Interim Relief Under Section 9 Of The A&C Act Cannot Be Granted Against A Third-Party Unless Claiming Under A Party To The Arbitration Agreement: Gujarat High Court

The Division Bench of Justice N.V. Anjaria and Justice Samir J.Dave has held that the remedy under the Arbitration Act is between the parties to the arbitration agreement, therefore, the third party has no concern with the proceedings of Section 9 nor the said provision recognizes the inclusion of the third party, who may be independently claiming the rights against the parties to the arbitration and vice versa.

The Court held that the entire basis of granting an interim relief under Section 9 is premised on the fact that the parties have an arbitration agreement between themselves, therefore, a third party is excluded from the ambit of Section 9 relief unless the relief claimed is in respect of those who may be claiming through the party to the agreement.

The Court held that if an order for interim relief under Section 9 is passed against a third party this would give rise to an anomalous situation as the award passed by the arbitrator is binding only on the parties to the arbitration agreement, therefore, the third party would not be amenable to the final resolution of the disputes.

Facts

The parties are partners in a partnership firm named Blue Feathers Infracon. The firm initially had four partners out of which the two partners retired and the firm was reconstituted with the petitioner and respondent being the only remaining partners.

The firm purchased a land for the construction of residential flats. The partners obtained a loan of two crores on the said land. The Construction project could not be completed thus, a dispute arose between the parties.

Accordingly, the respondent filed an application under Section 9 of the A&C Act for interim measures against the petitioner. The petitioner filed an application under Order I Rule 10 of CPC to join a former partner of the firm and his wife as parties to the application for interim reliefs on the ground that the firm had given an unsecured loan to the wife of the former partner a part of which still remains unpaid and the respondent had himself taken legal action against her, therefore, she is a necessary party for proper adjudication of the dispute. The Commercial Court dismissed the application filed by the petitioner.

The Contention Of The Parties

The petitioner challenged the order of the Court on the following grounds:

• The firm had given an unsecured loan to the wife of the former partner after his retirement and the part of the sum received from her was also adjusted in the sale consideration by the firm when the said property was purchased. A large part of the loan given to her still remains unpaid and the firm's account is required to be settled with the proposed parties.
• The retiring partner had not given the public notice regarding his retirement; therefore, he is liable to the third parties.
• The unsettled amount can be recovered from the retired partner; therefore, his presence is mandatory for the proper adjudication of the dispute.
• The respondent along with the retired partner committed a fraud on the investors thus his presence is required.

The respondent countered the arguments of the petitioner on the following grounds:

• The application for the joinder of the former partner along with his wife is a mere dilatory practice.
• The proposed parties are not at all concerned with the dispute between the parties thus these are neither proper nor necessary parties.

Analysis By The Court

The Court held that a third party cannot be impleaded as a party to an application for interim reliefs under Section 9 of the A&C Act unless it is a party who is claiming under a party to the arbitration agreement.

The Court also held that the remedy under the Arbitration Act is between the parties to the arbitration agreement, therefore, the third party has no concern with the proceedings of Section 9 nor the said provision recognizes the inclusion of the third party, who may be independently claiming the rights against the parties to the arbitration and vice versa.

The Court held that the entire basis of granting an interim relief under Section 9 is premised on the fact that the parties have an arbitration agreement between themselves, therefore, a third party is excluded from the ambit of Section 9 relief unless the relief claimed is in respect of those who may be claiming through the party to the agreement.

The Court held that if an order for interim relief under Section 9 is passed against a third party this would give rise to an anomalous situation as the award passed by the arbitrator is binding only on the parties to the arbitration agreement, therefore, the third party would not be amenable to the final resolution of the disputes.

The Court held that merely because the firm had to recover some money from the proposed parties, this is not a ground to implead them in an application under Section 9 of the A&C Act. The Court held that the dispute with the proposed parties is outside the ambit of the arbitration clause, therefore, no ground is made out to allow the application. The Court also held that the proposed parties are not such parties who are claiming under any of the parties to the arbitration agreement, therefore, the Court upheld the decision of the Commercial Court and dismissed the Special Civil Application.

Case Title: Vijay Arvind Jariwala v. Umang Jatin Gandhi, R/SPECIAL CIVIL APPLICATION NO. 16131 of 2021

Citation: 2022 LiveLaw (Guj) 153

Counsel for the Petitioner: Mr. R.R. Marshall, Senior Advocate with Mr. Sandip C. Bhatt

Counsel for the Respondent: Mr. Jal Unwala, Senior Advocate with Mr. Dhaval Vyas.

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