Bombay HC Dismisses Appeal Against Order U/S 9 Of Arbitration Act Injuncting Owner Of Kapani Resorts From Disposing Of Interest In Properties

The Bombay High Court bench of Chief Justice Alok Aradhe And Justice M. S. Karnik has upheld the order passed by the Single Judge under Section 9 of the Arbitration and Conciliation Act, 1996 (Arbitration Act), injuncting the owner of the Kailash property and Kapani Resorts from alienating or disposing of any interest in the properties until the completion of the arbitral proceedings. Brief Facts: The present appeal under Section 37 of the Arbitration Act has been filed against an order passed by the Single Judge under Section 9 of the Arbitration Act, by which the Single Judge had injuncted the owner of Kapani Resorts from alienating or disposing of the property in any manner until the completion of the arbitration proceedings. It was also held that the Arbitral Tribunal would have the authority to vary or modify these measures after considering the merits. The Appellants (Respondents before the Single Judge) and the Respondent (Manmohan) are shareholders of Kapani Resorts, holding 19%, 51%, and 13% of the shares, respectively. Manmohan was initially allotted 13% of the shares in Kapani Resorts on 26.05.2021. On 11.02.2022, a Share Subscription and Shareholders Agreement was signed, under which Manmohan agreed to infuse INR 7,50,00,000 (USD 1 million) into Kapani Resorts in two tranches, in return for 51,72,412 Class B equity shares, increasing his shareholding from 13% to 51%. Contentions: The Appellant submitted that Manmohan having pursued the remedy before National Company Law Tribunal (NCLT), he simultaneously approached this Court through the aforesaid Arbitration Petition to initiate the same subject matter, which is impermissible. It was further submitted that despite being aware of the pendency of the suit before the Civil Judge, Manali, H.P., Manmohan did not disclose this fact while filing Arbitration Petition and suppressed the material fact from this Court. Subsequently, Manmohan withdrew the petition and continued proceedings before this Court effectively engaging in forum shopping. It was further contended that the Single Judge had no jurisdiction to adjudicate the Arbitration Petition, as disputes between the parties are shareholder disputes governed by Sections 241-242 of the Companies Act, 2013. The Single Judge in granting interim reliefs that hold the field until completion of arbitral proceedings has encroached upon the jurisdiction of the arbitral tribunal under Section 17 of the Arbitration Act. Per contra, the Respondent submitted that there is no reason to interfere with the impugned order under Section 37(1)(b) of the Arbitration Act, as the Learned Single Judge has implemented necessary measures to protect Manmohan's interests during the pendency of the arbitration. Observations: The court at the outset noted that Manmohan infused the sum of INR 7,50,00,000/ which was utilised for meeting the obligations owed by Kapani Resorts under the OTS with SIDBI. The shares admittedly were not allotted to Manmohan in terms of the agreement. The court further noted that the order dated 24.11.2022 passed by the NCLT, Chandigarh, directed the maintenance of the status quo regarding the shareholding pattern. It recorded Manmohan's grievance that despite his payment, Kapani Resorts had not issued the shares. It further added that prima facie, the Appellants' stance appears not bona fide, as they utilized Manmohan's investment but failed to allot any shares to him. Had Manmohan been issued 51% shares, control of Kapani Resorts would have shifted to him, undermining the control previously held by Virendra and Vaibhav. The Appellants made no attempt to allot shares equivalent to Manmohan's entitlement, and their explanation is implausible. The court further opined that the scope of Section 9 of the Arbitration Act is broad, granting the Court discretion to issue a wide range of interim measures "as may appear to the Court to be just and convenient." It further held that however, this discretion must be exercised judiciously, not arbitrarily. While the Court is guided by principles typically used by Civil Courts for considering interim relief, such as Order 39 Rules 1 and 2 and Order 38 Rule 5, it is not strictly bound by these provisions. The Bombay High Court in Nimbus Communication Limited v. Board of Control for Cricket in India & Anr. held that while exercising powers under Section 9, the Court must consider the underlying purpose of promoting the efficacy of arbitration as a form of dispute resolution. Based on the above, the court observed that as noted by the Single Judge, Manmohan withdrew the proceedings from the NCLT, and there are no parallel oppression and mismanagement proceedings pending in the NCLT. Virendra and Vaibhav, who manage Kapani Resorts, were personally liable to repay the debts owed by the company to SIDBI. Agreeing with the Single Judge, the court...

Bombay HC Dismisses Appeal Against Order U/S 9 Of Arbitration Act Injuncting Owner Of Kapani Resorts From Disposing Of Interest In Properties

Mohd Malik Chauhan

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