SC Clarifies When Non-Signatories Can Be Bound by Arbitration

(Judicial Quest News Network)

New Delhi, August 6, 2026: The Supreme Court has held that a person who has not formally signed an agreement may still be referred to arbitration where their conduct demonstrates meaningful participation in the performance of the underlying transaction.

A Bench comprising Justice Sanjay Kumar and Justice Sanjeev Sachdeva made the observation while allowing an appeal in KKH Finvest Pvt. Ltd. & Anr. v. Ashiesh Shukla & Ors. The Court set aside the Delhi High Court’s decision to exclude a non-signatory from the arbitration proceedings solely on the ground that he had not executed the principal settlement document. [1]

The ruling reinforces the principle that arbitration is not determined by signatures alone. Courts must examine the substance of the parties’ conduct, the structure of the transaction and the extent to which the alleged non-signatory participated in fulfilling the bargain embodied in the agreement.

Dispute arose from an ₹8-crore settlement arrangement

The controversy originated in a Memorandum of Settlement (MoS) under which the appellant company agreed to acquire a company and its sister concern for a settlement consideration of ₹8 crore.

The arrangement required the promoters, members of the management and identified shareholders to transfer their shares and comply with related obligations, including confidentiality, non-compete commitments and intellectual-property requirements.

One of the shareholders, Ashiesh Shukla, held 1,480 shares in the company. Although he did not sign the MoS, he entered into a separate Share Purchase Agreement (SPA) on the same day. Under that SPA, he agreed to transfer his shares in return for his proportionate entitlement from the settlement amount.

When disputes later arose, arbitration was invoked.

The Delhi High Court referred several parties to arbitration but declined to include Shukla. The High Court relied, among other considerations, on wording in his SPA stating that the share transfer was independent of and unconnected with the MoS.

The buyer company challenged that exclusion before the Supreme Court.

Supreme Court rejects a purely formal approach

Allowing the appeal, the Supreme Court found that the High Court had drawn an artificial distinction between Shukla and the other shareholders who had been brought within the arbitration proceedings.

The Court noted that the documents executed by the shareholders were materially similar and that Shukla’s SPA acknowledged the wider settlement structure, the transaction between the promoters and the buyer, and the proposed acquisition of shares. In that setting, the Court held that his obligation to transfer the shares was not a collateral or isolated act; it was an essential step in completing the settlement.

The Court reasoned that the MoS could not be fully implemented unless Shukla transferred the shares held by him.

His performance was therefore closely connected with the principal transaction and could not be disregarded merely because he had signed a separate agreement.

“The participation of a non-signatory in the performance of the underlying contract is the most important factor to be considered, as the conduct of the non-signatory parties is an indicator of the intention of those parties to be bound by the arbitration agreement.” — Supreme Court, as reported in

Conduct, transaction structure and commonality of disputes matter

The judgment draws upon the Constitution Bench ruling in Cox and Kings Ltd. v. SAP India Pvt. Ltd., which recognised that a non-signatory may, in appropriate circumstances, be bound by an arbitration agreement when the person’s conduct and relationship with the transaction indicate an intention to accept its terms.

The Court also relied on ONGC Ltd. v. Discovery Enterprises Pvt. Ltd., where the Supreme Court recognised that parties who did not sign the arbitration agreement may nevertheless be referred to arbitration when the agreements form part of a composite transaction and the disputes are closely interconnected.

The present decision emphasises that these principles cannot be applied mechanically. The inquiry must remain fact-specific. Relevant considerations may include the non-signatory’s participation in performing the underlying contract, the composite nature of the transaction, the commonality of the subject matter and the degree to which the claims against the non-signatory overlap with the disputes already placed before the arbitral tribunal.

Significance of the ruling

The ruling is significant for commercial settlements, corporate acquisitions, shareholder arrangements and other multi-party transactions in which different participants execute separate but interdependent documents.

It makes clear that a separate contractual instrument will not automatically insulate a participant from arbitration where the person’s obligations are indispensable to the performance of the principal agreement.

At the same time, the judgment does not suggest that every non-signatory can be compelled to arbitrate merely because their conduct is connected in some general way with a transaction.

The decisive question remains whether the surrounding circumstances show a real and legally relevant connection with the agreement containing the arbitration clause.

In practical terms, the judgment places greater emphasis on commercial substance over contractual form.

A party who actively performs an obligation that is fundamental to the transaction may find it difficult to deny the arbitration mechanism simply by pointing out that their signature does not appear on the principal agreement.

Case at a glance

Particular	Details
Case	KKH Finvest Pvt. Ltd. & Anr. v. Ashiesh Shukla & Ors.
Court	Supreme Court of India
Bench	Justice Sanjay Kumar and Justice Sanjeev Sachdeva
Core issue	Whether a non-signatory who participated in performing the underlying transaction could be referred to arbitration
Transaction	Memorandum of Settlement involving acquisition of a company and its sister concern
Settlement value	₹8 crore
Decision	Appeal allowed; exclusion of the non-signatory from arbitration set aside