No Room For Spectators: Why The Supreme Court Says Arbitration Is For Signatories Only

Introduction

On 13 August 2025, the Hon'ble Supreme Court ("the Court") in a seminal ruling held that non-signatories to an arbitration agreement were not authorized to be privy to the arbitration proceedings initiated under the Arbitration & Conciliation Act, 1996 ("the Act"). The Court reasoned that allowing non-signatories to attend arbitration proceedings violated the confidentiality of the arbitration proceedings stipulated under Section 42A of the Act.

The judgement of the Court is a significant one in that it recognizes the obligation of the Arbitral Tribunal and the parties to the arbitration agreement to maintain confidentiality norms during the arbitration proceedings. The Court has essentially solidified the private and closed nature of the arbitration proceedings setting a new benchmark for maintaining the tenets of confidentiality. Additionally, the Court also ruled that a Court after appointing the arbitrator under Section 11(6) of the Act becomes functus officio, and does not retain jurisdiction over the arbitral proceedings. The present article aims to decode this seminal judgement and analyses its impact on the Indian arbitration regime from a macro perspective.

Facts of the Case

The dispute arises from a family settlement executed between Mr. Pawan Gupta and Kamal Gupta in 2015, which was later reduced to a Memorandum of Understanding ("MoU")/Family Settlement Deed ("FSD") in 2019. One Mr. Rahul Gupta was not a signatory to the MoU/FSD.

Subsequently, when an arbitration clause under the MoU was invoked by the signatories, Rahul Gupta along with other non-signatory entities sought permission from the Hon'ble Delhi High Court to attend the arbitral proceedings and access case records, claiming interest in properties. The request was initially denied by the Hon'ble Delhi High Court, however subsequently in November 2024, it allowed the non-signatories to attend the proceedings and disposed of the Section 11(6) application. The said order of the Hon'ble Delhi High Court was challenged by the signatories in the Hon'ble Supreme Court, arguing that allowing non-signatories to attend arbitral proceedings would violate the confidentiality of the arbitral process.

Issues

The Hon'ble Supreme Court framed the following issues in the matter:

1. Can non-signatories to an arbitration agreement be allowed to attend arbitration proceedings?
2. Once a court appoints an arbitrator under Section 11(6) of the Act, can it pass further directions in respect of that arbitration?

Supreme Court's Ruling & Analysis

1. Whether non-signatories should be allowed to attend arbitration proceedings?

The Court relying on Section 35 ¹ of the Act held that as the arbitral award does not bind the non-signatories, there is no legal basis to allow a non-signatory to the MoU/FSD to remain present in the proceedings before the arbitrator. The Court clarified that non-signatories cannot be permitted to attend arbitral proceedings, since they do not fall under the definition of 'party' under Section 2(h) of the Act. The Court held that such a person who is not a party or a signatory to the arbitration agreement is a 'stranger' to the arbitration proceedings, and hence cannot be allowed to remain privy to such proceedings.

The only remedy available to a non-signatory party is under Section 36 of the Act when such award is sought to be enforced against him.

Pertinently, the Court also held that allowing non-signatories to attend such arbitral proceedings would also be in the teeth of Section 42A of the Act. Section 42A mandates that the arbitrator, the arbitral institution and the parties to the arbitration agreement are required to maintain confidentiality of all arbitral proceedings. Therefore, it is evident that the legislature has envisaged the arbitral proceedings to be conducted in a very private and unrevealing fashion without interference from any third party.

It is interesting to note that while Section 42A was incorporated by the legislature through an amendment in 2019, the current case is one of the first instances in which the Court has invoked and applied this provision to the facts of a case.

1. Whether the appointing court under Section 11(6) of the Act retains jurisdiction over arbitral proceedings after appointment of the arbitrator?

The Court answered the question in negative and held that the Court after making the appointment of the arbitrator under Section 11(6) did not possess any further jurisdiction to entertain a fresh application with respect to the arbitral proceedings. Put simply, the Court reasoned that after the conclusion of the proceedings under Section 11(6) of the Act became functus officio, and therefore lacked jurisdiction to intervene in the ongoing arbitral proceedings.

The Court further analysed the issue from the lens of Section 5 of the Act which provides that judicial authorities are prohibited from intervening in arbitral proceedings in situations where the Arbitral Tribunal has been bestowed with exclusive jurisdiction. The Court, applying the principle of minimal judicial intervention, held that the Delhi High Court's direction to permit non-signatories to attend arbitral proceedings was also in breach of Section 5 of the Act during the ongoing proceedings before the Sole Arbitrator.

The instant judgement of the Court aligns with the previous position pronounced in Nimet Resources INC & Anr. versus Essar Steels Limited² wherein the Court had categorically held that,

"When an arbitrator is nominated under the 1996 Act, the court does not retain any jurisdiction with it. It becomes functus officio subject of course to exercise of jurisdiction in terms of constitutional provisions or the Supreme Court Rules."(Emphasis supplied)

Conclusion

This judgment of the Hon'ble Supreme Court is significant for two reasons: first, it reinforces the principle of confidentiality in arbitration, protecting the autonomy of signatory parties; and second, it clarifies the limits of judicial intervention after the appointment of an arbitrator under Section 11(6), asserting that referral courts cannot issue additional ancillary directions once their appointment function is fulfilled.

Footnotes

1. Section 35 of the Arbitration & Conciliation Act,

"Subject to this Part an arbitral award shall be final and binding on the parties and persons claiming under them respectively."

2. Nimet Resources INC vs. Essar Steels Limited, (2009) 17 SCC 313.

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