The Supreme Court has held that an arbitration clause contained in a loan agreement can extend to a personal guarantee even when the guarantor has not signed the loan agreement in his individual capacity, provided the contractual documents clearly show that the guarantee forms an integral part of the same transaction.
A bench of Justice P. S. Narasimha and Justice Alok Aradhe delivered the judgment on September 8, 2026, in an appeal arising from proceedings concerning loans advanced for setting up Pradhan Mantri Kaushal Kendra (PMKK) training centres.
Background of the Case
The National Skill Development Corporation (NSDC) had entered into arrangements with Surya Wires Private Limited and other entities for establishing PMKK centres. The parties executed loan agreements along with several related documents, including personal guarantees.
The respondent no. 2, who was the Managing Director of the company, signed personal guarantees in his individual capacity on December 27, 2016 and August 18, 2017. The two loan agreements were for approximately ₹7.17 crore and ₹2.13 crore respectively.
After defaults in repayment, NSDC initiated arbitration proceedings and included the guarantor as a respondent. He challenged the tribunal's jurisdiction, arguing that he had not signed the loan agreements personally and that the personal guarantees themselves did not contain arbitration clauses.
The Sole Arbitrator accepted the objection and directed his deletion from the proceedings. The Delhi High Court subsequently upheld that decision.
Supreme Court's Observation
The Supreme Court examined Section 7(5) of the Arbitration and Conciliation Act, 1996, which permits an arbitration clause in another document to become part of a contract when the reference to that document clearly shows an intention to incorporate the arbitration provision.
The Court relied on its earlier decisions, including M.R. Engineers, Inox Wind and the Constitution Bench judgment in Cox and Kings. It noted that a non-signatory can, in appropriate circumstances, be bound by an arbitration agreement where the contractual arrangement and conduct demonstrate consent.
In the present case, however, the Court found that the issue went beyond a general reference to another agreement. The loan agreements specifically defined the "Facility Agreements" to include documents such as personal guarantees. They also provided that the facility agreements would be treated as part of the loan agreement as though their provisions were set out within it.
"The Personal Guarantees do not, therefore, stand apart from the Loan Agreements, and are woven into their very fabric."
The Court also noted that execution of the facility agreements, including personal guarantees, was a pre-disbursement condition. Their close timing with the loan agreements further showed that the documents formed one composite commercial transaction.
Decision
The Supreme Court held that the arbitration clause in Clause 11.2 of the loan agreements stood incorporated into the personal guarantees under Section 7(5) of the 1996 Act. The respondent no. 2 was therefore bound to submit to arbitration in relation to disputes arising from the guarantees.
The Court quashed the Delhi High Court judgment dated January 28, 2026 and the Sole Arbitrator's order dated October 23, 2024 insofar as they concerned respondent no. 2.
The appeal was allowed, with no order as to costs.
Case Details:
Case Title: National Skill Development Corporation v. Surya Wires Private Limited & Ors.
Case Number: Civil Appeal No. of 2026 (@ S.L.P. (C) No. 10030 of 2026)
Judges: Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe
Decision Date: September 8, 2026
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