Third Parties Can Challenge Arbitral Interim Orders Affecting Their Rights: Bombay High Court

The Bombay High Court on 5 March held that third parties whose rights are directly affected by arbitral proceedings can challenge interim orders as veritable parties under the Arbitration and Conciliation Act, even if they are not signatories to the arbitration agreement.

Justice Somasekhar Sundaresan made the observation while hearing petitions by flat purchasers and legal heirs of Mohammed Ali M. Sali in a dispute over a 2009 Joint Development Agreement with Rajaram Chavan Real Estate Pvt. Ltd for redeveloping land in Kurla, Mumbai.

The Court observed:

“The other legal principle that would conceptually apply is the principle of such third parties vitally being affected by the proceedings being up for consideration as “veritable parties” by reason of their intricate involvement in the subject matter of the arbitral proceedings.”

The dispute arose after Mohammed Ali M. Sali sold several flats from his share of the free-sale component to purchasers through registered agreements executed in 2013–2014, following an Allocation Confirmation Letter dated 4 September 2013 identifying the flats within his entitlement.

Conflicts later emerged between Sali and Rajaram Chavan Real Estate over alleged outstanding dues and construction costs, leading to arbitration proceedings and interim orders maintaining a status quo over the flats.

The flat purchasers argued that, despite acquiring the flats through valid agreements, possession was withheld due to the ongoing arbitration between Sali and the developer.

The Court held that while such purchasers cannot invoke the arbitration agreement themselves, their legitimate rights cannot be adversely affected by interim arrangements between contracting parties. It emphasised that where third-party rights are substantially impacted, they must be heard and may challenge such orders under statutory remedies.

Accordingly, the Court allowed the petitions, holding that the rights of the flat purchasers could not be indefinitely withheld due to disputes between Mohammed Ali M. Sali and Rajaram Chavan Real Estate.

For Petitioners: Advocates E.A. Sasi, Tejas Shinde, Mutahhar Khan, Lokesh Zade

For Respondents: Senior Advocate Simil Purohit with Advocates Rishikesh Soni, Ashok Purohit & Co.