Supreme Court: While considering the present matter, the Court had to answer whether it is permissible for a non-signatory to an agreement leading to arbitration proceedings to remain present in such arbitration proceedings. The Division Bench of P.S. Narasimha and A.S. Chandurkar*, JJ., held that when arbitration proceedings can take place only between parties to an arbitration agreement and Section 35 of the Arbitration and Conciliation Act, 1996 (A&C Act) does not make the arbitral award binding on non-signatories to such agreement, therefore, there can be no legal right conferred by the A&C Act that would enable a non-party to the agreement to remain present in arbitration proceedings between signatories to the agreement.
Background:
On 20-06-2015, an oral family settlement was entered into between PG and KG. The oral agreement was said to be reduced in a Memorandum of Understanding /Family Settlement Deed (MoU/FSD). This MoU/FSD was not signed by RG, son of KG.
Proceedings under Section 11(6) of the A&C Act were filed by PG and another against KG and others seeking appointment of a sole arbitrator for adjudicating disputes between the parties under the MoU/FSD. In the arbitration proceedings, an application for intervention was filed by RG, a non-signatory, seeking permission to intervene in the said proceedings so as to oppose the maintainability of the same. By the order dated 22-03-2024, a sole arbitrator was appointed to adjudicate the disputes between the parties. As regards the prayer by RG for permission to intervene in the proceedings was concerned, the same was not granted by the Judge on the ground that such intervention was sought by a non-signatory to the MoU/FSD.
Several non-signatory companies and RG, filed applications for intervention seeking to intervene or be present during the arbitral proceedings. Besides the prayer for intervention, a prayer for recall of the order dated 22-03-2024 appointing a sole arbitrator was also made. On 07-08-2024, the Judge permitted the non-signatory intervenors to be present, either personally or through counsel during the course of arbitration. Furthermore, on 12-11-2024, insofar as the prayer for issuing various directions as made by RG and the other non-signatory companies was concerned, it was held that RG could remain present in all future proceedings before the sole arbitrator. The order dated 07-08-2024 was made absolute.
The parties to the arbitration proceedings, namely PG and KG, being aggrieved by the aforesaid directions dated 12-11-2024, appealed before the Supreme Court.
Contentions:
Counsels for the appellants contended that after the application filed under Section 11(6) of the A&C Act was decided on 22-03-2024, the Court became functus officio and thus had no jurisdiction to entertain the intervention applications as filed. It was submitted that since the intervenors were not parties to the MoU/FSD, they would not be bound by the arbitral award. It was further submitted that permitting a non-signatory to the MoU/FSD as well as non-party to the arbitration proceedings to remain present during the course of the arbitration proceedings was beyond the provisions of the A&C Act and affected the autonomy of the arbitral process.
Per contra, the respondents argued that since it was found that there had been breach of the assurance given by PG and KG as recorded in the judgment dated 22-3-2024, henceforth the intervenors had to invoke the provisions of Section 151 of the Code of Civil Procedure, 1908 (CPC). The other reliefs granted permitting RG to remain present in the arbitration proceedings and recognising his 23% rights in the family properties were based on the undertaking given by the signatories to the MoU/FSD.
Court’s Assessment:
Perusing the facts of the case and contentions of the parties, the Court noted that in the judgment dated 22-3-2024 while declining the prayer for intervention, it was specifically held that the apprehension expressed by the intervenors that in the proposed arbitration proceedings the parties would deal with the properties of the intervenors was misplaced. It was thus held clearly that the presence of the intervenors before the sole arbitrator was not essential for adjudication of disputes between the parties to the MoU/FSD. Hence the intervention applications filed in the arbitration petition as well as similar applications filed in proceedings under Section 9 of the Act were dismissed.
The Court pointed out that Section 35 of the A&C Act clearly states that an arbitral award will only bind parties to the arbitration and persons claiming under the said parties. By virtue of the order passed under Section 11(6) of the A&C Act, the sole arbitrator is empowered to adjudicate the disputes between the signatories to the MoU/FSD. Once it is clear that the arbitral award would not bind non-parties to the said MoU/FSD as such parties were non-signatories to the said documents, there would be no legal basis whatsoever to permit a non-signatory to the MoU/FSD to remain present in the proceedings before the sole arbitrator.
Between the parties to the agreement who are bound by the terms of the agreement and the sole arbitrator being required to resolve the disputes between such parties, a non-signatory to the agreement would be a stranger to such arbitration proceedings.
“Permitting a stranger to remain present in the arbitration proceedings especially when the award to be passed would not be binding on such stranger would be charting a course unknown to law”.
The remedy to a party who is not a signatory to the agreement is available under Section 36 of the A&C Act if such award is sought to be enforced against him.
Referring to Section 42A of the A&C Act, the Court said that the arbitrator, the arbitral institution and the parties to the arbitration agreement have to maintain confidentiality of all arbitral proceedings. “The legislative intent behind maintaining confidentiality of information is quite clear. Permitting a stranger to the arbitration proceedings to remain present and observe the said proceedings would result in breach of the provisions of Section 42A of the Act”.
Therefore, the Court held that the permission granted to RG, a non-signatory, to remain present in all proceedings before the sole arbitrator was without jurisdiction as well as beyond the scope of the A&C Act.
The second issue that arose in the case was whether after appointment of an arbitrator, is it permissible for the Court in such disposed of proceedings to issue any further ancillary directions concerning the arbitration proceedings that have commenced pursuant to appointment of the arbitrator?
The Court said that when the application filed under Section 11(6) of the A&C Act came to be decided on 22-03-2024 there was no question of entertaining any prayer for permission to intervene in the arbitration proceedings. The sole arbitrator having been appointed by virtue of the power conferred by Section 11(6) on 22-03-2024, the Court did not have any further jurisdiction to entertain a fresh application with a prayer for permission to remain present in the arbitration proceedings.
The Court opined that interim application preferred by the respondents in the disposed proceedings was not liable to be entertained since the Court had become functus officio on the conclusion of the proceedings filed under Section 11(6) of the A&C Act to consider such prayer. “This aspect goes to the root of the matter and it is evident that the learned Judge committed an error in entertaining the Interim Application with a prayer for intervention much after disposal of the main proceedings in which the sole arbitrator was appointed”.
The Court observed that RG and other non-signatories were aggrieved by the action of the signatories in dealing with one of the properties that was the subject matter of the undertaking given by them. “Assuming the apprehension of RG and other non-signatories to be bonafide, we do not find that it can justify the direction to permit a non-signatory to remain present in the arbitration proceedings”.
The sole arbitrator having been appointed under Section 11(6) of the A&C Act, nothing further was required to be done in exercise of jurisdiction under Section 11(6) thereafter. The prayer made by RG and other intervenors to permit them to remain present in the arbitration proceedings before the sole arbitrator was not liable to be entertained as such request went beyond the scope of Section 11(6) of the Act. The provisions of Section 151 of the Code could not have been invoked in this regard.
Therefore, the Court held that the applications filed by RG and other non-signatory companies in the disposed of proceedings were misconceived. The attempt on their behalf to re-open the proceedings amounted to an abuse of the process of law. The respondents were thus directed to pay costs quantified at Rs 3 Lakhs to the Supreme Court Advocates On-Record Association within a period of two weeks.
[Kamal Gupta v. L.R. Builders Pvt Ltd, 2025 SCC OnLine SC 1691, decided on 13-8-2025]
*Judgment by Justice A.S. Chandurkar
Advocates who appeared in this case :
For Petitioner(s): Mr. V Giri, Sr. Adv. Ms. Malvika Trivedi, Sr. Adv. Mr. Himanshu Satija, Adv. Mr. Karan Khanna, Adv. Mr. Harshit Khanduja, Adv. Ms. Sujal Gupta, Adv. Mr. Harshed Sundar, Adv. Ms. Neha Mehta Satija, AOR Ms. Simran Mulchandani, Adv. Mr. Vishal Sharma, Adv. Mr. Pulkit Khanduja, Adv. Mr. Shailendra Slaria, Adv. Mr. Rushabh Kapadia, Adv. Mr. Dhiraj Abraham Philip, AOR
For Respondent(s): Mr. Akhil Sibal, Sr. Adv. Ms. Bansuri Swaraj, Sr. Adv. Mr. J. Sai Deepak, Sr. Adv. Mr. Ankit Roy , AOR Mr. Rishi Raj Sharma, AOR Mr. Amit Sibal, Sr. Adv. Ms. Jyoti Taneja, Adv. Ms. Kanika Singhal, AOR Mr. Shekhar Gupta, Adv. Mr. Shivek Trehan, Adv. Mr. Abhishek Mishra, Adv. Mr. Moksh Tyagi, Adv. Ms. Muskan Puri, Adv. Mr. Kartik Kumar, Adv. Ms. Ishika, Adv. Mr. Ishan Kumar, Adv. Ms. Ayushi Sinha, Adv.
Buy Arbitration and Conciliation Act, 1996 HERE
