While Adjudicating On Challenges Against Arbitral Tribunals' Orders U/S 17 Of A&C Act, Court Not Strictly Bound By O.38 & O.39 CPC: Delhi HC

The Delhi High Court bench comprising Justice Prateek Jalan has held that in orders passed by the arbitral tribunal under Section 17 of the Arbitration and Conciliation Act, 1996, the court is not bound by the principles underlying Order XXXVIII and XXXIX of the Civil Procedure Code. The court observed that interference with such orders is limited to cases where the orders are "perverse or manifestly arbitrary." The court found no fault with the tribunal's reduction of the security amount and requirement of robust security and held that such security was an interim measure and not a final determination of liability. Brief Facts: The arbitration proceedings arose from a Research and Collaboration Agreement dated 01.07.2017 which was for 5 years (20 quarters). Under the agreement, quarterly royalty payments were to be made to the respondent for the sales of 'Covered Devices' sold by appellant. The appellant was ordered to pay Rs. 47.18 crores in an earlier arbitration. The award was challenged. During the pendency of the proceedings, the respondent filed a Section 9 petition to seek security of Rs.11.31 crore towards royalty for the 6th to 8th Quarters. The Section 9 petition was treated as a Section 17 application and disposed of by a consent order on 02.03.2020. Another Section 17 application was made for security relating to royalty for the 9th to 11th Quarters. On 10.01.2021, the tribunal directed the appellant to furnish security in the form of a cheque for the same amount as in the earlier order. The tribunal rejected the respondent's request to enhance the security amount and change in the nature of the security. The appellant filed the appeal under Section 37(2)(b) of the Act challenging the two orders passed by the arbitral tribunal. The first order (dated 26.05.2024) required the appellant to furnish security of Rs. 62.154 crores for the 12th to 20th quarters. The second order (dated 03.08.2024) rejected the appellant's offer of security in the form of a cheque and a corporate guarantee. The appellant was given 15 days to furnish robust security such as a bank guarantee. Contentions of the Appellant: The orders which enhanced the quantum of security and changed the form of security from a cheque to robust security were passed without regard to the principles underlying Order XXXVIII Rule 5 of CPC. The impugned orders were devoid of reason. Observations: On Scope of interference under Section 37(2)(b) The court observed that the scope of interference with orders under section 17 is limited. Interim orders passed by an arbitral tribunal can only be challenged if they are "perverse” or “manifestly arbitrary”. In this regard, the court referred to Dinesh Gupta v. Anand Gupta [2020 SCC OnLine Del 2099], where it was observed that: “The power of the arbitrator to direct the furnishing of security is not in question under sub-clause (b) of Section 17(1)(ii) of the 1996 Act. The arbitrator's decision to secure the amount in dispute is within the scope of his authority, and judicial interference is limited to instances where the arbitrator's decision is found to be in violation of the law or manifestly arbitrary.” The court also referred to Sanjay Arora v. Rajan Chadha [2021 SCC OnLine Del 4619], wherein the court had observed, “It is only where the order suffers from patent illegality or perversity that the court would interfere under Section 37(2)(b).” Application of Order XXXVIII Rule 5 of the CPC The court observed that the powers under Section 9 of the Act are broad in nature and not strictly bound by Order XXXVIII and XXXIX of CPC in Essar House (P) Ltd. v. Arcellor Mittal Nippon Steel India Ltd. [2022 SCC OnLine SC 1219] and Ajay Singh v. Kal Airways Private Limited [2017 SCC OnLine Del 8934]. The court noted that these provisions serve as valuable guiding principles. The court referred to Essar House, where it was elucidated: “If a strong prima facie case is made out and the balance of convenience is in favour of interim relief being granted, the Court exercising power under Section 9 of the Arbitration Act should not withhold relief on the mere technicality of absence of averments, incorporating the grounds for attachment before judgment under Order 38 Rule 5 of the CPC. Proof of actual attempts to deal with, remove or dispose of the property with a view to defeat or delay the realization of an impending arbitral award is not imperative for grant of relief under Section 9 of the Arbitration Act. A strong possibility of diminution of assets would suffice.” The court referred to Skypower Solar India (P) Ltd. v. Sterling and Wilson International FZE [2023 SCC OnLine Del 7240], where it was observed the Court is not strictly bound by the principles under Order 39 Rules 1 and 2 and Order 38 Rule 5 of the CPC, although guided by the same principles in...

While Adjudicating On Challenges Against Arbitral Tribunals' Orders U/S 17 Of A&C Act, Court Not Strictly Bound By O.38 & O.39 CPC: Delhi HC

Tazeen Ahmed

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