Supreme Court: Permitting Non-Signatory To Agreement To Remain Present In Arbitration Proceedings Is Beyond Scope Of S. 11(6) A&C Act
The Supreme Court allowed Civil Appeals of the parties aggrieved by the directions issued by the concerned Judge and also imposed a cost of Rs. 3 lakhs on the Respondents.
Justice P.S. Narasimha, Justice Atul S. Chandurkar, Supreme Court
The Supreme Court held that permitting the non-signatory to an agreement to remain present in the arbitration proceedings is beyond the scope of Section 11(6) of the Arbitration and Conciliation Act, 1996 (A&C Act).
The Court held thus in Civil Appeals filed by the parties aggrieved by the directions issued by the concerned Judge.
The two-Judge Bench of Justice P.S. Narasimha and Justice Atul S. Chandurkar observed, “It thus becomes clear that firstly, the sole arbitrator having been appointed under Section 11(6) of the Act on 22.03.2024, 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.”
The Bench said that the Judge erred in entertaining the applications.
Senior Advocates C. Aryama Sundaram and V. Giri appeared for the Appellants while Senior Advocates Amit Sibal, J. Sai Deepak, and Advocate Bansuri Swaraj appeared for the Respondents.
Brief Facts
An oral family settlement was entered into between members of the Gupta family namely Pawan Gupta and Kamal Gupta (PG and KG). The said oral agreement was said to be reduced in a Memorandum of Understanding (MoU)/Family Settlement Deed (FSD). This MoU/FSD was not signed by Rahul Gupta, son of KG and proceedings under Section 11(6) 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 proceedings filed under Section 11(6), 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.
PG and one other also filed a Petition under Section 9, seeking interim measures based on the MoU/FSD. A similar Application for intervention was filed by RG and one other in these proceedings. A Sole Arbitrator was appointed to adjudicate the disputes between the parties. Thereafter, two non-signatory companies through RG sought to be present in the arbitration proceedings. Besides the prayer for intervention, a prayer for recall of the Order appointing a Sole Arbitrator was also made. The prayer made by the non-signatory intervenors to remain present in the arbitral proceedings was considered by the Judge, who permitted the non-signatory intervenors to be present, either personally or through counsel during the course of arbitration. Being aggrieved, the parties were before the Apex Court.
Reasoning
The Supreme Court in view of the above facts, noted, “It can be gathered from the order dated 07.08.2024 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. It must be stated that the learned Judge was cognizant of the fact that the Act does not envisage an observer in arbitral proceedings as can be seen from the observations in paragraph 19 of the order dated 07.08.2024. Despite that, such permission has been granted. The direction, even if well-intentioned, does not have any statutory support.”
The Court remarked that the Court had become functus officio after the Sole Arbitrator was appointed and the proceedings under Section 11(6) of the Act had been disposed of and even the spirit of Section 5 of the Act precluded the Court from entertaining such request which does not find place in Part-I of the Act.
“Moreover, the impugned direction runs counter to Section 42A of the Act. The second question stands answered accordingly. … For all the aforesaid reasons, in our view 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 applications deserved outright rejection”, it added.
The Court concluded by clarifying that the parties to the proceedings are free to work out their rights in accordance with the Order.
Accordingly, the Apex Court allowed the Appeals and directed the Respondents to pay Rs. 3 lakhs to the Supreme Court Advocates On-Record Association within a period of two weeks.
Cause Title- Kamal Gupta & Anr. v. M/s L.R. Builders Pvt. Ltd & Anr. Etc. (Neutral Citation: 2025 INSC 975)
Appearance:
Appellants: Senior Advocates C. Aryama Sundaram, V. Giri, Malvika Trivedi, AORs Neha Mehta Satija, Dhiraj Abraham Philip, Advocates Himanshu Satija, Karan Khanna, Harshit Khanduja, Sujal Gupta, Harshed Sundar, Simran Mulchandani, Vishal Sharma, Pulkit Khanduja, Shailendra Slaria, and Rushabh Kapadia.
Respondents: Senior Advocates Amit Sibal, J. Sai Deepak, Akhil Sibal, AORs Ankit Roy, Rishi Raj Sharma, Kanika Singhal, Advocates Bansuri Swaraj, Jyoti Taneja, Shekhar Gupta, Shivek Trehan, and Abhishek Mishra.
