Collaborator bound by joint undertaking is a veritable party to contract, can invoke arbitration clause: Supreme court

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Elecon Engineering Company Ltd. v. Bhartiya Rail Bijlee Company Ltd. and Anr. | Civil Appeal No. 7116/2026 | Supreme Court of India | May 7, 2026

The Supreme Court has held that a Collaborator who executes a Deed of Joint Undertaking as an inextricable part of a contract between an Employer and a Contractor is a veritable party to that contract and is entitled to invoke the arbitration clause contained in it. The Bench of Justice Sanjay Kumar and Justice K. Vinod Chandran set aside the order of the High Court that had rejected a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, and appointed a sole arbitrator to adjudicate the disputes between the Employer and the Collaborator.

Background

Bhartiya Rail Bijlee Company Ltd., the Employer, awarded a contract for installing a Coal Handling Plant Package for the Nabinagar Thermal Power Project. The bid documents required bidders to satisfy specific eligibility criteria, including prior experience in design and commissioning of an integrated bulk material handling plant with a rated capacity of 1000 metric tonnes per hour or above for coal or other minerals for a minimum period of one year. The successful bidder, the Contractor, was unable to satisfy these criteria independently. It therefore collaborated with Elecon Engineering Company Ltd., the Collaborator, whose design capabilities and experience met the qualification requirements.

As a condition of the bid, a Deed of Joint Undertaking was required to be executed jointly by the Contractor and the Collaborator in favour of the Employer. The DJU was duly executed on February 22, 2010. The contract awarded between the Employer and the Contractor contained an arbitration clause.

During execution of the project, the Contractor was ordered to be liquidated on January 16, 2020. The Employer had, even before the liquidation, called upon the Collaborator to take up full responsibility for performance of the contract as per the DJU, citing the joint and several obligations of the Contractor and the Collaborator. In 2016, a tripartite agreement was also entered into between the Employer, the Contractor and the Collaborator, which specifically authorised direct payments to the Collaborator for past and future supplies.

In October 2021, the Employer issued a further communication calling upon the Collaborator to fulfil its obligations under the DJU, with a threat to execute the balance work at the risk and cost of the Collaborator in case of failure. The Collaborator thereafter issued a notice under Section 21 of the Act on July 2, 2022, invoking arbitration and raising claims relating to the encashment of its bank guarantee and the delay caused by the Contractor's default. The Employer, by its response dated July 29, 2022, declined the request, asserting absence of privity of contract.

High Court Decision and the Issue Before the Supreme Court

The High Court dismissed the petition under Section 11(6), noting that the notice under Section 21 had sought the Employer's consent to refer the matter to the Delhi International Arbitration Centre, which, in the High Court's view, indicated that the Collaborator itself did not treat the existing contract as containing an applicable arbitration clause. The High Court held that the tripartite agreement entered into later did not contain an arbitration clause and eclipsed the earlier arrangements.

Before the Supreme Court, the Collaborator argued that without its collaboration the Contractor could not have satisfied the eligibility criteria at all, and that the DJU made it an inseparable part of the contract from inception. It was submitted that the consent sought in the Section 21 notice was only for the choice of forum, namely the Delhi International Arbitration Centre, and not a request for consent to arbitrate as such.

The Employer contended that no privity of contract existed between itself and the Collaborator, that the tripartite agreement had superseded the earlier arrangements, and that since the Contractor had gone into liquidation, no claim could be raised by the Collaborator against the Employer.

Supreme Court's Analysis

The Court examined the bid documents, the DJU and the subsequent conduct of the parties in detail. It found that the bid document itself required submission of the DJU executed jointly by the Collaborator and the Contractor as a condition for the award of the contract. The DJU was executed by the Collaborator and the Contractor together, in favour of the Employer, creating joint and several liability for due completion of the contract.

The Court held that the arbitration clause in the contract between the Contractor and the Employer applied to the Collaborator as well, given that the DJU was an inextricable part of that contract. The Court observed that the Employer's own conduct confirmed this position. The Employer had repeatedly called upon the Collaborator, specifically referring to the DJU and the joint and several obligations, to step up and complete the project after the Contractor defaulted. The tripartite agreement of 2016 was found to be only a mechanism to ensure direct payment to the Collaborator and did not wipe out or supersede the earlier contract.

On the argument regarding the Section 21 notice, the Court clarified that the consent being sought was for the reference being made to the Delhi International Arbitration Centre specifically, and not a request for consent to arbitrate at all, which remedy was already available under the existing contract. The Court found that the High Court had therefore wrongly declined the petition.

Order

The Supreme Court set aside the impugned judgment and allowed the petition under Section 11(6). Justice (Retd.) Chakradhari Sharan Singh, former Chief Justice of the Orissa High Court, was appointed as Sole Arbitrator to adjudicate the disputes between the parties. All contentions of the parties were kept open before the Arbitrator.