Kiran Raj

The Supreme Court of India Division Bench of Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar held that permission granted to a non-signatory to an agreement to remain present in arbitration proceedings is without jurisdiction and beyond the scope of the Arbitration and Conciliation Act, 1996. The Court set aside the order of the High Court that had allowed such participation, stating that the High Court had become functus officio after appointing the sole arbitrator under Section 11(6) of the Act and could not entertain further applications in disposed proceedings. The Court directed that the parties are free to work out their rights in accordance with the earlier order appointing the arbitrator and imposed costs on the respondents.

On 20 June 2015, an oral family settlement was entered between members of the Gupta family, namely Pawan Gupta (PG) and Kamal Gupta (KG). This arrangement was subsequently recorded in a Memorandum of Understanding/Family Settlement Deed (MoU/FSD) dated 9 July 2019. Rahul Gupta (RG), son of KG, did not sign the MoU/FSD. PG and another party filed proceedings under Section 11(6) of the Arbitration and Conciliation Act, 1996 seeking appointment of a sole arbitrator for disputes under the MoU/FSD. RG filed an intervention application to oppose maintainability of the proceedings. PG and another also filed a petition under Section 9 of the Act seeking interim measures, to which RG similarly applied for intervention.

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On 22 March 2024, the High Court appointed a sole arbitrator and directed that the Section 9 petition be treated as an application under Section 17 of the Act. The High Court dismissed RG's intervention applications on the ground that he was a non-signatory to the MoU/FSD. On 5 August 2024, two non-signatory companies through RG filed an application in the disposed Section 11(6) proceedings seeking permission to participate in the arbitration proceedings and to access pleadings, orders, and awards. A similar application by RG and nine other non-signatory companies was also filed, seeking recall of the 22 March 2024 order.

On 7 August 2024, the High Court allowed non-signatory intervenors to be present in arbitration proceedings. On 12 November 2024, the High Court confirmed this order, held that RG could remain present in all future proceedings, and directed that properties belonging to intervenor companies mentioned in annexures would remain outside the arbitration process, limiting proceedings to 77% of certain properties.

PG and KG challenged these directions in appeals, arguing that the High Court had no jurisdiction after disposal of the Section 11(6) proceedings. They submitted that under Section 35 of the Act, only parties to the arbitration agreement and those claiming under them are bound by the award, and that permitting non-signatories to attend breaches confidentiality under Section 42A.

The respondents argued that there had been breach of undertakings given in the earlier order, justifying intervention under Section 151 of the Code of Civil Procedure, 1908. They contended that the reliefs granted flowed from undertakings and were consistent with the earlier judgment.

The Court recorded: "Once it is clear that the arbitral award would not bind non-parties to the said MoU/FSD as such parties were not 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."

It further stated: "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."

Regarding confidentiality, the Court observed: "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."

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On jurisdiction, the Bench held: "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." It added: "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."

The Court also recorded: "The provisions of Section 151 of the Code could not have been invoked in this regard." It stressed: "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."

The Supreme Court set aside the High Court’s order dated 12 November 2024 passed on the interim applications. It directed: "The parties to the present proceedings are free to work out their rights in accordance with the order dated 22.03.2024." The Court allowed the appeals in these terms and ordered: "The respondents shall pay costs quantified at Rs.3,00,000/- (Rupees Three Lakhs) to the Supreme Court Advocates On-Record Association within a period of two weeks."

Case Title: Kamal Gupta & Anr. vs. M/s L.R. Builders Pvt. Ltd. & Anr. Etc.

Neutral Citation: 2025 INSC 975

Case Number: Civil Appeals arising out of SLP (C) Nos.4775-4779 of 2025

Bench: Justice Pamidighantam Sri Narasimha, Justice Atul S. Chandurkar