Kamal Gupta v. L.R. Builders Pvt. Ltd.

A family settlement (an arrangement among family members about family property) between Pawan Gupta and Kamal Gupta led to arbitration. A son who had not signed the settlement, and some companies, got a court order letting them sit in on the arbitration. The Supreme Court set that order aside and imposed costs of Rs.3,00,000.

Quick Revision

Read the full judgment: Supreme Court of India (sci.gov.in)

Parties

Kamal Gupta (KG) & Anr. — appellants; KG is a party to the family settlement and to the arbitration. The appeals were also brought by Pawan Gupta (PG), the other party to the arbitration (para 7).

M/s L.R. Builders Pvt. Ltd. & Anr. — respondents; the non-signatory intervenors who supported the impugned order (the order under challenge) (paras 4, 10, 19).

Rahul Gupta (RG) — son of KG; he did not sign the family settlement and sought to intervene and remain present in the arbitration (paras 3, 6).

Procedural History

1. 22 August 2022: PG and another filed Arbitration Petition No.1010 of 2022 under Section 11(6) against KG and others. They sought a sole arbitrator under Clause 16 of the MoU/FSD (paras 3, 16).
2. 13 June 2023: PG and one other filed OMP(I) (COMM) No.198 of 2023 under Section 9. It sought to restrain the parties from creating third-party rights in, or alienating (transferring), the properties (paras 3, 17).
3. RG and one other filed I.A. No.12227 of 2023 to intervene in the Section 9 case (paras 3, 17).
4. RG filed an application to intervene in the Section 11(6) case, to oppose its maintainability. The judgment numbers it both I.A. No.13282 of 2023 and I.A. No.13282 of 2024. It was filed on 13 July 2023 (paras 3, 16).
5. 22 March 2024: the learned Single Judge decided both petitions together. A retired judge of the Supreme Court was appointed sole arbitrator. The Section 9 petition was to be treated as an application under Section 17 before the arbitrator. The intervention applications were dismissed. Both petitions were disposed of (paras 3, 12, 17).
6. 5 August 2024: two non-signatory companies, through RG, filed I.A. No.37567 of 2024 in the disposed-of Section 11(6) case (paras 4, 18).
7. RG and nine other non-signatory companies also filed I.A. No.39500 of 2024 (date not stated), seeking intervention and recall of the 22 March 2024 order. A similar application was filed in OMP(I)(COMM) No.198 of 2023 (paras 4, 18).
8. 7 August 2024: the learned Judge let the non-signatory intervenors be present in the arbitration, personally or through counsel (para 5).
9. 12 November 2024: the learned Judge refused to recall the 22 March 2024 order but made the 7 August 2024 order absolute. He also gave directions on the intervenor companies' properties (para 6).
10. A connected civil appeal arose from an SLP (Civil) in Diary No. 9078/2025; the judgment decides both (title page).
11. PG and KG appealed to the Supreme Court by special leave (the Supreme Court's permission to appeal) against the 12 November 2024 order (paras 1, 7).

Facts

1. On 20 June 2015, Pawan Gupta (PG) and Kamal Gupta (KG) made an oral family settlement (para 3).
2. That oral agreement (a promise or set of promises the parties accept) was said to be put in writing. The document was a Memorandum of Understanding / Family Settlement Deed (MoU/FSD) dated 9 July 2019 (para 3).
3. Rahul Gupta (RG), son of KG, did not sign the MoU/FSD (para 3).
4. PG and another sought a sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 (the Act). RG, a non-signatory, asked to intervene (para 3).
5. PG and one other also sought interim measures (temporary protection while the dispute is pending) under Section 9 of the Act, based on the MoU/FSD (para 3).
6. On 22 March 2024, a sole arbitrator was appointed. Intervention was refused mainly because RG had not signed the MoU/FSD (para 3).
7. On 5 August 2024, two non-signatory companies, through RG as authorised representative, filed I.A. No. 37567 of 2024 in the disposed-of case. They asked to be allowed to intervene in, or be present at, the arbitration. They also asked to revive their intervention application, for access to all pleadings, orders and the award, and for any other order the Court thought fit (para 4).
8. They said the parties were breaking a concession given in the arbitration (para 4).
9. RG and nine other non-signatory companies filed I.A. No.39500 of 2024. Besides intervention, it asked for recall of the 22 March 2024 order (para 4).
10. On 7 August 2024, the learned Judge let the non-signatory intervenors (outsiders who ask to join a pending case) be present in the arbitration. The Supreme Court refers to that application as I.A. No.35767 of 2024 at this point (para 5).
11. On 12 November 2024, the learned Judge refused to recall or review the 22 March 2024 order, as another Judge had passed it (para 6).
12. In the same order, he held that RG could remain present in all future proceedings before the sole arbitrator. The 7 August 2024 order was made absolute (para 6).
13. He also directed that the intervenor companies' properties in Annexure A and B of the submissions filed by RG would stay outside the arbitration. Arbitration on the Annexure B properties would be limited to 77% of them (para 6).
14. PG and KG, the parties to the arbitration, challenged the 12 November 2024 directions (para 7).

Issues Raised

1. Is it permissible for a non-signatory to an agreement leading to arbitration proceedings to remain present in those proceedings (para 2)?
2. After appointing an arbitrator under Section 11(6) of the Act, can the Court, in those disposed-of proceedings, issue further ancillary directions about the arbitration that has begun (para 2)?

Arguments Contended

For the appellants (PG and KG), through Mr. C. Aryama Sundaram and Mr. V. Giri, Senior Advocates:

• After the Section 11(6) application was decided on 22 March 2024, the Court became functus officio. It had no jurisdiction to hear the non-signatories' interim applications (para 8).
• Under Section 35, the award binds only the parties and persons claiming under them. The intervenors did not sign the MoU/FSD, so the award would not bind them. Letting them remain present was therefore without jurisdiction (para 8).
• They relied on Nimet Resources Inc. & Anr. v. Essar Steels Ltd. and In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899 (para 8).
• The learned Judge said he would not recall or review the 22 March 2024 order. Yet he in fact reconsidered the whole matter and added directions (para 8).
• The impugned order referred to the 22 March 2024 order in detail and used it as the basis for its directions (para 8).
• The 22 March 2024 order held the intervenors had no right to press their prayers. Letting RG remain present granted relief that had been refused earlier (para 8).
• Letting a non-signatory and non-party remain present was beyond the Act. If the award would not bind him, there was no reason to let him attend (para 9).
• The direction breached the confidentiality rule in Section 42A and affected the autonomy of the arbitral process (para 9).
• As the order was without jurisdiction, all its directions fell with it. This included recognising RG's 23% share in the family property (the family corpus) (para 9).
• That declaration gave RG relief not allowed in proceedings already disposed of. The order in effect reviewed and modified the Section 11(6) order (para 9).

For the respondents (the non-signatories), through Mr. Amit Sibal and Mr. J. Sai Deepak, Senior Advocates, and Ms. Bansuri Swaraj, Advocate:

• PG and KG breached assurances recorded in paragraphs 17 and 18 of the 22 March 2024 judgment. That breach led to the interim applications (para 10).
• Those undertakings bound PG and KG, who could not act against them (para 10).
• The intervenors therefore invoked Section 151 of the Code of Civil Procedure, 1908 (the Code) (para 10).
• The recall prayer was made but not granted (para 10).
• Letting RG remain present and recognising his 23% rights followed from the signatories' undertaking. They were only a consequence of the 22 March 2024 judgment (para 10).
• No direction went beyond the Act or contradicted the Section 11(6) order. The parties' rights would be worked out before the sole arbitrator (para 10).
• Section 151 was rightly invoked, so the appeals should be dismissed (para 10).

Court's Reasoning

Opinion of Atul S. Chandurkar, J. (for the Bench)

1. Held: Both questions are answered in the negative. (para 11)
2. Noted: The intervention prayer was considered when the sole arbitrator was appointed on 22 March 2024. That order said the intervenors' fear about their properties was misplaced. Even if the arbitrator dealt with those properties, the award would not bind them. Their presence was not essential. The intervention applications were dismissed, as paragraph 34 of that judgment shows. (para 12)
3. Noted: RG and the other intervenors did not sign the MoU/FSD. (para 13)
4. Held: Under Section 35, an award binds only the parties and persons claiming under them. Section 2(h) defines party as a party to an arbitration agreement. (para 13)
5. Held: As the award would not bind non-parties, there is no legal basis to let a non-signatory remain present before the sole arbitrator. (para 13)
6. Held: The Act confers no such right. (para 13)
7. Noted: None of the parties to the MoU/FSD claimed that RG and the intervenors were claiming through them under Section 35. (para 13)
8. Held: The Section 11(6) order empowers the sole arbitrator to decide the disputes between the signatories to the MoU/FSD. Arbitration can take place only between parties to an arbitration agreement. The parties are bound by the terms of their agreement. (para 13)
9. Held: A non-signatory is a stranger to the arbitration. Letting a stranger remain present, when the award will not bind him, would be "charting a course unknown to law". (para 13)
10. Held: A non-signatory's remedy, if any, lies under Section 36 of the Act, if the award is sought to be enforced against him. (para 13)
11. Held: Under Section 42A, the arbitrator, the arbitral institution and the parties must keep all arbitral proceedings confidential. The legislative intent behind confidentiality is clear. Letting a stranger remain present and observe would breach Section 42A. Even on this count the order cannot stand. (para 14)
12. Held: The permission given to RG, a non-signatory, was without jurisdiction and beyond the scope of the Act. This answers the first question. (para 15)
13. Noted: The Section 11(6) application was filed on 22 August 2022, under Clause 16 of the MoU/FSD. RG and the intervenors were not parties to the MoU/FSD or to that application. They filed an intervention application on 13 July 2023. (para 16)
14. Noted: A Section 9 application was filed on 13 June 2023. RG and others sought to intervene there too. Both petitions were decided together on 22 March 2024 and disposed of. Nothing was pending after that date. (para 17)
15. Noted: Much later, on 5 August 2024, RG and the intervenors filed I.A. No.37567 of 2024 in the disposed-of case. A similar application was filed in the Section 9 case. I.A. No.39500 of 2024 also sought recall. (para 18)
16. Held: Once the arbitrator was appointed on 22 March 2024, no prayer to intervene could be entertained. The Court had no further jurisdiction to hear a fresh application to remain present. (para 19)
17. Held: The Court had become functus officio. This goes to the root of the matter. The learned Judge erred in entertaining the application. (para 19)
18. Noted: The 7 August 2024 order shows RG and others were upset that the signatories dealt with a property covered by their undertaking. (para 20)
19. Held: Even assuming their fear was genuine, it cannot justify letting a non-signatory remain present. (para 20)
20. Noted: Paragraph 19 of the 7 August 2024 order shows the learned Judge knew the Act does not provide for an observer. Permission was still granted. (para 20)
21. Held: "The direction, even if well-intentioned, does not have any statutory support." (para 20)
22. Noted: Section 5 of the Act allows judicial intervention only where Part I of the Act provides for it. (para 21)
23. Noted: The Constitution Bench in Re: Interplay, in a passage the Court quoted, said Section 5 has two facets. The positive facet gives courts power in matters that Part I expressly allows. The negative facet bars courts where the tribunal has exclusive jurisdiction. The non obstante clause (the clause in Section 5 that limits judicial intervention to matters the Act expressly provides for) limits judicial intervention. (para 21)
24. Noted: Re: Interplay relied on Bhaven Construction. There, three Judges said the clause reflects the aim of adopting the UNCITRAL Model Law and reducing excessive judicial interference. Re: Interplay further said every provision must be read with Section 5, to give effect to minimal judicial intervention. (para 21)
25. Noted: Re: Interplay, in a second quoted passage, held the Act is a self-contained code (a statute that alone governs its subject). It covers appointment of arbitrators, start of arbitration, the award, challenges to it and its execution. (para 22)
26. Noted: When such a code sets out a procedure, general procedure is impliedly excluded. What the Act allows must be done only in its manner. What it does not mention cannot be done. Other statutes cannot interfere unless the Act says so. (para 22)
27. Held: Once the arbitrator was appointed under Section 11(6) on 22 March 2024, nothing further remained to be done under that section. (para 23)
28. Held: The request to remain present went beyond Section 11(6), so it could not be entertained. Section 151 of the Code could not be invoked for it. (para 23)
29. Held: The Court was functus officio after appointing the arbitrator and disposing of the case. The spirit of Section 5 also barred a request not found in Part I. The direction also runs counter to Section 42A. This answers the second question. (para 23)
30. Held: The applications filed in the disposed-of proceedings were misconceived. Trying to reopen those proceedings "amounted to an abuse of the process of law". They deserved outright rejection. The learned Judge erred in deciding them on merits. (para 24)

Here the Court used abuse of process (misuse of court proceedings) for the attempt to reopen proceedings already disposed of (para 24).

Provisions discussed

• Section 2(h), Arbitration and Conciliation Act, 1996: party means a party to an arbitration agreement (para 13).
• Section 5: courts may intervene only where Part I of the Act so provides (paras 21, 23).
• Section 9: a party may ask the court for interim measures; here, to stop dealings in the properties (paras 3, 17).
• Section 11(6): the provision under which the court appointed the sole arbitrator; nothing further remained to be done under it after the appointment (paras 2, 3, 16, 19, 23).
• Section 17: the Section 9 petition for interim measures was to be treated as an application under it, for the sole arbitrator to decide (paras 3, 17).
• Section 35: an arbitral award (the decision the arbitrator passes) binds only the parties and persons claiming under them (paras 8, 13).
• Section 36: a non-signatory's remedy, if any, is available under it if the award is sought to be enforced against it (para 13).
• Section 42A: the arbitrator, the arbitral institution and the parties must keep all arbitral proceedings confidential (paras 9, 14, 23).
• Part I of the Act: judicial intervention is permitted only where Part I provides for it (paras 21, 23).
• Section 151, Code of Civil Procedure, 1908: invoked by the intervenors; held unavailable here (paras 10, 23).
• Clause 16 of the MoU/FSD: the arbitration clause under which the sole arbitrator was sought (para 16).

Authorities

• Nimet Resources Inc. & Anr. v. Essar Steels Ltd., (2009) 17 SCC 313: relied on by the appellants (para 8).
• In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899, 2023 INSC 1066. The appellants relied on it (para 8). The Court followed its quoted passages. These deal with Section 5 and with the Act as a self-contained code (paras 21–22).
• Secur Industries Ltd. v. Godrej & Boyce Mfg. Co. Ltd., (2004) 3 SCC 447: cited within the first quoted passage of Re: Interplay on the non obstante clause in Section 5 (para 21).
• Bhaven Construction v. Sardar Sarovar Narmada Nigam Ltd., (2022) 1 SCC 75: three-Judge Bench, quoted within Re: Interplay on reducing excessive judicial interference (para 21).
• Pasl Wind Solutions (P) Ltd. v. GE Power Conversion (India) (P) Ltd., (2021) 7 SCC 1, and Kandla Export Corpn. v. OCI Corpn., (2018) 14 SCC 715: cited within the second quoted passage of Re: Interplay for the Act being a self-contained code (para 22).
• Subal Paul v. Malina Paul, (2003) 10 SCC 361: cited within the second quoted passage of Re: Interplay; a self-contained code impliedly excludes general procedure (para 22).

Judgement

1. The order dated 12 November 2024 passed on the interim applications is set aside (para 25).
2. The parties are free to work out their rights under the order dated 22 March 2024 (para 25).
3. The appeals are allowed in these terms (para 25).
4. Costs: the respondents must pay Rs.3,00,000 (Rupees Three Lakhs) to the Supreme Court Advocates On-Record Association within two weeks (para 25).

Legal Principle / Ratio

A non-signatory to the arbitration agreement has no right to remain present in arbitral proceedings between the signatories. The award does not bind it under Section 35, and its presence would breach confidentiality under Section 42A (paras 13–15). Once a court appoints the arbitrator under Section 11(6) and disposes of the case, it is functus officio. It cannot then issue further directions, and Section 151 CPC cannot fill that gap (paras 19, 23).

Key holding: the Court found no "legal right conferred by the Act that would enable a non-party to the agreement to remain present in arbitration proceedings" (para 13).

Critical Analysis

Analysis based on the judgment text.

• The Court did not decide the non-signatories' property claims or RG's claimed 23% share. It set aside the whole 12 November 2024 order and left the parties to the 22 March 2024 order (paras 9–10, 25).
• The protection left to a non-signatory is Section 36, at the enforcement stage. The judgment adds "if any" to that remedy and does not spell it out further (para 13).
• The application numbers vary in the text. I.A. No.13282 is dated 2023 in one place and 2024 in another (paras 3, 16).
• The presence application is I.A. No.37567 of 2024 in three places and No.35767 of 2024 in one (paras 4-5, 18-19).
• The judgment does not name the court whose Single Judge passed the orders. It refers only to the learned Judge (paras 3, 5–6, 17).

Significance

• It confirms that arbitration is confined to the parties to the arbitration agreement. Outsiders cannot sit in as observers (paras 13, 20).
• It reads Section 42A confidentiality as a bar to outsiders attending the hearings (para 14).
• It limits the Section 11(6) court to appointing the arbitrator. After that, the court cannot manage the arbitration (paras 19, 23).
• It applies the Constitution Bench's reading of Section 5 in Re: Interplay: minimal judicial intervention (paras 21–22).
• The Court called the attempt to reopen disposed-of proceedings an abuse of the process of law and imposed costs of Rs.3,00,000 (paras 24–25).

Exam-Important Points

• Rule: a non-signatory cannot remain present in arbitral proceedings between signatories (para 15). Trap: a well-meant court order does not change this; it lacks statutory support (para 20).
• Rule: under Section 35, an award binds only the parties and persons claiming under them. Section 2(h) defines party (para 13).
• Rule: Section 42A confidentiality is breached if a stranger observes the proceedings (para 14).
• Rule: after appointing the arbitrator under Section 11(6), the court is functus officio (para 19). Trap: Section 151 CPC could not be invoked for such a request (para 23).
• Rule: Section 5 allows judicial intervention only where Part I provides for it; the Act is a self-contained code (paras 21–23).
• A non-signatory's remedy, if any, is under Section 36 when the award is enforced against it (para 13).
• Result: the 12 November 2024 order was set aside, with costs of Rs.3,00,000 payable to the Supreme Court Advocates On-Record Association in two weeks (para 25).

Prepared from the full text of the judgment. Paragraph numbers follow the official Supreme Court judgment text; law reports may number the same paragraph differently.