Arbitration — Section 11(4), Arbitration & Conciliation Act, 1996 — joinder of non-signatory / “veritable party” test — prima facie satisfaction required — referral refused.

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Arbitration — Section 11(4), Arbitration & Conciliation Act, 1996 — joinder of non-signatory / “veritable party” test — prima facie satisfaction required — referral refused.
Where party BCL (non-signatory to HPCL–AGC purchase order) contended it was entitled to invoke arbitration clause in HPCL tender based on a back-to-back contract with AGC and a later settlement-cum-assignment, High Court allowed Section 11 petition and directed constitution of arbitral tribunal to decide arbitrability as preliminary issue. Supreme Court held that referral court must be prima facie satisfied that an arbitration agreement exists and that the non-signatory is a veritable party before directing arbitration; on the facts there was no prima facie material to show privity, consent to assignment or any intention to bind BCL to HPCL–AGC contract (clauses in tender expressly prohibit subcontract/assignment without written owner consent), and the Section 11 petition was dismissed. Referral court cannot abdicate its limited duty to examine existence of arbitration agreement; competence-competence does not relieve referral court from requiring a prima facie showing of a real connection.

RATIO DECIDENDI

1. A Section 11 referral court must examine, prima facie, whether an arbitration agreement exists and whether a non-signatory is a “veritable” party to that agreement; this is a limited inspection — not a full contested inquiry — but it must go beyond mere assertion. (Cox & Kings; Interplay; SBI General; Ajay Madhusudan Patel.)

2. Mere commercial or legal connection between signatory and non-signatory, or production of post-hoc assignment/settlement, is insufficient absent prima facie evidence of intent/consent to bind the non-signatory or of a valid assignment in accordance with contractual prohibitions on subletting/assignment.

3. Where the prima facie threshold is not met, the referral court should refuse to refer the non-signatory to arbitration; competence-competence and the remit of the arbitral tribunal do not justify devolving the prima facie screening function entirely to the tribunal.

ISSUE → HOLDING → REASONS

ISSUE
Whether the High Court (referral court) was correct in directing arbitration by appointing an arbitrator under Section 11(4) where the claimant (BCL) was a non-signatory to the HPCL–AGC contract and relied upon a back-to-back agreement, escrow/communications and a later Settlement-cum-Assignment to claim rights “through or under” AGC.

HOLDING
No. The Supreme Court held that the High Court erred. On prima facie examination the respondent (BCL) failed to establish that it was a veritable party to the HPCL–AGC arbitration agreement and hence was not entitled to a mandatory Section 11 referral. The Section 11 petition was dismissed.

REASONS (condensed)
• Statutory and precedential frame: Section 11(6-A)/11(4) requires the referral court to examine existence of an arbitration agreement (Interplay; SBI General). Cox & Kings and subsequent decisions recognise that complex joinder questions often better suit the tribunal, but that does not remove the referral court’s prima facie duty to satisfy itself that a non-signatory is a veritable party.
• Prima facie test applied: BCL failed the prima facie test. There was no contractual privity between HPCL and BCL; the back-to-back contract expressly restricted BCL’s direct dealings with HPCL (Project Manager not to communicate with HPCL without AGC’s prior written approval); the tender expressly prohibited subletting/assignment without HPCL’s prior written consent (clauses 3.17 / 5.c.1).
• Settlement/assignment insufficient: The Settlement-cum-Assignment (31.10.2023) transferring receivables from AGC to BCL did not, by itself, create a pre-existing arbitration agreement between HPCL and BCL, nor did it show consent to bind BCL at the time of contract formation. Clause 2.2 of settlement did not, prima facie, convert BCL into a veritable party to the HPCL–AGC arbitration clause.
• Policy / limits: Allowing mere commercial linkages, emails or escrow arrangements to suffice would abrogate privity and party autonomy; referral court must refuse referrals where there is no prima facie showing of veritable party status.
• Conclusion: On the facts, referral was improper; the CAA is dismissed (no need to decide time-bar point).