Section 9 Arbitration Act | Bombay HC Bars Third-Party Interim Relief Applications, Reaffirms Privity of Contract : Bombay HC

The Bombay High Court's judgment in Mulund Raviraj Co-Operative Housing Society Ltd. v. Rupji Constructions marks a significant clarification on the scope of Section 9 of the Arbitration and Conciliation Act, 1996. The Court disposed of a Section 9 petition alongside 31 interim applications, emphasizing that the jurisdiction under Section 9 is strictly limited to parties of the arbitration agreement and cannot be extended to third parties, even if they hold decrees or claims against the same developer.

Background & Facts

The Dispute

The petitioner, Mulund Raviraj Co-Operative Housing Society Ltd. ("Society"), entered into a Development Agreement (DA) dated May 2, 2013 with the respondent, M/s Rupji Constructions ("Developer"), a partnership firm. The DA contained an arbitration agreement, which formed the basis for the Section 9 Petition filed by the Society on October 6, 2017. The Society sought interim reliefs, including injunctions against creation of third-party rights, directions to pay statutory dues, and deposit of Rs. 7 crores.

Key Facts

• The Developer, represented by partners Late Mr. Madhukar Rupji and Mr. Tejal Rupji, defaulted on obligations under the DA, including payment of corpus amounts and transportation charges to the Society.
• The Developer had created third-party rights in nine flats despite the DA's restrictions.
• Both partners faced multiple arrests in connection with defaults in other projects, including Rupji Akansha (Ghatkopar) and Rupji Memories (Parel).
• A December 2017 Order attached various assets of the Developer, including cars, wristwatches, and properties, and restrained them from alienating assets or withdrawing funds without court permission.

Procedural History

• 06.10.2017: Section 9 Petition filed by the Society seeking interim reliefs.
• 14.12.2017: December 2017 Order passed, attaching assets and imposing wide-ranging restraints on the Developer.
• 02.09.2024: Arbitral Tribunal constituted under Section 11 of the Act.
• 17.01.2025: Statement of Claim (SOC) filed by the Society, seeking damages of Rs. ~18.65 crores and permanent restraint on the Developer.
• 23.08.2025: Section 17 Application filed by the Society, seeking reliefs similar to the Section 9 Petition.
• 04.02.2026: Section 17 Order passed by the Arbitral Tribunal.
• 2026: Section 37 Petition filed challenging the Section 17 Order, listed for subsequent hearing.
• 29.04.2026: Present judgment disposing of the Section 9 Petition and 31 interim applications.

The Parties' Positions

The Society sought preservation of the subject matter of the arbitration agreement and enforcement of the Developer's obligations under the DA. The Developer, through multiple interim applications, sought recall of the December 2017 Order, release of funds, and permission to monetize other projects. Third-party applicants, including decree-holders, flat purchasers, and family members of the Developer, sought intervention and release of funds from the amounts deposited in court.

Relief Sought

• Society: Permanent injunction against the Developer, damages of Rs. ~18.65 crores, and release of funds for property tax payments to MCGM.
• Developer: Recall of December 2017 Order, release of surplus funds, and permission to monetize other projects.
• Third-Party Applicants: Intervention in Section 9 proceedings and release of funds to satisfy decrees or refunds.

The Legal Issue

The central question was whether Section 9 of the Arbitration and Conciliation Act, 1996 permits third parties, who are not signatories to the arbitration agreement, to intervene in or seek relief from proceedings initiated under Section 9, particularly when such reliefs extend beyond the preservation of the subject matter of the arbitration agreement.

Arguments Presented

For the Petitioner (Society)

• The Society contended that the Section 9 jurisdiction is limited to parties of the arbitration agreement and is meant solely for preserving the subject matter of the arbitration.
• Third-party applicants, including decree-holders and flat purchasers, have no privity to the arbitration agreement and cannot seek relief under Section 9.
• The December 2017 Order was justified given the Developer's defaults and creation of third-party rights in violation of the DA.

For the Respondent (Developer)

• The Developer argued that the December 2017 Order was overly broad and counterproductive, stalling monetization of assets across all projects.
• The Developer sought recall of the December 2017 Order and release of surplus funds, committing to honor decrees held by third parties within 12 months.
• The Developer contended that the Section 9 jurisdiction should not be used as a tool for execution of decrees unrelated to the arbitration agreement.

For Third-Party Applicants

• Decree-Holders: Argued that the amounts deposited in court should be used to satisfy their decrees, as the Developer had committed to do so within 12 months.
• Flat Purchasers/Allottees: Sought intervention and refunds, claiming reliance on the Developer's promises and the protective orders passed in the Section 9 proceedings.
• Family Members: Sought release of funds for maintenance and ancestral property claims, arguing that the Developer's assets were being unjustly withheld.

The Court's Analysis

The Court conducted a detailed analysis of the Section 9 jurisdiction, emphasizing its equitable and interim nature, rooted in the Arbitration and Conciliation Act, 1996. Key principles established include:

1. Privity to Arbitration Agreement: The Court held that Section 9 jurisdiction is available only to "parties" as defined under Section 2(1)(h) of the Act, i.e., parties to the arbitration agreement. Third parties, even if they hold decrees or claims against the Developer, cannot invoke this jurisdiction unless they qualify as "veritable parties" to the arbitration agreement.

   "Access to this jurisdiction is available to a 'party', which is defined as a party to the arbitration agreement. The term 'party' is defined in Section 2(1)(h) of the Act as 'a party to an arbitration agreement'. Therefore, a person who may invoke the jurisdiction of the Section 9 Court must necessarily be a party to the arbitration agreement, under which arbitration proceedings are envisaged."

2. Purpose of Section 9: The Court reiterated that the Section 9 jurisdiction is meant to preserve and protect the subject matter of the arbitration agreement to enable meaningful arbitration proceedings. It is not a standalone equity jurisdiction but operates within the contours of the arbitration agreement.

   "The Section 9 jurisdiction is meant to empower the Court to preserve and protect the subject matter of the arbitration agreement to enable the arbitration proceedings to be meaningful. The jurisdiction is not a standalone equity jurisdiction but is an equity jurisdiction within the contours of the arbitration agreement."

3. Temporal Limits of Section 9: The Court noted that Section 9 reliefs are interim in nature and should ordinarily cease once an Arbitral Tribunal is constituted, unless the Court finds that the remedy under Section 17 is not efficacious. The Court emphasized that the Section 9 jurisdiction should not be used to conduct mini-trials or execution proceedings.

4. Veritable Parties: The Court relied on Supreme Court precedents, including Cox and Kings Ltd. v. SAP India (P) Ltd., ASF Buildtech Private Limited v. Shapoorji Pallonji and Company Private Limited, and Adavya Projects Pvt. Ltd. v. Vishal Structurals Pvt. Ltd., to define "veritable parties" as non-signatories who demonstrate:

   • Proximity to a signatory of the arbitration agreement;
   • Express or implied consent to be bound by the arbitration agreement; or
   • A de facto connection to the dispute, such as commonality of subject matter or control over a signatory.

   The Court held that none of the third-party applicants met this threshold.

5. Merger of Section 9 into Section 17: The Court observed that once the Arbitral Tribunal is constituted and passes orders under Section 17, the Section 9 proceedings merge into the Section 17 jurisdiction. The Court directed the Arbitral Tribunal to assess the surplus funds lying in court and release them to the Developer, subject to securing the Society's interests.

The Verdict

The Court disposed of the Section 9 Petition and all 31 interim applications with the following directions:

1. Dismissal of Third-Party Applications: All interim applications filed by third parties, including decree-holders, flat purchasers, and family members, were dismissed. The Court held that these parties have no privity to the arbitration agreement and cannot intervene in the Section 9 proceedings.

2. Liberty to Third Parties: Third-party applicants were granted liberty to pursue their claims in appropriate forums, such as execution courts or consumer forums, as applicable.

3. Directions to the Arbitral Tribunal: The Learned Arbitral Tribunal was directed to:

   • Assess the surplus funds lying in court and determine the amount required to secure the Society's interests under the DA, preferably within three months of the judgment.
   • Release any surplus funds to the Developer, subject to compliance with orders obtained by third parties in other forums.
   • Reconsider the December 2017 Order, including the restraints imposed on the Developer, and vary them if necessary, solely in the context of the arbitration agreement.

4. Developer's Undertaking: The Developer was directed to honor its undertaking to discharge amounts owed to decree-holders within 12 months of the Arbitral Tribunal's determination of surplus funds. Non-compliance would invite contempt proceedings.

5. Handover of Documents: The Learned Court Commissioner, Mr. Ketan Trivedi, was directed to hand over all documents and materials in his possession to a designated official of the Court within seven working days. Upon completion, Mr. Trivedi was awarded Rs. 2,50,000 as fees and costs.

6. Disbandment of Committee: The committee formed for the sale of the Mahul Property was disbanded, as the DA stood terminated and the Society had opted for self-development.

What This Means For Similar Cases

Jurisdiction Under Section 9 Is Strictly Limited to Parties of the Arbitration Agreement

• Privity Is Non-Negotiable: Practitioners must note that Section 9 jurisdiction is available only to parties of the arbitration agreement. Third parties, even if they hold decrees or claims against a party to the arbitration agreement, cannot seek relief under Section 9 unless they qualify as "veritable parties."
• No Execution or Mini-Trials: Courts will not entertain execution proceedings or mini-trials under Section 9. The jurisdiction is interim and protective, not adjudicatory.

Arbitral Tribunal's Role Post-Constitution

• Section 9 Merges into Section 17: Once an Arbitral Tribunal is constituted, the Section 9 jurisdiction ceases, and the Section 17 jurisdiction takes over. Courts will not continue to exercise Section 9 powers unless the remedy under Section 17 is found to be inefficacious.
• Surplus Funds Assessment: The Arbitral Tribunal must assess surplus funds lying in court and release them to the parties, subject to securing the interests of the parties to the arbitration agreement.

Third Parties Must Seek Remedies in Appropriate Forums

• Execution Proceedings: Decree-holders must pursue execution proceedings in the forums where their decrees were obtained. Section 9 cannot be used as a tool for execution.
• Limitation Periods: Third parties who bona fide pursued remedies under Section 9 will not be prejudiced in computing limitation periods for their claims in other forums.
• No Blanket Restraints: Courts will not impose blanket restraints on parties to an arbitration agreement for the benefit of third parties. Restraints must be commensurate with the subject matter of the arbitration agreement.