Section 11 courts should leave non-signatory joinder questions to the arbitral tribunal.

The petitioner, Xero Degrees Cafe Pvt. Ltd., entered into a Franchise Agreement dated 17 April 2021 with Respondent No. 1, a partnership firm whose partners were Respondent Nos. 2 and 3, granting it the right to operate a franchised outlet in Punjab under the petitioner’s brand. The agreement provided for a non-refundable franchise fee and monthly royalty calculated on the outlet’s net revenue.

The petitioner alleged that Respondent Nos. 1–3 transferred the franchise to Respondent No. 4 without prior written consent, withheld books and operational information, and that Respondent No. 4 continued operating the outlet and social-media page using the petitioner’s brand without authority. The petitioner claimed outstanding royalty of ₹39,77,442.81.

Clause 25.4 of the Franchise Agreement contained an arbitration agreement providing for arbitration in Delhi by a sole arbitrator.

After terminating the agreement, the petitioner issued a notice dated 7 May 2025 invoking arbitration against Respondent No. 1 and proposing names for appointment of a sole arbitrator. No response was received.

The respondents were deemed served but did not enter appearance or file a reply.

The petitioner therefore filed the present petition under Section 11 of the Arbitration and Conciliation Act, 1996 (“A&C Act”) seeking appointment of a sole arbitrator. Respondent No. 4 was not a signatory to the Franchise Agreement, but substantive claims, including passing-off damages and rendition of accounts, were proposed against him.

Whether the arbitration agreement contained in Clause 25.4 was valid and whether the disputes between the petitioner and Respondent Nos. 1–3 were liable to be referred to arbitration under Section 11 of the A&C Act?

Whether Respondent No. 4, although not a signatory to the Franchise Agreement, could be treated as a party to the arbitration agreement and joined in the arbitral proceedings?

Whether the question of Respondent No. 4’s status as a “veritable party” to the arbitration agreement should be conclusively determined by the referral court or left to the Arbitral Tribunal?

The Court applied Sections 7, 11, 16 and 21 of the A&C Act, holding that Clause 25.4 constituted a written arbitration agreement and that failure of the invocation notice to elicit a response justified exercise of jurisdiction under Section 11.

Section 3 was applied to uphold deemed service where communications are sent to the last known address by a means recording the delivery attempt, including service through the Registry by email and refusal of speed-post service.

Under Section 2(1)(h) read with Section 7, a non-signatory may be bound only if shown to be a veritable party to the arbitration agreement.

Relying on Cox and Kings Ltd. v. SAP India Pvt. Ltd., (2024) 4 SCC 1, ASF Buildtech (P) Ltd. v. Shapoorji Pallonji & Co. (P) Ltd., (2025) 9 SCC 76, Adavya Projects Pvt. Ltd. v. Vishal Structurals Pvt. Ltd., (2025) 9 SCC 686, and Pravin Electricals Pvt. Ltd. v. Galaxy Infra & Engg. Pvt. Ltd., (2021) 5 SCC 671, the Court held that the referral court should ordinarily leave the determination of a non-signatory’s status, particularly where it involves factual complexity, to the Arbitral Tribunal under Section 16.

The Court found that Clause 25.4 clearly recorded the parties’ agreement to arbitrate disputes arising from the Franchise Agreement, and that the alleged unauthorized transfer, non-payment of royalty, breach, and termination disputes were prima facie within its scope.

Delhi had jurisdiction because the agreement designated Delhi as the place of arbitration, conferred exclusive jurisdiction on Delhi courts, and the petitioner’s registered office was situated in New Delhi.

Although Respondent No. 4 was not a signatory and the arbitration notice invoked arbitration only against Respondent No. 1, the Court considered that determining whether Respondent No. 4 was a veritable party would require examination of the alleged transfer and other factual matters.

In light of the Supreme Court’s decisions, the Court declined to conclusively decide that question at the Section 11 stage and left it to the Sole Arbitrator, who could determine jurisdiction and impleadment under Section 16.

The respondents were permitted to raise objections concerning arbitrability and jurisdiction before the Arbitrator.

The arbitration was directed to proceed under the aegis and rules of the Delhi International Arbitration Centre, subject to the Arbitrator furnishing the disclosure required under Section 12 of the A&C Act.

The question whether Respondent No. 4 could be joined as a party was left open for determination by the Sole Arbitrator in accordance with law.

All claims, counterclaims, and contentions on merits were kept open, and the petition was disposed of accordingly.