Arbitrator’s Direction For Disclosure Of Not Relevant Information Is An Order Under S. 19 And Not 17 Of Arbitration Act: Bombay High Court

The bench of Justice Bharati Dangre held that the power exercised by the Arbitrator in allowing the application filed by the claimant and in directing disclosure of the information submitted by the opposite party in the sealed envelope, is an order passed under Section 19 and not under Section 17 since power under Section 17 can only be exercised for protection of the subject matter of the dispute.

Section 19 of the A&C Act, which deals with determination of rules of procedure before the arbitral tribunal, provides under Sub Section (4) that the arbitral tribunal has the power to determine the admissibility, relevance, materiality and weight of any evidence.

The petitioner, Sara Chemicals and Consultants (SCC), who operates a research and development facility for lab and pilot trials entered into a Technology Development Service Agreement with the respondent/ claimaint, Deepak Nitrite Ltd, for developing cost effective technology for production of a chemical intermediate.

After some disagreements arose between the parties, the respondent, Deepak Nitrite, terminated the contract between the parties and invoked arbitration. Deepak Nitrite claimed that the trials conducted by the petitioner, Sara Chemicals, under the Agreement were unsuccessful and sought damages from it.

In a Section 9 petition filed by Deepak Nitrite, Sara Chemicals agreed to hand over possession of all the equipments purchased by it from the funds provided by the former Company.

At the time of tendering of evidence during the arbitral proceedings, Sara Chemicals, claiming confidentiality of the information, submitted a list to the Arbitrator in a sealed envelope, containing information regarding the said equiments/ components purchased by it. Since the claimant, Deepak Nitrite, was not provided a copy of the said list, it filed an application before the Arbitral Tribunal seeking a direction to Sara Chemicals to disclose the information that it had submitted to the Arbitrator.

The Sole Arbitrator passed an order holding that the claimant/ respondent, Deepak Nitrite, was entitled to disclosure of the information submitted by Sara Chemicals to the Arbitral Tribunal. The Sole Arbitrator further directed that the sealed envelope shall be opened in physical presence of the parties. The petitioner, Sara Chemicals, challenged the said order under Section 37 of the A&C Act by filing a petition before the Bombay High Court.

The respondent, Deepak Nitrite, raised a preliminary objection before the High Court disputing the maintainability of the petition. It contended that the order passed by the Arbitrator is not appealable under Section 37 as it is not a substantive order passed under Section 17 of the A&C Act.

In a direction issued by the High Court to the Sole Arbitrator to clarify whether the order was passed under Section 17 of the A&C Act or otherwise, the Sole Arbitrator clarified that the order was passed by invoking the powers vested in the Tribunal under Section 19 of the A&C Act.

Despite the clarification offered by the Arbitrator, the petitioner, Sara Chemicals, submitted that it is still open for the Court to examine whether the order falls within the purview of Section 17 or 19 of the A&C Act.

The Court noted that Section 37 of the A&C Act provides for appeal against the specified orders which includes an order granting or refusing to grant an interim measure under Section 17.

The bench concluded that the appeal is maintainable only if the said order is passed in the form of an order under Section 17 of the A&C Act by the Arbitral Tribunal.

Perusing the order of the Arbitral Tribunal, the Court reckoned that the claimant, Deepak Nitrite, was held entitled to the disclosure of the list/ information since there was no question of confidentiality involved in the information.

It further observed that the Tribunal had reckoned that the claim raised by the parties was in respect of the termination of the Technology Development Service Agreement and it never pertained to the Intellectual Property Rights in the said equipments.

The High Court added that in its counter claim, the petitioner, Sara Chemicals, had sought a declaration that the termination of the contract was wrongful. Further, it also claimed exclusive right, title and interest to the Intellectual Property in the process developed by it. However, the counterclaim raised by Sara Chemicals did not cover, right, title and interest in the equipment, nor was the same envisaged by the parties under the Agreement, the Court noted.

While concluding that the since the equipments/ components did not pertain to the subject matter of the arbitration nor was it a subject matter of the claim/counter claim before the Arbitral Tribunal, the Court held that there was no reason for the Tribunal to exercise its power under Section 17 to protect the same.

“Hence, no confidentiality was conferred upon SCC, as regards the components, which made the equipments nor it is a subject matter of the claim/counter claim before the Arbitral Tribunal and hence, there was no reason for the Tribunal protecting it, during pendency of proceedings before it, in exercise of it’s power u/s.17 of the Act,” it ruled.

“In the aforesaid circumstances, since the power u/s.17 can be exercised for protection of subject matter of the dispute before the Arbitrator, the Tribunal has rightly held that the power which has been exercised by him in allowing the application filed by the claimant, disclosing the contents of the components of the equipments, is an order passed u/s.19 and not u/s.17,” the bench held.

The Court thus concluded that since the order was passed under Section 19, which is not appealable, the petition under Section 37 of the A&C Act cannot be entertained against the said order. The Court thus dismissed the petition.

Case Title: Sara Chemicals and Consultants vs. Deepak Nitrite Ltd

Citation: 2023 LiveLaw (Bom) 139

Dated: 19.01.2023

Counsel for the Petitioner: Mr.Virendra Tulzapurkar with Ms.Alpana Ghone Karthik Somasundram, Ms.Khyati Mehrotra i/b Bharucha & Partners

Counsel for the Respondent: Mr.Sachin Mandlik with Ms.Kareena Tahilramani, Ms.Nishi Doshi i/b Mandlik & Partners

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