Fold or live hand???

I want to address a situation where three people were playing when the first person went all in with his chips and flop his cards. The second person called his hand and flop his cards up with enough chips left. That person did not see the third player had his cards down under both arms as he was helping arranging the chips in the pile without his knowledge. That third person claim the second person must fold his cards due to the error. The second person cards were face up on table, not down. Who is right and should this situation be handled?