Interim relief under Section 9 of the A&C Act cannot be awarded against a third party unless claimed under a party to the arbitration agreement: Gujarat High Court

the Gujarat High Court ruled that a third party cannot be impleaded as a party to an application for interim measures under section 9 of the A&C Act unless it is a party applying under a party to the arbitration agreement.

The division bench of Justice NV Anjarie and Judge Samir J. Dave ruled that the remedy under the Arbitration Act is between the parties to the arbitration agreement, therefore, the third party has no concern with the procedure of Article 9 and the said provision does not recognize the inclusion of the third party, who can independently assert the rights against the parties to the arbitration and vice versa.

The Court held that the entire basis for granting an interim measure under Article 9 rests on the fact that the parties have entered into an arbitration agreement between themselves. Therefore, a third party is excluded from the scope of Article 9 unless the measure requested is in respect of those who can claim through the party to the agreement.

The Court held that if an interim measure order under Article 9 is made against a third party, it would give rise to an abnormal situation because the award made by the arbitrator binds only the parties to the arbitration agreement. , therefore, the third party would not be amenable to final dispute resolution.

Facts

The parties are associated in a partnership company called Blue Feathers Infracon. The firm initially had four partners of which the two partners retired and the firm was reconstituted, the applicant and the respondent being the only remaining partners.

The company purchased land for the construction of residential apartments. The partners secured a loan of two crores on the said land. The construction project could not be completed, a dispute arose between the parties.

Accordingly, the Respondent filed an application under Section 9 of the A&C Act for interim relief against the Petitioner. The Petitioner filed an application pursuant to CPC Order I Rule 10 to join a former associate of the firm and his wife as parties to the application for interim relief on the basis that the firm provided an unpaid loan. guaranteed to the wife of the former partner one part of which remains unpaid and that the respondent had himself brought a lawsuit against her, therefore, she is a necessary party for a proper resolution of the litigation. The commercial court rejected the petition filed by the applicant.

The dispute between the parties

The petitioner challenged the court order on the following grounds:

  • The company 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 consideration for the sale by the company when buying of said property. Much of the loan granted to him still remains unpaid and the company’s account has yet to be settled with the proposed parties.
  • The outgoing partner had not given public notice of his retirement; he is therefore liable to third parties.
  • The outstanding amount can be recovered from the retired partner; therefore, his presence is mandatory for the proper settlement of the dispute.
  • The respondent and the retired partner committed fraud on investors, his presence is therefore required.

The Respondent refuted the Applicant’s arguments on the following grounds:

  • The former partner’s request for a reunion with his wife is only a delaying practice.
  • The proposed parties are not at all concerned with the dispute between the parties, so they are neither appropriate 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 measures under section 9 of the A&C Act unless it is a party applying 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 procedure of Article 9 and the said provision does not not acknowledge the inclusion of the third party, which may independently assert rights against the parties in the arbitration and vice versa.

The Court held that the entire basis for granting an interim measure under Article 9 rests on the fact that the parties have entered into an arbitration agreement between themselves. Therefore, a third party is excluded from the scope of Article 9 unless the measure requested is in respect of those who can claim through the party to the agreement.

The Court held that if an interim measure order under Article 9 is made against a third party, it would give rise to an abnormal situation because the award made by the arbitrator binds only the parties to the arbitration agreement. , therefore, the third party would not be amenable to final dispute resolution.

The Court ruled that the mere fact that the company had to recover money from the proposed parties was not grounds for implicating them in a claim under Section 9 of the A&C Act. The Court held that the dispute with the proposed parties did not fall within the scope of the arbitration clause, therefore, no reason is given to authorize the request. The Court also held that the proposed parties are not the parties claiming under any of the parties to the arbitration agreement, therefore, the Court upheld the Commercial Court’s decision and dismissed the civil claim. special.

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

Date: 06.05.2022

Counsel for the Applicant: Mr. RR Marshall, Senior Advocate with Mr. Sandip C. Bhatt

Counsel for the Respondent: Mr. Jal Unwala, lead counsel with Mr. Dhaval Vyas.

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