Non-Signatory Consultant Shareholder Bound by Arbitration Clause in Acquisition MoS, Supreme Court Holds

A Division Bench of Justices Sanjay Kumar and Sanjeev Sachdeva held that a consultant shareholder who executed a linked Share Purchase Agreement qualifies as a veritable party to arbitration under the Memorandum of Settlement.

The Supreme Court has set aside a finding by the Delhi High Court that excluded Ashiesh Shukla — a consultant shareholder holding 0.05% equity in Sensorise Digital Services Private Limited — from arbitration proceedings arising out of a Memorandum of Settlement dated 9 May 2022. The Court held that Shukla, though not a signatory to the MoS, was a veritable party to it because his Share Purchase Agreement was integrally linked to the MoS and his transfer of shares was indispensable to the completion of the overall transaction. The ruling, delivered by a Division Bench of Justices Sanjay Kumar and Sanjeev Sachdeva on 5 August 2026, also exposed an internal inconsistency in the High Court's judgment: the court below had simultaneously found four other non-signatories, who held virtually identical agreements, to be veritable parties.

How the Dispute Reached the Supreme Court

KKH Finvest Private Limited intended to acquire Sensorise Digital Services Private Limited and its sister concern, Sensorise Smart Solutions Private Limited. To achieve this, KKH Finvest and the sellers — grouped under the label “ex-Promoter group” — executed the Memorandum of Settlement on 9 May 2022. The MoS was signed by KKH Finvest, Sensorise, its sister concern, and the ex-promoters Rajeev Arora and Sharad Arora. Ashiesh Shukla was not a signatory to the MoS. He was listed in Schedule 2 as a consultant shareholder holding 1,480 equity shares.

Simultaneously with the MoS, Clause K required the execution of separate Share Purchase Agreements with persons listed in Schedules 1A, 1B and 2. Shukla duly executed one such agreement on 9 May 2022, wherein he was designated as the seller of his 1,480 shares for a proportionate settlement amount of Rs. 86,831.60.

Disputes arose after the MoS was executed. KKH Finvest issued an arbitration invocation notice on 10 September 2022. On an application under Section 11 of the Arbitration and Conciliation Act, 1996, the Delhi High Court appointed Justice T.S. Thakur (Retired), Former Chief Justice of India, as sole Arbitrator on 12 April 2023.

When KKH Finvest filed its Statement of Claims before the Arbitrator on 11 July 2023, it included Ashiesh Shukla and four others — Ajay Nandy, Abhishek Batra, Prasun Nigam and Achin Jain — who had not been parties to the original Section 11 application. These individuals raised jurisdictional objections under Section 16. KKH Finvest then filed a fresh application under Section 11 in Arbitration Petition No. 38 of 2024 before the Delhi High Court, seeking their reference to the same Arbitrator.

The Delhi High Court's Divided Conclusion

The Delhi High Court applied the Cox and Kings Limited v. SAP India Private Limited framework and examined whether the non-signatories were “veritable parties” to the arbitration agreement in the MoS. The relevant factors included mutual intent, the relationship between signatories and non-signatories, commonality of subject matter, the composite nature of the transactions, and performance of the contract.

For Ajay Nandy, Abhishek Batra, Prasun Nigam and Achin Jain — all listed in Schedule 1A as Management Team members — the High Court found that the MoS imposed specific obligations on them and that their individual Share Purchase Agreements were a creation of the MoS. The transactions were held to be composite in nature, with the performance of one agreement directly impacting the other. The four were accordingly held to be veritable parties and their disputes were referred to the Arbitrator.

Ashiesh Shukla was treated differently. The High Court fastened on Clause 16 of his Share Purchase Agreement, which stated that the transfer or sale of shares was “conclusive, independent, mutually exclusive and in no way connected with any of the remaining clauses of the present SPA and the MoS dated 09.05.2022.” The court below read this as an express intention by Shukla to dissociate himself from the MoS. Since his Share Purchase Agreement contained no separate arbitration clause, the High Court concluded that no case existed for referring his disputes to arbitration. Paragraphs 103 and 104 of the impugned judgment recorded this finding.

The Supreme Court's Analysis: An Identical Clause, an Inconsistent Outcome

The Supreme Court identified a factual error at the heart of the High Court's reasoning. The four MT members — Ajay Nandy, Abhishek Batra, Prasun Nigam and Achin Jain — had each executed Share Purchase Agreements containing a clause identical in effect to Clause 16 of Shukla's agreement. The Abhishek Batra and Prasun Nigam agreements carried it as Clause 24; the Ajay Nandy agreement as Clause 28; and the Achin Jain agreement as Clause 23. The High Court had applied a composite transaction analysis to find those four persons to be veritable parties, while simultaneously treating the same type of clause in Shukla's agreement as decisive evidence of exclusion. The Court found this distinction unsustainable.

Beyond that inconsistency, the Court examined the specific terms of Shukla's own Share Purchase Agreement. Clause F of that agreement expressly acknowledged the MoS and described it as the basis for resolving disputes between KKH Finvest and the ex-promoters. Clause G recorded that the buyer was acquiring shares of the ex-promoters, the Management Team, and other shareholders — including Shukla — for a settlement amount of Rs. 8 crore. Clause H specified the proportionate sum payable to Shukla for his 1,480 shares. The Court observed that in light of these clauses, there could be no doubt that Shukla had committed himself to the sale of his shares and to be bound by the terms of the MoS.

The Court then applied the principles from Cox and Kings Limited v. SAP India Private Limited, (2024) 4 SCC 1, and Oil and Natural Gas Corporation Limited v. Discovery Enterprises Private Limited, (2022) 8 SCC 42. Under that framework, the participation of a non-signatory in the performance of the underlying contract is the most important factor in determining whether that party intended to be bound by the arbitration agreement. The intention can be gauged from the conduct of the non-signatory in the negotiation, performance and termination of the underlying contract.

Applying those principles, the Court held that the performance of Shukla's obligations under his Share Purchase Agreement was fundamental to the completion of the MoS. Being a shareholder in his own right, unless Shukla also transferred his shares, the MoS would inevitably remain incomplete. The Court accepted that Shukla's functions as a consultant shareholder may have differed in some respects from the MT members listed in Schedule 1A, but held that all other obligations applicable to Schedule 2 persons under the MoS applied to him equally. There was, in the Court's assessment, no real point of distinction between Shukla and the four MT members.

Significance of the Composite Transaction Approach

The judgment reinforces the position that Clause 16-type independence clauses, which purport to sever a Share Purchase Agreement from its parent settlement arrangement, cannot be read in isolation when the broader contractual structure ties the agreements together. Where the MoS expressly contemplated separate Share Purchase Agreements as instruments of its own performance, and where those agreements explicitly referenced the MoS as their basis, the severability language in a sub-clause does not automatically place a party outside the arbitration agreement in the MoS.

The Court also drew attention to the balance recognised in Cox and Kings between the consensual nature of arbitration and modern commercial reality. In multi-party acquisition transactions, non-signatories who perform obligations under instruments that are created by and integral to a master agreement may find themselves drawn within the scope of the arbitration clause in that master agreement, depending on their conduct and the composite character of the transaction.

Outcome

The Supreme Court allowed the civil appeal and set aside paragraphs 103 and 104 of the Delhi High Court's judgment dated 21 October 2024 in Arbitration Petition No. 38 of 2024, to the extent those paragraphs excluded Ashiesh Shukla from the arbitration. Shukla was held to be a veritable party to the MoS and consequently amenable to arbitration with KKH Finvest and Sensorise Digital Services.

Justice T.S. Thakur (Retired), Former Chief Justice of India, who is already the sole Arbitrator for the disputes involving the MT members, was appointed to adjudicate the disputes between the appellants and Shukla as well. The other terms and conditions set by the Delhi High Court for that appointment were directed to apply. All substantive issues were left open for the Arbitrator to decide on facts and in accordance with law. Parties were directed to bear their own costs.