Appeal Not Maintainable Against Arbitral Tribunal's Impleadment Order: Bombay High Court

The Bombay High Court on 8 April, held that an order allowing impleadment of parties cannot be challenged in appeal under Section 37 of the Arbitration and Conciliation Act, 1996 merely because the Arbitral Tribunal passed it under Section 17, which empowers the Tribunal to issue interim and procedural orders during arbitration to manage the proceedings and grant temporary reliefs.

A Bench of Justice Somasekhar Sundaresan clarified that Section 37 contains an exhaustive list of appealable orders, and procedural directions such as joinder of parties do not fall within its scope. He observed:

“Ordinarily, an order of impleadment which is part and parcel of procedural directions and indeed even affecting substantive rights of the parties owing to joinder being allowed, would not be appealable under Section 37(2)(b) of the Act. The jurisdiction under Section 37 is one that entails an exhaustive listing of permissible appeals, which are a creature of statute. Impleadment of a party would not constitute an interlocutory protective measure as envisaged under Section 17 of the Act.”

The dispute arose out of a Limited Liability Partnership (LLP) agreement executed in 2014 and amended in 2015 concerning control and management of the entity between the partners.

One partner, Raju, created a trust and transferred the beneficial interest in his LLP share to the trust while retaining legal ownership. Years later, Mayank, the opposing party, contended that this arrangement resulted in cessation of Raju's partnership rights.

During arbitration, Raju sought impleadment of trustees, including himself in his capacity as trustee, as co-claimants. The Arbitral Tribunal allowed the application under Section 17 as a precautionary measure.

The appellant challenged the order, arguing that the Tribunal lacked jurisdiction to implead third parties and that an order passed under Section 17 was appealable under Section 37 of the Act.

The respondents opposed the plea, submitting that the order was procedural in nature and that the trustees were not strangers but persons deriving rights through Raju.

The Court found that Raju continued as the legal owner of the LLP interest and that the trustees derived their status from him. It held that the impleadment did not introduce any independent third party into the arbitration. It further observed:

“the Trust being the characterization and name of a contractual relationship – the relationship between the trustee and the beneficiary in connection with the trust property – is not a legal entity at all, for it to have capacity to sue and be sued. Raju, in his capacity as a trustee of the Trust is being permitted to be added out of abundant caution to deal with Mayank's contention about Raju's partnership having ceased, which too has been protected against already by the Learned Arbitral Tribunal.”

The Court also held:

“this is not even a case of a “joinder” of a third party but a purported joinder of none other than a person who is already a party to the arbitration agreement and is actively involved in the arbitration proceedings. Therefore, even treating the Impugned Order as an interlocutory measure of protection rather than a conventional order on joinder i.e. even treating the challenge as being maintainable, in my opinion the challenge is totally devoid of merit.”

The Court clarified that a trust does not constitute a separate legal entity and only represents a fiduciary relationship between trustee and beneficiary. Therefore, impleadment of trustees did not expand the scope of arbitration proceedings.

Accordingly, the High Court dismissed the appeal.

For Petitioner: Advocates Sanjay Jain a/w Hrushi Narvekar, Parag Kabadi, Drishti Gudhaka, Vidhi Porwal, iinstructed by OSK Legal