Non signatory can not be allowed to be present in the arbitration proceedings – SC

Permitting non signatory to remain present in the arbitration proceedings is beyond the scope of Section 11(6) of the Arbitration and Conciliation Act, 1996

In a recent judgment, Hon’ble Supreme Court has held that permitting non signatory / stranger to remain present in the arbitration proceedings before the sole arbitrator is beyond the scope of Section 11(6) of the Arbitration and Conciliation Act, 1996 especially when the award to be passed would not be binding on such stranger.

ABCAUS Case Law Citation:
4695 (2025) (08) abcaus.in SC

An oral family settlement was entered into between two members of a family. The said oral agreement was reduced in a Memorandum of Understanding /Family Settlement Deed (the MoU/FSD).

This MoU/FSD was not signed by son of a signatory. Proceedings under Section 11(6) of the Arbitration and Conciliation Act, 1996 (‘the Act’) were filed by one member and other against the second member and others seeking appointment of a sole arbitrator for adjudicating disputes between the parties under the MoU/FSD.

In the proceedings filed under Section 11(6) of the Act, an application for intervention was filed by a non signatory, seeking permission to intervene in the said proceedings so as to oppose the maintainability of the same. However, the said prayer for permission to intervene in the proceedings was denied by the Judge principally on the ground that such intervention was sought by a non-signatory to the MoU/FSD.

The said non signatories approached the Hon’ble Supreme Court to permit them in the arbitration proceedings or to be present in the Arbitration Proceedings. The said prayer made by the non-signatory intervenors came to be allowed.

The signatories of the MoU/FSD approached the Hon’ble Supreme Court challenging the order allowing the non signatories to be present in the Arbitration Proceedings.

The Hon’ble Supreme Court observed that the prayer of the non signatories was duly considered and declined while appointing a sole arbitrator. While declining the prayer for intervention, it was specifically held that the apprehension expressed by the intervenors that in the proposed arbitration proceedings the parties would deal with the properties of the intervenors was misplaced. It was further observed that even if it was assumed that the sole arbitrator was to deal with the properties of the intervenors, the resultant arbitral award would not be binding on them.

The Hon’ble Supreme Court observed that provisions of Section 35 of the Act are clear nasmuch as an award passed would only bind parties to the arbitration and persons claiming under them. The expression ‘party’ has been defined by Section 2(h) of the Act to mean a party to an arbitration agreement.

The Hon’ble Supreme Court further observed that by virtue of the order passed under Section 11(6) of the Act, the sole arbitrator is empowered to adjudicate the disputes between the signatories to the MoU/FSD. Once it is clear that the arbitral award would not bind non-parties to the said MoU/FSD as such parties were not signatories to the said documents, there would be no legal basis whatsoever to permit a non-signatory to the MoU/FSD to remain present in the proceedings before the sole arbitrator.

The Hon’ble Supreme Court held that the parties to the agreement being bound by the terms of the agreement and the sole arbitrator being required to resolve the disputes between parties to the agreement, a non-signatory to the agreement would be a stranger to such arbitration proceedings. Permitting a stranger to remain present in the arbitration proceedings especially when the award to be passed would not be binding on such stranger would be charting a course unknown to law. The remedy, if any, to a party who is not a signatory to the agreement is available under Section 36 of the Act if such award is sought to be enforced against him.

It was held by the Hon’ble Supreme Court that the applications filed by non-signatory in the disposed of proceedings were misconceived.  The attempt on their behalf to re-open the proceedings amounted to an abuse of the process of law. 

Accordingly, the order passed on the various interim applications was set aside.

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