Arbitrators can’t decide civil rights of third person not part of dispute

Justice S M Subramaniam made this observation while dismissing the award of an Arbitral Tribunal in a dispute between the legal heirs of late V G Panneerdas over alienating or encumbering the properties of the partnership firms. The Arbitral tribunal had impleaded Shanthi Gnanasekaran, Panneerdas’s daughter as a party to the subject matter in dispute, while led to the present miscellaneous petition.

Justice SM Subramaniam said “the rights of all the legal heirs of late Panneerdas is a pure civil dispute and mixed question of facts and law, which cannot be adjudicated by the Arbitrator under the provisions of the Arbitration Act. Thus, such civil disputes cannot be entertained or adjudicated by the Arbitrator, who is otherwise empowered to decide the disputes between the parties to the Arbitration Agreement strictly within the ambit of the provisions of the Arbitration Act.”

Noting that Shanti Gnanasekaran has to work out her remedies for establishing her right under her parents by an independent suit and not through Arbitral Tribunal, the judge said “Alternative dispute resolution processes would not confer any power to the arbitrator to decide the civil rights of a third person, who is not a party to the arbitration agreement.”

Justice Subramaniam while holding that this Court has no hesitation in arriving a conclusion that the arbitrator has exercised excess jurisdiction beyond the scope of the provisions of the Arbitration Act as well as beyond the scope of the contracted arbitral proceedings, said “The Doctrine of No-Prejudice” cannot have any application with reference to the impleadment of a person in a dispute under the Arbitration Agreement within the ambit and provisions of the Arbitration Act, 1996.”

“The impact of the application of the said Doctrine would result in exercise of inherent powers of the Court of Law. Thus, the rights of a third person to an Arbitration Agreement cannot be adjudicated during the further or final hearing of the arbitral proceedings,” he added.