2025 (3) TMI 775 - SC - Indian Laws

Challenge to involvement of the second respondent in an arbitration agreement - HELD THAT - Under the agreement containing an arbitration clause M/s Pratibha Industries Limited was appointed as a contractor by the appellant for construction of a hospital consisting of 200 beds. M/s Pratibha Industries Limited has appointed the second respondent to do the electric work. Only because certain payment was directly made by the appellant to the second respondent it cannot be said that the second respondent becomes a beneficiary under the contract in which arbitration clause was provided. Therefore the High Court has committed an error. If the 2 second respondent has deposited any amount towards the cost of arbitration with the Delhi International Arbitration Centre on the second respondent furnishing proof of the payment the Delhi International Arbitration Centre shall refund the same to the second respondent - Application disposed off.

Summary

In the case before the Supreme Court of India, the appellant challenged the involvement of the second respondent in an arbitration agreement. The agreement, which included an arbitration clause, was originally between the appellant and M/s Pratibha Industries Limited for the construction of a hospital. M/s Pratibha Industries Limited subsequently appointed the second respondent to perform electrical work. The court found that the second respondent, not being a party to the original agreement, could not be considered a beneficiary of the arbitration clause simply due to direct payments made by the appellant. The Supreme Court concluded that the High Court erred in its judgment and thus set aside the impugned judgments, allowing the appeal. The court also noted that the second respondent's remedy remains open and ordered the refund of any arbitration costs deposited by the second respondent with the Delhi International Arbitration Centre upon proof of payment. Pending applications were disposed of.