Summary of Opinion — Rajiv Sahai Endlaw, J.

Factual and Procedural Background

The petitioner is a bank which granted credit facilities to Respondent No. 1 (a company). Upon default by Respondent No. 1, the petitioner initiated recovery proceedings before the DRT, Mumbai, which were subsequently transferred to the DRT, Pune and culminated in an order and a Recovery Certificate in favour of the petitioner.

The petitioner alleges that Respondent No. 1 entered into an agreement with Respondent No. 2 (NRI Lead Bank) assigning its dues to Respondent No. 2, and that collusive arbitration proceedings were then commenced by Respondent No. 1 and Respondent No. 2 before the ADR Arbitral Tribunal (impleaded as Respondent No. 3). The ADR tribunal made an interim award dated 26 July 2002 directing restoration of status quo ante as on 14 May 2001 in respect of immovable property of Respondent No. 1. The petitioner contends that Respondents 1 and 2 have used that interim award to impede the petitioner's recovery proceedings before the DRT, Pune and its recovery officer.

The petitioner filed a petition under Section 34 of the Arbitration and Conciliation Act, 1996 seeking to set aside the said interim award. Respondent No. 2 filed a written statement asserting, inter alia, that the arbitral award had been filed in the Principal Civil Court of District Judge, Pune (thus this Court lacked jurisdiction) and that under Section 42 of the Act the court at Pune alone was entitled to entertain the petition; Respondent No. 2 also defended the award on merits. Respondent No. 1 was not served by ordinary process and was thereafter proceeded against by publication; no one appeared for Respondent No. 1 or Respondent No. 2 at the hearing and the respondents were proceeded against ex parte.

The record before the Court was incomplete with several annexures missing. The petitioner explained it was not a party to the arbitration and had produced only documents available to it. The Court noted that recovery proceedings were continuing and some monies had been recovered. The petitioner invoked the territorial jurisdiction of this Court on the ground that the arbitration was conducted by the ADR Arbitral Tribunal within this Court's territorial jurisdiction; the Court observed that the venue of arbitration does not alone determine the court within the meaning of the Act and noted that the plea under Section 42 of the Act raised by Respondent No. 2 remained unanswered.

Legal Issues Presented

1. Whether a third party, who was not a party to the arbitration agreement or the arbitration proceedings, can file a petition under Section 34 of the Arbitration and Conciliation Act, 1996 to challenge an arbitral award on the ground that the award affects that third party.
2. Whether this Court has territorial jurisdiction to entertain the petition in view of the rival contention that the award has been filed in Pune and that Section 42 of the Act designates the proper court.

Arguments of the Parties

Petitioner's Arguments

• The bank (petitioner) had granted credit facilities to Respondent No. 1 and obtained recovery in proceedings before the DRT, culminating in a Recovery Certificate.
• Respondent No. 1 allegedly assigned its dues in favour of Respondent No. 2 (NRI Lead Bank) by way of an agreement, purportedly illegally, to delay recovery proceedings.
• Collusive arbitration between Respondent No. 1 and Respondent No. 2 before ADR Arbitral Tribunal produced an interim award (dated 26 July 2002) which has been used to impede the petitioner's recovery proceedings.
• The petitioner sought to set aside the interim arbitral award under Section 34 of the Act. The petitioner invoked this Court's territorial jurisdiction on the ground that the arbitration proceedings were conducted by the ADR Arbitral Tribunal within this Court's territorial jurisdiction.
• The petitioner acknowledged it was not a party to the arbitration proceedings and that its documentary record was incomplete because it was not a party to that arbitration.

Respondent No. 2's Arguments

• The arbitral award had been filed in the Principal Civil Court of District Judge, Pune, and therefore this Court had no jurisdiction to entertain the petition.
• Under Section 42 of the Arbitration Act, 1996 the court at Pune alone was said to be entitled to entertain challenges to the award.
• On the merits, the award was justified.

Respondent No. 1

• Respondent No. 1 could not be served by ordinary process, was served by publication, and did not appear; no specific arguments from Respondent No. 1 are recorded in the opinion.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Chennai Container Terminal Pvt Ltd v. UOI, AIR 2007 Mad 325	Holds that Section 34 read with the definition of "party" in Section 2(1)(h) of the Arbitration Act makes it clear that only a party to the arbitration agreement can invoke Section 34; a third party has no locus standi to challenge the award under Section 34.	The Court relied on this authority to conclude that the petitioner, being admittedly not a party to the arbitration proceedings, could not maintain a petition under Section 34 and that the petition was not maintainable.
Florentine Estates Of India Limited…Decree-Holders/Petitioner v. Cref Finance Limited…Judgment Debtor/, 110 (2004) DLT 742	A Single Judge of this Court held that a third party cannot challenge an arbitral award under Section 34 (same legal effect as the Chennai Container Terminal decision).	The Court cited this decision as additional support for the proposition that a person who is not a party to the arbitration has no locus to challenge the award under Section 34, reinforcing the conclusion that the petition must be dismissed.

Court's Reasoning and Analysis

The Court first noted that the record before it was incomplete and that several annexures referred to in documents were missing; the petitioner explained this was because it was not a party to the arbitration and possessed only the documents made available to it.

Substantively, the Court identified a "technical objection" to the maintainability of the petition: Section 34 of the Arbitration Act can be invoked only by a party to the arbitration proceedings. The Court relied upon precedent (Chennai Container Terminal and Florentine Estates) holding that Section 34 read with the definition of "party" in Section 2(1)(h) confines the right to challenge an award under Section 34 to parties to the arbitration agreement; a third party lacks locus standi.

Although the Court observed that grave doubt could be cast on the conduct of the ADR Arbitral Tribunal from the averments on record, the Court held that the technical objection of maintainability prevailed. In consequence, the petition under Section 34 filed by the petitioner (who admitted not being a party to the arbitration) was not maintainable and therefore liable to be dismissed.

The Court also addressed the effect of the arbitral award on the petitioner's recovery proceedings: it recorded that the arbitral award to which the petitioner is not a party cannot determine or affect the petitioner's rights and cannot come in the way of execution of orders obtained by the petitioner by following due process of law against Respondent No. 1. Despite the Court's adverse comments about the arbitral tribunal's conduct, having held it lacked jurisdiction to entertain the petition, the Court refrained from taking further steps against the respondents.

Holding and Implications

Holding: The petition under Section 34 of the Arbitration and Conciliation Act, 1996 was held to be not maintainable and is disposed of/dismissed. The Court expressly disposed of the petition with the parties to bear their own costs.

Implications:

• The direct effect is that the petitioner (a third party to the arbitration) cannot challenge the arbitral award under Section 34 in this Court because it is not a party to the arbitration agreement or proceedings.
• The petitioner remains free to pursue the recovery proceedings pursuant to the Recovery Certificate and to execute orders obtained against Respondent No. 1 by following due process of law; the arbitral award, to which the petitioner is not a party, cannot determine or affect the petitioner's rights in that regard.
• The Court's decision was founded on existing authority interpreting Sections 2(1)(h) and 34 of the Arbitration Act; the Court refrained from further action concerning the arbitral tribunal despite noting concerning facts about the tribunal's conduct because of the jurisdictional/maintainability objection.

RAJIV SAHAI ENDLAW, J.