Non-signatories attending arbitration proceedings violates confidentiality under Section 42A: Supreme Court

The Supreme Court on Wednesday observed that a person who is not a signatory to an arbitration agreement cannot be permitted to remain present during arbitral proceedings [Kamal Gupta & Anr. v. M/s L.R. Builders Pvt. Ltd. & Anr.]..A Bench of Justice PS Narasimha and Justice AS Chandurkar said a non-signatory to an arbitration agreement is a stranger to the proceedings, and allowing such a person to attend the proceedings - when the award would not bind them — amounts to a course 'unknown to law'.The Court added that under Section 42A of the Arbitration and Conciliation Act, arbitral proceedings are confidential and permitting a stranger to observe the proceedings would breach this statutory mandate."The parties to the agreement being bound by the terms of the agreement and the sole arbitrator being required to resolve the disputes between parties to the agreement, a non-signatory to the agreement would be a stranger to such arbitration proceedings. Permitting a stranger to remain present in the arbitration proceedings especially when the award to be passed would not be binding on such stranger would be charting a course unknown to law. It is necessary to refer to the provisions of Section 42A of the Act. The arbitrator, the arbitral institution and the parties to the arbitration agreement have to maintain confidentiality of all arbitral proceedings. The legislative intent behind maintaining confidentiality of information is quite clear. Permitting a stranger to the arbitration proceedings to remain present and observe the said proceedings would result in breach of the provisions of Section 42A of the Act," the Court observed..The Court was hearing an appeal against a Delhi High Court order that allowed non-signatories to an arbitration agreement to attend arbitral proceedings along with their counsel.In June 2015, two individuals, Pawan Gupta and Kamal Gupta, entered into an oral family settlement, which was later formalised in July 2019 through a Memorandum of Understanding/Family Settlement Deed (MoU/FSD). Rahul Gupta, son of Kamal Gupta, was not a signatory to this agreement.Pawan Gupta and another party later approached the Delhi High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 for appointment of a sole arbitrator. Rahul Gupta sought to intervene in those proceedings and in a related Section 9 petition for interim measures, but the High Court in March 2024 rejected his request.In August 2024, Rahul Gupta and several non-signatory companies filed fresh interim applications in the already disposed-of Section 11(6) proceedings, seeking permission to attend arbitration hearings, access case records and revive earlier intervention pleas.The Delhi High Court in August 2024 allowed them to be present during arbitration and in November 2024, made that order absolute.Pawan Gupta and Kamal Gupta then moved the Supreme Court, questioning the High Court’s jurisdiction and the legality of allowing non-signatories to attend arbitral proceedings..The apex court held that after an arbitrator is appointed under Section 11(6) of the Act, the court becomes functus officio and cannot issue further directions concerning the arbitration.It further observed that the arbitral award would bind only the parties to the agreement and those claiming under them (Section 35) and therefore, there was “no legal basis whatsoever” to allow strangers to the agreement to attend the proceedings.The Bench also found that the High Court’s reliance on Section 151 of Code of Civil Procedure (CPC) to entertain intervention pleas in already disposed-of Section 11(6) proceedings was misconceived, reiterating that the Arbitration Act is a self-contained code and Section 5 of Arbitration and Conciliation Act restricts judicial interference."The prayer made by RG and other intervenors to permit them to remain present in the arbitration proceedings before the sole arbitrator was not liable to be entertained as such request went beyond the scope of Section 11(6) of the Act. The provisions of Section 151 of the Code could not have been invoked in this regard. Further, the Court had become functus officio after the sole arbitrator was appointed and the proceedings under Section 11(6) of the Act had been disposed of. Even the spirit of Section 5 of the Act precluded the Court from entertaining such request which does not find place in Part-I of the Act," the noted..Accordingly, the Court set aside the Delhi High Court’s order and imposed costs of ₹3 lakh on the respondents, payable to the Supreme Court Advocates-on-Record Association. .Kamal Gupta was represented by Senior Advocates CA Sundaram and Meenakshi Arora with Advocates Abhishek Gupta, Gaurav Sethi, Dhiraj Abraham Philip, Chandratanay Chaube and Rahul Pawar..Senior Advocates V Giri and Malvika Trivedi and advocates Himanshu Satija, Karan Khanna, Harshit Khanduja, Sujal Gupta, Harshed Sundar, Neha Mehta Satija, Simran Mulchandani, Vishal Sharma, Pulkit Khanduja, Shailendra Slaria, Rushabh Kapadia and Dhiraj Abraham Philip appeared for Veena Gupta..Senior Advocates Amit Sibal, Akhil Sibal, Bansuri Swaraj and J Sai Deepak and advocates Ankit Roy, Rishi Raj Sharma, Jyoti Taneja, Kanika Singhal, Shekhar Gupta, Shivek Trehan, Abhishek Mishra, Moksh Tyagi, Muskan Puri, Kartik Kumar, Ishika, Ishan Kumar and Ayushi Sinha appeared for the respondents..[Read Order]