Introduction

“In the proceedings of section 11, a person who is not a party to the agreement, has no association in eye of law. On the same footing, a third party cannot be a party in the proceedings under section 9 of the Act for interim measures wherein by very nature of the proceedings, third party cannot be said to have a legal participatory right”.

The Gujarat High Court recently made an observation.[1] This viewpoint has been reiterated by the Supreme Court in numerous instances, and it has been embraced as a norm by the subordinate courts. [2].

One such question arose before the High Court of Gujarat pertaining to the permissibility of including a third party, not originally party to the arbitration agreement, as a participant in the proceedings. The court negated this possibility, asserting that Section 9 and 11 are only applicable to those who are signatories to the arbitration agreement. Consequently, the binding nature of these sections is restricted to the involved parties and does not extend to non-signatory entities.

The facts of the case are that the petitioner, representing Blue Feathers Infracon, initiated legal action against a partner in a partnership dispute, filing an interim application to include a retired partner and his wife as respondents. The respondent had previously filed a Section 9 application, alleging the petitioner’s non-cooperation in the Lotus project, damaging the firm’s reputation by delaying payments to contractors and laborers.

In response, the petitioner sought to join the retired partner and his wife in the Section 9 proceedings, citing their involvement in the firm’s financial transactions, including an unsecured loan of INR 4,26,35,000 and INR 2,54,00,000. The wife, owing INR 1,99,00,000 for the Lotus project, became the focus of the respondent’s Section 9 application, along with a criminal complaint under Section 138 of the Negotiable Instruments Act and a special civil suit. The petitioner invoked Order I Rule 10, emphasizing the necessity of including these parties in the proceedings.

Who is party and third party?

As defined under section 2(1)(h)[3], party means a party to an Arbitration Agreement. As also interpreted by the Supreme Court in the case of Indowind Energy Ltd. v. Wescare (I) Ltd. & Anr[4] that party to the dispute is the party to an arbitration agreement and arbitration agreement has been defined under section 7[5]. The key words in both the provisions are “party to an arbitration agreement” and an agreement by the party to submit to arbitration. Hence, an arbitration agreement can only come into existence when the same is aligned with the essentials of section 7 else the same would not be valid.

Hence, based on the aforementioned definition, it is evident that those individuals between whom the arbitration agreement has been executed possess the prerogative to invoke either section 9 or 11. Section 9 stipulates that “A party may, before or during arbitral proceedings…,”[6] thereby manifesting the legislative intent to preclude any party not party to the agreement from seeking interim relief.

The term “third party” remains undefined by the Act; nevertheless, several arbitration regulations, including the Swiss Rules (Article 6(3)), SIAC Rule 7, LCIA Rules (Article 22), and others, offer provisions guiding the inclusion of additional parties in arbitration proceedings, referred to as joinders.

Can third party invoke Section 9 and 11?

Prior to delving into the proportion of the judgment rendered by the Gujarat High Court, it is imperative to examine a catena of cases referenced by the said High Court, wherein the Supreme Court has established the reasoning behind the exclusion of third parties.

In the case of Sundaram Finance Ltd. v. NEPC India Ltd. (“Sundaram Finance”)[7], the Supreme Court in this instance provided a detailed exposition on the scope of Section 9 and affirmed that individuals who are not parties to the arbitration agreement are precluded from invoking and deriving advantage from it.

“The scope and ambit of Section 9 of the A&C Act by observing that interim protections granted by a Court in proceedings under Section 9 do not imply a waiver of arbitral proceedings, especially considering the language used in Section 9, which has been inspired by Article 9 of the UNCITRAL Model Law.“

For the moment suffice it to say that the right conferred by Section 9 cannot be said to be one arising out of a contract. The qualification which the person invoking jurisdiction of the Court under Section 9 must possess is of being a ‘party’ to an arbitration agreement, A person not party to an arbitration agreement cannot enter the Court for protection under Section 9.”

In Firm Ashok Traders and Anr. Etc vs Gurumukh Das Saluja and Ors. Etc.[8], the Supreme Court, while deliberating on matters pertaining to the maintainability and nature of applications under Section 9 submitted by unregistered firms, made the observation that:

“The right conferred by Section 9 cannot be said to be one arising out of contract. The qualification which the person invoking jurisdiction of the court under Section 9 must possess is of being a ‘party’ to an arbitration agreement.’ It was further observed, ‘a person not party to an arbitration agreement cannot enter the court for protection under Section 9”

S. N. Prasad, Hitek Industries (Bihar) Limited vs. Monnet Finance Limited and Others[9], in this case also the Supreme Court has reaffirmed the legal standpoint that proceedings pursuant to section 9 of the Arbitration Act are limited to the involved parties of the arbitration agreement. In the event that a third party makes any reference, such an application cannot be deemed sustainable:

“There can be reference to arbitration only if there is an arbitration agreement between the parties. If there is a dispute between a party to an arbitration agreement, with other parties to the arbitration agreement as also non-parties to the arbitration agreement, reference to arbitration or appointment of arbitration can be only with respect to the parties to the arbitration agreement and not the non-parties……..As there was no arbitration agreement between the parties, the impleading of the appellant as a respondent in the proceedings and the award against the appellant in such arbitration cannot be sustained.”

Similar proposition was laid down in other decisions in Jagdish Chandar Vs. Ramesh Chandar[10] and Yogi Agarwal Vs. Inspiration Clothes & U,[11] if an individual who is not part of the arbitration agreement is included as a party in the petition under Section 11 of the Act, the court should either remove that party or explicitly state, when appointing an arbitrator, that the arbitrator is authorized to resolve disputes solely between the parties involved in the arbitration agreement.

In Deutsche Post Bank Home Finance Limited Vs. Taduri Sridhar and Another[12], the division bench of the Apex Court elaborated that the appointment of an Arbitrator under section 11 of the Act is contingent upon the presence of an arbitration agreement between the parties mentioned in the petition, as well as the existence of disputes that are to be referred to arbitration. These conditions must be met as prerequisites for the appointment process:

“If a party to an arbitration agreement, files a petition under section 11 of the Act impleading the other party to the arbitration agreement as also a non-party to the arbitration agreement as respondents, and the court merely appoints an Arbitrator without deleting or excluding the non-party, the effect would be that all parties to the petition under section 11 of the Act (including the non-party to arbitration agreement) will be parties to the arbitration.

That will be contrary to the contract and the law. If a person who is not a party to the arbitration agreement is impleaded as a party to the petition under section 11 of the Act, the court should either delete such party from the array of parties, or when appointing an Arbitrator make it clear that the Arbitrator is appointed only to decide the disputes between the parties to the arbitration agreement.”

The Madras High Court has also recapped the above Jurisprudential position in the case of Shoney Sanil vs. Coastal Foundations (P) Ltd. and others[13]while acknowledging the issue whether the individual filing the writ, accepted to be a third party in the arbitration agreement between the respondents, and possessing a confirmed court sale, certificate, and delivery of possession in their favour, could be evicted, restrained, or subjected to any legal proceedings under Section 9 of the Arbitration Act, 1996, elucidated the scope of section 9. The Madras High Court averred that:

“……the interim measures which were conceived by the Legislature while enacting Section 9 are those interim measures which relate to the arbitration agreement between the parties and being interim, they are to confine to the matters relating to the arbitration agreement between the parties. This intention is explicit from the opening words of section 9, which provides for the party to apply for interim measure under Section 9. Therefore, only a party to the arbitration agreement can apply to a Court invoking Section 9, which consists two parts….”

Hence, after relying on the spate of determinations by the Supreme Court the Gujarat High Court asserted that no legal obligation is imposed on third parties in Section 9 proceedings. It emphasized that the wife of the retired partner had no affiliation with the firm, despite the partner’s retirement. The court clarified that the parties, though owed money by the partnership firm, were not automatically deemed necessary and proper parties for a Section 9 proceeding. Consequently, the High Court rejected the application.

Exception to this rule

The Apex Court has dealt with the rights of third person and/or objection of third person, in arbitration proceedings in Taiyo Membrane Corporation Pty. Ltd. v. Shapoorji Pallonji and Company Ltd.[14], by following [Chloro Controls (I) Pvt. Ltd. v. Severn Trent Water Purification Inc.[15],. In the present matter, the court have to consider the submission of Appellant accordingly. At the instance of a party, though not party to the Arbitration Agreement in Taiyo Membrane Corporation Pty. Ltd. (supra), based on the facts and the correspondences between the parties, the Supreme Court has maintained the invocation of the arbitration clause by the third person to appoint Arbitrator under Section 11(6) of the Arbitration Act.

Therefore, depending upon the facts of the case, even the third party can be added or joined as party for appropriate reliefs and for its effective implementation, especially in Section 9 Petition. There is no total bar, but subject to the interconnected and interdependent facts and the contract conditions between the parties. In the present case also, all the transactions are interdependent and interlinked. Hence, we have to hold that the present Arbitration proceedings so initiated and the order so passed is sustainable. There is no perversity or illegality in the order.

Conclusion

Upon a thorough examination of Section 9 and a series of judgments from various jurisdictions, it has been deduced that this provision specifically pertains to interim measures and operates exclusively among the parties involved in the arbitration agreement. Section 9 serves as a mechanism allowing a party to the arbitration agreement to obtain a protective interim measure either prior to or following the commencement of arbitral proceedings. The legislative enactment of the concept of interim measures in Section 9 expressly excludes individuals who are not parties to the arbitration agreement, with the only exception being those asserting claims through a party to the arbitrator.

Notwithstanding, the judiciary is obligated to exercise due diligence to ensure that a party lacking locus standi does not derive any advantages from the proceedings. Moreover, the courts must refrain from imposing an absolute prohibition without meticulously examining the interrelation of the facts and terms stipulated in the contracts.

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[1] Vijay Arvind Jariwala Vs. Umang Jatin Gandhi 2022 LiveLaw (Guj) 155.

[2] Harita Finance Ltd. vs ATV projects India ltd. 2003(2) ArbLR376; SBP and Co. v. Patel Engineering Ltd. 2005 8 SCC 618.

[3]

[4] (2010) 5 SCC 306.

[5]

[6]

[7]

[8] AIR 2004 SC 1433.

[9] (2011) 1 SCC 320.

[10] (2007) 5 SCC 719.

[11](2009) 1 SCC 372.

[12] (2011) 11 SCC 375.

[13] AIR 2006 Kerala 206.

[14](2016) 1 SCC 736.

[15] (2013) 1 SCC 641.