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2024 Supreme(Online)(Del) 32936
IN THE HIGH COURT OF DELHI AT NEW DELHI
C. Hari Shankar, J
Pawan Gupta – Appellant
Versus
Kamal Gupta – Respondent
ARB.P. 1010/2022|I.A. 35767/2024|I.A. 39500/2024|I.A. 39642/2024|I.A. 40765/2024|O.M.P.(I) (COMM.) 198/2023|I.A. 35666/2024
For the Appellants/Petitioners: Sandeep Sethi, Gautam Narayan, Amit Sibal, J Sai Deepak, Malavika Trivedi
For the Respondents: Sandeep Sethi, Gautam Narayan, Amit Sibal, J Sai Deepak, Malavika Trivedi
Arbitral proceedings cannot adjudicate on the rights of third-party non-signatories. A referral court is obligated to protect third-party interests by delineating and excluding their assets from the arbitral corpus, ensuring that private settlements do not prejudice the rights of those not involved in the arbitration agreement.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Sections 9, 11(5) and 35 - Scope of arbitral reference - Protection of third-party rights - Non-signatories and strangers to settlement - Scope of judicial intervention by referral court - Jurisdiction of coordinate benches.
(B) Arbitrability and Third Party Rights - Settled legal position is that two parties cannot, by private agreement, refer disputes to arbitration that affect the rights of a third party who is a total stranger to the agreement. An arbitral award cannot bind non-signatories. Courts, while exercising power under Section 11, must ensure the integrity of the arbitral process by safeguarding rights of non-participating entities mentioned in family settlements. (Paras 17, 18, 41, 44)
(C) Judicial Discipline and Consistency - A Judge cannot review, recall, or override an order passed by a coordinate bench. Such prayers must be addressed to the forum that passed the original order or an appellate court. (Paras 18, 32)
Facts of the case:
Disputes arose regarding family settlement deeds executed by certain family members. Some relatives and corporate entities were not signatories to or parties in these deeds, yet their assets/shares were mentioned within them. Arbitration was initiated by certain family members, excluding the non-signatory stakeholders. Applications were filed to recall the arbitration reference, to intervene in proceedings, and to specifically identify properties belonging to third parties to ensure they remain outside the scope of the arbitral corpus.
Findings of Court:
The court held that while it cannot recall the order of a coordinate bench, it must ensure the enforcement of undertakings provided to the court regarding the exclusion of third-party assets from the arbitration. Properties belonging to non-signatories and specific admitted shares of family members must be delineated to prevent prejudice to third-party rights.
Issues: Whether a court can exclude specific assets from an arbitral reference to protect third-party rights; whether a bench can recall the order of a coordinate bench; and whether third parties can be permitted to be present in arbitral proceedings to monitor compliance with court-recorded undertakings.
Ratio Decidendi: An arbitration agreement or a reference thereto cannot compromise the rights of third parties who are not signatories to the underlying contract. To preserve the legality and non-arbitrability of third-party interests, the court must, based on admitted pleadings, explicitly identify and exclude those assets from the arbitral corpus to prevent irreparable prejudice.
Result: Applications disposed of; prayer for recall rejected; right of non-party to remain present during arbitration confirmed; specific properties identified and excluded from the arbitral scope.
| Table of Content |
|---|
| 1. factual history of family settlement deeds and initial arbitration references. (Para 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11) |
| 2. nature of interlocutory applications filed by the parties. (Para 12 , 13 , 14 , 15 , 16 , 17) |
| 3. need for oversight to ensure compliance with prior undertakings. (Para 18 , 19 , 20 , 21 , 22) |
| 4. non-signatories cannot be bound by agreements affecting their interests. (Para 23 , 24) |
| 5. analysis of inconsistent positions taken by parties in proceedings. (Para 25 , 26 , 27 , 28 , 29) |
| 6. court's power to clarify boundaries of an existing arbitral reference. (Para 30 , 31 , 32 , 33 , 34 , 35 , 36 , 37 , 38) |
| 7. exclusion of third-party assets from arbitral proceedings. (Para 39 , 40 , 41 , 42 , 43 , 44 , 45) |
| 8. final orders and disposition of pending applications. (Para 46) |
JUDGMENT (ORAL)
1. During the course of hearing, and from the available records in this case, much has emerged which troubles me considerably; yet, I have attempted to confine myself within the peripheries of the applications under discussion, keeping in mind the fact that an order under Section 11(5) of the Arbitration and Conciliation Act, 19961“the 1996 Act” hereinafter already stands passed by a coordinate Bench of this Court on 22 March 2024, though one of the applications which this judgment prays that the said decision be recalled. Needless to say, I cannot do so
A Bird’s Eye View
2. The primary dramatis personae in this case are three; Pawan Gupta, Kamal Gupta and Rahul Gupta. Pawan Gupta and Kamal Gupta are brothers, and Rahul Gupta is the son of Kamal Gupta.
3. Pawan Gupta, Kamal Gupta and Rahul Gupta were represented, in these proceedings, by Mr. Sandeep Sethi, learned Senior Counsel, and Mr. Gautam Narayan and Mr Amit Sibal, learned Senior Counsel and Mr. J Sai Deepak, learned Counsel respectively.
4. Additionally, Ms Malavika Trivedi, learned Senior Counsel appeared for Renu Gupta, the wife of Pawan Gupta, and advances the same stand as Pawan Gupta.
5. The genesis of the dispute, in this case, lies in two Family Settlement Deeds2“FSDs” hereinafter dated 20 June 2015 and 9 July 2019. Rahul Gupta is not a signatory to either, though he is named as the “third party” in the FSD dated 20 June 20153“the 1st FSD” hereinafter. In the FSD dated 9 July 20194“the 2nd FSD” hereinafter, he has not been made a party at all. Legally speaking, therefore, Rahul Gupta is a stranger to both the FSDs.
6. Pawan Gupta and Renu Gupta together filed Arb P 1010/2022 under Section 11 (5) of the 1996 Act, for reference of certain disputes, stated to have arisen between them, to arbitration.
7. Respondents 1 to 6, which included Kamal Gupta as Respondent 1, filed a reply, contending, that the disputes which Pawan Gupta sought referred to arbitration were not arbitrable at all, inter alia, as the FSDs involved substantial holdings of Rahul Gupta, who was not a party to the FSDs.
8. In the said Arb P 1010/2022, IA 13282/2023 was filed by Rahul Gupta and IA 18217/2023 was filed by L.R. Builder Pvt Ltd5“LR Builders” hereinafter, Purnima Associates Pvt Ltd, Purnima Buildmart Pvt Ltd, M.G. Buildmart Pvt Ltd, P.G. Colonisers Pvt Ltd, P.V. Buildmart Pvt Ltd, Glow Jewellery Pvt Ltd, P. Sen Engineering Pvt Ltd and P. Sen Technical Services Pvt Ltd6“the intervenor companies” collectively hereinafter, seeking permission to intervene in the Arbitration Petition. These applications contested the arbitrability of the dispute on the ground that the FSDs purported to deal with properties owned by Rahul and the intervenor companies, behind their back.
9. After IA 13282/2023 was filed by Rahul Gupta, Kamal Gupta, who had, in his reply to the Arbitration Petition, contested the arbitrability of the dispute, effectively abandoned his objection and joined hands with Pawan Gupta in seeking that the Arbitration Petition be allowed and an arbitrator appointed, as is recorded in order dated 1 August 2023 passed by the learned Single
