Apex Court Upholds Confidentiality Under Section 42A
The Supreme Court of India has ruled that individuals who are not signatories to an arbitration agreement cannot attend arbitral proceedings. The Bench of Justice PS Narasimha and Justice AS Chandurkar held that a non-signatory is a “stranger” to the arbitration process, and allowing such participation would be a course “unknown to law.”
The Court emphasised that Section 42A of the Arbitration and Conciliation Act, 1996 mandates confidentiality in arbitral proceedings. Permitting outsiders to observe proceedings would violate this statutory requirement and undermine the legislative intent behind confidentiality in arbitration.
Case Background: Kamal Gupta & Anr. v. M/s L.R. Builders Pvt. Ltd. & Anr.
The matter arose from a family dispute between Pawan Gupta and Kamal Gupta, formalised through a Memorandum of Understanding/Family Settlement Deed (MoU/FSD) in July 2019. Rahul Gupta, son of Kamal Gupta, was not a party to this agreement.
In 2015, Pawan Gupta and another party sought the appointment of a sole arbitrator under Section 11(6) of the Arbitration Act. Rahul Gupta attempted to intervene but was denied by the Delhi High Court in March 2024. Later, in August 2024, Rahul Gupta and several non-signatory companies filed fresh applications to attend arbitration hearings, access records, and revive intervention pleas.
The Delhi High Court allowed them to be present during the arbitration, making its order absolute in November 2024. This prompted Pawan Gupta and Kamal Gupta to move the Supreme Court, challenging the decision.
Supreme Court’s Findings
The apex court ruled that once an arbitrator is appointed under Section 11(6), the appointing court becomes functus officio and cannot issue further directions regarding the arbitration. The Court stated that Section 35 binds arbitral awards only on the parties to the agreement and those claiming under them, leaving no legal ground to include non-signatories.
The Bench criticised the High Court’s reliance on Section 151 of the Code of Civil Procedure (CPC), reiterating that the Arbitration Act is a self-contained code and Section 5 restricts judicial interference. The Court imposed costs of ₹3 lakh on the respondents, payable to the Supreme Court Advocates-on-Record Association.
Key Legal Principles Reiterated
- Confidentiality in Arbitration – Section 42A requires all parties, arbitrators, and arbitral institutions to maintain confidentiality of proceedings.
- Non-Signatories as Strangers – Those not bound by the arbitration agreement cannot attend or influence proceedings.
- Judicial Restraint – Section 5 limits court intervention to specific provisions within the Act.
- Finality of Appointment – Once a sole arbitrator is appointed, the court’s role under Section 11(6) ends.
Impact on Arbitration Practice in India
This ruling reinforces the principle of party autonomy and strengthens the confidentiality of arbitration in India. It serves as a warning to non-parties seeking to influence or monitor arbitration proceedings and clarifies procedural limits for courts after the appointment of an arbitrator.
