Court’s Decision
The Bombay High Court dismissed an appeal under Section 37 of the Arbitration and Conciliation Act, 1996, affirming the District Court’s order that upheld an arbitral award against a state cooperative federation for dues payable to a contractor under a project executed through its project management consultant (PMC).
Justice Somasekhar Sundaresan held that even though the federation was not a signatory to the contract, its deep participation and control over the project made it a “veritable party” to the arbitration agreement, thus bound by its terms. The Court observed that “a non-signatory cannot claim detachment when its conduct unmistakably demonstrates intent to be bound.”
The appeal was accordingly dismissed, confirming the arbitral award against the federation while sustaining the deletion of joint liability imposed upon the PMC.
Facts
The case stemmed from infrastructure projects for mustard seed storage silos proposed in Rajasthan by a state cooperative federation (“the Federation”). The Federation appointed National Heavy Engineering Cooperative Ltd. (NHEC) as the Project Management Consultant (PMC). NHEC then engaged B.G. Shirke Construction Technology Pvt. Ltd. (the Contractor) to execute the work under a separate agreement dated 28 September 1989.
The work was completed by 1993, and the Contractor raised payment claims of approximately ₹4.83 lakh, which remained unpaid. A civil suit was filed in 1995 against both the Federation and the PMC, but it was referred to arbitration upon NHEC’s Section 8 application.
An arbitral tribunal awarded the Contractor ₹4.83 lakh with interest, holding both the Federation and NHEC jointly liable. The Federation challenged the award under Section 34, contending lack of privity and jurisdiction, while NHEC claimed it acted only as an agent. The District Court in 2013 upheld the award against the Federation but relieved NHEC from liability.
Aggrieved, the Federation filed the present appeal under Section 37.
Issues
- Whether the arbitral award was without jurisdiction due to absence of privity of contract between the Federation and the Contractor.
- Whether the District Court erred by partially modifying the award to delete NHEC’s liability.
- Whether participation by a non-signatory can constitute implied consent to arbitration.
- Whether partial setting aside of an arbitral award is legally permissible under Section 34 of the Arbitration Act.
Petitioner’s Arguments
The Federation argued that it was not a signatory to the construction contract between NHEC and the Contractor, and hence the arbitration clause in that contract could not bind it. It maintained that NHEC acted independently as a principal, not as an agent, and the contract was executed purely on a principal-to-principal basis.
It asserted that the District Court’s order effectively modified the arbitral award, which is impermissible under Section 34, as it deleted NHEC’s liability but retained the Federation’s, despite both being jointly liable under the award. The Federation also contended that it had participated in arbitration under protest and that the arbitral tribunal exceeded its jurisdiction by fastening liability on a non-party to the contract.
Respondent’s Arguments
The Contractor contended that the PMC Contract and the construction agreement were interlinked, forming part of a single composite transaction. The Contractor’s role, pricing, and obligations were all derived from the Federation’s project specifications.
It argued that NHEC was only a facilitator, and the Federation was the real principal who benefited from the project, approved the Contractor’s appointment, attended meetings, certified work progress, and even participated in the constitution of the arbitral tribunal.
Thus, the Federation’s conduct showed implied consent and veritable participation, making it bound by the arbitration clause. The Contractor emphasized that the arbitration clause in Clause 23.1.4 of the contract explicitly referred to disputes involving both the PMC and the “Purchaser,” which was defined as the Federation itself.
NHEC supported the Contractor’s case, maintaining that it was merely a PMC and not personally liable to pay the Contractor.
Analysis of the Law
Justice Sundaresan framed the central question: whether a non-signatory party who conceived, financed, and supervised the project could deny being bound by an arbitration clause executed by its consultant on its behalf.
The Court referred to Konkan Railway Corporation Ltd. v. Chenab Bridge Project Undertaking (2023) and Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd. (2019) to restate that the scope of interference under Section 37 mirrors that of Section 34—extremely limited to cases of perversity or jurisdictional errors.
The Court observed that the Federation’s role went beyond mere oversight—it was the project’s driving force, appointing the PMC, approving the Contractor, and even participating in arbitral proceedings. This amounted to an implied agreement and active consent to the arbitration framework.
Precedent Analysis
- Cox and Kings Ltd. v. SAP India Pvt. Ltd. (2024) 3 SCC 1 — The Constitution Bench clarified that non-signatories can be bound by arbitration agreements if their conduct demonstrates intention to be bound, participation in negotiation or performance, or receipt of contractual benefits. The Court extensively quoted from this case, holding that the Federation’s participation reflected implied consent under the “veritable party” test.
- Konkan Railway Corp. Ltd. v. Chenab Bridge Project Undertaking (2023) 11 SCR 215 — Reiterated that Section 37 jurisdiction is no wider than Section 34 and that appellate courts must defer to plausible arbitral findings unless they are perverse.
- Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd. (2019) 20 SCC 1 — The High Court cited this to underline that courts should not interfere unless the award shocks judicial conscience or disregards fundamental principles of justice.
- Gayatri Balasamy v. ISG Novasoft Technologies Ltd. (2025 INSC 605) — The Court applied this Constitution Bench ruling to uphold partial setting aside of arbitral awards, holding that the District Court lawfully severed NHEC’s liability while retaining the Federation’s.
Court’s Reasoning
The Court held that the Federation was a “veritable party” to the contract and arbitration clause despite being a non-signatory. Relying heavily on Cox and Kings, it reasoned that a non-signatory can be bound where its conduct, control, and benefit from the contract indicate implied consent.
The Federation’s appointment of NHEC, direct involvement in selecting the Contractor, and its continued supervision over work and payments demonstrated such consent. Justice Sundaresan observed:
“It is implausible for the Federation to claim detachment when the very project, contract, and outcome were of its making.”
Further, the Court found the District Court’s partial setting aside of NHEC’s liability entirely consistent with Gayatri Balasamy, since that portion of the arbitral award was severable and its removal did not affect the validity of the rest.
Conclusion
The Court concluded that:
- The Federation was a party in fact and in law to the arbitration agreement and hence bound by the award.
- The PMC’s liability was wrongly imposed, as it was only an intermediary.
- The District Court’s limited intervention was valid and did not amount to modification.
- There was no perversity or jurisdictional error warranting appellate interference.
Accordingly, the appeal was dismissed with directions to release the deposited sums after four weeks.
Justice Sundaresan summed up:
“When participation and benefit are writ large, detachment is a legal fiction. A party cannot escape arbitration merely by keeping its pen from the paper.”
Implications
This ruling significantly expands the application of the “veritable party” doctrine in Indian arbitration law. It establishes that non-signatory entities—such as government agencies or corporate principals—can be bound by arbitration agreements if their actions and benefits demonstrate implied consent.
It also clarifies the legality of partial setting aside of arbitral awards post-Gayatri Balasamy, providing courts flexibility to preserve valid portions of awards while removing inconsistent findings.
For contractors and project participants, the judgment ensures accountability of the true principal behind a project, even if not formally a party to the contract.
Judgments Cited and Their Relevance
| Case Name | Principle Applied | Relevance in Present Judgment |
| Cox and Kings Ltd. v. SAP India Pvt. Ltd. (2024) 3 SCC 1 | Non-signatories can be bound to arbitration through conduct and implied consent. | Established that the Federation was a “veritable party.” |
| Konkan Railway Corp. Ltd. v. Chenab Bridge Project Undertaking (2023) | Section 37 mirrors Section 34; appellate interference limited. | Guided the Court’s narrow standard of review. |
| Dyna Technologies Pvt. Ltd. v. Crompton Greaves Ltd. (2019) | Judicial restraint in interfering with arbitral awards unless perverse. | Applied to uphold the District Court’s limited intervention. |
| Gayatri Balasamy v. ISG Novasoft Technologies Ltd. (2025) | Permits partial setting aside of arbitral awards if severable. | Justified deletion of NHEC’s liability. |
FAQs
1. Can a non-signatory be bound by an arbitration clause in India?
Yes. The Court reaffirmed that a non-signatory can be bound if its conduct shows implied consent, participation, or benefit from the contract, following Cox and Kings v. SAP India Pvt. Ltd.
2. What did the Bombay High Court decide in this case?
It upheld the arbitral award against the state federation, holding that its participation made it a veritable party to the arbitration, even though it had not signed the contract.3. Can courts partially modify arbitral awards?
Yes, after Gayatri Balasamy, courts can partially set aside awards if the invalid portion is severable and its removal preserves the rest.
