Referral courts must leave the final determination of non-signatory joinder to the arbitral tribunal.

The petitioner and respondent nos. 1 and 2 are partners in a registered firm, "Ashoka Exports," governed by a Reconstituted Partnership Deed dated April 1, 2009, containing an arbitration clause (Clause 25)

Following disputes, the petitioner and respondent no. 1 executed a Memorandum of Understanding (MOU) on October 30, 2024, to split the business and eventually dissolve the firm

The petitioner alleged that respondent no. 1 acted in bad faith by siphoning assets, poaching clients, and diverting business to respondent no. 3—a company allegedly acting as the alter ego of respondent no. 1—which operated from the same premises and used the firm’s infrastructure

The petitioner invoked arbitration and filed this application under Section 11 of the Arbitration and Conciliation Act, 1996, for the appointment of an arbitrator. Respondent no. 1 opposed the impleadment of respondent no. 3 (a non-signatory to the partnership deed), arguing it possessed a separate legal identity and was not bound by the arbitration agreement

1. Whether a non-signatory entity (Respondent No. 3) can be referred to arbitration along with the partners of a firm based on allegations of being an alter ego and the "intertwined" nature of the dispute

2. Whether the referral court under Section 11 should conclusively decide the issue of misjoinder of a non-signatory or leave it to the Arbitral Tribunal

The court primarily applied Section 11 of the Arbitration and Conciliation Act, 1996, regarding the appointment of arbitrators, and Section 16 regarding the competence of an arbitral tribunal to rule on its jurisdiction

It relied on the "Group of Companies" and "alter ego" doctrines as established in Cox and Kings Limited vs. SAP India Private Limited [para. 9, 22] and Oil and Natural Gas Corporation Limited vs. Discovery Enterprises Private Limited, which allow non-signatories to be bound by arbitration agreements through non-consensual theories like estoppel and the alter ego principle

Furthermore, it applied the principle from ASF Buildtech Private Limited vs. Shapoorji Pallonji and Company, holding that referral courts should only conduct a prima facie examination of the arbitration agreement’s existence and leave the determination of whether a non-signatory is a "veritable party" to the Arbitral Tribunal

The court found that the petitioner made a prima facie case for piercing the corporate veil of respondent no. 3

It noted specific allegations that respondent no. 3 was running a competitive business using the firm's premises, workers, and user IDs, and that respondent no. 1 had diverted purchase orders to it

The court reasoned that there was a clear "commonality in the subject matter" of the dispute between the petitioner and respondent nos. 1 and 3

Citing Cox and Kings, the court observed that alter ego and estoppel are valid grounds to refer non-signatories to arbitration in exceptional situations

Crucially, the court held that a referral court under Section 11 should avoid a "mini-trial" or intricate evidentiary inquiry, as doing so risks frustrating the arbitration agreement

Instead, the Arbitral Tribunal is the preferred forum to decide issues of joinder, non-joinder, and the applicability of the "Group of Companies" doctrine under Section 16, with the power to impose costs if a party is vexatiously impleaded

The court held that while respondent no. 3 is a non-signatory, the prima facie evidence of it being an alter ego of respondent no. 1 justified its inclusion in the reference

All objections regarding the impleadment of respondent no. 3 were left open for the learned arbitrator to decide as a jurisdictional issue under Section 16 of the Act

The arbitrator was directed to comply with Section 12 and was granted liberty to fix remuneration as per the statutory schedule