Well Reasoned Interim Order Of Arbitral Tribunal, Courts Should Not Interfere Under Section 37 Of The A&C Act : Delhi HC

The bench of Justice Sachin Datta reiterated that as long as the arbitral tribunal has granted the interim relief to protect and preserve the subject matter of arbitration and balances the equities between the parties on consideration of prima facie case, balance of convenience and irreparable damage; the Court should not interfere with such orders. As Section 37 is not strictly like an appeal process. It held that the interference would only be permissible when the order is palpably arbitrary or unconscionable.

Facts

The respondents entered into a Joint Venture Agreement dated 30.08.2019 by way of which the Respondent Nos. 2-8 were to transfer the subject properties to an LLP to be incorporated by Respondent No.1 for development of the project. Pursuant thereto, the Respondent No.1 incorporated the LLP and paid to a total sum of Rs. 10,50,000/- as a part consideration thereof. In terms of the JVA, the sale deed in favour of the LLP were to be executed by 31.12.2019.

However, a dispute arose between the parties on the alleged failure of the Respondent Nos. 2-8 to execute the sale deed. Accordingly, the Respondent No.1 invoked the dispute resolution clause and issued a notice for amicable settlement, however, upon the failure of the parties to amicable settle the dispute, Respondent No.1 issued a notice of arbitration and on failure of the parties to mutually appoint the arbitrator, the Respondent No.1 approached the Court under Section 11 of the A&C Act for the appointment of arbitrator.

However, in the interregnum, the Respondent Nos. 2-8 executed two sale deeds for the subject property in favour of the appellant. Consequently, the Respondent No.1 filed an application under Section 9 of the Act seeking interim measures requesting the Court to direct the Court to maintain the status quo. The Court appointed the arbitrator in the Section 11 petition and directed the Respondent No. 1 to seek the interim relief before the arbitral tribunal.

The arbitral tribunal vide the impugned order dated 09.06.2022 granted the interim relief sought by the Respondent No.1 and directed the respondent no. 2-8 not to create any third-party rights in the subject property and the appellant to maintain the status quo. Aggrieved by the impugned order, the appellant filed an appeal under Section 37 of the Act.

Contention of the Parties

The appellant challenged the impugned order on the following grounds:

• That the is a bonafide purchaser with consideration and has invested a huge amount in carrying out development/construction on the property in question.
• The respondent no.1 belatedly invoked the arbitration clause as incorporated in the Joint Venture Agreement dated 30.08.2009. However, even after filing the petition under Section 11 of the Act on 07.03.2020, no steps were taken by the respondent no.1 to effect service on the respondent nos.2 to 8. It was contended that the sale deeds in favour of the appellant were executed on 19.03.2020 and 11.06.2020, i.e. prior to the service being affected of the Section 11 petition on the respondent nos.2 to 8.
• The petition under Section 9 of the Act was filed by the respondent no.1 almost after two years from 31.12.2019 i.e. the date set out in the Joint Venture Agreement for transfer of the property to the newly incorporated LLP.
• The Joint Venture Agreement is not capable of specific performance at all since it is in the nature of an agreement to enter into a partnership. It was submitted that the legal position is settled that such an agreement can never be specifically be enforced.

Analysis by the Court

The Court observed that the tribunal has considered all the grievances of the appellant/respondents nos. 2-8 in minute details and arrived at the finding that the respondent no. 1 has without any delay taken action and there were no lapses on its part as contended by the appellant. The Court observed that the respondent nos. 2-8 executed the sale deeds in favour of the appellant after the respondent no.1 had already issued the notice of arbitration and filed the Section 11 petition upon which the Court had already issued notice. Further, it held that the tribunal has rightly recorded that the respondent diverted with the subject property during the pendency of litigation between the parties, therefore, there was no infirmity in the finding of the tribunal in this regard.

The Court also did not find any infirmity in the finding of the tribunal regarding collusion between the appellant and respondent nos. 2-8 as the respondent nos. 2-8 concealed the fact regarding the transfer of subject property from the Court in its reply to Section 11 petition.

The Court also held that the tribunal was correct in holding that if the interim protection was not granted to the Respondent No.1, the main relief sought by the Respondent No.1 in the arbitration proceedings would be rendered infructuous. It further observed that the Arbitrator has clarified in the impugned order itself that all the observations made therein are prima facie and shall not operate to the prejudice of any of the parties at any subsequent stage of proceeding. The entire matter is still at large before the arbitrator, therefore, right of the appellant and the respondent nos. 2-8 have not been foreclosed by the tribunal.

The Court observed that the findings rendered by the tribunal in the impugned order are based upon the examination of the material facts and are unquestionable. It held that the Court under Section 37 of the A&C Act should not interfere with a reasoned order of the tribunal granting interim relief based on thorough examination of the matter.

The Court reiterated that as long as the arbitral tribunal has granted the interim relief to protect and preserve the subject matter of arbitration and balances the equities between the parties on consideration of prima facie case, balance of convenience and irreparable damage; the Court should not interfere with such orders. As Section 37 is not strictly like an appeal process. It held that the interference would only be permissible when the order is palpably arbitrary or unconscionable.

Accordingly, the Court affirmed the impugned order and dismissed the appeal.

Case Details: GLS FOILS PRODUCTS PVT. LTD V. FWS TURNIT LOGISTIC PARK LLP

Citation: 2023 LiveLaw (Del) 598

DATE: 10.07.2023

COUNSEL FOR THE APPELLANT: Mr. Divyjot Singh with Ms. Avsi Malik, Advs.

COUNSEL FOR THE RESPONDENTS: Mr. Chetan Sharma, ASG with Mr.R. V. Prabhat, Mr. Vinay Yadav, Mr.Amit Gupta and Mr. Vikramaditya Singh, Advs. for R-1. Mr. Kshitij Maheshwari and Mr. Divyank Yadav, Advs. for R-2 to 8.

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