PARTICIPATION IN ARBITRATION PROCEEDINGS BY NON-SIGNATORIES – POSSIBLE?

In KAMAL GUPTA & ANR. Versus M/s L.R. BUILDERS PVT. LTD & ANR. ETC. - 2025 (8) TMI 862 - Supreme Court, an oral family settlement was entered into between the families of Pawan Gupta and Kamal Gupta on 20.06.2015. The said agreement was reduced in writing in a Memorandum of Understanding/Family Settlement on 09.07.2019. The said agreement was not signed by one Rahul Gupta, the son of Kamal Gupta.

Pawan Gupta filed a petition before the Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 (‘Act’ for short) for the appointment of an arbitrator to decide the dispute between the parties to the agreement. Rahul Gupta filed an IA before the Court seeking permission to intervene in the proceedings to oppose the maintainability of the petition for the appointment of arbitrator by the Court. Pawan Gupta filed an IA before the Court under Section 9 of the Act seeking interim measures. The other party also filed an IA before the Court.

On 22.03.2024 the Court appointed an arbitrator to adjudicate the differences between the parties. The Court directed that the petition filed by Pawan Gupta under Section 9 of the Act to be treated an application filed under Section 17 of the Act that may be decided by the sole arbitrator. The prayer for intervention in the arbitral proceedings by Rahul Gupta was rejected by the Court.

On 05.08.2024, two non-signatories to the arbitration agreement, filed an IA through Rahul Gupta, sought the following prayers before the Court-

• to permit the intervenor in the arbitration proceedings or to be present in the Arbitration Proceedings;
• to revive the intervention application of the Intervenor as concession given by the parties in the arbitration is being violated by themselves;
• to direct the Arbitrator to let the intervenor to have the access of all pleadings before the Arbitrator, the orders passed by the Arbitrator in the present arbitration proceedings and also of the arbitration award passed by the Arbitrator in the present arbitration proceedings.

Rahul Gupta and 9 other non-signatories to the agreement filed an IA before the Court seeking permission to intervene in the arbitration proceedings and also prayed for recall of the order dated 22.03.2024 of the Court appointing an arbitrator to decide the disputes between the parties.

The Court considered the IA filed by the non-signatories to allow them to participate in the arbitration proceedings. The Court permitted to the petitioners to participate in the arbitration proceedings either personally or through Counsel during the arbitration proceedings.

The Court, in respect of the petition seeking recall of the order dated 22.03.2024, did not incline to recall the order since the said order was made by another judge. The Court also held that Rahul Gupta could remain present in all future proceedings before the Arbitrator. The Court further directed that properties belonging to the intervenor companies mentioned in Annexure A and B of the submissions filed by RG would remain outside the process of arbitration and that the arbitral proceedings qua properties mentioned in Annexure B would be limited to 77% thereof. The parties to the agreement, being aggrieved by the said order of Court filed the present appeals before the Supreme Court.

The appellants contended before the Supreme Court that the Court had no jurisdiction whatsoever to entertain the interim applications moved by the non-signatories to the MoU/FSD after disposal of the proceedings under Section 11(6) of the Act. The Court, after the appointment of sole arbitrator, the Court became functus officio and thus had no jurisdiction to entertain the applications as filed. The appellants further contended that the award shall bind the parties to the arbitration and not to the non-signatories. The directions of the Court that the non-signatories may be present in the arbitral proceedings are without jurisdiction. The participation of non-signatories in the arbitration proceedings is beyond the jurisdiction of the Act. This is against to the provisions of Section 42A of the Act. The impugned order will definitely breach the confidentiality. It was, therefore, prayed to set aside the impugned order. Since the impugned order was without jurisdiction, various directions issued including the recognition of 23% share of Rahul Gupta in the family corpus were without jurisdiction.

The respondents, in the present appeals, supported the order passed by the lower Court. They contended that there had been breach of the assurance given by Pawan Gupta and Kamal Gupta as recorded in paragraphs 17 and 18 of the judgment dated 22.03.2024, it gave rise the non-signatories to file the interim applications. The interveners invoked the provisions of Section 151 of the Civil Procedure Code, 1908. Further the Court did not consider the application for recall of the order appointing sole arbitrator. The respondents further contended that the other reliefs granted permitting Rahul Gupta 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 and thus merely a consequence of the judgment dated 22.03.2024. In view of the above said contentions, the respondents prayed for the dismissal of the appeals filed by the appellants.

The Supreme Court considered the submissions made by the parties to the present appeals. The Supreme Court framed the following questions to be considered in this case-

• Whether it is permissible for a non-signatory to an agreement leading to arbitration proceedings to remain present in such arbitration proceedings?
• After appointment of an arbitrator under Section 11 (6) of the Arbitration and Conciliation Act, 1996, whether it is 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 Supreme Court was of the view that the above two questions are to be answered negative. The Supreme Court observed that 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 further observed that even if it was assumed that the sole arbitrator was to deal with the properties of the intervenors, the resultant arbitral award would not be binding on them. It was thus held in clear terms that the presence of the intervenors before the sole arbitrator was not essential for adjudication of disputes between the parties.

The Supreme Court held that the award is only binding on the parties to the arbitral agreements and not the non-signatories. Therefore, 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. The Supreme Court did not find any legal right conferred by the Act that would enable a non-party to the agreement to remain present in arbitration proceedings between signatories to the agreement. Non-signatory to the agreement would be a stranger to such arbitration proceedings. The remedy, if any, to a party who is not a signatory to the agreement is available under Section 36 of the Act if such award is sought to be enforced against him.

The Supreme Court, then, analysed the provisions of Section 42A of the Act. The Supreme Court held that the arbitrator, the arbitral institution and the parties to the arbitration agreement has to maintain confidentiality of all arbitral proceedings. 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. The Supreme Court, therefore, held that the permission granted to Rahul Gupta, a non-signatory to remain present in all proceedings before the sole arbitrator is without jurisdiction as well as beyond the scope of the Act. Thus, the Supreme Court answered negatively to the first question.

In regard to the second question, the Supreme Court held that when the application filed under Section 11(6) of the Act came to be decided on 22.03.2024 and

Arbitration Petition No.1010 of 2022 came to be disposed of, 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) of the Act 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. Interim Application No.37567 of 2024 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 Act to consider such prayer. The Supreme Court held that 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 Supreme Court observed that the Act is self-contained code sets out a procedure, the applicability of a general legal procedure would be impliedly excluded. Being a self-contained and exhaustive code on arbitration law, the Arbitration Act carries the imperative that what is permissible under the law ought to be performed only in the manner indicated, and not otherwise. The Supreme Court set aside the orders of the Court passed in various interim applications. The Supreme Court the respondents to pay Rs.3 lakhs to the Supreme Court Advocates on record towards the cost of the appeals.