Supreme Court binds personal guarantor to loan agreement arbitration clause
A bench of Justices P.S. Narasimha and Alok Aradhe held that a personal guarantee integrated as a facility agreement carries the loan agreement’s arbitration clause, binding the guarantor.
The Supreme Court has held that an arbitration clause in a loan agreement can bind a person who signed only a personal guarantee, where that guarantee was expressly made part of the same composite transaction. In National Skill Development Corporation v. Surya Wires Private Limited & Ors., decided on 8 September 2026, a bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe allowed the appeal of the National Skill Development Corporation (NSDC) and set aside orders that had removed the guarantor from arbitral proceedings.
The question was whether, when parties structure a single transaction through several interconnected instruments, an arbitration clause in one instrument can bind a party through another instrument that is integrated with it but contains no arbitration clause. The Court answered yes, applying Section 7(5) of the Arbitration and Conciliation Act, 1996, and restored the guarantor, respondent no. 2, to the array of parties.
How the dispute reached the Court
NSDC, a not-for-profit company that funds skill-training providers, was the implementing agency for Pradhan Mantri Kaushal Kendra (PMKK) model training centres. Following a Request for Proposal dated 29 July 2016, Surya Wires Private Limited and Disha Education Society were allotted districts to jointly set up centres.
On 20 December 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” including a Personal Guarantee by respondent no. 2, executed on 27 December 2016. A second, materially identical set followed on 18 August 2017 for a further loan of Rs. 2,13,83,194, with a second Personal Guarantee by respondent no. 2.
After defaults, Loan Recall Notices were issued on 29 October 2021. On 21 June 2022, NSDC initiated arbitration before the Indian Council of Arbitration against respondent nos. 1 to 7. Respondent nos. 2, 3, 5 and 7 filed an application under Section 16 contending the tribunal lacked jurisdiction over them as they were not signatories in their personal capacities.
The Sole Arbitrator, by order dated 23 October 2024, deleted them from the array. The Delhi High Court, on 28 January 2026, affirmed that order in an appeal under Section 37(2)(a). NSDC’s challenge before the Supreme Court was confined to respondent no. 2.
What the High Court had held
The High Court found that the Personal Guarantees dated 27 December 2016 and 18 August 2017 contained no arbitration clause of their own. It held that a mere general reference to a document does not automatically import an arbitration clause, and that there must be conscious acceptance to make it part of the secondary contract. Jurisdiction, it said, could not rest on proximity of transactions or commercial linkage, but had to be traceable to an express or validly incorporated arbitral undertaking. It also found no material showing respondent no. 2 was the “alter ego” of the Company.
What the Court held on incorporation
The Supreme Court examined Section 7(5), which treats a reference in a contract to a document containing an arbitration clause as an arbitration agreement, provided the contract is in writing and the reference makes the clause part of the contract. The Court set out the summary of the provision from M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited, (2009) 7 SCC 696, and noted the reiteration in Inox Wind Limited v. Thermocables Limited, (2018) 2 SCC 519, that a general reference to a standard form suffices while a general reference to an earlier contract does not.
The Court read the clauses of the Loan Agreements together. Schedule IV enumerated the Personal Guarantees among the “Facility Agreements”. Clause 1.1 declared the “Agreement” to include all Schedules. Clause 12.1 stated that facility agreements “shall be deemed to be part of this agreement as if provisions thereof were set out herein in extension”.
On this reading, the Court concluded that the Personal Guarantees formed an integral and inseparable part of the Loan Agreements. The deeming fiction bound every facility agreement, including the guarantee, within the same arbitral framework. Schedule I, which made execution of the loan and facility agreements a pre-disbursement condition, and the contemporaneity of execution reinforced that the documents constituted a single composite transaction.
Why the missing personal signature did not save the guarantor
The Court held that respondent no. 2 executed the instruments in two capacities — as Managing Director of the Company and, personally, as guarantor. That he did not sign the Loan Agreements in his personal capacity was not decisive. The loan documents were the means by which a not-for-profit disbursed public funds to training partners, often thinly capitalised special-purpose entities, and personal guarantees were exacted as a mandatory pre-disbursement condition to secure recovery.
A guarantee so defined and integrated, the Court reasoned, could not be severed from Clause 11.2 for dispute resolution alone while remaining tied to the agreement for every other purpose, including the extent of liability. The intention to incorporate the guarantees was, in these circumstances, explicit rather than a matter of inference.
The Court also referred to the Constitution Bench in Cox and Kings Limited v. SAP India Pvt. Ltd., (2024) 4 SCC 1, which held that “parties” under Section 2(1)(h) read with Section 7 includes non-signatories, and that a written arbitration agreement does not exclude binding non-signatory parties.
Order
The Court held that Clause 11.2 of the Loan Agreements stood incorporated into the Personal Guarantees dated 27 December 2016 and 18 August 2017, and that respondent no. 2 was bound to submit to arbitration for disputes arising from them.
The judgment dated 28 January 2026 of the High Court, and the order dated 23 October 2024 of the Sole Arbitrator insofar as the Section 16 application qua respondent no. 2 was allowed, were quashed and set aside. The appeal was allowed with no order as to costs, and pending applications were disposed of.