Citation: 2026 INSC 977 (arising out of Civil Appeal No. of 2026 @ Special Leave Petition (Civil) No. 10030 of 2026)
Whether an arbitration clause contained in a loan agreement can bind a guarantor (Respondent No. 2) through a separate personal guarantee that does not contain its own arbitration clause. The Court held that because the personal guarantees were explicitly incorporated as integral “Facility Agreements” under the main loan agreements through contractual deeming fictions and pre-disbursement conditions, the arbitration clause in the loan agreements successfully extended to bind the guarantor under Section 7(5) of the Arbitration and Conciliation Act, 1996, thereby setting aside the lower court and arbitrator’s decisions to delete him from the arbitral proceedings.
The National Skill Development Corporation appointed Surya Wires Private Limited and Disha Education Society to jointly set up Model Training Centres, which were funded through loan agreements and ancillary facility agreements that included personal guarantees executed by Respondent No. 2. Following loan defaults and the initiation of arbitration proceedings, Respondent No. 2 successfully had himself deleted from the array of parties before the Sole Arbitrator and the Delhi High Court on the grounds that he was a non-signatory to the main loan agreements in his personal capacity, prompting the appellant to challenge this decision before the Supreme Court.
The Supreme Court held that the arbitration clause contained in the loan agreements stands incorporated into the personal guarantees under Section 7(5) of the Arbitration and Conciliation Act, 1996, because the personal guarantees were explicitly integrated as mandatory pre-disbursement “Facility Agreements” meant to form an inseparable part of the composite transaction. Consequently, the Court set aside the lower court and arbitrator’s decisions, ruling that Respondent No. 2 is bound to submit to arbitration despite not signing the loan agreements in his personal capacity.
