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Whether A Party Is Entitled To Relief In Arbitral Proceedings In Absence Of Third Party, To Be Decided By The Arbitrator: Delhi High Court
Parina Katyal
23 April 2022 4:07 PM IST
The Delhi High Court has ruled that once a valid arbitration agreement exists between the parties, the issue whether a party is entitled to any relief in the arbitral proceedings in the absence of a third party, who is not a party to an agreement, is covered by the Doctrine of Competence-Competence and must be decided by the Arbitrator. The Single Bench of Justice Mukta Gupta held...
The Delhi High Court has ruled that once a valid arbitration agreement exists between the parties, the issue whether a party is entitled to any relief in the arbitral proceedings in the absence of a third party, who is not a party to an agreement, is covered by the Doctrine of Competence-Competence and must be decided by the Arbitrator.
The Single Bench of Justice Mukta Gupta held that whether a party who is not a signatory to an arbitration agreement is required to be impleaded in the arbitral proceedings or not is to be determined by the Arbitrator.
The petitioner Vistrat Real Estates Pvt Ltd purchased certain property from the respondent Asian Hotels North Ltd under a Sale Deed. The petitioner later transferred his rights and title in the said property to IndusInd Bank Limited. Thereafter, the petitioner sought refund of the security deposit from the respondent under the Refundable Security Deposit Agreement. After a dispute arose between the parties, the petitioner invoked the Arbitration Clause incorporated in the Refundable Security Deposit Agreement for referring the dispute with the respondent to Arbitration. The petitioner filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 before the Delhi High Court for appointment of an arbitrator.
The respondent Asian Hotels North Ltd submitted before the High Court that the said property was sold by the petitioner to a third party, IndusInd Bank Limited, and accordingly, the third party has to give the refundable security deposit money to the respondent, which has not been given to the respondent yet. The respondent contended that since the rights of a third party, who is not a signatory to the Agreement, are also involved hence no Arbitrator can be appointed to adjudicate the disputes arising between the petitioner and the respondent.
The High Court observed that the Supreme Court in the case of Chrolo Controls India Private Ltd. versus Severn Trent Water Purification Inc. and Ors. (2012) had held that even a third party, who is not a signatory to the arbitration agreement, can be joined in arbitration proceedings in exceptional cases by applying the principle of "composite performance" or implied authority.
The High Court also noted that the Supreme Court in the case of Shin Etsu Chemical Co. Ltd. versus Aksh Optifibre Ltd. (2005) had held that review of an arbitration agreement by the Court is restricted to prima facie finding that an arbitration agreement exists which is not null, void or inoperative.
The High Court held that once a valid arbitration agreement exists between the parties, the issue whether a party is entitled to any relief in the absence of a third party or whether the third party is required to be impleaded in the arbitral proceedings, is covered by the Doctrine of Competence-Competence and must be decided by the Arbitrator himself.
The Court, therefore, ruled that the issue whether in the absence of a third party, the petitioner could claim the refundable security deposit in the arbitral proceedings is to be determined by the Arbitrator.
The Court thus allowed the petition and appointed an Arbitrator.
Case Title: Vistrat Real Estates Private Limited Versus Asian Hotels North Ltd
Dated: 22.04.2022 (Delhi High Court)
Citation: 2022 LiveLaw (Del) 357
Counsel for the Petitioner: Ms Ranjana Roy Gawai
Counsel for the Respondent: Mr Sidhant Kumar and Ms Manyaa Chandhok
