Summary
The Supreme Court set aside a Delhi High Court order that, after a sole arbitrator had been appointed under Section 11(6) and the petition disposed of, permitted a non-signatory to the family settlement to remain present in the arbitration and kept certain properties outside its scope, holding that a non-party to the arbitration agreement has no right to attend the arbitral proceedings and that the court became functus officio on appointing the arbitrator and could not entertain later applications under Section 151 CPC.
Issues
- Whether a non-signatory to the agreement containing the arbitration clause can be permitted to remain present in the arbitration proceedings between the signatories.
- Whether, after appointing an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 and disposing of the petition, the court can entertain applications in the disposed-of proceedings and issue further ancillary directions concerning the arbitration.
Provisions considered
- Section 35 read with Section 2(h), Arbitration and Conciliation Act, 1996An award binds only the parties to the arbitration and persons claiming under them, and 'party' means a party to the arbitration agreement; since the award would not bind the non-signatories, the Act confers no right on them to be present in the proceedings, and their remedy, if any, lies under Section 36 if the award is sought to be enforced against them. (¶ 13)
- Section 42A, Arbitration and Conciliation Act, 1996The arbitrator, arbitral institution and parties must keep the arbitral proceedings confidential; allowing a stranger to attend and observe the proceedings would breach this provision, which was an additional ground for setting aside the direction. (¶¶ 14, 23)
- Section 11(6), Arbitration and Conciliation Act, 1996Once the sole arbitrator was appointed and the petition disposed of, nothing further remained to be done under this provision; a later application seeking permission to attend the arbitration went beyond its scope and the court was functus officio. (¶¶ 19, 23)
- Section 5, Arbitration and Conciliation Act, 1996Judicial intervention is confined to what Part I of the Act expressly provides; relying on the Constitution Bench in In Re: Interplay, the Court held the Act to be a self-contained code so that the spirit of Section 5 precluded entertaining a request that finds no place in Part I. (¶¶ 21, 22, 23)
- Section 151, Code of Civil Procedure, 1908The inherent powers of the court could not be invoked to entertain, in disposed-of Section 11(6) proceedings, a prayer by non-signatories to be present in the arbitration. (¶¶ 10, 23)
Held
- Arbitration proceedings take place only between parties to the arbitration agreement; a non-signatory who is not claiming through a party is a stranger to the arbitration, and permitting such a stranger to remain present when the award would not bind him would be charting a course unknown to law. (¶¶ 13, 15)
- The Act does not envisage an observer in arbitral proceedings; even a bona fide apprehension by the non-signatories that the signatories were dealing with property covered by an undertaking cannot justify a direction permitting them to attend, which has no statutory support. (¶ 20)
- Once the court appointed the sole arbitrator under Section 11(6) and disposed of the petition and the connected Section 9 petition, it became functus officio and had no jurisdiction to entertain a fresh application in the disposed-of proceedings seeking permission to remain present in the arbitration; the error went to the root of the matter. (¶¶ 17, 19, 23)
- The intervention prayer had already been expressly rejected in the order appointing the arbitrator, which held that the presence of the intervenors was not essential and that any award would not bind them; the later directions effectively granted relief that had been refused. (¶ 12)
- The applications by the non-signatories in the disposed-of proceedings were misconceived, the attempt to reopen the proceedings was an abuse of process, and the applications deserved outright rejection. (¶ 24)
Result
Appeals allowed; High Court order dated 12.11.2024 on the interim applications set aside; parties free to work out their rights under the order dated 22.03.2024 appointing the sole arbitrator; respondents to pay costs of Rs.3,00,000 to the Supreme Court Advocates-on-Record Association within two weeks.