post-award interest beyond this period.
The State challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, but the objections were rejected. Subsequent appeals under Section 37 and a Special Leave Petition before the Supreme Court also failed. Meanwhile, the contractor initiated execution proceedings under Section 36 for enforcement of the award. In July 2023, the Commercial Court, Agra, directed the State to pay post-award interest at 18% per annum from 17 December 2010 to 17 December 2022 and ordered attachment of bank accounts belonging to the Executive Engineer and Superintendent Engineer to secure compliance. These orders were challenged by the State through a writ petition under Article 227 before the Allahabad High Court.
The State argued that the arbitral tribunal, having consciously awarded interest only for a fixed period, implicitly rejected any claim for post-award interest. It contended that the executing court lacked jurisdiction to revisit the award or impose additional liabilities not granted by the arbitrator. Emphasising the 2015 Amendments to the Arbitration Act, the State submitted that procedural provisions ordinarily operate retrospectively, but substantive directions on interest must follow the express terms of the award. It asserted that the Commercial Court erred by attaching bank accounts without first determining the precise amount payable, effectively modifying the award.
The Respondent contractor supported the impugned orders, stressing that statutory provisions mandated post-award interest under Section 31(7)(b). It was submitted that the executing court merely gave effect to this statutory entitlement, which forms part of the award by operation of law, and did not alter or rewrite the arbitral award.
The High Court, after reviewing the record, noted that the arbitral tribunal’s refusal to award interest beyond 2007 did not automatically extinguish the statutory mandate under Section 31(7)(b). This provision creates a default rule: unless the tribunal specifies otherwise, the award shall carry interest at 18% per annum from the date of the award until payment. The Court recalled the Supreme Court’s decision in BCCI v. Kochi Cricket Pvt. Ltd. (MANU/SC/0256/2018), which explained that while the 2015 Amendments were generally prospective, procedural aspects including post-award interest apply to pending proceedings. More recently, the Delhi High Court in Union of India v. Sudhir Tyagi (2025:DHC:2621) clarified that the grant of post-award interest under Section 31(7)(b) is mandatory, with the arbitrator’s discretion limited to determining the applicable rate; if no rate is specified, the statutory rate of 18% applies.
On this basis, the Court held that the executing court acted within its jurisdiction in directing payment of post-award interest. The tribunal’s silence on interest after 2007 did not oust the statutory operation of Section 31(7)(b). To the contrary, the executing court was obliged to enforce the award “with full effect,” which included statutory interest from the date of award until realisation. The High Court also rejected the State’s contention that attachment of bank accounts was premature or excessive, observing that such coercive measures were justified to secure satisfaction of the award given the protracted delay and failure to comply voluntarily.
Concluding, the Court dismissed the State’s petition, upholding the Commercial Court’s orders of 18 and 27 July 2023. It reaffirmed that executing courts have full authority under Section 36 to enforce arbitral awards, including post-award interest mandated by statute, and found no illegality or perversity in the attachment of government bank accounts to secure payment.
Key Takeaway
Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 mandates that arbitral awards carry post-award interest from the date of the award until payment, unless the tribunal directs otherwise. While the arbitrator has discretion to fix the rate of such interest, if no rate is specified, the statutory default of 18% per annum applies. Execution courts under Section 36 are empowered to enforce this entitlement — an arbitral tribunal’s silence on post-award interest does not extinguish the statutory obligation, and award-debtors cannot delay payment without financial consequence.
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