Arbitral Tribunal’s Order Rejecting The Application For Impleadment Of Party Doesn’t Constitute An ‘Interim Award’: Delhi High Court

The bench of Justices Najmi Waziri and Sudhir Kumar Jain further ruled that the Arbitral Tribunal’s order rejecting the application for impleadment of parties in the arbitral proceedings, does not constitute an ‘interim award’ under the Arbitration and Conciliation Act, 1996 (A&C Act), since it does not decide any substantive question of law or deal with the merits of the case.

The bench noted that the third parties sought to be impleaded by the claimant in the arbitral proceedings, were neither the necessary parties nor the proper parties for disposal of the claims raised by it.

The Court remarked that in order to qualify as an interim award, the order passed by the Arbitral Tribunal must decide the ‘matters of moment’ or dispose of a substantive claim raised by the parties.

The respondents, including the Panama Infrastructure Developers Pvt Ltd, who were the owners of certain windmill assets, entered into several sale agreements with the appellant, Goyal Mg Gases Pvt Ltd, for sale of the said windmill projects.

After the respondents unilaterally terminated the Agreement to Sell, the dispute between the parties was referred to arbitration.

During the arbitral proceedings, the appellant/claimant, Goyal Mg Gases, moved an application under Order 1 Rule X of the Civil Procedure Code, 1908 (CPC) before the Sole Arbitrator seeking impleadment of transferees to whom the respondents had allegedly sold and transferred the windmill projects in violation of the Sale Agreement executed with the appellant.

The Sole Arbitrator dismissed the said application, holding that the said third parties sought to be impleaded were neither “necessary nor proper parties”. Further, the arbitral proceedings between the claimant and the respondent could proceed well without the third parties being arrayed as parties, the Tribunal had held.

The appellant, Goyal Mg Gases, challenged the order of the Sole Arbitrator by filing a petition under Section 34 of the A&C Act before the Delhi High Court. The Single Judge dismissed the petition on the ground that the said order of the Tribunal did not qualify as an ‘interim award’ which could be challenged under Section 34.

Challenging the order of the Single Judge, Goyal Mg Gases filed an appeal under Section 37 of the A&C Act before the Division Bench of the High Court. It submitted before the Court that a third party, who is a non signatory to the arbitration agreement and a subsequent purchaser, can be impleaded in the arbitral proceedings.

To this, the respondent, Panama Infrastructure Developers, averred that the parties to an agreement alone are bound by the arbitration proceedings and no third party can be impleaded in the arbitral proceedings.

The High Court, after referring to the Supreme Court’s decision in Chrolo Controls India Pvt Ltd vs. Severn Trent Water Purification Inc. & Ors. (2012) and Cheran Properties Ltd. vs. Kasturi & Sons Ltd., (2018), ruled that a party who is a non-signatory to the agreement can be impleaded as a necessary party in the arbitration proceedings.

Dealing with the issue of whether the Arbitral Tribunal’s order rejecting the claimant’s application seeking impleadment of parties, can constitute an ‘interim award’ under the A&C Act or not, the Court said, “It is reflecting that an order would said to be an award or interim award when it decides a substantive dispute which exists between the parties. It is essential before an order can be understood as an award that it answers the attributes of the decision on the merits of the dispute between the parties or accords in conclusively settling a dispute which pertains to core issue.”

Therefore, to qualify as an award, the Arbitral Tribunal’s order must be with respect to an issue which constitutes a vital aspect of the dispute between the parties, the Court said.

Referring to the Delhi High Court’s decision in Rhiti Sports Management Pvt. Ltd. vs. Power Play Sports & Events Ltd. (2018), the Court reiterated that the order passed by the arbitral tribunal would have the attributes of an interim award when the same decides the ‘matters of moment’ or disposes of a substantive claim raised by the parties.

The bench thus concluded that the Arbitral Tribunal’s order rejecting the application for impleadment of parties, did not decide any substantive question of law nor did it deal with the merits of the case. Thus, the same would not constitute an ‘interim award’, the Court ruled.

“Accordingly, an order passed by the Arbitral Tribunal rejecting the application for impleadment neither decides the substantive question of law nor touches upon the merits of the case. The impugned order, as such, has not travelled the distance to answer the attributes of determination of an issue,” the bench held.

The Court further added: “The learned Sole Arbitrator rightly observed that the subsequent transferees are neither the necessary parties nor proper parties for disposal of the claims and arbitral proceedings can proceed between the appellant and the respondents and if the decree is passed in favour of the appellant, in that eventuality subsequent sale agreement shall become null and void.”

The Court thus dismissed the appeal.

Case Title: Goyal Mg Gases Pvt Ltd vs. Panama Infrastructure Developers Pvt Ltd & Ors.

Citation: 2023 LiveLaw (Del) 284

Counsel for the Appellant: Mr. M.A. Niyazi, Mr. Vinay Juneja, Ms. Kirti Bhardwaj and Mr. Arquam Ali

Counsel for the Respondent: Mr. Ajay K. Jain and Mr. Pulkit Agarwal

Click Here To Read/Download Order