No “Shadow Parties”: Closing The Attendance Loophole In Indian Arbitration

CCL NLUO
Sep 12
6 min read

Associate at Chambers of AOR Deepak Joshi

I. Introduction

Indian arbitration has long wrestled with a well-intentioned but unsound idea: letting non-signatories affiliates, family stakeholders, lenders or funders “sit in” on hearings for transparency. The Supreme Court has now closed that door. In Kamal Gupta & Anr. v. L.R. Builders Pvt. Ltd. & Anr., 2025 SCC OnLine SC 1691, the Court holds: (i) a non-signatory has no right to attend arbitral proceedings; and (ii) once a sole arbitrator is appointed under Section 11(6), the court is functus officio and cannot issue further directions. Sections 2(1)(h) and Section 35 tie presence to privity; any attempt to bind or resist as a non-signer must be tested at enforcement under Section 36 not during hearings.

Section 42A elevates confidentiality from mere courtesy to a statutory mandate, Permitting non-participant observers to attend arbitral hearings would breach the obligations imposed on the tribunal, the administering institution, and the parties. Read with Section 5’s minimal-intervention principle, this confirms that once a tribunal is constituted and seized of the reference, courts do not supervise hearing management through inherent powers; the Act is a self-contained code except where it expressly provides otherwise. In practice, tribunals should decline observer requests and record participation limits in procedural orders. Counsel should design the reporting framework and confidentiality undertakings (including NDAs), recognising that access to documents does not entail access to hearings. The tribunal should also prescribe how any related or subsequent proceedings will be managed to preserve confidentiality. No “shadow parties” belong in the hearing room: that is the bright-line rule.

II. The “Shadow Problem”: Why It Matters

Commercial reality often produces affiliates, family stakeholders, lenders or funders with a genuine economic interest but who are not parties to the arbitration agreement. Requests to let such non-signatories “sit in” blur the boundary between interest and party status, dilute party autonomy, and erode confidentiality. Section 42A imposes a statutory duty of confidentiality on the arbitrator, the administering institution, and the parties across “all arbitral proceedings.” The Supreme Court has made the consequence plain: admitting a stranger into the hearing room would breach Section 42A. Because the Act places confidentiality obligations on identified actors, it necessarily excludes non-parties from attendance. See Kamal Gupta & Anr. v. L.R. Builders Pvt. Ltd. & Anr. (supra) non-party attendance would violate Section 42A confidentiality, and Cheran Properties Ltd. v. Kasturi & Sons Ltd., (2018) 16 SCC 413 Section 35 binds parties and persons “claiming through or under” them mere stakeholders do not acquire audience rights.

III. Factual Backdrop

A family settlement between Pawan Gupta (“PG”) and Kamal Gupta (“KG”) was allegedly reduced to an MoU/Family Settlement Deed dated 9 July 2019. Rahul Gupta (“RG”), KG’s son, did not sign the MoU/FSD. PG moved under Section 11(6) to appoint a sole arbitrator and also filed a Section 9 petition; RG sought to intervene as a non-signatory in both. On 22 March 2024, the High Court (i) appointed a sole arbitrator; (ii) directed that the Section 9 petition be treated as a Section 17 application before the tribunal; and (iii) dismissed the intervention pleas. Both matters stood disposed of.

Months later, non-signatory entities through RG moved fresh applications in the disposed Section 11(6) file seeking permission to be present in the arbitration, access to pleadings and orders, and other directions; on 7 August 2024, the Single Judge permitted their presence and, by 12 November 2024, made that permission absolute while issuing property-related directions. The signatory parties appealed.

The Supreme Court allowed the appeals: a non-signatory cannot attend arbitral proceedings, and once a Section 11(6) appointment is made and the matter disposed, the court is functus officio and cannot grant fresh directions in that file.

IV. My Understanding From This Judgment

The judgment aligns three pillars privity, confidentiality, and minimal court intervention into one rule: attendance tracks party status. Sections 2(1)(h) and 35 confine participation to parties and those claiming through or under them; a non-signatory who does not claim under a signatory is a legal stranger and cannot “observe.” See Cheran Properties Ltd. v. Kasturi & Sons Ltd., (2018) 16 SCC 413 scope of “claiming through or under” at enforcement and Chloro Controls (I) Pvt. Ltd. v. Severn Trent Water Purification Inc., (2013) 1 SCC 641 foundation for binding some non-signatories in multi-agreement settings. These cases address binding, not any freestanding right of attendance.

Second, the Court rightly treats Section 42A as a hard constraint, not etiquette. Confidentiality is the predicate for candid advocacy, calibrated disclosure, and settlement exploration. If non-parties could sit in merely because they have commercial exposure, parties would self-censor, evidentiary presentation would be hobbled, and tribunals would be dragged into case management of people who cannot be sanctioned within the arbitral framework. The Court’s approach sensibly channels non-party concerns to the correct fora: (i) Section 17 protections between parties before the tribunal; (ii) independent civil remedies where maintainable; and (iii) objections at enforcement if an award is ever pressed against the non-signatory.

Third, treating the Act as a self-contained code has concrete consequences. Once a sole arbitrator is appointed under Section 11(6), the court is functus officio; Section 5’s negative mandate forecloses supervisory tinkering unless Part I expressly permits it, and resort to Section 151 CPC after disposal is statute-avoidance, not gap-filling. “Observer” directions post-Section 11 would recreate parallel managerial control, invite conflicting orders, and erode arbitral autonomy. Supreme Court referral jurisprudence points the same way: Vidya Drolia v. Durga Trading Corp., (2021) 2 SCC 1 (referral court applies a prima facie test; minimal interference); Indian Oil Corpn. Ltd. v. NCC Ltd., 2022 SCC OnLine SC 896; (bars like “excepted matters”/“accord and satisfaction” justify refusal only in clear cases); and DLF Home Developers Ltd. v. Rajapura Homes (P) Ltd., 2021 SCC OnLine SC 781; (choice of clause in composite transactions remains a narrow Section 11 remit). Hence, no room for post-appointment “observer” orders.

Fourth, the ruling avoids conflating joinder/binding doctrines with attendance. Whether a non-signatory may be compelled to arbitrate (e.g., claiming under, carefully scrutinised group-of-companies scenarios) is a different inquiry from who may be in the room. Even where joinder is refused, parties can lawfully share information through contractual reporting covenants and confidentiality undertakings without breaching Section 42A or compromising the integrity of hearings. See Cox & Kings Ltd. v. SAP India Pvt. Ltd., 2023 SCC OnLine SC 1634;) Group-of-Companies doctrine is part of Indian law, anchored in Section7 of Arbitration & Conciliation act 1996 factors clarified

V. Way Forward

Draft for lawful visibility, not for observer passes

If commercial reality demands stakeholder visibility (e.g., lenders, parent companies), contract between the signatories for periodic reporting, redacted pleadings, or summarised updates under NDAs. Make it explicit that document access does not imply access to the proceedings; Section 42A’s confidentiality of “all arbitral proceedings” is non-derogable in the absence of party consent that itself does not offend the statute.

Encode confidentiality and attendance in Procedural order No.1

Tribunals should record a clear participation perimeter: only parties, counsel, tribunal, and agreed service providers (e.g., stenographers/interpreters) may attend; use named invitations, waiting rooms and attendance logs in virtual hearings. Where a non-party specialist assists a party, treat them as that party’s agent for a defined session, bound by a separate undertaking; default remains exclusion absent unanimous consent that does not undermine Section 42A.

Route non-party risk through the right windows

Perceived prejudice to a non-signatory (asset dissipation, collateral exposure) should be addressed by (i) Section 17 protections between the parties before the tribunal; (ii) independent civil proceedings where maintainable; and (iii) objections at enforcement if and when an award is pressed against the non-party. These are the avenues the judgment itself contemplates.

Respect functus officio after Section 11(6).

Treat the court as having completed its role once appointment is made and the file disposed. Fresh applications for attendance, access to pleadings, or case-management directions in that disposed file should be declined for want of jurisdiction; Section 151 CPC is not a back door. Keep case management with the tribunal unless Part I expressly provides otherwise; this is the precise boundary the Court polices.

Separate joinder from attendance.

If a non-signatory’s presence is indispensable, pursue joinder/consolidation on recognised legal grounds; do not bootstrap a supposed “right to observe.” Even where joinder is refused, your contractual reporting covenants can provide visibility without breaching Section 42A.

VI. Conclusion

The Court has closed the attendance loophole with a clear, bright-line rule: arbitration is a private, party-controlled process; strangers have no right to sit in. Attendance follows privity; confidentiality under Section 42A is substantive; and once an arbitrator is appointed, the court in that file is functus officio. Attempts to reopen disposed proceedings via inherent powers or to craft an “observer” category are jurisdictionally unsustainable and offend the statute. The practical response is not to bend procedure but to architect information-sharing between signatories and to channel all interim protection to the tribunal. That is the path the Act prescribes and that the Supreme Court has now reaffirmed.

Note: This article has been reviewed by Mr. Ketan Parikh (Senior Counsel, High Court of Bombay), at the Tier II Stage.