Supreme Court held that a non-signatory can be bound by arbitration when transaction participation demonstrates contractual intent

Overview

This Supreme Court judgment deals with a fundamental question in arbitration law — can a person who has not signed an arbitration agreement still be compelled to participate in arbitration proceedings? KKH Finvest Pvt. Ltd. entered into a Memorandum of Settlement with the promoters of Sensorise Digital Services Pvt. Ltd. and related parties. While Ashiesh Shukla was listed as a shareholder and signed a separate Share Purchase Agreement, he was not a signatory to the main settlement that contained the arbitration clause. The Delhi High Court had excluded him from arbitration. The Supreme Court reversed that finding.

Facts of the Case

KKH Finvest Pvt. Ltd. (Appellant No. 1) intended to take over Sensorise Digital Services Pvt. Ltd. (Appellant No. 2) and its sister concern. On May 9, 2022, a Memorandum of Settlement (MoS) was signed between KKH Finvest and the promoters — Sharad Arora and Rajeev Arora — along with various management team members and shareholder groups. Under this settlement, KKH Finvest agreed to acquire 100% of the shares of Sensorise for Rs. 8 crores.

Ashiesh Shukla, the main respondent, was a consultant and minor shareholder holding only 1,480 equity shares — constituting just 0.05% of the company. He was listed in Schedule 2 of the MoS as a consultant/employee shareholder, but he was not a signatory to the MoS itself. He did, however, execute a separate Share Purchase Agreement on the same date — May 9, 2022 — under which he agreed to sell his shares as part of the overall settlement.

Disputes arose after execution of the MoS. KKH Finvest issued an Arbitration Invocation Notice and the Delhi High Court appointed former Chief Justice of India Justice T.S. Thakur as the sole Arbitrator. However, when KKH Finvest later included Ashiesh Shukla and others in the arbitration proceedings, objections were raised. KKH Finvest filed a fresh application under Section 11 of the Arbitration and Conciliation Act, 1996 seeking to include Ashiesh Shukla in the arbitration.

The Delhi High Court allowed the application for four other persons — Ajay Nandy, Abhishek Batra, Prasun Nigam, and Achin Jain — holding them to be veritable parties to the arbitration agreement. However, it excluded Ashiesh Shukla on the ground that Clause 16 of his Share Purchase Agreement expressly stated that the transfer of his shares was independent and in no way connected with any of the remaining clauses of the MoS.

Court’s Observations and Reasoning

The Supreme Court identified a critical factual error in the Delhi High Court’s reasoning. The Court pointed out that the same Clause 16 — which the High Court had used to distinguish Ashiesh Shukla from the other four persons — was identically present in all four of their Share Purchase Agreements as well. Clause 24 in Prasun Nigam’s agreement, Clause 24 in Abhishek Batra’s, Clause 28 in Ajay Nandy’s, and Clause 23 in Achin Jain’s agreements all replicated the same language as Clause 16 in Shukla’s agreement. Yet the High Court had held those four to be veritable parties — while excluding Shukla on the very same basis.

The Supreme Court held that this inconsistency was not founded on fact and was entirely unsustainable. It applied the principle of veritable parties as laid down in Cox and Kings Limited v. SAP India Private Limited (2024) 4 SCC 1, where the Court had held that a non-signatory to an arbitration agreement can be bound by it if their participation in the performance of the underlying contract indicates an intention to be bound. The relevant factors include mutual intent, relationship between parties, commonality of subject matter, composite nature of transactions, and actual performance of the contract.

The Court further noted that specific clauses in Ashiesh Shukla’s own Share Purchase Agreement clearly acknowledged that he was selling his shares as part of the overall settlement under the MoS, and that the settlement amount of Rs. 8 crores included a proportionate amount payable to him. This demonstrated that his performance under the Share Purchase Agreement was integral to the completion of the MoS. Without Shukla transferring his shares, the buyer could not have achieved 100% ownership of the company — making his participation fundamental to the overall commercial transaction.

Decision

The Supreme Court allowed the appeal and set aside the Delhi High Court’s judgment insofar as it excluded Ashiesh Shukla from the arbitration proceedings. The Court held that Ashiesh Shukla was indeed a veritable party to the Memorandum of Settlement and its arbitration clause. Accordingly, his disputes with KKH Finvest and Sensorise were referred to arbitration before Justice T.S. Thakur (Retired), the same Arbitrator already appointed in the matter. The Court directed that all parties bear their own costs and left all issues of fact and law open for determination by the Arbitrator.

Conclusion

This judgment is an important addition to India’s growing jurisprudence on non-signatory parties in arbitration. It reinforces the principle established in Cox and Kings that the label of a ‘non-signatory’ is not always a shield against being drawn into arbitration proceedings — what matters is whether the person’s conduct and involvement in the underlying commercial transaction demonstrates an intention to be bound by the arbitration agreement.

More importantly, the judgment serves as a reminder that courts must apply a consistent standard when dealing with similarly situated parties. The High Court’s error here was not a legal one — it was a factual one. By overlooking the fact that the same contractual clause it used to exclude Shukla was identically present in all four other agreements, it created an arbitrary and unjustifiable distinction.

For law students and practitioners, this case underlines two practical lessons: first, that in complex multi-party commercial transactions, every document is interconnected and must be read holistically; and second, that the composite nature of a transaction — not merely the presence or absence of a signature — determines whether a party is bound by an arbitration agreement.

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References

1. KKH Finvest Pvt. Ltd. v. Ashiesh Shukla, 2026 INSC 803, Supreme Court of India, August 5, 2026

2. Official PDF: https://api.sci.gov.in/supremecourt/2024/55910/55910_2024_9_1501_72971_Judgement_05-Aug-2026.pdf

3. Cox and Kings Limited v. SAP India Private Limited, (2024) 4 SCC 1

4. Oil and Natural Gas Corporation Limited v. Discovery Enterprises Pvt. Ltd., (2022) 8 SCC 42

5. Arbitration and Conciliation Act, 1996 — Sections 11 and 16

6. Supreme Court of India Official Website: sci.gov.in