Supreme Court: Clarifies 'Party' Test In Consortium Arbitrations: Prima Facie Satisfaction By Referral Court Only

On December 17, 2025, the Supreme Court of India ("Supreme Court"), in the case of Messrs. Andhra Pradesh Power Generation Corporation Limited v. Messrs. Tecpro Systems Limited, Civil Appeal No. of 2025 Arising out of SLP (C) No. 8998 of 2023, has held that the test of 'prima facie' satisfaction is solely to be utilized by the referral court for the purposes of adjudication as to whether a member of a consortium qualifies as a 'party' to the arbitration agreement and all other questions would fall within the domain of the Arbitral Tribunal.

Background

1. Messrs. Andhra Pradesh Power Generation Corporation Limited ("APGENCO") floated tender inviting bids from a consortium of companies for an Engineering, Procurement, and Construction ("EPC") contract pertaining to works for their Rayalseema Thermal Power Plant.
2. A Consortium was constituted with Messrs. Tecpro Systems Limited, Messrs. VA Tech Wabag Limited and Messrs. Gammon India Limited, wherein, Tecpro was designed as the leader of the Consortium. Consequently, a Letter of Intent was issued to the Consortium and subsequently, Purchase Orders were issued in favour of the Consortium.
3. During execution, Tecpro faced significant financial distress leading to delay in the project. As there was delay in the project, VA Tech undertook Tecpro's scope of work and was recognized as the lead member.
4. The billing continued to be raised in favour of Tecpro, however, payments were flowed directly to each member in agreed proportions. Thereafter, Corporate Insolvency Resolution Process was initiated against Tecpro, which was followed with the process of liquidation.
5. APGENCO issued a letter to Tecpro, wherein, it held Tecpro responsible for substantial delays in execution of the Project. Against the letter of APGENCO, Tecpro responded by raising allegations that due to the failure of APGENCO, it suffered huge losses and called upon APGENCO to make the payment. Vide, the same letter, Tecpro invoked the arbitration clause, which was responded to by APGENCO raising its counter claims.
6. Gammon objected to the communication of Tecpro on account of the fact that it lacked authority to act without the consent of other members of Consortium.
7. As APGENCO failed to appoint the arbitrator, Tecpro, who had nominated its arbitration, proceeded to institute an Application under Section 11(6) of the Arbitration and Conciliation Act, 1996 ("Act") before the High Court of Telangana, which was objected to by APGENCO on the ground that Tecpro was an induvial member of the Consortium and cannot act unilaterally.
8. The High Court allowed the Application and referred the disputes to arbitration.

Submissions of the Appellants

1. At the referral stage, the court exercising jurisdiction under Section 11 of the Act is obliged to prima facie satisfy itself as to the existence of an arbitration agreement.
2. Upon examination of the arbitration agreement, it would be evident that no arbitration agreement exists between APGENCO and Tecpro.
3. Tecpro, in its individual capacity, could not have approached the High Court for appointment of an arbitrator, as the relevant clause of GCC was enforceable against APGENCO by the Contractor, i.e., the Consortium.
4. Relying upon judgments, APGENCO argued that individual members of consortium lack competence to invoke jurisdiction in the absence of authority from other members of consortium.
5. The claims relating to the Consortium cannot be raised unilaterally by a defaulting and insolvent member.

Submissions of the Respondents

1. It was argued on behalf of Tecpro that it had the right and the authority to invoke arbitration, as the tender floated by APGENCO stipulated for participation by single bidders as well as consortiums.
2. The Purchase Orders were issued pursuant to the Letter of Intent, which was incorporated in the Tender Specification, in turn was incorporated in GCC which contained the operative arbitration agreement. The arbitration clause stands incorporated by reference into the Purchase Orders.
3. The Consortium Agreement provided that it ceased to operate on a party becoming insolvent and due to the same, Tecpro was representing in its individual capacity.
4. Consortium is neither a juristic person nor a separate legal entity distinct from its members and thus, APGENCO cannot contend that only the Consortium was entitled to invoke arbitration.
5. The issues in relation to entitlement to invoke arbitration and the existence of arbitration agreement fall within the jurisdiction of the Tribunal under Section 16 of the Act.

Relevant law

Section 11(6A) of the Act is reproduced hereinbelow:

"The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement".

Decision

The Supreme Court has held that the question as to whether a member of a consortium can invoke Section 11 of the Act has no uniform answer and will be subject to the enquiry into the terms of the principal contract. The reference court is to confine its enquiry only to prima facie satisfaction as to whether a member of a consortium qualifies as a 'party' to the arbitration agreement, which will be the basis for referring the disputes to Arbitral Tribunal. The Tribunal is thereafter required to undertake detailed enquiry to come to a conclusion that whether such a party is a veritable party to the arbitration agreement.

The reference court is prevented from undertaking a detailed enquiry on the basis of evidence to arrive at a finding of fact, which is within the domain of Arbitral Tribunal. Entertaining any other question, apart from a prima facie enquiry, would amount to the court conducting a mini trial at Section 11 stage, which is contrary to settled principles of minimal judicial intervention.

As a result, the Arbitral Tribunal was to consider all questions, including preliminary objections relating to maintainability of the arbitration.

Analysis

By virtue of this judgment, the Supreme Court has categorically noted that the referral courts are only to adjudicate the Application under Section 11 of the Act on a 'prima facie' satisfaction and the remaining questions are to be left with the Arbitral Tribunal. Thus, no questions can be put to the referral court, even when the claims are prime facie barred for any reason whatsoever.

Please find attached a copy of the judgement, here.

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