Arbitration in Loan Agreement Travels Across Interconnected Personal Guarantee
Judgment dated 8.9.2026 of the Supreme Court of India in SLP (Civil) No.10030 of 2026 of National Skill Development Corporation Vs. Surya Wires Private Limited and others
The respondent nos.1 and 4 were allotted districts to establish Kendras jointly. Respondent nos.2 and 3 are the Managing Director / Authorised Representative & Director of the respondent no.6 finance company. Respondent n.5 is the authorised representative of the society and respondent no.7 of the finance company.
The appellant initiated
for recovery of amounts under two loan agreements.
The Arbitrator allowed section 16 application holding that respondent nos. 2, 3, 5 and 7, being directors and/or authorized representatives of the borrower companies, are not signatories to the Loan Agreements in the individual and personal capacities and are, therefore, not liable to be retained as parties to the Statement of Claim and accordingly, their deletion from the array of parties was directed.
This was confirmed by the High Court of Delhi in Section 37 appeal.
significant question for our consideration, namely, whether, where parties structure a single transaction through several interconnected instruments, an arbitration clause contained in one instrument can bind a party through another instrument, expressly integrated with it but not itself containing an arbitration clause?
A conjoint and harmonious reading of the aforesaid clauses admits of no doubt that the Personal Guarantees constitute an integral and inseparable part of Loan Agreements.
The intention of the parties to incorporate the Personal Guarantees into the Loan Agreements is, in these circumstances, explicit, rather than a matter of inference.
The fact that respondent no. 2 did not append his signature to the Loan Agreements in his personal capacity is not, in the circumstances of this case, decisive. The Loan Agreements were not instruments of an ordinary private bargain, they were the means by which the appellant, a not for-profit company disbursed funds to training partners such as the Company for establishment of Model Training Centres. Training partners engaged under such a scheme are frequently thinly capitalized special-purpose entities, and it is for this reason that personal guarantees of the individuals controlling them are exacted as a mandatory pre disbursement condition.
we hold that the arbitration clause contained in Clause 11.2 of the Loan Agreements stands incorporated, within the meaning of Section 7(5) of the 1996 Act, into the Personal Guarantees dated 27.12.2016 and 18.08.2017 executed by respondent no. 2, who is accordingly bound to submit to arbitration in respect of disputes arising therefrom.
