Non‑signatories Cannot Attend Arbitration Hearings; Courts Lose Power After Arbitrator Appointment, Says Supreme Court

A bench of Justices Pamidighantam Sri Narasimha and Atul S. Chandurkar heard appeals against an order that had permitted non‑signatories to an agreement to be present during arbitration proceedings and had issued ancillary directions after an arbitrator was appointed under Section 11(6) of the Arbitration and Conciliation Act, 1996. The appeals arose from applications by members of a family and associated companies challenging directions given by a Single Judge permitting the presence of a non‑signatory in arbitration and recognising certain interim rights.

The Court held that both questions posed were answered in the negative: a non‑signatory to an arbitration agreement had no legal right to remain present in arbitral hearings between signatories, and once an arbitrator was appointed under Section 11(6) the court became functus officio and could not entertain fresh ancillary directions in the disposed Section 11(6) proceedings. The judgment emphasised statutory limits on post‑appointment judicial intervention and confidentiality obligations. The Court, in its reasoning, observed: “It is not in dispute that RG and the other intervenors are not signatories to the MoU/FSD that has given rise to the arbitration proceedings. The provisions of Section 35 of the Act are clear inasmuch as an award passed would only bind parties to the arbitration and persons claiming under them. … When the arbitration proceedings can take place only between parties to an arbitration agreement and Section 35 of the Act does not make the arbitral award to be passed binding on non‑signatories to such agreement, we do not find any legal right conferred by the Act that would enable a non‑party to the agreement to remain present in arbitration proceedings between signatories to the agreement.” The Court also noted that “The arbitrator, the arbitral institution and the parties to the arbitration agreement have to maintain confidentiality of all arbitral proceedings,” and that permitting outsiders would breach Section 42A.

Background

The dispute arose from an oral family settlement of 20.06.2015 later recorded as a Memorandum of Understanding/Family Settlement Deed dated 09.07.2019 which was not signed by Rahul Gupta (RG). Pawan Gupta and another filed proceedings under Section 11(6) for appointment of a sole arbitrator to resolve disputes under the MoU/FSD; RG and certain companies sought to intervene as non‑signatories to oppose maintainability. On 22.03.2024 a Single Judge appointed a sole arbitrator, directed a petition under Section 9 to be treated as an application under Section 17, and declined the intervention prayers, holding that any award would not bind non‑signatories. Subsequently RG and others filed interim applications in the disposed Section 11(6) proceedings seeking permission to be present at arbitration, access to pleadings and recall of the 22.03.2024 order. On 07.08.2024 the Single Judge allowed non‑signatories to be present and, on 12.11.2024, made that direction absolute while also issuing property‑related limitations and recognising a 23% claim for RG. The signatories challenged those directions in these appeals.

The Supreme Court reviewed statutory provisions including Sections 2(h), 5, 11(6), 35, 36, 42A and relevant precedents including the Constitution Bench decision in Re: Interplay and held that after appointment of an arbitrator under Section 11(6) the court became functus officio with respect to further directions in those disposed proceedings. The Court found that permitting a non‑party to observe arbitral hearings had no statutory basis, offended confidentiality under Section 42A, and that the invocation of Section 151 CPC could not expand Part I powers of the Act. The applications by RG and the non‑signatory companies were held to be misconceived and an abuse of process.

The Court set aside the order dated 12.11.2024, allowed the appeals, and directed that parties were free to work out their rights in accordance with the order dated 22.03.2024. The respondents were directed to pay costs of Rs.3,00,000 to the Supreme Court Advocates‑on‑Record Association within two weeks.

Case Details: Case No.: 2025 INSC 975 (Civil Appeal Nos. arising out of SLP (Civil) Nos. 4775‑4779/2025) Case Title: Kamal Gupta & Anr. v. M/s L.R. Builders Pvt. Ltd. & Anr. Appearances: For the Petitioner(s): Mr. C. Aryama Sundaram, Senior Advocate; Mr. V. Giri, Senior Advocate For the Respondent(s): Mr. Amit Sibal, Senior Advocate; Mr. J. Sai Deepak, Senior Advocate; Ms. Bansuri Swaraj, Advocate