Strangers at the Gate: SC's Bright-Line Rule for Non-Signatories and their Rights in Arbitration

[Vidhanshu and Raman are students at National Forensic Sciences University, Gandhinagar, and Dr Ram Manohar Lohiya National Law University, respectively.]

The Hon’ble Supreme Court’s recent ruling in Kamal Gupta and Another v. LR Builders Private Limited and Another (Kamal Gupta) is an important precedent that defends the procedural sanctity of an arbitration proceeding against interference from non-signatory parties. Kamal Gupta sets a clear and straightforward rule for non-signatories in arbitration: if a person has not signed an arbitration agreement and is not considered a party, they are considered a “stranger” to the proceedings and have no right to be present in the arbitration proceedings. This judgment which is in furtherance of the principle expounded by the Constitution Bench in Cox and Kings Limited v. SAP India (Private) Limited (Cox and Kings), provides guidance to determine the rights of signatories as against non-signatories in an arbitration.

This article argues that the rule of exclusion established in Kamal Gupta is a direct concomitant and follow-up of the substantive principles settled in Cox and Kings. Firstly, the article examines the concept of “stranger” to an arbitration proceeding with no procedural rights. Further, it is demonstrated, through a four-part analysis, that the legal basis for this exclusionary rule originated from the Cox and Kings. Specifically, it is shown that Cox and Kings provides the necessary framework by:

a)      Defining “party” status through the lens of consent;

b)      Creating a difference between a “party” and a person “claiming through or under”;

c)       Defining the contours of the exercise of jurisdiction by the referral court; and

d)      Reinforcing the self-contained nature of the Arbitration Act.

In other words, the procedural distinction expounded in Kamal Gupta is not a standalone rule best understood as the procedural extension of the substantive legal framework established by Cox and Kings.

The Gatekeeper's Mandate: Procedural Finality in Kamal Gupta

The ruling in Kamal Gupta sets clear jurisdictional limits. It addresses two questions of critical importance to the integrity of the arbitral process: (i) whether a non-signatory may be permitted to be present in arbitration proceedings, and, (ii) whether a court retains any ancillary jurisdiction after appointing an arbitrator under Section 11(6) of the Arbitration and Conciliation Act 1996 (Arbitration Act)?

The case concerned Rahul Gupta (RG), a non-signatory to a family settlement deed. Having been denied impleadment  as a party, he was later granted the anomalous status of an observer by the Delhi High Court. However, the Supreme Court in appeal reversed the impugned order on three grounds. First, it held that a non-signatory who is not bound by the award under Section 35 is a “stranger” to the proceedings, and to permit their presence would be to “chart a course unknown to law”. The court held that such a person only possess remedy is under Section 36 if such award is sought to be enforced against them. Second, the court held that once the court’s function to refer parties to arbitration under Section 11 is complete, the court becomes functus officio, losing all jurisdiction to issue further directions; thereafter, any attempt to reopen closed proceedings is an “abuse of the process of law”. Third, it invoked the statutory duty of confidentiality under Section 42A of the Arbitration Act as a positive bar, holding that the presence of a stranger would constitute a legislative breach.

The Foundational Principle: How Cox and Kings Legitimizes Kamal Gupta Ruling

The idea behind Kamal Gupta does not stand in isolation. It is in furtherance of the substantive legal framework articulated by the Constitution Bench in Cox and Kings. The Kamal Gupta decision raises a crucial question: How do we know who is an “stranger” in the first place? The answer comes from the Constitution Bench in Cox and Kings, which provides the basis for the gatekeeper’s mandate, which in turn paves the way for Kamal Gupta.

Consent as the sole determinant of party status

The court in Cox and Kings affirmed that “consent forms the cornerstone of arbitration”. While acknowledging that consent can be implied from a non-signatory’s actions, the judgment set a high evidentiary threshold, requiring a non-signatory's “positive, direct, and substantial involvement in the negotiation, performance, or termination of the contract” to be considered a party. Further, the Constitution Bench’s observed that, “conduct of the non-signatory parties could be an indicator of their consent to be bound by the arbitration agreement;”.

This principle directly underpins the Kamal Gupta rationale. Since Cox and Kings defines the category of “party” so rigorously that any entity failing this test like RG lacks the requisite consensual link to the arbitration. Kamal Gupta’s refusal to grant such a stranger even the right of presence is a direct application of this principle. If there is no consent to be a party, there can be no ancillary rights derived from party status. Cox and Kings thus provides the substantive basis for the “stranger” designation in Kamal Gupta.

The Legal Distinction Between "Party" v/s "Claiming Through or Under"

The Constitution Bench in Cox and Kings created a sharp distinction between a “party” and a “person claiming through or under”, holding that the latter refers exclusively to derivative rights like those of an heir or an assignee, where one entity steps into the shoes of another. It was held that concept of “party” is distinct from the concept of “person claiming through or under” in arbitration. This distinction was crucial because the court had to overrule its previous decision in Chloro Controls. The court found that the approach in Chloro Controls was “erroneous”  for wrongly mixing up these two ideas. This correction forms the backbone of the new legal framework, and the doctrinal distinction serves as the legal foundation for the reasoning in Kamal Gupta.

The court in Kamal Gupta observed that since the intervenors/non-signatories were not parties to the memorandum of understanding / family settlement deed, the award would not bind them under Section 35, and therefore they could not be treated as “parties”. The legal basis for this finding is supplied by Cox and Kings. RG was neither a “party” by consent nor a claimant "through or under" by derivation. The legal framework, as clarified by the Constitution Bench, offers no third status. This designation as a “stranger” is therefore a precise legal conclusion.

The principle of judicial restraint and the limited scope of Section 11

Cox and Kings reinforced the principle of minimal judicial intervention by clarifying that the referral court's role under Sections 8 and 11 is confined to a prima facie examination of the existence of a valid arbitration agreement. The ultimate merits-based decision on a non-signatory's status is reserved for the arbitral tribunal under Section 16 (kompetenz-kompetenz).

“At the referral stage, the referral court should leave it for the arbitral tribunal to decide whether the non-signatory is bound by the arbitration agreement...” (emphasis supplied)

This principle of judicial restraint perfectly harmonizes with the functus officio finding in Kamal Gupta, which means that the referring court ceases to have jurisdiction after the completion of the referral stage under Section 11(6) of the Arbitration Act. If the court's jurisdiction is so limited at the initial referral stage, it makes sense that it possesses no residual jurisdiction after that stage is complete. Cox and Kings circumscribes the court's power at the beginning of the process; Kamal Gupta enforces that limit at its conclusion, ensuring the tribunal's primacy. The Kamal Gupta court's conclusion is a direct application of this logic:

“...the court did not have any further jurisdiction to entertain a fresh application... since the Court had become functus officio on the conclusion of the proceedings filed under Section 11(6) of the Act...”  (emphasis supplied)

Upholding the autonomy of the arbitral code

Kamal Gupta emphasizes that the Arbitration Act is a “self-contained code” and that even well-intentioned directions are invalid if they lack “statutory support”. This principle is implicitly supported by Cox and Kings. The entire effort of the Constitution Bench was to locate the group of companies doctrine within the existing statutory provisions, not as an independent equitable concept. It found the doctrine's source in a harmonious reading of the definition of “party” and “arbitration agreement” along with Section 7 of the Arbitration Act. This statute-based analysis reinforces the very self-contained nature of the law that the Kamal Gupta court relied upon to reject judicial innovation, such as the creation of a non-statutory "observer" status.

In conclusion, the two judgments work together as an integrated legal framework. Cox and Kings sets the substantive test for who can be included in an arbitration, while Kamal Gupta provides the procedural rule for who must be excluded. The latter judgment is a concrete application of the abstract legal principles of consent, party autonomy, and judicial restraint that were authoritatively settled by the Constitution Bench. Taken together, they present a coherent and fortified framework for handling non-signatories in Indian arbitration, balancing commercial pragmatism with unwavering procedural integrity. This marks a significant development of India's arbitration law, providing the doctrinal clarity essential for a leading international arbitration hub.