The Supreme Court has held that a collaborator essential to the execution of a contract can invoke the arbitration clause contained in the principal agreement, even if it is not a direct signatory to that agreement, provided it is an “inextricable” and “veritable” party to the contract arrangement.
The bench of Justice Sanjay Kumar and Justice K. Vinod Chandran allowed the appeal filed by Elecon Engineering Company Limited against the rejection of its arbitration request by the High Court.
The dispute arose out of a contract awarded for installation of a Coal Handling Plant Package for the Nabinagar Thermal Power Project. The contractor had collaborated with Elecon Engineering Company Limited to satisfy the technical eligibility criteria prescribed in the bid documents, particularly the requirement relating to prior experience in design and commissioning of integrated bulk material handling plants.
The bid conditions required execution of a Deed of Joint Undertaking (DJU) jointly by the contractor and collaborator for successful performance of the project. The Supreme Court noted that the collaborator’s technical expertise was indispensable for the contractor to qualify for the bid itself.
The High Court had earlier dismissed the petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 on the ground that there was no direct privity of contract between the collaborator and the employer. The High Court had also relied upon the wording of the notice issued under Section 21 of the Act, observing that the collaborator had sought consent for arbitration, which indicated that it itself did not consider the arbitration clause applicable.
Before the Supreme Court, the appellant argued that the collaboration arrangement was inseparable from the contract and that the DJU formed an integral part of the contractual framework. The Court accepted this contention and observed that the contract structure itself mandated joint obligations between the contractor and collaborator.
The Court also took note of subsequent developments during execution of the project. The contractor went into liquidation in January 2020, following which the employer repeatedly called upon the collaborator to fulfil obligations under the DJU. The employer had also threatened to execute the remaining work at the risk and cost of the collaborator if obligations were not performed.
The judgment records that meetings were subsequently convened between the employer, contractor, and collaborator, resulting in a tripartite agreement dated 05.04.2016. Under this arrangement, payments for supplies made by the collaborator were to be made directly to it. The Supreme Court clarified that this tripartite agreement did not extinguish the earlier contractual arrangement but merely facilitated direct payments due to the contractor’s financial difficulties.
Rejecting the employer’s contention regarding absence of privity of contract, the Court held that the DJU imposed “joint and several” liability upon both the contractor and collaborator for successful completion of the project. It further observed that the employer itself had repeatedly invoked the collaborator’s obligations under the DJU during the course of project execution and therefore could not later deny the collaborator’s right to invoke arbitration.
The Supreme Court observed that the communications exchanged between the parties, the tripartite arrangement, and the employer’s repeated demands upon the collaborator collectively established that the collaborator was a “veritable party” to the contract. Accordingly, it was entitled to invoke the arbitration clause contained in the agreement between the contractor and employer.
Setting aside the High Court’s order, the Supreme Court allowed the arbitration petition and appointed Justice Chakradhari Sharan Singh as the sole arbitrator to adjudicate the disputes between the parties.
The Court directed the arbitrator to proceed in accordance with law and submit the declaration under Section 12 of the Arbitration and Conciliation Act within 15 days from receipt of the judgment.
Case Details
Case Title: Elecon Engineering Company Limited Versus Bhartiya Rail Bijlee Company Limited & Anr.
Citation: JURISHOUR-1156-SC-2026
Case No.: Special Leave Petition (C) No.33128 of 2025
Date: 07/05/2026
