In the case of Chirag Jain vs. Rahul Jain & Anr., the Delhi High Court addressed the appointment of a Sole Arbitrator in a dispute involving Share Purchase Agreements (SPAs) where the subject company was a non-signatory to the arbitration agreement. The Court held that while the referral court must be prima facie satisfied of the existence of an arbitration agreement, the complex determination of whether a non-signatory is a “veritable party”—based on factors like mutual intent, conduct, and the composite nature of the transaction—is an evidence-based enquiry that should be left to the Arbitral Tribunal. Additionally, the Court ruled that the non-issuance of a notice under Section 21 of the Arbitration Act specifically to the non-signatory is not a fatal bar to its impleadment in the arbitral proceedings.
- Factual Background
The petitioner, an individual investor, entered into two SPAs in April 2024 to purchase equity shares in Beanly Beverages Private Limited (Respondent No. 2) from its promoters, Rahul Jain and Samayesh Khanna (Respondent No. 1 in respective petitions). Although the petitioner paid the full consideration, the sellers allegedly failed to transfer the shares and instead allotted fresh equity to third parties, diluting the petitioner’s interest. While the individual sellers consented to the appointment of a Sole Arbitrator, the Company (Respondent No. 2) objected on the grounds that it was not a signatory to the SPAs.
- Key Legal Issues
- Impleadment of a Non-Signatory: Whether the Company, which did not sign the SPAs, could be referred to arbitration.
- Section 21 Notice: Whether the failure to serve an arbitration invocation notice on the Company barred the petition against it.
- Arbitrability: Whether disputes regarding share transfers and internal corporate management are reserved exclusively for the National Company Law Tribunal (NCLT).
- Court’s Observations and Reasoning
The Court relied on established Supreme Court precedents to define the boundaries of a referral court’s power under Section 11(6):
- Limited Scope of Scrutiny: Under Section 11(6A), the Court’s role is confined to a prima facie examination of the existence of the arbitration agreement. It should not conduct a “mini-trial” or a laborious enquiry.
- The “Veritable Party” Doctrine: A non-signatory may be bound by an arbitration agreement if there is a proximate legal or factual nexus with the signatories and the transaction. The petitioner argued the Company was a veritable party because the SPAs recorded its consent and the affixation of its common seal on duplicate copies. The Company disputed these claims. The Court held that resolving such disputed questions of fact requires detailed evidence, which is the institutional advantage of the Arbitral Tribunal.
- Notice Requirement: The Court clarified that the object of a Section 21 notice is to determine the commencement of proceedings for limitation purposes. Non-service on a specific party does not automatically denude the Arbitral Tribunal of its jurisdiction to implead them.
- Nature of Relief: The Court found that the petitioner sought reliefs in personam (specific performance and injunction) flowing from a contractual breach, rather than rights in rem. Therefore, the disputes were not ex-facie non-arbitrable.
- Conclusion and Directions
The Court concluded that since the existence of the arbitration agreement was not in doubt, the matter must be referred to arbitration.
- Appointment:Ms. Veena Ralli, Advocate, was appointed as the Sole Arbitrator.
- Jurisdiction: The issue of whether Respondent No. 2 is indeed bound by the SPAs as a “veritable party” was left open for the Arbitrator to decide based on factual and circumstantial evidence.
- Objections: Respondent No. 2 remains at liberty to raise all jurisdictional and preliminary objections before the Arbitral Tribunal.
2026 DHC 5288
Chirag Jain V. Rahul Jain & Anr. (D.O.J. 02.07.2026)
