Introduction 

The Appellant, National Skill Development Corporation (“NSDC”), filed an SLP against the  judgment dated 28.01.2026 of the Hon’ble Delhi High Court (“High Court”) in ARB. A.  (COMM.) 11 of 2025. The Appellant had filed an appeal under Section 37(2)(a) of the Arbitration  and Conciliation Act, 1996 (the “Act”) in which the High Court had affirmed the order dated  23.10.2024 of the Ld. Sole Arbitrator directing deletion of Respondent Nos. 2, 3, 5 and 7 from the  array of parties to the arbitral proceedings, on the finding that they were non-signatories to the  agreements in their personal capacities. The appeal before the Apex Court was confined to  Respondent No. 2. [Para 3] 

The question framed by the Supreme Court was whether, where parties structure a single transaction  through several interconnected instruments, an arbitration clause contained in one instrument can  bind a party through another instrument which is expressly integrated with it but does not itself  contain an arbitration clause. [Para 2]

I. Brief facts about the dispute 

The Ministry of Skill Development and Entrepreneurship decided to establish Model Training  Centres in every district of the country, known as “Pradhan Mantri Kaushal Kendra” (“PMKK”).  NSDC, a not-for-profit company which extends financial assistance to entities providing skill  training, was the implementing agency. NSDC issued a Request for Proposal dated 29.07.2016  inviting technical and financial proposals for setting up PMKKs. [Para 5] 

Respondent No. 1, Surya Wires Private Limited (the “Company”), and Respondent No. 4, Disha  Education Society (the “Society”), submitted their proposal and were allotted districts to jointly  establish the Model Training Centres. Respondent No. 6, Shanti Finance and Property 

Development Private Limited (the “Finance Company”), was the co-borrower providing  mortgage security. Respondent Nos. 2 and 3 are the Managing Director/Authorised Representative  and a Director of the Company respectively. Respondent No. 5 is the Authorised Representative  of the Society and Respondent No. 7 is the Authorised Representative of the Finance Company.  [Para 6] 

On 20.12.2016 the parties executed a cluster of contemporaneous agreements: a Service Level  Agreement, a first Loan Agreement for Rs. 7,17,63,197/- and ancillary “Facility Agreements”,  namely a Deed of Assignment, Deed of Hypothecation, Irrevocable Power of Attorney,  Undertaking-cum-Declaration and a Personal Guarantee by Respondent No. 2 in favour of NSDC,  which was executed on 27.12.2016. [Para 7] 

A second, materially identical set of agreements was executed on 18.08.2017 for an additional loan  of Rs. 2,13,83,194/-, including a second Personal Guarantee by Respondent No. 2. [Para 8] 

Defaults occurred in repayment under the Loan Agreements, and Loan Recall Notices were issued  to the Respondents on 29.10.2021. Respondent No. 2 was also served, being a signatory to the  Personal Guarantees. [Para 9] 

On 21.06.2022 NSDC initiated arbitral proceedings before the Indian Council of Arbitration and  filed its Statement of Claim against Respondent Nos. 1 to 7 for recovery of the amounts due under  the two Loan Agreements. Respondent Nos. 2, 3, 5 and 7 filed an application under Section 16 of  the Act contending that the Arbitral Tribunal lacked jurisdiction over them as they were not  signatories to the Loan Agreements in their personal capacities. [Para 10] 

The Ld. Sole Arbitrator, vide order dated 23.10.2024, allowed the Section 16 application. It was  held that Respondent Nos. 2, 3, 5 and 7, being directors and/or authorised representatives of the  borrower entities, were not signatories to the Loan Agreements in their individual and personal  capacities, and their deletion from the array of parties was directed. [Para 11] 

NSDC carried the matter in appeal under Section 37(2)(a) of the Act, confined to the deletion of  Respondent No. 2. The High Court vide the impugned judgment affirmed the order of the Sole  Arbitrator. It held that the Personal Guarantees dated 27.12.2016 and 18.08.2017 admittedly contained no arbitration clause of their own, that a mere general reference to a document does not  automatically import an arbitration clause and there must be conscious acceptance by the parties.  The High Court also held that the jurisdiction of the Tribunal cannot be founded on proximity of  transactions or commercial linkage between instruments but must be traceable to an express or  validly incorporated arbitral undertaking; and that NSDC had placed no material to show that Respondent No. 2 was the “alter ego” of the Company or had used the corporate form to work a fraud, which is the high threshold required to bind a non-signatory. [Para 12] 

II. Contentions at the Bar before the Supreme Court

1.Contentions of the Appellant 

• Incorporation on a conjoint reading: Clause 11.2 of the Loan Agreements, read together  with the definition clauses and the Schedules, demonstrates that the arbitration clause stands  incorporated into the Personal Guarantees. [Para 13] 
• Guarantees are not collateral instruments: The Personal Guarantees executed by  Respondent No. 2 on 27.12.2016 and 18.08.2017 were not independent or collateral  instruments. They were mandatory pre-disbursement conditions under the Loan Agreements,  contractually defined as “Facility Agreements” and deemed to form an integral and  inseparable part thereof. [Para 13] 
• Restrictive application of Section 7(5): The High Court erred in applying Section 7(5) of  the Act in an unduly technical and restrictive manner, contrary to the settled position in M.R.  Engineers and Contractors Pvt. Ltd. v. Som Datt Builders Ltd., (2009) 7 SCC 696. Where a  personal guarantee is expressly rendered an integral part of the loan agreement, the  arbitration clause in the latter must be held to be incorporated by reference under Section  7(5). [Para 14] 
• No prejudice to the arbitration: The addition of Respondent No. 2 will not derail or delay  the arbitral proceedings.  
• Reliance was placed on Inox Wind Ltd. v. Thermocables Ltd., (2018) 2 SCC 519 and Cox  and Kings v. SAP India Pvt. Ltd., (2024) 4 SCC 1. [Para 14]

2. Contentions of Respondent No. 2 

• No incorporation into the guarantee: Of the seven instruments executed between the  parties, only four contained arbitration clauses, and the arbitration clause in the Loan  Agreements had at no stage been incorporated into the Personal Guarantee. [Para 15] 
• Clause 11.2 is confined to the Loan Agreement: Clause 11.2 confines arbitration to disputes concerning the Loan Agreement, and the Loan Agreement separately contemplates  enforcement of securities and guarantees in terms of their respective facility agreements.  [Para 15] 
• “Two contract case”: The present case is a “two contract case” involving distinct parties  and instruments not cast in a standard form, and the reliance on Inox Wind is therefore  misplaced. [Para 15] 
• Intention cannot be presumed: It was not disputed that a non-signatory may, in an appropriate case, be bound by an arbitration clause where a mutual intention is established.  However, such intention must be gathered from the language employed in the document and  cannot be presumed. [Para 15] 
• Authorities relied on: IFCI Ltd. v. Cannanore Spinning and Weaving Mills Ltd., (2002) 5  SCC 54; S.N. Prasad v. Monnet Finance Ltd., (2011) 1 SCC 320; NBCC (India) Ltd. v.  Zillion Infraprojects Pvt. Ltd., (2024) 7 SCC 174; Adavya Projects Pvt. Ltd. v. Vishal  Structures Pvt. Ltd., (2025) 9 SCC 686 and the decision of the High Court of England & Wales in Habas Sinai Ve Tibbi Gazlar Isthisal Endustri AS v. Sometal SAL, [2010] EWHC  29 (Comm). [Para 15]

III. Analysis and Conclusions of the Supreme Court

1.Scope and ambit of Section 7(5) of the Act 

The Supreme Court began with Section 7(5) of the Act, under which a reference in a contract to a  document containing an arbitration clause constitutes an arbitration agreement, provided the  reference is such as to make that arbitration clause part of the contract. The Supreme Court relied  on the summary of the scope and intendment of Section 7(5) in M.R. Engineers and Contractors  Pvt. Ltd. v. Som Datt Builders Ltd., (2009) 7 SCC 696 (para 24 thereof), which lays down the  following: [Para 17]

1. An arbitration clause in another document is incorporated by reference if the contract  contains a clear reference to the document containing the arbitration clause, the reference  clearly indicates an intention to incorporate the arbitration clause, and the clause is  appropriate, i.e. capable of application to disputes under the contract and not repugnant to  its terms; 
2. A general reference to another contract does not incorporate its arbitration clause; a specific  reference to the arbitration clause is required;
3.  Where a contract provides that its execution or performance shall be in terms of another  contract, only the terms relating to execution/performance are imported and not the  arbitration clause, unless there is a special reference to it;
4. Where the contract provides that the standard form of terms and conditions of an  independent trade or professional institution shall apply, the arbitration provision in such  standard terms is deemed to be incorporated; 
5. Where the contract stipulates that the conditions of contract of one of the parties shall form  part of the contract, the arbitration clause forming part of such general conditions will  apply. 

The Supreme Court noted that in Inox Wind Ltd. v. Thermocables Ltd., (2018) 2 SCC 519, another  two-Judge Bench, while reiterating M.R. Engineers, held that a general reference to an earlier  contract does not suffice to incorporate an arbitration clause into a later contract, whereas a general  reference to a standard form suffices. [Para 18]

A three-Judge Bench in Shinhan Bank v. Carol  Info Services Ltd., (2023) 20 SCC 388 reaffirmed that Section 7(5) is satisfied where the reference  in a contract to a document containing an arbitration clause is such as to make that clause a part of  the contract. [Para 19] 

The Supreme Court then referred to the Constitution Bench in Cox and Kings v. SAP India Pvt.  Ltd., (2024) 4 SCC 1, which held that the definition of “parties” under Section 2(1)(h) read with  Section 7 of the Act includes both signatories and non-signatories; that the conduct of a non signatory may indicate its consent to be bound; and that the requirement of a written arbitration  agreement under Section 7 does not exclude the possibility of binding non-signatories. The  Constitution Bench drew on Article 4.3 of the UNIDROIT Principles, under which subjective  intention is ascertained from preliminary negotiations, practices established between the parties, subsequent conduct, the nature and purpose of the contract and trade usages. In a composite  transaction involving multiple agreements, courts and tribunals must assess “whether the  agreements are consequential or in the nature of a follow-up to, the principal agreement”. [Para  20] 

The Supreme Court also relied on Ajay Madhusudan Patel v. Jyotrindra S. Patel, (2025) 2 SCC 147 (three-Judge Bench), which observed that the intention to be bound by an arbitration agreement  can be gauged from the circumstances surrounding the participation of the non-signatory in the  negotiation, performance and termination of the underlying contract [Para 21], and on ASF  Buildtech Pvt. Ltd. v. Shapoorji Pallonji and Company Pvt. Ltd., (2025) 9 SCC 76 (two-Judge  Bench), which held that the arbitration mechanism must be sufficiently elastic to accommodate  multi-party and multi-contract arrangements without compromising consent and party autonomy,  and that courts and tribunals must be responsive to emerging commercial practices. [Para 22]

2. Personal Guarantees are an integral part of the Loan Agreements 

Applying these principles to the facts [Para 23], the Supreme Court noted that Respondent No. 2  executed the instruments dated 20.12.2016 and 18.08.2017 in two capacities: in a representative  capacity as Managing Director of the Company, and in his personal capacity as guarantor under  the Personal Guarantees. The Supreme Court then extracted the following provisions of the Loan  Agreements: [Para 24] 

(i) Clause 1.1(b), Article I: “Agreement” includes all Schedules and annexures to the Loan Agreement; 

(ii) Clause 1.1(l): “Facility Agreements/Facility Documents” include the Loan Agreement,  the Memorandum of Approval and all other agreements, instruments, undertakings,  deeds and documents executed in connection with the Project, as detailed in Schedule  IV; 

(iii) Clause 1.1(u): the “Schedule(s)” form an integral part of the Agreement; (iv) Interpretation sub-clause (xi): in case of inconsistency between the Loan Agreement  and any other Facility Document, the Loan Agreement prevails;

(v) Clause 11.2 (Dispute Resolution): disputes arising out of or in relation to the  Agreement, including its termination, are to be settled by arbitration under the Act in  accordance with the Rules of the Indian Council of Arbitration, which are deemed to  be incorporated by reference; 

(vi) Clause 12.1, Article XII (Miscellaneous): the Schedules, annexures and Facility Agreements “shall be deemed to be part of this agreement as if the provisions thereof  were set out herein in extension”; 

(vii) Clause 1 of Schedule I: execution of the Loan Agreement and the other Facility  Agreements is a pre-disbursement condition; 

(viii) Schedule IV: enumerates the Facility Agreements, which expressly include the  Personal Guarantee(s). 

On a conjoint and harmonious reading of these clauses, the Supreme Court held that the Personal  Guarantees constitute an integral and inseparable part of the Loan Agreements. The Personal  Guarantees are expressly enumerated in Schedule IV as “Facility Agreements”, and sub-clauses  (b) and (u) of Clause 1.1 declare that the “Agreement” includes all Schedules annexed to it. Clause  12.1 goes further. The Supreme Court held that “the phrase ‘as if the provisions thereof were set  out herein in extension’ operates as a deeming fiction internal to the contract, binding every  facility agreement, including the Personal Guarantee, within the same legal and arbitral  framework as the Loan Agreement. The Personal Guarantees do not, therefore, stand apart from  the Loan Agreements, and are woven into their very fabric.” [Para 25]

3. The cluster of documents is a single composite transaction 

The Supreme Court found independent reinforcement in Clause 1 of Schedule I, which stipulates  execution of the Loan Agreement and the other facility agreements as a pre-disbursement  condition, and in the contemporaneity of execution: the Personal Guarantees were executed on  27.12.2016 and 18.08.2017, in close proximity to the Loan Agreements dated 20.12.2016 and  18.08.2017. This reinforced the inference that the parties intended the entire cluster of documents  to constitute a single, composite transaction. Read together, the definition clauses under Article I,  Article XII and the Schedules establish that the Loan Agreements and Personal Guarantees “were designed to operate not as isolated or self-contained contracts, but as component parts of one  composite transaction governing a single commercial arrangement”. [Para 26] 

The Supreme Court therefore held that the intention of the parties to incorporate the Personal  Guarantees into the Loan Agreements is explicit, rather than a matter of inference. [Para 27]

4. Absence of signature in personal capacity is not decisive 

The Supreme Court held that the fact that Respondent No. 2 did not sign the Loan Agreements in his  personal capacity is not decisive. The Loan Agreements are the mechanism through which NSDC,  a not-for-profit company, disburses funds to training partners, which are frequently thinly  capitalised special-purpose entities. Personal guarantees of the individuals in control are therefore  made a mandatory pre-disbursement condition, and are the real, and often the only, assurance that  the funds will be accounted for. A guarantee so defined and so integrated cannot be severed from  Clause 11.2 for the purposes of dispute resolution alone, while remaining part of the Loan  Agreement for every other purpose. [Para 28]

V. Final Order 

The Supreme Court held that the arbitration clause contained in Clause 11.2 of the Loan  Agreements stands incorporated into the Personal Guarantees dated 27.12.2016 and 18.08.2017  under Section 7(5) of the Act, and that Respondent No. 2 is bound to arbitrate the disputes arising  therefrom. [Para 29] The judgment of the High Court dated 28.01.2026 and the order of the Sole  Arbitrator dated 23.10.2024 were quashed and set aside insofar as they allowed the Section 16  application qua Respondent No. 2. [Para 30] The appeal was allowed with no order as to costs. [Para 31] 

Pertinently, the Supreme Court rested its conclusion on incorporation by reference under Section 7(5)  and on the express terms of the Loan Agreements. The High Court’s “alter ego” reasoning [Para  12] and the authorities cited by Respondent No. 2 [Para 15] are not separately dealt with in the  analysis [Paras 23 to 28].

Written by: Aaryaan Sadanand