Abstract: This article critically analyses the dilution of party autonomy in arbitration due to mandatory statutory provisions. Recent judicial interpretations have upheld compulsory arbitration even in the absence of a written agreement, creating a legal fiction of deemed consent. Such an approach prioritizes legislative intent over the foundational principle of party consent. While expediting dispute resolution aligns with policy objectives, it risks undermining arbitration’s consensual nature. The article explores the broader implications of this trend, comparing it with other mandatory dispute resolution mechanisms. It argues for a balanced framework that ensures efficiency without sacrificing party autonomy, proposing stricter timelines and specialized tribunals to harmonize statutory mandates with equitable dispute resolution.

I – Introduction

One of the foundational aspects of arbitration as a form of alternative dispute resolution is party autonomy[i]. Parties to a dispute generally have to form a written arbitration agreement as per Section 7 of the Arbitration and Conciliation Act, 1996 (“A&C Act”). This is a general requirement for parties to adhere to and is a mandatory pre-requisite for arbitration. However, the Supreme Court (“Court”) recently in the case of Bank of India v. M/s Sri Nangli Rice Mills Pvt. Ltd. & Ors[ii] (“Judgment”), by upholding the order passed by the High Court, has held that a Debt Recovery Tribunal (“DRT”) has no jurisdiction for disputes between banks, financial institutions, asset reconstruction companies, or qualified buyers and that the parties mandatorily need to resort to arbitration as directed by Section 11 of the SARFAESI Act, 2002 (“Act”).

The Judgment further goes on to hold that there is no requirement of a written agreement and that parties have implicitly consented to arbitration as if there were an agreement in place, thus creating a deemed fiction under Section 11 of the Act. This piece  breaks down the judgment and raises broad concerns, which arise from it and have significant implications for arbitration in India.

II – Deemed Fiction and the Mandatory Nature of Section 11

The phrase “as if” was read with the phrase “parties to the dispute have consented in writing for determination of such dispute by conciliation or arbitration” given under Section 11 conjunctively to create a legal fiction as though there existed a written arbitration agreement between the parties. The Court in Rajasthan State Industrial Development & Investment v. Diamond & Gem Development Ltd.[iii] interpreted the phrase “as if” to create a legal fiction. The expression  means something that is not true in reality is treated as true for the specific purpose of the law. When someone is “deemed to be” something, they must be treated that way under the statute, even if they are not so in fact.

Applying the literal rule of interpretation in the present case, the Court read the word “shall” in Section 11 as “must” since that would give greater effect to the scheme of the Act. In the case of Delhi Airtech Services (P) Ltd. v. State of U.P., the Court read that the term “shall” be read as “may”, giving it a directory effect, only where doing so would achieve the ends of legislative intent behind the substantive provision as well as the scheme of the entire statute in question.

• Scope & Legislative Intent of Section 11

From the plain language of Section 11, it is evident that its applicability is confined by two cumulative conditions: first, the dispute must arise only between a bank, financial institution, ARC, or qualified buyer; and second, the dispute must relate only to the securitization of financial assets, reconstruction of assets, or non-payment of any amount due, including interest.

Section 11 mandates arbitration as the sole mechanism for resolving disputes between banks. This is to prevent ancillary or collateral conflicts among secured creditors from obstructing the primary legislative scheme of the Act. It aims to ensure swift recovery of dues through enforcement of secured assets in a time-bound manner with minimal interference. The Court in M/s. Transcore v. Union of India interpreted that the scheme of the Act differs from the intent of Section 11 in terms of the dispute. Disputes arising under Section 11 deal with the rights of the secured creditors and disputes arising generally under the larger scheme of the Act is where rights and liabilities have been established and recovery is sought. Thereby in the present case, the jurisdiction of DRTs is excluded since liability is not crystallised and recovery proceedings cannot be initiated.

The Judgment also carves out an exception for banks who assume the role of a borrower in a dispute, being barred from seeking remedy under Section 11. The Delhi High Court in Bell Finvest India Ltd. v. AU Small Finance Bank Ltd. explained that, a bank’s liability will be crystallised when it is acting as a borrower as per Section 2(1)(f) of the Act. Hence, it cannot resort to arbitration under Section 11. The core purpose of DRT is to serve as specialized forums focused on enabling and expediting recovery from defaulting borrowers, rather than adjudicating disputes between secured creditors themselves.

The Court in the present dispute held that the priority of charge over the borrower’s stock falls within the scope of Section 11, as the first condition is fulfilled. The second condition-relating to ‘non-payment of any amount due,’ is deemed to be triggered by the actions of the borrower, rather than by the parties engaged in the dispute.

III – Freedom of Choice to Arbitrate

This leads us to explore whether party autonomy, a core tenet of arbitration, includes the freedom of choice to arbitrate for a party. The doctrine of election applies in a scenario where a party has the option between two inconsistent remedies, in which case the party has the freedom to opt for one. The Court in M.D. Frozen Foods Exports Ltd. v. Hero Fincorp Ltd.[iv] upheld this doctrine by holding that a party can avail remedy under the A&C Act in the event that the secured assets are insufficient to satisfy the debts under proceedings under the Act. The same was reiterated in Indiabulls Housing Finance Ltd. v. Deccan Chronicle Holdings Ltd.[v], where it was held that proceedings under the Act and the A&C Act go hand in hand.

The Court interpreted Vidya Drolia v. Durga Trading Corporation[vi] in the Judgment such that parties have the freedom to choose arbitration only where the law accepts the existence of arbitration as an alternative mechanism, and in the absence of any repugnancy between the provisions of the special law and arbitration as an alternative. The doctrine of election would not apply in the present case since statutory arbitration will not be construed as an alternative remedy but as the only remedy available under Section 11. To reiterate, the usage of the word “shall” in Section 11 negates the parties from approaching any other forums.

Statutory arbitration is recognised under Section 2(4) of the A&C Act as it is to be read with the special law, i.e. the Act that stipulates arbitration to be conducted. While Section 2(6) of the A&C Act provides parties the freedom to choose arbitration, the same is curtailed when other statutes mandate arbitration. In light of this, it is necessary to understand the problems arising from other statutes as well before exploring possible solutions under the Act.

IV – Possible Remedy Upon Examining Other Models

Statutory mediation is prescribed under Section 12A of the Commercial Courts Act, 2015 (“CCA”) and any fruitful settlement agreement arising from it is given the same effect as an arbitral award under Section 30 of the A&C Act. Recently, the Court in Dhanbad Fuels Private Limited v. Union of India held this provision to be mandatory for cases being instituted post 20^th August 2022. The Court held this to be in line with the object of this provision, which is to primarily decongest the commercial courts and enhance the ease of doing business in the country. By allowing cases that sought urgent interim relief, priority was given to cases where time was of the essence and economic value.  

The Court by upholding the legislative intent has sidelined practicality by mandating mediation. A recent study, highlights its inefficiency and how ultimately a large majority of mediation applications result in non-starters, eventually leading the parties to litigation. This eventually dilutes the intent of the CCA as the burgeoning case load on commercial courts are not prevented but merely delayed. Similarly, if not implemented effectively, mandating arbitration could run counter-productive to the legislative intent of the Act which is to ensure swift recovery of dues.

The stance taken by the Court in the Judgment is certainly a welcome move since there is currently a massive backlog in the DRTs and such financial disputes under Section 11, are better diverted to the appropriate forum. While the time stipulated under Section 29A of the A&C Act for passing an arbitral award is 12 months with a possible extension of 6 months, this would lead to a depreciation in the value of the disputed assets. Thus, the author proposes a more streamlined process for arbitration under Section 11 of the Act for minimising the loss of asset value. This would involve taking insight from Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”). Section 18 designates a specific council for conducting speedy arbitration, in the event conciliation fails, all within a period of 90 days for the distressed suppliers. Similarly, Section 12A of the CCA prescribes a time period of 3 months for conducting mediation. The Act being a special law like the MSMED Act, could have a designated council or tribunal to conduct arbitration for financial institutions/banks with a stricter timeline than stipulated in the general law, i.e. Section 29A of the A&C Act. Thus, by ensuring minimal asset value depreciation and speedier justice, goes hand-in-hand with the object of the Act. The Act like the MSMED Act, is a beneficial legislation and can be analogous to the stance taken by the Court in Gujarat State Civil Supplies Corporation Limited v. Mahakali Foods Private Limited, wherein it was held that MSMED Act being special law, superseded the provisions of the A&C Act.

V – Conclusion

While party autonomy generally includes the freedom of choice to arbitrate, the same is curtailed due to the mandatory nature of statutory arbitration. The Judgment by interpreting the wordings of Section 11 of the Act strictly coupled with a deeming fiction, adds yet another statute to the list of statutes mandating alternative dispute resolution mechanisms provided in the law. The reason being for the same that these statutes are special law whose legislative intent goes hand-in-hand with the mandatory routes prescribed.  Hence, it is imperative for the legislature to carve out an efficient route having strict timelines under the Act since the prescribed mandatory mechanism could run counter-productive as it has shown to be in other laws.

[i] (2025) 4 SCC 641 [22].

[ii] 2025 SCC OnLine 1229.

[iii] (2013) 5 SCC 470.

[iv] (2017) 16 SCC 741.

[v] (2018) 14 SCC 783.

[vi] (2021) 2 SCC 1.

Arbitration law is fundamentally based on party autonomy, allowing parties to choose their dispute resolution mechanism. However, in India, this principle is being challenged by the inclusion of non-signatories in arbitration proceedings through doctrines like ‘group of companies’ and ‘composite transactions.’ While this flexibility can enhance efficiency, it risks entrapping entities that never consented to arbitration, leading to loss of negotiation power, unexpected costs, and enforcement risks. This paper compares India’s approach with the more restrained practices of the UK and Singapore, which limit the binding of non-signatories to specific contractual or statutory grounds. It highlights the issues with India’s current system and proposes reforms, including legislative clarification of non-signatory doctrines, ‘safe harbour’ exemptions, and procedural safeguards. These reforms aim to balance the need for efficient multi-party dispute resolution with the protection of party autonomy, ensuring that arbitration remains a consensual and predictable process.

Keywords: arbitration. non-signatory, efficiency, party autonomy

One of the core tenets of arbitration law is the principle of party autonomy. This principle forms the foundation of arbitration law as it allows the parties to an agreement the autonomy to elect their dispute resolution mechanism. By extension of this principle, it is the consenting parties to an arbitration who are obligated to take part in these proceedings. However, this central tenet is now at a critical juncture. Indian courts have often been called to adjudicate whether non-signatories, in essence –­­­­­­­­­ affiliates, agents, assignees, etc., could still be compelled to participate in the arbitral proceedings, given the rise in complex, multi-party commercial transactions. The Supreme Court’s landmark decisions in affirming ‘composite transactions’ and ‘group of companies’ doctrines have made Indian arbitration law amongst the more flexible ones in the world. However, that flexibility can cut both ways, entrapping entities that never negotiated or even considered arbitration. This piece aims to draw attention to the dangers non-signatories are exposed to under the present law by proposing legislative and procedural reforms to restore the balance between autonomy and efficiency by drawing on the more restrained approaches practised by the UK and Singapore.

I. Law in the UK and Singapore

The United Kingdom, governed by the Arbitration Act 1996, confines the application of binding third parties under an arbitration clause to traditional contracts as exceptions and legislative exemptions. Section 82(2), similar to Sections 8 and 45 of the ACA, states that any reference to a party in an arbitration agreement includes “any person claiming under or through a party to the agreement.” The English Courts have, however, ruled that such a , all of which require a clear contractual basis rather than an independent “group” doctrine. Under the Contracts (Rights of Third Parties) Act, 1999, statutory third-party rights allow a specifically identified beneficiary to enforce and be bound by any contractual term, including an arbitration clause. This ensures predictability by creating clear and narrow categories of non-signatories who can be bound, in this case, a specially identified beneficiary only. Likewise, English Courts will pierce the corporate veil only in cases of fraud and sham, and

Singapore mirrors the restraint practised by the UK.  , adhere to the Model Law’s principle of separability; nevertheless, extensions to non-signatories are limited to express legal grounds. In Manuchar Steel Hong Kong v. Star Pacific, the High Court categorically rejected the ‘single economic entity’ or ‘group of companies’ doctrine, asserting that permitting enforcement against a non-party “would be anathema to the internal logic of the consensual basis of an agreement to arbitrate.” SIAC Rules allow joinder only when there is unanimous consent of all parties or when there are clear prima facie grounds that the non-party is bound by the arbitration agreement (Rule 18.1); otherwise, tribunals lack the authority to add non-signatories.

II. Law in India

By contrast, the Indian Arbitration and Conciliation Act, 1996 (“ACA”) defines a “party” in Section 2(1)(h) and restricts its scope to a signatory of the arbitration agreement. However, the law in India has thus evolved to the point where there are a plethora of ways through which the judiciary can decide to implead non-signatories where they feel that such consent was implied, all for the sake of efficiency. It can be through the ‘group of companies’ doctrine, through the ‘composite transaction’ test,

[1] or , where direct benefits and interconnected issues are at play. Such impleadment indeed helps in efficient resolutions, but the question arises, for whom exactly is it efficient? For the non-signatory who did not consent to arbitration? Was consent of all parties not the basis of arbitration or has the idea of efficiency diluted that? It is, however, not a question that such an idea has created difficulties. These difficulties have been discussed in the latter part of the paper.

III. Issues with the Current Law in India

The detrimental effects of these doctrines on non-signatories are numerous. Firstly, there is a loss of negotiation power over disputes where non-signatories are unable to influence essential factors such as the seat, language, number of arbitrators and the procedure for their appointment. Secondly, this vulnerability of being impleaded in such an arbitration could result in facing high unbudgeted costs, increased complexities and the limited access to other remedies. Thirdly, there exists the enforcement risk where non-signatories are compelled to arbitrate, and an award is passed against them, and their assets are subjected to enforcement proceedings across jurisdictions.

For instance, imagine an EPC contractor in Hyderabad – A Pvt. Ltd., enters into an agreement containing an arbitration clause with its supplier, B Pvt. Ltd. The seat of arbitration for all project disputes is Mumbai. A separate special-purpose vehicle – C SPV Pvt. Ltd., lends the funds but never signs the EPC or supply contracts. When disputes arise between A and B, B seeks to implead C SPV under India’s composite transaction doctrine. Now, overnight, C SPV must join an arbitration seated in Mumbai, with rules already decided for the language, the appointment of arbitrators, etc. It would also need to bear hefty unbudgeted costs such as arbitrator fees, administrative fees and expensive counsels for the arbitration. Courts may also decline to entertain separate legal actions on the same disputes, directing it to resolve the matter within the framework of arbitration. Following such difficulties, if an award is rendered against C SPV, its assets (both domestic and abroad) may be subject to seizure through enforcement proceedings. This illustrates the dangers non-signatories face due to India’s broad interpretations of impleadment doctrines.

IV. Suggested Reforms

To use the efficiency benefits of consolidated, multi-party arbitration while protecting unwary entities, India should contemplate the following reforms, judiciously adopting elements from the principled frameworks of the UK and Singapore:

1. Legislative Clarification of Non-Signatory Doctrines

Amend Section 2(1)(h) to distinguish expressly between consensual mechanisms (assignment, agency, third-party beneficiary, assumption, etc.) and non-consensual doctrines (group of companies, estoppel, alter ego, etc.). A new sub-section could delineate the consensual categories and mandate that any reference to non-consensual theories be substantiated by precisely defined statutory criteria, which restricts equitable or corporate law interventions to instances of . This would also address the uncertainty around the judicial interpretation of ‘composite transactions’ and set the standard for impleading non-signatories higher, ensuring the principle of party autonomy is not diluted for the sake of efficiency or practicality.

2. ‘Safe Harbour’ Exemptions for Peripheral Entities

The addition of a ‘safe harbour’ clause mandating explicit consent to arbitration would serve to protect non-signatories from unwarranted implied obligations. This reflects Singapore’s practice of protecting third parties save for prima facie grounds or unanimous consent of all the parties, and the UK’s position where a non-party cannot be bound by an arbitration agreement without its consent.  This guarantees that companies with only incidental benefits are not inadvertently swept in due to their passive involvement in a project.

3. Procedural Framework for Impleading Non-Signatories

In the recent case of  , the Supreme Court laid down that impleadment of non-signatories may be done by arbitral tribunals if a prima facie case is established under doctrines such as ‘group of companies.’ The Court clarified that this constitutes a jurisdictional power under Section 16 of the ACA, rather than merely an ‘interim measure’ under Section 17. This signifies a welcome clarification of tribunal autonomy. However, it also emphasises the need for structural safeguards where non-signatories should receive Although such a non-signatory can always appeal an order impleading it under Section 16 by taking recourse under Section 37, such a process is prolonged and goes against the principle of party autonomy as well as efficiency. Reforming such procedural problems by codification would preserve such efficiency without compromising fairness for the non-signatory.

These reforms draw on the restrained approaches of the UK and Singapore, emphasising explicit contractual or statutory entitlements, while maintaining India’s commercial pragmatism. India can facilitate multi-party dispute resolution while preserving the clarity and voluntariness essential to the legitimacy of arbitration by differentiating consensual from non-consensual mechanisms, formalising ‘composite transaction’ criteria, and establishing procedural safeguards for potential impleadments. This could cement party autonomy as the cornerstone of arbitration where predictability and voluntariness would prevail, fostering trust among international parties.

V. Conclusion

The efficacy of arbitration depends on the twin pillars of autonomy and efficiency. The present Indian landscape demonstrates a willingness to reduce concurrent disputes through the consolidation of disputes and entities that are linked. However, that decision must be weighed against the possibility of entrapping companies or entities in arbitrations that had no say in the formation of the arbitration agreement. When parties agree to the various terms of the arbitration agreement – the seat, governing law, exclusion clauses, etc., they do so by considering what is efficient for them. However, impleading non-signatories through judicial construction of the idea of efficiency would defeat this aspect of party autonomy. By adopting the UK and Singapore’s conservative approach to non-signatories and integrating it into India’s model-law framework through specific legislative and procedural reforms, India can ensure a commercially resilient arbitration regime that honours consensual boundaries rather than continually diluting it.

[1] Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641.