The Delhi High Court has reiterated that it is possible to include a non-signatory to an arbitration agreement as a necessary party in the arbitration proceedings.
The Court also held that an Arbitral Tribunal’s order rejecting an application for impleadment of parties does not constitute an ‘interim award’ according to the Arbitration and Conciliation Act of 1996 (A&C Act), an arbitration award does not determine any significant legal issues or address the substance of the case.
The case involved a dispute between Goyal Mg Gases Pvt Ltd and Panama Infrastructure Developers Pvt Ltd. The latter had sold windmill projects to the former but later unilaterally terminated the agreement to sell. The dispute was referred to arbitration, and during the proceedings, Goyal Mg Gases moved an application seeking the impleadment of third parties, to whom it has been claimed that Panama Infrastructure Developers breached the Sale Agreement they made with Goyal Mg Gases by selling and transferring the windmill projects.
The Sole Arbitrator dismissed Goyal Mg Gases’ application, stating that the third parties sought to be impleaded were neither “necessary nor proper parties.” The arbitrator held that the proceedings could proceed between Goyal Mg Gases and Panama Infrastructure Developers, and that the subsequent sale agreement would become null and void if the decree was passed in favor of Goyal Mg Gases. Goyal Mg Gases filed a petition under Section 34 of the A&C Act before the Delhi High Court to challenge the arbitrator’s order.
In its appeal, Goyal Mg Gases argued that a third party, who is a non-signatory to the arbitration agreement and a subsequent purchaser, can be impleaded in arbitral proceedings. Panama Infrastructure Developers contended that only parties to an agreement can be bound by arbitration proceedings, and no third party can be impleaded in the arbitral proceedings.
The High Court, after referring to the Supreme Court’s decisions in Chrolo Controls India Pvt Ltd vs. Severn Trent Water Purification Inc. & Ors. (2012) and in the case of Cheran Properties Ltd. vs. Kasturi & Sons Ltd. (2018), the court held that it is possible to include a third party who did not sign the agreement as a necessary party in arbitration proceedings.
The Court also clarified that for an Arbitral Tribunal’s order to qualify as an interim award under the A&C Act, it must decide a substantive dispute between the parties or conclusively settle a dispute that pertains to a core issue. The Court noted that the order rejecting the application for impleadment of parties did not decide any substantive question of law or deal with the merits of the case, and thus did not constitute an ‘interim award.’
The Court further held that the subsequent transferees were not necessary parties or proper parties for disposal of the claims, and that the arbitral proceedings could proceed between Goyal Mg Gases and Panama Infrastructure Developers. If a decree was passed in favor of Goyal Mg Gases, the subsequent sale agreement would become null and void.
In conclusion, the Delhi High Court recent ruling clarifies that a non-signatory to an arbitration agreement can be impleaded as a necessary party in arbitration proceedings. However, an order rejecting an application for impleadment of parties does not constitute an ‘interim award’ under the A&C Act unless it decides a substantive dispute between the parties or conclusively settles a dispute that pertains to a core issue.
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