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

Cause Title : Goyal Mg Gases Pvt Ltd vs Panama Infrastructure Developers Pvt Ltd & Ors, Fao(Os) (Comm) 217/2019 & Cm Appl. 40390/2019 (Stay), Delhi High Court

Date of Judgment/Order : March 29, 2023

Corum : Hon'ble Mr. Justice Najmi Waziri & Hon'ble Mr. Justice Sudhir Kumar Jain

Citied: 

  1. Chrolo Controls India Private Ltd. V Severn Trent Water Purification Inc. and Ors., (2013) 1 SCC 641
  2. Cheran Properties Ltd. V Kasturi & Sons Ltd., (2018) 16 SCC 413
  3. Rhiti Sports V Powerplay Sports, 2018 SCC OnLine Del 8678
  4. Kasturi V lyyamperumal & Ors., (2005) 6 SCC 733
  5. Nirmala Jain &Ors. V Jasbir Singh & Ors., 256 (2019) DLT 186[DB]
  6. Rhiti Sports V Powerplay Sports, 2018 SCC OnLine Del 8678
  7. National Highway Authority of India V Lucknow Sitapur Expressway Ltd.

Background

The respondents wanted to sell their 11 windmills to the applicants. As per agreement, the applicant paid some advance and the remaining were to be paid after concluding due diligence which could not be done allegedly due to fault of the respondents. Subsequently, the respondents terminated the agreement which the applicants allege was against the agreement.  An arbitrator was appointed and the respondents disclosed the identities of the new buyers of their windmills with whom they have entered into fresh agreement for sale. The applicant filed an application under Order 1 Rule X of the Civil Procedure Code, 1908, before the learned Sole Arbitrator for impleadment of those new buyers. The Arbitrator dismissed the application stating that since if a decree is passed in favour of the applicant it would automatically make the agreement of the respondent to the third parties (new buyers) null and void, therefore these buyers are neither necessary nor proper parties.

Appeal against the order under Section 34 of the arbitration and conciliation act before the Single Judge was dismissed as the court agreeing with the Arbitrator further observed that rejection of impleadment of third parties is not an award and therefore cannot be challenged under Section 34. Hence this appeal.

The primary objections of the applicants against the orders not to implead the third parties was that the applicants would be prejudiced as the respondents have disclosed these buyers after the applicants have filed their application and the applicants not being aware of their existence and not having impleaded them in the application would have no recourse against these third party entities.

Judgment

The High Court in this appeal decided only to look into 2 issues :-

1) Whether third parties/non signatories to an agreement can be impleaded in a arbitral proceeding
2) When can a the challenge under Section 34 lie or whether rejection of an application for impleadment of parties constitute an interim award

On the first issue, the court observed that a bare reading of this provision, namely, second part of Order 1 Rule 10 sub-rule (2) CPC would clearly show that the necessary parties in a suit for specific performance of a contract for sale are the parties to the contract or if they are dead, their legal representatives as also a person who had purchased the contracted property from the vendor

It is now clear that two tests are to be satisfied for determining the question who is a necessary party. Tests are :-
  1. there must be a right to some relief against such party in respect of the controversies involved in the proceedings;
  2. no effective decree can be passed in the absence of such party.

As for the second question, the court observed 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 it must be with respect to an issue which constitutes a vital aspect of the dispute. As held in the case of Rhiti Sports (supra), the order passed by the arbitral tribunal would have the attributes of an interim award when same decides the ‘matters of moment’ or disposes of a substantive claim raised by the parties. 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.

It is important to bear in mind that every order passed by an arbitral tribunal which may impact the final award does not result in an interim award. An award is like a judicial decree which not only determines the rights of the parties with regard to matters in issue but also gives the reasons for reaching such a determination. Therefore, an interim order passed by an arbitral tribunal at an interim stage has to be tested on these parameters before it can be said that it is in nature of an interim award.

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.

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