Background
Kamal Gupta and Pawan Gupta (“Appellants”) entered into an oral family agreement, which was reduced in the form of a Memorandum of Understanding/ Family Settlement Deed (“MOU/FSD”) dated 9 July 2019. This MOU/FSD was not signed by Rahul Gupta (“Respondents”). Pawan Gupta and another filed proceedings under Section 11(6) of Arbitration and Conciliation Act, 1996 (“A&C Act”) against Kamal Gupta seeking appointment of a sole arbitrator for adjudicating disputes between the parties under the MOU/FSD. Rahul Gupta filed an application for intervention, seeking permission to intervene in the said proceedings to oppose the maintainability of the same.
On 22 March 2024, a sole arbitrator was appointed to adjudicate the disputes between the parties. Rahul Gupta was not given permission to intervene in the proceedings on the ground that he was a non-signatory to the MOU/FSD.
Application in the Disposed proceedings
On 5 August 2024, Rahul Gupta and several non-signatory companies filed applications seeking permission to intervene and praying for the recall of order dated 22 March 2024. On 7 August 2024, Rahul Gupta and other intervenors were permitted to be present, either personally or through counsel during the course of arbitration.
Thereafter, on 12 November 2024, Learned Judge held that he is not inclined to recall or review the order dated 22 March 2024. It was also held that Rahul Gupta could remain present in all future proceedings before the sole arbitrator. The order dated 7 August 2024 was made absolute. It was also directed that properties belonging to the intervenor companies would remain outside the arbitral proceedings.
Kamal Gupta aggrieved by the directions issued on 12 November 2024, thus challenged the same before the Hon’ble Supreme Court in the present case.
Issues and Decision
Whether it is permissible for a non-signatory to an agreement leading to arbitration proceedings to remain present in such arbitration proceedings?
Appellants argued that after the application filed under Section 11(6) of A&C Act was decided, the Court became functus officio and had no jurisdiction to entertain application as filed on and after 5 August 2025. They relied on Section 35 of A&C Act and decisions in Nimet Resources Inc. v Essar Steels Ltd. and In Re: Interplay between Arbitration Agreements under the A&C Act and the Indian Stamp Act, 1899 (“Re: Interplay”), to contend that the arbitral award to be passed in the arbitration proceedings would only bind the parties to the arbitration proceedings and persons claiming under said parties, consequently the intervenors would not be bound by the award. Refence to Section 42A of A&C Act was made to argue that such directions, permitting a non-signatory as well as non-party to the arbitration proceedings to remain present during the course of arbitration proceeding, breached the principle of confidentiality.
The Respondents, on the other hand, argued that jurisdiction under Section 151 of Code of Civil Procedure, 1908 (“CPC”) was invoked by the Court, based on the alleged breach of the assurances and undertakings given by Pawan Gupta and Kamal Gupta. The direction could not be said to be beyond the scope of the A&C Act, thus there was no reason to interfere with the directions.
The Court held that the presence of non-signatories was not essential for adjudication of disputes between the parties of the MOU/FSD. The Court referred to Section 35 of A&C Act to hold that, even if the sole arbitrator was to deal with the properties of non-signatories, the arbitral award would not be binding on them. The arbitrator is empowered to adjudicate the disputes between the signatories, who are party to the arbitration agreement. Since the arbitral award would not bind the non-signatories to the MOU/FSD, there is no legal basis to permit them to remain present in the arbitral proceedings before the arbitrator.
On Confidentiality of Arbitral Proceedings
The Could held that permitting a stranger to remain present in arbitral proceedings especially when the award to be passed would not be binding on such stranger is unknown to law. Section 42A of A&C Act require the arbitrator, the arbitral institution and the parties to the arbitration agreement to maintain confidentiality of all arbitral proceedings. Permitting a stranger to the arbitration proceeding to remain present and observe the said proceeding would breach confidentially in arbitral proceedings.
On the jurisdiction of Court to issue ancillary directions
The Court held that after the sole arbitrator was appointed by virtue of Section 11(6) of A&C Act, the Court did not have any further jurisdiction to entertain any fresh applications. The Interim Application preferred by the Respondents in the disposed proceedings was not liable to be entertained since the Court had become functus officio on the conclusion of the proceedings filed under Section 11(6) of A&C Act. Reliance was placed on Section 5 of A&C Act and Re: Interplay to held that once the arbitration was appointed nothing further is required to be done in exercise of the jurisdiction under Section 11(6) of A&C Act.
Significance
This ruling affirms two fundamental principles in arbitration—(i) the confidentiality in arbitration, and (ii) very limited scope for judicial intervention.
Arbitration is a closed, confidential and party-driven process. Strangers/Non-signatories cannot interfere in the arbitration proceeding, simply because they are not affected by the such arbitral award. There is no legal basis for such right to non-signatory in arbitration. Other principles that emerge in this judgement is the limitation on judicial intervention in arbitration proceedings. The Supreme Court emphasized that once the arbitration is appointed under Section 11(6), the court must step back. Any sort of judicial intervention is not allowed after the Arbitration is appointed by the Court.
Case Details
Citation Codes: 2025 INSC 975, 2025 SCC OnLine SC 1691
Date of Judgement: 13 August 2025
Court: Supreme Court of India
Coram: Justice A.S. Chandurkar & Justice P.S. Narasimha
Author(s)
Himanshu Singh
Student at NLU, Delhi