In a significant ruling affecting public procurement and subcontracting disputes, the Supreme Court of India has held that Hindustan Petroleum Corporation Limited (HPCL) cannot be dragged into arbitration by a company it never directly contracted with. The bench of Justice J.B. Pardiwala and Justice K.V. Viswanathan set aside a Bombay High Court order that had appointed an arbitrator in the dispute with BCL Secure Premises Pvt. Ltd.
The judges firmly said that the basic requirement of any arbitration an agreement between the disputing parties was entirely missing here.
Background
HPCL had floated a tender for a Tank Truck Locking System. The tender was awarded to AGC Networks (now Black Box Ltd.), not to BCL. The tender clearly prohibited sub-contracting without written approval of HPCL.
Later, AGC involved BCL to perform the technical work. But HPCL never consented to this arrangement and repeatedly wrote that it had no contract with BCL.
BCL still pursued claims through various legal routes including arbitration under MSME laws all against AGC. When those attempts failed, BCL tried to invoke HPCL’s arbitration clause in the tender, claiming it “stepped into the shoes” of AGC through a later settlement agreement.
The High Court accepted this view at a preliminary stage and appointed an arbitrator.
Court’s Observations
The bench heard detailed arguments from Solicitor General Tushar Mehta for HPCL and Senior Advocate Nalin Kohli for BCL.
The Court highlighted several key points:
- No privity of contract - HPCL never entered into any legal relationship with BCL.
- No consent to sub-contracting - Tender terms forbade subcontracting without written permission.
- Emails and escrow accounts do not create contractual obligations.
- BCL’s involvement was entirely through AGC, not HPCL.
The judges stressed that even at a prima facie level, BCL did not appear to be a “veritable party” to HPCL’s agreement.
“It is clear that the appellant and the respondent have been operating on separate orbits,” the Supreme Court remarked, rejecting the idea that commercial involvement automatically equals legal consent.
The Court also noted that allowing arbitrary joinder of non-signatories into arbitration would open the floodgates for strangers to intrude into others’ contracts.
Decision
Concluding that no arbitration agreement exists between HPCL and BCL, the Supreme Court allowed HPCL’s appeal and dismissed BCL’s Section 11 petition before the Bombay High Court.
The bench ordered:
The High Court’s appointment of an arbitrator is set aside, and BCL may pursue any other legal remedy available in law but not arbitration under HPCL’s tender.
Case Title:- Hindustan Petroleum Corporation Ltd. vs. BCL Secure Premises Pvt. Ltd.
