Supreme court holds non-signatory partners to be prima facie veritable parties to arbitration over partnership asset, leaves limitation and estoppel to arbitral tribunal

Supreme Court Decision: Non-signatory partners acknowledged as bona fide participants in arbitration related to partnership assets, with issues of limitation and estoppel deferred to the arbitral tribunal.

Case Title: Hemant D. Shah HUF and Anr. v. Chittaranjan D. Shah HUF and Ors.

Coram: Justice J. B. Pardiwala and Justice K. Vinod Chandran

Citation: (2026) ibclaw.in 661 SC | Civil Appeal No. 13686 of 2026 (SLP (C) No. 26474 of 2026) | Decided on 12.10.2026 The Supreme Court has held that the 3rd and 4th respondents, though not signatories to the partnership deed containing the arbitration clause, are veritable parties to the arbitration on a prima facie consideration of the facts. The Court partly modified the Section 11 order of the High Court to that extent.

Authoring the judgment, Justice K. Vinod Chandran observed that the question of who is a veritable party in a constituted arbitration has to be determined more on the facts, and that the multiple aspects arising from it cannot be put down in a strait jacket formula.

The dispute concerns Unit No. 2, admeasuring 3,500 sq. ft. on the ground floor of Manish Commercial Centre, Worli, Mumbai, which belonged to a partnership firm, M/s Prospective Traders. The firm was reconstituted by a deed dated 09.12.1985, which inducted the appellants and the 1st and 2nd respondents as partners and contains the arbitration clause. The appellants assert that they never retired from the firm, while the respondents rely on a deed of retirement dated 03.07.1995, which the appellants allege to be forged.

According to the facts noted in the judgment, the 2nd respondent later retired on 01.07.2005, following which the firm continued as a proprietorship with the 1st respondent. The 3rd and 4th respondents were brought in as partners in 2009 and continued as partners on the retirement of the 1st respondent. They distanced themselves from the 1985 partnership deed.

The High Court first considered limitation, as an earlier arbitral award at the instance of the appellants had been set aside under Section 34. Limitation was found in favour of the appellants, though deemed answered only against the 1st and 2nd respondents. The prayer to join the 3rd and 4th respondents was declined on the finding that they are not signatories and do not fall within the recognised exceptions of persons claiming through or under a signatory or the Group of Companies doctrine. The High Court had relied on Cox and Kings Limited v. SAP India Private Limited and Hindustan Petroleum Corporation Limited v. BCL Secure Premises Private Limited.

The Supreme Court noted that Cox and Kings considered the principle of claiming through or under and the Group of Companies doctrine, which the Bench held does not apply to the present proceedings. It nevertheless noted that the principle stated there would assist in resolving the question. Referring to paragraph 100 of that decision, the Court recorded that courts and tribunals cannot adopt a rigid approach to exclude all persons who, through conduct and relationship with the signatories, intended to be bound by the underlying contract containing the arbitration clause.

The Court also extracted paragraphs 170.3, 170.12 and 170.13 of Cox and Kings. These provide that the requirement of a written arbitration agreement under Section 7 does not exclude the possibility of binding non-signatory parties, that at the referral stage the referral court should leave it for the Arbitral Tribunal to decide whether the non-signatory is bound, and that the determination on the Group of Companies doctrine should not be read to exclude other doctrines for binding non-signatories.

Referring to Hindustan Petroleum Corporation Limited, the Court noted the principle of prima facie satisfaction by the referral court that an arbitration agreement exists and that the non-signatory is a veritable party, with the jurisdiction of the Arbitral Tribunal to decide the issue on factual evidence being preserved. It was recorded that the referral court under Section 11 is not deprived of its jurisdiction to examine whether the non-signatory is, in the real sense, a party to the agreement, which depends on the facts and circumstances of each case.

On the facts, the Court noted that the dispute revolves around the ownership of the subject asset, whether by virtue of the deed of 09.12.1985 or the deed of 04.11.2009. If the deed of retirement dated 03.07.1995 is found to be invalid, the parties revert to the partnership of 09.12.1985. That would affect the rights of the 3rd and 4th respondents, who obtained rights over the subject asset through a partnership in which neither the appellants nor the 1st and 2nd respondents are partners.

The Court accordingly held that the 3rd and 4th respondents are veritable parties to the dispute, since their rights would be substantially affected.

The Court clarified that the finding is only prima facie and does not govern adjudication of the issue of veritable party, the question of limitation raised by the 3rd and 4th respondents, or the plea of estoppel based on their non-inclusion in the earlier arbitration despite knowledge of the retirement deed. These aspects were left to be considered by the Arbitral Tribunal.

The impugned order was modified only to the extent of finding the 3rd and 4th respondents to be veritable parties to the arbitration, and the appeal was disposed of with that modification