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Hindustan Petroleum Corporation Ltd. vs. BCL Secure Premises Pvt. Ltd.

CASE BRIEF

Case Analysis: Hindustan Petroleum Corporation Ltd. vs. BCL Secure Premises Pvt. Ltd.

Court: Supreme Court of India, Civil Appellate Jurisdiction. Citation: 2025 INSC 1401 Case No.: Civil Appeal No. 14647 of 2025 (@ Special Leave Petition (Civil) No. 25803 of 2025) Judgment Date: 9 December 2025 Judges: Hon’ble Mr. Justice K.V. Viswanathan, and Hon’ble Mr. Justice J.B. Pardiwala.

1. Factual Matrix

1.1 Hindustan Petroleum Corporation Ltd. (“Appellant”), a major public sector undertaking, initiated the project by floating a tender for specialized services related to a Tank Truck Locking System (TTLS). The tender was awarded to M/s AGC Networks Ltd. (“Intermediary; later known as Black Box Limited”), who became the sole successful bidder and primary contractor. The Respondent, BCL Secure Premises Pvt. Ltd. (“Respondent”), entered the project as a sub-contractor to AGC without obtaining the prior written consent of HPCL, as was strictly required by the tender terms. The dispute arose when BCL, following an assignment of “receivables” from AGC, attempted to invoke the arbitration clause found in the original HPCL-AGC contract against HPCL, despite having no direct agreement with them.

1.2 The Appellant floated a tender for design, supply, installation, integration, testing, commissioning, and post-commissioning warranty support services of a Tank Truck Locking System (“TTLS”). The tender conditions contained explicit clauses prohibiting any subletting, transfer, or assignment of work without prior written consent of the Appellant. Specifically, Clause 3.17 of the tender conditions stated: “Contractor shall not be entitled to sublet, subcontract or assign; the work under this Contract without the prior consent of the Owner obtained in writing.” This provision was reinforced by Clause 5.c.1, which provided: “No part of the contract nor any share or interest thereof shall in any manner or degree be transferred, assigned or sublet, by the Contractor, directly or indirectly to any firm or corporation whatsoever without the prior consent in writing of the Owner.”

1.3 The Appellant issued a purchase order in favor of the Intermediary. The contract between them thus came into force. However, performance issues soon emerged. On 8 September 2016, the Appellant issued a notice to the Intermediary regarding the non-functioning of the Electromagnetic Locking System (EMLS) at pilot locations. Subsequently, the Appellant issued a show cause notice to the Intermediary for unsatisfactory performance of the EMLS at the same two locations.

1.4 On 14 June 2018, the Respondent informed the Appellant that it was working as a sub-vendor of the Intermediary and was entitled to receive 94% of the payment due under the Appellant’s contract. Following this communication, the Appellant informed the Intermediary that since the work was not completed successfully, no payment was due to them. Further, the Appellant replied directly to the Respondent’s letter, stating that the Appellant had not entered into any contract with the Respondent and, as such, no payments were due to the Respondent from the Appellant. This response clearly established that the Appellant had no contractual privity.

1.5 To establish its claim of entitlement, the Respondent later produced an agreement dated 15 January 2014 which it claimed was executed between the Intermediary and itself on a “back-to-back basis.” The agreement expounded that the Respondent was responsible for 96% of the total amount payable by the Appellant. Crucially, the agreement stipulated that the Project Manager appointed by the Respondent “shall not make any such communication/coordination with the Appellant without obtaining the prior written approval from the Intermediary,” effectively keeping the Respondent’s involvement hidden from the Appellant.

1.6 Before approaching the Appellant directly with a claim, the Respondent had pursued a series of legal proceedings against the Intermediary.  On 27 July 2018, the Respondent filed a civil suit against the Intermediary seeking an injunction against invocation of a bank guarantee, followed by a rejected Section 9 petition under the IBC. In 2020, the Respondent filed its first MSME claim against the Intermediary before the Haryana MSME Facilitation Council which was referred to arbitration (Appellant uninvolved), but was later withdrawn after settlement. The civil suit was also withdrawn on 17 July 2020. In 2021, second claim was referred for Arbitration where the sole arbitrator rejected the claim being held as not maintainable due to the prior settlement. A third claim on 25 March 2023, was ​ dismissed by the Council on similar grounds.

1.7 On 31 October 2023, the Respondent & intermediary executed a Settlement-cum-Assignment Agreement settling mutual claims and assigning the Intermediary’s receivables against the Appellant to the Respondent & barring joinder of the Intermediary in future proceedings. On 28 August 2024, the Respondent invoked arbitration under Section 21 of the A&C Act against the Appellant claiming ₹3,00,01,810 along with 18% interest based on a back-to-back agreement. The Appellant rejected this citing no privity, invalid assignment and no purchase order. After a second notice, the Respondent filed a Section 11(4) petition before the Bombay High Court.

1.8 On 7 April 2025, the learned Single Judge of the Bombay High Court allowed the Respondent’s Section 11(4) Application and appointed an arbitrator, directing that arbitrability be determined as a preliminary issue.

1.9 Aggrieved by the High Court’s order, the Appellant filed the present appeal before the Supreme Court of India challenging the High Court’s conclusion that an arbitration agreement existed between the Appellant and the Respondent and that the matter should be referred to arbitration.

2. CONTENTIONS OF THE APPELLANTS BEFORE THE SUPREME COURT

2.1 The Appellants argued that there was no legal relationship between the Appellant and the Respondent. The Appellant had no awareness whatsoever of the Respondent’s involvement in executing the TTLS project. The agreement between the Intermediary and the Respondent dated 15 January 2014, explicitly contained a clause restricting the Respondent’s Project Manager from communicating with the Appellant without the Intermediary’s prior written approval demonstrating an intentional concealment of the Respondent’s involvement.

2.2 The Appellant further assailed that the Respondent had engaged in a series of failed attempts to recover amounts from the Intermediary through various forums (civil suit, insolvency petition, multiple arbitration claims), all of which proved unsuccessful. These actions demonstrated that the Respondent acknowledged the Intermediary, not the Appellant, as the responsible party. Only after exhausting remedies against the Intermediary did the Respondent turn to the Appellant.

2.3 The Appellant further argued that Clauses 3.17 and 5.c.1 of the tender explicitly prohibited subletting, subtracting, or assigning work without the prior written consent of the Appellant. The assignment from the Intermediary to the Respondent violated these mandatory provisions and was therefore void and unenforceable.

2.4 The Appellant contended that even at the limited scope under Section 11 examination stage, the referral court had an obligation to prima facie examine whether the dispute was arbitrable and whether a non-signatory was a “veritable party” to the arbitration agreement. On the facts of this case, the Respondent clearly failed this prima facie test, and the High Court erred in not applying this scrutiny.

2.5 The Appellants further proffered that the claim was manifestly time-barred. the Appellant had rejected the Respondent’s claim on 26 June 2018. The Respondent then pursued a series of proceedings against the Intermediary from 2018 to 2023. Only on 28 August 2024, after more than six years, did the Respondent invoke arbitration against the Appellant. Such extraordinary delay rendered the claim time-barred.

3. CONTENTIONS OF THE RESPONDENTS BEFORE THE SUPREME COURT.

3.1 The Respondent premised its submission on the following arguments, firstly, the test for determining whether a non-signatory is bound by an arbitration agreement entails a fact-intensive inquiry involving mixed questions of fact and law. Such an inquiry is better suited to the arbitral tribunal, not the referral court at the Section 11 stage.

3.2 Secondly, the Appellant had knowledge of the sub-letting agreement between the Intermediary and the Respondent. This knowledge is evidenced by: (i) emails marked to the Appellant regarding the arrangement; (ii) the creation of an escrow account by the Intermediary; (iii) monies transferred to the escrow account by the Appellant from the contract payments; and (iv) purchase orders issued by the Intermediary to the Respondent indicating the arrangement.

3.3 Thirdly, under the doctrine of veritable party, the Respondent should be treated as a party to the arbitration agreement because it substantially performed the obligations under the contract. The fact that 96% of the contract value was attributable to the Respondent’s performance demonstrates the Respondent’s integral role in fulfilling the contract.

3.4 Fourthly, the Settlement-cum-Assignment Agreement of 31 October 2023, legally assigned the Intermediary’s receivables to the Respondent. Under general principles of assignment, the Respondent stepped into the Intermediary’s shoes and acquired all rights, including the right to invoke the arbitration clause against the Appellant.

3.5 The Respondent invoked the doctrine of Group of Companies articulated in Cox and Kings to argue that where a non-signatory has substantially performed a contract and the other party has knowledge of such performance, the non-signatory may be bound by the arbitration agreement.

4.  ISSUES

4.1 Whether an arbitration agreement exists between the Appellant and the Respondent given that the Respondent was not a signatory to the original contract between the Appellant and the Intermediary?

4.2 Whether the Respondent as a non-signatory to the contract can be considered a “veritable party” to the arbitration agreement contained in that contract thereby being bound by it?

4.3 Whether the assignment of receivables from the Intermediary to the Respondent is valid and effective in law, particularly given the explicit prohibition against subletting or assignment without the Appellant’s prior written consent?

4.4 Whether the referral court at the Section 11(4) stage should conduct a prima facie examination to determine if a non-signatory is a veritable party before referring the matter to arbitration or whether such determination should be left entirely to the arbitral tribunal?

5. JUDGMENT

5.1 The Court addressed the Respondent’s reliance on the principle that a non-signatory may claim “through or under” a signatory party (such as the Intermediary). However, the Court held that:

1. Only in exceptional cases such as assignment, subrogation, or novation can a non-signatory claim through or under a signatory.
2. A person claiming through or under a signatory does not possess an independent right to stand as a party to an arbitration agreement but only as a successor to the signatory’s interest.
3. Mere legal or commercial connection is insufficient for a non-signatory to claim through or under a signatory party.

5.2 The Supreme Court extensively analyzed the principle of whether a non-signatory can be a veritable party to an arbitration agreement. Drawing from Cox and Kings Limited vs. SAP India Private Limited (2024), the Court held that:

1. The determination of whether a non-signatory is a veritable party involves an examination of whether the non-signatory intentionally positioned itself to be bound by the arbitration agreement.

2. The involvement of a non-signatory in the negotiation, performance, or termination of a contract is an important factor in determining whether it created an appearance of being a veritable party.

3. The Court held that even prima facie, the Respondent had not demonstrated that it was a veritable party to the contract or the arbitration agreement. While the Respondent performed substantial work and received 96% of the contract value, this alone was insufficient.

5.3 The Court applied the doctrine articulated in Khardah Company Limited vs. Raymon & Co., holding that:

1. Obligations under a contract cannot be assigned except with the consent of the promisee.
2. The absence of the Appellant’s consent to the assignment of rights from the Intermediary to the Respondent was a fatal flaw, particularly given the explicit contractual prohibition in Clauses 3.17 and 5.c.1.
3. An assignment effected without the required consent does not vest the assignee with enforceable rights against the non-assenting party.
4. In Khardah Company Limited vs. Raymon & Co., the Supreme Court held: – “The law of the subject is well settled and might be stated in simple terms. An assignment of a contract might result by transfer either of the rights or of the obligations thereunder. But there is a well-recognised distinction between these two classes of assignments. As a rule obligations under a contract cannot be assigned except with the consent of the promise, and when such consent is given, it is really a novation resulting in substitution of liabilities. On the other hand rights under a contract are assignable unless the contract is personal in its nature the rights are incapable of assignment either under the law or under an agreement between the parties.”
5. The Court emphasized the significance of Clauses 3.17 and 5.c.1 of the tender, which explicitly prohibited subletting or assignment without the Appellant’s prior written consent. The assignment from the Intermediary to the Respondent violated these provisions. The Court held that: “Not only has the Respondent not shown any consent for assignment as required under clause 3.17 of the tender document, nothing even prima facie has been shown to establish that there was any semblance of an intent to effect legal relationship between the Respondent and the party originally granting the contract.”

5.4 The Court distinguished between the obligations of a referral court under Section 11 and those of an arbitral tribunal under Section 16:

1. Under Section 11(6A), the referral court’s task is limited to an examination of the existence of an arbitration agreement, a prima facie scrutiny rather than a laborious, contested inquiry.
2. Under Section 16, the arbitral tribunal “rules” on its jurisdiction, which involves a more intensive inquiry with evidence from parties.
3. The Supreme Court held that while the referral court must conduct a prima facie examination, if it finds prima facie that a non-signatory is not a veritable party, the matter cannot be referred to arbitration.

The Supreme Court allowed the appeal and set aside the High Court’s order dated 7 April 2025. The Court dismissed the Section 11(4) Application filed by the Respondent before the Bombay High Court.

PSL OPINION / ANALYSIS

The Supreme Court’s judgment definitively curtails the expansive application of non-signatory joinder principles that had been increasingly liberalized across various High Court judgments. Prior to this decision, referral courts had adopted a permissive stance toward allowing non-signatories to invoke arbitration agreements, often deferring substantive determination to arbitral tribunals at the preliminary Section 11 stage. This approach had effectively reduced referral courts to administrative conduits rather than gatekeepers of arbitrability. The Supreme Court’s holding, that a referral court is not merely an “automation” and must conduct meaningful prima facie examination to determine whether a non-signatory is a veritable party restores essential judicial scrutiny at the threshold stage. By emphasizing that parties operating on separate orbits with deliberate concealment of involvement and absent intentional indicia of legal relationship cannot invoke arbitration agreements through creative doctrinal applications. The Court has established that the burden of demonstrating exceptional status rests on the non-signatory party, and referral courts must rigorously examine whether objective evidence of mutual intent to create legal relationship exists. Furthermore, the Court’s reaffirmation that contractual prohibitions on assignment without consent remain unenforceable and mere assignment of receivables does not automatically transmute a non-party into an arbitration agreement signatory has arrested the problematic judicial tendency to allow sophisticated financial restructuring and debt transfers to circumvent explicit contractual restrictions on subletting and assignment without the owner’s consent.

This Case Brief is authored by Himesh Thakur, Associate Partner and Fazl Askari, Associate.