Brief Background
The Supreme Court recently adjudicated upon a significant dispute in Hindustan Petroleum Corporation Ltd. v. BCL Secure Premises Pvt. Ltd. (Civil Appeal No. 14647 of 2025) dated 09.12.2025. The matter arose from a tender floated by Hindustan Petroleum Corporation Ltd. (HPCL/Appellant) for the design, supply, installation, and commissioning of a Tank Truck Locking System (TTLS). The successful bidder was AGC Networks Ltd. (later renamed Black Box Limited), which accepted the purchase order in August 2013.

Subsequently, AGC entered into a back-to-back agreement with BCL Secure Premises Pvt. Ltd. (BCL) in January 2014, under which BCL undertook the actual performance of the TTLS project. However, disputes arose due to alleged non-functioning of the Electro Magnetic Locking System at pilot locations, leading HPCL to issue notices to AGC for unsatisfactory performance.

BCL, claiming entitlement to nearly 94% of the payments under the arrangement, initiated multiple proceedings against AGC before civil courts and the MSME Facilitation Council. These were either withdrawn or rejected. In 2023, AGC and BCL executed a Settlement-cum-Assignment Agreement, under which AGC assigned its receivables against HPCL to BCL. Armed with this assignment, BCL invoked arbitration against HPCL in 2024. HPCL denied liability, asserting absence of privity of contract. The Bombay High Court, in April 2025, allowed BCL’s Section 11 application under the Arbitration and Conciliation Act, 1996 (“Act”) appointing an arbitrator but directing that arbitrability be decided as a preliminary issue. HPCL challenged this order before the Supreme Court.

Legal Submissions By The Parties

Appellant (HPCL)
Appellants contended that BCL/Respondent had no contractual relationship with the Appellant, as the latter had contracted solely with AGC and BCL/Respondent was never part of the negotiations. It was further emphasized that the tender conditions expressly barred subletting, subcontracting, or assignment without Appellant/HPCL’s prior written consent, which was never obtained. Consequently, the assignment agreement between AGC and BCL/Respondent was legally invalid and incapable of binding Appellant/HPCL.

Respondent (BCL)
Respondent submitted that determining whether a non-signatory is bound by an arbitration agreement involves a fact-intensive inquiry, which should properly be undertaken by the arbitral tribunal under Section 16 of the Act. Further, Appellant/HPCL was aware of Respondent/BCL’s role in the project, citing agreements, purchase orders, escrow arrangements, and email communications that were marked to HPCL. Further, that the Settlement-cum-Assignment Agreement of October 2023 validly transferred AGC’s receivables to BCL, thereby entitling BCL to pursue claims directly against HPCL.

Court’s Decision
The Supreme Court examined the scope of Section 11(6-A) of the Act. Relying on precedents such as Cox and Kings Ltd. v. SAP India Pvt. Ltd. (2024) 4 SCC 1, Interplay Between Arbitration Agreements & Stamp Act (2024) 6 SCC 1, and SBI General Insurance v. Krish Spinning (2024) 12 SCC 1, the Court clarified that the referral court must prima facie examine the existence of an arbitration agreement and whether a non-signatory is a “veritable party.”

The Court emphasized that while deeper factual inquiries are reserved for the arbitral tribunal under Section 16, however the referral court cannot abdicate its responsibility to scrutinize whether the non-signatory is genuinely bound.

Applying this test, the Court found that Respondent/BCL had failed to establish even prima facie that it was a veritable party to the contract between Appellant/HPCL and AGC. Appellant/HPCL had no contractual dealings with Respondent/BCL, nor was it a party to the documentation between AGC and BCL. More importantly, the Supreme Court observed that the agreement between Appellant/HPCL contained a specific procedure whereby consent was required of the Appellant/HPCL for AGC to enter into any agreement or sub-contract the work. Since there was no consent taken by AGC from Appellant/HPCL, the Court observed that the Appellant/HPCL cannot be a party to any arbitration. Accordingly, the Supreme Court held that the High Court erred in referring the matter to arbitration. The appeal was allowed, and the order appointing an arbitrator was set aside.

Conclusion
This judgment reinforces the principle that arbitration is fundamentally consensual, and non-signatories cannot be dragged into proceedings unless they are veritable parties to the agreement. While doctrines such as “group of companies” or “veritable party” may extend arbitration obligations in exceptional cases, the threshold requirement remains a demonstrable nexus with the contract.

More importantly, the Supreme Court observed that the referral court cannot mechanically refer the matter to arbitration. The referral court under Section 11 is not deprived of its jurisdiction from examining whether the non-signatory is in the real sense a party to the arbitration agreement. It is crucial for the referral court that it must prima facie examine the existence of an arbitration agreement and see whether a non-signatory is a veritable party or not.

By - C. George Thomas and Gurkaranbir Singh