Party Must Have Proximity To De Jure Party Having Privity To Be Treated As Veritable Party; Can’t Force Third Party Into Arbitration: Bombay High Court

The High Court was considering an Application filed under Section 11 of the Arbitration and Conciliation Act, 1996 (Act), seeking appointment of an arbitral tribunal in connection with disputes and differences relatable to an arbitration clause contained in a Development Agreement between the Applicant-Mukesh Patel (Patel) and the first Respondent- Pant Nagar Ganesh Krupa Cooperative Housing Society Limited (Earlier Society). The Society was merged, among others, into the third Respondent- Shubham Ambience Co-Operative Housing Society Limited (Merged Society).

The Single Bench of Justice Somasekhar Sundaresan held, “The privity of a veritable party has to be a de facto privity to the agreement in which disputes have arisen. The veritable party has to have proximity and connections to one of the de jure parties having privity, in order to be treated as a veritable party. Avvad is a counterparty to the Merged Society in its own development agreement in much the same way Patel had been a counterparty to the Merged Society under the Development Agreement. It is impossible to draw linkages to unconnected parties to make them veritable parties.”

“The underpinning of all the principles of law declared in relation to arbitration proceedings is the foundational need for consent to arbitrate. A veritable party is deemed to have given consent, which is the effect of the law declared in ASF Buildtech read with Cox and Kings. If such consent, express or deemed, is not discernible, the Section 11 Court cannot force a third party into arbitration or give a lead or a nod to the Learned Arbitral Tribunal to be consider such third party as a veritable party”, it asserted.

Factual Background

The Development Agreement was terminated way back on February 8, 2019, pursuant to a resolution passed by the members of the Society on December 15, 2018. The applicant claimed that despite such termination, the Development Agreement subsisted. Towards this end, Patel contended that some members of the Society continued to receive transit rent under the Development Agreement. The Development Agreement was terminated way back on February 8, 2019, pursuant to a resolution passed by the members of the Society on December 15, 2018. The Applicant asserted that despite such termination, the Development Agreement subsisted. After the termination was effected, the appointment of the second Respondent, Avvad Spaces LLP (Avvad), as a Developer was ratified by a Special General Body Meeting held on February 19, 2023.

Disputes and differences under the Development Agreement were sought to be agitated in arbitration, but by including Avvad as a veritable party in the arbitration proceedings. The applicant filed a Petition under Section 9 of the Act seeking interlocutory protection against the termination of the Development Agreement. While the termination had been effected in February 2019, the Section 9 Petition was filed on March 9, 2023, four years after the event. That Petition, too came to be dismissed for non-removal of office objections. An application for restoration has been pending on the docket of the High Court.

Reasoning

As per the Bench, Avvad could not be regarded as a party claiming through or under the Merged Society in relation to the Development Agreement as Avvad had no claim and purports to make no claim, whether under the Development Agreement or otherwise. Moreover, Avvad was a subsequent grantee of development rights and had nothing to do with the Development Agreement to which the applicant was a party, which came to be terminated in February 2019, with a Section 9 Petition being filed in March 2023, and after Avvad was appointed as a developer in November 2022.

The Bench explained that to rope a non-signatory to an arbitration agreement into arbitration proceedings, elements such as the “group of companies” or “alter ego” or “a composite transaction” or facts of that nature would need to be discernible. A historical and long-terminated contract cannot be allowed to rope in a party to a completely different contract executed years later, merely because the subject matter of the contract executed years later, had been the subject matter of the earlier contract.

“If the non-signatory is not a related party, not a group company or enterprise, has no commonality of ownership, management or control, is not alter ego of a party, and is not undertaking a transaction that is contingent upon or subservient to or a contact not forming part of a wider, integral and composite transaction, it would not be possible to invoke principles of making such person a veritable party”, it added.

The Bench noted that in the case at hand, a completely unconnected third party who was not connected to the Development was being roped in. It was further noticed that the bargain between Avvad and the Merged Society was a different one and did not depend on the Development Agreement. The Development Agreement, had been terminated way back in 2019. The first whisper of a challenge under Section 9 of the Act was made in 2023, and that challenge was allowed to lapse by non-removal of office objections. “ To now try and rope in Avvad into the arbitration proceedings sought to be initiated by filing a Section 11 Application in 2025 and requesting this Court to rule that a prima facie case has been made out, or to refer the parties to arbitration leaving it to the Learned Arbitral Tribunal to answer the question of veritable party, is wholly unacceptable”, it added.

The Bench further stated, “In my opinion, in the absence of any reasonable means to discern Avvad as a potential veritable party, it would not be possible for this Court to return a prima facie finding that Avvad may be a veritable party.”

The Bench thus concluded that Avvad was not a veritable party, and it was not open to the applicant to initiate and pursue arbitration against the Merged Society. “Should Patel be desirous of initiating arbitration against the Society, an arbitral tribunal is hereby constituted…”, the Bench ordered while also directing, “Costs are assessed at a token sum of Rs. 1.50 lakhs, payable within four weeks from the date of this judgement. Such costs shall be paid in equal proportion to such persons who were members of the Earlier Society at the time when the Development Agreement was executed and continue to be members of the Merged Society.”

Cause Title: M/s. Mukesh Patel and Ors. v. Pant Nagar Ganesh Krupa Cooperative Housing Society Limited (Neutral Citation: 2025:BHC-OS:18704)

Appearance

Applicant: Advocates Mayur Khandeparkar, Vikram Garewal, Aditya Miskita, Devansh Bheda, Parth Jasani, Kartikeya Awasthi, Purnanand & Co.

Respondent: Senior Advocates Dinyar Madon, Cyrus Ardeshir, Advocates Ziad Madon, Shubro Dey, Roop Basu, Heenal Wadhwa

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