Section 9 Courts lack jurisdiction to adjudicate third-party claims once an Arbitral Tribunal is constituted.

In brief

The question

1. Whether a Section 9 Court should continue exercising jurisdiction and entertaining third-party interventions once an Arbitral Tribunal has been constituted

The court held

The Court disposed of the Section 9 Petition and all 31 IAs

It also directed

All third-party IAs are rejected as the applicants lack privity to the DA

The "December 2017 Order" and the custody of deposited funds (approx. ₹11 crores) are referred to the Arbitral Tribunal, which must determine the "surplus" beyond the Society's needs within three months

The Developer is held to his undertaking to pay third-party decree-holders within 12 months of the release of funds

The private Court Commissioner is replaced by an official Registry Commissioner to facilitate a handover to the Tribunal

01Facts

The Petitioner Society entered into a Development Agreement (DA) in 2013 with the Respondent Developer for property redevelopment

¶ 2-3

Following defaults in rent and construction, the Society filed a Section 9 petition in 2017, resulting in a "December 2017 Order" that attached the Developer’s personal assets and restrained them from creating third-party rights in any of their projects

¶ 4-5, 30-32

Over the years, 31 Interim Applications (IAs) were filed by third-party decree-holders, allottees from unrelated projects, and the Developer's family members, seeking intervention or release of funds

¶ 1, 11-14

An Arbitral Tribunal was finally constituted in September 2024, and a Section 17 order was passed in February 2026 regarding the same subject matter

¶ 5-7

02Issues

i.1. Whether a Section 9 Court should continue exercising jurisdiction and entertaining third-party interventions once an Arbitral Tribunal has been constituted

¶ 22, 25

ii.2. Whether third parties (decree-holders and allottees of unrelated projects) have the standing to intervene in Section 9 proceedings arising from a specific arbitration agreement

¶ 27-28

iii.3. Whether the restrictive "December 2017 Order" should be modified or referred to the Arbitral Tribunal for reconsideration

¶ 34-39

03Law Applied

Section 9 is intended for the "preservation and protection" of the subject matter of the arbitration agreement

¶ 19

Per Section 2(1)(h), a "party" is limited to those seeking relief under the arbitration agreement

¶ 20

The court applied the "veritable parties" doctrine as established in Cox and Kings Ltd. v. SAP India (P) Ltd. and ASF Buildtech Pvt. Ltd. v. Shapoorji Pallonji, requiring a non-signatory to show proximity, consent, or a de facto connection to the dispute to be joined

¶ 27-28

Under Section 9(3), once a tribunal is constituted, the Court shall not entertain applications unless Section 17 is inefficacious

¶ 19, 22

Provisions in the judgment · 7 · Linked ones open on LawLens

Arbitration and Conciliation Act, 1996 Section 2 Section 9 Section 11 Section 17 Section 21 Section 36 Section 37

04Reasoning

The Court reasoned that Section 9 is not a "standalone equity jurisdiction" but is tethered to the arbitration agreement

¶ 21

Since a Tribunal is now constituted and has passed a Section 17 order, the Section 9 proceedings must end to respect the "rule of law"

¶ 24-25

Regarding third-party Applicants, the Court held they lacked privity; being a creditor of a developer does not make one a "veritable party" to an arbitration agreement in a bilateral contract

¶ 28, 49

The Court found it "impermissible" for a Section 9 Court to conduct mini-trials or auctions for assets (like the Mahul Property) involving third-party claims

¶ 56

Furthermore, continuing a blanket injunction (December 2017 Order) over all of the Developer's projects for nearly a decade was deemed a matter for the Tribunal to reassess based solely on the Society's specific claims in the Statement of Claim (SOC)

¶ 34-37