Arbitration Clause in Loan Agreement Binds Personal Guarantor Under Section 7(5): Supreme Court in National Skill Development Corporation v. Surya Wires [2026 INSC 977]

In National Skill Development Corporation v. Surya Wires Private Limited & Ors. (2026 INSC 977), the Supreme Court held that the arbitration clause 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 executed by respondent no. 2, who is bound to submit to arbitration (para 29). A Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe found that the Personal Guarantees were listed as Facility Agreements and deemed part of the Loan Agreements, making the transaction a single composite one, and set aside the Delhi High Court's judgment and the Sole Arbitrator's order qua respondent no. 2 (paras 25–30).

Status: Delhi High Court's judgment dated 28.01.2026 and the Sole Arbitrator's order dated 23.10.2024, insofar as they deleted respondent no. 2 from the arbitration, set aside; appeal allowed; no order as to costs (paras 30–31).

Headnote: Arbitration Clause Binding a Personal Guarantor

Arbitration and Conciliation Act, 1996 – Section 7(5) – Incorporation of arbitration clause by reference – Sections 16 and 37(2)(a) – Non-signatory – Personal guarantee – Loan agreement – Facility Agreements – Composite transaction – Multi-contract arrangements – Pradhan Mantri Kaushal Kendra.

Held: (i) Section 7(5) is satisfied where the reference in a contract to a document containing an arbitration clause is such as to make that clause part of the contract; the principles in M.R. Engineers, Inox Wind, Shinhan Bank, Cox and Kings, Ajay Madhusudan Patel and ASF Buildtech govern the inquiry (paras 17–22).

(ii) A conjoint reading of the definition clauses, Clause 12.1 and Schedules I and IV of the Loan Agreements shows that the Personal Guarantees are an integral and inseparable part of the Loan Agreements (para 25).

(iii) The deeming fiction in Clause 12.1, that facility agreements are part of the agreement "as if the provisions thereof were set out herein in extension", binds every facility agreement, including the Personal Guarantee, within the same legal and arbitral framework (para 25).

(iv) Execution of the guarantees as a pre-disbursement condition and their contemporaneity with the Loan Agreements show a single composite transaction; the intention to incorporate is explicit, not a matter of inference (paras 26–27).

(v) That the guarantor did not sign the Loan Agreements in his personal capacity is not decisive; a guarantee so integrated cannot be severed from Clause 11.2 for dispute resolution alone while remaining tied to it for liability (para 28).

(paras 17–29)

Case Details: National Skill Development Corporation v. Surya Wires (2026 INSC 977)

Final Outcome: Appeal allowed; arbitration clause held incorporated into the Personal Guarantees; respondent no. 2 bound to arbitrate; High Court judgment and Sole Arbitrator's order set aside qua respondent no. 2.

Case: National Skill Development Corporation v. Surya Wires Private Limited & Ors.

Neutral Citation: 2026 INSC 977

Case No.: Civil Appeal No. ___ of 2026 (arising out of SLP (C) No. 10030 of 2026)

Court: Supreme Court of India (Civil Appellate Jurisdiction) – Non-Reportable

Date of Decision: 8 September 2026

Bench: Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe (author)

Relevant Acts & Sections: Arbitration and Conciliation Act, 1996 – Sections 2(1)(h), 7, 7(5), 16 and 37(2)(a)

Impugned Order: Delhi High Court judgment dated 28.01.2026 in ARB. A. (COMM.) 11 of 2025, affirming the Sole Arbitrator's order dated 23.10.2024 deleting respondent nos. 2, 3, 5 and 7 from the array of parties (paras 3, 11–12)

Counsel: Mr. J.K. Chaudhary for the appellant; Mr. Sudev Singh Juneja for respondent no. 2 (paras 13, 15)

Source: Supreme Court of India (official website)

Key Holdings of the Supreme Court

• The arbitration clause in Clause 11.2 of the Loan Agreements is incorporated into the Personal Guarantees under Section 7(5) of the 1996 Act (para 29).
• The Personal Guarantees, listed in Schedule IV as Facility Agreements and deemed part of the Loan Agreements by Clause 12.1, are not independent contracts (para 25).
• Execution of the guarantees as a pre-disbursement condition, close in time to the Loan Agreements, shows one composite transaction (para 26).
• The parties' intention to incorporate the guarantees into the Loan Agreements is explicit (para 27).
• The guarantor's not signing the Loan Agreements personally is not decisive; the guarantee cannot be separated from the dispute clause while remaining tied to the loan for liability (para 28).
• The appeal was confined to respondent no. 2; the deletion of the other respondents was not in issue (paras 3, 12).

Brief Facts of the Case

The appellant, National Skill Development Corporation, a not-for-profit company, was the implementing agency for setting up Model Training Centres called Pradhan Mantri Kaushal Kendra (PMKK). Respondent no. 1 (the Company) and respondent no. 4 (a Society) were allotted districts to jointly set up PMKKs, with respondent no. 6 as co-borrower providing mortgage security. Respondent no. 2 was the Managing Director/Authorised Representative of the Company (paras 5–6).

On 20.12.2016, the parties executed a Service Level Agreement, a First Loan Agreement for Rs. 7,17,63,197 and ancillary Facility Agreements. Respondent no. 2 executed a Personal Guarantee on 27.12.2016. A second, materially identical set was executed on 18.08.2017 for a further loan of Rs. 2,13,83,194, with a second Personal Guarantee (paras 7–8).

After defaults, loan recall notices were issued on 29.10.2021, and the appellant began arbitration before the Indian Council of Arbitration on 21.06.2022 against respondent nos. 1 to 7 (paras 9–10).

On a Section 16 application, the Sole Arbitrator deleted respondent nos. 2, 3, 5 and 7 as non-signatories in their personal capacities. The appellant's appeal under Section 37(2)(a), limited to respondent no. 2, was dismissed by the Delhi High Court, which held that the Personal Guarantees had no arbitration clause and that a general reference does not import one (paras 11–12).

Issues Before the Supreme Court

1. Whether, where a single transaction is structured through several interconnected instruments, an arbitration clause in one instrument can bind a party through another instrument expressly integrated with it but having no arbitration clause of its own (para 2).
2. Whether the arbitration clause in the Loan Agreements was incorporated into respondent no. 2's Personal Guarantees under Section 7(5) of the 1996 Act (paras 24–29).

Court's Findings and Reasoning

Appellant's case (paras 13–14): The Personal Guarantees were mandatory pre-disbursement conditions defined as Facility Agreements and integral to the Loan Agreements, so Clause 11.2 stood incorporated; the High Court applied Section 7(5) too technically.

Respondent no. 2's case (para 15): Only four of seven instruments had arbitration clauses, Clause 11.2 was confined to the Loan Agreement, and this was a "two contract case"; intention to bind a non-signatory must be found in the language used, not presumed.

Law on incorporation and non-signatories (paras 17–22): The Court set out the principles in M.R. Engineers on incorporation by reference, Inox Wind on general reference to standard forms, Shinhan Bank on Section 7(5), Cox and Kings on non-signatories and composite transactions, Ajay Madhusudan Patel on the conduct of non-signatories, and ASF Buildtech on the elasticity of arbitration for multi-party, multi-contract arrangements.

Two capacities of respondent no. 2 (para 24): He executed the instruments as Managing Director of the Company in a representative capacity and, separately, in his personal capacity as guarantor.

Guarantees woven into the Loan Agreements (paras 25–27): "Agreement" includes the Schedules; Schedule IV lists Personal Guarantees as Facility Agreements; Clause 12.1 deems them part of the Agreement "as if the provisions thereof were set out herein in extension"; and Schedule I makes their execution a pre-disbursement condition. The intention to incorporate is explicit.

Signature not decisive (para 28): The loans funded a public scheme for skill training through often thinly capitalised partners, and the personal guarantee was the real assurance of recovery. Such an integrated guarantee cannot be cut off from Clause 11.2 only for dispute resolution.

Final Outcome and Directions

• The arbitration clause in Clause 11.2 of the Loan Agreements stands incorporated into the Personal Guarantees dated 27.12.2016 and 18.08.2017, and respondent no. 2 is bound to arbitrate disputes arising from them (para 29).
• The Delhi High Court's judgment dated 28.01.2026 and the Sole Arbitrator's order dated 23.10.2024, insofar as the Section 16 application was allowed qua respondent no. 2, are quashed and set aside (para 30).
• The appeal is allowed with no order as to costs; pending applications disposed of (para 31).

Legal Principle Laid Down

Where parties structure a single transaction through interconnected instruments, and the main contract expressly defines a personal guarantee as one of its facility agreements, deems it part of the contract as if set out in it, and makes its execution a pre-disbursement condition, the arbitration clause of the main contract is incorporated into the guarantee under Section 7(5) of the Arbitration and Conciliation Act, 1996. The guarantor is then bound to arbitrate even though he did not sign the main contract in his personal capacity.

Precedents Relied Upon

• M.R. Engineers and Contractors Private Limited v. Som Datt Builders Limited, (2009) 7 SCC 696 – Relied upon – conditions for incorporation of an arbitration clause by reference under Section 7(5). Discussed at para 17.
• Inox Wind Limited v. Thermocables Limited, (2018) 2 SCC 519 – Relied upon – general reference to a standard form suffices, but not to an earlier contract. Discussed at paras 14, 18.
• Shinhan Bank v. Carol Info Services Limited, (2023) 20 SCC 388 – Relied upon – Section 7(5) satisfied where the reference makes the arbitration clause part of the contract. Discussed at para 19.
• Cox and Kings Limited v. SAP India Pvt. Ltd., (2024) 4 SCC 1 (Constitution Bench) – Relied upon – non-signatories and composite transactions. Discussed at paras 14, 20.
• Ajay Madhusudan Patel v. Jyotrindra S. Patel, (2025) 2 SCC 147 – Relied upon – intention of a non-signatory gauged from its participation. Discussed at para 21.
• ASF Buildtech Private Limited v. Shapoorji Pallonji and Company Private Limited, (2025) 9 SCC 76 – Relied upon – arbitration must accommodate multi-party, multi-contract arrangements. Discussed at para 22.
• Industrial Finance Corporation of India v. Cannanore Spinning and Weaving Mills, (2002) 5 SCC 54; S.N. Prasad v. Monnet Finance, (2011) 1 SCC 320; NBCC (India) Ltd. v. Zillion Infraprojects, (2024) 7 SCC 174; Adavya Projects v. Vishal Structures, (2025) 9 SCC 686; Habas Sinai v. Sometal SAL, [2010] EWHC 29 (Comm) – Cited by respondent no. 2. Mentioned at para 15.

Important Paragraphs of the Judgment

Verbatim extracts from the judgment. For the full text, refer to the judgment PDF below.

Para 22: "... for arbitration to remain a viable and effective alternative mechanism for dispute resolution, it is imperative to ensure that commercial reality does not outgrow this mechanism."

Para 25: "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."

Para 25: "The Personal Guarantees do not, therefore, stand apart from the Loan Agreements, and are woven into their very fabric."

Para 27: "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."

Para 28: "A guarantee so defined and so integrated cannot be severed, for purposes of dispute resolution alone, from the very Clause 11.2 that governs disputes touching the rights and obligations arising under that Agreement, while remaining tethered to it for every other purpose, including the extent of liability."

Para 29: "... 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."

Practical Impact of the Ruling

• For lenders and funding agencies: Defining guarantees as facility agreements and deeming them part of the loan agreement can bring guarantors within the loan's arbitration clause (paras 25–29).
• For promoters and guarantors: Directors who give personal guarantees integrated with a loan cannot escape arbitration by pointing out that they signed the loan agreement only for the company (paras 24, 28).
• For arbitral tribunals: Section 16 objections by guarantors must be decided on a conjoint reading of the definition clauses, schedules and deeming provisions of the main contract (paras 25–26).
• For drafting lawyers: Clear deeming language such as "as if the provisions thereof were set out herein in extension" can make incorporation explicit rather than a matter of inference (paras 25, 27).

FAQs on Arbitration Clauses and Personal Guarantees

1. What did the Supreme Court decide in National Skill Development Corporation v. Surya Wires?

It held that the arbitration clause in the Loan Agreements was incorporated into the Personal Guarantees, so the guarantor must take part in the arbitration (para 29).

2. Did the Personal Guarantees have their own arbitration clause?

No. The High Court noted they had none, but the Supreme Court held that Clause 11.2 of the Loan Agreements was incorporated into them under Section 7(5) of the 1996 Act (paras 12, 29).

3. Why were the guarantees treated as part of the Loan Agreements?

Schedule IV listed Personal Guarantees as Facility Agreements, Clause 12.1 deemed them part of the Agreement, and Schedule I made their execution a pre-disbursement condition (paras 24–26).

4. Does it matter that the guarantor did not sign the Loan Agreements personally?

Not in this case. The Court held that this was not decisive because the guarantee was integrated with the loan and could not be severed for dispute resolution alone (para 28).

5. What happened to the other respondents deleted from the arbitration?

The appeal was confined to respondent no. 2; the Court did not examine the deletion of respondent nos. 3, 5 and 7 (paras 3, 12).

Keywords: 2026 INSC 977, National Skill Development Corporation v. Surya Wires, Section 7(5) Arbitration Act, incorporation by reference, arbitration clause personal guarantee, non-signatory arbitration, composite transaction, facility agreements, Section 16 Arbitration Act, Cox and Kings, PMKK loan, Justice Alok Aradhe, Justice P.S. Narasimha, Supreme Court non-reportable judgment

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Download Judgment PDF – National Skill Development Corporation v. Surya Wires

Judgment PDF: 2026 INSC 977 – National Skill Development Corporation v. Surya Wires Private Limited & Ors. (SLP (C) No. 10030 of 2026) – Download Judgment PDF

Source: Supreme Court of India (official website).