An Analysis of Adavya Projects Pvt. Ltd. v. M/s Vishal Structural Pvt. Ltd.,
An Analysis of Adavya Projects Pvt. Ltd. v. M/s Vishal Structural Pvt. Ltd. [1]
Authored by Bijal Gogri, Principal Associate, GNP Legal
Arbitration in India is fundamentally premised on the principle of consent. Traditionally, only those parties who are signatories to an arbitration agreement are bound by its terms. However, contemporary commercial transactions particularly those involving complex corporate structures and group entities often extend beyond formal signatories, rendering a rigid insistence on signatures commercially unrealistic. Recognizing this reality, the Supreme Court of India has, over time, evolved nuanced doctrines to determine when a non-signatory may be bound by an arbitration agreement. One of the most recent and significant pronouncements in this evolving jurisprudence is Adavya Projects Pvt. Ltd. v. M/s Vishal Structurals Pvt. Ltd., wherein the Court examined the circumstances under which a non-signatory can be compelled to submit to arbitration.
Factual Background
The dispute arose from a commercial arrangement relating to infrastructure and construction works, structured through a limited liability partnership and associated contractual documents. A formal agreement containing an arbitration clause was executed between parties. However, the execution, negotiation, and performance of the project involved multiple related entities operating within the same commercial framework.
Although Adavya Projects Pvt. Ltd. was not a formal signatory to the arbitration agreement, it was deeply involved in the transaction. It participated in negotiations, played a decisive role in execution, and derived substantial commercial benefits from the arrangement. When disputes arose, arbitration proceedings were initiated by issuing a notice under Section 21 of the Arbitration and Conciliation Act, 1996. Crucially, this notice was served only on one respondent, and the initial Section 11 application for appointment of an arbitrator also impleaded only that party.
During the arbitral proceedings, an application was made to implead additional respondents, including Adavya Projects. The arbitral tribunal rejected this application on the ground that the non-signatories had neither been served with a Section 21 notice nor impleaded at the Section 11 stage. The Delhi High Court upheld this reasoning, effectively treating procedural non-compliance as determinative of jurisdiction. This approach was challenged before the Supreme Court.
ssues Before the Supreme Court
The case presented the Supreme Court with interrelated questions central to contemporary arbitration practice. The Court was required to examine whether a non-signatory can be compelled to arbitrate based on conduct and commercial involvement, whether service of a Section 21 notice is a jurisdictional precondition for impleadment, and whether courts at the Section 11 stage conclusively determine the parties to Arbitration.
Section 21 and the Commencement of Arbitration
The Supreme Court began by clarifying the statutory purpose of Section 21. It reaffirmed that a notice invoking arbitration serves to determine the commencement of arbitral proceedings and plays a crucial role in limitation. The date of receipt of the notice fixes when arbitration is deemed to have commenced.
However, the Court firmly rejected the view that Section 21 operates as a jurisdictional gatekeeping provision. It held that Section 21 is procedural and temporal in nature, not exclusionary. Non-service of a notice on a particular person does not automatically bar the arbitral tribunal from examining whether that person can be bound by the arbitration agreement. To treat Section 21 as a jurisdictional barrier, the Court observed would elevate form over substance and defeat the purpose of arbitration in complex, multi-party transactions.
Judicial Restraint at the Section 11 Stage
A central theme of the judgment is the reaffirmation of judicial restraint under Section 11. The Supreme Court reiterated that post the 2015 amendments, a court appointing an arbitrator conducts only a prima facie examination of the existence of an arbitration agreement. It does not finally decide questions relating to the scope of arbitration or the identity of all parties who may ultimately be bound.
The Court cautioned against treating Section 11 orders as freezing the composition of arbitral proceedings. Doing so would undermine the kompetenz-kompetenz principle and transform referral proceedings into full-fledged jurisdictional trials. The failure to implead certain entities at the Section 11 stage, therefore, cannot preclude their impleadment during arbitral proceedings.
Non-Signatories, Consent, and the Group of Companies Doctrine
Addressing the substantive issue of non-signatory arbitration, the Supreme Court rejected a narrow, signature-centric understanding of consent. While arbitration is founded on consent, the Court clarified that such consent need not always be express or formally recorded in writing. Instead, it may be inferred from conduct, participation, and the overall commercial relationship between parties.
Applying the group of companies doctrine, the Court examined whether the non-signatory functioned as part of a single economic unit with the signatory entities. It noted that where a non-signatory plays a decisive role in negotiations, execution, and performance, and derives direct benefits from the contract, it may be bound by the arbitration agreement. The Court stressed that such determinations require a fact-sensitive inquiry into intention, commercial reality, and the composite nature of the transaction.
Arbitral Tribunal’s Authority under Section 16
The Supreme Court emphasized that determinations regarding the binding effect of an arbitration agreement on non-signatories fall squarely within the arbitral tribunal’s jurisdiction under Section 16. Questions concerning party status, jurisdiction, and the applicability of doctrines such as group of companies are matters that demand detailed factual examination and are ill-suited for summary adjudication by courts at the threshold stage.
By restoring this authority to arbitral tribunals, the Court reinforced the principle of kompetenz-kompetenz and ensured that arbitration remains a self-contained dispute resolution mechanism.
Doctrinal and Practical Significance
The judgment in Adavya Projects marks a clear shift away from strict procedural formalism toward a commercial reality-based approach. It prevents parties from evading arbitration by exploiting technical objections relating to non-signature or non-service of notice. In doing so, it strengthens arbitration as an effective dispute resolution mechanism in infrastructure, joint venture, and corporate group disputes.
The ruling also aligns Indian arbitration jurisprudence with international practice, where substance prevails over form and tribunals are entrusted with determining their own jurisdiction. By piercing attempts to hide behind corporate veils, the Court has ensured that arbitration remains fair, effective, and commercially meaningful.
Conclusion
The decision in Adavya Projects Pvt. Ltd. v. M/s Vishal Structurals Pvt. Ltd. continues the Supreme Court’s broader trajectory of strengthening arbitration in India by prioritizing substance, efficiency, and arbitral autonomy. By empowering tribunals to implead non-signatories where warranted, the Court has reduced the scope for tactical resistance based on rigid procedural objections.
At the same time, the judgment raises important questions about how far procedural safeguards, particularly those relating to notice and consent, can be relaxed without affecting the perceived fairness and legitimacy of arbitration. While curbing obstructionist behavior is essential to ensure effective dispute resolution, arbitration ultimately derives its authority from party consent and procedural fairness. Striking the right balance between efficiency and legitimacy will therefore remain a delicate task for courts and tribunals alike.
How future benches navigate this balance will determine whether the principles articulated in Adavya Projects strengthen arbitration without compromising its foundational values. The judgment thus represents not just a doctrinal clarification, but an important moment in the continuing evolution of Indian arbitration law.