The Hon'ble Supreme Court, in National Skill Development Corporation v. Surya Wires Private Limited & Ors.,¹ decided on 8th September 2026, has held that an arbitration clause contained in a loan agreement can be incorporated into a personal guarantee which does not independently contain an arbitration clause, where the contractual framework expressly integrates the guarantee into the loan agreement. The Court held that such incorporation is permissible under Section 7(5) of the Arbitration and Conciliation Act, 1996, where the reference to the connected instrument is such as to make the arbitration clause part of the contract.

Factual Background
The National Skill Development Corporation (NSDC), a not-for-profit company and the implementing agency for the establishment of model training centres under the Pradhan Mantri Kaushal Kendra Scheme, extended financial assistance to Surya Wires Private Limited for setting up such centres. The parties executed a cluster of contemporaneous agreements, including loan agreements dated 20th December 2016 and 18th August 2017, together with various ancillary Facility Agreements.

The Managing Director of Surya Wires (Respondent No. 2) executed personal guarantees in his individual capacity on 27th December 2016 and 18th August 2017, corresponding to the two Loan Agreements. While the loan agreements featured an arbitration clause under Clause 11.2, the personal guarantees lacked a corresponding provision.

Following defaults in repayment, NSDC initiated arbitral proceedings on 21st June 2022 against the borrowers and other Respondents. The Respondents challenged the jurisdiction of the Arbitral Tribunal under Section 16 of the Act, contending that he had not executed the loan agreements in his personal capacity and that the personal guarantees executed by him did not contain an arbitration clause.

The aforesaid objection was accepted by the Sole Arbitrator who directed the deletion of Respondent No. 2 from the Arbitral Proceedings. The Delhi High Court by its Judgment dated 28th January 2026, affirmed the decision of the Arbitrator holding, inter alia, that a mere general reference to another document would not automatically incorporate its arbitration clause.

Hence, NSDC approached the Supreme Court of India.

Issue before the Apex Court
The principal issue before the Apex Court was whether an arbitration clause contained in a loan agreement could be incorporated into a personal guarantee which did not itself contain an arbitration clause, where the guarantee was expressly integrated into the loan agreement as part of the same transaction.

Decision of the Apex Court
The Supreme Court first considered the principles governing incorporation by reference under Section 7(5) of the Arbitration and Conciliation Act, 1996. Relying on M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited,² the Court reiterated that an arbitration clause contained in another document may be incorporated where the reference to that document demonstrates an intention to make the arbitration clause part of the contract. A mere general reference to another agreement, however, would not ordinarily suffice. The Court also referred to Inox Wind Limited v. Thermocables³ Limited,3 which reiterated this distinction.

The Court then examined the specific contractual framework governing the transaction between NSDC and the Respondents. The loan agreements defined facility agreements to include the agreements, instruments, undertakings, deeds and other documents executed in connection with the project. Schedule IV expressly included personal guarantees within the facility agreements. Further, Clause 12.1 provided that the facility agreements would be deemed to form part of the loan agreement.

The Court held that these provisions, read together, demonstrated that the personal guarantees were not independent or disconnected instruments, but constituted an integral part of the loan agreements. The close timing of execution of the loan Agreements and personal guarantees also reinforced the conclusion that the documents were components of a single composite transaction, rather than separate and self-contained contractual arrangements.

The Court further rejected the contention that Respondent No. 2 could not be bound by the arbitration clause merely because he had not signed the loan agreements in his personal capacity. He had executed the personal guarantees in his individual capacity and had furnished them as a condition precedent to the disbursement of the loans. Having expressly integrated the guarantees into the loan agreements, the guarantee could not, for purposes of dispute resolution, be severed from the contractual framework to which it had been made subject.

Ratio of the Judgment
An arbitration clause contained in a principal loan agreement can be incorporated into a personal guarantee under Section 7(5) of the Arbitration and Conciliation Act, 1996, even where the guarantee does not independently contain an arbitration clause and the guarantor has not signed the loan agreement in his personal capacity, provided the contractual documents demonstrate a clear intention to integrate the Guarantee into the principal agreement. Accordingly, the arbitration clause in the loan agreement stood incorporated into the personal guarantees and bound the guarantor to arbitration. The Supreme Court overturned the Delhi High Court's order and set aside the Sole Arbitrator's order, thereby holding Respondent No. 2 bound by the arbitration agreement.

The judgment thus underscores that in multi-document transactions, the question of arbitral consent cannot be determined solely by identifying the document bearing the arbitration clause or the signature of the party sought to be bound; the contractual documents must be read together to determine the parties' intention.

By - Vedant Varshney