Can Third Parties To An Arbitration Agreement Be Impleaded As Parties In Proceedings U/S 9 Arbitration Act?: Gujarat High Court Answers

The Respondent herein had filed a Section 9 application seeking interim measures wherein he had alleged that the Petitioner was being non-cooperative in the project Lotus for the construction of residential flats. He had further alleged that the partner did not make the signatures and did not pay the contractor and labourers on time, thereby causing injury to the prestige of the firm. The Petitioner, meanwhile, in the proceedings of Section 9 filed an application under Order I Rule 10 of CPC to join the other two parties. It was stated that the firm had given unsecured loan of INR 4,26,35,000 to the other partner's wife by cheque and INR 2,54,00,000 by cash. The wife of the partner was, however, yet to repay INR 1,99,00,000 towards the scheme Lotus as of now. The Respondent therefore filed a Section 9 application to demand sums from the wife of the partner and also filed a criminal complaint under Section 138 of the Negotiable Instruments Act along with a special civil suit.

Keeping in view these facts, the Petitioner invoked the provisions of Order I Rule 10, the Petitioner prayed that the two parties be joined in Section 9 proceedings as they were the necessary and proper parties. A further averment was that the retired partner continued to be liable to the third parties concerning his dealings with the third party while he was a partner. He had not given the public notice of dissolution and his liability remained.

Per contra, the Respondent averred that the retiring partner and his wife were not concerned in Section 9 proceedings, and they were not necessary and proper parties. Reliance was placed on Firm Ashok Traders Vs. Gurumukh Das Saluja and Other [(2004) SCC 155] to buttress this contention.

The Bench identified that the primary question worth consideration was whether a third party who is not party to the arbitration agreement can be impleaded as parties. To address this question, the Bench explained that the provisions of the Arbitration Act "are made to apply" to the parties who were bound by the arbitration clause. Further, Section 9 enables a party to seek interim measures before or during arbitral proceedings which are intended to balance the rights between the parties who subject themselves to arbitral proceedings for resolution. Reference was made to Section 2(h) wherein the term party was defined to mean a party to the arbitration agreement.

The High Court relied on Deutsche Post Bank Home Finance Limited Vs. Taduri Sridhar and Another [(2011) 11 SCC 375] where it was held that the lender was not party to the arbitration agreement and could not have been impleaded. Similarly, in Jagdish Chandar Vs. Ramesh Chandar [(2007) 5 SCC 719], the Apex Court had opined that a party who is not party to the arbitration agreement, if impleaded as a party under Section 11 of the Act, should be deleted by the Court or the Court should make it clear it will decide only disputes between the parties to the arbitration agreement. In Firm Ashok Traders, the Supreme Court had observed, "'a person not party to an arbitration agreement cannot enter the court for protection under Section 9."

Averring that no lis is created in proceedings of Section 9 for the third party, the Gujarat High Court opined that the wife of the retired partner was not associated with the firm in any manner even as the partner himself had retired. Merely because the partnership firm had to recover money from the parties, would not make the parties the necessary and proper parties for a Section 9 proceeding. Accordingly, the High Court dismissed the application.

Case Title: Vijay Arvind Jariwala Versus Umang Jatin Gandhi

Citation: 2022 LiveLaw (Guj) 155

Case No.: C/SCA/16131/2021 

Click Here To Read/Download Order