2015 (2) TMI 488 - HC - Indian Laws

Key Ruling: Only Parties to Arbitration Agreement Can Challenge Award

Mukesh Nanji Gala and others Versus M/s. Heritage Enterprises and others

The court held that only parties to the arbitration agreement, as defined under Section 2(1)(h) of the Arbitration and Conciliation Act, 1996, can file a ... Maintainability of petition - petitioners were not parties to the said memorandum of understanding which contained arbitration agreement - Held that:- A perusal of the record clearly indicates that none of the members of the society were parties to the development agreement entered into between the respondent no.1 and the society. It is however the case of the petitioners that since the society did not challenge the impugned award and the said award has affected the rights of the petitioners in respect of their respective flats in the society, petitioners who are claiming through the society are also thus parties to the arbitration agreement and being parties aggrieved are entitled to challenge the impugned award though the society has not impugned the said arbitral award. Only the parties to the arbitration agreement can exercise various rights and invoke the mechanism of adjudication of disputes by arbitration by referring their disputes to arbitration for adjudication and not by an outsider. The only exception carved out under the Act is under sections 40 and 41 i.e. in case of the death of a party to the arbitration agreement which can be enforceable by or against the legal representative of the deceased and in case of insolvency, if such insolvant was party to arbitration agreement and if official assignee or receiver adopts such contract. Arbitral tribunal is a private forum and gets jurisdiction to adjudicate upon the disputes between the parties to the arbitration agreement and not the persons who are not parties to the arbitration agreement. Proceedings under section 34 of the Act are not by way of an appeal. There is no other provision under the Act for challenge of an arbitral award except what is provided under section 34 of the Act. In my view only a party to the arbitration agreement which is defined under section 2(1) (h) of the Act can challenge an arbitral award under section 34 of the Act and not by a person who is not a party to the arbitration agreement unless covered by sections 40 and 41 of the Act. However if a person is wrongly impleaded as party to the arbitration proceedings and is aggrieved by arbitral award, he can invoke section 34 of the Act. Since the petitioners herein could not have been impleaded as parties to the arbitration proceedings before the learned arbitrator for want of arbitration agreement between the petitioners and the respondent no.1, nor the petitioners were parties to the arbitration proceedings, petitioners have no locus to file petition under section 34 of the Act for setting aside such an arbitral award. - Principles laid down by this court in the said judgment in the case of Supreme Megha Constructions LLP would be applicable to the application made by the petitioners under section 34 of the said Act. I am therefore of the view that this petition is not maintainable at the instance of the petitioners. - Decided against appellants. Issues Involved:1. Maintainability of the Petition under Section 34 of the Arbitration and Conciliation Act, 1996.2. Definition and Scope of 'Party' under Section 2(1)(h) of the Arbitration and Conciliation Act, 1996.3. Rights of Members of a Cooperative Society to Challenge an Arbitral Award.4. Applicability of Judgments and Legal Precedents.Detailed Analysis:1. Maintainability of the Petition under Section 34 of the Arbitration and Conciliation Act, 1996:The petitioners filed under Section 34 of the Arbitration and Conciliation Act, 1996, to quash the arbitral award dated 19th March 2013. The respondent raised a preliminary objection regarding the maintainability of the petition, arguing that the petitioners were not parties to the arbitration agreement and thus could not challenge the award under Section 34. The court held that only a party to the arbitration agreement, as defined under Section 2(1)(h) of the Act, can file a petition under Section 34. The court emphasized that the arbitral tribunal is a private forum with jurisdiction limited to parties to the arbitration agreement, and proceedings under Section 34 are not appellate but a specific statutory remedy available only to parties to the arbitration agreement.2. Definition and Scope of 'Party' under Section 2(1)(h) of the Arbitration and Conciliation Act, 1996:The court examined the definition of 'party' under Section 2(1)(h) of the Act, which means a party to an arbitration agreement. The court noted that the term 'party' is used throughout the Act, indicating that various rights and mechanisms under the Act are available only to parties to the arbitration agreement. The court rejected the petitioners' argument that they, as members of the society, could be considered parties to the arbitration agreement. The court cited precedents, including the Supreme Court's rulings in *Firm Ashok Traders vs. Gurmukhdas Saluja* and *S.N. Prasad vs. Monnet Finance Ltd.*, which affirmed that only parties to the arbitration agreement could invoke the Act's provisions.3. Rights of Members of a Cooperative Society to Challenge an Arbitral Award:The petitioners, as members of Apsara Coop. Hsg. Soc. Ltd., argued that they had the right to challenge the arbitral award since it affected their rights. The court referred to the Division Bench judgment in *Girish Mulchand Mehta vs. Mahesh S. Mehta*, which held that members of a society speak through the society and have no independent rights qua the society. The court also noted that the society had accepted the arbitral award, and the petitioners, as members, could not independently challenge it. The court distinguished the petitioners' reliance on *Ramesh Himmatlal Shah vs. Harsukh Jadhavji Joshi*, stating that the rights of members in a cooperative society are subservient to the society's decisions.4. Applicability of Judgments and Legal Precedents:The court analyzed various judgments cited by both parties. It distinguished the Delhi High Court's judgment in *Sohan Nayyar vs. Lt. Governor of Delhi*, which was based on the Arbitration Act, 1940, and not applicable to the Arbitration and Conciliation Act, 1996. The court preferred the reasoning in the Madras High Court's judgment in *Chennai Container Terminal Pvt. Ltd. vs. Union of India*, which held that a third party cannot challenge an arbitral award under Section 34. The court also referred to the Supreme Court's judgment in *Benarsi Krishna Committee vs. Karmyogi Shelters Pvt. Ltd.*, which emphasized that the term 'party' under the Act refers to those directly involved in the arbitration agreement.Conclusion:The court concluded that the petitioners, being neither parties to the arbitration agreement nor to the arbitration proceedings, had no locus to file the petition under Section 34 of the Arbitration and Conciliation Act, 1996. The petition was dismissed as not maintainable, with no order as to costs.