Third-party flat purchasers may challenge Section 17 interim orders under Section 37 if their interests are affected.

The Petitioners (Owner) and Respondent (Developer) entered into a Joint Development Agreement (JDA) in 2009 for property in Kurla

In 2013, via an Allocation Confirmation Letter, the Developer identified 16 "Subject Flats" as the Owner’s entitlement and 2 "Lien Flats" to be withheld for costs

The Owner sold the Subject Flats to third-party Flat Purchasers via registered agreements in 2013-14

In 2016, the Developer confirmed the Occupation Certificate status to the Owner for the benefit of these purchasers

However, following disputes over construction costs and an additional area for tenants, the Developer refused to hand over possession

In Section 9 proceedings in 2017, a consent status quo order was passed

The Arbitrator, in two Impugned Orders (2019 and 2022), refused to grant the Owner or Flat Purchasers possession, holding that the Owner’s precise liability could only be determined at the final stage and the Developer’s lien extended to the whole

The Owner and Flat Purchasers challenged these orders under Section 37 of the Arbitration and Conciliation Act, 1996

Whether third-party Flat Purchasers, who are not parties to the arbitration agreement, have the locus standi to challenge an interlocutory order under Section 37 if their vital interests are affected

Whether the Arbitral Tribunal was justified in maintaining a blanket status quo/lien over flats already sold to third parties with the Developer's prior consent, pending final adjudication of a monetary dispute

The court applied Section 37 and Section 17 of the Arbitration and Conciliation Act, 1996

It relied on Prabhat Steel Traders Pvt. Ltd. v. Excel Metal Processors Pvt. Ltd., which establishes that a third party aggrieved by an interim order that prejudices their right, title, or interest has the remedy of an appeal under Section 37

The court also invoked the principle from Girish Mulchand Mehta v. Mahesh S. Mehta, holding that Section 9 (and by extension Section 17) orders can affect third parties if the grant of relief is incidental to the subject matter of the arbitration

Additionally, the court applied the Wander Ltd. v. Antox India (P) Ltd. test for appellate interference in discretionary interlocutory orders, namely that interference is warranted if the lower forum’s view is perverse or arbitrary

The Court found the Arbitral Tribunal’s orders perverse because they ignored "vital and material evidence," specifically the 2013 Allocation Confirmation Letter and the 2016 OC Confirmation Letter, which proved the Developer had authorized the sale of the Subject Flats and restricted its lien to only two specific flats

The Court reasoned that while the Developer has a monetary claim for construction costs, this cannot be converted into an "unlimited security interest" over properties legitimately acquired by third parties with the Developer's tacit approval

The Court noted that the Developer’s claim is essentially a money claim (valued at approximately Rs. 5,000 per sq. ft. in the JDA) and that the Developer already holds substantial security

It further observed that equitable reliefs under Section 17 must not create "new inequities" for innocent third-party purchasers who are paying EMIs without possession

It held that Flat Purchasers have locus standi to file an appeal under Section 37

The Court directed: (a) Flat Purchasers to deposit balance consideration with the Court Receiver within four weeks; (b) the Developer to hand over keys to the Court Receiver; and (c) the Court Receiver to place Flat Purchasers in possession as "agents of the Receiver" without royalty

The deposited funds are to be kept in fixed deposits, abiding by the final Arbitral Award

The Petitions were disposed of with directions for the expedited completion of the arbitration