Binding Nature of Arbitration Agreements on Non-Signatory Companies Determining Through Factual Evidence is Within Arbitral Tribunal’s Domain

The Petitioner, an investor, entered into two Share Purchase Agreements (SPAs) dated 27th April 2024 (amended 6th May 2024) with Respondent No. 1 in both matters (the "Sellers") for equity shares in Respondent No. 2, Beanly Beverages Private Limited

Despite paying the full consideration, the Petitioner alleged the Sellers failed to transfer the shares and instead allotted fresh equity to third parties

The Sellers attempted to reverse the transaction, claiming it was linked to an unfulfilled "primary transfer"

While the Sellers (R-1) consented to arbitration, Respondent No. 2 (the Company) opposed its impleadment, arguing it was a non-signatory to the SPAs and that such disputes fell under the exclusive jurisdiction of the NCLT

1. Whether a non-signatory (Respondent No. 2) can be referred to arbitration under Section 11 of the Arbitration Act when its "veritable party" status is disputed.

2. Whether the non-service of a Section 21 notice specifically to the non-signatory is fatal to the petition.

3. Whether disputes involving share transfers and corporate actions are inherently non-arbitrable as matters in rem.

The Court applied Section 11(6) and 11(6A) of the Arbitration and Conciliation Act, 1996, which limits judicial intervention to the "examination" of the existence of an arbitration agreement

It relied on Cox and Kings Ltd. v. SAP India Pvt. Ltd., establishing that the "Group of Companies" doctrine and the "veritable party" test allow non-signatories to be bound based on conduct and relationship

It further applied the "hands-off" approach from SBI General Insurance v. Krish Spinning and Bhagheeratha Engineering Ltd. v. State of Kerala, which holds that Section 21 notices are for reckoning limitation rather than being a jurisdictional prerequisite

Finally, it followed Vidya Drolia v. Durga Trading Corp. to distinguish between arbitrable actions in personam and non-arbitrable actions in rem

The Court observed that Clause 5.1.1(a) of the SPAs recorded that the Company (R-2) had subscribed its common seal to the agreement and held the business "in trust" for the Petitioner

Although R-2 disputed the affixation of the seal, the Court held that such contested factual questions constitute a "mini-trial" which is impermissible under Section 11

Applying the Cox and Kings precedent, the Court reasoned that since the Sellers (R-1) are majority shareholders and directors of R-2, the Company’s involvement was "structurally embedded" in the performance of the SPAs

On the issue of Section 21, the Court determined that failure to serve the notice to R-2 did not denude the Tribunal of jurisdiction to implead them

Regarding arbitrability, the Court found that the claims for specific performance and registration of shares are rights in personam arising from contract, not in rem matters reserved for the NCLT

The Court allowed the petitions and referred the parties to arbitration, appointing Ms. Veena Ralli, Advocate, as the Sole Arbitrator. The specific question of whether Respondent No. 2 is a "veritable party" bound by the agreement, and objections regarding non-arbitrability, were left open for final determination by the Arbitral Tribunal under Section 16 of the Act