Karnataka High Court Rules That Writ Jurisdiction Cannot Decide Third-Party Rights in Arbitration Cases
In a significant ruling, the Karnataka High Court, comprising Justice Krishna S Dixit and Justice Ramachandra D. Huddar, has held that whether rights in favor of a third party based on sale deeds have been created in a property under arbitration cannot be adjudicated under writ jurisdiction.
Case Background
The case involved the "North Gardens Project," a real estate development at Chikkasagarahalli, Nandi Hills. The dispute arose between respondent No.1, the developer, and respondent No.2, the landowner/land aggregator. The petitioner, a third-party purchaser of plots within the project, challenged an interim order passed by the Arbitrator under Section 17 of the Arbitration and Conciliation Act, 1996.
The interim order restrained the developer from further selling plots in the project. This decision significantly impacted third-party purchasers, including the petitioner, who were neither informed nor given an opportunity to participate in the arbitration proceedings.
The petitioner contended that while the arbitration initially concerned a dispute between the respondents, it had evolved into a non-arbitrable matter due to the creation of third-party rights over the years. The petitioner’s counsel argued:
- The dispute had transformed into a matter in rem, affecting multiple third parties who were not bound by the arbitration agreement.
- The interim order had created uncertainty regarding the validity of the sale deeds executed in favor of third-party purchasers, including the petitioner.
- Matters involving third-party rights and non-arbitrable subjects should be adjudicated by a Civil Court rather than through arbitration.
- Continuation of arbitration proceedings in such cases would result in a denial of natural justice to third-party stakeholders, leaving them without an effective remedy.
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The respondents opposed the writ petition on multiple grounds, arguing that:
- The writ petition was not maintainable under Articles 226 and 227 of the Constitution of India, as it was based on disputed facts requiring in-depth evidence, which cannot be examined under writ jurisdiction.
- The petitioner had no statutory or constitutional right to maintain the petition, as his claims were based on alleged fabricated and unenforceable rights.
- The arbitration proceedings were being conducted as per orders passed by the Karnataka High Court in CMP.No.91/2019, dated 01.07.2021, and were under court supervision.
- The petitioner was aware of the arbitration proceedings and could not claim it was a private arrangement.
The High Court made crucial observations regarding the maintainability of the writ petition:
"The petitioner's challenge to arbitration proceedings is not maintainable under Articles 226 or 227 of the Constitution, as it involves disputed facts that require in-depth evidence and cannot be adjudicated in writ jurisdiction."
The court further noted that the petitioner failed to establish any statutory or constitutional rights that would justify interference under writ jurisdiction. The sale deeds executed between the petitioner and third parties were yet to be verified.
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Additionally, the court emphasized that the arbitration proceedings were under judicial supervision, and any challenge to the arbitral award could be filed under Section 34 of the Arbitration Act. If the petitioner wished to establish his rights, he could do so by filing a civil suit under Section 9 of the Civil Procedure Code (CPC).
Case Details
- Case Title: Mr. Ramu Nagabathini vs. Developer Group India Private Limited
- Case Number: Writ Petition No. 15658 Of 2024 (GM-RES)
- Judgment Date: March 5, 2025
- Petitioner's Counsel: Sri. Dhananjay V. Joshi (Senior Counsel) & Ms. Krutika Raghavan (Advocate)
- Respondents' Counsel: Sri. Prashanth V.G. (Advocate for R1) & Sri. C.M. Nagabhushan (Advocate for Sri. Ananda H.C. for R2)
