The Gujarat High Court has held that a third party cannot be included as a party to interim relief under Section 9 of Arbitration and Conciliation (A&C) Act, unless it is a party to an arbitration agreement.
A division bench of Justices NV Anjariya and Sameer J. Dave observed that the remedy under the Arbitration Act is between the parties to the arbitration agreement, therefore, the third party is not concerned with the proceedings of Section 9 and neither is the other parties. The said provision of inclusion recognizes who can independently claim rights of arbitration against the parties and vice versa.
The court held that the entire ground for grant of interim relief under Section 9 is based on the fact that there is an arbitration agreement between the parties, hence a third party is excluded from the purview of Section 9, unless the relief is claimed.
HC observed that if an order of interim relief under Section 9 is passed against the third party, it will give rise to an anomalous situation as the decision passed by the arbitrator is binding on the parties to the arbitration agreement only. Therefore, the third party will not be liable for the final settlement of the disputes.
Facts
The parties are partners in a partnership firm called Blue Feathers Infracon. The firm initially had four partners out of which two partners retired and the firm was reconstituted with the petitioner and the respondent being the only remaining partners. The firm bought land for the construction of residential flats. The partners got a loan of two crores on the said land. Thus, the construction project could not be completed, a dispute arose between the parties.
Accordingly, the respondent filed an application under section 9 of the A&C Act for interim measures against the petitioner. The petitioner applied Order Rule 10 of CPC for the inclusion of a former partner of the firm and his wife as parties to the application for interim relief on the ground that the firm had granted an unsecured loan to the wife of the former partner. Had given. Part of which is still outstanding and the respondent himself had taken legal action against him. Therefore, he is a necessary party for the proper adjudication of the dispute. The Commercial Court dismissed the application filed by the petitioner.
Dispute of the parties
The petitioner challenged the order of the Court on the following grounds:
- The firm had given an unsecured loan to the wife of the former partner after her retirement and part of the amount received from her was also adjusted by the firm in the sale consideration when the said property was purchased. A major part of the loan given to him is still outstanding and the firm’s account needs to be settled with the proposed parties.
- The retiring partner had not given public notice regarding his retirement. Therefore, he is liable to third parties.
- The unsettled amount can be recovered from the retired partner; Therefore, their presence is essential for proper adjudication of the dispute.
- Respondents cheated investors with retired partners, hence his presence is necessary.
The respondent contested the arguments of the petitioner on the following grounds:
- Application to reunite an ex-partner with his wife is just a lengthy process
- The parties proposed are not at all related to the dispute between the parties, and are therefore neither justified nor necessary.
Court View
The court held that a third party cannot be imputed as a party to an application for interim relief under section 9 of the A&C Act unless it is a party to a claim for an arbitration agreement.
The court also held that the remedy under the Arbitration Act is between the parties to the arbitration agreement, therefore, the third party is not concerned with the proceedings of section 9 nor does the said provision recognize the inclusion of third parties, who are independent may claim rights of arbitration and vice versa against the parties.
The court held that the entire ground for grant of interim relief under section 9 is based on the fact that there is an arbitration agreement between the parties, therefore, a third party is excluded from the purview of section 9 relief unless the relief is claimed.
The HC observed that if an order of interim relief under Section 9 is passed against the third party, it would give rise to an anomalous situation as the decision passed by the arbitrator is binding on the parties to the arbitration agreement, therefore, the third party is the only one in the matter of disputes. will not be responsible for the final solution.
The court held that merely because the firm had to recover some money from the proposed parties, it was not a ground to implicate them in an application under Section 9 of the A&C Act.
The court made it clear that the dispute with the proposed parties is outside the scope of the arbitration clause, therefore, no ground for allowing the application is made out. The court also held that the proposed parties are not parties claiming for arbitration settlement under either party, therefore, the court upheld the decision of the Commercial Court and dismissed the special civil application.
