Karnataka HC Includes Later Buyer In Arbitration Over Disputed Development MOU After Land Sale

The petitioner and respondent Nos. 1 and 2 entered into a Memorandum of Understanding (MOU) dated 26 December 2022 for development of specified properties as a residential layout.

The MOU contained an arbitration clause in Clause 12.3.

After disputes arose, the petitioner invoked that clause by notice dated 18 November 2023.

Respondent Nos. 1 and 2 had sold the properties to respondent No. 3 by a sale deed dated 10 November 2023, and the petitioner impleaded respondent No. 3 in its Section 11 petition.

Respondent No. 3 objected that it was not a signatory to the MOU; the petitioner relied on its alleged status as successor-in-title and the MOU’s asserted successors-in-title clause.

The Court applied Section 11(5) of the Arbitration and Conciliation Act, 1996, concerning appointment of an arbitrator where the agreed appointment procedure has not resulted in an appointment.

Relying on Ajay Madhusudan Patel v. Jyotrindra S. Patel, (2025) 2 SCC 147, and Cox and Kings Ltd. v. SAP India Pvt. Ltd., (2024) 4 SCC 1, it stated that a non-signatory may be bound by an arbitration agreement where objective circumstances—including the parties’ relationship, commonality and composite nature of the transactions, and the non-signatory’s conduct and participation—indicate consent; mere incidental involvement is insufficient.

Relying on Hindustan Petroleum Corporation Ltd. v. BCL Secure Premises Pvt. Ltd., Civil Appeal No. 14647 of 2025, the Court noted that a referral court should prima facie consider whether a non-signatory is a veritable party, while leaving the ultimate determination of that issue to the arbitral tribunal under Section 16.

The Court noted that the MOU was between the petitioner and respondent Nos. 1 and 2, and that respondent No. 3 later acquired the same properties that were the subject of the MOU.

Because the disputes under the MOU directly concerned those transferred properties, the Court considered respondent No. 3’s presence necessary for effective and complete adjudication and referred the disputes to arbitration.

The order did not finally determine respondent No. 3’s status as a party to the arbitration agreement; the Court’s discussion of the referral-stage approach left that jurisdictional question for the tribunal.

The parties’ claims and contentions were left open, and the parties were directed to appear before the Centre’s Director on 20 November 2026.