Supreme Court Refers Non-Signatory Consultant Shareholder To Arbitration In Share Acquisition Dispute

The Supreme Court has held that a non-signatory consultant-shareholder whose performance under a separate Share Purchase Agreement is fundamental to completing a Memorandum of Settlement (MoS) can be treated as a "veritable party" to the settlement's arbitration agreement.

Allowing an appeal filed by KKH Finvest Private Limited and Sensorise Digital Services Private Limited, a Division Bench of Justice Sanjay Kumar and Justice Sanjeev Sachdeva observed, "it is clear that the performance of his obligations by Ashiesh Shukla under his Share Purchase Agreement was fundamental to the completion of the obligations spelt out in the MoS. Being a shareholder in his own right, unless Ashiesh Shukla also transferred his shares, the MoS would inevitably remain incomplete."

The bench set aside the Delhi High Court's decision refusing to refer consultant-shareholder Ashiesh Shukla to arbitration. It held that he was also a veritable party to the MoS.

The dispute arose from KKH Finvest's proposed acquisition of Sensorise Digital Services and its sister concern under an MoS dated May 9, 2022. Although Shukla did not sign the MoS, he was listed as a consultant-shareholder holding 1,480 shares.

On the same day, he executed a separate Share Purchase Agreement to transfer those shares as part of the overall settlement.

The Delhi High Court declined to refer Shukla to arbitration. It held that a clause in his share purchase agreement made the transfer of his shares independent of the MoS.

The Supreme Court disagreed. It noted that the Share Purchase Agreements executed by four management-team members, who had already been referred to arbitration, contained identical clauses. It also found that Shukla's agreement expressly referred to the MoS. His transfer of shares formed part of the ₹8 crore settlement contemplated under the transaction.

Referring to the principle of "veritable parties" in Cox and Kings Limited, the bench observed that a non-signatory's legal relationship with the signatories and participation in performing the underlying contract may indicate an intention to be bound by the arbitration agreement.

Since Shukla's share transfer was indispensable to completing the transaction, the bench found no factual basis to distinguish him from the management team members who had already been referred to arbitration. It accordingly referred his disputes to the same sole arbitrator, leaving all issues open for adjudication.

For Appellants (KKH Finvest Pvt. Ltd. and Sensorise Digital Services Pvt. Ltd.): Advocate Divya Roy.

For Respondents (Ashiesh Shukla and Others): Advocates Manjeet Kirpal and Kailash Prashad Pandey (caveators).