Bombay High Court Rules Against Including Non-Signatory in Arbitration Proceedings

Avvad Spaces LLP Exempted from Arbitration in Development Agreement Dispute Involving Mukesh Patel and Pant Nagar Ganesh Krupa Cooperative Housing Society

In a significant ruling, the Bombay High Court has determined that Avvad Spaces LLP cannot be included as a party in arbitration proceedings related to a Development Agreement dispute, originally signed between Mukesh Patel and Pant Nagar Ganesh Krupa Cooperative Housing Society. The judgment, delivered by Justice Somasekhar Sundaresan, emphasized the importance of consent in arbitration agreements and the limitations of including non-signatory parties.

The case arose when Mukesh Patel sought the appointment of an arbitral tribunal under Section 11 of the Arbitration and Conciliation Act, 1996, to resolve disputes arising from a Development Agreement dated October 15, 2010. The agreement, initially between Patel and the Pant Nagar Ganesh Krupa Cooperative Housing Society, was terminated in 2019. Patel contended that Avvad Spaces LLP, a subsequent developer appointed by the society, should be included in the arbitration as a "veritable party."

However, the court rejected this contention, clarifying that a non-signatory can only be considered a veritable party if there is a close connection or if the transaction is composite and interconnected with the original agreement. Justice Sundaresan stated that Avvad's involvement with the society through a separate agreement does not establish such a connection, nor does it transform Avvad into a veritable party under the existing arbitration agreement.

The court further elaborated on the principles governing the inclusion of non-signatories, referencing precedents such as the "group of companies" doctrine and the need for factual circumstances indicating a de facto privity. The judgment underscored that historical connections or subsequent agreements do not automatically confer arbitration agreement privity upon non-signatories.

Justice Sundaresan appointed a sole arbitrator to resolve disputes between Patel and the Merged Society, while excluding Avvad from the proceedings. Costs of Rs. 1.50 lakhs were assessed, to be shared among eligible members of the Merged Society.

Bottom Line:

Section 11 of Arbitration and Conciliation Act, 1996 - Non-signatory party to an arbitration agreement cannot be treated as a veritable party unless there is proximity or connection to the signatory parties or the transaction is composite and interconnected.

Statutory provision(s): Arbitration and Conciliation Act, 1996 Sections 11, 7; Specific Relief Act, 1963 Section 19(b)

M/s. Mukesh Patel v. Pant Nagar Ganesh Krupa Cooperative Housing Society Limited, (Bombay) : Law Finder Doc Id # 2796448