Delhi High Court Refers Share Transfer Dispute to Arbitration, Leaves Non-Signatory Company’s Liability to Arbitral Tribunal
Facts
The petitioner, Chirag Jain, filed two petitions under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking appointment of a Sole Arbitrator for disputes arising out of two Share Purchase Agreements dated 27 April 2024, later amended by Addendums dated 6 May 2024. One SPA was executed with Rahul Jain and the other with Samayesh Khanna, both being promoters/directors and majority shareholders of Beanly Beverages Private Limited.
Under the SPAs, the petitioner agreed to purchase 70 equity shares each from Rahul Jain and Samayesh Khanna at ₹1,225 per share, for a total consideration of ₹85,750 under each SPA. The SPAs recorded that the full consideration had been paid and acknowledged, leaving the sellers’ obligation to transfer and register the shares in favour of the petitioner. The petitioner later alleged that instead of completing the transfer, the sellers attempted to reverse the transaction and the company issued fresh equity shares to third parties, thereby diluting his contractual rights.
The petitioner invoked arbitration under Clause 17 of the amended SPAs. The sellers stated before the Court that they had no objection to reference to a Sole Arbitrator, though the arbitration clause contemplated a three-member tribunal. The principal contest came from Beanly Beverages Private Limited, which argued that it was not a signatory to the SPAs and could not be forced into arbitration.
Issues
Whether disputes arising from the amended SPAs were liable to be referred to arbitration.
Whether a Sole Arbitrator could be appointed despite the arbitration clause providing for a three-member tribunal.
Whether Beanly Beverages Private Limited, being a non-signatory to the SPAs, could be included in the arbitral reference.
Whether objections regarding non-arbitrability, absence of Section 21 notice, corporate law issues and jurisdiction over the non-signatory company should be decided by the Court at the Section 11 stage or by the Arbitral Tribunal.
Petitioner’s Arguments
The petitioner argued that the disputes arose directly out of the amended SPAs and were covered by Clause 17, which provided for arbitration of all disputes relating to or concerning the SPAs.
He contended that upon receipt of the sale consideration, the SPAs became concluded and binding contracts. The sellers were therefore obligated to hand over signed share transfer deeds, physical share certificates, and ensure Board approval and registration of the petitioner as shareholder of Beanly Beverages.
The petitioner further argued that Beanly Beverages was a necessary and veritable party because the company’s shares formed the subject matter of the dispute, its register was required to record the transfer, and the transfer could not be completed without corporate acts by the company. He relied on Clause 5.1.1(a), which recorded that the company had subscribed its common seal on a duplicate of the SPAs and that its Board would carry on business in trust for the petitioner till closing.
The petitioner also submitted that the company’s subsequent allotment of shares to third parties diluted his rights and breached the positive and negative covenants under the SPAs. According to him, excluding the company from arbitration would fragment the dispute and render the award incomplete or unenforceable.
Respondent’s Arguments
The sellers did not object to reference of the disputes to arbitration before a Sole Arbitrator.
Beanly Beverages, however, objected to its impleadment on the ground that it was neither a party nor signatory to the SPAs or their Addendums. It argued that the SPAs were private bilateral share sale arrangements between the petitioner and the individual sellers.
The company submitted that it had not negotiated, executed or accepted any obligation under the SPAs, nor had it affixed its common seal on any SPA or copy thereof. It also contended that no notice invoking arbitration under Section 21 of the Arbitration Act had been served upon it.
It further argued that the reliefs sought by the petitioner involved matters of corporate management, share transfer, statutory registers, capital structure and allotment of shares, which are governed by the Companies Act and fall within the jurisdiction of statutory fora such as the NCLT, not a private arbitral tribunal.
Analysis of the Law
The Court held that proceedings under Section 11 are preliminary and summary in nature. The Court’s role is confined to examining the prima facie existence of an arbitration agreement and it should not conduct a mini-trial on disputed facts.
The Court noted that the arbitration clause clearly provided for arbitration of disputes relating to or concerning the SPAs and fixed New Delhi as the place of arbitration. It also recorded that the sellers had consented to appointment of a Sole Arbitrator.
On the question of non-signatories, the Court held that whether Beanly Beverages was a veritable party to the arbitration agreement required detailed examination of the transaction, conduct of parties, corporate documents, alleged seal affixation and the role of the company in performance of the SPAs. Such issues could not be conclusively decided at the referral stage.
Precedent Analysis
The Court relied on SBI General Insurance Co. Ltd. v. Krish Spinning and In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Stamp Act, 1899, to reiterate that Section 11 proceedings are not meant to become a contested factual inquiry, and where arbitrability is arguable, the matter should ordinarily be referred to arbitration.
The Court relied on Cox and Kings Ltd. v. SAP India Pvt. Ltd., where the Supreme Court held that a non-signatory may be bound by an arbitration agreement based on its conduct, role, involvement in negotiation/performance/termination, relationship with signatories, commonality of subject matter and composite nature of the transaction.
The Court also referred to Hindustan Petroleum Corporation Ltd. v. BCL Secure Premises Pvt. Ltd., which held that the referral court may examine prima facie whether a non-signatory is a veritable party, but the final determination must be left to the Arbitral Tribunal.
The Court further referred to Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc. and Ajay Madhusudan Patel v. Jyotrindra S. Patel, recognising that implied consent, conduct, relationship with signatories, performance of contract and legal doctrines such as agency, estoppel or piercing of corporate veil may justify binding non-signatories in appropriate cases.
Court’s Reasoning
The Court found that the existence of the arbitration agreement was not disputed. The dispute was whether Beanly Beverages, a non-signatory, could be treated as bound by that agreement.
The Court noted that the sellers were majority shareholders and directors of Beanly Beverages and had decision-making authority in the company. The SPAs involved sale of shares of Beanly Beverages, required Board approval and registration of the petitioner as shareholder, and contained clauses referring to the company’s business being carried on in trust for the petitioner until closing.
The Court also noted the dispute regarding whether the company’s common seal was affixed to a duplicate of the SPAs. Since the petitioner asserted affixation and Beanly Beverages denied it, the Court held that this disputed factual question could not be adjudicated at the Section 11 stage and required evidence.
The Court rejected the attempt to finally decide objections of non-arbitrability and corporate-law jurisdiction at the referral stage. It held that these objections fall within the domain of the Arbitral Tribunal and can be raised by Beanly Beverages before the Tribunal.
Conclusion
The Delhi High Court allowed the request for appointment of an arbitrator and appointed Ms. Veena Ralli, Advocate, as Sole Arbitrator to adjudicate the disputes between the parties. The Court clarified that it had not expressed any opinion on the merits and left open all objections, including whether Beanly Beverages, as a non-signatory, is bound by the arbitration agreement. The parties were directed to approach the Arbitrator within two weeks.
Case: Chirag Jain v. Rahul Jain & Anr.; Chirag Jain v. Samayesh Khanna & Anr.
Court: Delhi High Court
Case Number: ARB.P. 145/2026 & ARB.P. 146/2026
Judge: Justice Mini Pushkarna
Date: 2 July 2026
Result: Petitions disposed of; Sole Arbitrator appointed; issue of whether non-signatory Beanly Beverages is bound by the arbitration agreement left open for the Arbitral Tribunal.
