Non-Signatories Cannot Attend Arbitration Proceedings; Court Became Functus Officio After Appointing Arbitrator: Supreme Court

The Supreme Court has ruled that non-signatories to an arbitration agreement have no legal right to attend arbitration proceedings between the signatories. It also held that once a court appoints an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, it becomes functus officio and cannot issue further directions related to the arbitration. The Court set aside a Delhi High Court order that had allowed non-signatories to be present in the arbitration and recognised their rights in certain properties.

A Bench of Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar delivered the judgment in Kamal Gupta & Anr. v. M/s L.R. Builders Pvt. Ltd. & Anr. on August 13, 2025, allowing the appeals filed by the signatories to the arbitration agreement.

Case Background

On 20 June 2015, an oral family settlement was entered into between Pawan Gupta (PG) and Kamal Gupta (KG), later reduced into a Memorandum of Understanding / Family Settlement Deed (MoU/FSD) dated 9 July 2019. Rahul Gupta (RG), son of KG, did not sign the MoU/FSD.

PG and another party filed proceedings under Section 11(6) of the Arbitration and Conciliation Act seeking appointment of a sole arbitrator to adjudicate disputes under the MoU/FSD. RG, a non-signatory, applied to intervene to oppose the proceedings. A separate Section 9 petition for interim measures was also filed, in which RG sought similar intervention.

On 22 March 2024, the Delhi High Court appointed a sole arbitrator, treated the Section 9 petition as an application under Section 17 to be decided by the arbitrator, and dismissed RG’s intervention requests on the ground that he was not a signatory.

Several months later, on 5 August 2024, RG and certain non-signatory companies filed fresh applications in the disposed-of Section 11(6) proceedings, seeking permission to be present in the arbitration, access pleadings and orders, and recall the March 2024 order. On 7 August 2024, the High Court allowed their presence, and on 12 November 2024, it confirmed this permission and directed that certain properties remain outside arbitration.

Arguments Before the Supreme Court

For the Appellants (PG and KG):

• The High Court had no jurisdiction to entertain fresh applications from non-signatories after disposing of the Section 11(6) proceedings; it had become functus officio.
  
• Section 35 of the Act binds only parties to the arbitration and those claiming under them; non-signatories are not bound by the award.
  
• Allowing non-signatories to attend violates Section 42A’s confidentiality mandate and undermines arbitral autonomy.
  
• The impugned directions amounted to a review of the 22 March 2024 order, which had already refused similar relief.
  

For the Respondents (Non-Signatories):

• PG and KG had breached assurances recorded in the 22 March 2024 order.
  
• The High Court could invoke Section 151 CPC to protect undertakings and permit attendance.
  
• The directions were a logical consequence of the earlier order and did not exceed the Court’s powers.
  

Supreme Court’s Analysis

The Court answered both legal questions in the negative:

1. On Presence of Non-Signatories:
   
   • Section 35 limits the binding nature of an arbitral award to parties and those claiming under them.
     
   • RG and the intervenors were strangers to the MoU/FSD and not claiming through signatories.
     
   • Allowing them to attend was “charting a course unknown to law” and contrary to Section 42A’s confidentiality requirements.
     
   • Any remedy for a non-signatory lies under Section 36 if an award is enforced against them.
     
2. On Post-Appointment Jurisdiction:
   
   • Once the Section 11(6) order was passed appointing the arbitrator, the court had no further jurisdiction in those proceedings.
     
   • The applications filed months later were misconceived; entertaining them violated the functus officio principle.
     
   • Section 5 restricts judicial intervention to matters expressly provided in Part I of the Act.
     
   • The Arbitration Act is a self-contained code, and powers under Section 151 CPC cannot be invoked to bypass its scheme.
     

Decision

The Supreme Court set aside the High Court’s 12 November 2024 order, holding it was without jurisdiction and contrary to the Act. It directed that the parties work out their rights in line with the 22 March 2024 order and imposed costs of ₹3,00,000 on the respondents, payable to the Supreme Court Advocates-on-Record Association within two weeks.