Category: ARBITRATION

Aadrikaa Legal Services (ALS)- Law I Litigation I Arbitration

Date: 10.09.2026

Bombay High Court Clarifies Scope of Arbitration Against Non-Signatories

In an important ruling on the binding effect of arbitration agreements upon non-signatories and subsequent holders of property rights, the Bombay High Court has held that a person does not become bound by an arbitration clause contained in an earlier development agreement merely because that person subsequently acquires leasehold rights or an interest in the property.

Justice Amit Borkar, while deciding an application under Section 11 of the Arbitration and Conciliation Act, 1996, drew a clear distinction between an assignment of property rights and an assignment of contractual rights and obligations. The Court held that a subsequent lessee can be brought within an arbitration agreement only where there is sufficient material demonstrating assignment, incorporation, consent, acceptance of contractual obligations, or unequivocal conduct adopting the underlying agreement and its arbitration clause.

At the same time, the Court held that disputes between the applicants and the original contracting Respondent Nos. 2 to 4 could proceed to arbitration. Their objection that the claims were barred by limitation was left for determination by the Arbitral Tribunal under Section 16 of the Arbitration Act.

Background of the Dispute

• The dispute arose from a registered Assignment of Development Agreement dated 12 November 2007.
• Shree Satguru Developers and the other applicants were appointed as developers by the owners of the land. Under the agreement, development rights in the subject property were assigned to the applicants and an irrevocable Power of Attorney was also executed in their favour.
• The consideration payable to the owners was fixed at ₹5.5 crore, of which ₹2.25 crore had already been paid at the relevant stage. The applicants claimed that they ultimately paid approximately ₹5.21 crore to the owners.
• The agreement also contained Clause 39, providing a dispute-resolution mechanism culminating in arbitration.
• The controversy became complicated when the development arrangement was subsequently terminated and rights in the property underwent further transactions.

Termination of Development Rights

• The applicants were served with a notice dated 18 December 2015, whereby Respondent Nos. 3 and 4 purported to terminate the Assignment of Development Rights.
• The applicants disputed the termination and replied on 16 January 2016, maintaining that the delays in redevelopment were attributable to various external issues and failures on the part of the owners.
• According to the applicants, discussions nevertheless continued. In 2017, the applicants requested recall of the termination and subsequently paid another ₹10 lakh, which was accepted by Respondent Nos. 3 and 4.
• These later events eventually became important to the question of limitation.

Subsequent Assignment of Leasehold Rights

• A major issue arose after Respondent No. 1 acquired leasehold rights in the property under an Indenture of Assignment dated 13 August 2024.
• The applicants contended that Respondent No. 1, being an assignee of Respondent Nos. 3 and 4, should also be treated as bound by the arbitration clause contained in the 2007 Development Agreement.
• Respondent No. 1 disputed this contention.
• His case was that he had acquired only the leasehold rights in the land and had never taken an assignment of the Development Agreement itself. It was argued that the Development Agreement created personal contractual rights and obligations between its parties and that those contractual obligations did not automatically travel with the land.

This raised the central legal question before the Bombay High Court:

Can a subsequent acquirer of leasehold/property rights be treated as an assignee of an earlier development agreement and thereby be compelled to arbitrate under its arbitration clause?

Arbitration Invoked in April 2026

• The applicants issued a notice dated 30 April 2026, invoking arbitration.
• Respondent No. 1 replied on 7 May 2026 and denied the existence of any arbitration agreement between himself and the applicants.
• Respondent Nos. 2 to 4, meanwhile, contended that the applicants’ appointment had already been terminated and that the claims sought to be raised were barred by limitation.
• The applicants thereafter approached the Bombay High Court seeking appointment of an arbitrator under Section 11.

Scope of Inquiry Under Section 11

• The High Court first examined the extent of judicial scrutiny permissible while deciding a Section 11 application.
• Relying upon the Supreme Court’s decision in Ajay Madhusudan Patel v. Jyotrindra S. Patel, (2025) 2 SCC 147, the Court reiterated the restricted scope of a referral court after insertion of Section 11(6-A).
• The Court noted that the statutory enquiry is principally directed towards the existence of an arbitration agreement, rather than a full-scale adjudication of the underlying dispute.
• The judgment also referred to the Supreme Court authorities in:
• SBP & Co. v. Patel Engineering Ltd., (2005) 8 SCC 618;
• National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1 SCC 267; and
• Duro Felguera S.A. v. Gangavaram Port Ltd., (2017) 9 SCC 729.
• However, the Court recognised that a distinct question arises when arbitration is sought against a person who never signed the underlying agreement.

What Did Clause 39 Provide?

• Clause 39 of the Development Agreement referred specifically to disputes “between the parties hereto.”
• It initially contemplated reference of disputes to a three-member committee consisting of representatives from the assignors, developers and owners/confirming parties. If the committee failed to resolve the dispute, the matter was to be referred to a sole arbitrator jointly nominated by the “parties hereto.”
• The language of this clause became decisive.
• The High Court found nothing in Clause 39 indicating that every subsequent person obtaining an interest in the property would automatically become a party to the arbitration agreement.

Bombay High Court: Property Interest Is Not the Same as Contractual Assignment

• The Court drew an important distinction between acquiring an interest in property and acquiring contractual rights and obligations.
• It held that where a person is actually assigned the rights and obligations of a contracting party, that person may—depending upon the terms of the assignment—become bound by the arbitration agreement forming part of that contract.
• But the position is different where the person merely acquires some interest in the property that formed the subject matter of the original contract.
• The Court held that this fact, by itself, does not make the subsequent acquirer an assignee of the Development Agreement.
• This distinction has considerable significance for property-development transactions involving multiple successive developers, lessees, assignees and transferees.

A Lessee Does Not Automatically Become an “Assignee”

The Court explained that a lease or sub-lease gives the lessee a right to occupy or use property. It does not, merely by its existence, transfer the earlier Development Agreement or the arbitration clause contained in it.

Therefore, a person seeking to rely upon—or sought to be bound by—an arbitration clause as a subsequent lessee must demonstrate something more, such as:

• contractual privity;
• a valid assignment of the relevant agreement;
• express incorporation of the earlier agreement;
• written consent accepting the arbitration clause;
• acceptance of the contractual obligations; or
• unequivocal conduct demonstrating adoption of the Development Agreement and its arbitration clause.

The Court therefore treated the expressions “lessee” and “assignee” as describing legally distinct relationships, even though a particular transaction may, depending upon its terms, produce both effects.

Non-Signatories Can Still Be Bound in Appropriate Cases

• Importantly, the Bombay High Court did not hold that a non-signatory can never be referred to arbitration.
• The Court considered the Supreme Court’s landmark decision in Cox & Kings Ltd. v. SAP India Pvt. Ltd., (2024) 4 SCC 1.
• Cox & Kings recognises that whether a non-signatory has become a genuine party to an arbitration agreement may involve complex factual and legal questions. The referral court must examine whether there is at least a prima facie basis for treating the non-signatory as a party; complex questions may thereafter appropriately be determined by the Arbitral Tribunal.
• Thus, the decisive consideration is not simply whether the person physically signed the original contract.
• The real question is whether there is a legally sustainable basis for concluding that the non-signatory became a party to or accepted the arbitration agreement.

No Prima Facie Material Against Respondent No. 1

• On the facts before it, the Court found no such material.
• Respondent No. 1 had obtained an assignment of lease/leasehold rights, but the applicants could not demonstrate a corresponding assignment of the Development Agreement dated 12 November 2007.
• There was also no subsequent agreement under which Respondent No. 1 accepted Clause 39.
• The fact that Respondent No. 1 had acquired leasehold rights and subsequently submitted a redevelopment proposal was insufficient to establish an agreement to arbitrate.
• Similarly, knowledge of the applicants’ claimed development rights could not be equated with consent to arbitration.
• The Court therefore declined to treat Respondent No. 1 as a party to Clause 39.

Knowledge of an Arbitration Clause Is Not Consent to Arbitration

• One of the judgment’s particularly useful commercial propositions is the distinction between knowledge and consent.
• A subsequent purchaser, lessee or developer may know that another party claims rights under an earlier agreement. That knowledge does not mean that the subsequent party has accepted the arbitration clause contained in that agreement.
• Arbitration is fundamentally consensual.
• Accordingly, the existence of a property dispute between two persons cannot, by itself, create an arbitration agreement between them.
• This distinction is particularly relevant in redevelopment projects where multiple layers of title, leasehold rights, development rights, assignments and tenant agreements coexist.

Limitation: Referral Court Should Not Conduct Intricate Evidentiary Inquiry

• The second major issue concerned limitation.
• Respondent Nos. 2 to 4 argued that the Development Agreement had been terminated in December 2015, whereas arbitration was invoked only on 30 April 2026.
• The applicants relied upon subsequent negotiations, the payment of ₹10 lakh in 2017, redevelopment-related activities and later conduct to contend that their rights and disputes continued.
• The Bombay High Court relied upon the Supreme Court’s decision in SBI General Insurance Co. Ltd. v. Krish Spinning, (2024) 12 SCC 1.
• The Supreme Court had clarified that, at the Section 11 stage, the referral court should not undertake an intricate evidentiary enquiry into whether the substantive claims are time-barred. Such questions should ordinarily be left to the arbitrator.
• The judgment also referred to Arif Azim Co. Ltd. v. Aptech Ltd., (2024) 5 SCC 313 and In Re: Interplay Between Arbitration Agreements under the Arbitration Act, 1996 & the Stamp Act, 1899, (2024) 6 SCC 1 in explaining the limited enquiry permissible at the referral stage.

Ten-Year Gap Did Not Lead Court to Decide Claim Limitation at Section 11 Stage

• The High Court acknowledged that there was a substantial period between the termination of the agreement and invocation of arbitration.
• Nevertheless, the applicants relied on subsequent events and conduct, including negotiations and payment.
• The Court therefore declined to finally determine whether those circumstances extended, revived, acknowledged or otherwise affected the applicants’ claims.
• It held that these questions required consideration by the Arbitral Tribunal under Section 16.
• This is an important distinction: the Court was not holding that the claims were within limitation. Rather, it held that the substantive limitation objection remained open for adjudication by the arbitrator.

Arbitration Allowed Against Original Contracting Parties

• As regards Respondent Nos. 2 to 4, there was no dispute about the existence of Clause 39 between the contracting parties.
• The High Court therefore found that the applicants had established a case for appointment of an arbitrator against those respondents.
• The limitation objection was expressly preserved for determination by the Arbitral Tribunal.
• The Court accordingly partly allowed the arbitration application and referred the disputes between the applicants and Respondent Nos. 2 to 4 arising from the Assignment of Development Agreement dated 12 November 2007 to arbitration.

Sole Arbitrator Appointed

• The Bombay High Court appointed Mr. Amrut Joshi, Advocate, as the Sole Arbitrator to adjudicate the disputes between the applicants and Respondent Nos. 2 to 4.
• The appointment was made subject to the statutory disclosure requirements under Section 12 of the Arbitration and Conciliation Act, 1996, and absence of circumstances giving rise to justifiable doubts concerning the arbitrator’s independence or impartiality.
• The Court also directed the arbitrator to forward the statutory disclosure under Section 11(8) read with Section 12(1), and directed the parties to appear before the arbitrator for further procedural directions. The arbitration costs and tribunal fees were to be borne equally in the first instance, subject to the final award on costs.

Key Legal Principles Emerging from the Judgment

• The Bombay High Court’s ruling provides useful guidance on three interrelated areas of arbitration law.
• First, acquisition of property rights does not automatically amount to assignment of contractual rights. A subsequent lessee does not become an assignee of a development agreement merely because it acquires leasehold rights in the property covered by that agreement.
• Second, arbitration remains consent-based. A non-signatory may be bound in appropriate circumstances, but there must be at least prima facie material showing assignment, incorporation, acceptance, consent or conduct sufficient to connect that person with the arbitration agreement.
• Third, knowledge is not consent. Awareness of an earlier development agreement or of another person’s claimed rights cannot by itself make a subsequent property-holder a party to its arbitration clause.
• Fourth, the Section 11 enquiry remains limited. The referral court should determine whether the requisite arbitration agreement exists, but ordinarily should not conduct an intricate evidentiary trial on the substantive limitation of individual claims.
• Fifth, limitation remains fully open before the tribunal. Referral to arbitration does not amount to a judicial finding that the claims are within limitation.

Important Supreme Court Authorities Referred to

The judgment considers a substantial line of Supreme Court authority governing Section 11 and non-signatories, including:

The Court specifically relied upon Cox & Kings while considering when a non-signatory can be regarded as a party to an arbitration agreement.

Commercial Significance for Real Estate and Redevelopment Transactions

• The ruling has implications extending beyond arbitration law.
• Development projects frequently involve a succession of transactions—development agreements, conveyances, leases, assignments, redevelopment proposals, permanent alternate accommodation agreements and transfers of ownership or leasehold rights.
• Parties should therefore avoid assuming that an arbitration clause automatically “runs with the land.”
• If parties intend a subsequent purchaser, lessee, transferee, successor or assignee to be bound by an existing dispute-resolution mechanism, transaction documents should expressly address:
• assignment of contractual rights and obligations, assumption of liabilities, incorporation of the original agreement, succession provisions and express adoption of the arbitration clause.
• Clear drafting at the transactional stage can significantly reduce jurisdictional disputes when arbitration is later invoked.

Conclusion

The Bombay High Court’s ruling in Shree Satguru Developers & Ors. v. Chandrashekhar Champalal Hingarh & Ors., 2026:BHC-OS:19815, provides an important clarification on the relationship between property rights, contractual assignment and arbitration agreements. The case was decided by Justice Amit Borkar on 7 September 2026 in an application seeking appointment of an arbitrator under Section 11.

The Court’s central message is that mere acquisition of leasehold rights in a property does not make the subsequent lessee an assignee of an earlier development agreement or bind it to the arbitration clause contained therein. There must be a demonstrable legal connection to the contractual rights and obligations themselves.

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Source: Bombay High Court

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