Whether Rights In Favor Of Third Party Are Created In Property Which Is Subject Matter Of Arbitration Cannot Be Decided Under Writ Jurisdiction: Karnataka HC

Brief Facts:

The petitioner is the third party purchaser of the plots in the "North Gardens Project". The said "North Gardens Project", a real estate development project at Chikkasagarahalli, Nandi Hills, involves respondent No.1 (the developer) and respondent No.2 (the land owner/land aggregator).

The Arbitrator has passed an interim order under Section 17 of the Arbitration and Conciliation Act, 1996 (Arbitration Act) restraining respondent No.1 from further selling plots in the said project. The order so passed by the Arbitrator has far reaching consequences for third party stakeholders, including the petitioner, who were neither informed nor given an opportunity to participate in the arbitration.

Contentions:

The Petitioner submitted that the arbitration, which was initially a dispute in pursuance between the respondents, has now acquired non arbitrability due to the creation of third party rights over the years. It is submitted by the counsel for the petitioner that the dispute has transferred into a matter in rem, affecting the rights of numerous third parties, who are not bound by the arbitration agreement.

It was also argued that the interim order passed by the Arbitrator has created uncertainty regarding the validity of the sale deed in favour of third party, including that of the petitioner

It was further argued that when disputes involve third party rights and non-arbitrable subjects, it must be adjudicated by Civil Court. Continuation of the arbitration denies natural justice to third-party stakeholders and leaves them without an effective remedy.

Per contra, the Respondents submitted that the present writ petition so filed by the petitioner is not maintainable under Articles 226 and 227 of the Constitution of India as this petition is based on disputed fact which require in-depth evidence and cannot be adjudicated under writ jurisdiction.

It was also argued that the petitioner has no statutory or constitutional rights to maintain this petition as his claims are based on fabricated and unenforceable rights.

Lastly, it was submitted that the arbitral proceedings are conducted as per the orders passed in CMP.No.91/2019 dated 01.07.2021 passed by this Court. The said proceedings are conducted under the supervision of this Court. The petitioner is well aware about the said proceedings and it is not a private arrangement as alleged by the petitioner.

Observations:

The court observed that the petitioner's challenge to arbitration proceedings is not maintainable under Articles 226 or 227 of the constitution as it involves disputed facts which require in depth evidence cannot be adjudicated in writ jurisdiction. Additionally, the petitioner has not demonstrated any statutory or constitutional rights to maintain the writ and his claims are based upon so called sale deeds executed between himself and third parties which are yet to be verified.

It further added that as per the Respondents the arbitration proceedings are being conducted under the supervision of the court and any challenge to the arbitral award can be filed under section 34 of the Arbitration Act. If the petitioner seeks to establish his rights, he may file a civil suit under section 9 of the Civil Procedure Code (CPC).

Accordingly, the present petition was dismissed.

Case Title: Mr. Ramu Nagabathini Versus Developer Group India Private Limited

Case Number: Writ Petition No. 15658 Of 2024 (Gm-Res)

Citation No: 2025 LiveLaw (Kar) 125

Judgment Date: 5/03/2025

For The Petitioner: Sri. Dhananjay V. Joshi, Senior Counsel For Ms. Krutika Raghavan, Advocate)

For The Respondent: Sri. Prashanth V.G, Advocate For R1; Sri. C.M. Nagabhushan, Advocate For Sri. Ananda H.C, Advocate For R2

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